2016 Annual Report to Stockholders - Xplore Rugged Tablets · 2016 Annual Report to Stockholders - Xplore Rugged Tablets

2016 Annual Report to Stockholders

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒☒☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended March 31, 2016

or☐☐☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transaction period from to

Commission file number: 00-52697

XPLORE TECHNOLOGIES CORP.(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or

Organization)

26-0563295(IRS Employer Identification No.)

8601 RR 2222, Building II, Austin, Texas

(Address of Principal Executive Offices)78730

(Zip Code)

(512) 336-7797 (Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐(Do not check if a smaller reporting

company)

Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes ☐ No ☒

As of September 30, 2015, the aggregate market value of the common equity held by non-affiliates of the registrant was $49,516,644 based on the closing sale price of $5.30, as reported on the NASDAQ Capital Market.

As of June 10, 2016, the registrant had 10,908,355 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

Table of Contents

PART I 2Item 1. Business 2Item 1A. Risk Factors 13Item 1B. Unresolved Staff Comments 21Item 2. Properties 21Item 3. Legal Proceedings 21Item 4. Mine Safety Disclosures 21

PART II 22

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22Item 6. Selected Financial Data 22Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 22Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29Item 8. Financial Statements and Supplementary Data 29Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 29Item 9A. Controls and Procedures 29Item 9B. Other Information 30

PART III 31

Item 10. Directors, Executive Officers and Corporate Governance 31Item 11. Executive Compensation 33Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 41Item 13. Certain Relationships and Related Transactions, and Director Independence 43Item 14. Principal Accounting Fees and Services 44

PART IV 45

Item 15. Exhibits, Financial Statement Schedules 45

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Forward-Looking Statements

From time to time, we may provide information, whether orally or in writing, including certain statements in this Annual Report on Form 10-K, which are deemed to be “forward-looking” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Litigation Reform Act”). These forward- looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available.

The words “believe,” “plan,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “should” and similar expressions are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended or using other similar expressions. We do not intend to update these forward-looking statements, except as required by law.

In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this Annual Report on Form 10-K, any exhibits to this Annual Report on Form 10-K and other public statements we make. Such factors are discussed in the “Risk Factors” section of this Annual Report on Form 10-K. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company” and “Xplore” refer to Xplore Technologies Corp. and its wholly-owned subsidiaries.

PART I Item 1. Business Overview

We are engaged in the development, integration and marketing of rugged mobile personal computer systems, or PCs. Our rugged tablet PCs are designed to withstand hazardous conditions, such as extreme temperatures, driving rain, repeated vibrations, dirt, dust and concussive shocks. The intrinsically safe, ruggedized and reliable nature of our products facilitates the extension of traditional computing systems to a broader range of field personnel, including energy pipeline inspectors, public safety responders, warehouse workers and pharmaceutical scientists. Our tablets are fitted with a range of performance-matched accessories, including multiple docking solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard options, as well as traditional peripherals, such as keyboards and cases. Additionally, our most rugged tablets are waterproof for up to 30 minutes in water up to a depth of three feet, are impervious to drops from as high as seven feet, are readable in direct sunlight, can be mounted on vehicles and include LTE and Wi-Fi connectivity options for real-time data access. Our end user customers include major telecommunications companies, leading heavy equipment manufacturers, oil and gas production companies, the military and first responders.

Until 2014, we competed and derived our revenue through the sale of our iX104 tablets in a subset of the rugged PC market, given the larger size and ultra-rugged attributes of our iX104 product family, which weighs approximately 5.4 pounds. Since then, we have reduced our dependency upon the continued market acceptance of our iX104 systems by broadening the market for our products and increasing our opportunities for revenue growth. We have broadened our product offering, through development and acquisition, to include multiple fully-rugged and rugged tablets that are lighter weight and less expensive than our iX104 family of products. These new products have allowed us to compete in significantly larger segments of the rugged PC market. In 2014, we introduced our first fully-rugged, lighter weight Android tablet and Windows tablet, and in 2015 we completed the acquisition of certain assets of Motion Computing, Inc. and its subsidiaries, which we refer to herein as Motion, more fully discussed below. This acquisition expanded our product lines to include multiple additional rugged tablet products, and expanded our domestic and international customer base. We believe these lighter and less expensive tablets are ideal for field service applications and significantly more mobile market opportunities, as compared to our iX104.

Looking forward, our strategy is to build increased marketplace awareness of our product offerings, in an effort that we believe will enable us to increase our revenue and to expand our share of the markets addressed by those products.

We believe we are positioned for future revenue growth in the markets in which we compete. We have introduced a family of computers that, based upon third-party certifications, surpasses the performance standards and specifications that have been the accepted measuring sticks for rugged tablet computers in today’s marketplace.

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Our key initiatives for future revenue growth include the following:

• New product development—based on input from customer and key industry participants;

• Continued expansion of sales activities for the Motion line of products we acquired;

• The expansion of sales activities in non-U.S. markets, particularly in Europe;

• Continued penetration into the Fortune 500/Global 2000 markets;

• Establishment of key relationships with new distributors; and

• Expanded focus on military and public safety markets.

The timing of large orders, and the related shipping dates of the ordered products, creates variability in our reported revenues. While we may experience some variability in our quarterly operating results as a consequence of the impact of large orders, we believe that we will continue to grow our year-over-year revenues. Our revenue for the fiscal year ended March 31, 2016 was approximately 136% higher than the prior fiscal year.

We are a Delaware corporation and our common stock trades on The NASDAQ Capital Market under the symbol “XPLR.”

Recent Developments

On April 17, 2015, we completed the acquisition of certain of the assets of Motion. Pursuant to the terms of a Foreclosure Purchase and Sale Agreement with Motion and Square 1 Bank, Motion’s senior secured lender, our subsidiary, Xplore Technologies Corporation of America, purchased certain of Motion’s assets, including cash, cash equivalents, accounts receivable, inventory, equipment, personal property and other assets, which we refer to herein as the Motion Acquisition. The aggregate purchase price for the Motion assets we purchased was approximately $9 million, plus the assumption of approximately $8 million in certain liabilities, net of current assets, including certain accounts payable and obligations for service contracts and product warranties.

Also on April 17, 2015, in connection with the Motion Acquisition, our subsidiary entered into a Loan and Security Agreement with Square 1 Bank, pursuant to which Square 1 Bank provided us with formula and non-formula revolving loans for up to an aggregate amount of $15 million, which replaced our existing Accounts Receivable Purchase Agreement with DSCH Capital Partners, LLC d/b/a Far West Capital. The new facility with Square 1 Bank has a two year term, is secured by substantially all of our assets, and bears interest at the greater of the current prime lending rate plus 1.25% per annum or 4.5% per annum. The maximum amount of formula revolving loans outstanding at any one time cannot exceed the lesser of $15 million or 85% of our eligible accounts receivable. The maximum amount of non-formula loans outstanding at any time could not exceed $4 million through April 16, 2016, with the maximum allowable amount reducing by $480,000 increment every three months thereafter, until the maximum amount reaches $2.08 million, where it will remain until maturity. On April 17, 2015, we borrowed approximately $9 million under this facility to fund the cash portion of the purchase price for the Motion Acquisition.

In fiscal year 2016, we introduced two new products, the XSlate B10 and the XSlate D10, which was a replacement for our former RangerX product. Our products are described in detail below.

Products iX104 Product Family

We have spent more than a decade on research, development and product improvements with each generation of our iX104, achieving what we believe are a number of industry “firsts,” such as being the first manufacturer to incorporate dual-mode inputs with active pen and finger touch capabilities. Our signature iX104 computers have consistently been recognized for their ruggedness, versatility and best-in-class technologies. We believe that we pioneered, and continue to offer, the best outdoor-readable display and wLAN wireless solutions. Our specially designed Dual Mode Sunlight Readable screen is viewable in challenging lighting conditions, including direct sunlight and dimly-lit environments, from virtually any angle.

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Our iX104 product line consists of the following models, each developed for use in specific environments and applications: • iX104 DMSR—Dual-Mode Sunlight----Readable Tablet • iX104 DMSR LTE—Dual-Mode Sunlight----Readable Tablet with LTE

• iX104 DM—Dual-Mode Tablet

• iX104 DML—Dual-Mode Lite Tablet

• iX104 DMSR-M—Dual-Mode Sunlight-Readable Tan Military Tablet

• iX104 DMSR-M2—Dual-Mode Sunlight-Readable Military Tablet

• iX104 DMCR-—Dual-Mode Clean Room Tablet

We believe that our recent versions of the iX104 continued to introduce “industry firsts” and differentiating features. The iX104C product family includes a tool-less removable dual solid state drive (SSD) module, tool-less access to the SIM and MicroSD ports, and an ingress protection rating of IP 67 for submersion in water. The iX104C product family also features the Intel Core i7 processor and runs on both Windows 7 and 8 operating systems.

Our line of iX104 tablet PCs is designed to operate in challenging work environments, including extreme temperatures, constant vibrations, rain, blowing dirt

and dusty conditions. Our iX104 systems can be fitted with a wide range of performance matched accessories, including multiple docking station solutions, wireless connectivity alternatives, Global Positioning System (GPS) modules, biometric and smartcard modules, as well as traditional peripherals like keyboards, mice and cases.

Xslate B10

In September of 2015 we launched the Xslate B10 rugged tablet, which is targeted squarely at customers considering Panasonic’s most popular rugged tablet, the FX-G1. Built with unfailing protection in mind, the IP65 and MIL-STD-810G rated Xslate B10 rugged tablet endures even the most extreme work environments. It also doesn't compromise critical PC capabilities despite being only 2.4 lbs. The Xslate B10 offers superior standard I/O features, a unique set of peripherals, and greater environmental resiliency than the Panasonic FX-G1.

Like all of XPLORE’s products, environmental resiliency is a core strength of the XSLATE B10. Key features of the Xslate B10 include:

ö 10.1" display with sunlight-viewable chemically strengthened glass;ö Commonly used port connections sealed from behind;ö C1D2/ATEX compliant and tested to MIL-STD-810G and IP65 standards to ensure rugged computer mobility;ö Magnesium alloy midframe;ö Rugged accessories and peripherals resistant to the elements; andö Operation in bitter cold – as low as -34° C, with a cold start at -20° C.

The Xslate B10 also addresses customers’ requirements for more expansive and flexible I/O options, giving customers a standard unmatched by competitive products. No other rugged tablet PC can deliver at least eight ports that are available all the time. The customers can customize their I/O configurations to fit their unique workflow needs, without compromise, with the following options:

ö Built-in RJ 45, Micro SDXC, Micro HDMI-out, True Serial, 2 x USB 3.0 ports;ö Optional HDMI-In port;ö U-Blox GPS module;ö Barcode scanner;ö Built-in cameras;ö G2 office dock with six additional USB ports, plus DVI/VGA, HDMI DB9 serial ports and audio jacks;ö Wacom active pen and digitizer;ö Advanced touch mode application with glove touch and wet modes; andö A spill resistant companion keyboard that attaches directly to the device and offers additional screen protection when the product is not in use.

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No compromises were made on the performance and connectivity of this product. The Xslate B10 also features 4G LTE broadband and 802.11ac Wi-Fi access and 20 hours of operation with the hot-swappable battery option. The Xslate B10 is powered by the Intel Broadwell i5 CPU, comes standard with 8GB of RAM, a 128GB SSD and supports Windows 10, 8.1, or 7.

Motion R12

Tough and good looking, the Motion R12 merges Xplore’s core rugged engineering expertise with a sleek, aesthetically appealing industrial design. With a full high definition 12.5’ display, the Motion R12 transitions seamlessly from the office to the vehicle to the field, and back again. A full suite of accessories supports this mobile desktop replacement, including:

ö Office dock that supports additional ports, a second monitor, and full size keyboard and mouse;ö Companion keyboard and kickstand that magnetically attached to the back of the tablet when not in use;ö Hands free kit that enables a field worker to carry and view the device while performing other work-related activities;ö Crash-tested vehicle dock that makes the device useful for in-transit tasks like mapping, as well as improves driver safety with the optional screen

blanking technology; andö SlateMate expansion module that integrates RFID, barcode reader, and serial communications.

Despite its sleek styling, the Motion R12 is tough. It is tested to MIL-STD-810G standards, IP54 rated, uses a Gorilla Glass 3 display, has a rubberized non-slip enclosure, and a magnesium-alloy internal frame. The product was also designed to support compute intensive Windows software like GIS mapping and architectural engineering applications. The product is powered by an Intel Core i7 vPro processor (with optional Intel Core i5 processor) and Intel QM87 Chipset. It supports Windows 10, 8.1, or 7 Pro 64-bit operating systems, and can be configured with SSD configurations up to 256GM, and RAM configurations up to 8GB.

Security features were also a priority in the Motion R 12 design and include:

ö Integrated fingerprint reader;ö TCG Trusted Platform Module (TPM);ö Absolute Data & Device Security (DDS) theft prevention (optional); andö WinMagic SecureDoc encryption (single-user license).

Motion F5m/C5m

The Motion F5m and Motion C5m are easily recognized by their iconic integrated handle design that was introduced by Motion in 2008. The Motion C5 was originally introduced in a white color for clinical applications. Motion then followed up with a black version of the Motion C5, the Motion F5, for field applications. The rugged tablets' fifth generation Intel Core processors, including the highest performing Intel i7 vPro processor, provide the power to quickly move through computation-intensive applications while increasing overall power efficiency for longer battery life.

The products is a data acquisition workhorse with a 10.4” View Anywhere display that mimics the size of many standard forms for which input is made easy with both touch and digital pen interfaces. An optional barcode scanner is integrated into the handle for easy push-button reads. A high resolution digital camera and the SnapWorks by Xplore camera application make it easy to capture images, annotate those images with the pen, and share the data with other applications. An optional UHF RFID scanner enables long range reads of RFID tags up to nine feet away. And, the EasyConnect expansion module can be populated with a magstripe reader to accept payments in real-time at the point of service.

The products are often used in large metropolitan areas where LTE networks are susceptible to traffic congestion that negatively impacts connectivity performance. To overcome that challenge, the products were designed and certified to support the additional spectrum of AWS (Advanced Wireless Services), commonly marketed by some carriers as XLTE. By supporting the additional frequencies of AWS, customers can expect to get the most out of their wireless service.

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Bobcat

At 2.4 pounds, the Bobcat is a fully-rugged Windows tablet with comprehensive standardized interfaces, an array of options through its proprietary Xpansion Port and a lightweight design. The Bobcat operates Windows 8.1 or Windows 7 Pro operating systems and is certified fully-rugged, with a MIL-STD 810G certification and IP65 rating. The Bobcat’s direct bonded IPS screen, 500 nits of luminance and an 800-to-1 contrast ratio provides for outdoor readability, and a 10-finger multi-touch screen provides customers with ease-of-use and touch optimization. The Bobcat is used in a variety of industries, including manufacturing, warehousing and distribution, utilities, telecommunications and the military.

Bobcat offers a suite of standard inputs and outputs, enabling the transition across different business applications. The Bobcat comes with two full-sized

USB 3.0s, Micro SDXC, Micro SIM, Micro HDMI-Out, RJ-45 Ethernet, GPS engine and a serial port connection. The Bobcat is the only fully-rugged tablet on the market that offers GPS, RJ-45 Ethernet and a serial port connection in one device.

We have developed a suite of optional features designed to optimize Bobcat for specific industries. Our proprietary Xpansion Port includes integration

options such as a 1D/2D barcode scanner, common access card (CAC) reader and near-field communications (NFC) reader. Warehousing and distribution businesses can consolidate operations and reduce equipment costs with the Bobcat’s barcode scanner or NFC reader capabilities, while the military and other governmental entities use the CAC reader for increased security. Xslate D10

The Xslate D10 is our most recently announced product. Launched in December of 2015, the Xslate D10 is the follow on to our popular Android Ranger X. The hardened exterior, doubly-powerful interior and "all ports, all the time" connectivity of the Xslate D10 rugged tablet gives the Android 5.1, Lollipop OS a tough, new edge over its competition.

Unlike many other under-featured Android products, the Xslate D10 is fully rugged with a broad range of purpose-built capabilities to support demanding workflows. The product is IP-65 rated for protection against rain, water and dust. Using the MIL-STD-810G protocol, it is rated for five foot drops. Elastomer bumpers, a chemically hardened display, and a stiff magnesium alloy midframe, help protect the Xslate D10 against screen breakage. The product is also compliant with C1D2 and ATEX standards for hazardous locations and explosive environments. Similar to our Xslate B10, the Xslate D10 provides eight standard I/O ports, including 2 x USB 3.0, Micro SDXC, Micro HDMI-out, and RJ45 Gigabit Ethernet connection and optional HDMI Input module. The Xslate D10 is certified for 4G LTE networks and also is equipped with Wi-Fi and Bluetooth standard. Additionally, the product is compatible with our full range of G2-class accessories, including industrial and vehicle docks, companion keyboard, top handle, kickstand, barcode reader, CAC/SmartCard reader, NFC and HDMI-In modules.

The Xslate D10 also provides the power customers need, along with the battery life required for all day operation. It is powered by an Intel x86 Atom-series core processor with 4GB RAM and a 64GB SSD. It provides up to 20 hours of battery life with the optional hot-swappable second battery option, and leverages Google’s Project Volta and Android ultra-power saving mode for energy consumption savings.

Our families of tablets offer the following features:

Rugged— We have designed and built our products from the inside out, developing over 30 proprietary design elements that provide a heightened and proven level of durability. Some of our products meet some of the strictest specifications in the world, such as those established by the U.S. military, including Military Standard Testing for Environmental Extremes. By being designed to meet these specifications, our products can withstand damage from being dropped onto concrete from a height of up to seven feet, from being submerged for up to 30 minutes in up to three feet of water, and from being exposed to extreme temperatures are as low as −60° Fahrenheit and as high as 160° Fahrenheit. In addition, our products are designed to continue to function when subjected to vibration, sand storms and other challenging outdoor work environments.

Screen Technology — We strive to be a leader in developing screen technology with award winning displays. We have designed our Dual Mode Sunlight Readable screen to be viewable in challenging lighting conditions, including direct sunlight and dimly-lit environments, at virtually any angle, and to enable glove touch capability. Our screens also offer Dual Mode inputs—simultaneous use of a digital pen and/or finger to control the unit. The Dual Mode supports more precise inputs through the pen with more directional finger touch inputs—all in a single unit with automatic switching capabilities.

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Processing Power — We have the ability to provide processing power alternatives for our products on a timely and cost-effective basis. Our systems use Intel processors and associated chipsets, as well as other performance enhancement technologies that we believe are essential in many field applications (such as mapping and remote connectivity). In addition, we provide Lithium ION batteries that support usage times up to 8.5 hours for the iX104 and 10 hours for RangerX Pro. The iX104 also includes a “warm” swap feature, allowing users to switch batteries in the field without having to power down the system.

Remote Connectivity— Our tablet PCs have a range of wireless communications options (wLAN, wWAN, Bluetooth, Integrated AT&T or 4G LTE and PAN) as well as two meter and sub-meter GPS options.

Accessories— We offer a broad range of add-on modules and accessories that we believe better enable our customers to adapt our tablet PCs to their intended use. In particular, we believe our functional, durable and reliable docking solutions are tailored to our customers’ needs. We have supplied service, desktop, vehicle, forklift, armored vehicle and mobile cart docking systems to our customers.

Heightened Safety Standards— Our iX104 and iX101 line of wireless-enabled tablet PC systems have been tested and certified both in North America and in the European Union for use in hazardous conditions and we expect our next generation of rugged table PC systems will be certified in fiscal year 2017.

Our tablet PCs are designed to be used as a mobile computing system. These systems are comprised of a hardware platform that is fully integrated with one or more software applications. Through its wide feature set, we believe our iX104 family of products allows for the customization of a platform that best suits a given application. Our computers combine processing power, viewability, ruggedness and connectivity, and are designed to operate in extreme environments.

Strategy

Our strategy is to become the leading developer and marketer of rugged mobile wireless computer systems. We currently compete in the rugged tablet PC market.

Continue Expansion into New Rugged Product Markets

We have successfully broadened our offerings and opportunity by development of new products and through the Motion Acquisition. We believe, based upon the 2014 annual white paper published by the Mobile and Wireless Practice of Venture Development Corporation, or VDC, that an increasing number of companies are requiring their employees to transact business in the field and/or other non-traditional office environments. The research paper published by VDC projected worldwide sales in the rugged mobile computing market to grow to over $5.2 billion by the end of calendar 2016, and for the market for large form factor rugged devices to grow to almost $2.6 billion by the end of calendar 2016.

We believe that our families of rugged tablet PCs are uniquely positioned to capitalize on the convergence of four current market trends:

● The continuously expanding use of wireless data;

● the increased awareness and rapid adoption of the tablet computing form factor, spurred by the success of Apple’s iPad and Samsung’s Galaxy;

● the transition toward rugged computing solutions in the face of high failure rates for non-rugged devices that have been deployed in non-traditional working environments; and

● The move from rugged laptop PCs to rugged tablets to increase mobility.

We believe that many companies are coming to the realization that the total cost of computer ownership is improved through the use of rugged computing solutions.

The Motion Acquisition has also opened up larger international markets to us through the addition of a multi-country sales team and new international distributor and reseller relationships.

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Leverage Existing Markets

We seek to continue to analyze the needs of the vertical markets that we are currently addressing, so that we can continue to increase our sales in those markets. We intend to continue to focus on customer specific applications by leveraging our core products and technology, as well as our key strategic alliances.

Our strategy includes the following key elements:

Identifying and targeting vertical markets, major account and OEM opportunities— To achieve broad market penetration by our products, we intend to continue to focus on specific vertical market applications, major accounts and OEM relationships.

Outsourcing manufacturing and nurturing of key relationships— We intend to continue to outsource our manufacturing function, so that we can continue to focus our resources on our technology and product development, customer application and project deployment activities, through our collaborations on engineering and manufacturing matters with our contract manufacturers. In addition, we plan to continue nurturing a number of key distributor and reseller relationships.

Flexible product design and customer-centric approach— We believe that the design of our products provides us with the flexibility to respond to customer-specific requirements. We involve our customers in our product development and enhancement efforts. This approach is intended to result in improved communication throughout the entire sales cycle, and is designed to position our products as the optimal mobile computing platform for our customers.

Delivery of high quality, reliable systems— We measure and seek to improve product quality through rigorous quality assurance programs implemented through our strategic alliances, in concert with performing our custom-designed test programs. Additionally, we utilize feedback provided by our customers.

Marketing and distribution relationships— Within each targeted vertical market, we intend to focus on entering into co-marketing relationships with key application providers and systems integrators. This strategy is designed to allow us to use multiple sales channels within a region, while maintaining key strategic alliances.

Sales

Our direct customers primarily consist of distribution companies, such as large computer companies, specialized system integrators, software vendors, distributors and value-added resellers, and to a lesser extent the end-users. For fiscal year 2016, approximately 94% of our total revenues were attributable to sales through our distribution and reseller channels and approximately 6% of our total revenues were attributable to sales directly to end-users. We currently have relationships with more than 150 distributors and direct resellers. Our distributors and resellers generally have large sales organizations that, in turn, sell our products to entities that are the ultimate end-users. Our distributors and resellers include large computer companies and software vendors. In any given year, a single distributor may account for a significant portion of our revenue. In fiscal year 2016, we had two resellers located in the United States, Synnex Information Technologies Inc. and Prosys Information System, Inc., who accounted for approximately 23% and 11% of our total revenue, respectively.

As of March 31, 2016, we had a sales team of thirty individuals that have geographic responsibilities for direct and indirect sales opportunities. Our sales team works closely with our distributors and resellers in defined regions. Our distributors are currently selling our products into the public safety, utility, telecommunications, field service, warehousing logistics, transportation, oil and gas production, manufacturing, route delivery, military and homeland security markets.

For fiscal 2016, our total revenue increased by approximately 136% over fiscal 2015. Our North American revenue was approximately 73% of total revenue in fiscal year 2016, as compared to approximately 85% of total revenue in fiscal year 2015. The significance of the North American revenue was primarily attributable to large volume orders from our large medical, military and telecommunications end-users located in the United States.

We have significantly expanded our distribution capacity by adding the Motion distribution channel, which had been developed over a period of over ten years. Motion sold its products into the healthcare, public safety, construction, utility and retail markets. The Motion Acquisition has also expanded our international sales, from 18% of total revenue in 2015 to 32% of total revenue in 2016.

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Marketing

There are three primary areas of focus for our marketing effort:

ö Brand awareness and lead generation;ö Channel development; andö Product marketing.

Brand Awareness and Lead Generation

Our brand awareness and lead generation initiatives use digital media, are focused on industry vertical markets, and leverage our channel distributors to amplify our message in the market. Key elements of these initiatives include:

ö 11 search engine optimized websites in six different languages;

ö PPC campaigns with Google across multiple countries, supported by industry specific landing pages;

ö A content marketing engine that establishes us as an authority in the rugged tablet space and draws prospects to our website for conversion to leads, including whitepapers, thought leadership blogs, best practices webinars, case studies, and infographics;

ö Active presence in social media channels including LinkedIn, Twitter, and Facebook;

ö Advertising and content syndication on vertically focused media properties (online and offline);

ö Vertically targeted email campaigns;

ö Industry-specific tradeshows and online events;

ö Public relations activity that includes sales announcements, earned media coverage, and bylined articles for publications; and

ö Making all creative assets available to our channel distributors for easy delivery to their prospects and customers.

Channel Development

Our go-to-market strategy is channel driven, and includes distributors that enable quick product delivery and third party product configuration, direct and indirect IT resellers with rugged mobility expertise in key verticals, systems integrators that may bring elements such as wireless communication systems to a project, installation and deployment companies, as well as application software suppliers that service our target verticals. Our channel development efforts are focused on identifying and recruiting distributors that add value to our customer deployments, and provide the tools and resources that enable them to be successful in positioning our products and designing and deploying world-class solutions for our shared end-customers. To achieve this, we

ö Provide both onsite and online training curriculum, including sales and service certification courses;

ö Fund turn-key case study and web content syndication programs;

ö Provide market development funding for joint brand awareness and demand generation campaigns;

ö Provide a knowledge base for frequently asked questions and fast problem resolution;

ö Provide access to a portal where distributors can access creative assets for their own sales efforts, sales presentation and tools to enable successful sales cycles, and deal registration to ensure a distributor’s investment in the sales cycle is protected; and

ö Hold annual conferences in the Americas and in Europe to share success stories, future plans, and solicit feedback on how we can further improve our programs to increase channel effectiveness.

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Product Marketing

Our product marketing work starts with aligning our product development plans with the anticipated needs of our target customers. We recognize that, as a smaller company, our key to success depends on our ability to provide better products than our larger competitors, and to be more responsive to our customers’ needs. As such, our product innovations are grounded in combining emerging technologies with customer needs. When embarking on the development of a new product or an upgrade of an existing one, we devote resources to engaging customers, distributors and industry experts in the design process. We believe that this process, combined with our flexibility to make quick decisions with the support of our contract manufacturers, has enabled us to deliver products with market leading technology ahead of our competitors.

The market prices for rugged computers are higher than that for commercial grade computers used in traditional office settings. We believe that the higher prices reflects our belief that the total cost of ownership of a rugged computer over a three to five year period can be significantly lower than the cost of a cheaper non-rugged computer in certain environments. Several of our customers have disclosed to us in our customer-based market research studies that they experienced higher direct costs using non-rugged devices, with more frequent damage, information retrieval costs and replacement costs, as well as higher indirect costs, such as prolonged downtime. This conclusion is also supported by third-party research.

Market Segments

We target a number of different market segments in which we believe the deployment of rugged mobile computers can greatly improve operating efficiencies, reduce related costs, and improve customer service levels.

Telecommunications, Utilities & Energy. Generally, telecom, utility and energy related companies continuously have to respond to customers’ requests for

service and infrastructure maintenance expeditiously and efficiently to remain competitive. We believe that the reliable and real-time movement of information to and from the field is vital to the success of any field automation system. To fully leverage the value of mobile computing in these environments, they must also be safe to use in hazardous environments where explosive gases may be present – particularly relevant to the oil and gas industry. We have responded with products that are compliant with C1D2 and ATEX standards for use in these environments. Two global top ten telecommunications providers in the world are end-users of our products, as well as several of the world’s largest utility and energy companies, including Hydro One in Canada, EDF in France, RWE in Germany, Sydney Water in Australia, and Thames Water in the United Kingdom.

Military. As the military continues to transition to commercial and industrial grade rugged mobile computing systems, we expect this market segment will represent a significant opportunity for our products. In particular, we believe the U.S. Department of Defense is generally moving away from full military specifications adherence, except for system-critical operations, and instead is increasing emphasis on purchasing commercial, off-the-shelf (COTS) equipment. The military market sector includes ground and C4I (Command, Control, Communications, Computers and Intelligence) systems. We have deployed solutions across the Army, Air Force, and Navy in the U. S., as well as military operations in other countries.

Public Safety. Given the focus in the U.S. on homeland security matters and the continued commitment by Federal, state and municipal governments on law

enforcement, fire and emergency medical services, members of the public safety sector are searching for efficiencies that will better enable them to do their jobs. Rugged mobile computing devices assist these groups in a variety of ways. For example, having a reliable and durable tablet PC provides law enforcement agencies with immediate and reliable access in the field to national and local criminal databases. In this market segment, our products have been sold to hundreds of public safety organizations across the world, including the Adu Dhabi Police, Danish Ambulance Service, and the German Red Cross.

Manufacturing. Manufacturing floor environments demand resiliency and mobility, and require more rugged computing power than ever before, to store large amounts of data and display complex and highly detailed drawings. Whether assembly, maintenance, or repair operations are confined to an indoor factory, an enclosed hangar, or an outdoor testing facility, the environmental elements and vibrations from equipment and forklifts can be harmful to the average laptop, desktop, or mobile PC. Our rugged tablet IP ratings and the results of extensive MIL-STD-810G tests are particularly relevant to this segment. We have experienced particular success in the Automotive and Aerospace sectors of this market segment, with customers that include Boeing, Bombardier in Canada, Embraer in Brazil, Dassault Aviation in France, Audi in Germany, and Volkswagon in Italy.

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Transportation and Distribution. We believe that globalization, increased competition and heightened consumer expectations are contributing factors to the adoption of mobile computing technologies by many leading transportation and distribution companies. That means mobilizing highly complex and integrated logistical tasks in a way that is simple and straightforward, whether on planes, trains, forklifts or tractor-trailers. These operations typically require real time price modifications, product introductions and transitions, timely inventory management, load balancing and scheduling. We believe that this market segment will continue to automate order fulfillment, inventory control and management systems as part of an overall effort to integrate enterprise resource planning and supply chain management information systems. Our end-users include leading railroad, trucking and airline companies, package delivery companies, as well as the warehouse operations of large automotive manufacturing and food processing plants. We have a diverse set of customers in this segment, including Norfolk Southern, CSX, UPS, and Hertz.

Research and Development

We have assembled an experienced engineering and product development team. Through the collaboration of our employees and the engineering teams of our Taiwan-based contract manufacturers, we believe we are able to bring significant resources to the research, development and design of our products.

We seek to design and manage product life cycles through a controlled and structured process. We involve customers and industry experts from our target markets in the definition and refinement of our product development. Product development emphasis is placed on meeting industry standards and product specifications, ease of integration, ease of use, cost reduction, design-for manufacturability, quality and reliability.

We continue to invest in research and development to enhance and expand our rugged mobile computing systems. We are considering additional form factors, operating systems and screen technologies for integration into our rugged platforms as we seek to expand into additional markets. During the fiscal years ended March 31, 2016 and 2015, we expended $5,771,000 and $3,537,000, respectively, on research and development activities, none of which was borne by our customers. Competition

Competition in our industry is intense and is characterized by rapidly changing technologies, evolving industry standards, frequent new product introductions and rapid changes in customer requirements. To be competitive, we must continue to develop and introduce, on a timely and cost-effective basis, new products and product features that keep pace with technological developments and emerging industry standards, and address the increasingly sophisticated needs of our end users. We believe that the principal competitive factors affecting the market for our products are the product’s performance, features and reliability, price, customer service, reputation in the industry and brand loyalty. We believe that our strongest competitive advantages are our products’ durability and reputation in the industry. In order to compete, we will be required to continue to respond promptly and effectively to the challenges of technological changes and our competitors’ innovations.

Our primary competitors in the mobile rugged computer market include the following:

Panasonic. Panasonic is the largest provider of mobile rugged computers and offers a series of traditional and convertible notebooks. Panasonic promotes a rugged computer, known as the Toughbook, which is well known in the industry.

Getac. Getac is a provider of mobile rugged computers, including tablets and traditional and convertible notebooks.

Mobile Demand. Mobile Demand is a provider of rugged tablet computers.

DRS Technologies. DRS is a provider of rugged mounted computer systems, primarily to the U.S. Military.

Panasonic and Getac have more product offerings and greater financial, technical, and research and development resources and marketing capabilities than we do.

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We also face competition from manufacturers of non-rugged mobile computers, such as Samsung, Inc, Dell, Inc., Hewlett-Packard Company, Apple, Inc., Sony and Toshiba, to the extent customers decide to purchase less expensive traditional computers for use in environments that we believe are better suited for mobile rugged computers.

Manufacturing

We have a scalable manufacturing infrastructure to support our growing business. Our primary contract manufacturers, Wistron Corporation (Wistron), Pegatron Corp. (Pegatron) and Ubiqconn Technology, Inc. (Ubiqconn), are located in Taiwan. Wistron is the supplier of our iX104 and XSlate B10 products. Wistron is recognized as a leading provider of computers and electronic components to some of the world’s largest technology companies, including Dell, Inc. and Hewlett-Packard Company. Pegatron is the supplier of our R12, F5/C5 and CL920 products. Pegatron, is also a leading provider of computers and electronic components to the world’s largest technology companies. Ubiqconn is the supplier of our Xslate D10 and Bobcat products. Ubiqconn was spun off from the First International Computer (FIC) Group in 2011 and is a wholly-owned subsidiary of FIC. FIC has been a dominant force in the technology research, product development and manufacturing services since 1980. Ubiqconn is comprised of FIC's Industrial Computer Business Unit and FIC's original research and development team, which has accumulated over twenty years of experience in developing IT products for worldwide first tier companies. We expect our relationships with our contract manufacturers will support our expected sales growth and product demand for the foreseeable future.

We outsource the majority of our manufacturing services for our rugged mobile PC tablets to our contract manufacturers, including board production, parts procurement, assembly, some quality assurance testing, warranty repair and service. We have a design and manufacturing agreements with our contract manufacturers and they collaborate with us on product specifications and provide us with the flexibility to make changes to our products as market conditions change.

Under the terms of our agreements with our contract manufacturers, they provide us with design, manufacturing and support services related to our rugged mobile PC tablets. The purchase price of our products is determined based on the specific configuration of the tablet PC being produced, and is subject to cost reduction plans and volume based discounts. At least quarterly, we meet with each of the contract manufacturers to develop cost reduction plans. The plans take into account alternative suppliers along with components, design, process changes and other cost savings procedures. Each month we provide the contract manufacturers with a six month rolling forecast of the products we anticipate ordering. Generally, each of the contract manufacturers have approximately 90 days after its acceptance of our purchase order to ship the product. If products ordered during any quarter exceed the volume projected in the forecast, each of the contract manufacturers has agreed to use its reasonable best efforts to deliver the excess products within 45 days after its acceptance of the applicable purchase order.

Our contract manufacturers provide several warranties to us, including that they have all necessary rights required to sell the products, that each product will be free from any material defect, that the products will be free from any liens, encumbrances or defects in title and that the products will comply with all specifications. The current terms of our agreements with the contract manufacturers are for one year and automatically renew for additional one year terms, unless either party provides written notice of its intent to terminate the agreement at least 90 days prior to the expiration of any renewal term. In addition, the agreements contain provisions that allow for termination for any reason by either party upon 120 days’ notice.

We purchase materials, supplies and product subassemblies for our rugged mobile personal computer tablets from a number of vendors. Some key components included in our line of products are currently available only from single or limited sources. In the past, we have experienced significant price increases and limited availability of certain components that are not available from multiple sources. We are dependent upon Microsoft Corporation for various software products, including products included in our rugged mobile PC tablets.

Like other participants in the computer manufacturing industry, we ordinarily acquire materials and components through a combination of blanket and scheduled purchase orders to support our requirements for periods averaging 90 to 150 days. At times, we have been constrained by parts availability in meeting our product orders. From time to time, we have obtained scarce components for somewhat higher prices on the open market, which may have a negative impact on our gross margins on our products, but does not disrupt production. On occasion, we have also acquired component inventory from our suppliers in anticipation of supply constraints.

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Intellectual Property

Our performance and ability to compete are dependent to a significant degree on our proprietary technology. We rely primarily upon a combination of patent, copyright and trade secret laws and license agreements to establish and protect proprietary rights in our products and technology. On March 31, 2016, we had thirty-eight U.S. patents and thirteen non-US patents. In addition, we had one U.S. patent application, one Chinese patent application, one European Union patent application and one Taiwanese patent application, all related to proprietary elements of our tablet products, and one U.S. patent application, one Taiwanese patent application and one International PCT patent application related to our wireless dock. Of these patents a total of thirty-two US patents and thirteen non-U.S. patents were acquired in the Motion Acquisition. Even with patent protection, it may be possible for a third party to copy or otherwise obtain and use our products or technology without our authorization, or to develop similar technology independently. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries.

We do not believe that our products infringe on the proprietary rights of any third parties. There can be no assurance, however, that third parties will not claim such infringement by us or our licensees with respect to current or future products. In the past, we have had third parties assert exclusive patent, copyright, trademark or other intellectual property rights to technologies or marks that are important to our business. Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements with the claimant, any of which could delay the development and commercialization of our products or increase the costs of our products. After the Motion Acquisition, three companies filed lawsuits against us and Motion for alleged infringement of the claimant’s patent by Motion's products and our products. We have settled two of the lawsuits by entering into license agreements, with a modest one-time payment, and we have an existing license agreement with the other company.

We work closely with our contract manufacturers to stay abreast of the latest developments in rugged mobile computer technology. We obtain patent licenses for some technologies, some of which require significant royalty payments, when we believe those licenses are necessary or advantageous to our business. We have entered into non-exclusive licensing arrangements with Microsoft and other software suppliers for various operating systems and application software that we sell with our rugged tablet PCs.

Government Regulation

Our business is subject to regulation by various federal and state governmental agencies. Such regulation includes the radio frequency emission regulatory activities of the U.S. Federal Communications Commission, the anti-trust regulatory activities of the U.S. Federal Trade Commission and Department of Justice, the consumer protection laws of the Federal Trade Commission, the import/export regulatory activities of the U.S. Department of Commerce, the product safety regulatory activities of the U.S. Consumer Products Safety Commission and environmental regulation by a variety of regulatory authorities in each of the areas in which we conduct business.

Employees

As of March 31, 2016, we had 114 full-time employees, of which 60 were employed in the operations, engineering, research and development and customer support areas, 12 were involved in corporate, finance and administrative areas and 42 were employed in sales and marketing. We anticipate that we will need to hire additional employees going forward. Our employees are not represented by a union or other collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are good.

Trademarks and Service Marks

Each trademark, trade name or service mark of any other company appearing in this Annual Report on Form 10-K belongs to its holder.

Item 1A. Risk Factors

There are many risks that affect our business and results of operations, some of which are beyond our control. If any of the following risks actually occur, our business, financial condition or operating results could be materially harmed. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.

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Risks Relating to our Business

We have a history of net losses and may never become profitable.

Until fairly recently, we have incurred net losses in each fiscal year since our inception. As of March 31, 2016, our accumulated deficit was approximately $140 million, primarily due to our past losses. Historically, our losses have resulted primarily from expenses incurred in research and development of our technology and products and from selling and marketing our products. We may continue to incur additional operating losses as we continue our research and development efforts, introduce new products and expand our sales and marketing activities.

Prior to the Motion Acquisition, Motion incurred net losses in each fiscal year since its inception. For its fiscal year ended December 31, 2014, Motion had a net loss of approximately $9 million and, as of December 31, 2014, its accumulated deficit was approximately $128 million, primarily due to its past losses. In addition, Motion’s revenues decreased from a high of approximately $110 million in 2012 to approximately $83 million in 2014. Because of the deterioration in the Motion business, Motion’s senior secured lender foreclosed on its security interest in substantially all of the assets of Motion, and sold certain of those assets to us.

Since the Motion Acquisition, our operating expenses have more than doubled. We also incurred additional expenses in fiscal 2016 related to interest payments on the indebtedness we incurred in connection with the Motion Acquisition, amortization of intangible assets associated with the acquisition, other related acquisition, integration and financing costs, and related depreciation and other amortization. We cannot assure you that our revenue will be adequate to offset these increased expenses, which may keep us from being profitable in the future. We cannot assure you that we will continue to generate net profits from operations in fiscal 2017 or subsequent years. We cannot assure you that our revenue will increase or that we will be profitable in any future period.

In fiscal year 2016, we derived more than 10% of our revenue from two different customers. If we are unable to replace revenues generated from one or more of our major resellers or end-user customers with revenues from others in future periods, our revenues may decline and our growth would be limited.

Historically, in any given year a single customer, either reseller or end-user customer, could account for more than 10% of our revenue. In fiscal year 2016, two resellers, Synnex Information Technologies and Prosys Information Systems, Inc., accounted for approximately 23% and 11% of our total revenue, respectively. Prosys Information Systems, Inc., VT Miltope and Software House International, accounted for approximately 17%, 15% and 14% of our total revenue, respectively, for fiscal year 2015. If we are unable to replace revenues generated from one or more of our major resellers or end-user customers with revenues from others, our revenues may decline and our growth could be limited.

We experience lengthy sales cycles for our products and the delay of an expected large order could result in a significant unexpected revenue shortfall.

The purchase of our rugged computer systems is often an enterprise-wide decision for prospective end-user customers, which requires us to engage in sales efforts over an extended period of time and provide a significant level of education to prospective end-user customers regarding the uses and benefits of such systems. As a result, our products generally have a lengthy sales cycle, ranging from several months to several years. Consequently, if forecasted sales from a specific end-user customer are not realized, we may not be able to generate revenue from alternative sources in time to compensate for the shortfall. The loss or delay of an expected large order could result in a significant unexpected revenue shortfall. Moreover, to the extent we enter into and perform significant contracts earlier than expected, operating results for subsequent periods may fall below expectations.

Our quarterly operating results are likely to fluctuate as a result of many factors and our quarterly operating results may not be indicative of results in any given year or future quarter.

Our quarterly revenue, expenses, operating results, and gross profit margins may vary significantly from quarter to quarter. Such fluctuation may result from our inability to replace revenue generated from large orders from one of our major resellers or end-user customers with revenue from other resellers and end-users, the lengthy sales cycle related to our products and delays in the delivery of products and components. Our quarterly revenue could also be materially affected in any period by a decline in the economic prospects of our customers or the economy in general, which could alter current or prospective customers’ spending priorities or budget cycles or extend our sales cycle for the period. For example, in fiscal year 2016, one of our largest end user customers was the subject of a labor strike, which was only recently settled. During the duration of that strike, our customer greatly reduced its orders for our products. Due to such factors, our quarterly operating results are likely to fluctuate and such results may not be indicative of our results in any given year or future quarter. As a result, our operating results may fall below the expectations of securities analysts and investors in some quarters, which could result in a decrease in the market price of our common stock. You should not rely on quarter-to-quarter comparisons of our results of operations as an indicator of our future results.

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We may not realize the anticipated benefits from the Motion Acquisition, including potential cost synergies, due to challenges associated with integrating the two operations or other factors.

The success of the Motion Acquisition will depend in part on the success of our management in integrating the operations, technologies and personnel. Our management's inability to meet the challenges involved in integrating successfully the operations or otherwise to realize the anticipated benefits of the Motion Acquisition could seriously harm our results of operations. In addition, the overall integration of the Motion operations into our company will continue to require substantial attention from our management, which could further harm our results of operations.

The challenges involved in this integration include:

ö integrating the operations, processes, people, technologies, products and services;

ö coordinating and integrating sales and marketing and research and development functions;

ö demonstrating to our customers that the Motion Acquisition will not result in adverse changes in business focus, products and service deliverables (including customer satisfaction);

ö assimilating and retaining the personnel of both companies and integrating the business cultures, operations, systems and clients of both companies; and

ö consolidating corporate and administrative infrastructures and eliminating duplicative operations and administrative functions.

We may not be able to successfully integrate operations in a timely manner, or at all, and we may not realize the anticipated benefits of the Motion Acquisition, including potential cost and operating synergies or sales or growth opportunities, to the extent or in the time frame anticipated. The anticipated benefits and synergies of the Motion Acquisition are based on assumptions and current expectations, assume a successful integration and reallocation of resources among our facilities without unanticipated costs, and assume our efforts do not have unforeseen or unintended consequences. In addition, our ability to realize the benefits and synergies of the business combination could be adversely impacted to the extent that relationships with existing or potential customers, suppliers or strategic partners are adversely affected as a consequence of the acquisition or by practical or legal constraints on our ability to combine operations.

We are currently dependent on contract manufacturers to manufacture our products and products under development and our reliance on contract manufacturers subjects us to significant operational risks, many of which would impair our ability to deliver products to our customers should they occur.

We currently rely primarily on contract manufacturers for the manufacture of our products. Our reliance involves a number of risks, including:

ö reduced management and control of component purchases;

ö reduced control over delivery schedule and quality assurance;

ö reduced control over manufacturing yields;

ö lack of adequate capacity during periods of excess demand;

ö limited warranties on products supplied to us;

ö potential increases in prices;

ö interruption of supplies from assemblers as a result of fire, natural calamity, strike or other significant events; and

ö mis-appropriation of our intellectual property.

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Our business is therefore dependent upon our contract manufacturers for their manufacturing capabilities. During the fiscal years ended March 31, 2016 and 2015, we purchased inventory and engineering services of approximately $48.0 million and $23.3 million, respectively, from our contract manufacturers. Our agreements with the contract manufacturers contain provisions that allows for termination for any reason. We cannot assure you that our contract manufacturers will continue to work with us, that they will continue to be able to operate profitably, that they will be able to meet our manufacturing needs in a satisfactory and timely manner or that we can obtain additional or alternative manufacturers when and if needed.

The availability of our contract manufacturers and the amount and timing of resources to be devoted by them to our activities is not within our control, and we cannot assure you that we will not encounter manufacturing problems that would materially harm our business. The loss of one of our contract manufacturers, a significant price increase, an interruption of supply or the inability to obtain additional or an alternative manufacturer when and if needed would impair our ability to deliver our products to our customers.

We face competition from companies that have greater resources than we do and we may not be able to effectively compete against these companies.

We operate in a highly competitive industry. Our primary competitors in the mobile rugged computer market include Panasonic, Getac, Inc., DRS Technologies and Mobile Demand in the tablet PC market and Panasonic in the notebook market. We also face competition from manufacturers of nonrugged mobile computers, such as Samsung, Inc., Dell, Inc., Hewlett-Packard Company, Apple, Inc., Sony and Toshiba, to the extent customers decide to purchase less expensive traditional computers for use in environments that we believe are better suited for mobile rugged computers. The principal competitive factors in our industry include:

ö product performance, features and reliability;

ö price;

ö name recognition; and

ö product availability and lead times.

Most of our competitors have a wider variety of products, longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do. In addition, because of the higher volume of components that many of our competitors purchase from their suppliers, they are able to keep their costs of supply relatively low and, as a result, may be able to recognize higher margins on their product sales than we do. Many of our competitors may also have existing relationships with our contract manufacturers, the resellers who we use to sell our products, or with our potential customers. This competition may result in reduced prices, reduced margins and longer sales cycles for our products. The introduction of lower-priced personal computers, combined with the brand strength, more product offerings to address shifting demand for specific rugged product form factors, extensive distribution channels and financial resources of the larger vendors, could cause us to lose market share and could reduce our margins on those personal computers we sell. If any of our larger competitors were to commit greater technical, sales, marketing and other resources to our markets, our ability to compete would be adversely affected. If we are unable to successfully compete with our competitors our sales would suffer and as a result our financial condition will be adversely affected.

If we are unable to acquire key components or are unable to acquire them on favorable terms, our business will suffer.

Some key components included in our line of products are currently available only from single or limited sources. In addition, some of the suppliers of these components are also supplying certain of our competitors. We cannot be certain that our suppliers will be able to meet our demand for components in a timely and cost-effective manner. We carry little inventory of our products or our product components and, as a result, rely on our suppliers to deliver our products and necessary components to us or our contract manufacturers in a timely manner based upon forecasts we provide. If any of our suppliers become unreliable in providing components, we may not be able to develop an alternative source of supply in a timely manner, which could hurt our ability to deliver our products to our customers. In addition, if we are unable to buy these components on a timely and a cost-efficient basis, we may not be able to deliver products to our customers, or the margins we receive for our products may suffer, which would negatively impact our future financial performance and, in turn, seriously harm our business.

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At various times, some of the key components for our products have been in short supply. Delays in receiving components would harm our ability to deliver our products on a timely basis. In addition, because we expect to rely on purchase orders rather than long-term contracts with our suppliers, we cannot predict with certainty our ability to procure components in the longer term. If we receive a smaller allocation of components than is necessary to manufacture our products in quantities sufficient to meet our customers’ demand, those customers could choose to purchase competing products.

In January 2015, the supplier of screens for our iX104C6 product went out of business without giving us any prior notice. In addition, the same supplier supplied screens for approximately 50% of Motion’s products. We identified a replacement supplier for this component to continue producing our iX104C6 product, but we were not be able to finish the transition to the new component in time to avoid delays in shipping our iX104C6 product. We also transitioned to a new supplier of screens for the Motion C5 and F5 products. We suffered delays in shipping some of our iX104C6 product orders as well as some of the Motion C5 and F5 product orders in the first quarter of our fiscal year ending March 31, 2016, some of which may have caused the loss of sales in the that fiscal year and beyond, which could harm our business, financial condition and results of operations. In addition, the delays in shipping shifted some of our revenues into later periods, which may make it even more difficult for you to rely on quarter-to-quarter comparisons of our results of operations as an indicator of our future results.

If we are unable to successfully protect our intellectual property, our competitive position will be harmed.

Our ability to compete is heavily affected by our ability to protect our intellectual property. We rely on a combination of patents, copyright and trademark laws, trade secret, confidentiality procedures and contractual provisions to protect our proprietary rights. We also enter, and plan to continue to enter, into confidentiality or license agreements with our employees, consultants and other parties with whom we contract, and control access to and distribution of our software, documentation and other proprietary information. The steps we take to protect our technology may be inadequate. Existing trade secret, trademark and copyright laws offer only limited protection. Unauthorized parties may attempt to copy aspects of our products or obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult, time consuming and costly, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology, the effect of either of which would harm our competitive position in the market.

Others could claim that we infringe on their intellectual property rights, which may result in costly and time consuming litigation and could delay or otherwise impair the development and commercialization of our products.

In recent years, there has been a significant increase in litigation in the United States involving patents and other intellectual property rights. We do not believe that our products infringe on the proprietary rights of third parties. There can be no assurance, however, that third parties will not claim such infringement by us or our licensees with respect to current or future products. Claims for alleged infringement and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our intellectual property rights. Any such claims, with or without merit, could be time consuming, expensive to defend, cause product shipment delays or require us to enter into royalty or licensing agreements, any of which could delay the development and commercialization of our products or reduce our margins. If we are unable to obtain a required license, our ability to sell or use certain products may be impaired. In addition, if we fail to obtain a license, or if the terms of the license are burdensome to us, our operations could be materially harmed.

We are subject to risks by doing business outside of the United States that could impair our ability to grow our revenues.

In the fiscal years ended March 31, 2016 and March 31, 2015, approximately 32% and 18%, respectively, of our revenue was comprised of sales made outside of the United States. In the calendar year 2014, approximately 46% of Motion’s revenue was comprised of sales made outside of the United States, much of which was denominated in as many as six foreign currencies. Our future business and financial performance could suffer due to a variety of international factors, including:

ö ongoing instability or changes in a country's or region's economic or political conditions, including inflation, recession, interest rate fluctuations and actual or anticipated military or political conflicts;

ö longer collection cycles and financial instability among customers;

ö trade regulations and procedures and actions affecting production, pricing and marketing of products, including policies adopted by countries that may champion or otherwise favor domestic companies and technologies over foreign competitors and governmental currency controls or devaluations versus the U.S. dollar, which could make our products more expensive in those markets;

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ö local labor conditions and regulations, including local labor issues faced by specific suppliers and OEMs;

ö changes in the international, national or local regulatory and legal environments;

ö differing technology standards or customer requirements;

ö import, export or other business licensing requirements or requirements relating to making foreign direct investments, which could increase our cost of doing business in certain jurisdictions, prevent us from shipping products to particular countries or markets, affect our ability to obtain favorable terms for components, increase our operating costs or lead to penalties or restrictions; and

ö fluctuations in freight costs and duty costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for our products and shipments.

The factors described above also could disrupt our product and component manufacturing and key suppliers located outside of the United States. For example, we rely on manufacturers in Taiwan for the production of our tablet computers.

In many foreign countries, particularly in those with developing economies, there are companies that engage in business practices prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act of 1977, as amended, or the FCPA. Although we are implementing policies, procedures and training designed to facilitate compliance with these laws, our employees, contractors and agents may take actions in violation of these policies. Any such violation, even if prohibited by our policies, could have an adverse effect on our business and reputation.

As we continue expanding our cross-border operations into foreign markets, we will face risks associated with expanding into markets in which we have limited or no experience and in which we may be less well-known. We may be unable to attract a sufficient number of customers, fail to anticipate competitive conditions or face difficulties in operating effectively in these new markets or across markets. The expansion of our international business will also expose us to risks relating to staffing and managing those operations, increases in duty rates, exchange or price controls, increased costs to protect intellectual property, tariffs and other trade barriers, differing and potentially adverse tax consequences, increased and conflicting regulatory compliance requirements, political, social and economic changes and disruptions, lack of acceptance of our product offerings, challenges caused by distance, language and cultural differences and possible difficulty in enforcing contracts or legal rights under foreign legal systems. Accordingly, any efforts we make to expand our international operations may not be successful, which would have a material and adverse effect on our business, financial condition and results of operations.

If we are unable to retain key personnel we may not be able to execute our business strategy.

Our operations are dependent on the abilities, experience and efforts of a number of key personnel, including Philip S. Sassower, our chairman and chief executive officer, Mark Holleran, our president and chief operating officer, Tom Wilkinson, our chief financial officer and corporate secretary, and Peter Poulin, our chief marketing officer. Should any of these persons or other key employees be unable or unwilling to continue in our employ, our ability to execute our business strategy may be adversely affected. In addition, our success is highly dependent on our continuing ability to identify, hire, train, motivate and retain highly qualified management, technical and sales and marketing personnel. Competition for such personnel is intense. We may be unable to attract and retain the personnel necessary for the development of our business. Because we have experienced operating losses, which resulted in a reduction in our workforce in the past, we may have a more difficult time in attracting and retaining the employees we need. Other than an employment agreement with our president and chief operating officer, our relationships with our key employees are “at will.” Also, we do not have “key person” life insurance policies covering any of our employees. The inability to attract or retain qualified personnel in the future or delays in hiring skilled personnel could harm our relations with our customers and our ability to respond to technological change, which could prevent us from executing our business strategy.

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We will depend on the continued performance of certain members of our senior management team and certain other key employees to assist in executing our strategy after the Motion Acquisition. We also expect that our efforts to integrate the Motion product lines will place a significant strain on our personnel, management systems, infrastructure and other resources. Our ability to manage future growth effectively will also require us to successfully attract, train, motivate, retain and manage new employees and continue to update and improve our operational, financial and management controls and procedures. Our employees, including those recently added from Motion, may experience uncertainty about their future roles with us after the Motion Acquisition. These circumstances may adversely affect our ability to attract and retain key personnel. We also must continue to attract and motivate all of our employees and keep them focused on our strategies and goals following the Motion Acquisition.

If we fail to predict our manufacturing requirements accurately, we could incur additional costs or experience manufacturing delays, which could reduce our gross margins or cause us to lose sales.

We provide, and will continue to provide, forecasts of our demand to our contract manufacturers prior to the scheduled delivery of products to our customers. If we overestimate our requirements, our contract manufacturers may have excess component inventory, which could increase our costs. If we underestimate our requirements, our contract manufacturers may have an inadequate component inventory, which could interrupt the manufacturing of our products and result in delays in shipments and revenue. In addition, lead times for materials and components that we order vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. We may also experience shortages of components from time to time, which also could delay the manufacturing of our products or increase the costs of our products.

Our inability to obtain any third-party license required to develop new products and product enhancements could seriously harm our business, financial condition and results of operations.

From time to time, we are required to license technology from third parties to develop new products or product enhancements. Third-party licenses may not be available to us on commercially reasonable terms, or at all. Our inability to obtain any third-party license necessary to develop new products or product enhancements could require us to obtain substitute technology of lower quality or performance standards, or at greater cost, which could seriously harm our business, financial condition and results of operations.

We must respond quickly and effectively to new technological developments, and the failure to do so could have a material and adverse effect on our results of operations.

Our failure to maintain our technological capabilities or to respond effectively to technological changes could adversely affect our business, results of operations or financial condition. Our future success also depends on our ability to enhance existing hardware and systems and to respond to changing technological developments. If we are unable to successfully develop and bring to market new hardware and systems in a timely manner, our competitors’ technologies or services may render our products or services noncompetitive or obsolete.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we store sensitive data, including intellectual property, our proprietary business information and that of our customers and suppliers, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure maintenance of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business, revenues and competitive position.

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Our planned implementation of an ERP software solution and other information technology systems could result in significant disruptions to our operations.

We plan to implement an enterprise resource planning, or ERP, and other complementary information technology systems over the next several years. Implementation of these solutions and systems is highly dependent on coordination of numerous software and system providers and internal business teams. The interdependence of these solutions and systems is a significant risk to the successful completion of the initiatives and the failure of any one system could have a material adverse effect on the implementation of our overall information technology infrastructure. We may experience difficulties as we transition to these new or upgraded systems and processes, including loss or corruption of data, delayed shipments, decreases in productivity as our personnel and third party providers implement and become familiar with new systems, increased costs and lost revenues. In addition, transitioning to these new systems requires significant capital investments and personnel resources. Difficulties in implementing new or upgraded information systems or significant system failures could disrupt our operations and have a material adverse effect on our capital resources, financial condition, results of operations or cash flows. Implementation of this new information technology infrastructure has a significant impact on our business processes and information systems across a significant portion of our operations. As a result, we will be undergoing significant changes in our operational processes and internal controls as our implementation progresses, which in turn will require significant change management, including recruiting and training of qualified personnel. If we are unable to successfully manage these changes as we implement these systems, including harmonizing our systems, data, processes and reporting analytics, our ability to conduct, manage and control routine business functions could be negatively affected and significant disruptions to our business could occur. In addition, we could incur material unanticipated expenses, including additional costs of implementation or costs of conducting business. These risks could result in significant business disruptions or divert management's attention from key strategic initiatives and have a material adverse effect on our capital resources, financial condition, results of operations or cash flows.

Risks Relating to Ownership of our Common Stock

The anti-takeover effect of certain of our charter provisions could adversely affect holders of our common stock.

Our authorized capital consists of preferred stock issuable in one or more series. Our board of directors has the authority to issue preferred stock and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including voting and dividend rights, of those shares without any further vote or action by stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. The issuance of additional preferred stock, while providing desirable flexibility in connection with possible financings and acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the voting power of our outstanding voting securities, which could deprive holders of our common stock of a premium that they might otherwise realize in connection with the acquisition of us by a third party.

Volatility in the price for our common stock could adversely affect the long-term price of our common stock.

The trading price of our common stock has been highly volatile and may continue to fluctuate substantially. We believe that a variety of factors have caused and could in the future cause the stock price of our common stock to fluctuate significantly, including:

ö announcements of developments related to our business;

ö dilution from our capital raise in March 2015;

ö uncertainty surrounding the Motion Acquisition;

ö quarterly fluctuations in our actual or anticipated operating results;

ö announcements of technological innovations;

ö new products or product enhancements introduced by us or by our competitors;

ö developments in patents and other intellectual property rights and related litigation;

ö developments in our relationships with our third party manufacturers and/or strategic partners;

ö developments in our relationships with our customers and/or suppliers; and

ö general conditions in the global economy.

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In addition, in recent years the stock market in general, and the market for shares of smaller capitalization technology companies in particular, has experienced substantial price and volume fluctuations, which have often been unrelated or disproportionate to the operating performance of the affected companies. Any fluctuations in the future could adversely affect the market price of our common stock and the market price of our common stock may decline.

As of June 10, 2016, Phoenix Venture Fund LLC and its affiliates beneficially own approximately 13.6% of our common stock, and thus have significant influence over matters requiring stockholder approval.

One of our stockholders, Phoenix Venture Fund LLC, or Phoenix, which is co-managed by Philip S. Sassower, our chairman and chief executive officer, and Andrea Goren, one of our directors, beneficially owns approximately 10.5% of our common stock. In addition, Mr. Sassower, personally and through other entities controlled by him other than Phoenix, beneficially owns, in the aggregate, approximately 3.2% of our common stock, and Mr. Goren, personally and through other entities controlled by him other than Phoenix, beneficially owns, in the aggregate, approximately 0.4% of our common stock. Thus, Phoenix, Mr. Sassower and Mr. Goren, together, beneficially own in the aggregate, approximately 13.6% of our common stock. Accordingly, Phoenix, Mr. Sassower and Mr. Goren have the ability to exercise significant influence over matters generally requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, which could have the effect of delaying or preventing a third party from acquiring control over us.

We do not expect to pay dividends on our common stock.

We have never paid cash dividends on our common stock. Our current policy is to retain any future earnings to finance the future development and expansion of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, capital requirements, operating and financial conditions and on such other factors the board of directors deems relevant. Under the terms of our financing agreement with our senior lender, we are prohibited from paying cash dividends to holders of our common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We maintain our corporate functions, along with sales support, marketing and finance at a leased facility totaling approximately 16,228 square feet at 8601 Ranch Road 2222, Building II, Austin, Texas 78730. This lease expires on June 30, 2020 and has a current annual base rent, before reimbursable operating expenses, of approximately $235,000. We maintain our engineering and operating groups at a leased facility totaling 21,700 square feet at 14000 Summit Drive, Suite 900, Austin, Texas, 78730. This lease expires on August 31, 2019, and has a current annual base rent, before reimbursable operating expenses, of approximately $228,000. After the Motion Acquisition, during a portion of fiscal year 2016 we occupied, with the consent of the landlord, a portion of Motion’s former leased facility, where Motion maintained its corporate functions, along with sales support, marketing, finance, engineering and operating groups. We did not assume Motion’s lease for the facility, and in fiscal year 2016 negotiated the terms of a new lease with the landlord, as described above, for a smaller portion of Motion’s former facility. We believe that our present facilities are suitable for our existing and planned operations.

Item 3. Legal Proceedings

We are not currently involved in any other legal actions, arising in the ordinary course of business or otherwise. From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. We believe that the ultimate outcome of these matters will not have a material adverse impact on our financial condition or results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information

Our common stock is listed on The NASDAQ Capital Market exchange under the symbol “XPLR.” As of June 10, 2016, there were 223 registered holders of record of our common stock, and the closing price of our common stock on The NASDAQ Capital Market exchange was $3.12.

The following table sets forth the high and low sales price of our common stock, on The NASDAQ Capital Market for each quarter period during the fiscal years ended March 31, 2016 and 2015, in U.S. dollars.

US $ PERIOD High Low Fiscal Year Ended March 31, 2016: First Quarter 7.35 5.60 Second Quarter 6.15 4.56 Third Quarter 6.15 4.62 Fourth Quarter 5.25 3.36 Fiscal Year Ended March 31, 2015: First Quarter 6.50 5.15 Second Quarter 6.25 4.41 Third Quarter 7.00 4.34 Fourth Quarter 7.75 5.88

Dividend Policy

We have not declared or paid any dividends on our common stock during our last five fiscal years. The payment of dividends on our common stock in the future will depend on our earnings, capital requirements, operating and financial condition and such other factors as our board of directors may consider appropriate. Under the terms of our financing agreement with our senior lender, we are prohibited from paying cash dividends without the senior lender’s prior written consent. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

None.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

You should read the following discussion and analysis in conjunction with our consolidated financial statements and notes included in this Annual Report on Form 10-K. This discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainty. Our actual results could differ materially from those anticipated in the forward-looking statements, including those discussed in “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

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General

We are engaged in the development, integration and marketing of rugged mobile personal computer systems, or PCs. Our rugged tablet PCs are designed to withstand hazardous conditions, such as extreme temperatures, driving rain, repeated vibrations, dirt, dust and concussive shocks. The intrinsically safe, ruggedized and reliable nature of our products facilitates the extension of traditional computing systems to a broader range of field personnel, including energy pipeline inspectors, public safety responders, warehouse workers and pharmaceutical scientists. Our tablets are fitted with a range of performance-matched accessories, including multiple docking solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard options, as well as traditional peripherals, such as keyboards and cases. Additionally, our most rugged tablets are waterproof for up to 30 minutes in water up to a depth of three feet, are impervious to drops from as high as seven feet, are readable in direct sunlight, can be mounted on vehicles and include LTE and Wi-Fi connectivity options for real-time data access. Our end user customers include major telecommunications companies, leading heavy equipment manufacturers, oil and gas production companies, the military and first responders.

Historically, we have competed and derived our revenue through the sale of our iX104 tablets in a subset of the rugged PC market, given the larger size and ultra-rugged attributes of our iX104 product family, which weighs approximately 5.4 pounds. We have reduced our dependency upon the continued market acceptance of our iX104 systems, by broadening the market for our products and increasing our opportunities for revenue growth. We have broadened our product offering, through development and acquisition, to include multiple fully-rugged and rugged tablets that are lighter weight and less expensive than our iX104 family of products. These new products have allowed us to compete in significantly larger segments of the rugged PC market. In 2014, we introduced our first fully-rugged, lighter weight Android tablet and Windows tablet, and in 2015 we completed the acquisition of certain assets of Motion Computing, Inc. and its subsidiaries, which we refer to herein as Motion, more fully discussed below. This acquisition, which we refer to herein as the Motion Acquisition, expanded our product lines to include multiple additional rugged tablet products, and expanded our domestic and international customer base. We believe the lighter and less expensive tablets are ideal for field service applications and significantly more mobile market opportunities, as compared to our iX104.

The timing of large orders, and the related shipping dates of the ordered products, creates variability in our reported revenues. While we may experience some variability in our quarterly operating results as a consequence of the impact of large orders, we believe we will continue to grow our year-over-year revenues. Our revenue for the fiscal year ended March 31, 2016 was approximately 136% higher than the prior fiscal year.

On April 17, 2015, we completed the Motion Acquisition. Pursuant to the terms of a Foreclosure Purchase and Sale Agreement with Motion and Square 1 Bank, Motion’s senior secured lender, our subsidiary, Xplore Technologies Corporation of America, purchased certain of the Motion assets, including cash, cash equivalents, accounts receivable, inventory, equipment, personal property and other assets. The aggregate purchase price for the Motion assets was approximately $9 million, plus the assumption of approximately $6 million in certain liabilities, net of current assets, including accounts payable and obligations for service contracts and product warranties.

Looking forward, our strategy is to build increased marketplace awareness of our products; an effort that we believe will enable us to increase our revenue and to expand our market share. We also expect to significantly increase our revenue and substantially expand our total market share through the addition of our new product families that we recently acquired in the Motion Acquisition.

Critical Accounting Policies

Our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact our financial condition, changes in financial condition or results of operations. Our significant accounting policies are discussed in Note 2 of the Notes to our Annual Consolidated Financial Statements included in this Annual Report on Form 10-K. On an ongoing basis, we evaluate our estimates, including those related to our revenue recognition, allowance for doubtful accounts, inventory valuation, warranty reserves, tooling amortization, financial instruments, stock based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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Our critical accounting policies are as follows: Revenue Recognition. Our revenue is derived from the sale of rugged mobile technology, which includes rugged mobile tablet PC computers and related

accessories. Our customers are predominantly distributors and resellers. However, we also sell directly to end-users. We recognize revenue, net of an allowance for estimated returns, when title and risks of ownership are transferred to the customer, all significant contractual obligations have been satisfied, the sales price is fixed or determinable and the ability to collect is reasonably assured. Our revenue recognition criteria have generally been met when the product has been shipped. The shipping terms are F.O.B. shipping point. Shipments are based on firm purchase orders from our customers with stated terms. However, with our assumption of certain customer contracts in the Motion Acquisition, a number of our sales under those contracts are not recognized until the customer actually receives the goods. The shipping terms on these contracts are F.O.B. receiving point. We do not have installation, training or other commitments subsequent to shipment that are other than incidental. Our prices are determined based on negotiations with our customers and are not subject to adjustment. Generally, we do not hold inventory at our resellers and we do not expect resellers to hold inventories of our products other than in limited circumstances in which such inventory is monitored by us. Our distributors do hold small amounts of inventory which we monitor. This inventory is held in order to more quickly respond to their customer demand. As a result of the low amount of reseller and distributor inventory, we expect returns to be minimal. We have not had material adjustments, as our returns have been minimal. Revenue from separately priced extended warranty contracts is deferred and recognized in income on a straight-line basis over the related contract period.

Allowance for Doubtful Accounts. We regularly review and monitor collections of our accounts receivables and make estimated provisions, generally

monthly, based on our experience, aging attributes, results of collection efforts and current market conditions. If our estimate for allowance for doubtful accounts is too low, additional charges will be incurred in future periods, which additional charges could have a material adverse effect on our financial position and results of operations. Historically, our estimates have not required significant adjustment due to actual experience of very small amount of doubtful accounts.

Warranty Reserves. We make provisions for warranties at the time of sale, which are based on our experience and monitored regularly. The revenue related

to warranty is recognized when our obligations are generally covered by a warranty coverage agreement provided by a third party. A portion of our warranty obligations related to revenue recognized are primarily covered by warranty coverage agreements provided by our contract manufacturers; however, we also provide the coverage on the portion of our obligations which is not covered by these agreements, for which we establish related reserves at the time of sale. We are moving to more of a self-insured model due to changes in our warranty offerings and warranty claim experience. If our estimates for warranties and returns are too low, additional charges will be incurred in future periods and these additional charges could have a material adverse effect on our financial position and results of operations. Historically, our estimates have not required significant adjustment due to actual experience.

Inventory Valuation. We adjust our inventory values so that the carrying value does not exceed net realizable value. The valuation of inventory at the

lower of average cost or net realizable value requires us to use estimates regarding the amount of current inventory that will be sold and the prices at which it will be sold, and our assessment of expected orders from our customers. Additionally, the estimates reflect changes in our products or changes in demand because of various factors, including the market for our products, obsolescence, production discontinuation, minimum order quantities, technology changes and competition. While the estimates are subject to revisions and actual results could differ materially, our estimates have not required significant adjustment due to actual experience.

Tooling Amortization. We amortize tooling costs over a two year period or estimated life, whichever is shorter. Those costs are recorded as a cost of

revenue, subject to an assessment that future revenue will be sufficient to fully recover the cost of the tooling. This assessment requires an assessment of the market for our products and our future revenue expectations. On a quarterly basis, this assessment is reviewed and the cost of tooling is written down to its net realizable value if its recoverability is not reasonably expected based on estimates of future revenue. There have been no instances in which we determined that useful life was significantly less than two years. Accordingly, we have not recorded material adjustments.

Goodwill and Other Intangible Assets. Goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to

business acquisitions and combinations. Goodwill and other intangible assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate impairment may exist, such as a significant adverse change in the business climate. In assessing the value of goodwill, assets and liabilities are assigned to the reporting units and the appropriate valuation methodologies are used to determine fair value at the reporting unit level. Identified intangible assets are amortized using the straight-line method over their estimated useful lives, which are estimated to be between three and seven years.

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Long-lived asset impairment. Long-lived assets include property and equipment and definite-lived intangible assets. Definite-lived intangible assets consist of customer relationships, trade names and non-compete agreements. Long-lived assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate that the carrying value of the assets may not be recoverable.

Income Taxes. We have a significant valuation allowance that we intend to maintain until it is more likely than not that our deferred tax assets will be realized. Our income tax expense recorded in the future will be reduced to the extent of decreases in our valuation allowances. While we can utilize net operating loss carry-forwards to reduce our Federal income taxes, we will be subject to alternative minimum tax charges. Changes in the tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. We are not aware of any such changes that would have a material effect on our results of operations, cash flows or financial position.

Financial Instruments. The warrants to acquire common stock that we issued in connection with the issuance of our stock or for services provided to us has been valued separately using the Black-Scholes methodology. The determination of the values attributed to the warrant required the use of estimates and judgments particularly related to the assumptions used in the Black-Scholes calculation. In addition, options and warrants to acquire common stock issued to employees, directors and consultants have been valued using a Black-Scholes calculation and their valuations are impacted by the assumptions used in this calculation.

Stock-Based Compensation Expense. We apply the fair value method of accounting for all of our employee stock-based compensation. We use the Black-Scholes option pricing model to determine the fair value of stock option awards at the date of the issuance of the award. The value is expensed over the vesting period, which is generally three years. See Note 8 to our Annual Consolidated Financial Statements included in our Annual Report on Form 10-K for required disclosures.

Our estimates of stock-based compensation expense require a number of complex and subjective assumptions, including our stock price volatility, employee exercise patterns, future forfeitures, dividend yield, related tax effects and the selection of an appropriate fair value model. In addition, we have estimated volatility on shares issued in the year ended March 31, 2016 based on an average volatility of a set of companies considered comparable to us. We use historical data to estimate pre-vesting forfeitures, and we record stock-based compensation expense only for those awards that are expected to vest. The dividend yield assumption is based on our history and future expectations of dividend payouts.

The assumptions used in calculating the fair value of stock-based compensation expense and related tax effects represent management's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, or if we decide to use a different valuation model, our stock-based compensation expense could be materially different in the future from what we have recorded in the current period, which could materially affect our results of operations.

Foreign Currency Transactions. The Company regularly enters into transactions that are settled in a foreign currency. These transactions are recorded in U.S. dollars based on the exchange rate in effect at the time a transaction is initiated. When a transaction is settled, the foreign currency received to settle the transaction is converted to U.S. dollars based on the exchange rate in effect at the time of settlement. A realized foreign currency exchange gain or loss is recorded based on the difference in the exchange rate in effect when a transaction is initiated, and the exchange rate in effect when a transaction is settled.

Recent Accounting Pronouncements

For a summary of recent accounting pronouncements applicable to our consolidated financial statements see Note 1 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.

Results of Operations

Revenue. We derive revenue from sales of our rugged wireless tablet PC systems, which encompass a family of active pen and touch tablet PC computers, embedded wireless, desktop, vehicle, fork-lift or truck docking stations and a range of supporting performance-matched accessories, peripherals and support services. Our revenue also includes service revenue derived from out-of-warranty repairs and from separately priced extended warranty contracts which is deferred and recognized in income on a straight-line basis over the related contract period.

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Cost of Revenue. Cost of revenue consists of the costs associated with manufacturing, assembling and testing our products, related overhead costs, maintenance, compensation, freight and other costs related to manufacturing support, including depreciation of tooling assets and logistics. We use contract manufacturers to manufacture our products and supporting components, which represents a significant majority of our cost of revenue. In addition, the costs associated with providing warranty repairs, as well as the costs associated with generating service revenue, are included in cost of revenue.

Gross Profit. Gross profit has been, and will continue to be, affected by a variety of factors, including competition, product mix and average selling prices of products, maintenance, new product introductions and enhancements, the cost of components and manufacturing labor, fluctuations in manufacturing volumes, component shortages, the mix of distribution channels through which our products are sold, and warranty costs.

Sales, Marketing and Support. Sales, marketing and support expenses include salaries, commissions, agent fees and costs associated with co-operative marketing programs, as well as other personnel-related costs, travel expenses, advertising programs, trade shows and other promotional activities associated with the marketing and selling of our products. We also believe part of our future success will be dependent upon establishing and maintaining successful relationships with a variety of resellers.

Product Research, Development and Engineering. Product research, development and engineering expenses consist of salaries and related expenses for development and engineering personnel, and non-recurring engineering costs, including prototype costs, related to the design, development, testing and enhancement of our product families. We expense our research and development costs as they are incurred. There may be components of our research and development efforts that require significant expenditures, the timing of which can cause quarterly fluctuation in our expenses.

General Administration. General administration expenses consist of salaries and related expenses for finance, accounting, procurement and information technology personnel, investor relations, professional fees, including legal fees for litigation defense and litigation settlement payments, corporate expenses, and costs associated with being a U.S. public company, including regulatory compliance costs.

Interest. Interest expense includes interest on borrowings or transaction processing fees related to our credit facility.

Other Income and Expense. Other income and expense includes gains and/or losses on dispositions of assets and other miscellaneous income and expense.

Inflation. During the fiscal year ended March 31, 2016 and 2015, we believe inflation and changing prices have not had material impact on our revenue or on net loss from continuing operations.

Foreign Currency Transactions. The Company regularly enters into transactions that are settled in a foreign currency. These transactions are recorded in

U.S. dollars based on the exchange rate in effect at the time a transaction is initiated. When a transaction is settled, the foreign currency received to settle the transaction is converted to U.S. dollars based on the exchange rate in effect at the time of settlement. A realized foreign currency exchange gain or loss is recorded based on the difference in the exchange rate in effect when a transaction is initiated, and the exchange rate in effect when a transaction is settled.

Fiscal Year Ended March 31, 2016 vs. Fiscal Year Ended March 31, 2015

Revenue. Total revenue for the fiscal year ended March 31, 2016 was $100,530,000, compared to $42,639,000 for the fiscal year ended March 31, 2015, representing an increase of $57,891,000, or approximately 136%. The vast majority of the increase in our revenue is attributed to revenues resulting from the Motion Acquisition. However, we did experience a modest increase in revenues from our continuing products.

We operate in one segment, the sale of rugged mobile wireless tablet PC computing systems. Approximately 68% of our revenue in the year ended March 31,

2016 was derived from sales in the United States. The United States accounted for approximately 82% of our revenue during the year ended March 31, 2015. At March 31, 2016, we had a distributor customer and a direct reseller customer, Synnex Information Technologies Inc. and Buckeye Mountain, respectively, who had receivable balances accounting for approximately 42% of our total outstanding accounts receivables. We collected the receivable balances with these customers subsequent to our fiscal year end.

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In any year, a single customer may account for a significant portion of our sales. For the fiscal year ended March 31, 2016, we had two customers located in the United States who accounted for approximately 23% and 11% of our total revenue, respectively. For the fiscal year ended March 31, 2015, we had three customers located in the United States who accounted for approximately 17%, 15% and 14% of our total revenue, respectively.

Cost of Revenue. Total cost of revenue for the year ended March 31, 2016 was $69,183,000, compared to $28,320,000 for the year ended March 31, 2015, representing an increase of $40,863,000, or approximately 144%. This increase in cost of revenues is primarily attributable to the revenue growth discussed above, primarily the revenue growth attributable to the Motion Acquisition.

During the year ended March 31, 2016, we relied on four suppliers for the majority of our finished goods. The inventory purchases and cost of engineering services from our suppliers during the years ended March 31, 2016 and 2015 were $48,017,000 and $23,317,000, respectively. At March 31, 2016 and 2015, we owed these suppliers $6,606,000 and $2,423,000, respectively, which we recorded in accounts payable and accrued liabilities.

Gross Profit. Total gross profit increased by $17,028,000, to $31,347,000 (31.2% of revenue) for the year ended March 31, 2016 from $14,319,000 (33.6% of revenue) for the year ended March 31, 2015. The increase in gross profit for the year ended March 31, 2016, as compared to the prior year, was mainly attributable to the increase in revenue related to the product line we acquired in the Motion Acquisition. The decrease in the gross profit percentage was due to a different sales product mix, primarily resulting from a lower gross profit margin for the Motion products.

Sales, Marketing and Support Expenses. Sales, marketing and support expenses for the year ended March 31, 2016 were $15,096,000, compared to $6,352,000 for the year ended March 31, 2015. The increase of $8,744,000, or approximately 138%, was the direct result of an increase in the size of our business due to the Motion Acquisition. The increase in these expenses was primarily due to an increase in headcount related costs of $5,788,000 associated with incremental sales and marketing personnel, an increase in marketing related expenses of $1,439,000, an increase in demonstration units of $918,000 and an increase in travel related expenditures of $728,000, offset by decreases in various other expenses of $129,000.

Product Research, Development and Engineering Expenses. Product research, development and engineering expenses for the year ended March 31, 2016 were $5,771,000, as compared to $3,537,000 for the year ended March 31, 2015, an increase of $2,234,000, or approximately 63%. The increase is a direct result related to the size of our business due to the Motion Acquisition. The increase in expenses was primarily due to an increase in headcount related costs of $1,599,000 and an increase of $626,000 of development project related expenses. We had only one major development project in the fiscal year ended March 31, 2015.

General Administration Expenses. General administration expenses for the year ended March 31, 2016 were $9,427,000, compared to $4,103,000 for the year ended March 31, 2015, an increase of $5,324,000, or approximately 130%. The increase primarily consisted of an increase in stock-based compensation expense of $1,419,000, due to a grant of options to members of our board of directors and certain of our officers in April 2015, an increase in headcount related expenses of $1,242,000, an increase in our operational related expenses of $1,082,000, primarily related to rent, an increase in our professional fees of $720,000, an increase in depreciation of $372,000 and an increase in bad debt of $197,000.

For our fiscal years 2016 and 2015, the fair value of employee stock-based compensation expense was $2,156,000 and $684,000, respectively, reflecting an increase of $1,472,000 for fiscal year 2016. On April 7, 2015, our board of directors approved grants of options to purchase a total of 240,374 shares of our common stock, with an exercise price of $6.38, of which options to purchase 87,437 shares were granted to our chairman and chief executive officer, options to purchase 75,000 shares were granted to our president, options to purchase 50,000 shares were granted to our chief financial officer at the time and options to purchase 27,937 shares were granted to Andrea Goren, a member of our board of directors. The options vest on April 17, 2016, the first anniversary of the closing of the Motion Acquisition, and have a term of seven and one half years from the date of the grant. These grants were contingent upon stockholder approval of an increase in the maximum number of shares to be authorized for issuance under our stock incentive plan, which was approved at our most recent annual meeting of our stockholders. In November 2015, our board of directors approved two sets of option grants to new employees, one for options to purchase a total of 249,282 shares of common stock, with an exercise price of $5.49, including a grant of options to purchase 109,282 shares to our new chief financial officer, and the other for options to purchase 20,000 shares of common stock, with an exercise price of $5.91. These options vest in three equal annual installments, beginning in November 2016, and have a term of five years from the date of grant. The increase in stock compensation expense was principally due to the grants made on April 7, 2015. We recorded stock-based compensation expense in the employee related functional classification.

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Depreciation and amortization expenses for fiscal years 2016 and 2015 were $1,730,000 and $919,000, respectively, reflecting an increase of $811,000 for fiscal 2016. The increase in depreciation expense consisted primarily of an increase of $438,000 in tooling amortization for our new C6 and Xslate B10 products, along with the new product lines we acquired in the Motion Acquisition and amortization of intangible assets acquired in the Motion Acquisition. Depreciation and amortization expense is recorded in the related functional classification.

Interest Expense. Interest expense for the year ended March 31, 2016 was $58,000, compared to $8,000 for the year ended March 31, 2015, an increase of $50,000. The increase for the fiscal year was due to amounts we borrowed under our new credit facility with Square 1 Bank in connection with the Motion Acquisition. We had no borrowings under the credit facility as of March 31, 2016.

Other Income/Expense. Other expense for the year ended March 31, 2016 was $1,363,000, compared to other income of $31,000 for the year ended March 31, 2015. The increase is primarily resulting from what we expect to be non-recurring acquisition costs related to the Motion Acquisition.

Income Taxes. The income tax benefit of $6,000 for the year ended March 31, 2016 resulted from a true-up of the accrual of income tax, compared to an income tax expense for the year ended March 31, 2015. Income taxes consist primarily of US alternative minimum tax.

Net Income (Loss). The net loss for the year ended March 31, 2016 was $362,000 ($0.03 per common share) compared to a net income of $249,000 ($0.03 per

common share) for the year ended March 31, 2015, an unfavorable variance of $611,000. Our net loss for the year was a result of the increase in other expenses resulting from the Motion Acquisition of $913,000.

Liquidity and Capital Resources

Other than in fiscal years 2015 and 2013, we have incurred net losses in each full fiscal year since our inception. From inception, we have financed our operations and met our capital expenditure requirements primarily from the gross proceeds of private and public sales of debt and equity securities totaling approximately $126.6 million. As of March 31, 2016, our working capital was $18,096,000 and our cash and cash equivalents were $5,594,000.

On April 17, 2015, in connection with the Motion Acquisition, our subsidiary entered into a Loan and Security Agreement with Square 1 Bank, pursuant to which Square 1 Bank provided us with formula and non-formula revolving loans for up to an aggregate amount of $15 million, which replaced our existing accounts receivable purchase facility, under which there were no borrowings at the time. The new facility with Square 1 Bank has a two year term, is secured by substantially all of our assets, and bears interest at the greater of the current prime lending rate plus 1.25% per annum or 4.5% per annum. The maximum amount of formula revolving loans outstanding at any one time cannot exceed the lesser of $15 million or 85% of our eligible accounts receivable. The maximum amount of non-formula loans outstanding at any time cannot exceed $4 million through April 16, 2016, with the maximum allowable amount reducing by $480,000 increment every three months thereafter, until the maximum amount reaches $2.08 million, where it will remain until maturity. On April 17, 2015, we borrowed approximately $9 million under this facility to fund the cash portion of the purchase price for the Motion assets.

As of June 16, 2016, there were $2,558,000 in borrowings outstanding under the Square 1 Bank facility.

We believe that our current cash and cash flow from operations, together with our borrowing capacity under our new credit facility, will be sufficient to fund our anticipated operations, working capital and capital spending needs for the next 12 months

Cash Flow Results

The table set forth below provides a summary statement of cash flows for the periods indicated:

Year Ended March 31, 2016 2015

(in thousandsof US dollars)

Net cash provided by (used in) operating activities $ (5,147) $ 2,394 Net cash used in investing activities (219) (1,066)Net cash provided by (used in) financing activities (8,495) 12,727 Cash and cash equivalents at year end 5,594 19,455

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Net cash used in operating activities in the year ended March 31, 2016, was $5,147,000, compared to $2,394,000 of cash provided by operating activities in the year ended March 31, 2015, an unfavorable variance of $7,541,000. The unfavorable variance in net cash used in operating activities was primarily due to the collection of customer receivables acquired in the Motion Acquisition and payment of certain liabilities acquired in the Motion Acquisition totaling approximately $6.4 million in net cash outflows. Net cash provided by operating activities when excluding these amounts totaled approximately $1.3 million.

Net cash used in investment activities in the year ended March 31 2016 was $219,000, compared to $1,066,000 cash used in the year ended March 31, 2015. For the year ended March 31, 2016, the cash used consisted primarily of investment in demonstration units of $391,000, investment in tooling costs of $326,000 and the purchases of computers and other equipment of $171,000, offset by the net cash received in the Motion Acquisition of $653,000, and by $16,000 related to a cash refund received from a former Motion vendor that was not previously identified as a receivable at the time of the transaction. For the year ended March 31, 2015, the cash used in investing activities principally consisted of tooling costs of $604,000, investments in demonstration and internal units of $415,000 and other fixed assets totaling $47,000.

Net cash used in financing activities for the year ended March 31, 2016 was $8,495,000, compared to $12,727,000 cash provided by financing activities for the year ended March 31, 2015. Net cash used by financing activities for the year ended March 31, 2016 was primarily related to net repayments of our bank indebtedness of $9,098,000, which arose in connection with the Motion Acquisition, partially offset by the issuance of shares of our common stock related to the exercise of stock options through our employee stock purchase plan of $603,000. Net cash provided by financing activities for the year ended March 31, 2015 consisted primarily of net proceeds from the public offering of our common stock in that year of $12,511,000, net proceeds from the exercise of employee stock options of $144,000 and the issuance of common stock by our employee stock purchase plan of $72,000.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

The financial statements and other financial information required by this Item are listed in Item 15 of Part IV and are contained on pages F-1 through F-20 of this annual report and incorporated in this Item 8 by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

As of the end of the period covered by this Annual Report on Form 10-K, we conducted under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, an evaluation of the effectiveness of our “disclosure controls and procedures” (as that term is defined under the Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, our chief executive officer and chief financial officer concluded as of the period covered by this report that our disclosure controls and procedures were effective in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding the required disclosure.

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(b) Management’s report on internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2016 based on the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that assessment, management concluded that, as of March 31, 2016, our internal control over financial reporting was effective based on the criteria established in Internal Control—Integrated Framework.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting since rules of the SEC permit us to provide only management’s report on this Annual Report on Form 10-K.

(c) Changes in internal control over financial reporting.

There have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2016 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

(d) Limitations on Effectiveness of Controls.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met. Furthermore, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our organization have been detected.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

The following table sets forth certain information concerning our directors and executive officers as of June 5, 2016:

Name Age Positions with our CompanyPhilip S. Sassower 76 Chairman of the Board of Directors and Chief Executive OfficerMark Holleran 58 President and Chief Operating OfficerTom Wilkinson 46 Chief Financial Officer and Corporate SecretaryPeter Poulin 55 Chief Marketing OfficerKent Misemer 67 DirectorAndrea Goren 48 DirectorBen Irwin 56 DirectorThomas F. Leonardis 72 DirectorBrian E. Usher-Jones 70 Director

Philip S. Sassower has served as our Chief Executive Officer since February 2006 and has served as a member of our board of directors since December 2004. Mr. Sassower is the Chief Executive Officer of SG Phoenix LLC, a private equity firm, and has served in that capacity since May 2003. Mr. Sassower has also been Chief Executive Officer of Phoenix Enterprises LLC, a private equity firm, and has served in that capacity since 1996. On August 5, 2010, Mr. Sassower became Chairman of the Board and Chief Executive Officer of iSign Solutions, Inc. (formerly Communication Intelligence Corporation) (OTCQB: ISGN), an electronic signature solutions and biometric signature verification company. Mr. Sassower is co-manager of the managing member of Phoenix Venture Fund LLC, our principal stockholder, which we refer to in this report as Phoenix. Mr. Sassower’s qualifications to serve on our board of directors include more than 40 years of business and investment experience and his extensive experience working with management teams and boards of directors, and in acquiring, investing in and building companies and implementing new business strategies.

Mark Holleran has served as our President and Chief Operating Officer since February 2006. Mr. Holleran served as our Vice President of Sales from April 2003 to February 2006.

Tom Wilkinson has served as our Chief Financial Officer since November 2015 and was our Interim Chief Financial Officer beginning in August 2015. Prior to joining us as Chief Financial Officer, Mr. Wilkinson was Chief Financial Officer for Amherst Holdings, a financial services company, beginning in January 2014. Prior to joining Amherst Holdings, Mr. Wilkinson was Managing Partner of PMB Helin Donovan through November 2013, after having been a founding partner of the firm in 2002.

Peter Poulin has served as our Chief Marketing Officer since April 17, 2015. Mr. Poulin served as Motion’s Chief Executive Officer and prior to that, its Vice President of Marketing, since 2012. Prior to joining Motion, Mr. Poulin served as Vice President, Sales of Virtual Bridges, Inc., since 2011, and as Executive Vice President, Marketing & Business Development at Hoover’s Inc. from 2008 to 2010.

Andrea Goren has served as a member of our board of directors since December 2004. Mr. Goren is a Managing Director of SG Phoenix LLC, a private equity firm, and has served in that capacity since May 2003. In December 2010, Mr. Goren was appointed as Chief Financial Officer of iSign Solutions, Inc. (formerly Communication Intelligence Corporation) (OTCQB: ISGN). Mr. Goren has also served as a director of iSign Solutions, Inc. since August 5, 2010. Mr. Goren is co-manager of the managing member of Phoenix, our principal stockholder. Mr. Goren’s qualifications to serve on our board of directors include his experience and knowledge acquired in more than 16 years of private equity investing and his extensive experience working with management teams and boards of directors.

F. Ben Irwin has served as a member of our board of directors since May 2009. Mr. Irwin has been President and Owner of Rejen Inc, a manufacturer and dealer of printing supplies, since September 2005. Prior to joining Rejen, Mr. Irwin served as Senior Vice President of Engineering of Itronix Corp., which became General Dynamics Itronix, a designer and manufacturer of rugged laptop and handheld computing products, from July 2000 to February 2005. Mr. Irwin’s qualifications to serve on our board of directors include his industry experience and knowledge acquired while he was with Itronix Corp.

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Thomas F. Leonardis has served as a member of our board of directors since June 2005. Mr. Leonardis has been Chief Executive Officer and Chairman of the Board of Ember Industries, Inc., a contract electronics manufacturer, since November 2001. Mr. Leonardis served as a director of DataMetrics Corporation, a designer and manufacturer of rugged electronic products, from November 2001 to March 2008. Mr. Leonardis’ qualifications to serve on our board of directors include his industry experience and knowledge acquired during the nine years he has served at Ember Industries, Inc. and while serving as a director of DataMetrics Corporation.

Kent Misemer has served as a member of our board of directors since November 2011. Mr. Misemer has been self-employed as a consultant and investor since 2009. From 2003 through 2009, Mr. Misemer was the Chief Executive Officer and President of Liberty Propane, LLC, a portfolio company of Sterling Capital Partners, an independent retail propane company, which was sold in December 2009. Previously, Mr. Misemer was the President and Chief Executive Officer of Propane Continental. In addition to being a co-founder of Liberty Propane, Mr. Misemer was also involved in the creation of Propane Continental and Tri-Power Fuels, Inc. Mr. Misemer formerly served as a director and member of the audit committee of Cornerstone Records Management, LLC, a private data storage and offsite data management company, until October 2013, when the company was sold. Mr. Misemer formerly served as a director of Pro-Tech Industries, Inc. (OTCQB: PTCK), a regional leader in design/build services for the Fire Life Safety, alarm/detection, electrical and voice/data communications infrastructure segments through January 2012. Mr. Misemer’s qualifications to serve on our board of directors include his over 30 years of executive management experience in the propane industry supply chain, as well as other industries.

Brian E. Usher-Jones has served as a member of our board of directors since 1996. Since 1992, Mr. Usher-Jones has been self-employed as a merchant banker. Mr. Usher-Jones has been a director of Shoal Point Energy, Ltd., an oil and gas exploration company, since March 2014. Mr. Usher-Jones resigned as a director of Newlook Industries Corp., a technology investment company, and Wireless Age Communications Inc., a solutions provider for waste and energy efficient products, in February 2013. Mr. Usher-Jones served as our Treasurer and Interim Chief Financial Officer from August 1996 to November 1997 and again from August 2001 to December 2001. Mr. Usher-Jones’ qualifications to serve on our board of directors include his certification as a Canadian Certified Public Accountant, his service as our Treasurer and Interim Chief Financial Officer and his significant executive-level and financial management experience at private and public companies.

There are no family relationships between any of our directors or executive officers. None of our officers or directors has any arrangement or understanding with any other person pursuant to which such officer or director was selected to serve as officer or director.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than ten percent (10%) of a registered class of our equity securities to file reports of ownership and changes in ownership of our common stock and other equity securities with the SEC on a timely basis. Based solely upon a review of Forms 3, 4 and 5 and amendments to these forms furnished to us, we believe all parties subject to the reporting requirements of Section 16(a) of the Exchange Act filed on a timely basis all such required reports during and with respect to our 2016 fiscal year.

Code of Ethics

We have adopted a code of ethics that applies to the members of our board of directors, our officers, including our principal executive officer and principal financial officer, and all of our other employees. A copy of our code of ethics is available, without charge, upon written request directed to our Chief Financial Officer, Xplore Technologies Corp., 8601 RR 2222, Building II, Austin, Texas 78730.

Audit Committee

The members of our audit committee are Brian E. Usher-Jones, Kent Misemer and Thomas Leonardis. Our board of directors has determined that Brian E. Usher-Jones meets the criteria of an “audit committee financial expert,” as that term is defined in the rules and regulations promulgated under the Securities Exchange Act of 1934. Mr. Usher-Jones is an independent director as defined under The NASDAQ Stock Market Rules. Mr. Usher-Jones’ background and experience includes being a Canadian Certified Public Accountant and Chief Financial Officer of Nesbitt Thomson & Company, LTD.

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Item 11. Executive Compensation

Executive Compensation

Summary Compensation Table

The following table sets forth the compensation for our fiscal years ended March 31, 2016 and 2015 earned by or awarded to, as applicable, our principal executive officer, principal financial officer and our other most highly compensated executive officers as of March 31, 2016. In this Annual Report on Form 10-K we refer to such officers as our “named executive officers.”

Name and Principal Position

Year

SalaryUS($)

BonusUS($)

Stock AwardsUS($)

Option AwardsUS($)(1)

TotalUS($)

Philip S. Sassower 2016 287,500 (2) 100,000 (3) — 347,202 734,702 Chief Executive Officer 2015 210,000 (2) 100,000 (3) — 354,063 664,063 Mark Holleran 2016 325,000 325,000 (4) — 215,506 865,506 President and Chief Operating Officer 2015 275,000 275,000 (4) — 422,230 972,230 Tom Wilkinson 2016 148,945 (5) 120,000 (5) — 222,321 442,216 Chief Financial Officer and Corporate Secretary Michael J. Rapisand 2016 99,205 (6) — — 143,671 (6) 242,876 Chief Financial Officer and Corporate Secretary 2015 200,000 100,000 (6) — 168,216 468,216 Peter Poulin 2016 250,000 75,000 (7) — — 325,000 Chief Marketing Officer

(1) Option award amounts included in this table reflect the grant day fair value of option grants within the fiscal year ended, related to all options granted to the named executive officer, calculated in accordance with FASB ASC Topic 718 and using a Black-Scholes valuation model.

(2) Mr. Sassower is compensated for his services as our Chief Executive Officer through payments we make to SG Phoenix LLC, which is controlled by Mr. Sassower and Andrea Goren, a member of our board of directors. SG Phoenix LLC received $287,500 and $200,000 in fiscal years 2016 and 2015, respectively, in connection with the services of Mr. Sassower as our Chief Executive Officer. Mr. Sassower also serves as the chairman of our board of directors, and receives cash fees for his service on our board of directors. Mr. Sassower was paid $10,000 in cash fees for each of fiscal years 2016 and 2015 in connection with being a member of our board of directors. Mr. Sassower receives option awards in connection with his service on our board of directors and for his service as our Chief Executive Officer.

(3) A discretionary bonus of $100,000 was paid to SG Phoenix LLC for the fiscal years 2016 and 2015 for services rendered by Mr. Sassower as our Chief Executive Officer in connection with achieving certain revenue, cash flow, profitability, and investor relation communication objectives.

(4) Under the terms of Mr. Holleran’s employment agreement, he had the opportunity to earn a cash performance bonus of up to 100% of his base salary of $325,000 in fiscal year 2016 and $275,000 in fiscal year 2015 based on the achievement of various objectives. Mr. Holleran earned $325,000 and $275,000 of the performance bonus under his employment agreement in fiscal years 2016 and 2015, respectively, in connection with achieving certain revenue, cash flow, profitability, staffing, product development, financial controls and communication objectives in each year.

(5) Mr. Wilkinson joined us as Chief Financial Officer on December 1, 2015, after serving as Interim Chief Financial Officer beginning in August 2015, as a consultant. During the consulting period, Mr. Wilkinson received $48,945 in fees which are included in the salary figure presented. Under the terms of Mr. Wilkinson’s Management by Objective (MBO) bonus plan, in fiscal year 2016, he had the opportunity to earn a cash bonus of up to 40% of his total base salary of $300,000, or $120,000 based on his achievement of revenue, cash flow and profitability objectives, as well as objectives related to transition of financial leadership and integration related to the Motion Acquisition. Mr. Wilkinson earned $120,000 of the performance bonus in fiscal years 2016, as these goals were achieved.

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(6) Mr. Rapisand served as our Chief Financial Officer until early August 2015. Under the terms of Mr. Rapisand’s Management by Objective (MBO) bonus plan, in fiscal years 2015, he had the opportunity to earn a cash bonus of up to 40% of his base salary or $80,000 based on his achievement of revenue, cash flow and profitability objectives. Mr. Rapisand earned $80,000 of the performance bonus in fiscal years 2015. In recognition of Mr. Rapisand’s exceptional performance associated with the Motion Acquisition in fiscal 2015 as well as his exceptional performances in fiscal 2015, our board of directors awarded him a bonus of $20,000 in excess of his maximum cash incentive bonus for those years. In April 2015, Mr. Rapisand was awarded options to purchase 50,000 shares at $6.38 per share. However, these options were unvested and cancelled when Mr. Rapisand terminated his employment.

(7) Mr. Poulin joined us in April 2015 as a result of the Motion Acquisition. Under the terms of Mr. Poulin’s Management by Objective (MBO) bonus plan, in fiscal years 2016, he had the opportunity to earn a cash bonus of up to $50,000 on his achievement of revenue, cash flow and profitability objectives. Mr. Poulin earned $50,000 of the performance bonus in fiscal years 2016 based upon his achievement of these goals. Mr. Poulin also earned $25,000 as a retention bonus.

Elements of Our Compensation Program

The compensation of our executives other than our Chief Executive Officer is designed to attract, as needed, individuals with the skills necessary for us to achieve our objectives, retain individuals who perform at or above our expectations and reward individuals fairly over time. Our executives’ compensation has three primary components: base salary; an annual cash incentive bonus; and equity-based compensation. In addition, we provide our executives with benefits that are generally available to our other salaried employees. Our Chief Executive Officer receives compensation for his services as an executive officer through payments we make to SG Phoenix LLC, which is controlled by our Chief Executive Officer and another member of our board of directors.

As a small company, we recognize that we must pay salaries that help us to attract and retain talented executives who will help us grow, while staying within budgetary constraints. We reward outstanding performance with cash bonuses that in large part are based on financial measures, such as revenue, cash flow, profitability and earnings before interest, taxes, depreciation or amortization, or EBITDA, targets, and the achievement of strategic goals and corporate milestones. In addition, we reward our executives with equity-based compensation, as we believe equity compensation provides an incentive to our executive officers to build value for us over the long-term and aligns the interests of our executive officers with those of our stockholders. Generally, we use stock options as our equity-based compensation because we believe that options generate value to the recipient only if the price of our common stock increases during the term of the option. Other than in the event of a change of control, the stock options granted to our executives generally vest solely based on the passage of time. We believe these elements support our underlying philosophy of attracting and retaining talented executives, while remaining within our budgetary constraints, and also creating cash incentives that reward company-wide and individual performance and aligning the interests of our executive officers with those of our stockholders by providing our executive officers equity-based incentives to ensure motivation over the long-term.

The individual elements of our compensation program are as follows:

Base Compensation. It is our policy that the base salaries paid to our executive officers should reflect the individual responsibility and experience of the executive officer and the contribution that is expected from the executive officer. Base salaries are reviewed by the compensation committee on an annual basis to satisfy these criteria.

Cash Incentive Bonuses. Our executive officers are eligible for annual incentive bonuses if they meet key financial and operational objectives. The payment of cash incentive bonuses to executive officers is within the discretion of our compensation committee and is based on our compensation committee’s assessment of our performance and the performance of each executive officer measured in large part against financial objectives, strategic goals and corporate milestones. These financial, strategic and corporate objectives include revenue, cash flow, profitability and EBITDA targets, staffing, product development, financial control and communication objectives and corporate milestones, such as the completion of financings. Our compensation committee may in its discretion award a cash incentive bonus to an executive officer for partial achievement of such executive officer’s objectives. The total amount of the cash incentive bonus available to an executive officer is either based upon a percentage of such executive officer’s base salary or a fixed dollar amount. Bonuses are reviewed by the compensation committee on an annual basis. Furthermore, in recognition of an executive officer’s exceptional performance, our board of directors may award a bonus in excess of that executive officer’s maximum cash incentive bonus.

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Each of our named executive officers (other than our Chief Executive Officer) participates in his own individual Management by Objectives plan, which we refer to as a MBO plan, as discussed in footnotes 4, 5, 6 and 7 in the summary compensation table for fiscal years 2016 and 2015 above. The MBO plan of our President and Chief Operating Officer is set forth in his employment agreement discussed below.

Equity-Based Compensation. We use stock options and restricted stock units (RSU) to reward long-term performance and to ensure that our executive officers have a continuing stake in our long-term success. Authority to make stock option and RSU grants to our executive officers rests with our board of directors. In determining the size of stock option and RSU grants, our board of directors considers our actual performance against our strategic plan, individual performance, the extent to which shares subject to previously granted options are vested and the recommendations of our Chief Executive Officer, other members of senior management and our compensation committee.

We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates. We grant stock options at regularly scheduled meetings of our board of directors or at special meetings. All stock options granted have an exercise price equal to or greater than the closing price of our common stock on the date that the grant action occurs.

With respect to establishing compensation for our executive officers, we do not have any formal policies for determining how specific forms of compensation are structured or implemented to reflect the individual performances and/or individual contributions to the specific items of our performance. In addition, we have no policies regarding the adjustment or recovery of awards or payments if the relevant performance measures upon which such award or payment was based are restated or otherwise adjusted in a manner that would reduce the size of an award or payment.

With respect to newly hired employees, our practice is to make stock grants at the first meeting of our board of directors following such employee’s hire date. We do not have any program, plan or practice to time stock options grants with the public release of material information. We do not time, nor do we plan to time, the release of material information for the purposes of affecting the value of executive compensation.

On April 7, 2015, our board of directors approved grants of options to purchase a total of 240,374 shares of our common stock, with an exercise price of $6.38, to certain of our officers and directors, of which options to purchase 87,437 shares were granted to Mr. Sassower, and options to purchase 27,937 shares were granted to Mr. Goren. The options vest in on the first anniversary of the date of grant, and have a term of seven and one half years from the date of the grant.

On March 13, 2015, our board of directors approved grants of options to purchase a total of 213,875 shares of our common stock, with an exercise price of $6.00, to certain of our officers and each director, of which options to purchase 17,925 shares were granted to Mr. Sassower, and options to purchase 6,725 shares were granted to each other member of our board of directors, other than Mr. Misemer, who received options to purchase 6,250 shares. The options vest in three equal annual installments, beginning on the first anniversary of the date of grant, and have a term of seven and one half years from the date of the grant.

Also on March 13, 2015, our board of directors approved grants of additional options to purchase a total of 328,190 shares of our common stock, with an exercise price of $6.00, to certain of our officers and each director, of which options to purchase 76,887 shares were granted to Mr. Sassower, options to purchase 50,087 shares were granted to Mr. Goren and options to purchase 5,043 shares were granted to each other director, other than Mr. Misemer, who received options to purchase 4,687 shares. The options vest on the first anniversary of the Motion Acquisition, if the recipient is then still providing services to us, and have a term of seven and one half five years from the date of the grant.

In April 2015, our board of directors approved an increase in the annual fee paid to SG Phoenix LLC, an affiliate, from $200,000 to $287,500, effective April 1, 2015, for services to be rendered by SG Phoenix LLC. In addition, in both fiscal 2016 and fiscal 2015, a $100,000 discretionary bonus was paid to SG Phoenix LLC for services rendered by Mr. Sassower in connection with achieving certain revenue, cash flow, profitability, and investor relation communication objectives. General administration expense includes expense of $387,500 for these expenses for the year ended March 31, 2016.

On June 12, 2012, our board of directors approved the payment of $10,000 in cash, paid quarterly in the amount of $2,500, to each director for services rendered beginning with the year ended March 31, 2014. On November 4, 2013, our board of directors approved the payment of an additional annual amount to each member of our board of directors’ audit committee and compensation committee, in the amount of $4,000 for each committee on which such member serves, to be paid quarterly in the amount of $1,000, effective October 1, 2013. Our general administration expense includes an expense of $84,000 for such fees for the year ended March 31, 2016.

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Employment Agreements

Mark Holleran

On June 30, 2006, we entered into an employment agreement with Mark Holleran, our President and Chief Operating Officer. The agreement was for a period of two years, and is automatically renewable for additional one year periods unless either party gives written notice that it or he does not wish to extend the term, in which case the agreement terminates on June 30 of the next year. The agreement automatically renewed in June 2013 for an additional year. In consideration for his services, during the term of his employment agreement Mr. Holleran is entitled to receive a base salary of $275,000 per year, subject to any increase as may be approved by our board of directors. Effective April 1, 2015, our board of directors approved an increase in Mr. Holleran’s salary to $325,000 per year. Mr. Holleran is also entitled to receive a performance bonus of up to 100% of his base salary based on his achievement of objectives in the following categories: revenue, cash flow, profitability, EBITDA, product development, hiring new employees, retention of staff, financial controls and communication, including additional financing. In addition, we may award, in our sole discretion, Mr. Holleran additional discretionary bonuses in recognition of his performance.

Mr. Holleran is also eligible to participate in a transaction bonus pool in the event of the sale of our business during the term of Mr. Holleran’s employment agreement. The amount of the transaction bonus pool will be based upon the total consideration received by our stockholders from the sale of our business, less our transaction expenses. Mr. Holleran will be entitled to receive 50% of the total amount of the transaction bonus pool.

As part of the employment agreement, we agreed that if we terminate Mr. Holleran’s employment without cause during the term of his employment agreement, Mr. Holleran would receive his base salary for one year, commencing on the termination date, reduced by the amount earned by Mr. Holleran from other employment during that period, plus an additional amount equal to the average of the performances bonuses paid to Mr. Holleran during the prior two calendar years. The employment agreement also contains customary non-compete, non-solicitation, non-disparagement and confidentiality provisions.

Severance and Change in Control Benefits

Mark Holleran, our President and Chief Operating Officer, has a provision in his employment agreement that gives him severance benefits described above if his employment is terminated without cause.

We have established a transaction bonus pool for our executive officers and other members of our senior management team upon the sale of our business, which was originally outlined in Mr. Holleran’s employment agreement. The amount of the transaction bonus pool is based upon the total consideration received by our stockholders from the sale of our business, after our transaction expenses. Under the terms of his employment agreement, Mr. Holleran is entitled to receive 50% of the total amount of the transaction bonus pool if our business is sold during the term of his employment. Another 5% of the transaction bonus pool has been allocated to a non-executive officer and the remainder is unallocated.

We have chosen to provide these benefits to our executives because we believe we must remain competitive in the marketplace. These severance and acceleration provisions and estimates of these change of control and severance benefits are described in the section entitled “Estimated Payments and Benefits upon Termination or Change in Control” below.

Pension Benefits

We do not sponsor any qualified or non-qualified defined benefit plans. We do maintain a 401(k) plan for our employees, including our executive officers; however, through March 31, 2016 we have not matched contributions made by our employees, including contributions made by our executive officers.

Nonqualified Deferred Compensation

We do not maintain any non-qualified defined contribution or deferred compensation plans. Our board of directors may elect to provide our executive officers and employees with non-qualified defined contribution or deferred compensation benefits if it determines that doing so is in our best interests.

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Other Benefits

Our executive officers are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and disability insurance and our 401(k) plan, in each case on the same basis as our other employees.

Impact of Regulatory Requirements

Deductibility of Executive Compensation. Our executive officers’ MBO plans and our transaction bonus pool do not currently provide compensation that qualifies as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Accordingly, compensation in excess of $1 million paid to a named executive officer during any one year period that is attributable to one of those arrangements would not currently be deductible by us for U.S. federal income tax purposes. We may, in the future, reevaluate those plans and redesign them so that compensation attributable to one or both of those plans would qualify as “performance-based compensation” within the meaning of Section 162(m) and would be deductible for U.S. federal income tax consequences. Our 2009 Stock Incentive Plan provides for stock options and other awards that qualify as “performance-based compensation,” as well as certain awards, such as restricted share awards, that do not so qualify.

Accounting for Stock-Based Compensation. We account for stock-based payments in accordance with the requirements of Accounting Standards Codification (“ASC”) 718.

Stock Ownership Requirements

We do not currently have any requirements or guidelines relating to the level of ownership of our common stock by our directors or executive officers.

Outstanding Equity Awards at 2016 Fiscal Year-End

The following table sets forth the equity awards outstanding at March 31, 2016 for each of the named executive officers.

Name

Number ofSecuritiesUnderlyingUnexercisedOptions (#)

Equity IncentivePlan AwardsNumber ofSecuritiesUnderlyingUnearned

Options (#)

OptionExercisePrice ($)

OptionExpiration

Date Philip S. Sassower— 86,000 — 5.00 12/30/2020

Chief Executive Officer 5,975 11,950(1) 6.00 9/12/2022 — 76,887(2) 6.00 9/12/2022 — 87,437(2) 6.38 10/22/22 Mark Holleran— 280,000 — 5.00 12/30/2020

President and Chief Operating Officer 20,833 41,667(3) 6.00 9/12/2022 — 93,750(2) 6.00 9/12/2022 — 75,000(2) 6.38 10/22/22 Tom Wilkinson— — 109,282(4) 5.49 11/3/2020

Chief Financial Officer and Corporate Secretary Michael J. Rapisand— — —(5) — —

Chief Financial Officer and Corporate Secretary Peter Poulin— — —

Chief Marketing Officer

(1) Options to purchase 5,975 shares vest on March 13, 2017 and options to purchase 5,975 shares vest on March 13, 2018.(2) All options vest on April 17, 2016.

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(3) Options to purchase 20,833 shares vest on March 13, 2017 and options to purchase 20,834 vest on March 13, 2018.(4) Options to purchase 36,427 shares vest on November 3, 2016, options to purchase 36,427 shares vest on November 3, 2017 and options to purchase 36,428

vest on November 3, 2018.(5) All of Mr. Rapisand’s options were exercised or terminated prior to March 31, 2016.

Estimated Payments and Benefits Upon Termination or Change in Control

Holleran Employment Agreement

The following table describes the potential payments and benefits payable to Mr. Holleran, our President and Chief Operating Officer, upon termination of his employment by us without cause, as if his employment had terminated as of March 31, 2016, the last business day of our last fiscal year. If Mr. Holleran’s employment is terminated by us as a result of his death or disability or for cause or voluntary by Mr. Holleran, he is entitled to receive any earned or accrued, but unpaid, base compensation and bonus and all accrued but unused vacation days through the termination date.

Payments and Benefits

Terminationby Company

Without Cause(1) Compensation:

Base salary (2) $ 325,000(4)Performance bonus (3) $ 300,000(5)

Benefits and Perquisites: $ 18,963(6)

(1) For purposes of Mr. Holleran’s employment agreement, “cause” includes, among other things, (i) his willful failure to perform his duties under his employment agreement, (ii) any intentional act of fraud, embezzlement or theft involving more than a nominal amount of our assets or property, (iii) any material damage to our assets, business or reputation resulting from his intentional or grossly negligent conduct, (iv) his intentional wrongful disclosure of material confidential information, (v) his intentional engagement in competitive activity which would constitute a breach of his employment agreement and/or his duty of loyalty, (vi) his intentional breach of any material employment policy, or (vii) his ineligibility for any reason to work lawfully in the United States for a period of four consecutive months.

(2) Assumes that there is no earned but unpaid base salary at the time of termination.

(3) Assumes that there is no earned but unpaid bonus at the time of termination.

(4) If Mr. Holleran is terminated without cause, Mr. Holleran is entitled to receive his base salary in effect immediately prior to his termination of employment for a period of 12-months commencing on the termination date, subject to reduction by any amounts he earns during the 12-month period.

(5) Under the terms of Mr. Holleran’s employment agreement, if Mr. Holleran is terminated without cause, he is entitled to receive as severance an amount equal to the average of his performance bonuses paid to him during the two calendar years preceding his termination. Mr. Holleran received performance bonuses of $325,000 in fiscal 2016 and $275,000 in fiscal 2015.

(6) Represents payments of $1,580 a month to pay the cost of Mr. Holleran’s continued participation in our group health plans under COBRA during the 12-month severance period.

Change in Control Benefits

Under our 2009 Stock Incentive Plan, in the event of certain business combinations, including the sale or lease of all or substantially all of our assets, or a merger or consolidation involving us in which the beneficial owners of our capital stock prior to such business combination own 50% or less of the outstanding shares of the common stock of the surviving entity after the business combination or a similar transaction, each of which we refer to as a “corporate transaction,” and subject to any vesting acceleration provisions in an award agreement, outstanding awards will be treated in the manner provided in the agreement relating to the corporate transaction (including as the same may be amended). The corporate transaction agreement will not be required to treat all awards or individual types of awards similarly in the corporate transaction; provided, however, that the corporate transaction agreement will provide for one of the following with respect to all outstanding awards (as applicable):

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• the continuation of the outstanding award by us, if we are a surviving company;

• the assumption of the outstanding award by the surviving company or its parent or subsidiary;

• the substitution by the surviving company or its parent or subsidiary of its own award for the outstanding award;

• full exercisability or vesting and accelerated expiration of the outstanding award, followed by the cancellation of such award;

• the cancellation of an outstanding option or stock appreciation right and a payment to the optionee equal to the excess of (x) the fair market value of the shares subject to such option or stock appreciation right (whether or not such option or stock appreciation right is then exercisable or such shares are then vested) as of the closing date of such corporate transaction over (y) its aggregate exercise price; or

• the cancellation of an outstanding restricted stock unit and a payment to the participant equal to the fair market value of the shares subject to such restricted stock unit (whether or not such restricted stock unit is then vested) as of the closing date of such corporate transaction.

The following table sets forth the potential payments to our named executive officers as if we had a change of control as of the March 31, 2016, the last business day of our 2016 fiscal year.

Name Transaction

Bonus Pool(1)

Market Value ofAccelerated

Options Philip S. Sassower—Chief Executive Officer — —(2)Mark Holleran—President and Chief Operating Officer $ 856,551(3) —(2)Tom Wilkinson—Chief Financial Officer — —(2)Michael J. Rapisand—Chief Financial Officer — —(4)Peter Poulin—Chief Marketing Officer — —(2)

(1) Our named executive officers are eligible to participate in a transaction bonus pool designed to incent and reward our executives who are employed by us upon the sale of our business. Under the transaction bonus pool, an amount equal to 5% of the per share sales consideration up to approximately $8 per share and 10% of the remaining per share consideration received through such a sale, in each case after deducting the transaction expenses, will be allocated to the transaction bonus pool. Our board of directors approved the transaction bonus pool to adjust the amount of consideration that the participants are eligible to receive in connection with (i) the sale of all or substantially all of our outstanding equity securities to an unrelated third party or parties or (ii) the sale of all or substantially all of our assets, including assets of our subsidiaries, to an unrelated third party or parties (“Eligible Sale Transaction”). The transaction bonus pool may be amended so that the transaction bonus pool would be equal to 5% of total net sales proceeds received by our stockholders in an Eligible Sales Transaction, plus an additional 5% of such proceeds in excess of $82.8 million (the “Hurdle Rate”), with such Hurdle Rate subject to increase on a dollar-for-dollar basis by the amount of gross proceeds received by us in connection with any future issuance of our equity securities, or securities convertible into our equity securities, in any financing transaction. As of March 31, 2016, the participation in the transaction bonus pool was allocated as follows: 50% of the pool to Mark Holleran, our President and Chief Operating Officer and 5% of the pool to a non-executive officer, with the balance unallocated.

(2) Pursuant to our 2009 Plan, our board of directors may determine, at the time of grant or thereafter, that the vesting of options granted under that plan may accelerate upon a change in control transaction. Currently, no such options have such acceleration provisions, and we assume that our board of directors will not elect to accelerate the vesting of the options with exercise prices below $3.49 per share in the future.

(3) Assumes a sale in which the holders of our common stock receive sales proceeds of $3.49 per share, which represented the closing price of our common stock on March 31, 2016 as reported by the NASDAQ Capital Market, and transaction costs of 10% of the total proceeds, resulting in an aggregate transaction bonus pool of $1,713,101. Mr. Holleran would be entitled to receive 50% of the transaction bonus pool.

(4) Mr. Rapisand’s options were exercised or terminated prior to March 31, 2016.

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Director Compensation

In June 2006, our board of directors approved a director compensation plan pursuant to which we will pay each of our directors a fee to attend board meetings. In addition, from time to time, we grant options to purchase shares of our common stock to our directors. We also reimburse our directors for their out-of-pocket expenses incurred in connection with attending our board and board committee meetings. Compensation for our directors, including cash and equity compensation, is determined, and remains subject to adjustment, by our board of directors. On June 12, 2012, our board of directors approved the payment of $10,000 in cash fees, paid quarterly in the amount of $2,500, to each director for services rendered, beginning with the year ended March 31, 2014. On November 4, 2013, the Board of Directors approved the payment of an additional annual fee to each member of the Board of Director’s audit committee and compensation committee, in the amount of $4,000 for each committee on which such member serves, to be paid quarterly in the of $1,000, effective October 1, 2013.

Fiscal Year 2016 Director Compensation

The following table sets forth compensation information for our directors who are not a named executive officer for our fiscal year ended March 31, 2016.

Name

Fees Earnedor Paid

in Cash ($) Stock

Awards ($) Option

Awards ($)(1) Total ($) Brian E. Usher-Jones 18,000(2) — — 18,000 Andrea Goren 10,000 — 110,935 120,935 Thomas F. Leonardis 18,000(2) — — 18,000 Kent Misemer 18,000(2) — — 18,000 F. Ben Irwin 10,000 — — 10,000

(1) In April 2016, Mr. Goren received a grant of 27,937 stock options. The options vest on the first anniversary of the Motion Acquisition on April 17, 2016 and have a term of seven and one half five years from the date of the grant.

(2) Mr. Usher-Jones, Mr. Leonardis and Mr. Misemer each received $8,000 in cash payments as compensation for their services on our audit and compensation committees.

Director Independence

Our board of directors has determined that each of Brian E. Usher-Jones, F. Ben Irwin, Thomas F. Leonardis and Kent Misemer are independent directors as that term is defined under current The NASDAQ Stock Market Rules.

2009 Stock Incentive Plan

On July 28, 2009, we adopted the 2009 Stock Incentive Plan, which we refer to as the 2009 Stock Plan. The 2009 Stock Plan provides for equity-based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards are made to selected employees, directors and consultants to promote stock ownership among award recipients, to encourage their focus on strategic long-range corporate objectives, and to attract and retain exceptionally qualified personnel. Upon the original approval and adoption of the 2009 Stock Plan by our stockholders, up to 62,750 shares of our common stock were issuable under the 2009 Stock Plan. On December 16, 2010, our stockholders approved an increase in the number of shares of our common stock available for issuance under the 2009 Stock Plan from 62,750 to 187,500. On September 24, 2013, our stockholders approved amendments to the 2009 Stock Plan to increase the maximum number of shares of our common stock issuable under the plan from 187,500 to 1,687,500 and to increase the number of shares of our common stock relating to awards under that plan that any single participant may receive in any calendar year from 20,000 to 500,000. On March 24, 2016, our stockholders approved amendments to the 2009 Stock Plan to increase the maximum number of shares of our common stock issuable under the plan from 1,687,500 to 3,000,000. Generally, the vesting of options and the retention of restricted shares granted under the 2009 Stock Plan are conditioned on a period or successive periods of continuous service of the award recipient. Expired options that remain unexercised and shares forfeited to or repurchased by us will become available for future grant under the 2009 Stock Plan.

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As of March 31, 2016, the maximum aggregate number of shares of common stock reserved for issuance upon the exercise of all options granted under the Amended Share Option Plan and the 2009 Stock Plan may not exceed an aggregate of 3,000,000 shares under the 2009 Stock Plan. The options granted under the plans, except as described below, generally vest over a three-year period in equal annual installments and expire five years after the issuance date.

Grants To: Directors Officers Non-Officer Employees Month of Grant Shares Ex. Price Shares Ex. Price Shares Ex. Price

June 2014 - - - - 45,000/10,000 $ 6.28/$6.16 August 2014 - - - - 20,000 $ 6.28

November 2014 - - - - 5,000 $ 5.90 February 2015 - - - - 20,000 $ 6.58 February 2015 - - - - 5,000/5,000 $ 6.69/$7.09

March 2015 197,865 $ 6.00 344,200 $ 6.00 - - April 2015 115,374 $ 6.38 125,000 $ 6.38 - -

November 2015 - - 209,282 $ 5.49 40,000/20,000 $ 5.49/$5.91

As of March 31, 2016, options to purchase 1,915,458 shares of our common stock had been awarded and are outstanding pursuant to grants under the 2009 Stock Plan.

Employee Stock Purchase Plan

On November 5, 2008, we adopted the 2009 Employee Stock Purchase Plan, which we refer to as the ESPP. The ESPP establishes a series of offering periods during which most of our employees have an opportunity to purchase our common stock through payroll deductions. To be eligible, an employee must have completed one year of employment and regularly work over 20 hours per week and over 5 months per year. Prior to each offering period, a participant elects to have between 1% and 20% of his or her base compensation set aside for the purchase of the shares upon purchase dates, which occur at the end of each calendar quarter. The purchase price was amended by stockholder vote on March 24, 2016 to be is 95% of the lower of (A) the fair market value per share of our common stock on the start date of the offering period or (B) the fair market value per share of our common stock as of the end of each calendar quarter during the offering period. Prior to this amendment and throughout fiscal year 2016 the purchase price was 95% of the fair market value per share of our common stock on the start date of the offering period.

The offering period for our fiscal year 2016 began on April 1, 2015 and terminated on March 31, 2016, and had a purchase price of $6.0325 per share. The offering period for our fiscal year 2017 began on April 1, 2016 and will terminate on March 31, 2017. This fair value per share to be utilized in fiscal year 2017 as our start date amount is $3.49 per share.

Upon the adoption of the ESPP, up to 12,500 shares were reserved for purchase under the ESPP. On September 24, 2013, our stockholders approved an increase in the number of shares of our common stock available for issuance under the ESPP from 12,500 to 32,500. On March 12, 2015, our stockholders approved an increase in the number of shares of our common stock available for issuance under the ESPP from 32,500 to 52,500. On March 24, 2016, our stockholders approved an increase in the number of shares of our common stock available for issuance under the ESPP from 52,500 to 300,000. As of March 31, 2016, 52,500 shares of our common stock had been purchased under the ESPP. The ESPP may have additional offering periods until the shares reserved for the ESPP have been exhausted or the ESPP is terminated. It is intended that shares purchased under the ESPP qualify for special tax treatment under Section 423 of the Internal Revenue Code.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

The following table sets out information with respect to compensation plans under which equity securities of our company were authorized for issuance as of March 31, 2016.

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Plan Category

Number of Securitiesto be issued

upon exercise ofoutstanding

options,warrants and

rights(a)

Weighted----averageexercise price of

outstanding options,warrants and rights

(b)

Number of securitiesremaining availablefor future issuance

under equity compensation

plans (excluding securities

reflected in column (a))

(c) Equity compensation plans approved by security holders 1,915,458 $ 5.40 842,020 Equity compensation plans not approved by security holders — — — Total 1,915,458 $ 5.40 842,020

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of our capital stock as of June 10, 2016 by (i) each person known by us to be the beneficial owner of more than 10% of our common stock, (ii) each of our directors, (iii) each of our “named executive officers” and (iv) our directors and executive officers as a group.

Common Stock Beneficially Owned

Name of Beneficial Owner (1)

Numberof

Shares (2)

Percentageof

Class (3) Philip S. Sassower 1,498,830(4) 13.6%Mark Holleran 320,268(5) * Michael J. Rapisand — * Peter Poulin — * Brian E. Usher-Jones 52,104(6) * Andrea Goren 1,226,393(7) 10.9%Thomas F. Leonardis 34,876(8) * Kent Misemer 63,945(9) * F. Ben Irwin 33,875(10) * Tom Wilkinson 10,000(11) * Phoenix Venture Fund LLC 1,145,640(12) 10.5%

110 East 59th Street New York, NY 10022

All directors and executive officers as a group (10 persons) 2,070,127(13) 13.9%

* Represents less than 1% of class or combined classes.

(1) Except as otherwise indicated above, the address of each stockholder identified is c/o Xplore Technologies Corp., 8601 RR 2222, Building II, Austin, Texas 78730. Except as indicated in the other footnotes to this table, each person named in this table has sole voting and investment power with respect to all shares of stock beneficially owned by that person.

(2) Shares issuable pursuant to options and warrants that are exercisable, or convertible securities that are convertible, within 60 days of June 5, 2014 are deemed outstanding for the purposes of computing the percentage of shares owned by the beneficial owner, but are not deemed outstanding for purposes of computing the percentage of shares owned by any other person.

(3) Based upon 10,908,355 shares of our common stock outstanding as of the June 10, 2016.

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(4) Includes 91,975 shares of common stock that Mr. Sassower has the right to acquire upon exercise of outstanding options within 60 days of June 10, 2016, 177,970 shares of common stock owned of record, 17,651 shares of common stock owned of record by Susan Sassower, who is the spouse of Mr. Sassower, and 24,524 owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and Mr. Goren share voting and dispositive power. Also includes 1,145,640 shares of common stock beneficially owned by Phoenix, for which Mr. Sassower and Mr. Goren are the co-managers of the managing member. Mr. Sassower disclaims any beneficial ownership of the shares held by Phoenix, except to the extent of his pecuniary interest, if any, in such shares. Also includes 41,070 shares of common stock owned of record by two trusts for the benefit of Susan Sassower (the Susan Sassower Trusts”). Mr. Sassower is the sole trustee of the Susan Sassower Trusts. Mr. Sassower disclaims any beneficial ownership of the securities owned by the Susan Sassower Trusts except to the extent of his pecuniary interest, if any, in such securities.

(5) Includes 300,833 shares of common stock that Mr. Holleran has the right to acquire upon exercise of outstanding options within 60 days of June 10, 2016.

(6) Includes 32,242 shares of common stock that Mr. Usher-Jones has the right to acquire upon exercise of outstanding options within 60 days of June 10, 2016.

(7) Includes 17,303 shares of common stock owned of record by Andax, LLC, for which Mr. Goren is the manager, 32,242 shares of common stock that Mr. Goren has the right to acquire upon exercise of outstanding options within 60 days of June 10, 2016, and 24,524 shares of common stock owned of record by SG Phoenix LLC, an entity in which Mr. Sassower and Mr. Goren share voting and dispositive power. Also includes 1,145,640 shares of common stock beneficially owned by Phoenix, for which Mr. Sassower and Mr. Goren are the co-managers of the managing member. Mr. Goren disclaims any beneficial ownership of the shares held by Phoenix, except to the extent of his pecuniary interest, if any, in such shares.

(8) Includes 32,242 shares of common stock that Mr. Leonardis has the right to acquire upon exercise of outstanding options within 60 days of June 5, 2015.

(9) Includes 29,959 shares of common stock owned of record by The Kent A. Misemer Revocable Trust (12/24/92), for which Mr. Misemer is a trustee and 32,242 shares of common stock the Mr. Misemer has the right to acquire upon exercise of outstanding options with 60 day of June 10, 2016.

(10) Includes 32,242 shares of common stock that Mr. Irwin has the right to acquire upon exercise of outstanding options within 60 days of June 10, 2016.

(11) Includes 10,000 shares of common stock owned of record by SEP FBO Thomas Wilkinson, sponsored by Wilkinson & Company, for which Mr. Wilkinson is the beneficiary.

(12) Voting and dispositive power over these shares is held equally by Philip Sassower and Andrea Goren. Messrs. Sassower and Goren disclaim any beneficial ownership of the shares held by Phoenix, except to the extent of their respective pecuniary interest, if any, in such shares.

(13) Includes 555,109 shares of common stock our directors and executive officers have the right to acquire upon exercise of outstanding options within 60 days of June 10, 2016. Also includes 1,145,640 shares of common stock beneficially owned by Phoenix, in which Mr. Sassower and Mr. Goren are the co-managers of the managing member. Mr. Sassower and Mr. Goren each disclaim any beneficial ownership of the shares held by Phoenix, except to the extent of their respective pecuniary interest, if any, in such shares.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Certain Relationships and Related Transactions

During the fiscal year ended March 31, 2016, we purchased approximately $117,000 in components for our tablet PCs from Ember Industries, Inc., a contract manufacturer. Thomas F. Leonardis, a member of our board of directors, is the Chairman and Chief Executive Officer of Ember Industries. We purchased the components from Ember Industries pursuant to standard purchase orders at Ember Industries’ standard prices. The disinterested members of our board of directors reviewed, approved and ratified our purchase of component parts from Ember Industries on the described terms.

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On May 1, 2015, our board of directors amended our transaction bonus pool such that the 15% formerly unallocated portion of the transactional bonus pool was allocated to Mr. Sassower and Mr. Goren. In November 2015, our board of directors reconsidered the reallocation of the pool and returned the portion allocated to Mr. Sassower and Mr. Goren to the unallocated portion.

In April 2015, our board of directors approved an increase in annual fees paid to SG Phoenix LLC, an affiliate, for services to be rendered from $200,000 to $287,500 effective April 1, 2015. Our board of directors also approved a discretionary bonus payment of $100,000 to SG Phoenix LLC for the fiscal year ended March 31, 2016 for services rendered by Philip S. Sassower as our chief executive officer.

On April 7, 2016, our board of directors approved grants of options to purchase a total of 240,374 shares of our common stock, with an exercise price of $6.38, to certain of our officers and directors, of which options to purchase 87,437 shares were granted to Mr. Sassower, and options to purchase 27,937 shares were granted to Mr. Goren. The options vest in on the first anniversary of the date of grant, and have a term of seven and one half years from the date of the grant.

On June 12, 2012, our board of directors approved the payment to each member of our board of directors of an annual fee of $10,000, to be paid quarterly in the amount of $2,500. On November 4, 2013, our board of directors approved the payment of an additional annual fee to each member of the board of director’s audit committee and compensation committee, in the amount of $4,000 for each committee on which such member serves, to be paid quarterly in the amount of $1,000, effective October 1, 2013. General administration expense includes expense of $84,000 for these fees for the years ended March 31, 2016.

Item 14. Principal Accounting Fees and Services.

Principal Accountant Fees

Fee Category Fiscal

Year 2016 % ofTotal

FiscalYear 2015

% ofTotal

Audit Fees(1) $ 261,745 100% $ 112,940 100%Audit-Related Fees(2) — — Tax Fees(2) — — All Other Fees — — Total Fees $ 261,745 100% $ 112,940 100%

(1) Audit Fees consist of amounts for professional services performed for the audit of our annual financial statements and review of quarterly financial statements, and services that are normally provided in connection with statutory and regulatory filings or engagements. PMB Helin Donovan are our current auditors and performed the audits of our annual consolidated financial statements for both of the years ended March 31, 2016 and 2014 for fees of $261,745 and $112,289, respectively, including $98,995 paid in the year ended March 31, 2016 for the audit services related to the Motion Acquisition and $14,000 in the year ended March 31, 2015 for attestation services, including a comfort letter, related to the registration statement on the Form S-1 we filed in connection with the public offering of our common stock in that year.

(2) We paid no other fees to PMB Helin Donovan for assurance and related services reasonably related to the performance of the audit or review of our consolidated financial statements or for tax fees during the two years ended March 31, 2016. Pre-Approval Policy Consistent with SEC and PCAOB requirements regarding auditor independence, our audit committee has responsibility for appointing, setting compensation

and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, our audit committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. During the year, if it becomes necessary to engage the independent registered public accounting firm for services, our audit committee requires specific pre-approval before engaging the independent registered public accounting firm. In accordance with that policy, our audit committee may delegate to one of its members the approval of such services. In such cases, the items approved will be reported to the audit committee at its next scheduled meeting following such pre-approval. All of the audit and tax fees we paid to PMB Helin Donovan for fiscal years 2016 and 2015 were approved by our audit committee.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this report:

(1) Financial Statements

Index to Consolidated Financial Statements

Annual Financial Statements Report of Independent Registered Public Accountants F-2Consolidated Balance Sheets as of March 31, 2016 and 2015 F-3Consolidated Statements of Income and Operations for the years ended March 31, 2016 and 2015 F-4Consolidated Statement of Stockholders’ Equity for the years ended March 31, 2016 and 2015 F-5Consolidated Statements of Cash Flows for the years ended March 31, 2016 and 2015 F-6Notes to the Consolidated Financial Statements F-7

(2) Financial Statement Schedules:

None

(3) Management Contract or Compensatory Plan:

See Index to Exhibits. Each of the following Exhibits described on the Index to Exhibits is a management contract or compensatory plan: Exhibits 10.15 through 10.19.

(b) Exhibits:

See Index to Exhibits.

(d) Schedules:

See financial statements and the accompanying notes.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 29th day of June 2016.

XPLORE TECHNOLOGIES CORP. By: /s/ TOM WILKINSON

Name: Tom Wilkinson Title: Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ PHILIP S. SASSOWER Chief Executive Officer (Principal Executive Officer) and Director June 29, 2016Philip S. Sassower

/s/ TOM WILKINSON Chief Financial Officer (Principal Financial and Accounting Officer) June 29, 2016

Tom Wilkinson

/s/ BRIAN E. USHER-JONES Director June 29, 2016Brian E. Usher-Jones

/s/ ANDREA GOREN Director June 29, 2016

Andrea Goren

/s/ THOMAS F. LEONARDIS Director June 29, 2016Thomas F. Leonardis

/s/ KENT MISEMER Director June 29, 2016

Kent Misemer

/s/ F. BEN IRWIN Director June 29, 2016F. Ben Irwin

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INDEX TO FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS OF

XPLORE TECHNOLOGIES CORP.

Annual Financial Statements Report of Independent Registered Public Accountants F-2Consolidated Balance Sheets F-3Consolidated Statements of Income and Operations F-4Consolidated Statements of Stockholders’ Equity F-5Consolidated Statements of Cash Flows F-6Notes to the Consolidated Financial Statements F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

To the Board of Directors andStockholders of Xplore Technologies Corp.:

We have audited the accompanying consolidated balance sheets of Xplore Technologies Corp. and its subsidiary (collectively the “Company”) as of March 31, 2016 and 2015 as well as the related consolidated statements of income and operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Xplore Technologies Corp. and its subsidiary as of March 31, 2016 and 2015, including the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 15 to the consolidated financial statements, on April 17, 2015, the Company acquired certain assets and assumed certain liabilities of Motion Computing, Inc. and certain of its subsidiaries from Square 1 Bank.

/s/ PMB Helin Donovan, LLPAustin, TXJune 29, 2016

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Consolidated Balance Sheets

(in thousands)

March 31,

2016 March 31,

2015 ASSETS

CURRENT ASSETS: Cash and cash equivalents $ 5,594 $ 19,455 Accounts receivable, net 14,277 6,633 Inventory, net 14,858 7,883 Prepaid expenses and other current assets 800 315

Total current assets 35,529 34,286 Fixed assets, net 1,003 1,030 Intangible assets, net 1,785 — Goodwill 14,872 — $ 53,189 $ 35,316

LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES:

Accounts payable $ 9,611 $ 2,570 Accrued liabilities 3,409 2,024 Deferred revenue and current warranty liabilities 4,413 414

Total current liabilities 17,433 5,008 Deferred revenue and non-current warranty liabilities 4,568 1,517 Total liabilities 22,001 6,525 Commitments and contingencies — — STOCKHOLDERS’ EQUITY:

Preferred Stock, par value $0.001 per share; authorized 5,000, and none, respectively; shares issued none and none, respectively — —

Common Stock, par value $0.001 per share; authorized 15,000; shares issued 10,908 and 10,784, respectively 11 11 Additional paid-in capital 171,138 168,379 Accumulated deficit (139,961) (139,599)

31,188 28,791 $ 53,189 $ 35,316

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Income and Operations

(in thousands, except shares and per share amounts)

Years Ended March 31, 2016 2015 Revenue $ 100,530 $ 42,639 Cost of revenue 69,183 28,320 Gross profit 31,347 14,319 Expenses: Sales, marketing and support 15,096 6,352 Product research, development and engineering 5,771 3,537 General administration 9,427 4,103 30,294 13,992 Income from operations 1,053 327 Other income (expense): Interest expense (58) (8)Cost of integration (913) — Other income (expense) (450) (31) (1,421) (39)Income (loss) before income taxes (368) 288 Income tax (expense) benefit 6 (39)Net income (loss) $ (362) $ 249

Income (loss) per common share, primary $ (0.03) $ 0.03

Income (loss) per common share, fully diluted $ (0.03) $ 0.03

Weighted average number of common shares outstanding, primary 10,848,255 8,603,732

Weighted average number of common shares outstanding, fully diluted 10,848,255 8,759,113


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Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Common Shares

Number Amount

AdditionalPaid-inCapital

AccumulatedDeficit Total

Balances, March 31, 2014 8,429,539 $ 8 $ 154,969 $ (139,848) $ 15,129 Warrant issued for services — — 2 — 2 Shares issued for ESPP 13,052 — 72 — 72 Shares issued for exercise of stock options 41,596 1 143 — 144 Capital raise-net of fees 2,300,000 2 12,509 — 12,511 Stock-based compensation — — 684 — 684 Net income — — — 249 249 Balances, March 31, 2015 10,784,187 $ 11 $ 168,379 $ (139,599) $ 28,791 Shares issued for ESPP 22,837 — 138 — 138 Shares issued for exercise of stock options 101,331 — 465 — 465 Stock-based compensation — — 2,156 — 2,156 Net (loss) — — — (362) (362)Balances, March 31, 2016 10,908,355 $ 11 $ 171,138 $ (139,961) $ 31,188


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Consolidated Statements of Cash Flows

(in thousands)

Years Ended March 31, 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES: Cash provided by (used in) operations:

Net income (loss) $ (362) $ 249 Items not affecting cash:

Depreciation and amortization 1,730 919 Provision for doubtful accounts 69 2 Stock-based compensation expense 2,156 684 Equity instruments issued in exchange for services — 2

Changes in operating assets and liabilities: Accounts receivable (329) (453)Inventory (1,180) (643)Prepaid expenses and other current assets (514) 126 Accounts payable and accrued liabilities, including deferred revenue (6,717) 1,508

Net cash provided by (used in) operating activities (5,147) 2,394 CASH FLOWS FROM INVESTING ACTIVITIES:

Net cash received in purchase transaction 653 — Change in vendor liabilities 16 — Additions to fixed assets (888) (1,066)

Net cash used in investing activities (219) (1,066)CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from short-term borrowings 18,000 — Repayment of short-term indebtedness (27,098) — Net proceeds on issuance of Common Stock 603 12,727

Net cash provided by (used in) financing activities (8,495) 12,727 CHANGE IN CASH AND CASH EQUIVALENTS (13,861) 14,055 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,455 5,400 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,594 $ 19,455

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS: Payments for interest $ 58 $ 8

Payments for income taxes, net of refunds $ 8 $ 9


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Notes to the Consolidated Financial Statements

(in thousands, except share and per share amounts)

1. DESCRIPTION OF BUSINESS

Xplore Technologies Corp. (the “Company”), incorporated under the laws of the State of Delaware, is engaged in the development, integration and marketing of rugged mobile personal computer (“PC”) systems. The Company’s rugged tablet PCs are designed to withstand hazardous conditions such as extreme temperatures, driving rain, repeated vibrations, dirt, dust and concussive shocks. The intrinsically safe, ruggedized and reliable nature of the Company’s products enable the extension of traditional computing systems to a range of field personnel, including oil field pipeline inspectors, public safety personnel, warehouse workers and pharmaceutical scientists. The Company’s tablets are fitted with a range of performance-matched accessories, including multiple docking station solutions, wireless connectivity alternatives, global positioning system modules, biometric and smartcard modules, as well as traditional peripherals, such as keyboards and cases. Additionally, the Company’s most rugged tablets are waterproof for up to 30 minutes in a depth of up to three feet, impervious to drops from as high as seven feet, readable in direct sunlight, can be mounted on vehicles and include LTE and Wi-Fi connectivity options for real-time data access. The Company’s customers include major telecommunications companies, leading heavy equipment manufacturers, oil and gas companies, the military and first responders.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements were prepared using accounting principles generally accepted in the United States of America and reflect the following significant accounting policies:

a) Basis of consolidation and presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Xplore Technologies Corporation of America and Xplore Technologies International Corp.

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies. Estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimates are reasonably likely to occur from period to period, and would materially impact the Company’s financial condition, changes in financial condition or results of operations. On an ongoing basis, the Company evaluates the estimates, including those related to its revenue recognition, allowance for doubtful accounts, inventory valuation, warranty reserves, tooling amortization, financial instruments, stock-based compensation and income taxes. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates and assumptions.

Motion Acquisition On April 16, 2015, Xplore Technologies Corporation of America, a wholly-owned subsidiary of the Company, entered into a Foreclosure Purchase and Sale

Agreement (the “Purchase and Sale Agreement”) with Motion Computing, Inc., Motion Computing Pty, Ltd., Motion Computing Holding Company, Inc. (collectively “Motion”) and Square 1 Bank, Motion’s senior secured lender (“Square 1”), pursuant to which the Company’s subsidiary agreed to purchase certain of the assets of Motion, including cash, cash equivalents, accounts receivable, inventory, equipment, personal property and other assets of Motion for an aggregate purchase price of approximately $9 million in cash, plus the assumption of approximately $6 million in certain liabilities, net of current assets, subject to the terms and conditions thereof (the “Motion Acquisition”). The assumed liabilities include certain accounts payable and obligations for service contracts and product warranties. The closing of the Motion Acquisition occurred on April 17, 2015.

The Motion Acquisition was accounted for under the acquisition method of accounting in accordance with the provisions of FASB ASC Topic No. 805 Business Combinations (ASC 805). The total purchase price for the Motion assets was approximately $9 million and was comprised of cash consideration paid by the Company to Square 1.

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Under the acquisition method of accounting under ASC 805, the total estimated purchase price of the acquired company is allocated to the assets acquired and the liabilities assumed based on their fair values. The Company has made significant estimates and assumptions in determining the preliminary allocation of the purchase price. The preliminary allocation of purchase consideration is subject to change based on further review of the fair value of the assets acquired and liabilities assumed. The following table is the final allocation of the purchase price (in thousands, except years):

Fair Value

WeightedAverage

EstimatedUseful Life(In Years)

Cash and cash equivalents $ 653 Accounts receivable 7,383 Inventory 6,101 Other assets 7 Fixed assets 470 3 Goodwill 14,872 Identifiable intangible assets 2,130 6 Accounts payable and accrued liabilities (13,805) Deferred revenue (8,732) Total purchase price $ 9,079

Goodwill represents the excess of the fair value of consideration given over the fair value of the tangible assets, identifiable intangible assets and liabilities assumed in a business combination and the potential synergy of combining the operations of the Company and Motion. The Company expects the entire amount of goodwill recorded in this acquisition will be deducted for tax purposes ratably over a 15 year period. The identified intangible assets consist of trademarks, copyrights, and developed technology, including patents. The estimated fair values of the trademark, copyrights and developed technology were determined using the “Relief from Royalty” method. Trademark, developed technology, non-compete and customer relationship will be amortized on a straight-line basis over their estimated useful lives. The Company expects the amortization of acquired intangibles will be approximately $400 per year for the remaining estimated useful lives.

Goodwill and other intangible assets

Goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business acquisitions and combinations. Goodwill and other intangible assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate impairment may exist, such as a significant adverse change in the business climate. In assessing the value of goodwill, assets and liabilities are assigned to the reporting units and the appropriate valuation methodologies are used to determine fair value at the reporting unit level. Identified intangible assets are amortized using the straight-line method over their estimated useful lives which are estimated to be between three and seven years.

Long-lived asset impairment

Long-lived assets include property and equipment and definite-lived intangible assets. Definite-lived intangible assets consist of customer relationships, trade names and non-compete agreements. Long-lived assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate that the carrying value of the assets may not be recoverable.

b) Cash and cash equivalents and liquidity Cash and cash equivalents comprise cash and highly liquid investments with original maturities of less than ninety days.The Company had cash and cash equivalents of approximately $5.6 million at March 31, 2016, working capital of approximately $18.1 million and total equity

of approximately $31.2 million. The Company’s management believes that it has adequate cash and cash equivalents on hand and cash flow from operations to finance its operations for at least 12 months.

The Company also has available a line of credit (Note 5).

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Foreign Currency Transactions

The Company does enter into transactions that are settled in a foreign currency. The transactions are recorded in U.S. dollars based on the exchange rate in effect at the time a transaction is initiated. When a transaction is settled, the foreign currency received to settle the transaction is converted to U.S. dollars based on the exchange rate in effect at the time of settlement. A realized foreign currency exchange gain or loss is recorded based on the difference in the exchange rate in effect when a transaction is initiated, and the exchange rate in effect when a transaction is settled. For the fiscal year ended March 31, 2016 and 2015, the Company reported a loss in foreign currency transactions of $472 and $5, respectively.

c) Allowance for doubtful accounts

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated with the allowance for doubtful accounts is recognized as general administration expense. The Company has not had material adjustments due to actual experience.

d) Inventory

Inventory is recorded at the lower of average cost or net realizable value. The valuation of inventory requires the use of estimates regarding the amount of current inventory that will be sold and the prices at which it will be sold based on an assessment of expected orders for these products from the Company’s customers. Additionally, the estimates reflect changes in the Company’s products or changes in demand because of various factors including the market for the Company’s products, obsolescence, product discontinuation, technology changes and competition.

e) Fixed assets

Fixed assets are recorded at cost. The straight line depreciation method is used to depreciate the recorded value of fixed assets over their estimated useful lives.

Fixed Asset Estimated Useful LivesTooling and fixtures 2 yearsOffice equipment 5 yearsMachine equipment 2 yearsLeasehold improvements lesser of 5 years or remaining lease termComputer equipment 2 yearsComputer software 2 yearsDemonstration units 6 months

The Company performs reviews for the impairment of fixed assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.

f) Revenue recognition

The Company’s revenue is derived from the sale of rugged, mobile technology which includes rugged mobile tablet computers and related accessories. The Company’s customers are predominantly resellers. However, the Company also sells directly to end-users. Revenue is recognized, net of an allowance for estimated returns, when title and risks of ownership are transferred to the customer, all significant contractual obligations have been satisfied, the sales price is fixed or determinable and the ability to collect is reasonably assured. The Company’s revenue recognition criteria have generally been met when the product has been shipped. Shipments are based on firm purchase orders from customers with stated terms. The shipping terms are F.O.B. shipping point. However, with our assumption of certain customer contracts in the Motion Acquisition, a number of our sales under those contracts are not recognized until the customer actually receives the goods. The shipping terms are F.O.B. shipping point. The Company does not have installation, training or other commitments subsequent to shipment that are other than incidental. Prices are determined based on negotiations with the Company’s customers and are not subject to adjustment. Generally, the Company does not hold inventory at its resellers and does not expect resellers to hold inventories of the Company’s products other than in limited circumstances where such inventory is monitored by the Company. As a result, the Company expects returns to be minimal. The allowance for returns is calculated and regularly reviewed based on historical experience. The Company has not had material adjustments as returns have been minimal. The majority of the Company’s warranty obligations related to recognized revenue are generally covered by warranty coverage arrangements provided by a third party. To the extent warranty coverage is not provided by a third party, the Company records a reserve for the future warranty obligation at the time of sale. Revenue from separately priced extended warranty contracts is deferred and recognized in income on a straight-line basis over the related contract period. At March 31, 2016 and 2015, the Company had deferred revenue of $8,390 and $1,415, respectively, from separately priced extended warranty contracts, of which $4,119 and $1,033, respectively, is reflected as a non-current liability on the accompanying consolidated balance sheets.

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g) Cost of revenue

The Company’s cost of revenue consists of the costs associated with manufacturing, assembling and testing its products, related overhead costs, maintenance, compensation, freight and other costs related to manufacturing support, including the depreciation of tooling assets. The Company uses contract manufacturers to manufacture its products and supporting components, and the significant majority of the Company’s cost of revenue is attributable to component costs and payments to these contract manufacturers.

Cost of revenue also includes warranty costs. The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under its warranty. The specific warranty terms and conditions generally included are technical support, repair parts, and labor for a period that is generally three years. The Company re-evaluates its estimates to assess the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary and any change, based on current information, is recorded as a change in estimate. The estimates have not required significant adjustment due to actual experience.

The changes to the warranty liabilities are as follows:

Years Ended March 31, 2016 2015 Beginning balance $ 516 $ 285 Aggregate changes for accrual related to guarantees issued 421 458 Aggregate changes to preexisting accruals (20) (116)Aggregate reductions for payments made (327) (111)Ending balance $ 590 $ 516

Warranty recorded as a current liability $ 141 $ 32 Warranty recorded as a non-current liability $ 449 $ 484

h) Income taxes

The Company accounts for income taxes in accordance with the asset and liability method. The determination of future tax assets and liabilities is based on the difference between financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the period in which the differences are expected to occur. Future tax assets are recorded to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized.

The Company periodically assesses uncertain tax positions that the Company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). The Company evaluated its tax positions and determined that there were no uncertain tax positions for the years ended March 31, 2016 and 2015.

i) Stock-based compensation

The Company applies the fair value method of accounting for all of its employee stock-based compensation. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards at the date of the issuance of the award. The value is expensed over the vesting period which is generally three years. See Note 8 to these consolidated financial statements for required disclosures.

j) Financial instruments and credit risk

Financial instruments that potentially subject the Company to credit risk include cash and cash equivalents and accounts receivable from customers. Accounts receivables are generally unsecured. With respect to accounts receivables, the Company performs ongoing credit evaluations of customers and generally does not require collateral.

While the Company’s cash and cash equivalents are on deposit with high quality FDIC insured financial institutions, at times such deposits exceed the insured limits. The Company had cash balances in excess of federally insured limits of approximately $5,114 at March 31, 2016. The Company has not experienced any losses in such accounts.

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Receivables are concentrated with a small number of customers. The Company maintains an allowance for doubtful accounts when deemed necessary. The allowance for doubtful accounts at March 31, 2016 and March 31, 2015 was $153 and $3, respectively.

The amounts reported for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are considered to approximate their fair values based on comparable market information available at the respective balance sheet dates and their short-term nature.

k) Earnings (Loss) Per Share

Basic earnings (loss) per share has been computed based on the weighted-average number of shares of common stock issued and outstanding during the year, and is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the year. There was no need to calculate diluted earnings per share for the year ended March 31, 2016. Diluted earnings per share for the year ended March 31, 2015 are calculated by dividing net income by the weighted-average number of common shares used in the primary earnings per share calculation plus the number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding, which were 135,381 and 20,000 shares related to dilutive options and warrants, respectively. The effects of the options granted under the Company’s option plans, the exercise of outstanding options and the exercise of outstanding warrants were excluded from the loss per share calculations for the year ended March 31, 2015 as their inclusion is anti-dilutive. Accordingly, diluted loss per share has not been presented.

The following securities were not considered in the earnings per share calculation at their common stock equivalent for the years ended:

March 31, 2016 March 31, 2015 Options 1,915,458 835,336 Warrants 120,000 103,750 2,035,458 939,086

l) Recent accounting pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements. The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.

In March 2016, the Financial Accounting Standards Board (the "FASB") issued guidance which amends the existing accounting standards for share-based payments. The amendment changes the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. The Company is required to adopt the guidance in the first quarter of fiscal 2018. Earlier adoption is permitted. The Company is currently evaluating the timing and the impact of this guidance on its consolidated financial statements.

In February 2016, the FASB issued guidance which amends the existing accounting standards for leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification. Under the new guidance, a lessee will be required to recognize assets and liabilities for all leases with lease terms of more than twelve months. The Company is required to adopt the guidance in the first quarter of fiscal 2020 using a modified retrospective approach. The Company is currently evaluating the timing and the impact of this guidance on its consolidated financial statements.

In January 2016, the FASB issued guidance which amends the existing accounting standards for the recognition and measurement of financial assets and financial liabilities. The updated guidance primarily addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The Company is required to adopt the guidance in the first quarter of fiscal 2019. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with other amendments related specifically to equity securities without readily determinable fair values applied prospectively. The Company is currently evaluating the timing and the impact of this guidance on its consolidated financial statements.

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In November 2015, the FASB issued ASC Update No. 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASC 2015-17") which requires all deferred tax assets and liabilities, including related valuation allowances, be classified as non-current on the consolidated balance sheets. ASC 2015-17 may be adopted prospectively or retrospectively and is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2016 with early adoption permitted. The Company does not expect the adoption of ASC 2015-17 to have a material impact on its financial statements.

In July 2015, the FASB issued ASC Update No. 2015-11, "Simplifying the Measurement of Inventory" ("ASC 2015-11") which requires that inventory be measured at the lower of cost and net realizable value. ASC 2015-11 should be adopted prospectively and is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2016 with early adoption permitted. The Company does not expect the adoption of ASC 2015-11 to have a material impact on its financial statements.

In April 2015, the FASB issued Accounting Standards Codification ("ASC") Update 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASC 2015-03") which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASC Update No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements," ("ASC 2015-15"). ASC 2015-15 provides additional guidance to ASC 2015-03, which did not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASC 2015-03 requires retrospective adoption and is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2015 with early adoption permitted. The Company does not expect the adoption of ASC 2015-03 to have a material impact on its financial statements.

In April 2015, the FASB issued ASC Update No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement" ("ASC 2015-05") which provides additional guidance to customers about whether a cloud computing arrangement includes a software license. Under ASC 2015-05, if a software cloud computing arrangement contains a software license, customers should account for the license element of the arrangement in a manner consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, customers should account for the arrangement as a service contract. Entities can use either of two methods: (i) prospectively to all arrangements entered into or materially modified after the effective date; or (ii) retrospectively providing certain additional disclosures as defined per ASC 2015-05. ASC 2015-05 is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2015 with early adoption permitted. The Company does not expect the adoption of ASC 2015-05 to have a material impact on its financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (ASU 2015-02). The objective of ASU 2015-02 is to modify the consolidation requirements of Topic 810 to ensure that reporting entities do not consolidate other legal entities in situations where deconsolidation actually more accurately represents operational and economic results. Among other changes, the amendments to ASC 810 include lessening the relevance on fees paid to a decision-maker or service provider and the related party tiebreaker test.

The amendments are effective for private business entities for fiscal years, and for interim periods within those fiscal years beginning after December 15, 2016. This ASU may be adopted using a full retrospective approach or a modified retrospective approach by recording a cumulative effect adjustment to equity as of the beginning of the fiscal year of adoption. ASU 2015-02 will be effective for us beginning in fiscal 2017. The Company is currently evaluating the impact that the adoption of ASU 2015-02 may have on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” and some cost guidance included in ASC Subtopic 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts”. The core principle of ASU 2014-09 is that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable users of our financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The Company will also be required to disclose information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application. ASU 2014-09 will be effective for the Company beginning in fiscal 2018; however, a delay in the effective date is currently being considered by the FASB, which the Company expects will result in at least a one year deferral. The FASB may also permit companies to adopt ASU 2014-09 early, but not before the original public company effective date (that is, annual periods beginning after December 15, 2016). The Company is currently evaluating the impact that the adoption of ASU 2014-09 may have on its consolidated financial statements.

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3. INVENTORY

March 31, 2016 2015 Finished goods $ 9,145 $ 5,687 Computer components 5,713 2,196 Total inventory $ 14,858 $ 7,883

4. FIXED ASSETS

March 31, 2016 2015 Cost Tooling and fixtures $ 2,872 $ 2,546 Office equipment and leasehold improvements 1,109 1,080 Computer equipment and demonstration units 801 662 Computer software 715 662 5,497 4,950 Accumulated depreciation Tooling and fixtures 2,170 1,660 Office equipment and leasehold improvements 1,064 1,054 Computer equipment and demonstration units 583 548 Computer software 677 658 4,494 3,920 Total fixed assets, net $ 1,003 $ 1,030

Depreciation and amortization expense was $1,730 and $919 during the years ended March 31, 2016 and 2015, respectively.

5. SHORT-TERM INDEBTEDNESS

On December 10, 2009, the Company’s wholly-owned subsidiary entered into an Accounts Receivable Purchasing Agreement (as amended to date, the “ARPA”) with DSCH Capital Partners, LLC d/b/a Far West Capital (“FWC”). Pursuant to the ARPA, FWC could purchase, in its sole discretion, eligible accounts receivable of the Company’s subsidiary on a revolving basis, up to a maximum of $8,500, with full recourse for the face amount of such eligible receivables.

On April 17, 2015, the Company terminated the ARPA and entered into a new credit agreement in connection with the consummation of the Motion Acquisition. There were no borrowings under the ARPA immediately prior to such termination. The Company and its wholly-owned subsidiary entered into a Loan and Security Agreement with Square 1 (the “Square 1 Credit Agreement”) pursuant to which Square 1 agreed to provide revolving loans of up to an aggregate principal amount of $15 million to the Company’s subsidiary. The Square 1 Credit Agreement has a two-year term. Payment and performance under the Square 1 Credit Agreement is secured by a first priority security interest in and to substantially all of the assets of the Company and its subsidiaries. Pursuant to the Square 1 Credit Agreement, the loans consist of formula revolving loans and non-formula revolving loans. The maximum amount of formula revolving loans outstanding at any one time cannot exceed the lesser of $15 million or 85% of eligible accounts receivable of the Company’s subsidiary. The maximum amount of non-formula revolving loans outstanding at any one time cannot exceed $4 million through April 16, 2016, and thereafter steps-down in $480,000 increments every three months until the cap reaches $2.08 million, which will be maximum allowable amount outstanding at any one time thereafter until the maturity date.

The interest rate on the loans is variable, and will be equal to the prime rate in effect from time to time plus 1.25% per annum, provided that the interest rate on any day shall not be less than 4.5% per annum. As of April 17, 2015, the outstanding principal amount of loans drawn under the Square 1 Credit Agreement was approximately $9 million, which the Company’s subsidiary used to fund the cash portion of the purchase price of the Motion Acquisition.

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The Square 1 Credit Agreement contains a financial covenant regarding liquidity, which is tested monthly. Failure to meet such covenant or the triggering of other events of default could result in acceleration of all payment obligations and the termination of the obligations of Square 1 to make loans and extend credit under the Square 1 Credit Agreement. The Square 1 Credit Agreement contains certain representations and warranties that must be made and certain other conditions that must be met for the Company and its subsidiary to cause Square 1 to make loans. The Square 1 Credit Agreement also contains customary affirmative and negative covenants, events of default and remedies upon default including acceleration. The Company agreed to a financial covenant requiring that the sum of the aggregate undrawn portion of the loans available under the Square 1 Credit Agreement plus the aggregate amount of all non-restricted cash and cash equivalents of the Company as shown on the Company's monthly financial statements provided to Square 1, as required under the Square 1 Credit Agreement, shall be at least $3 million.

On March 31, 2016, there were no borrowings under the Square 1 Credit Agreement.

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

March 31, 2016 2015 Accounts payable $ 9,611 $ 2,570 Accrued liabilities 3,409 2,024 Deferred revenue and non-current warranty liabilities 4,413 414 Total $ 17,433 $ 5,008

7. SHARE CAPITAL

On November 1, 2012, the Company filed its second amended and restated certificate of incorporation with the Secretary of State of the State of Delaware, which integrated the then-in-effect provisions of the Company’s amended and restated certificate of incorporation and further amended those provisions by decreasing the Company’s authorized shares of common and preferred stock. The second amended and restated certificate of incorporation became effective on the date of filing. As a result of the second amended and restated certificate of incorporation, the number of authorized shares of common stock of the Company was reduced from 1,350,000,000 to 15,000,000 and the number of authorized shares of preferred stock of the Company was reduced from 150,000,000 to 5,000,000.

Year-ended March 31, 2015

On March 12, 2013, the Company filed a shelf registration statement on Form S-3, which was declared effective on March 27, 2013.

On March 9, 2015, pursuant to a prospectus supplement to the shelf registration statement, the Company completed the closing of the public offering of 2,300,000 shares of common stock, including the full exercise of the underwriter’s over-allotment option, at an offering price of $6.00 per share, and received gross proceeds of approximately $13,800. The Company incurred costs of approximately $1,289 associated with the public offering of the Company’s common stock. The costs consist of the underwriting discount, professional fees, primarily legal, and costs associated with marketing the public offering, primarily travel. These costs were charged against the gross proceeds of the public offering of the Company’s common stock.

Warrants Outstanding

At March 31, 2016, there were warrants outstanding to purchase an aggregate of 120,000 shares of the Company’s common stock outstanding, all of which are fully exercisable as detailed in the table below:

Number of Warrants/Number

Exercisable Exercise Price (1) Expiration Date 20,000 $ 5.00 to $5.75 May 31, 2016 100,000 $ 6.25 October 24, 2017

(1) Exercise price may change subject to anti-dilutive terms.

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8. STOCK----BASED COMPENSATION PLAN

a) Stock Options

On July 28, 2009, the Company’s board of directors (the “Board of Directors”) adopted the 2009 Stock Incentive Plan (the “2009 Stock Plan”). The 2009 Stock Plan provides for equity-based awards in the form of incentive stock options and non-statutory options, restricted shares, stock appreciation rights and restricted stock units. Awards are made to selected employees, directors and consultants to promote stock ownership among award recipients, encourage their focus on strategic long-range corporate objectives, and attract and retain exceptionally qualified personnel. The exercise price of an option is determined at the date of grant and is based on the closing price of the Company’s common stock on the stock exchange or quotation system on which the common stock is listed or traded on the day of grant. Unless otherwise provided for, the options are exercisable only during the term of engagement of the employee, officer or consultant or during the period of service as a director of the Company. The 2009 Stock Plan became effective as of June 10, 2009 and was approved by the Company’s stockholders on January 14, 2010.

At March 31, 2016, the maximum aggregate number of shares of common stock reserved for issuance upon the exercise of all options granted under the 2009 Stock Plan may not exceed 1,687,500 shares. The options under the 2009 Stock Plan generally vest over a three-year period in equal annual amounts and expire five years after the issuance date.

The Board of Directors approved the following grants of options:

Grants To: Directors Officers Non-Officer Employees

Month of Grant Shares Ex. Price Shares Ex. Price Shares Ex. Price June 2014 - - - - 45,000/10,000 $ 6.28/$6.16

August 2014 - - - - 20,000 $ 6.28 November 2014 - - - - 5,000 $ 5.90 February 2015 - - - - 20,000 $ 6.58 February 2015 - - - - 5,000/5,000 $ 6.69/$7.09

March 2015 197,865 $ 6.00 344,200 $ 6.00 - - April 2015 115,374 $ 6.38 125,000 $ 6.38 - -

November 2015 - - 209,282 $ 5.49 40,000/20,000 $ 5.49/$5.91

A summary of the activity in the 2009 Stock Plan during the years ended March 31, 2016 and 2015 is as follows:

Years Ended March 31, 2016 2015

Options

WeightedAverage

Exercise Price(USD$) Options

WeightedAverage

Exercise Price(USD$)

Outstanding at beginning of year 1,905,405 $ 6.30 1,366,562 $ 6.55 Granted 509,656 $ 5.93 652,065 $ 6.03 Exercised (101,330) $ 4.59 (41,596) $ 3.44 Forfeited (398,273) $ 10.55 (71,626) $ 10.32 Outstanding and expected to vest at end of year 1,915,458 $ 5.40 1,905,405 $ 6.30

In fiscal 2016, options to purchase 101,330 shares of common stock were exercised, pursuant to which the Company received $465 of cash. The intrinsic value and tax benefit realized for options exercised in the year ended March 31, 2016 was $101. In fiscal 2015, options to purchase 41,596 shares of common stock were exercised, pursuant to which the Company received $144 of cash. The intrinsic value and tax benefit realized for options exercised in the year ended March 31, 2015, was $72.

At March 31, 2016, the total number of shares of common stock issued in connection with the exercise of options since the inception of the 2009 Stock Plan is 171,927 and the total number of shares of common stock issued in connection with the vesting of restricted stock awards under the 2009 Stock Plan is 4,268.

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A summary of the options outstanding and exercisable at March 31, 2016 is as follows:

Options Outstanding and Expected to Vest Options Exercisable

Range of Exercise Prices Number Outstanding

Weighted AverageRemaining

Contractual Life Number Exercisable

Weighted AverageRemaining

Contractual Life $ 3.44–4.99 306,737 2.5 191,742 2.5 $ 5.00–7.50 1,603,721 5.1 697,243 4.8 $ 7.51–20.00 5,000 0.7 5,000 0.7 1,915,458 4.7 893,985 4.4

At March 31, 2016, the weighted average exercise price of options exercisable is $5.01.

The options have been valued separately using the Black-Scholes methodology. The options issued to the Board of Directors, officers and non-officers have different expected terms and, accordingly, different volatility and discount rates as follows:

Grants To: Directors Officers Non-Officer Employees

Assumptions Expected

Term Volatility Discount

Rate Expected


Rate Expected


Rate Fiscal 2015 7.0 yrs 63% 1.93% 4.5 yrs 54% 1.60% 3.0 yrs 49% 0.71%Fiscal 2016 7.0 yrs 63% 1.93% 4.5 yrs 54% 1.60% 3.0 yrs 49% 0.71%

There were assumed to be no dividends paid to holders of the Company’s common stock for either year.

The Company recorded stock compensation cost of $2,156 and $684 for the years ended March 31, 2016 and 2015, respectively. This expense was recorded in the employee related functional classification. Compensation expense has been determined based on the fair value at the grant date for options granted in the current fiscal year. The future compensation expense to be recognized for unvested option grants at March 31, 2016 was $992, which is to be recognized over the next three years.

As all stock options were at strike prices greater than the market price of $3.49 as of March 21, 2016, they had no intrinsic value. The weighted average grant date fair value of options granted during the year ended March 31, 2016 was $2.68 per share.

b) 2009 Employee Stock Purchase Plan

The Company’s Board of Directors approved an employee stock purchase plan that was implemented on January 1, 2009 and approved by the Company’s stockholders on November 4, 2009 (the “ESPP”). The offering price per common share and number of common shares purchased for the years ended March 31, 2016 and 2015 are as follows:

Years Ended March 31, 2016 2015 Offering Price per Common Share $ 6.03 $ 6.03 Common Shares Purchased 20,390 12,660

9. INCOME TAXES

The tax effect of temporary differences that give rise to future income tax assets are as follows:

Years Ended March 31, 2016 2015 Deferred income tax assets: Net operating losses $ 26,258 $ 28,179 Accrued liabilities 207 192 Deferred revenue 746 495 Inventory allowance 492 367 Other items 179 32 Valuation allowance (27,882) (29,265)Deferred tax asset $ — $ —

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The provision for income taxes varies from the expected provision at statutory rates for the following reasons:

Years Ended March 31, 2016 2015 Combined basic US statutory rates 35% 35%Income taxes (recovery) based on the above rates $ (127) $ 101 Increase in income taxes resulting from:

Permanent difference—stock compensation 719 214 Permanent difference—meals & entertainment 40 21 Tax rate differences 54 (43)Other (199) (30)Change in valuation allowance (493) (224)

Income tax expense (benefit) $ (6) $ 39

The income tax benefit of $6 for fiscal year 2016 represents a true up of the prior year accrual to actual. The prior year had federal income taxes due to the alternative minimum tax computation’s limitation of the utilization of net operating loss carry forwards and the alternative minimum tax rate of 20%.

The Company has accumulated net operating losses for income tax purposes totaling approximately $78,632, which under certain conditions, may be carried forward and applied to reduce future year’s taxable income. Such losses may be subject to limitation under IRC Section 382 if there was a change in control as defined by the Internal Revenue Service. The potential benefit associated with these losses is not reflected in these statements as management does not believe that recovery is more likely than not. The right to claim these losses will expire beginning 2018.

Tax years that remain open for examination by the Internal Revenue Service include 2011, 2012, 2013 and 2014.

10. FINANCIAL INSTRUMENTS AND CREDIT RISK

Interest rate risk

At March 31, 2016, the interest rate on the loans under the Loan and Security Agreement with Square 1 is variable, and will be equal to the prime rate in effect from time to time plus 1.25% per annum, provided that the interest rate on any day shall not be less than 4.5% per annum. As of March 31, 2016, there was no balance on the loan facility with Square 1.

Foreign exchange risk

The Company does enter into transactions that are settled in a foreign currency. The transactions are recorded in U.S. dollars based on the exchange rate in effect at the time a transaction is initiated. When a transaction is settled, the foreign currency received to settle the transaction is converted to U.S. dollars based on the exchange rate in effect at the time of settlement. A realized foreign currency exchange gain or loss is recorded based on the difference in the exchange rate in effect when a transaction is initiated, and the exchange rate in effect when a transaction is settled. For the year ended March 31, 2016 and 2015, the Company reported a loss in foreign currency transactions of $472 and $5, respectively. The Company’s foreign currency transactions and accounts receivable balances as of March 31, 2016 were as follows:

Year Ended March 31, 2016 2016 AR Sales Australian Dollar $ 277 $ 4,734 British Pound $ 128 $ 2,204 Canadian Dollar $ 859 $ 4,625 Euro $ 520 $ 7,381 New Zealand Dollar $ 3 $ 594 Swiss Franc $ 8 $ 1,099

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Credit risk

Information regarding the Company’s accounts receivable credit risk is as follows:

As ofMarch 31,

AccountsReceivable

(in millions)

Number of Customers with

Receivable Balance >10%

of Total Receivables

Customer Share as a

Percent of TotalReceivables

Percentage Share of Total

Receivables 2016 $ 14.3 2 42% 42%2015 $ 6.6 3 49% 49%

The receivables representing 42% of the accounts receivable balance at March 31, 2016 was subsequently collected.

Supplier Risk

The Company relies on a two suppliers for the majority of its finished goods. At March 31, 2016 and 2015, the Company owed the suppliers $6,606 and $2,423, respectively, which was recorded as accounts payable and accrued liabilities. The inventory purchases and engineering services from these suppliers for the years ended March 31, 2016 and 2015 were $48,017 and $23,317, respectively.

11. SEGMENTED INFORMATION

The Company operates in one segment, the sale of rugged mobile tablet PC systems. Approximately 68% of the Company’s revenue for fiscal 2016 was derived from sales in the United States. For the fiscal year ended March 31, 2015, the United States accounted for 82% of the revenue.

The distribution of revenue by country is segmented as follows:

Years Ended March 31, 2016 2015 Revenue by country:

United States $ 68,825 $ 34,964 All other countries 31,705 7,675

$ 100,530 $ 42,639

The Company has a variety of customers and in any given year a single customer can account for a significant portion of sales. For the year ended March 31, 2016, the Company had two customers that had sales that were greater than 10% of total revenue, and these two customers were located in the United States. For the year ended March 31, 2015, the Company had three customers that had sales that were greater than 10% of total revenue, and all three customers were located in the United States. The percentages of total revenue from these customers are as follows:

Fiscal Year

TotalRevenue

(in millions)

Number of Customers

with Revenue of 10%

or greaterof Total Revenue

CustomerShare as aPercent of

Total Revenue

Percentage Share of

Total Revenue 2016 $ 100.5 2 34% 34%2015 $ 42.6 3 46% 46%

Substantially all of the Company’s capital assets are owned by its wholly-owned subsidiary, Xplore Technologies Corporation of America, a Delaware corporation. No more than 10% of the Company’s assets were located in any country, other than the United States, during each of the years ended March 31, 2016 and 2015.

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12. COMMITMENTS AND CONTINGENT LIABILITIES

a) Premises

The Company maintains its corporate functions, along with sales support, marketing and finance at a leased facility totaling approximately 16,228 square feet at 8601 Ranch Road 2222, Building II, Austin, Texas 78730. This lease expires on June 30, 2020 and has a current annual base rent, before reimbursable operating expenses, of approximately $235,000. The Company maintains its engineering and operating groups at a leased facility totaling 21,700 square feet at 14000 Summit Drive, Suite 900, Austin, Texas, 78728. This lease expires on August 31, 2019, and has a current annual base rent, before reimbursable operating expenses, of approximately $228,000. As a result of the Motion Acquisition, during fiscal year 2016 the Company occupied, with the consent of the landlord, a portion of Motion’s former leased facility at 8601 RR 2222, Building II, Austin, Texas, where Motion maintained its corporate functions, along with sales support, marketing, finance, engineering and operating groups. The Company did not assume Motion’s lease for the facility, and in fiscal year 2016 negotiated the terms of a new lease with the landlord as described above for a portion of Motion’s former space. The Company believes that its present facilities are suitable for its existing and planned operations.

Rent expense for the years ended March 31, 2016 and 2015 was $1,002 and $298, respectively.

Minimum annual payments by fiscal year required under all of the Company’s operating leases are:

2017 $ 757 2018 753 2019 767 2020 504 $ 2,781

b) Purchase commitment

At March 31, 2016, the Company had purchase obligations extending into fiscal 2017 of approximately $20,109 related to inventory and product development items.

c) Litigation Except as set forth below, at March 31, 2016, the Company and its subsidiaries were not involved in any legal actions.

Since the closing of the Motion Acquisition, three companies have filed lawsuits against the Company and Motion for alleged infringement of the claimant’s patent by Motion's products and the Company’s existing products. The Company believes the claims are without merit and intends to pursue its defenses against those claims, and does not believe that these proceedings will have a material adverse impact on the Company’s financial condition or results of operations. The Company subsequently settled one of the lawsuits by entering into a license agreement with a modest one-time payment.[?]

13. RELATED PARTY TRANSACTIONS

During the fiscal year ended March 31, 2016 and 2015, the Company purchased approximately $117 and $314, respectively, in components for its tablet PCs from Ember Industries, Inc., a contract manufacturer. Thomas F. Leonardis, a member of the Board of Directors, is the Chairman and Chief Executive Officer of Ember Industries. The Company purchased the components from Ember Industries pursuant to standard purchase orders at Ember Industries’ standard prices. The disinterested members of the Board of Directors reviewed, approved and ratified the Company’s purchase of component parts from Ember Industries on the described terms.

On May 1, 2015, the Board of Directors amended the Company’s transaction bonus pool such that the 15% formerly unallocated portion of the transactional bonus pool was allocated to Mr. Sassower and Mr. Goren. In November 2015, the Board of Directors reconsidered the reallocation of the pool and returned that portion of the pool to the unallocated portion.

In April 2015, the Board of Directors approved an increase in annual fees paid to SG Phoenix LLC, an affiliate, for services to be rendered from $200 to $288 effective April 1, 2015. The Board of Directors also approved a discretionary bonus payment of $100 to SG Phoenix LLC for each of the fiscal years ended March 31, 2016 and 2015, respectively, for services rendered by Philip S. Sassower as the Company’s chief executive officer. General administration expense includes an expense of $388 and $300 for the years ended March 31, 2016 and 2015, respectively, respectively for these fees.

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On April 7, 2016, the Board of Directors approved grants of options to purchase a total of 240,374 shares of the Company’s common stock, with an exercise price of $6.38, to certain of the Company’s officers and directors, of which options to purchase 87,437 shares were granted to Mr. Sassower, and options to purchase 27,937 shares were granted to Mr. Goren. The options vest in on the first anniversary of the date of grant, and have a term of seven and one half years from the date of the grant.

On June 12, 2012, the Board of Directors approved the payment to each member of our Board of Directors of an annual fee of $10. On November 4, 2013, the Board of Directors approved the payment of an additional annual fee to each member of the Board of Director’s audit committee and compensation committee, in the amount of $4 for each committee on which such member serves, effective October 1, 2013. General administration expense includes an expense of $84 for each of the years ended March 31, 2016 and 2015, respectively, relating to these fees.

14. QUARTERLY DATA (UNAUDITED)

The unaudited selected quarterly results of operations are as follows (in thousands, except for per share amounts) Quarter

First Second Third Fourth Year 2016

Revenue $ 24,043 $ 28,853 $ 27,023 $ 20,611 $ 100,530

Gross profit % 33.9% 28.1% 32.7% 30.3% 31.2%

Operating income (loss) $ 369 $ 403 $ 1,267 $ (986) $ 1,053

Basic and diluted earnings (loss) per share $ (0.02) $ 0.01 $ 0.07 $ (0.09) $ (0.03) 2015

Revenue $ 8,267 $ 7,522 $ 16,443 $ 10,407 $ 42,639

Gross profit % 37.1% 30.1% 35.7% 29.9% 33.6%

Operating income (loss) $ (532) $ (1,163) $ 2,449 $ (427) $ 327

Basic and diluted earnings (loss) per share $ (0.07) $ (0.14) $ 0.28 $ (0.05) $ 0.03

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INDEX TO EXHIBITS

ExhibitNumber Description

3.1 Second Amended and Restated Certificate of Incorporation of Xplore Technologies Corp. (incorporated by reference to Exhibit 1 of the Company’s Current Report on Form 8-K, filed on November 2, 2012)

3.2* Amended and Restated By-Laws of Xplore Technologies Corp.4.1 Specimen Stock Certificate for Registrant’s Common Stock (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on

Form S-3, filed on March 12, 2013, Registration Statement No. 333-187198)10.1† Turnkey Design and Manufacturing Agreement, by and between Xplore Technologies Corp. and Wistron Corporation (incorporated by reference to

Exhibit 10.1 of the Company’s Registration Statement on Form S-4, filed on February 8, 2007, Registration Statement No. 333-138675)10.2†† Supplier Agreement Terms and Conditions, by and between Xplore Technologies Corp. and Ubiqconn Technology, Inc. (including Amendment)

(incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K, filed on June 25, 2014)

10.3 Amendment No. 1 to Registration Rights Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on February 25, 2011)

10.4 Lease Agreement, dated April 10, 2003, between Summit Tech L.P. and Xplore Technologies Corp. (incorporated by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)

10.5 Fourth Amendment to Lease Agreement, dated April 10, 2003, between Bailard Austin II, Limited Partnership and Xplore Technologies Corp. (incorporated by reference to Exhibit 10.23 of the Company’s Annual Report on Form 10-K, filed on August 14, 2009)

10.5 Fifth Amendment to Lease Agreement, dated May 31, 2014, between G&I VII Summit Tech, LP and Xplore Technologies Corp. (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K, filed on June 25, 2014)

10.6 Foreclosure Purchase and Sale Agreement, dated April 16, 2015, between Xplore Technologies Corporation of America, Motion Computing, Inc., Motion Computing Pty, Ltd., Motions Computing Holding Company, Inc. and Square 1 Bank (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on April 17, 2015)

10.7 Loan and Security Agreement, dated April 17, 2015, between Xplore Technologies Corp., Xplore Technologies Corporation of America and Square 1 Bank (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on April 17, 2015)

10.8* Lease Agreement, dated October 22, 2015, between KBS Sor Austin Suburban Portfolio, LLC and Xplore Technologies Corporation of America10.9** Employment Agreement, dated as of June 30, 2006, by and between Xplore Technologies Corp. and Mark Holleran (incorporated by reference to

Exhibit 10.10 of the Company’s Registration Statement on Form S-4, filed on November 14, 2006, Registration Statement No. 333-138675)10.10** Xplore Technologies Corp. 2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.31 of the Company’s Annual Report on Form 10-K, filed

on August 14, 2009)10.10** Xplore Technologies Corp. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-

Q, filed on February 13, 2009)10.11** Xplore Technologies Corp. Employee Transaction Bonus Plan (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on

Form 10-K, filed on June 25, 2014)21.1* Subsidiaries of Xplore Technologies Corp.23.1* Consent of Independent Registered Public Accounting Firm31.1* Certification of Philip S. Sassower, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193431.2* Certification of Tom Wilkinson, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 193432.1* Certifications of Philip S. Sassower, Chief Executive Officer, and Tom Wilkinson, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350

* Filed herewith.** A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.† Portions of this agreement have been omitted pursuant to a request for confidential treatment, which was granted by the SEC on May 14, 2007.†† Portions of this agreement have been omitted pursuant to a request for confidential treatment, which was mailed to the SEC on June 25, 2014.

46

Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

OF


(the “Corporation”)

ARTICLE ISTOCKHOLDERS

SECTION 1.1 Place of Meeting. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine.

SECTION 1.2 Annual Meetings.

(a) Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting.

(b) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice with respect to such meeting, (ii) by or at the direction of the Board of Directors, or (iii) by any stockholder of record of the Corporation who is entitled to vote at the meeting, who complies with the notice and other procedures set forth in subsections (c), (d), (e) and (f) of this Section 1.2 and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation.

(c) For nominations or other business to be properly brought before an annual meeting by a stockholder of record pursuant to clause (iii) of Section 1.2(b), (i) the stockholder must have given timely notice thereof in writing and in proper form to the Secretary of the Corporation; (ii) in the case of business other than nominations, such other business must be a proper matter for stockholder action; (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice (as that term is defined herein), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice; and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this Section 1.2, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 1.2. To be timely, a stockholder’s notice must be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not fewer than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, that in the event that the date of the annual meeting is more than 30 days before or delayed by more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not more than 120 days prior to such annual meeting date nor later than the later of (i) the 90th day prior to such annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above. To be in proper form, such stockholder’s notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person (present and for the past five years), (C) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such person, (D) a completed and signed questionnaire, and written representation and agreement, each as required by Section 1.2(e) of these By-Laws, (E) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in a contested election, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange

Act of 1934, as amended (the “Exchange Act”) and Rule 14a-11 thereunder, or any successor provisions, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected and (F) a complete and accurate description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; (ii) as to any other business that the stockholder proposes to bring before the meeting, (A) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration), and (C) a complete and accurate description of all agreements, arrangements and understandings between or among such stockholder and such beneficial owner, if any, and any other person or persons (including their names and addresses) in connection with the proposal of such business by such stockholder; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (including any affiliate or associate (each within the meaning of Rule 12b-2 under the Exchange Act) of such stockholder or beneficial owner) (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, if any, (B) the class or series and number of shares of the Corporation which are directly or indirectly owned beneficially or of record (within the meaning of Rule 13d-3 under the Exchange Act) by such stockholder and such beneficial owner, if any (except that any such person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such person has a right to acquire beneficial ownership at any time in the future), (C) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder and such beneficial owner, if any, any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the corporation, (D) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder and such beneficial owner, if any, has a right to vote any shares of any security of the corporation, (E) any short interest of such stockholder or beneficial owner, if any, in any security of the Corporation (for purposes of these By-Laws a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (F) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder or beneficial owner, if any, that are separated or separable from the underlying shares of the Corporation, (G) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder or beneficial owner, if any, is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (H) any performance-related fees (other than an asset-based fee) that such stockholder or beneficial owner, if any, is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholder’s or beneficial owner’s immediate family sharing the same household, (I) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder and (J) a representation (1) that the stockholder is a holder of record of stock of the Corporation entitled to vote at such annual meeting and intends to appear in person or by proxy at the annual meeting to propose such business or nomination and (2) whether either such stockholder or beneficial owner intends or is part of a group which intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees or otherwise to solicit proxies from stockholders in support of such proposal or nomination (an affirmative statement of such intent, a “Solicitation Notice”).

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The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.

(d) Notwithstanding anything in the second sentence of Section 1.2(c) to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 80 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by these By-Laws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.

(e) To be eligible to be a nominee for election or reelection as a director of the Corporation, a proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice under these By-Laws and applicable law) to the Secretary at the principal executive offices of the Corporation (i) a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request); and (ii) a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote in such capacity on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director of the Corporation that has not been disclosed to the Corporation, and (C) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable law and all applicable rules of the U.S. exchanges upon which the common stock of the Corporation is listed and all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and other guidelines of the Corporation duly adopted by its Board of Directors.

(f) A stockholder providing notice of business or any nomination proposed to be brought before a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 1.2 shall be true and correct (i) as of the record date for the meeting and (ii) as of the date that is ten business days prior to the meeting or any adjournment, recess, rescheduling or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than seven business days prior to the date for the meeting, if practicable (or, if not practicable, on the first practicable date prior to) or any adjournment, recess, rescheduling or postponement thereof (in the case of the update and supplement required to be made as of ten business days prior to the meeting or any adjournment, recess, rescheduling or postponement thereof).

SECTION 1.3 Special Meetings.

(a) Special meetings of stockholders of the Corporation may be called only by the Board of Directors acting pursuant to a resolution approved by a majority of the Whole Board. For purposes of these By-Laws, the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. The Board of Directors may postpone or reschedule any previously scheduled special meeting.

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(b) Only such business as shall have been brought before the special meeting of the stockholders pursuant to the Corporation’s notice of meeting pursuant to Section 1.4 of these By-Laws shall be conducted at such meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of record of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 1.3, who shall be entitled to vote at the meeting and who complies with the notice and other procedures set forth in Section 1.2 (as if they were applicable to special meetings of stockholders). Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder’s notice required by Section 1.2 shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Notwithstanding the foregoing provisions of this Section 1.3, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Section 1.3. Nothing in this Section 1.3 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

SECTION 1.4 Notice of Meetings; Waiver.

(a) Except as otherwise provided herein or required by law, the Secretary of the Corporation or any Assistant Secretary shall cause written notice of the place, if any, date and time of each meeting of the stockholders and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which such meeting is called, to be given not fewer than ten nor more than 60 days prior to the meeting, to each stockholder of record entitled to vote at such meeting. If such notice is mailed, it shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the record of stockholders of the Corporation or, if a stockholder shall have filed with the Secretary of the Corporation a written request that notices to such stockholder be mailed to some other address, then directed to such stockholder at such other address. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law.

(b) A written waiver of any notice of any annual or special meeting signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether given before or after the time of the event for which notice is to be given, shall be deemed the equivalent of notice. Neither the business to be transacted at nor the purpose of any annual or special meeting of the stockholders need be specified in such a waiver of notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened.

SECTION 1.5 Quorum; Adjournment, Recess and Postponement.

(a) Unless or except to the extent that the presence of a larger number may be required by law, at any meeting of stockholders the presence, in person or by proxy, of the holders of record of capital stock representing a majority of the votes entitled to be cast at such meeting shall constitute a quorum for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any stockholders. Where a separate vote by a class or classes or series is required, a majority of the voting power of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.

(b) The Chairman of the Meeting shall have power to adjourn or recess any meeting of stockholders, annual or special, at any time and for any reason, whether or not a quorum is present, to reconvene at the same or some other place, and notice of any adjourned meeting of stockholders of the Corporation need not be given if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date for the adjourned meeting is fixed pursuant to Section 1.10 of these By-Laws, a notice of the adjourned meeting, conforming to the requirements of Section 1.4 of these By-Laws, shall be given to each stockholder of record entitled to vote at such meeting. At an adjourned meeting, any business may be transacted that might have been transacted on the original date of the meeting.

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(c) The Board of Directors may, at any time prior to the holding of a meeting of stockholders (annual or special), and for any reason, cancel, postpone or reschedule such meeting upon public notice given prior to the time previously scheduled for such meeting of stockholders. The meeting may be postponed or rescheduled to such time and place as is specified in the notice of postponement or rescheduling of such meeting.

SECTION 1.6 Voting. Except as otherwise required by law or by the Certificate of Incorporation, all elections shall be determined by a plurality of the votes cast and all other matters submitted to a meeting of stockholders shall be decided by a majority of the votes cast affirmatively or negatively.

SECTION 1.7 Proxies. Any stockholder entitled to vote at any meeting of the stockholders may authorize another person or persons to vote at any such meeting and express such vote on behalf of him or her by proxy. A stockholder may authorize a valid proxy by a transmission permitted by law or by executing a written instrument signed by such stockholder filed in accordance with the procedure established for the meeting. No such proxy shall be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 1.7 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

SECTION 1.8 Organization; Procedure. At every meeting of stockholders the presiding officer (the “Chairman of the Meeting”) shall be an officer chosen by the Board of Directors or, in the absence of such a person, the Chairman of the Board or, in the event of his or her absence, the Chief Executive Officer. The Secretary of the Corporation or, in the event of his or her absence, an Assistant Secretary or such person as the Chairman of the Meeting appoints, shall act as secretary of the meeting. The order of business and all other rules, regulations or matters of procedure with respect to the meeting may be determined by the Chairman of the Meeting, subject to the Board of Directors right to adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it deems appropriate. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the Chairman of the Meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the Chairman of the Meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; (e) restrictions on the use of audio or video recording devices at the meeting and (f) limitations on the time allotted to questions or comments by participants. The Chairman of the Meeting at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter of business was not properly brought before the meeting and if the Chairman of the Meeting should so determine, the Chairman of the Meeting shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the Chairman of the Meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

SECTION 1.9 Stockholder Action By Written Consent.

(a) Unless otherwise provided in the Certificate of Incorporation, any action which may be taken or required to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation as provided herein.

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(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting (including by telegram, cablegram or other electronic transmission as permitted by law), the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by consent shall, by written notice to the Secretary at the principal executive offices of the Corporation, first request the Board of Directors to fix a record date for such purpose, which request shall be in proper form. The Board of Directors shall promptly, but in all events within ten days after the date on which such a request is received or five days after delivery of any information requested by the Corporation to determine the validity of any such request or whether the action to which such request relates is an action that may be taken by written consent of stockholders in lieu of a meeting, determine the validity of such request and whether such request relates to an action that may be taken by written consent of the stockholders in lieu of a meeting under this Section 1.9 and applicable law. If such request is valid, the Board of Directors may adopt a resolution fixing the record date (unless a record date has previously been fixed by the Board of Directors pursuant to the first sentence of this Section 1.9(b)). If (x) the request required by this Section 1.9(b) has been determined to be valid and to relate to an action that may be effected by written consent in accordance with this Section 1.9 and applicable law or (y) no such determination shall have been made by the date required by this Section 1.9(b), and in either event no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to take corporate action by written consent without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.

(c) To be in proper form for purposes of Section 1.9(b), a request by a stockholder for the Board of Directors to fix a record date shall set forth the action proposed to be taken by written consent of stockholders in lieu of a meeting and must contain such information and representations, to the extent applicable, required by the certificate of incorporation, as applicable, and these By-Laws as though such stockholder were intending to make a nomination or to bring a business proposal before a meeting of stockholders (including the notice and other procedures set forth in Section 1.2). Notwithstanding anything to the contrary contained in this Section 1.9, upon receipt of a request by a stockholder to set a record date in order to have stockholders authorize or take corporate action by written consent, the Corporation may require the stockholder(s) submitting such request to furnish such other information as may be requested by the Corporation to determine the validity of the request required by this Section 1.9 and to determine whether such request relates to an action that may be effected by written consent of stockholders in lieu of a meeting under this Section 1.9 and applicable law.

(d) In connection with an action or actions proposed to be taken by written consent in accordance with this Section 1.9, the stockholder seeking such action shall further update and supplement the information previously provided to the Corporation in connection therewith, if necessary, so that the information provided or required to be provided pursuant to this Section 1.9 shall be true and correct as of the record date for determining the stockholders eligible to take such action and as of the date that is five business days prior to the date the consent solicitation is commenced, and such update and supplement shall be delivered to, or mailed and received by, the secretary at the principal executive offices of the Corporation not later than five business days after the record date for determining the stockholders eligible to take such action (in the case of the update and supplement required to be made as of the record date), and not later than three business days prior to the date that the consent solicitation is commenced (in the case of the update and supplement required to be made as of five business days prior to the commencement of the consent solicitation).

(e) Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required hereby to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery in a manner permitted by applicable law.

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(f) A facsimile, electronic mail message, or other electronic transmission (each an “electronic transmission”) consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes hereof if such electronic transmission sets forth or is delivered with information from which the Corporation can determine: (a) that the electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (b) the date on which such stockholder or proxyholder or authorized person or persons transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the Corporation by delivery in a manner permitted by applicable law. Notwithstanding the foregoing limitations on delivery, consents given by electronic transmission may be otherwise delivered to the principal place of business of the Corporation or to the Secretary to the extent and in the manner provided by resolution of the board of directors.

(g) In the event of the delivery to the Corporation of a written consent or consents purporting to represent the requisite voting power to authorize or take corporate action and/or any related revocations, the Secretary shall provide for the safekeeping of such consents and revocations. The Secretary, or such other officer of the Corporation as the Board of Directors may designate, shall, as promptly as practicable, conduct a ministerial review of the validity of the consents and/or any related revocations deemed necessary and appropriate; provided, however, that if the corporate action to which the written consent relates is the removal or replacement of one or more members of the Board of Directors, the Secretary, or such other officer of the Corporation as the Board of Directors may designate, shall promptly designate two persons, who may be employees of the Corporation, but who shall not be members of the Board of Directors or officers of the Corporation, to serve as inspectors with respect to such written consent and such inspectors shall discharge the functions of the Secretary, or such other officer of the Corporation as the Board of Directors may designate, under this Section 1.9. If after such investigation, the Secretary, such other officer of the Corporation as the Board of Directors may designate or the inspectors, as the case may be, shall determine that the action purported to have been taken is duly authorized by the consents, that fact shall be certified on the records of the Corporation kept for the purpose of recording the proceedings of meetings of shareholders and the consents shall be filed in such records. In conducting the investigation required by this Section 1.9(g), the Secretary, such other officer of the Corporation as the Board of Directors may designate or the inspectors, as the case may be, may, at the expense of the Corporation, retain special legal counsel and any other necessary or appropriate professional advisors as such person or persons may deem necessary or appropriate and, to the fullest extent permitted by law, shall be fully protected in relying in good faith upon the opinion of such counsel or advisors.

(h) No action by written consent without a meeting shall be effective until such date as the Secretary, such other officer of the Corporation as designated by the Board of Directors or inspectors as appointed in accordance with Section 1.9(g), as applicable, completes their review, determines that the consents delivered to the Corporation in accordance with this Section 1.9 represent not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and certifies such determination to the Board of Directors for entry in the records of the Corporation kept for the purpose of recording the proceedings of meetings of stockholders. If the Board of Directors determines that any request to fix a record date or to take stockholder action by written consent was not properly made in accordance with this Section 1.9 or relates to an action that may not be taken by written consent of stockholders in lieu of a meeting pursuant to this Section 1.9 or applicable law, then no record date in respect of a written consent shall be set and any such purported action by written consent shall be null and void to the fullest extent permitted by applicable law.

(i) Any stockholder giving a written consent, or the stockholder’s proxyholder, may revoke the consent in any manner permitted by applicable law.

(j) Notwithstanding anything to the contrary set forth above, (i) none of the foregoing provisions of this Section 1.9 shall apply to any solicitation of stockholder action by written consent in lieu of a meeting by or at the direction of the Board of Directors and (ii) the Board of Directors shall be entitled to solicit stockholder action by written consent in accordance with applicable law.

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SECTION 1.10 Record Date. In order to determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty nor fewer than ten days before the date of such meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided; however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights of the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which shall not be more than sixty days prior to such action. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.

SECTION 1.11 Stockholder List. The Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting during ordinary business hours, for a period of at least ten days prior to the meeting in the manner provided by law. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

SECTION 1.12 Inspectors of Elections. Preceding any meeting of the stockholders, the Board of Directors shall appoint one or more persons to act as Inspectors of Elections, and may designate one or more alternate inspectors. In the event that no inspector or alternate is able to act, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of the duties of an inspector, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability.

SECTION 1.13 General.

(a) Only persons who are nominated in accordance with the procedures set forth in these By-Laws and applicable law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these By-Laws and applicable law. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the Chairman of the Meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these By-Laws and applicable law and, if any proposed nomination or business is not in compliance with these By-Laws, to declare that such defective nomination or proposal shall be disregarded.

(b) For purposes of these By-Laws, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(c) Notwithstanding the foregoing provisions of these By-Laws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these By-Laws. Nothing in these By-Laws shall be deemed to affect any substantive rights of (i) stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act, or (ii) the holders of any series of the Corporation’s Preferred Stock, if any, to elect directors if so provided under the Certificate of Incorporation or any applicable Preferred Stock Certificate of Designations (as defined in the Certificate of Incorporation).

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ARTICLE IIBOARD OF DIRECTORS

SECTION 2.1 Powers. Except as may otherwise be required by law or the Certificate of Incorporation, the property, affairs and business of the Corporation shall be managed by or under the direction of the Board of Directors and the Board of Directors may exercise all the powers of the Corporation.

SECTION 2.2 Number of Directors. The number of directors shall be fixed from time to time exclusively pursuant to a resolution adopted by a majority of the Whole Board; provided, however, that the Board of Directors shall at no time consist of fewer than three and no more than nine directors.

SECTION 2.3 Election of Directors. At each annual meeting of stockholders, directors shall be elected to serve until the next annual meeting and until their respective successors are elected and qualified, or until the earlier of their death, resignation or removal.

SECTION 2.4 Vacancies; Removal of Directors. Subject to the rights of the holders of any series of Preferred Stock then outstanding, vacancies and newly created directorships resulting from any increase in the number of directors shall be filled pursuant to the terms of the Certificate of Incorporation. Directors may be removed, with or without cause, by the affirmative vote of the holders of a majority of the voting power of all shares of the Corporation entitled to vote at an election of directors, voting as a single class; provided, that Series A Directors (as that term is defend in the Certificate of Incorporation) may only be removed with or without cause by the affirmative vote of the holders of a majority of the Corporation’s Series A Convertible Preferred Stock entitled to vote at an election of directors.

SECTION 2.5 Chairman of the Board. The directors shall elect from among the members of the Board a “Chairman of the Board.” The Chairman of the Board shall be deemed an officer of the Corporation and shall have such duties and powers as set forth in these By-Laws or as shall otherwise be conferred upon the Chairman of the Board from time to time by the Board of Directors. The Chairman of the Board shall, if present, preside over all meetings of stockholders and the Board of Directors.

SECTION 2.6 Meetings.

(a) Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting.

(b) Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board or the Chief Executive Officer and shall be called by the Chief Executive Officer, Secretary, Assistant Secretary or any other executive officer if directed by a majority of the directors then in office.

(c) A meeting of the Board of Directors may be held without notice immediately after the annual meeting of the stockholders. Notice need not be given of regular meetings of the Board of Directors.

SECTION 2.7 Notice of Meeting. It shall be sufficient notice to a director to send notice (i) by mail at least 72 hours before the meeting addressed to such person at his usual or last known business or residence address, or (ii) in person, by telephone, facsimile transmission or electronic transmission at least 24 hours before the meeting. The requirement of notice to any director may be waived by a waiver of notice, executed or otherwise given by such person before or after the meeting or meetings, and filed with the records of the meeting, or by attendance at the meeting without protesting prior thereto or at its commencement that such meeting was not lawfully called or convened. A notice or waiver of notice of a directors’ meeting need not specify the purposes of the meeting.

SECTION 2.8 Quorum. A majority of the total number of the Whole Board shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise required by law, the vote of at least a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.

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SECTION 2.9 Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all of the members of the Board of Directors consent thereto in writing or by electronic transmission and such consent is filed with the minutes of the Board of Directors.

SECTION 2.10 Action By Telephonic Communications. Members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.

SECTION 2.11 Resignations. Any director may resign at any time by delivering a notice of resignation given in writing or by electronic transmission to the Chairman of the Board or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery.

SECTION 2.12 Reliance on Accounts and Reports. A director, officer or a member of any committee designated by the Board of Directors shall, in the performance of such director’s, officer’s or member’s duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, any committees designated by the Board of Directors, or by any other person as to the matters the director or the member reasonably believes are within such other person’s professional or expert competence and who the director, officer or member reasonably believes or determines has been selected with reasonable care by or on behalf of the Corporation.

SECTION 2.13 Compensation. Each director, in consideration of such person serving as a director, may be entitled to receive from the Corporation such amount per annum and such fees (payable in cash or stock-based compensation) for attendance at meetings of the Board of Directors or of committees thereof, or both, as the Board of Directors shall determine from time to time. In addition, each director may be entitled to receive from the Corporation reimbursement for the reasonable expenses incurred by such person in connection with the performance of such person’s duties as a director. Nothing contained in this Section 2.13 shall preclude any director from serving the Corporation or any of its subsidiaries in any other capacity and receiving compensation therefore.

ARTICLE IIICOMMITTEES

SECTION 3.1 Committees. The Board of Directors, by resolution adopted by the affirmative vote of a majority of directors then in office, may designate from among its members one or more committees of the Board of Directors, each committee to consist of such number of Directors as from time to time may be fixed by the Board of Directors. Any such committee shall serve at the pleasure of the Board of Directors. Each such committee shall have the powers and duties delegated to it by the Board of Directors, subject to the limitations set forth in the Delaware General Corporation Law. The Board of Directors may appoint a Chairman of any committee, who shall preside at meetings of any such committee.

SECTION 3.2 Powers. Each committee shall have and may exercise such powers of the Board of Directors as may be provided by resolution or resolutions of the Board of Directors. No committee shall have the power or authority to approve or adopt, or recommend to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to the stockholders for approval, or to adopt, amend or repeal the By-Laws of the Corporation.

SECTION 3.3 Proceedings. Each committee may fix its own rules of procedure and may meet at such place (within or without the State of Delaware), at such time and upon such notice, if any, as it shall determine from time to time. Each committee shall keep minutes of its proceedings.

SECTION 3.4 Quorum and Manner of Acting. Except as may be otherwise provided in the resolution creating such committee or in the rules of such committee, at all meetings of any committee, the presence of members (or alternate members) constituting a majority of the total authorized membership of such committee shall constitute a quorum for the transaction of business. The act of the majority of the members present at any meeting at which a quorum is present shall be the act of such committee. Any action required or permitted to be taken at any meeting of any committee may be taken without a meeting, if all members of such committee shall consent to such action in writing or by electronic transmission and such consent is filed with the minutes of the committee.

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SECTION 3.5 Actions by Telephonic Communications. Unless otherwise provided by the Board of Directors, members of any committee may participate in a meeting of such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.

SECTION 3.6 Absent or Disqualified Members. In the absence or disqualification of a member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

SECTION 3.7 Resignations. Any member of any committee may resign at any time by delivering a notice of resignation in writing or by electronic transmission, signed by such member, to the Board of Directors or the Chairman of the Board. Unless otherwise specified therein, such resignation shall take effect upon delivery.

SECTION 3.8 Removal. Any member of any committee may be removed at any time, either for or without cause, by resolution adopted by a majority of the directors then in office.

SECTION 3.9 Vacancies. Except as otherwise required by law, if any vacancy shall occur in any committee, by reason of disqualification, death, resignation, removal or otherwise, the remaining members shall continue to act, and any such vacancy may be filled solely by the Board of Directors.

ARTICLE IVOFFICERS

SECTION 4.1 Chief Executive Officer. The Board of Directors shall select a Chief Executive Officer to serve at the pleasure of the Board of Directors who shall (i) supervise the implementation of policies adopted or approved by the Board of Directors, (ii) exercise a general supervision and superintendence over all the business and affairs of the Corporation, and (iii) possess such other powers and perform such other duties as may be assignee to him or her by these By-Laws, as may from time to time be assigned by the Board of Directors and as may be incident to the office of Chief Executive Officer. The Chairman of the Board may also be the Chief Executive Officer.

SECTION 4.2 President of the Corporation. The Board of Directors shall appoint a President of the Corporation to serve at the pleasure of the Board of Directors. The President of the Corporation shall have such powers and perform such duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of President of the Corporation.

SECTION 4.3 Chief Financial Officer of the Corporation. The Board of Directors shall appoint a Chief Financial Officer of the Corporation to serve at the pleasure of the Board of Directors. The Chief Financial Officer of the Corporation shall have such powers and perform such duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of Chief Financial Officer of the Corporation.

SECTION 4.4 Vice Presidents of the Corporation. The Board of Directors may appoint one or more Vice Presidents of the Corporation to serve at the pleasure of the Board of Directors. A Vice President of the Corporation shall have such powers and perform such duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of a Vice President of the Corporation.

SECTION 4.5 Secretary of the Corporation. The Board of Directors shall appoint a Secretary of the Corporation to serve at the pleasure of the Board of Directors. The Secretary of the Corporation shall (i) keep minutes of all meetings of the stockholders and of the Board of Directors, (ii) authenticate records of the Corporation and (iii) in general, have such powers and perform such other duties as may be assigned to him or her by these By-Laws, as may from time to time be assigned to him or her by the Board of Directors or the Chief Executive Officer and as may be incident to the office of Secretary of the Corporation.

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SECTION 4.6 Other Officers Elected by Board of Directors. At any meeting of the Board of Directors, the Board of Directors may elect a Chief Operating Officer, Treasurer, Assistant Treasurers, Assistant Secretaries, or such other officers of the Corporation as the Board of Directors may deem necessary, to serve at the pleasure of the Board of Directors. Other officers elected by the Board of Directors shall have such powers to perform such duties as may be assigned to such officers by or pursuant to authorization of the Board of Directors or by the Chief Executive Officer. Any number of offices may be held by the same person.

SECTION 4.7 Removal and Resignation; Vacancies. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any officer may be removed at any time, with or without cause, by the Board of Directors. Any officer may resign at any time by delivering a notice of resignation in writing or by electronic transmission, signed by such officer, to the Board of Directors, the Chief Executive Officer or the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery. Any vacancy occurring in any office of the Corporation by death, resignation, removal, or otherwise shall be filled by or pursuant to authorization of the Board of Directors.

SECTION 4.8 Authority and Duty of Officers. The officers of the Corporation shall have such authority and shall exercise such powers and perform such duties as may be specified in these By-Laws, except that in any event, each officer shall exercise such powers and perform such duties as may be required by law.

ARTICLE V

CAPITAL STOCKSECTION 5.1 Stock Certificates.

(a) Each holder of stock represented by certificates shall be entitled to a certificate representing the number of shares of the capital stock of the Corporation owned by such person in such form as shall be prescribed from time to time by the Board of Directors. Each certificate shall be signed by the Chairman or Vice-Chairman or the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all of the signatures of the officers upon a certificate may be facsimiles.

(b) If an officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed on, a certificate shall have ceased to be such before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the time of its issue.

SECTION 5.2 Transfer of Shares. Title to a certificate of stock and to the shares represented thereby shall be transferred only on the books of the Corporation by delivery to the Corporation or its transfer agent of the certificate properly endorsed, or by delivery of the certificate accompanied by a written assignment of the same, or a properly executed written power of attorney to sell, assign or transfer the same or the shares represented thereby. Upon surrender of a certificate for the shares being transferred, a new certificate or certificates shall be issued according to the interests of the parties.

SECTION 5.3 Record Holders. Except as otherwise required by law, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-Laws.

SECTION 5.4 Transfer Agent and Registrar. The Board of Directors may appoint a transfer agent and a registrar of the certificates of stock of the Corporation. Any transfer agent so appointed shall maintain, among other records, a stockholders’ ledger, setting forth the names and addresses of the holders of all issued shares of stock of the Corporation, the number of shares held by each, the certificate numbers, if any, representing such shares, and the date of issue of the certificates representing such shares, if any. Any registrar so appointed shall maintain, among other records, a share register, setting forth the total number of shares of each class of shares which the Corporation is authorized to issue and the total number of shares actually issued. The stockholders’ ledger and the share register are hereby identified as the stock transfer books of the Corporation. The name and address of each stockholder of record, as they appear upon the stockholders’ ledger, shall be the only evidence of who are the stockholders entitled to receive notice of the meetings of stockholders, to vote at such meetings, to examine a complete list of the stockholders entitled to vote at meetings.

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SECTION 5.5 Loss of Certificates. In case of the loss, theft, mutilation or destruction of a stock certificate, a duplicate certificate will be issued by the Corporation upon notification thereof and receipt of a lost certificate affidavit and such proper indemnity as shall be prescribed by the Board of Directors; provided, that in the case of a mutilated stock certificate, such mutilated stock certificate is returned to the Corporation.

ARTICLE VIDIVIDENDS

SECTION 6.1 Declaration of Dividends. Except as otherwise required by law or by the Certificate of Incorporation, the Board of Directors may, in its discretion, declare what, if any, dividends shall be paid from the surplus or from the net profits of the Corporation for the current or preceding fiscal year, or as otherwise permitted by law. Dividends may be paid in cash, in property, in shares of the Corporation’s stock, or in any combination thereof. Dividends shall be payable upon such dates as the Board of Directors may designate.

SECTION 6.2 Reserves. Before the payment of any cash dividend and before making any distribution of profits, the Board of Directors, from time to time and in its absolute discretion, shall have power to set aside out of the surplus or net profits of the Corporation such sum or sums as the Board of Directors deems proper and sufficient as a reserve fund to meet contingencies or for such other purpose as the Board of Directors shall deem to be in the best interests of the Corporation, and the Board of Directors may modify or abolish any such reserve.

ARTICLE VIIPOWERS OF OFFICERS TO CONTRACT

WITH THE CORPORATION

No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers, are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such director’s or officer’s votes are counted for such purpose; provided, that (i) the material facts of such relationship or interest as to the contract or transaction are disclosed or are known to the Board of Directors or committee thereof which in good faith authorizes such contract or transaction by the affirmative vote of a majority of the disinterested directors, even though less than a quorum; or (ii) the material facts as to such person’s relationship or interest as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Any director of the Corporation who is interested in any contract or transaction as aforesaid may nevertheless be counted in determining the existence of a quorum at any meeting of the Board of Directors or committee thereof which shall authorize or ratify any such contract or transaction.

ARTICLE VIIIINDEMNIFICATION

SECTION 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 8.3 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

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SECTION 8.2 Right to Advancement of Expenses. In addition to the right to indemnification conferred in Section 8.1, an indemnitee shall also have the right to be paid by the Corporation the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section 8.2 or otherwise.

SECTION 8.3 Right of Indemnitee to Bring Suit. If a claim under Section 8.1 or 8.2 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit.

SECTION 8.4 Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation’s Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or directors or otherwise.

SECTION 8.5 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

SECTION 8.6 Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VIII with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.

SECTION 8.7 Nature of Rights.

(a) The rights conferred upon indemnitees in this Article VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitee’s heirs, executors and administrators. Any amendment, alteration or repeal of this Article VIII that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.

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(b) Notwithstanding anything in this Articles VIII or these By-Laws to the contrary, the indemnification and advancement rights provided under this Article VIII shall not apply to any former officer or director serving before June 20, 2007 or arising out of any act or transaction that occurred prior to such date.

ARTICLE IXMISCELLANEOUS PROVISIONS

SECTION 9.1 Certificate of Incorporation. All references in these By-Laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time. In the event of any conflict between the provisions of these By-Laws as in effect from time to time and the provisions of the Certificate of Incorporation as in effect from time to time, the provisions of such Certificate of Incorporation shall be controlling.

SECTION 9.2 Fiscal Year. Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the Corporation shall end on the 31st of March of each year.

SECTION 9.3 Checks. All checks or demands for money and notes of the Corporation shall be signed by such executive officer or executive officers or such other person or persons as the Board of Directors may from time to time designate.

SECTION 9.4 Corporate Seal. The Board of Directors shall have the power to adopt and alter the seal of the Corporation.

SECTION 9.5 Voting of Securities. Unless the Board of Directors otherwise provides, the Chief Executive Officer, President or the Chief Financial Officer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney-in-fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization whose securities are held by the Corporation.

SECTION 9.6 Evidence of Authority. A certificate by the Secretary or any Assistant Secretary as to any action taken by the stockholders, directors or any officer or representative of the Corporation shall, as to all persons who rely thereon in good faith, be conclusive evidence of such action.

SECTION 9.7 Subject to Law and Certificate of Incorporation. All powers, duties and responsibilities provided in these By-Laws, whether or not explicitly so qualified, are qualified by the provisions of the Certificate of Incorporation and any applicable law.

ARTICLE XAMENDMENTS

Subject to the rights of the holders of any series of the Corporation’s Preferred Stock, a majority of the Whole Board shall be authorized to make, amend, alter, change, add to or repeal these By-Laws in any manner not inconsistent with the laws of the State of Delaware, and the stockholders shall also have the power to amend, alter, change, add to or repeal these By-Laws; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of a majority in voting power of all of the outstanding shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required in order for the stockholders to alter, amend or repeal any provision of these By-Laws.

ARTICLE XISEVERABILITY

Whenever possible, each provision or portion of any provision of these By-Laws will be interpreted in such manner as to be effective and valid under applicable law but if any provision or portion of any provision of these By-Laws is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such provision or portion of any provision shall be severable and the invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and these By-Laws will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.

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ARTICLE XIIFORUM FOR ADJUDICATION OF DISPUTES

To the fullest extent permitted by law, and unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for: (i) any derivative action or proceeding brought in the name or right of the Corporation or on its behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer, employee, stockholder or other agent of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action arising or asserting a claim arising pursuant to any provision of the General Corporation Law of Delaware or any provision of the certificate of incorporation or these By-Laws or as to which the General Corporation Law of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply, enforce or determine the validity of the certificate of incorporation or these By-Laws. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XII.

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Exhibit 10.8

OFFICE LEASE

by and between

KBS SOR AUSTIN SUBURBAN PORTFOLIO, LLC,a Delaware limited liability company

(“Landlord”)

and

XPLORE TECHNOLOGIES CORPORATION OF AMERICA,a Delaware corporation

(“Tenant”)

Dated as of

October , 2015

OFFICE LEASE

THIS OFFICE LEASE (this “Lease”) is made between KBS SOR AUSTIN SUBURBAN PORTFOLIO, LLC, a Delaware limited liability company (“Landlord”), and the Tenant described in Item 1 of the Basic Lease Provisions.

LEASE OF PREMISES

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, subject to all of the terms and conditions set forth herein, those certain premises (the “Premises”) described in Item 3 of the Basic Lease Provisions and as shown in the drawing attached hereto as Exhibit A-1. The Premises are located in the Building described in Item 2 of the Basic Lease Provisions. The Building is located on that certain land (the “Land”) more particularly described on Exhibit A-2 attached hereto, which is also improved with landscaping, parking facilities and other improvements, fixtures and common areas and appurtenances now or hereafter placed, constructed or erected on the Land (sometimes referred to herein as the “Project”).

BASIC LEASE PROVISIONS 1. Tenant: XPLORE TECHNOLOGIES CORPORATION OF AMERICA, a Delaware corporation (“Tenant”) 2. Building: Park Centre 8601 Ranch Road 2222 Austin, Texas 78730 3. Description of Premises: Suite(s): 100 in Building II Rentable Area: 16,228 square feet Project Size: 203,193 square feet (subject to Paragraph 18) 4. Tenant’s Proportionate Share of 7.9865% (16,228 rsf / 203,193 rsf) (See Paragraph 3) Operating Costs: 5. Basic Annual Rent: (See Paragraph 2) Months 01 to 12, inclusive: Monthly Installment: $20,285.00 ($15.00/square foot of Rentable Area/annum, plus NNN) Months 13 to 24, inclusive: Monthly Installment: $20,961.17 ($15.50/square foot of Rentable Area/annum, plus NNN) Months 25 to 36, inclusive: Monthly Installment: $21,637.33 ($16.00/square foot of Rentable Area/annum, plus NNN) Months 37 to 48, inclusive: Monthly Installment: $22,313.50 ($16.50/square foot of Rentable Area/annum, plus NNN) 6. Installment Payable Upon Execution: $36,174.92

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7. Security Deposit Payable Upon $19,547.35 (See Paragraph 2(c)) Execution: 8. Initial Estimated Amount of Tenant’s Estimated to be $15,889.92 per month for the remainder of Proportionate Share of Operating Costs: the first calendar year of the Initial Term, payable in advance, subject to periodic adjustments (See Paragraph 3) 9. Initial Term: Forty-eight (48) months, commencing on the Commencement Date and ending on the last day of the calendar month immediately preceding the forty- eighth (48th) month anniversary of the Commencement Date (See Paragraph 1), subject to extension pursuant to Paragraph 19(ff). 10. Estimated Commencement Date: February 1, 2016, subject to adjustment, if any, as provided in Paragraph 1(a) and the Work Letter attached as Exhibit B 11. Estimated Termination Date: January 31, 2020, subject to adjustment, if any, as provided in Paragraph 1(a) and the Work Letter attached as Exhibit B 12. Broker(s) (See Paragraph 19(k)): Landlord’s Broker: Transwestern 901 South Mopac Expressway Building 4, Suite 250 Austin, Texas 78746 Tenant’s Broker: Jackson Cooksey 12770 Merit Drive, Suite 500 Dallas, Texas 75251 13. Number of Parking Spaces: Up to sixty-five (65) unreserved parking spaces located in the parking facility servicing the Building, at no additional charge to Tenant throughout the Lease Term. Notwithstanding the foregoing, but subject to availability at the time converted, as determined by Landlord in its reasonable discretion, Tenant shall have the right to convert up to eight (8) unreserved parking spaces to reserved parking spaces on the lower floor in the Building at no additional charge to Tenant. (See Paragraph 18) 14. Addresses for Notices: To: TENANT: To: LANDLORD: Prior to occupancy of the Premises: Project Management Office: Xplore Technologies Corporation of America KBS SOR Austin Suburban Portfolio, LLC c/o Transwestern 14000 Summit Drive, Suite 900 901 South Mopac Expressway Building 4, Suite 250 Austin, Texas 78728 Austin, Texas 78746 Attention: Mark Holleran, President Attn: Property Manager

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After occupancy of the Premises: With a copy to: Xplore Technologies Corporation of America KBS Capital Advisors, LLC 8601 Ranch Road 2222 800 Newport Center Drive, Suite 700 Building II, Suite 100 Newport Beach, California 92660 Austin, Texas 78730 Attn: David Moore, Senior Vice President Attention: Chief Financial Officer With a copy to: Brent R. Somers Culhane Meadows PLLC 2701 West Berry Street, Suite 402 Fort Worth, Texas 76109 15. Place of Payment All payments payable under this Lease shall be sent to Landlord as follows: Via U.S. Mail: KBS SOR Austin Suburban Portfolio, LLC c/o Transwestern P. O. Box 844800 Dallas, Texas 75284-4800 Via U.S. Courier: KBS SOR Austin Suburban Portfolio, LLC Bank of America Lockbox Services Lockbox 844800 1950 North Stemmons Freeway, Suite 5010 Dallas, Texas 75207 or to such other address as Landlord may designate in writing. 16. Guarantor: None 17. Effective Date: The date this Lease is executed by Landlord, as evidenced by the date set forth on the cover page hereof 18. Landlord’s Construction Allowance: Up to $194,736.00 ($12.00 per square foot of Rentable Area) (See Exhibit B) 19. The “State” is the State of Texas.

This Lease consists of the foregoing introductory paragraphs and Basic Lease Provisions, the provisions of the Standard Lease Provisions (the “Standard Lease Provisions”) (consisting of Paragraphs 1 through Paragraph 19 which follow) and Exhibits A-1 through Exhibit A-3 and Exhibits B through Exhibit H, and the following Addenda: None, all of which are incorporated herein by this reference. In the event of any conflict between the provisions of the Basic Lease Provisions and the provisions of the Standard Lease Provisions, the Standard Lease Provisions shall control.

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STANDARD LEASE PROVISIONS

1. TERM

(a) The Initial Term of this Lease and the Rent (defined below) shall commence on the Commencement Date which shall be the earliest of (i) the date on which the Tenant Improvements have been Substantially Completed, as determined pursuant to the Work Letter attached hereto as Exhibit B, or (ii) the date on which the Tenant Improvements would have been Substantially Completed but for Tenant Delay, as such term is defined in the Work Letter, or (3) the date Tenant opens for business in the Premises. Unless earlier terminated in accordance with the provisions hereof, the Initial Term of this Lease shall be the period shown in Item 9 of the Basic Lease Provisions continuing through the last day thereof (the “Termination Date”). As used herein, “Lease Term” shall mean the Initial Term referred to in Item 9 of the Basic Lease Provisions, subject to any extension of the Initial Term hereof exercised in accordance with the terms and conditions expressly set forth herein. This Lease shall be a binding contractual obligation effective upon execution hereof by Landlord and Tenant, notwithstanding the later commencement of the Initial Term of this Lease. The terms “Tenant Improvements”, “Tenant Delays”, and “Substantially Completed” are all defined in the Work Letter.

(b) Landlord will tender possession of the Premises to Tenant upon Substantial Completion of the Tenant Improvements in accordance with the Work Letter attached as Exhibit B.

(c) Following the Commencement Date, Landlord shall prepare and deliver to Tenant, Tenant’s Initial Certificate in the form of Exhibit F attached hereto (the “Certificate”) which Landlord and Tenant shall acknowledge by executing a copy and returning same to the other party. If Tenant fails to sign and return the Certificate to Landlord within ten (10) days of its receipt from Landlord, the Certificate as sent by Landlord shall be deemed to have correctly set forth the Commencement Date and the other matters addressed in the Certificate, except that Tenant reserves its right to object to any inaccuracies contained in such Certificate.

2. BASIC ANNUAL RENT AND SECURITY DEPOSIT

(a) Tenant agrees to pay during each month of the Lease Term as Basic Annual Rent (“Basic Annual Rent”) for the Premises the sums shown for such periods in Item 5 of the Basic Lease Provisions.

(b) Except as expressly provided to the contrary herein, Basic Annual Rent shall be payable in consecutive monthly installments, in advance, without demand, deduction or offset, commencing on the Commencement Date and continuing on the first day of each calendar month thereafter until the expiration of the Lease Term. The first full monthly installment of Basic Annual Rent and Additional Rent shall be payable upon the Commencement Date. The obligation of Tenant to pay Rent and other sums to Landlord and the obligations of Landlord under this Lease are independent obligations. If the Commencement Date is a day other than the first day of a calendar month, or the Lease Term expires on a day other than the last day of a calendar month, then the Rent for such partial month shall be calculated on a per diem basis. In the event Landlord delivers possession of the Premises to Tenant prior to the Commencement Date, Tenant agrees it shall be bound by and subject to all terms, covenants, conditions and obligations of this Lease during the period between the date possession is delivered and the Commencement Date, other than the payment of Basic Annual Rent, in the same manner as if delivery had occurred on the Commencement Date.

(c) Simultaneously with the execution of this Lease, Tenant has paid or will pay Landlord the security deposit (the “Security Deposit”) in Item 7 of the Basic Lease Provisions as security for the performance of the provisions hereof by Tenant. Landlord shall not be required to keep the Security Deposit separate from its general funds and Tenant shall not be entitled to interest thereon. In lieu of a cash deposit, Tenant shall have the right, within three (3) days after the Effective Date of this Lease, to provide an irrevocable, unconditional letter of credit in the same amount as the Security Deposit (the “Tenant Letter of Credit”) in accordance with the terms and provisions hereinafter set forth. The Tenant Letter of Credit shall be issued by a United States based bank, reasonably acceptable to Landlord, provided that the Tenant Letter of Credit is in the same form as the form of letter of credit attached as Exhibit H attached hereto, or in such other form satisfactory to Landlord, in its sole but reasonable discretion. At a minimum such Tenant Letter of Credit shall provide for the following: (a) it shall

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terminate no sooner than Termination Date of this Lease, or, if it shall terminate earlier, the Tenant Letter of Credit shall provide that it will automatically renew during each year of the Lease Term until the Termination Date, unless Landlord (the beneficiary thereof) is notified in writing by the issuer at least thirty (30) days prior to the expiration date that the Tenant Letter of Credit will not be renewed; and if Landlord is so notified of such non-renewal, Landlord (the beneficiary thereof) shall have the right to draw the full amount of such Tenant Letter of Credit prior to such earlier expiration date, and the amounts so drawn shall be held, applied and disbursed in accordance with the terms of this Paragraph 2 of the Lease, (b) it shall be irrevocable, and (c) it shall be transferable to any successor to Landlord’s interest under the Lease. If at any time during the Lease Term, the bank or financial institution that issues the Tenant Letter of Credit is declared insolvent, or is placed into receivership by the Federal Deposit Insurance Corporation or any other governmental or quasi-governmental institution, or if there is a material adverse change in the financial or business condition of the bank or financial institution from the Effective Date of this Lease as reasonably determined by Landlord, then following written notice from Landlord, Tenant shall have ten (10) business days to replace the Tenant Letter of Credit with a new letter of credit from a bank or financial institution acceptable to Landlord in Landlord’s reasonable discretion. If Tenant does not replace the Tenant Letter of Credit with a new letter of credit from a bank or financial institution acceptable to Landlord within such ten (10) business day period, then notwithstanding anything in the Lease to the contrary, Tenant shall be in default, and Landlord shall have the right to draw upon the Tenant Letter of Credit for the full amount of the Tenant Letter of Credit (“LC Funds”).

If Tenant defaults with respect to any provision of this Lease, including, without limitation, the provisions relating to the payment of Rent or the cleaning of the Premises upon the termination of this Lease, or amounts which Landlord may be entitled to recover pursuant to the terms hereof. Landlord may, but shall not be required to, use, apply or retain all or any part of the Security Deposit (i) for the payment of any Rent or any other sum in default, (ii) for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant’s default hereunder, or (iii) to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant’s default hereunder, including, without limitation, costs and reasonable attorneys’ fees incurred by Landlord to recover possession of the Premises following a default by Tenant hereunder. If any portion of the Security Deposit is so used or applied, Tenant shall, upon demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the appropriate amount, as determined hereunder. If Tenant shall fully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder) within sixty (60) days following the expiration of the Lease Term, together with a detailed accounting of the use of any portion of the Security Deposit for charges permitted under this Lease; provided, however, that Landlord may retain the Security Deposit until such time as any amount due from Tenant in accordance with Paragraph 3 below has been determined and paid to Landlord in full. The use or application of the Security Deposit or any portion thereof shall not prevent Landlord from exercising any other right or remedy provided hereunder or under any Law and shall not be construed as liquidated damages. Notwithstanding anything in this Lease or under Texas law to the contrary, Tenant hereby waives Section 93.004 - 93.011 of the Texas Property Code as such sections of the Texas Property Code relate to the Security Deposit under this Lease.

(d) The parties agree that for all purposes hereunder the Premises shall be stipulated to contain the number of square feet of Rentable Area described in Item 3 of the Basic Lease Provisions. Upon the request of Landlord, Landlord’s Space Planner shall verify the exact number of square feet of Rentable Area in the Premises. In the event there is a variation of three percent (3%) or more from the number of square feet specified in Item 3 of the Basic Lease Provisions, Landlord and Tenant shall execute an amendment to this Lease for the purpose of making appropriate adjustments to the Basic Annual Rent, the Security Deposit, Tenant’s Proportionate Share and such other provisions hereof as shall be appropriate under the circumstances. Landlord calculated the Rentable Area described in Item 3 of the Basic Lease Provisions using the definition of Rentable Area contained in Exhibit A-3 of this Lease.

(e) Basic Annual Rent shall be paid to Landlord absolutely net of all costs and expenses, except as otherwise provided in this Lease. The provisions for payment of Operating Costs by means of periodic payment of Tenant’s Proportionate Share of estimated Operating Costs and the year end adjustment of such payments are intended to pass on to Tenant and reimburse Landlord for Tenant’s Proportionate Share of all costs and expenses of the nature described in Paragraph 3 of this Lease.

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3. ADDITIONAL RENT

(a) Tenant shall pay to Landlord each month, as additional rent (“Additional Rent”) an amount equal to Tenant’s Proportionate Share (defined below) of Operating Costs for the Project.

(b) “Tenant’s Proportionate Share” is, subject to the provisions of Paragraph 18, the percentage number described in Item 4 of the Basic Lease Provisions. Tenant’s Proportionate Share represents, subject to the provisions of Paragraph 18, a fraction, the numerator of which is the number of square feet of Rentable Area in the Premises and the denominator of which is the number of square feet of Rentable Area in the Project, as determined by Landlord pursuant to Paragraph 18.

(c) “Operating Costs” means all costs, expenses and obligations incurred or payable by Landlord in connection with the operation, ownership, management, repair or maintenance of the Building and the Project during or allocable to the Lease Term, including without limitation, the following:

(i) All real property taxes, assessments, license fees, excises, levies, charges, assessments, both general and special assessments, or impositions and other similar governmental ad valorem or other charges levied on or attributable to the Project or its ownership, operation or transfer, and all taxes, charges, assessments or similar impositions imposed in lieu of the same (collectively, “Real Estate Taxes”). Tenant’s Proportionate Share of Real Estate Taxes for the years in which the Commencement Date and Expiration Date occur, respectively, shall be determined by multiplying the Real Estate Taxes for such year by a fraction, the numerator of which is the number of days in such year falling within the Lease Term and the denominator of which is 365. Real Estate Taxes shall also include all taxes, assessments, license fees, excises, levies, charges or similar impositions imposed by any governmental agency, district, authority or political subdivision (A) on any interest of Landlord, any mortgagee of Landlord or any interest of Tenant in the Project, the Premises, or on the occupancy or use of space in the Project or the Premises; (B) for the provision of amenities, services or rights of use, whether or not exclusive, public, quasi-public or otherwise made available on a shared use basis, including amenities, services or rights of use such as fire protection, police protection, street, sidewalk, lighting, sewer or road maintenance, refuse removal or janitorial services or for any other service, without regard to whether such services were formerly provided by governmental or quasi-governmental agencies to property owners or occupants at no cost or at minimal cost; (C) related to any transportation plan, fund or system instituted within the geographic area of the Project or otherwise applicable to the Premises, the Project or any portion thereof; and (D) the costs of consultants retained in an effort to lower taxes and all costs incurred in disputing any taxes or seeking to lower the tax valuation of the Project. Real Estate Taxes shall not include any estate, inheritance successor, transfer, gift, franchise, corporation, income, excise, capital levies or capital stock or excess profits taxes or profit taxes; any rollback taxes attributable to any tax years prior to the year in which the Lease is executed due to a sale or a change in use of the Project by Landlord in such prior years; any items for which Tenant or other tenants are required to pay directly to Landlord pursuant to their lease (other than as an Operating Cost pass-through item); or any penalties or interest incurred as a result of Landlord’s negligence, inability or unwillingness to make payments of, and/or to file any tax or information returns with respect to, any real property taxes or assessments, when due, imposed by the State or federal government on Landlord; provided, however if such income, franchise, transfer, property or other similar taxes are in substitution for any Real Estate Taxes payable hereunder, then notwithstanding the foregoing, such taxes shall be included in the term “Real Estate Taxes”. In addition, Tenant shall be entitled to a credit for Tenant’s Proportionate Share of any and all reductions, offsets and abatements of Real Estate Taxes. Notwithstanding the foregoing, Real Estate Taxes shall expressly include (i) any franchise or margin tax that Landlord is required to pay under Chapter 171 of the Texas Tax Code or due to House Bill No. 3, 79th Legislative, 3rd Called Session, 2006) (the “Margin Tax”), and (ii) any tax, assessment or similar charge on the rents or profits from the Premises or Building levied against Landlord and/or the Project in lieu of ad valorem taxes on the Project, in lieu of the Margin Tax, or otherwise as a result of property tax reform in the State of Texas; and

(ii) The cost of services and utilities (including taxes and other charges incurred in connection therewith) provided to the Premises, the Building or the Project, including, without limitation,

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water, power, gas, sewer, waste disposal, telephone and cable television facilities, fuel, supplies, equipment, tools, materials, service contracts, janitorial services, waste and refuse disposal, window cleaning, maintenance and repair of sidewalks and Building exterior and services areas, gardening and landscaping; insurance, including, but not limited to, public liability, fire, property damage, wind, hurricane, earthquake, terrorism, flood, rental loss, rent continuation, boiler machinery, business interruption, contractual indemnification and All Risk, Causes of Loss - Special Form coverage insurance for up to the full replacement cost of the Project and such other insurance as is customarily carried by operators of other similar class office buildings in the city in which the Project is located, to the extent carried by Landlord in its discretion, and the deductible portion of any insured loss otherwise covered by such insurance; the cost of compensation, including employment, welfare and social security taxes, paid vacation days, disability, pension, medical and other fringe benefits of all persons (including independent contractors) who perform services connected with the operation, maintenance, repair or replacement of the Project (at or below the level of the on-site property manager); any association assessments, costs, dues and/or expenses relating to the Project, personal property taxes on and maintenance and repair of equipment and other personal property used in connection with the operation, maintenance or repair of the Project; repair and replacement of window coverings provided by Landlord in the premises of tenants in the Project; such reasonable auditors’ fees and legal fees as are incurred in connection with the operation, maintenance or repair of the Project; administration fees; a property management fee (which fee may be imputed if Landlord has internalized management or otherwise acts as its own property manager, but which shall not exceed 3% of the gross revenues collected from the Project); the maintenance of any easements or ground leases benefiting the Project, whether by Landlord or by an independent contractor; a reasonable allowance for depreciation of personal property used in the operation, maintenance or repair of the Project; license, permit and inspection fees; all costs and expenses required by any governmental or quasi- governmental authority or by applicable law, for any reason, including capital improvements (which shall be capitalized over the useful life of the improvements), and the cost of any commercially reasonable capital improvements made to the Project by Landlord that improve life-safety systems or reduce operating expenses (such costs to be amortized over such reasonable periods as Landlord shall reasonably determine together with interest thereon at the Prime Rate (as defined below) plus two percent (2%) per annum or such other rate as may have been paid by Landlord on funds borrowed for the purpose of funding such improvements); the cost of air conditioning, heating, ventilating, plumbing, elevator maintenance and repair (to include the replacement of components) and other mechanical and electrical systems repair and maintenance; sign maintenance; and Common Area (defined below) repair, resurfacing, operation and maintenance; the reasonable cost for temporary lobby displays and events commensurate with the operation of a similar class building, and the cost of providing security services, if any, deemed appropriate by Landlord.

(iii) Components of Operating Costs that cover a period of time not entirely within the Lease Term shall be prorated based on the actual number of days in the year.

(iv) The following items shall be excluded from Operating Costs:

(A) leasing commissions, attorneys’ fees, costs and disbursements and other expenses incurred in connection with leasing, procuring tenants, renovating or improving vacant space in the Project for tenants or prospective tenants of the Project or vacant space, including without limitation advertising and marketing expenses, rent allowances and concessions, lease takeover costs, payment of moving costs and similar costs and expenses;

(B) costs (including permit, license and inspection fees) incurred in renovating or otherwise improving or

decorating, painting or redecorating space for tenants or vacant space;

(C) Landlord’s costs of any services sold to tenants for which Landlord is entitled to be reimbursed by such tenants as an additional charge or rental over and above the Basic Annual Rent and Operating Costs payable under the lease with such tenant or other occupant;

(D) any depreciation or amortization of the Project except as expressly permitted herein;

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(E) costs incurred due to a violation of Law (defined below) or as a result of an intentional tort or the negligence or willful misconduct by Landlord or its agents;

(F) interest on debt or amortization payments on any mortgages or deeds of trust or any other debt for borrowed money;

(G) all items and services for which Tenant or other tenants reimburse Landlord outside of Operating Costs;

(H) repairs or other work occasioned by fire, windstorm or other work paid for through insurance (or which would have been paid by insurance proceeds had Landlord maintained the insurance required to be maintained by Landlord under this Lease or any loan agreements) or condemnation proceeds (excluding any deductible);

(I) repairs resulting from any defect in the original design or construction of the Project;

(J) legal, auditing, consulting and professional fees paid or incurred in connection with corporate transactions,

such financing, re-financings, sales of the Project, it being understood that Landlord shall be entitled to include such fees incurred in connection with operating and managing the Building, such as in connection with contesting real estate taxes or other customary efforts to reduce or contain Operating Costs;

(K) rents due under any ground leases;

(L) costs incurred in selling syndicating financing, mortgaging or hypothecating any of Landlord’s interest in

the Project;

(M) the cost of full roof replacement and structural replacement of the Building;

(N) except as expressly set forth in Paragraphs 3(c)(ii) and 6(b), capital expenditures of any kind, including (I) the original investment in capital improvements, and (II) capital improvements made either before or during the Term;

(O) goods and services furnished to an individual tenant of the Building which are above building standard and which are separately reimbursable directly to Landlord;

(P) costs of installing, operating or removing any specialty service, such as an observatory, broadcasting

facility, luncheon club, or athletic or recreational club;

(Q) costs for repairs or maintenance to the Building reimbursed to Landlord by service contracts or otherwise;

(R) costs (other than maintenance costs) of any art work (such as sculptures or paintings) used to decorate the Project;

(S) costs related to the existence and maintenance of Landlord as a legal entity;

(T) costs incurred in removing the personal property of former tenants or other occupants of the Building;

(U) the cost (including legal fees) of any disputes (other than tax disputes and those which generally benefit the tenants of the Building) between Landlord or any employee or agent of Landlord, a specific tenant of the Building or any of Landlord’s mortgagee(s);

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(V) Landlord’s general overhead and general administrative expenses;

(W) Promotional gifts or costs incurred for use of any portion of the Project for special events or private events;

(X) compensation paid to clerks, attendants or other persons in commercial concessions other than the parking facilities (such as a snack bar, restaurant or newsstand);

(Y) penalties and fines incurred due to the violation by Landlord of applicable Law or the terms and conditions of any lease pertaining to the Project, except such as may be incurred by Landlord in contesting in good faith the alleged violation

(Z) costs of correcting latent defects of a capital nature in the Building or the Premises;

(AA)Except if caused by Tenant, its agents, employees, contractors, subtenants or assignees, costs in any

calendar year relating to or arising, directly or indirectly, from the presence, handling, removal, treatment, disposal, release, remediation (including encapsulation), or replacement of Hazardous Materials in or about the Premises or the Project, including without limitation Hazardous Materials in the ground water or soil;

(BB) rental loss, bad debt or capital expenditure reserve accounts (other than escrow accounts for the payment

of property taxes and insurance premiums); (CC) costs for which Landlord has been compensated by a management fee; (DD) entertainment expenses and travel expenses of Landlord, its agents, partners and Affiliates, and employees

above the level of the property manager of the Building; (EE) “in-house” legal and/or accounting fees, except for services that would otherwise be included in Operating

Costs if performed by third parties (except as prohibited by law); (FF)costs arising from Landlord’s charitable or political contributions; or (GG) any other expenses which would not normally be treated as Operating Expenses by comparable Landlords

of comparable projects using sound real estate accounting principles, consistently applied.

(d) Those components of Operating Costs that vary with the rate of occupancy of the Building (such as utilities, management fees and janitorial services) for any calendar year during which actual occupancy of the Project is less than one hundred percent (100%) of the Rentable Area of the Project shall be appropriately adjusted to reflect one hundred percent (100%) occupancy of the existing Rentable Area of the Project during such period. In determining Operating Costs, if any services or utilities are separately charged to tenants of the Project or others, Operating Costs shall be adjusted by Landlord to reflect the amount of expense which would have been incurred for such services or utilities on a full time basis for normal Project operating hours. In the event (i) the Commencement Date shall be a date other than January 1, (ii) the date fixed for the expiration of the Lease Term shall be a date other than December 31, (iii) of any early termination of this Lease, or (iv) of any increase or decrease in the size of the Premises, then in each such event, an appropriate adjustment in the application of this Paragraph 3 shall, subject to the provisions of this Lease, be made to reflect such event on a basis determined by Landlord to be consistent with the principles underlying the provisions of this Paragraph 3. In addition, Landlord shall have the right, from time to time, to equitably allocate and prorate some or all of the Operating Costs among different tenants and/or different buildings of the Project and/or on a building-by- building basis (the “Cost Pools”), adjusting Tenant’s Proportionate Share as to each of the separately allocated costs based on the ratio of the Rentable Area of the Premises to the Rentable Area of all of the premises to which such costs are allocated. Such Cost Pools may include, without limitation, the office space tenants and retail space tenants of the buildings in the Project.

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(e) The initial estimated amount of Tenant’s Proportionate Share of Operating Costs as of the Commencement Date is the amount shown in Item 8 of the Basic Lease Provisions. Prior to the commencement of each calendar year of the Lease Term following the Commencement Date, Landlord shall have the right to give to Tenant a written estimate of Tenant’s Proportionate Share of the Operating Costs for the Project for the ensuing year. Landlord shall provide Tenant written notice showing the calculation of Tenant’s Proportionate Share of Operating Expenses, including the same information provided to all other tenants of the Project. Tenant shall pay such estimated amount to Landlord in equal monthly installments, in advance on the first day of each month. Within a reasonable period after the end of each calendar year, Landlord shall furnish Tenant a statement indicating in reasonable detail the Operating Costs for such period, and the parties shall, within thirty (30) days thereafter, make any payment or allowance necessary to adjust Tenant’s estimated payments to Tenant’s actual share of such Operating Costs as indicated by such annual statement. Any payment due Landlord shall be payable by Tenant on demand from Landlord. Any amount due Tenant shall be credited against installments next becoming due under this Paragraph 3(e) or refunded to Tenant, if requested by Tenant.

(f) Intentionally deleted.

(g) Tenant shall pay ten (10) business days before delinquency, all taxes and assessments (i) levied against any personal property, tenant improvements or trade fixtures of Tenant in or about the Premises, (ii) based upon this Lease or any document to which Tenant is a party creating or transferring an interest in this Lease or an estate in all or any portion of the Premises, and (iii) levied for any business, professional, or occupational license fees. If any such taxes or assessments are levied against Landlord or Landlord’s property or if the assessed value of the Project is increased by the inclusion therein of a value placed upon such personal property or trade fixtures, Tenant shall upon demand reimburse Landlord for the taxes and assessments so levied against Landlord, or such taxes, levies and assessments resulting from such increase in assessed value. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.

(h) Any delay or failure of Landlord in (i) delivering any estimate or statement described in this Paragraph 3, or (ii) computing or billing Tenant’s Proportionate Share of Operating Costs shall not constitute a waiver of its right to require an increase in Rent, or in any way impair, the continuing obligations of Tenant under this Paragraph 3. In the event of any dispute as to any Additional Rent due under this Paragraph 3, Tenant, an officer of Tenant or Tenant’s certified public accountant (but (a) in no event shall Tenant hire or employ an accounting firm of accountants or any person to audit Landlord as set forth under this Paragraph who is compensated or paid for such audit on a contingency basis and (b) in the event Tenant hires or employs an independent party to perform such audit, Tenant shall provide Landlord with a copy of the engagement letter) shall have the right after reasonable notice and at reasonable times to inspect Landlord’s accounting records at Landlord’s accounting office in Austin, Texas. If, after such inspection, Tenant still disputes such Additional Rent, upon Tenant’s written request therefor, a certification as to the proper amount of Operating Costs and the amount due to or payable by Tenant shall be made by an independent certified public accountant mutually agreed to by Landlord and Tenant. If Landlord and Tenant cannot mutually agree to an independent certified public accountant, then the parties agree that Landlord shall choose an independent certified public accountant to conduct the certification as to the proper amount of Tenant’s Proportionate Share of Operating Costs due by Tenant for the period in question; provided, however, such certified public accountant shall not be the accountant who conducted Landlord’s initial calculation of Operating Costs to which Tenant is now objecting. Such certification shall be final and conclusive as to all parties. If the certification reflects that Tenant has overpaid Tenant’s Proportionate Share of Operating Costs for the period in question, then Landlord shall credit such excess to Tenant’s next payment of Operating Costs or, at the request of Tenant, promptly refund such excess to Tenant and conversely, if Tenant has underpaid Tenant’s Proportionate Share of Operating Costs, Tenant shall promptly pay such additional Operating Costs to Landlord. Tenant agrees to pay the cost of such certification and the investigation with respect thereto unless it is determined that Landlord’s original statement was in error in Landlord’s favor by more than three percent (3%), in which event Landlord shall reimburse Tenant for its actual reasonable out-of-pocket audit and inspection fees up to a maximum amount of $5,000.00 within fifteen (15) business days after receipt of Tenant’s invoice therefor (including appropriate backup). Tenant waives the right to dispute any matter relating to the calculation of Operating Costs or Additional Rent under this Paragraph 3 if any claim or dispute is not asserted in writing to Landlord within one hundred eighty (180) days

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after delivery to Tenant of the original billing statement with respect thereto. Notwithstanding the foregoing, Tenant shall maintain strict confidentiality of all of Landlord’s accounting records and shall not disclose the same to any other person or entity except for Tenant’s professional advisory representatives (such as Tenant’s employees, accountants, advisors, attorneys and consultants) with a need to know such accounting information, who agree to similarly maintain the confidentiality of such financial information.

(i) Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Proportionate Share of Operating Costs for the year in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated Operating Costs paid, and conversely, any overpayment made by Tenant shall be promptly refunded to Tenant by Landlord.

(j) Landlord and Tenant agree that each provision of this Lease for determining charges, amounts, and Additional Rent payments by Tenant is commercially reasonable, and as to each such charge or amount, constitutes a “method by which the charge is to be computed” for purposes of Section 93.012 (Assessment of Charges) of the Texas Property Code, as such section now exists or as it may be hereafter amended or succeeded.

(k) Notwithstanding the foregoing, Controllable Expenses (as defined below) shall not be increased by more than six percent (6%) per calendar year on a cumulative basis year-over-year. The term “Controllable Expenses” means all Operating Costs excluding expenses relating to the cost of utilities, security expenses, insurance, Real Estate Taxes and assessments and other expenses not within Landlord’s reasonable control. Landlord will use commercially reasonable efforts to minimize Operating Expenses, including without limitation, by the use of competitive bidding; following sound real estate accounting practices, consistently applied; and filing for any available rebates, credits, abatements, concessions and incentives to reduce Operating Expenses for credit back to tenants at the Building.

(l) The Basic Annual Rent, as adjusted pursuant to Paragraphs 2, 3 and 7, and other amounts required to be paid by Tenant to Landlord hereunder, are sometimes collectively referred to as, and shall constitute, “Rent”.

4. IMPROVEMENTS AND ALTERATIONS

(a) Landlord shall deliver the Premises to Tenant, and Tenant agrees to accept the Premises from Landlord in its existing “AS-IS”, “WHERE-IS” and “WITH ALL FAULTS” condition, except for latent defects, Hazardous Materials and work required to be done by Landlord and Landlord shall have no obligation to refurbish or otherwise improve the Premises throughout the Lease Term; provided, however, and notwithstanding the foregoing to the contrary, Landlord’s sole construction obligation under this Lease is set forth in the Work Letter attached hereto as Exhibit B.

(b) Any alterations, additions, or improvements made by or on behalf of Tenant to the Premises (“Alterations”) shall be subject to Landlord’s prior written consent, which consent shall not be unreasonably denied, conditioned or delayed. Landlord’s consent shall not be unreasonably withheld with respect to proposed Alterations that (i) comply with all applicable laws, ordinances, rules and regulations; (ii) are compatible with the Building and its mechanical, electrical, HVAC and life safety systems; (iii) will not interfere with the use and occupancy of any other portion of the Building by any other tenant or their invitees; (iv) do not affect the structural portions of the Building; and, (v) do not and will not, whether alone or taken together with other improvements, require the construction of any other improvements or alterations within the Building; provided that Landlord's consent and approval shall not be required with regard to interior and non-structural changes that do not materially affect the electrical, plumbing, HVAC, sprinkler or alarm systems of the Premises, such as the installation of unattached, moveable trade fixtures, which may be installed without drilling, cutting or otherwise defacing the Premises, and any furnishings, equipment, medical records, drugs, supplies, decorations and other similar personal property. Notwithstanding the foregoing to the contrary, Tenant shall not make (i) any structural alterations, improvements or additions to the Premises, or (ii) any alterations, improvements or additions to the Premises which (a) will adversely impact the Building’s mechanical, electrical or heating, ventilation or air conditioning systems, or (b) will adversely impact the structure of the Building, or (c) are visible from the exterior of the Premises, or (d) which will result in the penetration or puncturing of the roof or floor, without, in

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each case, first obtaining Landlord’s prior written consent or approval to such Alterations (which consent or approval shall be in the Landlord’s sole and absolute discretion). Tenant shall cause, at its sole cost and expense, all Alterations to comply with insurance requirements and with Laws and shall construct, at its sole cost and expense, any alteration or modification required by Laws as a result of any Alterations. All Alterations shall be constructed at Tenant’s sole cost and expense and in a good and workmanlike manner by contractors reasonably acceptable to Landlord and only good grades of materials shall be used. All plans and specifications for any Alterations shall be submitted to Landlord for its approval. Landlord may monitor construction of the Alterations. Tenant shall reimburse Landlord for all reasonable out-of-pocket sums, if any, paid by Landlord for third party examination of Tenant’s plans and specifications for any Alterations. In addition, Tenant shall be obligated to pay Landlord a coordination fee equal to five percent (5%) of the actual costs of any of such Alterations, which coordination fee shall be paid to Landlord promptly following the completion of the construction of the Alterations. Landlord’s right to review plans and specifications and to monitor construction shall be solely for its own benefit, and Landlord shall have no duty to see that such plans and specifications or construction comply with applicable laws, codes, rules and regulations. Without limiting the other grounds upon which Landlord may refuse to approve any contractor or subcontractor, Landlord may take into account the desirability of maintaining harmonious labor relations at the Project. Landlord may also require that all life safety related work and all mechanical, electrical, plumbing and roof related work be performed by contractors designated by Landlord. Landlord shall have the right, in its sole discretion, to instruct Tenant to remove those improvements or Alterations from the Premises which (i) were not approved in advance by Landlord, (ii) were not built in conformance with the plans and specifications approved by Landlord, or (iii) Landlord specified during its review of plans and specifications for Alterations would need to be removed by Tenant upon the expiration or earlier termination of this Lease; provided, however, that in no event shall Tenant be required to remove the Tenant Improvements upon the expiration of the Lease Term. Except as set forth in the proceeding sentence, Tenant shall not be obligated to remove such Alterations at the expiration of this Lease. Landlord shall not unreasonably withhold or delay its approval with respect to what improvements or Alterations Landlord may require Tenant to remove at the expiration of the Lease. If upon the termination of this Lease Landlord requires Tenant to remove any or all of such Alterations from the Premises, then Tenant, at Tenant’s sole cost and expense, shall promptly remove such Alterations and improvements and Tenant shall repair and restore the Premises to its original condition as of the Commencement Date, reasonable wear and tear excepted. Any Alterations remaining in the Premises following the expiration of the Lease Term or following the surrender of the Premises from Tenant to Landlord, shall become the property of Landlord unless Landlord notifies Tenant otherwise. Tenant shall provide Landlord with the identities and mailing addresses of all persons performing work or supplying materials, prior to beginning such construction, and Landlord may post on and about the Premises notices of non-responsibility pursuant to applicable law. Tenant shall assure payment for the completion of all work free and clear of liens and shall provide certificates of insurance for worker’s compensation and other coverage in amounts and from an insurance company reasonably satisfactory to Landlord protecting Landlord against liability for bodily injury or property damage during construction. Upon completion of any Alterations and upon Landlord’s reasonable request, Tenant shall deliver to Landlord sworn statements setting forth the names of all contractors and subcontractors who did work on the Alterations and final lien waivers from all such contractors and subcontractors.

(c) Tenant shall keep the Premises, the Building and the Project free from any and all liens arising out of any Alterations, work performed, materials furnished, or obligations incurred by or for Tenant. In the event that Tenant shall not, within twenty (20) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a bond in a form and issued by a surety acceptable to Landlord, Landlord shall have the right, but not the obligation, to cause such lien to be released by such means as it shall deem proper (including payment of or defense against the claim giving rise to such lien); in such case, Tenant shall reimburse Landlord for all amounts so paid by Landlord in connection therewith, together with all of Landlord’s costs and expenses, with interest thereon at the Default Rate (defined below) and Tenant shall indemnify and defend each and all of the Landlord Indemnitees (defined below) against any damages, losses or costs arising out of any such claim. Tenant’s indemnification of Landlord contained in this Paragraph shall survive the expiration or earlier termination of this Lease. Such rights of Landlord shall be in addition to all other remedies provided herein or by law.

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(d) NOTICE IS HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT, OR TO ANYONE HOLDING THE PREMISES THROUGH OR UNDER TENANT, AND THAT NO MECHANICS’ OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LANDLORD IN THE PREMISES.

5. REPAIRS

(a) Landlord shall maintain and keep the Common Areas of the Building and the Project in a good, clean and neat working order, condition and repair. Landlord shall make all necessary repairs and replacements, within a reasonable period following receipt of notice of the need therefor from Tenant, to (i) the footings, foundation, floor slab, sub-grade below floor slab and structural components (defined as the steel, floor slab, foundations, load-bearing interior and exterior walls, joists, steel frames and columnar supports) of the Project, including the Premises; (ii) all utility lines outside stub locations within the Premises, including plumbing mains and electrical panels, conduits and connections serving the Project; (iii) the exterior walls, exterior doors, exterior locks on exterior doors and windows of the Building; (iv) the roof of the Building, including roof structure, membrane, flashing, gutters, and downspouts; and (v) the Common Areas, parking areas, landscaping and public corridors and other public areas of the Project not constituting a portion of any tenant’s premises and shall use reasonable efforts to keep all Building standard equipment used by Tenant in common with other tenants in good condition and repair and to replace same at the end of such equipment’s normal and useful life, reasonable wear and tear and casualty loss excepted. Except as expressly provided in Paragraph 9 of this Lease, there shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project. Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect.

(b) Tenant, at its expense, (i) shall keep the Premises and all fixtures contained therein in a safe, clean and neat condition, and (ii) shall bear the cost of maintenance and repair, by contractors selected by Landlord, of all facilities which are not expressly required to be maintained or repaired by Landlord and which are located in the Premises, including, without limitation, lavatory, shower, toilet, wash basin and kitchen facilities, and supplemental heating and air conditioning systems (including all plumbing within the Premises connected to said facilities or systems installed by or on behalf of Tenant or existing in the Premises at the time of Landlord’s delivery of the Premises to Tenant); provided Tenant shall not be responsible for maintenance and repairs attributable to latent defects, Hazardous Materials not caused by Tenant or pre-existing violations of Laws, including the ADA and IECC. Tenant shall make all repairs to the Premises not required to be made by Landlord under subparagraph (a) above with replacements of any materials to be made by use of materials of equal or better quality. Tenant shall do all decorating, remodeling, alteration and painting required by Tenant during the Lease Term. Tenant shall pay for the cost of any repairs to the Premises, the Building or the Project made necessary by any negligence or willful misconduct of Tenant or any of its assignees, subtenants, employees or their respective agents, representatives, contractors, or other persons permitted in or invited to the Premises or the Project by Tenant. If Tenant fails to make such repairs or replacements within fifteen (15) days after written notice from Landlord, Landlord may at its option make such repairs or replacements, and Tenant shall upon demand pay Landlord for the cost thereof, together with an administration fee equal to five percent (5%) of such costs.

(c) Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises in a safe, clean and neat condition, except for normal wear and tear, casualty loss, condemnation and repairs that are not Tenant’s obligation hereunder. Prior to the expiration or earlier termination of this Lease, Tenant shall remove from the Premises (i) all trade fixtures, furnishings and other personal property of Tenant, except as otherwise set forth in Paragraph 4(b) of this Lease, and (ii) all computer and phone cabling and wiring installed by or on behalf of Tenant, and Tenant shall repair all damage caused by such removal, and shall restore the Premises to its original condition, reasonable wear and tear excepted. In addition to all other rights Landlord may have, in the event Tenant does not so remove any such fixtures, furnishings or personal property, Tenant shall be deemed to have abandoned the same, in which case Landlord may store or dispose of the same at Tenant’s expense, appropriate the same for itself, and/or sell the same in its discretion.

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(d) Tenant, its permitted subtenants and contractors, and their respective agents, employees, licensees and guests, shall have access to the Premises at all times, 24 hours per day, every day of the year, subject to Landlord’s reasonable access procedures, the project’s rules and regulations and other reasonable limitations set forth in this Lease.

6. USE OF PREMISES

(a) Tenant shall use the Premises only for general office uses and shall not use the Premises or permit the Premises to be used for any other purpose. Landlord shall have the right to deny its consent to any change in the permitted use of the Premises in its sole and absolute discretion.

(b) Tenant shall not at any time use or occupy the Premises, or permit any act or omission in or about the Premises in violation of any law, statute, ordinance or any governmental rule, regulation or order (collectively, “Law” or “Laws”) and Tenant shall, upon written notice from Landlord, discontinue any use of the Premises which is declared by any governmental authority to be a violation of Law. If any Law shall, by reason of the nature of Tenant’s use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to (i) modification or other maintenance of the Premises, the Building or the Project, or (ii) the use, alteration or occupancy thereof, Tenant shall comply with such Law at Tenant’s sole cost and expense. However, Tenant reserves the right, after written notice to Landlord, to contest by appropriate legal proceedings, diligently conducted in good faith, the validity or application of any such law, ordinance, order, rule or regulation requiring such change, and to delay compliance therewith pending the prosecution of such proceedings, provided no civil or criminal penalty would be incurred by Landlord and no lien or charge would be imposed upon or satisfied out of the Premises or the Project by reason of such delay. This Lease shall be subject to and Tenant shall comply with all financing documents encumbering the Building or the Project and all covenants, conditions and restrictions affecting the Premises, the Building or the Project, including, but not limited to, Tenant’s execution of any subordination agreements requested by a mortgagee (which for purposes of this Lease includes any lender or grantee under a deed of trust) of the Premises, the Building or the Project. If the Building or Common Areas are determined by applicable governmental agencies to not be in compliance with Legal Requirements applicable to the Project as of the Commencement Date, then Landlord shall be fully responsible, at its sole cost and expense (which shall not be included in Operating Costs), for making all alterations and repairs to the Building and the Common Areas required by such governmental agencies so that the Building or the Common Areas comply with all such Legal Requirements. The term “Legal Requirements” shall mean all covenants and restrictions of record (if any), laws, statutes, building and zoning codes, ordinances, and governmental orders, conditions of approval, rules and regulations (including, but not limited to, Title III of the Americans With Disabilities Act of 1990), as well as the same may be amended and supplemented from time to time, including, without limitation, all Legal Requirements that pertain to the Building structure. Notwithstanding the foregoing sentence, if there is a “new” Legal Requirement (a Legal Requirement first enacted or made applicable to the Project after the Commencement Date of this Lease) affecting the Building (excluding the Premises) or the Common Areas, and governmental agencies require Landlord to make capital expenditures or repairs to the Building (excluding the Premises) or the Common Areas, the invoiced cost and expense of such capital expenditures or repairs shall be an Operating Cost which shall be reimbursed by the tenants in the Project over the lesser of (i) the useful life of such capital expenditures, or (ii) ten (10) years. Subject to applicable Legal Requirements (including any “grandfather” provisions pertaining thereto), Landlord agrees to maintain the Building (except the Premises) and Common Areas in compliance with all Legal Requirements.

(c) Tenant shall not at any time use or occupy the Premises in violation of the certificates of occupancy issued for or restrictive covenants pertaining to the Building or the Premises, and in the event that any architectural control committee or department of the State or the city or county in which the Project is located shall at any time contend or declare that the Premises are used or occupied in violation of such certificate or certificates of occupancy or restrictive covenants, Tenant shall, upon five (5) days’ notice from Landlord or any such governmental agency, immediately discontinue such use of the Premises (and otherwise remedy such violation). The failure by Tenant to discontinue such use shall be considered a default under this Lease and Landlord shall have the right to exercise any and all rights and remedies provided herein or by Law, subject to Tenant’s right to contest set forth in Paragraph 6(b) above. Any statement in this Lease of the nature of the

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business to be conducted by Tenant in the Premises shall not be deemed or construed to constitute a representation or guaranty by Landlord that such business is or will continue to be lawful or permissible under any certificate of occupancy issued for the Building or the Premises, or otherwise permitted by Law.

(d) Tenant shall not do or permit to be done anything which may invalidate or increase the cost of any fire, All Risk, Causes of Loss – Special Form or other insurance policy covering the Building, the Project and/or property located therein and shall comply with all rules, orders, regulations and requirements of the appropriate fire codes and ordinances or any other organization performing a similar function. In addition to all other remedies of Landlord, Landlord may require Tenant, promptly upon demand, to reimburse Landlord for the full amount of any additional premiums charged for such policy or policies by reason of Tenant’s failure to comply with the provisions of this Paragraph 6.

(e) Tenant shall not in any way interfere with the rights or quiet enjoyment of other tenants or occupants of the Premises, the Building or the Project. Tenant shall not use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain, or permit any nuisance in, on or about the Premises, the Building or the Project. Tenant shall not place weight upon any portion of the Premises exceeding the structural floor load (per square foot of area) which such area was designated (and is permitted by Law) to carry or otherwise use any Building system in excess of its capacity or in any other manner which may damage such system or the Building. Tenant shall not create within the Premises a working environment with a density of greater than five (5) persons per 1,000 square feet of Rentable Area. Business machines and mechanical equipment shall be placed and maintained by Tenant, at Tenant’s expense, in locations and in settings sufficient in Landlord’s reasonable judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not commit or suffer to be committed any waste in, on, upon or about the Premises, the Building or the Project.

(f) Tenant shall take all reasonable steps necessary to adequately secure the Premises from unlawful intrusion, theft, fire and other hazards, and shall keep and maintain any and all security devices in or on the Premises in good working order, including, but not limited to, exterior door locks for the Premises and smoke detectors and burglar alarms located within the Premises and shall cooperate with Landlord and other tenants in the Project with respect to access control and other safety matters.

(g) As used herein, the term “Hazardous Material” means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State or the United States Government, including, without limitation, any material or substance which is (A) defined or listed as a “hazardous waste,” “pollutant,” “extremely hazardous waste,” “restricted hazardous waste,” “hazardous substance” or “hazardous material” under any applicable federal, state or local Law or administrative code promulgated thereunder, (B) petroleum, or (C) asbestos.

(i) Tenant agrees that all operations or activities upon, or any use or occupancy of the Premises, or any portion thereof, by Tenant, its assignees, subtenants, and their respective agents, servants, employees, representatives and contractors (collectively referred to herein as “Tenant Affiliates”), throughout the Lease Term, shall be in all respects in compliance with all federal, state and local Laws then governing or in any way relating to the generation, handling, manufacturing, treatment, storage, use, transportation, release, spillage, leakage, dumping, discharge or disposal of any Hazardous Materials.

(ii) Tenant agrees to indemnify, defend and hold Landlord and its Affiliates (defined below) harmless for, from and against any and all claims, actions, administrative proceedings (including informal proceedings), judgments, damages, punitive damages, penalties, fines, costs, liabilities, interest or losses, including reasonable attorneys’ fees and expenses, court costs, consultant fees, and expert fees, together with all other costs and expenses of any kind or nature that arise during or after the Lease Term directly or indirectly from or in connection with the presence, suspected presence, or release of any Hazardous Material in or into the air, soil, surface water or groundwater at, on, about, under or within the Premises, or any portion thereof caused by Tenant or Tenant Affiliates.

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(iii) In the event any investigation or monitoring of site conditions or any clean-up, containment, restoration, removal or other remedial work (collectively, the “Remedial Work”) is required under any applicable federal, state or local Law, by any judicial order, or by any governmental entity as the result of operations or activities upon, or any use or occupancy of any portion of the Premises by Tenant or Tenant Affiliates, Landlord shall perform or cause to be performed the Remedial Work in compliance with such Law or order at Tenant’s sole cost and expense. All Remedial Work shall be performed by one or more contractors, selected and approved by Landlord, and under the supervision of a consulting engineer, selected by Tenant and approved in advance in writing by Landlord. All costs and expenses of such Remedial Work shall be paid by Tenant, including, without limitation, the charges of such contractor(s), the consulting engineer, and Landlord’s reasonable attorneys’ fees and costs incurred in connection with monitoring or review of such Remedial Work.

(iv) Landlord represents that, to the current actual knowledge of Landlord, that (A) no written notice of any violation of any laws regulating Hazardous Materials has been issued or received with respect to all or any part of the Building or the Project, and (B) no condition exists anywhere in the Building or the Project which would, with the passage of time or the giving of notice, or both, constitute a violation of any laws regulating Hazardous Materials. The term “to Landlord’s knowledge” shall mean the current actual knowledge of David Moore, the asset manager of Landlord’s managing agent that is the person primarily responsible for overseeing the management and operation of the Project, without any duty of inquiry or investigation.

(v) If Hazardous Materials are discovered in the Premises, the Building or the Project during the Lease Term, and such Hazardous Materials were not caused or introduced by Tenant or its agents, employees, contractors, subtenants or assignees, then Landlord will cause such Hazardous Materials to be remediated, encapsulated, or otherwise handled, at Landlord’s expense (said costs to not be included in Landlord’s Operating Costs), within the time frames and parameters required by Law.

(vi) Notwithstanding anything to the contrary in this Paragraph 6(g), if (i) Hazardous Materials are hereafter discovered on the Premises or the Building, and (ii) the presence of such Hazardous Materials is not the result of Tenant’s use of the Premises or any act or omission of Tenant or Tenant’s Affiliates, and (iii) the presence of such Hazardous Materials results in any contamination, damages, or injury to the Premises that materially and adversely affects (a) Tenant’s occupancy or use of the Premises, or (b) human health, then Landlord shall promptly take all actions at its sole expense as are necessary to remediate such Hazardous Materials as may be required by environmental Laws. Actual or threatened action or litigation by any governmental authority is not a condition prerequisite to Landlord’s obligations under this paragraph. Within thirty (30) days after notification from Tenant supported by reasonable documentation setting forth such presence or release of Hazardous Materials, and after Landlord has been given a reasonable period of time (not to exceed ninety (90) days) after such thirty (30) day period to conduct its own investigation to confirm such presence or release of Hazardous Materials, Landlord shall commence to remediate such Hazardous Materials, or undertake such other actions as may be required by environmental Laws within thirty (30) days after the completion of Landlord’s investigation and thereafter diligently prosecute such actions or remediation to completion. If (A) under environmental Laws Landlord is required to remediate such Hazardous Materials or to undertake other actions regarding such Hazardous Materials, and Landlord fails to commence such actions or remediation within thirty (30) days after the completion of Landlord’s investigation, or (B) Landlord commences such actions or remediation and fails to diligently prosecute such actions or remediation until completion, then Tenant, as its sole and exclusive remedy under this Lease, may terminate this Lease within thirty (30) days following delivery by Tenant to Landlord of written notice that Tenant intends to terminate this Lease if Landlord does not promptly commence or diligently prosecute such actions or remediation of such Hazardous Materials (as may be required by environmental Laws) within thirty (30) days from the date of Landlord’s receipt of Tenant’s termination notice. If Landlord commences to remediate such Hazardous Materials (as may be required by environmental Laws), or commences to undertake such other actions (as may be required by environmental Laws) within thirty (30) days from its receipt of Tenant’s termination notice, then Tenant shall not have the right to terminate this Lease under this paragraph unless Landlord fails to diligently prosecute such remediation or other required actions as set forth above. If Landlord commences remediation or other

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required actions as set forth pursuant to this paragraph, then Basic Annual Rent and Operating Costs shall be equitably adjusted if and to the extent and during the period the Premises are unsuitable for Tenant’s business. Notwithstanding anything herein to the contrary, if Landlord obtains a letter from the appropriate governmental authority that no further actions or remediation is required prior to the effective date of any such termination, such termination shall be null and void and this Lease shall remain in full force and effect. Landlord shall have access to, and a right to perform inspections and tests of, the Premises as it may require to determine Tenant’s compliance with environmental requirements and Tenant’s obligations under the Lease. Access shall be granted to Landlord upon Landlord’s prior notice to Tenant at such times so as to minimize, so far as may be reasonable under the circumstances, any disturbance to Tenant’s operations.

(vii) Notwithstanding anything to the contrary contained herein, in no event shall Tenant be responsible for, nor shall Tenant be deemed to have indemnified Landlord or any Landlord-related party for, any claims arising out of any release of Hazardous Materials or contamination on, under or in the Premises, the Building and/or the Project that (A) existed prior to the Effective Date or (B) is caused by any party other than Tenant or its agents, employees, contractors, subtenants or assignees.

(viii) Each of the covenants and agreements of Tenant set forth in this Paragraph 6(g) shall survive the expiration or earlier termination of this Lease.

(h) Notwithstanding anything in this Lease to the contrary, Tenant shall be permitted from time to time to permit persons or representatives of an entity which is then performing services related to Tenant’s business and which services were previously performed or could be performed by Tenant’s employees (“Approved Users”) to occupy space within the Premises while performing such services for Tenant, provided that (i) Tenant does not separately demise such space; (ii) the Approved Users shall not occupy, in the aggregate, more than twenty-five percent (25%) of the Rentable Area of the Premises; (iii) the Approved Users occupy space in the Premises for the Permitted Use and for no other purpose; (iv) all Approved Users shall occupy space in the Premises only so long as the same are providing services to Tenant; and (v) upon request, Tenant notifies Landlord, in writing, of the identity of any such Approved Users prior to occupancy of any portion of the Premises by such Approved Users. If any Approved Users occupy any portion of the Premises as described herein, it is agreed that (A) the Approved Users must comply with all provisions of this Lease; (B) all notices required of Landlord under this Lease shall be forwarded only to Tenant in accordance with the terms of this Lease and in no event shall Landlord be required to send any notices to any Approved Users; (C) in no event shall any use or occupancy of any portion of the Premises by any Approved User release or relieve Tenant from any of its obligations under this Lease; (D) the Approved User and its employees shall be deemed Tenant Parties for purposes of this Lease; (E) in no event shall the occupancy of any portion of the Premises by Approved Users be deemed to create and landlord/tenant relationship between Landlord and such Approved Users; and (F) in all instances, Tenant shall be considered the sole tenant under the Lease notwithstanding the occupancy of any portion of the Premises by the Approved Users.

7. UTILITIES AND SERVICES

(a) Provided that Tenant is not in default hereunder, Landlord shall furnish, or cause to be furnished to the Premises, the utilities and services described in Exhibit C attached hereto, subject to the conditions and in accordance with the standards set forth therein and in this Lease.

(b) Tenant agrees to cooperate fully at all times with Landlord and to comply with all regulations and requirements which Landlord may from time to time prescribe for the use of the utilities and services described herein and in Exhibit C. Landlord shall not be liable to Tenant for the failure of any other tenant, or its assignees, subtenants, employees, or their respective invitees, licensees, agents or other representatives to comply with such regulations and requirements.

(c) If Tenant requires utilities or services in quantities greater than or at times other than that generally furnished by Landlord pursuant to Exhibit C, Tenant shall pay to Landlord, upon receipt of a written statement therefor, Landlord’s charge for such use. In the event that Tenant shall require additional electric current, water or gas for use in the Premises and if, in Landlord’s judgment, such excess requirements cannot be furnished

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unless additional risers, conduits, feeders, switchboards and/or appurtenances are installed in the Building, subject to the conditions stated below, Landlord shall proceed to install the same at the sole cost of Tenant, payable upon demand in advance. The installation of such facilities shall be conditioned upon Landlord’s consent, and a determination that the installation and use thereof (i) shall be permitted by applicable Law and insurance regulations, (ii) shall not cause permanent damage or injury to the Building or adversely affect the value of the Building or the Project, and (iii) shall not cause or create a dangerous or hazardous condition or interfere with or disturb other tenants in the Building. Subject to the foregoing, Landlord shall, upon reasonable prior notice by Tenant, furnish to the Premises additional elevator, heating, air conditioning and/or cleaning services upon such reasonable terms and conditions as shall be determined by Landlord, including payment of Landlord’s charge therefor. In the case of any additional utilities or services to be provided hereunder, Landlord may require a switch and metering system to be installed so as to measure the amount of such additional utilities or services. The cost of installation, maintenance and repair thereof shall be paid by Tenant upon demand. Notwithstanding the foregoing, Landlord shall have the right to contract with any utility provider it deems appropriate to provide utilities to the Project.

(d) Landlord shall not be liable for, and Tenant shall not be entitled to, any damages, abatement or reduction of Rent, or other liability by reason of any failure to furnish any services or utilities described herein or in Exhibit C for any reason (other than Landlord’s sole negligence or willful misconduct), including, without limitation, when caused by accident, breakage, water leakage, flooding, repairs, Alterations or other improvements to the Project, strikes, lockouts or other labor disturbances or labor disputes of any character, governmental regulation, moratorium or other governmental action, inability to obtain electricity, water or fuel, or any other cause beyond Landlord’s control. Landlord shall be entitled to cooperate with the energy conservation efforts of governmental agencies or utility suppliers. No such failure, stoppage or interruption of any such utility or service shall be construed as an eviction of Tenant, nor shall the same relieve Tenant from any obligation to perform any covenant or agreement under this Lease. In the event of any failure, stoppage or interruption thereof, Landlord shall use reasonable efforts to attempt to restore all services promptly. No representation is made by Landlord with respect to the adequacy or fitness of the Building’s ventilating, air conditioning or other systems to maintain temperatures as may be required for the operation of any computer, data processing or other special equipment of Tenant. Notwithstanding anything in this Paragraph 7 to the contrary, if an interruption or cessation of a utility service to the Premises is caused by Landlord, its agents, employees or contractors that arises from a cause within the reasonable control of Landlord and such interruption or cessation results in the Premises being unusable by Tenant for the conduct of Tenant’s business, then Basic Annual Rent and Operating Costs shall be abated commencing on that date which is five (5) consecutive business days following the date Tenant delivers written notice to Landlord of such interruption and continuing until either such utility service to the Premises is restored or the Premises is again usable for the conduct of Tenant’s business. If, however, Tenant reoccupies any portion of the Premises during such abatement period, the Basic Annual Rent and Operating Costs allocable to such reoccupied portion, based on the proportion that the Rentable Area of such reoccupied portion of the Premises bears to the total Rentable Area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. Except as expressly set forth in the following sentence, such right to abate Basic Annual Rent and Operating Costs shall be Tenant’s sole and exclusive remedy at law or in equity in the event of an interruption or cessation of a utility service to the Premises. Furthermore (i) if an interruption or cessation of utility service to the Premises occurs, and continues for a period of ninety (90) consecutive days after Tenant notifies Landlord in writing of such interruption or cessation of utility service; (ii) if such interruption or cessation of utility service is caused by an event in Landlord’s reasonable control and not the result of any breach of this Lease by Tenant or other negligent or otherwise wrongful act or omission of Tenant; (iii) if such interruption or cessation of utility service is not caused by a fire or other casualty (in which case Section 9 shall control) or a condemnation (in which case Section 10 shall control); (iv) if, as a result of such interruption or cessation of utility service, the Premises, or a material portion thereof, is rendered Untenantable (as hereinafter defined); and (v) provided Tenant shall have delivered written notice to Landlord (such written notice detailing such interruption or cessation of utility service and containing in bold upper case letters (in 16 point font or larger) the phrase “FINAL REQUEST – TENANT ENTITLED TO UTILITY SERVICE INTERRUPTION TERMINATION NOTICE UNDER LEASE”), then Tenant shall have the right, after such ninetieth (90th) consecutive day, to terminate this Lease for the Premises, prior to, but not after, the restoration of such utility service to the Premises, by timely delivering to Landlord written notice of such termination (after such ninetieth (90th) consecutive day) and this Lease shall promptly

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terminate. The term “Untenantable” shall mean the Premises, or a material portion thereof, cannot reasonably be used and occupied by Tenant (and is not used and occupied by Tenant) in the ordinary and normal course of its business with no material adverse disruption.

(e) Landlord reserves the right from time to time to make reasonable and nondiscriminatory modifications to the above standards (including, without limitation, those described in Exhibit C) for utilities and services.

8. NON-LIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE

(a) By Tenant:

(i) Landlord shall not be liable for any injury, loss or damage suffered by Tenant or to any person or property occurring or incurred in or about the Premises, the Building or the Project from any cause, EXCEPT TO THE EXTENT SUCH LIABILITIES ARE CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY LANDLORD INDEMNITEE (DEFINED BELOW). Without limiting the foregoing, neither Landlord nor any of its partners, officers, trustees, affiliates, directors, employees, contractors, agents or representatives (collectively, “Affiliates”) shall be liable for and there shall be no abatement of Rent (except in the event of a casualty loss or a condemnation as set forth in Paragraph 9 and Paragraph 10 of this Lease) for (A) any damage to Tenant’s property stored with or entrusted to Affiliates of Landlord, (B) loss of or damage to any property by theft or any other wrongful or illegal act, or (C) any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or the Project or from the pipes, appliances, appurtenances or plumbing works therein or from the roof, street or sub-surface or from any other place or resulting from dampness or any other cause whatsoever or from the acts or omissions of other tenants, occupants or other visitors to the Building or the Project or from any other cause whatsoever, (D) any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to the Building, whether within or outside of the Project, or (E) any latent or other defect in the Premises, the Building or the Project, EXCEPT TO THE EXTENT SUCH LIABILITIES ARE CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY LANDLORD INDEMNITEE (DEFINED BELOW). Tenant shall give prompt notice to Landlord in the event of (I) the occurrence of a fire or accident in the Premises or in the Building, or (II) the discovery of a defect therein or in the fixtures or equipment thereof. This Paragraph 8(a) shall survive the expiration or earlier termination of this Lease.

(ii) Tenant hereby agrees to indemnify, protect, defend and hold harmless Landlord and its designated property management company, and their respective partners, members, affiliates and subsidiaries, and all of their respective officers, directors, shareholders, employees, servants, partners, representatives, insurers and agents (collectively, “Landlord Indemnitees”) for, from and against all liabilities, claims, fines, penalties, costs, damages or injuries to persons, damages to property, losses, liens, causes of action, suits, judgments and expenses (including court costs, attorneys’ fees, expert witness fees and costs of investigation), of any nature, kind or description of any person or entity, directly or indirectly arising out of, caused by, or resulting from (in whole or part) (A) Tenant’s construction of or use, occupancy or enjoyment of the Premises, (B) any activity, work or other things done, permitted or suffered by Tenant and its agents and employees in or about the Premises, (C) any breach or default in the performance of any of Tenant’s obligations under this Lease, (D) any act, omission, negligence or willful misconduct of Tenant or any of its agents, contractors, employees, business invitees or licensees, or (E) any damage to Tenant’s property, or the property of Tenant’s agents, employees, contractors, business invitees or licensees, located in or about the Premises (collectively, “Liabilities”); EXCEPT TO THE EXTENT SUCH LIABILITIES ARE CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY LANDLORD INDEMNITEE. This Paragraph 8(a)(ii) shall survive the expiration or earlier termination of this Lease.

(iii) Tenant shall promptly advise Landlord in writing of any action, administrative or legal proceeding or investigation as to which this indemnification may apply, and Tenant, at Tenant’s expense,

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shall assume on behalf of each and every Landlord Indemnitee and conduct with due diligence and in good faith the defense thereof with counsel reasonably satisfactory to Landlord; provided, however, that any Landlord Indemnitee shall have the right, at its option, to be represented therein by advisory counsel of its own selection and at its own expense. In the event of failure by Tenant to fully perform in accordance with this Paragraph, Landlord, at its option, and without relieving Tenant of its obligations hereunder, may so perform, but all costs and expenses so incurred by Landlord in that event shall be reimbursed by Tenant to Landlord, together with interest on the same from the date any such expense was paid by Landlord until reimbursed by Tenant, at the rate of interest provided to be paid on judgments, by the law of the jurisdiction to which the interpretation of this Lease is subject.

(b) By Landlord: Landlord hereby agrees to indemnify, protect, defend and hold harmless Tenant and its partners, members, affiliates and subsidiaries, and all of their respective officers, directors, shareholders, employees, servants, partners, representatives, insurers and agents (collectively, “Tenant Indemnitees”), from and against all liabilities, claims, fines, penalties, costs, damages or injuries to persons, damages to property, losses, liens, causes of action, suits, judgments and expenses (including court costs, attorneys’ fees, expert witness fees and costs of investigation), of any nature, kind or description of any person or entity, directly or indirectly arising out of, caused by, or resulting from (in whole or part) the gross negligence or willful misconduct of Landlord. This Paragraph 8(b) shall survive the expiration or earlier termination of this Lease.

(c) Insurance.

(i) Tenant at all times during the Lease Term shall, at its own expense, keep in full force and effect (A) commercial general liability insurance providing coverage against bodily injury and disease, including death resulting therefrom, bodily injury and property damage to a combined single limit of $3,000,000 to one or more than one person as the result of any one accident or occurrence, which shall include provision for contractual liability coverage insuring Tenant for the performance of its indemnity obligations set forth in this Paragraph 8 and in Paragraph 6(g)(ii) of this Lease, with an Excess Limits (Umbrella) Policy in the amount of $5,000,000; (B) worker’s compensation insurance to the statutory limit, if any, and employer’s liability insurance to the limit of $1,000,000 per occurrence; (C) All Risk, Causes of Loss – Special Form property insurance, including fire and extended coverage, sprinkler leakage (including earthquake, sprinkler leakage), vandalism, malicious mischief, wind and/or hurricane coverage, and earthquake and flood coverage; and (D) flood insurance, covering full replacement value of all of Tenant’s personal property, trade fixtures and improvements in the Premises. Landlord and its designated property management firm shall be named an additional insured on each of said policies (excluding the worker’s compensation policy) and said policies shall be issued by an insurance company or companies authorized to do business in Texas and which have policyholder ratings not lower than “A-” and financial ratings not lower than “VII” in Best’s Insurance Guide (latest edition in effect as of the Date of Lease and subsequently in effect as of the date of renewal of the required policies). EACH OF SAID POLICIES SHALL ALSO INCLUDE A WAIVER OF SUBROGATION PROVISION OR ENDORSEMENT IN FAVOR OF LANDLORD. Tenant shall furnish new certificates to Landlord for any required insurance at least thirty (30) days prior to expiration of the current policy. Tenant hereby waives its right of recovery against any Landlord Indemnitee of any amounts paid by Tenant or on Tenant’s behalf to satisfy applicable worker’s compensation laws. The policies or duly executed certificates showing the material terms for the same, together with satisfactory evidence of the payment of the premiums therefor, shall be deposited with Landlord on the date Tenant first occupies the Premises and upon renewals of such policies not less than fifteen (15) days prior to the expiration of the term of such coverage. If certificates are supplied rather than the policies themselves, Tenant shall allow Landlord, at all reasonable times, to inspect the policies of insurance required herein. All insurance coverages required to be carried by Tenant may be effected by a policy or policies of blanket insurance covering one or more locations.

(ii) It is expressly understood and agreed that the coverages required represent Landlord’s minimum requirements and such are not to be construed to void or limit Tenant’s obligations contained in this Lease, including without limitation Tenant’s indemnity obligations hereunder. Neither shall (A) the insolvency, bankruptcy or failure of any insurance company carrying Tenant, (B) the failure of any insurance company to pay claims occurring nor (C) any exclusion from or insufficiency of coverage be

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held to affect, negate or waive any of Tenant’s indemnity obligations under this Paragraph 8 and Paragraph 6(g)(ii) or any other provision of this Lease. With respect to insurance coverages, except worker’s compensation, maintained hereunder by Tenant and insurance coverages separately obtained by Landlord, all insurance coverages afforded by policies of insurance maintained by Tenant shall be primary insurance as such coverages apply to Landlord, and such insurance coverages separately maintained by Landlord shall be excess, and Tenant shall have its insurance policies so endorsed. The amount of liability insurance under insurance policies maintained by Tenant shall not be reduced by the existence of insurance coverage under policies separately maintained by Landlord. Tenant shall be solely responsible for any premiums, assessments, penalties, deductible assumptions, retentions, audits, retrospective adjustments or any other kind of payment due under its policies. Tenant shall increase the amounts of insurance or the insurance coverages as Landlord may reasonably request from time to time, but not in excess of the requirements of prudent landlords or lenders for similar tenants occupying similar premises in the Austin, Texas-metropolitan area and, in any event, not more often than once every forty-eight (48) months.

(iii) Tenant’s occupancy of the Premises without delivering the certificates of insurance shall not constitute a waiver of Tenant’s obligations to provide the required coverages. If Tenant provides to Landlord a certificate that does not evidence the coverages required herein, or that is faulty in any respect, such shall not constitute a waiver of Tenant’s obligations to provide the proper insurance.

(iv) Throughout the Lease Term, Landlord agrees to maintain (i) fire and extended coverage insurance, and, at Landlord’s option, earthquake damage coverage, terrorism coverage, wind and hurricane coverage, and such additional property insurance coverage as Landlord deems appropriate, on the insurable portions of Building and the remainder of the Project in an amount not less than the full replacement value thereof, subject to reasonable deductibles (ii) boiler and machinery insurance amounts and with deductibles that would be considered standard for similar class office buildings in the Austin, Texas metropolitan area and (iii) commercial general liability insurance with a combined single limit coverage of at least $1,000,000.00 per occurrence. If, during any calendar year, all or any part of such coverage is written under a blanket policy or other policy form whereby Landlord is unable to determine a specific insurance premium charge applicable to the Project, then in such event, the amount attributable to the Project for purposes of calculating Tenant’s obligation regarding insurance costs with respect to such policy shall be the total cost of such blanket policy multiplied by a fraction, the numerator of which is the Rentable Area of the Project and the denominator of which is the aggregate Rentable Area of all the properties covered by such policy. All such insurance shall be obtained from insurers Landlord reasonably believes to be financially responsible in light of the risks being insured. The premiums for any such insurance shall be a part of Operating Costs.

(d) Mutual Waivers of Recovery. Landlord, Tenant, and all parties claiming under them, each mutually waive, release and discharge each other from any and every claim that arises or may arise in its favor against the other party during the Lease Term for any and all theft, destruction, loss or loss of use of, or damage to, any of its property located within or upon, or constituting a part of, the Premises or the Project, or any inconvenience relating thereto (collectively, “Loss”), due to casualty, theft, fire, third parties or any other matter (including Losses arising through repair or alteration of any part of the Project, or failure to make repairs, or from any other cause), no matter how caused, including negligence, and each waives any right of recovery from the other including, but not limited to, claims for contribution or indemnity, which might otherwise exist on account thereof. Inasmuch as these mutual waivers will preclude the assignment of any such claim by way of subrogation to an insurance company (or any other person), Landlord and Tenant shall each immediately give to each of its insurance companies that has issued an insurance policy to such party written notice of the terms of such mutual waivers. Any fire, extended coverage or property insurance policy maintained by Tenant with respect to the Premises, or Landlord with respect to the Building or the Project, shall contain, in the case of Tenant’s policies, a waiver of subrogation provision or endorsement in favor of Landlord, and in the case of Landlord’s policies, a waiver of subrogation provision or endorsement in favor of Tenant, or, in the event that such insurers cannot or shall not include or attach such waiver of subrogation provision or endorsement, Tenant and Landlord shall obtain the approval and consent of their respective insurers, in writing, to the terms of this Lease. Tenant agrees to indemnify, protect, defend and hold harmless each and all of the Landlord Indemnitees from and against any claim, suit or cause of action asserted or brought by the indemnifying party’s insurers for,

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on behalf of, or in the name of such party, including, but not limited to, claims for contribution, indemnity or subrogation, brought in contravention of this paragraph. Landlord agrees to indemnify, protect, defend and hold harmless all of the Tenant Indemnitees from and against any claim, suit or cause of action asserted or brought by the indemnifying party’s insurers for, on behalf of, or in the name of such party, including, but not limited to, claims for contribution, indemnity or subrogation, brought in contravention of this paragraph. The mutual releases, discharges and waivers contained in this provision shall apply EVEN IF THE LOSS OR DAMAGE TO WHICH THIS PROVISION APPLIES IS CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OF LANDLORD OR TENANT. These mutual waivers are in addition to, and not in limitation or derogation of, any other waiver or release contained in this Lease with respect to any loss of, or damage to, property of the parties. Landlord and Tenant each covenant and agree that no insurer shall hold any right of subrogation against the other with respect to any such damage or loss. For the purpose of the foregoing waiver, the amount of any deductible applicable to any loss or damage shall be deemed covered by the insured under the insurance policy to which such deductible relates.

(e) Business Interruption. Landlord shall not be responsible for, and Tenant releases and discharges Landlord from, and Tenant further waives any right of recovery from Landlord for, any loss for or from business interruption or loss of use of the Premises suffered by Tenant in connection with Tenant’s use or occupancy of the Premises, EVEN IF SUCH LOSS IS CAUSED SOLELY OR IN PART BY THE NEGLIGENCE OF LANDLORD.

(f) Adjustment of Claims. Landlord and Tenant shall cooperate with each other and each other’s insurers in the adjustment of any insurance claim pertaining to the Building or the Project or Landlord’s or Tenant’s use thereof, as applicable.

(g) Increase in Landlord’s Insurance Costs. Tenant agrees to pay to Landlord any increase in premiums for Landlord’s insurance policies resulting from Tenant’s use or occupancy of the Premises.

(h) Failure to Maintain Insurance. Any failure of Tenant to obtain and maintain the insurance policies and coverages required hereunder or failure by Tenant to meet any of the insurance requirements of this Lease shall constitute an event of default hereunder, and such failure shall entitle Landlord to pursue, exercise or obtain any of the remedies provided for in Paragraph 12(b), and Tenant shall be solely responsible for any loss suffered by Landlord as a result of such failure. In the event of failure by Tenant to maintain the insurance policies and coverages required by this Lease or to meet any of the insurance requirements of this Lease, Landlord, at its option, and without relieving Tenant of its obligations hereunder, may obtain said insurance policies and coverages or perform any other insurance obligation of Tenant, but all costs and expenses incurred by Landlord in obtaining such insurance or performing Tenant’s insurance obligations shall be reimbursed by Tenant to Landlord, together with interest on same from the date any such cost or expense was paid by Landlord until reimbursed by Tenant, at the rate of interest provided to be paid on judgments, by the law of the jurisdiction to which the interpretation of this Lease is subject.

9. FIRE OR CASUALTY

(a) Subject to the provisions of this Paragraph 9, in the event the Premises, or access thereto, is wholly or partially destroyed by fire or other casualty, Landlord shall (to the extent permitted by Law and covenants, conditions and restrictions then applicable to the Project, but provided this Lease has not otherwise been terminated as provided below) rebuild, repair or restore the Premises and access thereto to substantially the same condition as existing immediately prior to such destruction (including the Tenant Improvements, but excluding Tenant’s Alterations, trade fixtures, equipment and personal property, which Tenant shall be required to restore) and this Lease shall continue in full force and effect. Notwithstanding the foregoing, Landlord’s obligation to rebuild, repair or restore the Premises shall not apply to any personal property, above-standard tenant improvements or other items installed or contained in the Premises.

(b) Landlord may elect to terminate this Lease in any of the following cases of damage or destruction to the Premises, the Building or the Project: (i) where the cost of rebuilding, repairing and restoring (collectively, “Restoration”) of the Building or the Project, would, regardless of the lack of damage to the

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Premises or access thereto, in the reasonable opinion of Landlord, exceed twenty percent (20%) of the then replacement cost of the Building; (ii) where, in the case of any damage or destruction to any portion of the Building or the Project by uninsured casualty, the cost of Restoration of the Building or the Project, in the reasonable opinion of Landlord, exceeds $500,000; or (iii) where, in the case of any damage or destruction to the Premises or access thereto by uninsured casualty, the cost of Restoration of the Premises or access thereto, in the reasonable opinion of Landlord, exceeds twenty percent (20%) of the replacement cost of the Premises; (iv) if Landlord has not obtained appropriate zoning approvals for reconstruction of the Project, Building or Premises; (v) Landlord’s mortgagee(s) elect to apply the insurance proceeds to pay down any loans encumbering the Building. By declining to exercise its foregoing rights of termination, Landlord will be deemed to have agreed to expend its own funds to compensate for any shortfall in the insurance funds available for restoration of the Project. Any such termination shall be made by thirty (30) days’ prior written notice to Tenant given within sixty (60) days of the date of such damage or destruction. If this Lease is not terminated by Landlord and as the result of any damage or destruction, the Premises, or a portion thereof, are rendered untenantable, the Basic Annual Rent, Operating Expenses and Additional Rent shall fully abate during the period of Restoration from the date of damage until the earlier of (i) the date Tenant re-opens for business in the Premises or (ii) the date the Premises, including the Tenant Improvements, have been Substantially Completed. This Lease shall be considered an express agreement governing any case of damage to or destruction of the Premises, the Building or the Project. This Lease sets forth the terms and conditions upon which this Lease may terminate in the event of any damage or destruction.

(c) If Landlord gives Tenant notice within sixty (60) days after the date of damage of its election to reconstruct the Project as provided above, but if the Project, including the Premises, cannot be reconstructed within a total of 180 days after the date of damage, then Tenant shall have thirty (30) days after receipt of such notice (or after the expiration of such 60-day period if Landlord fails to give the required notice) within which to elect to terminate this Lease by giving Landlord written notice of its intent to do so, in which event all Basic Annual Rent and Additional Rent payable hereunder shall be abated as of the date of such damage, this Lease shall thereafter be null and void and neither party shall have any further liability or responsibility hereunder.

(d) Either party may terminate this Lease if the Premises are damaged during the last year of the Lease Term and Landlord reasonably estimates it will take more than one month to repair such damage.

10. EMINENT DOMAIN

In the event the whole or substantially all of the Premises, the Building or the Project (or the parking areas) shall be taken under the power of eminent domain, or sold to prevent the exercise thereof (collectively, a “Taking”), this Lease shall automatically terminate as of the date of such Taking. In the event a Taking of a portion of the Project, the Building or the Premises shall, in the reasonable opinion of Landlord, substantially interfere with Landlord’s operation thereof, or if any of Landlord’s Mortgage(s) require application of the condemnation proceeds to the reduction of the mortgage indebtedness, Landlord may terminate this Lease upon thirty (30) days’ written notice to Tenant given at any time within sixty (60) days following the date of such Taking. If the Taking renders all or a substantial portion of the Premises untenantable or inaccessible or results in a material reduction of accessible on-site parking spaces to the extent that the Project is not in compliance with applicable Laws or is no longer viable for Tenant to continue to operate its business at the Premises in the manner operated immediately prior to such taking, Tenant may terminate this Lease effective on the date of Taking by written notice given no later than sixty (60) days after such date. For purposes of this Lease, the date of Taking shall be the earlier of the date of transfer of title resulting from such Taking or the date of transfer of possession resulting from such Taking. In the event that a portion of the Premises is so taken and this Lease is not terminated, Landlord shall, with reasonable diligence, use commercially reasonable efforts to proceed to restore (to the extent permitted by Law and covenants, conditions and restrictions then applicable to the Project) the Premises (other than Tenant’s personal property and fixtures, and above-standard tenant improvements) to a complete, functioning unit, including the Tenant Improvements as appropriately adjusted to reflect the Taking. During such restoration, the Basic Annual Rent, Operating Expenses and Additional Rent shall be fully abated until the earlier of (i) the date Tenant re-opens for business in the Premises; or (ii) the date the Premises, including the Tenant Improvements, have been Substantially Completed, at which time, the Basic Annual Rent, Tenant’s Proportionate Share of Operating Expenses and Additional Rent shall be permanently reduced proportionately based on the portion of the Premises so taken. If all

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or any portion of the Premises is the subject of a temporary Taking, this Lease shall remain in full force and effect and Tenant shall continue to perform each of its obligations under this Lease; in such case, Tenant shall be entitled to receive the entire award allocable to the temporary Taking of the Premises. Except as provided herein, Tenant shall not assert any claim against Landlord or the condemning authority for, and hereby assigns to Landlord, any compensation in connection with any such Taking, and Landlord shall be entitled to receive the entire amount of any award therefor, without deduction for any estate or interest of Tenant. Nothing contained in this Paragraph 10, however, shall be deemed to give Landlord any interest in, or prevent Tenant from seeking any award against the condemning authority for any and all damages to or loss of leasehold interest created by this Lease or Tenant's business, the Taking of personal property, fixtures, equipment, above standard tenant improvements of Tenant or for relocation or moving expenses recoverable by Tenant from the condemning authority. This Paragraph 10 shall be Tenant’s sole and exclusive remedy in the event of a Taking. This Lease sets forth the terms and conditions upon which this Lease may terminate in the event of a Taking. Accordingly, the parties waive any statutes permitting the parties to terminate this Lease as a result of a Taking.

11. ASSIGNMENT AND SUBLETTING

(a) Tenant shall not directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, assign, sublet, mortgage, hypothecate or otherwise encumber all or any portion of its interest in this Lease or in the Premises or grant any license in or suffer any person other than Tenant or its employees to use or occupy the Premises or any part thereof without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Any such attempted assignment, subletting, license, mortgage, hypothecation, other encumbrance or other use or occupancy without the consent of Landlord shall be null and void and of no effect. Any mortgage, hypothecation or encumbrance of all or any portion of Tenant’s interest in this Lease or in the Premises and any grant of a license or sufferance of any person other than Tenant or its employees to use or occupy the Premises or any part thereof shall be deemed to be an “assignment” of this Lease. If Landlord does not respond to Tenant's request for consent hereunder within fifteen (15) days after receipt thereof, and such failure to respond continues for more than five (5) business days following a second written notice, Landlord will be deemed to have approved the contemplated transfer. In addition, as used in this Paragraph 11, the term “Tenant” shall also mean any entity that has guaranteed Tenant’s obligations under this Lease, and the restrictions applicable to Tenant contained herein shall also be applicable to such guarantor.

(b) No assignment or subletting shall relieve Tenant of its obligation to pay the Rent and to perform all of the other obligations to be performed by Tenant hereunder, except as provided below. The acceptance of Rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any subletting or assignment. Consent by Landlord to one subletting or assignment shall not be deemed to constitute a consent to any other or subsequent attempted subletting or assignment. If Tenant desires at any time to assign this Lease or to sublet the Premises or any portion thereof, it shall first notify Landlord of its desire to do so and shall submit in writing to Landlord all pertinent information relating to the proposed assignee or sublessee, all pertinent information relating to the proposed assignment or sublease, and all such financial information as Landlord may reasonably request concerning Tenant and the proposed assignee or subtenant. Any assignment or sublease shall be expressly subject to the terms and conditions of this Lease.

(c) At any time within fifteen (15) days after Landlord’s receipt of the information specified in subparagraph (b) above, Landlord may by written notice to Tenant elect to terminate this Lease as to the portion of the Premises so proposed to be subleased or assigned (which may include all of the Premises), with a proportionate abatement in the Rent payable hereunder. However, Tenant shall have the right to withdraw its request for Landlord’s consent to a proposed sublease or assignment, provided Tenant exercises such withdrawal right within five (5) business days after receipt of Landlord’s termination notice. If Tenant timely exercises such withdrawal right, the Lease shall continue in full force and effect as if Tenant had not requested Landlord’s consent.

(d) Tenant acknowledges that it shall be reasonable for Landlord to withhold its consent to a proposed assignment or sublease in any of the following instances:

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(i) The tangible net worth of the assignee or sublessee (or any affiliate of the assignee or sublessee) is not at least equal to Tenant’s tangible net worth at the date of this Lease;

(ii) The intended use of the Premises by the assignee or sublessee is not for general office use;

(iii) The intended use of the Premises by the assignee or sublessee would materially increase the density of the Premises to more than five (5) persons per 1,000 square feet of Rentable Area;

(iv) Occupancy of the Premises by the assignee or sublessee would, in the good faith judgment of Landlord, violate any agreement binding upon Landlord, the Building or the Project with regard to the identity of tenants, usage in the Building, or similar matters;

(v) The assignee or sublessee (or any affiliate of the assignee or sublessee) is then negotiating with Landlord or has negotiated with Landlord within the previous six (6) months, or is a current tenant or subtenant within the Building or Project;

(vi) The identity or business reputation of the assignee or sublessee will, in the good faith, commercially reasonable judgment of Landlord, tend to damage the goodwill or reputation of the Building or Project; or

(vii) In the case of a sublease, the subtenant has not acknowledged that the Lease controls over any inconsistent provision in the sublease.

The foregoing criteria shall not exclude any other reasonable basis for Landlord to refuse its consent to such assignment or sublease. Notwithstanding any contrary provision of this Lease, if Tenant or any proposed assignee or sublessee claims that Landlord has unreasonably withheld its consent to a proposed assignment or sublease or otherwise has breached its obligations under this Paragraph 11, their sole remedy shall be to seek a declaratory judgment and/or injunctive relief without any monetary damages, and, with respect thereto, Tenant, on behalf of itself and, to the extent permitted by law, such proposed assignee/sublessee, hereby waives all other remedies against Landlord, including, without limitation, the right to seek monetary damages or to terminate this Lease.

(e) Notwithstanding any assignment or subletting, Tenant shall at all times during the Initial Term and any subsequent renewals or extensions remain fully responsible and liable for the payment of the rent and for compliance with all of Tenant’s other obligations under this Lease; provided such liability shall continue only through expiration or earlier termination of the then-current period of the Lease Term (whether the initial Lease Term or any renewal or extension period) and Tenant shall thereupon be released from liability for all obligations under this Lease arising after the expiration or earlier termination of such then-current period. In the event that the Rent due and payable by a sublessee or assignee (or a combination of the rental payable under such sublease or assignment, plus any bonus or other consideration therefor or incident thereto) exceeds the Rent payable under this Lease, then Tenant shall be bound and obligated to pay Landlord, as additional rent hereunder, one-half (1/2) of all such excess Rent and other excess consideration within ten (10) days following receipt thereof by Tenant (after deducting therefrom any marketing expenses, concessions, improvement allowances, rental abatements, brokerage commissions, design costs, legal, engineering and architectural fees and other fees and costs paid by Tenant in connection with any such assignment or transfer).

(f) If this Lease is assigned or if the Premises is subleased (whether in whole or in part), or in the event of the mortgage, pledge, or hypothecation of Tenant’s leasehold interest, or grant of any concession or license within the Premises, or if the Premises are occupied in whole or in part by anyone other than Tenant, then upon a default by Tenant hereunder Landlord may collect Rent from the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold interest was hypothecated, concessionaire or licensee or other occupant and, except to the extent set forth in the preceding paragraph, apply the amount collected to the next Rent payable hereunder; and all such Rent collected by Tenant shall be held in deposit for Landlord and immediately forwarded to Landlord. No such transaction or collection of Rent or application thereof by Landlord, however, shall be deemed a waiver

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of these provisions or a release of Tenant from the further performance by Tenant of its covenants, duties, or obligations hereunder.

(g) If Tenant effects an assignment or sublease or requests the consent of Landlord to any proposed assignment or sublease, then Tenant shall, upon demand, pay Landlord a non-refundable administrative fee of One Thousand Dollars ($1,000.00).

(h) Notwithstanding any provision of this Lease to the contrary, in the event this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute the property of Tenant or Tenant’s estate within the meaning of the Bankruptcy Code. All such money and other consideration not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid or delivered to Landlord.

(i) Tenant may assign its entire interest under this Lease to a successor to Tenant by purchase, merger, consolidation or reorganization, or to any person or entity controlling, controlled by or under common control with Tenant (collectively, a “Permitted Transferee”), without the consent of Landlord, provided that all of the following conditions are satisfied in Landlord’s reasonable discretion (a “Permitted Transfer”): (i) no uncured event of default exists under this Lease; (ii) the Permitted Transferee shall own all or substantially all of the assets of Tenant; (iii) no portion of the Project or Premises would likely become subject to additional or different Laws as a consequence of the proposed Permitted Transfer; (iv) the Permitted Transferee is not and has not been involved in litigation with Landlord or any of Landlord’s Affiliates; and (v) Tenant shall give Landlord written notice at least thirty (30) days following the effective date of such Permitted Transfer, along with all applicable documentation and other information necessary for Landlord to determine that the requirements of this Paragraph have been satisfied, including if applicable, the qualification of such proposed transferee as a Permitted Transferee. If requested by Landlord, the Permitted Transferee shall sign a commercially reasonable form of assumption agreement.

12. DEFAULT

(a) Events of Default. The occurrence of any one or more of the following events shall constitute an “event of default” or “default” (herein so called) under this Lease by Tenant: (i) Tenant shall fail to pay Rent or any other rental or sums payable by Tenant hereunder within five (5) days after Landlord notifies Tenant of such nonpayment; provided, however, Landlord shall only be obligated to provide such written notice to Tenant three (3) times within any consecutive twelve (12) month period and in the event Tenant fails to timely pay Rent or any other sums for a fourth time during any consecutive twelve (12) month period, then Tenant shall be in default for such late payment and Landlord shall have no obligation or duty to provide notice of such nonpayment to Tenant prior to declaring an event of default under this Lease; (ii) Tenant shall fail to comply with or observe any other provision of this Lease and such failure shall continue for thirty (30) days after written notice to Tenant; provided, however, that if the nature of Tenant’s obligation is such that more than thirty (30) days are required for its performance, Tenant shall not be in default if Tenant commences to cure such default within the thirty (30) day period and thereafter diligently prosecutes the same to completion (or, in the case of Tenant’s failure to comply with or observe any other single provision of this Lease more than two (2) times during the Lease Term beyond the foregoing cure periods, upon the occurrence of the third and all subsequent such failures beyond such cure periods, without notice from Landlord); (iii) Tenant or any guarantor of Tenant’s obligations hereunder shall make a general assignment for the benefit of creditors; (iv) any petition shall be filed by or against Tenant or any guarantor of Tenant’s obligations hereunder under the United States Bankruptcy Code, as amended, or under any similar law or statute of the United States or any state thereof, and such petition shall not be dismissed within sixty (60) days of filing, or Tenant or any guarantor of Tenant’s obligations hereunder shall be adjudged bankrupt or insolvent in proceedings filed thereunder; (v) a receiver or trustee shall be appointed for all or substantially all of the assets of Tenant or any guarantor of Tenant’s obligations hereunder, and such appointment shall not be vacated or otherwise terminated, and the action in which such appointment was ordered dismissed, within sixty (60) days of filing; (vi) Tenant shall fail to take possession of or shall desert, abandon or vacate the Premises; provided that Landlord shall give Tenant written notice and a period of 90 days to cure any

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such failure; (vii) the death of any guarantor; or (viii) the occurrence of an event described in clause (iv) or (v) of this Paragraph (without regard to any cure periods contained therein), and the failure thereafter of Tenant (A) to timely and fully make any payment of Rent or any other sum of money due hereunder or (B) to perform or observe any other covenant, condition or agreement to be performed or observed by it hereunder.

(b) Remedies. Upon the occurrence of any event of default specified in this Lease, Landlord shall have the option to pursue any (i) one or more of the following remedies without any notice or demand whatsoever and without releasing Tenant from any obligation under this Lease; or (ii) other remedy offered Landlord in law or in equity:

(i) Landlord may enter the Premises without terminating this Lease and perform any covenant or agreement or cure any condition creating or giving rise to an event of default under this Lease and Tenant shall pay to Landlord on demand, as additional rent, the amount expended by Landlord in performing such covenants or agreements or satisfying or observing such condition. Landlord, or its agents or employees, shall have the right to enter the Premises, and such entry and such performance shall not terminate this Lease or constitute an eviction of Tenant.

(ii) Landlord may terminate this Lease by written notice to Tenant (and not otherwise) or Landlord may terminate Tenant’s right of possession without terminating this Lease. In either of such events Tenant shall surrender possession of and vacate the Premises immediately and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter the Premises, in whole or in part, with or without process of law and to expel or remove Tenant and any other person, firm or entity who may be occupying the Premises or any part thereof and remove any and all property therefrom, using such lawful force as may be necessary.

(iii) In the event Landlord elects to re-enter or take possession of the Premises after Tenant’s default, with or without terminating this Lease, Landlord may change locks or alter security devices and lock out, expel or remove Tenant and any other person who may be occupying all or any part of the Premises without being liable for any claim for damages.

(iv) Notwithstanding anything herein to the contrary, if Landlord terminates this Lease or Tenant’s right to possession without terminating this Lease after an event of default, Landlord shall, if required by State law, use commercially reasonable efforts to relet the Premises and mitigate its damages as set forth in Paragraph 12(c) below.

(v) Notwithstanding any prior election by Landlord to not terminate this Lease, Landlord may at any time, including subsequent to any re-entry or taking of possession of the Premises as allowed hereinabove, elect to terminate this Lease. Tenant shall be liable for and shall immediately pay to Landlord the amount of all Basic Annual Rent and other sums of money due under this Lease as may have accrued as of the date of termination. Tenant shall also immediately pay to Landlord, as agreed and liquidated damages, an amount of money equal to the Basic Annual Rent and other amounts due for the remaining portion of the Lease Term (had such term not been terminated by Landlord prior to the expiration of the Lease Term), less the fair rental value of the Premises for the residue of the Lease Term, both discounted to their present value based on the Default Rate. For purposes hereof, the “Default Rate” shall be the lesser of (A) the Prime Rate, plus 5%; or (B) the maximum rate permitted an individual is permitted by applicable law to charge from the date due. The “Prime Rate” shall be the per annum interest rate publicly announced by a federally insured bank selected by Landlord in the State as such bank’s prime or base rate. In determining fair rental value, Landlord shall be entitled to take into account the time and expenses necessary to obtain a replacement tenant or tenants, including lost rental revenues and anticipated expenses hereinafter described relating to recovery, preparation and reletting of the Premises. If Landlord elects to relet the Premises, or any portion thereof, before presentation of proof of such liquidated damages, the amount of rent reserved upon such reletting shall be deemed prima facie evidence of the fair rental value of the portion of the Premises so relet.

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Landlord and Tenant agree that because of the difficulty or impossibility of determining Landlord’s damages from the loss of anticipated

Additional Rent and other lease charges from the Tenant, there shall be included as a component of Tenant’s annual total rent obligation (for the calculation of Landlord’s remedies), an amount equal to the average monthly Additional Rent paid by Tenant for the twelve (12) full calendar months immediately preceding the event of default (or such lesser period of the term if the event of default occurs prior to the twelfth (12th) full calendar month of the term) multiplied by the number of months remaining in the Lease Term.

(vi) In addition to any sum provided to be paid above, Tenant shall also be liable for and shall immediately pay to Landlord all broker’s fees incurred by Landlord in connection with any reletting of the whole or any part of the Premises, the costs of removing and storing Tenant’s or any other occupant’s property, the cost of repairing, altering, remodeling, renovating or otherwise putting the Premises into a condition acceptable to a new tenant or tenants, the cost of removal and replacement of Tenant’s signage and all reasonable expenses by Landlord in enforcing Landlord’s remedies, including reasonable attorneys’ fees, but only the portion of such expenses derived by multiplying same by a fraction, the numerator of which is the number of months remaining in the then-current Lease Term hereof and the denominator of which is the full period of time to which such expenses relate.

(vii) Landlord may apply Tenant’s Security Deposit to the extent necessary to make good any rent arrearage, to pay the cost of remedying Tenant’s default or to reimburse Landlord for expenditures made or damages suffered as a consequence of Tenant’s default, without prejudice to any other remedies Landlord may have under this Lease. Following any such application of the Security Deposit, Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount.

(c) Mitigation of Damages.

(i) In the event of a default under the Lease, Landlord and Tenant shall each use commercially reasonable efforts to mitigate any damages resulting from a default of the other party under this Lease. In the event of an event of default by Tenant, Landlord agrees to exert commercially reasonable efforts to relet the Premises on reasonable terms and conditions as soon as reasonably practicable given market conditions, including without limitation commencing the following measures within thirty (30) days after taking possession of the Premises and thereafter diligently pursuing with dispatch to completion: (A) placing "For Lease” signs with Landlord’s broker’s contact information in easily visible locations on or about the Premises; (B) listing the Premises as part of Landlord's inventory of available space in all standard media locations (including on-line postings) with an appropriate description, photographs and basic lease terms; (C) actively soliciting prospective tenants and showing the Premises within a reasonable time to prospective tenants who request a site visit; and (D) undertaking such other commercially reasonable efforts to lease the Premises as are customary in the local market in which the Premises are located.

(ii) Landlord’s obligation to mitigate damages after a default by Tenant shall be satisfied in full if Landlord undertakes to lease the Premises to another tenant (a “Substitute Tenant”) in accordance with the following criteria:

(A) Landlord shall have no obligation to solicit or entertain negotiations with any other prospective tenant for the Premises until Landlord terminates this Lease or Tenant’s right of possession of the Premises (whether or not terminating this Lease) as contemplated above.

(B) Landlord shall not be obligated to offer the Premises to a Substitute Tenant when other premises in the Project suitable for that prospective tenant’s use are (or soon will be) available.

(C) Landlord shall not be obligated to lease the Premises to a Substitute Tenant for a rental less than ninety (90%) of the current fair market rental then prevailing for similar space, nor shall

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Landlord be obligated to enter into a new lease under other terms and conditions that are unacceptable to Landlord under Landlord’s then current leasing policies for comparable space.

(D) Landlord shall not be obligated to enter into a lease with any proposed tenant whose use would:

a. Disrupt the tenant mix or balance of the Project;

b. Violate any restriction, covenant, or requirement contained in the lease of another tenant of the Project;

c. Adversely affect the reputation of the Project; or

d. Be incompatible with the operation of the Project.

(E) Landlord shall not be obligated to enter into a lease with any proposed Substitute Tenant (a “Substitute Lease”) which does not have a tangible net worth which is at least equal to Tenant’s tangible net worth at the date of this Lease.

(F) Landlord shall not be required to expend any amount of money to alter, remodel, or otherwise make the Premises suitable for use by a proposed Substitute Tenant unless Tenant pays to Landlord in advance of Landlord’s execution of a Substitute Lease with such Substitute Tenant the portion of any such sum derived by multiplying same by a fraction, the numerator of which is the number of months remaining in the then-current Lease Term hereof and the denominator of which is the full period of time to which such expenses relate (which payment shall not be in lieu of any damages or other sums to which Landlord may be entitled as a result of Tenant’s default under this Lease).

(iii) Upon compliance with the above criteria regarding the releasing of the Premises after a default by Tenant, Landlord shall be deemed to have fully satisfied Landlord’s obligation to mitigate damages under this Lease and under any law or judicial ruling in effect on the date of this Lease or at the time of Tenant’s default.

(iv) Tenant’s right to seek damages from Landlord as a result of a default by Landlord under this Lease shall be conditioned on Tenant taking all actions reasonably required, under the circumstances, to minimize any loss or damage to Tenant’s property or business, or to any of Tenant’s officers, employees, agents, invitees, or other third parties that may be caused by any such default of Landlord.

(d) Effect of Suit or Partial Collection. Institution of a forcible detainer action to re-enter the Premises shall not be construed to be an election by Landlord to terminate this Lease. Landlord may collect and receive any Rent due from Tenant and the payment thereof shall not constitute a waiver of or affect any notice or demand given, suit instituted or judgment obtained by Landlord, or be held to waive or alter the rights or remedies which Landlord may have at law or in equity or by virtue of this Lease at the time of such payment.

(e) Remedies Cumulative. All rights and remedies of Landlord herein or existing at law or in equity are cumulative and the exercise of one or more rights or remedies shall not be taken to exclude or waive the right to the exercise of any other.

(f) Late Payment Charge and Interest Payable. Landlord may, without further notice to Tenant, impose a late payment charge equal to five percent (5%) of any amount due if any amount due under this Lease is not paid within five (5) days from the date required to be paid hereunder. In addition, any payment due under this Lease not paid within ten (10) days after the date herein specified to be paid shall bear interest from the date such payment is due to the date of actual payment at the Default Rate.

13. ACCESS; CONSTRUCTION

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Landlord reserves from the leasehold estate hereunder, in addition to all other rights reserved by Landlord under this Lease, the right to use the roof and exterior walls of the Premises and the area beneath, adjacent to and above the Premises, Landlord also reserves the right to install, use, maintain, repair, replace and relocate equipment, machinery, meters, pipes, ducts, plumbing, conduits and wiring through the Premises, which serve other portions of the Building or the Project in a commercially reasonable manner and in locations which do not unreasonably interfere with Tenant’s use of the Premises. In addition, Landlord shall have free access to any and all mechanical installations of Landlord or Tenant, including, without limitation, machine rooms, telephone rooms and electrical closets. Tenant agrees that there shall be no construction of partitions or other obstructions which materially interfere with or which threaten to materially interfere with Landlord’s free access thereto, or materially interfere with the moving of Landlord’s equipment to or from the enclosures containing said installations. Upon at least twenty-four (24) hours’ prior notice (except in the event of an emergency, when no notice shall be necessary), Landlord reserves and shall at any time and all times have the right to enter the Premises to inspect the same, to supply janitorial service and any other service to be provided by Landlord to Tenant hereunder, to exhibit the Premises to prospective purchasers, lenders or tenants, to post notices of non-responsibility, to alter, improve, restore, rebuild or repair the Premises or any other portion of the Building, or to do any other act permitted or contemplated to be done by Landlord hereunder, all without being deemed guilty of an eviction of Tenant and without liability for abatement of Rent or otherwise. For such purposes, Landlord may also erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed. Landlord shall conduct all such inspections and/or improvements, alterations and repairs so as to minimize, to the extent reasonably practical and without additional expense to Landlord, any interruption of or interference with the business of Tenant. Except in the event of an emergency, all entries by Landlord upon the Premises under this Paragraph shall be coordinated with Tenant in advance where practicable. An agent of Tenant may, if available, accompany Landlord and its agents during any entry into the Premises. If Landlord’s entry into the Premises is for the purpose of conducting or facilitating repairs, alterations or additions to other tenants’ premises and does not constitute an emergency, then Landlord shall perform such repairs after normal business hours, unless Tenant otherwise agrees. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby, except for the gross negligence or willful misconduct of Landlord or its agents. For each of such purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises (excluding Tenant’s vaults and safes, access to which shall be provided by Tenant upon Landlord’s reasonable request). Landlord shall have the right to use any and all means which Landlord may deem proper in an emergency in order to obtain entry to the Premises or any portion thereof, and Landlord shall have the right, at any time during the Lease Term, to provide whatever access control measures it deems reasonably necessary to the Project, without any interruption or abatement in the payment of Rent by Tenant. Any entry into the Premises obtained by Landlord by any of such means shall not under any circumstances be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant from the Premises or any portion thereof, except for the gross negligence or willful misconduct of Landlord or its agents. No provision of this Lease shall be construed as obligating Landlord to perform any repairs, Alterations or decorations to the Premises or the Project except as otherwise expressly agreed to be performed by Landlord pursuant to the provisions of this Lease.

14. BANKRUPTCY

(a) If at any time on or before the Commencement Date there shall be filed by or against Tenant in any court, tribunal, administrative agency or any other forum having jurisdiction, pursuant to any applicable law, either of the United States or of any state, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver, trustee or conservator of all or a portion of Tenant’s property, or if Tenant makes an assignment for the benefit of creditors, this Lease shall ipso facto be canceled and terminated and in such event neither Tenant nor any person claiming through or under Tenant or by virtue of any applicable law or by an order of any court, tribunal, administrative agency or any other forum having jurisdiction, shall be entitled to possession of the Premises and Landlord, in addition to the other rights and remedies given by Paragraph 12 hereof or by virtue of any other provision contained in this Lease or by virtue of any applicable law, may retain as damages any Rent, Security Deposit or moneys received by it from Tenant or others on behalf of Tenant.

(b) If, after the Commencement Date, or if at any time during the Lease Term, there shall be filed against Tenant in any court, tribunal, administrative agency or any other forum having jurisdiction, pursuant to

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any applicable law, either of the United States or of any state, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver, trustee or conservator of all or a portion of Tenant’s property, and the same is not dismissed after sixty (60) calendar days, or if Tenant makes an assignment for the benefit of creditors, this Lease, at the option of Landlord exercised within a reasonable time after notice of the happening of any one or more of such events, may be canceled and terminated and in such event neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or of an order of any court shall be entitled to possession or to remain in possession of the Premises, but shall forthwith quit and surrender the Premises, and Landlord, in addition to the other rights and remedies granted by Paragraph 12 hereof or by virtue of any other provision contained in this Lease or by virtue of any applicable law, may retain as damages any Rent, Security Deposit or moneys received by it from Tenant or others on behalf of Tenant.

(c) In the event of the occurrence of any of those events specified in this Paragraph 14, if Landlord shall not choose to exercise, or by applicable law, shall not be able to exercise, its rights hereunder to terminate this Lease upon the occurrence of such events, then, in addition to any other rights of Landlord hereunder or by virtue of applicable law, (i) Landlord shall not be obligated to provide Tenant with any of the utilities or services specified in Paragraph 7, unless Landlord has received compensation in advance for such utilities or services, and the parties agree that Landlord’s reasonable estimate of the compensation required with respect to such services shall control, and (ii) neither Tenant, as debtor-in-possession, nor any trustee or other person (hereinafter collectively referred to as the “Assuming Tenant”) shall be entitled to assume this Lease unless on or before the date of such assumption, the Assuming Tenant (x) cures, or provides adequate assurance that the latter will promptly cure, any existing default under this Lease, (y) compensates, or provides adequate assurance that the Assuming Tenant will promptly compensate Landlord for any pecuniary loss (including, without limitation, attorneys’ fees and disbursements) resulting from such default, and (z) provides adequate assurance of future performance under this Lease, it being covenanted and agreed by the parties that, for such purposes, any cure or compensation shall be effected by the immediate payment of any monetary default or any required compensation, or the immediate correction or bonding of any nonmonetary default. For purposes of this Lease, (i) any “adequate assurance” of such cure or compensation shall be effected by the establishment of an escrow fund for the amount at issue or by the issuance of a bond, and (ii) “adequate assurance” of future performance shall be effected by the establishment of an escrow fund for the amount at issue or by the issuance of a bond.

15. SUBSTITUTION OF PREMISES

INTENTIONALLY DELETED.

16. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATES

(a) Tenant agrees that this Lease and the rights of Tenant hereunder shall be subject and subordinate to any and all deeds to secure debt, deeds of trust, security interests, mortgages, master leases, ground leases or other security documents and any and all modifications, renewals, extensions, consolidations and replacements thereof (collectively, “Security Documents”) which now or hereafter constitute a lien upon or affect the Project, the Building or the Premises. Such subordination shall be effective without the necessity of the execution by Tenant of any additional document for the purpose of evidencing or effecting such subordination. In addition, Landlord shall have the right to subordinate or cause to be subordinated any such Security Documents to this Lease and in such case, in the event of the termination or transfer of Landlord’s estate or interest in the Project by reason of any termination or foreclosure of any such Security Documents, Tenant shall, notwithstanding such subordination, attorn to and become the Tenant of the successor-in-interest to Landlord at the option of such successor-in-interest so long as Tenant’s quiet enjoyment of the Premises shall not be disturbed as long as Tenant is not in default under this Lease beyond the applicable notice and cure period(s) provided under this Lease (and stating that no such notices have been sent), and further provided that such agreement(s) do not materially conflict with the terms of this Lease, materially increase Tenant's obligations hereunder or materially decrease Tenant's rights hereunder. Furthermore, Tenant shall within fifteen (15) days of demand therefor execute any instruments or other documents which may be required by Landlord or the holder of any Security Document and specifically shall execute, acknowledge and deliver within fifteen (15) days of demand therefor a subordination of lease or subordination of deed of trust or mortgage, in the form required by the holder of the Security Document requesting the document; provided, however, the new landlord or the holder of any Security

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Document shall agree that Tenant’s quiet enjoyment of the Premises shall not be disturbed as long as Tenant is not in default under this Lease beyond the applicable notice and cure period(s) provided under this Lease (and stating that no such notices have been sent), and further provided that such agreement(s) do not materially conflict with the terms of this Lease, materially increase Tenant's obligations hereunder or materially decrease Tenant's rights hereunder.

(b) If any proceeding is brought for default under any ground or master lease to which this Lease is subject or in the event of foreclosure or the exercise of the power of sale under any mortgage, deed of trust or other Security Document made by Landlord covering the Premises, at the election of such ground lessor, master lessor or purchaser at foreclosure, Tenant shall attorn to and recognize the same as Landlord under this Lease, provided (i) such successor expressly agrees in writing to be bound to all future obligations by the terms of this Lease, (ii) Tenant’s quiet enjoyment of the Premises shall not be disturbed as long as Tenant is not in default under this Lease beyond the applicable notice and cure period(s) provided under this Lease (and stating that no such notices have been sent), (iii) such agreement(s) do not materially conflict with the terms of this Lease, materially increase Tenant's obligations hereunder or materially decrease Tenant's rights hereunder; and (iv) if so requested, Tenant shall enter into a new lease with that successor on the same terms and conditions as are contained in this Lease (for the unexpired Lease Term then remaining).

(c) Intentionally Deleted.

(d) Tenant shall, upon not less than fifteen (15) days’ prior notice by Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying to those facts for which certification has been requested by Landlord or any current or prospective purchaser, holder of any Security Document, ground lessor or master lessor, including, but without limitation, that (i) this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), (ii)the dates to which the Basic Annual Rent, Additional Rent and other charges hereunder have been paid, if any, and (iii) whether or not to the best knowledge of Tenant, Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which Tenant may have knowledge. The form of the statement attached hereto as Exhibit E is hereby approved by Tenant for use pursuant to this subparagraph (d); however, at Landlord’s option, Landlord shall have the right to use other forms for such purpose. Tenant’s failure to execute and deliver such statement within such time shall, at the option of Landlord, be conclusive upon Tenant that this Lease is in full force and effect without modification except as may be represented by Landlord in any such certificate prepared by Landlord and delivered to Tenant for execution. Any statement delivered pursuant to this Paragraph 16 may be relied upon by any prospective purchaser of the fee of the Building or the Project or any mortgagee, ground lessor or other like encumbrancer thereof or any assignee of any such encumbrance upon the Building or the Project.

17. SALE BY LANDLORD; TENANT’S REMEDIES; NONRECOURSE LIABILITY

(a) In the event of a sale or conveyance by Landlord of the Building or the Project, Landlord shall be released from any and all liability under this Lease; provided that the purchaser assumes all of Landlord’s obligations hereunder. If the Security Deposit has been deposited by Tenant to Landlord prior to such sale or conveyance, Landlord shall transfer the Security Deposit to the purchaser, and upon delivery to Tenant of notice of such purchaser’s receipt and acceptance thereof, Landlord shall be discharged from any further liability in reference thereto.

(b) Landlord shall not be in default of any obligation of Landlord hereunder unless Landlord fails to perform any of its obligations under this Lease within thirty (30) days after receipt of written notice of such failure from Tenant; provided, however, that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, Landlord shall not be in default if Landlord commences to cure such default within the thirty (30) day period and thereafter diligently prosecutes the same to completion (not to exceed an additional ninety (90) days). All obligations of Landlord under this Lease will be binding upon Landlord only during the period of its ownership of the Project and not thereafter. All obligations of Landlord hereunder shall be construed as covenants, not conditions; and, except as may be otherwise expressly provided in this Lease, Tenant may not terminate this Lease for breach of Landlord’s obligations hereunder. Upon

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Landlord’s default, and except as otherwise expressly stated in this Lease, Tenant reserves the right to exercise any and all rights and remedies that Tenant may have under this Lease or at law or in equity, which rights and remedies are distinct, separate and cumulative remedies, the exercise of any of which shall not be deemed to exclude Tenant's right to exercise any or all of the others.

(c) Notwithstanding anything contained in this Lease to the contrary, the obligations of Landlord under this Lease (including any actual or alleged breach or default by Landlord) do not constitute personal obligations of the individual partners, directors, officers, trustees, members or shareholders of Landlord or Landlord’s members or partners, and Tenant shall not seek recourse against the individual partners, directors, officers, trustees, members or shareholders of Landlord or against Landlord’s members or partners or against any other persons or entities having any interest in Landlord, or against any of their personal assets for satisfaction of any liability with respect to this Lease. Any liability of Landlord for a default by Landlord under this Lease, or a breach by Landlord of any of its obligations under the Lease, shall be limited solely to its interest in the Project, including without limitation (i) the unencumbered proceeds of sale received upon execution of a judgment in favor of Tenant and levy thereon against the right, title, and interest of Landlord in the Project, (ii) the unencumbered rents or other income from the Project receivable by Landlord, and (iii) the unencumbered consideration received by Landlord from the sale or other disposition of all or any part of Landlord’s right, title, and interest in the Project, and in no event shall any personal liability be asserted against Landlord and/or any Landlord Indemnitee in connection with this Lease nor shall any recourse be had to any other property or assets of Landlord, its partners, directors, officers, trustees, members, shareholders or any other persons or entities having any interest in Landlord. Under no circumstances whatsoever shall Landlord ever be liable for punitive, consequential or special damages or loss of profits under this Lease and Tenant waives any rights it may have to such damages under this Lease in the event of a breach or default by Landlord under this Lease. Except in the event of any holding over by Tenant pursuant to Paragraph 19(f) of this Lease (referred to herein as a “Consequential Damages Event”), Tenant shall not be liable for punitive, consequential or special damages under this Lease and, except in the event of any Consequential Damages Event, Landlord waives any rights it may have to punitive, consequential or special damages under this Lease in the event of a breach or default by Tenant under this Lease.

(d) As a condition to the effectiveness of any notice of default given by Tenant to Landlord, Tenant shall also concurrently give such notice under the provisions of Paragraph 17(b) to each beneficiary under a Security Document encumbering the Project of whom Tenant has received written notice (such notice to specify the address of the beneficiary). In the event Landlord shall fail to cure any breach or default within the time period specified in subparagraph (b), then prior to the pursuit of any remedy therefor by Tenant, each such beneficiary shall have an additional thirty (30) days within which to cure such default, or if such default cannot reasonably be cured within such period, then each such beneficiary shall have such additional time (not to exceed sixty (60) days) as shall be necessary to cure such default, provided that within such thirty (30) day period, such beneficiary has commenced and is diligently pursuing the remedies available to it which are necessary to cure such default (including, without limitation, as appropriate, commencement of foreclosure proceedings).

18. PARKING; COMMON AREAS

(a) Tenant shall have the right to the nonexclusive use (except with respect to reserved spaces, which shall be exclusive to Tenant) of the number of parking spaces located in the parking areas of the Project specified in Item 13 of the Basic Lease Provisions for the parking of operational motor vehicles used by Tenant, its officers and employees only. Landlord reserves the right, at any time upon written notice to Tenant, to designate the location of Tenant’s parking spaces in the Building as determined by Landlord in its reasonable discretion. The use of such spaces shall be subject to the reasonable rules and regulations adopted by Landlord from time to time for the use of the parking areas, which shall be enforced by Landlord in a reasonably non-discriminatory manner, taking prevailing circumstances into account. Landlord further reserves the right to make such changes to the parking system as Landlord may deem necessary or reasonable from time to time; i.e., Landlord may provide for one or a combination of parking systems, including, without limitation, self-parking, single or double stall parking spaces, and valet assisted parking. Except as otherwise expressly agreed to in this Lease, Tenant agrees that Tenant, its officers and employees shall not be entitled to park in any reserved or specially assigned areas designated by Landlord from time to time in the Project’s parking areas. Landlord may require execution of an

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agreement with respect to the use of such parking areas by Tenant and/or its officers and employees in form reasonably satisfactory to Landlord as a condition of any such use by Tenant, its officers and employees. A default by Tenant, its officers or employees in the payment of such charges, the compliance with such rules and regulations, or the performance of such agreement(s) shall constitute a material default by Tenant hereunder. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant’s officers, employees, suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described in this Paragraph, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord.

(b) Subject to subparagraph (c) below and the remaining provisions of this Lease, Tenant shall have the nonexclusive right, in common with others, to the use of such entrances, lobbies, restrooms, elevators, ramps, drives, stairs, and similar access ways and service ways and other common areas and facilities in and adjacent to the Building and the Project as are designated from time to time by Landlord for the general nonexclusive use of Landlord, Tenant and the other tenants of the Project and their respective employees, agents, representatives, licensees and invitees (“Common Areas”). The use of such Common Areas shall be subject to the rules and regulations contained herein and the provisions of any covenants, conditions and restrictions affecting the Building or the Project, which shall be enforced by Landlord in a reasonably non-discriminatory manner, taking prevailing circumstances into account. Tenant shall keep all of the Common Areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenant’s operations, and shall use the Common Areas only for normal activities, parking and ingress and egress by Tenant and its employees, agents, representatives, licensees and invitees to and from the Premises, the Building or the Project. If, in the reasonable opinion of Landlord, unauthorized persons are using the Common Areas by reason of the presence of Tenant in the Premises, Tenant, upon demand of Landlord, shall correct such situation by appropriate action or proceedings against all such unauthorized persons. Nothing herein shall affect the rights of Landlord at any time to remove any such unauthorized persons from said areas or to prevent the use of any of said areas by unauthorized persons. Landlord reserves the right to make such changes, alterations, additions, deletions, improvements, repairs or replacements in or to the Building, the Project (including the Premises) and the Common Areas as Landlord may reasonably deem necessary or desirable, including, without limitation, constructing new buildings and making changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading areas, landscaped areas and walkways; provided, however, that (i) there shall be no unreasonable permanent obstruction of access to or use of the Premises resulting therefrom, and (ii) Landlord shall use commercially reasonable efforts to minimize any interruption with Tenant’s use of the Premises. In the event that the Project is not completed on the date of execution of this Lease, Landlord shall have the sole judgment and discretion to determine the architecture, design, appearance, construction, workmanship, materials and equipment with respect to construction of the Project. Notwithstanding any provision of this Lease to the contrary, the Common Areas shall not in any event be deemed to be a portion of or included within the Premises leased to Tenant and the Premises shall not be deemed to be a portion of the Common Areas. This Lease is granted subject to the terms hereof, the rights and interests of third parties under existing liens, ground leases, easements and encumbrances affecting such property, all zoning regulations, rules, ordinances, building restrictions and other laws and regulations now in effect or hereafter adopted by any governmental authority having jurisdiction over the Project or any part thereof.

(c) Notwithstanding any provision of this Lease to the contrary, Landlord specifically reserves the right to redefine the term “Project” for purposes of allocating and calculating Operating Costs so as to include or exclude areas as Landlord shall from time to time determine or specify (and any such determination or specification shall be without prejudice to Landlord’s right to revise thereafter such determination or specification). In addition, Landlord shall have the right to contract or otherwise arrange for amenities, services or utilities (the cost of which is included within Operating Costs) to be on a common or shared basis to both the Project (i.e., the area with respect to which Operating Costs are determined) and adjacent areas not included within the Project, so long as the basis on which the cost of such amenities, services or utilities allocated to the Project is determined on an arms-length basis or some other basis reasonably determined by Landlord. In the case where the definition of the Project is revised for purposes of the allocation or determination of Operating Costs, Tenant’s Proportionate Share shall be appropriately revised to equal the percentage share of all Rentable

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Area contained within the Project (as then defined) represented by the Premises. The Rentable Area of the Project is subject to adjustment by Landlord from time to time to reflect any re-measurement thereof by Landlord’s architect, at Landlord’s request, and/or as a result of any additions or deletions to any of the buildings in the Project as designated by Landlord. Notwithstanding the foregoing, Landlord agrees that in no event shall Tenant’s Proportionate Share of Operating Costs increase due to Landlord redefining the term “Project.” Landlord shall have the sole right to determine which portions of the Project and other areas, if any, shall be served by common management, operation, maintenance and repair. Landlord shall also have the right, in its sole discretion, to allocate and prorate any portion or portions of the Operating Costs on a building-by-building basis, on an aggregate basis of all buildings in the Project, or any other reasonable manner, and if allocated on a building-by-building basis, then Tenant’s Proportionate Share shall, as to the portion of the Operating Costs so allocated, be based on the ratio of the Rentable Area of the Premises to the Rentable Area of the Building. Landlord shall have the exclusive rights to the airspace above and around, and the subsurface below, the Premises and other portions of the Building and Project.

19. MISCELLANEOUS

(a) Attorneys’ Fees. In the event of any legal action or proceeding brought by either party against the other arising out of this Lease, the prevailing party shall be entitled to recover reasonable attorneys’ fees and costs (including, without limitation, court costs and expert witness fees) incurred in such action. Such amounts shall be included in any judgment rendered in any such action or proceeding. The term “prevailing party” means the party who obtains a final determination of wrongful conduct by the other party. Each party has reviewed, and had an opportunity to have legal counsel review, this Agreement, such that the rule of construction that any ambiguities are to be resolved against the drafting party will not be employed to interpret this Agreement.

(b) Waiver. No waiver by Landlord or Tenant of any provision of this Lease or of any breach by Landlord or Tenant hereunder shall be deemed to be a waiver of any other provision hereof, or of any subsequent breach by the other party. Consent to or approval of any act requiring consent or approval under this Lease shall not be deemed to render unnecessary the obtaining of such consent to or approval of any subsequent act. No act or thing done by Landlord or Landlord’s agents during the Lease Term shall be deemed an acceptance of a surrender of the Premises, unless in writing signed by Landlord. The delivery of the keys to any employee or agent of Landlord shall not operate as a termination of the Lease or a surrender of the Premises. The acceptance of any Rent or other payments following a breach of this Lease shall not constitute a waiver of such breach or any other breach unless such waiver is expressly stated in a writing signed by the waiving party.

(c) Notices. Any notice, demand, request, consent, approval, disapproval or certificate (“Notice”) required or desired to be given under this Lease shall be in writing and given by certified mail, return receipt requested, by personal delivery or by a nationally recognized overnight delivery service (such as Federal Express or UPS) providing a receipt for delivery. Notices may not be given by facsimile. The date of giving any Notice shall be deemed to be the date upon which delivery is actually made by one of the methods described in this Section 19(c) (or attempted if said delivery is refused or rejected). If a Notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. All notices, demands, requests, consents, approvals, disapprovals, or certificates shall be addressed at the address specified in Item 14 of the Basic Lease Provisions or to such other addresses as may be specified by written notice from Landlord to Tenant and if to Tenant, at the Premises. Either party may change its address by giving reasonable advance written Notice of its new address in accordance with the methods described in this Paragraph; provided, however, no notice of either party’s change of address shall be effective until fifteen (15) days after the addressee’s actual receipt thereof. For the purpose of this Lease, Landlord’s counsel may provide Notices to Tenant on behalf of Landlord and such notices shall be binding on Tenant as if such notices have been provided directly by Landlord.

(d) Access Control. Landlord shall be the sole determinant of the type and amount of any access control or courtesy guard services to be provided to the Project, if any. IN ALL EVENTS, LANDLORD SHALL NOT BE LIABLE TO TENANT, AND TENANT HEREBY WAIVES ANY CLAIM AGAINST LANDLORD, FOR (I) ANY UNAUTHORIZED OR CRIMINAL ENTRY OF THIRD PARTIES INTO THE PREMISES, THE BUILDING OR THE PROJECT, (II) ANY DAMAGE TO PERSONS, OR (III) ANY LOSS OF PROPERTY IN AND ABOUT THE PREMISES, THE BUILDING OR THE PROJECT, BY OR FROM

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ANY UNAUTHORIZED OR CRIMINAL ACTS OF THIRD PARTIES, REGARDLESS OF ANY ACTION, INACTION, FAILURE, BREAKDOWN, MALFUNCTION AND/OR INSUFFICIENCY OF THE ACCESS CONTROL OR COURTESY GUARD SERVICES PROVIDED BY LANDLORD, IF ANY. Tenant shall provide such supplemental security services and shall install within the Premises such supplemental security equipment, systems and procedures as may reasonably be required for the protection of its employees and invitees, provided that Tenant shall coordinate such services and equipment with any security provided by Landlord. The determination of the extent to which such supplemental security equipment, systems and procedures are reasonably required shall be made in the sole judgment, and shall be the sole responsibility, of Tenant. Tenant acknowledges that it has neither received nor relied upon any representation or warranty madeby or on behalf of Landlord with respect to the safety or security of the Premises or the Project or any part thereof or the extent or effectiveness of any security measures or procedures now or hereafter provided by Landlord, and further acknowledges that Tenant has made its own independent determinations with respect to all such matters.

(e) Storage. Any storage space at any time leased to Tenant hereunder shall be used exclusively for storage. Notwithstanding any other provision of this Lease to the contrary, (i) Landlord shall have no obligation to provide heating, cleaning, water or air conditioning therefor, and (ii) Landlord shall be obligated to provide to such storage space only such electricity as will, in Landlord’s judgment, be adequate to light said space as storage space.

(f) Holding Over. If Tenant retains possession of the Premises after the termination or expiration of the Lease Term, then Tenant shall, at Landlord’s election, become a tenant at sufferance (and not a tenant at will), such possession shall be subject to immediate termination by Landlord at any time, and all of the other terms and provisions of this Lease (excluding any expansion or renewal option or other similar right or option) shall be applicable during such holdover period, except that Tenant shall pay Landlord from time to time, upon demand, as Basic Annual Rent for the holdover period, an amount equal to 125% of the Basic Annual Rent in effect on the termination date for the first thirty (30) days following the termination date, and thereafter an amount equal to 150% of such Basic Annual Rent, computed on a monthly basis for each month or part thereof during such holding over. All other payments (including payment of Additional Rent) shall continue under the terms of this Lease. In addition, Tenant shall be liable for all damages incurred by Landlord as a result of such holding over. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided, and this Paragraph shall not be construed as consent for Tenant to retain possession of the Premises.

(g) Condition of Premises. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE, LANDLORD HEREBY DISCLAIMS ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT’S INTENDED PURPOSE OR USE, WHICH DISCLAIMER IS HEREBY ACKNOWLEDGED BY TENANT. THE TAKING OF POSSESSION BY TENANT SHALL BE CONCLUSIVE EVIDENCE THAT TENANT:

(i) ACCEPTS THE PREMISES, THE BUILDING AND LEASEHOLD IMPROVEMENTS AS SUITABLE FOR THE PURPOSES FOR WHICH THE PREMISES WERE LEASED, EXCEPT FOR LATENT DEFECTS, HAZARDOUS MATERIALS AND WORK REQUIRED TO BE DONE BY LANDLORD, SUCH AS PUNCH-LIST ITEMS;

(ii) ACCEPTS THE PREMISES AND PROJECT AS BEING IN GOOD AND SATISFACTORY CONDITION, SUBJECT TO THE EXCEPTS IN THE PRIOR PARAGRAPH;

(iii) WAIVES ANY DEFECTS IN THE PREMISES AND ITS APPURTENANCES EXISTING NOW OR IN THE FUTURE, EXCEPT THAT TENANT’S TAKING OF POSSESSION SHALL NOT BE DEEMED TO WAIVE LATENT DEFECTS, HAZARDOUS MATERIALS AND LANDLORD’S COMPLETION OF MINOR FINISH WORK ITEMS THAT DO NOT INTERFERE WITH TENANT’S OCCUPANCY OF THE PREMISES; AND

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(iv) WAIVES ALL CLAIMS BASED ON ANY IMPLIED WARRANTY OF SUITABILITY OR HABITABILITY.

(h) Quiet Possession. Upon Tenant’s paying the Rent reserved hereunder and observing and performing all of the covenants, conditions and provisions on Tenant’s part to be observed and performed hereunder, Tenant shall have quiet possession of the Premises for the term hereof without hindrance or ejection by any person lawfully claiming under Landlord, subject to the provisions of this Lease and to the provisions of any (i) covenants, conditions and restrictions, (ii) master lease, or (iii) Security Documents to which this Lease is subordinate or may be subordinated.

(i) Matters of Record. Except as otherwise provided herein, this Lease and Tenant’s rights hereunder are subject and subordinate to all matters affecting Landlord’s title to the Project recorded in the Real Property Records of the County in which the Project is located, prior to and subsequent to the date hereof, including, without limitation, all covenants, conditions and restrictions. Tenant agrees for itself and all persons in possession or holding under it that it will comply with and not violate any such covenants, conditions and restrictions or other matters of record. Landlord reserves the right, from time to time, to grant such easements, rights and dedications as Landlord deems necessary or desirable, and to cause the recordation of parcel maps and covenants, conditions and restrictions affecting the Premises, the Building or the Project, as long as such easements, rights, dedications, maps, and covenants, conditions and restrictions do not materially interfere with the use of the Premises by Tenant. At Landlord’s request, Tenant shall join in the execution of any of the aforementioned documents, subject to reasonable review and confirmation of the protections contained above.

(j) Successors and Assigns. Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. Tenant shall attorn to each purchaser, successor or assignee of Landlord.

(k) Brokers. Landlord and Tenant each warrants to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the brokers named in Item 12 of the Basic Lease Provisions and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with this Lease. Landlord and Tenant each hereby agrees to indemnify, defend and hold the other harmless for, from and against all claims for any brokerage commissions, finders’ fees or similar payments by any persons claiming through the indemnifying party, other than those listed in Item 12 of the Basic Lease Provisions and all costs, expenses and liabilities incurred in connection with such claims, including reasonable attorneys’ fees and costs. Landlord agrees to pay any real estate commissions owing on this Lease to both such brokerage firms pursuant to separate agreements. (k) Brokers. Landlord and Tenant each

(l) Project or Building Name and Signage.

(i) Landlord shall have the right at any time to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire. Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord. Additionally, Landlord shall have the exclusive right at all times during the Lease Term to change, modify, add to or otherwise alter the name, number, or designation of the Building and/or the Project, and Landlord shall not be liable for claims or damages of any kind which may be attributed thereto or result therefrom. In such event, Landlord shall, within fifteen (15) days of receipt of Tenant’s request, including proper backup, reimburse Tenant for all reasonable expenses incurred by Tenant as a result of any such change in the name, title or address of the Project and/or the Building up to a maximum amount of $2,500.00, including without limitation costs of reprinting stationery, brochures, forms, cards and other printed material bearing Tenant’s address at the Premises if such address changes (but only the quantity existing immediately prior to the change) and all other out-of-pocket costs incurred by Tenant in connection with such change, including reasonable design costs.

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(ii) Provided that (x) Tenant is the Tenant originally named herein, (y) Tenant is leasing and actually occupies at least 16,000 square feet of Rentable Area in the Building, and (z) no event of default has occurred and is continuing, Tenant, at Tenant’s sole cost and expense, shall have the right to install and maintain one (1) building standard listing reflecting Tenant’s name on both sides of the Building’s existing monument sign, in a location designated by Landlord (“Tenant’s Sign Listing”). Tenant shall be responsible for all costs associated with Tenant’s Sign Listing. Notwithstanding the foregoing, Tenant’s Sign Listing (and Tenant’s right to install and maintain the same) shall be subject to and in compliance with all Laws, applicable conditions, zoning codes and regulations, and covenants and restrictions affecting the Building. Tenant shall be solely responsible for the cost and expense of obtaining and maintaining any necessary permits for Tenant’s Sign Listing and any sign licenses related thereto, and for the cost and expense of maintenance and utilities for Tenant’s Sign Listing (including all metered electrical usage, if any). Additionally, Tenant shall, in a first class manner, maintain and repair any damage to Tenant’s Sign Listing. Notwithstanding anything in this paragraph to the contrary, the style, type, color, size, and design of Tenant’s Sign Listing shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld or delayed. Upon the expiration or earlier termination of the Lease, Tenant shall pay all costs associated with the removal of Tenant’s Sign Listing. All rights and remedies of Landlord under the Lease (including, without limitation, Landlord’s self-help remedies) shall apply in the event Tenant fails to perform Tenant’s obligations hereunder with respect to Tenant’s Sign Listing, and, in the event Landlord performs any of Tenant’s obligations hereunder, Tenant shall pay to Landlord, upon demand as additional rental hereunder, the cost incurred by Landlord in connection therewith, plus an additional charge of five percent (5%) of such cost to cover overhead. Tenant shall protect, defend, indemnify and hold harmless Landlord from and against any and all claims, damages, liabilities, costs or expenses of every kind and nature (including without limitation reasonable attorney’s fees) imposed upon or incurred by or asserted against Landlord and which arise out of any work performed by or on behalf of Tenant in connection with Tenant’s Sign Listing. The terms and provisions of this paragraph shall survive the expiration or earlier termination of this Lease.

(iii) Provided that (x) Tenant is the Tenant originally named herein, (y) Tenant is leasing and actually occupies at least 16,000 square feet of Rentable Area in the Building, and (z) no event of default has occurred and is continuing, Tenant, at Tenant’s sole cost and expense, shall have the right to install one (1) building sign on the exterior of the Building, of a size and in a location reasonably acceptable to Landlord (“Tenant’s Building Sign”). Notwithstanding the foregoing sentence, Tenant’s Building Sign shall be subject to and in compliance with all Laws, applicable conditions, covenants and restrictions affecting the Building. Tenant shall be solely responsible for the cost and expense of obtaining and maintaining any necessary permits for Tenant’s Building Sign and any sign licenses related thereto, and for the cost and expense of maintenance and utilities for Tenant’s Building Sign (including all metered electrical usage, if any). Additionally, Tenant shall maintain Tenant’s Building Sign in a first class manner. Tenant’s Building Sign shall be installed and maintained in accordance with all applicable Laws, codes, ordinances, covenants, conditions and restrictions relating to the Building, as well as all applicable covenants, restrictions or deed restrictions affecting the Project. The style, type, color, size, and design of Tenant’s Sign and the means and method of attachment of Tenant’s Building Sign to the Building shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld or delayed. All rights and remedies of Landlord under the Lease (including, without limitation, Landlord’s self-help remedies) shall apply in the event Tenant fails to install and/or maintain Tenant’s Building Sign as herein required. Upon the expiration or earlier termination of this Lease, Tenant shall pay all costs associated with the removal of Tenant’s Building Sign and the restoration of the exterior of the Building where Tenant’s Building Sign is located to as near its original condition as may then be reasonably required by Landlord. The installation and maintenance of the Tenant’s Building Sign shall be in compliance with all applicable rules and restrictions or restrictive covenants and/or deed restrictions affecting the Project. The terms and provisions of this paragraph shall survive the expiration or earlier termination of this Lease.

(m) Examination of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. Neither Landlord nor Tenant shall be bound unless and until this Lease is executed by an authorized officer of both parties and the delivery of such fully-executed Lease to

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Tenant. The individuals executing this Lease on behalf of Landlord and Tenant are fully authorized and legally capable of executing this Lease on behalf of such parties and such execution on behalf of Landlord is binding upon all parties holding an ownership in the Building. Landlord and Tenant each hereby waive and are estopped from asserting any rights with respect to the Premises or against the other party which may arise from any alleged oral agreement; oral lease; any acts or expenditures (including without limitation the return of this Lease to one party executed by the other and the payment of any sums on account hereof) or series of same taken or made by Landlord or Tenant in reliance on the anticipated execution hereof by the other; or any letter from Landlord or Tenant or their respective attorneys sent prior to the execution and delivery hereof by both Landlord and Tenant; it being expressly understood and agreed that neither Landlord nor Tenant shall under any circumstances have any such rights until the full execution and delivery hereof by both Landlord and Tenant.

(n) Time. Time is of the essence of this Lease and each and all of its provisions.marginal

(o) Defined Terms and Marginal Headings. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular and for purposes of Articles 5, 7, 13 and 18, the term Landlord shall include Landlord, its employees, contractors and agents. If more than one person is named as Tenant the obligations of such persons are joint and several. The marginal headings and titles to the articles of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof.

(p) Conflict of Laws; Prior Agreements; Separability. This Lease shall be governed by and construed pursuant to the laws of the State of Texas and venue for any action hereunder shall lie in Travis County, Texas. This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease. No prior agreement, understanding or representation pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. The illegality, invalidity or unenforceability of any provision of this Lease shall in no way impair or invalidate any other provision of this Lease, and such remaining provisions shall remain in full force and effect.

(q) Authority. If Tenant is a corporation or limited liability company, each individual executing this Lease on behalf of Tenant hereby covenants and warrants that Tenant is a duly authorized and existing corporation or limited liability company, that Tenant has and is qualified to do business in the State, that the corporation or limited liability company has full right and authority to enter into this Lease, and that each person signing on behalf of the corporation is authorized to do so. If Tenant is a partnership or trust, each individual executing this Lease on behalf of Tenant hereby covenants and warrants that he is duly authorized to execute and deliver this Lease on behalf of Tenant in accordance with the terms of such entity’s partnership or trust agreement. Tenant shall provide Landlord on demand with such evidence of such authority as Landlord shall reasonably request, including, without limitation, resolutions, certificates and opinions of counsel. This Lease shall not be construed to create a partnership, joint venture or similar relationship or arrangement between Landlord and Tenant hereunder.

(r) Joint and Several Liability. If two or more individuals, corporations, partnerships or other business associations (or any combination of two or more thereof) shall sign this Lease as Tenant, the liability of each such individual, corporation, partnership or other business association to pay Rent and perform all other obligations hereunder shall be deemed to be joint and several, and all notices, payments and agreements given or made by, with or to any one of such individuals, corporations, partnerships or other business associations shall be deemed to have been given or made by, with or to all of them. In like manner, if Tenant shall be a partnership or other business association, the members of which are, by virtue of statute or federal law, subject to personal liability, then the liability of each such member shall be joint and several.

(s) Rental Allocation. For purposes of Section 467 of the Internal Revenue Code of 1986, as amended from time to time, Landlord and Tenant hereby agree to allocate all Rent to the period in which payment is due, or if later, the period in which Rent is paid.

(t) Rules and Regulations. Tenant agrees to comply with all rules and regulations of the Building and the Project imposed by Landlord as set forth on Exhibit D attached hereto, as the same may be changed from

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time to time upon reasonable notice to Tenant. Landlord shall enforce the rules and regulations for the Project in a reasonably non-discriminatory manner, taking prevailing circumstances into account. Landlord shall not be liable to Tenant for the failure of any other tenant or any of its assignees, subtenants, or their respective agents, employees, representatives, invitees or licensees to conform to such rules and regulations.

(u) Joint Product. This Lease is the result of arms-length negotiations between Landlord and Tenant and their respective attorneys. Accordingly, neither party shall be deemed to be the author of this Lease and this Lease shall not be construed against either party.

(v) Financial Statements. Upon Landlord’s written request, Tenant shall promptly furnish Landlord, from time to time, with the most current audited financial statements prepared in accordance with generally accepted accounting principles, certified by Tenant and an independent auditor to be true and correct, reflecting Tenant’s then current financial condition.

(w) Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorism, terrorist activities, inability to obtain services, labor, or materials or reasonable substitutes therefore, governmental actions, civil commotions, fire, flood, earthquake or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except as to Tenant’s obligations under Article 6 and Article 8 of this Lease (collectively, a “Force Majeure”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

(x) Counterparts. This Lease may be executed in several counterparts, each of which shall be deemed an original, and all of which shall constitute but one and the same instrument.

(y) WAIVER OF JURY TRIAL. INTENTIONALLY DELETED.

(z) APPRAISED VALUE. TENANT HEREBY WAIVES ALL RIGHTS TO PROTEST THE APPRAISED VALUE OF THE PROJECT OR TO APPEAL THE SAME AND ALL RIGHTS TO RECEIVE NOTICES OF REAPPRAISALS AS SET FORTH IN SECTIONS 41.413 AND 42.015 OF THE TEXAS TAX CODE.

(aa) DECEPTIVE TRADE PRACTICES. INTENTIONALLY DELETED.

(bb) Building Access Cards. Prior to the Commencement Date, Tenant shall submit to Landlord a list of employees or Approved Users needing Building Access Cards. Based upon such list, Landlord will provide Tenant a maximum of one (1) Building Access Card per employee or Approved User. After the Commencement Date, any replacement or additional cards will be furnished at a cost to Tenant of Twenty-Five Dollars ($25.00) per card, but any cards may be re-assigned to another employee or Approved User without cost.

(cc) Anti-Terrorism Representations. Landlord and Tenant each represents to the other that it is not, and shall not during the Lease Term become, a person or entity with whom the other party is restricted from doing business under the United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, H.R. 3162, Public Law 107-56 (commonly known as the “USA Patriot Act” and Executive Order Number 13224 on Terrorism Financing, effective September 24, 2001 and regulations promulgated pursuant thereto (collectively, “Anti-Terrorism Laws”), including without limitation, persons and entities named on the Office of Foreign Asset Control Specially Designated nationals and Blocked Persons List (collectively, “Prohibited Persons”). To the best of its knowledge, Landlord and Tenant each represents that it is not currently engaged in any transactions or dealings, or otherwise associated with, any Prohibited Persons in connection with the use or occupancy of the Premises. Neither Landlord nor Tenant will in the future during the Lease Term engage in any transactions or dealings, or be otherwise associated with, any Prohibited Persons in

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connection with the use or occupancy of the Premises. Breach of these representations constitutes a material breach of this Lease and shall entitle the other party to any and all remedies thereunder, or at law or in equity.

(dd) Office and Communications Services. Landlord has advised Tenant that certain office and communications services may be offered to tenants of the Building by a concessionaire under contract to Landlord (the “Provider”). Tenant shall be permitted to contract with Provider for the provision of any or all of such services on such terms and conditions as Tenant and Provider may agree. Tenant acknowledges and agrees that: (i) Landlord has made no warranty or representation to Tenant with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider is not acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease; the obligations of Tenant hereunder, and the rights of Landlord hereunder, and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of Basic Annual Rent or Additional Rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord.

(ee) Motion Lease. Tenant currently occupies premises on the second floor of the Building (the “Motion Premises”) which is currently leased to (but not occupied by), MOTION COMPUTING, INC., a Delaware corporation (“Motion”), pursuant to that certain Lease Agreement dated as of March 16, 2004, originally entered into by and between Landlord’s predecessor-in-interest, Walton Stacy Investors III, L.P., a Delaware limited partnership, as Landlord, and Motion, as Tenant, as amended by that certain (i) First Amendment, dated as of May 27, 2005, by and between Landlord’s predecessor-in-interest, TX-Park 22 Limited Partnership, a Delaware limited partnership, as landlord, and Motion, (ii) Second Amendment, dated as of April 12, 2010, by and between Landlord’s predecessor-in-interest, TPG-Park 22 LLC, a Delaware limited liability company, as landlord, and Motion, (iii) Third Amendment dated effective as of April 26, 2012, by and between TPG-Park 22 LLC, as landlord, and Motion, and (iv) Fourth Amendment to Lease Agreement, dated as of December 8, 2014, by and between Landlord and Motion (which Lease, as subsequently amended, being hereinafter collectively referred to as the “Existing Lease”).Notwithstanding the foregoing, Landlord is currently in the process of negotiating a Lease Surrender and Termination Agreement (the “Termination Agreement”) to the Existing Lease by and between Landlord and Motion for the termination of the Existing Lease effective on the Commencement Date of this Lease. Landlord and Tenant acknowledge and agree that this Lease is expressly conditioned upon the execution by all parties of the Termination Agreement. Landlord agree that, from August 1, 2015 through the Commencement Date of this Lease (the “Interim Term”), Tenant shall be allowed to continue using and occupying the Motion Premises subject to and in accordance with the terms and conditions of this Lease, except that Tenant shall pay Landlord, on or before the first day of each month during the Interim Term, Basic Annual Rent equal to $20,285.00 per month (prorated for any partial month). Within fifteen (15) days after the Commencement Date hereof, Landlord shall pay Tenant, as a credit against Basic Annual Rent owing under this Lease or by separate check, the amount by which the aggregate Basic Annual Rent payable during the Interim Term as provided above exceeds the amount that would have been payable under this Lease during the Interim Term based on Basic Annual Rent set forth in this Lease for the first twelve (12) months of the Lease Term hereof. Tenant shall be obligated to pay all Operating Costs for the Motion Premises during the Interim Term. In addition, Landlord and Tenant each waive and relinquish any claims it may have with respect to Tenant’s use or occupancy of the Motion Premises or any other space in the Building prior to August 1, 2015.

(ff) Option to Extend.

(i) Renewal Period. Tenant may, at its option, extend the Lease Term for one renewal period of five years (the “Renewal Period”) by written notice to Landlord (the “Renewal Notice”) given no

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later than six (6) months prior to the expiration of the Initial Term, provided that, at the time of such notice and at the commencement of such Renewal Period, no uncured event of default exists under the Lease. The Basic Annual Rent payable during the Renewal Period shall be the Market Rental Rate. Except as provided in this Paragraph, all terms and conditions of the Lease shall continue to apply during the Renewal Period.

(ii) Acceptance. Within thirty (30) days of the Renewal Notice, Landlord shall notify Tenant of the Basic Annual Rent for such Renewal Period (the “Rental Notice”). Tenant may accept the terms set forth in the Rental Notice by written notice (the “Acceptance Notice”) to Landlord given within fifteen (15) days after receipt of the Rental Notice. If Tenant fails timely to deliver its Acceptance Notice, then this Option to Extend shall automatically expire and be of no further force or effect. Promptly upon receipt, Tenant shall execute a lease amendment confirming the Basic Annual Rent and other terms applicable during the Renewal Period.

(iii) Market Rental Rate. The “Market Rental Rate” is the rate a willing tenant would pay and a willing landlord would accept for a comparable transaction (e.g., renewal, expansion, relocation, etc., as applicable, in comparable space and in a comparable building) as of the commencement date of the applicable term, neither being under any compulsion to lease and both having reasonable knowledge of the relevant facts, considering the highest and most profitable use if offered for lease in the open market with a reasonable period of time in which to consummate a transaction. In calculating the Market Rental Rate, all relevant factors will be taken into account, including the location and quality of the Building, lease term, amenities of the Project, condition of the space and any concessions and allowances commonly being offered by Landlord for comparable transactions in the Project. The parties agree that the best evidence of the Market Rental Rate will be the rate then charged for comparable transactions in other comparable first- class office buildings in the Austin, Texas – metropolitan area, taking into account age, size, location and other relevant operating factors. Although the determination of Market Rental Rate shall be made at a point in time prior to the commencement of the Renewal Period, such determination is to be made based on Landlord’s and Tenant’s opinion of what the Market Rental Rate should be at the time the rate being determined will go into effect.

[SIGNATURE PAGE TO FOLLOW]

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SIGNATURE PAGE TO OFFICE LEASEBY AND BETWEEN KBS SOR AUSTIN SUBURBAN PORTFOLIO, LLC, AS LANDLORD, AND XPLORE TECHNOLOGIES

CORPORATION OF AMERICA, AS TENANT

IN WITNESS WHEREOF, intended to be legally bound hereby, the parties hereto, by their duly authorized representatives, have executed and sealed this Lease with the intention that this Lease constitutes an instrument under seal, and that the parties have executed this Lease to be effective as of the Date of this Lease.

“LANDLORD” “TENANT” KBS SOR AUSTIN SUBURBAN PORTFOLIO, XPLORE TECHNOLOGIES CORPORATION OF LLC, a Delaware limited liability company AMERICA, a Delaware corporation By: KBS Capital Advisors, LLC, a Delaware limited liability company, as agent By: By: David Moore, Name: Senior Vice President Title:

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EXHIBIT A-1FLOOR PLAN OF THE PREMISES

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EXHIBIT A-2LEGAL DESCRIPTION OF THE PROJECT

PARK CENTRE, AUSTIN, TEXAS

Being 32.412 acres of land out of Lot 1, Block A, PARK 22 - PHASE B, a subdivision in Travis County, Texas, according to the map or plat thereof recorded in/under Volume 86, Page 64C of the Plat Records of Travis County, Texas. Said 32.412 acres being more particularly described as follows:

BEGINNING at a 1/2 inch rebar found in the South right-of-way line of R.M. 2222 (240 feet right-of-way width) as described in Volume 11634, Page 2376 of the Real Property Records of Travis County, Texas, at highway station 144+22.16, 120.00 feet right, being the Northwest corner of the said 32.415 acre tract, being also the Northeast corner of a 467.5 acre tract of land described in Volume 11848, Page 1718 of the Real Property Records of Travis County, Texas, from which a TxDOT type II disk found in the South right-of-way line of R.M. 2222 at highway station 143+66.41, 120.00 feet right, bears with a curve to the right with a delta angle of 02 degrees 13 minutes 47 seconds, an arc length of 60.41 feet, having a radius of 1552.39 feet and a chord which bears North 52 degrees 58 minutes 16 seconds West, a distance of 60.41 feet;

THENCE with the South right-of-way line of R.M. 2222 and the North line of the said 32.415 acre tract, the following three (3) courses and distances:

With a curve to the left with a delta angle of 36 degrees 54 minutes 11 seconds, an arc length of 999.86 feet, having a radius of 1552.39 feet and a chord which bears South 72 degrees 32 minutes 15 seconds East, a distance of 982.67 feet to a TxDOT type II disk found at highway station 153+44.68, 120.00 feet right;

North 88 degrees 58 minutes 41 seconds East, a distance of 306.28 feet to a TxDOT type II disk found at highway station 156+51.22, 120.00 feet right;

With a curve to the right with a delta angle of 18 degrees 52 minutes 48 seconds, an arc length of 715.65 feet, having a radius of 2171.83 feet and a chord which bears South 81 degrees 33 minutes 26 seconds East, a distance of712.42 feet to a calculated point for the Northeast corner of the said 32.415 acre tract, being the Northwest corner of a 19.744 acre tract of land described in Volume 13107, Page 467 of the Real Property Records of Travis County, from which a 1/2 inch rebar found, bears South 69 degrees 02 minutes 17 seconds East, a distance of 1.47 feet and a TxDOT type II disk found in the South right-of-way line of R.M. 2222 at highway station 166+54.98, 120.00 feet right, bears with a curve to the right with a delta angle of 06 degrees 13 minutes 07 seconds, an arc length of 235.72 feet, having a radius of 2171.83 feet and a chord which bears South 69 degrees 00 minutes 28 seconds East, a distance of 235.61 feet;

THENCE South 07 degrees 18 minutes 06 seconds West with the East line of the said 32.415 acre tract and the West line of the said 19.744 acre tract, passing a 1/2 inch rebar with cap stamped "CA" found at a distance of0.32 feet and continuing for a total distance of 682.56 feet to a 1/2 inch rebar found for the Southeast corner of the said 32.415 acre tract, being the Northeast corner of Lot 7, Park 22 Phase A, a subdivision recorded in Volume 84, Page 180C of the Plat Records of Travis County, Texas;

THENCE North 86 degrees 49 minutes 39 seconds West with the South line of the said 32.415 acre tract and the North line of said Lot 7, passing a 1/2 inch rebar found for the Northwest corner of said Lot 7, being the Northeast corner of Lot 6, of said Park 22 Phase A, at a distance of 232.91 feet and continuing with the South line of the said 32.415 acre tract and the North line of said Lot 6, a distance of 196.15 feet, for a total distance of429.07 feet to a 1/2 inch rebar found for the Northwest corner of said Lot 6, being the Northeast corner of Lot 5, of said Park 22 Phase A;

THENCE North 78 degrees 26 minutes 04 seconds West with the South line of the said 32.415 acre tract and the North line of said Lot 5, a distance of 358.02 feet to a 1/2 inch rebar found for the Northwest corner of said Lot 5, being the Northeast corner of Lot 4, of said Park 22 Phase A;

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THENCE North 69 degrees 50 minutes 28 seconds West with the South line of the said 32.415 acre tract and the North line of said Lot 4, passing a 1/2 inch rebar found for the Northwest corner of said Lot 4, being the Northeast corner of Lot 3, of said Park 22 Phase A, at a distance of 167.97 feet and 0.42 feet right and continuing with the South line of the said 32.415 acre tract and the North line of said Lot 3, a distance of 331.89 feet, for a total distance of 499.86 feet to a 1/2 inch rebar found;

THENCE South 52 degrees 03 minutes 34 seconds West with the South line of the said 32.415 acre tract and the North line of said Lot 3, passing a 1/2 inch rebar found for the Northwest corner of said Lot 3, being the Northwest corner of Lot 2, of said Park 22 Phase A, at a distance of 22.49 feet and continuing with the South line of the said 32.415 acre tract and the North line of said Lot 2, a distance of 437.45 feet, for a total distance of 459.94 feet to a 1/2 inch rebar found;

THENCE North 86 degrees 25 minutes 27 seconds West with the South line of the said 32.415 acre tract and the North line of said Lot 2, a distance of 276.83 feet to a 1/2 inch rebar found for the Southwest corner of the said32.415 acre tract, being the Northwest corner of said Lot 2, being also in the East line of the said 467.5 acre tract;

THENCE with the West line of the said 32.415 acre tract and the East line of the said 467.5 acre tract the following four (4) courses and distances: North 01 degrees 14 minutes 30 seconds East, a distance of 382.49 feet to a 1/2 inch rebar found; North 00 degrees 24 minutes 41 seconds East, a distance of 347.80 feet to a 1/2 inch rebar found; North 01 degrees 50 minutes 34 seconds East, a distance of 140.55 feet to a 1/2 inch rebar found; North 03 degrees 02 minutes 5 seconds East, a distance of 198.39 feet to the POINT OF BEGINNING, containing 32.412 acres of land, more or less.

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EXHIBIT A-3

RENTABLE AREA

The term “Rentable Area” as used in the Lease shall be calculated in accordance with BOMA standards.

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EXHIBIT B

WORK LETTER

THIS WORK LETTER is attached as Exhibit B to the Office Lease between KBS SOR AUSTIN SUBURBAN PORTFOLIO, LLC, a Delaware limited liability company, as Landlord, and XPLORE TECHNOLOGIES CORPORATION OF AMERICA, a Delaware corporation, as Tenant, and constitutes the further agreement between Landlord and Tenant as follows:

(a) Tenant Improvements. Landlord, at Tenant’s sole cost and expense, (except as expressly set forth below), agrees to furnish or perform those items of construction and those improvements (the “Tenant Improvements”) specified in the Final Plans to be agreed to by Landlord and Tenant as set forth in Paragraph (b) below; provided, however, Landlord shall pay for the cost of such Tenant Improvements up to the extent of the Landlord’s Construction Allowance, as set forth in Paragraph (e) below.

(b) Space Planner. Landlord has retained a space planner (the “Space Planner”) to prepare certain plans, drawings and specifications (the “Temporary Plans”) for the construction of the Tenant Improvements to be installed in the Premises by a general contractor selected by Landlord pursuant to this Work Letter, subject to Tenant’s reasonable approval, including without limitation reviewing the Architect’s work proposal in order to confirm that the estimated costs and fees are consistent with the market. Tenant shall deliver to Space Planner within ten (10) days after the execution of this Lease all necessary information required by the Space Planner to complete the Temporary Plans. Tenant shall have five (5) business days after its receipt of the proposed Temporary Plans to review the same and notify Landlord in writing of any comments or required changes, or to otherwise give its approval or disapproval of such proposed Temporary Plans. If Tenant fails to give written comments to or approve the Temporary Plans within such five (5) business day period, then Tenant shall be deemed to have approved the Temporary Plans as submitted. Landlord shall have five (5) business days following its receipt of Tenant’s comments and objections to redraw the proposed Temporary Plans in compliance with Tenant’s request and to resubmit the same for Tenant’s final review and approval or comment within five (5) business days of Tenant’s receipt of such revised plans. Such process shall be repeated five (5) times, as necessary, and if after such fifth time, final approval by Tenant of the proposed Temporary Plans has not been obtained, then Tenant shall pay all costs thereafter incurred by Landlord in connection with repeating such process for the sixth and any subsequent times, provided Landlord shall not unreasonably withhold its approval if such plans are consistent with typical office improvements in comparable buildings in the Northwest Austin Area, including the other buildings in Park Centre, taking into account the previous use and configuration of the Premises, including the loading docks. Once Tenant has approved or has been deemed to have approved the Temporary Plans, then the approved (or deemed approved) Temporary Plans shall be thereafter known as the “Final Plans”. The Final Plans shall include the complete and final layout, plans and specifications for the Premises showing all doors, light fixtures, electrical outlets, telephone outlets, wall coverings, plumbing improvements (if any), data systems wiring, floor coverings, wall coverings, painting, any other improvements to the Premises beyond the shell and core improvements provided by Landlord and any demolition of existing improvements in the Premises. The improvements shown in the Final Plans shall (i) utilize Landlord’s building standard materials and methods of construction, (ii) be compatible with the shell and core improvements and the design, construction and equipment of the Premises, and (iii) comply with all applicable laws, rules, regulations, codes and ordinances.

(c) Bids. As soon as practicable following the approval of the Final Plans, Landlord shall (i) obtain a written non-binding itemized estimate of the costs of all Tenant Improvements shown in the Final Plans as prepared by a general contractor selected by Landlord and approved by Tenant, which itemized bids shall be provided to Tenant for review, and (ii) if required by applicable law, codes or ordinances, submit the Final Plans to the appropriate governmental agency for the issuance of a building permit or other required governmental approvals prerequisite to commencement of construction of such Tenant Improvements (“Permits”). Tenant acknowledges that any cost estimates are prepared by the general contractor and Landlord shall not be liable to Tenant for any inaccuracy in any such estimate. Within five (5) business days after receipt of the written non-binding cost estimate prepared by the general contractor, Tenant shall either (A) give its written approval thereof and authorization to proceed with construction or (B) immediately request the Space Planner to modify or revise the Plans in any manner desired by Tenant to decrease the cost of the Tenant Improvements. If Tenant is silent during such five (5) business day period, then Tenant shall be deemed to have approved such non-binding cost estimate as set forth in Clause (A)

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above. If the Final Plans are revised pursuant to Clause (B) above, then Landlord shall request that the general contractor provide a revised cost estimate to Tenant based upon the revisions to the Final Plans. Such modifications and revisions shall be subject to Landlord’s reasonable approval and shall be in accordance with the standards set forth in Paragraph (b) of this Work Letter. Within ten (10) business days after receipt of the general contractor’s original written cost estimate and the description, if any, of any Tenant Delay, Tenant shall give its final approval of the Final Plans to Landlord which shall constitute authorization to commence the construction of the Tenant Improvements in accordance with the Final Plans, as modified or revised. Tenant shall signify its final approval by signing a copy of each sheet or page of the Final Plans and delivering such signed copy to Landlord.

(d) Construction. Landlord shall commence construction of the Tenant Improvements within ten (10) days following the later of (i) the approval of the Final Plans, or (ii) Landlord’s receipt of any necessary Permits. Landlord shall diligently pursue completion of construction of the Tenant Improvements and use its commercially reasonable efforts to complete construction of the Tenant Improvements as soon as reasonably practicable. Notwithstanding anything in this Lease or in this Work Letter to the contrary, Landlord’s Construction Allowance, as specified in Item 18 of the Basic Lease Provisions, shall be used only for the construction of the Tenant Improvements, and if construction of the Tenant Improvements is not completed on or before August 1, 2017 (“Estimated Construction Completion Date”), then Landlord’s obligation to provide the Landlord’s Construction Allowance, as specified in Item 18 of the Basic Lease Provisions, shall terminate and become null and void, and Tenant shall be deemed to have waived its rights in and to said Landlord’s Construction Allowance.

(e) Landlord’s Construction Allowance. Subject to the terms and provisions of this Work Letter, Landlord shall pay the cost of the Tenant Improvements (“Work”) up to the amount of the Landlord’s Construction Allowance. If the amount of the lowest qualified bid to perform the Work exceeds the Landlord’s Construction Allowance, Tenant shall bear the cost of such excess and shall pay the estimated cost of such excess to Landlord prior to commencement of construction of such Tenant Improvements and a final adjusting payment based upon the actual costs of the Tenant Improvements shall be made when the Tenant Improvements are completed. If the cost of the Work is less than such amount, then Tenant shall not receive any credit whatsoever for the difference between the actual cost of the Work and Landlord’s Construction Allowance. All remaining amounts due to Landlord shall be paid upon the earlier of Substantial Completion of the Tenant Improvements or presentation of a written statement of the sums due, which statement may be an estimate of the cost of any component of the Work. The cost of the permits, working drawings, hard construction costs, mechanical and electrical planning, fees, permits, general contract overhead, and a coordination fee payable to Landlord equal to three percent (3%) of the actual costs of construction and such costs or permits, fees, planning and contractor overhead shall be payable out of the Landlord’s Construction Allowance and shall be included in the cost of the Work; provided, however, in the event that Tenant requests revisions to the Plans more than once, the cost of any drawings and fees in connection with revisions to the Plans after the first requested revision shall be borne and paid solely by Tenant. The cost of the Work shall not include any other fees payable to Landlord.

(f) Change Order. If Tenant shall desire any changes to the Final Plans, Tenant shall so advise Landlord in writing and Landlord shall determine whether such changes can be made in a reasonable and feasible manner. Any and all costs of reviewing any requested changes, and any and all costs of making any changes to the Tenant Improvements which Tenant may request and which Landlord may agree to shall be at Tenant’s sole cost and expense and shall be paid to Landlord upon demand and before execution of the change order. If Landlord approves Tenant’s requested change, addition, or alteration, the Space Planner, at Tenant’s sole cost and expense, shall complete all working drawings necessary to show the change, addition or alteration being requested by Tenant.

(g) Substantial Completion. “Substantial Completion” of construction of the Tenant Improvements or the date the Tenant Improvements are “Substantially Completed” shall be defined as the date upon which the Space Planner or other consultant engaged by Landlord determines that the Tenant Improvements have been substantially completed in accordance with the Final Plans, except for Punch List items (defined below), unless the completion of such improvements was delayed due to any Tenant Delay (defined below), in which case the date of Substantial Completion shall be the date such improvements would have been completed, but for Tenant Delays. The term “Punch List” items shall mean such items that constitute minor defects or adjustments which can be completed after occupancy without causing any material interference with Tenant’s use of the Premises. After the completion of the Tenant Improvements, Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of

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improvements performed on the Premises. The term “Tenant Delay” shall include, without limitation, any delay in the completion of construction of Tenant Improvements resulting from (i) Tenant’s failure to comply with the provisions of this Work Letter, (ii) any additional time as reasonably determined by Landlord required for ordering, receiving, fabricating and/or installing items or materials or other components of the construction of Tenant Improvements, including, without limitation, mill work, (iii) delay in work caused by submission by Tenant of a request for any change order (defined below) following Tenant’s approval of the Final Plans, or for the implementation of any change order, or (iv) any delay by Tenant in timely submitting comments or approvals to the Temporary Plans or Final Plans. The failure of Tenant to take possession of or to occupy the Premises shall not serve to relieve Tenant of obligations arising on the Commencement Date or delay the payment of Rent by Tenant.

(h) Construction of Tenant Improvements. In connection with the construction of certain components of the Tenant Improvements, Tenant understands and agrees that the construction thereof may occur while Tenant is in occupancy of the Premises, and Tenant hereby agrees to cooperate with Landlord and make reasonable accommodations (including movement of Tenant’s furniture, fixtures and equipment, if necessary), for Landlord to complete such Tenant Improvements in a timely and efficient manner (the cost of which shall be included in the cost of the Work); provided, however, and notwithstanding the foregoing to the contrary, Tenant, at Tenant’s sole cost and expense, shall be responsible for packing and moving all of Tenant’s, and/or Tenant’s employees, personal property and belongings (including, but not limited to, artwork and valuables) necessitated by the construction of the Tenant Improvements.

(i) Lobby Restoration. Landlord shall, concurrently with Substantially Completing the Tenant Improvements, but at Landlord’s sole const and expense, remove the existing security guard desk, and repair the wall where cabling terminates. Additionally, if requested by Tenant, Landlord shall remove the wall mounted television and repair any damage caused by such removal. Landlord and Tenant shall cooperate with one another with respect to selections, access and scheduling such work.

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EXHIBIT CSTANDARDS FOR UTILITIES AND SERVICES

The following are the Project Standards for Utilities and Services. Landlord reserves the right to adopt such reasonable, nondiscriminatory modifications and additions hereto as it deems appropriate.

1. As long as Tenant is not in default under any of the terms, covenants, conditions, provisions or agreements of this Lease, Landlord shall, subject to the limitations and provisions hereinafter set forth in this Exhibit C:

(a) Provide automatic elevator facilities on Monday through Friday from 7:00 A.M. to 7:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M., excepting state and federal holidays (hereinafter referred to as “Business Hours”), and provide one (1) automatic elevator at all other times.

(b) Provide to the Premises, during Business Hours (and at other times for an additional charge to be fixed by Landlord), heating, ventilation, and air conditioning (HVAC), when and to the extent, in the judgment of Landlord, any of such services may be required for the comfortable occupancy of the Premises for general office purposes. Landlord shall not be responsible for room temperatures and conditions in the Premises if the lighting and receptacle load for Tenant’s equipment and fixtures exceed those listed in paragraph (c) hereof, if the Premises are used for other than general office purposes or if the Building standard blinds or curtains in the Premises are not closed so as to screen the sun’s rays.

(c) Furnish to the Premises, 24 hours per day, 7 days per week, electric current for routine lighting and the operation of general office machines such as typewriters, dictating equipment, desk model adding machines, and the like, which use 110 volt electric power, not to exceed the reasonable capacity of Building standard office lighting and receptacles, and not in excess of limits imposed or recommended by governmental authority.

(d) Provide janitorial services to the Premises Monday through Friday (except state and federal holidays), provided the same are used exclusively for the uses permitted under the foregoing Lease, and are kept reasonably in order by Tenant. Tenant shall pay to Landlord the cost of removal of any of Tenant’s refuse and rubbish, to the extent that the same exceeds the refuse and rubbish which generally would be produced by the use of the Premises for general office purposes.

2. No data processing equipment, other special electrical equipment (excluding personal computers utilizing 110 volt electric power), air conditioning or heating units, or plumbing additions shall be installed, nor shall any changes to the Building HVAC, electrical or plumbing systems be made without the prior written consent of Landlord, which consent shall be subject to Landlord’s sole and absolute discretion. In the case of any such change, Landlord reserves the right to designate and/or approve the contractor to be used. Any permitted installations shall be made under Landlord’s supervision.

3. Landlord shall not provide reception outlets or television or radio antennas for television or radio broadcast reception, and Tenant shall not install any such equipment without prior written approval from Landlord.

4. Tenant will not, without the prior written consent of Landlord, use any apparatus, machine or device in the Premises, including, without limitation, duplicating machines, electronic data processing machines, punch card machines and machines using current in excess of 110 volts, which will in any way increase the amount of electricity or water usually furnished or supplied for use of the Premises as general office space, nor connect with electric current, except through existing electrical outlets in the Premises, any apparatus or device for the purpose of using electric current in excess of that usually furnished or supplied for use of the Premises as general office space.

5. Tenant agrees to cooperate fully at all times with Landlord, and to abide by all regulations and requirements which Landlord may prescribe for the proper functioning and protection of the Building HVAC, electrical, plumbing and other systems. Tenant shall comply with all laws, statutes, ordinances and governmental rules and regulations now in force or which may hereafter be enacted or promulgated in connection with Building

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services furnished to the Premises, including, without limitation, any governmental rule or regulation relating to the heating and cooling of the Building.

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EXHIBIT DBUILDING RULES AND REGULATIONS

1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways and corridors of halls shall not be obstructed or used for any purpose other than ingress and egress. The halls, passages, entrances, elevators, stairways, balconies and roof are not for the use of the general public, and the Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence, in the judgment of the Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom the Tenant normally deals only for the purpose of conducting its business in the Premises (such as clients, customers, office suppliers and equipment vendors, and the like) unless such persons are engaged in illegal activities. No tenant and no employees of any tenant shall go upon the roof of the Building without the written consent of Landlord.

2. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard window coverings. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent, of a quality, type, design and bulb color approved by Landlord. Neither the interior nor the exterior of any windows shall be coated or otherwise sunscreened without the written consent of Landlord.

3. No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by any tenant on, about or from any part of the Premises, the Building or the Project without the prior written consent of the Landlord. If the Landlord shall have given such consent at the time, whether before or after the execution of this Lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of this Lease, and shall be deemed to relate only to the particular sign, advertisement or notice so consented to by the Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of the Landlord with respect to each and every such sign, advertisement or notice other than the particular sign, advertisement or notice, as the case may be, so consented to by the Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove or stop same without any liability, and may charge the expense incurred in such removal or stopping to such tenant. Interior signs on doors and the directory tablet shall be inscribed, painted or affixed for each tenant by the Landlord at the expense of such tenant, and shall be of a size, color and style acceptable to the Landlord. The directory tablet will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord’s standard lettering.

4. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into halls, passageways or other public places in the Building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels or other articles be placed on the window sills. Tenant shall see that the windows, transoms and doors of the Premises are closed and securely locked before leaving the Building and must observe strict care not to leave windows open when it rains. Tenant shall exercise extraordinary care and caution that all water faucets or water apparatus are entirely shut off before Tenant or Tenant’s employees leave the Building, and that all electricity, gas or air shall likewise be carefully shut off, so as to prevent waste or damage. Tenant shall cooperate with Landlord in obtaining maximum effectiveness of the cooling system by closing window coverings when the sun’s rays fall directly on the windows of the Premises. Tenant shall not change the setting of any thermostats or temperature control valves, unless reasonably necessary to maintain comfortable temperatures in the Premises.

5. The toilet rooms, water and wash closets and other plumbing fixtures shall not be used for any purpose other than those for which they were considered, and no sweepings, rubbish, rags or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose subtenants, assignees or any of their servants, employees, agents, visitors or licensees shall have caused the same.

6. No tenant shall mark, paint, drill into, or in any way deface any part of the Premises, the Building or the Project, except for hanging pictures, artwork and other office decorations. No boring, cutting or stringing of wires or laying of linoleum or other similar floor coverings shall be permitted, except with the prior written consent of the Landlord and as the Landlord may direct.

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7. No bicycles, vehicles, birds or animals of any kind (other than wheelchairs, seeing eye dogs and the like) shall be brought into or kept in or about the Premises, and no cooking shall be done or permitted by any tenant on the Premises, except that the preparation of coffee, tea, hot chocolate and similar items (including those suitable for microwave heating) for tenants and their employees shall be permitted, provided that the power required therefor shall not exceed that amount which can be provided by a 30 amp circuit. No tenant shall cause or permit any unusual or objectionable odors to be produced or permeate the Premises. Smoking or carrying lighted cigars, cigarettes or pipes in the Building is prohibited.

8. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the permitted use of the Premises. No tenant shall occupy or permit any portion of the Premises to be occupied as an office for a public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco (except by a cigarette vending machine for use by Tenant’s employees) in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau, without the express written consent of Landlord. No tenant shall engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises. The Premises shall not be used for lodging or sleeping or for any immoral or illegal purposes.

9. No tenant shall make, or permit to be made any unseemly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, radio, phonograph, unusual noise, or in any other way. No tenant shall throw anything out of doors, windows or skylights or down the passageways.

10. No tenant, subtenant or assignee nor any of their servants, employees, agents, visitors or licensees shall at any time bring or keep upon the Premises any flammable, combustible or explosive fluid, chemical or substance.

11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made in existing locks or the mechanisms thereof. Each tenant must, upon the termination of his tenancy, restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, such tenant and in the event of the loss of keys so furnished, such tenant shall pay to Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes. Landlord acknowledges that Tenant shall, at its expense, install its own private security system controlling access to the Premises and Tenant’s proprietary records and work product.

12. All removals, or the carrying in or out of any safes, freight, furniture, or bulky matter of any description must take place during the hours which Landlord shall determine from time to time, without the express written consent of Landlord, which consent shall not be unreasonably denied, conditioned or delayed. The moving of safes or other fixtures or bulky matter of any kind must be done upon previous notice to the Project Management Office and under its supervision, and the persons employed by any tenant for such work must be reasonably acceptable to the Landlord. Landlord reserves the right to inspect all safes, freight or other bulky articles to be brought into the Building and to exclude from the Building all safes, freight or other bulky articles which violate any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. Landlord reserves the right to prescribe the weight and position of all safes, which must be placed upon supports approved by Landlord to distribute the weight.

13. No tenant shall purchase spring water, ice, towel, janitorial maintenance or other similar services from any person or persons not reasonably approved by Landlord.

14. Landlord shall have the right to prohibit any advertising by any tenant which, in Landlord’s reasonable opinion, tends to impair the reputation of the Building or the Project or its desirability as an office location, and upon written notice from Landlord, any tenant shall refrain from or discontinue such advertising.

15. Landlord reserves the right to exclude from the Building between the hours of 6:00 P.M. and 7:00 A.M. and at all hours on Saturday, Sunday and legal holidays all persons who do not present a pass or card key to the Building approved by the Landlord. Each tenant shall be responsible for all persons who enter the Building

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with or at the invitation of such tenant and shall be liable to Landlord for all acts of such persons. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of an invasion, mob riot, public excitement or other circumstances rendering such action advisable in Landlord’s opinion, Landlord reserves the right, without abatement of Rent, to require all persons to vacate the Building and to prevent access to the Building during the continuance of the same for the safety of the tenants, the protection of the Building, and the property in the Building.

16. Any persons employed by any tenant to do janitorial work shall, while in the Building and outside of the Premises, be subject to and under the control and direction of the Project Management Office (but not as an agent or servant of said Office or of the Landlord), and such tenant shall be responsible for all acts of such persons.

17. All doors opening onto public corridors shall be kept closed, except when in use for ingress and egress.

18. The requirements of Tenant will be attended to only upon application to the Project Management Office.

19. Canvassing, soliciting and peddling in the Building are prohibited and each tenant shall report and otherwise cooperate to prevent the same.

20. All office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise or annoyance.

21. No air conditioning unit or other similar apparatus shall be installed or used by any tenant without the written consent of Landlord.

22. There shall not be used in any space, or in the public halls of the Building, either by any tenant or others, any hand trucks, except those equipped with rubber tires and rubber side guards.

23. No vending machine or machines of any description shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

24. The scheduling of tenant move-ins shall be subject to the reasonable discretion of Landlord.

25. If the Tenant desires telephone or telegraph connections, the Landlord will direct electricians as to where and how the wires are to be introduced. No boring or cutting for wires or otherwise shall be made without direction from the Landlord.

26. The term “personal goods or services vendors” as used herein means persons who periodically enter the Building of which the Premises are a part for the purpose of selling goods or services to a tenant, other than goods or services which are used by the Tenant only for the purpose of conducting its business in the Premises. “Personal goods or services” include, but are not limited to, drinking water and other beverages, food, barbering services and shoe shining services. Landlord reserves the right to prohibit personal goods and services vendors from access to the Building except upon Landlord’s prior written consent and upon such reasonable terms and conditions, including, but not limited to, the payment of a reasonable fee and provision for insurance coverage, as are related to the safety, care and cleanliness of the Building, the preservation of good order thereon, and the relief of any financial or other burden on Landlord or other tenants occasioned by the presence of such vendors or the sale by them of personal goods or services to the Tenant or its employees. If necessary for the accomplishment of these purposes, Landlord may exclude a particular vendor entirely or limit the number of vendors who may be present at any one time in the Building.

27. The Building is a non-smoking building. Smoking is prohibited at all times within the entire Building, including all leased premises, as well as all public/common areas and parking areas for the Building, including any attached parking garage structure. This prohibition applies during business and non-business hours to restrooms, elevators, elevator lobbies, first floor lobby, stairwells, common hallways, the lunch room and any other

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public/common area, as well as to all areas within the Leased Premises by Tenants. Smoking is only permitted in the designated smoking area outside the Building and away from the entrances to the Building.

28. The Building and Project is a weapons free environment. No tenant, owner of a tenant, officer or employee of a tenant, visitor of tenant, contractor or subcontractor of tenant, or any other party shall carry weapons (concealed or not) of any kind in the building, or parking areas. This prohibition applies to all public areas, including without limitation, restrooms, elevators, elevator lobbies, first floor lobby, stairwells, common hallways, all areas within the leased premises of tenants, all surface parking areas and the surrounding land related to the building.

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EXHIBIT EFORM ESTOPPEL CERTIFICATE

The undersigned, , a (“Tenant”), the tenant under that certain Office Lease dated , between Tenant and , a , as landlord (“Landlord”) hereby certifies as follows:

1. The Premises(the“Premises”)under the Lease is Suite, . 2. The Lease is in full force and effect and has not been modified or amended in any respect except by amendments

dated (copies of which are attached). 3. The Lease has not been assigned, encumbered, subleased or transferred in any manner other

than: . 4. The Commencement Date of the Lease is and the expiration date of the Lease is . There are no

options to extend the Lease Term beyond such expiration date other than . 5. The present monthly rental under the Lease is $ . The sum of $ , representing month’s Rent has been

paid in advance. 6. The security deposit held by Landlord under the Lease is $ . 7. Rent under the Lease has been paid through the month of . Tenant’s estimated share of Operating Costs payments have been

paid through . 8. The Premises are presently occupied by Tenant. 9. Tenant has accepted the Premises without condition or qualification under the Lease and Landlord has completed and complied with all

conditions of such acceptance, except as follows: 10. To the best knowledge of Tenant, neither it nor the Landlord is in default (or will be in default following the delivery of notice, the passage of

time, or both) or claims a default by the other under the Lease, or has any claims, defenses, or rights of offset against payment of Rent under the Lease, except as follows:

11. Tenant acknowledges that Landlord has the right to assign the Lease and the Rent thereunder and to sell, assign, transfer, mortgage or

otherwise encumber the Project without the consent of Tenant. 12. Tenant makes this statement for the benefit and protection of with the understanding

that intends to rely on this statement in connection with .

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IN WITNESS WHEREOF, this certificate has been executed and delivered by the authorized officers or representatives of the undersigned as of .

“TENANT” a By: Name: Title:

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EXHIBIT FTENANT’S INITIAL CERTIFICATE

To: (“Landlord”)

Date:

Tenant’s Initial Certificate

The undersigned, as the Tenant under that certain Office Lease (the “Lease”) dated , made and entered into between , a , as Landlord, and the undersigned, as Tenant, hereby certifies that:

1. The undersigned has accepted possession and entered into occupancy of the Premises described in the Lease.

2. The Commencement Date of the Lease was .

3. The expiration date of the Lease is .

4. The schedule of Basic Annual Rent is as follows:

Months Monthly Rent Annual Rent/Per Sq. Ft. XX/XX/20XX – XX/XX/20XX $ 20,285.00 $ 15.00

XX/XX/20XX – XX/XX/20XX $ 20,961.17 $ 15.50 XX/XX/20XX – XX/XX/20XX $ 21,637.33 $ 16.00 XX/XX/20XX – XX/XX/20XX $ 22,313.50 $ 16.50

5. The Lease is in full force and effect and has not been modified or amended.

6. Landlord has performed all of its obligations to improve the Premises for occupancy by the undersigned.

Very truly yours, a By: Name: Title:

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EXHIBIT G

AMERICANS WITH DISABILITIES ACT

AND TEXAS ARCHITECTURAL BARRIERS ACT

INTENTIONALLY DELETED

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EXHIBIT HFORM OF LETTER OF CREDIT

[BANK]

BENEFICIARY: APPLICANT: KBS SOR Austin Suburban Portfolio, LLC Xplore Technologies Corporation o America AMOUNT: USD $ ( THOUSAND AND NO/100 DOLLARS) Ladies and Gentlemen:

We hereby issue this Irrevocable Standby Letter of Credit No. (“Letter of Credit”) in your favor for the account of Xplore Technologies Corporation of America, a Delaware corporation (“Tenant”) for a sum not to exceed an aggregate amount of $ effective immediately and expiring at our office at on (“Expiry Date”). Notwithstanding anything herein to the contrary, this Letter of Credit shall automatically renew on a year-to-year basis, the first such renewal commencing on the day immediately following the Expiry Date unless we notify you (Beneficiary) in writing at least thirty (30) days prior to the Expiry Date (or the applicable subsequent Expiry Date, following any such renewal) that we will not renew this Letter of Credit. Partial Drawings are permitted hereunder, and each drawing under this Letter of Credit shall permanently reduce the face amount of this Letter of Credit by the amount of such drawing.

The face amount of this Letter of Credit may be reduced upon delivery to us at our offices indicated above of a completed request for reduction in the form of Annex A (as stated below) (“Reduction Certificate”) executed by your authorized officer and an authorized signatory on behalf of Tenant. The amount of any such reduction shall be the amount indicated in the Reduction Certificate.

We undertake that drawings under this Letter of Credit will be duly honored upon presentation to us at our office indicated above on any Business Day (as defined below) on or before the Expiry Date of your sight draft(s) drawn on us, bearing the clause: “Drawn under Irrevocable Standby Letter of Credit No. ”, together with a statement in the form of Annex B (as stated below) purportedly executed by your authorized officer and regardless of whether Tenant disputes the content of such statement. Payment will be made hereunder not later than 1:00 p.m. Central time on the third Business Day (as defined below) following the date such demand for payment is presented as aforesaid. Payment of any amount drawn under this Letter of Credit will be made in immediately available funds by wire transfer to such account as you shall specify or in such other manner as you specify in the sight draft presented to us with respect to such payment. For purposes of this Letter of Credit, the term “Business Day” shall mean a day upon which banks in Illinois are open for commercial business.

This Letter of Credit is transferable in full and not in part.

This Letter of Credit sets forth in full the terms of our undertaking and such undertaking shall not in any way be modified, amended or amplified by reference to any document or instrument referred to herein or in which this Letter of Credit is referred to or to which this Letter of Credit relates and any such reference shall not be deemed to incorporate herein by reference to any document or instrument.

Except as stated herein, this undertaking is not subject to any condition or qualification. Our obligations under this Letter of Credit shall be the individual obligation of Bank, in no way contingent upon reimbursement with respect thereto.

Except insofar as expressly stated herein, this Standby Letter of Credit undertaking is subject to the International Standby Practices 1998, International Chamber of Commerce Publication No. 590.

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ANNEX A

REDUCTION CERTIFICATE RELATING TO IRREVOCABLE

LETTER OF CREDIT NO.

Bank

Attention: Direct Pay Letter of Credit Department

KBS SOR Austin Suburban Portfolio, LLC, a Delaware limited liability company, and Xplore Technologies Corporation of America, a Delaware corporation, hereby request that the face amount of Letter of Credit No. dated , 201 , and issued by Bank (“Letter of Credit”) be reduced $ SO THAT THE FACE AMOUNT OF THE Letter of Credit shall be $ .

“LANDLORD” “TENANT” KBS SOR AUSTIN SUBURBAN PORTFOLIO, XPLORE TECHNOLOGIES CORPORATION LLC, a Delaware limited liability company OF AMERICA, a Delaware corporation By: KBS Capital Advisors, LLC, a Delaware limited liability company, its authorized agent By: By: Name: Name: Title: Title:

Dated: , 201

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ANNEX B

CERTIFICATE RELATING TO BANK IRREVOCABLE LETTER OF CREDIT NO.

KBS SOR AUSTIN SUBURBAN PORTFOLIO, LLC, a Delaware limited liability company (“Landlord”) hereby requests payment of United States Dollars (U.S. $ ) pursuant to Letter of Credit No. (“Letter of Credit”) dated , 201 .

In connection with such request, the Landlord hereby certifies that one of the following has occurred:(i) Tenant has not complied with the terms and conditions of that certain Office Lease dated , 2015, originally entered into by and between KBS SOR Austin Suburban Portfolio, LLC, a Delaware limited liability company, as landlord, and Xplore Technologies Corporation of America, a Delaware corporation, as tenant, as amended (collectively, the “Lease”), or (ii) Landlord has been notified in writing that the Letter of Credit will not be renewed and Landlord has the right under the Lease to draw the full amount of the Letter of Credit.

LANDLORD KBS SOR AUSTIN SUBURBAN PORTFOLIO, LLC, a Delaware limited liability company By: KBS Capital Advisors, LLC, a Delaware limited liability company, as agent By: Name: Title:

Dated: , 201

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LEASE OF PREMISES 1BASIC LEASE PROVISIONS 1STANDARD LEASE PROVISIONS 41. TERM 42. BASIC ANNUAL RENT AND SECURITY DEPOSIT 43. ADDITIONAL RENT 54. IMPROVEMENTS AND ALTERATIONS 115. REPAIRS 126. USE OF PREMISES 137. UTILITIES AND SERVICES 168. NON-LIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE 179. FIRE OR CASUALTY 2110. EMINENT DOMAIN. 2111. ASSIGNMENT AND SUBLETTING 2212. DEFAULT 2413. ACCESS; CONSTRUCTION 2814. BANKRUPTCY 2815. SUBSTITUTION OF PREMISES 2916. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATES 2917. SALE BY LANDLORD; TENANT’S REMEDIES; NONRECOURSE LIABILITY 3018. PARKING; COMMON AREAS 3119. MISCELLANEOUS 33

LIST OF EXHIBITS

Exhibit A-1 Floor Plan(s)Exhibit A-2 Legal Description of the ProjectExhibit A-3 Rentable AreaExhibit B Work LetterExhibit C Utilities and ServicesExhibit D Building Rules and RegulationsExhibit E Form Estoppel CertificateExhibit F Tenant’s Initial CertificateExhibit G [Intentionally Deleted]Exhibit H Form of Letter of Credit

-i-

Exhibit 21.1

Subsidiaries of Xplore Technologies Corp.

Xplore Technologies Corporation of America

Xplore Technologies International Corp.

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the previously filed Registration Statement on Form S-8 (File No. 333-161890), the previously filed Registration Statement on Form S-8 (File No. 333-164741), and the previously filed Registration Statement on Form S-3 (File No. 333-187198) of Xplore Technologies Corp. of our report dated June 29, 2016, relating to the consolidated financial statements of Xplore Technologies Corp. and subsidiary for the two year period ended March 31, 2016, which report appears in this Annual Report on Form 10-K of Xplore Technologies Corp. /s/ PMB Helin Donovan, LLP Austin, TXJune 29, 2016

Exhibit 31.1

CERTIFICATION

I, Philip S. Sassower, certify that: 1. I have reviewed this Annual Report on Form 10-K of Xplore Technologies Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements

made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to

ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely

to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 29, 2016 By: /s/ PHILIP S. SASSOWER Philip S. Sassower

Chief Executive Officer

Exhibit 31.2

CERTIFICATIONI, Tom Wilkinson, certify that: 1. I have reviewed this Annual Report on Form 10-K of Xplore Technologies Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements

made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to

ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely

to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 29, 2016 By: /s/ TOM WILKINSON Tom Wilkinson

Chief Financial Officer

Exhibit 32.1

Certification Pursuant to18 U.S.C. Section 1350,As Adopted Pursuant to

Section 906 of the Sarbanes----Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Xplore Technologies Corp. (the “Company”) for the fiscal year ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Philip S. Sassower, as Chief Executive Office of the Company, and Tom Wilkinson, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of each such officer’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the

Company.

By: /s/ PHILIP S. SASSOWER Philip S. Sassower

Chief Executive Officer Date: June 29, 2016 By: /s/ TOM WILKINSON Tom Wilkinson

Chief Financial Officer Date: June 29, 2016