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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-_____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------
TOMAHAWK CORPORATION
(Exact name of registrant as specified in its charter)
ALBERTA, CANADA 7374 --
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization)Classification Code Number) Identification No.)
8315 Century Park Court, Suite 200, San Diego, California 92123, (619)
874-7692 (Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
---------------------------------
Steven M. Caira
President, Chief Executive Officer and Chairman of the Board
8315 Century Park Court, Suite 200, San Diego, California 92123, (619) 874-7692
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
John J. Hentrich, Esq.
Baker & McKenzie
101 West Broadway, 12th Floor, San Diego, California 92101, (619) 236-1441
---------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
Amount Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be To Be Offering Price Aggregate Offering Amount of
Registered Registered (1) Per Share Price (2) Registration Fee
- --------------------------------------------- ---------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value............. 5,650,300 $ 1.65 $ 9,322,995 $ 2,595
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(1) Amount of shares of common stock to be registered based on the estimated
number of outstanding common shares after the completion of the
one-for-fifteen consolidation of Registrant's common shares.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended.
Pursuant to Rule 457(f)(1), the maximum offering price per share is $1.65,
the U.S. dollar equivalent (based on the closing exchange rate on July 6,
1999, of the average of the bid and asked prices of the Registrant's common
shares as reported by The Alberta Stock Exchange on July 6, 1999,
multiplied by fifteen to account for the one-for-fifteen common share
consolidation. The maximum aggregate offering price of $9,322,995 is the
product of $1.65 and the number of shares of the Registrant's Common Stock
being registered hereby.
---------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with the provisions of Section
8(a) of the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
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TOMAHAWK CORPORATION
5,650,300 SHARES OF COMMON STOCK
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
PROPOSED DELAWARE DOMESTICATION--YOUR VOTE IS VERY IMPORTANT
We are calling an annual and special meeting for our shareholders to:
- Receive and consider the financial statements of TomaHawk
Corporation for the year ended December 31, 1998 and the
auditors' report thereon;
- Fix the number of directors to be elected at the annual and
special meeting;
- Elect four directors;
- Appoint the auditors of TomaHawk Corporation; and
- Authorize TomaHawk Corporation to issue shares through one or
more private placements.
In addition, you will be asked to vote on the following proposal:
- To approve TomaHawk Corporation's change in jurisdiction of
incorporation from the Province of Alberta, Canada to the State
of Delaware, U.S.A. and to make certain other amendments to our
articles of incorporation and bylaws regarding the domestication
into Delaware.
If this domestication into Delaware is approved, then we will adjourn
the annual and special meeting, effect a one-for-fifteen consolidation of the
common shares, and complete the Delaware domestication. After we have completed
the Delaware domestication, we will reconvene the annual and special meeting,
and request that you vote on five proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws. You should review the
accompanying Proxy Statement and Information Circular for more information on
the specific proposals to be voted on at the annual and special meeting.
Under Alberta corporate law, the proposed domestication from Alberta to
Delaware requires shareholder approval. (See "Summary--The Annual and Special
Meeting; Voting; Proxies--Voting.") Our board of directors believes that it is
in our best interests and in the best interests of our shareholders to
domesticate into Delaware. The new Delaware corporation will be called TomaHawk
Engineering, Inc., and will continue to operate as the parent holding company of
TomaHawk II, Inc., our operating subsidiary.
If TomaHawk Corporation domesticates into Delaware, then you
automatically will own shares of common stock of the new Delaware corporation
unless you exercise your right of dissent. The shares of common stock of the
new Delaware corporation will continue to trade on The Alberta Stock Exchange,
but will trade under the symbol "THK" instead of our current trading symbol
"TKC."
If you properly dissent to the Delaware domestication, then you may
obtain payment of the fair value of your common shares of the existing Alberta
corporation instead of receiving shares of common stock of the new Delaware
corporation.
Our board of directors recommends that you vote "FOR" the Delaware
domestication and each of the other proposals. See "Summary--The Annual and
Special Meeting; Voting; Proxies." The annual and special meeting will be held
at 10:00 a.m., San Diego time, on ______________, 1999 at 8315 Century Park
Court, Suite 200, San Diego, California.
YOU SHOULD REVIEW THE RISK FACTORS BEGINNING ON PAGE 10 OF THE
ACCOMPANYING PROXY STATEMENT AND INFORMATION CIRCULAR FOR A DISCUSSION OF
VARIOUS RISKS RELATING TO THE PROPOSED DELAWARE DOMESTICATION AND TO OUR
CONTINUING OPERATIONS. PLEASE NOTE THAT NEITHER THE U.S. SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE OR PROVINCIAL SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THE PROXY STATEMENT
AND INFORMATION CIRCULAR IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The accompanying Proxy Statement and Information Circular provides
additional information relating to the proposals to be voted on at the annual
and special meeting. You should read the entire Proxy Statement and Information
Circular carefully. We first mailed the accompanying Proxy Statement and
Information Circular to our shareholders on or about ______________, 1999.
Sincerely,
Steven M. Caira
President, Chief Executive Officer, Acting Chief
Financial Officer and Chairman of the Board
<PAGE>
PROXY STATEMENT AND INFORMATION CIRCULAR
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PROXY STATEMENT AND INFORMATION CIRCULAR.........................................................................1
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.......................................................................1
TRADEMARKS.......................................................................................................1
SUMMARY..........................................................................................................2
Risk Factors............................................................................................2
General Information about the Delaware Domestication....................................................2
The Annual and Special Meeting; Voting; Proxies.........................................................3
Proposals to be Voted on at the Annual and Special Meeting.....................................3
Voting.........................................................................................3
Proxies........................................................................................4
The Existing Alberta corporation........................................................................5
More Details about the Delaware Domestication...........................................................5
Board of Directors Recommendation..............................................................5
Reasons for the Delaware Domestication.........................................................5
Conditions to Consummation of the Delaware Domestication.......................................6
One-for-Fifteen Common Share Consolidation.....................................................6
Effective Time of the Delaware Domestication...................................................6
Exchange of Share Certificates.................................................................6
Comparison of Rights of Shareholders....................................................................6
Tax Considerations......................................................................................7
Canadian Federal Income Tax Considerations.....................................................7
U.S. Federal Income Tax Considerations.........................................................7
Dissenter's Rights......................................................................................8
Regulatory Approval.....................................................................................8
Security Ownership of Company Management................................................................8
Market Information......................................................................................8
RISK FACTORS....................................................................................................10
Risk Factors Relating to the Delaware Domestication....................................................10
We may be subject to Canadian federal income tax liability as a result of
the Delaware domestication..................................................................10
Holders of common shares in Canadian registered retirement savings plans may be
subject to Canadian federal income tax liability............................................10
The Delaware domestication will affect your rights as a shareholder...........................10
Certain proposed provisions of the new Delaware corporation's certificate of incorporation and
bylaws may deter takeover attempts..........................................................11
Risk Factors Relating to our Continuing Operations.....................................................12
Our limited working capital may prevent us from continuing as a going concern.................12
We will require additional financing to continue operating our business.......................12
We depend on contracts funded by the U.S. government to provide the majority
of our revenues.............................................................................12
Our revenues fluctuate based on the U.S. government's spending cycle..........................13
We have experienced significant fluctuations in our operating results.........................13
The U.S. government can generally terminate, without penalty, the contracts that provide the
majority of our revenues....................................................................13
We cannot guarantee that we will continue to successfully obtain contracts through the U.S.
government's bidding process................................................................14
We may not attract, motivate and retain key executives and employees .........................14
We may not retain the consultant that coordinates our marketing efforts directed at the U.S.
government..................................................................................14
Our private sector revenues are highly vulnerable to changes in spending priorities in the
defense and aerospace industries............................................................15
We derive a substantial portion of our revenues from short-term contracts.....................15
Fixed price contracts may adversely affect our profitability..................................15
We may not manage effectively the challenges presented by our rapid growth....................15
We face potential competition from the in-house capabilities of certain customers.............15
We face potential competition from new document conversion outsourcing businesses because of
the relatively low costs of entry...........................................................16
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Our engineering and precision machining services may expose us to product liability...........16
Certain of our services utilize processes and software that may not be protected by trade
secret laws.................................................................................16
Certain of our services depend on technology licensed from third parties......................16
New technologies could render certain of our services obsolete or unmarketable................17
Our officers, directors and significant shareholders have the power to influence the election
of directors and the passage of shareholder proposals because they collectively hold a
substantial number of common shares.........................................................17
We may be subject to liability for unauthorized disclosures of confidential information.......17
Our common shares may be subject to wide fluctations in value and limited trading volume......17
Our shares of common stock will be considered "penny stock" and therefore subject to
additional SEC regulations, which may make it more difficult to sell these shares............17
Future sales of our common stock in the public market may affect adversely the price of our
common stock and our ability to raise additional funds through equity issuances.............18
We do not pay dividends on our common shares..................................................18
Your investment in our common stock is subject to currency exchange rate risk.................19
We may be exposed to unanticipated year 2000 problems.........................................19
We may be exposed to our customers' year 2000 problems........................................19
We may be exposed to our suppliers' year 2000 problems........................................19
THE ANNUAL AND SPECIAL MEETING..................................................................................20
Proposals to be Voted on at the Annual and Special Meeting.............................................20
Record Date; Voting Rights.............................................................................21
Quorum; Vote Required for Adoption.....................................................................21
Proxies ..............................................................................................22
General.......................................................................................22
Revocation....................................................................................23
Validity......................................................................................23
Solicitation of Proxies.......................................................................23
PARTICULARS OF MATTERS TO BE ACTED UPON.........................................................................24
PROPOSAL ONE--FIXING THE NUMBER OF DIRECTORS....................................................................24
Fixing Number of Directors.............................................................................24
Vote Required..........................................................................................24
PROPOSAL TWO--ELECTION OF DIRECTORS.............................................................................25
Information Regarding Director Nominees................................................................25
Board of Directors.....................................................................................27
Board Meetings and Committees..........................................................................27
Compensation of the Existing Alberta Corporation's Directors...........................................27
Board of Directors Interlocks and Insider Participation................................................27
Compiance with Section 16(a) of the Securities Exchange Act of 1934....................................27
Vote Required..........................................................................................27
PROPOSAL THREE--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.............................................29
General ..............................................................................................29
Vote Required..........................................................................................29
PROPOSAL FOUR--AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS......................................................30
General ..............................................................................................30
The Proposed Resolution................................................................................30
Vote Required..........................................................................................31
PROPOSAL FIVE--DOMESTICATION INTO THE STATE OF DELAWARE.........................................................32
General ..............................................................................................32
Principal Reasons for the Delaware Domestication.......................................................33
Simplification of Corporate Structure.........................................................33
Commercial Advantage..........................................................................33
No Business Reason to Remain Domiciled in Canada..............................................33
Reduction of Canadian Tax and Regulatory Obligations..........................................33
Advantages of Delaware Law....................................................................33
Change in Par Value of Equity Securities...............................................................34
Board of Directors has Discretion to Effect Delaware Domestication.....................................34
Corporate Governance Differences; Delaware and Alberta Law Comparisons.................................34
Shareholder Quorum...................................................................34
Supermajority........................................................................34
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Required Approvals of Shareholders...................................................35
Examination of Corporate Records.....................................................35
Minority (Dissenter's) Rights........................................................35
Disqualification of Directors........................................................36
Personal Liability of Directors......................................................36
Indemnification......................................................................37
Cumulative Voting for the Election of Directors......................................37
Loans to Officers and Employees......................................................38
Dividends and Repurchases of Shares..................................................38
Interested Director Transactions.....................................................38
Anti-Takeover Effects................................................................38
Regulatory Approval....................................................................................41
Tax Considerations.....................................................................................41
Canadian Federal Income Tax Considerations....................................................41
United States Federal Income Tax Considerations...............................................44
Right Of Dissent.......................................................................................47
General.......................................................................................47
Fair Market Valuation.........................................................................47
Valuation by Application to Court.............................................................47
Restrictions on Right of Dissent..............................................................47
Action Required to Exercise Right of Dissent..................................................48
Rights of Dissenting Shareholders.............................................................48
Securities Law Consequences............................................................................49
United States Securities Law Consequences.....................................................49
Canadian Securities Law Consequences..........................................................49
Exchange of Share Certificates.........................................................................49
The Delaware Domestication Resolution..................................................................49
Vote Required..........................................................................................51
PROPOSAL SIX--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS
TO REQUIRE ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS....................................52
General ..............................................................................................52
Reasons for Stockholder Approval.......................................................................53
Potential Anti-Takeover Effects........................................................................53
The Proposed Amendments................................................................................53
Vote Required..........................................................................................55
PROPOSAL SEVEN--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO PROHIBIT
STOCKHOLDERS FROM CALLING SPECIAL MEETINGS OF THE STOCKHOLDERS.........................................56
General ..............................................................................................56
Reasons for Stockholder Approval.......................................................................56
Potential Anti-Takeover Effects........................................................................56
The Proposed Amendments................................................................................57
Vote Required..........................................................................................57
PROPOSAL EIGHT--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION TO ELIMINATE
ACTIONS OF THE STOCKHOLDERS BY WRITTEN CONSENT WITHOUT A MEETING.......................................58
General ..............................................................................................58
Reasons for Stockholder Approval.......................................................................58
Potential Anti-Takeover Effects........................................................................58
The Proposed Amendment.................................................................................59
Vote Required..........................................................................................59
PROPOSAL NINE--AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS TO
REQUIRE A SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE NEW DELAWARE CORPORATION'S CERTIFICATE
OF INCORPORATION AND BYLAWS............................................................................60
General ..............................................................................................60
Reasons for Stockholder Approval.......................................................................60
Potential Anti-Takeover Effects........................................................................60
The Proposed Amendments................................................................................61
Vote Required..........................................................................................61
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PROPOSAL TEN--APPROVAL OF FORM INDEMNIFICATION AGREEMENT........................................................62
General ..............................................................................................62
Terms of the Indemnification Agreements................................................................63
Reasons For Shareholder Approval.......................................................................63
Vote Required..........................................................................................63
ANTI-TAKEOVER MEASURES CURRENTLY INCLUDED IN THE NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION
AND BYLAWS.............................................................................................64
Blank Check Preferred Stock............................................................................64
Section 203 of the General Corporation Law of the State of Delaware....................................64
No Cumulative Voting...................................................................................65
DESCRIPTION OF CAPITAL STOCK....................................................................................66
Common Stock...........................................................................................66
Preferred Stock........................................................................................66
Dividends and Liquidation Preference..........................................................66
Conversion Right..............................................................................67
Cancellation of Preferred Stock...............................................................67
Change of Control Provisions...........................................................................67
Blank Check Preferred Stock...................................................................67
Increased Stockholder Vote for Amendment of Certificate of Incorporation or Bylaws............67
Proposal Six -- Advance Notice of Stockholder Nominations and Proposals.......................68
Proposal Seven -- Elimination of the Ability of Stockholders to Call a Special Meeting.......68
Proposal Eight -- Stockholders Cannot Take Action by Written Consent..........................68
Proposal Nine -- Increased Stockholder Vote for Amendment of the Certain Provisions of the
Certificate of Incorporation and Bylaws.....................................................68
Section 203 of General Corporation Law of the State of Delaware...............................68
Transfer Agent and Registrar...........................................................................69
Disclosure of SEC Position on Indemnification for Securities Act Liabilities...........................69
BUSINESS .......................................................................................................70
Overview ..............................................................................................70
Corporate History......................................................................................70
Services ..............................................................................................71
Document Imaging and Conversion Services......................................................71
Engineering and Manufacturing Services........................................................72
Sales and Marketing....................................................................................73
ADCS Program and Government Contracts..................................................................74
ADCS Program..................................................................................74
Intergraph Contracts..........................................................................74
General Services Administration Contract......................................................74
Competition............................................................................................75
Customers..............................................................................................75
Proprietary Rights.....................................................................................75
Employees..............................................................................................75
Acquisition............................................................................................76
Facilities............................................................................................ 76
Legal Proceedings......................................................................................76
MARKET FOR THE EXISTING ALBERTA CORPORATION'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.....................78
Market Price Information...............................................................................78
Holders ..............................................................................................78
Dividend Policy........................................................................................78
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................79
Overview ..............................................................................................79
Results of Operations..................................................................................80
Three Months Ended March 31, 1999 Compared with Three Months Ended
March 31, 1998..............................................................................80
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997................................81
Liquidity and Capital Resources........................................................................83
Year 2000 Compliance...................................................................................83
Internal Year 2000 Readiness..................................................................84
Year 2000 Readiness of our Suppliers and Customers............................................84
Change In Accountants..................................................................................84
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..................................................85
MANAGEMENT......................................................................................................88
EXECUTIVE COMPENSATION..........................................................................................90
Summary Compensation...................................................................................90
Stock Option Plan......................................................................................91
Stock Options Granted In The Year Ended December 31, 1998..............................................92
Common Shares Underlying Unexercised Options and Option Values.........................................93
Employment Agreements..................................................................................93
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................................94
Consulting Arrangement with Capstone National Partners, LLC............................................94
Indebtedness of Directors, Executive Officers, Senior Management and Significant Shareholders..........94
Restructuring of Notes........................................................................94
Variable Accounting Treatment.................................................................95
Indebtedness of the Existing Alberta Corporation to its Directors, Officers, and Significant
Shareholders..................................................................................95
Indebtedness to Directors and Officers........................................................95
Indebtedness to Significant Shareholder.......................................................96
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON........................................................96
Indemnification........................................................................................96
INTEREST OF NAMED EXPERTS AND COUNSEL...........................................................................96
LEGAL MATTERS...................................................................................................96
TAX MATTERS.....................................................................................................97
EXPERTS.........................................................................................................97
AVAILABLE INFORMATION...........................................................................................97
OTHER MATTERS...................................................................................................97
SHAREHOLDER PROPOSALS...........................................................................................97
APPROVAL OF DIRECTORS...........................................................................................97
CERTIFICATE OF TOMAHAWK CORPORATION.............................................................................98
TOMAHAWK CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ...............................................F-1
APPENDIX I.....................................................................................................A-1
APPENDIX II....................................................................................................B-1
APPENDIX III...................................................................................................C-1
APPENDIX IV....................................................................................................D-1
</TABLE>
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PROXY STATEMENT AND INFORMATION CIRCULAR
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
The information presented in this Proxy Statement and Information
Circular includes certain "forward-looking statements." You should not rely
excessively on these forward-looking statements, because they are only
predictions based on our current expectations and assumptions. Forward-looking
statements often contain words like "estimate," "anticipate," "believe" or
"expect." Many known and unknown risks and uncertainties, including those
described under the headings "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (and elsewhere in
this Proxy Statement and Information Circular) could cause our actual results to
differ materially from those indicated in these forward-looking statements. For
example, the U.S. Internal Revenue Service or the Canadian Department of
National Revenue, Customs, Excise and Taxation may not agree with the
conclusions reached by our tax advisors regarding the tax consequences of the
Delaware domestication for our shareholders, resulting in different tax
consequences than are discussed in this Proxy Statement and Information
Circular.
You should review carefully the risks and uncertainties identified in
this Proxy Statement and Information Circular, including the risk factors
beginning on page 10. We have no obligation to update or announce revisions to
any forward-looking statements to reflect actual events or developments. All
future written and oral forward-looking statements made by us or by persons
acting on our behalf are expressly qualified in their entirety by this notice.
WHILE WE INCLUDE FORWARD-LOOKING STATEMENTS FOR THE NEW DELAWARE
CORPORATION OF WHICH YOU SHOULD BE AWARE, PLEASE NOTE THAT THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT PROVIDED IN SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934 ARE NOT AVAILABLE TO THE NEW DELAWARE CORPORATION AS A NEW ISSUER.
TRADEMARKS
TomaHawk-TM- and TomaHawk II-TM- are trademarks of the existing Alberta
corporation. All other trademarks and registered trademarks used in this
Prospectus and Information Circular are the property of their respective owners.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY STATEMENT
AND INFORMATION CIRCULAR. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT AND
INFORMATION CIRCULAR, INCLUDING ITS APPENDICES, TO UNDERSTAND THE DELAWARE
DOMESTICATION MORE FULLY, AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS
OF THE DELAWARE DOMESTICATION.
RISK FACTORS
YOU SHOULD REVIEW AND CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON
PAGE 10, ESPECIALLY THOSE RISKS RELATING TO THE DELAWARE DOMESTICATION AND
RELATED TAX CONSEQUENCES.
GENERAL INFORMATION ABOUT THE DELAWARE DOMESTICATION
We propose to change our jurisdiction of incorporation from the Province
of Alberta, Canada to the State of Delaware, U.S.A. This change is referred to
as a "domestication." After the Delaware domestication, we will become a new
Delaware corporation called TomaHawk Engineering, Inc. Our board of directors
recommends that you vote "FOR" the domestication. Please note the following
issues concerning the Delaware domestication:
- If the shareholders approve the Delaware domestication, then,
prior to effecting the Delaware domestication, we will conduct a
one-for-fifteen consolidation of our common shares;
- As a result of the Delaware domestication, you will become a
stockholder of the new Delaware corporation;
- Until the anticipated merger of the new Delaware corporation and
its wholly-owned operating subsidiary TomaHawk II, Inc., the new
Delaware corporation will continue to act as the parent holding
company for TomaHawk II, Inc., which will continue to engage in
the same business in which it currently engages;
- As a stockholder of the new Delaware corporation, your relative
voting rights and ownership interest will be substantially
similar to the rights and interests that you currently have as a
shareholder of the existing Alberta corporation; and
- As a stockholder of the new Delaware corporation, your shares of
common stock will continue to be listed on The Alberta Stock
Exchange.
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THE ANNUAL AND SPECIAL MEETING; VOTING; PROXIES
PROPOSALS TO BE VOTED ON AT THE ANNUAL AND SPECIAL MEETING. We will
hold the annual and special meeting of our shareholders at 10:00 a.m., San Diego
time, on ______________, 1999 at 8315 Century Park Court, Suite 200, San
Diego, California. At the annual and special meeting, we will ask that you:
- receive and consider our consolidated financial statements for
the year ended December 31, 1998 and the auditors' report
thereon; and
- consider and vote on the following proposals:
1. To fix the number of directors to be elected at the annual
and special meeting at four;
2. To elect four directors;
3. To appoint the independent auditors of TomaHawk
Corporation and to authorize our directors to fix their
remuneration as our independent auditors;
4. To consider, and, if deemed advisable by our
shareholders, to pass an ordinary resolution
authorizing the issuance, in one or more private
placements, of a number of securities that could result
in TomaHawk Corporation issuing, during the next 12
months, a number of securities that exceeds 25% but is
not greater than 100% of the issued and outstanding
securities, subject to the restrictions described in
this Proxy Statement and Information Circular;
5. To approve TomaHawk Corporation's change in
jurisdiction of incorporation from the Province of
Alberta, Canada to the State of Delaware, U.S.A. and to
make certain other amendments to our articles of
incorporation and bylaws regarding the domestication
into Delaware. See "Proposal Five--Domestication into
the State of Delaware."
If the domestication into Delaware is approved, then we will adjourn the
annual and special meeting, effect a one-for-fifteen consolidation of the common
shares, and complete the Delaware domestication. After we have completed the
Delaware domestication, we will reconvene the annual and special meeting, and
request that you vote on the following five proposals relating to the new
Delaware corporation:
6. To require advance notice of stockholder nominations
and proposals;
7. To prevent the stockholders from calling special
meetings of the stockholders;
8. To prohibit stockholder action by written consent;
9. To require a supermajority vote to amend certain
provisions of the new Delaware corporation's
certificate of incorporation and bylaws; and
10. To approve the adoption of a form indemnification
agreement for the new Delaware corporation's directors
and executive officers.
VOTING. You can vote at the annual and special meeting if you own any
common shares or Class A Series III Preferred Shares of TomaHawk Corporation at
the close of business on ____________, 1999, also known as the record date.
For Proposal Five, you are entitled to one vote for each common
3
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share and one vote for each Class A Series III Preferred Share that you hold on
the record date. The holders of common shares and Class A Series III Preferred
Shares will vote as a single class on Proposal Five. THE HOLDERS OF CLASS A
SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSALS ONE THROUGH FOUR AND SIX
THROUGH NINE. You may vote your shares in person by attending the annual and
special meeting or by mailing, faxing or delivering your proxy to our president,
Steven M. Caira, c/o CIBC Mellon Trust Company, 600 Dome Tower, 333 - 7th Avenue
S.W., Calgary, Alberta T2P 2Z1, not later than 10:00 a.m. (San Diego time) on
______________, 1999, or by the close of business on the last business day
before any adjournment of the annual and special meeting.
At the annual and special meeting, with respect to Proposals One through
Five, we will not consider abstentions and broker "non-votes" for purposes of
obtaining a quorum or in determining whether Proposal Five passes. Approval of
Proposals One through Four requires the affirmative vote of the holders of a
majority of the common shares represented and voting at the annual and special
meeting. Approval of Proposal Five requires the affirmative vote of the holders
of 66 2/3% of the common shares and Class A Series III Preferred Shares, voting
as one class, represented and voting at the annual and special meeting.
With respect to Proposals Six through Nine, we will consider abstentions
and broker "non-votes" as "present" for purposes of obtaining a quorum but will
not count them as votes cast in determining whether Proposals Six through Nine
pass. Approval of Proposals Six through Nine requires the affirmative vote of a
majority of the holders of shares of common stock represented and voting at the
annual and special meeting. Therefore, abstentions and broker "non-votes" will
have the same effect as votes cast against each of Proposals Six through Nine.
We will consider abstentions as "present" for purposes of obtaining a
quorum but will not count them as votes cast in determining whether Proposal Ten
passes. Approval of Proposal Ten requires the affirmative vote of a majority of
the votes present or represented by proxy and entitled to vote on this subject
matter at the meeting and held by disinterested stockholders. Since each
director and each executive officer is an interested party with respect to this
matter, shares owned directly or indirectly by any director or executive officer
may not be voted on this proposal although they will be counted for purposes of
determining whether a quorum is present. Broker non-votes will not be treated
as entitled to vote on this subject matter at the meeting. See "The Annual and
Special Meeting--Record Date; Voting Rights" and "--Quorum; Vote Required for
Adoption."
PROXIES. Our board of directors is soliciting from you the accompanying
proxy. You may grant a proxy to vote for or against the proposal to approve the
Delaware domestication and each of the proposals related to the new Delaware
corporation. For a proxy to be effective, our president must receive the proxy
not later than 10:00 a.m. (San Diego time) on ______________, 1999, or by
the close of business on the last business day before any adjournment of the
annual and special meeting. Your properly executed proxy will determine how
your common shares or Class A Series III Preferred Shares will be voted. You
should be aware that, if you properly execute your proxy card without indicating
how you want to vote, then your shares will be voted "FOR" the proposal to
approve the Delaware domestication and each of the proposals related to the new
Delaware corporation.
You may revoke a proxy at any time before its exercise by following the
proxy revocation instructions described under the section entitled "The Annual
and Special Meeting--Proxies--Revocation." If your shares are held in the name
of a bank, broker or other nominee, then you should follow the instructions
provided by the bank, broker or other nominee on voting your shares and in
revoking your previously voted shares. See "The Annual and Special
Meeting--Proxies."
4
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THE EXISTING ALBERTA CORPORATION
TomaHawk Corporation currently is incorporated under the laws of the
Province of Alberta, Canada. The existing Alberta corporation is the parent
holding company of TomaHawk II, Inc., an Illinois corporation. TomaHawk II,
Inc. provides document imaging and conversion services, engineering design and
manufacturing services to both the U.S. federal government and commercial
customers.
The existing Alberta corporation manages its day-to-day activities from
the principal executive offices of TomaHawk II, Inc., located at 8315 Century
Park Court, Suite 200, San Diego, California 92123. Our telephone number is
(619) 874-7692, and our Internet address is http://www.tomahawk.com.
TomaHawk Corporation is a small business issuer as defined by
Regulation S-B under the Securities Act.
MORE DETAILS ABOUT THE DELAWARE DOMESTICATION
BOARD OF DIRECTORS RECOMMENDATION. Our board of directors has approved
unanimously the Delaware domestication and the proposals related to the new
Delaware corporation, and recommends that you vote "FOR" the approval of the
Delaware domestication and these other proposals.
In determining to recommend the Delaware domestication, our board of
directors consulted with the existing Alberta corporation's management, who
reported to the directors on their consultation with our financial advisors and
tax advisors, and considered various factors, including those described below
under the sections entitled "--Reasons for the Delaware Domestication,"
"Proposal Five--Domestication into the State of Delaware--Certain United States
Federal Income Tax Considerations" and "--Certain Canadian Federal Income Tax
Considerations."
REASONS FOR THE DELAWARE DOMESTICATION. Because the focus of our
operations and business is in the United States, our board of directors believes
that it is preferable to be governed by the laws of a state of the United
States. In addition, our board of directors recommends the Delaware
domestication for the following reasons:
- Our board of directors believes that our current corporate
structure is unnecessarily complicated, and that it is in our
best interests to consolidate our corporate structure into one
Delaware corporation. Alberta corporate law does not permit an
Alberta corporation to merge with corporations incorporated
outside of Alberta. The Delaware domestication will allow us to
merge with TomaHawk II, Inc. in the future;
- Our board of directors believes that we will gain a commercial
advantage by domesticating into Delaware because certain
potential customers may desire to work exclusively with U.S.
companies;
- Our board of directors believes that there is no business reason
for our continued incorporation in Canada, given that we have no
facilities, employees or operations in Canada, and most of our
shareholders and customers are in the United States;
- Our board of directors believes that by domesticating into
Delaware, we will reduce our Canadian corporate tax and reporting
obligations; and
- The State of Delaware has adopted comprehensive, modern and
flexible corporate laws, and its courts have developed
considerable expertise in dealing with corporate issues,
developing a substantial body of case law and establishing public
policies with respect to Delaware corporations. Our board of
directors therefore believes that domesticating into Delaware is
in our best interests and the best interests of our shareholders.
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<PAGE>
See "Proposal Five--Domestication into the State of Delaware--Principal Reasons
for the Delaware Domestication."
CONDITIONS TO CONSUMMATION OF THE DELAWARE DOMESTICATION. Holders of 66
2/3% of the common shares and Class A Series III Preferred Shares, voting
together as a single class, present or represented by proxy and voting at the
annual and special meeting must approve the Delaware domestication. Our board
of directors may choose, however, not to complete the Delaware domestication for
any reason, including the following:
- If the Delaware domestication results in an unreasonably high tax
liability for the existing Alberta corporation (see "Proposal
Five--Domestication into the State of Delaware--Tax
Considerations--Canadian Federal Income Tax
Considerations--Canadian Federal Income Tax Consequences to the
Existing Alberta Corporation");
- If a significant number of the shareholders exercise their right
of dissent; or
- If any other circumstance arises that convinces our board of
directors that the Delaware domestication would not be in the
best interests of our company and our shareholders.
ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION. If the shareholders approve
the Delaware domestication, then, before completing the Delaware domestication,
subject to approval by The Alberta Stock Exchange, we will effect a
one-for-fifteen consolidation of the common shares and corresponding name change
of the existing Alberta corporation whereby TomaHawk Corporation will be renamed
TomaHawk Engineering, Inc. Our shareholders authorized this common share
consolidation and name change on September 22, 1998.
EFFECTIVE TIME OF THE DELAWARE DOMESTICATION. The Delaware
domestication will become effective as soon as the appropriate Certificate of
Domestication is filed with the Secretary of State of the State of Delaware. If
the shareholders approve the Delaware domestication, then we intend to adjourn
the annual and special meeting for a short period to enable us to file the
necessary documents with the Secretary of State of the State of Delaware to
effect the Delaware domestication.
EXCHANGE OF SHARE CERTIFICATES. If the Delaware domestication is
completed and you have not exercised your right of dissent, then your common
shares automatically will convert into shares of common stock and your Class A
Series III Preferred Shares automatically will convert into shares of Class A
Preferred Stock of the new Delaware corporation at the effective time of the
Delaware domestication. Following the Delaware domestication, we will issue to
you certificates bearing the name of the new Delaware corporation upon your
surrender to us of certificates representing the existing common shares and
Class A Series III Preferred Shares for transfer or exchange. See "Proposal
Five--Domestication into the State of Delaware--Exchange of Share Certificates."
COMPARISON OF RIGHTS OF SHAREHOLDERS
The principal attributes of the common shares of the existing Alberta
corporation and the common stock of the new Delaware corporation will be
similar. However, certain differences exist concerning the rights of
shareholders under Alberta corporate law and Delaware corporate law. In
addition, certain differences exist among the existing Alberta corporation's
articles of incorporation and bylaws and the new Delaware corporation's
certificate of incorporation and bylaws. See "Proposal Five--Domestication into
the State of Delaware--Corporate Governance Differences; Delaware and Alberta
Law Comparisons."
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TAX CONSIDERATIONS
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. This section briefly
summarizes the opinion of our Canadian tax advisors, the Ernst & Young LLP
International member firm in Canada, regarding the Canadian federal income tax
consequences of the Delaware domestication. YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES. See "Proposal
Five--Domestication into the State of Delaware--Tax Considerations--Canadian
Federal Income Tax Considerations."
For Canadian federal income tax purposes, the existing Alberta
corporation will be deemed to have disposed of all of its assets on the
effective date of the Delaware domestication for an amount equal to the fair
market value of these assets. If these deemed proceeds exceed the cost or
adjusted cost base of the existing Alberta corporation's assets, then the
excess, or three-fourths of the excess in the case of a capital property, will
be included in income on that date. To the extent these amounts exceed any
deductions otherwise available, then the existing Alberta corporation will incur
a tax liability in Canada. In addition, the Delaware domestication will subject
the existing Alberta corporation to a special exit tax on the difference between
the aggregate fair market value of the assets and the aggregate of the
liabilities and paid-up capital of the shares of the existing Alberta
corporation immediately before the Delaware domestication is completed. See
"Proposal Five--Domestication into the State of Delaware--Tax
Considerations--Canadian Federal Income Tax Considerations--Canadian Federal
Income Tax Consequences to the Existing Alberta Corporation."
Your Canadian federal income tax consequences from the Delaware
domestication will vary depending on whether you are an individual, corporation,
resident or non-resident of Canada, and on whether or not you dissent with
respect to the Delaware domestication. See "Proposal Five--Domestication into
the State of Delaware--Tax Considerations--Canadian Federal Income Tax
Considerations." If you do not dissent with respect to the Delaware
domestication, then you generally will not be considered to have disposed of
your common shares, and you should not have any immediate Canadian tax
consequences. If you dissent with respect to the Delaware domestication and if
you require the existing Alberta corporation to purchase for cash your common
shares, then you generally will be considered to have received a dividend on the
redemption of your common shares, and you may incur Canadian tax liability. See
"Proposal Five--Domestication into the State of Delaware--Tax
Considerations--Canadian Federal Income Tax Considerations."
The one-for-fifteen consolidation of the common shares of the existing
Alberta corporation will be considered a disposition for Canadian federal income
tax purposes; however, the disposition occurs at your adjusted cost base, and,
therefore, you will not recognize any capital gain or loss as a result of the
consolidation. The consolidation will result in a proportional adjustment to
the adjusted cost base of the reduced number of common shares held by each
shareholder.
U.S. FEDERAL INCOME TAX CONSIDERATIONS. This section briefly summarizes
the opinion of our U.S. tax advisors, Ernst & Young LLP, regarding the U.S.
federal income tax consequences of the Delaware domestication. This discussion
does not address certain U.S. federal income tax consequences applicable to U.S.
Shareholders that owned or own (directly or indirectly) 10% or more of the
voting power of the existing Alberta corporation at any time during the five
year period ending on the date that the Delaware domestication is completed. YOU
SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR
CIRCUMSTANCES. See "Proposal Five--Domestication into the State of
Delaware--Tax Considerations--United States Federal Income Tax Considerations."
The Delaware domestication will constitute a tax-free reorganization
under the U.S. Internal Revenue Code of 1986. As a result, the existing Alberta
corporation will not have any immediate U.S. federal tax consequences. See
"Proposal Five--Domestication into the State of Delaware--Tax
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Considerations--United States Federal Income Tax Considerations--U.S. Federal
Income Tax Consequences to the Existing Alberta Corporation."
Your U.S. tax consequences from the Delaware domestication will vary
depending on whether you are a resident or non-resident of the United States,
and on whether or not you dissent with respect to the Delaware domestication.
See "Proposal Five--Domestication into the State of Delaware--Tax
Considerations--United States Federal Income Tax Considerations." If you do not
reside in the United States, and if you do not dissent with respect to the
Delaware domestication, then you will not recognize any gain or loss from the
Delaware domestication. If you do reside within the United States, then you
likely will not recognize any gain or loss from the Delaware domestication. See
"Proposal Five--Domestication into the State of Delaware--Tax
Considerations--United States Federal Income Tax Considerations--Residents of
the United States--Non-Dissenting Shareholders." If you are subject to U.S.
federal income tax and if you dissent with respect to the Delaware
domestication, then any cash that you receive in payment for your shares of the
existing Alberta corporation will be treated as cash received to redeem your
common shares. As a result, you may have to recognize capital gain or loss or
ordinary income as a result of the Delaware domestication.
The one-for-fifteen consolidation of the common shares will not be
considered a disposition for U.S. tax purposes. You therefore will not realize
any capital gain or loss as a result of the common share consolidation.
DISSENTER'S RIGHTS
If you choose to vote against the Delaware domestication and the
Delaware domestication is consummated, then, under Alberta corporate law, you
may exercise dissenter's rights and have the existing Alberta corporation pay to
you in cash the fair value of your common shares. IF YOU FAIL TO COMPLY
STRICTLY WITH THE REQUIREMENTS OF THE BUSINESS CORPORATIONS ACT (ALBERTA), THEN
YOU MAY LOSE YOUR RIGHT OF DISSENT. ACCORDINGLY, IF YOU WISH TO DEMAND
DISSENTER'S RIGHTS, THEN WE URGE YOU TO READ CAREFULLY "PROPOSAL
FIVE--DOMESTICATION INTO THE STATE OF DELAWARE--RIGHT OF DISSENT" AND THE COPY
OF SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA) SHOWN IN APPENDIX I TO
THIS PROXY STATEMENT AND INFORMATION CIRCULAR.
REGULATORY APPROVAL
The existing Alberta corporation will apply to the Registrar of
Corporations for the Province of Alberta for permission to domesticate our
company into the State of Delaware. We must obtain this approval for the
Delaware domestication to take place. We also must file a Certificate of
Domestication with the Secretary of State of the State of Delaware. There are
no other regulatory approvals necessary for consummation of the Delaware
domestication.
SECURITY OWNERSHIP OF COMPANY MANAGEMENT
As of May 31, 1999, the directors and executive officers of the existing
Alberta corporation and its subsidiary TomaHawk II, Inc. beneficially owned
common shares representing approximately 24.2% of the total outstanding common
shares. See "Security Ownership of Certain Beneficial Owners and Management."
MARKET INFORMATION
Our common shares are quoted on The Alberta Stock Exchange under the
trading symbol "TKC." After the Delaware domestication is completed, our shares
of common stock will be quoted on The
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<PAGE>
Alberta Stock Exchange under the trading symbol "THK." On May 31, 1999, the
closing price of our common shares was Cdn. $0.20 (US $0.14).
The following table sets forth the high and low closing prices of our
common shares in Canadian dollars as reported by The Alberta Stock Exchange for
the calendar period indicated. The high and low closing prices also are listed
in U.S. dollars (based on the currency exchange rate on the date the listed
price was reported on The Alberta Stock Exchange). The prices below represent
prices between dealers, without adjustment for retail mark-ups, mark-downs or
commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
CLOSING PRICES
--------------------------------------------------------------------
HIGH LOW
-------------------------------- ---------------------------------
<S> <C> <C>
1999
First Quarter Cdn. $0.35 (US $0.23) Cdn. $0.22 (US $0.15)
1998
Fourth Quarter Cdn. $0.40 (US $0.26) Cdn. $0.25 (US $0.16)
Third Quarter Cdn. $0.47 (US $0.31) Cdn. $0.28 (US $0.18)
Second Quarter Cdn. $0.56 (US $0.39) Cdn. $0.20 (US $0.14)
First Quarter Cdn. $0.34 (US $0.24) Cdn. $0.23 (US $0.16)
1997
Fourth Quarter Cdn. $0.30 (US $0.22) Cdn. $0.20 (US $0.14)
Third Quarter Cdn. $0.34 (US $0.24) Cdn. $0.17 (US $0.12)
Second Quarter Cdn. $0.27 (US $0.19) Cdn. $0.16 (US $0.12)
First Quarter Cdn. $0.35 (US $0.26) Cdn. $0.21 (US $0.15)
</TABLE>
The existing Alberta corporation has never declared a cash dividend on
its common shares.
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<PAGE>
RISK FACTORS
You should evaluate carefully all of the information contained and
incorporated by reference in this Proxy Statement and Information Circular and,
in particular, the following risk factors. References below to the existing
Alberta corporation include its subsidiary, TomaHawk II, Inc.
RISK FACTORS RELATING TO THE DELAWARE DOMESTICATION
WE MAY BE SUBJECT TO CANADIAN FEDERAL INCOME TAX LIABILITY AS A RESULT
OF THE DELAWARE DOMESTICATION.
Upon the completion of the Delaware domestication, the existing Alberta
corporation will be deemed under Canadian tax law to dispose of all of its
assets for an amount equal to the fair market value of these assets on the
effective date of the Delaware domestication. If the deemed proceeds exceed the
cost or adjusted cost base of the existing Alberta corporation's assets on that
date, then the existing Alberta corporation will be required to include the
excess, or three-quarters of the excess in the case of capital property, as
income for Canadian tax purposes. To the extent that the amount included in
income is not offset by available deductions, it will be subject to Canadian tax
at an effective rate of 39%. In addition, completing the Delaware domestication
will require us to pay a special 5% exit tax on the difference between the
aggregate fair market value of our assets and the aggregate amount of our
liabilities immediately before the Delaware domestication is completed and the
paid-up capital of the common shares. We have not applied to the Canadian tax
authorities for a ruling on these matters. We anticipate that we will owe a
certain amount of Canadian federal taxes based on certain valuations and
positions. However, the Canadian federal tax authorities might not accept our
valuations or positions and could claim that we owe additional taxes as a result
of this transaction. See "Proposal Five--Domestication into the State of
Delaware--Tax Considerations--Canadian Federal Income Tax Considerations."
HOLDERS OF COMMON SHARES IN CANADIAN REGISTERED RETIREMENT SAVINGS PLANS
MAY BE SUBJECT TO CANADIAN FEDERAL INCOME TAX LIABILITY.
If the Delaware domestication is completed, then the new Delaware
corporation's shares will constitute "foreign property" for purposes of deferred
income plans such as registered retirement savings plans. The conversion of the
common shares to "foreign property" may cause certain deferred income plans
holding common shares to exceed their foreign property limits. If the Delaware
domestication causes your registered retirement savings plan to exceed its
foreign property limit, then your registered retirement savings plan may be
subject to certain penalties assessed by the Canadian Department of National
Revenue, Customs, Excise and Taxation, and you may be forced to sell all or a
portion of your shares of the new Delaware corporation. We cannot guarantee the
price that you will receive from these sales. See "Proposal Five--Domestication
into the State of Delaware--Tax Considerations--Canadian Federal Income Tax
Considerations--Residents of Canada--Non-Dissenting Shareholders."
THE DELAWARE DOMESTICATION WILL AFFECT YOUR RIGHTS AS A SHAREHOLDER.
After the Delaware domestication, you will become a stockholder of the
new Delaware corporation. Currently, we are incorporated in Alberta, Canada and
governed by Alberta corporate law and our current articles of incorporation and
bylaws. After the Delaware domestication, we will be incorporated in the State
of Delaware, U.S.A. and governed by Delaware corporate law and a new certificate
of incorporation and bylaws. There are certain differences in corporate law and
shareholder rights between the two jurisdictions that could affect adversely the
rights that you currently enjoy as a shareholder of the existing Alberta
corporation. These differences are summarized below, but you should
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<PAGE>
read the section "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta Law
Comparisons" for a more complete description of these differences:
- CERTAIN PROVISIONS OF DELAWARE CORPORATE LAW MAY DETER TAKEOVER
ATTEMPTS. Delaware corporate law prohibits a Delaware
corporation from engaging in any business combination with any
interested stockholder for a period of three years from the time
when the person became an interested stockholder unless certain
conditions are met. This prohibition could delay or make more
difficult a merger, tender offer or proxy contest involving the
new Delaware corporation, and could limit the price that certain
investors might be willing to pay in the future for shares of the
new Delaware corporation's common stock. There is no comparable
provision under Alberta corporate law. See "Description of
Capital Stock--Change of Control Provisions."
- UNDER DELAWARE CORPORATE LAW, CERTAIN EXTRAORDINARY TRANSACTIONS
REQUIRE THE APPROVAL OF ONLY A SIMPLE MAJORITY OF STOCKHOLDERS.
Alberta corporate law requires that certain extraordinary
transactions, such as mergers, sales of substantially all of a
corporation's assets or change in a corporation's domicile, be
approved by a two-thirds majority of the shares voting at a
shareholders meeting. The simple majority vote requirement in
Delaware could allow a group of stockholders to more easily
approve a transaction to the detriment of minority stockholders.
See "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta
Law Comparisons--Required Approvals of Shareholders."
- DISSENTER'S RIGHTS PROVIDED BY DELAWARE CORPORATE LAW ARE NOT AS
EXTENSIVE AS THOSE PROVIDED BY ALBERTA CORPORATE LAW, GIVEN THAT
THEY APPLY TO A NARROWER RANGE OF CORPORATE ACTION. Although the
certificate of incorporation of the new Delaware corporation will
expand dissenter's rights to mirror those provided by Alberta
corporate law, the certificate of incorporation could be amended
in the future to eliminate these additional dissenter's rights.
By approving the Delaware domestication, you may therefore agree
to forego certain dissenter's rights available to you under
Alberta corporate law. See "Proposal Five--Domestication into
the State of Delaware--Corporate Governance Differences; Delaware
and Alberta Law Comparisons--Minority (Dissenter's) Rights."
CERTAIN PROPOSED PROVISIONS OF THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS MAY DETER TAKEOVER ATTEMPTS.
The proposed amendments described in Proposals Six through Nine could
delay, defer or prevent a change in control of the new Delaware corporation and
could limit the price that certain investors might be willing to pay in the
future for shares of the new Delaware corporation's common stock. If approved,
these proposed amendments will:
- require advance stockholder notice to nominate directors and
raise matters at the annual stockholders meeting;
- prohibit stockholders from calling special meetings of
stockholders;
- eliminate the right of stockholders to act by written consent
without a meeting; and
- increase the percentage vote needed to amend the new Delaware
corporation's certificate of incorporation and bylaws.
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For a more complete description of these amendments and their potential
anti-takeover effects, see "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences, Delaware and Alberta Law
Comparisons--Anti-Takeover Effects," Proposals Six through Nine and "Description
of Capital Stock--Change of Control Provisions."
RISK FACTORS RELATING TO OUR CONTINUING OPERATIONS
If the Delaware domestication is completed, then the following risk
factors will continue to apply to the new Delaware corporation:
OUR LIMITED WORKING CAPITAL MAY PREVENT US FROM CONTINUING AS A GOING
CONCERN.
Our independent auditor's report on our December 31, 1998 financial
statements contains an explanatory paragraph which indicates that there is
substantial doubt as to our ability to continue as a going concern. As of March
31, 1999, we had a working capital deficit of $2.1 million and an accumulated
deficit of $11.3 million since our inception. We had losses of $1.6 million for
the year ended December 31, 1998, and $859,000 for the quarter ended March 31,
1999, and expect our losses to continue. Our available cash and future earnings
may not be sufficient to fund our operations and successfully implement our
business plan. We expect that we will need to obtain additional financing to
continue operations, but we might not be able to raise additional capital on
favorable terms, if at all. Unless we generate consistent positive cash flows
from operations for the immediate and foreseeable future, we may be required to
cease or substantially reduce our operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
WE WILL REQUIRE ADDITIONAL FINANCING TO CONTINUE OPERATING OUR BUSINESS.
We have limited cash resources and expect that we will need to obtain
additional debt and/or equity financing to continue operations. As of March 31,
1999 we had a negative working capital balance of $2.1 million, and the report
of our independent auditors for the year ended December 31, 1998 included a
qualification relating to our ability to continue as a going concern. (See
"--Our limited working capital may prevent us from continuing as a going
concern.") However, we might not be able to raise additional funds on favorable
terms, if at all, and any funds that we can raise may not be sufficient to allow
us to continue operations long enough to become profitable. If we cannot raise
additional capital, then our ability to continue our operations may be seriously
impaired. The operation and expansion of our precision machining, in
particular, require considerable capital expenditures. We have relied heavily
on our working capital line of credit to fund continuing operations, and expect
to continue to utilize this line of credit to the extent that cash flow does not
meet our working capital requirements. However, we are currently unable to
utilize this line of credit because as of March 31, 1999, the balance
outstanding exceeded the amount available for borrowing based on our eligible
accounts receivable by $169,000. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
WE DEPEND ON CONTRACTS FUNDED BY THE U.S. GOVERNMENT TO PROVIDE THE
MAJORITY OF OUR REVENUES.
Approximately 69.0% of our total revenues in fiscal year 1998 and 53.6%
of our total revenues in 1997, respectively, resulted from document conversion
contracts or subcontracts funded by the U.S. Department of Defense.
Accordingly, changes in government contracting policies or the U.S. Department
of Defense's funding levels or priorities may affect materially and adversely
our future revenues. Although we are trying to diversify into commercial
markets, we believe that we will continue to depend
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<PAGE>
on our ability to participate in government contract programs in the future.
Among the factors that could affect materially and adversely our government
contracting business are:
- changes in government funding priorities away from document
conversion;
- changes in government procurement practices and policies; and
- technological developments that make our services obsolete.
See "Business--ADCS Program and Government Contracts."
OUR REVENUES FLUCTUATE BASED ON THE U.S. GOVERNMENT'S SPENDING CYCLE.
Our revenues from government funded contracts and subcontracts can
fluctuate significantly from quarter to quarter. These fluctuations in the
government's spending cycle could affect materially and adversely our quarterly
performance and the price of our stock, depending on:
- the timing and amount of Congressional appropriations to the
Automated Document Conversion Systems program (see
"Business--ADCS Program and Government Contracts");
- variances between anticipated budgets and Congressional
appropriations;
- the timing and amount of allocations and contracts by each of the
armed services;
- the release of funds for awarded projects;
- any delay in accumulating the documents to be converted; and
- any changes in policy or budgetary measures that adversely affect
government contracts in general.
In addition, these fluctuations could increase significantly from
disruptions in the U.S. Department of Defense's contracting operations due to
year 2000 compliance problems. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance--Year 2000
Readiness of our Suppliers and Customers."
WE HAVE EXPERIENCED SIGNIFICANT FLUCTUATIONS IN OUR OPERATING RESULTS.
Our revenues, particularly those from contracts funded by the U.S.
Department of Defense, have been subject to significant fluctuations, and we
expect these fluctuations to continue. Our commercial backlog and new
commercial contracts currently do not provide enough revenues to offset the
effects of the fluctuation in government funded revenues on our operating
results. In addition, delays in the initiation of new commercial document
conversion projects may aggravate these fluctuations. Although we have begun to
concentrate more of our sales and marketing efforts in the commercial sector,
these efforts have not yet increased substantially our percentage of revenues
derived from private sector customers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
THE U.S. GOVERNMENT CAN GENERALLY TERMINATE, WITHOUT PENALTY, THE
CONTRACTS THAT PROVIDE THE MAJORITY OF OUR REVENUES.
Government contracts awarded to us typically contain provisions that
permit the government customer to terminate the contract on short notice, with
or without cause. In addition, government agencies generally are not obligated
to renew contracts after the completion of the initial period of
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performance. The unexpected termination of or our inability to renew one or
more significant contracts could result in severe revenue shortfalls, which,
without corresponding reductions in expenses, could negatively affect our
financial condition.
WE CANNOT GUARANTEE THAT WE WILL CONTINUE TO SUCCESSFULLY OBTAIN
CONTRACTS THROUGH THE U.S. GOVERNMENT'S BIDDING PROCESS.
To obtain contracts from U.S. government agencies, we frequently need to
participate in a competitive bidding process. We may not obtain a sufficient
number of contracts through the competitive bidding process to allow us to
become profitable. To succeed in this competitive bidding process, we must
estimate a cost structure for servicing the proposed contract, the time required
to establish operations and the likely terms of the proposals submitted by
competitors. We must assemble and submit a large volume of information on a
rigid timetable set by the awarding agency. Our proposal must be competitive
with other bids, but allow us to earn a profit on the services that we perform.
Upon expiration of the initial period of performance, contracts may be subjected
to a competitive re-bidding process. Our ability to respond successfully to the
competitive bidding process in the future will have an important impact on our
ability to obtain new contracts in the future.
WE MAY NOT ATTRACT, MOTIVATE AND RETAIN KEY EXECUTIVES AND EMPLOYEES.
Our success depends in large part on the continued service of our key
technical, marketing, sales and management personnel, and our ability to
continue to attract, motivate and retain highly qualified employees. These
personnel are in short supply, and the competition for their services is
intense. This shortage is especially true for design engineers, numerical
control programmers and experienced "Auto-CAD" drafters, which are critical to
our engineering and manufacturing services. With the exception of Steven M.
Caira, our president and chief executive officer, who has agreed to the terms of
an employment agreement, none of our key personnel has entered into employment
contracts. The loss of the services of key personnel or our failure to attract
additional qualified employees could materially and adversely affect our ability
to deliver services to our customers in a timely manner, if at all. In
addition, we have obtained contracts from certain customers due to relationships
between these customers and certain key personnel. These customers may not
continue to utilize our services at historical levels, if at all, if we lose any
these employees.
WE MAY NOT RETAIN THE CONSULTANT THAT COORDINATES OUR MARKETING EFFORTS
DIRECTED AT THE U.S. GOVERNMENT.
We have engaged marketing consultants to establish and maintain
relationships with members of Congress and government agencies and to identify
and pursue potential projects. We currently retain an outside federal marketing
consulting firm to coordinate our government marketing efforts. In 1998,
certain principals at this consulting firm played key roles in helping us
acquire contracts and subcontracts funded by the U.S. Department of Defense that
provided 69.0% of our total revenues. We currently do not have a written
contract with this consulting firm, which might not continue to provide its
marketing services to us. Our failure to continue to retain this consulting
firm could affect materially and adversely our ability to obtain contracts
funded by the U.S. government. See "Certain Relationships and Related
Transactions--Consulting Arrangement with Capstone National Partners, LLC" and
"Business--Sales and Marketing."
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OUR PRIVATE SECTOR REVENUES ARE HIGHLY VULNERABLE TO CHANGES IN SPENDING
PRIORITIES IN THE DEFENSE AND AEROSPACE INDUSTRIES.
We primarily derive our commercial revenues from a relatively small
number of customers in the aerospace and defense industries. Changes in the
business conditions or the spending priorities of these industries in general or
these customers in particular could cause a material reduction in demand for our
services. In addition, delays in the initiation of new document conversion
projects could adversely affect our quarterly operating results. We may not be
able to maintain long-term relationships with our significant commercial
customers, and we also may not be able to expand our customer base to different
industries. Downturns in the aerospace or defense industries therefore could
affect negatively our business and our ability to generate future revenues. See
"Business--Customers."
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUES FROM SHORT-TERM
CONTRACTS.
We derive a significant amount of our revenues from services provided
under short-term purchase orders in response to customer requests or on a
project-by-project basis. In addition, customers generally can terminate our
orders at any time without penalty. We anticipate that we will continue to
derive a significant amount of our revenues from these short-term purchase
orders. However, existing clients may not continue to use our services at
historical levels, if at all. Furthermore, we may not be able to obtain new
contracts, and existing or future contracts may be terminated before we have
fully completed the orders.
FIXED PRICE CONTRACTS MAY ADVERSELY AFFECT OUR PROFITABILITY.
A substantial portion of our service contracts are fixed price
contracts. Consequently, regardless of how much time or how many resources we
devote to a contract, our customer pays a fixed price that has been agreed upon
ahead of time. Failure to anticipate technical problems, to estimate costs
accurately, or to control costs during performance of a fixed price contract may
reduce our profit or cause a loss. We might not achieve the profitability we
expect under our fixed price contracts, and may in fact incur losses on fixed
price contracts in the future.
WE MAY NOT MANAGE EFFECTIVELY THE CHALLENGES PRESENTED BY OUR RAPID
GROWTH.
We currently are experiencing a period of rapid growth that has placed
significant and increasing demands on our management and operational, technical,
financial and other resources. This growth has:
- increased our funding requirements for working capital and
capital expenditures;
- caused us to expand our efforts to recruit qualified personnel;
- forced us to expand our operational capacity and to operate at or
near peak capacity; and
- caused us to increase our expenditures on quality control.
We may not address successfully the demands caused by our rapid growth.
WE FACE POTENTIAL COMPETITION FROM THE IN-HOUSE CAPABILITIES OF CERTAIN
CUSTOMERS.
A significant source of our potential competition comes from the
in-house capabilities of our target customer base. Many of our customers
include large national or multinational companies that have sufficient financial
resources to develop or expand their in-house capabilities. These businesses
may:
- stop outsourcing their engineering services and document imaging
and conversion needs;
- move in-house the services that they currently outsource; or
- develop existing in-house capabilities into a competitive service
business.
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We might not compete successfully against current or future competitors, and
competitive pressures may affect negatively our ability to obtain new contracts
in the future.
WE FACE POTENTIAL COMPETITION FROM NEW DOCUMENT CONVERSION OUTSOURCING
BUSINESSES BECAUSE OF THE RELATIVELY LOW COSTS OF ENTRY.
Our document conversion services accounted for approximately 77.1% of
our revenues in 1998. Although there are currently relatively few document
conversion outsourcing businesses competing with us, the capital equipment
requirements for starting a document conversion business are relatively low. In
addition, document conversion software is commercially available. Potential
competitors, including companies with greater financial, technical and marketing
resources, therefore may enter or increase their focus on document conversion
services. The entry of competitors in the document conversion business or in
our other business segments could prevent us from obtaining new contracts in the
future.
OUR ENGINEERING AND PRECISION MACHINING SERVICES MAY EXPOSE US TO
PRODUCT LIABILITY.
We provide engineering and precision machining services to produce parts
and tools used to fabricate or maintain our customers' products. If we produce
a part or a tool, or provide services relating to a part or tool, that is in any
way defective, we may be exposed to substantial liabilities. For example, the
failure of an airframe, aircraft engine or other aircraft part incorporating
parts that we manufactured, or that was serviced or manufactured by a tool that
we designed and/or manufactured, could result in material claims against us.
Although we have instituted quality control procedures that we believe produce
parts and tools of the highest quality, we may become subject to future
proceedings alleging defects in our parts and/or tools. We maintain insurance
to protect against claims associated with our design and numerical control
programming services, and are in the process of acquiring insurance coverage to
protect against claims relating to our manufacture of parts or tools for our
customers. We might not be able to obtain insurance coverage for product
liability claims at commercially reasonable rates, and any insurance that we do
obtain might be insufficient to cover any claims that might arise. Even
unsuccessful claims could force us to incur significant litigation costs and
divert our management's attention from our business. See
"Business--Services--Engineering and Manufacturing Services."
CERTAIN OF OUR SERVICES UTILIZE PROCESSES AND SOFTWARE THAT MAY NOT BE
PROTECTED BY TRADE SECRET LAWS.
We regard certain of our processes and software as proprietary and rely
primarily on trade secret laws and employee and third-party nondisclosure
agreements to protect our proprietary rights. However, one or more of our
employees may leave and attempt to utilize our proprietary processes to compete
against us. In addition, although we have one patent pending relating to a
proprietary process for the conversion of certain types of design drawings, much
of the technology that we use in providing services is not proprietary and could
be utilized by our competitors. This situation is particularly true for our
document conversion business, which accounted for approximately 77.1% of our
revenues in 1998. Our competitors may develop independently or utilize existing
technologies to offer services that are substantially equivalent or superior to
the services that we offer.
CERTAIN OF OUR SERVICES DEPEND ON TECHNOLOGY LICENSED FROM THIRD
PARTIES.
Many of our services utilize software or other intellectual property
licensed from third parties. We may have to seek new or renew existing licenses
in the future. The inability to obtain certain licenses or other rights on
favorable terms, or the need to engage in litigation over these licenses or
rights, could harm seriously our ability to provide services to our customers.
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NEW TECHNOLOGIES COULD RENDER CERTAIN OF OUR SERVICES OBSOLETE OR
UNMARKETABLE.
Our document conversion services, which accounted for approximately
77.1% of our revenues during 1998, could become obsolete by the development of
improved commercially available software that is capable of converting documents
to computer aided design ("CAD") ready computer files. Our failure to develop
and introduce enhancements in existing services and new services in a timely and
cost-effective manner in response to changing technologies or customer
requirements could affect materially and adversely our ability to obtain new
contracts from new or existing customers.
OUR OFFICERS, DIRECTORS AND SIGNIFICANT SHAREHOLDERS HAVE THE POWER TO
INFLUENCE THE ELECTION OF DIRECTORS AND THE PASSAGE OF SHAREHOLDER PROPOSALS
BECAUSE THEY COLLECTIVELY HOLD A SUBSTANTIAL NUMBER OF COMMON SHARES.
As of May 31, 1999, our executive officers and directors and the
executive officers and directors of our subsidiary, TomaHawk II, Inc.,
beneficially owned 24.2% of the total outstanding common shares. If the
Delaware domestication is approved, then they will own approximately 24.2% of
the total issued and outstanding shares of common stock of the new Delaware
corporation. Accordingly, our executive officers and directors and their
affiliates may influence the election of directors and corporate actions
requiring stockholder approval. This concentration of ownership could limit the
price that certain investors might be willing to pay in the future for shares of
common stock, and could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of the new Delaware
corporation. See "Security Ownership of Certain Beneficial Owners and
Management."
WE MAY BE SUBJECT TO LIABILITY FOR UNAUTHORIZED DISCLOSURES OF
CONFIDENTIAL INFORMATION.
Our customers sometimes provide documents containing confidential and
other sensitive information to us in connection with our performance of certain
services. Although we have established procedures intended to prevent any
unauthorized disclosure of this information, we might be found liable for any
unauthorized disclosure.
OUR COMMON SHARES MAY BE SUBJECT TO WIDE FLUCTUATIONS IN VALUE AND
LIMITED TRADING VOLUME.
Our common shares are quoted on The Alberta Stock Exchange. If the
Delaware domestication occurs, then the new Delaware corporation's common stock
will continue to be listed on The Alberta Stock Exchange. Based upon the
historical performance of our common shares, we anticipate that the share price
of the common stock may be subject to wide fluctuations because of limited
trading volume, quarterly variations in operating results, changes in earnings
announcements of contract awards and technological developments by us or by our
competitors, general market conditions or other events largely outside of our
control. These fluctuations may be disproportionate or unrelated to our
operating performance. These broad market fluctuations, general economic
conditions or other factors outside our control may affect adversely the market
price for the new Delaware corporation's stock. See "Market for the Existing
Alberta Corporation's Common Equity and Related Shareholder Matters--Market
Price Information."
OUR SHARES OF COMMON STOCK WILL BE CONSIDERED "PENNY STOCK" AND
THEREFORE SUBJECT TO ADDITIONAL SEC REGULATIONS, WHICH MAY MAKE IT MORE
DIFFICULT TO SELL THESE SHARES.
By filing this Proxy Statement and Information Circular with the SEC, we
will be registering each of our outstanding shares of common stock, and will
therefore become a reporting company under the Securities Exchange Act. Because
of the price and certain other characteristics of the shares of common stock,
upon the completion of the Delaware domestication, our shares of common stock
will be classified
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as "penny stock" as defined in the Securities Exchange Act. Accordingly, the
new Delaware corporation's common stock will be subject to the penny stock rules
adopted by the SEC under the Securities Exchange Act. The penny stock rules
generally impose additional sales practice and disclosure requirements upon
broker-dealers who sell our securities to persons other than certain "accredited
investors" or in transactions not recommended by the broker-dealer. Accredited
investors generally are institutions with assets greater than US $5,000,000 or
individuals with net worth greater than US $1,000,000 or annual incomes
exceeding US $200,000, or US $300,000 jointly with their spouse. For
transactions covered by the penny stock rules, the broker-dealer must make a
suitability determination for each purchaser and receive the purchaser's written
agreement prior to the sale. In addition, the broker-dealer must make certain
mandated disclosures in penny stock transactions, including the actual sale or
purchase price and actual bid and offer quotation, and the compensation to be
received by the broker-dealer and certain associated persons, and deliver
certain disclosures required by the SEC. Consequently, you may find it more
difficult to dispose of or obtain accurate quotations of the share price of the
new Delaware corporation's common stock. For example, before effecting the
transaction, broker-dealers selling these securities must provide their
customers with a document that discloses the risks of investing in these
securities. Furthermore, if the person purchasing the securities is someone
other than an accredited investor or an established customer of the
broker-dealer, then the broker-dealer also must approve the potential customer's
account by obtaining information concerning the customer's financial situation,
investment experience and investment objectives. The broker-dealer also must
determine whether the transaction is suitable for the customer and whether the
customer has sufficient knowledge and experience in financial matters to be
reasonably expected to be capable of evaluating the risk of transactions in
these securities. Accordingly, the SEC's rules may limit the number of
potential purchasers of the shares of the new Delaware corporation's common
stock. Moreover, various state securities laws impose restrictions on
transferring penny stocks, which may impair your ability to sell shares of the
new Delaware corporation's common stock.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY AFFECT
ADVERSELY THE PRICE OF OUR COMMON STOCK AND OUR ABILITY TO RAISE ADDITIONAL
FUNDS THROUGH EQUITY ISSUANCES.
The sale of substantial amounts of common stock in the public market (or
the prospect of these sales) or the sale or issuance of convertible securities
or warrants could affect adversely the market price of our common stock. By
filing this Proxy Statement and Information Circular with the SEC, we will be
registering each of our outstanding shares of common stock. Accordingly,
substantially all of the issued and outstanding shares of common stock will be
freely tradable once the registration statement is effective, including
approximately 39,650,600 shares of common stock received in exchange for common
shares that are currently subject to certain U.S. trading restrictions. In
addition, as of May 31, 1999, we had outstanding options to purchase 7,330,570
common shares and debt convertible into 1,474,565 common shares. We also have
outstanding 750,000 shares of Class A Series III Preferred Shares, which
potentially are convertible into 7,500,000 common shares upon our achievement of
certain financial milestones. See "Description of Capital Stock."
WE DO NOT PAY DIVIDENDS ON OUR COMMON SHARES.
We have never paid cash dividends on our common shares. Our current
policy is to retain earnings, if any, to finance the anticipated growth of our
business. Our board of directors will determine whether to pay any dividends,
depending upon our operating results, financial condition, capital requirements,
general business conditions and other factors that our board of directors deems
relevant. We may procure credit from third parties for additional capital for
expansion and business development activities. Any credit facility that we
procure may limit or restrict our ability to pay cash dividends under
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certain circumstances. If the Delaware domestication is approved, then our
dividend policy likely will remain the same.
YOUR INVESTMENT IN OUR COMMON STOCK IS SUBJECT TO CURRENCY EXCHANGE RATE
RISK.
Our common shares are traded in Canadian dollars. If the Delaware
domestication is completed, then the new Delaware corporation's common stock
will continue to be traded in Canadian dollars. Fluctuations in exchange rates
may affect materially and adversely your return on investment in the common
stock. These fluctuations may have a material adverse effect on the value in
U.S. dollars of an investment in the new Delaware corporation's common stock.
WE MAY BE EXPOSED TO UNANTICIPATED YEAR 2000 PROBLEMS.
We use a significant number of computer software programs and operating
systems in our internal operations. To the extent that these software
applications contain a source code that is unable to interpret appropriately the
upcoming calendar year 2000, some level of modification or even possible
replacement of source code or applications will be necessary. We currently are
modifying, replacing and/or upgrading our computer software programs and
operating systems, as necessary, to make them year 2000 compliant and we intend
to complete our year 2000 compliance program in the fourth quarter of 1999. We
anticipate that our expenditures for year 2000 compliance will not be
significant. However, we may incur unanticipated costs or systems interruptions
that could have a material adverse effect on our financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance--Internal Year 2000 Readiness."
WE MAY BE EXPOSED TO OUR CUSTOMERS' YEAR 2000 PROBLEMS.
The failure by our customers to be year 2000 compliant may have a
material adverse effect on our ability to obtain new contracts or receive
payments from noncompliant customers. To the extent that our customers devote
significant resources to making their information systems year 2000 compliant,
they may be compelled to reduce their expenditures on our services. Because of
the revenues we derive from contracts funded by the U.S. Department of Defense,
we are especially vulnerable to any year 2000 related disruptions to the U.S.
government's contracting operations. According to published reports, which we
have not verified, the U.S. government may not be fully year 2000 compliant on a
timely basis. This noncompliance could delay the issuance of new contracts or
payment of funds to us. In addition, our customers also may reduce their
expenditures on our services to the extent they suffer a reduction in earnings
from their customers' year 2000 problems.
WE MAY BE EXPOSED TO OUR SUPPLIERS' YEAR 2000 PROBLEMS.
Certain of our services depend on the timely delivery of supplies. To
the extent that our vendors experience year 2000 compliance problems, our
ability to timely provide machined products to our customers may be affected
adversely. Delays in product deliveries could affect materially and adversely
our ability to obtain new orders from these customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance--Year 2000 Readiness of our Suppliers and Customers."
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THE ANNUAL AND SPECIAL MEETING
This Proxy Statement and Information Circular constitutes a prospectus
of TomaHawk Corporation and a proxy statement in connection with the
solicitation of proxies for use at the annual and special meeting of TomaHawk
Corporation's shareholders. Unless otherwise indicated or the context otherwise
requires, references to "the existing Alberta corporation" or the "new Delaware
corporation" will include its subsidiary, TomaHawk II, Inc.
PROPOSALS TO BE VOTED ON AT THE ANNUAL AND SPECIAL MEETING
An annual and special meeting of TomaHawk Corporation's shareholders
will be held on ______________, 1999 at 8315 Century Park Court, Suite 200, San
Diego, California at 10:00 a.m., local time, to:
- receive and consider our consolidated financial statements for
the year ended December 31, 1998 and the auditors' report
thereon; and
- consider and vote on the following proposals:
1. To fix the number of directors to be elected at the annual
and special meeting at four;
2. To elect four directors;
3. To appoint the independent auditors of TomaHawk Corporation
and to authorize our directors to fix their remuneration as
our independent auditors;
4. To consider, and, if deemed advisable by our shareholders,
to pass an ordinary resolution authorizing the issuance, in
one or more private placements, of a number of securities
that could result in TomaHawk Corporation issuing, during
the next 12 months, a number of securities that exceeds 25%
but is not greater than 100% of the issued and outstanding
securities, subject to the restrictions described in this
Proxy Statement and Information Circular;
5. To approve TomaHawk Corporation's change in jurisdiction of
incorporation from the Province of Alberta, Canada to the
State of Delaware, U.S.A. and to make certain other
amendments to our articles of incorporation and bylaws
regarding the domestication into Delaware. See "Proposal
Five--Domestication into the State of Delaware."
If the domestication into Delaware is approved, then we will adjourn the
annual and special meeting, effect a one-for-fifteen consolidation of the common
shares, and complete the Delaware domestication. After we have completed the
Delaware domestication, we will reconvene the annual and special meeting, and
request that you vote on the following five proposals relating to the new
Delaware corporation:
6. To require advance notice of stockholder nominations and
proposals;
7. To prevent the stockholders from calling special meetings of
the stockholders;
8. To prohibit stockholder action by written consent;
9. To require a supermajority vote to amend certain provisions
of the new Delaware corporation's certificate of
incorporation and bylaws; and
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10. To approve the adoption of a form indemnification agreement
for the new Delaware corporation's directors and executive
officers.
We do not know of any other matters that likely will be brought before
the annual and special meeting. However, if any other matters properly come
before the annual and special meeting, then the persons named in the enclosed
proxy will vote the proxy in accordance with their best judgment on these
matters.
Our board of directors has unanimously approved, and recommends that
shareholders vote "FOR," each of the above listed proposals.
RECORD DATE; VOTING RIGHTS
Only shareholders of record at the close of business on
_________________, 1999, also known as the record date, will be entitled to
notice of and to vote, or to grant proxies to vote, at the annual and special
meeting. Each shareholder of record on the record date will be entitled to one
vote for each common share, and, with respect to Proposal Five, to one vote for
each Class A Series III Preferred Share, that he holds on the record date. The
holders of common shares and Class A Series III Preferred Shares will vote on
Proposal Five as a single class. HOLDERS OF CLASS A SERIES III PREFERRED SHARES
WILL NOT VOTE ON PROPOSALS ONE THROUGH FOUR AND SIX THROUGH NINE.
We will prepare a list of shareholders showing the number of common
shares and Class A Series III Preferred Shares owned by each shareholder as of
the record date. A shareholder named in the list will be entitled to one vote
for each common share (and, with respect to Proposal Five, to one vote for each
Class A Series III Preferred Share) shown opposite his name. If the shareholder
transferred any shares after the completion of this list, then the person
receiving the shares is entitled to vote the shares only if he establishes to us
that he owns the shares and demands that his name be included in the list of
shareholders eligible to vote at the annual and special meeting. The recipient
must make this demand no later than ten days before the annual and special
meeting.
The vote of any shareholder who is represented at the annual and special
meeting by proxy will be cast as specified by the proxy or, if no vote is
specified, the vote will be cast "FOR" each of the above listed proposals. Any
shareholder of record who is present at the annual and special meeting in person
will be entitled to vote at the annual and special meeting regardless of whether
the shareholder has previously granted a proxy.
QUORUM; VOTE REQUIRED FOR ADOPTION
A quorum for the transaction of business at the annual and special
meeting will occur if at least two individuals appear at the annual and special
meeting in person or by proxy holding or representing at least twenty percent
(20%) of the issued and outstanding common shares and Class A Series III
Preferred Shares entitled to vote at the annual and special meeting.
On all matters that may come before the annual and special meeting,
shareholders of the existing Alberta corporation on the record date are entitled
to one vote for each common share held of record.
Proposals One through Four require the affirmative votes of the holders
of a majority of the shares of common stock represented and voting at the annual
and special meeting. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT
VOTE ON PROPOSALS ONE THROUGH FOUR. Broker non-votes will not be treated as
entitled to vote on these proposals at the meeting.
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On Proposal Five, shareholders are also entitled to one vote for each
Class A Series III Preferred Share held of record. Approval of this proposal
requires the affirmative votes of holders of not less than two-thirds of the
common shares and Class A Series III Preferred Shares, voting as a single class,
represented and voting at the annual and special meeting. Abstentions and
broker "non-votes" will not be counted as present for purposes of obtaining a
quorum and will not be counted in determining whether Proposal Five passes.
Proposals Six through Nine require the affirmative votes of the holders
of a majority of the shares of common stock represented and voting at the annual
and special meeting. HOLDERS OF CLASS A SERIES III PREFERRED SHARES WILL NOT
VOTE ON PROPOSALS SIX THROUGH NINE. Abstentions and broker "non-votes" will be
counted as present for purposes of obtaining a quorum but will not be treated as
votes in favor of the proposals. Accordingly, abstentions and broker
"non-votes" will have the effect of votes against Proposals Six through Nine.
Approval of Proposal Ten requires the affirmative vote of a majority of
the common shares present or represented by proxy and entitled to vote on this
subject matter at the meeting and held by disinterested stockholders. HOLDERS
OF CLASS A SERIES III PREFERRED SHARES WILL NOT VOTE ON PROPOSAL TEN. Since
each director and each executive officer is an interested party with respect to
this matter, shares owned directly or indirectly by any director or executive
officer may not be voted on this proposal although they will be counted for
purposes of determining whether a quorum is present. Broker non-votes will not
be treated as entitled to vote on this proposal at the meeting.
As of the record date, there were _________ common shares and
_________ Class A Series III Preferred Shares outstanding. In addition, as
of the record date, our directors and executive officers and the directors and
executive officers of our subsidiary TomaHawk II, Inc. beneficially owned, in
the aggregate, __________ common shares, which is approximately _____%
of the shares entitled to vote at the annual and special meeting. They have
indicated their intention to vote those shares in favor of the proposal to
approve the Delaware domestication and the other five proposals.
PROXIES
GENERAL. Each holder of our common shares and Class A Series III
Preferred Shares as of the record date will receive the accompanying proxy.
Shareholders may grant a proxy to vote for or against, or to abstain from voting
on, any of the proposals by appropriately marking the proxy card, executing the
proxy card in the space provided and returning it to the transfer agent.
Shareholders who hold their common shares in the name of a bank, broker or other
nominee should follow the instructions provided by their bank, broker or nominee
on voting their shares. You must instruct your broker to vote your shares or
the broker will not vote your shares. Broker "non-votes" will have the same
effect as votes cast against the proposals.
To be effective, you must mail, fax, or deliver your proxy to our
president, Steven M. Caira, c/o CIBC Mellon Trust Company, 600 The Dome Tower,
333-7th Avenue S.W., Calgary, Alberta T2P 2Z1. All proxies must be received not
later than 10:00 a.m. (San Diego time) on _____________, 1999 or by the
close of business on the last business day before any adjournment of the annual
and special meeting. Common shares represented by a properly executed proxy
will be voted in the manner specified by the proxy. If you properly execute
your proxy without indicating how you want to vote, then your shares will be
voted "FOR" the proposals.
If any other matters are properly presented at the annual and special
meeting for consideration, including consideration of a motion to adjourn the
annual and special meeting to another time and/or place (including adjournments
for the purpose of soliciting additional proxies), then the persons named in
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the proxy card and acting thereunder will have the discretion to vote on these
other matters in accordance with their best judgment.
REVOCATION. You may revoke any proxy given pursuant to this
solicitation at any time before its exercise by:
- appearing at the annual and special meeting, revoking your proxy
and voting in person;
- delivering written notice of the revocation, executed by you or
your attorney, to the registered office of the existing Alberta
corporation no later than the last business day preceding the
date of the annual and special meeting;
- delivering written notice of the revocation, executed by you or
your attorney, to the chairman of the annual and special meeting
before the start of the annual and special meeting; or
- properly completing and executing a later-dated proxy and
delivering it to the president of the existing Alberta
corporation, care of CIBC Mellon Trust (as described in
"--General" above) or the chairman of the annual and special
meeting at or before the annual and special meeting.
You may attend the annual and special meeting even if you have granted a proxy.
However, your presence without voting at the annual and special meeting will not
automatically revoke a proxy, and any revocation during the annual and special
meeting will not affect votes previously taken. Shareholders who hold their
common shares in the name of a bank, broker or other nominee should follow the
instructions provided by their bank, broker or nominee in revoking their
previously voted shares.
VALIDITY. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of proxies will be determined by the
inspectors of election of the annual and special meeting. The inspectors'
determination will be final and binding. Our board of directors will have the
right to waive any irregularities or conditions as to the manner of voting. We
may accept proxies by any reasonable form of communication, so long as we can
reasonably determine that the shareholder authorized the communication.
SOLICITATION OF PROXIES. Our board of directors is soliciting the
accompanying proxy. We will bear the expenses of preparing, printing and
mailing the proxy and the materials used in the proxy solicitation.
Our directors, executive officers and employees will solicit proxies by
personal interview, telephone and telegram without additional compensation for
their services,. We also may make arrangements with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of the common shares held by these persons.
We will reimburse our directors, executive officers and employees for reasonable
expenses incurred by them in connection with their solicitation efforts.
23
<PAGE>
PARTICULARS OF MATTERS TO BE ACTED UPON
PROPOSAL ONE
FIXING THE NUMBER OF DIRECTORS
Our board of directors currently consists of four directors, each of
whose term of office will expire at the annual and special meeting. At the
annual and special meeting, you will be asked to consider, and if thought fit,
approve a resolution fixing the number of directors to be elected at four.
FIXING NUMBER OF DIRECTORS
At the annual and special meeting, we propose that our shareholders fix
at four the number of directors to be elected at the annual and special meeting
to hold office until our next annual meeting or until their successors are
elected or appointed, subject to our articles of incorporation and bylaws.
Holders of proxies solicited by this Proxy Statement and Information Circular
will vote the proxies received by them as directed on the proxy card or if no
direction is made, in favor of fixing the number of directors to be elected at
the annual meeting at a maximum of four, subject to amendment between annual
meetings by our board of directors.
VOTE REQUIRED
Fixing the number of directors at four requires the approval of a
majority of the votes cast by the holders of common shares present or
represented by proxy at the annual and special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors recommends that you vote "FOR" fixing the number
of directors at four.
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<PAGE>
PROPOSAL TWO
ELECTION OF DIRECTORS
Our board of directors currently consists of four directors, each of
whose term of office will expire at the annual and special meeting. At the
annual and special meeting, you will be asked to consider, and if thought fit,
approve a resolution providing that four directors be elected to hold office
until the next Annual Meeting or until their successors are elected or
appointed.
INFORMATION REGARDING DIRECTOR NOMINEES
The following table sets forth the names, ages, principal occupations
for the periods indicated and other directorships of the four director nominees,
each of whom is currently a director of the existing Alberta corporation.
Information as to the stock ownership of each director nominee and all current
directors and executive officers of the existing Alberta corporation as a group
is set forth below under "Security Ownership of Certain Beneficial Owners and
Management."
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AND OTHER DIRECTOR
DIRECTORSHIPS SINCE
- ------------------- ----- -------------------------------------------------------- ------------
<S> <C> <C> <C>
STEVEN M. CAIRA 42 Mr. Caira has served: 1994
- since May 11, 1999, as the acting chief
financial officer of Tomahawk Corporation;
- since February 1994, as the president, chief
executive officer and chairman of the board of
directors of TomaHawk Corporation and TomaHawk
II, Inc.;
- from May 1993 to February 1994, as the
Director of National Operations of TomaHawk
II, Inc.;
- from December 1984 to May 1992, as a manager
of Rohr, Inc. assuming a wide range of
managerial responsibilities, including:
- program manager for the (Air Force) F-22
fighter program;
- manager, information systems services;
- manager of various financial and production
functions; and
- from June 1992 to May 1993, as Director of
Production and Customer Services for Point
Control of Eugene, Oregon.
Mr. Caira also served as Production Control
Manager for General Dynamics in San Diego, California,
as Manager of Industrial Engineering and Plant Services
for General Dynamics in Fort Worth, Texas, and as an
Industrial Engineer and Computer Programmer for Boeing
Aircraft. Mr. Caira received a Bachelors of Science in
Mechanical Engineering from the University of Lowell in
Lowell, Massachusetts in 1978, and an AIIMS Executive
MBA from the University of Washington in 1986.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS AND OTHER DIRECTOR
DIRECTORSHIPS SINCE
- ------------------- ----- -------------------------------------------------------- ------------
<S> <C> <C> <C>
THOMAS M. DUSMET 46 Mr. Dusmet has served: 1995
- since September 1995, as the secretary and a
director of TomaHawk Corporation;
- since February 1996, as an investment advisor
with Nesbitt Burns Inc., a Canadian investment
banking firm;
- from February 1995 to February 1996, as
President and a director of 1110060 Ontario
Inc., an independent roofing materials and
products sales company; and
- from November 1989 to February 1995, as
General Manager of Nord Bitumi Canada, Ltd., a
roofing distribution company.
DOUGLAS W. LOUGHRAN 58 Mr. Loughran has served: 1995
- since September 1995, as a director of
TomaHawk Corporation;
- since July 1998, as president of Pieces
Reliable Ltd., a wholesale distribution
company;
- since June 1993, as president of Reliable
Parts Inc., a wholesale distribution company;
- since October 1989, as president of Columbia
Distributors Ltd., a wholesale distribution
company;
- since 1980, as president of R&D Business
Systems Ltd., a computer programming company;
and
- since 1957, as president of Reliable Parts
Ltd., a wholesale distribution company.
JONATHAN F. TURPIN 66 Mr. Turpin has served: 1995
- since September 1995, as a director of
TomaHawk Corporation; and
- from April 1981 to November 1994, as the vice
president and general manager of Canadian
Transport Co. Ltd., a British Columbia deep
sea ship operating company.
Mr. Turpin is currently retired, and has worked
occasionally as a marine consultant for Fraser River
Harbour Commission of New Westminster, British
Columbia.
</TABLE>
26
<PAGE>
For a listing of the number of shares beneficially owned by each of the
above listed director nominees, see "Securities Ownership of Certain Beneficial
Owners and Management."
BOARD OF DIRECTORS
The existing Alberta corporation's articles of incorporation provide for
a range of one to nine directors, with the current authorized number set at
four. Each director is to be elected for a term of one year, and to hold office
until his or her successor is duly elected and qualified. In each case, a
director serves for the designated term and until his or her respective
successor is duly elected and qualified, unless he resigns or his seat on the
board of directors becomes vacant due to his death, removal or other cause.
BOARD MEETINGS AND COMMITTEES
During the year ended December 31, 1998, the existing Alberta
corporation's board of directors held ______ meetings. Each director
attended at least 75% of the meetings held during 1998.
The existing Alberta corporation's board of directors has appointed an
audit committee consisting of Mr. Turpin, Mr. Dusmet and Mr. Loughran. However,
the audit committee has not met regularly and its duties have been discharged by
the entire board of directors at regular board of directors meetings. The board
of directors does not maintain a compensation committee or a nominating
committee.
COMPENSATION OF THE EXISTING ALBERTA CORPORATION'S DIRECTORS
We do not pay compensation on a regular basis to our directors for their
services as directors, but we do reimburse them for their reasonable expenses
for attending board of directors meetings. In 1998, after not paying any
compensation to our directors from 1995 through 1997, we paid a total of US
$34,270 to each of our directors to allow them to exercise options to purchase
175,000 common shares and to pay their resulting tax obligations. This amount
included our accrual of an obligation to pay US $7,808 to each of our directors.
In addition, on March 18, 1998, we granted to each of our directors 225,000
options to purchase common shares, vesting over a six month period, at an
exercise price of Cdn. $0.22 per share, which was Cdn. $0.03 below the closing
price of our common shares that day.
BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
There are no interlocking relationships between our board of directors
and the board of directors or compensation committee of any other company. This
type of interlocking relationship did not exist at any time during the year
ended December 31, 1998.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act requires a reporting
company's officers, directors, and persons who own more than ten percent of a
registered class of the reporting company's equity securities to file reports of
ownership and changes in ownership with the SEC. Officers, directors and
greater than ten percent stockholders are required by regulations of the SEC to
furnish the company with copies of all Section 16(a) forms that they file. If
the Delaware domestication is approved, then we will become a reporting company.
However, we are currently not a reporting company, and our officers, directors
and greater than ten percent stockholders are therefore not required to file
Section 16(a) reports at this time.
VOTE REQUIRED
The four director nominees receiving the highest number of affirmative
votes of the common shares present in person or represented by proxy at the
annual and special meeting shall be elected as directors of the existing Alberta
corporation.
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<PAGE>
Under Alberta law, votes withheld from any director nominee are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business, but have no other legal effect. Holders of proxies
solicited by this Proxy Statement and Information Circular will vote the proxies
received by them as directed on the proxy card or if no direction is made, for
the election of our board's nominees. If any of the director nominees is unable
or declines to serve as a director at the time of the annual and special
meeting, the proxy holders will vote for a nominee designated by the present
board of directors to fill the vacancy. It is not presently expected that any
of the nominees will be unable or will decline to serve as a director.
Our board of directors recommends a vote "FOR" each of the above listed
director nominees.
28
<PAGE>
PROPOSAL THREE
APPOINTMENT OF INDEPENDENT AUDITORS
GENERAL
Our board of directors recommends that you vote to appoint Ernst & Young
as our independent auditors for the year ended December 31, 1999. Ernst & Young
LLP has served as our independent auditors since December 30, 1997 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Change in Accountants." A representative of Ernst & Young LLP is
expected to attend the annual and special meeting with the opportunity to make a
statement if he desires to do so, and is expected to be available to respond to
your questions.
Holders of proxies solicited by this Proxy Statement and Information
Circular will vote the proxies received by them as directed on the proxy card or
if no direction is made, in favor of re-appointing Ernst & Young LLP as our
independent auditors.
VOTE REQUIRED
Appointment of Ernst & Young LLP as independent auditors requires the
approval of a majority of the votes cast by the holders of common shares present
or represented by proxy at the annual and special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors recommends that you vote "FOR" the appointment of Ernst &
Young LLP as our independent auditors.
29
<PAGE>
PROPOSAL FOUR
AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS
GENERAL
The rules of The Alberta Stock Exchange provide that the aggregate number of
securities which are issued pursuant to private placement transactions during
any six month period generally cannot exceed 25% of the issuer's outstanding
securities. However, The Alberta Stock Exchange may consider a request by a
listed company to exceed the 25% limit and may in certain circumstances require
shareholder approval of such an increase.
The application of this requirement may restrict our ability to raise
capital in the future through private placements of our securities.
In particular, our board of directors considers it to be in our best
interests for us to retain flexibility in raising equity for working capital.
The Alberta Stock Exchange has advised that it will accept advance approval by a
company's shareholders in anticipation of private placements that may exceed the
25% rule, providing such placements are completed within 12 months of the date
the company's shareholders provide this advance approval. By approving this
proposal, you will be satisfying this advance shareholder approval requirement.
Any private placement that we undertake will remain subject to regulatory
approval, including approval of the Alberta Stock Exchange.
Any future private placement that we undertake pursuant to this proposal
will be subject to the following additional restrictions:
- it cannot result in a change of control of TomaHawk Corporation;
- it cannot exceed 100% of our issued and outstanding securities;
- it must be completed within twelve months following the date the
advance shareholder approval is given; and
- it must comply with the private placement pricing rules of The
Alberta Stock Exchange, which currently require that the price
per security must not be lower than the closing market price of
the security on The Alberta Stock Exchange on the trading day
prior to the date notice of the private placement is given to The
Alberta Stock Exchange, less the applicable discount, as follows:
<TABLE>
<CAPTION>
Closing Market Price Maximum Discount
-------------------- ----------------
<S> <C>
Cdn. $0.50 or less 25%
Cdn. $0.51 - $1.00 20%
Cdn. $1.01 - $2.00 18%
Cdn. $2.01 - $5.00 15%
over Cdn. $5.00 10%
</TABLE>
We will negotiate a private placement only if our board of directors
believes that the subscription price is reasonable under the circumstances and
if the funds are required to continue or expand our activities. IF THIS
PROPOSAL IS APPROVED, WE MAY SELL COMMON SHARES THROUGH PRIVATE PLACEMENTS
AUTHORIZED BY THIS PROPOSAL TO DIRECTORS, OFFICERS, EMPLOYEES AND OTHER INSIDERS
OF THE EXISTING ALBERTA CORPORATION.
THE PROPOSED RESOLUTION
The text of the ordinary resolution to be considered at the meeting
approving the private placement is as follows:
30
<PAGE>
"BE IT RESOLVED, as an ordinary resolution, that the issuance by the
Corporation in one or more private placements of such number of
securities that could result in the Corporation issuing during the next
twelve (12) months an amount of common shares that exceeds 25% but is
equal to or less than 100% of the Corporation's issued and outstanding
common shares, subject to the restrictions described in the Information
Circular of the Corporation dated April 8, 1999, including regulatory
approval, be and is hereby approved."
VOTE REQUIRED
The authorization of future private placements requires the approval of
a majority of the votes cast by the holders of common shares present or
represented by proxy at the annual and special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors recommends that you vote "FOR" the authorization
of future private placements.
31
<PAGE>
PROPOSAL FIVE
DOMESTICATION INTO THE STATE OF DELAWARE
GENERAL
The existing Alberta corporation is a corporation formed and operating
under the corporate laws of Alberta. You will be asked at the annual and
special meeting to pass a resolution that:
- authorizes the existing Alberta corporation to domesticate into
the State of Delaware pursuant to Section 388 of the General
Corporation Law of the State of Delaware, thereby continuing the
existing Alberta corporation as if it had been originally
incorporated under Delaware corporate law as a Delaware
corporation; and
- changes the existing Alberta corporation's authorized capital
from:
- an unlimited number of common shares without par value;
- an unlimited number of class "B" common non-voting shares
without par value;
- an unlimited number of preferred shares without par value;
- a first series of preferred shares consisting of 100,000
shares without nominal or par value, designated as 6%
non-cumulative redeemable retractable first preferred
shares, Series A; and
- an unlimited number of Class A, Series I, Series II and
Series III Preferred Shares;
to:
- 20,000,000 shares of common stock, US $0.001 par value per
share;
- 750,000 shares of Class A Preferred Stock, US $0.001 par
value per share; and
- 750,000 shares of preferred stock, US $0.001 par value per
share.
If the shareholders approve this proposal, then, before completing the
Delaware domestication, subject to approval by The Alberta Stock Exchange, we
will effect a one-for-fifteen consolidation of the common shares and
corresponding name change of the existing Alberta corporation whereby TomaHawk
Corporation will be renamed TomaHawk Engineering, Inc. Our shareholders
authorized this common share consolidation and name change on September 22,
1998.
After the one-for-fifteen common share consolidation is completed, the
new Delaware corporation's authorized share capital will consist of 20,000,000
shares of common stock, 750,000 shares of Class A Preferred Stock and 750,000
shares of preferred stock. No fractional shares will be issued in the common
share consolidation. Any fractional shares remaining after aggregating all
fractional shares held by a shareholder will be rounded up to the nearest whole
share. For example, if you hold 100 common shares before the common share
consolidation, then after the common share consolidation you will hold seven
shares of common stock.
Upon the effectiveness of the Delaware domestication, the BUSINESS
CORPORATIONS ACT (Alberta) will cease to apply and Delaware corporate law will
govern us as if the existing Alberta corporation had been incorporated
originally in Delaware. Except as is otherwise described in this Proxy
Statement and Information Circular, the Delaware domestication will not cause
any change in our business, assets, liabilities, net worth or management.
After the Delaware domestication, you will hold securities of the new
Delaware corporation, and the common stock of the Delaware Corporation will
continue to trade on The Alberta Stock Exchange. We do not anticipate that any
shares of the Class A Preferred Stock or the preferred stock will trade publicly
on any exchange. Upon consummation of the Delaware domestication, the new
Delaware corporation will file a Current Report on
32
<PAGE>
Form 8-K with the SEC to reflect the Delaware domestication for the purposes of
Section 15(d) of the Securities Exchange Act.
You have the right to dissent to the Delaware domestication (see
"--Right of Dissent"). If you choose to exercise your dissenter's rights and we
effect the Delaware domestication, then we will be required to purchase for cash
your common shares at their fair value as of __________, 1999. If enough of
our shareholders dissent to the Delaware domestication, then our obligation to
purchase their common shares could affect adversely our financial condition.
Accordingly, if our board of directors determines that completing the Delaware
domestication will not be in our best interests, then our board of directors
will not proceed with the Delaware domestication.
PRINCIPAL REASONS FOR THE DELAWARE DOMESTICATION
Our board of directors believes that the focus of our operations and
business is in the United States. Accordingly, our board of directors believes
that the laws of a state of the United States should govern our company. In
addition, the following factors weigh in favor of our domesticating into
Delaware:
SIMPLIFICATION OF CORPORATE STRUCTURE. Our board of directors believes
that our corporate structure is unnecessarily complicated and that we should
consolidate our corporate structure. To this end, we recently amalgamated with
TomaHawk Imaging & Financial, Inc., a wholly-owned subsidiary and the former
parent of TomaHawk II, Inc. We would like to further simplify our corporate
structure by merging with TomaHawk II, Inc. after the completion of the Delaware
domestication. However, Alberta corporate law does not permit an Alberta
corporation to merge with non-Alberta corporations. Effecting the Delaware
domestication will allow us to merge with our subsidiary TomaHawk II, Inc. in
the future, thereby completing the consolidation of our corporate structure.
COMMERCIAL ADVANTAGE. Virtually all of our significant customers are
located within the United States. Although our status as a Canadian company
does not preclude us from performing services for these customers, it has at
times complicated our sales negotiations in the past and may disadvantage our
future negotiations if potential customers are reluctant to work with a foreign
service provider. We believe this disadvantage may occur particularly in the
aerospace and defense industries. We believe that eliminating this potential
disadvantage will help us attract more business. For these reasons, our board
of directors believes that we will gain a commercial advantage by domesticating
into Delaware.
NO BUSINESS REASON TO REMAIN DOMICILED IN CANADA. We currently do not
have any business reason for our incorporation in Canada. In addition, we have
no facilities, employees or operations in Canada, and most of our shareholders
are located within the United States.
REDUCTION OF CANADIAN TAX AND REGULATORY OBLIGATIONS. As an Alberta
corporation, we currently are subject to Canadian tax requirements. We also are
subject to tax in the United States because our operations are conducted through
our subsidiary, TomaHawk II, Inc., an Illinois corporation. By domesticating
into Delaware, our board of directors believes that we will reduce significantly
our ongoing Canadian tax obligations. In addition, we will eliminate our need
to comply with the regulations of the Registrar of Corporations for the Province
of Alberta and Alberta corporate law. You should note, however, that, if we
complete the Delaware domestication, then we will have to comply with U.S.
securities regulations.
ADVANTAGES OF DELAWARE LAW. For many years, Delaware has encouraged
incorporation in that state and has adopted comprehensive, modern and flexible
corporate laws, which are periodically updated and revised to meet changing
business needs. In addition, the Delaware courts have developed considerable
expertise in dealing with corporate issues and have developed a substantial body
of case law interpreting Delaware corporate law and establishing public policies
with respect to Delaware corporations. As a result, many major corporations
have chosen to incorporate in Delaware or have later reincorporated in Delaware
in a manner similar to our proposed domestication.
33
<PAGE>
CHANGE IN PAR VALUE OF EQUITY SECURITIES
In connection with the proposed Delaware domestication, our board of
directors has proposed that we establish a par value of the shares of our common
stock, preferred stock and Class A Preferred Stock of US $0.001 par value per
share. The existing Alberta corporation's capital stock has no par value. Our
board of directors believes that the change will be in our best interests and
the best interests of our stockholders, because the Delaware franchise fees
applicable to no par value shares are significantly higher than those for US
$0.001 par value shares. Par value represents the minimum consideration which
must be received by a company for the issuance of a share of stock. The change
in par value will have no effect upon your rights as a shareholder. By voting
in favor of the Delaware domestication, you are voting in favor of establishing
the US $0.001 par value per share of our shares of common stock, preferred stock
and Class A Preferred Stock. If this Proposal Five is approved, then the new
Delaware corporation's certificate of incorporation to be filed with the
Secretary of State of the State of Delaware will reflect this change.
BOARD OF DIRECTORS HAS DISCRETION TO EFFECT DELAWARE DOMESTICATION
Notwithstanding the shareholders' approval of the Delaware
domestication, our board of directors may elect not to effect the Delaware
domestication if, for example:
- the Delaware domestication causes the existing Alberta
corporation to incur substantial tax liability;
- a significant number of the shareholders exercise dissenter's
rights; or
- our board of directors determines that the Delaware domestication
is not in the best interests of TomaHawk Corporation and its
shareholders.
If the Delaware domestication is not effected, then we will remain an
Alberta corporation.
CORPORATE GOVERNANCE DIFFERENCES; DELAWARE AND ALBERTA LAW COMPARISONS.
By approving the Delaware domestication, you will approve the proposed
certificate of incorporation (attached hereto as APPENDIX II) and bylaws
(attached hereto as APPENDIX III), and agree to hold securities in a corporation
governed by Delaware corporate law. In exercising your vote, you should
consider the distinctions between Delaware and Alberta corporate law, some of
which are outlined below.
Delaware corporate law and the new Delaware corporation's certificate of
incorporation and bylaws differ in many respects from Alberta corporate law and
the existing Alberta corporation's charter documents. Please note, however,
that the new Delaware corporation's certificate of incorporation includes
certain shareholder rights required by Alberta corporate law to effect the
Delaware domestication. The following discussion summarizes certain differences
that could affect materially your rights as a shareholder. THE FOLLOWING
SUMMARIES OF THE NEW DELAWARE CORPORATION'S PROPOSED CERTIFICATE OF
INCORPORATION AND BYLAWS ARE NOT COMPLETE AND SHOULD BE READ IN CONJUNCTION WITH
THE NEW DELAWARE CORPORATION'S PROPOSED CERTIFICATE OF INCORPORATION (ATTACHED
AS APPENDIX II) AND BYLAWS (ATTACHED AS APPENDIX III).
SHAREHOLDER QUORUM. Under our current bylaws, the presence of at least
two individuals holding or representing a total of at least 20% of our
outstanding shares that are entitled to attend and vote at the meeting
constitutes a quorum. Under Delaware corporate law, a corporation's certificate
of incorporation and bylaws may specify the number of shares necessary to
constitute a quorum at any meeting of stockholders; provided, however, that a
quorum may not consist of less than one-third of the shares entitled to vote at
the meeting. The new Delaware corporation's proposed bylaws provide that a
majority of the shares entitled to vote, present in person or represented by
proxy, is required for a quorum at a meeting of stockholders.
SUPERMAJORITY. Alberta corporate law requires, and Delaware corporate
law permits, the adoption of a higher requisite vote for certain types of
corporate action, subject to certain limitations. Alberta corporate law
34
<PAGE>
provides that the approval of two-thirds of the votes present and voting at an
annual and special meeting of shareholders is required to amend the existing
Alberta corporation's charter documents, including changing the corporation's
name, altering its share capital or any of the rights attached to any shares and
approving certain extraordinary corporate transactions. Delaware corporate law
generally has no limit on how high a percentage the vote must be, provided that
the supermajority requirements are specified in a corporation's certificate of
incorporation. Proposal Nine would amend the new Delaware corporation's
certificate of incorporation and bylaws to provide for a supermajority vote to
amend certain sections of the certificate of incorporation and bylaws. See
"Proposal Nine--Amendment to the New Delaware Corporation's Certificate of
Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain
Provisions of the New Delaware Corporation's Certificate of Incorporation and
Bylaws."
REQUIRED APPROVALS OF SHAREHOLDERS. Alberta corporate law requires that
at least two-thirds of the votes present or represented by proxy and voting at a
meeting must approve various extraordinary corporate transactions, including
mergers, the sale of substantially all of a corporation's assets or the change
of a corporation's domicile. Under Delaware corporate law, stockholders holding
a majority of the outstanding shares entitled to vote generally must approve
these extraordinary transactions. Because the existing Alberta corporation's
quorum requirements are more easily met than those of the new Delaware
corporation (see "--Shareholder Quorum"), shareholder action can be taken under
Alberta corporate law with a smaller percentage of the vote than is required
under Delaware corporate law.
EXAMINATION OF CORPORATE RECORDS. Under Alberta corporate law, a
corporation's directors and shareholders, including their agents and legal
representatives, may examine the following documents free of charge during the
corporation's usual business hours:
- the articles of incorporation, bylaws and all amendments thereto;
- any unanimous shareholder agreement and all amendments thereto;
- the minutes of all shareholders' meetings and resolutions;
- the securities register;
- copies of the financial statements; and
- copies of all documents filed with the Registrar of Corporations
of the Province of Alberta.
In addition, shareholders are entitled upon request, without charge, to
one copy of the corporation's articles of incorporation and bylaws, including
any amendments thereto, and to one copy of any unanimous shareholder agreement,
including any amendments thereto.
Under Delaware corporate law, stockholders have the right for any proper
purpose to inspect, upon written demand under oath stating the purpose for the
inspection, the corporation's stock ledger, list of stockholders, and its other
books and records, and to make copies or extracts of the same. A proper purpose
means a purpose reasonably related to a person's interest as a stockholder.
MINORITY (DISSENTER'S) RIGHTS. Under Alberta corporate law, holders of
shares of any class of the existing Alberta corporation have the right to
dissent from certain corporate acts involving:
- amendments to the existing Alberta corporation's articles of
incorporation to add, change or remove any provisions restricting
the issue or transfer of shares of that class;
- amendments to the existing Alberta corporation's articles of
incorporation to change or remove any restriction on the business
in which the corporation may engage;
- amalgamation with a corporation which is not wholly owned by the
existing Alberta corporation;
- continuation under the laws of another jurisdiction; and
- transfers of substantially all of the existing Alberta
corporation's assets.
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<PAGE>
Under Delaware corporate law, stockholders have the right to dissent and
exercise appraisal rights only with respect to certain forms of corporate
mergers and consolidations. In addition, under Delaware corporate law,
appraisal rights are not available with respect to any shares of stock if, at
the record date fixed to determine the stockholders entitled to vote on the
merger or consolidation:
- the shares were listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc.; or
- the shares were held of record by more than 2,000 holders.
However, appraisal rights are available if, under the terms of an agreement of
merger or consolidation, the stockholders are required to accept for their stock
something other than:
- shares of stock of the surviving corporation;
- shares of stock of any other corporation which is listed on a
national securities exchange or designated as a national market
system security or an interdealer quotation system by the
National Association of Securities Dealers, Inc. or which has
more than 2,000 stockholders of record;
- cash instead of fractional shares; and/or
- any combination of the above.
The new Delaware corporation's certificate of incorporation will provide the
same dissenter's rights as provided by Alberta corporate law. However, the new
Delaware corporation's certificate of incorporation could be amended in the
future to eliminate this type of dissenter's rights.
THEREFORE, IN APPROVING THE DELAWARE DOMESTICATION, YOU MAY FOREGO THE
MORE EXTENSIVE DISSENTER'S RIGHTS UNDER ALBERTA CORPORATE LAW WITH RESPECT TO
FUTURE ACTIONS.
DISQUALIFICATION OF DIRECTORS. Alberta corporate law prohibits the
following persons from serving as a director:
- persons under age 18;
- persons who are mentally infirm;
- corporations; and
- undischarged bankrupts.
Delaware corporate law contains no comparable statutory prohibitions.
PERSONAL LIABILITY OF DIRECTORS. Alberta corporate law provides that
every director, in exercising his powers and discharging his duties, will act
honestly and in good faith and in the best interests of the corporation and
exercise the care, diligence and skill of a reasonably prudent person. Alberta
corporate law also specifically imposes joint and several personal liability
upon directors who vote for or consent to a resolution that violates applicable
provisions of Alberta corporate law relating to the acquisition of a
corporation's own shares, the payment of commissions on a sale of a
corporation's shares, the payment of dividends, financial assistance, payment of
an indemnity, or payment to a shareholder, subject to certain limited defenses.
Alberta corporate law provides that this liability is in addition to and not
instead of any liability imposed on a director by any other legislation,
regulation or rule of law.
Alberta corporate law entitles a shareholder or a director of the
corporation, with the approval of the Court of Queen's Bench of Alberta and in
the name of the corporation, to commence legal proceedings to enforce a duty or
right owed to the corporation or to obtain monetary damages for breach of the
right or duty whether the right or duty arises under Alberta corporate law.
Shareholders may bring derivative actions on behalf of a corporation
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against the corporation's directors for cash damages or to enforce rights or
duties owed by the director to the corporation. Under Alberta corporate law,
there is no statutory limitation with respect to the monetary liability that may
be imposed on directors and the existing Alberta corporation's articles of
incorporation and bylaws do not contain these limitations.
Under Delaware corporate law, the directors of a corporation act in a
fiduciary capacity and owe the duties of loyalty and due care to the corporation
and its stockholders. Delaware corporate law entitles a stockholder to bring
derivative actions against officers and directors of a corporation for breach of
their fiduciary duty to the corporation and its stockholders or for other
fraudulent misconduct, so long as the stockholder was a stockholder of the
corporation at the time of the transaction in question or that he or she
obtained the stock thereafter solely by operation of law.
Delaware corporate law permits a corporation to adopt a provision in its
certificate of incorporation eliminating the liability of a director to the
corporation or its stockholders for monetary damages for breach of the
director's fiduciary duty of care, except where the liability arises from:
- a breach of the director's duty of loyalty to the corporation or
its stockholders;
- acts or omissions not in good faith, involving intentional
misconduct or a knowing violation of law;
- unlawfully paying a dividend, approving stock repurchases or
redemptions; or
- a transaction where the director derived an improper personal
benefit.
The new Delaware corporation's certificate of incorporation eliminates
the liability of its directors to the fullest extent permissible under
applicable law. The foregoing limitations on monetary damages have no effect,
however, on the standard of care to which directors must conform or the
availability of monetary damages.
INDEMNIFICATION. Delaware corporate law generally provides that a
corporation shall indemnify a director against all costs, charges and expenses
actually and reasonably incurred by the director, including an amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action to which the director is a party by reason of his having been a director,
provided that the director was acting in good faith. The indemnification
permitted under Delaware corporate law does not differ substantially in nature
or extent from that permitted under Alberta corporate law and currently provided
for in the articles of incorporation and bylaws of the existing Alberta
corporation. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons,
the SEC has indicated that this indemnification is against public policy as
expressed in the Securities Act.
After the Delaware domestication, we intend to enter into
indemnification agreements with our directors and executive officers. See
"Proposal Ten--Approval of Form Indemnification Agreement."
CUMULATIVE VOTING FOR THE ELECTION OF DIRECTORS. Cumulative voting
entitles each shareholder to cast a number of votes that is equal to the number
of voting shares held by the shareholder multiplied by the total number of
directors to be elected. Shareholders may cast these votes for one nominee or
distribute the votes among up to as many candidates as there are positions to be
filled. Without cumulative voting, a shareholder or group of shareholders must
hold a majority of the voting shares to cause the election of one or more
nominees. Cumulative voting enables a minority shareholder or group of
shareholders holding a relatively small number of shares to elect a
representative or representatives to the board of directors.
Under Alberta corporate law and Delaware corporate law, cumulative
voting is permitted only if provided for in a corporation's articles of
incorporation or certificate of incorporation. Neither the existing Alberta
corporation's articles of incorporation nor the new Delaware corporation's
proposed certificate of incorporation provide for cumulative voting.
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LOANS TO OFFICERS AND EMPLOYEES. Under Alberta corporate law, a
corporation may give financial assistance to:
- any person in the ordinary course of business if the lending of
the money is part of the ordinary business of the corporation;
- any person on account of expenditures incurred or to be incurred
on behalf of the corporation;
- to the corporation's holding company;
- to the corporation's subsidiary;
- to the corporation's (or its affiliates') employees for the
purchase of a home; or
- to the corporation's (or its affiliates') employees in accordance
with a plan for the purchase of the corporation's shares to be
held by a trustee;
provided that (1) the corporation is not insolvent (or, in the case of a loan,
would not be made insolvent by giving the loan) at the time it gives the
financial assistance, and (2) the realizable value of the corporation's assets
would not be less than the aggregate of its liabilities and stated capital after
giving effect to the financial assistance.
Under Delaware corporate law, a corporation may make loan subsidies
(including loans to directors who are also officers or employees) when these
loans, in the judgment of the directors, may reasonably be expected to benefit
the corporation.
DIVIDENDS AND REPURCHASES OF SHARES. Alberta corporate law prohibits a
corporation from acquiring any of its own shares if the corporation is insolvent
or would be rendered insolvent by the acquisition. The declaration and payment
of dividends is regulated entirely by a corporation's articles of incorporation,
which typically give the directors authority to declare dividends.
Delaware corporate law permits a corporation to declare and pay
dividends out of surplus or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal
year. However, the amount of capital of the corporation following the
declaration and payment of the dividend cannot be less than the aggregate amount
of the capital represented by the outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware corporate law
generally provides that a corporation may redeem or repurchase its shares only
if the redemption or repurchase would not impair the capital of the corporation.
INTERESTED DIRECTOR TRANSACTIONS. Under Alberta corporate law,
transactions in which a director has an interest are valid if the transaction is
fair and reasonable at the time it was entered into and, after full disclosure
by the interested director, the transaction is approved by either a majority of
(1) the directors not involved in the transaction at a meeting at which a quorum
is present, or (2) the shareholders. If a director or officer fails to disclose
his interest in a material transaction, a court may, on the application of the
corporation or any of its shareholders, set aside the transaction.
Under Delaware corporate law, if board approval is sought, then the
transaction must be approved by a majority of the disinterested directors (even
if the number of disinterested directors does not constitute a quorum).
ANTI-TAKEOVER EFFECTS. Certain provisions of Delaware corporate law, of
the new Delaware corporation's certificate of incorporation and bylaws, and the
proposed amendments to the new Delaware corporation's certificate of
incorporation and bylaws may have an anti-takeover effect. See Proposals Six
through Nine and "Description of Capital Stock Change of Control Provisions."
These provisions may delay, defer or prevent a hostile tender offer or takeover
attempt that a stockholder might consider in his or her best interest, including
those attempts that might result in the payment of an additional amount over the
market price for the shares held by stockholders. Despite these anti-takeover
implications, the proposals to be voted on at the annual and special meeting are
not intended to prevent an acquisition of the existing Alberta corporation. We
are not aware of any effort to accumulate the
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existing Alberta corporation's securities or to obtain control of the existing
Alberta corporation by means of a merger, tender offer or solicitation in
opposition to management or otherwise.
- DELAWARE ANTI-TAKEOVER LAW. Section 203 of the General
Corporation Law of the State of Delaware applies to a Delaware
corporation with a class of voting stock listed on a national
securities exchange, authorized for quotation on an interdealer
quotation system or held of record by 2,000 or more persons. In
general, Section 203 prevents an "interested stockholder"
(defined generally as any person owning 15% or more of a
corporation's outstanding voting stock, including the person's
affiliates and associates) from engaging in a "business
combination" with a Delaware corporation for three years
following the time the person became an interested stockholder,
unless:
- before the person became an interested stockholder, the
board of directors approved the business combination or
the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transactions which resulted in
the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the
transaction commenced, excluding stock held by directors
who are also officers of the corporation and by employee
stock plans that do not provide employees with the rights
to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange
offer; or
- at or subsequent to the time the person became an
interested stockholder, the business combination is
approved by the board of directors of the corporation and
authorized at an annual or special meeting of
stockholders by the affirmative vote of the holders of at
least 66 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder.
The restrictions described above do not apply to certain
business combinations proposed by an interested stockholder
following the announcement of one of certain extraordinary
transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of a
majority of the corporation's directors.
- SIZE OF THE BOARD OF DIRECTORS. Alberta corporate law provides
that the board of directors may fix the exact number of directors
within a stated range specified in the corporation's charter
documents, if that stated range has been approved by the
shareholders. Delaware corporate law permits the corporation to
adopt a provision in its certificate of incorporation or bylaws
authorizing the board of directors alone to change the authorized
number or the range of directors by amendment to the bylaws. The
new Delaware corporation's proposed certificate of incorporation
provides that the number of directors will be as specified in its
bylaws and authorizes the board of directors to make, alter,
amend or repeal the bylaws. The ability of the board of
directors to alter the size of the board of directors without
stockholder approval will enable the new Delaware corporation to
respond quickly to a potential opportunity to attract the
services of a qualified director or to eliminate a vacancy for
which a suitable candidate is not available.
- ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND
DIRECTOR NOMINATIONS. Under Alberta corporate law, we must, not
less than 42 days before a general meeting at which a director is
to be elected, publish in a Calgary newspaper an advance notice
of the record date of the meeting giving the date of the meeting.
We must mail proxy solicitation materials to registered
shareholders not less than 21 days before the meeting.
Shareholders holding not less than 5% of the shares entitled to
vote at a meeting may submit a written proposal to management of
a corporation for the election of directors at least 90 days
before the anniversary date of the previous annual meeting of
shareholders. However, this requirement does not preclude
shareholders from nominating directors at the annual meeting of
shareholders.
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If approved, Proposal Six will require that stockholders
seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors
at an annual or a special meeting of stockholders, must provide
timely notice of the proposal or nomination in writing. To be
timely, a stockholder's notice will have to be delivered to, or
mailed and received at, our principal executive offices:
- for an annual meeting, not less than seventy days nor
more than ninety days before the anniversary date of the
immediately preceding annual meeting of stockholders, and
- for a special meeting, not more than ninety days before
the special meeting, and not less than the later of
seventy days before the special meeting or ten days after
the public announcement of the date of the meeting.
Proposal Six also specifies certain requirements for a
stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting.
- SPECIAL MEETINGS OF SHAREHOLDERS. Alberta corporate law provides
that the board of directors or the holders of 5% of the
outstanding shares with a right to vote can call a special
meeting. Under Delaware corporate law, a special meeting may be
called by the board of directors or by any other person
authorized to do so in the corporation's certificate of
incorporation or bylaws. The new Delaware corporation's proposed
bylaws authorize the board of directors or any stockholder or
stockholders collectively representing 5% of the outstanding
shares of common stock to call a special meeting. If Proposal
Seven is approved, then only our board of directors will be
authorized to call a special meeting of stockholders. See
"Proposal Seven--Amendment to the New Delaware Corporation's
Certificate of Incorporation and Bylaws to Prohibit Stockholders
from Calling Special Meetings of the Stockholders."
- SHAREHOLDER ACTION BY WRITTEN CONSENT. Under Alberta corporate
law, a resolution in writing signed by all of the shareholders
entitled to vote on that resolution is as valid as a vote taken
at a meeting of shareholders. Under Delaware corporate law, a
majority of stockholders entitled to vote on a proposal may
execute an action by written consent instead of a stockholder
meeting, unless this right is eliminated in the corporation's
certificate of incorporation. If approved, Proposal Five will
eliminate the stockholders' ability to act by written consent.
Elimination of written consents of stockholders could lengthen
the amount of time required to take stockholder actions, because
certain actions by written consent are not subject to the minimum
notice requirement of a stockholders meeting. The elimination of
stockholders' written consents may deter, however, hostile
takeover attempts by preventing a holder or group of holders
controlling a majority in interest of a corporation's capital
stock from amending the corporation's certificate of
incorporation or bylaws or removing directors by means of a
stockholder's written consent.
- AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BYLAWS. The
existing Alberta corporation's articles of incorporation may be
amended if approved by two-thirds of the votes cast at a
shareholders meeting. Amendments to the existing Alberta
corporation's bylaws, however, may be made by a simple majority
of the votes cast. An amendment to the existing Alberta
corporation's articles of incorporation becomes effective on the
date shown in the certificate of amendment issued by the
Registrar of Corporations for the Province of Alberta on receipt
of the articles of amendment.
Delaware corporate law provides that the vote of holders
of a majority of the outstanding shares entitled to vote is
required to alter, amend, change or repeal a corporation's
certificate of incorporation, unless a greater vote is otherwise
specified in the certificate of incorporation. If Proposal Nine
is approved, then a two-thirds vote will be required to amend
certain provisions of the new Delaware corporation's certificate
of incorporation and bylaws. (See "Proposal Nine--Amendment to
the New Delaware Corporation's Certificate of Incorporation
and Bylaws to Require a Supermajority Vote to Amend Certain
Provisions of the New Delaware Corporation's
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Certificate of Incorporation and Bylaws"). This limitation on
the ability of stockholders to amend the new Delaware
corporation's charter documents may make a potential change in
control of the new Delaware corporation a lengthier and more
difficult process. See "Proposal Nine--Amendment to the New
Delaware Corporation's Certificate of Incorporation and Bylaws
to Require a Supermajority Vote to Amend Certain Provisions of
the New Delaware Corporation's Certificate of Incorporation
and Bylaws."
REGULATORY APPROVAL
The existing Alberta corporation will apply to the Registrar of
Corporations for the Province of Alberta for permission to continue the existing
Alberta corporation into the State of Delaware. This approval must be obtained
for the Delaware domestication to take place. The existing Alberta corporation
must also file a Certificate of Domestication with the Secretary of State of the
State of Delaware. There are no other regulatory approvals necessary for
consummation of the Delaware domestication.
TAX CONSIDERATIONS
The following sections summarize certain provisions of U.S. federal and
Canadian federal income tax laws that may affect us and our shareholders. This
summary applies to shareholders that are corporations or individuals resident in
Canada or the United States who hold their shares as capital property. This
summary generally does not apply to shareholders that are trusts, deferred
income plans or similar entities.
Although this summary discusses certain tax considerations that we deem
material to your decision regarding Proposal Five, it does not discuss all of
the U.S. federal and Canadian federal income tax consequences that may be
relevant to you, nor will it apply to the same extent or in the same way to all
shareholders. We provide no information with respect to the effect of any
state, local or provincial tax law, rule or regulation, or any foreign tax law,
other than the federal income tax law of Canada and the United States to the
extent specifically described in this discussion. WE URGE YOU TO CONSULT WITH
YOUR OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO YOU OF THE DELAWARE
DOMESTICATION.
We have not sought an advance tax ruling or interpretation from any tax
authority with respect to any of the transactions discussed in this Proxy
Statement and Information Circular. Consequently, the tax consequences to you
could differ from the consequences discussed below.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS. This discussion of
potential tax consequences is included for general information only. It does
not address the provincial, local or foreign tax aspects of the Delaware
domestication. The following summary is based on:
- provisions of the INCOME TAX ACT (Canada), as amended to date;
- regulations related to the INCOME TAX ACT (Canada);
- draft legislation amending the INCOME TAX ACT (Canada) and its
related regulations that was released prior to the date of this
Proxy Statement and Information Circular;
- the Canada - U.S. Tax Convention, as amended to date; and
- where applicable, our tax advisors' understanding of the current
administrative practices and policies of the Canadian Department
of National Revenue, Customs, Excise and Taxation.
Changes to relevant Canadian federal income tax law could affect the
opinions discussed in this Proxy Statement and Information Circular. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE DELAWARE
DOMESTICATION TO YOU, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
PROVINCIAL, LOCAL AND FOREIGN TAX LAWS.
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RESIDENTS OF CANADA. This discussion generally addresses certain
Canadian federal income tax consequences of the Delaware domestication
to shareholders residing in Canada that, within the meaning of the
INCOME TAX ACT (Canada):
- hold their shares of the existing Alberta corporation as
"capital property;" and
- deal at arm's length with the existing Alberta
corporation.
Your common shares generally will be considered "capital property" under
Canadian tax law unless you:
- are a trader or dealer in securities; or
- hold the shares for a purpose other than investment.
NON-DISSENTING SHAREHOLDERS. If you are a resident Canadian
shareholder and do not dissent to the Delaware domestication, then you
generally will not be considered to have disposed of your common shares
as a result of the Delaware domestication. The adjusted cost base of
your shares of the new Delaware corporation's stock will equal the
adjusted cost base of your shares of the existing Alberta corporation
immediately prior to the Delaware domestication.
Upon the completion of the Delaware domestication, the shares of
the new Delaware corporation's capital stock will constitute "foreign
property" for purposes of deferred income plans in Canada, such as
registered retirement savings plans. A Canadian deferred income plan
may not hold more than 20% of its investments (based on original cost)
in foreign property without incurring tax penalties. If you hold any
shares of TomaHawk Corporation in a deferred income plan, then you
should carefully review your foreign property limits and consult your
tax advisors.
If you are a Canadian resident, then you must include in your
income for Canadian federal income tax purposes 100% of the Canadian
dollar equivalent of the amount of any dividend that you receive from
the new Delaware corporation at any time after the completion of the
Delaware domestication. Dividends paid by the new Delaware corporation
also would be subject to U.S. withholding tax. Depending on your
particular circumstances, this withholding tax may or may not qualify
for a credit against Canadian federal income tax or a deduction against
Canadian taxable income.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication and we complete the Delaware domestication, then you will
be treated as if you had received a dividend equal to the amount of the
excess, if any, of the amount deemed paid for your shares over the
amount of the paid-up capital of your shares. Under Canadian tax law,
an individual shareholder resident in Canada who dissents to the
Delaware domestication is required to include as income 125% of the
actual amount of this dividend and is entitled to claim a dividend tax
credit equal to 13.33% of the grossed up amount in calculating Canadian
federal income tax payable.
A private corporation resident in Canada would be subject to a tax
of 33 1/3% to the extent that the amount received for the shares exceeds
the paid-up capital of the shares, provided that you did not own more
than 10% of the common shares at the time of the Delaware domestication.
A private corporation will receive a tax refund with respect to
dividends received from the new Delaware corporation equal to $1 for
each $3 in dividends received, so long as the private corporation passes
the dividends through to its shareholders.
In addition to the deemed dividend discussed above, you will be
considered to have disposed of your shares for "proceeds of disposition"
equal to the paid-up capital of your shares on the deemed sale of your
shares. If these proceeds exceed the adjusted cost base of your shares,
then you will realize a capital gain. Under Canadian tax law,
three-fourths of this capital gain will be included in income for
Canadian tax purposes in the year that you exercise your right of
dissent. If the proceeds are less than the adjusted cost base of your
shares, then you will incur a capital loss. Under Canadian tax law,
three-fourths of this
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capital loss can be used to offset current year capital gains. If the
capital loss exceeds current year capital gains, then any excess can be
carried back three years or forward indefinitely to offset capital gains
in those periods. If the adjusted cost base of your shares is equal to
the paid-up capital of the shares, then you will not realize any capital
gain or loss.
SHAREHOLDERS NOT RESIDENT IN CANADA. The following summary
generally applies to you if you:
- are not a resident of Canada;
- do not use or hold or are not deemed to use or hold your
shares in carrying on a business in Canada, including a
life insurance business;
- deal at arm's length with the existing Alberta
corporation; and
- hold your shares as capital property.
NON-DISSENTING SHAREHOLDERS. If you do not dissent to the Delaware
domestication, then, upon the completion of the Delaware domestication,
you generally will not be considered to have disposed of your common
shares as a result of the Delaware domestication. The adjusted cost
base of your shares of the new Delaware corporation's stock will equal
the adjusted cost base of your shares of the existing Alberta
corporation immediately prior to the Delaware domestication.
Any dividends that you receive from the new Delaware corporation
after the Delaware domestication will not be subject to Canadian federal
income tax.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication and we complete the Delaware domestication, then you will
be treated as if you had received a dividend from the deemed purchase of
your shares equal to the amount of the excess, if any, of the amount
paid for your shares over the amount of the paid-up capital of your
shares. You then will be subject to Canadian withholding tax of 25% of
the amount of the dividend. The withholding tax rate may be reduced
pursuant to the terms of an applicable tax treaty. Under the Canada -
U.S. Tax Convention, for example, the applicable withholding tax rate
would be:
- 15% of the amount of the dividend for dividends paid to
individuals or corporate shareholders owning less than
10% of the existing Alberta corporation's outstanding
voting shares; or
- 5% of the amount of the dividend for corporate
shareholders owning more than 10% of the existing Alberta
corporation's outstanding voting shares.
Depending on your particular circumstances, the tax withheld may or may
not qualify for a credit against income tax or a deduction against
taxable income in your jurisdiction of taxation.
As a dissenting shareholder who is not a Canadian resident, any
capital gains that you realized as a result of the Delaware
domestication are only subject to Canadian federal income taxation if
the shares constitute "taxable Canadian property" to you. The common
shares generally will not constitute "taxable Canadian property," as
defined by the INCOME TAX ACT (Canada), to a dissenting shareholder who
is not a Canadian resident, unless at any time within the five years
preceding the disposition of the shares:
- you, together with any other person or entity not dealing
at arm's length with you, owned and/or had options to
acquire 25% or more of the issued shares of any class of
series of capital stock of the existing Alberta
corporation;
- you, upon ceasing to be a resident of Canada, elected
under the INCOME TAX ACT (Canada) to have the existing
Alberta corporation's shares treated as "taxable Canadian
property;" or
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- the shares of the existing Alberta corporation were
acquired in circumstances in which they were deemed to be
taxable Canadian property.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO THE EXISTING ALBERTA
CORPORATION. If we proceed with the Delaware domestication, then the
existing Alberta corporation will be deemed to have:
- a year end immediately prior to the Delaware
domestication;
- disposed of each of its assets for an amount equal to the
fair market value of the assets; and
- immediately reacquired each of its assets at a cost equal
to the fair market value of the assets.
The deemed disposition of assets may give rise to income or loss,
or capital gains or capital losses depending on whether the fair market
value of the assets are greater than or less than their cost or adjusted
cost base. The resulting net income or loss and three-fourths of the
net capital gains will be included in computing the existing Alberta
corporation's taxable income for the fiscal period ending immediately
prior to the Delaware domestication. If the amounts included in
computing the existing Alberta corporation's taxable income exceed
available deductions, then the excess amount will be subject to Canadian
tax at an effective rate of 39%.
In addition, a 25% exit tax generally will apply to the amount by
which the aggregate fair market value of the existing Alberta
corporation's assets immediately prior to the Delaware domestication
exceeds the aggregate of its liabilities (including liability for income
tax for our taxable year ending immediately prior to the Delaware
domestication) and its paid-up capital of all of its issued and
outstanding shares, excluding the paid-up capital in respect of all
dissenting shareholders whose shares have been redeemed. The general
tax rate of 25% is reduced to 5% pursuant to the Canada - U.S. Tax
Convention. This exit tax is payable by the existing Alberta
corporation within six months after the end of the taxable year ending
immediately prior to the Delaware domestication.
Upon the completion of the Delaware domestication, the existing
Alberta corporation will be deemed to have been incorporated in Delaware
for Canadian federal income tax purposes and generally will be subject
to federal income tax in Canada for:
- business income attributable to a permanent establishment
in Canada;
- gains realized on disposition of taxable Canadian
property; and
- withholding tax in respect of Canadian source passive
income such as dividends and interest.
CONSEQUENCES OF THE ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION.
The one-for-fifteen common share consolidation will not result in a
disposition of your common shares for income tax purposes under Canadian
tax law. However, you will not realize any capital gain or capital loss
as a result of the common share consolidation as your proceeds of
disposition are deemed to equal your adjusted cost base. After the
common share consolidation is effected, the adjusted cost base and
paid-up capital of your common shares will be equal to the aggregate
adjusted cost base and paid-up capital of your pre-consolidated common
shares divided by the new number of common shares.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS. This discussion of
potential tax consequences is included for general information only. It does
not address the state, local or foreign tax aspects of the Delaware
domestication. The discussion is based on:
- currently existing provisions of the U.S. Internal Revenue Code;
- existing and proposed treasury regulations relating to the U.S.
Internal Revenue Code; and
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- current administrative rulings and court decisions.
Changes to relevant law could affect the validity of this discussion.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE DELAWARE DOMESTICATION TO YOU, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
This discussion does not address certain U.S. federal income tax
consequences applicable to U.S. shareholders who own or owned (directly or
indirectly) 10% or more of the voting power of the existing Alberta corporation
at any time during the five-year period ending on the date when the Delaware
domestication is completed.
RESIDENTS OF THE UNITED STATES. This discussion generally
addresses certain U.S. federal income tax consequences of the Delaware
domestication to shareholders residing in the United States.
The Delaware domestication will be treated for U.S. federal
income tax purposes as a transfer by the existing Alberta Corporation of
all of its assets and liabilities to the new Delaware corporation in
exchange for stock of the new Delaware corporation. The existing
Alberta corporation then will be deemed to distribute this stock of the
new Delaware corporation to its shareholders.
NON-DISSENTING SHAREHOLDERS. If you do not dissent to the
Delaware domestication, then you will not realize any capital gain or
loss from the deemed transfer of shares of the existing Alberta
corporation for stock of the new Delaware corporation, assuming that:
- the existing Alberta corporation has not been a
controlled foreign corporation, as defined by U.S. tax
law, at any time during the five years ending on the date
of the Delaware domestication;
- certain proposed regulations (which, if finalized at
least 30 days before the domestication, would require you
to recognize gain realized on the exchange) are not
effective as of the date of the Delaware domestication;
- the existing Alberta corporation is not a passive foreign
investment corporation; and
- you file the appropriate notice with the U.S. Internal
Revenue Service.
Our tax advisor, Ernst & Young LLP, has not made any
determination as to whether the existing Alberta corporation is, or has
ever been, a controlled foreign corporation or a passive foreign
investment corporation.
Your basis in the stock of the new Delaware corporation that you
receive after the Delaware domestication generally will be equal to your
basis in the shares of the existing Alberta corporation prior to the
Delaware domestication, increased by any income (e.g., deemed dividends)
or gain that you recognize as a result of the Delaware domestication.
Generally, if you do not dissent to the Delaware domestication,
then you will have a holding period for the stock of the new Delaware
corporation that you receive after the Delaware domestication equal to
your holding period for the shares of the existing Alberta corporation
immediately prior to the Delaware domestication.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication, then you generally will be treated as having received
cash in redemption of your shares. As a result, you may have to
recognize capital gain or loss or ordinary income as a result of the
Delaware domestication. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR AS
TO THE SPECIFIC U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DELAWARE
DOMESTICATION TO YOU.
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SHAREHOLDERS NOT RESIDENT IN THE UNITED STATES. The following
summary generally applies to you if you do not reside in the United
States and hold your shares as a capital asset.
The Delaware domestication will be treated for U.S. federal
income tax purposes as a transfer by the existing Alberta Corporation of
all of its assets and liabilities to the new Delaware corporation in
exchange for stock of the new Delaware corporation. The existing
Alberta corporation will then be deemed to liquidate and distribute the
stock of the new Delaware corporation to its shareholders.
NON-DISSENTING SHAREHOLDERS. If you are not a U.S. resident and
you do not dissent to the Delaware domestication, then you will not
recognize any gain or loss from the deemed receipt of shares of the new
Delaware corporation's common stock solely in exchange for your common
shares. Generally, if you are not a U.S. resident and you do not
dissent to the Delaware domestication, then you will have a basis in the
stock of the new Delaware corporation that you receive after the
Delaware domestication equal to your basis in the shares of the existing
Alberta corporation prior to the Delaware domestication.
DISSENTING SHAREHOLDERS. If you dissent to the Delaware
domestication and you are subject to U.S. federal income tax, then you
generally will be treated as having received cash in redemption of your
shares. As a result, you may have to recognize capital gain or loss or
ordinary income as a result of the Delaware domestication. You should
consult with your own tax advisor as to the specific U.S. federal income
tax consequences of the Delaware domestication to you.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE EXISTING ALBERTA
CORPORATION. The Delaware domestication will be treated as an exchange
by the existing Alberta corporation of its assets and its liabilities
for stock of the new Delaware corporation and will constitute a tax-free
reorganization under the U.S. Internal Revenue Code. As a result, the
existing Alberta corporation will not recognize any gain or loss from
the deemed transfer of its assets to the new Delaware corporation, and
the new Delaware corporation will not recognize any gain or loss.
The new Delaware corporation's basis in and holding period of the
assets of the existing Alberta corporation after the Delaware
domestication will be the same as the existing Alberta corporation's
basis in and holding period of its assets prior to the Delaware
domestication.
The taxable year of the existing Alberta corporation will end on
the date when the Delaware domestication is completed. The new Delaware
corporation's first taxable year will begin on the day after the
Delaware domestication is completed and will end on December 31, 1999.
CONSEQUENCES OF THE ONE-FOR-FIFTEEN COMMON SHARE CONSOLIDATION.
Our tax advisors, Ernst & Young LLP, believe that under existing U.S.
federal income tax laws and regulations, the one-for-fifteen
consolidation of the common shares will constitute a recapitalization
and, therefore, a tax-free reorganization under the U.S. Internal
Revenue Code. As a result, no gain or loss will be recognized by the
existing Alberta corporation from the common share consolidation.
Generally, no gain or loss will be recognized by the exchanging
shareholders from the common share consolidation. Your aggregate basis
in your common shares after the common share consolidation will be equal
to your aggregate basis in your pre-consolidation common shares. This
aggregate basis must be allocated pro rata among the number of common
shares that you own after the common share consolidation.
The holding period for your common shares after the common share
consolidation will include the holding period for your pre-consolidation
common shares, provided that your common shares are held as a capital
asset on the date of the common share consolidation. This holding
period must be allocated pro rata among the common shares that you own
immediately following the common share consolidation. For example, if
before the common share consolidation you had held 15 common shares for
one month and 15
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common shares for two years, then, after the common share consolidation,
you would hold two shares of common stock, each with a holding period as
follows:
- 50% of each share will have a one month holding period;
and
- 50% of each share will have a two year holding period.
RIGHT OF DISSENT
GENERAL. The following description of the right of shareholders to
dissent to the Delaware domestication is not a comprehensive statement of the
procedures to be followed by a dissenting shareholder who seeks payment of the
fair value of his common shares or Class A Series III Preferred Shares. This
description is qualified in its entirety by the reference to the full text of
Section 184 of the BUSINESS CORPORATIONS ACT (Alberta) which is attached to this
Proxy Statement and Information Circular as APPENDIX I. The statutory
provisions covering the right of dissent and appraisal are technical and
complex. IF YOU WISH TO EXERCISE YOUR RIGHT OF DISSENT AND APPRAISAL IN RESPECT
OF THE DELAWARE DOMESTICATION, THEN YOU SHOULD SEEK YOUR OWN LEGAL ADVICE, AS
FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF SECTION 184 OF THE BUSINESS
CORPORATIONS ACT (ALBERTA) MAY RESULT IN A LOSS OF ALL RIGHTS THEREUNDER. If
the number of shareholders exercising their right of dissent could adversely
affect our financial condition, then our board of directors may abandon the
Delaware domestication.
FAIR MARKET VALUATION. You are entitled to dissent and to have us pay to
you the fair value of your common shares or Class A Series III Preferred Shares,
determined as of the close of business on the last business day before the
annual and special meeting.
VALUATION BY APPLICATION TO COURT. If the Delaware domestication is
passed, then either a shareholder or the existing Alberta corporation may apply
to the Court of Queen's Bench of Alberta, Canada (the "Court") to fix the fair
value of your shares. If an application is made to the Court, unless the Court
otherwise orders, then we must send to each dissenting shareholder a written
offer to pay to the dissenting shareholder an amount considered by the existing
Alberta corporation to be the fair value of the shares. The offer to each
dissenting shareholder must be on the same terms and contain or be accompanied
by a statement showing how the fair value was determined.
If you choose to dissent, then you may enter into an agreement with us
for the purchase of your common shares or Class A Series III Preferred Shares,
in the amount offered by us or otherwise, at any time before the Court
pronounces an order fixing the fair value of the common shares or the Class A
Series III Preferred Shares.
On an application under Section 184 of the BUSINESS CORPORATION ACT
(Alberta), the Court must make an order fixing the fair value of the shares of
all dissenting shareholders, giving judgment in that amount against us and in
favor of each dissenting shareholder, and fixing the time within which we must
pay each dissenting shareholder. The Court may allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date on
which the dissenting shareholder ceases to have any rights as a shareholder of
the existing Alberta corporation until the date of payment.
RESTRICTIONS ON RIGHT OF DISSENT. You are not entitled to dissent with
respect to any shares if you vote (or instruct or are deemed, by submission of
an incomplete proxy, to have instructed a proxyholder to vote) any shares in
favor of the Delaware domestication, but you may abstain from voting on the
Delaware domestication (or submitting a proxy) without affecting your right of
dissent.
You may dissent only with respect to the common shares or Class A Series
III Preferred Shares that you hold on your own behalf or on behalf of any one
beneficial owner and registered in your name. IF YOU ARE A BENEFICIAL OWNER OF
COMMON SHARES OR CLASS A SERIES III PREFERRED SHARES REGISTERED IN THE NAME OF A
BROKER, CUSTODIAN, NOMINEE OR OTHER INTERMEDIARY AND YOU WISH TO DISSENT, THEN
YOU SHOULD BE AWARE THAT ONLY THE REGISTERED OWNER OF THE SHARES IS ENTITLED TO
DISSENT. ACCORDINGLY, IF YOU WANT TO EXERCISE YOUR RIGHT TO DISSENT, THEN YOU
MUST MAKE ARRANGEMENTS FOR THE COMMON SHARES OR CLASS A SERIES III PREFERRED
SHARES THAT YOU BENEFICIALLY OWN TO BE REGISTERED IN YOUR NAME BEFORE THE TIME
THAT WE MUST RECEIVE THE WRITTEN
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OBJECTION TO THE DELAWARE DOMESTICATION OR, ALTERNATIVELY, YOU MUST MAKE
ARRANGEMENTS FOR THE REGISTERED HOLDER OF YOUR COMMON SHARES OR CLASS A SERIES
III PREFERRED SHARES TO DISSENT ON YOUR BEHALF.
ACTION REQUIRED TO EXERCISE RIGHT OF DISSENT. If you choose to dissent,
then you must send us a written objection to the Delaware domestication, which
must be received by our president, Steven M. Caira, at our registered office,
1400, 350-7th Avenue S.W., Calgary, Alberta, Canada T2P 3N9 or the chairman of
the annual and special meeting at or before the annual and special meeting. A
vote against the Delaware domestication, an abstention or the execution of a
proxy to vote against the Delaware domestication does not constitute the
required written objection, but you need not vote your shares against the
Delaware domestication to dissent.
If you dissent to the Delaware domestication, then you are not required
to give security for costs in respect of an application to the Court to fix the
fair value of your shares, and, except in special circumstances, you will not be
required to pay the costs of the application or appraisal.
RIGHTS OF DISSENTING SHAREHOLDERS. A dissenting shareholder does not
have any rights as a shareholder, other than the right to be paid the fair value
of his or her shares, on the earliest of:
- the effective date of the Delaware domestication;
- the making of an agreement between the existing Alberta
corporation and the dissenting shareholder as to the payment to
be made for the dissenting shareholder's shares; or
- the pronouncement of the order of the Court fixing the fair value
of the shares.
Until any of the foregoing events occur, a dissenting shareholder may withdraw
his dissent or we may rescind the Delaware domestication. In either event,
proceedings under Section 184 will automatically terminate.
We will not make a payment to a dissenting shareholder under Section
184 if there are reasonable grounds for believing that we are, or would after
the payment be, unable to pay our liabilities as they become due, or that the
realizable value of our assets would thereby be less than the aggregate of
our liabilities. If this situation occurs, then we will notify each
dissenting shareholder that we are unable lawfully to pay the dissenting
shareholder for its shares, in which case the dissenting shareholder may, by
written notice to us within 30 days after receipt of this notice, withdraw
its written notice of dissent. In this case, we would be deemed to have
consented to the withdrawal and the shareholder would be reinstated to its
full rights as a shareholder of the existing Alberta corporation.
The above summary does not provide a comprehensive statement of the
procedures that you must follow to receive payment of the fair value of your
shares. IF YOU WISH TO EXERCISE YOUR RIGHT OF DISSENT AND APPRAISAL IN RESPECT
OF THE DELAWARE DOMESTICATION, THEN YOU SHOULD SEEK YOUR OWN LEGAL ADVICE, AS
FAILURE TO COMPLY STRICTLY WITH THE PROVISIONS OF SECTION 184 OF THE BUSINESS
CORPORATIONS ACT (ALBERTA) MAY RESULT IN A LOSS OF ALL RIGHTS THEREUNDER.
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SECURITIES LAW CONSEQUENCES
UNITED STATES SECURITIES LAW CONSEQUENCES. Unless you are deemed to be
an "affiliate" (as defined under the Securities Act) of the existing Alberta
corporation before the Delaware domestication, then all of the shares of common
stock that you receive in the Delaware domestication will be freely
transferable, except as described under "Canadian Securities Law Consequences"
below. If you are an affiliate of the existing Alberta corporation, then you
may resell your shares only in accordance with the resale provisions of Rule 144
promulgated, or as otherwise permitted, under the Securities Act. Persons who
may be deemed to be affiliates of the existing Alberta corporation generally
include individuals or entities that control, are controlled by, or are under
common control with, the existing Alberta corporation and may include certain
officers and directors of the existing Alberta corporation as well as principal
shareholders of the party or persons who hold restricted shares.
CANADIAN SECURITIES LAW CONSEQUENCES. If you are a Canadian resident,
then the shares of common stock or Class A Preferred Stock that you receive
after the Delaware domestication will continue to be subject to any applicable
resale restrictions imposed by the securities laws of the province of Canada in
which you are resident.
EXCHANGE OF SHARE CERTIFICATES
Following the effective date of the Delaware domestication, existing
holders of common shares will become holders of shares of the new Delaware
corporation's common stock and existing holders of the Class A Series III
Preferred Shares will become holders of shares of the new Delaware corporation's
Class A Preferred Stock. This conversion will occur regardless of when the
certificates formerly representing common shares or Class A Series III Preferred
Shares are surrendered. Shortly after the effective date of the Delaware
domestication, we will provide each of the holders of common shares with a
letter of transmittal containing instructions on how to exchange certificates
formerly representing common shares for certificates representing shares of
common stock. Upon our receipt of this letter of transmittal and the
certificate(s) formerly representing common shares, we will issue a certificate
representing the appropriate number of shares of common stock. We will provide
a similar letter to each holder of Class A Series III Preferred Shares.
THE DELAWARE DOMESTICATION RESOLUTION
Based on the foregoing discussion, our board of directors has approved
and believes that it is in the best interests of the existing Alberta
corporation and its shareholders to domesticate the existing Alberta corporation
into the State of Delaware. To reduce the franchise fees payable to the
Delaware corporate authorities following the Delaware domestication, our board
of directors believes that it is in our best interests and the best interests of
our shareholders to alter our authorized capital from:
- an unlimited number of common shares without par value;
- an unlimited number of Class "B" non-voting common shares; and
- an unlimited number of preferred shares without par value (of
which a first series of preferred shares consisting of 100,000
shares without par value have been created, designated as 6%
non-cumulative redeemable retractable first preferred shares,
Series A and an unlimited number of Class A Series I, Series II
and Series III Preferred Shares have been created);
to (after giving effect to the common share consolidation):
- 20,000,000 shares of common stock, par value of US $0.001 per
share;
- 750,000 shares of Class A Preferred Stock, par value of US $0.001
per share; and
- 750,000 shares of preferred stock, par value of US $0.001 per
share.
If the shareholders approve this proposal, then, before completing the
Delaware domestication and subject to approval by The Alberta Stock Exchange, we
will effect a one-for-fifteen consolidation of the common shares
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and corresponding name change whereby the existing Alberta corporation will be
renamed TomaHawk Engineering, Inc. Our shareholders authorized this common
share consolidation and name change on September 22, 1998.
Accordingly, you will be asked at the annual and special meeting to
approve the following resolution changing our jurisdiction of incorporation from
Alberta to Delaware, altering our authorized share capital and approving a new
certificate of incorporation and bylaws, in substantially the following terms:
"BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the continuance of the Company out of the jurisdiction of the BUSINESS
CORPORATIONS ACT (Alberta) to the State of Delaware pursuant to Section
388 of the General Corporation Law of the State of Delaware be and is
hereby approved;
2. the Company obtain the approval of the Registrar appointed under the
BUSINESS CORPORATIONS ACT (Alberta) that the Company be permitted to
continue into and be registered as a "Corporation" in the State of
Delaware pursuant to the General Corporation Law of the State of
Delaware;
3. the Company make application to the appropriate authorities in the State
of Delaware for consent to be domesticated into and registered as a
"Corporation" pursuant to the General Corporation Law of the State of
Delaware;
4. effective on the date of domestication of the Company under the General
Corporation Law of the State of Delaware and after giving effect to the
one-for-fifteen common share consolidation (the "Share Consolidation"),
the authorized share capital of the Company be reconstituted as
20,000,000 shares of common stock, each with a par value of US $0.001
per share, 750,000 shares of preferred stock, each with a par value of
US $0.001 per share, and 750,000 shares of Class A Preferred Stock, each
with a par value of US $0.001 per share, all having the rights,
privileges, restrictions and conditions as set forth in APPENDIX II
attached to the Proxy Statement and Information Circular (the
"Information Circular") of the Company dated __________, 1999;
5. effective on the date of domestication of the Company under the General
Corporation Law of the State of Delaware, the Company's issued and
outstanding common shares shall each be replaced with a share of common
stock with a par value of US $0.001 per share having the rights,
privileges, restrictions and conditions as set forth in APPENDIX II
attached to the Information Circular and each issued and outstanding
Class A Series III Preferred Share of the Company shall be replaced with
a share of Class A Preferred Stock having the rights, privileges and
restrictions and conditions as set forth in APPENDIX II to the
Information Circular;
6. effective on the date of domestication of the Company under the General
Corporation Law of the State of Delaware, the Company adopt in
substitution for its existing Articles of Incorporation and Bylaws a
Certificate of Incorporation and Bylaws in the form attached as APPENDIX
II and APPENDIX III, respectively, to the Proxy Statement and
Information Circular, with such amendments thereto as the director or
officer executing the same may approve, such approval to be conclusively
evidenced by his signature thereto;
7. any of the directors or officers of the Company is hereby authorized to
make such applications, execute such documents, and do such further and
other acts and things as may be necessary or advisable in connection
with the foregoing; and
8. the directors of the Corporation may abandon the domestication
application without further approval of the shareholders at any time
prior to the Company's registration as a "Corporation" pursuant to the
General Corporation Law of the State of Delaware."
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VOTE REQUIRED
The Delaware domestication requires the approval of two-thirds of the
votes cast by the holders of common shares and Class A Series III Preferred
Shares present or represented by proxy and voting as one class at the annual and
special meeting on this proposal.
Under Alberta corporate law, abstentions and broker non-votes are not
counted as for purposes of determining the presence or absence of a quorum for
the transaction of business, and are not counted as votes cast. Accordingly,
abstentions and broker non-votes with respect to this proposal will not be
considered and will not be counted in determining whether this proposal passes.
Our board of directors has approved unanimously the Delaware
domestication of the existing Alberta corporation under the provisions of
Section 182 of the BUSINESS CORPORATIONS ACT (Alberta) and Section 388 of the
General Corporation Law of the State of Delaware and recommends that you vote
"FOR" the Delaware domestication.
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PROPOSAL SIX
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
TO REQUIRE ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS
GENERAL
The new Delaware corporation's certificate of incorporation (attached
hereto as APPENDIX II) and bylaws (attached hereto as APPENDIX III) do not
currently provide for the timing of any notice that stockholders must give to us
before they may nominate a candidate for the board of directors or make a
proposal to be voted on at an annual stockholders meeting. Our board of
directors therefore has adopted, subject to stockholder approval, proposed
amendments to the new Delaware corporation's certificate of incorporation and
bylaws that will provide a detailed notice procedure for stockholder nominations
of candidates for election as directors and stockholder proposals to be brought
before an annual meeting of stockholders. If this proposal is approved, then:
- only persons who are nominated by or at the direction of our
board of directors, or by a stockholder who has given timely
prior written notice to our secretary before the meeting at which
directors are to be elected, will be eligible for election as
directors; and
- stockholder proposals must be submitted in writing in a timely
manner to be considered at any annual meeting.
If this proposal is approved, then, in order to be considered timely, a
stockholder must deliver his notice for director nominations or stockholder
proposals to us:
- for an annual meeting, not less than seventy days nor more than
ninety days before the anniversary date of the immediately
preceding annual meeting of stockholders, and
- for a special meeting, not more than ninety days before the
special meeting, and not less than the later of seventy days
before the special meeting or ten days after the public
announcement of the date of the meeting.
If this proposal is approved, then notice from a stockholder who
proposes to nominate a person at a meeting for election as a director must
contain the following information about the nominee:
- age;
- business and residence addresses;
- principal occupation;
- the class and number of shares of common stock or other capital
stock beneficially owned;
- the consent of the person to be nominated; and
- any other information required to be included in a proxy
statement soliciting proxies for the election of the proposed
nominee.
The nominating stockholder must also disclose his name, address, and the number
of shares of stock that he owns.
If this proposal is approved, then notice relating to a stockholder
proposal must contain certain information about the proposal and the stockholder
making the proposal, including a brief description of the proposal, the
proposing stockholder's name and address, and the number of shares of stock that
the proposing stockholder owns.
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REASONS FOR STOCKHOLDER APPROVAL
By requiring advance notice of director nominations by stockholders, our
board of directors will have a meaningful opportunity to consider the
qualifications of the proposed nominees and, if deemed necessary or desirable by
our board of directors, to inform stockholders about the qualifications of the
proposed nominees. Similarly, by requiring advance notice of stockholder
proposals, our board of directors will have a more orderly procedure for
conducting annual meetings of stockholders and a meaningful opportunity to
analyze the proposals and to decide whether it is appropriate to either omit the
proposal or inform our stockholders, before these meetings, of any proposal to
be introduced at these meetings. The advance notice requirement also allows our
board of directors to weigh the merits of the proposal and prepare an analysis
and a recommendation for our stockholders to consider. Finally, these
procedures will give stockholders sufficient time to determine whether they
desire to attend the annual meeting of stockholders, or whether they wish to
grant a proxy to our management as to the disposition of any stockholder
proposals.
POTENTIAL ANTI-TAKEOVER EFFECTS
Although the proposed amendments do not give our board of directors any
power to approve or disapprove stockholder nominations or proposals, they may
discourage or make it more difficult to bring a nomination or proposal to a
vote. The proposed amendments also may discourage a stockholder from conducting
a solicitation of proxies to elect his own slate of directors or otherwise
attempting to obtain control of the new Delaware corporation, even though this
action might be beneficial to the new Delaware corporation and our stockholders.
For these reasons, this proposal may have an anti-takeover effect, particularly
when combined with Seven through Nine. Our board of directors nonetheless
believes that it is important that it give advance notice of and consideration
to any stockholder nominations or proposals and that stockholders have the
opportunity to consider carefully any matters that may affect their rights. In
addition, our board of directors believes that the proposed amendments will help
assure the continuity and stability of our business and reduce our vulnerability
to unsolicited takeover proposals that could curtail our board of directors
ability to negotiate effectively on behalf of all of our stockholders. See
"Proposal Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover Effects."
While they may be deemed to have potential anti-takeover effects, the
proposed amendments are not prompted by any specific effort or takeover threat
that we currently perceive. We presently are not aware of any attempt to take
over or acquire the existing Alberta corporation or to remove our incumbent
management.
THE PROPOSED AMENDMENTS
If the stockholders approve this Proposal Six, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by adding the following section after Article SIXTH, Section (5):
"(6) Advance notice of stockholder nominations for the
election of directors and proposals to be voted on at stockholder
meetings shall be given in the manner provided in the bylaws of the
Corporation."
If the stockholders approve this Proposal Six, then our board of
directors also will amend the new Delaware corporation's bylaws by adding the
following section after Section 1.12:
"Section 1.13. STOCKHOLDER NOMINATIONS AND PROPOSALS
(A) ANNUAL MEETINGS OF STOCKHOLDERS.
(1) 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 (a) pursuant to the Corporation's notice of meeting
delivered pursuant to Section 1.3 of these bylaws, (b) by or at the
direction of the Chairman or the Board of
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Directors or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who complied with the notice procedures set
forth in clauses (2) and (3) of this paragraph (A) of this bylaw and who
was a stockholder of record at the time such notice is delivered to the
Secretary of the Corporation.
(2) For nominations or other business to be
properly brought before an annual meeting by a stockholder pursuant to
clause (c) of paragraph (A)(1) of this bylaw, the stockholder must have
given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not
less than seventy days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by
more than twenty days, or delayed by more than seventy days, from such
anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the ninetieth day prior to such annual
meeting and not later than the close of business on the later of the
seventieth day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or
reelection as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected;
(b) as to any other business that the stockholder proposes to bring
before the meeting, 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; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal
is made, (i) the name and address of such stockholder, as they appear on
the Corporation's books, and of such beneficial owner and (ii) the class
and number of shares of the Corporation that are owned beneficially and
of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second
sentence of paragraph (A)(2) of this bylaw 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 eighty days prior to
the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this bylaw 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.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such
business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's
notice of meeting pursuant to Section 1.3 of these bylaws. 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 (a) by or at the
direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with
the notice procedures set forth in this bylaw and who is a stockholder
of record at the time such notice is delivered to the Secretary of the
Corporation. 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 as required by paragraph (A)(2) of this
bylaw shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the ninetieth day prior to
such special
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meeting and not later than the close of business on the later of the
seventieth day prior to such special meeting or the tenth 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. In no event shall the public
announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(C) GENERAL.
(1) Only persons who are nominated in
accordance with the procedures set forth in this bylaw shall be eligible
to serve as director 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 this bylaw. Except as
otherwise provided by law, the Certificate of Incorporation or these
bylaws, 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 this bylaw and, if any proposed nomination or business is not in
compliance with this bylaw, to declare that such defective proposal or
nomination shall be disregarded.
(2) For purposes of this bylaw, "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.
(3) Notwithstanding the foregoing provisions
of this bylaw, 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 this bylaw. Nothing
in this bylaw 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."
VOTE REQUIRED
The approval of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to require advance notice
of stockholder nominations and proposals requires the affirmative vote of a
majority of all outstanding shares of common stock as of ___________, 1999,
the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the adoption of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to require advance notice
of stockholder nominations and proposals to be voted on at annual meetings of
stockholders.
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PROPOSAL SEVEN
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
TO PROHIBIT STOCKHOLDERS
FROM CALLING SPECIAL MEETINGS OF THE STOCKHOLDERS
GENERAL
The bylaws of the new Delaware corporation currently provide that our
board of directors or holders of at least 5% of the outstanding shares of common
stock may call special meetings of the stockholders. Our board of directors has
adopted, subject to stockholder approval, amendments to the new Delaware
corporation's certificate of incorporation and bylaws to prohibit our
stockholders from calling a special meeting of stockholders. If this proposal
is approved, then only our board of directors will be permitted to call a
special meeting of stockholders.
REASONS FOR STOCKHOLDER APPROVAL
If approved, this proposal will prevent stockholders from forcing
stockholder consideration of a proposal over the opposition of our board of
directors by calling a special meeting of stockholders before the next annual
meeting. In addition, a stockholder will not have the ability to force
stockholder consideration of a proposal over the opposition of our board of
directors by calling a special meeting of stockholders earlier than our board
believes to be appropriate. As a result, the proposed amendments will enable
our board of directors to conduct stockholder meetings in an orderly manner and
to adequately inform stockholders of the matters to be considered at any special
meeting of stockholders.
This proposed amendment, in conjunction with Proposals Six, Eight and
Nine, is intended to protect against attempts to acquire control of the new
Delaware corporation by coercive and unfair practices that do not treat all
shareholders equally. For example, an acquiror may propose a two-tiered
takeover bid that forces stockholders to sell or risk receiving an even lower
price in the second step of the transaction. The acquiror also may use the
threat of a proxy fight and/or a takeover bid as a means of forcing the new
Delaware corporation to repurchase the acquiror's shares at a substantial
premium over the market price. By preventing the stockholders from calling a
special meeting, this proposed amendment is intended to encourage potential
acquirors to negotiate with our board of directors before making a takeover bid.
These negotiations should provide our board of directors with the time it needs
to evaluate any takeover proposal and to review alternatives with a goal of
maximizing value for all of our stockholders. If these negotiations produce a
proposal that our board of directors believes is fair to all of our
stockholders, then our board of directors will call a special meeting to vote on
the takeover proposal.
POTENTIAL ANTI-TAKEOVER EFFECTS
If this proposal is approved, then it may discourage or make it more
difficult to attempt to take control of the new Delaware corporation, even
though this action might be beneficial to the new Delaware corporation and our
stockholders. Potential acquirors would be forced to wait for the next annual
meeting to attempt a takeover. This proposal therefore may have an
anti-takeover effect, particularly when combined with Proposals Six, Eight and
Nine. See "Proposal Five--Domestication into the State of Delaware--Corporate
Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Special Meetings of Shareholders."
While it may be deemed to have potential anti-takeover effects, the
proposed amendments are not prompted by any specific effort or takeover threat
that we currently perceive. We presently are not aware of any attempt to take
over or acquire the existing Alberta corporation or to remove our incumbent
management.
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THE PROPOSED AMENDMENTS
If the stockholders approve this Proposal Seven, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by adding the following section after Article SIXTH, Section (6):
"(7) Special meetings of stockholders may be called
only by the Board of Directors, and may not be called by any other
person or persons."
If the stockholders approve this Proposal Seven, then our board of
directors also will amend the new Delaware corporation's bylaws by deleting the
phrase "or by holders of shares of Common Stock of the Corporation representing
5% of the outstanding shares" from the first sentence of Section 1.2, and adding
the phrase "but such special meetings may not be called by any other person or
persons."
VOTE REQUIRED
The approval of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to prohibit stockholders
from calling special meetings of stockholders requires the affirmative vote of a
majority of all outstanding shares of common stock as of ___________, 1999,
the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the adoption of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to prohibit stockholders
from calling special meetings of stockholders.
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PROPOSAL EIGHT
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION
TO ELIMINATE ACTIONS OF THE STOCKHOLDERS
BY WRITTEN CONSENT WITHOUT A MEETING
GENERAL
Under Delaware corporate law, stockholders may take any action required
or permitted to be taken by stockholders without a meeting, without prior notice
and without a stockholder vote if a written consent setting forth the action to
be taken is signed by the holders of stock having the requisite number of votes
needed to approve the action. However, Delaware corporate law provides that a
corporation's certificate of incorporation may require that its stockholders act
at an annual or special meeting and prohibit stockholder action by written
consent. The new Delaware corporation's certificate of incorporation (attached
hereto as APPENDIX II) currently does not prohibit this type of action by
written consent. Consequently, a person or group of persons holding a majority
interest in the new Delaware corporation could take significant corporate action
without giving to all stockholders advance notice or the opportunity to vote.
Our board of directors therefore has adopted, subject to stockholder approval,
an amendment to the new Delaware corporation's certificate of incorporation that
will prevent the new Delaware corporation's stockholders from taking action
without a meeting by written consent.
REASONS FOR STOCKHOLDER APPROVAL
Our board of directors believes that it is in the best interests of our
stockholders to be advised of in advance and given the opportunity to vote on
any significant corporate action that requires their approval. If action by
written consent without a meeting is permitted, then a majority of the
stockholders could consent in writing to certain action without advance notice
to the other stockholders. Requiring advance notice of proposed stockholder
action provides all stockholders with the opportunity to express their views on
the proposed action and to obtain the support or opposition of other
stockholders. Our board of directors believes that stockholder decisions that
have been reached only after all stockholders have received notice and have had
an opportunity to express their views will better reflect the best interests of
all of our stockholders.
Like Proposal Seven, this proposed amendment is intended to protect
against attempts to acquire control of the new Delaware corporation by coercive
and unfair practices that do not treat all shareholders equally. By forcing our
stockholders to take action only at a meeting, this proposed amendment is
intended to prevent a potential acquiror from taking control of our company by
soliciting the written consent of a simple majority of our stockholders. This
proposal should encourage potential acquirors to negotiate with our board of
directors before making a takeover bid. These negotiations should provide our
board of directors with the time it needs to evaluate any takeover proposal and
to review alternatives with a goal of maximizing value for all of our
stockholders. This proposal is also intended to prevent a potential acquiror
from avoiding the requirements of Proposal Seven by taking action without
holding a stockholders meeting.
POTENTIAL ANTI-TAKEOVER EFFECTS
Action by written consent may, in some circumstances, permit our
stockholders to take action opposed by our board of directors more rapidly than
would be possible if a meeting were required. Action by written consent may
include proposals to approve offers to acquire the new Delaware corporation, to
acquire the assets of the new Delaware corporation or to replace members of our
board of directors, which proposals our board of directors may oppose. The
proposed amendment to the new Delaware corporation's certificate of
incorporation therefore may complicate or delay any attempt to assume control of
the new Delaware corporation without the approval of our board of directors.
This provision may discourage or make it more difficult to complete a merger,
tender offer, proxy contest or the assumption of control and removal of our
incumbent management, even though this action might be beneficial to the new
Delaware corporation and our stockholders. Our board of directors nonetheless
believes that it is important that it give advance notice of and consideration
to any stockholder action and that
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stockholders discuss at a meeting any matters which may affect their rights.
See "Proposal Five--Domestication into the State of Delaware--Corporate
Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects."
While it may be deemed to have potential anti-takeover effects, the
proposed amendment is not prompted by any specific effort or takeover threat
that we currently perceive. We presently are not aware of any attempt to take
over or acquire the existing Alberta corporation or to remove our incumbent
management.
THE PROPOSED AMENDMENT
If our stockholders approve this Proposal Eight, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by adding the following section after Article SIXTH, Section (7):
"(8) No action that is required or permitted to be
taken by the stockholders of the Corporation at any annual or special
meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders."
VOTE REQUIRED
The approval of the proposed amendment to the new Delaware corporation's
certificate of incorporation to eliminate the right to act by written consent
requires the affirmative vote of a majority of all outstanding shares of common
stock as of ___________, 1999, the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the amendment to the new Delaware corporation's certificate of
incorporation to eliminate the right to act by written consent.
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PROPOSAL NINE
AMENDMENT TO THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
TO REQUIRE A SUPERMAJORITY VOTE TO AMEND CERTAIN PROVISIONS OF THE
NEW DELAWARE CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS
GENERAL
Delaware law provides that the vote of the holders of a majority of the
outstanding shares entitled to vote is required to alter, amend, change or
repeal a corporation's certificate of incorporation, unless otherwise specified
in the corporation's certificate of incorporation or bylaws. Our board of
directors has adopted, subject to stockholder approval, amendments to the new
Delaware corporation's certificate of incorporation and bylaws that would
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares entitled to vote to amend Article SIXTH of the new Delaware
corporation's certificate of incorporation, and Sections 1.2 and 1.13 of the new
Delaware corporation's bylaws, which govern:
- the size of our board of directors;
- the elimination of actions by written consent of stockholders;
- advance notice requirements;
- the removal of directors; and
- the filling of vacancies on the board of directors.
REASONS FOR STOCKHOLDER APPROVAL
As discussed above in Proposals Six through Eight, our board of
directors believes it is in the best interests of our stockholders to be advised
of in advance and given the opportunity to consider and vote on any significant
corporate action that requires the approval of the stockholders. The proposed
amendments described in Proposals Six through Eight are intended to further this
goal. This Proposal Nine is designed to prevent a stockholder with a majority
of the voting power from avoiding the protections of the proposed amendments
described in Proposals Six through Eight by simply repealing them.
This proposed amendment, like Proposals Six through Eight, is intended
to protect against attempts to acquire control of the new Delaware corporation
by coercive and unfair practices that do not treat all shareholders equally. By
forcing potential acquirors to comply with the protections of the proposed
amendments in Proposals Six through Eight, this proposed amendment should force
potential acquirors to negotiate with our board of directors before making a
takeover bid. These negotiations should provide our board of directors with the
time it needs to evaluate any takeover proposal and to review alternatives with
a goal of maximizing value for all of our stockholders.
POTENTIAL ANTI-TAKEOVER EFFECTS
This supermajority voting provision may discourage or make it more
difficult to complete a merger, tender offer, proxy contest or the assumption of
control and removal of our incumbent management, even though this action might
be beneficial to the new Delaware corporation and our stockholders. While it
may be deemed to have potential anti-takeover effects, the proposed Articles
THIRTEENTH and FOURTEENTH are not prompted by any specific effort or takeover
threat that we currently perceive. We presently are not aware of any attempt to
take over or acquire the existing Alberta corporation or to remove our incumbent
management. See "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta Law
Comparisons--Anti-Takeover Effects."
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THE PROPOSED AMENDMENTS
If the stockholders approve this Proposal Nine, then our board of
directors will amend the new Delaware corporation's certificate of incorporation
by deleting Article THIRTEENTH and replacing it with the following:
"THIRTEENTH. Notwithstanding any other provisions of this
Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by
law, this Certificate of Incorporation or the bylaws of the
Corporation), the affirmative vote of the holders of two-thirds of the
total voting power of all shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article THIRTEENTH or Articles SIXTH or
FOURTEENTH."
"FOURTEENTH. Notwithstanding any other provisions of this
Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage maybe specified by
law, this Certificate of Incorporation or the bylaws of the
Corporation), the affirmative vote of the holders of two-thirds of all
outstanding shares of common stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, Sections 1.2, 1.13 or 7.6 of the Corporation's
bylaws."
If the stockholders approve this Proposal Nine, then our board of
directors will also amend the new Delaware corporation's bylaws by deleting
Section 7.6 and replacing it with the following:
"Section 7.6. AMENDMENTS. These bylaws may be altered, amended
or repealed, and new bylaws made, at any meeting of the Board of
Directors or of the stockholders, provided notice of the proposed change
was given in the notice of the meeting and, in the case of a meeting of
the Board, in a notice given not less than two days prior to the
meeting; PROVIDED, HOWEVER, that, in the case of amendments by
stockholders, notwithstanding any other provisions of these bylaws or
any provision of law which might otherwise permit a lesser vote or no
vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation
required by law, the Certificate of Incorporation or these bylaws, the
affirmative vote of the holders of at least two-thirds of the total
voting power of all shares of the Corporation entitled to vote generally
in the election of directors, voting together as a single class, shall
be required to amend or repeal, or adopt any provision inconsistent
with, this Section 7.6 or any provision of Sections 1.2 or 1.13 of these
bylaws."
VOTE REQUIRED
The approval of the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws to require a supermajority
vote to amend the new Delaware corporation's certificate of incorporation or
bylaws requires the affirmative vote of a majority of all outstanding shares of
common stock as of ___________, 1999, the record date.
Under Delaware law, we will count abstentions and broker non-votes to
determine the presence or absence of a quorum for the transaction of business,
but we will not count them as votes cast. Accordingly, abstentions and broker
non-votes will have the effect of votes against the proposal.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the proposed amendments to require a supermajority vote to amend the
new Delaware corporation's certificate of incorporation or bylaws.
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PROPOSAL TEN
APPROVAL OF FORM INDEMNIFICATION AGREEMENT
GENERAL
We intend to enter into indemnification agreements with our directors
and executive officers upon the effectiveness of the Delaware domestication.
These indemnification agreements will, among other things, provide the maximum
protection permitted by Delaware law for the indemnification of the directors
and executive officers of the new Delaware corporation.
Section 144 of the General Corporation Law of the State of Delaware
provides that no transaction between the corporation and:
- one or more of its directors or officers;
- any other corporation, partnership, association, or other
organization in which one or more of its directors or officers
are directors or officers; or
- any other corporation, partnership, association, or other
organization in which one or more of its directors or officers
have a financial interest;
is void solely because (1) the relationship exists, (2) the director or officer
is present or participates in the board meeting which authorizes the
transaction, or (3) the director's or officer's votes are counted for
authorizing the transaction, if:
- the material facts relating to the director's or officer's
relationship or interest are disclosed or are known to the board
of directors and a majority of the disinterested directors
authorizes the transaction in good faith, even though the
disinterested directors do not constitute a quorum;
- the material facts relating to the director's or officer's
relationship or interest are disclosed or are known to the
stockholders entitled to vote on the transaction, and the
transaction is specifically approved in good faith by vote of the
stockholders; or
- the transaction is fair to the corporation as of the time it is
authorized, approved or ratified, by the board of directors or
the stockholders.
If the stockholders approve the Delaware domestication, then the new
Delaware corporation intends to enter into indemnification agreements with each
of its directors and executive officers. Although we believe that the
indemnification agreements are just and reasonable, and that stockholder
approval therefore may not be required, we believe that it is appropriate to
submit the indemnification agreements to our stockholders for consideration. If
the indemnification agreements are approved, then no stockholder may later claim
that the indemnification agreements are invalid due to improper authorization.
If the indemnification agreements are not approved, then a stockholder may claim
that the agreements are invalid. If a stockholder does assert this type of
claim, then the person asserting the validity of the agreements may have the
burden of proving that they were just and reasonable to the new Delaware
corporation at the time they were authorized.
Insurance has traditionally provided additional protection to directors
and officers by covering litigation expenses and judgments in a wide range of
cases, even if a corporation cannot indemnify them directly. In recent years,
however, insurance for director and officer liability has become either
unavailable or available only in reduced amounts and at substantially increased
prices. In light of this situation, our board of directors has determined that
it is in our best interests to supplement any insurance coverage that the new
Delaware corporation may maintain by entering into the indemnification
agreements.
We request that you review and approve the proposed form of
indemnification agreement in substantially the form attached hereto as APPENDIX
IV. Please read the attached agreement in its entirety.
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TERMS OF THE INDEMNIFICATION AGREEMENTS
The proposed form of indemnification agreement is intended to provide
the maximum indemnification to our directors and executive officers allowed
under Delaware corporate law, including indemnification not expressly permitted
by the statute. The proposed form of indemnification agreement covers all
expenses, judgments, penalties, fines and amounts paid in settlement (if
approved in advance by the new Delaware corporation) arising from claims based
on the indemnified party's action or inaction while serving as a director or
executive officer of the new Delaware corporation, any subsidiary or another
entity (if at the new Delaware corporation's request). Indemnification would
not be available, however, for a claim if a court determines that
indemnification is not permitted under applicable law.
The proposed form of indemnification agreement also provides for the
prompt advancement of all expenses incurred in connection with any claim. If it
is later determined that the indemnified party was not entitled to
indemnification, then he is obligated to reimburse the new Delaware corporation
for all amounts advanced.
The proposed form of indemnification agreement also provides that it is
not exclusive, although it does prohibit double payment. While the proposed
form of indemnification agreement does not require the new Delaware corporation
to maintain liability insurance for directors and executive officers, if a
policy exists, then indemnification must be provided for any liability in excess
of the maximum coverage afforded under the liability insurance policy. The
proposed form of indemnification agreement, together with the limitation of
liability provided by the new Delaware corporation's certificate of
incorporation, will reduce significantly the number of instances in which
directors might be held liable to the new Delaware corporation or its
stockholders for monetary damages. Therefore, you should note that the
directors have a direct personal interest in the approval of the indemnification
agreements.
Steven M. Caira, our president, chief executive officer, acting chief
financial officer and chairman of the board of directors is currently a
defendant in a pending lawsuit. See "Business--Legal Proceedings." A verdict
for the plaintiff in this suit might result in a claim for indemnification
under the indemnification agreements. We are not aware of any other pending
or threatened litigation involving any of our other directors or executive
officers.
REASONS FOR THE STOCKHOLDER APPROVAL
We believe that our stockholders should approve the proposed form of
indemnification agreement because:
- the increasing hazard and related expense of unfounded litigation
against directors, executive officers and other service
providers;
- the general unavailability of liability insurance for directors
and executive officers or significant limitations in the amount
and breadth of the coverage;
- dramatic increases in premiums for liability insurance for
directors and executive officers; and
- our potential inability to continue to attract and retain
qualified directors and executive officers in light of these
circumstances.
Although the foregoing concerns have not prevented us from attracting
and retaining directors and executive officers, our board of directors believes
that the indemnification agreements will strengthen our ability to attract and
retain the services of knowledgeable and experienced persons who can make a
significant contribution to our success. We believe that the indemnification
agreements will complement the indemnity available under Delaware corporate law,
the new Delaware corporation's certificate of incorporation and bylaws, and any
insurance policies that the new Delaware corporation may maintain.
VOTE REQUIRED
The approval of the form indemnification agreements requires the
affirmative vote of a majority of the votes present or represented by proxy and
entitled to vote on this subject matter at the meeting and held by
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disinterested stockholders. Since each director and each executive officer is
an interested party with respect to this matter, shares owned directly or
indirectly by any director or executive officer may not be voted on this
proposal although they will be counted for purposes of determining whether a
quorum is present.
Under Delaware law, we will count abstentions to determine the presence
or absence of a quorum for the transaction of business, but we will not count
them as votes cast. Accordingly, abstentions will have the effect of votes
against the proposal. A broker non-vote will not be treated as entitled to vote
on this subject matter at the meeting.
Our board of directors has unanimously approved and recommends that you
vote "FOR" the approval of the proposed form of indemnification agreement.
ANTI-TAKEOVER MEASURES CURRENTLY INCLUDED IN THE NEW DELAWARE
CORPORATION'S CERTIFICATE OF INCORPORATION AND BYLAWS
Delaware corporate law and the new Delaware corporation's certificate of
incorporation and bylaws currently include several provisions that could
discourage or make it more difficult to complete a merger, tender offer, proxy
contest or the assumption of control and removal of our incumbent management.
These anti-takeover effects could deter actions that might be beneficial to the
new Delaware corporation and our stockholders.
BLANK CHECK PREFERRED STOCK. The term "blank check preferred stock"
refers to the inclusion of a provision in a company's certificate of
incorporation that allows the company's board of directors to issue preferred
stock and to determine the characteristics of that preferred stock. The new
Delaware corporation's certificate of incorporation contains a blank check
preferred stock provision that authorizes our board of directors to issue
shares of preferred stock in one or more series and to determine the
preferred stock's characteristics, including voting and conversion rights.
In addition, our board of directors may redeem all or any part of any series
of preferred stock at any time in compliance with the terms of the preferred
stock.
Faced with an attempted hostile takeover, our board of directors could
use this blank check preferred stock to create dilutive effects, voting
impediments or buyout obstacles, or to otherwise frustrate persons seeking to
acquire control of the new Delaware corporation.
SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE.
After the Delaware domestication, we will be governed by Delaware corporate law,
including Section 203 of the General Corporation Law of the State of Delaware.
In general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the time that the person became an interested
stockholder, unless (with certain exceptions) our board of directors approves
the business combination or the transaction in which the person became an
interested stockholder. Generally, a business combination includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the interested stockholder. In addition, an interested stockholder is generally
a person who, together with affiliates and associates, owns, or within three
years before the determination of interested stockholder status, did own, 15% or
more of a corporation's voting stock. This provision could have anti-takeover
effects with respect to transactions not approved in advance by our board of
directors, including discouraging takeover attempts that might offer a premium
over the market price of the common stock. See "Proposal Five--Domestication
into the State of Delaware--Corporate Governance Differences; Delaware and
Alberta Law Comparisons--Anti-Takeover Effects--Delaware Anti-Takeover Law."
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NO CUMULATIVE VOTING. The new Delaware corporation's certificate of
incorporation does not authorize cumulative voting for the election of
directors. Cumulative voting would enable substantial minority stockholders to
have representation on our board of directors. The absence of cumulative voting
could therefore be considered as an anti-takeover measure.
Our board of directors does not intend to propose any amendments to the
new Delaware corporation's certificate of incorporation or bylaws, other than
Proposals Six through Nine, which would impact an attempt by a third party to
obtain control of the new Delaware corporation. You should read Proposals Six
through Nine for a more complete description of the potential anti-takeover
effects created by these proposals.
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DESCRIPTION OF CAPITAL STOCK
The existing Alberta corporation's authorized capital stock consists of
an unlimited number of common shares and an unlimited number of preferred
shares. If the Delaware domestication is completed, after giving effect to the
one-for-fifteen common share consolidation, then the authorized capital of the
new Delaware corporation will consist of 20,000,000 shares of common stock, par
value US $0.001 per share, 750,000 shares of Class A Preferred Stock, par value
US $0.001 per share, and 750,000 shares of preferred stock, par value US $0.001
per share.
The following summaries of certain provisions of the common stock and
preferred stock are not complete. You should review the new Delaware
corporation's certificate of incorporation, a copy of which is attached as
APPENDIX II.
COMMON STOCK
As of May 31, 1999, the existing Alberta corporation had 84,744,165
common shares outstanding. If the Delaware domestication is completed, then the
holders of common shares will become holders of shares of common stock of the
new Delaware corporation. After giving effect to the common share
consolidation, there will be approximately 5,650,300 shares of common stock
outstanding.
The holders of the existing Alberta corporation's common shares are
entitled to, among other things:
- one vote per share on all matters submitted to a shareholder
vote;
- receive a pro rata share of any dividends declared by our board
of directors out of funds legally available for paying dividends
subject to preferences applicable to outstanding shares of Class
A Series III Preferred Shares (see "--Preferred Stock--Dividends
and Liquidation Preference"); and
- if the existing Alberta corporation is liquidated, dissolved or
wound-up, receive a pro rata share of all assets remaining after
we have paid our liabilities and the liquidation preference of
the Class A Series III Preferred Shares (see "--Preferred
Stock--Dividends and Liquidation Preference").
Holders of the existing Alberta corporation's common shares have no
preemptive rights and no rights to convert their common shares into any other
securities. In addition, there are no redemption or sinking fund provisions
with respect to the common shares. All of the outstanding common shares are
fully paid and non-assessable. The rights, preferences and privileges of
holders of common shares are subject to, and may be affected adversely by, the
rights of the holders of shares of the Class A Series III Preferred Shares and
any series of preferred shares that the existing Alberta corporation may
designate and issue in the future.
The rights of the holders of common stock after the Delaware
domestication will be substantially similar to the rights of the holders of
common shares. For a description of the differences of stockholder rights after
the Delaware domestication, see "Proposal Five--Domestication into the State of
Delaware Corporate Governance Differences; Delaware and Alberta Law
Comparisons."
PREFERRED STOCK
As of May 31, 1999, the existing Alberta corporation had 750,000 Class A
Series III Preferred Shares outstanding. If the Delaware domestication is
completed, then the holders of Class A Series III Preferred Shares will receive
shares of Class A Preferred Stock of the new Delaware corporation. Although the
one-for-fifteen common share consolidation will affect the conversion ratio of
the shares of Class A Preferred Stock, the conversion will not affect the number
of outstanding shares of Class A Preferred Stock. See "--Conversion Right."
DIVIDENDS AND LIQUIDATION PREFERENCE. Holders of Class A Series III
Preferred Shares are entitled to a pro-rata share of any dividends declared by
our board of directors, so long as the dividends are paid out of funds legally
available for paying dividends. If the existing Alberta corporation liquidates,
dissolves, sells all of our assets or distributes any of our capital before we
distribute anything to the holders of common shares, holders of
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Class A Series III Preferred Shares are entitled to receive US $0.001 for
each Class A Series III Preferred Shares held and a pro-rata share of any
unpaid dividends accrued with respect to each preferred share held.
CONVERSION RIGHT. Each Class A Series III Preferred Share may be
converted into ten common shares if our subsidiary TomaHawk II, Inc. earns Cdn.
$2.50 per shares in net income after tax, but adjusted to add back the following
expenses:
- depletion
- deferred taxes;
- amortization of goodwill; and
- deferred research and development costs.
If the Delaware domestication is completed and TomaHawk II, Inc. earns
Cdn. $2.50 per share in adjusted net income after tax, then, after giving effect
to the one-for-fifteen common share consolidation, each share of Class A
Preferred Stock may be converted into 0.67 shares of common stock of the new
Delaware corporation. Our articles of incorporation also permit us to apply to
The Alberta Stock Exchange to amend the terms of conversion. The Class A
Preferred Stock will be cancelled if they are not eligible for conversion by
December 31, 1999.
After the Delaware domestication, the rights of holders of Class A
Preferred Stock will be substantially similar to the rights that they have as
holders of Class A Series III Preferred Shares. For a description of the
differences of stockholder rights after the Delaware domestication, see
"Proposal Five--Domestication into the State of Delaware Corporate Governance
Differences; Delaware and Alberta Law Comparisons."
CANCELLATION OF PREFERRED STOCK. If we become insolvent, file or have
filed against us a petition in bankruptcy, or stop operating our business, then
the Class A Series III Preferred Shares must be surrendered to us for
cancellation.
CHANGE OF CONTROL PROVISIONS
The existing Alberta corporation's articles of incorporation and bylaws
include certain provisions that may discourage or make it more difficult to take
control of the existing Alberta corporation. These provisions include:
BLANK CHECK PREFERRED STOCK. The existing Alberta corporation currently
is authorized to issue an unlimited number of preferred shares by action of our
board of directors without further action by our shareholders. Our board of
directors could authorize the issuance of preferred shares with special voting
and other rights that could deter, or hinder the completion of, any proposed
tender offer, merger or other attempt to gain control of our company which is
not approved by our board of directors, to the extent permissible under
applicable law. Issuance of preferred shares could make removal of incumbent
management more difficult, even if this removal were viewed to be in the best
interests of our shareholders. We have no present plans to issue additional
preferred shares.
INCREASED STOCKHOLDER VOTE FOR AMENDMENT OF CERTIFICATE OF INCORPORATION
OR BYLAWS Under Alberta corporate law, amendments to our articles of
incorporation require the approval of two-thirds of the outstanding shares
entitled to vote on the amendment. This requirement makes it more difficult to
amend our articles of incorporation, including those provisions that tend to
deter takeover attempts. Obtaining a greater than majority vote can be
difficult, especially if our management opposes the proposed action. As of May
31, 1999, our directors and executive officers and the directors and executive
officers of TomaHawk II, Inc. held an aggregate of 24.2% of the outstanding
common shares.
If the Delaware domestication is approved, then these provisions will be
included in the new Delaware corporation's certificate of incorporation and
bylaws. In addition, if approved, the proposed amendments to the new Delaware
corporation's certificate of incorporation and bylaws described in Proposals Six
through Nine of this Proxy Statement and Information Circular also may deter an
attempt to take control of the new Delaware corporation. These proposed
amendments are:
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PROPOSAL SIX -- ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS AND PROPOSALS.
If approved, Proposal Six would require that stockholders provide us with
advance notice of all nominations for the election of directors and proposals to
be considered at a meeting of stockholders. This proposal also would require
stockholders to provide us with certain information about their nominees and
proposals. See "Proposal Six--Amendment to the New Delaware Corporation's
Certificate of Incorporation and Bylaws to Require Advance Notice of Stockholder
Nominations and Proposals-- General." The advance notice requirement would not
give to our board of directors the power to approve or disapprove stockholder
nominations or proposals. However, it might preclude a contest for the election
of directors if the nominating stockholder does not follow the established
procedures. See "Proposal Five--Domestication into the State of
Delaware--Corporate Governance Differences; Delaware and Alberta Law
Comparisons--Anti-Takeover Effects--Advance Notice Requirements for Shareholder
Proposals and Director Nominations."
PROPOSAL SEVEN -- ELIMINATION OF THE ABILITY OF STOCKHOLDERS TO CALL A
SPECIAL MEETING If approved, Proposal Seven would eliminate the stockholders'
ability to call a special meeting. When combined with the elimination of the
stockholders' ability to act by written consent in Proposal Eight, this
amendment would prevent our stockholders from taking any action opposed by our
board of directors until the next annual meeting of stockholders. This proposal
would make it more difficult to take control of the new Delaware corporation.
See "Proposal Five--Domestication into the State of Delaware--Corporate
Governance Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Special Meetings of Shareholders" and "Proposal Seven--Amendment to the
New Delaware Corporation's Certificate of Incorporation and Bylaws to Prohibit
Stockholders from Calling Special Meetings of the Stockholders."
PROPOSAL EIGHT -- STOCKHOLDERS CANNOT TAKE ACTION BY WRITTEN CONSENT If
Proposal Eight is approved, then our stockholders will not be able to take any
action by written consent. If adopted, the proposed amendment would tend to
support incumbent directors and management and make it more difficult for
stockholders to take certain actions even if the actions are desired by the
holders of a majority of the outstanding shares. See "Proposal
Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Shareholder Action by Written Consent" and "Proposal Eight--Amendment
to the New Delaware Corporation's Certificate of Incorporation to Eliminate
Actions of the Stockholders by Written Consent Without a Meeting."
PROPOSAL NINE -- INCREASED STOCKHOLDER VOTE FOR AMENDMENT OF THE CERTAIN
PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS. Under Delaware
corporate law, a corporation's certificate of incorporation and bylaws can be
amended by a simple majority of the shares entitled to vote on the amendment.
If Proposal Nine is approved, then amendments to certain provisions of the new
Delaware corporation's certificate of incorporation and bylaws would require the
concurrence of the holders of at least two-thirds of the voting power of the new
Delaware corporation entitled to vote on the amendment. This requirement is
designed to prevent a stockholder controlling a majority of the voting power
from avoiding the requirements of the anti-takeover provisions by simply
repealing them. This proposal may tend to discourage takeover attempts. See
"Proposal Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Amendments to the Certificate of Incorporation and Bylaws" and
"Proposal Nine--Amendment to the New Delaware Corporation's Certificate of
Incorporation and Bylaws to Require a Supermajority Vote to Amend Certain
Provisions of the New Delaware Corporation's Certificate of Incorporation and
Bylaws."
SECTION 203 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE. If
the Delaware domestication is approved, then we will be governed by Delaware
corporate law, including Section 203 of the General Corporation Law of the State
of Delaware. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the time that the person
became an interested stockholder, unless (with certain exceptions) our board of
directors approves the business combination or the transaction in which the
person became an interested stockholder. Generally, a business combination
includes a merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. In addition, an interested
stockholder is generally a person who, together with affiliates and associates,
owns (or within three years before the determination of interested stockholder
status, did
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own) 15% or more of a corporation's voting stock. This provision could have
anti-takeover effects with respect to transactions not approved in advance by
our board of directors, such as discouraging takeover attempts that might offer
a premium over the market price of the common stock. See "Proposal
Five--Domestication into the State of Delaware--Corporate Governance
Differences; Delaware and Alberta Law Comparisons--Anti-Takeover
Effects--Delaware Anti-Takeover Law."
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common shares is CIBC Mellon
Trust. If the Delaware domestication is approved, then our transfer agent and
registrar for our common stock will continue to be CIBC Mellon Trust.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
If the Delaware domestication and the proposed form of indemnification
agreement are approved (see "Proposal Five--Delaware Domestication into the
State of Delaware" and "Proposal Ten--Approval of Form Indemnification
Agreement"), then the indemnification provisions provided in our certificate of
incorporation, bylaws and agreements with directors and executive officers will
provide for broad indemnification under Delaware corporate law with no express
exclusion for liabilities arising under or in connection with the Securities
Act. In the SEC's opinion, indemnification for liabilities arising under the
Securities Act is against public policy and therefore is unenforceable.
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BUSINESS
OVERVIEW
TomaHawk Corporation is the parent holding company of TomaHawk II, Inc.,
a Delaware corporation. TomaHawk II, Inc. provides document imaging and
conversion, engineering design and manufacturing services to both the U.S.
federal government and commercial customers. References to "TomaHawk," "we" or
"us" include TomaHawk Corporation and TomaHawk II, Inc.
Our current services include:
- scanning and conversion of large and small technical documents to
computer intelligent or computer-aided-design ("CAD") formats;
- numerical control programming for the automated manufacture of
parts and components;
- tool design;
- precision machining and inspection of parts and components;
- engineering design and analysis of parts and components; and
- reverse engineering of parts and components that do not have
plans, drawings or models to allow for the creation of CAD format
documents.
Our services, described in more detail below, address significant needs
of both large and small organizations in various industries, including defense,
aerospace, engineering, architecture, automotive, telecommunications and
utilities. To date, we have provided our services primarily to customers in the
defense, aerospace, engineering and architecture industries.
We provide a range of services to our customers throughout the design to
manufacture life cycle of a product or project, including individual services as
well as total project solutions that we refer to as "Paper to Parts." As an
outsourcing resource, we provide services to our customers that they cannot
perform internally or that supplement their existing capabilities. In addition,
by utilizing our services, and not performing the same services in-house, our
customers can determine more accurately project completion dates and control
project costs, as we generally perform our services based on quoted budgets and
delivery schedules.
We believe that two emerging trends will continue to affect the current
market for our services. The first trend is the continued evolution and
acceptance of CAD technology. Some form of CAD technology is utilized in
designing everything from manufactured parts to complex machinery. Our
customers are beginning to convert their inventories of historical documents to
electronic format to make them compatible with current CAD design. The second
trend involves the current industry movement toward outsourcing an increasing
number of tasks and services that can be performed more efficiently by
independent suppliers. Companies and governmental agencies at all levels are
downsizing and turning to outsourcing as a cost-effective alternative to
maintaining in-house capabilities for non-core functions, tasks or services that
they can purchase more efficiently from other companies.
CORPORATE HISTORY
The predecessor company of TomaHawk Corporation was originally
incorporated in Alberta, Canada on September 10, 1986. TomaHawk II, Inc. was
formed on February 3, 1993. Effective March 8, 1993, we acquired all of the
issued and outstanding shares of capital of TomaHawk II, Inc. and commenced our
current business operations.
TomaHawk Corporation currently does not carry on any business other than
acting as the parent holding company of TomaHawk II, Inc. TomaHawk II, Inc. is
the sole operating subsidiary through which TomaHawk Corporation conducts its
business operations. In order to simplify our capital structure, we intend to
merge TomaHawk II, Inc. into TomaHawk Corporation at some time after the
completion of the Delaware domestication.
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TomaHawk Software, Inc., a corporation organized under the laws of India
and located in Bangalore, India, is a wholly-owned subsidiary of TomaHawk II,
Inc.
SERVICES
We offer document conversion, engineering and manufacturing services
through two primary divisions: (1) document imaging and conversion services and
(2) engineering and manufacturing services.
DOCUMENT IMAGING AND CONVERSION SERVICES. Our document imaging and
conversion services convert technical information from written form (i.e.,
paper, mylar, parchment, linen, etc.) to electronic format. In this division,
we focus primarily on the conversion of technical, engineering and architectural
drawings from their original source document to CAD formats. We convert the
following types of documents:
- engineering design drawings;
- maps;
- technical manuals;
- electrical schematic drawings;
- architectural design drawings; and
- civil engineering/topographical drawings.
Our primary document imaging and conversion services are described below:
DOCUMENT CONVERSION SERVICES. Document conversion to intelligent
electronic formats involves the conversion of documents to computer
readable or "intelligent" formats. In this process, we convert scanned
raster (or view only) images to geometric entities such as lines,
circles, arcs and splines in a computer vector format to replicate the
original design or drawing in an intelligent electronic or "CAD ready"
format. Although adequate for most engineering applications, this
format only replicates the design or drawing, but is not accurate to
specific dimensions because original drawings often contain dimensional
inaccuracies when drafted by hand.
Similarly, we convert scanned text previously in raster format on
smaller documents such as technical manuals to their simplest
intelligent form (i.e. ASCII). Computers then can recognize this
information for applications such as engineering changes and word
processing. The process of taking a scanned image containing
alphanumeric raster images and converting it into intelligent "ASCII"
characters is called optical character recognition ("OCR"). Once in an
intelligent (i.e. ASCII or vector) format, images are no longer simple
pictures or text, but rather intelligent computer data that forms the
basis for other, more advanced applications such as CAD applications.
In addition to converting images to CAD ready formats, we convert
images to "CAD perfect" format. CAD perfect format involves computer
files containing a design or image that is dimensionally accurate even
though the original source document is not necessarily accurate. We
provide these CAD models in various application formats, including
AutoCAD, CATIA, Unigraphics, IDEAS, Microstation and Pro-E.
PRECISION CONVERSION SERVICES. Precision conversion services
focus specifically on supporting customers in the aerospace industry.
In this process, we convert large format drawings that are used
traditionally in the design and manufacture of aircraft structural
components and assemblies to CAD ready format. Because of the high
degree of precision required in the aerospace industry, converted
documents must match the original documents to a high degree of
accuracy.
Large format aerospace drawings were typically created by hand,
on a one-to-one scale, to represent the exact shape and configuration of
the parts to be manufactured. These drawings generally are
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un-dimensioned and depict complex geometric entities. Reproduction of
the geometry contained within the drawings using manual methods is very
labor intensive and subject to error.
By converting technical drawings into an electronic format, our
precision conversion services allow our customers to work with and
modify these drawings electronically to facilitate engineering changes
and re-designs and provide the numerical data required to enable
automatic machining of components (see "--Engineering and Manufacturing
Services--Numerical Control Programming Services"). Additionally, the
base material on which the drawings were created is often distorted due
to age and exposure to varying environmental conditions over time. By
converting the documents to an electronic format, we eliminate the
possibility that damage or distortions will make these documents
useless. In addition, our customers can use the electronic files to
produce multiple copies or to use in direct manufacturing applications.
Electronic conversion also eliminates the burden of handling and storing
large, bulky design documents.
DOCUMENT SCANNING SERVICES. Document (bulk) scanning involves
the initial conversion process that transforms hard copy documents, such
as blueprints, engineering drawings, maps and schematics, into raster
formats. This process produces an "unintelligent" image, which may be
stored, plotted and edited using an appropriate software package.
Once documents are converted to a scanned electronic image,
customers can store the information electronically for easier access and
retrieval under more advanced indexing or networking methods. In
addition, a customer can make these electronic files available
throughout its enterprise, via local area networks and wide area
networks, or store them locally using CD technology. Electronic files
also allow for simple creation of additional copies and back-ups, and
eliminate the risk of deterioration and damage.
TEXT INSERTION AND CLEAN-UP SERVICES. Text insertion and
clean-up services are common editing services that we provide after
information has been scanned into a digital format. Text insertion
involves the replacement of handwritten characters with type fonts.
This process allows end-users to edit the text contained in the picture
or raster image, while reducing text legibility problems. Our clean-up
services involve the physical removal of pixels and clean-up of the
scanned images of drawings that are of poor quality or have deteriorated
over time. We use this service to eliminate folds, creases and tear
lines, and restore faded documents. This effort promotes greater focus
on the information content and serves to enhance document
"view-ability."
ENGINEERING AND MANUFACTURING SERVICES. This division provides the
following services:
- numerical control ("NC") programming;
- tool engineering and design;
- manufacturing and inspection;
- engineering design; and
- re-engineering and reverse engineering.
Our primary engineering and manufacturing services are described below:
NUMERICAL CONTROL PROGRAMMING SERVICES. Numerical control
programming is the process of developing numerical (mathematical)
controlled instructions for machine tools, called computerized numerical
control ("CNC") machines. CNC machines are used to manufacture parts or
tools from raw metal or castings. In addition to the numerically
controlled programs, we provide all machine pre-planning, including
machine set-up instructions, tool lists and cutter data, including the
speed, feed and depth of cut, for the specific part or tool being
machined. We also provide tool path verification before we release the
data to the customer, which ensures that mistakes, which are inherent to
this process because programs are developed manually, are found and
corrected on the computer screen, rather than on the physical machine,
which can be very costly to a customer.
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TOOL ENGINEERING AND DESIGN SERVICES. Tool engineering and
design involves the design of tools required to manufacture or produce
parts or components. First, engineers analyze the part or component
that needs to be manufactured. Next, the engineers design a tool that
will accomplish the desired objective based on the form, fit and
functional relationships of the needed part or component. Finally, the
engineers document the means of performing the tasks and create detailed
plans for the production of the tools necessary to build, handle and/or
store parts used in manufacturing. Our tool design projects have
included the design of assembly jigs, machine fixtures, composite lay-up
tools, detail tools, structural weld jigs and trim and drill fixtures.
MANUFACTURING AND INSPECTION SERVICES. Manufacturing and
inspection services include precision part and component machining,
utilizing three, four and five-axis CNC machines, and third-party
inspection of parts utilizing computerized, programmable inspection
equipment. In addition, we have established relationships with other
local manufacturers to supplement our existing manufacturing
capabilities.
THREE-DIMENSIONAL COMPUTER DESIGN SERVICES. Three-dimensional
computer design services involve the electronic construction of
geometric shapes in a three-dimensional computer format. For example, a
primary application of this process involves the electronic design and
modeling of an aircraft part for eventual manufacturing and assembly
into the aircraft. This type of modeling can include three dimensional
wireframe or solid modeling. For solid modeling applications, we
provide advanced surfacing services, including the electronic
development and manipulation of surface contours for a part created in a
three dimensional model. Solid models enable engineers to determine the
exact form, fit and function of a part's geometry before constructing a
prototype or any production hardware. This electronic simulation (or
mock-up) streamlines the design process and brings products to market
much more accurately, in much less time and at much less cost.
SALES AND MARKETING
We market our services to government agencies and private companies that
have document conversion, engineering or manufacturing outsourcing requirements.
Specifically, our marketing efforts are directed at governmental agencies such
as the U.S. Department of Defense, as well as companies in the aerospace,
defense, automotive, engineering, architecture, telecommunications and utilities
industries. To date, we have been more successful in obtaining contracts from
government agencies than from private companies. We recently have begun to
focus additional marketing resources on the private sector in an effort to
increase the proportion of our revenues derived from commercial sources.
Our sales and marketing efforts are conducted by an outside federal
marketing consulting firm, an in-house staff, and by independent sales
representatives. We have retained Capstone National Partners, LLC, a federal
marketing consulting firm, to coordinate our government marketing efforts. John
Rogers, our former Vice President of Federal Sales and Marketing, is the
president of Capstone National Partners, LLC. This consulting firm assists us
in generating Congressional support and funding for our services, interfacing
with high level Department of Defense officials, and marketing to and working
with government agencies to identify opportunities for our services. We pay to
Capstone National Partners, LLC a monthly retainer and a commission on our
revenues from contracts that Capstone National Partners, LLC plays a significant
role in obtaining on our behalf. We currently do not have a written agreement
with Capstone National Partners, LLC. See "Risk Factors--Risk Factors Relating
to our Continuing Operations--We may not be able to retain the consultant that
coordinates our marketing efforts directed at the U.S. government."
We currently employ eight sales and marketing personnel, of which six
sell our document conversion services, one sells our engineering and
manufacturing services, and one is responsible for national marketing. Three of
our document conversion marketers are responsible for the western United States,
two for the eastern United States, and one for the Midwest. We also retain four
independent sales representatives that sell engineering and manufacturing
services. Each of these independent representatives is responsible for specific
segments of our engineering and manufacturing services, and markets these
services on a national basis.
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In March 1999, we entered into a teaming agreement with Oce Deutschland
GmbH, a corporation organized under the laws of Germany specializing in the sale
of copiers, scanners, plotters and other imaging equipment. Under this teaming
agreement, Oce obtained exclusive rights to market our services in Germany. To
date, we have received a small amount of business from this relationship.
ADCS PROGRAM AND GOVERNMENT CONTRACTS
ADCS PROGRAM. In 1998, we received approximately 69.0% of our total
revenues from contracts for document conversion services funded by the U.S.
Department of Defense through the Automated Document Conversion Systems ("ADCS")
program. As a percentage of document conversion revenues, these contracts
represented approximately 77.1% of our total document conversion service
revenues in 1998.
Congress created the ADCS program in 1993 to provide funding for the
Department of Defense's initiative to convert its hard-copy documents into an
electronic CAD-ready format. Annual funding for the ADCS program has increased
steadily since its inception, from US $20 million in 1997, to US $40 million in
1998 and to US $45 million in 1999. Once Congress authorizes and appropriates
funding, the Department of Defense selects specific projects for funding from a
list of projects proposed by each of the armed services.
INTERGRAPH CONTRACTS. During 1998, we received the majority of our
document conversion revenues from ADCS related contracts through a subcontract
agreement with Intergraph Corporation. Under this subcontract agreement, which
we entered into in March 1997, we provide document conversion services under
Intergraph Corporation's three prime contracts with the U.S. Department of the
Navy:
- Naval Sea Systems Command (NAVSEA) CAD-2;
- Naval Facilities Engineering Command (NAVFAC) Installation
Management/Facilities CAD-2; and
- Naval Air Systems Command/Space and Naval Warfare Systems Command
(NAVAIR/SPAWAR) CAD-2.
These prime contracts are 12-year indefinite delivery indefinite
quantity agreements, under which Intergraph Corporation and its subcontractors
provide a wide range of CAD and computer-aided manufacturing ("CAM") products
and services.
We provide document conversion services under our subcontract with
Intergraph Corporation on a time and effort basis. Labor rates for our services
are based on rates for labor categories provided in the prime contract. We
perform our services under the subcontract only upon our receipt of a purchase
order that specifies:
- the labor categories authorized to work on the project;
- the authorized number of hours and labor rates for each of these
labor categories; and
- the period of performance, which generally ranges between six
months and one year.
GENERAL SERVICES ADMINISTRATION CONTRACT. We also provide document
conversion services for the Department of Defense under a General Services
Administration contract awarded to us in November 1998. This contract
designates us as an approved General Services Administration vendor, and allows
us to contract for document conversion services directly with government
agencies. This contract does not result, however, in any specific orders for
services. Specific orders for document conversion services under our General
Services Administration contract are described in purchase orders that identify
the nature, scope and price of the services to be performed. Orders for
document conversion services under our General Services Administration contract
are typically based on fixed prices negotiated in advance of the contract award.
See "Risk Factors--Risk Factors relating to our Continuing Operations--Fixed
price contracts may adversely affect our profitability." While we did not
receive any revenue in 1998 through the General Services Administration
contract, we believe that a significant
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percentage of future work funded by the government will be contracted through
the General Services Administration. Our General Services Administration
contract expires on September 30, 2001.
We believe that we will continue to rely heavily on the ADCS Program as
a source of funding for Department of Defense related work, and on the
Intergraph Corporation and General Services Administration contracts as
contracting vehicles for this work. See "Risk Factors--Risk Factors Relating to
our Continuing Operations--We depend on contracts funded by the U.S. government
to provide the majority of our revenues."
COMPETITION
We compete primarily with small, local firms that individually do not
offer the range of services that we provide. We are not aware of any
competitor currently providing the same range of document conversion,
engineering and manufacturing services that we provide. In addition, the
number and size of competitors varies by geographic region. However, in many
cases, our most significant competition comes from a customer or potential
customer that continues to perform comparable services on an in-house basis.
In addition to performing these services internally, these companies easily
could elect to offer document conversion services to other companies. See
"Risk Factors--Risk Factors Relating to our Continuing Operations--We face
potential competition from the in-house capabilities of certain customers"
and "--We face potential competition from new document conversion outsourcing
businesses because of the relatively low costs of entry."
We believe that the principal competitive factors in our business are
technical understanding, capacity to handle large projects quickly, quality of
the finished product, past contract performance, personnel qualifications and
price.
CUSTOMERS
The majority of our revenues are derived from contracts funded by the
U.S. Department of Defense. For the year ended December 31, 1998, the
Department of Defense accounted for approximately 69.0% percent of our total
sales. See "Risk Factors--Risk Factors Relating to our Continuing
Operations--We depend on contracts funded by the U.S. government to provide
the majority of our revenues." Our other customers are primarily large
companies in the defense and aerospace industries, but we also have provided
services to large and small customers in the automotive, engineering,
architecture, telecommunications and utilities industries. See "Risk
Factors--Risk Factors Relating to our Continuing Operations--Our private
sector revenues are highly vulnerable to changes in spending priorities in
the defense and aerospace industries." We currently are attempting to
broaden our commercial customer base and increase the proportion of our
revenues derived from commercial sources.
PROPRIETARY RIGHTS
We consider certain of the processes that we have developed internally
and software that we have modified to be proprietary. We also have one patent
pending relating to a proprietary process for the conversion of certain types of
design drawings. We rely primarily on trade secret laws and employee and
third-party nondisclosure agreements to protect our proprietary rights. We do
not believe that any of our processes or services infringe on the proprietary
rights of third parties.
EMPLOYEES
As of May 31, 1999, TomaHawk II, Inc. employed 121 persons, of whom 68
were engaged in document conversion services, 19 in engineering services, 11 in
manufacturing and inspection services, 8 in sales, marketing, customer support
and related activities, and 15 in management, administration and finance. As of
the same date, TomaHawk Software, Inc., the wholly-owned subsidiary of TomaHawk
II, Inc., employed 40 persons in Bangalore, India, of whom 35 were engaged in
document conversion services and 5 in management, administration and finance.
None of our employees is currently represented by a labor union. We consider
our relations with our employees to be good.
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ACQUISITION
In an effort to expand our service offerings, TomaHawk II, Inc. acquired
in August 1998 substantially all of the assets of Aerated Engineering Company, a
precision machining company based in San Diego, California. TomaHawk II, Inc.
uses the acquired equipment in performing its manufacturing services. We
accounted for the acquisition under the purchase method of accounting.
FACILITIES
Our primary document conversion and engineering operations, as well as
our manufacturing operations, are located in San Diego, California. We also
have operation facilities in Vernon Hills, Illinois, Lynnwood, Washington and
Bangalore, India. We also maintain sales offices in Washington, D.C. and
Boston, Massachusetts.
TomaHawk II, Inc. currently leases approximately 24,000 square feet of
office and operations space located at 8315 Century Park Court, Suite 200, San
Diego, California. The related lease expires on July 1, 2000. In addition,
TomaHawk II, Inc. has entered into the following leases:
- approximately 48,500 square feet of manufacturing space located
at 7140 Opportunity Road, San Diego, California, pursuant to a
lease expiring on December 3, 2003;
- approximately 3,500 square feet of office and operations space
located at 50 Lakeview Parkway, #101, Vernon Hills, Illinois,
pursuant to a lease expiring on October 31, 2002;
- approximately 1,200 square feet of office space located at 2901
North Sheffield, Chicago, Illinois, pursuant to a lease expiring
on December 31, 2000; and
- approximately 3,300 square feet of office and operations space in
Bangalore, India, pursuant to a month-to-month lease.
We believe that these facilities are adequate for our current business
needs.
We are also currently leasing approximately 1,600 square feet of office
and operations space located at 19109 36th Ave. W, #203, Lynnwood, Washington,
pursuant to a lease expiring on January 31, 2000. In May 1999, we provided
notice of our intent to terminate the lease and vacate this space in August
1999.
LEGAL PROCEEDINGS
TomaHawk Corporation, together with TomaHawk II, Inc., our current chief
executive officer, Steven M. Caira, and his wife, Renee Caira, are defendants in
a lawsuit filed in the Superior Court for the State of California, County of San
Mateo, entitled DENNIS R. DIRICCO, CO-TRUSTEE OF THE CONNIE DOHERTY LIVING TRUST
V. TOMAHAWK II, INC., ET AL., Case No. 406661. In this action, the plaintiff
makes numerous claims arising out of alleged agreements that plaintiff claims to
have entered into in October 1994, pursuant to which:
- we allegedly were obligated to issue 2,000,000 common shares to
the plaintiff's wife as consideration for her transfer of the
same number of shares to David Smoot, our former chairman and
chief executive officer, in connection with the settlement of a
lawsuit between Mr. DiRicco and Mr. Smoot (which did not involve
TomaHawk Corporation or TomaHawk II, Inc.); and
- our current chief executive officer and his wife allegedly would
hold 1,000,000 common shares in trust for the plaintiff's wife
and return them to her when they became freely tradable on The
Alberta Stock Exchange.
We have filed a demurrer to the complaint, which seeks to dismiss a
number of the causes of action as a matter of law. We also have filed a motion
to prevent the plaintiff from proceeding pro per and to force the plaintiff to
obtain counsel. The court has not yet heard the demurrer or the motion.
Although none of the defendants has filed an answer to the complaint, we and the
other defendants will deny the material allegations,
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claiming that they are without merit. We intend to defend this lawsuit
vigorously, but cannot express an opinion of the likely outcome at this time.
WE ALSO ARE AWARE OF OTHER POSSIBLE CLAIMS THAT MR. DIRICCO HAS FROM TIME TO
TIME ASSERTED AGAINST US, TOMAHAWK II, INC. AND MANY OF OUR PRESENT AND FORMER
OFFICERS AND DIRECTORS AND THE PRESENT AND FORMER OFFICERS AND DIRECTORS OF
TOMAHAWK II, INC., NONE OF WHICH CLAIMS WE BELIEVE HAVE ANY MERIT. WE CURRENTLY
ARE NOT AWARE OF ANY OTHER MATERIAL THREATENED OR PENDING LEGAL PROCEEDINGS.
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<PAGE>
MARKET FOR THE EXISTING ALBERTA CORPORATION'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
MARKET PRICE INFORMATION
The existing Alberta corporation's common shares trade on The Alberta
Stock Exchange under the symbol "TKC." After the Delaware domestication is
completed, our common shares will trade on The Alberta Stock Exchange under the
trading symbol "THK." On May 31, 1999, the common shares closed at Cdn. $0.20
(US $0.14) on The Alberta Stock Exchange.
The following table sets forth the high and low closing prices of the
common shares in Canadian dollars, as reported by The Alberta Stock Exchange,
for the calendar period indicated. The high and low closing prices also are
listed in U.S. dollars based on the currency exchange rate on the date when The
Alberta Stock Exchange reported the listed price. The prices below represent
prices between dealers, without adjustment for retail mark-ups, mark-downs or
commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
CLOSING PRICES
---------------------------------------------------------
HIGH LOW
--------------------------- --------------------------
<S> <C> <C>
1999
First Quarter Cdn. $0.35 (US $0.23) Cdn. $0.22 (US $0.15)
1998
Fourth Quarter Cdn. $0.40 (US $0.26) Cdn. $0.25 (US $0.16)
Third Quarter Cdn. $0.47 (US $0.31) Cdn. $0.28 (US $0.18)
Second Quarter Cdn. $0.56 (US $0.39) Cdn. $0.20 (US $0.14)
First Quarter Cdn. $0.34 (US $0.24) Cdn. $0.23 (US $0.16)
1997
Fourth Quarter Cdn. $0.30 (US $0.22) Cdn. $0.20 (US $0.14)
Third Quarter Cdn. $0.34 (US $0.24) Cdn. $0.17 (US $0.12)
Second Quarter Cdn. $0.27 (US $0.19) Cdn. $0.16 (US $0.12)
First Quarter Cdn. $0.35 (US $0.26) Cdn. $0.21 (US $0.15)
</TABLE>
HOLDERS
On May 31, 1999, the number of holders of record of the common shares
was approximately 170. We believe that the common shares are owned beneficially
by approximately 700 persons.
DIVIDEND POLICY
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain any earnings for future growth and, therefore, do not
intend to pay any cash dividends in the foreseeable future. Our board of
directors may review our dividend policy from time to time in its sole
discretion.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements based on
our current expectations, estimates and projections about our industry, our
beliefs and certain assumptions made by us. Forward-looking statements include
statements preceded by, followed by or that include terms such as "may," "will,"
"should," "believes," "expects," "anticipates," "estimates," "continues" or
similar expressions. These forward-looking statements involve risks and
uncertainties, and our actual results may differ materially from those
anticipated or expressed in these statements. Potential risks and uncertainties
include, among others, those described under the "Risk Factors" section of this
Proxy Statement and Information Circular. You should read the following
discussion in conjunction with our audited consolidated financial statements and
the accompanying notes. Except as required by law, we undertake no obligation
to update any forward-looking statement, whether as a result of new information,
future events or otherwise.
OVERVIEW
TomaHawk Corporation is the parent holding company of TomaHawk II, Inc.,
an Illinois corporation that provides document imaging and conversion,
engineering and manufacturing services. TomaHawk II, Inc. is the sole operating
subsidiary through which TomaHawk Corporation currently conducts its business
operations.
TomaHawk II, Inc. began operations in March 1993 with the primary
objective of providing document imaging and conversion services to the U.S.
Department of Defense. In August 1996, TomaHawk II, Inc. expanded its service
offerings to include numerical control programming, engineering, manufacturing
and support services through the creation of its Engineering and Manufacturing
Services Division. See "Business--Services." TomaHawk II, Inc. further
expanded its services to include precision machining and manufacturing through
its acquisition of Aerated Engineering Company in August 1998. See
"Business--Acquisition."
Although we have expanded our range of services, we continue to generate
the majority of our revenues from our document imaging and conversion services.
Revenues from these services represented 77.0% of our total revenues in 1998 and
63.7% of our total revenues in 1997. In 1998, engineering services generated
20.9% of our total revenues, down from 36.3% in 1997. We began offering
precision machining services in August 1998, which generated 2.1% of our total
revenues in 1998. Our business is highly dependent on contracts for document
conversion services funded by the U.S. Department of Defense. See "Risk
Factors--Risk Factors Relating to our Continuing Operations--We depend on
contracts funded by the U.S. government to provide the majority of our
revenues." Approximately 69.0% of our total revenues in 1998 and 53.6% of our
total revenues in 1997 resulted from contracts or subcontracts for document
conversion services funded by the U.S. Department of Defense. See
"Business--ADCS Program and Government Contracts." The continued growth of
revenues from our document conversion, engineering and manufacturing services is
dependent on several factors, including:
- authorized government funding levels for the ADCS program;
- budgetary constraints and priorities of the U.S. Department of
Defense and our commercial customers;
- our reputation for providing timely and reliable services; and
- the continuation of the trend of increased outsourcing of
non-core business functions.
We provide services under both time and material and fixed price
contracts. Revenues earned under time and material contracts are based on the
number of billable hours incurred and the negotiated hourly rate. We generally
recognize revenues under time and material contracts as we perform the services.
Revenues earned under fixed price contracts are based on negotiated contract
prices. We generally recognize these revenues on a percentage of completion
basis.
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<PAGE>
Our cost of revenues consists principally of wages and benefits,
supplies and overhead charges such as rent, utilities and equipment costs
associated with providing our services, and direct materials (unless purchased
directly by our customer) in the case of our precision machining services. Our
gross margin can be affected adversely if:
- we cannot bill or fail to manage effectively our service
activities;
- there is a significant amount of unbillable time; or
- we fail to properly price our fixed price contracts.
General and administrative expenses include wages, benefits and other
compensation expenses associated with our executive and middle management,
professional fees for legal, tax and accounting services, facility costs and
other accounting and administrative expenses. Marketing and sales expenses
include wages, benefits and commissions for our sales representatives and
marketing consultants and expenses related to our promotional activities and
materials. Other expenses include interest expense related to debt and capital
lease obligations and, in 1998, costs associated with our efforts to complete a
financing to fund potential acquisitions that we ultimately ended.
Our financial statements for the years ended December 31, 1997 and 1998
are stated in U.S. dollars (US $) and are prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"). Our financial statements for
prior years were prepared in accordance with Canadian GAAP. This change to U.S.
GAAP significantly increased general and administrative expenses in 1998. See
"--Results of Operations--Year Ended December 31, 1998 Compared with Year Ended
December 31, 1997--General and Administrative Expenses."
Our auditor's report on our financial statements as of December 31, 1998
contains an explanatory paragraph as to our ability to continue as a going
concern because of our continuing operating losses. We had a working capital
deficit as of December 31, 1998, of $1.7 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1998.
REVENUES. Our revenues for the three months ended March 31, 1999
were $2.5 million, representing a decrease of 27.9% compared to revenues
of $3.4 million for the three months ended March 31, 1998. Our revenues
from document conversion services totaled $1.8 million during the three
months ended March 31, 1999, compared to $2.5 million during the three
months ended March 31, 1998. The decreased revenues from these services
resulted primarily from delays in our receipt of new orders for document
conversion services in the first quarter of 1999 for projects funded by
the U.S. Department of Defense. Revenues from engineering and
manufacturing services were $638,000 during the three months ended March
31, 1999 compared to $934,000 during the three months ended March 31,
1998. The decreased revenues from these services resulted from the
completion of certain contracts and a decrease in new contract awards
during the first quarter of 1999.
COST OF REVENUES. Our cost of revenues for the three months
ended March 31, 1999 was $1.9 million, representing a decrease of 19.1%
compared to $2.4 million for the three months ended March 31, 1998.
This decrease resulted primarily from the decreased revenues relative to
the first quarter of 1998. Gross profit decreased by $500,000, or
48.4%, from $1.0 million for the three months ended March 31, 1998 to
$535,000 for the three months ended March 31, 1999. As a percentage of
revenues, our gross margin was 21.5% in the three months ended March 31,
1999 compared to 30.1% in the three months ended March 31, 1998. This
decrease in gross margin resulted primarily from higher direct costs, as
a percentage of revenues, associated with new fixed price contract
project start-up costs, and to the lower absorption of cost of sales
overhead expenses as a result of lower revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the three months ended March 31, 1999 were $835,000,
compared to general and administrative expenses of $496,000 for the
three months ended March 31, 1998. The increased general and
administrative expenses during the first quarter of 1999 resulted
primarily from:
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- administrative expense associated with our manufacturing
services division that we created in August 1998;
- higher salaries, wages and related benefits associated
with management and administrative staff additions;
- higher legal and accounting fees associated with our
efforts to domesticate into Delaware; and
- higher non-cash compensation expenses associated with the
valuation of notes receivable and issuance of stock
options below their fair market value.
As a percentage of revenues, general and administrative expenses
were 33.7% in the three months ended March 31, 1999 compared to 14.4% in
the three months ended March 31, 1998. This higher percentage in the
first quarter of 1999 resulted primarily from the higher overall
expenses and the lower revenues described above.
MARKETING AND SALES EXPENSES. Marketing and sales expenses for
the three months ended March 31, 1999 were $446,000, representing an
increase of 22.6% compared to $364,000 for the three months ended March
31, 1998. These increased expenses resulted primarily from higher
salaries, wages, related benefits and fees paid in connection with the
hiring and retention of sales representatives and brokers and from
higher travel and promotional expenses. As a percentage of revenues,
marketing and sales expenses were 18.0% in the three months ended March
31, 1999, compared to 10.6% in the three months ended March 31, 1998.
OTHER EXPENSES. Other expenses for the three months ended March
31, 1999 were $112,000, compared to $65,000 for the three months ended
March 31, 1998. These increased expenses resulted from higher interest
expenses incurred during the first quarter of 1999, resulting from
higher average balances outstanding on our working capital credit line
and to increases in the amounts related to leased equipment.
NET LOSS. Our net loss for the three months ended March 31, 1999
was $859,000, compared to a net profit of $110,000 for the three months
ended March 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997.
REVENUES. Our revenues for the year ended December 31, 1998 were
$13.5 million, representing an increase of 46.0% compared to revenues of
$9.3 million for the year ended December 31, 1997. This increase
resulted primarily from the continued growth of our document conversion
business as we obtained additional document conversion contracts funded
by the U.S. Department of Defense. Our revenues from document
conversion services totaled $10.4 million during 1998, representing an
increase of 76.4% compared to revenues of $6.0 million during 1997. We
do not expect, however, that our revenues from document conversion
services will continue to increase at this growth rate in the future.
Revenues from engineering and manufacturing services were $3.1 million
during 1998 compared to $3.4 million during 1997. The decreased
revenues from these services during 1998 resulted primarily from the
completion of certain contracts and a decrease of new contracts awarded
to us during 1998.
COST OF REVENUES. Our cost of revenues for the year ended
December 31, 1998 was $9.6 million, representing an increase of 33.8%
compared to cost of revenues of $7.1 million for the year ended December
31, 1997. This increase resulted primarily from additional costs
incurred relating to the increased revenues. Gross profit increased by
$1.9 million, or 86.5%, from $2.1 million for the year ended December
31, 1997 to $4.0 million for the year ended December 31, 1998. As a
percentage of revenues, our gross margin was 29.4% in 1998 compared to
23.0% in 1997. This increase in gross margin resulted primarily from
increased revenues for document conversion services, which generally
have a higher gross margin than revenues for engineering and
manufacturing services, and greater absorption of overhead expenses by
our higher revenue base.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the year ended December 31, 1998 were $3.2 million compared
to general and administrative expenses of $1.4 million for the year
ended December 31, 1997. General and administrative expenses for 1998
included non-cash expenses totaling approximately $843,000 recorded in
connection with the change in the preparation of our financial
statements from Canadian GAAP to U.S. GAAP. These non-cash expenses
included:
- $679,000 for compensation expense related to certain
notes receivable previously granted to TomaHawk II, Inc.
by certain management personnel and directors in
connection with purchases of our common shares (see
"Certain Relationships and Related
Transactions--Indebtedness of Directors, Executive
Officers, Senior Management and Significant
Shareholders--Variable Accounting Treatment"); and
- $163,000 for compensation expense related to the issuance
of stock options below fair market value, versus $5,000
in 1997.
In 1997, we did not record compensation expense related to the
above notes receivable. Under U.S. GAAP, our restructuring of the notes
in 1998 required us to recognize compensation expense under the variable
accounting rules. These modifications included an extension of their
maturity dates and a conversion from full-recourse to non-recourse notes
required us to record compensation expense based on changes in the
market value of the common shares purchased with the notes. Based on
this requirement, future increases in stock price will result in
significant additional non-cash expenses during any period that these
notes receivable remain outstanding. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Variable Accounting
Treatment" and Note 5 to our Consolidated Financial Statements.
The remaining significant factors accounting for the higher
general and administrative expenses in 1998 include increased personnel
costs, professional fees and facility costs related to our continued
growth, and increased legal fees incurred in connection with litigation
that we concluded and with potential acquisition opportunities that we
pursued during the year. The higher expenses in 1998 also resulted from
increased legal and accounting fees incurred in connection with our
efforts to domesticate TomaHawk Corporation into Delaware.
As a percentage of revenues, general and administrative expenses,
excluding the non-cash charges mentioned above, were 17.6% in 1998
compared to 15.4% in 1997. This higher percentage in 1998 resulted from
the factors discussed above.
MARKETING AND SALES EXPENSES. Marketing and sales expenses for
the year ended December 31, 1998 were $1.7 million, representing a 48.3%
increase compared to marketing and sales expenses of $1.1 million for
the year ended December 31, 1997. These increased expenses resulted
primarily from higher sales commissions relating to our increased
revenues, additional hires of sales personnel and increased promotional
and marketing activities. As a percentage of revenues, marketing and
sales expenses were 12.4% in 1998 and 12.2% in 1997.
OTHER EXPENSES. Other expenses for the year ended December 31,
1998 were $637,000 compared to $136,000 for the year ended December 31,
1997. These increased expenses resulted from higher interest expense in
1998 of $321,000 compared to $136,000 in 1997, due primarily to higher
average balances outstanding on our working capital credit line and
higher interest amounts related to equipment obtained during 1998 under
capital lease arrangements. In 1998, we also incurred non-recurring
charges of $316,000 when we ceased our efforts to raise additional
capital to fund potential acquisitions.
NET LOSS. Our net loss for the year ended December 31, 1998 was
$1.6 million compared to a net loss of $413,000 for the year ended
December 31, 1997.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had negative working capital (current assets
less current liabilities) of $2.2 million. This negative working capital
balance has resulted primarily from our continued operating losses. Our
negative working capital balance at March 31, 1999 includes $1.5 million in
short-term bank debt under our working capital credit line. This credit
facility provides for maximum borrowing of up to $3.0 million based on our
eligible accounts receivable. Our current balance exceeds the amount available
for borrowing based on our eligible accounts receivable by $169,000. Until our
current receivable balances increase, we cannot borrow additional funds from
this credit facility.
The negative working capital balance as of March 31, 1999 represents a
decrease in working capital of $500,000 from December 31, 1998, due primarily to
our continued operating losses. As a result of the negative working capital
balance as of December 31, 1998, the report of our independent auditors for the
year ended December 31, 1998 included a qualification relating to our ability to
continue as a going concern. See "Risk Factors--Risk Factors Relating to our
Continuing Operations--Our limited working capital may prevent us from
continuing as a going concern."
Historically, we have funded operating losses through the issuance of
equity and debt securities, and through borrowing under our bank credit
facility. We have initiated efforts to restructure our bank credit facility and
to raise up to $1.0 million for additional working capital through a private
placement of equity or debt securities. However, we may not complete
successfully this debt restructuring or this private placement and additional
equity or debt financing may not be available at terms favorable to us, if at
all. In addition, the sale of additional equity securities would dilute the
holdings of our existing shareholders and the incurrence of debt would result in
additional interest expense.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications and other control
devices use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. As a result,
these systems, applications and other control devices could fail or create
erroneous results unless corrected to process data related to the year 2000.
The state of our year 2000 readiness may affect the services that we market, our
information technology ("IT") systems, our non-IT systems and the systems of any
third-parties with whom we have a material business relationship.
We created a year 2000 plan in the fourth quarter of 1998 to identify,
assess, remediate, replace and test the potential year 2000 vulnerability of
our:
- IT hardware;
- IT software;
- non-IT business systems;
- telecommunications systems;
- facilities;
- suppliers; and
- service providers.
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INTERNAL YEAR 2000 READINESS. We currently are assessing the year 2000
readiness of our IT and non-IT infrastructure. We expect to complete our
identification, assessment, remediation, replacement or testing of all critical
systems by the end of October 1999. To date, we have tested all of our personal
computers, which make up the majority of our hardware systems. All of our
personal computers are either year 2000 compliant or require the computer's
calendar system to be rolled over manually, which we have successfully tested.
We also have tested our Unix systems and believe that they are year 2000
compliant except for one server unit. We will make this server unit compliant
by replacing certain software by the end of October 1999.
Although we have not tracked expenses related to our year 2000 readiness
efforts separately, we estimate that our costs to date are less than $25,000,
which amount primarily reflects internal labor costs associated with the
development and implementation of our year 2000 plan. Our year 2000 readiness
efforts to date have not disrupted our business and have not required the
deferral of other IT projects. We do not expect that additional internal year
2000 costs will affect materially our business, financial condition and results
of operations, and we do not expect any material disruption in our operations as
a result of our failure to be year 2000 compliant.
YEAR 2000 READINESS OF OUR SUPPLIERS AND CUSTOMERS. We have initiated
communications with our key third-party suppliers to determine the extent to
which we may be vulnerable to their failure to be year 2000 compliant in the
products and services that they supply to us. Certain of our suppliers have
provided certification letters indicating that their products or services are
year 2000 compliant. Other suppliers are publicly traded corporations, which
have disclosed their year 2000 readiness in SEC filings. We currently are
completing our review of our key suppliers' year 2000 readiness and will contact
any suppliers that have not yet provided us with adequate certification of their
year 2000 compliance. Due to the technical sophistication of our key suppliers,
we do not believe that a significant risk exists that our suppliers' state of
year 2000 readiness will affect materially and adversely our business, financial
condition and results of operations.
We currently are developing a contingency plan to address our key
supplier year 2000 compliance issues that may be identified through our ongoing
assessment. We intend to complete this contingency plan by the end of October
1999. This contingency plan will identify potential new suppliers that are year
2000 compliant and back-up procedures for systems that fail to function
properly. We do not believe that the costs associated with developing this
contingency plan will be material.
We currently do not know whether our key customers will be year 2000
compliant. If our key customers are not year 2000 compliant, then they more
likely will suffer disruptions to their businesses that could cause them to
delay or cancel new projects that we otherwise would have performed. We are
sending letters to our key customers, including the U.S. Department of Defense,
requesting information as to the state of their year 2000 readiness. This is
especially true of U.S. government agencies because of our dependence on
revenues from contracts funded by the U.S. Department of Defense. We will
develop contingency plans according to the information contained in the
responses that we receive. If some or all of our key customers are not
compliant, then we could suffer lost contracts and delays in receiving payment
for existing projects, any of which could affect materially and adversely our
business, financial condition and results of operations. See "Risk
Factors--Risk Factors Relating to our Continuing Operations--We may be exposed
to our customers' year 2000 problems."
CHANGE IN ACCOUNTANTS
Effective December 30, 1997, we replaced our Canadian chartered
accountant, Mathew J. Hoogendoorn, with Ernst & Young LLP. Our board of
directors ratified the appointment of Ernst & Young LLP on June 3, 1998. The
report of Mr. Hoogendoorn, dated May 27, 1997, on our financial statements as of
and for the fiscal year ended December 31, 1996 did not contain an adverse
opinion or a disclaimer opinion. In addition, we had no disagreements with Mr.
Hoogendoorn during that time period.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 31, 1999, certain information
regarding the beneficial ownership of the existing Alberta corporation's common
shares by: each person (including any group as that term is used in Section
13(d)(3) of the Securities Exchange Act) that we know to be the beneficial owner
of more than 5% of our voting securities; each director; each of TomaHawk II,
Inc.'s named executive officers listed in the Summary Compensation Table
appearing below; and all of our directors and TomaHawk II, Inc.'s directors and
executive officers as a group.
<TABLE>
<CAPTION>
COMMON SHARES BENEFICIALLY CLASS A SERIES III PREFERRED
OWNED (1) SHARES BENEFICIALLY OWNED
-------------------------------- ------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES TOTAL SHARES TOTAL
- ------------------------------------------------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Norman F. Siegel(2) 18,568,079 21.5% -- --
1836 N. Sedgwick
Chicago, IL 60614
Steven M. Caira (3) 10,221,483 11.7% -- --
Chairman of the Board, President, and Chief
Executive Officer of TomaHawk Corporation and
TomaHawk II, Inc., and Acting Chief Financial
Officer of TomaHawk Corporation
Spirit Enterprise Limited 6,074,656 7.2% -- --
1st Floor Columbus Centre Building
P.O. Box 901
Road Town, Tortola
British Virgin Islands
Elliott Broidy (4) 4,527,200 5.3% -- --
c/o Broidy Capital Management
1801 Century Park East
Suite 2150
Los Angeles, California 90067
Douglas W. Loughran (5) 3,034,600 3.6% -- --
Director of TomaHawk Corporation
Phillip W. Card (6) 2,653,042 3.1% -- --
Vice President of Operations and Technology of
TomaHawk II, Inc. and a Director of TomaHawk II,
Inc.
John F. Peace (7) 2,275,057 2.7% -- --
Director of TomaHawk II, Inc.
Michael H. Lorber (8) 2,000,000 2.3% -- --
Vice President - Finance and Chief Financial
Officer of TomaHawk II, Inc. and a Director of
TomaHawk II, Inc.
John C. Rogers (9) 1,257,401 1.5% -- --
Former Vice President - Federal Sales and
Marketing of TomaHawk II, Inc.
Thomas M. Dusmet (10) 1,150,000 1.4% -- --
Secretary and Director of TomaHawk Corporation
Jonathan F. Turpin (11) 400,000 * -- --
Director of TomaHawk Corporation
David P. Smoot -- -- 337,500 45%
1435 Camden Court
Buffalo Grove, Illinois 60090
434556 B.C. Ltd. -- -- 337,500 45%
1590 - 609 Granville Street
Vancouver, British Columbia
All directors and executive officers of TomaHawk 21,734,182 24.2% -- --
Corporation and TomaHawk II, Inc. as a group
(seven (7) persons)(12)
</TABLE>
- ---------------------------
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* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules and
regulation of the SEC and generally includes the power to vote or sell
the securities. Stock options to purchase common shares which are
currently exercisable or will become exercisable within 60 days of May
31, 1999 are deemed to be outstanding for purposes of computing the
percentage of the shares held by an individual, but are not
outstanding for purposes of computing the percentage of any other
person. Except as indicated below in the other footnotes, and subject
to community property laws where applicable, the persons named in the
above table have sole voting and investment power with respect to all
common shares shown as beneficially owned by them.
(2) Includes 1,474,565 shares issuable under a convertible note which may
be converted within 60 days of May 31, 1999. Also includes 6,431,896
shares held in trust by the existing Alberta corporation, over which
Mr. Siegel possesses exclusive voting control. See "Certain
Relationships and Related Transactions--Indebtedness of Directors,
Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes."
(3) Includes 2,525,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999, including 25,000 shares issuable under
stock options owned by Renee Caira, Mr. Caira's spouse. Also includes
5,640,636 shares held in trust by the existing Alberta corporation,
over which Mr. Caira possesses exclusive voting control. See "Certain
Relationships and Related Transactions--Indebtedness of Directors,
Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes."
(4) Includes 906,733 shares held in trust by the existing Alberta
corporation, over which Mr. Broidy possesses exclusive voting control.
See "Certain Relationships and Related Transactions--Indebtedness of
Directors, Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes."
(5) Includes 225,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 425,000 shares held in
trust by the existing Alberta corporation, over which Mr. Loughran
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(6) Includes 700,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 1,547,020 shares held in
trust by the existing Alberta corporation, over which Mr. Card
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(7) Includes 710,250 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 850,000 shares held in
trust by the existing Alberta corporation, over which Mr. Peace
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(8) Includes 500,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 1,500,000 shares held in
trust by the existing Alberta corporation, over which Mr. Lorber
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
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<PAGE>
(9) Includes 250,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999. Also includes 381,000 shares held in
trust by the existing Alberta corporation, over which Mr. Rogers
possesses exclusive voting control. See "Certain Relationships and
Related Transactions--Indebtedness of Directors, Executive Officers,
Senior Management and Significant Shareholders--Restructuring of
Notes."
(10) Includes: 225,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999; 210,000 shares owned by Mr. Dusmet's
spouse; 15,000 shares owned by 1110060 Ontario, Inc., a corporation
organized under the laws of Ontario, Canada, which is jointly owned by
Mr. Dusmet and his spouse; and 20,000 shares held in trust for Mr.
Dusmet's children for which Mr. Dusmet is a trustee. Also includes
315,000 shares held in trust by the existing Alberta corporation, over
which Mr. Dusmet possesses exclusive voting control. See "Certain
Relationships and Related Transactions--Indebtedness of Directors,
Executive Officers, Senior Management and Significant
Shareholders--Restructuring of Notes." Does not include 100,000
shares owned by Mr. Dusmet's father.
(11) Includes 225,000 shares issuable under stock options exercisable
within 60 days of May 31, 1999.
(12) Includes: 5,110,250 shares issuable under stock options exercisable
within 60 days of May 31, 1999, including 25,000 shares issuable under
stock options owned by Mr. Caira's spouse; 210,000 shares owned by Mr.
Dusmet's spouse; 15,000 shares owned by 1110060 Ontario, Inc., a
corporation organized under the laws of Ontario, Canada, which is
jointly owned by Mr. Dusmet and his spouse; and 20,000 shares held in
trust for Mr. Dusmet's children for which Mr. Dusmet is a trustee.
Does not include 100,000 shares owned by Mr. Dusmet's father. Also
does not include 757,401 shares and 250,000 shares issuable under
stock options exercisable within 60 of May 31, 1999 owned by Mr.
Rogers. Also includes 10,277,656 shares held in trust by the existing
Alberta corporation, over which certain executive officers and
directors of TomaHawk Corporation and TomaHawk II, Inc. collectively
possess exclusive voting control as described in footnotes 3, 5, 6, 7,
8 and 10. See "Certain Relationships and Related
Transactions--Indebtedness of Directors, Executive Officers, Senior
Management and Significant Shareholders--Restructuring of Notes."
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<PAGE>
MANAGEMENT
The directors and executive officers of the existing Alberta company and
its subsidiary TomaHawk II, Inc. are as follows:
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR
EXECUTIVE OFFICER AGE POSITION
- ----------------------------------------- --------- ------------------------------------------------------------------
<S> <C> <C>
Steven M. Caira 42 Chairman of the Board, President, and Chief Executive Officer of
TomaHawk Corporation and TomaHawk II, Inc. and Acting Chief
Financial Officer of TomaHawk Corporation
Thomas M. Dusmet 46 Director and Secretary of TomaHawk Corporation
Douglas W. Loughran 58 Director of TomaHawk Corporation
Jonathan F. Turpin 66 Director of TomaHawk Corporation
Phillip W. Card 57 Vice President of Operations and Technology and a Director of
TomaHawk II, Inc.
Michael H. Lorber 43 Vice President of Finance, Chief Financial Officer and a Director
of TomaHawk II, Inc.
John F. Peace 54 Vice President of Engineering Services and a Director of TomaHawk
II, Inc.
</TABLE>
For a description of the background of each of our current directors,
see "Proposal Two--Election of Directors--Information Regarding Director
Nominees." A description of the background of each of our executive officers
who is not a director follows:
Mr. PHILLIP W. CARD has served:
- since January 1996, as the vice president of operations and
technology and a director of TomaHawk II, Inc.;
- from January 1986 to December 1995, in a variety of positions for
Rohr, Inc., including:
- from February 1993 to December 1995, as manager of
engineering information systems;
- from February 1991 to February 1993, as director of
management information systems; and
- from 1968 to 1985, in a variety of positions with Boeing
Computer Services Company of Seattle, Washington. In his
last position with Boeing, Mr. Card oversaw and directed
the Boeing Aerospace Company's information management and
computer aided design/computer aided manufacturing
(CAD/CAM) function.
Mr. Card received a Bachelors of Science in Mathematics in 1964 and
Masters of Science in Mathematics in 1966, each from the University of Montana.
Mr. MICHAEL H. LORBER has served:
- since October 1996, as vice president of finance, chief
financial officer and a director of TomaHawk II, Inc.;
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<PAGE>
- from July 1994 to May 1995, as senior vice president of finance
and chief financial officer of M.G. Products, a publicly traded
manufacturer of decorative lighting and fixtures; and
- from September 1988 to July 1994, and from May 1995 to October
1996, as vice president and chief financial officer of LIDAK
Pharmaceuticals (now known as AVANIR Pharmaceuticals), a publicly
traded biotechnology company.
Mr. Lorber received a Bachelors of Science degree in Accounting from the
University of Illinois in 1979. Mr. Lorber was certified by the State of
California as a Certified Public Accountant in 1982.
Mr. JOHN F. PEACE has served:
- since June 1995, as a director of TomaHawk II, Inc.;
- since December 1998, as the vice president of engineering
services of TomaHawk II, Inc.;
- from November 1993 to March 1997, as the chief operating officer
of TomaHawk II, Inc.;
- from March 1997 to December 1998, as Director of Precision
Conversion of TomaHawk II, Inc.;
- from July 1985 to November 1994, in a variety of management
positions with Rohr, Inc., including:
- manager, spares administration;
- unit manager, assembly operations; and
- chief, numerical control systems.
Mr. Peace received the equivalent of a Bachelors of Science in
Mechanical Engineering from Sheffield Technical College in Sheffield, England in
1965.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table shows, as to the Chief Executive Officer and each of
the other four most highly compensated executive officers of TomaHawk II, Inc.
(collectively, the "Named Executive Officers"), information concerning
compensation awarded to, earned by or paid for services to the existing Alberta
corporation and/or its subsidiary TomaHawk II, Inc. in all capacities during the
fiscal years ended December 31, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION
(1) AWARDS PAYOUTS
--------------------- ------------------------- ------------
STOCK LONG-TERM ALL OTHER
RESTRICTED OPTIONS INCENTIVE COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS (IN SHARES) PLAN PAYOUTS (2)
- ------------------------------------- ------ ----------- -------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven M. Caira 1998 $300,000 $128,000 -- 2,500,000 -- --
President and Chief Executive 1997 237,500 $123,500 -- -- -- --
Officer of TomaHawk Corporation
and TomaHawk II, Inc. and Acting
Chief Financial Officer of
TomaHawk Corporation
John C. Rogers (3) 1998 $180,000 -- -- 250,000 -- $164,403 (4)
Former Vice President of Federal 1997 $256,431(5) -- -- -- -- --
Sales and Marketing of
TomaHawk II, Inc.
Phillip W. Card 1998 $150,000 -- -- 700,000 -- --
Vice President of Operations and 1997 $129,750 -- -- -- -- --
Technology of TomaHawk II, Inc.
Michael H. Lorber 1998 $150,000 -- -- 500,000 -- --
Vice President - Finance and 1997 $131,004 -- -- -- -- --
Chief Financial Officer of
TomaHawk II, Inc.
John F. Peace 1998 $111,441 -- -- 110,000 -- --
Vice President - Engineering 1997 $109,692 -- -- -- -- --
Services of TomaHawk II, Inc.
William D. Koren (6) 1998 $100,008 -- -- 200,000 -- --
Director - New Business 1997 $98,831 -- -- -- -- --
Development of TomaHawk II, Inc.
</TABLE>
---------------------------
(1) All compensation has been paid by TomaHawk II, Inc. TomaHawk
Corporation has not paid any compensation to its executive officers.
(2) Does not include amount of accounting expense attributed to compensation
by variable accounting treatment. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Year Ended December 31, 1998 Compared with Year Ended
December 31, 1997--General and Administrative Expenses" and "Certain
Relationships and Related
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<PAGE>
Transactions--Indebtedness of Directors, Executive Officers, Senior
Management and Significant Shareholders--Variable Accounting Treatment."
(3) During 1997, Mr. Rogers provided services to TomaHawk II, Inc. as a
consultant. In January 1998, Mr. Rogers became an officer of TomaHawk
II, Inc. However, as of January 1, 1999, Mr. Rogers resigned as an
officer and returned to providing services to TomaHawk II, Inc. as a
consultant. See "Certain Relationships and Related
Transactions--Consulting Arrangement with Capstone National Partners,
LLC."
(4) Represents commissions from revenues derived from contracts and
subcontracts funded by the U.S. Department of Defense pursuant to Mr.
Rogers' compensation arrangement. See "Certain Relationships and
Related Transactions--Consulting Arrangement with Capstone National
Partners, LLC."
(5) The compensation shown for 1997 represents broker fees and commissions
earned by Mr. Rogers pursuant to a consulting arrangement with TomaHawk
II, Inc. See "Certain Relationships and Related
Transactions--Consulting Arrangement with Capstone National Partners,
LLC."
(6) Mr. Koren currently serves as TomaHawk II, Inc.'s Director of New
Business Development. From August 1996 until August 1997, Mr. Koren
served as TomaHawk II, Inc.'s Director of Engineering Services, and then
served as TomaHawk II, Inc.'s Vice President of Engineering Services
until December 1998.
STOCK OPTION PLAN
Our stock option plan provides for the grant of stock options to
employees, directors and consultants. The rules of The Alberta Stock Exchange
permit us to issue a total number of options equal to 10% of our outstanding
common shares. As of May 31, 1999, we had granted options to purchase 7,330,570
common shares of the permissible pool of options to purchase 8,474,416 common
shares.
Our board of directors administers the stock option plan and determines
the exercise price, term and vesting periods of options granted under the plan.
The exercise price of stock options granted under the plan must be at least
equal to 85% of the fair market value of the common shares on the date of grant.
Option holders may pay the exercise price in cash, by certified check or by bank
draft. Options are terminated 90 days after the participant ceases to be a
director, officer or employee, and within 12 months after the participant's
death.
No insider or employee may be granted options to purchase an amount of
common shares greater than 5% of the then outstanding common shares. For all
other participants, this amount is limited to 1% of the then outstanding common
shares.
Our board of directors may amend, modify or terminate the stock option
plan at any time without the consent of the optionees. However, any amendment,
modification or termination will not affect options already granted under the
plan.
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<PAGE>
STOCK OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 1998
The following table shows, as to the Named Executive Officers,
information concerning stock options granted during the year ended December 31,
1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE PER SHARE
NAME GRANTED (1) IN 1998 (2) (3), (4) EXPIRATION DATE
- ------------------------ -------------------- -------------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
Steven M. Caira 2,500,000 42% $0.22 3/18/03
Michael H. Lorber 500,000 8% 0.22 3/18/03
Phillip W. Card 700,000 12% 0.22 3/18/03
John F. Peace 110,000 2% 0.22 3/18/03
John C. Rogers 250,000 4% 0.22 3/18/03
William D. Koren 200,000 3% 0.22 3/18/03
</TABLE>
- ---------------------------------
(1) These options were granted under the existing Alberta corporation's
stock option plan.
(2) Based on a total of 5,972,000 options granted to all employees during
1998.
(3) Exercise price per share in Canadian dollars.
(4) Exercise price is Cdn. $0.03 less than the closing price of the options
on the date of grant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of
Operations--Year Ended December 31, 1998 Compared with Year Ended
December 31, 1997--General and Administrative Expenses" and "Certain
Relationships and Related Transactions--Variable Accounting Treatment."
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<PAGE>
COMMON SHARES UNDERLYING UNEXERCISED OPTIONS AND OPTION VALUES
The following table shows, as to the Named Executive Officers,
information concerning stock options exercised during the year ended December
31, 1998 and unexercised stock options at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN THE MONEY
DECEMBER 31, 1998 OPTIONS AT DECEMBER 31, 1998 (1)
--------------------------------- ----------------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- ---------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Caira 2,500,000 200,000 2,500,000 -- 150,000 --
Michael H. Lorber 500,000 40,000 500,000 -- 30,000 --
Phillip W. Card 425,000 49,750 700,000 -- 42,000 --
John F. Peace -- -- 710,250 -- 64,213 --
William D. Koren 150,000 15,375 250,000 -- 15,000 --
John C. Rogers -- -- 200,000 -- 12,000 --
</TABLE>
- --------------------------------------
(1) Represents the difference between the exercise price of the outstanding
options and the estimated market price of the common shares on December
31, 1998 of Cdn. $0.28 per share.
EMPLOYMENT AGREEMENTS
We recently agreed to the terms of an employment agreement with Stephen
M. Caira, our president and chief executive officer. The agreement provides for
a five year term at a base salary of $300,000 per year. Mr. Caira is also
eligible for an annual bonus and a grant of stock options, each subject to the
approval of our board of directors. In the event that Mr. Caira is terminated
without good cause, he will be entitled to a severance payment equal to one year
of salary plus one month of salary for each full year of his employment with our
company at the time of his termination.
We have no employment agreements with any of our other Named Executive
Officers.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None or our directors, officers, or insiders, or any associate or
affiliate of any of the foregoing persons, has or had any material interest in
any transaction since the beginning of our last completed fiscal year or any
proposed transaction that has materially affected, or will materially affect us
or any of our affiliates, except as disclosed below. References to "we" or "us"
include TomaHawk Corporation and TomaHawk II, Inc.
CONSULTING ARRANGEMENT WITH CAPSTONE NATIONAL PARTNERS, LLC
We have retained Capstone National Partners, LLC, a federal marketing
consulting firm, to coordinate our government marketing efforts. John Rogers,
our former Vice President of Federal Sales and Marketing, is the president and
majority member of Capstone National Partners, LLC. We pay to Capstone National
Partners, LLC a monthly retainer in the amount of US $10,000 and a 5% commission
on all revenues from contracts that Capstone National Partners, LLC plays a
significant role in obtaining on our behalf. To date, Capstone National
Partners, LLC has helped us obtain each of our contracts funded by the ADCS
program. We currently do not have a written agreement with Capstone National
Partners, LLC. See "Risk Factors--Risk Factors Relating to our Continuing
Operations--We may not retain the consultant that coordinates our marketing
efforts directed at the U.S. government."
This arrangement was not in effect during 1998 when Mr. Rogers served as
our Vice President of Federal Sales and Marketing. Instead, during 1998, we
paid to Mr. Rogers a base salary of US $180,000, a 2% commission on all revenues
up to US $5 million from contracts that he played a significant role in
obtaining on our behalf, and a 2.5% commission on all revenues from US $5
million to US $10 million from these contracts. In 1998, these commissions
totaled US $164,403. See "Executive Compensation--Summary Compensation."
In 1997 we paid US $256,431 to Mr. Rogers through consulting
arrangements with various consulting companies controlled by Mr. Rogers. See
"Executive Compensation--Summary Compensation."
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS, SENIOR MANAGEMENT AND SIGNIFICANT
SHAREHOLDERS
RESTRUCTURING OF NOTES. Between October 1996 and January 1999 certain
directors, executive officers, senior management and significant shareholders of
TomaHawk Corporation and TomaHawk II, Inc. borrowed an aggregate of US
$2,756,588 from Tomahawk II, Inc. to purchase common shares in connection with a
private placement, exercise stock options or exercise warrants. As of May 31,
1999, an aggregate of US $2,606,588 remained outstanding. Each of these loans
is evidenced by a promissory note and secured by the common shares purchased
with the proceeds of the respective loan. We will hold each borrower's common
shares in trust until the borrower has repaid his loan in full.
All of the loans made between October 1996 and December 1997 were
originally written as two-year non-recourse loans. In connection with the audit
of our financial statements for the year ended December 31, 1997, our auditors
informed us that because the notes were non-recourse, under U.S. GAAP, we were
required to account for the notes under variable accounting treatment. Because
this accounting treatment could have resulted in significant non-cash
compensation expenses to the existing Alberta corporation, we restructured the
notes to make them full-recourse. In addition, each of the loans we made to our
directors, officers and shareholders between January 1998 and January 1999 were
structured as full-recourse loans.
In November 1998, when the original notes issued in 1996 reached their
maturity dates, we agreed to extend the maturity dates of each of the
outstanding notes until November 1, 1999. In connection with the audit of our
1998 financial statements, our auditors informed us that by extending the
maturity date of the notes, the notes were again subject to variable accounting
treatment. Because the notes were now subject to variable accounting treatment
whether or not they were full-recourse notes, and because our original intention
had been to have non-recourse notes secured by the common shares purchased with
the proceeds of the loans, we elected to restructure the notes once again. Each
of these notes is now therefore a non-interest bearing, non-recourse note,
secured by the common shares purchased with the proceeds of the respective loan,
and maturing on November 1, 2004. See "See
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<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Results of Operations--Year Ended December 31, 1998 Compared with
Year Ended December 31, 1997--General and Administrative Expenses."
The following table shows, as to the directors, executive officers,
senior management and significant shareholders that have restructured their
notes, the amounts of outstanding indebtedness restructured and the number of
common shares securing the restructured outstanding indebtedness:
<TABLE>
<CAPTION>
AMOUNT OF OUTSTANDING COMMON SHARES SECURING
NAME INDEBTEDNESS (US $) (1) OUTSTANDING INDEBTEDNESS
------------------------ -------------------------------------- -----------------------------------------
<S> <C> <C>
Norman F. Siegel $854,832 (2) 6,431,896
Steven M. Caira $735,295 (3) 5,640,636
Michael H. Lorber $188,974 1,500,000
Phillip W. Card $176,635 (4) 1,547,020
John F. Peace $110,775 850,000
Elliot Broidy $89,586 906,733
Douglas W. Loughran $60,775 425,000
</TABLE>
(1) Includes only indebtedness in excess of US $60,000.
(2) Reflects a payment in the amount of US $50,000 made after the loan but
before the restructuring; does not include US $250,000 owed to Mr.
Siegel by TomaHawk II, Inc. related to a convertible debenture (see
"--Indebtedness of the Existing Alberta Corporation to its Directors,
Officers, and Significant Shareholders--Indebtedness to Significant
Shareholder").
(3) Reflects a payment in the amount of US $100,000 made after the loan but
before the restructuring; does not include approximately US $88,000 owed
to Mr. Caira by TomaHawk II, Inc. related to accrued bonuses and other
expenses.
(4) Does not include approximately US $100,000 owed to Mr. Card by TomaHawk
II, Inc. related to accrued bonuses.
VARIABLE ACCOUNTING TREATMENT. In order to conform with U.S. generally
accepted accounting principals, we accounted for the restructured loans made to
our directors, officers, and employees under accounting rules for variable
instruments. These loans to our directors, officers and employees include the
loans listed in the above table, as well as loans made to Mr. Dusmet, Mr. Rogers
and two other officers of TomaHawk II, Inc. These variable accounting rules
require that, until these loans are paid in full, we must record compensation
expense on a quarterly basis equal to the amount of the increase in the fair
market value of the common shares purchased with the loans. In 1998, this
variable accounting treatment resulted in a non-cash, general and administrative
expense of US $679,000. Until these loans are paid in full, we will continue to
incur significant non-cash expenses if the fair market value of our common
shares increases. See Note 5 to our Consolidated Financial Statements
INDEBTEDNESS OF THE EXISTING ALBERTA CORPORATION TO ITS DIRECTORS, OFFICERS, AND
SIGNIFICANT SHAREHOLDERS
INDEBTEDNESS TO DIRECTORS AND OFFICERS. As of December 31, 1998, we
owed $100,000 in accrued bonus to Philip W. Card, which we anticipate will be
used to pay part of the outstanding balance on his note payable to us
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<PAGE>
(see "--Restructuring of Notes") and $87,697 in accrued bonus and expenses to
Steven M. Caira. These liabilities are non-interest bearing, and will be
settled through the normal course of business.
INDEBTEDNESS TO SIGNIFICANT SHAREHOLDER. In December 1996, we borrowed
US $250,000 from Norman F. Siegel, a shareholder owning approximately 21.5% of
our outstanding common shares. We secured the loan with accounts receivable,
intangible assets, and plant and equipment not otherwise pledged. In January
1997, we refinanced the loan by issuing a convertible debenture due January 8,
1999, bearing interest at prime plus 1% per annum. This indebtedness is
convertible into our common shares at Cdn. $0.23 per share, up to a maximum of
1,474,565 common shares. In connection with this financing, we issued to Mr.
Siegel a warrant for the purchase of 1,474,565 shares at a price of Cdn. $0.23
per share, expiring January 8, 1999. In January 1999, Mr. Siegel exercised this
warrant through the issuance of a five year non-interest bearing note. At the
same time, the maturity date of the US $250,000 note in favor of Mr. Siegel was
extended until January 8, 2001.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
INDEMNIFICATION
Section 145 of the General Corporation Law of the State of Delaware
provides that indemnification of directors, officers, employees and other agents
of the corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, may be provided by it to
whatever extent specified in or authorized by the articles of organization, a
bylaw adopted by the shareholders or a vote adopted by the holders of a majority
of the shares of stock entitled to vote on the election of directors.
The new Delaware corporation's certificate of incorporation includes
provisions eliminating the personal liability of the new Delaware corporation's
directors for monetary damages resulting from breaches of their fiduciary duty
except in certain circumstances. The new Delaware corporation's certificate of
incorporation and bylaws provide indemnification to directors and officers
against claims to the full extent allowable under Delaware corporate law. We
also intend to enter into indemnification agreements with our directors and
executive officers providing, among other things, that we provide defense costs
against this type of claim, subject to reimbursement in certain events. See
"Proposal Ten--Approval of Form Indemnification Agreement." Furthermore, we
intend to maintain a directors and officers liability insurance policy.
INTEREST OF NAMED EXPERTS AND COUNSEL
Jonathan S. Kitchen, a partner in the law firm of Baker & McKenzie,
currently owns 425,000 of our common shares (before the one-for-fifteen common
share consolidation), which amount represents less than 1% of our outstanding
common shares as of May 31, 1999. All of Mr. Kitchen's common shares are being
registered under this Proxy Statement and Information Circular. Mr. Kitchen has
represented us in connection with certain litigation matters. Apart from
providing information with respect to ongoing litigation (see "Business--Legal
Proceedings"), Mr. Kitchen was not involved in the preparation of this Proxy
Statement and Information Circular.
LEGAL MATTERS
Certain matters with respect to the issuance of the shares of common
stock and preferred stock in connection with the Delaware domestication will
be passed upon by Baker & McKenzie, San Diego, California.
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<PAGE>
TAX MATTERS
Ernst & Young LLP, our tax advisor, has rendered a tax opinion included
as an exhibit to this S-4 registration statement. It is included on the
authority of Ernst & Young LLP as an expert in tax matters.
EXPERTS
Our financial statements as of and for the year ended December 31, 1998
and 1997 included in this Proxy Statement and Information Circular, and
elsewhere in the Registration Statement of which this Proxy Statement and
Information Circular forms a part, have been audited by Ernst & Young LLP,
independent auditors, as described in their report on our financial
statements appearing in this Proxy Statement and Information Circular and
elsewhere in the Registration Statement. The financial statements are
included in this Proxy Statement and Information Circular and in the
Registration Statement in reliance on the report of Ernst & Young LLP, upon
the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We currently do not report under the Securities Exchange Act. We have
filed with the SEC a registration statement on Form S-4 covering the shares of
common stock described in this Proxy Statement and Information Circular. We
have not included in this Proxy Statement and Information Circular certain
information contained in the registration statement and you should refer to the
registration statement and its exhibits for further information. For a fee, you
may obtain a copy of the registration statement from the public reference
section of the SEC at: Judiciary Plaza, 450 5th Street, N.W., Washington, D.C.
20549; and the SEC's Regional Offices located at 7 World Trade Center, Suite
1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. In addition, the SEC
maintains a web site on the Internet at the address http://www.sec.gov that
contains reports, proxy information statements and other information regarding
registrants that file electronically with the SEC. After completion of this
offering, we will be subject to the reporting requirements of the Securities
Exchange Act.
OTHER MATTERS
We are not aware of any other matters which you will vote on at the
annual and special meeting. If any other matter properly comes before the
annual and special meeting, then the persons named in the enclosed form of proxy
will vote the shares represented thereby in accordance with their best judgment
on the matter.
SHAREHOLDER PROPOSALS
Any shareholder proposing to have any appropriate matter brought before
the 2000 annual meeting of shareholders is required to submit a proposal in
accordance with the SEC's proxy rules to the secretary of the new Delaware
corporation not later than ____________, 2000, to be considered for inclusion in
the 2000 proxy statement.
APPROVAL OF DIRECTORS
The contents of this Proxy Statement and Information Circular have been
approved by the board of directors of TomaHawk Corporation.
97
<PAGE>
CERTIFICATE OF TOMAHAWK CORPORATION
The foregoing contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in the light of the circumstances
in which it was made.
DATED at San Diego, California, this 8th day of July, 1999.
/s/ STEVEN M. CAIRA
- --------------------------------------------------------
STEVEN M. CAIRA
CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF EXECUTIVE
OFFICER AND ACTING CHIEF FINANCIAL OFFICER
98
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TOMAHAWK CORPORATION PAGE
----
<S> <C>
Report of Ernst & Young, LLP, Independent Auditors..............................F-2
Consolidated Balance Sheets at December 31, 1998 and 1997.......................F-3
Consolidated Statements of Operations for the years ended December 31, 1998
and 1997.....................................................................F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998 and 1997...................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1997................................................................F-6
Notes to Consolidated Financial Statements......................................F-7
Consolidated Balance Sheets at March 31, 1999 (unaudited) and
December 31, 1998...........................................................F-22
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 (unaudited) and 1998 (unaudited) ............................F-23
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1999 (unaudited) and 1998 (unaudited) ............................F-24
Notes to Unaudited Consolidated Financial Statements...........................F-25
</TABLE>
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Tomahawk Corporation
We have audited the accompanying consolidated balance sheets of Tomahawk
Corporation as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tomahawk
Corporation at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1, at December 31, 1998 the Company had a working capital
deficiency of $1.7 million. While management is actively seeking additional
financing to ensure that the Company has sufficient working capital to fund its
ongoing operations, there are no assurances that financing can be obtained.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements of the Company do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
March 12, 1999
F-2
<PAGE>
Tomahawk Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 169,129 $ 271,576
Accounts receivable, net of allowance for doubtful accounts
of $298,939 in 1998 and $63,946 in 1997 2,178,353 2,072,388
Other current assets 89,724 186,546
------------------------------------
Total current assets 2,437,206 2,530,510
Property and equipment, net 2,292,410 1,053,718
Goodwill, net of accumulated amortization of $78,271 in 1998 and
$6,035 in 1997 1,507,737 29,960
Other assets 216,517 125,521
------------------------------------
Total assets $ 6,453,870 $ 3,739,709
------------------------------------
------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 969,634 $ 1,120,172
Accrued expenses 967,867 826,721
Bank debt 1,383,081 661,519
Current maturities of long-term debt 165,000 -
Convertible debenture to a shareholder, net 250,000 160,641
Current maturities of capital lease obligations 415,041 255,068
------------------------------------
Total current liabilities 4,150,623 3,024,121
Long-term debt 935,000 -
Capital lease obligations 977,180 268,880
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 750,000 and 1,500,000 shares
authorized and outstanding at December 31, 1998 and 1997,
respectively 547 1,094
Common stock, no par value; 83,269,600 and 69,055,649 shares
authorized and outstanding at December 31, 1998 and 1997,
respectively 9,358,973 7,432,422
Additional paid-in capital 3,895,837 3,026,762
Deferred compensation (26,430) -
Notes receivable for purchase of common stock, net (2,379,690) (1,159,676)
Obligation to issue common stock - 39,631
Accumulated deficit (10,458,170) (8,893,525)
------------------------------------
Total stockholders' equity 391,067 446,708
------------------------------------
------------------------------------
Total liabilities and stockholders' equity $ 6,453,870 $ 3,739,709
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
Tomahawk Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
------------------------------------
<S> <C> <C>
Net sales $ 13,546,510 $ 9,281,351
Cost of sales 9,564,315 7,145,864
------------------------------------
Gross margin 3,982,195 2,135,487
Operating expenses:
General and administrative 3,225,966 1,435,763
Marketing and sales 1,683,481 1,135,378
------------------------------------
Total operating expenses 4,909,447 2,571,141
------------------------------------
Loss from operations (927,252) (435,654)
Other expenses:
Interest expense (321,195) (136,336)
Terminated offering costs (316,198) -
Gain on settlement of debt - 158,672
------------------------------------
Net loss $ (1,564,645) $ (413,318)
------------------------------------
------------------------------------
Net loss per share - basic and diluted $ (.02) $ (.01)
------------------------------------
------------------------------------
Weighted average shares used in computing net loss per
share - basic and diluted 75,399,286 59,758,748
------------------------------------
------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
Tomahawk Corporation
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------------- -------------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,250,000 $1,642 53,654,263 $ 5,497,222 $ 2,842,996
Cancellation of Series I preferred stock (750,000) (548)
Common stock upon private placement - - 2,433,632 431,699 -
Common stock issued upon exercise of warrants - - 12,677,754 1,462,516 -
Common stock issued upon exercise of options - - 50,000 6,080 -
Common stock issued upon acquisition of
company - - 125,000 19,999 -
Common stock issued for services - - 115,000 14,906 -
Compensation expense related to stock options - - - - 5,048
Debt issuance costs upon issuance of
warrants with convertible debenture - - - - 178,718
Net loss - - - - -
-------------------------------------------------------------------------------
Balance at December 31, 1997 1,500,000 1,094 69,055,649 7,432,422 3,026,762
Cancellation of Series II preferred stock (750,000) (547) - - -
Common stock issued upon exercise of warrants - - 9,566,281 1,373,334 -
Common stock issued upon exercise of options - - 4,308,780 488,586 -
Common stock issued upon acquisition of
company - - 200,000 39,631 -
Common stock issued in connection with
litigation settlement - - 138,890 25,000 -
Payments on notes receivable - - - - -
Deferred compensation related to stock
options - - - - 189,845
Amortization of deferred compensation - - - - -
Compensation expense related to notes
receivable from management personnel and - - - - 679,230
directors
Net loss - - - - -
-------------------------------------------------------------------------------
Balance at December 31, 1998 750,000 $ 547 83,269,600 $ 9,358,973 $ 3,895,837
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<CAPTION>
NOTES
RECEIVABLE FROM
MANAGEMENT
PERSONNEL,
DIRECTORS, AND OBLIGATION TO TOTAL
DEFERRED SIGNIFICANT ISSUE COMMON ACCUMULATED STOCKHOLDERS'
COMPENSATION SHAREHOLDERS STOCK DEFICIT EQUITY
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ - $ (538,226) $ - $ (8,480,207) $ (676,573)
Cancellation of Series I preferred stock - - - (548)
Common stock upon private placement - - - - 431,699
Common stock issued upon exercise of warrants - (621,450) - - 841,066
Common stock issued upon exercise of options - - - - 6,080
Common stock issued upon acquisition of
company - - 39,631 - 59,630
Common stock issued for services - - - - 14,906
Compensation expense related to stock options - - - - 5,048
Debt issuance costs upon issuance of
warrants with convertible debenture - - - - 178,718
Net loss - - - (413,318) (413,318)
-----------------------------------------------------------------------------
Balance at December 31, 1997 - (1,159,676) 39,631 (8,893,525) 446,708
Cancellation of Series II preferred stock - - - - (547)
Common stock issued upon exercise of warrants - (984,140) - - 389,194
Common stock issued upon exercise of options - (290,885) - - 197,701
Common stock issued upon acquisition of
company - - (39,631) - -
Common stock issued in connection with
litigation settlement - - - - 25,000
Payments on notes receivable - 55,011 - - 55,011
Deferred compensation related to stock
options (189,845) - - - -
Amortization of deferred compensation 163,415 - - - 163,415
Compensation expense related to notes
receivable from management personnel and - - - - 679,230
directors
Net loss - - - (1,564,645) (1,564,645)
-----------------------------------------------------------------------------
Balance at December 31, 1998 $ (26,430) $ (2,379,690) $ - $(10,458,170) $ 391,067
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
Tomahawk Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,564,645) $ (413,318)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for doubtful accounts 164,050 60,502
Depreciation and amortization 636,282 250,157
Gain on settlement of debt - (158,672)
Amortization of debt discount 89,359 89,359
Foreign currency loss 11,105 18,216
Legal settlement for stock 25,000 14,906
Compensation expense related to options 163,415 5,048
Compensation expense related to notes receivable from management
personnel and directors 679,230 -
Changes in operating assets and liabilities:
Accounts receivable (270,015) (1,407,852)
Other assets 5,826 (303,692)
Accounts payable and accrued expenses (59,392) 791,356
------------------------------------
Net cash used in operating activities (119,785) (1,053,990)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition (439,569) -
Purchases of property and equipment (516,234) (244,963)
------------------------------------
Net cash used for investing activities (955,803) (244,963)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of shares by private placement - 431,699
Private placement warrants exercised 389,194 841,068
Exercise of stock options 197,701 6,080
Issuance of shares related to acquisitions - 19,999
Increase in note payable - 12,423
Increase in bank indebtedness 721,562 661,519
Repayment of notes receivable 55,011 -
Repayment of note payable - (187,577)
Principal payments under capital lease obligations (390,327) (244,459)
------------------------------------
Net cash provided by financing activities 973,141 1,540,752
------------------------------------
(Decrease) increase in cash (102,447) 241,799
Cash at beginning of year 271,576 29,777
------------------------------------
Cash at end of year $ 169,129 $ 271,576
------------------------------------
------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 283,470 $ 183,653
------------------------------------
------------------------------------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment under capital leases $ 613,356 $ 768,407
------------------------------------
------------------------------------
Acquisition - See Note 2
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements
December 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND BUSINESS
The consolidated financial statements represent the consolidation of the
accounts of Tomahawk Corporation, Tomahawk Imaging & Financial, Inc.,
Tomahawk II, Inc., and Tomahawk Software, Inc. (collectively the "Company").
Both Tomahawk Corporation and Tomahawk Imaging & Financial, Inc. are
incorporated in Alberta, Canada and Tomahawk Corporation is a registrant on
the Alberta Stock Exchange. Tomahawk Imaging & Financial, Inc. is a
wholly-owned subsidiary of Tomahawk Corporation. Tomahawk II, Inc. is
incorporated in the State of Illinois, USA and Tomahawk Software, Inc.
("TSI") is incorporated in India. Tomahawk II is a wholly-owned subsidiary of
Tomahawk Imaging & Financial, Inc. TSI is a majority-owned subsidiary of
Tomahawk II. (See Note 9). All significant intercompany accounts have been
eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) in the United States (US) and,
unless otherwise indicated in US dollars; however, the Company will present the
financial statements to the Alberta Stock Exchange. As required by the rules of
the Alberta Stock Exchange, a reconciliation between the financial statements
prepared in US GAAP and Canadian GAAP is presented in Note 10.
The accompanying financial statements have also been prepared assuming that the
Company is a going concern. At December 31, 1998, the Company had a working
capital deficiency of $1.7 million. Management is actively seeking financing
from both debt and equity sources to ensure the Company has sufficient working
capital to fund its ongoing operations. While management believes that they will
be successful, there are no assurances that financing can be obtained. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The accompanying financial statements of the Company do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
The Company provides engineering and manufacturing services to companies
primarily in the aerospace, space and defense industries. Its dominant business
consists of the conversion of hard copy documents such as blueprints and text
into electronic computer aided design formats. The Company also performs
engineering services, two and three dimensional modeling, tool design, numerical
control ("NC") programming, and precision machining and manufacturing of parts
and components.
F-7
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue on fixed-price contracts is recognized on a percentage-of-completion
basis. Revenue on time and materials contracts are recognized as earned as
services are performed at the applicable rates in accordance with the terms of
the underlying contract.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation is provided on a straight-line method over the estimated useful
lives of the assets, which range from three to ten years. Amortization of
leasehold improvements is provided over the lesser of the remaining lease term
or the estimated useful life of the improvements.
The Company leases machinery, computer hardware, computer software, and office
furniture and fixtures. The leased assets meeting the requirements for
capitalization are included as capitalized leased assets and are amortized over
the equipment's useful life.
GOODWILL
Goodwill relating to cost in excess of net assets acquired arose from the
acquisition of various companies (see Note 2). Goodwill is amortized over
estimated useful lives ranging from five to ten years.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the US dollar is the functional currency.
Monetary assets and liabilities of the Company's operations which are
denominated in currencies other than U.S. dollar are translated into US dollars
at the exchange rate prevailing at year end. Non-monetary items are translated
at historical rates. Revenue and expense transactions are translated at exchange
rates prevailing at the transaction date. All exchange gains and losses are
included in net earnings in the period in which they arise.
F-8
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards ("SFAS") 123, the
Company has elected to follow Accounting Principles Board Opinion 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in
accounting for its employee stock awards. Under APB 25, when the exercise price
of the Company's employee stock awards is not less than the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
NET LOSS PER SHARE
In 1997, the Company adopted SFAS 128, "Earnings Per Share." SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported primary earnings per share. Since such securities are antidilutive
there is no difference between basic and diluted earnings (loss) per share for
any of the periods presented and none of the prior periods were required to be
restated.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company reviews long-lived
assets and intangible assets for impairment caused by events or changes in
circumstances which indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of that asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeded the fair value of the assets.
2. ACQUISITIONS
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in the consolidated
financial statements since their respective dates of acquisition.
During 1997, the Company acquired three businesses through the issuance of
325,000 shares of common stock valued at $59,630. As of December 31, 1997, the
Company had issued 19,999 shares and had recorded an obligation to issue the
remaining 39,631 shares.
F-9
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
These shares were issued in fiscal year 1998. In conjunction with these
transactions, the Company acquired current assets of $115,419, capital assets of
$195,909, and assumed liabilities of $291,391. The Company recorded
approximately $40,000 of goodwill in connection with these acquisitions. One of
the acquired businesses was a company that provided document conversion
services; a second business provided NC programming and engineering services;
and the third business provided high volume document scanning services.
During 1998, the Company acquired certain assets of a precision machine shop
for a total purchase price of $1,540,000. The acquisition was accounted for
under the purchase method and the Company recorded goodwill of approximately
$1,550,000 (which the Company is amortizing over ten years) and machinery and
equipment of $635,000, net of liabilities for capital leases of $645,000. In
connection with this acquisition, the Company's consideration was $400,000 in
cash, $40,000 in acquisition costs, a note payable with the seller in the
amount of $1,100,000. Interest at an annual rate of prime plus 1% is payable
on the outstanding principal balance commencing December 19, 1998. The
outstanding principal balance is payable over a 60-month period commencing
March 19, 1999.
3. FINANCIAL STATEMENT INFORMATION
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------------------------------
<S> <C> <C>
Machinery and tools $ 1,027,149 $ -
Computer hardware 929,414 623,342
Computer software 870,319 493,503
Office furniture, fixtures and equipment 325,787 271,237
Leasehold improvements 82,878 44,727
----------------------------------
3,235,547 1,432,809
Less accumulated depreciation and amortization (943,137) (379,091)
----------------------------------
----------------------------------
$ 2,292,410 $ 1,053,718
----------------------------------
----------------------------------
</TABLE>
Computer hardware and software, with a cost of $332,483 in 1997 were fully
depreciated in 1997 and have been deducted from the cost and accumulated
depreciation totals.
F-10
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
3. FINANCIAL STATEMENT INFORMATION (CONTINUED)
Equipment acquired under capital leases totaled $1,370,735 and $643,764 (net of
accumulated amortization of $406,742 and $124,643 at December 31, 1998 and 1997,
respectively).
BANK LOANS
In February 1997, the Company entered into a Revolving Credit Loan Agreement
(the "Agreement") whereby the Company is able to borrow amounts not to exceed
the lesser of: 1) $750,000; or 2) the sum of 65% of the Company's net current
accounts receivable at that time. The Agreement was secured by substantially all
of the assets of the Company. Interest accrued at the rate of the bank's prime
plus 1.5% per annum (10.25% at December 31, 1997) and outstanding borrowings
totaled approximately $640,000 at December 31, 1997. In March 1998, the Company
paid in full the outstanding principal and interest balances and terminated the
Agreement.
As a result of one of the Company's 1997 acquisitions, the Company assumed a
Revolving Promissory Draw Note (the "Note") whereby the Company was able to
borrow amounts not to exceed $55,000. Interest under the Note accrued at the
rate of prime plus 1.75% per annum. At December 31, 1997, the interest rate was
10.50% and outstanding borrowings totaled approximately $22,000. In February
1998, the Company paid in full the outstanding principal and interest balance
and terminated the agreement.
In March 1998, the Company entered into a Business Loan Agreement (the "Loan
Agreement") to borrow up to a maximum of $2,000,000. The Loan Agreement was
secured by substantially all of the assets of Tomahawk II and is guaranteed by
the Company. Interest was payable at the bank's preferred rate plus 1% per annum
due on April 1, 1998 and then monthly, thereafter, until payment in full of any
principal outstanding under the Loan Agreement. Outstanding principal and any
unpaid interest was due on February 28, 1999. At December 31, 1998, outstanding
borrowings totaled approximately $1,383,081.
In March 1999, the Company revised and amended the Loan Agreement by entering
into an Amended and Restated Business Loan Agreement (the "Amended Loan
Agreement") to borrow up to a maximum of $3,000,000 based on eligible accounts
receivable. The Amended Loan Agreement is secured substantially by all of the
assets of Tomahawk II and is guaranteed by the Company. Interest is payable at
the bank's reference rate plus 1% per annum starting on April 1, 1999, and
monthly thereafter, until payment in full of any principal outstanding under the
Amended Loan Agreement. Outstanding principal and any unpaid interest is due on
February 29, 2000. The Amended Loan Agreement
F-11
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
3. FINANCIAL STATEMENT INFORMATION (CONTINUED)
contains restrictive covenants subject to the bank's consent, including
limitations on capital expenditures and restrictions on making any loans to
officers, directors or shareholders of the Company.
CONVERTIBLE DEBENTURE
As of December 31, 1996, the Company had a $250,000 loan provided by a
significant shareholder and secured by accounts receivable, intangible assets,
and plant and equipment, not otherwise pledged. In 1997, the loan was refinanced
by the issuance of a convertible debenture due January 8, 1999, bearing interest
at prime plus 1% per annum. The indebtedness is convertible into common shares
on the basis of Canadian (CN) $0.23 per share, to a maximum of 1,474,565 shares.
In connection with the financing, the debenture holder was issued a warrant for
the purchase of 1,474,565 shares at a price of CN$0.23 per share, which expired
on January 8, 1999. Based on the estimated fair value of the attached warrant,
$178,717 was booked as debt discount relating to the warrant for the purchase of
1,474,565 shares attached to the convertible debenture. The debt discount was
amortized over approximately two years. Accordingly, the Company recognized
$89,359 in expense as of December 31, 1998 and December 31, 1997, respectively.
OTHER EXPENSES
In fiscal year 1998, the Company ceased its efforts to complete an equity or
debt financing and the related costs of $316,198 incurred through December 31,
1998, were charged to operations.
In 1994, the Company purchased computer hardware and software and entered into a
Secured Promissory Note (the "Promissory Note") in the original principal amount
of approximately $403,000. The Promissory Note was secured by the computer
assets purchased. The Promissory Note became past due in December 1996, and in
April 1997, the Company negotiated a settlement of the full amount of the
liability for $200,000. The settlement resulted in a gain of debt of $158,672.
4. SEGMENT AND RELATED INFORMATION
The Company has two reportable segments as defined by FASB Statement 131,
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
Company's reportable segments are business units that offer different services
and are managed separately because each business requires different technology
and marketing strategies.
F-12
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
4. SEGMENT AND RELATED INFORMATION (CONTINUED)
The document imaging and conversion services segment accounted for 77% of total
revenues in 1998. The engineering and precision machining services segment
accounted for 23% of total revenues in 1998.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. The Company
allocates resources and evaluates the performance of segments based on profit or
loss from operations, excluding unusual gains or losses. The Company allocates
general and administrative expenses to each segment based on their respective
percentages of total revenue. Intersegment sales were not significant for any
period.
One customer of the document imaging and conversion services segment accounted
for 67% and 35% of net sales in 1998 and 1997, respectively. Two additional
customers of the document imaging and conversion services segment accounted for
12% and 11% of net sales in 1997. Information regarding industry segments for
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31 1998 1997
- ------------------------------- -------------------------------------
<S> <C> <C>
Net sales:
Document imaging and conversion services $10,424,953 $5,908,346
Engineering and precision machining services 3,121,557 3,373,005
-------------------------------------
Total consolidated net sales $13,546,510 $9,281,351
-------------------------------------
-------------------------------------
Cost of sales:
Document imaging and conversion services $ 6,166,822 $4,154,081
Engineering and precision machining services 3,397,493 2,991,783
-------------------------------------
Total consolidated cost of sales $ 9,564,315 $7,145,864
-------------------------------------
-------------------------------------
Gross margin (loss):
Document imaging and conversion services $ 4,258,404 $1,754,265
Engineering and precision machining services (276,209) 381,222
-------------------------------------
Total consolidated gross margin $ 3,982,195 $2,135,487
-------------------------------------
-------------------------------------
</TABLE>
F-13
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
4. SEGMENT AND RELATED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31 1998 1997
- ------------------------------- ------------------------------------
<S> <C> <C>
Income (loss) from operations before unallocated amount:
Document imaging and conversion services $ 731,634 $ (249,057)
Engineering and precision machining services (979,656) (186,597)
------------------------------------
Total loss from operations before unallocated amount (248,022) (435,654)
Unallocated amount:
Compensation expense related to notes receivable from
management personnel and directors (679,230) -
------------------------------------
Total consolidated loss from operations $ (927,252) $ (435,654)
------------------------------------
------------------------------------
Other unallocated amounts:
Interest expense $ (321,195) $ (136,336)
Terminated offering costs (316,198) -
Gain on settlement of debt - 158,672
------------------------------------
Total other unallocated amounts $ (637,393) $ 22,336
------------------------------------
------------------------------------
Net loss $ (1,564,645) $ (413,318)
------------------------------------
------------------------------------
Depreciation and amortization deducted in arriving at operating
income (loss) from operations:
Document imaging and conversion services $ 254,823 $ 140,910
Engineering and precision machining services 309,223 103,212
------------------------------------
564,046 244,122
Goodwill amortization 72,236 6,035
------------------------------------
$ 636,282 $ 250,157
------------------------------------
------------------------------------
Capital expenditures (including acquisitions and capital leases):
Document conversion services $ 567,819 $ 407,539
Engineering and precision machining services 1,234,958 623,888
------------------------------------
$ 1,802,777 $ 1,031,427
------------------------------------
------------------------------------
AT DECEMBER 31 1998 1997
- -------------- ------------------------------------
Total assets by segment:
Document imaging and conversion services $ 2,592,638 $ 2,159,518
Engineering and precision machining services 3,584,801 1,060,494
Unallocated amounts 276,431 519,697
------------------------------------
Total consolidated assets $6,453,870 $3,739,709
------------------------------------
------------------------------------
</TABLE>
Assets located in foreign countries were not significant.
F-14
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In connection with the acquisition of Tomahawk Imaging & Financial Inc. ("TIFI")
in March of 1993, the Company issued 2,250,000 Class A non-voting preferred
shares. In 1997, the Company has 1,500,000 issued and outstanding preferred
non-cumulative shares, 750,000 of the shares relate to Series II preferred
shares and 750,000 of the shares relate to Series III preferred shares.
At December 31, 1998, the Company had 750,000 shares of Series III preferred
shares authorized and outstanding. For each CN$2.50 of cumulative cash flow, a
share of Series III preferred shares is convertible into 10 common shares. In
the event these shares are not converted nor eligible for conversion by the end
of 1999, they will, subject to the discretion of the Alberta Stock Exchange, be
returned to the Company for cancellation. The Company does not expect these
shares to be eligible for conversion. In 1998 and 1997, the Company canceled the
750,000 shares of Series II preferred and the 750,000 shares of Series I
preferred, respectively, as the performance criteria for their respective
conversion was not met.
PRIVATE PLACEMENT ISSUANCE OF SHARES
In 1997, the Company issued 2,433,632 units (comprising 2,433,632 of common
stock and warrants to purchase additional 1,216,816 shares of common stock at a
price of CN $0.40 per share, which expired on March 24, 1999) at a price of
CN$.1774 per unit. Various directors and officers of the Company have
participated in this and previous private placements.
WARRANTS
Transactions for all warrants granted are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
---------------------------------------
<S> <C> <C>
Warrants outstanding at December 31, 1996 28,827,365 CN$0.22
Issued 2,691,381 0.31
Exercised (12,677,754) 0.16
Canceled (557,274) 0.17
---------------------------------------
Warrants outstanding at December 31, 1997 18,283,718 0.28
Exercised (9,566,281) 0.22
Canceled (6,026,056) 0.36
---------------------------------------
Warrants outstanding at December 31, 1998 2,691,381 CN$0.31
---------------------------------------
---------------------------------------
</TABLE>
F-15
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
As discussed above in Note 3, the warrants outstanding at December 31, 1998
expired during March of 1999. The warrants exercised were originally sold to
officers and directors for notes receivable and cash (see below).
STOCK OPTIONS
The Stock Option Plan (the "Plan") of Tomahawk is administered by the Board of
Directors of the Company. The shares offered under the Plan consist of
authorized but unissued common shares of the Company. The aggregate number of
shares to be delivered upon the exercise of all options granted under the Plan
shall not exceed 10% of the number of common shares outstanding at the date of
grant. If any options granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for the purpose of this Plan.
The Board of Directors may in its sole discretion, determine the time during
which options shall vest and the method of vesting, or that no vesting
restriction shall exist. The 1993, 1994, 1995, and 1996 grants have no vesting
restrictions. Starting in 1997, the Board of Directors has attached a six-month
vesting period on all future option grants.
The exercise price of the shares covered by each option shall be determined by
the Board of Directors of the Company. The exercise price shall not be less than
the price permitted by any stock exchange on which the common shares are then
listed. The common shares are listed in the Alberta Stock Exchange (the
"Exchange"). The Exchange permits up to a 15% discount on the fair market value
of the stock on the date of grant.
The Company has historically taken the allowable discount in determining the
exercise price of the stock. However, in accordance with generally accepted
accounting principles in the United States, under APB 25, when the exercise
price of the Company's employee stock award is less than the market price of the
underlying stock on the date of grant, compensation expense is recognized over
the vesting period of the options. The Company has recognized compensation
expense totaling $161,415 in December 31, 1998, none in 1997 and $2,848,044 for
the periods prior to 1997. Also, based on the vesting period of the options, the
Company has $26,430 in deferred compensation at December 31, 1998. Furthermore,
pursuant to APB 25, when options are granted to non-employees (i.e.,
consultants) compensation expense is recognized immediately upon grant based on
the total number of shares multiplied by fair market value on the date of grant.
The Company has recognized compensation expense relating to grants to
consultants of $1,762 and $5,048 in December 31, 1998 and 1997, respectively. As
of December 31,
F-16
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
1998 and 1997, the Company has recognized cumulative compensation expense of
$3,011,459 and $2,848,044, respectively, related to the issuance of stock
options below fair market value and the issuance of stock options to
consultants.
Each option and all other rights expire on the date set out in the option
agreements. Since 1996 options issued by the Company expire within five years
from the date of grant.
Activity for the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED -
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
-------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996 5,251,750 CN$0.17
Granted 793,000 0.20
Exercised (50,000) 0.17
Canceled (85,000) 0.18
-------------------------------------
Outstanding at December 31, 1997 5,909,750 0.17
Granted 5,972,000 0.22
Exercised (4,308,780) 0.16
Canceled (97,000) 0.19
-------------------------------------
Outstanding at December 31, 1998 7,475,970 CN$0.21
-------------------------------------
-------------------------------------
</TABLE>
Following is a further breakdown of the options outstanding as of December 31,
1998:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE WEIGHTED- EXERCISE PRICE
OPTIONS REMAINING LIFE AVERAGE OPTIONS OF OPTIONS
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE EXERCISABLE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CN$0.23 233,750 1 CN $0.23 233,750 CN$0.23
0.19 16,920 1 0.19 16,920 0.19
0.17 602,300 1 0.17 602,300 0.17
0.20 656,000 4 0.20 656,000 0.20
0.22 5,567,000 4 0.22 5,567,000 0.22
0.21 400,000 5 0.21 - -
------------------- -------------------
7,475,970 7,075,970
------------------- -------------------
------------------- -------------------
</TABLE>
F-17
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS 123, and has been determined as if the Company has accounted
for its employee stock options using the fair value method. The fair value of
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1998 and 1997:
risk-free interest rate of 6.50%; dividend yield of 0%; volatility factor of 79%
and a weighted-average life of five years.
The Black-Scholes valuation model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period. The Company's pro forma net
loss is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------------------------------------
<S> <C> <C>
Pro forma net loss $(2,344,072) $(756,609)
----------------------------------------
----------------------------------------
Pro forma net loss per share $(.03) $(.01)
----------------------------------------
----------------------------------------
</TABLE>
Future pro forma results of operations under SFAS 123 may be materially
different from actual amounts reported.
The weighted-average fair value of options granted during the year was $0.13.
The weighted-average remaining contractual life of options outstanding at
December 31, 1998 is 4 years.
NOTES RECEIVABLE
During 1996 through 1998, the Company issued non-interest bearing full-recourse
notes receivable (the "Notes") to various management personnel, directors and
significant shareholders for the purchase of stock and the exercise of options
and warrants. Several of these Notes came due in 1998 and the Company extended
their respective maturities
F-18
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
and ultimately concluded to revise all the Notes relating to management
personnel and directors in 1999 such that they are non-recourse notes
receivable. In accordance with generally accepted accounting principles, upon
extending the maturities, the Company began accounting for Notes relating to
management personnel and directors as variable instruments and accordingly,
recorded expense of $679,230.
6. NET LOSS PER SHARE
The following table sets for the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------------
<S> <C> <C>
Numerator:
Net loss $(1,564,645) $(413,318)
------------------------------------
------------------------------------
Denominator:
Weighted average shares 75,399,286 59,758,748
------------------------------------
------------------------------------
Basic and diluted net loss per share $(.02) $(.01)
------------------------------------
------------------------------------
</TABLE>
All potential common shares have been excluded from the diluted net loss per
share calculations as they are antidilutive.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases space under operating leases expiring between 2000 and 2002
in San Diego, Chicago and Seattle. The Company records rent expense on a
straight line basis ratably over the lease term.
F-19
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases machinery, computer hardware, computer software, and office
furniture and fixtures under capital leases. Capitalized lease obligations of
$1,309,243 and $768,407 were incurred in 1998 and 1997, respectively, as a
result of the Company entering into various equipment capital leases. Aggregate
future minimum lease commitments for all leases at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------------------------------
<C> <C> <C>
1999 $ 691,933 $ 560,299
2000 603,069 490,414
2001 397,665 323,704
2002 401,320 289,785
2003 309,502 90,803
Thereafter - 39,143
------------------------------------
$ 2,403,489 1,794,148
-------------------
-------------------
Less amount representing interest 401,927
------------------
Present value of net minimum lease payments 1,392,221
Less current portion 415,041
------------------
Long-term portion of capital lease obligations $ 977,180
------------------
------------------
</TABLE>
Rent expense was $431,976 and $229,872 for the years ended December 31, 1998 and
1997, respectively.
LITIGATION
On February 21, 1997, a competitor commenced legal action against the Company
regarding certain former employees of the plaintiff now employed by the Company.
In March of 1998, the matter was settled and the case was dismissed. According
to the Settlement Agreement, the Company agreed to pay $125,000 payable in cash
and stock in fiscal years 1998 and 1999. As of December 31, 1997, the Company
accrued the total settlement of $125,000 in the financial statements. In fiscal
year 1998, the Company issued $25,000 in common stock and paid $50,000 in cash
in accordance with the terms of the settlement.
As of December 31, 1998, the Company accrued $37,500 relating to a breach of
contract claim filed against the Company in 1997 and settled in 1998. The
$37,500 amount of the settlement is expected to be paid in 1999.
F-20
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
During 1998, the Company received approximately $250,000 in cash net of attorney
fees relating to legal settlements.
8. INCOME TAXES
At December 31, 1998, the Company had federal and California tax operating loss
carryforwards of approximately $4,785,000 and $994,000, respectively. The
federal and California tax loss carryforward will begin expiring in 2008 and
2001, respectively, unless previously utilized. The Company also has foreign net
operating loss carryforwards of approximately $989,000, which will begin
expiring in 1999 unless previously utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards may be limited if a
cumulative change in ownership of more than 50% occurs within any three-year
period.
Significant components of the Company's deferred tax assets and liabilities are
shown below. A valuation allowance of $2,290,000, of which $132,000 is related
to 1998, has been recognized to offset the deferred tax assets as realization of
such assets is uncertain.
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating losses $ 2,170,000 $ 2,057,000
Other, net 120,000 101,000
----------------------------------
Total deferred tax assets 2,290,000 2,158,000
Valuation allowance for deferred tax assets (2,290,000) (2,158,000)
----------------------------------
Net deferred tax assets $ - $ -
----------------------------------
----------------------------------
</TABLE>
9. SUBSEQUENT EVENTS
In February 1999, Tomahawk Corporation and Tomahawk Imaging & Financial, Inc.
were combined into one corporate entity in order to simplify the Company's
corporate structure. Additionally, Tomahawk Corporation is proposing to change
its jurisdiction of incorporation from the Province of Alberta, Canada to the
State of Delaware, USA ("domestication"), subject to an affirmative vote of the
holders of 66 2/3% of the common shares of Tomahawk Corporation. After the
completion of the domestication, the Company intends to merge Tomahawk II with
the Delaware Company.
F-21
<PAGE>
Tomahawk Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-----------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 74,578 $ 169,129
Account receivable, net 1,724,484 2,178,353
Other current assets 206,973 89,724
-----------------------------------
Total current assets 2,006,035 2,437,206
Property and equipment, net 2,258,497 2,292,410
Goodwill, net 1,471,468 1,507,737
Other assets 227,232 216,517
-----------------------------------
Total assets $ 5,963,232 $ 6,453,870
-----------------------------------
-----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 1,208,913 $ 969,634
Accrued expenses 900,144 967,867
Bank debt 1,463,081 1,383,081
Current maturities of long-term debt 220,000 165,000
Convertible debenture to a shareholder, net - 250,000
Current maturities of capital lease obligations 417,745 415,041
-----------------------------------
Total current liabilities 4,209,883 4,150,623
Long-term debt 880,000 935,000
Capital lease obligations 1,002,614 977,180
Convertible debenture to a shareholder, net 250,000 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value; 750,000 shares authorized and 547 547
outstanding both at March 31, 1999 and December 31, 1998
Common stock, no par value; 84,759,565 and 83,269,600 shares authorized and
outstanding at March 31, 1999 and December
31, 1998, respectively 9,585,025 9,358,973
Additional paid-in capital 3,965,782 3,895,837
Deferred compensation (10,572) (26,430)
Notes receivable for purchase of common stock, net (2,603,029) (2,379,690)
Accumulated deficit (11,317,018) (10,458,170)
-----------------------------------
Total stockholders' equity (379,265) 391,067
-----------------------------------
Total liabilities and stockholders' equity $ 5,963,232 $ 6,453,870
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-22
<PAGE>
Tomahawk Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
-----------------------------------
(UNAUDITED)
<S> <C> <C>
Net sales $ 2,481,621 $ 3,441,425
Cost of sales 1,947,097 2,406,262
-----------------------------------
Gross margin 534,524 1,035,163
Operating expenses:
General and administrative 835,184 495,708
Marketing and sales 446,264 363,892
-----------------------------------
Total operating expenses 1,281,448 859,600
-----------------------------------
Income (loss) from operations (746,924) 175,563
Other expenses:
Interest expense (111,924) (65,391)
-----------------------------------
Net income (loss) $ (858,848) $ 110,172
-----------------------------------
-----------------------------------
Net income (loss) per share - basic $ (.01) $ .002
-----------------------------------
Net income (loss) per share - diluted $ (.01) $ .001
-----------------------------------
Weighted average shares used in computing net income (loss) per share
- basic 84,629,467 69,190,232
-----------------------------------
-----------------------------------
Weighted average shares used in computing net income (loss) per share
- diluted 84,629,467 81,836,182
-----------------------------------
-----------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-23
<PAGE>
Tomahawk Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
-----------------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(858,848) $ 110,172
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 208,924 111,316
Amortization of debt discount - 22,338
Foreign currency loss - 6,410
Legal settlement for stock - 25,000
Compensation expense related to options 15,858 -
Compensation expense related to notes receivable from management
personnel and directors 69,945 26,355
Changes in operating assets and liabilities:
Accounts receivable 587,777 (692,170)
Other assets (261,872) (67,759)
Accounts payable and accrued expenses 171,556 160,493
-----------------------------
Net cash used in operating activities (66,660) (297,845)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (138,241) (347,400)
-----------------------------
Net cash used for investing activities (138,241) (347,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement warrants exercised - 32,253
Exercise of stock options 2,212 174,286
Issuance of shares related to acquisitions - 39,631
Increase in bank indebtedness 80,000 103,906
Repayment of notes receivable - 100,000
Advance under capital lease line 116,000 209,411
Principal payments under capital lease obligations (87,862) (283,259)
-----------------------------
Net cash provided by financing activities 110,350 376,228
-----------------------------
Decrease in cash (94,551) (269,017)
Cash at beginning of period 169,129 271,576
-----------------------------
Cash at end of period $ 74,578 $ 2,559
-----------------------------
-----------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 102,152 $ 59,219
-----------------------------
-----------------------------
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment under capital leases $ 116,000 $ 209,411
-----------------------------
-----------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
F-24
<PAGE>
Tomahawk Corporation
Notes to Unaudited Consolidated Financial Statements
March 31, 1999
(UNLESS OTHERWISE NOTED, AMOUNTS EXPRESSED IN U.S. DOLLARS)
1. CONSOLIDATION AND BASIS OF PRESENTATION
The unaudited interim financial statements presented herein represent the
consolidation of accounts of TomaHawk Corporation, TomaHawk II, Inc and TomaHawk
Software, Inc. TomaHawk Corporation is incorporated in Alberta, Canada, and is a
registrant on the Alberta Stock Exchange. TomaHawk II, Inc. is incorporated in
the state of Illinois, USA and is the sole operating entity of TomaHawk
Corporation. TomaHawk Software Inc. is incorporated in India is a majority-owned
subsidiary of TomaHawk II. All significant intercompany accounts have been
eliminated in consolidation.
These interim unaudited statements have been prepared by the Company pursuant to
rules and regulations of the United States Securities and Exchange commission
and in accordance with generally accepted accounting principles in the United
States. Accordingly, certain information and footnote disclosures normally
included in annual financial statements have been omitted or condensed. These
statements should be read in conjunction with the Company's audited financial
statements and notes thereto for the fiscal year ended December 31, 1998. In the
opinion of management, all necessary adjustments have been made to provide a
fair presentation. The operating results for the three months ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
2. EARNINGS PER SHARE
Earnings per share are computed in accordance with Financial Accounting
Standards Board Statement No. 128, EARNINGS PER SHARE. Basic earnings per share
are computed using the weighted average number of common shares outstanding
during each period. Diluted earnings per share include the dilutive effect of
common shares potentially issuable upon the exercise of stock options and
warrants and the conversion of convertible debt or preferred stock. For the
purposes of computing diluted earnings per share, weighted average common share
equivalents do not include stock options or warrants with an exercise price that
exceeds the average fair market value of the Company's common stock for that
period. Furthermore, when a loss is reported for the period, weighted average
common share equivalents do not include shares issuable upon the exercise of
stock options and warrants and the conversion of convertible debt and preferred
shares on the basis that such further issuance of shares would have an
anti-dilutive effect on the loss per share for that period. Accordingly, for the
three months ended March 31, 1999, options and warrants to purchase 7,533,072
shares of common stock, and convertible debt and preferred stock convertible
into 8,974,565 shares of common stock were excluded from the computation of
diluted loss per share. For the three months ended March 31, 1998, warrants to
purchase 4,216,816 were excluded from the computation of diluted earnings per
share.
F-25
<PAGE>
Tomahawk Corporation
Notes to Consolidated Financial Statements (continued)
2. EARNINGS PER SHARE (CONTINUED)
The following table reconciles the denominators used in computing basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
------------------------------
<S> <C> <C>
Weighted average common shares outstanding 84,629,467 69,190,232
Effect of dilutive securities - 12,645,950
------------------------------
84,629,467 81,836,182
------------------------------
------------------------------
</TABLE>
3. SEGMENT AND RELATED INFORMATION (UNAUDITED)
Unaudited industry segment and related information for the three months ended
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 1998
---------------------------------
<S> <C> <C>
Net sales:
Document imaging and conversion services $ 1,843,954 $ 2,507,572
Engineering services, and precision machining services 637,667 933,853
---------------------------------
$ 2,481,621 $ 3,441,425
---------------------------------
---------------------------------
Segment profit (loss) :
Document imaging and conversion services $ (361,325) $ 347,305
Engineering services, and precision machining services (315,654) (145,387)
---------------------------------
$ 676,979 $ 201,918
---------------------------------
---------------------------------
Segment assets
Document imaging and conversion services $ 2,090,467 $ 2,772,444
Engineering services, and precision machining services 3,781,266 1,402,689
Unallocated amounts 91,499 298,379
---------------------------------
$ 5,963,232 $ 4,473,512
---------------------------------
---------------------------------
Reconciliation of segment profit (loss) to total consolidated profit (loss):
Total profit (loss) for reportable segments $ (676,979) $ 201,918
Unallocated amounts:
Compensation expense related to notes receivable from
management personnel and directors 69,945 26,355
Interest expense 111,924 65,391
---------------------------------
Total consolidated profit (loss) $ (858,848) $ 110,172
---------------------------------
---------------------------------
</TABLE>
F-26
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF TOMAHAWK CORPORATION
Annual and Special Meeting of Shareholders
_____________, 1999
The undersigned shareholder of TomaHawk Corporation, an Alberta
corporation, hereby acknowledges receipt of the Notice of Annual and Special
Meeting of Shareholders and Proxy Statement and Information Circular, each dated
___________, 1999, and hereby appoints Steven M. Caira, President of TomaHawk
Corporation, or failing this person, and Michael H. Lorber, an officer of
TomaHawk Corporation, or in place of the foregoing __________________________
(please print name), proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Annual and Special Meeting of Shareholders, ____________,
1999 at 10:00 a.m., San Diego time, to be held at 8315 Century Park Court, Suite
200, San Diego, California, and at any adjournment(s) thereof and vote all
common shares and Series III Class A Preferred Shares which the undersigned
would be entitled to vote if then and there personally present, on the matters
set forth below:
Resolutions (for full detail of each item, please see the enclosed
Proxy Statement and Information Circular)
1. APPROVAL OF AN ORDINARY RESOLUTION FIXING THE NUMBER OF
DIRECTORS AT FOUR
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF STEVEN M. CAIRA, THOMAS M. DUSMET, DOUGLAS W.
LOUGHRAN AND JONATHAN F. TURPIN AS DIRECTORS
[ ] FOR each of [ ] FOR each of the nominees [ ] Withhold authority
the nominees (except as indicated below) to vote for all
nominees
To withhold authority to vote for any nominee, write that
nominee's name on the line provided below
-------------------------------------------
3. APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AUTHORIZATION TO CONDUCT PRIVATE PLACEMENTS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. DOMESTICATION INTO THE STATE OF DELAWARE
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION AND BYLAWS TO REQUIRE ADVANCE NOTICE OF
STOCKHOLDER NOMINATIONS AND PROPOSALS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION AND BYLAWS TO PROHIBIT STOCKHOLDERS FROM CALLING
SPECIAL MEETINGS OF THE STOCKHOLDERS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. AMENDMENT OF THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION TO ELIMINATE ACTIONS OF THE STOCKHOLDERS BY
WRITTEN CONSENT WITHOUT A MEETING
[ ] FOR [ ] AGAINST [ ] ABSTAIN
9. AMENDMENT TO THE NEW DELAWARE CORPORATION'S CERTIFICATE OF
INCORPORATION AND BYLAWS TO REQUIRE A SUPERMAJORITY VOTE TO
AMEND CERTAIN PROVISIONS OF THE NEW DELAWARE CORPORATION'S
CERTIFICATE OF INCORPORATION AND BYLAWS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
10. APPROVAL OF FORM INDEMNIFICATION AGREEMENT
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted for approval of each of the proposals set forth above,
and as said proxies deem advisable on such other matters as may come before the
meeting and any adjournment(s) thereof.
<PAGE>
Affix Label Here The undersigned shareholder hereby
revokes any proxy previously given to
attend and vote at said meeting.
Name of Shareholder Please sign here:
---------------------------------------
Address of Shareholder Date:
---------------------------------------
Number of Securities Represented by This proxy form is not valid unless it
Proxy is signed and dated. If someone other
than the shareholder of the Company
signs this proxy form on behalf of the
named shareholder of the Company,
documentation acceptable to the
Chairman of the Meeting must be
deposited with this proxy form
authorizing the signing person to do
such. To be represented at the meeting,
this proxy form must be received at the
place shown on the enclosed envelope
and its fax number is _______________.
The Chairman of the Meeting has the
discretion to accept proxies deposited
less than forty-eight hours prior to
the time of the Meeting.
1. This Proxy is solicited by our management and our board of directors.
2. If you cannot attend the meeting but wish to vote on the resolutions
and to appoint one of our management appointees named, then please
leave the wording appointing a nominee as shown, sign and date the
proxy form and return the proxy form. If you do not specify a choice on
a resolution shown on the proxy form, then a nominee of management
acting as proxy holder will vote the securities as if you had specified
an affirmative vote.
3. If you wish to attend the meeting to vote on the resolutions in person,
please register your attendance with our scrutineers at the annual and
special meeting, obtain a ballot and vote at the annual and special
meeting.
4. If you cannot attend the meeting but wish to vote on the resolutions,
then you can appoint another person, who need not be a shareholder of
TomaHawk Corporation, to vote according to your instructions. To
appoint someone other than the person named, please cross off the
management appointee name or names and insert your appointed proxy
holder's name in the space provided, sign and date the proxy form and
return the proxy form. If you do not specify a choice on a resolution
shown on the proxy form, this proxy form confers discretionary
authority upon your appointed proxy holder.
5. The securities represented by this proxy form will be voted or withheld
from voting in accordance with the your instructions on any ballot of a
resolution that may be called for and, if you specify a choice with
respect to any matter to be acted upon, the securities will be voted
accordingly. With respect to any amendments or variations in any of the
resolutions shown on the proxy form, or matters which may properly come
before the Meeting, the securities will be voted by the nominee
appointed as the nominee in its sole discretion sees fit.
6. If the shareholder votes on the resolutions and returns the proxy form,
the shareholder may still attend the meeting and vote in person should
the shareholder later decide to do so. To vote in person at the
meeting, the shareholder must revoke the proxy form and obtain a ballot
at the Meeting.
- 2 -
<PAGE>
APPENDIX I
Shareholders have the right to dissent to the Delaware domestication.
Such right of dissent is described in the Proxy Statement and Information
Circular. See "Proposal Five--Domestication into the State of Delaware--Right of
Dissent" for full details of the right to dissent. The full text of Section 184
of BUSINESS CORPORATIONS ACT (Alberta) is provided below.
SHAREHOLDER'S RIGHT TO DISSENT
(l) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 or 168 to add, change or
remove any provisions restricting or constraining the issue or
transfer of shares of that class,
(b) amend its articles under section 167 to add, change or remove any
restrictions on the business or businesses that the corporation
may carry on,
(c) amalgamate with another corporation, otherwise than under section
178 or 180.1,
(d) be continued under the laws of another jurisdiction under section
182, or
(e) sell, lease or exchange of all or substantially all its property
under section 183.
(2) A holder of shares of any class or series of shares entitled to vote
under section 170, other than section 170(l)(a), may dissent if the
corporation resolves to amend its articles in a manner described in that
section.
(3) In addition to any other right he may have, but subject to subsection
(20), a shareholder entitled to dissent under this section and who
complies with this section is entitled to be paid by the corporation the
fair value of the shares held by him in respect of which he dissents,
determined as of the close of business on the last business day before
the day on which the resolution from which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with respect
to all the shares of a class held by him or on behalf of any one
beneficial owner and registered in the name of the dissenting
shareholder.
(5) A dissenting shareholder shall send to the corporation a written
objection to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the resolution
is to be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a
reasonable time after he learns that the resolution was adopted
and of his right to dissent.
(6) An application may be made to the Court by originating notice after the
adoption of a resolution referred to in subsection (1) or (2),
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the corporation
under subsection (5), to fix the fair value in accordance with
subsection (3) of the shares of a shareholder who dissents under
this section.
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<PAGE>
(7) If an application is made under subsection (6), the corporation shall,
unless the Court otherwise orders, send to each dissenting shareholder a
written offer to pay him an amount considered by the directors to be the
fair value of the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection (7)
shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of
originating notice, if a shareholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the fair
value was determined.
(10) A dissenting shareholder may make an agreement with the corporation for
the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before
the Court pronounces an order fixing the fair value of the shares.
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the
costs of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may
give directions for
(a) joining as parties all dissenting shareholders whose shares have
not been purchased by the corporation and for the representation
of dissenting shareholders who, in the opinion of the Court, are
in need of representation,
(b) the trial of issues and interlocutory matters, including pleadings
and examinations for discovery,
(c) the payment to the shareholder of all or part of the sum offered
by the corporation for the shares,
(d) the deposit of the share certificates with the Court or with the
corporation or the transfer agent,
(e) the appointment and payment of independent appraisers, and the
procedures to be followed by them,
(f) the service of documents, and
(g) the burden of proof on the parties.
(13) On an application under subsection (6), the Court shall make an order
(a) finding the fair value of the shares in accordance with subsection
(3) of all dissenting shareholders who are parties to the
application,
(b) giving judgment in that amount against the corporation and in
favor of each of those dissenting shareholders, and
A-2
<PAGE>
(c) fixing the time within which the corporation must pay that amount
to a shareholder.
(14) On
(a) the action approved by the resolution from which the shareholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be
made by the corporation for his shares, whether by the acceptance
of the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares in the
amount agreed to between the corporation and the shareholder or in the amount of
the judgment, as the case may be.
(15) Subsection (14)(a) does not apply to a shareholder referred to in
subsection (5)(b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be discontinued.
(17) The Court may in its discretion allow a reasonable rate of interest on
the amount payable to each dissenting shareholder, from the date on which
the shareholder ceases to have any rights as a shareholder by reason of
subsection (14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
notify each dissenting shareholder that it is unable lawfully to pay dissenting
shareholders for their shares.
(19) Notwithstanding that a judgment has been given in favor of a dissenting
shareholder under subsection (13)(b), if subsection (20) apples, the
dissenting shareholder, by written notice delivered to the corporation
within 30 days after receiving the notice under subsection (18), may
withdraw his notice of objection, in which case the corporation is deemed
to consent to the withdrawal and the shareholder is reinstated to his
full rights as a shareholder, failing which he retains a status as a
claimant against the corporation, to be paid as soon as the corporation
is lawfully able to do so or, in a liquidation, to be ranked subordinate
to the rights of creditors of the corporation but in priority to its
shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder under
this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
A-3
<PAGE>
APPENDIX II
CERTIFICATE OF INCORPORATION
OF
TOMAHAWK ENGINEERING, INC.
FIRST: The name of the Corporation is TOMAHAWK ENGINEERING, INC. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, State of Delaware, 19801. The name of its
registered agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: (a) AUTHORIZED CAPITAL STOCK. The total number of shares of
stock which the Corporation shall have authority to issue is 21,500,000,
consisting of 20,000,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), 750,000 shares of Class A Preferred Stock, par value $0.001
per share ("Class A Preferred Stock"), and 750,000 shares of Preferred Stock,
par value $0.001 per share ("Preferred Stock").
(b) PREFERRED STOCK. Shares of Preferred Stock may be issued
in one or more series, from time to time, with each such series to consist of
such number of shares and to have such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors of
the Corporation (the "Board of Directors"), and the Board of Directors is hereby
expressly vested with authority, to the full extent now or hereafter provided by
law, to adopt any such resolution or resolutions.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the following:
(i) The number of shares constituting that series and the
distinctive designation of that series;
(ii) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
that series;
(iii) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(v) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
B-1
<PAGE>
(vii) The rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) Any other relative rights, preferences and
limitations of that series.
(c) CLASS A PREFERRED STOCK.
(i) DIVIDENDS
Subject to the prior rights of the holders of any other
class or series of Preferred Stock of the Corporation with respect to priority
in the payment of dividends, the holders of Class A Preferred Stock shall be
entitled to receive dividends, if as and when declared by the Board of Directors
out of assets of the Corporation legally available for the payment of dividends,
in such amount and in such form as the Board of Directors may from time to time
determine.
(ii) PRIORITY ON LIQUIDATION
In the event of a dissolution or liquidation of the
Corporation, whether voluntary or involuntary, a sale of all or substantially
all of the assets of the Corporation, in the event of the insolvency of the
Corporation, or upon any distribution of its capital (other than a distribution
of capital stock in the nature of a dividend), there shall be paid to the
holders of Class A Preferred Stock $0.001 per share plus any accrued but unpaid
dividends thereon without interest (the "Redemption Amount") before any sum
shall be paid to or any assets distributed among the holders of the Common
Stock. After the payment of the Redemption Amount to the holders of the Class A
Preferred Stock, the remaining assets and funds of the Corporation shall be
distributed ratably to the holders of the Common Stock in proportion to their
holdings of such shares.
(iii) CONVERSION RIGHT
(A) In the event that the Corporation earns Cumulative
Cash Flow (as defined below) equal to or greater than $2.50 per outstanding
share of Class A Preferred Stock prior to the cancellation of the Class A
Preferred Stock, each outstanding share of Class A Preferred Stock will be
convertible into 2/3 of one share of Common Stock of the Corporation at the
option of the holder.
In the event of a consolidation, subdivision or
reclassification of the Corporation's Common Stock, the conversion calculation
must be adjusted so that the proportion of the outstanding shares of Class A
Preferred Stock available for conversation is adjusted to reflect such
consolidation, subdivision or reclassification.
The Class A Preferred Stock may be converted only once
during the Corporation's financial year. The conversion calculation must be
based on the Corporation's annual audited consolidated financial statements
for the year or years during which the conversion requirements were met in
respect of the Class A Preferred Stock to be converted.
For the purposes of the above-referenced conversion
formula, "Cash Flow" means net income or loss after tax, generated from the
business of the Corporation or any of its subsidiaries as shown on the
consolidated audited financial statements or verified by the Corporation's
auditors, adjusted to add back the following expenses:
(i) Depreciation;
(ii) Depletion;
(iii) Deferred taxes;
(iv) Amortization of goodwill; and
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<PAGE>
(v) Deferred research and development costs.
"Cumulative Cash Flow" means, at any time, the
aggregate Cash Flow of the Corporation up to that time from a date no earlier
than June 1, 1993, net of any negative Cash Flow.
(B) A holder of Class A Preferred Stock who wishes to
avail himself of this right of conversion shall submit to the head office of
the Corporation a written notice indicating the number of shares of Class A
Preferred Stock that he wishes to convert. Certificates representing the
shares of Class A Preferred Stock to be converted shall be attached to the
notice duly endorsed. Upon receipt of any such notice and the Certificates,
the Corporation shall consult its auditors to confirm the number of shares of
Class A Preferred Stock which are at that time convertible, and without
charge issue ten (10) shares of Common Stock for each share of Class A
Preferred Stock which is then requested to be converted or which then is
convertible as determined by the Cumulative Cash Flow of the Corporation,
whichever is less, and if only some of the Class A Preferred Stock evidenced
on the certificates are converted, the Corporation shall, without charge,
issue a new certificate representing the remaining shares of Class A
Preferred Stock.
(iv) TRANSFERABILITY
Class A Preferred Stock may not be transferred except with the
prior approval of the Board of Directors, that may in its absolute discretion,
refuse to register the transfer of any said shares, such approval to be
evidenced by a resolution of the Board of Directors.
(v) CANCELLATION
In the event that any of the shares of Class A Preferred Stock
are not eligible for conversion into Common Stock at the conclusion of the
Corporation's fiscal year beginning 1999, the Class A Preferred Stock shall be
cancelled.
(vi) OTHER PROVISIONS
In the event that the Corporation or any of its subsidiaries
becomes insolvent, voluntarily or involuntarily files for bankruptcy, takes
legislative protection from its creditors or ceases, then any shares of Class A
Preferred Stock which remain outstanding must be surrendered to the Corporation
for cancellation and the Corporation and holders of such shares covenant to
attend to their cancellation immediately.
(vii) VOTING RIGHTS
Except as otherwise required by law, the Class A Preferred Stock
shall not be entitled to vote on any matters brought before the stockholders of
the Corporation.
FIFTH: The name and address of the Incorporator is as follows:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Janine M. Salomone Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19801
</TABLE>
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The number of directors of the Corporation shall be such
as from time to time shall be fixed by, or in the manner provided in, the
bylaws.
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<PAGE>
(2) In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter or repeal the bylaws of the Corporation subject to the powers of the
stockholders of the Corporation to alter or repeal any bylaw whether adopted by
them or otherwise.
(3) Unless and except to the extent that the bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
(4) Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
(5) Any newly created directorship or any vacancy occurring
in the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, and each director so elected shall hold office until the expiration of
the term of office of the director whom he has replaced or until his successor
is elected and qualified.
SEVENTH: A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except (i) for any breach of a director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which a director derived an improper personal
benefit. No amendment to or repeal of these provisions shall apply to or have
any effect on the liability or alleged liability of any person for or with
respect to any acts or omissions of such person occurring prior to such
amendment.
EIGHTH: (1) Appraisal rights shall be available to the holders of shares
of any class or series of stock of the Corporation in the event that the
Corporation:
(a) amends its Certificate of Incorporation to add,
change or remove any provisions restricting or constraining the issue or
transfer of shares of that class;
(b) amends it Certificate of Incorporation to add,
change or remove any restrictions on the business or businesses that the
Corporation may carry on;
(c) merges with another corporation, except where the
other corporation (i) is a wholly-owned subsidiary of the Corporation or (ii)
owns all of the outstanding capital stock of the Corporation;
(d) continues its corporate existence under the laws
of another jurisdiction; or
(e) sells, leases or exchanges all or substantially
all of its property under Section 271 of the General Corporation Law of the
State of Delaware.
(2) The procedures set forth in Section 262 of the General
Corporation Law of the State of Delaware except for subsection (b) shall apply
MUTATIS MUTANDIS to the exercise by a shareholder of appraisal rights contained
in this Certificate of Incorporation.
NINTH: (1) Subject to subsection (2) of this Article, a holder of
shares of any class or series of stock of the Corporation may apply to any court
of equitable jurisdiction within the State of Delaware ("Court") for leave to:
(a) bring an action in the name and on behalf of the
Corporation or any of its subsidiaries; or
(b) intervene in an action to which the Corporation or
any of its subsidiaries is a party, for the purpose of prosecuting, defending or
discontinuing the action on behalf of the Corporation or its subsidiary.
(2) For the purposes of this Article, a Court shall not grant
leave unless it is satisfied that:
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<PAGE>
(a) the stockholder has given reasonable notice to the
directors of the Corporation or its subsidiary of his or her intention to apply
to the Court under subsection (1) of this Article if the directors of the
Corporation or its subsidiary do not bring, diligently prosecute, defend or
discontinue the action;
(b) the stockholder is acting in good faith; and
(c) it appears to be in the interests of the
Corporation or its subsidiary that the action be brought, prosecuted, defended
or discontinued.
TENTH: (1) A holder of shares of any class or series of stock of the
Corporation may apply to any Court for an order under this Article.
(2) If on an application under subsection (1) of this
Article, the Court is satisfied that in respect of the Corporation or any
corporation which controls, or is controlled by, or is under common control
with, the Corporation (collectively, its "affiliates"):
(a) any act or omission of the Corporation or any of
its affiliates effects a result,
(b) the business or affairs of the Corporation or any
of its affiliates are, or have been carried on or conducted in a manner, or
(c) the powers of the directors of the Corporation or
any of its affiliates are or have been exercised in a manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the
interests of any such stockholder, the Court may make an order to rectify the
matters complained of.
(3) In connection with an application under this Article, the
Court may make any interim or final order that it thinks fit.
(4) For purposes of this Article, "control" means the
ownership of securities to which attach more than fifty percent (50%) of the
votes that may be cast to elect directors, so long as such number of votes, if
cast, would be sufficient to elect a majority of the directors.
ELEVENTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
TWELFTH: The powers of the Incorporator shall terminate upon the filing
of this Certificate of Incorporation with the Secretary of State of the State of
Delaware. The names, mailing addresses and classes of the persons who are to
serve as the initial directors of the Corporation until their successors are
duly elected and qualified, are:
Steven M. Caira TomaHawk II, Inc.
8315 Century Park Court, #200
San Diego, California 92123
Thomas M. Dusmet Nesbitt Burns
90 Burnhamthorpe Road West, Suite 210
Mississagua, Ontario
B-5
<PAGE>
L5B 3C3 Canada
Douglas W. Loughran 85 North Bend Street
Coquitlam, British Columbia
V3K 6N1 Canada
Jonathan F. Turpin 2605 Fromme Road
North Vancouver, British Columbia
V7J 2R4 Canada
THIRTEENTH. The Corporation reserves the right at any time, and from time
to time, to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
Article.
The undersigned Incorporation hereby acknowledges that the foregoing
Certificate of Incorporation is her act and deed on _____________, 1999.
By:
--------------------------------------
Janine M. Salomone
Incorporator
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<PAGE>
APPENDIX III
BYLAWS
OF
TOMAHAWK ENGINEERING, INC.
------------------------------------------------------------
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be held
for the election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by resolution of the Board
of Directors from time to time. Any other proper business may be transacted at
the annual meeting.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Board of Directors or by
holders of shares of Common Stock of the Corporation representing 5% of the
outstanding shares. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given that shall state the place, date and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the Corporation's certificate of
incorporation (the "Certificate of Incorporation") or these bylaws, the written
notice of any meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting to each stockholder entitled to vote at
such meeting. If mailed, such notice shall be deemed to be given when deposited
in the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the Corporation.
Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5. QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of a majority in voting power of the
outstanding shares of stock entitled to vote at the meeting shall be necessary
and sufficient to constitute a quorum. In the absence of a quorum, the
stockholders so present may, by a majority in voting power thereof, adjourn the
meeting from time to time in the manner provided in Section 1.4 of these bylaws
until a quorum shall attend. Shares of its own stock belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes; provided, however, that the foregoing shall not limit the
right of the Corporation or any subsidiary of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
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Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided over by
the Chairman of the Board, if any, or in his absence by the Vice Chairman of the
Board, if any, or in his absence by the President, or in his absence by a Vice
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 1.7. VOTING; PROXIES. Except as otherwise provided by or pursuant to
the provisions of the Certificate of Incorporation, each stockholder entitled to
vote at any meeting of stockholders shall be entitled to one vote for each share
of stock held by such stockholder which has voting power upon the matter in
question. Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or by delivering
a proxy in accordance with applicable law bearing a later date to the Secretary
of the Corporation. Voting at meetings of stockholders need not be by written
ballot. At all meetings of stockholders for the election of directors a
plurality of the votes cast shall be sufficient to elect. All other elections
and questions shall, unless otherwise provided by the Certificate of
Incorporation, these bylaws, the rules or regulations of any stock exchange
applicable to the Corporation, as otherwise provided by law or pursuant to any
regulation applicable to the Corporation, be decided by the affirmative vote of
the holders of a majority in voting power of the shares of stock of the
Corporation which are present in person or by proxy and entitled to vote
thereon.
Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
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 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 record date: (1) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than sixty (60) nor less than ten (10)
days before the date of such meeting; (2) in the case of determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall not be more than ten (10) days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and
(3) in the case of any other action, shall not be more than sixty (60) days
prior to such other action. If no record date is fixed: (1) 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; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by 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 in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. 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.
Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
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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 (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
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. Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting. Except as otherwise provided by law,
the stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list of stockholders or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 1.10. ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
to be taken at any annual or special meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents 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 and shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which minutes of proceedings 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.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall, to the extent required by law, 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.
Section 1.11. INSPECTORS OF ELECTION. The Corporation may, and shall if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors of election, who may be employees of the Corporation, to act at the
meeting or any adjournment thereof and to make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, 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 his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector or
inspectors so appointed or designated shall (i) ascertain the number of shares
of capital stock of the Corporation outstanding and the voting power of each
such share, (ii) determine the shares of capital stock of the Corporation
represented at the meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares of
capital stock of the Corporation represented at the meeting and such inspectors'
count of all votes and ballots. Such certification and report shall specify
such other information as may be required by law. In determining the validity
and counting of proxies and ballots cast at any meeting of stockholders of the
Corporation, the inspectors may consider such information as is permitted by
applicable law. No person who is a candidate for an office at an election may
serve as an inspector at such election.
Section 1.12. CONDUCT OF MEETINGS. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the chairman of any meeting of
stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do
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all such acts as, in the judgment of such chairman, are appropriate for the
proper conduct of the meeting. 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: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
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.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. NUMBER; QUALIFICATIONS. The Board of Directors shall consist of
one or more members, the number thereof to be determined from time to time by
resolution of the Board of Directors. Directors need not be stockholders.
Section 2.2. ELECTION; RESIGNATION; VACANCIES. The Board of Directors shall
initially consist of the persons named as directors in the Certificate of
Incorporation, and each director so elected shall hold office until the first
annual meeting of stockholders or until his successor is duly elected and
qualified. At the first annual meeting of stockholders and at each annual
meeting thereafter, the stockholders shall elect directors each of whom shall
hold office for a term of one year or until his successor is duly elected and
qualified, subject to such director's earlier death, resignation,
disqualification or removal. Any director may resign at any time upon written
notice to the Corporation. Unless otherwise provided by law or the Certificate
of Incorporation, any newly created directorship or any vacancy occurring in the
Board of Directors for any cause may be filled by a majority of the remaining
members of the Board of Directors, although such majority is less than a quorum,
or by a plurality of the votes cast at a meeting of stockholders, and each
director so elected shall hold office until the expiration of the term of office
of the director whom he has replaced or until his successor is elected and
qualified.
Section 2.3. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held at such places within or without the State of Delaware and at such times
as the Board of Directors may from time to time determine.
Section 2.4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time or place within or without the State of Delaware whenever
called by the President, any Vice President, the Secretary, or by any member of
the Board of Directors. Notice of a special meeting of the Board of Directors
shall be given by the person or persons calling the meeting at least twenty-four
hours before the special meeting.
Section 2.5. TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this bylaw shall
constitute presence in person at such meeting.
Section 2.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board of
Directors a majority of the whole Board of Directors shall constitute a quorum
for the transaction of business. Except in cases in which the Certificate of
Incorporation, these bylaws or applicable law otherwise provides, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
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Section 2.7. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8. ACTION BY WRITTEN CONSENT OF DIRECTORS. Unless otherwise
restricted by the Certificate of Incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board of Directors or such committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or such committee.
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent permitted by law and to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it.
Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these bylaws.
ARTICLE IV
OFFICERS
Section 4.1. EXECUTIVE OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a President
and Secretary, and it may, if it so determines, choose a Chairman of the Board
and a Vice Chairman of the Board from among its members. The Board of Directors
may also choose one or more Vice Presidents, one or more Assistant Secretaries,
a Treasurer and one or more Assistant Treasurers. Each such officer shall hold
office until the first meeting of the Board of Directors after the annual
meeting of stockholders next succeeding his election, and until his successor is
elected and qualified or until his earlier resignation or removal. Any officer
may resign at any time upon written notice to the Corporation. The Board of
Directors may remove any officer with or without cause at any time, but such
removal shall be without prejudice to the contractual rights of such officer, if
any, with the Corporation. Any number of offices may be held by the same
person. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled for the unexpired portion of the
term by the Board of Directors at any regular or special meeting.
Section 4.2. POWERS AND DUTIES OF EXECUTIVE OFFICERS. The officers of the
Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed in a resolution by the Board of Directors and,
to the extent not so provided, as generally pertain to their respective offices,
subject to the control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the faithful
performance of his duties.
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ARTICLE V
STOCK
Section 5.1. CERTIFICATES. Every holder of stock shall be entitled to have a
certificate signed by or in the name of the Corporation by the Chairman or Vice
Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation certifying the number of shares owned
by him in the Corporation. Any of or all the signatures on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such 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 date of issue.
Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
INDEMNIFICATION
Section 6.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person (an "Indemnitee") who was or is
made or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or,
while a director or officer of the Corporation, is or was serving at the written
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Indemnitee. Notwithstanding the preceding sentence, except as
otherwise provided in Section 6.3, the Corporation shall be required to
indemnify an Indemnitee in connection with a proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board of Directors.
Section 6.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred by an Indemnitee in defending any
proceeding in advance of its final disposition, PROVIDED, HOWEVER, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified under this
Article VI or otherwise.
Section 6.3. CLAIMS. If a claim for indemnification or advancement of expenses
under this Article VI is not paid in full within sixty (60) days after a written
claim therefor by the Indemnitee has been received by the Corporation, the
Indemnitee may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the Corporation shall have the
burden of proving that the Indemnitee is not entitled to the requested
indemnification or advancement of expenses under applicable law.
Section 6.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any Indemnitee
by this Article VI shall not be exclusive of any other rights which such
Indemnitee may have or hereafter acquire under any statute,
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provision of the Certificate of Incorporation, these bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6.5. OTHER SOURCES. The Corporation's obligation, if any, to indemnify
or to advance expenses to any Indemnitee who was or is serving at its request as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or nonprofit entity shall be reduced by any
amount such Indemnitee may collect as indemnification or advancement of expenses
from such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
Section 6.6. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing
provisions of this Article VI shall not adversely affect any right or protection
hereunder of any Indemnitee in respect of any act or omission occurring prior to
the time of such repeal or modification.
Section 6.7. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This Article VI
shall not limit the right of the Corporation, to the extent and in the manner
permitted by law, to indemnify and to advance expenses to persons other than
Indemnitees when and as authorized by appropriate corporate action.
ARTICLE VII
MISCELLANEOUS
Section 7.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 7.2. SEAL. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from time to time
by the Board of Directors.
Section 7.3. MANNER OF NOTICE. Except as otherwise provided herein, notices to
directors and stockholders shall be in writing and delivered personally or
mailed to the directors or stockholders at their addresses appearing on the
books of the Corporation. Notice to directors may be given by telegram,
telecopier, telephone or other means of electronic transmission.
Section 7.4. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to 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 because the meeting is not lawfully called or
convened. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
Section 7.5. FORM OF RECORDS. Any records maintained by the corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time.
Section 7.6. AMENDMENT OF BYLAWS. These bylaws may be altered, amended or
repealed, and new bylaws made, by the Board of Directors, but the stockholders
may make additional bylaws and may alter and repeal any bylaws whether adopted
by them or otherwise.
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APPENDIX IV
[FORM OF INDEMNIFICATION AGREEMENT]
AGREEMENT
This Agreement, made and entered into this ____ day of _____________,
199__ ("Agreement"), by and between TomaHawk Engineering, Inc., a Delaware
corporation ("Company"), and _____________________ ("Indemnitee"):
WHEREAS, highly competent persons have become more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its subsidiaries
from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and
other business enterprises, the Company believes that, given current market
conditions and trends, such insurance may be available to it in the future only
at higher premiums and with more exclusions. At the same time, directors,
officers, and other persons in service to corporations or business enterprises
are being increasingly subjected to expensive and time-consuming litigation
relating to, among other things, matters that traditionally would have been
brought only against the Company or business enterprise itself; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining such
persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the future;
and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on behalf
of, such persons to the fullest extent permitted by applicable law so that they
will serve or continue to serve the Company free from undue concern that they
will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the
bylaws of the Company (the "Bylaws") and any resolutions adopted pursuant
thereto, and shall not be deemed a substitute therefore, nor to diminish or
abrogate any rights of Indemnitee thereunder; and
WHEREAS, each of Section 145 of the General Corporation Law of the State
of Delaware and the Bylaws is nonexclusive, and therefore contemplates that
contracts may be entered into with respect to indemnification of directors,
officers and employees; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that he
be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
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Section 1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve [as a
[director] [executive officer] of the Company] [,at the request of the Company,
as a [director] [executive officer] of [another corporation, partnership, joint
venture, trust employee benefit plan or other enterprise]. Indemnitee may at
any time and for any reason resign from such position (subject to any other
contractual obligation or any obligation imposed by operation of law), in which
event the Company shall have no obligation under this Agreement to continue
Indemnitee in such position. This Agreement shall not be deemed an employment
contract between the Company (or any of its subsidiaries or any Enterprise) and
Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment
with the Company (or any of its subsidiaries or any Enterprise), if any, is at
will, and the Indemnitee may be discharged at any time for any reason, with or
without cause, except as may be otherwise provided in any written employment
contract between Indemnitee and the Company (or any of its subsidiaries or any
Enterprise), other applicable formal severance policies duly adopted by the
Board, or, with respect to service as a director or executive officer of the
Company, by the Company's Certificate of Incorporation, the Company's Bylaws,
and the General Corporation Law of the State of Delaware. The foregoing
notwithstanding, this Agreement shall continue in force after Indemnitee has
ceased to serve as an [executive officer] [director] of the Company.
Section 2. INDEMNIFICATION - GENERAL. The Company shall indemnify,
and advance Expenses (as hereinafter defined) to, Indemnitee (a) as provided in
this Agreement and (b) (subject to the provisions of this Agreement) to the
fullest extent permitted by applicable law in effect on the date hereof and as
such law may be amended from time to time. The rights of Indemnitee provided
under the preceding sentence shall include, but shall not be limited to, the
rights set forth in the other Sections of this Agreement.
Section 3. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF
THE COMPANY. Subject to the provisions of this Agreement, Indemnitee shall be
entitled to the rights of indemnification provided in this Section 3 if, by
reason of his Corporate Status (as hereinafter defined), he is, or is threatened
to be made, a party to or a participant in any Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant
to this Section 3 but subject to the provisions of this Agreement, Indemnitee
shall be indemnified against all Expenses, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4 but subject to the provisions of this Agreement if, by reason of his
Corporate Status, he is, or is threatened to be made, a party to or a
participant in any Proceeding brought by or in the right of the Company to
procure a judgment in its favor. Pursuant to this Section but subject to the
provisions of this Agreement, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; PROVIDED,
HOWEVER, that, if applicable law so provides, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company unless and to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine that such indemnification may be made.
Section 5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to (or
a participant in) and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified to the maximum extent permitted by law
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
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Section 6. INDEMNIFICATION FOR EXPENSES OF A WITNESS.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to
which Indemnitee is not a party, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith.
Section 7. ADVANCEMENT OF EXPENSES. Notwithstanding any provision
of this Agreement to the contrary, the Company shall advance all reasonable
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding in which Indemnitee is involved with by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Any advances and undertakings to repay pursuant to this Section 7
shall be unsecured and interest free.
Section 8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a
majority vote of the Disinterested Directors (as hereinafter defined), even
though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or, if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee or (C) if so directed by the Board, by the stockholders
of the Company; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this
Section 8(c). If a Change in Control shall not have occurred, the Independent
Counsel shall be selected by the Disinterested Directors or, if there are no
such Disinterested Directors, by the Board of Directors, and the Company shall
give written notice to Indemnitee advising him of the identity of the
Independent Counsel so selected. If a Change in Control shall have occurred,
the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall
request that such selection be made by the Board of Directors, in which event
the preceding sentence shall apply), and Indemnitee shall give written notice to
the Company advising it of the identity of the Independent Counsel so selected.
In either event, Indemnitee or the Company, as the case may be, may, within 10
days after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to such
selection; PROVIDED, HOWEVER, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements
of "Independent Counsel" as defined in Section 17 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
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assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If such written objection is so made and
substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or the Court of Chancery of
the State of Delaware or other court of competent jurisdiction has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 8(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Company or Indemnitee may petition the Court of Chancery of the State
of Delaware or other court of competent jurisdiction for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person selected by the Court or by such other person as the Court
shall designate, and the person with respect to whom all objections are so
resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 10(a) of this Agreement, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the
consent of the Indemnitee to the settlement of any Proceeding which the Company
has undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability. The Company shall
not be liable for any amount paid by the Indemnitee in settlement of any
Proceeding that is not defended by the Company, unless the Company has consented
to such settlement, which consent shall not be unreasonably withheld.
Section 9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to
entitlement to indemnification under this Agreement, the person or persons or
entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 8(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any determination
contrary to that presumption. Neither the failure of the Company (including by
its directors or Independent Counsel) to have made a determination prior to the
commencement of any action pursuant to this Agreement that indemnification is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct, nor an actual determination by the Company (including by its
directors or Independent Counsel) that Indemnitee has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that Indemnitee has not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within sixty
(60) days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; PROVIDED, HOWEVER, that such 60-day period
may be extended for a reasonable time, not to exceed an additional thirty (30)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto; and provided, further, that the foregoing provisions of this Section
9(b) shall not apply (i) if the determination of entitlement to indemnification
is to be made by the stockholders pursuant to Section 8(b) of this Agreement and
if (A) within fifteen (15) days after receipt by the Company of the request for
such determination the Board of Directors has resolved to submit such
determination to the stockholders for their consideration at an annual meeting
thereof to be held within seventy five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such
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determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim,
issue or matter therein, by judgment, order, settlement or conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this Agreement or as otherwise required by law) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal Proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful.
(d) RELIANCE AS SAFE HARBOR. For purposes of any
determination of Good Faith, Indemnitee shall be deemed to have acted in Good
Faith if Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with the reasonable care
by the Enterprise. The provisions of this Section 9(d) shall not be deemed to
be exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met the applicable standard of conduct set
forth in this Agreement.
(e) ACTIONS OF OTHERS. The knowledge and/or actions,
or failure to act, of any director, officer, agent or employee of the Enterprise
shall not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
Section 10. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made
pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not timely
made pursuant to Section 7 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 8(b) of
this Agreement within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification required under Section 5, 6,
the last sentence of Section 8(b) or the last sentence of Section 17(h) of this
Agreement is not made within ten (10) days after receipt by the Company of a
written request therefor, or (v) payment of indemnification pursuant to Section
3 or 4 of this Agreement is not made within ten (10) days after a determination
has been made that Indemnitee is entitled to indemnification, Indemnitee shall
be entitled to an adjudication by the Court of Chancery of the State of Delaware
of his entitlement to such indemnification or advancement of Expenses.
Alternatively, in accordance with this Section 10, Indemnitee, at his option,
may seek an award in arbitration to be conducted by a single arbitrator pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 10(a); PROVIDED,
HOWEVER, that the foregoing clause shall not apply in respect of a proceeding
brought by Indemnitee to enforce his rights under Section 5 of this Agreement.
The Company shall not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
(b) In the event that a determination shall have been
made pursuant to Section 8(b) of this Agreement that Indemnitee is not entitled
to indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
(c) If a determination shall have been made pursuant
to Section 8(b) of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
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(d) In the event that Indemnitee, pursuant to this
Section 10, seeks a judicial adjudication of or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this Agreement,
Indemnitee shall be entitled to recover from the Company, and shall be
indemnified by the Company against, any and all expenses (of the types described
in the definition of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if (and only to the extent) he prevails therein. If it shall be determined
in said judicial adjudication or arbitration that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of Expenses
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated.
(e) The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Section 10
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
Section 11. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE;
SUBROGATION.
(a) The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Company's Certificate of Incorporation, the Company's
Bylaws, any other agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement
or of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the General Corporation Law of the State of Delaware,
whether by statute or judicial decision, permits greater indemnification or
advancement of Expenses than would be afforded currently under the Company's
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors,
officers, employees, or agents of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, and Indemnitee shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring suit
to enforce such rights.
(d) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable (or for which
advancement is provided hereunder) hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise; PROVIDED, HOWEVER, that the Company
shall be liable to make payment of any amounts indemnifiable to the extent
Indemnitee is entitled to indemnification in excess of the amount of any
payments received by Indemnitee under such insurance policy, contract or
agreement.
(e) The Company's obligation to indemnify or advance
Expenses hereunder to Indemnitee who is or was serving at the request of the
Company as a director or executive officer of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any
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amount Indemnitee has actually received as indemnification or advancement of
expenses from such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
Section 12. DURATION OF AGREEMENT. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the date that
Indemnitee shall have ceased to serve as a director or executive officer of the
Company or of any Enterprise which Indemnitee served at the request of the
Company; or (b) the final termination of any Proceeding then pending in respect
of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to
Section 10 of this Agreement relating thereto. This Agreement shall be binding
upon the Company and its successors and assigns and shall inure to the benefit
of Indemnitee and his heirs, executors and administrators.
Section 13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby and shall remain
enforceable to the fullest extent permitted by law; (b) such provision or
provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
Section 14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES. Notwithstanding any other provision of this Agreement, but subject to
Section 10(d) hereof, Indemnitee shall not be entitled to indemnification or
advancement of Expenses under this Agreement with respect to any Proceeding
brought by Indemnitee, or any claim therein, unless the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors.
Section 15. IDENTICAL COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. HEADINGS. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 17. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of
the Company occurring after the Effective Date of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Company is then subject to such reporting requirement; PROVIDED,
HOWEVER, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board in office
immediately prior to such person attaining such percentage interest; (ii) there
occurs a proxy contest, or the Company is a party to a merger, consolidation,
sale of assets, plan of liquidation or other reorganization not approved by at
least two-thirds of the members of the Board then in office, as a consequence of
which members of the Board in office immediately prior to such transaction or
event constitute less than a majority of the Board thereafter; or (iii) during
any period of two consecutive years, other than as a result of an event
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described in clause (a)(ii) of this Section 17, individuals who at the beginning
of such period constituted the Board (including for this purpose any new
director whose election or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period) cease for any reason
to constitute at least a majority of the Board.
(b) "Corporate Status" describes the status of a
person who is or was a director or executive officer of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Company in accordance with this Agreement.
(c) "Disinterested Director" means a director of the
Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Effective Date" means ______________, 199__.
(e) "Enterprise" shall mean (i) the Company and/or any
entity in which the Company has an equity interest, and/or (ii) any other
corporation, partnership, joint venture, trust, employee welfare or benefit plan
of the Company and/or of any entity in which the Company has an equity interest
or other enterprise of which Indemnitee is or was serving at the express written
request of the Company as a director or executive officer.
(f) "Expenses" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating, being or preparing to be a
witness in, or otherwise participating in, a Proceeding.
(g) "Good Faith" shall mean Indemnitee having acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, having had no reasonable cause to believe Indemnitee's conduct was
unlawful.
(h) "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party (other than with respect to matters concerning the Indemnitee under this
Agreement, or of other indemnitees under similar indemnification agreements), or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees and expenses of the Independent Counsel referred to above and to
fully indemnify such counsel against any and all Expenses, claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(i) "Proceeding" includes any threatened, pending or
completed action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise, including any counterclaims therein, and whether civil, criminal,
administrative or investigative, in which Indemnitee was, is or will be involved
as a party or otherwise, by reason of the fact that Indemnitee is or was a
director or executive officer of the Company, by reason of any action taken by
him or of any inaction on his part while acting as director or executive
officer of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification or advancement of
expenses can be provided under this Agreement; except one initiated by a
Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under
this Agreement.
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(j) References to "other enterprise" shall include
employee welfare or benefit plans; references to "fines" shall include any
excise tax assessed with respect to any employee welfare or benefit plan;
references to "serving at the request of the Company" shall include any service
as a director or executive officer of the Company which imposes duties on, or
involves services by, such director or executive officer with respect to an
employee welfare or benefit plan, as participants or beneficiaries; and a person
who acted in good faith and in the manner he reasonably believed to be in the
interests of the participants and beneficiaries of an employee welfare or
benefit plan shall be deemed to have acted in manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
Section 18. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on it hereby
in order to induce Indemnitee to serve as a [director] [and executive officer]
of the Company, and the Company acknowledges that Indemnitee is relying upon
this Agreement in serving as a [director] [and executive officer] of the
Company.
(b) This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral, written and implied,
between the parties hereto with respect to the subject matter hereof.
Section 19. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 20. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder. The failure of Indemnitee to so notify the Company
shall not relieve the Company of any obligation which it may have to the
Indemnitee under this Agreement or otherwise, except to the extent the Company
is materially prejudiced by such failure.
Section 21. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Company, to:
OR TO SUCH OTHER ADDRESS AS MAY HAVE BEEN FURNISHED TO INDEMNITEE BY THE COMPANY
OR TO THE COMPANY BY INDEMNITEE, AS THE CASE MAY BE.
Section 22. CONTRIBUTION. To the fullest extent permissible under
applicable law, if the indemnification provided for in this Agreement is
unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of
indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee,
whether for judgments, fines,
D-9
<PAGE>
penalties, excise taxes, amounts paid or to be paid in settlement and/or for
Expenses, in connection with any claim relating to an indemnifiable event under
this Agreement, in such proportion as is deemed fair and reasonable in light of
all of the circumstances of such Proceeding in order to reflect (i) the relative
benefits received by the Company and Indemnitee as a result of the event(s)
and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative
fault of the Company (and its directors, officers, employees and agents) and
Indemnitee in connection with such event(s) and/or transaction(s).
Section 23. GOVERNING LAW; SUBMISSION TO JURISDICTION: APPOINTMENT OF
AGENT FOR SERVICE OF PROCESS. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Delaware, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, the Company and Indemnitee hereby irrevocably
and unconditionally (i) agree that any action or proceeding arising out of or in
connection with this Agreement shall be brought only in the Chancery Court of
the State of Delaware (the "Delaware Court"), and not in any other state or
federal court in the United States of America or any court in any other country,
(ii) consent to submit to the exclusive jurisdiction of the Delaware Court for
purposes of any action or proceeding arising out of or in connection with this
Agreement, (iii) appoint, to the extent such party is not a resident of the
State of Delaware, irrevocably the Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware, 19801 as its agent in the
State of Delaware as such party's agent for acceptance of legal process in
connection with any such action or proceeding against such party with the same
legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such
action or proceeding in the Delaware Court, and (v) waive, and agree not to
plead or to make, any claim that any such action or proceeding brought in the
Delaware Court has been brought in an improper or otherwise inconvenient forum.
Section 24. MISCELLANEOUS. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
TOMAHAWK ENGINEERING, INC.
By:
----------------------------------
Name:
Title:
-----------------------------------------
Indemnitee
Address:
-------------------------------
-------------------------------
D-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Business Company Act (Alberta) (the "Alberta Act") provides that a
corporation may indemnify a director or former director of a corporation against
all costs, charges and expenses in any action to which he or she is made a party
by reason of being or having been a director so long as (a) he or she acted
honestly and in good faith with a view to the best interests of the corporation;
and (b) in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he or she had reasonable grounds for believing
that his or her conduct was lawful. In addition, a director or former director
who satisfies these criteria is entitled to indemnity from the corporation for
all costs incurred in defending himself or herself from in any civil, criminal
or administrative action or proceeding to which he or she is made a party by
reason of being or having been a director or officer of the corporation or body
corporate, if he or she was substantially successful on the merits in his or her
defense of the action or proceeding.
Sections 7.01 to 7.03 of the existing Alberta corporation's bylaws
provide that:
7.01 LIMITATION OF LIABILITY. Every director and officer of
the Corporation in exercising his powers and discharging his duties
shall act honestly and in good faith with a view to the best interests
of the Corporation and exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
Subject to the foregoing, no director or officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or
employee, or for joining in any receipt or other act for conformity, or
for any loss, damage or expense happening to the Corporation through the
insufficiency or deficiency of title to any property acquired for or on
behalf of the Corporation, or for the insufficiency or deficiency of any
security in or upon which any of the monies of the Corporation shall be
invested, or for any loss or damage arising from the bankruptcy,
insolvency or tortious acts of any person with whom any of the monies,
securities or effects of the Corporation shall be deposited, or for any
loss occasioned by any error of judgment or oversight on his part, or
for any other loss, damage or misfortune whatsoever which shall happen
in the execution of the duties of his office or in relation thereto,
unless the same are occasioned by his own willful neglect or default;
provided that nothing herein shall relieve any director or officer from
the duty to act in accordance with the Act and the regulations
thereunder or from liability for any breach thereof.
No act or proceeding of any director or officer or the board
shall be deemed invalid or ineffective by reason of the subsequent
ascertainment of any irregularity in regard to the act or proceeding or
the qualification of such director or officer or board.
Directors may rely upon the accuracy of any statement or report
prepared by the Corporation's auditors, internal accountants or other
responsible officials and shall not be responsible or held liable for
any loss or damage resulting from the paying of any dividends or
otherwise acting upon the statement or report.
7.02 INDEMNITY. Subject to the limitations contained in the
Act, the Corporation shall indemnify a director or officer, a former
director or officer, or a person who acts or acted at the Corporation's
request as a director or officer of a body corporate of which the
Corporation is or was a shareholder or creditor (or a person who
undertakes or has undertaken any liability on behalf of the Corporation
or any such body corporate) and his heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of being or having been a director or
officer of the Corporation or the body corporate, if:
II-1
<PAGE>
(a) he acted honestly and in good faith with a view to
the best interests of the Corporation; and
(b) in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was lawful.
7.03 INSURANCE. Subject to the limitations contained in the
Act, the Corporation may purchase and maintain insurance for the benefit
of its directors and officers as such, as the board may from time to
time determine.
Article ELEVENTH of the new Delaware corporation's certificate of
incorporation provides that:
The corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and
all persons whom it shall have power to indemnify under said section
from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors and administrators of such
a person.
Our company may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise.
In addition to the foregoing indemnification rights, the new Delaware
corporation's certificate of incorporation eliminates liability of each director
to the our company and our shareholders for monetary damages to the fullest
extent permitted under Delaware corporate law.
Insofar as indemnification of our company for liabilities arising under
the Securities Act of 1933 may be permitted to our directors, officers and
controlling persons, pursuant to the foregoing provisions or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by
a director, officer or controlling person of our company in the successful
defense of any action suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, we
will, unless in the opinion of their respective counsel the matter has been
settled by a controlling precedent and subject to possible conflict of laws
questions involving Canadian corporation law, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed with or incorporated by
reference in this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
2.1 Articles of Amalgamation of the Registrant and TomaHawk Imaging &
Financial Inc.
II-2
<PAGE>
2.2 Asset Purchase Agreement, dated as of August 1, 1998, between the
Registrant and Robin Hartley
3.1 Alberta Certificate of Incorporation of the Registrant, and amendments
thereto
3.2 Alberta By-laws of the Registrant, and amendments thereto
4.1 Specimen Stock Certificate for the Registrant's Common Shares
5.1* Opinion of Baker & McKenzie regarding the legality of securities being
registered
8.1 Opinion of Ernst & Young LLP regarding certain tax matters
10.1 Stock Option Plan of the Registrant
10.2 Document Imaging Subcontract, dated as of March 12, 1997, between the
Registrant and Intergraph Corporation
10.3 Equipment Lease Agreement, dated as of November 19, 1998, between the
Registrant and Finova Group Inc.
10.4 Equipment Lease Agreement, dated as of June 10, 1997, between the
Registrant and Boston Financial Equity Corporation.
10.5 Promissory Note, dated as of February 25, 1999, payable by the
Registrant to Norman F. Siegel
10.6 Promissory Note, dated as of August 20, 1998, payable by the Registrant
to Robin Hartley
10.7 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Norman F. Siegel to the Registrant
10.8 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Norm Siegel
10.9 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Steven M. Caira to the Registrant
10.10 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Steven M. Caira
10.11 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Michael H. Lorber to the Registrant
10.12 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Michael H. Lorber
10.13 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Philip W. Card to the Registrant
10.14 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Philip W. Card
10.15 Consolidated Promissory Note, dated as of November 1, 1998, payable by
John F. Peace to the Registrant
II-3
<PAGE>
10.16 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and John F. Peace
10.17 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Elliott Broidy to the Registrant
10.18 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Elliott Broidy
10.19 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Douglas W. Loughran to the Registrant
10.20 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Douglas W. Loughran
10.21 Subordination Agreement, dated as of January 25, 1999, between the
Registrant and Bank of America, N.A.
10.22 Sublease, dated as of March 4, 1997, between the Registrant and
Medaphis Physician Services Corporation, for premises located at 8315
Century Park Court, Suite 200, San Diego, California 92123
10.23 Lease Agreement, dated as of June 5, 1998 between the Registrant and
Hamann/Martin/Whitaker for premises located at 7140 Opportunity Road,
San Diego, California 92123
23.1 Consent of Baker & McKenzie (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Tax Advisor
24.1 Power of Attorney (included on the signature page of this Registration
Statement)
27.1 Financial Data Schedule (As of December 31, 1998)
27.2 Financial Data Schedule (As of March 31, 1999)
</TABLE>
* To be filed by amendment.
(b) Schedules. No supporting schedules have been included because
they are not required.
ITEM 22. UNDERTAKINGS.
"The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or
II-4
<PAGE>
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the SEC by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, that are
incorporated by reference in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed
pursuant to the immediately preceding paragraph or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 of the Securities
Act, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
after the effective date of the registration statement through the date of
responding to the request.
II-5
<PAGE>
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective."
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of San
Diego, California on July 8, 1999.
TOMAHAWK CORPORATION
By: /s/ Steven M. Caira
---------------------------------------------------
Steven M. Caira, Chairman of the Board,
President, Chief Executive Officer and Acting Chief
Financial Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below on this Registration Statement hereby constitutes and appoints
Steven M. Caira and Michael H. Lorber, and each and either of them, with full
power to act without the other, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (until revoked in writing) to sign
any and all amendments (including, without limitation, post-effective amendments
and amendments thereto) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Steven M. Caira Chairman of the Board, President, July 8, 1999
- --------------------------- Chief Executive Officer and Acting
Steven M. Caira Chief Financial Officer
/s/ Thomas M. Dusmet Secretary and Director July 8, 1999
- ---------------------------
Thomas M. Dusmet
/s/ Douglas W. Loughran Director July 8, 1999
- ---------------------------
Douglas W. Loughran
/s/ Jonathan F. Turpin Director July 8, 1999
- ---------------------------
Jonathan F. Turpin
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------
<S> <C>
2.1 Articles of Amalgamation of the Registrant and TomaHawk Imaging &
Financial Inc.
2.2 Asset Purchase Agreement, dated as of August 1, 1998, between the
Registrant and Robin Hartley
3.1 Alberta Certificate of Incorporation of the Registrant, and amendments
thereto
3.2 Alberta By-laws of the Registrant, and amendments thereto
4.1 Specimen Stock Certificate for the Registrant's Common Shares
5.1* Opinion of Baker & McKenzie regarding the legality of securities being
registered
8.1 Opinion of Ernst & Young LLP regarding certain tax matters
10.1 Stock Option Plan of the Registrant
10.2 Document Imaging Subcontract, dated as of March 12, 1997, between the
Registrant and Intergraph Corporation
10.3 Equipment Lease Agreement, dated as of November 19, 1998, between the
Registrant and Finova Group Inc.
10.4 Equipment Lease Agreement, dated as of June 10, 1997, between the
Registrant and Boston Financial Equity Corporation.
10.5 Promissory Note, dated as of February 25, 1999, payable by the
Registrant to Norman F. Siegel
10.6 Promissory Note, dated as of August 20, 1998, payable by the Registrant
to Robin Hartley
10.7 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Norman F. Siegel to the Registrant
10.8 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Norman F. Siegel
10.9 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Steven M. Caira to the Registrant
10.10 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Steven M. Caira
10.11 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Michael H. Lorber to the Registrant
10.12 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Michael H. Lorber
<PAGE>
10.13 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Philip W. Card to the Registrant
10.14 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Philip W. Card
10.15 Consolidated Promissory Note, dated as of November 1, 1998, payable by
John F. Peace to the Registrant
10.16 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and John F. Peace
10.17 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Elliott Broidy to the Registrant
10.18 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Elliott Broidy
10.19 Consolidated Promissory Note, dated as of November 1, 1998, payable by
Douglas W. Loughran to the Registrant
10.20 Security and Stock Pledge Agreement, dated as of November 1, 1998,
between the Registrant and Douglas W. Loughran
10.21 Subordination Agreement, dated as of January 25, 1999, between the
Registrant and Bank of America, N.A.
10.22 Sublease, dated as of March 4, 1997, between the Registrant and
Medaphis Physician Services Corporation, for premises located at 8315
Century Park Court, Suite 200, San Diego, California 92123
10.23 Lease Agreement, dated as of June 5, 1998 between the Registrant and
Hamann/Martin/Whitaker for premises located at 7140 Opportunity Road,
San Diego, California 92123
23.1 Consent of Baker & McKenzie (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Ernst & Young LLP, Tax Advisor
24.1 Power of Attorney (included on the signature page of this Registration
Statement)
27.1 Financial Data Schedule (As of December 31, 1998)
27.2 Financial Data Schedule (As of March 31, 1999)
</TABLE>
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
BUSINESS CORPORATIONS ACT FORM 9
(SECTION 179)
Alberta Consumer and
Corporate Affairs ARTICLES OF AMALGAMATION
- --------------------------------------------------------------------------------
1. NAME OF AMALGAMATED CORPORATION 2. CORPORATE ACCESS NO.
TomaHawk Corporation
- --------------------------------------------------------------------------------
3. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE.
Unlimited number of Common voting shares without nominal par value;
Unlimited number of Class "B" Common non-voting shares without nominal or
par value; Unlimited number of Preferred shares without nominal or par
value; all subject to the rights, privileges, restrictions and conditions
as set forth in Schedule "A" attached hereto.
The designation of a series of Preferred Shares as 6% Non-Cumulative
Redeemable Convertible Retractable First Preferred Shares, Series A having
the rights, privileges, restrictions and conditions as set forth in
Schedule "B" attached hereto.
The designation of the three series of Preferred Shares as "Class A",
"Series II" and" Series III" Preferred Shares having the rights,
privileges, restrictions and conditions as set forth in Schedule "C"
attached hereto.
- --------------------------------------------------------------------------------
4. RESTRICTIONS IF ANY ON SHARE TRANSFERS.
None.
- --------------------------------------------------------------------------------
5. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS.
Minimum three (3) - Maximum fifteen (15).
- --------------------------------------------------------------------------------
6. RESTRICTIONS IF ANY ON BUSINESS THE CORPORATION MAY CARRY ON.
None.
- --------------------------------------------------------------------------------
7. OTHER PROVISIONS IF ANY.
None.
- --------------------------------------------------------------------------------
8. NAME OF AMALGAMATING CORPORATIONS. CORPORATE ACCESS NO.
TomaHawk Corporation 20353521
TomaHawk Imaging & Financial Inc. 20546749
- --------------------------------------------------------------------------------
9. DATE: SIGNATURE TITLE
/s/ Steven M. Caira
-------------------
February 17, 1999 Steven M. Caira President and Chief Executive
Officer
- --------------------------------------------------------------------------------
For Departmental Use Only Filed
<PAGE>
STATUTORY DECLARATION
SAN DIEGO ) IN THE MATTER OF the Business
) Corporations Act (Alberta) AND IN THE
STATE OF CALIFORNIA ) MATTER OF the Amalgamation of TOMAHAWK
) CORPORATION And TOMAHAWK IMAGING &
WIT: ) FINANCIAL INC.
I, Steven M. Caira, of the City of San Diego, in the State of California,
do solemnly declare that:
1. I am a proposed director of Tomahawk Corporation, the amalgamated
corporation resulting from the amalgamation of Tomahawk Corporation and
Tomahawk Imaging & Financial Inc. (hereinafter referred to as the
"Amalgamated Corporation"), and as such have personal knowledge of the
matters herein declared to.
2. I have conducted such examinations of the books and records of the
Amalgamated Corporation and have made such inquiries and investigations as
are necessary to enable me to make this declaration.
3. There are reasonable grounds for believing that:
a. the Amalgamated Corporation will be able to pay its liabilities as
they become due; and
b. the realizable value of the Amalgamated Corporation's assets will
not be less than the aggregate of its liabilities and stated capital
of all classes.
4. There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation.
AND I MAKE THIS SOLEMN DECLARATION conscientiously believing the same to
be true.
DECLARED before me at the City of )
San Diego, in the State of California, )
This 17th day of February, 1999. )
)
) /s/ Steven M. Caira
- -------------------------------------- ) -----------------------------
A Notary Public in and for the State ) Steven M. Caira
Of California )
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGEMENT
================================================================================
State of California
----------------------
County of San Diego
---------------------
On 17 February 1999 before me, Nyla Marson, Notary Public
---------------- -------------------------------------------
NAME, TITLE OF OFFICER -
E.G., "JANE DOE, NOTARY PUBLIC"
personally appeared Steven M. Caira
------------------------------------------------------------
NAME(S) OF SIGNER(S)
|x| personally known to me - OR - |_| proved to me on the basis of satisfactory
evidence to be the person whose names
is subscribed to the within instrument
and acknowledged to me that he executed
================================== the same in his authorized capacity,
[SEAL] NYLA MARSON and that by his signature(s) on
Commission # 1132170 the instrument the person, or the
Notary Public -- California entity upon behalf of which the person
San Diego County acted, executed the instrument.
My Comm. Expires Apr. 1, 2001
==================================
WITNESS my hand and official seal.
/s/ Nyla Marson
------------------------------------------
SIGNATURE OF NOTARY
================================ OPTIONAL ======================================
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
|_| INDIVIDUAL
|X| CORPORATE OFFICER
PROPOSED DIRECTOR STATUTORY DECLARATION
- ------------------------------------- ----------------------------------------
TITLE(S) TITLE TYPE OF DOCUMENT
|_| PARTNER(S) |_| LIMITED ONE
|_| GENERAL ----------------------------------------
NUMBER OF PAGES
|_| ATTORNEY-IN-FACT
|_| TRUSTEE(S)
|_| GUARDIAN/CONSERVATOR
|_| OTHER: __________________________ 02/17/99
_________________________________ -----------------------------------------
_________________________________ DATE OF DOCUMENT
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
TOMAHAWK CORPORATION_________________ N/A
_____________________________________ ----------------------------------------
_____________________________________ SIGNER(S) OTHER THAN NAME ABOVE
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
BUSINESS CORPORATIONS ACT FORM 3
(SECTION 27 OR 171)
CONSUMER AND NOTICE OF ADDRESS OR
Alberta CORPORATE AFFAIRS NOTICE OF CHANGE OF ADDRESS
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1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER
TomaHawk Corporation
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3. ADDRESS OF REGISTERED OFFICE (STREET ADDRESS, INCLUDING POSTAL CODE, OR
LEGAL LAND DESCRIPTION).
1400, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
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4. RECORDS ADDRESS (STREET ADDRESS, INCLUDING POSTAL CODE, OR LEGAL LAND
DESCRIPTION).
1400, 350 - 7th Avenue, S.W.
Calgary, Alberta
T2P 3N9
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5. ADDRESS FOR SERVICE BY MAIL, IF DIFFERENT FROM ITEM 3 (POST OFFICE BOX,
INCLUDING POSTAL CODE).
Not applicable
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DATE SIGNATURE TITLE
/s/ Steven M. Caira
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February 17, 1999 Steven M. Caira President and Chief Executive Officer
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<PAGE>
BUSINESS CORPORATIONS ACT
(Sections 101, 108 and 276)
Form 6
NOTICE OF DIRECTORS OR
NOTICE OF CHANGE OF DIRECTORS
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1. NAME OF CORPORATION 2. CORPORATE ACCESS NO.
TomaHawk Corporation
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3. ON THE 17TH DAY OF FEBRUARY, 1999, THE FOLLOWING PERSONS WERE APPOINTED
DIRECTORS:
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Name Mailing Address (including Postal Code) Resident
Canadian?
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STEVEN M. CAIRA 4444 Adams Street, Carlsbad, California 92008 NO
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THOMAS M. DUSMET 6712 Highway 25 RR1, Milton, Ontario L9T 2X5 YES
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DOUGLAS W. LOUGHRAN 13459 Cedar Way, Maple Ridge, B.C. V2X 7E7 YES
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JONATHAN F. TURPIN 2805 Fromme Road N., Vancouver, B.C. V7J 2R4 YES
4. ON THE ____ DAY OF ________, 1998, THE FOLLOWING PERSON(S) CEASED TO
HOLD OFFICE AS DIRECTOR(S):
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Name Mailing Address (including Postal Code)
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5. AS OF THIS DATE, THE DIRECTOR(S) OF THE CORPORATION ARE:
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Name Mailing Address (including Postal Code) Resident
Canadian?
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STEVEN M. CAIRA 4444 Adams Street, Carlsbad, California 92008 NO
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THOMAS M. DUSMET 6712 Highway 25 RR1, Milton, Ontario L9T 2X5 YES
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DOUGLAS W. LOUGHRAN 13459 Cedar Way, Maple Ridge, B.C. V2X 7E7 YES
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JONATHAN F. TURPIN 2805 Fromme Road N., Vancouver, B.C. V7J 2R4 YES
6. TO BE COMPLETED ONLY BY ALBERTA CORPORATIONS:
ARE AT LEAST HALF OF THE MEMBERS OF THE BOARD OF DIRECTORS RESIDENT
CANADIANS?
YES |X| NO |_|
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7. DATE: Signature Title
99 02 17 /s/ Steven M. Caira President and Chief Executive Officer
Year Month Day --------------------
Steven M. Caira
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For Departmental Use Only Telephone Number
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Filed
<PAGE>
SCHEDULE "A" TO THE
ARTICLES OF AMALGAMATION OF TOMAHAWK CORPORATION
The classes and any maximum number of shares that the Corporation is
authorized to issue are:
Unlimited number of Common voting shares without nominal or par value;
Unlimited number of Class "B" Common non-voting shares without nominal or
par value;
Unlimited number of Preferred shares without nominal or par value;
all subject to the rights, privileges, restrictions and conditions as
hereinafter set forth:
1. The Common and Class "B" Common shares shall respectively carry and be
subject to the following rights, privileges, restrictions and conditions,
namely:
a. The holders of the Common shares shall be entitled to one (1) vote in
respect of each such Common share held at all meetings of the shareholders
of the Corporation;
b. Subject to the right to vote at a meeting of the holders of Class "B"
Common shares, the holders of the Class "B" Common shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation, and shall not be entitled to vote at any
such meeting;
c. In the event of the liquidation, dissolution or winding up of the
Corporation or other distribution of assets of the Corporation (except
payment of dividends) among shareholders for the purpose of winding up its
affairs, the holders of the Common and Class "B" Common shares shall rank
equally in the distribution of all or any part of the property and assets
of the Corporation, which property and assets shall be distributed to the
holders of common shares pro rata to the number of common shares issued
and outstanding on the date of such distribution;
d. The holders of Common and Class "B" Common shares need not rank equally or
be treated equally in the declaration or payment of dividends and the
Directors shall have full and absolute discretion to declare and pay
dividends:
i. to the holders of Common shares only; or
ii. to the holders of Class "B" Common shares only; or
iii. of differing amounts per share to the holders of Common shares and
the holders of Class "B" Common shares;
provided that within each class of shares, all dividends shall be paid to
the shareholders in proportion to the number of shares held by them.
<PAGE>
2
2. The Preferred shares shall have attached thereto, as a class, the following
rights, privileges, restrictions and conditions, namely:
a. Directors' Right to Issue in One or More Series
The Preferred shares may at any time, or from time to time, be issued in
one or more series, each series to consist of such number of shares as
may, before the issue thereof, be determined by resolution of the Board of
Directors of the Corporation;
b. Directors' Right to Fix Terms of Each Series
The Directors of the Corporation shall, by ordinary resolution, fix from
time to time before the issue thereof the designation, price,
restrictions, conditions and limitations attaching to the Preferred shares
of each series including, without limiting the generality of the
foregoing, the rate or amount of dividends or the method of calculating
dividends, the dates of payment thereof, the redemption or purchase prices
and terms and conditions of redemption or purchase, any voting rights, any
conversion rights and any sinking fund or other provisions;
c. Ranking of Preferred Shares
The Preferred shares of each series shall rank, both as regards dividends
and return of capital, in priority to all other shares of the Corporation.
The Preferred shares of any series may also be given such other
preferences over the Common shares and over any other shares of the
Corporation ranking junior to the Preferred shares, as may be fixed in
accordance with paragraph 2(b) hereof; provided, however, that no rights,
privileges, restrictions or conditions attached to a series of shares
shall confer on a series a priority in respect of voting, dividends or
return of capital over any other series of shares of the same class that
are then outstanding.
<PAGE>
SCHEDULE "B" TO THE
ARTICLES OF AMALGAMATION OF TOMAHAWK CORPORATION
Provisions attaching to the 6% Non-Cumulative Redeemable
Convertible Retractable First Preferred Shares, Series A
The first series of Preferred Shares of TomaHawk Corporation (the
"Corporation") shall consist of 100,000 shares without nominal or par value,
shall be designated as 6% Non-Cumulative Redeemable Convertible Retractable
First Preferred Shares, Series A (the "Series A Shares") and, in addition to the
rights, conditions, restrictions and limitations attached to the Preferred
Shares as a class, shall have attached thereto rights, conditions, restrictions
and limitations substantially as hereinafter set forth, that is to say:
1. Issue Price
1.1 The stated value of the Series A Shares shall be $10.00 per share.
2. Dividends
2.1 The holders of the Series A Shares shall be entitled to receive fixed,
non-cumulative, preferential cash dividends, out of monies properly applicable
to the payment of dividends, at the lesser of the following rates:
a. a rate of 6% of the stated value per Series A Share ($0.60 per
Series A Share) per annum, as and when declared by the board of
directors of the Corporation;
or
b. a rate of 20% of the Corporation's net income before depreciation,
before depletion and after current income taxes as computed in
accordance with generally accepted accounting principles.
2.2 The Corporation shall, promptly after the preparation of its annual
financial statements, provide notice to the Transfer Agent as to the amount set
forth in paragraph 2.1(b).
2.3 Cheques of the Corporation, dated the dividend payment date and payable at
par at any branch of the Corporation's bankers for the time being in Canada,
shall be issued in respect of each such dividend and the mailing thereof to any
holder shall satisfy the dividend represented thereby unless the cheque be not
paid upon presentation. No shareholder shall be entitled to recover by action or
other legal process against the Corporation respecting any dividend that is
represented by a cheque that has not been duly presented to the Corporation's
bankers for payment and that otherwise remains unclaimed for a period of six
years from the date on which it was payable. If, on any dividend payment date,
the dividend payable on such date is not paid in full on all the Series A Shares
then issued and outstanding, such dividend or the unpaid part thereof shall not
be required to be paid on a subsequent date.
2.4. The holders of the Series A Shares shall not be entitled to any dividends
other than or in excess of the dividends for which provision is expressly made
herein.
<PAGE>
2
3. Liquidation
3.1 In the event of the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation or other distribution of assets of the Corporation
among its shareholders for the purpose of winding up its affairs, the holders of
Series A Shares shall be entitled to receive $10.00 for each Series A Share
held.
3.2 In all cases the holders of the Series A Shares shall be entitled to be paid
all moneys payable pursuant to paragraph 3.1 before any amount shall be paid or
any distribution of the assets of the Corporation shall be made to the holders
of the common shares or any other shares of the Corporation ranking junior to
the Series A Shares with respect to distributions upon liquidation.
3.3 After payment to the holders of the Series A Shares of the amounts so
payable to them they shall not be entitled to share in any further distribution
of the property or assets of the Corporation.
4. Retraction Privilege
4.1 Holders of the Series A Shares shall have the option or privilege (the
"Retraction Privilege") of requiring the Corporation in any calendar year, to
redeem, subject to applicable law, up to 25% of the holder's Series A Shares
(the "Retraction Limit") which have not previously been converted to common
shares of the Corporation (the "Common Shares") pursuant to the provisions of
Section 7 hereof, in the event that the net earnings of the Corporation have
exceeded $250,000 for that calendar year (the "Retraction Event"), which
Retraction Privilege shall be effected at a price (the "Retraction Price") equal
to $10.00 per share.
4.2 The Corporation shall promptly provide notice of the Retraction Event to the
Transfer Agent and during the 10 day period following the Retraction Event, mail
to each person who at the date of mailing is a registered holder of Series A
Shares a written notice (the "Retraction Notice") giving details of the
Retraction Privilege and specifying a place or places in the Province of Alberta
for the deposit by the holder of the certificate or certificates representing
the Series A Shares and the date on or prior to which such deposit shall be made
by such holder in order to exercise such Retraction Privilege, which date shall
be 35 days following the Retraction Event (the "Retraction Payment Date").
Subject to the provisions of Clause 4.1, the Corporation shall pay the
Retraction Price on the Retraction Payment Date to the Transfer Agent on behalf
of the holders of Series A Shares who have exercised their Retraction Privilege.
The Retraction Notice will also contain, if the Corporation determines under the
provisions of Clause 4.5 that it will not be permitted to retract the Series A
Shares in accordance with the provisions of Clause 4.1, the statement required
under the provisions of Clause 4.5.
4.3 At least 7 days prior to the applicable Retraction Payment Date, a holder of
Series A Shares desiring to exercise the Retraction Privilege shall deposit the
certificate or certificates representing the Series A Shares to be purchased
together with a written notice signed by the holder requesting purchase of the
Series A Shares represented by such certificate up to the Retraction Limit or
certificates or such lesser number thereof as may be specified in such notice.
If a part only of the Series A Shares represented by any certificate shall be
purchased a new certificate for the balance shall be issued at the expense of
the Corporation. Such deposit shall, subject to Clause 4.5, be irrevocable.
Payment of the Retraction Price, subject to the Corporation's obligations set
out in this Section 4, shall be made by depositing with the Transfer Agent the
Retraction Price of the Series A
<PAGE>
3
Shares which are represented by certificates which have been delivered to the
Custodian in accordance herewith. Series A Shares purchased pursuant to the
provisions hereof shall be and be deemed to be cancelled and shall not be
reissued. No shareholder shall be entitled to recover by action or other legal
process against the Corporation any portion of the Retraction Price that is
represented by a cheque that has not been duly presented to the Corporation's
bankers for payment and that otherwise remains unclaimed for a period of six
years from the date on which it was payable. Upon such deposit being made or
upon the date specified for purchase of Series A Shares, whichever is the later,
the Series A Shares in respect of which such deposit shall have been made shall
be deemed to have been purchased and the rights of the holders thereof shall be
limited to receiving without interest their proportionate part of the amount so
deposited on presentation and surrender of the certificates representing their
Series A Shares being purchased. Any interest allowed on any such deposit shall
belong to the Corporation.
4.4 Upon payment by the Corporation of the Retraction Price for the Series A
Shares purchased pursuant to the provisions of this Section 4, the Series A
Shares so purchased shall cease to be entitled to dividends or any other
participation in the assets of the Corporation and the holders of such shares
shall not be entitled to exercise any of the rights of shareholders in respect
of them. In the event that the Corporation fails to pay the full Retraction
Price, the Series A Shares deposited for purchase shall be entitled to dividends
in proportion to that portion of the Retraction Price unpaid.
4.5 Subject to the provisions of Clause 4.1 and subject to the provisions of
Clause 4.6, the Corporation shall on the Retraction Payment Date purchase all
Series A Shares up to the Retraction Limit in respect of which holders shall
have exercised the Retraction Privilege. If prior to the mailing or publication
of the Retraction Notice for the Retraction Payment Date, the Corporation
determines that it will not be permitted under the provisions of any applicable
law to purchase the number of Series A Shares pursuant to its obligations
hereunder, the Corporation shall include in such Retraction Notice a statement
of the maximum amount (in multiples of $10) which it then believes it will be
permitted to pay on the Retraction Payment Date and, in reasonable detail, the
basis of the calculation thereof. Insofar as the Corporation has acted in good
faith in making such determination, the Corporation shall have no liability in
the event that such determination proves inaccurate. Notwithstanding the
provisions of Clause 4.3 if the aggregate amount that the Corporation is able to
pay on the Retraction Payment Date is less than the aggregate amount determined
by the Corporation for the Retraction Notice, the holder of Series A Shares
deposited for retraction shall have the right to withdraw such shares from such
deposit on or before 10 days following the Retraction Payment Date and Clause
4.1 shall otherwise apply mutatis mutandis to the retraction of the Series A
Shares so withdrawn from deposit.
4.6 If the Corporation fails to pay the full Retraction Price, because of the
provisions of any applicable law, for any of the Series A Shares deposited for
purchase on the Retraction Payment Date in respect of which the holders thereof
have exercised their rights up to the Retraction Limit under the Retraction
Privilege, the remainder of the Retraction Price of such Series A Shares shall
be paid on a pro rata basis as soon as reasonably feasible to the extent the
Corporation is able to do so under the provisions of any applicable law, on each
succeeding date for the payment of dividends on the Series A Shares until the
full amount of the Retraction Price of the Series A Shares so deposited has been
paid. In the event that the Corporation shall as aforesaid pay only a portion of
the full amount of the Retraction Price of the Series A Shares deposited for
retraction, the certificates representing such Series A Shares shall be
cancelled and new share certificates shall be issued to the depositing
shareholders representing the Series A Shares not retracted. The
<PAGE>
4
provisions of this Section 4 shall, to the extent reasonably possible, apply to
such further Retraction Privilege mutatis mutandis, except that the Retraction
Notice to be mailed by the Corporation shall be mailed during the 30 day period
ended 30 days prior to the applicable dividend payment date and the date on or
prior to which deposit of certificate(s) shall be made by a holder of Series A
Shares in order to exercise such Retraction Privilege shall be 7 days prior to
such applicable dividend payment date.
5. Redemption
5.1 The Series A Shares are not redeemable on or prior to July 31, 1989 without
the prior consent of the holders of such shares.
5.2 After July 31, 1989, the Corporation may at its option redeem at any time
all of the outstanding Series A Shares or, subject to the provisions of Section
8, from time to time any part thereof selected by lot in such manner as the
board of directors shall decide, or, if the board of directors so decide, pro
rata, on payment of $10.00 for each such share to be redeemed (the "Redemption
Price").
5.3 On any redemption of Series A Shares under this Section 5, the Corporation
shall give in the manner provided in Section 9 at least 30 days prior notice to
each person who, at the date of giving such notice, is the registered holder of
Series A Shares to be redeemed, of the intention of the Corporation to redeem
such shares. Such notice shall set out the Redemption Price and the date on
which the redemption is to take place and, unless all the Series A Shares held
by the holder to whom it is addressed are to be redeemed, shall also set out the
number of such shares so held which are to be redeemed. On or after the date so
specified for redemption, the Corporation shall pay or cause to be paid to the
holders of such Series A Shares to be redeemed the Redemption Price on
presentation and surrender at the head office of the Corporation or at any other
place or places within Canada designated by such notice, of the certificate or
certificates for such Series A Shares so called for redemption. Such payment
shall be made by cheque payable at par at any branch in Canada of the
Corporation's bankers. If a part only of the Series A Shares represented by any
certificate shall be redeemed, a new certificate for the balance shall be issued
at the expense of the Corporation. From and after the redemption date specified
in any such notice, the Series A Shares called for redemption shall cease to be
entitled to dividends and the holders thereof shall not be entitled to exercise
any of the rights of shareholders in respect thereof unless payment of the
Redemption Price shall not be duly made by the Corporation. At any time after
the notice of redemption is given the Corporation shall have the right to
deposit the Redemption Price of any or all Series A Shares called for redemption
with any chartered bank or banks or with any trust corporation or trust
companies in Canada named for such purpose in the notice of redemption to the
credit of a special account or accounts in trust for the respective holders of
such shares, to be paid to them respectively upon surrender to such bank or
banks or trust company or trust companies of the certificate or certificates
representing the same. Upon such deposit or deposits being made, such shares
shall be deemed to be redeemed and the rights of the holders of such shares
shall be limited to receiving the proportion of the amounts so deposited
applicable to their respective shares without interest. Any interest allowed on
such deposit or deposits shall belong to the Corporation.
5.4 Series A Shares which are redeemed or deemed to be redeemed in accordance
with this Section 5 shall be and be deemed to be cancelled and shall not be
reissued.
<PAGE>
5
6. Purchase for Cancellation
6.1 Subject to the provisions of Section 8 and in addition to its right to
redeem the Series A Shares as provided in Section 5, the Corporation may at any
time and from time to time purchase for cancellation the whole or any part of
the outstanding Series A Shares by invitations for tender addressed to all
holders of record of the outstanding Series A Shares. In the event that, upon
any request for tenders, the Corporation shall receive two or more tenders of
Series A Shares at the same price and which shares, when added to any shares
tendered at a lower price or prices, aggregate more than the amount for which
the Corporation is prepared to accept tenders, if any of the Series A Shares so
tendered at the same price are purchased by the Corporation they shall be
purchased pro rata from such holders tendering at the same price, disregarding
fractions.
6.2 Series A Shares which are purchased in accordance with this Section 6 shall
be and be deemed to be cancelled and shall not be reissued.
7. Conversion Privilege
7.1 For the purposes of these share provisions:
a. "Certificate of the Corporation" means a certificate under the
corporate seal of the Corporation signed by any two of the Chairman,
the President, or any Vice president or any one of them together
with the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer of the Corporation and may consist of one or
more instruments so executed;
b. "Close of business" means with respect to the conversion of any
Series A Share the normal closing time of the office of the Transfer
Agent at which the holder of such share elects to have such share
converted;
c. "Common Shares" shall mean common shares without nominal or par
value in the capital of the Corporation as such shares were
constituted on July 25, 1998, and any other shares resulting from
reclassification or change of such Common Shares or amalgamation,
consolidation, merger or sale, all as referred to in Clause 7.10;
d. "Current Conversion Price" shall mean the Current Market Price for
each Common Share to be issued upon conversion of any Series A
Shares, subject to adjustment as hereinafter provided;
e. "Current Conversion Basis" means at any particular time 20 Common
Shares into which at such time one (1) Series A Share shall be
convertible at the Current Conversion Price in accordance with the
provisions of this Section 7;
f. "Current Market Price", as at any date when the Current Market Price
is to be determined, shall mean the weighted average price at which
Common Shares have traded on the Alberta Stock Exchange for any
fifteen (15) consecutive trading days ending on a date not earlier
than the fifth trading day preceding such date. In the event the
Common Shares are not so traded on the Alberta Stock Exchange but
are listed on another stock exchange, or stock exchanges in Canada,
the foregoing references to the Alberta Stock Exchange shall be
deemed to be references to such
<PAGE>
6
other stock exchange, or, if more than one, to such one as shall be
designated by the board of directors of the Corporation. In the
event the Common Shares are not so traded on any stock exchange in
Canada, the Current Market Price thereof shall be determined by the
board of directors of the Corporation, acting reasonably, which
determination shall be conclusive;
g. "dividends paid in the ordinary course" means dividends, whether in
cash or in shares of the capital stock of the Corporation, paid in
any fiscal year of the Corporation to the extent that the aggregate
of such cash and the paid up capital of such shares does not in such
fiscal year exceed the greatest of:
i. 150% of the aggregate amount of dividends paid by the
Corporation on the Common Shares in the period of 12
consecutive months ended immediately prior to the first day of
such fiscal year;
ii. 80% of the aggregate amount of dividends paid by the
Corporation on the Common Shares in the period of 36
consecutive months ended immediately prior to the first day of
such fiscal year; and
iii. 100% of the consolidated net earnings of the Corporation,
before extraordinary items, for the period of 12 consecutive
months ended immediately prior to the first day of such fiscal
year (such consolidated net earnings to be as shown in the
audited financial statements of the Corporation for such
period of 12 consecutive months or, if there are no audited
financial statements in respect of such period, computed in
accordance with generally accepted accounting principles
consistent with those applied in the preparation of the most
recent audited consolidated financial statements of the
Corporation)
and for such purpose the amount of any dividend paid in shares shall
be the aggregate paid up capital of such shares.
h. "trading day" means a day on which the relevant stock exchange
referred to in subclause 7.1(f) is open for business;
i. "Transfer Agent" means the person appointed as registrar and
transfer agent for the Common Shares;
j. "weighted average price" means at any specific date, the weighted
average price per Common Share of all trades in board lot quantities
of the Common Shares for the specified period in trading days
immediately prior to such date on the relevant stock exchange
referred to in subclause 7.1(f) above.
7.2 A holder of any Series A Shares has the right at his option at any time, or,
in the case of shares called for redemption, up to the close of business on the
third business day preceding the date fixed for redemption, whichever is
earlier, to conversion, subject to the terms and provisions hereof, such Series
A Shares into fully paid and non-assessable Common Shares at the Current
Conversion Basis. Should payment of the Redemption Price of Series A Shares
which have been
<PAGE>
7
called for redemption not be paid upon surrender of the certificate for such
Series A Shares the right of conversion shall revive and continue from the time
of the failure to pay as if such Series A Shares had not been called for
redemption. The conversion of Series A Shares in accordance with this clause may
be effected by the surrender of the certificate or certificates representing the
same at any time during usual business hours at the option of the holder at any
office of the Transfer Agent at which the Common Shares are transferable,
accompanied by: (1) payment or evidence of payment of the tax (if any) payable
as provided in Clause 7.9, and (2) a written instrument of surrender in form
satisfactory to the Corporation duly executed by the registered holder, or his
attorney duly authorized in writing, in which instrument such holder may also
elect to convert part only of:
a. the Series A Shares represented by such certificate or certificates
not theretofore called for redemption, in which event such holder
shall be entitled to receive, at the expense of the Corporation, a
new certificate representing the Series A Shares represented by such
certificate or certificates which have not been converted; or
b. the Series A Shares, represented by such certificate or
certificates, theretofore called for redemption, in which event on
the date specified for the redemption of such Series A Shares such
holder shall be entitled to payment of the Redemption Price of the
Series A Shares represented by such certificate or certificates
which have been called for redemption and which have not been
converted, and to receive, at the expense of the Corporation, a
certificate representing Series A Shares represented by such
certificate or certificates which have been neither converted nor
redeemed.
As promptly as practicable after the surrender of any Series A Shares for
conversion, the Corporation shall cause to be delivered to or upon the written
order of the holder of the Series A Shares so surrendered, a certificate or
certificates issued in the name of, or in such name or names as may be directed
by, such holder representing the number of Common Shares to which such holder is
entitled together with a payment by cheque or the issue of scrip certificates in
respect of any fraction of a Common Share issuable on such conversion as
provided in Clause 7.8. Such conversion shall be deemed to have been made at the
close of business on the date such Series A Shares shall have been surrendered
for conversion, so that the rights of the holder of such Series A Shares as the
holder thereof shall cease at such time and the person or persons entitled to
receive Common Shares upon such conversion shall be treated for all purposes as
having become the holder or holders of record of such Common Shares at such time
and such conversion shall be on the Current Conversion Basis as at such time.
The date of surrender of any Series A Shares for conversion shall be deemed to
be the date when the certificate representing such Series A Shares is received
by the Transfer Agent.
7.3 The registered holder of any Series A Shares on the record date for any
dividend payable on such share shall be entitled to such dividend
notwithstanding that such share is converted after such record date and before
the payment date of such dividend and the registered holder of any Common Share
resulting from any conversion shall be entitled to rank equally with the
registered holders of all other Common Shares in respect of all dividends
declared payable to holders of Common Shares of record on any date after the
date of conversion. Subject as aforesaid and subject to the provisions hereof,
upon the conversion of any Series A Shares, the Corporation shall not make
payment or adjustment on account of any dividends on the Series A Shares so
converted nor on account of any dividends on the Common Shares issuable upon
such conversion.
<PAGE>
8
7.4 The Current Conversion Price shall be subject to adjustment from time to
time as follows:
a. if the Corporation shall at any time, or from time to time,
hereafter (i) subdivide its outstanding Common Shares into a greater
number of shares, (ii) combine, consolidate or reclassify its
outstanding Common Shares into a smaller number of shares, or (iii)
issue Common Shares to the holders of any of its outstanding Common
Shares by way of a stock dividend (other than an issue of Common
Shares to holders of Common Shares who exercise an option to receive
dividends in the form of Common Shares in lieu of receiving cash
dividends paid in the ordinary course), the Current Conversion Price
in effect on the effective date of such subdivision or combination,
consolidation or reclassification or on the record date for such
issue of Common Shares by way of a stock dividend, as the case may
be, shall be adjusted immediately after such effective date or
record date, as the case may be, so that it shall thereafter equal
the price determined by multiplying the Current Conversion Price in
effect on such date by a fraction of which the numerator shall be
the total number of Common Shares outstanding immediately prior to
such date and the denominator shall be the total number of Common
Shares outstanding immediately after such date; such adjustment
shall be made successively whenever any event referred to in this
subclause 7.4(a) shall occur; any such issue of Common Shares by way
of a stock dividend shall be deemed to have been made on the record
date for the stock dividend for the purpose of calculating the
number of outstanding Common Shares under this Clause 7.4;
b. in case the Corporation shall fix a record date for the issuance of
rights, options or warrants to all or substantially all the holders
of its outstanding Common Shares entitling them for a period
expiring not more than forty-five (45) days after such record date,
to subscribe for or purchase Common Shares (or securities
convertible into Common Shares) at a subscription or purchase price
per share (or having a conversion price per share) less than 90% of
the Current Market Price on such record date, then the Current
Conversion Price shall be adjusted immediately after such record
date so that it shall equal the price determined by multiplying the
Current Conversion Price in effect on such record date by a
fraction, of which the numerator shall be the total number of Common
Shares outstanding on such record date plus a number of Common
Shares equal to the number arrived at by dividing the aggregate
price of the total number of additional Common Shares offered for
subscription or purchase (or the aggregate conversion price of the
convertible securities so offered) by the Current Market Price of a
Common Share, and of which the denominator shall be the total number
of Common Shares outstanding on such record date plus the total
number of additional Common Shares offered for subscription or
purchase (or into which the convertible securities so offered
are/convertible). Any Common Shares owned by or held for the account
of the Corporation shall be deemed not to be outstanding for the
purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed. To the extent
that any such rights, options or warrants are not so issued or any
such rights, options or warrants are not exercised prior to the
expiration thereof, the Current Conversion Price shall be readjusted
to the Current Conversion Price which would then be in effect based
upon the number of rights, options or warrants actually issued or
the number of Common Shares (or securities
<PAGE>
9
convertible into Common Shares) actually issued upon the exercise of
such rights, options or warrants, as the case may be; and
c. in case the Corporation shall fix a record date for the making of a
distribution to all or substantially all the holders of its
outstanding Common Shares of (i) shares of any class other than
Common Shares, or (ii) rights, options or warrants (excluding those
referred to in subclause 7.4(b) and excluding rights, options or
warrants entitling the holders for a period expiring not more than
forty-five (45) days after such record date to subscribe for or
purchase Common Shares (or securities convertible into Common
Shares) at a subscription or purchase price per share (or having a
conversion price per share) greater than or equal to 90% of the
Current Market Price on such record date), or (iii) evidences of its
indebtedness, or (iv) any assets (excluding cash dividends paid in
the ordinary course and shares or other property or assets
distributed in lieu of such cash dividends at the option of
shareholders), then in each such case the Current Conversion Price
shall be adjusted immediately after such record date so that it
shall equal the price determined by multiplying the Current
Conversion Price in effect on such record date by a fraction, of
which the numerator shall be the total number of Common Shares
outstanding on such record date multiplied by the Current Market
Price per Common Share on such record date, less the fair market
value (as determined by the board of directors of the Corporation
acting reasonably, whose determination shall be conclusive) of such
shares or rights, options or warrants or evidences of indebtedness
or assets so distributed, and of which the denominator shall be the
total number of Common Shares outstanding on such record date
multiplied by such Current Market Price per Common Share. Any Common
Shares owned by or held for the account of the Corporation shall be
deemed not to be outstanding for the purposes of any such
computation. Such adjustment shall be made successively whenever
such a record date is fixed. To the extent that such distribution of
shares, evidences of indebtedness or assets is not so made or to the
extent that any rights, options or warrants so distributed are not
exercised, the Current Conversion Price shall be readjusted to the
Current Conversion Price which would then be in effect based upon
such shares, evidences of indebtedness or assets actually
distributed or based upon the number of Common Shares (or securities
convertible into Common Shares) actually delivered upon the exercise
of such rights, options or warrants, as the case may be.
7.5 No adjustments of the Current Conversion Price shall be made pursuant to
subclause 7.4(b) or 7.4(c) if the holders of the Series A Shares are permitted
to participate in the issue of such rights, options or warrants or such
distribution, as the case may be, as though and to the same effect as if they
had converted their Series A Shares into Common Shares prior to the issue of
such rights, options or warrants or such distribution, as the case may be.
7.6 No adjustment of the Current Conversion Price shall be made in any case in
which the cumulative effect of the resulting increase or decrease in the Current
Conversion Price would be less than 1% of the then Current Conversion Price, but
in such case any adjustment that would otherwise have been required then to be
made shall be carried forward and made at the time of, and together with, the
next subsequent adjustment to the Current Conversion Price which, together with
any and all such adjustments so carried forward, shall result in an increase or
decrease in the Current Conversion Price by not less than 1%.
<PAGE>
10
7.7 When any action is taken which requires an increase or decrease of the
Current Conversion Price under Clause 7.4, the Corporation shall forthwith file
with the Transfer Agent a Certificate of the Corporation setting forth the
details of the action taken and, as the case may be, the increased or decreased
Current Conversion Price, the details of the computation of the adjusted Current
Conversion Price and the resulting adjusted Current Conversion Basis. The
Transfer Agent shall be under no duty to make any investigation or inquiry as to
the statements contained in any such Certificate of the Corporation or the
manner in which any computation was made, but the Transfer Agent may accept such
Certificate as conclusive evidence of the statements therein contained and shall
be fully protected with respect to any and all acts done or action taken or
suffered by it in reliance thereon. The Corporation shall exhibit a copy of such
Certificate of the Corporation from time to time to any holder of Series A
Shares desiring to inspect the same, and shall give notice of any such
adjustment of the Current Conversion Price and the resulting adjustment of the
Current Conversion Basis to the holders of the Series A Shares in the manner
provided in Section 9. The Corporation may retain a firm of independent
chartered accountants (who may be the auditors of the Corporation) to make any
computation required under Clause 7.4, and any computation so made shall be
final and binding on the Corporation and the holders of the Series A Shares.
Such firm of independent chartered accountants may, as to questions of law,
request and rely upon an opinion of counsel (who may be counsel for the
Corporation).
7.8 Upon the surrender of any Series A Shares for conversion, the number of full
Common Shares issuable upon conversion thereof shall be equal to the aggregate
number of such Series A Shares to be converted multiplied by the Current
Conversion Basis. Fractional shares will not be issued on any conversion but in
lieu thereof the Corporation shall make cash payments. Payment shall be by
cheque of an amount equal to the then value of such fractional interest computed
on the basis of the Current Market Price.
7.9 The issuance of certificates for Common Shares upon the conversion of Series
A Shares shall be made without charge to the holders of the Series A Shares so
converted, of any fee or tax imposed on the Corporation in respect of the
issuance of such certificates or the Common Shares represented thereby; provided
that the Corporation shall not be required to pay any tax which may be imposed
upon the person or persons to whom such Common Shares are issued in respect of
the issuance of such Common Shares or the certificate therefor or which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name or names other than that of the holder of the Series
A Shares converted, and the Corporation shall not be required to issue or
deliver such certificate unless the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid,
or that the Corporation shall have no liability in respect thereof.
7.10 In case of any reclassification or change (other than a change resulting
only from consolidation or subdivision) of the Common Shares, or in case of any
amalgamation, consolidation or merger of the Corporation with or into any other
corporation, or in the case of any sale of the properties and assets of the
Corporation as, or substantially as, an entirety to any other corporations each
Series A Share shall, after such reclassification, change, amalgamation,
consolidation, merger, or sale be convertible into the number of shares or other
securities or property of the Corporation or such continuing, successor,
purchasing corporation, as the case may be, to which a holder of the number of
Common Shares as would have been issued if such Series A Shares had been
converted immediately prior to such reclassification,
<PAGE>
11
change, amalgamation, consolidation, merger or sale would have been entitled
upon such reclassification, change, amalgamation, consolidation, merger or sale.
The board of directors of the Corporation may accept the certificate of any firm
of independent chartered accountants (who may be the auditors of the
Corporation) as to the foregoing calculation, and the board of directors may
determine such entitlement on the basis of such certificate. Any such
determination shall be conclusive and binding on the Corporation and the holders
of the Series A Shares. No such reclassification, change, amalgamation,
consolidation, merger or sale shall be carried into effect unless, in the
opinion of the board of directors of the Corporation, all necessary steps shall
have been taken to ensure that the holders of the Series A Shares shall
thereafter be entitled to receive such number of shares or other securities or
property of the Corporation or such continuing, successor or purchasing
corporation, as the case may be, subject to adjustment thereafter in accordance
with provisions similar, as nearly as may be, to those contained in this Section
7.
7.11 The Corporation shall give to the holders of Series A Shares at least
fourteen (14) days' prior notice of the record date for any of the events set
forth in Clause 7.4 other than a subdivision, combination, consolidation or
reclassification of the Common Shares and for the payment of any cash dividend
paid in the ordinary course or the distribution of shares or other property or
assets in lieu thereof and of the issue to any of the Corporation's shareholders
of rights to subscribe for Common Shares or other securities and shall give at
least thirty (30) days' prior notice of any repayment of capital on the Common
Shares. The accidental failure or omission to give the notice required by this
Clause 7.11 or any defect therein shall not affect the legality or validity of
any such payment, distribution or issue.
7.12 If in the opinion of the board of directors of the Corporation the
provisions of this Section 7 are not strictly applicable, or if strictly
applicable would not fairly protect the rights of the holders of the Series A
Shares in accordance with the intent and purposes hereof, the board of directors
shall make any adjustment in such provisions as the board of directors deems
appropriate.
8. Restrictions on Dividends and Retirement of Shares
8.1 So long as any of the Series A Shares are outstanding, the Corporation will
not, without the approval of the holders of the Series A Shares given in the
manner set forth in Section 12,
a. declare any dividend, other than stock dividend, on any shares of
the Corporation ranking junior to the Series A Shares with respect
to the payment of dividends;
b. redeem or purchase or make any capital distribution in respect of
any shares of the Corporation ranking junior to the Series A Shares
with respect to the payment of dividends or repayment of capital
(except out of the proceeds of a new issue of shares ranking junior
to the Series A Shares in both such respects);
c. except in connection with the Retraction Privilege and pursuant to
the Retraction Limit attaching to the Series A Shares, redeem or
purchase less than all the Series A Shares; or
d. except in connection with any retraction privilege attaching thereto
and provided a similar retraction privilege is extended or available
to the holders of the Series A Shares, redeem or purchase any shares
ranking on a parity with the Series A Shares.
<PAGE>
12
9. Notices
9.1 Any notice, required to be given under the provisions attaching to the
Series A Shares to the registered holders thereof shall be given by ordinary
unregistered mail, postage prepaid, addressed to each holder at the last address
of such holder as it appears on the books of the Corporation or, in the event of
the address of any such holder not so appearing, then to the address of such
holder last known to the Corporation; provided that accidental failure or
omission to give any notice as aforesaid to one or more of such holders shall
not invalidate any action or proceeding founded thereon. Any such notice shall
be deemed to have been given on the second business day after mailing.
10. Interpretation
10.1 In the event that any date on which any dividend on the Series A Shares is
payable by the Corporation, or on or by which any other action is required to be
taken by the Corporation hereunder, is not a business day (as hereinafter
defined), then such dividend shall be payable, or such other action shall be
required to be taken, on or by the next succeeding date that is a business day.
A "business day" shall be a day other than a Saturday, a Sunday or any other day
that is treated as a holiday in the Province in which the Corporation has its
principal office in Canada.
11. Amendments
11.1 The rights, restrictions, conditions and limitations attached to the Series
A Shares may be amended, modified, suspended, altered or repealed but only if
consented to, or approved by, the holders of the Series A Shares in the manner
hereinafter specified and in accordance with any requirements of the applicable
legislation and any amendments thereto from time to time.
12. Approval by Holders of Series A Shares
12.1. For the purposes of Sections 8 and 11, any consent or approval given by
the holders of Series A Shares shall be deemed to have been sufficiently given
if it shall have been given in writing by the holders of at least 66-2/3% of the
outstanding Series A Shares or by a resolution passed at a meeting of holders of
Series A Shares duly called and held upon not less than twenty-one (21) days
notice to the holders and carried by the affirmative vote of not less than
66-2/3% of the votes cast at such meeting. A quorum for the purposes of a
meeting of the holders of Series A Shares shall be the holders of twenty (20%)
percent of the outstanding Series A Shares being present in person or
represented by proxy. If at any such meeting of the holders of Series A Shares
called by the Corporation a quorum is not present within one-half hour after the
time appointed for such meeting then the meeting shall be adjourned to such date
not less than twenty-one (21) nor more than twenty-eight (28) days thereafter
and to such time and place as may be designated by the chairman, and not less
than ten (10) days' written notice shall be given of such adjourned meeting. At
such adjourned meeting the holders of Series A Shares present or represented by
proxy may transact the business for which the meeting was originally convened
and a resolution passed thereat by the affirmative vote of not less than 66-2/3%
of the votes cast at such meeting shall constitute the consent or approval of
the holders of Series A Shares. On every poll taken at every meeting every
holder of Series A Shares shall be entitled to one vote in respect of each
Series A Share held.
<PAGE>
13
13. Voting Rights
13.1 Except as required by law, the holders of the Series A Shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting.
13.2 When the holders of Series A Shares vote separately as holders of Preferred
Shares in accordance with Clause 12, each holder shall be entitled to one (1)
vote in respect of each Series A Share held by such holder.
14. Taxable Preferred Shares Election
14.1 The Corporation shall elect pursuant to proposed subsection 191.2(1) of the
Income Tax Act (Canada) (the "Tax Act"), or pursuant to any similar provision
enacted in substitution for that subsection (provided such substitution is not
detrimental to the Corporation compared to the proposed subsection) by filing
the form prescribed pursuant to proposed subsection 191.2(1) of the Tax Act (and
within the time period referred to in proposed subsection 191.2(1)) with the
Minister of National Revenue with respect to the Series A Shares.
<PAGE>
SCHEDULE "C" TO THE
ARTICLES OF AMALGAMATION OF TOMAHAWK CORPORATION
Designation of Series
Three series of Preferred Shares are designated by the Corporation as Class "A",
Series "I", Series "II", and Series "III" Preferred Shares, respectively, the
said Series of Preferred Shares being so designated pursuant to subsection 27(5)
of the Business Corporations Act and consisting of such number, and having the
rights, privileges, restrictions and conditions attaching thereto as follows:
1. Number
Each of the Class "A" Preferred Shares shall consist of an unlimited
number of such shares.
2. Dividends
Subject to the prior rights of the holders of any other Series of
Preferred Shares of the Corporation with respect to priority in the
payment of dividends, the holders of Class "A" Preferred Shares shall be
entitled to receive dividends, as and when declared by the Directors of
the Corporation out of assets properly applicable to the payment of
dividends, in such amount and in such form as the board of directors may
from time to time determine.
3. Priority on Liquidation
In the event of the dissolution or liquidation of the Corporation or a
sale of all of its assets, whether voluntary or involuntary, or in the
event of its insolvency, or upon any distribution of its capital, there
shall be paid to the holders of Class "A" Preferred Shares the amount paid
up thereon plus the amount of all unpaid dividends accrued thereon without
interest (in these Articles collectively called "the Redemption Amount")
before any sum shall be paid to or any assets distributed among the
holders of the Common shares. After such payment to the holders of the
Series "A" Preferred Shares, the remaining assets and funds of the
Corporation shall be divided among and paid to the holders of the Common
Shares in proportion to their holdings of such shares.
4. Conversion Right
a. For each $1.50 of Cumulative Cash Flow (as that term is hereinafter
defined) a share of Series I Preferred Shares is convertible into 10
common shares of the Corporation. Following the right of conversion
for all Series I preferred Shares, for each $2.00 of Cumulative Cash
Flow a share of the Series II preferred Shares is convertible into
10 common shares of the Corporation. Following the right of
conversion for all Series I and Series II Preferred Shares, for each
$2.50 of Cumulative Cash Flow a share of the Series III Preferred
Shares is convertible into 10 common shares of the Corporation.
<PAGE>
2
On a consolidation, subdivision, algamation or reclassification of
the Corporation's shares, the conversion calculation must be
adjusted so that the proportion of the outstanding Class "A"
Preferred Shares available for conversion is unaffected by the
consolidation, subdivision, amalgamation or reclassification.
The Class "A" Preferred Shares may be converted only once during the
Corporation's financial year. The conversion calculation must be
based on the Corporation's annual audited consolidated financial
statements for the year or years during which the conversion
requirements were met in respect of the Class "A" Preferred Shares
to be converted.
For the purposes of the above-referenced conversion formula, "Cash
Flow" means net income or loss after tax, generated from the
business of TomaHawk Imaging & Financial Inc. or any of its
subsidiaries as shown on the consolidated audited financial
statements or verified by the Corporation's auditors, adjusted to
add back the following expenses:
i. Depreciation,
ii. Depletion,
iii. Deferred taxes,
iv. Amortization of goodwill, and
v. Deferred research and development costs.
"Cumulative Cash Flow" means, at any time the aggregate Cash Flow of
the Corporation up to that time from a date no earlier than June 1,
1993, net of any negative Cash Flow.
b. A holder of Class "A" Preferred Shares who wishes to avail himself
of this right of conversion shall submit to the head office of the
Corporation a written notice indicating the number of each Class "A"
Preferred shares he wishes to convert. Certificates representing the
Class "A" Preferred Shares to be converted shall be attached to the
notice. Upon receipt of any such notice and the Certificates, the
Corporation shall consult its auditors to confirm the number of
Class "A" Preferred Shares which are at that time convertible, and
without charge issue ten (10) Common Shares for each Class "A"
Preferred Shares which is then requested to be converted or which
then is convertible having regard to the Cumulative Cash Flow of the
Corporation, whichever is less, and if only some of the Class "A"
Preferred Shares evidenced on the certificates are converted, the
Corporation shall without charge, issue a new certificate
representing the remaining Class "A" Preferred Shares.
c. Notwithstanding paragraph a., the Corporation may apply to The
Alberta Stock Exchange for earlier conversion of the Class "A"
Preferred Shares or amendment to the terms of conversion herein
stated.
<PAGE>
3
5. Transferability
Class "A" Preferred Shares may not be transferred except with the prior
approval of the directors, who may in their absolute discretion, refuse to
register the transfer of any said shares, such approval to be evidenced by
a resolution of the directors.
6. Cancellation
In the event that any of the Class "A" Series I Preferred Shares are not
eligible for conversion to Common Shares at the conclusion of the
Corporation's fiscal year beginning 1995, subject to the discretion of The
Alberta Stock Exchange, the ineligible Class "A" Series I Preferred Shares
shall be cancelled.
In the event that any of the Class "A" Series II Preferred Shares are not
eligible for conversion to Common Shares at the conclusion of the
Corporation's fiscal year beginning 1997, subject to the discretion of The
Alberta Stock Exchange, the Class "A" Series II Preferred Shares shall be
cancelled.
In the event that any of the Class "A" Series III Preferred Shares are not
eligible for conversion to Common Shares at the conclusion of the
Corporation's fiscal year beginning 1999, subject to the discretion of The
Alberta Stock Exchange, the Class "A" Series III Preferred Shares shall be
cancelled.
7. Other Provisions
In the event that TomaHawk Imaging & Financial Inc. or any of its
subsidiaries either becomes insolvent, is petitioned into bankruptcy,
takes legislative protection from its creditors or ceases to carry on its
business, then any Class "A" Preferred Shares which remain outstanding
must be surrendered to the Corporation for cancellation and the
Corporation and holders of such shares covenant to attend to their
cancellation immediately.
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
dated as of
August 1, 1998
by and between
TomaHawk II, Inc.
("Buyer")
and
Robin Hartley
("Seller")
<PAGE>
ARTICLE I PURCHASE AND SALE OF BUSINESS.................................6
SECTION 1.1 Purchase and Sale of Assets....................6
SECTION 1.2 Excluded Assets................................6
SECTION 1.3 Assumed and Excluded Liabilities and
Obligations .................................6
SECTION 1.4 Delivery of Purchased Assets...................7
SECTION 1.5 Payment of Certain Taxes.......................7
SECTION 1.6 [[Reserved]]...................................7
SECTION 1.7 Additional Agreements..........................7
ARTICLE II PURCHASE PRICE; PHYSICAL INVENTORY AND METHOD OF PAYMENT......7
SECTION 2.1 Aggregate Purchase Price.......................7
SECTION 2.2 Post-Closing Payment...........................8
SECTION 2.3 Allocation of Purchase Price...................8
ARTICLE III THE CLOSING AND TRANSFER OF BUSINESS..........................8
SECTION 3.1 Closing........................................8
SECTION 3.2 Manner of Conveyance...........................9
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................9
ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS...........................9
SECTION 5.1 Interim Conduct of the Business................9
SECTION 5.2 Regulatory Consents, Authorizations, etc......11
SECTION 5.3 Access........................................11
SECTION 5.4 Records and Documents.........................11
SECTION 5.5 Notice of Default.............................11
SECTION 5.6 No Inconsistent Action........................12
SECTION 5.7 Publicity.....................................12
SECTION 5.8 Additional Agreements.........................12
SECTION 5.9 Confidential Information......................12
SECTION 5.10 Non-competition and Non-interference..........13
SECTION 5.11 Relocation of the Business....................14
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.................14
SECTION 6.1 Accuracy of Warranties; Performance of
Covenants ..................................14
SECTION 6.2 Regulatory Consents, Authorizations, etc......15
SECTION 6.3 No Pending Action.............................15
SECTION 6.4 No Material Adverse Change....................15
SECTION 6.5 No Adverse Laws...............................15
SECTION 6.6 Force Majeure.................................15
SECTION 6.7 Third Party Consents..........................16
SECTION 6.8 [[Reserved]]..................................16
SECTION 6.9 Further Actions...............................16
SECTION 6.10 Certificates..................................16
i
<PAGE>
SECTION 6.11 Investigation.................................16
SECTION 6.12 Additional Agreements.........................16
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER................16
SECTION 7.1 Accuracy of Warranties; Performance of
Covenants ..................................17
SECTION 7.2 Regulatory Consents, Authorizations, etc......17
SECTION 7.3 No Pending Action.............................17
SECTION 7.4 No Material Adverse Change....................17
SECTION 7.5 No Adverse Laws...............................17
SECTION 7.6 Force Majeure.................................18
SECTION 7.7 Further Actions...............................18
SECTION 7.8 Certificate...................................18
SECTION 7.9 Additional Agreements.........................18
ARTICLE VIII EMPLOYEES....................................................18
ARTICLE IX SURVIVAL AND INDEMNIFICATION.................................18
SECTION 9.1 Survival......................................18
SECTION 9.2 Indemnification by Seller.....................19
SECTION 9.3 Indemnification by Buyer......................19
SECTION 9.4 Event of Breach and Adverse Consequences......19
SECTION 9.5 Certain Other Agreements......................19
SECTION 9.6 Notice and Demand, etc........................20
SECTION 9.7 Determination of Loss.........................21
ARTICLE X MISCELLANEOUS PROVISIONS.....................................21
SECTION 10.1 Brokers.......................................21
SECTION 10.2 Entire Understanding..........................21
SECTION 10.3 Waiver and Amendment..........................21
SECTION 10.4 Headings......................................21
SECTION 10.5 Counterparts..................................22
SECTION 10.6 Interpretation................................22
SECTION 10.7 Notices.......................................22
SECTION 10.8 Successors and Assigns........................23
SECTION 10.9 Attorneys' Fees...............................23
SECTION 10.10 Governing Law.................................23
SECTION 10.11 Construction..................................23
SECTION 10.12 Cooperation...................................23
SECTION 10.13 Expenses......................................24
SECTION 10.14 Representation by Counsel.....................24
SECTION 10.15 Binding Arbitration...........................24
ii
<PAGE>
EXHIBITS
EXHIBIT SUBJECT
1.1 Purchased Assets
1.2 Excluded Assets
1.7(i) Form of Consulting Agreement
1.7(ii) Form of Promissory Note
1.7(iii) Form of Security Agreement
1.7(iv) Form of Escrow Agreement
4 A Representations and Warranties of Seller
B. Representations and Warranties of Buyer
iii
<PAGE>
SCHEDULES
SCHEDULE SUBJECT
1.1 Purchased Assets
1.1(d) Fixed Assets, Physical Assets and Other Tangible Property
1.1(g) Assumed Equipment Leases
9 Financial Statements
11 Condition and Sufficiency of the Purchased Assets
13 Excluded Accounts Payable
14 Excluded Accounts Receivable
15 Undisclosed Liabilities
20(a) Assumed Contracts
20(b) Restrictions on Agents of the Company
20(c) Unenforceable Assumed Contracts
20(d) Lack of Compliance with Assumed Contracts
21(b) Insurance Arrangements
21(c) Insurance Policy History
22 Employees
24(a) Intellectual Property Assets
24(b) Assumed Contracts Related to Intellectual Property Assets
27 Related Party Agreements
32 Personal and Real Property Leases
iv
<PAGE>
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of August 1, 1998 (the "Effective Date") by and between TOMAHAWK II, INC., an
Illinois corporation ("Buyer"), and ROBIN HARTLEY, an individual resident of the
State of California ("Seller").
The parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF BUSINESS
SECTION 1.1 Purchase and Sale of Assets. On the basis of the
representations and warranties herein, and subject to the terms, conditions and
other provisions contained herein, Seller shall sell, transfer, assign and
deliver to Buyer, and Buyer shall purchase and accept from Seller on the Closing
Date (as defined herein) all right, title and interest in and to all of the
properties and the assets of Aerated Engineering Co., a sole proprietorship (the
"Company"), of every kind, nature and description, used in or relating to the
Business (as defined herein) wherever situated, and all the goodwill related
thereto, including, without limitation, the assets described as Purchased Assets
in Exhibit 1.1 as they relate to the Business (collectively, the "Purchased
Assets"); provided, however, that the Purchased Assets shall not include any
items defined as Excluded Assets in Section 1.2 hereof. The term "Business"
shall mean the manufacture, marketing and selling of precision machining, as
well as products, materials and supplies related to aerospace parts/component
design and manufacturing.
SECTION 1.2 Excluded Assets. The assets described as Excluded Assets in
Exhibit 1.2 shall not be sold, transferred, assigned or delivered to Buyer.
SECTION 1.3 Assumed and Excluded Liabilities and Obligations.
1.3.1 Buyer assumes and agrees to perform the Company's obligations
relating to the Business, to the extent arising on or after the Effective Date,
including, but not limited to (i) the Assumed Equipment Leases (as defined
herein), and (ii) the Assumed Contracts (as defined herein), all of which shall
be assumed and performed by Buyer as and to the extent set forth in Exhibit 1.1.
1.3.2 Except as provided in Section 1.3.1 above, it is expressly
understood and agreed that Buyer shall in no event be liable for, and is not
assuming or agreeing to pay or discharge, any debts, claims, damages,
obligations, liabilities or responsibilities of any kind or nature whatsoever of
the Company, Seller, the Business or any affiliated or related person or entity,
or for any claim against any of the foregoing, whether known or unknown,
contingent or absolute, direct or indirect, or otherwise, including, without
limiting the generality of the foregoing: (a) any liabilities or obligations
which are or should have been reflected on the Financial Statements (as defined
herein) delivered to Buyer; (b) any obligations relating to the revolving credit
line with Bank of America in the approximate, aggregate amount of One Hundred
Thousand Dollars ($100,000); or (c) any liabilities or obligations arising from
or relating to any employee benefit or pension plan (collectively, the "Excluded
Liabilities and
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Obligations"), all of which shall be retained by Seller. Seller agrees to pay
and discharge all of the Excluded Liabilities and Obligations in full as they
become due. Notwithstanding anything herein to the contrary, Buyer hereby agrees
that it shall be liable for, and obligated to perform and fulfill, the
obligations of the Business arising out of or resulting from Buyer's operations
of the Business from and after the Effective Date in accordance with Section 2.2
of this Agreement.
SECTION 1.4 Delivery of Purchased Assets. On the Closing Date, Seller
shall deliver the Purchased Assets to Buyer at the Facility (as defined herein).
SECTION 1.5 Payment of Certain Taxes. Any sales tax arising from or
relating to the Purchased Assets to be transferred hereunder shall be paid by
Seller; provided, however, that Buyer shall reimburse Seller, within ten (10)
days of Seller's delivery to Buyer of related evidence of payment reasonably
satisfactory to Buyer, for any such sales tax paid by Seller in excess of
Fifteen Thousand Dollars ($15,000).
SECTION 1.6 [[Reserved]].
SECTION 1.7 Additional Agreements. Concurrently herewith: (i) Buyer and
Seller shall execute and deliver the consulting agreement, substantially in the
form attached hereto as Exhibit 1.7(i) (the "Consulting Agreement"), which
agreement shall provide for, among other things, Buyer's engagement of Seller as
a consultant for the one-year period following the Closing Date for total
compensation of One Hundred Thousand Dollars ($100,000) to be paid monthly in
arrears; (ii) Buyer shall execute and deliver to Seller the promissory note
substantially in the form attached hereto as Exhibit 1.7(ii) (the "Promissory
Note"); and (iii) Buyer and Seller shall execute and deliver the security
agreement substantially in the form attached hereto as Exhibit 1.7(iii) (the
"Security Agreement"). In the event that the payment of the unpaid balance of
the principal under the Promissory Note is accelerated before the first
anniversary of the Closing Date pursuant to Section 7 of the Promissory Note, as
a condition to such acceleration, Buyer, Seller and Mission Valley Escrow, as
escrow agent, shall execute and deliver the escrow agreement substantially in
the form attached hereto as Exhibit 1.7(iv) (the "Escrow Agreement"), and Buyer
shall withhold an amount equal to One Hundred Twenty Thousand Dollars ($120,000)
from the unpaid principal balance of the Promissory Note and place such amount
in escrow pursuant to the terms and conditions of the Escrow Agreement.
ARTICLE II
PURCHASE PRICE; PHYSICAL INVENTORY AND METHOD OF PAYMENT
SECTION 2.1 Aggregate Purchase Price. The aggregate purchase price for all
of the Purchased Assets (the "Aggregate Purchase Price") shall be One Million
Five Hundred Thousand Dollars ($1,500,000). At the Closing (as defined herein),
Buyer shall: (a) pay to Seller an amount equal to Four Hundred Thousand Dollars
($400,000) in cash or by certified check or wire transfer; and (b) deliver to
Seller the Promissory Note in the aggregate principal amount of One Million One
Hundred Thousand Dollars ($1,100,000).
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SECTION 2.2 Post-Closing Payment. On or before the thirtieth (30th) day
following the Closing Date (the "Post-Closing Date"), the parties hereto shall
calculate the following post-closing adjustment (the "Post-Closing Payment"), in
the amount equal to: (a) the aggregate amount of cash and/or other consideration
paid by Seller, from the Effective Date through and including the Closing Date,
for reasonable operating expenses incurred in the ordinary course of the
Business consistent with past practice, less (b) the aggregate amount of cash
and/or other consideration received and retained by Seller, from the Effective
Date through and including the Closing Date, for sales made, services performed
and/or invoices billed by the Company from the Effective Date through and
including the Closing Date; provided, however, that the Post-Closing Payment
shall not include any collections relating to the Excluded Accounts Receivable
(as defined herein). In the event that the Post-Closing Payment is greater than
zero, Buyer shall pay to Seller the Post-Closing Payment within ten (10) days of
the Post-Closing Date. In the event that the Post-Closing Payment is less than
zero, Seller shall pay to Buyer the amount equal to the absolute value of the
Post-Closing Payment within ten (10) days of the Post-Closing Date.
On the Post-Closing Date, Seller shall deliver to Buyer an
itemized list, in form and substance reasonably satisfactory to Buyer, of the
cash and/or other consideration paid and/or collected by Seller pursuant to this
Section 2.2 (the "Pre-Closing Activity List").
SECTION 2.3 Allocation of Purchase Price. The Aggregate Purchase Price
reflects payment for the Purchased Assets. The total consideration to be paid by
Buyer for the Purchased Assets shall be mutually determined by the parties
hereto, which determination shall be made prior to September 15, 1998.
Except as provided in Section 9.7 hereof, Buyer and Seller
agree that each shall be bound by such determination and shall reflect such
allocation in any filing pursuant to Section 1060 of the Internal Revenue Code
and the regulations thereunder.
ARTICLE III
THE CLOSING AND TRANSFER OF BUSINESS
SECTION 3.1 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on August 20, 1998, or as soon as
practicable thereafter as all of the conditions to the Closing set forth in
Articles VI and VII hereof shall have been satisfied or waived (the "Closing
Date"); provided, however, that the Closing may be changed to (a) the latest
date which may from time to time be designated in writing by Buyer if, on the
Closing Date, there is any claim, action, suit or proceeding, at law or in
equity, or by or before any government or governmental instrumentality or
agency, threatened or pending against Seller, the Company or Buyer for the
purpose of enjoining or preventing the consummation of the transactions
contemplated by this Agreement, or otherwise claiming that this Agreement or the
consummation thereof, is improper, or which might materially affect the right of
Buyer to purchase the Purchased Assets or to operate the Business; or (b) any
other date mutually agreed upon in writing by Buyer and Seller. The Closing
shall take place at the offices of Baker &
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McKenzie, 101 West Broadway, Twelfth Floor, San Diego, California 92101. If for
any reason the Closing does not occur by October 31, 1998, either Seller or
Buyer may terminate this Agreement and all further obligations of the parties
hereunder shall terminate, except that if this Agreement is so terminated by one
party because one or more of the conditions to such party's obligations
hereunder is not satisfied as a result of such party's failure to comply with
its obligations under this Agreement, and no condition precedent hereunder
excuses such performance, it is expressly agreed and understood that the
non-breaching party's right to pursue all legal rights and remedies for breach
of contract or otherwise, including, without limitation, damages relating
thereto, shall survive such termination unimpaired.
SECTION 3.2 Manner of Conveyance. The sale and purchase of the Purchased
Assets shall be consummated at the Closing by good and sufficient bills of sale
and by individual assignments, as necessary, in form and substance satisfactory
to Buyer, in each case, with such other appropriate instruments of title,
consents of third parties, estoppel certificates and other instruments and
documents as Buyer shall reasonably request. At the Closing, Seller shall
transfer to Buyer good and marketable title to each of the Purchased Assets,
free and clear of all liens, claims, mortgages, charges, commission
arrangements, title retention agreements, covenants, restrictions, options,
purchase agreements, security agreements, security interests, encumbrances and
adverse interests of any kind or nature whatsoever, other than those contained
in the schedules hereto or disclosed to Buyer in writing and approved by Buyer
in writing (each, an "Adverse Interest"). At any time and from time to time
after the Closing Date, the parties shall duly execute, acknowledge and deliver
all such further assignments, conveyances, instruments and documents, and will
take such other action consistent with the terms of this Agreement, in each
case, as may be reasonably necessary to assign, transfer and convey to Buyer
good and marketable title to any and all of the Purchased Assets, free and clear
of all Adverse Interests, to carry out the transactions contemplated by this
Agreement, and to comply with the terms hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Seller represents and warrants to, and agrees with, Buyer, its successors
and assigns, as of the Effective Date and as of the Closing Date, as set forth
in Section A of Exhibit 4. Buyer represents and warrants to, and agrees with
Seller, its successors and assigns, as of the Effective Date and as of the
Closing Date, as set forth in Section B of Exhibit 4.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 5.1 Interim Conduct of the Business. At all times during the
period from the Effective Date through the Closing Date:
5.1.1 Operations in the Ordinary Course of Business. Except for actions
required by this Agreement, Seller agrees that he has caused and will cause the
Business and the
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operations of the Company to be conducted only in the lawful, ordinary and usual
course of business and neither Seller nor the Company shall take any action
inconsistent therewith or engage in any transaction other than in the ordinary
and usual course of business as heretofore conducted; and, subject to the
foregoing, Seller covenants and agrees to preserve, protect and maintain the
Purchased Assets and the Business and to preserve intact the Company's business
organization and to keep available the services of its officers and employees.
Seller further covenants and agrees to maintain in full force and effect until
the Closing Date a policy or policies of insurance on the Purchased Assets that
provide a scope and amount of coverage that are usual and customary and
consistent with past practices in the Company's Business. Seller shall confer
with representatives of Buyer to keep it informed with respect to operational
matters of a material nature. Matters which are material in nature are those
described in Section 5.1.2 below. Further, Seller shall report the general
status of the ongoing operations of the Business of the Company upon Buyer's
reasonable request.
5.1.2 Forbearances by Seller. Notwithstanding Section 5.1.1 hereof,
and without limiting the generality of Section 5.1.1, Seller represents and
warrants that neither Seller nor the Company has, and covenants and agrees that
neither Seller nor the Company will, in connection with or in respect of the
Business or any of the Purchased Assets without the prior written consent of
Buyer:
(a) directly or indirectly, solicit or initiate discussions or
engage in negotiations with, or provide any information to, or authorize any
financial advisor or other person to solicit or initiate discussions or engage
in negotiations with, or provide any such information to, any corporation,
partnership, person or other entity or group (other than Buyer) concerning any
possible proposal regarding a merger, consolidation, sale of assets or other
similar transaction involving the Company, or any division or asset of the
Company;
(b) mortgage, pledge or otherwise encumber any of the
Purchased Assets;
(c) sell, lease, transfer or dispose of or enter into any
agreement to dispose of any of the Purchased Assets except in the ordinary
course of business consistent with past practice;
(d) waive or release any rights of material value, or cancel,
compromise, release or assign any indebtedness owed to the Company or any claims
held by the Company;
(e) enter into any contract, agreement, commitment, obligation
or transaction of or for the Business in an amount exceeding, individually or in
the aggregate, Fifty Thousand Dollars ($50,000), without the express prior
written consent of Buyer;
(f) amend, modify, terminate or cancel any contract,
agreement, commitment, obligation or transaction of or for the Business other
than in the ordinary and lawful course of business as heretofore conducted;
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(g) enter into any collective bargaining agreements;
(h) increase in any manner the salary and bonus compensation
or fringe benefits payable to any of its officers or employees, except for merit
raises in the ordinary course of business consistent with past practice; or pay
or agree to pay any pension or retirement allowance not required by any existing
employment agreement or employment plan to any such officers or employees; or
commit itself to any employment agreement or employment plan with or for the
benefit of any officer or employee; or alter, amend or terminate, in whole or in
part, any employee pension or other benefit plan;
(i) release or waive any claim or right without receiving fair
consideration;
(j) enter into any employment agreement or arrangement with
officers or employees, except in the ordinary course of business consistent with
past practice, in which annual compensation (including base salary, cash bonuses
and commissions) exceeds in the aggregate Thirty Thousand Dollars ($30,000); or
(k) agree or commit to do any of the things described in
clauses (a) through (j) of this Section 5.1.2.
SECTION 5.2 Regulatory Consents, Authorizations, etc. Each of the parties
hereto will use its best efforts to obtain all consents, authorizations, orders
and approvals of, and make all filings and registrations with, any governmental
commission, board or other regulatory body or any other person required for or
in connection with the consummation by it of the transactions contemplated on
its part hereby and will cooperate fully with the other party in assisting it to
obtain such consents, authorizations, orders and approvals and to make such
filings and registrations. No party hereto will take or omit to take any action
for the purpose of delaying, impairing or impeding the receipt of any required
consent, authorization, order or approval or the making of any required filing
or registration.
SECTION 5.3 Access. Prior to the Closing, Buyer may make or cause to be
made, at Buyer's sole cost and expense, such reasonable investigation of the
Business, properties and assets of the Company and its financial and legal
condition as Buyer deems necessary or advisable to familiarize itself therewith.
From the date hereof through the Closing Date, Seller and the Company shall give
to Buyer and its authorized representatives, or cause them to be permitted,
during normal business hours and upon reasonable notice, full access to all
officers, employees, properties, customer lists, books, contracts, leases,
commitments and records of the Company and the Business; and during this period,
Seller shall furnish Buyer and its authorized representatives with all financial
and operating data and other information as to the Business, properties and
assets of the Company as Buyer may from time to time reasonably request;
provided, however, that such investigation shall not interfere with the conduct
of the Business and shall not limit any of the representations and warranties of
Seller hereunder.
SECTION 5.4 Records and Documents. For three (3) years, except with
respect to tax matters which rights granted pursuant to this section shall
continue until the applicable
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statute of limitation expires, following the Closing Date, Seller shall grant to
Buyer and its representatives, at their reasonable request, access to and the
right to make copies, at Buyer's expense, of all records of the Company that
relate to the Business as may be necessary, useful, desirable or appropriate in
connection with Buyer's operation of the Business after the Closing.
SECTION 5.5 Notice of Default. Seller shall give prompt notice to Buyer of
any notice of default received prior to the Closing Date under any instrument to
which Seller or the Company is a party or by which Seller or the Company is or
may be bound, and of the assertion of any claim which, if upheld, would render
wrong, incomplete or inaccurate any representation of Seller contained herein.
SECTION 5.6 No Inconsistent Action. Each of the parties hereto will use
its best efforts to consummate the transactions contemplated by this Agreement
and shall not take any action inconsistent with its obligations hereunder or
which could hinder or delay the consummation of the transactions contemplated
hereby.
SECTION 5.7 Publicity. Each party hereto agrees not to issue any press
release or otherwise make any public statement in any general circulation medium
with respect to the transactions contemplated by this Agreement, without the
prior consent, which shall not be unreasonably withheld, of the other party.
SECTION 5.8 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use its best efforts to effect
the transactions contemplated by this Agreement, as soon as practicable,
including the execution and delivery of all instruments and other documents, and
shall take or cause to be taken such further actions necessary, proper or
desirable to carry out the intent and purposes of, and consummate the
transactions contemplated by, this Agreement. No party will take or knowingly
permit to be taken any action or do or knowingly permit to be done anything in
the conduct of its business, or otherwise, which would be contrary to or in
breach of any of the terms or provisions of this Agreement, or which would cause
any of the representations or warranties contained herein to become untrue or
incomplete.
SECTION 5.9 Confidential Information. Buyer acknowledges and agrees that
Seller is hereby agreeing to make available to Buyer, in the course of its
investigation of the Business, certain information, some of which may constitute
trade secrets of the Company. Such trade secret information includes, without
limitation, information related to customers, including customer lists, the
identities of existing, past or prospective customers, prices charged or
proposed to be charged to customers, the quantity and quality of customer mail,
customer contacts, special customer requirements and all related information,
marketing techniques, compilations of information, copyrightable material and
technical information relating to the Business (collectively the "Confidential
Information"). The Confidential Information does not include information which
(i) was already in Buyer's possession prior to July 2, 1998 (the date on which
negotiations between the parties commenced with respect to this transaction (the
"Start Date")), provided that such information is not known by Buyer to be
subject to another confidentiality agreement with or other obligation of secrecy
to Seller, the Company or another
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party, or (ii) becomes, or since the Start Date has become, generally available
to the public other than as a result of a disclosure by Buyer or its agents or
(iii) becomes, or since the Start Date has become, available to Buyer on a
non-confidential basis from a source other than Seller, the Company or its
advisors, provided that such source is not known by Buyer to be bound by a
confidentiality agreement with or other obligation of secrecy to Seller, the
Company or another party. As a condition to providing Buyer with any such
information, Buyer represents, warrants, and covenants to Seller, on behalf of
Buyer and its authorized representatives that:
5.9.1 Any and all Confidential Information, including, without
limitation, Confidential Information with respect to the Company's financial
affairs, the Company's willingness to consider a business or asset sale, and any
and all other Confidential Information relating to the Company, is given to
Buyer and/or Buyer's authorized representatives in strictest confidence and
includes confidential business information and trade secrets of the Company.
Buyer acknowledges that the disclosure of any of such information to anyone but
Buyer or Buyer's authorized representatives (as needed only) could be harmful to
and could cause damage to the Company.
5.9.2 All Confidential Information relating to the Company provided
to Buyer or Buyer's authorized representatives, by any source whatsoever, will
be kept in strict confidence, will not be disclosed to any persons or entities
except Buyer and/or Buyer's authorized representatives, and all necessary
precautions will be taken to preclude the disclosure of such information to any
persons or entities except Buyer and/or Buyer's authorized representatives.
5.9.3 Any Confidential Information concerning the Company provided
to Buyer and or Buyer's authorized representatives, from any source whatsoever,
will not be used to compete, directly or indirectly with the Company or to
engage in the same business as the Company whether or not in direct or indirect
competition with the Company. Such information will be used solely for the
purpose of determining whether to acquire the Purchased Assets and for no other
purpose.
5.9.4 If the transactions contemplated by this Agreement are not
consummated, Buyer will return to Seller, upon Seller's request, all documents
or other materials, of any kind whatsoever, obtained by Buyer or Buyer's agents
concerning the Company, as well as all summaries, reports, financial statements,
documents, recordings, and any reproductions thereof.
SECTION 5.10 Non-competition and Non-interference.
5.10.1 Seller acknowledges that: (a) Buyer's business is national in
scope and its products are marketed throughout the United States of America,
including the State of California; (b) Buyer competes with other businesses that
are or could be located in any part of the United States of America, including
the State of California; and (c) the provisions of this Section 5.10 are
reasonable and necessary to protect Buyer's business.
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5.10.2 As an inducement for Buyer to enter into this Agreement,
Seller agrees that for a period of two (2) years from the Closing Date (the
"Noncompetition Period"), Seller shall not, directly or indirectly:
(a) during the Noncompetition Period, engage or invest in,
own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing or control of, be employed by, associated with,
or in any manner connected with, lend Seller's or the Company's name or any
similar name to, lend Seller's or the Company's credit to, or render services or
advice to, any business whose products or activities compete in whole or in part
with the products or activities (a) sold or engaged in, respectively, by Buyer,
anywhere within the State of California where the Company is doing business or
marketing its services in the areas of precision machining and aerospace
part/component design and manufacturing.
(b) either for himself or any other person, at any time during
the Noncompetition Period: (i) induce or attempt to induce any employee of Buyer
to leave the employ of Buyer; (ii) in any way interfere with the relationship
between Buyer and any of its employees; (iii) employ, or otherwise engage as an
employee, independent contractor, or otherwise, any employee of Buyer; or (iv)
induce or attempt to induce any customer, supplier, licensee, or business
relation of Buyer to cease doing business with Buyer, or in any way interfere
with the relationship between any customer, supplier, licensee or business
relation of Buyer;
(c) either for himself or any other Person, at any time during
the Noncompetition Period, solicit the business of any Person known to Seller to
be a customer of Buyer, whether or not Seller had personal contact with such
Person, with respect to products or activities which compete in whole or in part
with the products or activities of Buyer;
5.10.3 If any covenant in this Section 5.10 is held to be
unreasonable, arbitrary or against public policy, such covenant will be
considered to be divisible with respect to scope, time and geographic area, and
such lesser scope, time or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary and not
against public policy, will be effective, binding and enforceable against
Seller.
5.10.4 The period of time applicable to any covenant in this Section
5.10 will be extended by the duration of any violation by Seller of such
covenant.
SECTION 5.11 Relocation of the Business. Buyer shall: (a) reserve the
right, in its sole discretion, to relocate the Business and the Purchased Assets
situated at the Facility (as defined herein) at Buyer's sole cost and expense
(the "Relocation"); and (b) have no obligation to continue any lease or other
obligation relating to the Facility upon the Relocation.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
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Unless, at the Closing Date, each of the following conditions is either
satisfied or waived by Buyer in writing, Buyer shall not be obligated to
purchase the Purchased Assets and shall not otherwise be obligated to consummate
or effect this Agreement, or any of the other transactions contemplated by this
Agreement. Buyer shall have the right to waive in writing any or all of the
foregoing conditions precedent to the obligations of Buyer; provided, however,
that no waiver by Buyer of any conditions precedent to the obligations of Buyer
shall constitute a waiver by Buyer of any other condition precedent.
SECTION 6.1 Accuracy of Warranties; Performance of Covenants. The
representations and warranties of Seller contained or incorporated herein shall
be true, accurate and correct on the date hereof and shall also be true,
accurate and correct in all material respects on and as of the Closing Date with
the same effect as if such representations and warranties had been made on and
as of the Closing Date, and Seller and the Company shall have performed each and
every obligation and complied with each and every agreement and covenant
required by this Agreement to be performed or complied with on his, its or their
part on or prior to the date hereof and the Closing Date, as the case may be.
Each of the documents required to be delivered by Seller and the Company to
Buyer hereunder shall be in form and substance reasonably satisfactory to Buyer.
SECTION 6.2 Regulatory Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations with, any
governmental commission, board or other regulatory body which are required in
connection with the execution and delivery of this Agreement and the
consummation by each party hereto of the transactions contemplated on its part
hereby, shall have been obtained or made, other than consents, authorizations,
orders, approvals, filings and registrations as to which the failure to obtain
or make will not, after the Closing Date, (a) materially and adversely affect
the Business, assets, properties, operations, prospects or the condition,
financial or otherwise, or the results of operations of the Company, (b) limit
the right of Buyer to own each of the Purchased Assets or conduct any material
aspect of the Business, or (c) subject Buyer, any of its subsidiaries or any of
its or their respective directors, officers or employees to liability on the
ground that he, it or they have breached any law or regulation or have otherwise
acted improperly in relation to the transactions contemplated by this Agreement.
SECTION 6.3 No Pending Action. No (a) claim, investigation, action, suit,
proceeding or litigation, either administrative or judicial, at law or in
equity, by any governmental or regulatory commission, agency or other body or
authority or by any other person, firm, corporation or other entity shall have
been instituted, or to Seller's knowledge, threatened or pending on the Closing
Date (i) for the purposes of challenging, prohibiting, operating, enjoining,
restricting or delaying the consummation of this Agreement or any of the
transactions contemplated by this Agreement, or any of the conditions to the
consummation of the transactions contemplated by this Agreement, (ii) which
claims damages against Buyer or Seller or the Company as a result of the
consummation of the transactions contemplated hereby or otherwise claims that
this Agreement or the consummation thereof is improper, or (iii) which in the
reasonable opinion of Buyer, could adversely affect the right of Buyer to retain
the Purchased Assets or to conduct any material aspect of the Business of the
Company after the
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Closing Date, or the ability of Seller and the Company to consummate the
transactions contemplated hereby, and (b) injunction or restraining order shall
be in effect prohibiting the transactions contemplated by this Agreement.
SECTION 6.4 No Material Adverse Change. There shall have been no material
and adverse change in the Company, the Business or the Purchased Assets.
SECTION 6.5 No Adverse Laws. There shall not have been enacted by any
foreign, federal, state or local governmental agency, body or entity, any
statute, ordinance or regulation which has a material and adverse effect upon
the Company, the Business or the Purchased Assets.
SECTION 6.6 Force Majeure. All or any material part of the Purchased
Assets shall not have been materially and adversely affected in any way by any
act of God, fire, flood, war, legislation (proposed or enacted) or other event
or occurrence, whether or not covered by insurance.
SECTION 6.7 Third Party Consents.
6.7.1 All consents of third parties, including, without limitation,
lenders and lessors of each of the parties hereto, which are required for the
consummation of the transactions contemplated hereby, shall have been obtained
in writing on terms and conditions and in form and substance reasonably
satisfactory to Buyer.
6.7.2 Buyer shall also be reasonably satisfied that no material
adverse change in the relationship with trade vendors to the Business will arise
after the Closing Date as a result of the transactions contemplated by this
Agreement and related agreements. This condition shall cease to be a condition
precedent to Buyer's performance sixty (60) calendar days after the Effective
Date.
SECTION 6.8 [[Reserved]].
SECTION 6.9 Further Actions. All proceedings to be taken in connection
with the consummation of the transactions contemplated by this Agreement, and
all certificates, documents and instruments incidental thereto, shall be
satisfactory in form and substance to Buyer, and Buyer shall have received
copies of such documents and instruments as Buyer and its counsel may reasonably
request in connection with such transactions.
SECTION 6.10 Certificates. Prior to the Closing Date, Buyer shall have
received from Seller a certificate dated the Closing Date and signed by Seller
certifying that nothing has come to the attention of Seller which has led him to
believe that the conditions set forth in Sections 6.1 through 6.8 hereof have
not been satisfied.
SECTION 6.11 Investigation. The Business, properties, assets, financial
and legal condition, balance sheets, statements of operations and earnings,
books, contracts, agreements, leases, commitments, financial and operating data,
records, documents and files of the Company,
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and other information and documents furnished to or obtained by Buyer pursuant
to Section 5.3 hereof or otherwise, shall be reasonably satisfactory to Buyer.
This condition shall cease to be a condition precedent to Buyer's performance
thirty (30) days after the Effective Date.
SECTION 6.12 Additional Agreements. Seller shall have delivered to Buyer
executed copies of the Consulting Agreement and the Security Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
Unless, at the Closing, each of the following conditions is either
satisfied, or waived by Seller in writing, Seller shall not be obligated to sell
the Purchased Assets and shall not be otherwise obligated to effect the
transactions contemplated by this Agreement. Seller shall have the right to
waive in writing any or all of the foregoing conditions precedent to the
obligations of Seller; provided, however, that no waiver by Seller of any
conditions precedent to the obligations of Seller shall constitute a waiver by
seller of any other condition precedent.
SECTION 7.1 Accuracy of Warranties; Performance of Covenants. The
representations and warranties of Buyer contained or incorporated herein shall
be true, accurate and correct in all material respects, on and as of the Closing
Date with the same force and effect as if such representations and warranties
had been made on and as of the Closing Date, and Buyer shall have performed each
and every obligation and complied with each and every covenant required by this
Agreement to be performed or complied with on its part on or prior to the
Closing Date. Each of the documents required to be delivered by Buyer to Seller
hereunder shall be in form and substance reasonably satisfactory to Seller.
SECTION 7.2 Regulatory Consents, Authorizations, etc. All consents,
authorizations, orders and approvals of, and filings and registrations with, any
governmental commission, board or other regulatory body which are required in
connection with the execution and delivery of this Agreement and the
consummation by each party hereto of the transactions contemplated on its part
hereby, shall have been obtained or made, other than consents, authorizations,
orders, approvals, filings and registrations as to which the failure to obtain
or make will not, after the Closing Date, (a) materially and adversely affect
the Business, assets, properties, operations, prospects or the condition,
financial or otherwise, or the results of operations of the Company, (b) limit
the right of Buyer to own each of the Purchased Assets or conduct any material
aspect of the Business, or (c) subject Buyer, any of its subsidiaries or any of
its or their respective directors or officers to liability on the ground that
he, it or they have breached any law or regulation or have otherwise acted
improperly in relation to the transactions contemplated by this Agreement.
SECTION 7.3 No Pending Action. No (a) claim, investigation, action, suit,
proceeding or litigation, either administrative or judicial, at law or in
equity, by any governmental or regulatory commission, agency or other body or
authority or by any other person, firm, corporation or other entity shall have
been instituted, or to the best knowledge of Buyer, threatened or pending on the
Closing Date (i) for the purposes of challenging, prohibiting,
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operating, enjoining, restricting or delaying the consummation of this Agreement
or any of the transactions contemplated by this Agreement, or any of the
conditions to the consummation of the transactions contemplated by this
Agreement, (ii) which claims damages against Buyer or Seller or the Company as a
result of the consummation of the transactions contemplated hereby or otherwise
claims that this Agreement or the consummation thereof is improper, or (iii)
which, in Seller's reasonable opinion, could materially and adversely affect the
ability of Buyer to make the payments under the Promissory Note, and (b)
injunction or restraining order shall be in effect prohibiting the transactions
contemplated by this Agreement.
SECTION 7.4 No Material Adverse Change. There shall have been no material
and adverse change in Buyer's business.
SECTION 7.5 No Adverse Laws. There shall not have been enacted by any
foreign, federal, state or local governmental agency, body or entity, any
statute, ordinance or regulation which has had a material and adverse effect
upon Buyer's business.
SECTION 7.6 Force Majeure. All or any material part of Buyer's business
shall not have been materially and adversely affected in any way by any act of
God, fire, flood, war, legislation (proposed or enacted) or other event or
occurrence, whether or not covered by insurance.
SECTION 7.7 Further Actions. All proceedings to be taken by Buyer in
connection with the consummation of the transactions contemplated by this
Agreement, and all certificates, documents and instruments incidental thereto,
shall be reasonably satisfactory in form and substance to Seller, and Seller
shall have received copies of such documents and instruments as Seller and its
counsel may reasonably request in connection with such transactions.
SECTION 7.8 Certificate. Prior to the Closing Date, Seller shall have
received from Buyer a certificate dated the Closing Date and signed by Buyer
certifying that the conditions set forth in Sections 7.1 to 7.7 have been
fulfilled.
SECTION 7.9 Additional Agreements. Buyer shall have delivered to Seller
executed copies of the Consulting Agreement, the Promissory Note and the
Security Agreement.
ARTICLE VIII
EMPLOYEES
Except pursuant to the Assumed Contracts set forth in Exhibit 1.1, Buyer
shall not be obligated in any way to offer employment to any employee of the
Company and Buyer will not be responsible or liable in connection with any
employment arrangements (whether written or oral) with employees of the Company,
or for any salaries, severance pay, vacation accruals or other benefits owed or
payable to any employees of the Company; provided, however, that Buyer shall be
responsible for any salaries, severance pay, vacation accruals or other benefits
owed or
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payable to former employees of the Company employed by Buyer after the
Closing Date, to the extent such payments relate to periods as of and after the
Closing Date.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.1 Survival. Each of the representations, warranties, covenants
and agreements of Seller contained in this Agreement (including those made in
the exhibits and schedules hereto) shall be deemed renewed by Seller at the
Closing Date as if made at such time and shall survive the Closing and shall be
fully effective and enforceable until the first anniversary of the Closing Date,
except with respect to: (i) the representations and warranties contained in the
first sentence of Section A(8) of Exhibit 4, which shall survive the Closing in
perpetuity; and (ii) the representations and warranties contained in Section
A(17) of Exhibit 4, which shall survive the Closing until the expiration of the
applicable statute of limitations period; provided, however, that none of such
representations, warranties, covenants and agreements shall be limited with
respect to time in the event that Seller has acted fraudulently in connection
with, or intentionally breached, any of such representations, warranties,
covenants and agreements.
SECTION 9.2 Indemnification by Seller. Seller hereby agrees to indemnify
and hold harmless Buyer and every subsidiary, affiliate, officer, director,
shareholder, employee or agent of Buyer and the successors and assigns of each
of them (collectively, "Buyer's Representatives"), from any and all Adverse
Consequences (as defined herein) arising out of or relating to an Event of
Breach (as defined herein) or any of the Excluded Liabilities and Obligations.
Seller shall not be obligated to indemnify or hold Buyer or Buyer's
Representatives harmless against any Adverse Consequences which it or they may
suffer as a result of its or their gross negligence or willful misconduct on or
after the discovery of any such Event of Breach.
SECTION 9.3 Indemnification by Buyer. Buyer hereby agrees to indemnify and
hold harmless Seller and its affiliates or agents and the successors and assigns
of each of them (collectively, "Seller's Representatives"), from any and all
Adverse Consequences arising out of or relating to an Event of Breach or from
the Assumed Equipment Leases, the Assumed Contracts, or the Assumed Payables.
Buyer shall not be obligated to indemnify or hold Seller or Seller's
Representatives harmless against any Adverse Consequences which it or they may
suffer as a result of its or their gross negligence or willful misconduct on or
after the discovery of any such Event of Breach.
SECTION 9.4 Event of Breach and Adverse Consequences.
9.4.1 As used herein, an "Event of Breach" shall mean any one or
more of the following: (i) any material untruth, inaccuracy or misrepresentation
in or material breach of any of the representations, warranties, covenants or
agreements made by the party making such representation, warranty, covenant or
agreement; (ii) any material failure of a party to perform or observe any term,
provision, covenant, obligation, agreement or condition on the part of that
party to be performed or observed under this Agreement; and (iii) any
misrepresentation of a party in, or omission from, any statement, certificate,
schedule, exhibit or other document
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prepared or furnished by that party pursuant to this Agreement. In addition,
"Event of Breach" shall also mean as to Seller or the Company, (a) any failure
by Seller or the Company to fully perform and discharge the obligations,
including, without limitation, the Excluded Liabilities and Obligations, of the
Business arising prior to the Closing Date, and (b) claims or liabilities of any
kind or nature which arise out of, result from or are related to the operations,
ownership, conduct, activities or failure to act of Seller, the Company or their
respective affiliates, or the Business or the Purchased Assets, including,
without limitation, liabilities related to actual, potential or inchoate
security interests, liens, claims or encumbrances involving any of the Purchased
Assets, prior to, on or after the Closing Date which, individually or in the
aggregate, have had or could have a material adverse effect on the Company, the
Business or the Purchased Assets.
9.4.2 "Adverse Consequences" are all charges, complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all attorneys' fees and court costs.
SECTION 9.5 Certain Other Agreements. Notwithstanding anything herein to
the contrary, the party who has suffered losses due to Adverse Consequences
shall not enforce the indemnification obligations contained herein until the
aggregate amount for which it has suffered losses due to Adverse Consequences
hereunder exceeds Forty-Five Thousand Dollars ($45,000) (the "Threshold
Amount"); provided, however, that such party shall be indemnified for the full
amount of its loss thereafter without giving effect to the Threshold Amount. To
the extent, and only to the extent, required by law, each indemnified party
hereunder will use commercially reasonable efforts to mitigate Adverse
Consequences resulting from, arising out of, or caused by an Event of Breach;
provided, however, that nothing herein shall impose, create, supplement, reduce,
change or affect in any way any burden of proof, burden of persuasion or any
other procedural or substantive requirement or law in the prosecution of its
rights hereunder.
Notwithstanding the foregoing, unless and to the extent that any losses
due to Adverse Consequences result from or arise out of fraud, a violation of
any representation or warranty contained in the first sentence of Section A(8)
of Exhibit 4, or any intentional breach of any representation or warranty or
agreement contained herein, the indemnity obligations of Seller will not exceed
Five Hundred Thousand Dollars ($500,000). In the event and to the extent that
the indemnity obligations of Seller or Buyer result from or arise out of fraud
or any intentional breach of any representation or warranty or agreement
contained in this Agreement, no such limitation on indemnity obligations shall
apply.
SECTION 9.6 Notice and Demand, etc.
9.6.1 Each indemnified party hereunder agrees that, upon its
obtaining actual knowledge of facts indicating that there may be an Event of
Breach giving rise to a colorable claim for indemnity by an unidentified party
under the provisions hereof, it will give prompt notice thereof in writing to
the indemnifying party. If an Event of Breach occurs, the
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indemnifying party shall indemnify the indemnified party from and against the
Adverse Consequences the indemnified party suffers, subject to the limitations
set forth in this Article IX.
9.6.2 If any third party shall notify any party (the "Indemnified
Party") with respect to any Event of Breach which may give rise to a colorable
claim for indemnification against the other party (the "Indemnifying Party"),
then the Indemnified Party shall notify the Indemnifying Party within 60 days
after receiving any written notice from a third party. Once the Indemnified
Party has given notice of the matter to the Indemnifying Party, the Indemnified
Party may defend against the matter in any reasonable manner it may deem
appropriate at the Indemnifying Party's sole cost and expense. However, in the
event the Indemnifying Party notifies the Indemnified Party, at any time after
the Indemnified Party has given notice of the matter, that the Indemnifying
Party is assuming the defense thereof, (i) the Indemnifying Party will defend
the Indemnified Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party, (ii) the Indemnified Party may retain
separate co-counsel at its sole cost and expense, (iii) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Indemnifying Party (not
to be withheld unreasonably) and (iv) the Indemnifying Party will not consent to
the entry of any judgment with respect to the matter, or enter into any
settlement which does not include a provision whereby the plaintiff or claimant
in the matter releases the Indemnified Party from all liability with respect
thereto, without the written consent of the Indemnified Party not to be withheld
unreasonably.
9.6.3 Disputed issues regarding (i) whether or not an Event of
Breach has occurred, (ii) the scope or amount of Adverse Consequences, or (iii)
whether a party has performed duties reasonably, shall be resolved by
arbitration hereunder as provided in Section 10.15 hereof. In addition, the
parties hereto acknowledge and agree that any claim or dispute under this
Article IX existing or pending as of August 20, 1999 shall be submitted to
arbitration pursuant to Section 10.15 of this Agreement on or before September
4, 1999, otherwise such Claim or dispute shall be terminated.
SECTION 9.7 Determination of Loss. The parties hereto shall make
appropriate adjustments for tax benefits and insurance proceeds (reasonably
certain of receipt and utility in each case) and for the time cost of money
(using the applicable federal rate as the discount rate) in determining the
amount of Adverse Consequences for purposes of this Article. All indemnification
payments under this Article shall be deemed adjustments to the Aggregate
Purchase Price.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Brokers. Buyer, on the one hand, and Seller, on the other,
represent and warrant to each other that no broker, investment banker or finder
is entitled to any financial advisory fee brokerage fee or finder's fee or other
similar payment with respect to (i) this Agreement or (ii) the transactions
contemplated hereby. Buyer, on the one hand, and Seller,
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on the other, each agrees to indemnify, defend and hold each other harmless
against and in respect of all claims, losses, liabilities and expenses which may
be asserted against one of the parties hereto by any broker or other person who
claims to be entitled to a broker's, finder's or similar fee or commission in
respect of the execution of this Agreement, or the consummation of the
transactions contemplated hereby, by reason of his acting at the request of the
other.
SECTION 10.2 Entire Understanding. This Agreement (including the exhibits
and schedules hereto, each of which is incorporated herein and made a part of
this Agreement) and the other agreements and instruments, the execution and
delivery of which are provided for herein, constitutes the entire agreement and
understanding of the parties hereto and terminates and supersedes any and all
prior agreements, arrangements and understandings, both oral and written,
between the parties hereto concerning the subject matter of this Agreement.
SECTION 10.3 Waiver and Amendment. No waiver, amendment, modification or
change of any provision of this Agreement shall be effective unless and until
made in writing and signed by all of the parties hereto. No waiver, forbearance
or failure by any party of its right to enforce any provision of this Agreement
shall constitute a waiver or estoppel of such party's right to enforce any other
provision of this Agreement or a continuing waiver by such party of compliance
with any provision.
SECTION 10.4 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof.
SECTION 10.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be original, but all of which
together shall constitute one and the same instrument.
SECTION 10.6 Interpretation. The provisions of this Agreement are intended
to be interpreted and construed in a manner so as to make such provisions valid,
binding and enforceable. In the event that any provision of this Agreement is
determined to be partially or wholly invalid, illegal or unenforceable, then
such provision shall be deemed to be modified or restricted to the extent
necessary to make such provision valid, binding and enforceable, or, if such
provision cannot be modified or restricted in a manner so as to make such
provision valid, binding and enforceable, then such provision shall be deemed to
be excised from this Agreement and the validity, binding effect and
enforceability of the remaining provisions of this Agreement shall not be
affected or impaired in any manner. Nothing in this Agreement shall be
interpreted or construed as creating, expressly or by implication, a
partnership, joint venture, agency relationship or employment relationship
between the parties hereto or any of their respective officers, directors,
agents, employees or representatives.
SECTION 10.7 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered: three (3) business days after having been mailed in a
general or branch post office and enclosed in a registered or certified
post-paid envelope; one (1) business day after having been sent by overnight
courier; when delivered to a telegraph company or when telecopied or scanned
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graphically or otherwise by communications equipment of the sending party on a
business day, or otherwise on the next succeeding business day thereafter; and,
in each case, addressed to the respective parties at the addresses stated below
or to such other changed addresses the parties may have fixed by notice as
provided herein:
If to Seller: Aerated Engineering Co.
330 10th Avenue
San Diego, California 92101
Attn: Mr. Robin Hartley
Facsimile: (619) 235-0946
With a copy to: Goode, Peterson & Weintraub
4225 Executive Square, Suite 200
La Jolla, California 92037-1483
Attn: Richard A. Weintraub, Esq.
Facsimile: (619) 550-3035
If to Buyer: TomaHawk II, Inc.
8315 Century Park Court, Suite 200
San Diego, California 92123
Attn: Michael H. Lorber
Vice President-Finance and Chief
Financial Officer
Telephone: (619) 874-7692
Facsimile: (619) 874-2371
With a copy to: Baker & McKenzie
101 West Broadway; 12th Floor
San Diego, California 92101
Attn: John J. Hentrich, Esq.
Telephone: (619) 236-1441
Facsimile: (619) 236-0429
SECTION 10.8 Successors and Assigns. This Agreement shall not be assigned
or delegated by any party without the prior written consent of the other party,
except that Buyer may assign this Agreement and the right to receive the
Purchased Assets or the Business of the Company (i) to one or more subsidiaries
or affiliates of Buyer or (ii) to lending institutions for security purposes.
Subject to the preceding sentence, each term and provision of this Agreement
shall be binding upon and enforceable against and inure to the benefit of any
successors or assigns of Buyer and any successors or assigns of Seller. Nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
SECTION 10.9 Attorneys' Fees. Subject to Section 10.15 of this Agreement,
if any action at law or in equity is brought to enforce or interpret the
provisions of this Agreement or any other agreement or instrument provided for
herein, the prevailing party in such action shall be entitled to recover as an
element of such party's costs of suit, and not as damages,
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reasonable attorneys' fees to be fixed by the court or arbitrator. The
prevailing party shall be the party who is entitled to recover its costs of suit
as ordered by the court, the arbitrator or by applicable law or court rules. A
party not entitled to recover its costs shall not recover attorneys' fees. No
sum for attorneys' fees shall be counted in calculating the amount of judgment
for purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
SECTION 10.10 Governing Law. Subject to Section 10.15 of this Agreement,
any action or proceeding seeking to enforce any provision of, or based on any
right or duty arising out of, this Agreement or for damages for breach of this
Agreement shall be brought in San Diego, California and each of the parties
hereto consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without regard to
principles of conflict of laws.
SECTION 10.11 Construction. Whenever in this Agreement the context so
requires, references to the masculine shall be deemed to include feminine and
the neuter, reference to the neuter shall be deemed to include the masculine and
feminine, and references to the plural shall be deemed to include the singular
and the singular to include the plural.
SECTION 10.12 Cooperation. Each party hereto shall cooperate with the
other party and shall take such further action and shall execute and deliver
such further documents as may be necessary or desirable in order to carry out
the provisions and purposes of this Agreement.
SECTION 10.13 Expenses. Whether or not the transactions contemplated by
this Agreement and the related agreements are consummated, each party to this
Agreement shall pay its own costs and expenses in connection with the
negotiation, preparation, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including but not limited
to, attorneys' fees, accountants' fees and other professional fees and expenses;
provided, however, that Buyer shall pay all costs in connection with the audit
of the Company's Financial Statements (as defined herein) or other financial
review of the Business.
SECTION 10.14 Representation by Counsel. Each party hereto represents and
agrees with the other that it has been represented by, or had the opportunity to
be represented by, independent counsel of its own choosing, and that it has had
the full right and opportunity to consult with its respective attorneys, that to
the extent, if any, that it desired, it availed itself of this right and
opportunity, that its authorized officers have carefully read and fully
understand this Agreement in its entirety and have had it fully explained to
them by such party's respective counsel, that each party is fully aware of the
contents thereof and its meaning, intent and legal effect, and that its
authorized officer is competent to execute this Agreement and has executed this
Agreement free from coercion, duress or undue influence.
SECTION 10.15 Binding Arbitration. The parties hereto agree that all
disputes arising out of or related to the terms and conditions of this Agreement
or to the performance, breach of termination thereof, shall be submitted to
binding arbitration pursuant to the Expedited Procedures of the Commercial
Arbitration Rules (the "Rules") of the American Arbitration
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Association (the "AAA"). The arbitration will take place in San Diego,
California at the offices of the AAA. The dispute will be resolved by a single
arbitrator appointed by the AAA in accordance with the list procedure described
in Paragraph 13 of the Rules, except that the AAA will transmit the list within
ten (10) business days of the filing of the demand for arbitration, and the
parties thereto will have five (5) business days to return the list to the AAA
with their objections and preferences. Discovery will be limited to no more than
five (5) depositions by each side and written document requests, requesting the
production of specific documents. The parties to the dispute will voluntarily
produce any and all documents that they intend to use at the hearing before the
close of discovery, subject to supplementation for purposes of rebuttal or good
cause shown. The period for taking discovery will be sixty (60) business days,
commencing upon the day that the answer is due under the Rules. The arbitrator
will hold a pre-hearing conference within thirty (30) business days of the close
of discovery and will schedule the hearing within thirty (30) business days of
the close of discovery. After the arbitrator is selected, the arbitrator will
have sole jurisdiction to hear such applications, except that any measure
ordered by the arbitrator may be immediately and specifically enforced by a
court otherwise having jurisdiction over the parties. All fees and costs will be
allocated to the parties to the arbitration as determined by the arbitrator.
Each party will pay its own fees and costs associated with the arbitration and
each party will pay one-half of the estimated arbitrator's fees up front; and if
either party fails to do so, a default will be entered against such party solely
with respect to such fees. Any determination of the arbitrator shall be final
and binding on the parties hereto, without right of appeal. Nothing in this
Agreement will prevent a party hereto from applying to a court that would
otherwise have jurisdiction for provisional or interim injunctive or other
equitable measures.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on August 20, 1998, effective as of the day and year first above
written.
"SELLER"
--------------------------------------------
Robin Hartley
"BUYER"
TOMAHAWK II, INC.,
an Illinois corporation
By:
-----------------------------------------
Steven M. Caira
President and Chief Executive Officer
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
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Exhibit 1.1
PURCHASED ASSETS
The "Purchased Assets" shall be and mean the following at the Effective
Date:
a. All accounts receivable arising from sales made, services performed and/or
invoices billed by the Company on or after the Effective Date (and,
subject to Section 2.2 of this Agreement, all collections thereof through
and including the Closing Date), trade notes receivable and employee notes
receivable (collectively, the "Accounts Receivable");
b. Subject to Section 2.2 of this Agreement, all cash accounts related to the
Business of the Company received or collected from the Effective Date
through and including the Closing Date;
c. All salable inventory (including finished goods, supplies, service parts
and purchased parts, raw materials, work-in-progress, inventory in
transit, and other goods and materials) of the Company, except for
inventory determined in good faith by Buyer to be obsolete, damaged or
otherwise not salable by Buyer in its business;
d. All fixed assets, physical assets and other tangible property, including,
without limitation, all machinery, fixtures, equipment and computer
hardware and software located at the Facility (as defined herein) or used
in or related to the Business as set forth on Schedule 1.1(d) attached
hereto and made a part hereof;
e. All vehicles, including, but not limited to, automobiles, trucks and
trailers, except for those described as Excluded Assets below;
f. All office furnishings, furniture, telephone equipment, telephone numbers,
fixtures and supplies located at the Facility (as defined herein) or used
in or related to the Business, except for those described as Excluded
Assets below;
g. All leasehold interests and all rights to and under equipment leases
related to the Business as set forth on Schedule 1.1(g) attached hereto
and made a part hereof (collectively, the "Assumed Equipment Leases");
h. All rights and claims to and under sales contracts, dealer contracts and
purchase orders and all rights to and under licenses, franchises and all
other such agreements and contracts relating to the Business or the
Purchased Assets (collectively, the "Assumed Contracts");
i. Subject to Section 2.2 of this Agreement, all rights, claims and
obligations to and under reasonable operating expenses incurred in the
ordinary course of the Business consistent with past practice on or after
the Effective Date (collectively, the "Assumed Payables");
j. All deposit accounts reflected on the Interim Balance Sheet relating to
the Business;
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k. All confidential and proprietary information, including, but not limited
to, information relating to marketing, purchasing, sales, pricing,
customers, suppliers and employees (with consents of employees) and all
customer deposits and credit balances, to the extent such items are used
in or related to the Business;
l. All lists of customers, customer files, lists of suppliers and supplier
files, to the extent such items are used in or related to the Business;
m. All technical or marketing information relating to the Business, including
new developments, inventions, know-how, ideas and trade secrets and
documentation thereof;
n. The name "Aerated Engineering Co.," "A.E.C.," and/or any variation thereof
and any names similar thereto and all fictitious businesses names used by
the Company relating thereto, all trademarks, trade names, service marks,
patents, copyrights and all other rights and all applications and
registrations therefor and licenses thereof relating to the Business;
o. Any proceeds from insurance claims (whether pending or otherwise) which
relate to any of the Purchased Assets; and
p. Goodwill.
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EXHIBIT 1.2
EXCLUDED ASSETS
The "Excluded Assets" shall be and mean the following at the Effective
Date:
(aa) Tax refunds;
(bb) The 1995 Jeep Cherokee, License No. 3KKU445, V.I.N. 1J4FJ785X5L55197;
(cc) The building situated on the Facility;
(dd) Any fee interest in real property owned by Seller;
(ee) Trade and non-trade receivables, including, without limitation,
workers' compensation or insurance refunds or rebates;
(ff) Cash, cash equivalents and marketable securities held by the Company
at July 31, 1998;
(gg) All rights, claims and obligations to and under the accounts
receivable of the Business as reflected on the books and records of the Company
at July 31, 1998 and the specific accounts receivable listed on the attached
Schedule 14, as mutually agreed to by Buyer and Seller (collectively, the
"Excluded Accounts Receivable");
(hh) All rights, claims and obligations to and under the accounts payable
of the Business as reflected on the books and records of the Company at July 31,
1998 and as set forth on the attached Schedule 13 (the "Excluded Accounts
Payable"); and
With respect to item (gg) above, after the Closing Date, Buyer
agrees to remit to Seller any amounts received in connection with the Excluded
Accounts Receivable within ten (10) business days of their receipt by Buyer.
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EXHIBIT 4
A. Representations and Warranties of Seller. Seller hereby represents and
warrants to Buyer, as of the Effective Date and as of the Closing Date, the
following:
1. Ownership. Seller is the owner of the Purchased Assets, free and
clear of any and all liens, charges, pledges, security interests, equities,
encumbrances or restrictions of any kind.
2. Due Qualification. The Company is a sole proprietorship, and
Seller and the Company have full power and authority to own and/or lease all of
the Purchased Assets and to carry on the Business as now being conducted and as
and where the Purchased Assets are now owned or leased and the Business is
located.
3. Authority. Seller now has, and on the Closing Date will have, the
full right, power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. Seller now has and on the Closing Date will have the full
right, power and authority, without the consent of any other person, to execute
and deliver this Agreement and to carry out this Agreement and the transactions
contemplated hereby.
4. Validity. This Agreement constitutes the valid and legally
binding obligation of Seller, enforceable against him in accordance with its
respective terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by general equitable principles.
5. Non-Contravention. Neither the execution and delivery of this
Agreement by Seller, nor the consummation of the transactions contemplated
hereby, do or would after the giving of notice or the lapse of time or both, (a)
conflict with, result in a breach of, or constitute a default under, to Seller's
knowledge, any federal, state or local court or administrative order or process,
or any agreement, contract, commitment or other instrument, including any
express or implied warranty, to which Seller or the Company is a party or by
which Seller or the Company (or any of its rights, properties or assets) is
subject or bound; (b) to Seller's knowledge, conflict with, result in a breach
of, or constitute a default under, any federal, state or local law, statute,
rule or regulation; (c) result in the creation of, or give any party the right
to create, any lien, charge, encumbrance, security agreement or other rights or
adverse interests upon any of the Purchased Assets; (d) terminate or give any
party the right to terminate, amend, abandon or refuse to perform any agreement,
contract or commitment to which Seller or the Company is a party or by which
Seller or the Company (or any of its rights, properties or assets) is subject or
bound; or (e) accelerate or modify, or give to any party thereto the right to
accelerate or modify, the time within which, or the terms under which, either
Seller, the Company or any third party is to perform any duties or obligations
or receive any rights or benefits under any agreement, contract or commitment.
6. Force Majeure. The Purchased Assets have not been materially and
adversely affected in any way as a result of any fire, explosion, earthquake,
flood, windstorm,
1
<PAGE>
accident or any other casualty, labor trouble, condemnation, requisition or
taking of property by any government or any agency of any government, embargo,
riot, act of God or public enemy, or other similar or dissimilar casualty or
event.
7. Facility. The Business is operated exclusively at 330 10th
Avenue, San Diego, California 92101 (the "Facility").
8. Title to Assets. Except for the equipment leased under the
Assumed Equipment Leases, Seller is the sole and exclusive legal and equitable
owner of all right, title and interest in and has good and marketable title to
the Purchased Assets, free and clear of any and all mortgages, liens, claims,
charges, options, purchase agreements, security agreements and interests,
commission arrangements, title retention agreements, encumbrances, covenants,
restrictions and adverse interests of any kind or nature whatsoever. Each of the
Purchased Assets, including the fixtures, vehicles, equipment, machinery,
furniture and other tangible assets transferred hereunder, is in good repair and
in good, marketable and operating condition and is suitable for the purposes for
which it presently is being used.
9. Financial Statements. Seller has delivered to Buyer the balance
sheets of the Company as of December 31, 1996 and December 31, 1997
(collectively, the "Balance Sheets"), and the related statements of operations
for the years then ended (collectively, the "Financial Statements"), which are
attached hereto as Schedule 9. In addition, Schedule 9 contains: (i) the
unaudited balance sheet of the Company for the seven-month period ended on July
31, 1998 (the "Interim Balance Sheet"); (ii) the related unaudited statement of
operations for the seven-month period ended on July 31, 1998 (collectively, the
"Interim Financial Statements"); and (iii) the 1998 fiscal forecast of the
Company. To Seller's knowledge, all such financial statements and information,
together with any notes thereto, are correct and present fairly the financial
position of the Company as of the respective dates indicated and its results of
operations for the periods then ended (subject to normal year-end adjustments).
10. Books and Records. The books of account and other records of the
Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices. At
the Closing, to Seller's knowledge, all of those books and records relating to
the Business and the Purchased Assets will be in the possession of the Company.
11. Condition and Sufficiency of the Purchased Assets. Except as set
forth in Schedule 11, the Purchased Assets are structurally sound, are in good
operating condition and repair, and are adequate for the uses to which they are
being put, and to Seller's knowledge none of the Purchased Assets is in need of
maintenance or repair.
12. Inventory. All inventory of the Company, whether or not
reflected in the Balance Sheet or the Interim Balance Sheet, consists of a
quality and quantity usable and salable in the ordinary course of business,
except for obsolete items and items of below-standard quality, all of which have
been written off or written down to net realizable value in the Interim Balance
Sheet or on the accounting records of the Company as of the Closing Date, as the
case may be. All inventories not written off have been priced at the lower of
cost or market on a first in, first
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<PAGE>
out basis. The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of the Company.
13. Accounts Payable. Schedule 13 contains a complete and accurate
list of all rights, claims and obligations to and under the Excluded Accounts
Payable of the Business at July 31, 1998. Seller shall be solely responsible for
the payment of and/or obligations under the Excluded Accounts Payable.
14. Accounts Receivable. Schedule 14 contains a complete and
accurate list of the Excluded Accounts Receivable of the Company.
15. No Undisclosed Liabilities. Except as set forth in Schedule 15,
the Company has no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against the Interim Balance
Sheet and current liabilities incurred in the ordinary course of business since
the respective dates thereof.
16. Litigation. There is no suit, action, claim or litigation, or
legal, administrative, arbitration or other proceeding or governmental
investigation or inquiry pending or, to Seller's knowledge, threatened against
or affecting the Company, the Business or any of its property or assets,
including the Purchased Assets, and there is no basis for any such action, nor
is there any judgment, decree, injunction, ruling, award, order or writ of any
court, governmental department, commission, agency, instrumentality, arbitration
or other person outstanding against, binding upon or involving the Company, the
Business, or any of its properties or assets. Neither Seller nor the Company,
nor any of its officers or, to Seller's knowledge, its employees is currently
charged with, or is currently under investigation with respect to, any violation
of any provision of any foreign, federal, state or local law or administrative
regulation in respect of the Business and the Purchased Assets. The Company is
not in default with respect to any judgment, decree, injunction, ruling, award,
order or writ of any foreign, federal, state, municipal agency or other
governmental department, board, commission, bureau, agency or instrumentality.
17. Taxes. All federal, state, county, local, foreign and other tax
returns, reports and declarations (including income, excise, property,
franchise, sales and use taxes) required to be filed with respect to the Company
or by or on behalf of the Business by the Company have been duly filed (or
extensions for filing have been filed) and such returns are complete and
accurate and disclose all taxes required to be paid for the periods covered
thereby. All taxes shown on such returns and any deficiency assessments,
penalties and interest have been paid. There are no tax liens on any of the
Purchased Assets and no basis exists for the imposition of any such liens. All
federal, state, local and foreign taxes, assessments, fees and charges
(including interest and penalties, if any) required to be paid or claimed to be
due from or with respect to Seller for any period prior to the Closing Date have
been fully paid, as of the date hereof or will be paid by Seller together with
any interest and penalties thereon. All returns required to be filed for any
period prior to the Closing Date which are not filed as of the Closing will be
duly filed. Notwithstanding any other provision set forth in this Agreement,
Seller is
3
<PAGE>
satisfied as to, and has relied solely upon his tax advisors with respect to,
the incidents of taxation which will or may result from the transactions
contemplated by this Agreement.
18. No Material Adverse Change. Since the date of the Interim
Balance Sheet, there has not been any material adverse change in the Business,
operations, properties, prospects, assets, or condition of the Company and/or
the Purchased Assets, and no event has occurred or circumstance exists that may
result in such a material adverse change.
19. Legal Compliance.
(a) To Seller's knowledge, Seller has complied with all laws,
statutes, ordinances, rules, regulations and orders of all governmental entities
applicable to the Business or the Purchased Assets, except where noncompliance
individually or in the aggregate would not materially and adversely affect the
Business or the Purchased Assets. Seller and the Company have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of the Business, all of which are valid and
effective.
(b) To Seller's knowledge, the operations, practices, policies
and procedures of the Company and its employees have been conducted and, through
and including the Closing Date, will be conducted in compliance with, and have
not and will not give rise to any loss, liability, damage, costs or expenses
under, all applicable federal, state and local laws, orders, regulations,
directives and restrictions concerning protection of the environment, the
disposal of hazardous, toxic or industrial chemicals, substances or wastes and
health and safety.
(c) There are no claims or correspondence with respect to,
investigations, litigation, administrative proceedings, judgments or orders,
whether pending or threatened relating to any hazardous substances, hazardous
wastes, discharges, emissions or other forms of pollution (collectively "EPA
Matters") relating in any way to the Facility. Neither Seller nor the Company
has liability for clean-up, compliance or required capital expenditures in
connection with any EPA Matter arising prior to the date hereof which affect or
may affect, materially or adversely, the Business or the Purchased Assets.
(d) No hazardous or toxic substances, within the meaning of
any applicable statute or regulation, are presently stored or otherwise located
at the Facility which affects or may affect materially and adversely the
Business and/or the Purchased Assets; and, further within the definition of such
statutes, no part of the Facility or adjacent parcels of real estate, including
the groundwater located thereon or thereunder, is presently contaminated by any
such substance which affects or may affect, materially and adversely, the
Business or the Purchased Assets.
(e) No notice has been issued and no investigation or review
is pending or, to Seller's knowledge, threatened by any governmental entity with
respect to (i) any alleged violation by Seller or the Company of any law,
ordinance, rule, regulation, order, policy or guideline of any governmental
entity, or (ii) any alleged failure to have all permits, certificates, licenses,
approvals and other authorizations required in connection with the operation of
the Business or the Purchased Assets. Seller has furnished Buyer with copies of
all
4
<PAGE>
reports or other documents concerning the Company or its employees made by
Seller or the Company during the past five years pursuant to any law, ordinance,
rule, regulation, order, policy or guideline of any governmental entity and
workers' compensation statutes. Neither Seller nor the Company has filed a
notice or report of any release of any hazardous or toxic substances, within the
meaning of any applicable statute or regulation, that affects or may affect,
materially and adversely, the Business or the Purchased Assets.
20. Assumed Contracts; No Defaults.
(a) Schedule 20(a) sets forth: (i) a complete and accurate
list, and Seller has made available to Buyer for inspection true and complete
copies, of each Assumed Contract and (ii) a complete description of all material
oral agreements and contracts relating to the Business or the Purchased Assets;
Schedule 20(a) sets forth reasonably complete details concerning each Assumed
Contract, including the parties to such Assumed Contract and the amount of the
remaining commitment of the Company under such Assumed Contract.
(b) Except as set forth in Schedule 20(b):
(i) neither Seller, nor the Company nor any family
member or affiliate ("Related Person") of Seller or the Company has or may
acquire any rights under, and neither Seller nor the Company has or may
become subject to any obligation or liability under, any contract or
agreement that relates to the Business or any of the Purchased Assets; and
(ii) no officer, agent, employee, consultant, or
contractor of the Company is bound by any contract or agreement that
purports to limit the ability of such officer, agent, employee,
consultant, or contractor to (A) engage in or continue any conduct,
activity, or practice relating to the Business of the Company, or (B)
assign to the Company or to any other individual, corporation, partnership
or other entity (a "Person") any rights to any invention, improvement, or
discovery.
(c) Except as set forth in Schedule 20(c), each Assumed
Contract is in full force and effect and is valid and enforceable in accordance
with its terms.
(d) Except as set forth in Schedule 20(d):
(i) each of Seller and the Company is, and at all times
has been, in full compliance with all applicable terms and requirements of
each Assumed Contract under which Seller or the Company has or had any
obligation or liability or by which Seller or the Company or any of the
Purchased Assets is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Assumed Contract under which Seller or the Company has
or
5
<PAGE>
had any rights is, and at all times has been, in full compliance with all
applicable terms and requirements of such Assumed Contract;
(iii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) may contravene, conflict with,
or result in a violation or breach of, or give Seller, the Company or any
other Person the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Assumed Contract; and
(iv) neither Seller nor the Company has given to or
received from any other Person, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential
violation or breach of, or default under, any Assumed Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or payable to the
Company under any Assumed Contract with any Person and no such Person has made
written demand for such renegotiation.
(f) Each of the Assumed Contracts has been entered into in the
ordinary course of business and has been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any applicable
federal, state or local law, order, regulation or directive.
21. Insurance.
(a) Seller has delivered to Buyer:
(i) true and complete copies of all policies of
insurance to which Seller or the Company is a party or under which Seller
or the Company or the Business is or has been covered at any time within
the two years preceding the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(b) Schedule 21(b) describes:
(i) any self-insurance arrangement by or affecting the
Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by the Company; and
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<PAGE>
(iii) all obligations of the Company to third parties
with respect to insurance (including such obligations under leases and
service agreements) and identifies the policy under which such coverage is
provided.
(c) Schedule 21(c) sets forth, by year, for the current policy
year and each of the two preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $10,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type
of insurance, and period of coverage; and
(C) the amount and a brief description of the
claim.
(iii) a statement describing the loss experience for all
claims that were self-insured, including the number and aggregate cost of
such claims.
22. Employees. Schedule 22 sets forth a complete list of all
employees of the Company, their respective positions, locations, salaries or
hourly wages and severance arrangements, if any, each as of the date hereof. To
Seller's knowledge, no key employee or group of employees, with the exception of
Seller, has any plans to terminate employment with the Company. Each employee of
the Company is employed on an "at will" basis and has no right to any material
compensation following termination of employment. The Company is not a party to
or bound by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has not committed any unfair labor practice and
there is no organizational effort presently being made or, to Seller's
knowledge, threatened by or on behalf of any labor union with respect to
employees of the Company.
23. Labor Matters. There are no controversies pending nor, to
Seller's knowledge, is there any basis for any such controversies, between the
Company and any of its employees, which controversies have affected or may
affect materially and adversely the Business or the results of operations of the
Company and/or the Purchased Assets.
24. Intellectual Property.
(a) Intellectual Property Assets. Schedule 24(a) sets forth
each of the Purchased Assets described in Section (m) of Exhibit 1.1 (the
"Intellectual Property Assets"). The Company is the owner of all right, title,
and interest in and to each of the Intellectual
7
<PAGE>
Property Assets, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims. There are no outstanding, and
to Seller's knowledge, no threatened disputes or disagreements with respect to
any of the Intellectual Property Assets.
(b) Agreements. Schedule 24(b) contains a complete and
accurate list and summary description of all Assumed Contracts relating to the
Intellectual Property Assets. There are no outstanding and, to Seller's
knowledge, no threatened disputes or disagreements with respect to any such
Assumed Contract.
(c) Know-How Necessary for the Business. The Intellectual
Property Assets are all those used in the operation of the Company's Business as
currently conducted. Seller or the Company is the owner of all right, title, and
interest in and to each of the Intellectual Property Assets, free and clear of
all liens, security interests, charges, encumbrances, equities, and other
adverse claims, and has the right to use without payment to a third party all of
the Intellectual Property Assets.
25. Certain Payments. Since January 1, 1998, neither the Company,
nor any of its officers, agents, or employees, nor any other Person, in each
case, associated with or acting for or on behalf of the Company, has directly or
indirectly: (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public, regardless
of form, whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company or any affiliate of the Company, or
(iv) in violation of any legal requirement; or (b) established or maintained any
fund or asset that has not been recorded in the books and records of the
Company.
26. Disclosure.
(a) No representation or warranty of Seller in this Agreement
and no statement in the schedules hereto omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) There is no fact known to Seller that has specific
application to either Seller or the Company or the Purchased Assets (other than
general economic or industry conditions) and that materially adversely affects
the assets, business, prospects, financial condition, or results of operations
of the Company that has not been set forth in this Agreement (including the
exhibits and schedules hereto).
27. Relationships with Related Persons. Neither Seller nor the
Company nor any Related Person of Seller or of the Company owns, or has owned
(of record or as a beneficial owner) an equity interest or any other financial
or profit interest in, a Person that has (i) had business dealings or a material
financial interest in any transaction with the Company, or (ii) engaged in
competition with the Company with respect to any line of the products or
services of the Company (a "Competing Business") in any market presently served
by the Company.
8
<PAGE>
Except as set forth in Schedule 27, neither Seller nor any Related Person of
Seller or of the Company is a party to any Contract with, or has any claim or
right against, the Company.
28. No Consents. Except for the consents to assignment of the
Assumed Lease and compliance with Article 6 of the UCC, no permit, consent,
approval, novation, authorization or other order of or filing with any
governmental authority, board or other regulatory body or any other person is
required in connection with the execution, delivery and consummation of this
Agreement by Seller and the consummation of the transactions contemplated
hereby.
29. Information. Seller has furnished and will continue to furnish
to Buyer detailed information with respect to the Facility, the Purchased
Assets, the liabilities and earnings of the Company, and Seller acknowledges
that Buyer has relied and will rely thereon in entering into this Agreement and
consummating the transaction contemplated by this Agreement. All information
contained in the exhibits and schedules attached to this Agreement and in the
documents furnished to Buyer by Seller pursuant to this Agreement or otherwise
is, and shall be at the Closing, true, correct and complete. All underlying
documents incorporated or referred to in such exhibits and schedules, or in
documents otherwise furnished to Buyer by Seller or by the Company are true,
correct and complete copies thereof, as the same have been or shall be amended
or modified.
30. Invoices. The invoices made available to Buyer are true,
complete and correct.
31. Location of Purchased Assets. Except certain machinery and
equipment located at its respective location set forth opposite its description
on Schedule 20(a) attached hereto, all of the Purchased Assets are located at
the Facility.
32. Leases. Set forth on Schedule 32 hereto is an accurate and
complete list of all leases pursuant to which the Company leases real or
personal property and which provide for annual payments on the part of the
Company in excess of $10,000. A true and complete copy of each such lease has
been delivered to Buyer, and no changes have been made therein since the date of
such delivery. Each such lease is valid, binding and enforceable in accordance
with its terms, there are no existing material defaults by the Company
thereunder and no event has occurred which (with or without notice, lapse of
time or both) would constitute a material default thereunder by any party.
33. Pre-Closing Activity List. As of the Closing Date, the Accounts
Receivable listed on the Pre-Closing Activity List represent or will represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business. Unless paid prior to the Closing
Date, each of the Accounts Receivable are or will be as of the Closing Date
current and collectible in full, without any set-off, within ninety (90) days
after the day on which it first becomes due and payable. There is no contest,
claim, or right of set-off, other than returns in the ordinary course of
business, under any Assumed Contract with any obligor of an Accounts Receivable
relating to the amount or validity of such Accounts Receivable.
9
<PAGE>
B. Representations and Warranties of Buyer. Buyer hereby represents
and warrants to Seller and to the Company as of the date hereof and as of the
Closing Date as follows:
1. Due Organization; Qualification. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois, and has full corporate power and authority to consummate the
transactions hereunder.
2. Authority. Buyer now has, and on the Closing Date will have, the
full corporate right, power and authority, without the consent of any other
person, to execute and deliver this Agreement and to carry out the transactions
contemplated hereby. All corporate and other actions required to be taken by
Buyer to authorize the execution, delivery and performance of this Agreement and
all transactions contemplated hereby will have been duly and properly taken as
of the Closing Date.
3. Validity. This Agreement constitutes the valid and legally
binding obligation of Buyer, enforceable against it in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors'
rights generally or by general equitable principles.
4. Non-Contravention. Assuming that all requisite consents of
governmental agencies and third parties have been obtained as provided in
Section B(5) below, neither the execution and delivery of this Agreement by
Buyer nor the consummation of the transactions contemplated hereby, do, or would
after the giving of notice or the lapse of time or both, (a) conflict with,
result in a breach of, or constitute a default under, the Articles of
Incorporation or the Bylaws of Buyer, or any federal, state or local court or
administrative order or process, or any other material agreement, contract,
commitment or other instrument, including any express or implied warranty, to
which Buyer is a party or by which Buyer is subject or bound; (b) conflict with,
result in a breach of, or constitute a default under, any federal, state, or
local law, statute, rule or regulation, or (c) violate or conflict with any
other material restriction of any kind or character whatsoever to which Buyer is
subject.
5. Approvals. No approval, consent, waiver, notice to or filing
with any governmental entity or any party to any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument to which
Buyer is a party or to which any of its properties are subject is required, and
has not been obtained or will not have been obtained on or prior to the Closing,
for the execution and delivery by Buyer of this Agreement and the other
agreements and instruments referred to herein to be executed and delivered by
Buyer in connection herewith or the consummation by Buyer of the transactions
contemplated hereby and thereby.
10
<PAGE>
Exhibit 3.1(AA)
================================================================================
20353521
--------------------
Corporate Access No.
Alberta
BUSINESS CORPORATIONS ACT
Form 2
CERTIFICATE OF INCORPORATION
- 353521 ALBERTA INC. -
- --------------------------------------------------------------------------------
Name of Corporation
I HEREBY CERTIFY THAT THE ABOVE-MENTIONED CORPORATION, THE ARTICLES OF
INCORPORATION OF WHICH ARE ATTACHED, WAS INCORPORATED UNDER THE
BUSINESS CORPORATIONS ACT OF THE PROVINCE OF ALBERTA.
/s/ [ILLEGIBLE]
-----------------------------------
Registrar of Corporations
[SEAL]
September 10, 1986
------------------------------
Date of Incorporation
================================================================================
<PAGE>
BUSINESS CORPORATIONS ACT
(SECTION 6)
----------------------
CORPORATE REGISTRAR FILED
RECEIVED SEP 10 1986
SEP 10 1986 Registrar of Corporations
-------------------------
CALGARY
CONSUMER AND
CORPORATE AFFAIRS
Alberta ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION.
353521 ALBERTA INC.
- --------------------------------------------------------------------------------
2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE.
Unlimited number of Class "A" common voting shares without nominal or par
value;
Unlimited number of Class "B" common non-voting shares without nominal or
par value;
all subject to the rights, privileges, restrictions and conditions as
contained in Schedule "A" attached hereto.
- --------------------------------------------------------------------------------
3. RESTRICTIONS IF ANY ON SHARE TRANSFERS.
No shares in the capital of the Corporation shall be transferred to any
person without the approval of the Board of Directors, subject to the
restrictions imposed by Schedule "B" attached hereto.
- --------------------------------------------------------------------------------
4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS.
Minimum - One (1) Maximum - Fifteen (15)
- --------------------------------------------------------------------------------
5. IF THE CORPORATION IS RESTRICTED FROM CARRYING ON A CERTAIN BUSINESS.
SPECIFY THESE RESTRICTIONS
No restrictions.
- --------------------------------------------------------------------------------
6. OTHER PROVISIONS IF ANY.
See Schedule "B" attached hereto.
- --------------------------------------------------------------------------------
7. DATE. September 10, 1986
- --------------------------------------------------------------------------------
INCORPORATORS NAMES: ADDRESS (INCLUDE POSTAL CODE) SIGNATURE
- --------------------------------------------------------------------------------
1900, 736 - 6th Avenue S.W.
Mark N. Woolstencroft Calgary, Alberta T2P 3W1 /s/ Mark N. Woolstencroft
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE "A" TO THE ARTICLES OF INCORPORATION
1. The Class "A" and Class "B" common shares shall respectively carry and be
subject to the following rights, privileges, restrictions and conditions,
namely:
(a) The holders of the Class "A" common shares shall be entitled to one
(1) vote in respect of each such Class "A" common share held at all
meetings of the shareholders of the Corporation;
(b) Subject to the right to vote at a meeting of the holders of Class
"B" common shares, the holders of the Class "B" common shares shall
not be entitled as such to receive notice of or to attend any
meeting of the shareholders of the Corporation, and shall not be
entitled to vote at any such meeting;
(c) In the event of the liquidation, dissolution or winding up of the
Corporation or other distribution of assets of the Corporation
(except payment of dividends) among shareholders for the purpose of
winding up its affairs, the holders of the Class "A" and Class "B"
common shares shall rank equally in the distribution of all or any
part of the property and assets of the Corporation, which property
and assets shall be distributed to the holders of common shares pro
rata to the number of common shares issued and outstanding on the
date of such distribution;
(d) The holders of Class "A" and Class "B" common shares need not rank
equally or be treated equally in the declaration or payment of
dividends and the Directors shall have full and absolute discretion
to declare and pay dividends:
(i) to the holders of Class "A" common shares only; or
<PAGE>
-2-
(ii) to the holders of Class "B" common shares only; or
(iii) of differing amounts per share to the holders of Class "A"
common shares and the holders of Class "B" common shares;
provided that within each class of shares, all dividends shall be
paid to the shareholders in proportion to the number of shares held
by them.
<PAGE>
SCHEDULE "B" TO THE ARTICLES OF INCORPORATION
1. The right to transfer the Corporation's shares is. restricted.
2. The number of the Corporation's shareholders, exclusive of
(i) persons who are in its employment or that of an affiliate, and
(ii) persons who, having been formerly in the employment of the
Corporation or that of an affiliate, were, while in that employment,
shareholders of the Corporation and have continued to be shareholders of
that Corporation after the termination of that employment,
is limited to not more than fifty (50) persons, two (2) or more persons
who are the joint registered owners of one (1) or more shares being
counted as one (1) shareholder.
3. Any invitation to the public to subscribe for the Corporation's securities
is prohibited.
<PAGE>
Exhibit 3.1(BB)
================================================================================
20353521
-------------------
Corporate Access No
Alberta
BUSINESS CORPORATIONS ACT
Form 5
CERTIFICATE OF AMENDMENT
VENTURES GAINED INC.
- --------------------------------------------------------------------------------
Name of Corporation
I HEREBY CERTIFY THAT THE ARTICLES OF THE ABOVE-MENTIONED CORPORATION WERE
AMENDED.
|_| UNDER SECTION 13 OF THE BUSINESS CORPORATIONS ACT IN ACCORDANCE WITH THE
ATTACHED NOTICE;
|_| UNDER SECTION 27 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT DESIGNATING A SERIES OF SHARES;
|X| UNDER SECTION 171 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT;
|_| UNDER SECTION 185 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF REORGANIZATION;
|_| UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF ARRANGEMENT.
[SEAL] /s/ [ILLEGIBLE]
-----------------------------------
Registrar of Corporations
January 28, 1987
------------------------------
Date of Amendment
================================================================================
<PAGE>
BUSINESS CORPORATIONS ACT
(SECTION 27 OR 171)
- -------------------- -----------------------
RECEIVED FILED
JAN 28 1987
JAN 27 1987
CORPORATE REGISTRY Registrar Corporations
Province of Alberta
Province of Alberta ----------------------
CORPORATE AFFAIRS
- --------------------
Alberta ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION. 2. CORPORATE ACCESS NO.
353521 ALBERTA INC. 20353521
- --------------------------------------------------------------------------------
3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
1. Pursuant to Section 167 (1) (a) of the Business Corporations Act
(Alberta), Article 1 of the Articles of the Corporation is hereby amended
by changing the name of the Corporation from 353521 Alberta Inc. to:
VENTURES GAINED INC.
2. Pursuant to Section 167 (1) (d) and (e) of the Business Corporations
Act (Alberta), Article 2 of the Articles of t he Corporation is hereby
amended by the deletion of the present wording contained in Article 2 and
the Schedule "A" referred thereto, and by the substitution of the wording
as set forth in Schedule "I" attached hereto.
3. Pursuant to Section 167 (1) (1) of the Business Corporations Act
(Alberta), Article 3 of the Articles of the Corporation is hereby amended
by the deletion of the present wording contained in Article 3 and by the
substitution of the word "None".
4. Pursuant to Section 167 (1) (k) of the Business Corporations Act
(Alberta), Article 4 of the Articles of the Corporation is hereby amended
by increasing the minimum number of directors of the Corporation from One
to Three (3).
5. Pursuant to Section 167 (1) (m) of the Business Corporations Act
(Alberta), Article 6 of the Articles of the Corporation is hereby amended
by the deletion of the present wording contained in Article 6 and the
Schedule "B" referred thereto and by the substitution of the word "None".
- --------------------------------------------------------------------------------
DATE SIGNATURE TITLE
JAN 23/87 /s/ JEFFREY P. GOGUEN TREASURER
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
<PAGE>
SCHEDULE "I" TO THE ARTICLES OF AMENDMENT OF
353521 ALBERTA INC.
The classes and any maximum number of shares that the Corporation is
authorized to issue are:
Unlimited number of Common voting shares without nominal or par
value;
Unlimited number of Class "B" Common non-voting shares without
nominal or par value;
Unlimited number of Preferred shares without nominal or par value;
all subject to the rights, privileges, restrictions and conditions
as hereinafter set forth:
1. The Common and Class "B" Common shares shall respectively carry and be
subject to the following rights, privileges, restrictions and conditions,
namely:
(a) The holders of the Common shares shall be entitled to one (1) vote
in respect of each such Common share held at all meetings of the
shareholders of the Corporation;
(b) Subject to the right to vote at a meeting of the holders of Class
"B" Common shares, the holders of the Class "B" Common shares shall
not be entitled as such to receive notice of or to attend any
meeting of the shareholders of the Corporation, and shall not be
entitled to vote at any such meeting;
(c) In the event of the liquidation, dissolution or winding up of the
Corporation or other distribution of assets of the Corporation
(except payment of dividends) among shareholders for the purpose of
winding up its affairs, the holders of the Common and Class "B"
Common shares shall rank equally in the distribution of all or any
part
<PAGE>
-2-
of the property and assets of the Corporation, which property and
assets shall be distributed to the holders of common shares pro rata
to the number of common shares issued and outstanding on the date of
such distribution;
(d) The holders of Common and Class "B" Common shares need not rank
equally or be treated equally in the declaration or payment of
dividends and the Directors shall have full and absolute discretion
to declare and pay dividends:
(i) to the holders of Common shares only; or
(ii) to the holders of Class "B" Common shares only; or
(iii) of differing amounts per share to the holders of Common shares
and the holders of Class "B" Common shares;
provided that within each class of shares, all dividends shall be
paid to the shareholders in proportion to the number of shares held
by them.
2. The Preferred shares shall have attached thereto, as a class, the following
rights, privileges, restrictions and conditions, namely:
(a) DIRECTORS' RIGHT TO ISSUE IN ONE OR MORE SERIES
The Preferred shares may at any time, or from time to time, be
issued in one or more series, each series to consist of such number
of shares as may, before the issue thereof, be determined by
resolution of the Board of Directors of the Corporation;
<PAGE>
-3-
(b) DIRECTORS' RIGHT TO FIX TERMS OF EACH SERIES
The Directors of the Corporation shall, by ordinary resolution, fix
from time to time before the issue thereof the designation, price,
restrictions, conditions and limitations attaching to the Preferred
shares of each series including, without limiting the generality of
the foregoing, the rate or amount of dividends or the method of
calculating dividends, the dates of payment thereof, the redemption
or purchase prices and terms and conditions of redemption or
purchase, any voting rights, any conversion rights and any sinking
fund or other provisions;
(c) RANKING OF PREFERRED SHARES
The Preferred shares of each series shall rank, both as regards
dividends and return of capital, in priority to all other shares of
the Corporation. The Preferred shares of any series may also be
given such other preferences over the Common shares and over any
other shares of the Corporation ranking junior to the Preferred
shares, as may be fixed in accordance with paragraph 2(b) hereof;
provided, however, that no rights, privileges, restrictions or
conditions attached to a series of shares shall confer on a series a
priority in respect of voting, dividends or return of capital over
any other series of shares of the same class that are then
outstanding.
<PAGE>
Exhibit 3.1(CC)
================================================================================
20353521
--------------------
Corporate Access No.
Alberta
BUSINESS CORPORATIONS ACT
Form 5
CERTIFICATE OF AMENDMENT
VENTURES GAINED INC.
- --------------------------------------------------------------------------------
Name of Corporation
I HEREBY CERTIFY THAT THE ARTICLES OF THE ABOVE-MENTIONED CORPORATION WERE
AMENDED.
|_| UNDER SECTION 13 OF THE BUSINESS CORPORATIONS ACT IN ACCORDANCE WITH THE
ATTACHED NOTICE;
|X| UNDER SECTION 27 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT DESIGNATING A SERIES OF SHARES;
|_| UNDER SECTION 171 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT;
|_| UNDER SECTION 185 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF REORGANIZATION;
|_| UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF ARRANGEMENT.
/s/ [ILLEGIBLE]
-----------------------------------
Registrar of Corporations
[SEAL]
August 2, 1988
------------------------------
Date of Incorporation
================================================================================
<PAGE>
BUSINESS CORPORATIONS ACT FORM 4
(SECTION 27 OR 171)
-----------------------------
CORPORATE REGISTRY FILED
RECEIVED AUG 2 1988
AUG 2 1988 The Registrar of Corporations
PROVINCE OF ALBERTA
CALGARY -----------------------------
PROVINCE OF ALBERTA
Alberta ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER:
VENTURES GAINED INC. 20353521
- --------------------------------------------------------------------------------
3.THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
1. Pursuant to Section 27 of the Business Corporations Act (Alberta)
Article 2 of the Articles of the Corporation is hereby amended by the
designation of a series of Preferred Shares as set out in Schedule "A" -
attached hereto.
- --------------------------------------------------------------------------------
DATE SIGNATURE TITLE
- --------------------------------------------------------------------------------
July 25/88 /s/ JEFFREY P. GOGUEN President
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
<PAGE>
SCHEDULE "A"
VENTURES GAINED INC.
Provisions attaching to the 6% Non-Cumulative Redeemable Convertible
Retractable First Preferred Shares, Series A
The first series of Preferred Shares of Ventures Gained Inc. (the
"Corporation") shall consist of 100,000 shares without nominal or par value,
shall be designated as 6% Non-Cumulative Redeemable Convertible Retractable
First Preferred Shares, Series A (the "Series A Shares") and, in addition to the
rights, conditions, restrictions and limitations attached to the Preferred
Shares as a class, shall have attached thereto rights, conditions, restrictions
and limitations substantially as hereinafter set forth, that is to say:
1. ISSUE PRICE
1.1 The stated value of the Series A Shares shall be $10.00 per share.
2. DIVIDENDS
2.1 The holders of the Series A Shares shall be entitled to receive fixed,
non-cumulative, preferential cash dividends, out of monies properly applicable
to the payment of dividends, at the lesser of the following rates:
(a) a rate of 6% of the stated value per Series A Share ($0.60 per
Series A Share) per annum, as and when declared by the board of
directors of the Corporation; or
(b) a rate of 20% of the Corporation's net income before taxes, as set
forth in the Corporation's income tax return filed annually pursuant
to the Income Tax Act (Canada) (the "Tax Act").
<PAGE>
- 2 -
2.2 The Corporation shall, promptly after filing its income tax return pursuant
to the Tax Act, provide notice to the Transfer Agent as to the amount of the
Corporation's net income before taxes as set forth in its income tax return and
whether the payment of dividends on the Series A Shares shall be based on this
net income calculation.
2.3 Cheques of the Corporation, dated the dividend payment date and payable at
par at any branch of the Corporation's bankers for the time being in Canada,
shall be issued in respect of each such dividend and the mailing thereof to any
holder shall satisfy the dividend represented thereby unless the cheque be not
paid upon presentation. No shareholder shall be entitled to recover by action or
other legal process against the Corporation respecting any dividend that is
represented by a cheque that has not been duly presented to the Corporation's
bankers for payment and that otherwise remains unclaimed for a period of six
years from the date on which it was payable. If, on any dividend payment date,
the dividend payable on such date is not paid in full on all the Series A Shares
then issued and outstanding, such dividend or the unpaid part thereof shall not
be required to be paid on a subsequent date.
2.4 The holders of the Series A Shares shall not be entitled to any dividends
other than or in excess of the dividends for which provision is expressly made
herein.
3. LIQUIDATION
3.1 In the event of the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation or other distribution of assets of the Corporation
among its shareholders for the purpose of winding up its affairs, the holders of
Series A Shares shall be entitled to receive $10.00 for each Series A Share
held.
<PAGE>
- 3 -
3.2 In all cases the holders of the Series A Shares shall be entitled to be paid
all moneys payable pursuant to paragraph 3.1 before any amount shall be paid or
any distribution of the assets of the Corporation shall be made to the holders
of the common shares or any other shares of the Corporation ranking junior to
the Series A Shares with respect to distributions upon liquidation.
3.3 After payment to the holders of the Series A Shares of the amounts so
payable to them they shall not be entitled to share in any further distribution
of the property or assets of the Corporation.
4. RETRACTION PRIVILEGE
4.1 Holders of the Series A Shares shall have the option or privilege (the
"Retraction Privilege") of requiring the Corporation in any calendar year, to
redeem, subject to applicable law, up to 25% of the holder's Series A Shares
(the "Retraction Limit") which have not previously been converted to common
shares of the Corporation (the "Common Shares") pursuant to the provisions of
Section 7 hereof, in the event that the net earnings of the Corporation have
exceeded $250,000 for that calendar year (the "Retraction Event"), which
Retraction Privilege shall be effected at a price (the "Retraction Price") equal
to $10.00 per share.
4.2 The Corporation shall promptly provide notice of the Retraction Event to the
Transfer Agent and during the 10 day period following the Retraction Event, mail
to each person who at the date of mailing is a registered holder of Series A
Shares a written notice (the "Retraction Notice") giving details of the
Retraction Privilege and specifying a place or places in the Province of Alberta
for the deposit by the holder of the certificate or certificates representing
the Series A Shares and
<PAGE>
- 4 -
the date on or prior to which such deposit shall be made by such holder in order
to exercise such Retraction Privilege, which date shall be 35 days following the
Retraction Event (the "Retraction Payment Date"). Subject to the provisions of
Clause 4.1, the Corporation shall pay the Retraction Price on the Retraction
Payment Date to the Transfer Agent on behalf of the holders of Series A Shares
who have exercised their Retraction Privilege. The Retraction Notice will also
contain, if the Corporation determines under the provisions of Clause 4.5 that
it will not be permitted to retract the Series A Shares in accordance with the
provisions of Clause 4.1, the statement required under the provisions of Clause
4.5.
4.3 At least 7 days prior to the applicable Retraction Payment Date, a holder of
Series A Shares desiring to exercise the Retraction Privilege shall deposit the
certificate or certificates representing the Series A Shares to be purchased
together with a written notice signed by the holder requesting purchase of the
Series A Shares represented by such certificate up to the Retraction Limit or
certificates or such lesser number thereof as may be specified in such notice.
If a part only of the Series A Shares represented by any certificate shall be
purchased a new certificate for the balance shall be issued at the expense of
the Corporation. Such deposit shall, subject to Clause 4.5, be irrevocable.
Payment of the Retraction Price, subject to the Corporation's obligations set
out in this Section 4, shall be made by depositing with the Transfer Agent the
Retraction Price of the Series A Shares which are represented by certificates
which have been delivered to the Custodian in accordance herewith. Series A
Shares purchased pursuant to the provisions hereof shall be and be deemed to be
cancelled and shall not be reissued. No shareholder shall be entitled to recover
by action or other legal process against the Corporation any portion of the
Retraction Price that is represented by a cheque that has not been duly
presented to the Corporation's bankers for payment and that otherwise remains
unclaimed for a
<PAGE>
- 5 -
period of six years from the date on which it was payable. Upon such deposit
being made or upon the date specified for purchase of Series A Shares, whichever
is the later, the Series A Shares in respect of which such deposit shall have
been made shall be deemed to have been purchased and the rights of the holders
thereof shall be limited to receiving without interest their proportionate part
of the amount so deposited on presentation and surrender of the certificates
representing their Series A Shares being purchased. Any interest allowed on any
such deposit shall belong to the Corporation.
4.4 Upon payment by the Corporation of the Retraction Price for the Series A
Shares purchased pursuant to the provisions of this Section 4, the Series A
Shares so purchased shall cease to be entitled to dividends or any other
participation in the assets of the Corporation and the holders of such shares
shall not be entitled to exercise any of the rights of shareholders in respect
of them. In the event that the Corporation fails to pay the full Retraction
Price, the Series A Shares deposited for purchase shall be entitled to dividends
in proportion to that portion of the Retraction Price unpaid.
4.5 Subject to the provisions of Clause 4.1 and subject to the provisions of
Clause 4.6, the Corporation shall on the Retraction Payment Date purchase all
Series A Shares up to the Retraction Limit in respect of which holders shall
have exercised the Retraction Privilege. If prior to the mailing or publication
of the Retraction Notice for the Retraction Payment Date, the Corporation
determines that it will not be permitted under the provisions of any applicable
law to purchase the number of Series A Shares pursuant to its obligations
hereunder, the Corporation shall include in such Retraction Notice a statement
of the maximum amount (in multiples of $10) which it then believes it will be
permitted to pay on the Retraction Payment Date and, in reasonable detail, the
basis of the calculation thereof. Insofar as the Corporation has acted in good
faith in making such
<PAGE>
- 6 -
determination, the Corporation shall have no liability in the event that such
determination proves inaccurate. Notwithstanding the provisions of Clause 4.3 if
the aggregate amount that the Corporation is able to pay on the Retraction
Payment Date is less than the aggregate amount determined by the Corporation for
the Retraction Notice, the holder of Series A Shares deposited for retraction
shall have the right to withdraw such shares from such deposit on or before 10
days following the Retraction Payment Date and Clause 4.1 shall otherwise apply
mutatis mutandis to the retraction of the Series A Shares so withdrawn from
deposit.
4.6 If the Corporation fails to pay the full Retraction Price, because of the
provisions of any applicable law, for any of the Series A Shares deposited for
purchase on the Retraction Payment Date in respect of which the holders thereof
have exercised their rights up to the Retraction Limit under the Retraction
Privilege, the remainder of the Retraction Price of such Series A Shares shall
be paid on a pro rata basis as soon as reasonably feasible to the extent the
Corporation is able to do so under the provisions of any applicable law, on each
succeeding date for the payment of dividends on the Series A Shares until the
full amount of the Retraction Price of the Series A Shares so deposited has been
paid. In the event that the Corporation shall as aforesaid pay only a portion of
the full amount of the Retraction Price of the Series A Shares deposited for
retraction, the certificates representing such Series A Shares shall be
cancelled and new share certificates shall be issued to the depositing
shareholders representing the Series A Shares not retracted. The provisions of
this Section 4 shall, to the extent reasonably possible, apply to such further
Retraction Privilege mutatis mutandis, except that the Retraction Notice to be
mailed by the Corporation shall be mailed during the 30 day period ended 30 days
prior to the applicable dividend payment date and the date on or prior to which
deposit of certificate(s) shall be made by a holder of Series A Shares in order
to exercise such Retraction Privilege shall be 7 days prior to such applicable
dividend payment date.
<PAGE>
- 7 -
5. REDEMPTION
5.1 The Series A Shares are not redeemable on or prior to July 31, 1989 without
the prior consent of the holders of such shares.
5.2 After July 31, 1989, the Corporation may at its option redeem at any time
all of the outstanding Series A Shares or, subject to the provisions of Section
8, from time to time any part thereof selected by lot in such manner as the
board of directors shall decide, or, if the board of directors so decide, pro
rata, on payment of $10.00 for each such share to be redeemed (the "Redemption
Price").
5.3 On any redemption of Series A Shares under this Section 5, the Corporation
shall give in the manner provided in Section 9 at least 30 days prior notice to
each person who, at the date of giving such notice, is the registered holder of
Series A Shares to be redeemed, of the intention of the Corporation to redeem
such shares. Such notice shall set out the Redemption Price and the date on
which the redemption is to take place and, unless all the Series A Shares held
by the holder to whom it is addressed are to be redeemed, shall also set out the
number of such shares so held which are to be redeemed. On or after the date so
specified for redemption, the Corporation shall pay or cause to be paid to the
holders of such Series A Shares to be redeemed the Redemption Price on
presentation and surrender at the head office of the Corporation or at any other
place or places within Canada designated by such notice, of the certificate or
certificates for such Series A Shares so called for redemption. Such payment
shall be made by cheque payable at par at any branch in Canada of the
Corporation's bankers. If a part only of the Series A Shares represented by any
certificate shall be redeemed, a new certificate for the balance shall be issued
at the expense of the Corporation. From and after the redemption date specified
in any
<PAGE>
- 8 -
such notice, the Series A Shares called for redemption shall cease to be
entitled to dividends and the holders thereof shall not be entitled to exercise
any of the rights of shareholders in respect thereof unless payment of the
Redemption Price shall not be duly made by the Corporation. At any time after
the notice of redemption is given the Corporation shall have the right to
deposit the Redemption Price of any or all Series A Shares called for redemption
with any chartered bank or banks or with any trust corporation or trust
companies in Canada named for such purpose in the notice of redemption to the
credit of a special account or accounts in trust for the respective holders of
such shares, to be paid to them respectively upon surrender to such bank or
banks or trust company or trust companies of the certificate or certificates
representing the same. Upon such deposit or deposits being made, such shares
shall be deemed to be redeemed and the rights of the holders of such shares
shall be limited to receiving the proportion of the amounts so deposited
applicable to their respective shares without interest. Any interest allowed on
such deposit or deposits shall belong to the Corporation.
5.4 Series A Shares which are redeemed or deemed to be redeemed in accordance
with this Section 5 shall be and be deemed to be cancelled and shall not be
reissued.
6. PURCHASE FOR CANCELLATION
6.1 Subject to the provisions of Section 8 and in addition to its right to
redeem the Series A Shares as provided in Section 5, the Corporation may at any
time and from time to time purchase for cancellation the whole or any part of
the outstanding Series A Shares by invitations for tender addressed to all
holders of record of the outstanding Series A Shares. In the event that, upon
any request for tenders, the Corporation shall receive two or more tenders of
Series A Shares at the same price and which shares, when added to any shares
tendered at a lower price or
<PAGE>
- 9 -
prices, aggregate more than the amount for which the Corporation is prepared to
accept tenders, if any of the Series A Shares so tendered at the same price are
purchased by the Corporation they shall be purchased pro rata from such holders
tendering at the same price, disregarding fractions.
6.2 Series A Shares which are purchased in accordance with this Section 6 shall
be and be deemed to be cancelled and shall not be reissued.
7. CONVERSION PRIVILEGE
7.1 For the purposes of these share provisions:
(a) "Certificate of the Corporation" means a certificate under the
corporate seal of the Corporation signed by any two of the Chairman,
the President, or any Vice President or any one of them together
with the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer of the Corporation and may consist of one or
more instruments so executed;
(b) "Close of business" means with respect to the conversion of any
Series A Share the normal closing time of the office of the Transfer
Agent at which the holder of such share elects to have such share
converted;
(c) "Common Shares" shall mean common shares without nominal or par
value in the capital of the Corporation as such shares were
constituted on *, and any other shares resulting from
reclassification or change of such Common Shares or amalgamation,
consolidation, merger or sale, all as referred to in Clause 7.10;
(d) "Current Conversion Price" shall mean the Current Market Price for
each Common Share to be issued upon conversion
<PAGE>
- 10 -
of any Series A Shares, subject to adjustment as hereinafter
provided;
(e) "Current Conversion Basis" means at any particular time 20 Common
Shares into which at such time one (1) Series A Share shall be
convertible at the Current Conversion Price in accordance with the
provisions of this Section 7;
(f) "Current Market Price", as at any date when the Current Market Price
is to be determined, shall mean the weighted average price at which
Common Shares have traded on the Alberta Stock Exchange for any
fifteen (15) consecutive trading days ending on a date not earlier
than the fifth trading day preceding such date. In the event the
Common Shares are not so traded on the Alberta Stock Exchange but
are listed on another stock exchange, or stock exchanges in Canada,
the foregoing references to the Alberta Stock Exchange shall be
deemed to be references to such other stock exchange, or, if more
than one, to such one as shall be designated by the board of
directors of the Corporation. In the event the Common Shares are not
so traded on any stock exchange in Canada, the Current Market Price
thereof shall be determined by the board of directors of the
Corporation, acting reasonably, which determination shall be
conclusive;
(g) "dividends paid in the ordinary course" means dividends, whether in
cash or in shares of the capital stock of the Corporation, paid in
any fiscal year of the Corporation to the extent that the aggregate
of such cash and the paid up capital of such shares does not in such
fiscal year exceed the greatest of:
<PAGE>
- 11 -
(i) 150% of the aggregate amount of dividends paid by the
Corporation on the Common Shares in the period of 12
consecutive months ended immediately prior to the first day of
such fiscal year;
(ii) 80% of the aggregate amount of dividends paid by the
Corporation on the Common Shares in the period of 36
consecutive months ended immediately prior to the first day of
such fiscal year; and
(iii) 100% of the consolidated net earnings of the Corporation,
before extraordinary items, for the period of 12 consecutive
months ended immediately prior to the first day of such fiscal
year (such consolidated net earnings to be as shown in the
audited financial statements of the Corporation for such
period of 12 consecutive months or, if there are no audited
financial statements in respect of such period, computed in
accordance with generally accepted accounting principles
consistent with those applied in the preparation of the most
recent audited consolidated financial statements of the
Corporation);
and for such purpose the amount of any dividend paid in shares shall
be the aggregate paid up capital of such shares.
(h) "trading day" means a day on which the relevant stock exchange
referred to in subclause 7.1(f) is open for business;
(i) "Transfer Agent" means the person appointed as registrar and
transfer agent for the Common Shares;
<PAGE>
- 12 -
(j) "weighted average price" means at any specific date, the weighted
average price per Common Share of all trades in board lot quantities
of the Common Shares for the specified period in trading days
immediately prior to such date on the relevant stock exchange
referred to in subclause 7.1(f) above.
7.2 A holder of any Series A Shares has the right at his option at any time, or,
in the case of shares called for redemption, up to the close of business on the
third business day preceding the date fixed for redemption, whichever is
earlier, to conversion, subject to the terms and provisions hereof, such Series
A Shares into fully paid and non-assessable Common Shares at the Current
Conversion Basis. Should payment of the Redemption Price of Series A Shares
which have been called for redemption not be paid upon surrender of the
certificate for such Series A Shares the right of conversion shall revive and
continue from the time of the failure to pay as if such Series A Shares had not
been called for redemption. The conversion of Series A Shares in accordance with
this clause may be effected by the surrender of the certificate or certificates
representing the same at any time during usual business hours at the option of
the holder at any office of the Transfer Agent at which the Common Shares are
transferable, accompanied by: (1) payment or evidence of payment of the tax (if
any) payable as provided in Clause 7.9, and (2) a written instrument of
surrender in form satisfactory to the Corporation duly executed by the
registered holder, or his attorney duly authorized in writing, in which
instrument such holder may also elect to convert part only of:
(a) the Series A Shares represented by such certificate or certificates
not theretofore called for redemption, in which event such holder
shall be entitled to receive, at the expense of the Corporation, a
new certificate representing the Series A Shares represented by such
certificate or certificates which have not been converted; or
<PAGE>
- 13 -
(b) the Series A Shares, represented by such certificate or
certificates, theretofore called for redemption, in which event on
the date specified for the redemption of such Series A Shares such
holder shall be entitled to payment of the Redemption Price of the
Series A Shares represented by such certificate or certificates
which have been called for redemption and which have not been
converted, and to receive, at the expense of the Corporation, a
certificate representing Series A Shares represented by such
certificate or certificates which have been neither converted nor
redeemed.
As promptly as practicable after the surrender of any Series A
Shares for conversion, the Corporation shall cause to be delivered to or upon
the written order of the holder of the Series A Shares so surrendered, a
certificate or certificates issued in the name of, or in such name or names as
may be directed by, such holder representing the number of Common Shares to
which such holder is entitled together with a payment by cheque or the issue of
scrip certificates in respect of any fraction of a Common Share issuable on such
conversion as provided in Clause 7.8. Such conversion shall be deemed to have
been made at the close of business on the date such Series A Shares shall have
been surrendered for conversion, so that the rights of the holder of such Series
A Shares as the holder thereof shall cease at such time and the person or
persons entitled to receive Common Shares upon such conversion shall be treated
for all purposes as having become the holder or holders of record of such Common
Shares at such time and such conversion shall be on the Current Conversion Basis
as at such time. The date of surrender of any Series A Shares for conversion
shall be deemed to be the date when the certificate representing such Series A
Shares is received by the Transfer Agent.
<PAGE>
- 14 -
7.3 The registered holder of any Series A Shares on the record date for any
dividend payable on such share shall be entitled to such dividend
notwithstanding that such share is converted after such record date and before
the payment date of such dividend and the registered holder of any Common Share
resulting from any conversion shall be entitled to rank equally with the
registered holders of all other Common Shares in respect of all dividends
declared payable to holders of Common Shares of record on any date after the
date of conversion. Subject as aforesaid and subject to the provisions hereof,
upon the conversion of any Series A Shares, the Corporation shall not make
payment or adjustment on account of any dividends on the Series A Shares so
converted nor on account of any dividends on the Common Shares issuable upon
such conversion.
7.4 The Current Conversion Price shall be subject to adjustment from time to
time as follows:
(a) if the Corporation shall at any time, or from time to time,
hereafter (i) subdivide its outstanding Common Shares into a greater
number of shares, (ii) combine, consolidate or reclassify its
outstanding Common Shares into a smaller number of shares, or (iii)
issue Common Shares to the holders of any of its outstanding Common
Shares by way of a stock dividend (other than an issue of Common
Shares to holders of Common Shares who exercise an option to receive
dividends in the form of Common Shares in lieu of receiving cash
dividends paid in the ordinary course), the Current Conversion Price
in effect on the effective date of such subdivision or combination,
consolidation or reclassification or on the record date for such
issue of Common Shares by way of a stock dividend, as the case may
be, shall be adjusted immediately after such effective date or
record date, as the case may be, so that it shall thereafter equal
the price determined by multiplying the Current Conversion
<PAGE>
- 15 -
Price in effect on such date by a fraction of which the numerator
shall be the total number of Common Shares outstanding immediately
prior to such date and the denominator shall be the total number of
Common Shares outstanding immediately after such date; such
adjustment shall be made successively whenever any event referred to
in this subclause 7.4(a) shall occur; any such issue of Common
Shares by way of a stock dividend shall be deemed to have been made
on the record date for the stock dividend for the purpose of
calculating the number of outstanding Common Shares under this
Clause 7.4;
(b) in case the Corporation shall fix a record date for the issuance of
rights, options or warrants to all or substantially all the holders
of its outstanding Common Shares entitling them for a period
expiring not more than forty-five (45) days after such record date,
to subscribe for or purchase Common Shares (or securities
convertible into Common Shares) at a subscription or purchase price
per share (or having a conversion price per share) less than 90% of
the Current Market Price on such record date, then the Current
Conversion Price shall be adjusted immediately after such record
date so that it shall equal the price determined by multiplying the
Current Conversion Price in effect on such record date by a
fraction, of which the numerator shall be the total number of Common
Shares outstanding on such record date plus a number of Common
Shares equal to the number arrived at by dividing the aggregate
price of the total number of additional Common Shares offered for
subscription or purchase (or the aggregate conversion price of the
convertible securities so offered) by the Current Market Price of a
Common Share, and of which the denominator shall be the total number
of Common Shares outstanding on such record date plus the total
number of additional Common Shares offered for subscription or
<PAGE>
- 16 -
purchase (or into which the convertible securities so offered
are/convertible). Any Common Shares owned by or held for the account
of the Corporation shall be deemed not to be outstanding for the
purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed. To the extent
that any such rights, options or warrants are not so issued or any
such rights, options or warrants are not exercised prior to the
expiration thereof, the Current Conversion Price shall be readjusted
to the Current Conversion Price which would then be in effect based
upon the number of rights, options or warrants actually issued or
the number of Common Shares (or securities convertible into Common
Shares) actually issued upon the exercise of such rights, options or
warrants, as the case may be; and
(c) in case the Corporation shall fix a record date for the making of a
distribution to all or substantially all the holders of its
outstanding Common Shares of (i) shares of any class other than
Common Shares, or (ii) rights, options or warrants (excluding those
referred to in subclause 7.4(b) and excluding rights, options or
warrants entitling the holders for a period expiring not more than
forty-five (45) days after such record date to subscribe for or
purchase Common Shares (or securities convertible into Common
Shares) at a subscription or purchase price per share (or having a
conversion price per share) greater than or equal to 90% of the
Current Market Price on such record date), or (iii) evidences of its
indebtedness, or (iv) any assets (excluding cash dividends paid in
the ordinary course and shares or other property or assets
distributed in lieu of such cash dividends at the option of
shareholders), then in each such case the Current Conversion Price
shall be adjusted immediately after such record date so that it
<PAGE>
- 17 -
shall equal the price determined by multiplying the Current
Conversion Price in effect on such record date by a fraction, of
which the numerator shall be the total number of Common Shares
outstanding on such record date multiplied by the Current Market
Price per Common Share on such record date, less the fair market
value (as determined by the board of directors of the Corporation
acting reasonably, whose determination shall be conclusive) of such
shares or rights, options or warrants or evidences of indebtedness
or assets so distributed, and of which the denominator shall be the
total number of Common Shares outstanding on such record date
multiplied by such Current Market Price per Common Share. Any Common
Shares owned by or held for the account of the Corporation shall be
deemed not to be outstanding for the purposes of any such
computation. Such adjustment shall be made successively whenever
such a record date is fixed. To the extent that such distribution of
shares, evidences of indebtedness or assets is not so made or to the
extent that any rights, options or warrants so distributed are not
exercised, the Current Conversion Price shall be readjusted to the
Current Conversion Price which would then be in effect based upon
such shares, evidences of indebtedness or assets actually
distributed or based upon the number of Common Shares (or securities
convertible into Common Shares) actually delivered upon the exercise
of such rights, options or warrants, as the case may be.
7.5 No adjustments of the Current Conversion Price shall be made pursuant to
subclause 7.4(b) or 7.4(c) if the holders of the Series A Shares are permitted
to participate in the issue of such rights, options or warrants or such
distribution, as the case may be, as though and to the same effect as if they
had converted their Series A Shares into Common Shares prior to the issue of
such rights, options or warrants or such distribution, as the case may be.
<PAGE>
- 18 -
7.6 No adjustment of the Current Conversion Price shall be made in any case in
which the cumulative effect of the resulting increase or decrease in the Current
Conversion Price would be less than 1% of the then Current Conversion Price, but
in such case any adjustment that would otherwise have been required then to be
made shall be carried forward and made at the time of, and together with, the
next subsequent adjustment to the Current Conversion Price which, together with
any and all such adjustments so carried forward, shall result in an increase or
decrease in the Current Conversion Price by not less than 1%.
7.7 When any action is taken which requires an increase or decrease of the
Current Conversion Price under Clause 7.4, the Corporation shall forthwith file
with the Transfer Agent a Certificate of the Corporation setting forth the
details of the action taken and, as the case may be, the increased or decreased
Current Conversion Price, the details of the computation of the adjusted Current
Conversion Price and the resulting adjusted Current Conversion Basis. The
Transfer Agent shall be under no duty to make any investigation or inquiry as to
the statements contained in any such Certificate of the Corporation or the
manner in which any computation was made, but the Transfer Agent may accept such
Certificate as conclusive evidence of the statements therein contained and shall
be fully protected with respect to any and all acts done or action taken or
suffered by it in reliance thereon. The Corporation shall exhibit a copy of such
Certificate of the Corporation from time to time to any holder of Series A
Shares desiring to inspect the same, and shall give notice of any such
adjustment of the Current Conversion Price and the resulting adjustment of the
Current Conversion Basis to the holders of the Series A Shares in the manner
provided in Section 9. The Corporation may retain a firm of independent
chartered accountants (who may be the auditors of the Corporation) to make any
computation required under Clause 7.4, and any computation so made shall be
final and binding on the Corporation and the
<PAGE>
- 19 -
holders of the Series A Shares. Such firm of independent chartered accountants
may, as to questions of law, request and rely upon an opinion of counsel (who
may be counsel for the Corporation).
7.8 Upon the surrender of any Series A Shares for conversion, the number of full
Common Shares issuable upon conversion thereof shall be equal to the aggregate
number of such Series A Shares to be converted multiplied by the Current
Conversion Basis. Fractional shares will not be issued on any conversion but in
lieu thereof the Corporation shall make cash payments. Payment shall be by
cheque of an amount equal to the then value of such fractional interest computed
on the basis of the Current Market Price.
7.9 The issuance of certificates for Common Shares upon the conversion of Series
A Shares shall be made without charge to the holders of the Series A Shares so
converted, of any fee or tax imposed on the Corporation in respect of the
issuance of such certificates or the Common Shares represented thereby; provided
that the Corporation shall not be required to pay any tax which may be imposed
upon the person or persons to whom such Common Shares are issued in respect of
the issuance of such Common Shares or the certificate therefor or which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name or names other than that of the holder of the Series
A Shares converted, and the Corporation shall not be required to issue or
deliver such certificate unless the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid,
or that the Corporation shall have no liability in respect thereof.
7.10 In case of any reclassification or change (other than a change resulting
only from consolidation or subdivision) of the
<PAGE>
- 20 -
Common Shares, or in case of any amalgamation, consolidation or merger of the
Corporation with or into any other corporation, or in the case of any sale of
the properties and assets of the Corporation as, or substantially as, an
entirety to any other corporation, each Series A Share shall, after such
reclassification, change, amalgamation, consolidation, merger, or sale be
convertible into the number of shares or other securities or property of the
Corporation or such continuing, successor, purchasing corporation, as the case
may be, to which a holder of the number of Common Shares as would have been
issued if such Series A Shares had been converted immediately prior to such
reclassification, change, amalgamation, consolidation, merger or sale would have
been entitled upon such reclassification, change, amalgamation, consolidation,
merger or sale. The board of directors of the Corporation may accept the
certificate of any firm of independent chartered accountants (who may be the
auditors of the Corporation) as to the foregoing calculation, and the board of
directors may determine such entitlement on the basis of such certificate. Any
such determination shall be conclusive and binding on the Corporation and the
holders of the Series A Shares. No such reclassification, change, amalgamation,
consolidation, merger or sale shall be carried into effect unless, in the
opinion of the board of directors of the Corporation, all necessary steps shall
have been taken to ensure that the holders of the Series A Shares shall
thereafter be entitled to receive such number of shares or other securities or
property of the Corporation or such continuing, successor or purchasing
corporation, as the case may be, subject to adjustment thereafter in accordance
with provisions similar, as nearly as may be, to those contained in this Section
7.
7.11 The Corporation shall give to the holders of Series A Shares at least
fourteen (14) days' prior notice of the record date for any of the events set
forth in Clause 7.4 other than a subdivision, combination, consolidation or
reclassification of the Common Shares and for the payment of any cash dividend
paid
<PAGE>
- 21 -
in the ordinary course or the distribution of shares or other property or assets
in lieu thereof and of the issue to any of the Corporation's shareholders of
rights to subscribe for Common Shares or other securities and shall give at
least thirty (30) days' prior notice of any repayment of capital on the Common
Shares. The accidental failure or omission to give the notice required by this
Clause 7.11 or any defect therein shall not affect the legality or validity of
any such payment, distribution or issue.
7.12 If in the opinion of the board of directors of the Corporation the
provisions of this Section 7 are not strictly applicable, or if strictly
applicable would not fairly protect the rights of the holders of the Series A
Shares in accordance with the intent and purposes hereof, the board of directors
shall make any adjustment in such provisions as the board of directors deems
appropriate.
8. RESTRICTIONS ON DIVIDENDS AND RETIREMENT OF SHARES
8.1 So long as any of the Series A Shares are outstanding, the Corporation will
not, without the approval of the holders of the Series A Shares given in the
manner set forth in Section 12,
(a) declare any dividend, other than stock dividend, on any shares of
the Corporation ranking junior to the Series A Shares with respect
to the payment of dividends;
(b) redeem or purchase or make any capital distribution in respect of
any shares of the Corporation ranking junior to the Series A Shares
with respect to the payment of dividends or repayment of capital
(except out of the proceeds of a new issue of shares ranking junior
to the Series A Shares in both such respects);
<PAGE>
- 22 -
(c) except in connection with the Retraction Privilege and pursuant to
the Retraction Limit attaching to the Series A Shares, redeem or
purchase less than all the Series A Shares; or
(d) except in connection with any retraction privilege attaching thereto
and provided a similar retraction privilege is extended or available
to the holders of the Series A Shares, redeem or purchase any shares
ranking on a parity with the Series A Shares.
9. NOTICES
9.1 Any notice, required to be given under the provisions attaching to the
Series A Shares to the registered holders thereof shall be given by ordinary
unregistered mail, postage prepaid, addressed to each holder at the last address
of such holder as it appears on the books of the Corporation or, in the event of
the address of any such holder not so appearing, then to the address of such
holder last known to the Corporation; provided that accidental failure or
omission to give any notice as aforesaid to one or more of such holders shall
not invalidate any action or proceeding founded thereon. Any such notice shall
be deemed to have been given on the second business day after mailing.
10. INTERPRETATION
10.1 In the event that any date on which any dividend on the Series A Shares is
payable by the Corporation, or on or by which any other action is required to be
taken by the Corporation hereunder, is not a business day (as hereinafter
defined), then such dividend shall be payable, or such other action shall be
required to be taken, on or by the next succeeding date that is a business day.
A "business day" shall be a day other than a Saturday, a Sunday or any other day
that is treated as a holiday in the
<PAGE>
- 23 -
Province in which the Corporation has its principal office in Canada.
11. AMENDMENTS
11.1 The rights, restrictions, conditions and limitations attached to the Series
A Shares may be amended, modified, suspended, altered or repealed but only if
consented to, or approved by, the holders of the Series A Shares in the manner
hereinafter specified and in accordance with any requirements of the applicable
legislation and any amendments thereto from time to time.
12. APPROVAL BY HOLDERS OF SERIES A SHARES
12.1 For the purposes of Sections 8 and 11, any consent or approval given by the
holders of Series A Shares shall be deemed to have been sufficiently given if it
shall have been given in writing by the holders of at least 66-2/3% of the
outstanding Series A Shares or by a resolution passed at a meeting of holders of
Series A Shares duly called and held upon not less than twenty-one (21) days
notice to the holders and carried by the affirmative vote of not less than
66-2/3% of the votes cast at such meeting. A quorum for the purposes of a
meeting of the holders of Series A Shares shall be the holders of twenty (20%)
percent of the outstanding Series A Shares being present in person or
represented by proxy. If at any such meeting of the holders of Series A Shares
called by the Corporation a quorum is not present within one-half hour after the
time appointed for such meeting then the meeting shall be adjourned to such date
not less than twenty-one (21) nor more than twenty-eight (28) days thereafter
and to such time and place as may be designated by the chairman, and not less
than ten (10) days' written notice shall be given of such adjourned meeting. At
such adjourned meeting the holders of Series A Shares present or represented by
proxy may transact the business for which the meeting was originally
<PAGE>
- 24 -
convened and a resolution passed thereat by the affirmative vote of not less
than 66-2/3% of the votes cast at such meeting shall constitute the consent or
approval of the holders of Series A Shares. On every poll taken at every meeting
every holder of Series A Shares shall be entitled to one vote in respect of each
Series A Share held.
13. VOTING RIGHTS
13.1 Except as required by law, the holders of the Series A Shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting.
13.2 When the holders of Series A Shares vote separately as holders of Preferred
Shares in accordance with Clause 12, each holder shall be entitled to one (1)
vote in respect of each Series A Share held by such holder.
14. TAXABLE PREFERRED SHARES ELECTION
14.1 The Corporation shall elect pursuant to proposed subsection 191.2(1) of
the Income Tax Act (Canada)(the "Tax Act"), or pursuant to any similar
provision enacted in substitution for that subsection (provided such
substitution is not detrimental to the Corporation compared to the proposed
subsection) by filing the form prescribed pursuant to proposed subsection
191.2(1) of the Tax Act (and within the time period referred to in proposed
subsection 191.2(1)) with the Minister of National Revenue with respect to
the Series A Shares.
<PAGE>
Exhibit 3.1(DD)
================================================================================
20353521
--------------------
Corporate Access No.
Alberta
BUSINESS CORPORATIONS ACT
Form 5
CERTIFICATE OF AMENDMENT
- VENTURES GAINED INC. -
- --------------------------------------------------------------------------------
Name of Corporation
I HEREBY CERTIFY THAT THE ARTICLES OF THE ABOVE-MENTIONED CORPORATION WERE
AMENDED.
|_| UNDER SECTION 13 OF THE BUSINESS CORPORATIONS ACT IN ACCORDANCE WITH THE
ATTACHED NOTICE;
|_| UNDER SECTION 27 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT DESIGNATING A SERIES OF SHARES;
|X| UNDER SECTION 171 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT;
|_| UNDER SECTION 185 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF REORGANIZATION;
|_| UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF ARRANGEMENT.
/s/ [ILLEGIBLE]
-----------------------------------
Registrar of Corporations
[SEAL]
June 27, 1988
------------------------------
Date of Incorporation
================================================================================
<PAGE>
BUSINESS CORPORATIONS ACT FORM 4
(SECTION 27 OR 171)
CORPORATE REGISTRAR
RECEIVED
AUG 2 1988
CALGARY
PROVINCE OF ALBERTA
Alberta ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER:
VENTURES GAINED INC. 20353521
- --------------------------------------------------------------------------------
3.THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
1. Pursuant to Section 167 (1) (e) of the Business Corporations Act (Alberta),
Item 2 of the Articles of the Corporation be amended by changing the rights,
privileges, restrictions and conditions attaching to the 6% Non-Cumulative
Redeemable Convertible Retractable First Preferred Shares, Series A as follows:
(a) by deleting paragraph 2.1 (b) of Schedule "A" attached to the
Articles of Amendment dated August 2, 1988 and substituting the
following:
"2.1 (b) a rate of 20% of the Corporation's net income before
depreciation, before depletion and after current income
taxes as computed in accordance with generally accepted
accounting principles."
(b) by deleting paragraph 2.2 of Schedule "A" attached to the Articles
of Amendment dated August 2, 1988 and substituting the following:
"2.2 The Corporation shall, promptly after the preparation of its
annual financial statements, provide notice to the Transfer Agent as
to the amount set forth in paragraph 2.1 (b)."
(c) by inserting the date "July 25, 1988" after the words "were
constituted on" in the third sentence of paragraph 7.1 (c) of
Schedule "A" attached to the Articles of Amendment dated August 2,
1988.
(d) by deleting the words "Tax Act" in the second sentence of paragraph
14.1 of Schedule "A" attached to the Articles of Amendment dated
August 2, 1988, and substituting the words "Income Tax Act (Canada)
(the "Tax Act")"
FILED
JUN 27 1989
THE REGISTRAR OF CORPORATIONS
PROVINCE OF ALBERTA
- --------------------------------------------------------------------------------
DATE SIGNATURE TITLE
- --------------------------------------------------------------------------------
June 16, 1989 /s/ Jeffrey P. Goguen President
---------------------
JEFFREY P. GOGUEN
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
<PAGE>
Exhibit 3.1(EE)
================================================================================
20353521
--------------------
Corporate Access No.
Alberta
BUSINESS CORPORATIONS ACT
Form 5
CERTIFICATE OF AMENDMENT
TOMAHAWK CORPORATION
- --------------------------------------------------------------------------------
Name of Corporation
I HEREBY CERTIFY that the Articles of the above mentioned Corporation were
amended under:
Section 27 of the Business Corporations Act as set out in the attached Articles
of Amendment designating a series of shares.
Section 171 of the Business Corporations Act as set out in the attached Articles
of Amendment.
/s/ [ILLEGIBLE]
-----------------------------------
Registrar of Corporations
[SEAL]
June 11, 1993
------------------------------
Date of Amendment
================================================================================
<PAGE>
-----------------------------
FILED
JUN 11, 1993
Registrar of Corporations
Province of Alberta
-----------------------------
BUSINESS CORPORATIONS ACT
(Sections 27 and 167)
ARTICLES OF AMENDMENT
1. NAME OF CORPORATION:
VENTURES GAINED INC.
2. CORPORATE ACCESS NO.
20353521
3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
(a) Pursuant to subsection 167(1)(a) of the Business Corporations Act
(the "Act"), Item 1 of the Articles of Incorporation (the
"Articles") be amended by deleting the existing Item 1 of the
Articles and substituting the following:
"1. NAME OF CORPORATION:
TOMAHAWK CORPORATION"
(b) Pursuant to subsection 167(1)(f) of the Act, Item 6 of the Articles
be amended by the addition of the following provision:
"6. OTHER PROVISIONS IF ANY:
Change the issued Common Shares of the Corporation as at May
5, 1993 by consolidating into one Common Share each two issued
Common Shares."
(c) Pursuant to section 27(5) of the Act, the directors of the
Corporation do hereby designate pursuant to Item 2, paragraph
2(b)(i) a series of the Convertible Preferred shares authorized to
be issued pursuant to paragraph 2(b) of the Articles, and
accordingly the Articles are hereby amended by the addition thereto
of paragraph 2(c) as set forth on Schedule "A" hereto.
DATE: June 11, 1993.
SIGNATURE: TITLE:
/s/ Mani Chopra SOLICITOR
- --------------------
Mani Chopra
<PAGE>
2
SCHEDULE "A"
2(c) DESIGNATION OF SERIES
Three series of Preferred Shares are designated by the Corporation as
Class "A", Series "I", Series "II", and Series "III" Preferred Shares,
respectively, the said Series of Preferred Shares being so designated
pursuant to subsection 27(5) of the Business Corporations Act and
consisting of such number, and having the rights, privileges, restrictions
and conditions attaching thereto as follows:
(I) Number
Each of the Class "A" Preferred Shares shall consist of an unlimited
number of such shares.
(II) Dividends
Subject to the prior rights of the holders of any other Series of
Preferred shares of the Corporation with respect to priority in the
payment of dividends, the holders of Class "A" Preferred shares
shall be entitled to receive dividends, as and when declared by the
Directors of the Corporation out of assets properly applicable to
the payment of dividends, in such amount and in such form as the
board of directors may from time to time determine.
(III) Priority on Liquidation
In the event of the dissolution of liquidation of the Corporation or
a sale of all its assets, whether voluntary or involuntary, or in
the event of its insolvency, or upon any distribution of its
capital, there shall be paid to the holders of Class "A" Preferred
shares the amount paid up thereon plus the amount of all unpaid
dividends accrued thereon without interest (in these Articles
collectively called "the Redemption Amount") before any sum shall be
paid to or any assets distributed among the holders of the Common
shares. After such payment to the holders of the Class "A" Preferred
shares, the remaining assets and funds of the Corporation shall be
divided among and paid to the holders of the Common shares in
proportion to their holdings of such shares.
<PAGE>
3
(IV) Conversion Right
(A) For each $1.50 of Cumulative Cash Flow (as that term is hereinafter
defined) a share of Series I Preferred Shares is convertible into 10
common shares of the Corporation. Following the right of conversion
for all Series I Preferred Shares, for each $2.00 of Cumulative Cash
Flow a share of the Series II Preferred Share is convertible into 10
common shares of the Corporation. Following the right of conversion
for all Series I and Series II Preferred Shares, for each $2.50 of
Cumulative Cash Flow a share of the Series III Preferred Shares is
convertible into 10 common shares of the Corporation.
On a consolidation, subdivision, amalgamation or reclassification of
the Corporation's shares, the conversion calculation must be
adjusted so that the proportion of the outstanding Class "A"
Preferred Shares available for conversion is unaffected by the
consolidation, subdivision, amalgamation or reclassification.
The Class "A" Preferred Shares may be converted only once during the
Corporation's financial year. The conversion calculation must be
based on the Corporation's annual audited consolidated financial
statements for the year or years during which the conversion
requirements were met in respect of the Class "A" Preferred Shares
to be converted.
For the purposes of the above-referenced conversion formula, "Cash
Flow" means net income or loss after tax, generated from the
business of TomaHawk Imaging & Financial Inc. or any of its
subsidiaries as shown on the consolidated audited financial
statements or verified by the Corporation's auditors, adjusted to
add back the following expenses:
(i) Depreciation,
(ii) Depletion,
(iii) Deferred taxes,
(iv) Amortization of goodwill, and
(v) Deferred research and development costs.
"Cumulative Cash Flow" means, at any time the aggregate Cash Flow of
the Corporation up to that time from a date no earlier than June 1,
1993, net of any negative Cash Flow.
(B) A holder of Class "A" Preferred Shares who wishes to avail himself
of this right of conversion shall
<PAGE>
4
submit to the head office of the Corporation a written notice
indicating the number of each Series Class "A" Preferred shares he
wishes to convert. Certificates representing the Class "A" Preferred
Shares to be converted shall be attached to the notice. Upon receipt
of any such notice and the Certificates, the Corporation shall
consult its auditors to confirm the number of Class "A" Preferred
shares which are at that time convertible, and without charge issue
ten (10) Common Shares for each Class "A" Preferred Share which is
then requested to be converted or which is then convertible having
regard to the Cumulative Cash Flow of the Corporation, whichever is
less, and, if only some of the Class "A" Preferred Shares evidenced
on the certificates are converted, the Corporation shall, without
charge, issue a new certificate representing the remaining number of
Class "A" Preferred Shares.
(C) Notwithstanding paragraph (A), the Corporation may apply to The
Alberta Stock Exchange for earlier conversion of the Class "A"
Preferred Shares or amendment to the terms of conversion herein
stated.
(V) TRANSFERABILITY
Class "A" Preferred Shares may not be transferred except with the
prior approval of the directors, who may in their absolute
discretion, refuse to register the transfer of any said shares, such
approval to be evidenced by a resolution of the directors.
(VI) CANCELLATION
In the event that any of the Class "A" Series I Preferred Shares are
not eligible for conversion to Common Shares at the conclusion of
the Corporation's fiscal year beginning 1995 , subject to the
discretion of The Alberta Stock Exchange, the ineligible Class "A"
Series I Preferred Shares shall be cancelled.
In the event that any of the Class "A" Series II Preferred Shares
are not eligible for conversion to Common Shares at the conclusion
of the Corporation's fiscal year beginning 1997, subject to the
discretion of The Alberta Stock Exchange, the Class "A" Series II
Preferred Shares shall be cancelled.
<PAGE>
5
In the event that any of the Class "A" Series III Preferred Shares
are not eligible for conversion to Common Shares at the conclusion
of the Corporation's fiscal year beginning 1999, subject to the
discretion of The Alberta Stock Exchange, the Class "A" Series III
Preferred Shares shall be cancelled.
(VII) OTHER PROVISIONS
In the event that TomaHawk Imaging & Financial Inc. or any of its
subsidiaries either becomes insolvent, is petitioned into
bankruptcy, takes legislative protection from its creditors or
ceases, then any Class "A" Preferred Shares which remain outstanding
must be surrendered to the Corporation for cancellation and the
Corporation and holders of such shares covenant to attend to their
cancellation immediately.
<PAGE>
Exhibit 3.1(FF)
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CORPORATE ACCESS NUMBER
20353521
Alberta
GOVERNMENT OF ALBERTA
BUSINESS CORPORATIONS ACT
CERTIFICATE
OF
AMENDMENT
TOMAHAWK CORPORATION
AMENDED ITS ARTICLES TO CREATE SHARES IN SERIES ON
MAY 7, 1996.
/s/ [ILLEGIBLE]
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[SEAL] Registrar of Corporations
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BUSINESS CORPORATIONS ACT
(Section 27 or 167)
ARTICLES OF AMENDMENT
1. NAME OF CORPORATION:
TOMAHAWK CORPORATION
2. CORPORATE ACCESS NO.
20353521
3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
Pursuant to subsection 27(5) of the Business Corporations Act, the
directors of the Corporation do hereby designate three series of the
Preferred shares authorized to be issued pursuant to paragraph 2(a) of
Schedule I of the Articles of Amendment, the series to have the
designation, price, restrictions, conditions and limitations as set forth
on Schedule "A" hereto.
This amendment is deemed to be remedial and effective as of June 11, 1993
to clarify the Articles of Amendment dated June 11, 1993.
DATE: May 7, 1996
SIGNATURE: TITLE:
/s/ Mani Chopra
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Mani Chopra Solicitor
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SCHEDULE "A"
DESIGNATION OF SERIES
Three series of Preferred Shares are designated by the Corporation as Class "A",
Series "I", Series "II", and Series "III" Preferred Shares, respectively, the
said Series of Preferred Shares being so designated pursuant to subsection 27(5)
of the Business Corporations Act and consisting of such number, and having the
rights, privileges, restrictions and conditions attaching thereto as follows:
(I) Number
Each of the Class "A" Preferred Shares shall consist of an unlimited
number of such shares.
(II) Dividends
Subject to the prior rights of the holders of any other Series of
Preferred shares of the Corporation with respect to priority in the
payment of dividends, the holders of Class "A" Preferred Shares shall be
entitled to receive dividends, as and when declared by the Directors of
the Corporation out of assets properly applicable to the payment of
dividends, in such amount and in such form as the board of directors may
from time to time determine.
(III) Priority on Liquidation
In the event of the dissolution or liquidation of the Corporation or a
sale of all of its assets, whether voluntary or involuntary, or in the
event of its insolvency, or upon any distribution of its capital, there
shall be paid to the holders of Class "A" Preferred shares the amount paid
up thereon plus the amount of all unpaid dividends accrued thereon without
interest (in these Articles collectively called "the Redemption Amount")
before any sum shall be paid to or any assets distributed among the
holders of the Common shares. After such payment to the holders of the
Series "A" Preferred Shares, the remaining assets and funds of the
Corporation shall be divided among and paid to the holders of the Common
shares in proportion to their holdings of such shares.
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(IV) Conversion Right
(A) For each $1.50 of Cumulative Cash Flow (as that term is hereinafter
defined) a share of Series I Preferred Shares is convertible into 10
common shares of the Corporation. Following the right of conversion
for all Series I Preferred Shares, for each $2.00 of Cumulative Cash
Flow a share of the Series II Preferred Shares is convertible into
10 common shares of the Corporation. Following the right of
conversion for all Series I and Series II Preferred Shares, for each
$2.50 of Cumulative Cash Flow a share of the Series III Preferred
Shares is convertible into 10 common shares of the Corporation.
On a consolidation, subdivision, amalgamation or reclassification of
the Corporation's shares, the conversion calculation must be
adjusted so that the proportion of the outstanding Class "A"
Preferred Shares available for conversion is unaffected by the
consolidation, subdivision, amalgamation or reclassification.
The Class "A" Preferred Shares may be converted only once during the
Corporation's financial year. The conversion calculation must be
based on the Corporation's annual audited consolidated financial
statements for the year or years during which the conversion
requirements were met in respect of the Class "A" Preferred Shares
to be converted.
For the purposes of the above-referenced conversion formula, "Cash
Flow" means net income or loss after tax, generated from the
business of TomaHawk Imaging & Financial Inc. or any of its
subsidiaries as shown on the consolidated audited financial
statements or verified by the Corporation's auditors, adjusted to
add back the following expenses:
(i) Depreciation,
(ii) Depletion,
(iii) Deferred taxes,
(iv) Amortization of goodwill, and
(v) Deferred research and development costs.
"Cumulative Cash Flow" means, at any time the aggregate Cash Flow of
the Corporation up to that time from a date no earlier than June 1,
1993, net of any negative Cash Flow.
(B) A holder of Class "A" Preferred Shares who wishes to avail himself
of this right of conversion shall
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submit to the head office of the Corporation a written notice
indicating the number of each Class "A" Preferred shares he wishes
to convert. Certificates representing the Class "A" Preferred Shares
to be converted shall be attached to the notice. Upon receipt of any
such notice and the Certificates, the Corporation shall consult its
auditors to confirm the number of Class "A" preferred shares which
are at that time convertible, and without charge issue ten (10)
Common Shares for each Class "A" Preferred Shares which is then
requested to be converted or which then is convertible having regard
to the Cumulative Cash Flow of the Corporation, whichever is less,
and if only some of the Class "A" Preferred Shares evidenced on the
certificates are converted, the Corporation shall without charge,
issue a new certificate representing the remaining Class "A"
Preferred Shares.
(C) Notwithstanding paragraph (A), the Corporation may apply to The
Alberta Stock Exchange for earlier conversion of the Class "A"
Preferred Shares or amendment to the terms of conversion herein
stated.
(V) TRANSFERABILITY
Class "A" Preferred Shares may not be transferred except with the
prior approval of the directors, who may in their absolute
discretion, refuse to register the transfer of any said shares, such
approval to be evidenced by a resolution of the directors.
(VI) CANCELLATION
In the event that any of the Class "A" Series I Preferred Shares are
not eligible for conversion to Common Shares at the conclusion of
the Corporation's fiscal year beginning 1995, subject to the
discretion of The Alberta Stock Exchange, the ineligible Class "A"
Series I Preferred Shares shall be cancelled.
In the event that any of the Class "A" Series II Preferred Shares
are not eligible for conversion to Common Shares at the conclusion
of the Corporation's fiscal year beginning 1997, subject to the
discretion of The Alberta Stock Exchange, the Class "A" Series II
Preferred Shares shall be cancelled.
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In the event that any of the Class "A" Series III Preferred Shares
are not eligible for conversion to Common Shares at the conclusion
of the Corporation's fiscal year beginning 1999, subject to the
discretion of The Alberta Stock Exchange, the Class "A" Series III
Preferred Shares shall be cancelled.
(VII) OTHER PROVISIONS
In the event that TomaHawk Imaging & Financial Inc. or any of its
subsidiaries either becomes insolvent, is petitioned into
bankruptcy, takes legislative protection from its creditors or
ceases to carry on its business, then any Class "A" Preferred Shares
which remain outstanding must be surrendered to the Corporation for
cancellation and the Corporation and holders of such shares covenant
to attend to their cancellation immediately.
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Exhibit 3.2
BY-LAW NUMBER 1
A by-law relating generally to the transaction of the business and
affairs of the Corporation.
BE IT ENACTED as a by-law of 353521 ALBERTA INC. (hereinafter called
the "Corporation") as follows:
SECTION ONE
INTERPRETATION
1.01 DEFINITIONS. In the by-laws and all resolutions of the Corporation, unless
the context otherwise requires:
(a) "Act" means the Business Corporations Act of Alberta, and any
statute that may be substituted therefor, as from time to time
amended;
(b) "appoint" includes "elect" and vice versa;
(c) "articles" means the original or restated articles of incorporation,
articles of amendment, articles of amalgamation, articles of
continuance, articles of reorganization, articles of arrangement,
articles of dissolution, articles of revival, and includes an
amendment to any of them;
(d) "board" means the board of directors of the Corporation;
(e) "by-laws" means this by-law and all other by-laws of the Corporation
from time to time in force and effect;
(f) "corporation" means a body corporate incorporated or continued under
the Act and not discontinued under the Act;
(g) "meeting of shareholders" means an annual meeting of shareholders
and a special meeting of shareholders;
(h) "non-business day" means Saturday, Sunday and any other day that is
a holiday as defined in the Interpretation Act (Alberta);
(i) "ordinary resolution" means a resolution:
(i) passed by a majority of the votes cast by the shareholders who
voted in respect of that resolution, or
(ii) signed by all the shareholders entitled to vote on that
resolution;
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(j) "recorded address" means in the case of a shareholder his address as
recorded in the Securities Register of the Corpora- tion; and in the
case of joint shareholders the address appearing in the Securities
Register of the Corporation in respect of such joint holding or the
first address so appearing if there are more than one; and in the
case of a director, officer, auditor or member of a committee of the
board, his latest address as recorded in the records of the
Corporation;
(k) "resident Albertan" means an individual who is ordinarily resident
in Alberta or, if not ordinarily resident in Alberta, is a member of
a prescribed class of persons and, in any case,
(i) is a Canadian citizen, or
(ii) has been lawfully admitted to Canada for permanent residence;
(1) "signing officer" means, in relation to any instrument, any person
authorized to sign the same on behalf of the Corporation by section
2.04 or by a resolution passed pursuant thereto;
(m) "special business" means all business transacted at a special
meeting of shareholders and all business transacted at an annual
meeting of shareholders, except consideration of the financial
statements, auditor's report, election of directors and
reappointment of the incumbent auditor;
(n) "special meeting of shareholders" means a special meeting of all
shareholders entitled to vote at an annual meeting of shareholders;
(o) "special resolution" means a resolution passed by a majority of not
less than 2/3 of the votes cast by the shareholders who voted in
respect of that resolution or signed by all the shareholders
entitled to vote on that resolution;
(p) "unanimous shareholder agreement" means:
(i) a written agreement to which all the shareholders of a
corporation are or are deemed to be parties, whether or not
any other person is also a party, or
(ii) a written declaration by a person who is the beneficial owner
of all the issued shares of a corporation,
that provides for any of the matters enumerated in section 140(1) of
the Act.
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Save as aforesaid, words and expressions defined in the Act have the same
meanings when used herein; and words importing the singular number include the
plural and vice versa; words importing gender include the masculine, feminine
and neuter genders; and words importing persons include individuals, bodies
corporate, partnerships, trusts and unincorporated organizations.
SECTION TWO
ADMINISTRATION
2.01 REGISTERED OFFICE and SEPARATE RECORDS OFFICE. Until changed in accordance
with the Act, the registered office of the Corporation shall be in the place
within Alberta specified in the articles and at such location therein as the
board may from time to time determine. The records office will be at such
location, if any, as the board may from time to time determine.
2.02 CORPORATE SEAL. Until changed by the board, the Corporation shall adopt a
corporate seal which shall be composed of two concentric circles between the
circumference of which the name of the Corporation is to be inscribed and the
centre of the inner circle contains the words "Corporate Seal".
2.03 FINANCIAL YEAR. The financial year end of the Corporation shall be as from
time to time determined by the Board.
2.04 EXECUTION OF INSTRUMENTS. The Secretary or any other officer or any
director may sign certificates and similar instruments (other than share
certificates) on the Corporation's behalf with respect to any factual matters
relating to the Corporation's business and affairs, including certificates
certifying copies of the articles, by-laws, resolutions and minutes of meetings
of the Corporation. Subject to the foregoing, deeds, transfers, assignments,
contracts, obligations, certificates and other instruments shall be signed on
behalf of the Corporation by two persons, one of whom holds the office of
chairman of the board, president, managing director, vice-president or director
and the other of whom holds one of the said offices or the office of secretary,
treasurer, assistant secretary or assistant treasurer or any other office
created by by-law or by resolution of the board; provided, however, that if the
Corporation has only one director, that director alone may sign any such
documents on behalf of the Corporation. In addition, the board may from time to
time direct the manner in which and the person or persons by whom any particular
instrument or class of instruments may or shall be signed.
2.05 BANKING ARRANGEMENTS. The banking business of the Corporation including,
without limitation, the borrowing of money and the giving of security therefor,
shall be transacted with such banks, trust companies or other bodies corporate
or organizations as may from time to time be designated by or under the
authority of the board. Such banking business or any part thereof shall be
transacted under such agreements, instruc-
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tions and delegations of powers as the board may from time to time prescribe or
authorize.
2.06 VOTING RIGHTS IN OTHER BODIES CORPORATE. The signing officers of the
Corporation may execute and deliver instruments of proxy and arrange for the
issuance of voting certificates or other evidence of the right to exercise the
voting rights attaching to any securities held by the Corporation. Such
instruments, certificates or other evidence shall be in favour of such person or
persons as may be determined by the persons signing or arranging for them. In
addition, the board may direct the manner in which and the person or persons by
whom any particular voting rights or class of voting rights may or shall be
exercised.
2.07 DIVISIONS. The board may cause the business and operations of the
Corporation or any part thereof to be divided into one or more divisions upon
such basis, including without limitation types of business or operations,
geographical territories, product lines, or goods or services, as may be
considered appropriate in each case. In connection with any such division the
board or, subject to any direction by the board, the chief executive officer may
authorize from time to time, upon such basis as may be considered appropriate in
each case:
(a) Subdivision and Consolidation - the further division of the business
and operations of any such division into sub-units and the
consolidation of the business and operations of any such divisions
and sub-units;
(b) Name - the designation of any such division or sub-unit by, and the
carrying on of the business and operations of any such division or
sub-unit under, a name other than the name of the Corporation,
provided that the Corporation shall set out its name in legible
characters in all places required by law; and
(c) Officers - the appointment of officers for any such division or
sub-unit, the determination of their powers and duties, and the
removal of any of such officers so appointed, provided that any such
officers shall not, as such, be officers of the Corporation.
2.08 FINANCIAL ASSISTANCE TO SHAREHOLDERS, EMPLOYEES AND OTHERS.
(1) The Corporation may give financial assistance by means of a loan, guarantee
or otherwise:
(a) to any person in the ordinary course of business if the lending of
money is part of the ordinary business of the Corporation;
(b) to any person on account of expenditures incurred or to be incurred
on behalf of the Corporation;
(c) to a holding body corporate if the Corporation is a wholly-owned
subsidiary of the holding body corporate;
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(d) to a subsidiary body corporate of the Corporation; or
(e) to employees of the Corporation or any of its affiliates:
(i) to enable or assist them to purchase or erect living
accommodation for their own occupation, or
(ii) in accordance with a plan for the purchase of shares of the
Corporation or any of its affiliates to be held by a trustee.
(2) Except as permitted under subsection (1) above, a Corporation shall not,
directly or indirectly, give financial assistance by means of a loan, guarantee
or otherwise:
(a) to a shareholder or director of the Corporation or of an affi-
liated Corporation;
(b) to an associate of a shareholder or director of the Corporation or
of an affiliated Corporation; or
(c) to any person for the purpose of or in connection with a purchase of
a share issued or to be issued by the Corporation or an affiliated
Corporation;
if there are reasonable grounds for believing that:
(d) the Corporation is, or after giving the financial assistance would
be, unable to pay its liabilities as they become due; or
(e) the realizable value of the Corporation's assets, excluding the
amount of any financial assistance in the form of a loan or in the
form of assets pledged or encumbered to secure a guarantee, after
giving the financial assistance, would be less than the aggregate of
the Corporation's liabilities and stated capital of all classes.
SECTION THREE
BORROWING AND SECURITIES
3.01 BORROWING POWERS. Without limiting the borrowing powers of the Corporation
as set forth in the Act, the board may from time to time without the
authorization of the shareholders:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge bonds, debentures, notes or other
evidence of indebtedness or guarantee of the Corporation, whether
secured or unsecured;
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(c) charge, mortgage, hypothecate, pledge or otherwise create, issue,
execute and deliver a security interest in all or any currently
owned or subsequently acquired real or personal, movable or
immovable property of the Corporation, including book debts, rights,
powers, franchises and undertaking to secure any such bonds,
debentures, notes or other evidences of indebtedness or guarantee or
any other present or future indebtedness or liability of the
Corporation; and
(d) give a guarantee on behalf of the Corporation to secure the
obligation of any person.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Corporation.
3.02 DELEGATION. The board may from time to time delegate to such one or more of
the directors and officers of the Corporation as may be designated by the board
all or any of the powers conferred on the board by section 3.01 or by the Act to
such extent and in such manner as the board shall determine at the time of each
such delegation.
SECTION FOUR
DIRECTORS
4.01 NUMBER OF DIRECTORS AND QUORUM. Until changed in accordance with the Act,
the board of directors shall consist of such number of directors being not less
than the minimum nor more than the maximum number of directors provided in the
articles of incorporation as shall be fixed from time to time by resolution of
the shareholders. A majority of directors shall constitute a quorum for the
transaction of business.
4.02 QUALIFICATION. The following persons are disqualified from being a director
of the Corporation:
(a) anyone who is less than 18 years of age;
(b) anyone who:
(i) is a dependent adult as defined in The Dependent Adults Act or
is the subject of a certificate of incapacity under that Act,
(ii) is a formal patient as defined in The Mental Health Act, 1972,
(iii) is the subject of an order under The Mentally Incapacitated
Persons Act appointing a committee of his person or estate or
both, or
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(iv) has been found to be a person of unsound mind by a court
elsewhere than in Alberta;
(c) a person who is not an individual;
(d) a person who has the status of bankrupt.
Subject to the Act, at least half of the directors shall be resident Albertans.
4.03 ELECTION AND TERM. The election of directors shall take place at the-first
meeting of shareholders and at each annual meeting of shareholders and all the
directors then in office shall retire, but, if qualified, shall be eligible for
re-election. The number of directors to be elected at any such meeting shall be
the number of directors then in office unless the directors or the shareholders
otherwise by resolution determine. The election shall be by ordinary resolution.
If an election of directors is not held at the proper time, the incumbent
directors shall continue in office until their successors are elected.
4.04 REMOVAL OF DIRECTORS. Subject to the Act, the shareholders may by ordinary
resolution passed at a special meeting remove any director from office and the
vacancy created by such removal may be filled at the meeting of the shareholders
at which the director was removed or if not so filled may be filled by the
directors.
4.05 CEASING TO HOLD OFFICE. A director ceases to hold office when he dies, when
he is removed from office by the shareholders, when he ceases to be qualified
for election as a director, or when his written resignation is sent or delivered
to the Corporation, or if a time is specified in such resignation, at the time
so specified, whichever is later. Provided always that, subject to the Act, the
shareholders of the Corporation may by ordinary resolution at a special meeting
remove any director or directors from office.
4.06 VACANCIES. Subject to the Act, a quorum of the board may fill a vacancy in
the board, except a vacancy resulting from an increase in the minimum number of
directors or from a failure of the shareholders to elect the minimum number of
directors. In the absence of a quorum of the board, or if the vacancy has arisen
from a failure of the shareholders to elect the minimum number of directors, the
board shall forthwith call a special meeting of the shareholders to fill the
vacancy. If the board fails to call such meeting or if there are no such
directors then in office, any shareholder may call the meeting.
4.07 ACTION BY THE BOARD. Subject to any unanimous shareholder agreement, the
board shall manage the business and affairs of the Corporation. Subject to the
provisions of these by-laws relating to Albertan majority and participation by
telephone, the powers of the board may be exercised by a meeting at which the
quorum is present or by resolution in writing signed by all the directors
entitled to vote on that resolution at a meeting of the board. Where there is a
vacancy in the board, the
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remaining directors may exercise all the powers of the board so long as a quorum
remains in office. Where the Corporation has only one director, that director
may constitute a meeting.
4.08 MAJORITY ALBERTA RESIDENCE. Subject to the Act, the board shall not
transact business at a meeting, other than filling a vacancy in the board,
unless a majority of the directors present are residents of Alberta, except
where:
(a) a resident Albertan director who is unable to be present approves in
writing or by telephone or other communications facilities the
business transacted at the meeting; and
(b) the number of resident Albertan directors present at the meeting,
together with any resident Albertan director who gives his approval
under clause (a), totals at least half of the directors present at
the meeting.
4.09 PARTICIPATION BY TELEPHONE. A director may participate in a meeting of the
board or of a committee of the board by means of such telephone or other
communications facilities as permit all persons participating in the meeting to
hear each other, and a director participating in such a meeting by such means is
deemed to be present at the meeting.
4.10 PLACE OF MEETINGS. Meetings of the board may be held at any place in or
outside Canada.
4.11 CALLING OF MEETINGS. Meetings of the board shall be held from time to time
at such time and at such place as the board, the chairman of the board, the
managing director, the president or any two directors may determine. Provided
always that should more than one of the above named call a meeting at or for
substantially the same time there shall be held only one meeting and such
meeting shall occur at the time and place determined by, in order of priority,
the board, the chairman or the president.
4.12 NOTICE OF MEETING. Notice of the time and place of each meeting of the
board shall be given to each director not less than 2 clear business days,
excluding any part of a non-business day, before the time when the meeting is to
be held. Notice shall be effected when it is personally delivered or when it is
delivered to the latest address of the director as shown in the records of the
Corporation or in the last notice filed pursuant to section 101 or 108 of the
Act. Provided always that should personal delivery be attempted and be
unsuccessful, notice by delivery to an address of record shall nevertheless be
effective. A notice of a meeting of directors need not specify the purpose of or
the business to be transacted at the meeting except where the Act requires such
purpose or business to be specified, including any proposal to:
(a) submit to the shareholders any question or matter requiring approval
of the shareholders;
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(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities;
(d) declare dividends;
(e) purchase, redeem, or otherwise acquire shares of the Corporation;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve any annual financial statements;
(i) adopt, amend or repeal by-laws;
(j) demand or accept the resignation of or make the appointment of any
officer or officers; or
(k) call a meeting or a special meeting of shareholders.
A director may in any manner waive notice of a meeting of directors, and
attendance of a director at a meeting of directors is a waiver of notice of the
meeting, except when a director attends a meeting for the express purpose of
objecting to the transaction of any business on the grounds that the meeting is
not lawfully called.
4.13 FIRST MEETING OF NEW BOARD. Provided a quorum of directors is present, each
newly elected board may without notice hold its first meeting immediately
following the meeting of shareholders at which such board is elected.
4.14 ADJOURNED MEETING. Notice of an adjourned meeting of the board is not
required if the time and place of the adjourned meeting is announced at the
original meeting.
4.15 REGULAR MEETINGS. The board may appoint a day or days in any month or
months for regular meetings of the board at a place and hour to be named. A copy
of any resolution of the board fixing the place and time of such regular
meetings shall be sent to each director forthwith after being passed, but no
other notice shall be required for any such regular meeting except where the Act
requires the purpose thereof or the business to be transacted thereat to be
specified.
4.16 CHAIRMAN AND SECRETARY. The chairman of the board, or, in his absence, the
president, or in his absence, a vice-president shall be chairman of any meeting
of the board. If none of the said officers are present, the directors present
shall choose one of their number to be chairman. The secretary of the
Corporation shall act as secretary at any meeting of the board, and if the
secretary of the Corporation be absent, the chairman of the meeting shall
appoint a person, who need not be a director, to act as secretary of the
meeting.
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4.17 VOTES TO GOVERN. At all meetings of the board every question shall be
decided by a majority of the votes cast on the question, the chairman shall be
entitled to vote and in case of an equality of votes the chairman of the meeting
shall not be entitled to a second or casting vote.
4.18 CONFLICT OF INTEREST. A director or officer who is a party to, or who is a
director or officer of or has a material interest in any person who is a party
to, a material contract or proposed material con- tract with the Corporation
shall disclose the nature and extent of his interest to the board at the time
and in the manner provided by the Act. Any such contract or proposed contract
shall be referred to the board for approval even if such contract is one that in
the ordinary course of the Corporation's business would not require approval by
the board, and a director interested in a contract so referred to the board
shall not vote on any resolution to approve the same except as provided by the
Act.
4.19 REMUNERATION AND EXPENSES. Subject to any unanimous share- holder
agreements, the directors shall be paid such remuneration for their services as
the board may from time to time determine.
SECTION FIVE
COMMITTEES
5.01 COMMITTEE OF DIRECTORS. The board may appoint a committee of directors,
however designated, or a managing director, who must be a resident Albertan, and
delegate to such committee or managing director any of the powers of the board
except those which, under the Act, a committee of directors or managing director
has no authority to exercise. At least half of the members of such committee
shall be residents of Alberta. A committee may be comprised of one director.
5.02 TRANSACTION OF BUSINESS. Subject to the provisions of these by-laws
relating to participation by telephone, the powers of a committee of directors
may be exercised by a meeting at which a quorum is present or by resolution in
writing signed by all the members of such committee who would have been entitled
to vote on that resolution at a meeting of the committee. Meetings of such
committee may be held at any place in or outside Canada and may be called by any
one member of the committee giving notice in accordance with the by-laws
governing the calling of directors meetings.
5.03 PROCEDURE. Unless otherwise determined herein or by the board, each
committee shall have the power to fix its quorum at not less than a majority of
its members, to elect its chairman and to regulate its procedure.
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SECTION SIX
OFFICERS
6.01 APPOINTMENT OF OFFICERS. Subject to any unanimous shareholder agreement,
the board may from time to time appoint a chairman of the board, a managing
director (who shall be a resident Albertan), a president, one or more
vice-presidents, a secretary, a treasurer and such other officers as the board
may determine, including one or more assistants to any of the officers so
appointed. The board may specify the duties of and, in accordance with this
by-law and subject to the provisions of the Act, delegate to such officers
powers to manage the business and affairs of the Corporation. Except for a
managing director and a chairman of the board, an officer may but need not be a
director and one person may hold more than one office. The president or such
other officer as the board may designate, shall be the chief executive officer
of the Corporation.
6.02 CHAIRMAN OF THE BOARD. The board may from time to time appoint a chairman
of the board who shall be a director. If appointed, the board may assign to him
any of the powers and duties that are by any provisions of this by-law assigned
to the managing director or to the president; and he shall, subject to the
provisions of the Act, have such other powers and duties as the board may
specify. He shall preside at all meetings of the shareholders at which he is
present. During the absence or disability of the chairman of the board, his
duties shall be performed and his powers exercised by the managing director, if
any, or by the president if there is no managing director.
6.03 MANAGING DIRECTOR. The board may from time to time appoint a managing
director who shall be a resident Albertan and a director. If appointed, he shall
have, subject to the authority of the board, general supervision of the business
and affairs of the Corporation; and he shall, subject to the provisions of the
Act, have such other powers and duties as the board may specify. During the
absence or disability of the president, or if no president has been appointed,
the managing director shall also have the powers and duties of that office.
6.04 PRESIDENT. If appointed, the president shall be the chief executive
officer, and, subject to the authority of the board, shall have general
supervision of the business of the Corporation; and he shall have such other
powers and duties as the board may specify. During the absence or disability of
the managing director, or if no managing director has been appointed, the
president shall also have the powers and duties of that office.
6.05 VICE-PRESIDENT. A vice-president shall have such powers and duties as the
board or the chief executive officer may specify.
6.06 SECRETARY. The secretary shall attend and be the secretary of all meetings
of the board, shareholders and committees of the board and
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shall enter or cause to be entered in records kept for that purpose minutes of
all proceedings thereat; he shall give or cause to be given, as and when
instructed, all notices to shareholders, directors, officers, auditors and
members of committees of the board; he shall be the custodian of the stamp or
mechanical device generally used for affixing the corporate seal of the
Corporation and of all books, papers, records, documents and instruments
belonging to the Corporation, except when some other officer or agent has been
appointed for that purpose; and he shall have such other powers and duties as
the board or the chief executive officer may specify.
6.07 TREASURER. The treasurer shall keep proper accounting records in compliance
with the Act and shall be responsible for the deposit of money, the safekeeping
of securities and the disbursement of the funds of the Corporation; he shall
render to the board whenever required an account of all his transactions as
treasurer and of the financial position of the Corporation; and he shall have
such other powers and duties as the board or the chief executive officer may
specify.
6.08 POWERS AND DUTIES OF OTHER OFFICERS. The powers and duties of all other
officers shall be such as the terms of their engagement call for or as the board
or the chief executive officer may specify. Any of the powers and duties of an
officer to whom an assistant has been appointed may be exercised and performed
by such assistant, unless the board or the chief executive officer otherwise
directs.
6.09 VARIATION OF POWERS AND DUTIES. The board may from time to time subject to
the provisions of the Act, vary, add to or limit the powers and duties of any
officer.
6.10 TERM OF OFFICE. The board, in its discretion, may remove any officer of the
Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise each officer appointed by the board shall hold office until
his successor is appointed.
6.11 TERMS OF EMPLOYMENT AND REMUNERATION. The terms of employment and the
remuneration of officers appointed by the board shall be settled by it from time
to time. The fact that any officer is a director or shareholder of the
Corporation shall not disqualify him from receiving such remuneration as an
officer as may be determined.
6.12 CONFLICT OF INTEREST. An officer shall disclose his interest in any
material contract or proposed material contract with the Corporation in
accordance with section 4.18.
6.13 AGENTS AND ATTORNEYS. The board shall have power from time to time to
appoint agents or attorneys for the Corporation in or outside Canada with such
powers of management or otherwise (including the power to sub-delegate) as may
be thought fit.
6.14 FIDELITY BONDS. The board may require such officers, employees and agents
of the Corporation as the board deems advisable to
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furnish bonds for the faithful discharge of their powers and duties, in such
forms and with such surety as the board may from time to time determine.
SECTION SEVEN
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
7.01 LIMITATION OF LIABILITY. Every director and officer of the Corporation in
exercising his powers and discharging his duties shall act honestly and in good
faith with a view to the best interests of the Corporation and exercise the
care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Subject to the foregoing, no director or officer shall
be liable for the acts, receipts, neglects or defaults of any other director or
officer or employee, or for joining in any receipt or other act for conformity,
or for any loss, damage or expense happening to the Corporation through the
insufficiency or deficiency of title to any property acquired for or on behalf
of the Corporation, or for the insufficiency or deficiency of any security in or
upon which any of the monies of the Corporation shall be invested, or for any
loss or damage arising from the bankruptcy, insolvency or tortious acts of any
person with whom any of the monies, securities or effects of the Corporation
shall be deposited, or for any loss occasioned by any error of judgment or
oversight on his part, or for any other loss, damage or misfortune whatsoever
which shall happen in the execution of the duties of his office or in relation
thereto, unless the same are occasioned by his own willful neglect or default;
provided that nothing herein shall relieve any director or officer from the duty
to act in accordance with the Act and the regulations thereunder or from
liability for any breach thereof.
No act or proceeding of any director or officer or the board shall
be deemed invalid or ineffective by reason of the subsequent ascer- tainment of
any irregularity in regard to such act or proceeding or the qualification of
such director or officer or board.
Directors may rely upon the accuracy of any statement or report
prepared by the Corporation's auditors, internal accountants or other
responsible officials and shall not be responsible or held liable for any loss
or damage resulting from the paying of any dividends or otherwise acting upon
such statement or report.
7.02 INDEMNITY. Subject to the limitations contained in the Act, the Corporation
shall indemnify a director or officer, a former director or officer, or a person
who acts or acted at the Corporation's request as a director or officer of a
body corporate of which the Corporation is or was a shareholder or creditor (or
a person who undertakes or has undertaken any liability on behalf of the
Corporation or any such body corporate) and his heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a
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judgment, reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of the Corporation or such body
corporate, if:
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
7.03 INSURANCE. Subject to the limitations contained in the Act, the Corporation
may purchase and maintain such insurance for the benefit of its directors and
officers as such, as the board may from time to time determine.
SECTION EIGHT
SHARES
8.01 ALLOTMENT. The board may from time to time allot shares of the Corporation
or grant options to purchase the whole or any part of the authorized and
unissued shares of the Corporation at such times and to such persons and for
such consideration as the board shall determine, provided that no share shall be
issued until it is fully paid as prescribed by the Act.
8.02 COMMISSIONS. The board may from time to time authorize the Corporation to
pay a commission to any person in consideration of his purchasing or agreeing to
purchase shares of the Corporation, whether from the Corporation or from any
other person, or procuring or agreeing to procure purchasers for any such
shares.
8.03 REGISTRATION OF TRANSFER. Subject to the Act, no transfer of shares shall
be registered in a securities register except upon presentation of the
certificate representing such shares with a transfer endorsed thereon or
delivered therewith duly executed by the registered holder or by his attorney or
successor duly appointed, together with such reasonable assurance or evidence of
signature, identification and authority to transfer as the board may from time
to time prescribe, upon payment of all applicable taxes and any fees prescribed
by the board, upon compliance with such restrictions on transfer as are
authorized by the articles and upon satisfaction of any lien referred to in
section 8.04.
8.04 LIEN FOR INDEBTEDNESS. If the articles provide that the Corporation shall
have a lien on shares registered in the name of a shareholder indebted to the
Corporation, such lien may be enforced, subject to any other provision of the
articles and to any unanimous shareholder agreement, by the sale of the shares
thereby affected or by any other
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action, suit, remedy or proceeding authorized or permitted by law or by equity
and, pending such enforcement, may refuse to register a transfer of the whole or
any part of such shares.
8.05 NON-RECOGNITION OF TRUSTS. Subject to the provisions of the Act, the
Corporation shall treat as absolute owner of any share the person in whose name
the share is registered in the securities register as if that person had full
legal capacity and authority to exercise all rights of ownership irrespective of
any indication to the contrary through knowledge or notice or description in the
Corporation's records or on the share certificate.
8.06 SHARE CERTIFICATES. Every holder of one or more shares of the Corporation
shall be entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgement of his right to obtain a share
certificate, stating the number and class or series of shares held by him as
shown on the securities register. Share certificates and acknowledgements of a
shareholder's right to a share certificate, respectively, shall be in such form
as the board shall from time to time approve. Any share certificate shall be
signed in accordance with section 2.04 and need not be under the corporate seal.
The signatures of the signing officers may be printed or mechanically reproduced
in facsimile upon share certificates and every such facsimile signature shall
for all purposes be deemed to be the signatures of the officer whose signature
it reproduces and shall be binding upon the Corporation. A share certificate
executed as aforesaid shall be valid notwithstanding that one or both of the
officers whose facsimile signature appears thereon no longer holds office at the
date of issue of the certificate.
8.07 REPLACEMENT OF SHARE CERTIFICATES. The board or any officer or agent
designated by the board may in its or his discretion direct the issue of a new
share certificate in lieu of and upon cancellation of a share certificate that
has been mutilated or in substitution for a share certificate claimed to have
been lost, destroyed or wrongfully taken on payment of such fee, not exceeding
$3, and on such terms as to indemnity, reimbursement of expenses and evidence of
loss and of title as the board may from time to time prescribe, whether
generally or in any particular case.
8.08 JOINT SHAREHOLDERS. If two or more persons are registered as joint holders
of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any one of such persons may
give effectual receipts for the certificates issued in respect thereof or for
any dividend, bonus, return of capital or other money payable or warrant
issuable in respect of such shares.
8.09 DECEASED SHAREHOLDERS. In the event of the death of a holder, or one of the
joint holders, of any share, the Corporation shall not be required to make any
entry in the register of shareholders in respect thereof except on production of
all such documents as may be required by
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law and upon compliance with the reasonable requirements of the Corporation and
its transfer agents.
8.10 SECURITIES RECORDS. The Corporation shall maintain, at its registered
office or any other place designated by the board, a register of shares and
other securities in which it records the shares and other securities issued by
it in registered form, showing with respect to each class or series of shares
and other securities:
(a) the names, alphabetically arranged, and the latest known address of
each person who is or has been a holder;
(b) the number of shares or other securities held by each holder; and
(c) the date and particulars of the issue and transfer of each share or
other security.
SECTION NINE
DIVIDENDS AND RIGHTS
9.01 DIVIDENDS. Subject to the provisions of the Act, the board may from time to
time declare dividends payable to the shareholders according to their respective
rights and interest in the Corporation. Dividends may be paid in money or
property or by issuing fully paid shares of the Corporation.
9.02 DIVIDEND CHEQUES. A dividend payable in cash shall be paid by cheque drawn
on the Corporation's bankers or one of them to the order of each registered
holder of shares of the class or series in respect of which it has been declared
and mailed by prepaid ordinary mail to such registered holder at his recorded
address, unless such holder otherwise directs. In the case of joint holders the
cheque shall, unless such joint holders otherwise direct, be made payable to the
order of all such joint holders and mailed to them at their recorded address.
The mailing of such cheque as aforesaid, unless the same is not paid on due
presentation, shall satisfy and discharge the liability for the dividend to the
extent of the sum represented thereby plus the amount of any tax which the
Corporation is required to and does withhold.
9.03 NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend cheque
by the person to whom it is sent as aforesaid, the Corporation shall issue to
such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the board may from time to time prescribe, whether generally or in any
particular case.
9.04 RECORD DATE FOR DIVIDENDS AND RIGHTS. The board may fix in advance a date,
preceding by not more than 50 days the date for the
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payment of any dividend as a record date for the determination of the persons
entitled to receive payment of such dividend, provided that notice of any such
record date is given, not less than 7 days before such record date, by newspaper
advertisement in the manner provided in the Act. Where no record date is fixed
in advance as aforesaid the record date for the determination of the persons
entitled to receive payment of any dividends shall be at the close of business
on the day on which the resolution relating to such dividend is passed by the
board.
9.05 UNCLAIMED DIVIDENDS. Any dividend unclaimed after a period of six years
from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
SECTION TEN
MEETINGS OF SHAREHOLDERS
10.01 ANNUAL MEETINGS. The annual meeting of shareholders shall be held in
accordance with the Act, at such time in each year and, subject to section
10.03, at such place as the board may from time to time determine, for the
purpose of hearing and receiving the financial statements and reports required
by the Act to be read at and placed before the annual meeting, electing
directors, appointing auditors and for the transaction of such other business as
may properly be brought before the meeting.
10.02 SPECIAL MEETINGS. The board shall have the power to call a special meeting
of shareholders at any time.
10.03 PARTICIPATION BY TELEPHONE. A shareholder or any other person entitled to
attend a meeting of shareholders may participate in the meeting by means of
telephone or other communication facilities that permit all persons
participating in the meeting to hear each other and a person participating in
such a meeting by those means is deemed to be present at the meeting.
10.04 PLACE OF MEETINGS. Meetings of shareholders shall be held at the
registered office of the Corporation or elsewhere in the municipality in which
the registered office is situate or, if the board shall so determine, at some
other place in Alberta or, if all the shareholders entitled to vote at the
meeting so agree, at some place outside Alberta, and a shareholder who attends a
meeting outside Alberta is deemed to have so agreed except when he attends such
meeting for the express purpose of objecting to the transaction of any business
on the grounds that the meeting is not lawfully held.
10.05 NOTICE OF MEETINGS. Notice of the time and place of each meeting of
shareholders shall be sent not less than 21 days and no more than 50 days before
the meeting to each shareholder entitled to vote at the meeting, each director
and the auditor of the Corporation. Such notice may be sent by mail addressed
to, or may be delivered personally
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to, the shareholder, at his latest address as shown in the records of the
Corporation or its transfer agent, to the director, at his latest address
as shown in the records of the Corporation or in the last notice filed
pursuant to section 101 or 108 of the Act, or to the auditor at his most
recent address as shown in the records of the Corporation. A notice of
meeting of shareholders sent by mail to a shareholder, director or
auditor in accordance with the above is deemed to be sent on the day on
which it was deposited in the mail. Failure to receive a notice does not
deprive a shareholder of the right to vote at a meeting. A notice of a
meeting is not required to be sent to shareholders who were not register-
ed on the records of the Corporation or its transfer agent on the record
date as determined according to paragraph 10.07 herein. Notice of a
meeting of shareholders at which special business is to be transacted
shall state the nature of such business in sufficient detail to permit
the shareholder to form a reasoned judgment thereon and shall state the
text of any special resolution to be submitted to the meeting.
10.06 LIST OF SHAREHOLDERS ENTITLED TO NOTICE. In the event the Corporation has
greater than 15 shareholders entitled to vote at a meeting, for every meeting of
shareholders, the Corporation shall prepare a list of shareholders entitled to
receive notice of the meeting, arranged in alphabetical order and showing the
number of shares held by each shareholder. If a record date for the meeting is
fixed pursuant to section 10.07 by the board, the shareholders listed shall be
those registered at the close of business on the record date. If no record date
is fixed by the board, the shareholders listed shall be those listed at the
close of business on the last business day immediately preceding the day on
which notice of the meeting is given, or where no such notice is given, the day
on which the meeting is held. The list shall be available for examination by any
shareholder during usual business hours at the registered office of the
Corporation or at the place where the securities register is kept and at the
place where the meeting is held.
10.07 RECORD DATE FOR NOTICE. The board may fix in advance a record date,
preceding the date of any meeting of shareholders by not more than 50 days and
not less than 21 days, for the determination of the shareholders entitled to
notice of the meeting, provided that notice of any such record date is given not
less than 7 days before such record date, by newspaper advertisement in the
manner provided in the Act. If no record date is so fixed, the record date for
the determination of the shareholders entitled to notice of the meeting shall be
the close of business on the last business day immediately preceding the day on
which the notice is given or if no notice was given, the day on which the
meeting is held.
10.08 MEETINGS WITHOUT NOTICE. A meeting of shareholders may be held without
notice at any time and place permitted by the Act:
(a) if all the shareholders entitled to vote thereat are present in
person or represented by proxy or if those not present or
represented by proxy waive notice of or otherwise consent to such
meeting being held, and
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(b) if the auditors and the directors are present or waive notice of or
otherwise consent to such meeting being held.
At such meeting any business may be transacted which the Corporation at a
meeting of shareholders may transact. If the meeting is held at a place outside
Canada, shareholders not present or represented by proxy, but who have waived
notice of or otherwise consented to such meeting, shall also be deemed to have
consented to the meeting being held at such place.
10.09 CHAIRMAN, SECRETARY AND SCRUTINEERS. The chairman of any meeting of
shareholders shall be the first mentioned of such of the following officers as
have been appointed and who is present at the meeting: chairman of the board,
president, managing director, or a vice-president who is a shareholder. If no
such officer is present within 15 minutes from the time fixed for holding the
meeting, the persons present and entitled to vote shall choose one of their
number to be chairman. If the secretary of the Corporation is absent, the
chairman shall appoint some person, who need not be a shareholder, to act as
secretary of the meeting. If desired, one or more scrutineers, who need not be
shareholders, may be appointed by a resolution or by the chairman with the
consent of the meeting.
10.10 PERSONS ENTITLED TO BE PRESENT. The only persons entitled to be present at
a meeting of shareholders shall be those persons entitled to vote thereat, the
directors and auditor of the Corporation and others who, although not entitled
to vote, are entitled or required under any provision of the Act or the articles
or by-laws to be present at the meeting. Any other person may be admitted only
on the invitation of the chairman of the meeting or with the consent of the
meeting.
10.11 QUORUM. A quorum for the transaction of business at any meeting of
shareholders shall be two persons present in person, each being a shareholder
entitled to vote thereat or a duly appointed proxy- holder for an absent
shareholder so entitled, and together holding or representing by proxy not less
than 20% of the outstanding shares of the Corporation entitled to vote at the
meeting. If a quorum is present at the opening of any meeting of shareholders,
the shareholders present or represented by proxy may proceed with the business
of the meeting. If a quorum is not present at the opening of any meeting of
shareholders, the shareholders present or represented by proxy may adjourn the
meeting to a fixed time and place but may not transact any other business.
10.12 RIGHT TO VOTE. Subject to the provisions of the Act as to authorized
representatives of any other body corporate, at any meeting of shareholders in
respect of which the Corporation has prepared the list referred to in section
10.06, every person who is named in such list shall be entitled to vote the
shares shown thereon opposite his name except to the extent that such person has
transferred any of his shares after the record date set pursuant to section
10.07 and the transferee, upon producing properly endorsed certificates
evidencing such shares or otherwise establishing that he owns such shares,
demands at any time before the meeting that his name be included to vote the
transferred
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shares at the meeting. In the absence of a list prepared as aforesaid in respect
of a meeting of shareholders every person shall be entitled to vote at the
meeting who at the time is entered in the securities register as the holder of
one or more shares carrying the right to vote at such meeting. Each share of the
Corporation entitles the holder of it to one vote at a meeting of shareholders.
10.13 PROXIES. Every shareholder entitled to vote at a meeting of shareholders
may appoint a proxyholder, or one or more alternate proxy- holders, who need not
be shareholders, to attend and act at the meeting in the manner and to the
extent authorized and with the authority conferred by the proxy. A proxy shall
be in writing executed by the shareholder or his attorney and shall conform with
the requirements of the Act.
10.14 TIME FOR DEPOSIT OF PROXIES. The board may specify in a notice calling a
meeting of shareholders a time, preceding the time of such meeting by not more
than 48 hours exclusive of non-business days, before which time proxies to be
used at such meeting must be deposited with the Corporation or its agent. A
proxy shall be acted upon only if, prior to the time so specified, it shall have
been deposited with the Corporation or an agent thereof specified in such notice
or, if no such time is specified in such notice, unless it has been received by
the secretary of the Corporation or by the chairman of the meeting or any
adjournment thereof prior to the time of voting.
10.15 JOINT SHAREHOLDERS. Where two or more persons hold the same shares
jointly, any one of such persons present or represented by proxy at a meeting of
shareholders has the right in the absence of the other or others to vote in
respect of such shares, but if more than one of such persons are present or
represented by proxy, they shall vote as one on the shares held jointly by them.
10.16 VOTES TO GOVERN. Except as otherwise required by the Act, all questions
proposed for the consideration of shareholders at a meeting of shareholders
shall be determined by the majority of the votes cast and in the event of an
equality of votes at any meeting of shareholders either upon a show of hands or
upon a ballot there shall be no second or casting vote.
10.17 SHOW OF HANDS. Subject to the provisions of the Act, any question at a
meeting of shareholders shall be decided by a show of hands unless a ballot
thereon is required or demanded as hereinafter provided. Upon a show of hands
every person who is present and entitled to vote shall have one vote. Whenever a
vote by a show of hands shall have been taken upon a question, unless a ballot
thereon is so required or demanded, a declaration by the chairman of the meeting
that the vote upon the question has been carried or carried by a particular
majority or not carried and an entry to that effect in the minutes of the
meeting shall be prima facie evidence of the fact without proof of the number or
proportion of the votes recorded in favour of or against any resolution or other
proceeding in respect of the said question, and the result of the
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vote so taken shall be the decision of the shareholders upon the said
question.
10.18 BALLOTS. On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, any
shareholder or proxyholder entitled to vote at the meeting may require or demand
a ballot. A ballot so required or demanded shall be taken in such manner as the
chairman shall direct. A require- ment or demand for a ballot may be withdrawn
at any time prior to the taking of the ballot. If a ballot is taken each person
present shall be entitled, in respect of the shares which he is entitled to vote
at the meeting upon the question, to that number of votes provided by the Act or
the articles, and the result of the ballot so taken shall be the decision of the
shareholders upon the said question.
10.19 ADJOURNMENT. The chairman at a meeting of the shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may decide,
adjourn the meeting from time to time and from place to place. If a meeting of
shareholders is adjourned for less than 30 days, it shall not be necessary to
give notice of the adjourned meeting, other than by announcement at the earliest
meeting that is adjourned. If a meeting of shareholders is adjourned by one or
more adjournments for an aggregate of 30 days or more, notice of the adjourned
meeting shall be given as for an original meeting. Unless the meeting is
adjourned by one or more adjournments for an aggregate of more than 90 days the
management of the Corporation need not concurrently with giving notice of a
meeting of shareholders send a form of proxy in prescribed form to each
shareholder who is entitled to receive notice of the meeting.
10.20 RESOLUTION IN LIEU OF MEETING. A resolution in writing signed by all the
shareholders entitled to vote on that resolution at a meeting of shareholders is
as valid as if it had been passed at a meeting of the shareholders; and a
resolution in writing dealing with all matters required to be dealt with at a
meeting of shareholders, and signed by all the shareholders entitled to vote at
such meetings, satisfies all the requirements of the Act relating to meetings of
shareholders. A copy of every such resolution in writing shall be kept with the
minutes of the meetings of shareholders. Any such resolution in writing is
effective for all purposes at such time as the resolution states regardless of
when the resolution is signed.
10.21 ONLY ONE SHAREHOLDER. Where the Corporation has only one shareholder or
only one holder of any class or series of shares, the shareholder present in
person or by proxy constitutes a meeting.
SECTION ELEVEN
NOTICES
11.01 METHOD OF GIVING NOTICES. Notice of the time and place of each meeting of
the board shall be made pursuant to section 4.12. Notice
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of the time and place of each meeting of shareholders shall be made pursuant to
section 10.05. Any other notice, communication or document to be given, sent,
delivered or served pursuant to the Act, the regulations thereunder, the
articles, the by-laws or otherwise to a shareholder, director, officer, auditor
or member of a committee of the board shall be sufficiently given if delivered
personally to the person to whom it is to be given or if delivered to his
recorded address or if mailed to him at his recorded address by prepaid ordinary
or air mail or if sent to him at his recorded address by any means of prepaid
transmitted or recorded communication. A notice so delivered shall be deemed to
have been given when it is delivered personally or to the recorded address as
aforesaid; a notice so mailed shall be deemed to have been given at the time it
would be delivered in the ordinary course of mail unless there are reasonable
grounds for believing that the person did not receive the notice or document at
the time or at all; and a notice so sent by any means of transmitted or recorded
communication shall be deemed to have been given when dispatched or delivered to
the appropriate communication company or agency or its representative for
dispatch. The secretary may change or cause to be changed the recorded address
of any shareholder, director, officer, auditor or member of a committee of the
board in accordance with any information believed by him to be reliable.
11.02 NOTICE TO JOINT SHAREHOLDERS. If two or more persons are registered as
joint holders of any share, any notice shall be addressed to all of such joint
holders but notice to one of such persons shall be sufficient notice to all of
them.
11.03 COMPUTATION OF TIME. In computing the date when notice must be given under
any provision requiring a specified number of days' notice of any meeting or
other event, the date of giving of the notice shall be excluded and the date of
the meeting or other event shall be included.
11.04 UNDELIVERED NOTICES. If any notice given to a shareholder pursuant to
section 11.01 is returned on three consecutive occasions because he cannot be
found, the Corporation shall not be required to give any further notices to such
shareholder until he informs the Corporation in writing of his new address.
11.05 OMISSIONS AND ERRORS. The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of a committee of the board or
the non-receipt of any notice by any such person or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
11.06 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW. Every person who, by
operation of law, transfer, death of a shareholder or any other means
whatsoever, shall become entitled to any share, shall be bound by every notice
in respect of such share which shall have been duly given to the shareholder
from whom he derives his title to such share prior to his name and address being
entered on the securities register (whether such
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notice was given before or after the happening of the event upon which he became
so entitled) and prior to his furnishing to the Corporation the proof of
authority or evidence of his entitlement prescribed by the Act.
11.07 WAIVER OF NOTICE. Any shareholder (or his duly appointed proxyholder),
director, officer, auditor or member of a committee of the board may at any time
waive any notice, or waive or abridge the time for any notice, required to be
given to him under any provision of the Act, the regulations thereunder, the
articles, by-laws or otherwise and such waiver or abridgement shall cure any
default in the giving or in the time of such notice, as the case may be. Any
such waiver or abridgement shall be in writing except a waiver of notice of a
meeting of shareholders or of the board which may be given in any manner.
Attendance of a director at a meeting of directors or of a shareholder or any
other person entitled to attend a meeting of shareholders is a waiver of notice
of the meeting except where such director, shareholder or other person, as the
case may be, attends a meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully
called.
MADE by the board the 20th day of January, 1987
/s/ [ILLEGIBLE]
-----------------------------------------
President
/s/ [ILLEGIBLE]
-----------------------------------------
Treasurer
CONFIRMED by the shareholders in accordance with the Act the 20th
day of January, 1987.
/s/ [ILLEGIBLE]
-----------------------------------------
President
<PAGE>
VENTURES GAINED INC.
(the "Corporation")
RESOLUTIONS IN WRITING, SIGNED BY THE DIRECTORS OF THE CORPORATION, PURSUANT TO
SUBSECTION 112(1) OF THE BUSINESS CORPORATIONS ACT OF ALBERTA.
BE IT RESOLVED THAT:
(a) By-Law Number 1 be amended such that all references to "resident Albertan"
be amended to be references to "resident Canadian".
(b) By-Law Number 1 be amended by the deletion of clause 1.01(k) and the
insertion of a new clause 1.01(k) as follows:
"resident Canadian" means an individual who is
i) a Canadian citizen ordinarily resident in Canada,
ii) a Canadian citizen not ordinarily resident in Canada who is a member
of a prescribed Class of persons, or
iii) a permanent resident within the meaning of the Immigration Act, 1976
(Canada) and ordinarily resident in Canada, except a permanent
resident who has been ordinarily resident in Canada for more than 1
year after the time at which he first became eligible to apply for
Canadian citizenship;
(c) Any one director or officer of the Corporation is hereby authorized and
directed to do and perform all such acts and things to execute and deliver
and to file or cause to be. executed, delivered or filed in the name and
on behalf of the Corporation, under the corporate seal of the Corporation,
or otherwise all such documents as may be required to give effect to the
foregoing.
BE IT FURTHER RESOLVED THAT:
(d) The foregoing resolutions may be signed in counterparts, each of which so
executed shall be deemed to be an original including each such copy signed
and sent by facsimile transmission, and all such executed counterparts
together shall constitute but one and the same instrument and
notwithstanding the date of execution shall be deemed to bear date as at
the 16th day of April, 1993.
DATED this 16th day of April, 1993.
/s/ Frank Roberts
----------------------------------------
FRANK ROBERTS
----------------------------------------
SUZANNE WOOD
/s/ Mani Chopra
----------------------------------------
MANI CHOPRA
<PAGE>
VENTURES GAINED INC.
(the "Corporation")
RESOLUTIONS IN WRITING, SIGNED BY THE DIRECTORS OF THE CORPORATION, PURSUANT TO
SUBSECTION 112(1) OF THE BUSINESS CORPORATIONS ACT OF ALBERTA.
BE IT RESOLVED THAT:
(a) By-Law Number 1 be amended such that all references to "resident Albertan"
be amended to be references to "resident Canadian".
(b) By-Law Number 1 be amended by the deletion of clause 1.01(k) and the
insertion of a new clause 1.01(k) as follows:
"resident Canadian" means an individual who is
i) a Canadian citizen ordinarily resident in Canada,
ii) a Canadian citizen not ordinarily resident in Canada who is a member
of a prescribed Class of persons, or
iii) a permanent resident within the meaning of the Immigration Act, 1976
(Canada) and ordinarily resident in Canada, except a permanent
resident who has been ordinarily resident in Canada for more than 1
year after the time at which he first became eligible to apply for
Canadian citizenship;
(c) Any one director or officer of the Corporation is hereby authorized and
directed to do and perform all such acts and things to execute and deliver
and to file or cause to be executed, delivered or filed in the name and
on behalf of the Corporation, under the corporate seal of the Corporation,
or otherwise all such documents as may be required to give effect to the
foregoing.
BE IT FURTHER RESOLVED THAT:
(d) The foregoing resolutions may be signed in counterparts, each of which so
executed shall be deemed to be an original including each such copy signed
and sent by facsimile transmission, and all such executed counterparts
together shall constitute but one and the same instrument and
notwithstanding the date of execution shall be deemed to bear date as at
the 16th day of April, 1993.
DATED this 16th day of April, 1993.
/s/ Frank Roberts
----------------------------------------
FRANK ROBERTS
/s/ Suzanne Wood
----------------------------------------
SUZANNE WOOD
----------------------------------------
MANI CHOPRA
<PAGE>
SPECIMEN STOCK CERTIFICATE
TOMAHAWK CORPORATION
INCORPORATED UNDER THE BUSINESS CORPORATIONS ACT (ALBERTA)
NUMBER SHARES
C 01209 CUSIP 88978C 10 6
THIS CERTIFIES THAT
is the registered holder of
fully paid and non-assessable common shares without nominal or par value
in the capital of
TOMAHAWK CORPORATION
Transferable on the books of the Corporation by the registered holder
in person or by Attorney duly authorized in writing upon surrender of this
certificate properly endorsed.
This Certificate is not valid until countersigned and registered by
the Registrar and Transfer Agent of the Corporation.
IN WITNESS WHEREOF the Corporation has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers.
Dated
[ILLEGIBLE]
Chief Executive Officer
COUNTERSIGNED AND REGISTERED
CIBC MELLON TRUST COMPANY CALGARY
REGISTRAR AND TRANSFER AGENT
[ILLEGIBLE]
By_________________________ Secretary
AUTHORIZED OFFICER
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE TRANSFERABLE AT
THE OFFICE OF CIBC MELLON TRUST COMPANY IN CALGARY, ALBERTA
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
June 4, 1999
Mickey Lorber
TomaHawk Corporation
8315 Century Park Court
Suite 200
San Diego, CA 92123
Dear Mr. Lorber:
You have requested our opinion as to certain U.S. and Canadian federal income
tax consequences relating to the proposed domestication (the "Domestication") of
TomaHawk Corporation ("Old TomaHawk," the "Alberta Company," or the "Company"),
a Canadian corporation, into a Delaware corporation ("New TomaHawk" or the
"Delaware Company") as described in the Registration Statement on Form S-4 (the
"Registration Statement") filed on or about July 8, 1999.
You have also requested our opinion as to certain U.S. and Canadian federal
income tax consequences relating to the one-for-fifteen share consolidation of
the Common Stock of the Company, along with a change in the authorized capital
of the Company (together referred to as the "Share Consolidation"), as described
in the TomaHawk Corporation Notice of an Annual and Special Meeting of Common
Shareholders dated August 21, 1998 (the "Meeting Notice").
To the extent any opinions contained herein relate to Canadian federal income
tax consequences, those opinions are presented based upon the views and in
reliance upon the Ernst & Young International member firm in Canada ("E&Y
Canada").
In rendering these opinions, Ernst & Young LLP ("E&Y US") and E&Y Canada have
relied upon the following documents (together referred to as the "Documents"):
1. The Statement of Facts and Representations, dated May 7, 1999 provided
by the management of the Company to E&Y US;
2. The Statement of Facts and Representations dated May 6, 1999 provided
by the management of the Company to E&Y Canada;
3. The Registration Statement; and
4. The Meeting Notice.
<PAGE>
You have advised E&Y US and E&Y Canada that the Documents provide a complete and
accurate description of all relevant facts and circumstances surrounding the
Domestication and the Share Consolidation. Neither E&Y US nor E&Y Canada has
made any independent verification with respect to any of the facts and
representations set forth in the Documents and, therefore, have relied upon the
completeness, truth and accuracy of the Documents for purposes of rendering
these opinions. Any omissions from or modifications to the Documents may affect
the conclusions stated herein, perhaps in an adverse manner.
SUMMARY OF FACTS PROVIDED BY THE COMPANY
I. CORPORATE AND CAPITAL STRUCTURE
The Company is incorporated under the laws of Alberta, Canada. On November 17,
1992, the Company formed TomaHawk Imaging and Financial Inc. ("TIFI"), a
Canadian corporation. In 1993, TIFI acquired 100 percent of the outstanding
stock of TomaHawk II, Inc. ("TII"), an Illinois corporation. Since its
acquisition, the stock of TII was the only significant asset of TIFI. Effective
February 19, 1999, TIFI was amalgamated with and into the Company (the
"Amalgamation"), leaving the Company as the sole shareholder of TII. Currently,
the Company is a holding company and its only asset is the stock of TII.
TII is an engineering and manufacturing services firm providing document
imaging, engineering, and manufacturing solutions to commercial and government
customers. TII's current services include:
- scanning and conversion of technical documents in large and small
formats to computer intelligent or computer-aided-design ("CAD")
formats;
- reverse engineering of parts and components that do not have plans,
drawings or models to allow for creation of CAD format document;
- three dimensional design and analysis;
- tool design;
- numerical control programming for the automated manufacture of parts
and components; and
- precision machining and inspection of parts and components.
These services address significant needs of both large and small organizations
in various industries, including defense, aerospace, automotive, engineering,
architecture, telecommunications, and utilities.
As of the date of this letter, the authorized stock of the Company consists of
the following: an unlimited number of shares of Common Stock (the "Common
Stock") without par value; an unlimited number of shares of nonvoting Class B
Common Stock (the "Class B Common Stock") without par value; an unlimited number
of shares of Preferred Stock (the "Preferred Stock") without par value; 100,000
shares of 6% non-cumulative, redeemable, retractable, nominal par value Series A
Preferred Stock (the
2
<PAGE>
"Series A Preferred Stock"); an unlimited number of shares of Class A Series
I Preferred Stock (the "Class A Series I Preferred Stock"); an unlimited
number of shares of Class A Series II Preferred Stock (the "Class A Series II
Preferred Stock"); and an unlimited number of shares of Class A Series III
Preferred Stock (the "Class A Series III Preferred Stock").
Currently, the Company has approximately 84,744,165 shares of Common Stock
issued and outstanding. The Common Stock is quoted on the Alberta Stock Exchange
under the trading symbol "TKC." The holders of the Common Stock are entitled to,
among other things:
- one vote per share on all matters submitted to a shareholder vote;
- receive a pro rata share of any dividends declared by the Board of
Directors out of funds legally available therefor (subject to
preferences that may be applicable to outstanding preferred shares, if
any); and
- if the Company is liquidated, dissolved or wound-up, receive a pro
rata share of all assets remaining after the Company pays its
liabilities and the liquidation preference, if any, of any outstanding
preferred shares.
The holders of Common Stock have no preemptive rights and no rights to convert
their Common Stock into any other securities. Moreover, there are no redemption
or sinking fund provisions with respect to such shares. All of the outstanding
Common Stock are fully paid and non-assessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be affected
adversely by, the rights of the holders of shares of the Class A Series III
Preferred Stock and any series of preferred stock which the Company may
designate and issue in the future.
Currently, the Company has 750,000 shares of Class A Series III Preferred Stock
issued and outstanding. The Class A Series III Preferred Stock is not publicly
traded. Holders of the Class A Series III Preferred Stock are entitled to a pro
rata share of any dividend declared by the Board of Directors, so long as such
dividend is paid out of funds legally available for paying dividends. If the
Company liquidates, dissolves, sells all of its assets, or distributes any of
its capital, before anything is distributed to the holders of the Common Stock,
holders of the Class A Series III Preferred Stock are entitled to receive $0.001
for each share of Class A Series III Preferred Stock held, and a pro rata
portion of any unpaid dividends that have accrued with respect to each share.
For each Cdn. $2.50 of cumulative cash flow, a share of Class A Series III
Preferred Stock is convertible into ten shares of Common Stock. The Company's
articles of incorporation also permit it to apply to the Alberta Stock Exchange
to amend the terms of the conversion rights, and to cancel the Class A Series
III Preferred Stock if they are not eligible for conversion by December 31,
1999. If TII becomes insolvent or files, or has filed against it, a petition in
bankruptcy, or ceases to carry on its business, the Class A Series III Preferred
Stock must be surrendered for cancellation.
3
<PAGE>
As of April 30, 1999, warrants to purchase a total of 167,502 shares of Common
Stock at an exercise price of $0.32 per share were outstanding. These warrants
expired on May 5, 1999.
In addition, as of December 31, 1998, options to purchase a total of 7,475,970
shares of Common Stock were issued and outstanding. Options owned by Management
are as follows: Steven M. Caira owns options to acquire 2,500,000 shares;
Michael Lorber owns options to acquire 500,000 shares; Phillip Card owns options
to acquire 700,000 shares; and John Peace owns options to acquire 710,250
shares. These options were granted under the Company's stock option plan. All of
the above options are exercisable at prices ranging from Cdn $0.17 to Cdn $0.23
per share and expire on various dates through November 17, 2003.
As of December 31, 1998, the following individuals/entities owned 5% or more
of Company's outstanding Common Stock: Norman F. Siegel owned 21.5%(1);
Steven M. Caira owned 11.7%(2); Sprint Enterprise Limited owned 8.2%(3); and
Elliott Broidy owned 5.3%(4). The remainder of the outstanding Common Stock
is publicly-held. The Company has no other classes of common stock currently
outstanding.
As of December 31, 1998, the 5% shareholders of the Class A Series III Preferred
Stock were as follows: David Smoot owned 45%; 434556 B.C. Ltd owned 45%; Audisc
foundation owned 5%; and 436949 B.C. Ltd owned 5% The Company has no other
classes of preferred stock currently outstanding.
In addition to the Domestication (discussed below), the shareholders of the
Company are being asked to approve a change in the capital structure of the
Company. If approved, the authorized capital structure of the Company would
change from the structure described above to:
- 20,000,000 shares of Common Stock, U.S.$.001 par value per share ("New
Common Stock");
- 750,000 shares of Class A Preferred Stock, U.S.$.001 par value per
share ("Class A Preferred Stock"); and
- 750,000 shares of Preferred Stock, U.S.$.001 par value per share
("Preferred Stock").
The change in capital structure would occur in conjunction with a
one-for-fifteen share consolidation of the Common Stock of the Company described
below under "The Share Consolidation." The only difference between the Common
Stock and Class A Series III
- -----------
(1) Includes 1,474,565 shares issuable under stock options exercisable within
60 days of April 30, 1999.
(2) Includes 2,525,000 shares issuable under stock options exercisable within
60 days of April 30, 1999, including 25,000 shares issuable under stock
otpions owned by Renee Caira, Mr. Caira's spouse.
(3) Includes 912,328 shares issuable under stock options exercisable within
60 days of April 30, 1999.
(4) Includes 225,000 shares issuable under stock options exercisable within
60 days of April 30, 1999.
4
<PAGE>
referred stock that is currently outstanding and the New Common Stock and
Class A Preferred Stock that will be issued pursuant to the Share
Consolidation, will be that the New Common Stock and Class A Preferred Stock
will have a stated par value.
II. THE AMALGAMATION
TIFI was incorporated in Alberta, Canada on November 17, 1992. Effective March
8, 1993, TIFI acquired all of the issued and outstanding shares of TII, an
Illinois company incorporated on February 3, 1993.
Effective February 19, 1999, the Company and TIFI combined into one corporation
through an amalgamation pursuant to the Alberta Act (the "Amalgamation"). The
combined entity retained the name TomaHawk Corporation. The Company does not
carry on any business other than holding the shares of TII.
III. THE SHARE CONSOLIDATION
In order to simplify the capital structure of the Company through a reduction of
the number of outstanding shares, as well as enhance the per share value of the
Common Stock, the Company proposes to consummate a Share Consolidation. If the
shareholders approve the Domestication (discussed below), then, prior to
completing the Domestication, the Company will effect a one-for-fifteen share
consolidation of the Common Stock of the Company along with the change in
authorized capital described above (together referred to as the "Share
Consolidation"). This Share Consolidation was authorized by the shareholders on
September 22, 1998.
In the Share Consolidation, the holders of the Common Stock will exchange 15
shares of Common Stock for 1 share of New Common Stock. Additionally, the
conversion ratio of the Class A Series III Preferred Stock will change from 10
shares of Common Stock for each share of Preferred Stock to 0.667 shares of
Common Stock for each share of Preferred Stock. No fractional shares will be
issued in the Share Consolidation. Instead, any fractional shares remaining
after aggregating all fractional shares held by a shareholder will be rounded up
to the nearest whole share. Accordingly, upon consummation of the Share
Consolidation, the Company will have 5,649,611 shares of New Common Stock, and
750,000 shares of Class A Preferred Stock outstanding.
The rights of the holders of the New Common Stock after the Share Consolidation
will be the same, in all material respects, to the rights of the holders of the
Common Stock prior to the Share Consolidation. Similarly, the rights of the
holders of the Class A Preferred Stock after the Share Consolidation will be the
same, in all material respects, to the rights of the holders of the Class A
Series III Preferred Stock prior to the Share Consolidation. Following the Share
Consolidation, the only class of preferred stock that will be outstanding will
be the Class A Preferred Stock.
5
<PAGE>
In addition to the share exchanges described above, the terms of the outstanding
warrants or options will be modified to reflect the one-for-fifteen Share
Consolidation. No other modifications will be made to the options or warrants.
In conjunction with the Share Consolidation, the Company will change its name to
TomaHawk International Inc.
IV. THE DOMESTICATION
The Board of Directors of the Company believes that the reincorporation of the
Company in the State of Delaware is in the best interests of the Company as the
focus of its operations and business is in the United States. There is no
business reason for its incorporation in Canada. The Company has no facilities
or operations in Canada, and most of its shareholders and customers are in the
United States. Furthermore, reincorporation will simplify the corporate
structure of the Company and reduce its Canadian corporate tax and reporting
obligations.
In order to effectuate the Domestication, the Company will:
1. Hold an Extraordinary General Meeting of its shareholders to vote on
the Domestication. Approval of the Domestication requires the
affirmative vote of the holders of 66 2/3% of the Common Stock of the
Company represented and voting at the meeting; and
2. File Articles of Domestication with the Secretary of the State of
Delaware.
The Domestication will be completed upon the approval of the Secretary of the
State of Delaware.
V. THE MERGER
The Board of Directors of the Company believes that it is in the best interests
of the Company and its shareholders to merge New TomaHawk with TII. Accordingly,
following the Domestication, the Company intends to merge with and into TII,
with TII surviving (the "Merger").
STEPS OF PROPOSED TRANSACTION
For the reasons discussed above, the Company proposes the following transaction:
1. As a preliminary step to the proposed Domestication of the Company, the
Company will consummate a one-for-fifteen Share Consolidation. Each
shareholder owning Common Stock will exchange 15 shares of Common Stock for
one share of New
6
<PAGE>
Common Stock. Additionally, the conversion ratio of the
Class A Series III Preferred Stock will change from 10 shares of Common
Stock for each share of Preferred Stock to 0.667 shares of Common Stock for
each share of Preferred Stock. In connection with the Share Consolidation,
the Company will amend its articles of incorporation to amend its
authorized shares as described above.
2. The Company will consummate the Domestication by filing Articles of
Domestication with the Secretary of State of Delaware. Pursuant to Alberta
law, Dissenters will receive cash in exchange for their stock in the
Company.
3. The Company will reincorporate TII from Illinois to Delaware (the "TII
Reincorporation").
4. Following the Domestication and the reincorporation of TII to Delaware, the
Company will merge with and into TII, with TII surviving.
SUMMARY OF REPRESENTATIONS MADE BY THE COMPANY
I. THE SHARE CONSOLIDATION
A. U.S. FEDERAL INCOME TAX REPRESENTATIONS
The following summarizes the representations that have been made by the Company
to E&Y US in connection with the Share Consolidation as stated in the "Statement
of Facts and Representations" dated May 7, 1999 attached hereto:
1. The fair market value of the New Common Stock or Class A Preferred Stock to
be received by each exchanging shareholder will be approximately equal to
the fair market value of the Common Stock or Class A Series III Preferred
Stock surrendered in exchange therefor.
2. The Company will pay its expenses incurred in connection with the Share
Consolidation and each shareholder will pay his or her expenses incurred in
connection with the Share Consolidation.
3. The Company has no plan or intention to redeem or otherwise acquire any of
the stock to be issued in the Share Consolidation.
4. Following the Share Consolidation, the Company will continue to conduct the
same business that it conducted prior to the Share Consolidation.
5. The Share Consolidation is a single, isolated transaction and is not part
of a plan to periodically increase the proportionate interest of any
shareholder in the assets or earnings and profits of the Company.
7
<PAGE>
6. The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of I.R.C. Section 368(a)(3)(A).
B. CANADIAN FEDERAL INCOME TAX REPRESENTATIONS
The following summarizes the representations that have been made by the Company
to E&Y Canada in connection with the Share Consolidation as stated in the
"Statement of Facts and Representations" dated May 6, 1999 attached hereto:
1. The Old TomaHawk shares will be consolidated ("Consolidation") before the
Domestication at a ratio of between 1:10 and 1:15. All shares of Old
TomaHawk will be replaced by the reduced number of shares of the same class
of stock of Old TomaHawk in the same proportions for all shareholders. No
other consideration will be received by the shareholders on the
Consolidation. There will be no changes in the total capital represented by
the issue or in the interest, rights or privileges of the shareholders and
there will not be any concurrent changes in the capital structure of New
TomaHawk or the rights and privileges of other shareholders.
II. THE DOMESTICATION
A. U.S. FEDERAL INCOME TAX REPRESENTATIONS
The following summarizes the representations that have been made by the Company
to E&Y US in connection with the Domestication as stated in the "Statement of
Facts and Representations" dated May 7, 1999 attached hereto:
1. The fair market value of the New TomaHawk Common Stock or Class A Preferred
Stock received by each shareholder will be approximately equal to the fair
market value of the Old TomaHawk New Common Stock or Class A Preferred
Stock surrendered in exchange therefor.
2. Immediately following consummation of the transaction, the shareholders of
the Company will own all of the outstanding shares of New TomaHawk Common
Stock and Class A Preferred Stock and will own such stock solely by reason
of their ownership of Old TomaHawk stock immediately prior to the
transaction.
3. Immediately following consummation of the transaction, the Company will
possess the same assets and liabilities, except for dividends paid in the
normal course of business, assets used to pay dissenters to the
transaction, and assets used to pay expenses incurred in connection with
the transaction, as those possessed by the Company immediately prior to the
transaction.
4. New TomaHawk has no plan or intention to reacquire any of its stock issued
in the transaction.
8
<PAGE>
5. New TomaHawk has no plan or intention to sell or otherwise dispose of any
of the assets of Old TomaHawk acquired in the transaction, except for
dispositions made in the ordinary course of business.
6. The liabilities of Old TomaHawk assumed by New TomaHawk plus the
liabilities, if any, to which the transferred assets are subject were
incurred by Old TomaHawk in the ordinary course of its business and are
associated with the assets transferred.
7. Following the transaction, New TomaHawk will continue the historic business
of Old TomaHawk or use a significant portion of historic business assets of
Old TomaHawk in a business.
8. The shareholders will pay their respective expenses, if any, incurred in
connection with the transaction.
9. Prior to and in connection with the Domestication, neither Old TomaHawk nor
a related person (as defined in Treas. Reg. Section 1.368-1(e)(3)
determined without regard to Treas. Reg. Section 1.368-1(e)(3)(i)(A))
redeemed or otherwise acquired any Old TomaHawk stock, or made an
extraordinary distribution with respect to the stock of Old TomaHawk.
10. Neither New TomaHawk nor a related person (as defined in Treas. Reg.
Section 1. 368-1(e)(3)) has any plan or intention, in connection with the
Domestication, to redeem or otherwise acquire stock of New TomaHawk deemed
issued in the Domestication.
11. No two parties to the Domestication are investment companies as defined in
I.R.C. Section 368(a)(2)(F)(iii) and (iv).
B. CANADIAN FEDERAL INCOME TAX REPRESENTATIONS
The following summarizes the representations that have been made by the Company
to E&Y Canada in connection with the Domestication as stated in the "Statement
of Facts and Representations" dated May 6, 1999 attached hereto:
1. Old TomaHawk is a Canadian corporation incorporated in Canada and listed on
the Alberta Stock Exchange.
2. TomaHawk Imaging and Financial Inc. ("TIFI") has been amalgamated with and
into Old TomaHawk.
3. Old TomaHawk's assets consist of its investment in TII, other than an
immaterial cash balance.
4. All cash and non-cash transfers from Old TomaHawk directly to TII or
indirectly to TIFI, prior to TIFI's amalgamation into Old TomaHawk, and
from TIFI to TII are, and
9
<PAGE>
have been, additional paid-in capital contributions, which directly or
indirectly increase Old TomaHawk's investment basis in TII.
5. As of March 28, 1999, Old TomaHawk's and TIFI's total additional paid in
capital to TII, since TII's inception, is approximately $9,064,000.
6. Since TII's inception, it has not paid any dividends to Old TomaHawk or
TIFI, nor has TII advanced any material cash and non-cash property to, nor
has TII received any advances of cash or non-cash property from Old
TomaHawk or TIFI.
7. Old TomaHawk's management and control is in the United States and will
continue to be in the United States after the Domestication.
8. TII is a U.S. Corporation, incorporated under the laws of Illinois.
9. Old TomaHawk will be continued or domesticated into Delaware by Articles of
Continuance.
10. Old TomaHawk's shareholders will continue to hold shares of Old TomaHawk
after the continuance unless they dissent until such shares are converted
to shares of New TomaHawk. Dissenting shareholders will be entitled to have
their shares purchased by Old TomaHawk prior to continuance.
11. The current fair market value of the stock of TII is estimated between
$8,000,000 and $10,000,000 as of February 28, 1999.
12. New TomaHawk and TII (the "Predecessor Corporations") will be resident
corporations in the Unites States prior to the proposed merger.
13. The merged corporations ("Amalco") will be resident in the United States
after the proposed merger.
14. Substantially all or all the assets and liabilities of the Predecessor
Corporations immediately before the merger becomes assets and liabilities
of Amalco by virtue of the merger.
15. Substantially all or all of the shares of the capital stock of the
Predecessor Corporations (except any shares or options owned by any
Predecessor Corporation) are exchanged for or become by virtue of the
merger (i) shares of the capital stock of Amalco, or (ii) if, immediately
after the merger, Amalco is controlled by another foreign corporation
resident in the U.S., shares of the capital stock of that foreign parent
corporation.
10
<PAGE>
DISCUSSION OF AUTHORITIES
I. U.S. FEDERAL INCOME TAX CONSEQUENCES
A. THE SHARE CONSOLIDATION
1. REQUIREMENTS OF I.R.C. Section 368(a)(1)(E)
Generally, a transaction that affects the capital structure of a single
corporation pursuant to a plan of reorganization is a recapitalization within
the meaning of I.R.C. Section 368(a)(1)(E). As illustrated in Treas. Reg.
Section 1.368-2(e), a recapitalization includes the issuance by a corporation
of preferred stock in satisfaction of outstanding bonds; or the issuance by a
corporation of common stock in exchange for all or part of the corporation's
outstanding preferred stock. Moreover, because a recapitalization involves
only a single corporation, neither the continuity of business enterprise nor
the continuity of shareholder interest requirements of Treas. Reg. Section
1.368 -1(b) and Treas. Reg. Section 1.368-1T apply(5).
2. SECTION 1032
Generally, a corporation will recognize no gain or loss upon the receipt of
money or other property in exchange for stock (including treasury stock) of
such corporation. I.R.C. Section 1032. Moreover, Treas. Reg. Section
1.1032-1(b) provides that I.R.C. Section 1032(a) applies to the acquisition
by a corporation of shares of its own stock where the corporation acquires
such shares in exchange for shares of its own stock.
3. SECTIONS 354 AND 351(G)
Generally, a shareholder will recognize no gain or loss upon an exchange of
stock or securities in a corporation for a different class of stock or
securities of the same corporation, if such exchange occurs in connection
with a recapitalization. I.R.C. Section 354(a)(1). An exception to this
general rule applies when a shareholder receives "nonqualified preferred
stock" (as defined in I.R.C. Section 351(g)(2)) in exchange for stock other
than nonqualified preferred stock. I.R.C. Section 354(a)(2)(C). In such case,
the nonqualified preferred stock is taxable to the recipient shareholder.
"Nonqualified preferred stock" is defined as stock that is limited and
preferred as to dividends and that does not participate in corporate growth
to any significant extent, and is either (i) puttable by the holder, (ii)
mandatorily redeemable by the issuer or a related person; (iii) callable by
the issuer or a related person, and, as of the issue date, it is more
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(5) Rev. Rul. 77-415, 1977-2 CB 311 (continuity of interest requirement not
applicable for qualification as a Type E reorganization); Rev. Rul. 82-34,
1982-1 CB 59 (continuity of business enterprise requirement not applicable
for qualification as a Type E reorganization).
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likely than not that such right will be exercised; or (iv) has a dividend
rate that varies in whole or in part (directly or indirectly) by reference to
interest rates, commodity prices, or other similar indices. I.R.C. Sections
351(g)(3)(A) and 351(g)(2)(A). Generally, stock that is subject to a call or
put right or obligation is nonqualified preferred only if the right or
obligation may be exercised within the 20 year period beginning on the issue
date of such stock and such right or obligation is not subject to a
contingency which, as of the issue date, makes remote the likelihood of the
redemption or purchase. I.R.C. Section 351(g)(2)(B).
4. SECTION 305
Section 305(a) provides generally that gross income does not include the
amount of any distribution of the stock of a corporation made by such
corporation to its shareholders with respect to its stock. I.R.C. Sections
305(b) and (c) provide exceptions to the general rule of I.R.C. Section
305(a). In particular, I.R.C. Section 305(c) provides that certain
transactions, including a recapitalization, will be treated as a taxable
distribution with respect to any shareholder whose proportionate interest in
the earnings and profits or the assets of the corporation is increased by
such transaction. Treas. Reg. Section 1.305-7(c) provides that a
recapitalization (whether or not an isolated transaction) will be deemed to
result in a distribution to which I.R.C. Section 305(c) applies if (i) it is
pursuant to a plan to periodically increase a shareholder's proportionate
interest in the assets or the earnings and profits of the corporation, or
(ii) a shareholder owning preferred stock with dividends in arrears exchanges
his stock for other stock and, as a result, increases his proportionate
interest in the assets or the earnings and profits of the corporation. An
increase in a preferred shareholder's proportionate interest occurs in any
case where the fair market value or the liquidation preference, whichever is
greater, of the stock received in the exchange (determined immediately
following the recapitalization), exceeds the issue price of the preferred
stock surrendered.
In addition, it is possible that a transaction structured as a
recapitalization exchange may be recharacterized as a distribution subject to
I.R.C. Section 305. SEE BAZLEY V. COMMISSIONER, 331 U.S. 737 (1947), 1947-2
C.B. 79 (holding that an exchange of old stock for new stock and debentures
lacked a bona fide business purpose, and, instead, constituted a distribution
of debentures taxable as a dividend).(6) However, where a transaction that
effects a reshuffling of a corporation's capital structure has a bona fide
business purpose, is an isolated transaction and is not pursuant to a plan to
increase periodically the proportionate interest of any shareholder in the
earnings and profits of the corporation, it will be respected as a
recapitalization exchange. SEE Rev. Rul. 86-25, 1986-1 C.B. 202
(distinguishing BAZLEY and concluding that an exchange of outstanding common
stock for either (i) shares of new voting common and new nonvoting common, or
(ii) shares of new voting common and new nonvoting preferred constitutes a
Type E recapitalization, if the exchange is pursuant to a bona fide business
purpose, is an isolated transaction, and is not pursuant to a plan to
increase periodically the proportionate interest of any shareholder).
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(6) The taxpayer had argued that the share exchange constituted a Type E
recapitalization, and that the receipt of the debentures was a tax-free
receipt of securities in connection with the recapitalization. The court
disregarded the share exchange, reasoning that it had no economic substance.
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5. SECTION 306
I.R.C. Section 306 generally provides that if a shareholder disposes of
"section 306 stock," the amount realized on such disposition shall be
ordinary income. I.R.C. Section 306(c)(1)(B) defines "section 306 stock" as
stock (other than common stock) which:
(i) was received, by the shareholder selling or otherwise disposing of such
stock, in pursuance of a plan of reorganization (within the meaning of
I.R.C. Section 368(a)), or in a distribution or exchange to which I.R.C.
Section 355 (or so much of I.R.C. Section 356 as relates to I.R.C.
Section 355) applied, and
(ii) with respect to the receipt of which gain or loss to the shareholder was to
any extent not recognized by reason of part III, but only to the extent
that either the effect of the transaction was substantially the same as the
receipt of a stock dividend, or the stock was received in exchange for
"section 306 stock."
Treas. Reg. Section 1.306-3(d) provides that for purposes of I.R.C. Section
306(c)(1)(B), stock will be "section 306 stock" if cash received in lieu of
such stock would have been treated as a dividend under I.R.C Section
356(a)(2) or would have been treated as a distribution to which I.R.C.
Section 301 applies by virtue of I.R.C. Section 356(b) or I.R.C. Section
302(d).(7)
As described above, the shareholders of the Company will exchange 15 shares
of outstanding Common Stock for 1 share of New Common Stock, and one share of
Class A Series III Preferred Stock for one share of Class A Preferred Stock
in accordance with the corporate business purposes described above. The terms
of the New Common Stock and the Class A Preferred Stock will not be
substantially different from the terms of the Common Stock and the Class A
Series III Preferred Stock exchanged, respectively. As described above, the
Class A Preferred Stock will not be subject to a call or put right or
obligation. In addition, the Class A Series III Preferred Stock does not have
any dividends in arrears. Therefore, the Class A Series III Preferred Stock
and the Class A Preferred Stock should not be considered "nonqualified
preferred stock" under I.R.C. Section 351(g). Alternatively, if the Class A
Series III Preferred Stock and the Class A Preferred Stock are considered
"nonqualified preferred stock" under I.R.C. Section 351(g), the exchange of
"nonqualified preferred stock" for "nonqualified preferred stock" will be
tax-free under I.R.C. Section 354(a)(2)(C)(i). As a result, the exchange will
constitute a recapitalization within the meaning of I.R.C. Section
368(a)(1)(E), and will be tax-free to the Company and the exchanging
shareholders under I.R.C. Section 1032 and I.R.C. Section 354(a)(1),
respectively.
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(7) Treas. Reg. Section 1.306-3(d) EXAMPLE (2) illustrates the application of
Section 306 to a recapitalization transaction. Shareholders X and Y each own
one-half of the outstanding common and preferred stock of Corporation C.
Pursuant to a recapitalization transaction, each shareholder exchanges his
preferred stock for preferred stock of a new issue which is not substantially
different from the preferred stock previously held. The example concludes
that unless the preferred stock exchanged was itself Section 306 stock, the
preferred stock received is not Section 306 stock.
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B. THE DOMESTICATION
1. REQUIREMENTS OF I.R.C. Section 368(a)(1)(F)
A transaction that constitutes a mere change in identity, form, or place of
organization of one corporation, however effected, generally constitutes a
reorganization within the meaning of I.R.C. Section 368(a)(1)(F).(8) For a
transaction to qualify as a Type F reorganization, there can be no change in
the existing shareholders or assets of the corporation.(9) In addition, the
transaction must satisfy the continuity of business enterprise requirement
and be accomplished pursuant to a plan of reorganization. When a transaction
qualifies as a Type F reorganization, the part of the taxable year before the
reorganization and the part of the taxable year following the reorganization
constitute a single taxable year of the corporation, notwithstanding that the
reorganization may qualify under another provision of I.R.C. Section
368(a)(1).(10)
The Internal Revenue Service (the Service) has determined that the
domestication of a foreign corporation can constitute a Type F
reorganization. In Rev. Rul. 88-25, 1988-1 C.B. 116, corporation X was
incorporated in Country Y. For valid business reasons, the shareholders of X
decided that it would be advantageous for X to become a State A corporation.
Accordingly, pursuant to State A corporate law, X filed a certificate of
domestication and a certificate of incorporation in State A. Upon filing the
certificate of domestication and the certificate of incorporation, X was
considered by State A to be incorporated in State A and became subject to
State A law. The ruling states that for federal income tax purposes, the
conversion of X from a Country Y to a State A corporation under the State A
domestication statute is treated as a transfer by X of all of its assets and
liabilities to a new domestic corporation, DX in exchange for DX stock; and a
liquidating distribution by X to its shareholders of the DX stock received in
exchange for X's assets and liabilities. Because there was no alteration in
shareholder or asset
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(8) The requirement that only one corporation may undergo a Type F
reorganization was added to the Code in 1982. However, notwithstanding its
literal parameters, more than one corporate entity can be involved in a Type
F reorganization provided that only one of the corporations is an operating
company. SEE H.R. Rep. No. 760, 97th Cong., 2d Sess. 541 (1982), 1982-2 CB
600, 634-635.
(9) HELVERING V. SOUTHWEST CONSOLIDATED CORPORATION, 315 U.S. 194 (1942) (a
"transaction which shifts the ownership of the proprietary interest in a
corporation is hardly `a mere change in identity, form, or place of
organization . . .'"); Rev. Rul. 57-276, 1957-1 CB 126; Rev. Rul. 58-422,
1958-2 CB 145; Rev. Rul. 66-284, 1966-2 CB 115 (receipt of cash by dissenting
shareholders does not disqualify transaction as a Type F reorganization where
dissenting shareholders own less than 1 percent of the outstanding stock of
the corporation. This is considered a DE MINIMIS change in the corporation's
shareholders.); Rev. Rul. 96-29, 1996-1 CB 50 (redemption of shareholders and
a public offering both occurred pursuant to the same plan as a change in the
state of incorporation; although the IRS did not expressly rule that complete
identity of shareholders was no longer a requirement, complete identity of
shareholders was lacking, and the redemption, if treated as part of the Type
F reorganization, would not have been of such a significant amount that
continuity of interest would have been lacking).
(10) Rev. Rul. 57-276; Section 381(b).
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continuity, or business enterprise, the effect of the conversion was a mere
change in the place of organization of X within the meaning of I.R.C. Section
368(a)(1)(F).(11)
In connection with the Domestication, shareholders of Old TomaHawk who
dissent to the transaction will be entitled to receive cash in exchange for
their Old TomaHawk stock. In the event that there are dissenters, their
redemption will not prevent the identity of shareholder and asset
requirements of a Type F reorganization from being satisfied. Courts have
characterized transactions as Type F reorganizations, even when accompanied
by a redemption, reasoning that the redemption was functionally unrelated to
the reorganization.(12)
2. REQUIREMENTS OF I.R.C. Section 367(b)
The Service has held that a domestication of a foreign corporation pursuant
to a domestication state statute will qualify as an I.R.C. Section
368(a)(1)(F) reorganization. Rev. Rul. 87-27, 1987-1 CB 134; Rev. Rul. 88-25,
1988-1 CB 116.
Generally in a reorganization under I.R.C. Section 368(a)(1)(F), I.R.C.
Section 354 provides the shareholders of the transferor corporation with
tax-free treatment. However, I.R.C. Section 367(b) overrides this tax-free
treatment in certain cases when a U.S. shareholder exchanges shares of a
foreign corporation in an exchange described in I.R.C. Section 354 and
pursuant to an I.R.C. Section 368(a)(1)(F) reorganization. Treas. Regs.
Section 1.367(b)-7(a)(1)(i) & (ii).
For purposes of I.R.C. Section 367(b), an I.R.C. Section 368(a)(1)(F)
reorganization is treated as:
(1) a transfer of assets by the foreign transferor corporation to the acquiring
corporation in exchange for stock of the acquiring corporation and the
assumption by the acquiring corporation of the transferor's liabilities,
followed by
(2) a distribution of the stock of the acquiring corporation by the transferor
corporation to the shareholders of the transferor corporation, and
concluding with
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(11) SEE ALSO Rev. Rul. 87-27, 1987-1 CB 134 (reincorporation of U.S.
corporation as a U.K. corporation constitutes a Type F reorganization); Rev.
Rul. 87-66, 1987-2 CB 168 (reincorporation of foreign corporation as U.S.
corporation constituted both a Type D and a Type F reorganization).
(12) SEE REEF CORPORATION V. COMMISSIONER, 368 F.2d 125 (5th Cir. 1966),
CERT. DENIED, 386 U.S. 1018 (1967) (holding that a transaction qualified as a
Type F reorganization even though the stock of a 48% shareholder group was
redeemed as part of the transaction. The court reasoned that the redemption
was functionally unrelated to the reorganization transaction and, as a
result, there was an identity of shareholders in the reorganized
corporation.); AETNA CASUALTY AND SURETY CO. V. UNITED STATES, 568 F.2d 811
(2d Cir. 1976) (holding that a transaction involving a squeeze out of a 38.9%
minority interest in a triangular merger resulted in a Type F reorganization.
The court viewed the transaction as two separate steps: a Type F
reorganization and a redemption). SEE ALSO CASCO PRODUCTS CORP. V.
COMMISSIONER, 49 T.C. 32 (1967) (involving the merger of a corporation with a
newco, incorporated in the same state and a squeeze out of a 9% minority
interest. Allowing a net operating loss carryback, the court specifically
refused to determine whether the transaction qualified as a Type F
reorganization, and instead held that the transaction was simply a redemption
of the 9% minority interest).
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(3) an exchange by the transferor corporation's shareholders of the stock of
the transferor corporation for stock of the acquiring corporation under
I.R.C. Section 354. Treas. Reg. Section 1.367(b)-1(f).
It is irrelevant that the applicable domestic or foreign law treats the
acquiring corporation as a continuance of the transferor corporation. Thus,
an I.R.C. Section 368(a)(1)(F) reorganization will be considered a transfer
subject to I.R.C. Section 367(b).
I.R.C. Section 367(b) recharacterizes an I.R.C. Section 368(a)(1)(F)
reorganization as a taxable transaction for certain U.S. shareholders of
foreign corporations in otherwise tax-free transfers between domestic and
foreign corporations. Under Temp. Reg. Section 7.367(b)-7(c)(2)(i), an
exchanging U.S. shareholder must include in gross income the "all earnings
and profits amount" of the acquired foreign corporation if: (1) the assets of
the acquired foreign corporation are acquired by a domestic corporation
pursuant to a reorganization described in I.R.C. Section 368(a)(1)(F); (2)
the exchanging U.S. shareholder is a domestic corporation; and (3) such
domestic corporation receives stock of a domestic corporation in exchange for
its stock in the acquired foreign corporation.. If the shareholder fails to
include this amount in income, the shareholder must recognize gain on the
transaction. Temp. Reg. Section 7.367(b)-7(c)(2)(ii). The "all earnings and
profits amount" is the net positive earnings and profits for all taxable
years which are attributable to periods in which the U.S. shareholder held
such stock under the principles of I.R.C. Section 1248. Treas. Reg. Section
1.367(b)-2(f).
Temp. Reg. Section 7.367(b)-7(c)(1) provides that if an exchanging U.S.
Shareholder, other than a domestic corporation, receives stock of a domestic
corporation, the exchanging U.S. Shareholder must include in gross income the
"Section 1248 amount" attributable to the stock exchanged, to the extent that
the fair market value of the stock exchanged exceeds its adjusted basis. For
this purpose, a U.S. Shareholder is any U.S. person who owns at least 10
percent, directly or indirectly, of the vote of a controlled foreign
corporation at any time during the 5 year period ending on the date of the
sale or exchange. (In this opinion, we refer to those U.S. shareholders that
meet the 10 percent ownership definition by capitalizing the word
"shareholders," viz. "U.S. Shareholders.") A controlled foreign corporation
is any foreign corporation, if more than 50 percent of its total combined
voting power of all classes of stock of such corporation entitled to vote, or
the total value of the stock of such corporation, are owned by U.S.
shareholders on any day during the taxable year. I.R.C Section 957(a). Only
U.S. shareholders owning 10 percent or more of the combined voting power of
such corporation are counted for this determination. I.R.C Section 951(b).
The "Section 1248 amount" is the foreign corporation's net positive earnings
and profits accumulated after December 31, 1962 which are attributable to the
period during which the U.S. Shareholder held such stock and while such
corporation was a controlled foreign corporation. Treas. Reg. Section
1.367(b)-2(d).
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Therefore, Temp. Reg. Section 7.367(b)-7(c) will only apply if the acquired
foreign corporation was a controlled foreign corporation at any time during
the five year period ending on the date of exchange.
If Proposed Regulation Section 1.367(b)-3(b) is finalized at least 30 days
before the reorganization, the treatment in the preceding paragraph may be
revised to require U.S. Shareholders to include the "all earnings and profits
amount" (as defined above) of the foreign corporation as a deemed dividend.
This may be required even though the foreign corporation was not a controlled
foreign corporation at any time. As an alternative, the U.S. Shareholder may
elect to recognize gain realized on the exchange of its acquired foreign
corporation stock as if it sold the stock for fair market value. Prop. Reg.
Section 1.367-3(b)(2)(iii). Lastly, the Proposed Regulations, once finalized
and effective, would require a U.S person owning less than 10 percent of
acquired foreign corporation to recognize gain realized on the exchange.
Prop. Reg. Section 1.367(b)-3(c).
In any case, because I.R.C. Section 367(b) applies to the reorganization, all
U.S. shareholders who realize gain or other income from the exchange, whether
or not recognized for U.S. tax purposes, must comply with notice requirements
under Treas. Reg. Section 1.367(b)-1(c). Failure to comply with the notice
requirements can result in the Service imposing a gain on an otherwise
non-taxable transaction.
Generally, if a foreign corporation is the transferor corporation in an
I.R.C. Section 368(a)(1)(F) reorganization in which the acquiring corporation
is a domestic corporation, then the taxable year of the transferor
corporation ends with the close of the date of the transfer, and the taxable
year of the acquiring corporation ends with the close of the date on which
the transferor's taxable year would have ended but for the I.R.C. Section
368(a)(1)(F) reorganization. Treas. Reg. Section 7.367(b)-1(e).
3. DISSENTERS
According to the Registration Statement, a registered shareholder is entitled
under Alberta law, in addition to any other right he may have, to dissent (a
"Dissenting Shareholder") and to be paid by the Company the fair value of the
shares of Common Stock hold by him in respect of which he dissents,
determined as of the close of business on the last business day before the
day on which the resolution from which he dissents was adopted.
A "redemption" occurs when a corporation acquires its stock from a
shareholder in exchange for property, whether or not the stock so acquired is
canceled, retired, or held as treasury stock. I.R.C. Section 317(b). For this
purpose, "property" means money, securities, and any other property, except
stock in the corporation making the distribution. I.R.C. Section 317(a).
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If a corporation redeems its stock, such redemption may be treated either as
a sale or exchange in part or full payment in exchange for the stock, or as a
distribution under I.R.C. Section 301. I.R.C. Sections 302(a) & (d).
When a redemption is accorded sale or exchange treatment, the shareholder
recognizes gain or loss on the transaction equal to the fair market value of
the property received in the redemption less the shareholder's tax basis in
the stock redeemed. I.R.C. Section 1001.
If the redemption fails to qualify for sale or exchange treatment under
I.R.C. Section 302, the distribution will be treated as an I.R.C. Section 301
distribution. I.R.C. Section 302(d). An I.R.C. Section 301 distribution will
be treated as follows:
1. a dividend to the extent of the Company's current and accumulated earnings
and profits;
2. a return of basis to the extent the distribution exceeds the Company's
current and accumulated earnings and profits;
3. capital gain to the extent the distribution exceeds the Company's current
and accumulated earnings and profits and the shareholder's basis in his
Company stock. I.R.C. Sections 301(c) & 316(a).
Consistent with Rev. Rul. 88-25, the Domestication of the Company as a
Delaware corporation will constitute a reorganization within the meaning of
I.R.C. Section 368(a)(1)(F). According to the Documents, New TomaHawk will
continue to hold and use Old TomaHawk's historic assets. In addition, except
for dissenters, there should be an identity of shareholders from Old TomaHawk
to New TomaHawk. The fact that the Share Consolidation will occur as a
preliminary step to the Domestication will not prevent the Domestication from
qualifying under Section 368(a)(1)(F).
C. STEP TRANSACTION DOCTRINE
The step transaction doctrine is a judicially created concept with pervasive
applicability in the tax law. Generally, the step transaction doctrine
permits a series of formally separate steps to be combined and treated as a
single transaction if the facts and circumstances indicate that the steps are
"integrated, interdependent, and focused toward a particular result." SEE
GENERALLY PENROD V. COMMISSIONER, 88 T.C. 1415 (1987).
For most purposes of the Code, a reorganization of a corporation under I.R.C.
Section 368(a)(1)(F) is treated as if there had been no change in the
corporation and, thus, as if the reorganized corporation is the same entity
as the corporation that was in existence prior to the reorganization.
Consistent with this, the Service has taken the position in several revenue
rulings that for purposes of determining whether a transaction qualifies as
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a Type F reorganization, it is analyzed and treated as a separate
transaction, even if it is part of a larger transaction.(13)
For example, in Rev. Rul. 69-516, 1969-2 C.B. 56, the Service treated as two
separate transactions, a reorganization under I.R.C. Section 368(a)(1)(F) and
a reorganization under I.R.C. Section 368(a)(1)(C) undertaken as part of the
same plan. In that ruling, a corporation changed its place of organization by
merging into a corporation formed under the laws of another state and,
immediately thereafter, it transferred substantially all of its assets in
exchange for stock of an unrelated corporation. The ruling holds that the
change in place of organization qualified as a reorganization under I.R.C.
Section 368(a)(1)(F).
The Service took a similar approach in Rev. Rul. 96-29, SUPRA, in analyzing
two situations. In Situation 1, the Service determined that the
reincorporation of a corporation in another state qualified as a Type F
reorganization, even though it was a step in a transaction in which the
corporation issued common stock in a public offering and then redeemed stock
having a value of 40 percent of the aggregate value of its outstanding stock
prior to the offering. In Situation 2, a corporation acquired the assets of
another corporation by way of merger. The acquiring corporation then
reincorporated in another state. The Service concluded that the
reincorporation qualified as a Type F reorganization, even though it was a
step in a larger acquisitive transaction.(14)
As illustrated above, the Service has taken the position that if a Type F
reorganization is part of a larger transaction, it will be analyzed
separately from the other steps to determine whether it meets the statutory
requirements. Accordingly, the fact that the Company will merge with and into
TII following the Domestication transaction will not preclude the
Domestication transaction from qualifying as a Type F reorganization. The
Merger transaction will be analyzed as a separate and independent step from
the Domestication.
II. CANADIAN FEDERAL INCOME TAX CONSEQUENCES
All Statutory references to the Canadian Federal INCOME TAX ACT ("Tax Act").
A. SHARE CONSOLIDATION
Where, in the course of a reorganization of the capital of a corporation, a
shareholder disposes of capital property that was all the shares of any
particular class of the capital stock of the corporation ("Old Shares") owned
by the shareholder at the time of disposition, and the consideration received
from the corporation consists solely of one other class of shares of the
capital stock of the corporation ("New Shares"), the tax consequences to the
shareholder are as follows:
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(13) SEE ALSO REEF CORPORATION V. COMMISSIONER, AETNA CASUALTY AND SURETY
COMPANY V. COMMISSIONER, and CASCO PRODUCTS CORPORATION V. COMMISSIONER,
SUPRA.
(14) SEE ALSO Rev. Rul. 79-250, 1979-2 CB 156 (modified by Rev. Rul. 96-29).
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1. The adjusted cost base to the shareholder of the New Shares is deemed to be
equal to the adjusted cost base of the Old Shares;
2. The shareholder is deemed to dispose of the Old Shares for proceeds of
disposition equal to the adjusted cost base to the shareholder of the of New
Shares; and
3. The paid up capital of the New Shares will equal the paid up capital of the
Old Shares.
Therefore, there should be no immediate tax consequences as a result of the
share exchange (section 86).
B. THE DOMESTICATION
1. RESIDENTS OF CANADA
This discussion generally addresses certain Canadian federal income tax
consequences of a continuance ("Continuance") of a Canadian resident
corporation into the United States for shareholders resident in Canada, who
hold shares of a company as "capital property," and who deal at arm's length
with the company all within the meaning of section 251 of the Tax Act.
Generally, shares will be considered "capital property" unless the holder is
a trader or dealer in securities (subsections 39(4) and (5) of the Tax Act),
has acquired the shares as an adventure in the nature of trade (definition of
"business" in subsection 248(1) of the Tax Act), or holds the shares
otherwise than for investment purposes.
A. NON-DISSENTING SHAREHOLDERS
There is no specific provision in the Tax Act which deems a shareholder of a
Canadian corporation to have disposed of his/her shares as a result of the
Canadian corporation being granted Articles of Continuance under the laws of
a foreign jurisdiction. Generally, a continuance will not result in adverse
consequences to the shareholders.(15) On a Continuance, the shares will
constitute "foreign property" for purposes of deferred income plans such as
registered retirement savings plans (definition of "foreign property" in
subsection 206(1) of the Tax Act and definition of "Canadian corporation" in
subsection 89(1) of the Tax Act). A deferred income plan may not hold more
than 20% of its investments (based on original cost provided this is the
method followed by the plan) in foreign property without incurring tax
penalties (sections 205 to 207 of the Tax Act).
Shareholders resident in Canada who receive dividends after a Continuance
will be subject to U.S. withholding tax. Pursuant to Article X 2(b) of the
Canada -United States Tax Convention, 1980 (the "Treaty") the applicable
withholding tax rate would be 15% of the amount of the dividend for dividends
paid to individuals or corporate shareholders owning less than 10% of the
company's outstanding voting shares. For corporate
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(15) Income Tax Rulings TR-1, June 24, 1974 and TR-49, March 7, 1977 provide
support for the proposition that a continuance from one jurisdiction to
another does not result in a disposition of the shares of the continuing
corporation by its shareholders.
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shareholders owning more than 10% of the company's outstanding voting shares,
the dividend withholding rate under Article X 2(a) of the Treaty is 5%. A
Canadian shareholder must include in income for Canadian tax purposes 100% of
the Canadian dollar equivalent of the amount of the dividend (paragraph
12(1)(k) and section 90 of the Tax Act). Such dividend would not be eligible
for the dividend tax credit (section 121 of the Tax Act). Depending on the
shareholder's particular circumstances, such withholding tax may or may not
qualify for a credit against Canadian federal income tax or a deduction
against taxable income (section 126 and subsections 20(11) and 20(12)of the
Tax Act).
Subsection 95(1) defines the term "foreign affiliate" of a taxpayer resident
in Canada for the purposes of the rules in the Tax Act which deals with the
taxation of shareholders of non-resident corporations. A corporation not
resident in Canada will be considered to be a foreign affiliate of a
shareholder where the shareholder has an equity percentage in that
corporation that is not less than 1% and the total of the equity percentages
of the taxpayer and persons related to the taxpayer in that corporation is
not less than 10%. For purposes of the10% equity test, the equity percentages
are to be determined without reference to the equity percentages of any
person related to the shareholder.
A corporation resident in Canada, owning shares of a non-resident corporation
that is a foreign affiliate is entitled to certain rollover privileges on a
merger, reorganization or dissolution of the affiliate and to certain
deductions in respect of dividends received from it. The deduction for
dividends is provided in section 113 and the regulations thereunder and is
dependent on the source from which the dividends are paid. A corporation may
also elect under section 93 of the Tax Act following the disposition of
shares of a foreign affiliate, to treat a portion of the proceeds as a
dividend and not proceeds of disposition in certain circumstances.
b. DISSENTING SHAREHOLDERS
In circumstances where dissenting shareholders are entitled to require a
company to purchase for cash ("Cash Proceeds") all of their shares at fair
market value if such company proceeds with a Continuance, the following
generally describes certain Canadian federal income tax consequences thereof.
The shareholders will be deemed to have received a dividend equal to the
excess, if any, of the Cash Proceeds over the paid up capital of their shares
(subsection 84(3) of the Tax Act). An individual shareholder must include in
income 125% of the actual amount of the dividend (paragraph 12(1)(k) and
subsection 82(1) of the Tax Act) and is entitled to claim a dividend tax
credit equal to 13.33% of the grossed up amount in calculating his/her
Canadian federal income tax liability (section 121 of the Tax Act). A
shareholder that is a private corporation resident in Canada and which owns
not more than 10% of the shares of a corporation, which shares represent not
more than 10% of the voting shares and not more than 10% of the fair market
value of all shares will be subject to a refundable tax of 33-1/2% under Part
IV of the Tax Act. The Part IV tax is refundable to the corporation at the
rate of $1 for every $3 of dividends paid.
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Any other corporation will not be subject to tax on the dividend unless the
dividend is re-characterized as proceeds of disposition. Specifically the Tax
Act contains an anti-avoidance provision which would treat the dividend as
proceeds of disposition for purposes of calculating any capital gain, where
one of the results of the dividend was to effect a significant reduction in
the capital gain that would have been realized had the shares been disposed
of at fair market value (subsection 55(2) of the Tax Act).
In addition to the dividend, all shareholders will be considered to have
disposed of their shares for an amount ("Proceeds") equal to the paid-up
capital of his/her shares (definition of "disposition" and definition of
"proceeds of disposition" in section 54 of the Tax Act). To the extent that
the Proceeds exceed the shareholder's adjusted cost base of his/her shares, a
capital gain will arise (sections 39 and 40 of the Tax Act), three-quarters
of which (paragraph 38(a) of the Tax Act) will be included in income for
Canadian federal income tax purposes in the year of the dissent. To the
extent that the Proceeds are less than a shareholder's adjusted cost base of
his/her shares, a capital loss will arise (sections 39 and 40 of the Tax
Act), three-quarters of which can be used to reduce current year capital
gains to nil (paragraph 3(b) of the Tax Act). If the capital loss exceeds
current year capital gains, any excess can be carried back three years or
forward indefinitely to offset capital gains in those periods (paragraph
111(1)(b) of the Tax Act). If the adjusted cost base of the shareholder's
shares is equal to the paid up capital of his/her shares, no capital gain or
loss will arise.
2. SHAREHOLDERS NOT RESIDENT IN CANADA
The following summary is generally applicable on a Continuance to
shareholders who are not resident in Canada, who do not use or hold or are
not deemed to use or hold their shares in carrying on a business in Canada,
including a life insurance business, who deal at arm's length with the
Company and who hold their shares as "capital property" (as defined above).
a. NON-DISSENTING SHAREHOLDERS
A non-dissenting non-resident shareholder will continue to hold his/her
shares upon a Continuance. Since a Continuance is not considered to be a
disposition of shares (as discussed above), no capital gain or loss should
arise as a result of a Continuance. Following a Continuance, a shareholder
will continue to have an adjusted cost base of his/her shares equal to the
adjusted cost base immediately prior to a Continuance. Dividends received by
a shareholder after a Continuance will not be subject to tax in Canada.
b. DISSENTING SHAREHOLDERS
In circumstances where a dissenting shareholder is entitled to require a
company to purchase all of his/her shares at fair market value if the company
proceeds with a Continuance, the following generally describes certain
Canadian income tax consequences thereof. The shareholder, individual or
corporation, will generally be
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considered to have received a dividend equal to the excess of the Cash
Proceeds (defined above) over the paid up capital of his/her shares
(subsection 84(3) of the Tax Act). The dividend will be subject to Canadian
withholding tax of 25% of the amount of the dividend (subsection 212(1) of
the Tax Act) or such lower rate as provided under the terms of an applicable
double taxation treaty. Pursuant to Article X:2(b) of the Treaty, the
withholding tax rate is 15% of the amount of the dividend for dividends paid
to individuals or corporate shareholders owning less than 10% of the
company's outstanding voting shares. For corporate shareholders owning more
than 10% of the company's outstanding voting shares, the dividend withholding
rate under Article X:2(a) of the Treaty is 5% of the amount of the dividend.
Shareholders also will be considered to have disposed of their shares for
proceeds equal to the paid-up capital of the shares (definition of
"disposition" and "proceeds of disposition" in section 54 of the Tax Act).
Such shareholders will be subject to Canadian taxation in respect of capital
gains on shares only if such shares constitute "taxable Canadian property" to
them. The shares generally will not constitute "taxable Canadian property" of
a shareholder unless at any time within the five years preceding the
disposition of the shares, the shareholder, together with persons not dealing
at arm's length with the shareholder, or any combination thereof, owned
and/or had options to acquire: (a) 25% or more of the issued shares of any
class of series of capital stock of the company, (b) the shareholder, upon
ceasing to be a resident of Canada, elected under the Tax Act to have the
shares treated as "taxable Canadian property", or (c) the shares were
acquired in circumstances in which they were deemed to be taxable Canadian
property (definition of "taxable Canadian property" in subsection 115(1) of
the Tax Act).
3. CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
A company will be deemed to have a year end immediately prior to a
Continuance and will be deemed to have disposed of each of its assets for
proceeds equal to fair market value and to have immediately reacquired such
assets at a cost equal to fair market value (subsections 250(5.1) and
128.1(4) of the Tax Act and Article IV:3 of the Treaty). The deemed
disposition may give rise to income or loss, or capital gains or capital
losses to the extent that the fair market value of the assets differs from
their cost or adjusted cost base. Such income or loss, capital gain or
capital loss will be included in computing such company's taxable income for
the fiscal period ending immediately prior to a Continuance. To the extent
that such amounts exceed available deductions, such amounts will be subject
to Canadian federal income tax at an effective rate of 39%.
In addition, a 25% Exit Tax will apply to the amount by which the aggregate
fair market value of a company's assets immediately prior to a Continuance
exceeds the aggregate of its liabilities (including liability for Canadian
federal income tax for the final taxation year) and its paid-up capital of
all of its issued and outstanding shares excluding the paid-up capital in
respect of all dissenting shareholders whose shares have been redeemed. The
general rate of tax of 25% will be reduced to 5% pursuant to section 219.3 of
the Tax Act and Article X:2 of the Treaty. The Exit Tax is payable by such
company.
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Upon a Continuance a company is deemed for Canadian federal income tax
purposes to have been incorporated in the jurisdiction it is continued into
and not to have been incorporated elsewhere (Article IX:3 of the Treaty) and
should generally only be subject to tax in Canada in respect of business
income attributable to a permanent establishment in Canada, gains realized on
disposition of taxable Canadian property and withholding tax in respect of
Canadian source passive income such as dividends and interest (subsection
2(3) and Part XIII of the Tax Act).
OPINIONS
I. THE SHARE CONSOLIDATION
A. U.S. FEDERAL INCOME TAX CONSEQUENCES
Based on the Documents, the applicable law, and any caveats or qualifications
as stated herein, for U.S. federal income tax purposes:
1. The Share Consolidation, as described above, will constitute a
recapitalization and, therefore, a reorganization within the meaning of
I.R.C. Section 368(a)(1)(E). The Company will be `a party to a
reorganization' within the meaning of I.R.C. Section 368(b).
2. No gain or loss will be recognized by the Company on the receipt of the
Common Stock and Class A Series III Preferred Stock solely in exchange for
the New Common Stock and Class A Preferred Stock as described above. I.R.C.
Section 1032(a).
3. No gain or loss will be recognized to the exchanging shareholders upon the
exchange of their Common Stock for New Common Stock or Class A Series III
Preferred Stock for Class A Preferred Stock, as described above. I.R.C.
Section 354(a)(1).
4. The basis of the New Common Stock or Class A Preferred Stock received by
the exchanging shareholders will be equal to the basis of the shares
surrendered in exchange therefor. I.R.C. Section 358(a)(1). Such basis must
be allocated pro rata among the shares of New Common Stock or Class A
Preferred Stock received in the Share Consolidation.
5. The holding period of the New Common Stock or Class A Preferred Stock
received by the exchanging shareholders will include the period during
which the Common Stock or Class A Series III Preferred Stock surrendered in
exchange therefor was held, provided that the Common Stock or Class A
Series III Preferred Stock is held as a capital asset on the date of the
exchange. I.R.C. Section 1223(1). Such holding period must be allocated pro
rata among each share of New Common Stock or Class A Preferred Stock
received in the Share Consolidation.
B. CANADIAN FEDERAL INCOME TAX CONSEQUENCES
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Based on the Documents, the facts summarized above, and the applicable law,
as well as any caveats or qualifications as stated herein, for Canadian
federal income tax purposes:
1. The Share Consolidation will result in a disposition of the Common Stock
for proceeds equal to their adjusted cost base for Canadian federal income
tax purposes, consequently no capital gain or loss will arise as a result
of the Share Consolidation.
2. The adjusted cost base and paid-up capital of the New Common Stock received
by the shareholder on the Share Consolidation will be the adjusted cost
base and paid-up capital of the pre-consolidated Common Stock divided by
the new number of new Common Stock held by a shareholder.
II. THE DOMESTICATION
A. U.S. FEDERAL INCOME TAX CONSEQUENCES
Based on the Documents, the facts summarized above, and the applicable law, as
well as any caveats or qualifications as stated herein, for U.S. Federal income
tax purposes:
1. The Domestication, as described above, will be treated for U.S. federal
income tax purposes as a transfer by the Alberta Company of all of its
assets and liabilities to the Delaware Company in exchange for stock of the
Delaware Company, followed by a liquidating distribution by the Alberta
Company to its shareholders of the Delaware Company stock received in
exchange for the Alberta Company's assets and liabilities. Rev. Rul. 88-25,
1988-1 C.B. 116.
2. The Domestication, as described in (1) above, will constitute a
reorganization under I.R.C. Section 368(a)(1)(F). The Company will be `a
party to a reorganization' within the meaning of I.R.C. Section 368(b).
3. No gain or loss will be recognized by the Alberta Company on the deemed
transfer of its assets to the Delaware Company solely in exchange for stock
of the Delaware Company and the assumption by the Delaware Company of the
liabilities of the Alberta Company. I.R.C. Sections 361(a) and 357(a).
4. No gain or loss will be recognized by the Delaware Company upon the deemed
receipt of assets of the Alberta Company in exchange for stock of the
Delaware Company. I.R.C. Section 1032(a).
5. The basis of the assets of the Alberta Company in the hands of the Delaware
Company will be the same as the basis of such assets in the hands of the
Alberta Company immediately prior to the exchange.
I.R.C. Section 362(b).
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6. The holding period of the assets of the Alberta Company acquired by the
Delaware Company will include the period during which those assets were
held by the Alberta Company immediately prior to the exchange. I.R.C.
Section 1223(2).
7. No gain or loss will be recognized by the non-U.S. shareholders of the
Alberta Company who do not exercise dissenters' rights upon the deemed
receipt of stock of the Delaware Company solely in exchange for their
Alberta Company stock. I.R.C. Section 354(a)(1). No gain or loss will be
recognized by U.S. shareholders of the Alberta Company who do not exercise
dissenters' rights upon the deemed receipt of stock of the Delaware Company
solely in exchange for their Alberta Company stock assuming: (1) the
Alberta Company has not been a controlled foreign corporation (as described
above) at any time during the five years ending on the date of the
exchange; and (2) Proposed Regulation Section 1.367(b)-3(b) is not
effective as of the date of the Domestication. E&Y US has not made, and
will not make, any determination as to whether the Alberta Company is,
or has ever been, a controlled foreign corporation. In addition, in
order to protect the presumed non-taxable nature of the transaction,
U.S. shareholders are required to comply with notice requirements under
Treas. Reg. Section 1.367(b)-1(c). The form of notice is prescribed at
Treas. Reg. Section 7.367(b)-1(c)(2).
8. A non U.S. shareholder who does not exercise dissenters' rights will have a
basis in the Delaware Company Common Stock and Class A Preferred Stock
after the Domestication equal to such shareholder's basis in his/her
Alberta Company New Common Stock and Class A Preferred Stock prior to the
Domestication. I.R.C. Section 358(a)(1). A U.S. shareholder who does not
exercise dissenters' rights will have a basis in the Delaware Company
Common Stock and Class A Preferred Stock after the Domestication equal to
such U.S. shareholder's basis in his/her Alberta Company New Common Stock
and Class A Preferred Stock prior to the Domestication, increased by any
income (deemed dividends) or gain recognized by the U.S. shareholder on the
exchange. I.R.C. Section 358(a)(1)(B).
9. A shareholder who does not exercise dissenters' rights will have a holding
period for the Delaware Company Common Stock and Class A Preferred Stock
after the Domestication equal to such shareholder's holding period of the
Alberta Company New Common Stock and Class A Preferred Stock prior to the
Domestication. I.R.C. Section 1223(1).
10. Cash received as a result of the exercise of dissenters' rights by a
shareholder who dissents from the Domestication ("Dissenting Holder") and
who is subject to U.S. federal income tax will be treated as cash received
in redemption of the Dissenting Holder's shares of the Company's stock. As
a result, such Dissenting Holder may have to recognize capital gain/loss or
ordinary income as a result of the Domestication. Each Dissenting Holder
should consult with his/her own tax advisor as to the specific tax
consequences of the Domestication to him/her.
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11. The taxable year of the Alberta Company will end on the date of the
Domestication. The Delaware Company's first taxable year will begin on the
day after the Domestication, and will end on December 31, 1999. Treas. Reg.
Section 7.367(b)-1(e).
The opinion set forth above does not address certain U.S. federal income tax
consequences applicable to U.S. shareholders of the Company who own or owned
(directly or indirectly) 10% or more of the voting power of the Company at any
time during the five year period ending on the date of the Domestication.
B. CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Based on the Documents, the facts summarized above, and the applicable law, as
well as any caveats or qualifications as stated herein, for Canadian federal
income tax purposes:
1. Generally non-dissenting shareholders will not be considered to have
disposed of their shares of the Alberta Company upon the Domestication.
2. Non-dissenting shareholders will continue to have an adjusted cost base of
their Delaware Company shares equal to the adjusted cost base of their
Alberta Company shares immediately prior to the Domestication.
3. On the Domestication, the Delaware Company shares will constitute "foreign
property" for purposes of deferred income plans. A deferred income plan may
not hold more than 20% of its investments (based on original cost) if that
is the method adopted by the plan in foreign property without incurring tax
penalties. Those non-dissenting Canadian resident shareholders holding
their Alberta Company shares in a deferred income plan are advised to
carefully review their foreign property limits.
4. Non-dissenting Canadian resident shareholders must include in income for
Canadian tax purposes 100% of the Canadian dollar equivalent of the amount
of dividends received from the Delaware Company after the Domestication.
Such dividend would be subject to U.S. withholding tax. Depending on the
shareholder's particular circumstances, such withholding tax may or may not
qualify for a credit against Canadian federal income tax or a deduction
against Canadian income tax or a deduction against Canadian taxable income.
5. Dividends received by a Non-dissenting Non-resident shareholder after the
Domestication will not be subject to Canadian federal income tax.
6. Dissenting shareholders generally will be considered to have received a
dividend ("Dividend") on the purchase of their shares by the Alberta
Company equal to the excess, if any, of the Cash Proceeds over the paid up
capital of their shares.
7. Dissenting Canadian resident individual shareholders are required to
include in income 125% of the actual amount of the Dividend and are
entitled to claim a
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dividend tax credit equal to 13.33% of the grossed up amount in calculating
Canadian federal income tax payable.
8. Dissenting Canadian resident corporate shareholders would not be subject to
tax on the Dividend (unless the Dividend is re-characterized as proceeds of
disposition) under Part I of the Tax Act. A private company holding not
more than 10% of the voting shares will be subject to a refundable tax of
33-1/3% under Part IV of the Tax Act. The Part IV tax is refundable at the
rate of $1 for every $3 of dividends paid.
9. Dissenting shareholders also will be considered to have disposed of their
Alberta Company shares for Proceeds equal to the paid-up capital of their
Alberta Company shares on the purchase of their shares by the Alberta
Company.
10. To the extent that the Proceeds exceed a dissenting Canadian resident
shareholder's adjusted cost base of his/her shares, a capital gain will
arise, three-quarters of which will be included in income for Canadian
federal income tax purposes in the year of the dissent. To the extent that
the Proceeds are less than a shareholder's adjusted cost base of his/her
shares, a capital loss will arise, three-quarters of which can be used to
reduce current year capital gains to nil. If the capital loss exceeds
current year capital gains, any excess can be carried back three years or
forward indefinitely to offset capital gains in those periods. If the
adjusted cost base of the shareholder's shares is equal to the paid up
capital of his/her shares, no capital gain or loss will arise.
11. Dissenting Non-resident shareholders generally will be subject to Canadian
withholding tax of 25% of the amount of the Dividend or such lower rate as
provided under the terms of an applicable double taxation treaty. Depending
on a Dissenting Non-resident shareholder's particular circumstances, such
withholding tax may or may not qualify for a credit against income tax or a
deduction against taxable income in his/her jurisdiction of taxation.
12. Dissenting non-resident shareholders will be subject to Canadian taxation
in respect of capital gains on their Alberta Company shares only if such
shares constitute "taxable Canadian property" to them. The Common Shares
generally will not constitute "taxable Canadian property" of a shareholder
unless at any time within the five years preceding the disposition of the
shares, the shareholder, together with persons not dealing at arm's length
with the shareholder, or any combination thereof, owned and/or had options
to acquire: (a) 25% or more of the issued shares of any class of series of
capital stock of the company, (b) the shareholder, upon ceasing to be a
resident of Canada, elected under the Tax Act to have the shares treated as
"taxable Canadian property," or (c) the Common Shares were acquired in
circumstances in which they were deemed to be taxable Canadian property
(definition of "taxable Canadian property" in subsection 115(1) of the Tax
Act).
13. The Alberta Company will be deemed to have a year end immediately prior to
the Domestication and will be deemed to have disposed of all of its assets
for proceeds
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equal to fair market value and to have immediately reacquired such
assets at a cost equal to fair market value on the effective date of the
Domestication. To the extent that the deemed proceeds exceed the cost or
adjusted cost base of the Alberta Company's assets on that date, the
Alberta Company may be subject to tax in Canada for the fiscal period
ending immediately prior to the Domestication. To the extent that such
amounts exceed available deductions, such amounts will be subject to
Canadian federal income tax at an effective rate of 39%.
14. A 25% Exit Tax will apply to the amount by which the aggregate fair market
value of the Alberta Company's assets immediately prior to the
Domestication exceeds the aggregate of its liabilities (including liability
for Canadian federal income tax under Part I of the Tax Act for the final
taxation year) and its paid-up capital of all of its issued and outstanding
shares excluding the paid-up capital in respect of all dissenting
shareholders whose shares have been redeemed. The general rate of tax of
25% will be reduced to 5% pursuant to the U.S. Treaty. The Exit Tax is
payable by the Company.
15. Upon the Domestication, the Company is deemed for Canadian federal income
tax purposes to have been incorporated in Delaware and not to have been
incorporated elsewhere and should generally only be subject to tax in
Canada in respect of business income attributable to a permanent
establishment in Canada, gains realized on disposition of taxable Canadian
property and withholding tax in respect of Canadian source passive income
such as dividends and interest.
SCOPE OF OPINIONS
I. U.S. FEDERAL INCOME TAX OPINIONS
The scope of the U.S. federal income tax opinions is expressly limited solely
to the U.S. federal income tax consequences set forth in the section above
entitled "Opinions." No opinion has been requested, and no determination has
been made, nor has any opinion been expressed on any other issues including,
but not limited to, any state, foreign, consolidated return, employee
benefit, alternative minimum tax, or I.R.C. Section 306 or Section 382
consequences to the parties to this transaction. In addition, no opinion has
been expressed regarding (i) the valuation of any assets or stock of the
Company; (ii) the status of the Company as a controlled foreign corporation;
(iii) the status of the Company as a Passive Foreign Investment Corporation
("PFIC"); (iv) the U.S. federal income tax consequences of the Amalgamation;
(v) the U.S. federal income tax consequences of the TII Reincorporation; (vi)
the U.S. federal income tax consequences of the Merger, except to the extent
the Merger could affect the Domestication by reason of the step-transaction
doctrine; or (vii) the U.S. federal income tax consequences of the exchange
or conversion of any options, warrants or similar interests.
The opinions, as stated above, are based upon an analysis of the Internal
Revenue Code, Treasury Regulations, current case law, and published IRS
authorities. The foregoing are
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subject to change, and such change may be retroactively effective. If so, the
opinions, as set forth above, may be affected and may not be relied upon. In
addition, the above opinions are based on the information contained in the
Documents. Any variation or differences in the Documents may affect the
opinions, perhaps in an adverse manner. No obligation has been undertaken to
update these opinions for changes in facts or law occurring subsequent to the
date hereof. This letter sets forth opinions as to the interpretation of
existing U.S. federal income tax law, and is not binding on the IRS or any
court of law.
II. CANADIAN FEDERAL INCOME TAX OPINIONS
The scope of the Canadian federal income tax opinions is expressly limited
solely to the Canadian federal income tax consequences set forth in the
section above entitled "Opinions." No opinion has been requested, and no
determination has been made, nor has any opinion been expressed, on any other
issues including, but not limited to, any provincial, foreign, consolidated
return, employee benefit, or alternative minimum tax consequences to the
parties to this transaction. In addition, no opinion has been expressed
regarding (i) the valuation of any assets or stock of the Company; (ii) the
Canadian federal income tax consequences of the Amalgamation; (iii) the
Canadian federal income tax consequences of the TII Reincorporation; (iv) the
Canadian federal income tax consequences of the Merger; or (v) the Canadian
federal income tax consequences of the exchange or conversion of any options,
warrants or similar interests.
The opinions, as stated above, are based upon an analysis of the Income Tax
Act (Canada), as amended to date, the Income Tax Regulations, draft
legislation released prior to the date hereof amending the Act and
Regulations, case law, the Canada - U.S. Tax Convention as amended to date,
and E&Y Canada's understanding of the current administrative practices and
policies of the Department of National Revenue, Customs, Excise and Taxation.
The foregoing are subject to change, and such change may be retroactively
effective. If so, the opinions, as set forth above, may be affected and may
not be relied upon. In addition, the opinions are based on the information
contained in the Documents. Any variation or differences in the Documents may
affect the opinions, perhaps in an adverse manner. No obligation has been
undertaken to update these opinions for changes in facts or law occurring
subsequent to the date hereof.
This letter sets forth, opinions as to the interpretation of existing
Canadian federal income tax law, and is not binding on Revenue Canada or any
court of law.
Very truly yours,
/s/ Ernst & Young LLP
cc: Michael E. Bertolino, Ernst & Young LLP Senior Tax Manager, San Diego
Brian B. Gibney, Ernst & Young LLP Tax Partner, Washington National
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Kirsten Simpson, Ernst & Young LLP Senior Tax Manager, Washington National
Amy F. Eisenberg, Ernst & Young LLP Tax Manager, Century City
David H. Hemmerling, Ernst & Young LLP Tax Partner (International), Irvine
Deanne Parker, Ernst & Young LLP Tax Manager (International), Irvine
David Van Dyke, E&Y Canada Tax Partner, Calgary
Ron Sirkis, E&Y Canada Tax Partner, Calgary,
Cindy Rajan, E&Y Canada Tax Manager, Calgary
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Exhibit 10.1
TOMAHAWK CORPORATION
STOCK OPTION PLAN
1. PURPOSE
The purpose of the Stock Option Plan (the "Plan") of TomaHawk
Corporation, a body corporate incorporated under the BUSINESS CORPORATIONS ACT
(Alberta) (the "Corporation"), is to advance the interests of the Corporation or
any of its subsidiaries or affiliates by encouraging the directors, officers,
employees (all references herein to employees shall mean both full-time and
part-time employees) and consultants of the Corporation or any of its
subsidiaries or affiliates to acquire shares in the Corporation, thereby
increasing their proprietary interest in the Corporation, encouraging them to
remain associated with the Corporation or any of its subsidiaries or affiliates
and furnishing them with additional incentive in their efforts on behalf of the
Corporation or any of its subsidiaries or affiliates in the conduct of their
affairs.
2. ADMINISTRATION AND GRANTING OF OPTIONS
The Plan shall be administered by the Board of Directors of the
Corporation, or if appointed, by a special committee of directors appointed from
time to time by the Board of Directors of the Corporation (such committee, or if
no such committee is appointed, the Board of Directors of the Corporation is
hereinafter referred to as the "Committee") pursuant to rules of procedure fixed
by the Board of Directors.
The Committee may from time to time designate directors, officers,
employees and consultants of the Corporation or any of its subsidiaries or
affiliates (the "Participants") to whom options to purchase common shares of the
Corporation may be granted and the number of common shares to be optioned to
each, provided that the total number of common shares to be optioned shall not
exceed the number provided in clauses 3 and 4 hereof.
3. SHARES SUBJECT TO PLAN
Subject to adjustment as provided in Section 15 hereof, the shares to
be offered under the Plan shall consist of shares of the Corporation's
authorized but unissued common shares. The aggregate number of shares to be
delivered upon the exercise of all options granted under the Plan (the
"Options") shall not exceed the maximum number of shares permitted under the
rules of any stock exchange on which the common shares are then listed or other
regulatory body having jurisdiction (such limit, as of the date of adoption of
such plan being acknowledged to be 10% of that number of common shares as shall
be outstanding from time to time). If any Option granted hereunder shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for the purpose of
this Plan.
4. NUMBER OF OPTIONED SHARES
The number of shares subject to an Option to a Participant shall be
determined by the Committee, but no Participant, upon the Corporation becoming
listed on any stock exchange, shall be granted an Option which exceeds the
maximum number of shares permitted by any stock exchange on which the common
shares are then listed or other regulatory body having jurisdiction ( such
limit, as of the date of adoption of this Plan, being acknowledged to be
<PAGE>
5% in respect of insiders and employees and 1% in respect of persons who are
neither insiders nor employees).
5. VESTING
The Committee may, in its sole discretion, determine the time during
which Options shall vest and the method of vesting, or that no vesting
restriction shall exist.
6. MAINTENANCE OF SUFFICIENT CAPITAL
The Corporation shall at all times during the term of the Plan reserve
and keep available such numbers of shares as will be sufficient to satisfy the
requirements of the Plan.
7. PARTICIPATION
The Committee shall determine to whom Options shall be granted, the
terms and provisions of the respective Option agreements, the time or times at
which such Options shall be granted, and the number of shares to be subject to
each Option. An individual who has been granted an Option may, if he is
otherwise eligible, and if permitted by any stock exchange on which the common
shares are then listed or other regulatory body having jurisdiction, be granted
an additional Option or Options if the Committee shall so determine.
8. EXERCISE PRICE
The exercise price of the shares covered by each Option shall be
determined by the Committee. The exercise price shall be not less than the
price permitted by any stock exchange on which the common shares are then listed
or other regulatory body having jurisdiction.
9. DURATION OF OPTION
Each Option and all rights thereunder shall be expressed to expire on
the date set out in the Option agreements and shall be subject to earlier
termination as provided in paragraphs 11 and 12.
10. OPTION PERIOD, CONSIDERATION AND PAYMENT
(a) The Option period shall be a period of time fixed by the Committee,
not to exceed the maximum period permitted by any stock exchange on
which the common shares are then listed or other regulatory body
having jurisdiction, provided that the Option period shall be reduced
with respect to any Option as provided in Sections 11 and 12 covering
cessation as a director, officer, employee or consultant of the
Corporation or any of its subsidiaries or affiliates or death of the
Participant.
(b) Except as set forth in Sections 10(c), 11 and 12, no Option may be
exercised unless the Participant is at the time of such exercise a
director, officer, employee or consultant of the Corporation or any of
its subsidiaries or affiliates.
(c) Notwithstanding any other provision to the contrary, an Option granted
to a consultant in connection with specific services provided or to be
provided by that consultant shall be exercised only after the date of
completion of such service and prior to 30 days following the date of
completion of such service.
<PAGE>
(d) The exercise of any Option will be contingent upon receipt by the
Corporation at its head office of a written notice of exercise,
specifying the number of shares with respect to which the Option is
being exercised, accompanied by cash payment, certified cheque or bank
draft for the full purchase price of such shares with respect to which
the Option is exercised. No Participant or his legal representatives,
legatees or distributees will be, or will be deemed to be, a holder of
any shares subject to an Option under this Plan, unless and until the
certificates for such shares are issued to such persons under the
terms of the Plan.
11. CEASING TO BE A DIRECTOR, OFFICER, EMPLOYEE OR CONSULTANT
If a Participant shall cease to be a director, officer or employee of
the Corporation or any of its subsidiaries or affiliates for any reason (other
than death), the Participant may, but only within 90 days next succeeding the
Participant's ceasing to be a director, officer, employee or consultant,
exercise the Participant's Option to the extent that the Participant was
entitled to exercise it at the date of such cessation.
Nothing contained in the Plan nor in any Option granted pursuant to
the Plan shall confer upon any Participant any right with respect to continuance
as a director, officer, employee or consultant of the Corporation or any of its
subsidiaries or affiliates.
12. DEATH OF PARTICIPANT
In the event of the death of a Participant, the Option previously
granted to him shall be exercisable only within the twelve months next
succeeding such death and then only:
(a) by the person or persons to whom the Participant's rights under the
Option shall pass by the Participant's will or the laws of descent and
distribution; and
(b) if and to the extent that the Participant was entitled to exercise the
Option at the date of the Participant's death.
13. RIGHTS OF OPTIONEE
No person entitled to exercise an Option shall have any of the rights
or privileges of a shareholder of the Corporation in respect of any shares
issuable upon exercise of such Option until certificates representing such
shares shall have been issued and delivered.
14. PROCEEDS FROM SALE OF SHARES
The proceeds from sale of shares issued upon the exercise of Options
shall be added to the general funds of the Corporation and shall thereafter be
used from time to time for such corporate purposes as the Committee may
determine and direct.
15. ADJUSTMENTS
Appropriate adjustments in the number of common shares optioned and in
the option price per share, as regards Options granted or to be granted, may be
made by the Committee in its discretion to give effect to adjustments in the
number of common shares of the
<PAGE>
Corporation resulting subsequent to the approval of the Plan by the Committee
from subdivisions, consolidations or reclassification of the common shares of
the Corporation, the payment of stock dividends by the Corporation or other
relevant changes in the capital of the Corporation.
16. TRANSFERABILITY
All benefits, rights and Options accruing to any Participant in
accordance with the terms and conditions of the Plan shall not be transferable
or assignable unless specifically provided herein. During the lifetime of a
Participant any benefits, rights and Options may only be exercised by the
Participant.
17. AMENDMENT AND TERMINATION OF PLAN
The Committee may, at any time, suspend or terminate the Plan. The
board may also at any time amend or revise the terms of the Plan, PROVIDED that
subject to section 15 hereof, no such amendment or revision shall alter the
terms of any Options theretofore granted under the Plan.
18. NECESSARY APPROVALS
The ability of the Options to be exercised and the obligation of the
Corporation to issue and deliver shares in accordance with the Plan is subject
to any approvals which may be required from the shareholders of the Corporation,
any regulatory authority or stock exchange having jurisdiction over the
securities of the Corporation. If any shares cannot be issued to any
Participant for whatever reason, the obligation of the Corporation to issue such
shares shall terminate and any Option exercise price paid to the Corporation
will be returned to the Participant.
19. PRIOR PLANS
The Plan shall entirely replace and supersede prior share options
plans, if any, enacted by the Board of Directors of the Corporation or its
predecessor corporations.
20. EFFECTIVE DATE OF PLAN
The Plan has been adopted by the Committee subject to the approval of
any stock exchange on which the shares of the Corporation are to be listed or
other regulatory body having jurisdiction and, if so approved, the Plan shall
become effective upon such approvals being obtained.
IN WITNESS WHEREOF the Corporation has caused its corporate seal to be
affixed hereto in the presence of its officers duly authorized in that behalf as
of the 21st day of August, 1996.
TOMAHAWK CORPORATION
By: "SIGNED" /s/ [ILLEGIBLE]
----------------------------------------
<PAGE>
EXHIBIT 10.2
SUBCONTRACT FSN0292
CAD-2
SUBCONTRACT AGREEMENT TERMS AND CONDITIONS
BETWEEN
TOMAHAWK II, INC.
9591 WAPLES STREET
SAN DIEGO, CALIFORNIA 92121
AND
INTERGRAPH CORPORATION
HUNTSVILLE, ALABAMA 35894-0009
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
- ------- ----- ----
<S> <C> <C>
A Contract Form ...........................................3
B Supplies/Services/Costs .................................5
C Statement of Work .......................................6
D Packaging and Marking ...................................6
E Inspection and Acceptance ...............................7
F Deliveries or Performance ...............................8
G Contract Administration Data ............................8
H Special Contract Requirements ...........................9
I Contract Clauses .......................................17
J List of Attachments ....................................19
</TABLE>
2
<PAGE>
THE SCHEDULE
SECTION A - CONTRACT FORM
This Contract is entered into between INTERGRAPH CORPORATION, Huntsville,
Alabama, and TOMAHAWK II, INC. San Diego, California, hereinafter referred to
as "Subcontractor."
For the purposes of this Subcontract, the following terms are defined as
follows:
1. "Contract" means this Subcontract.
2. "Prime Contract" means the contract between Intergraph Corporation and the
U.S. Government which is supported by this Subcontract.
3. "Subcontractor" and "Seller" means Tomahawk II, Inc.
4. "Prime Contractor" and "Buyer" means Intergraph Corporation.
5. "Contracting Officer" means Intergraph Corporation, and its duly authorized
representatives, except as applicable in the Section I contract clauses
when referring to audit and examination of records functions where it means
the duly authorized representative of the U.S. Government.
6. "Government" means Intergraph Corporation, and its duly authorized
representatives, except as applicable in the Section I contract clauses
when referring to audit and examination of records function, where it means
the duly authorized representative of the U.S. Government.
7. "Audit Authority" means the cognizant branch of the Defense Contract Audit
Agency.
8. "FAR" means the Federal Acquisition Regulation.
The parties hereto agree that the Subcontractor, for the specified
consideration, shall perform all services and deliver all supplies as set
forth herein. This Contract document constitutes the entire agreement between
the parties. This Contract may only be amended by execution of a written
bilateral modification, or in accordance with the "Changes" clause of this
Contract.
3
<PAGE>
In witness whereof, the parties hereto have executed this Contract as of the
date so indicated.
TOMAHAWK II, INC. INTERGRAPH CORPORATION
By: /s/ Michael H. Lorber By:
-------------------------------- --------------------------------
Name: Michael H. Lorber Name: Rod W Thompson
Title: Vice. Pres. - Finance & CFO Title: Senior Manager
Date: 3/12/97 Date:
4
<PAGE>
SECTION B - SUPPLIES/SERVICES/COSTS
B-1. TYPE OF CONTRACT
This is a Time-and-Materials type Contract as identified at Federal
Acquisition Regulation (FAR) 16.601. In accordance with Clause H-14,
this Contract may be a Firm-Fixed Price Requirements Contract as
identified at Federal Acquisition Regulation (FAR) 16.202.
B-2. CONSIDERATION
(a) The Subcontractor shall be reimbursed for satisfactory performance of
assigned tasks in accordance with each Purchase Order's tasking and the
direct labor category rate schedule (ATTACHMENT A):
(1) DIRECT LABOR
The labor category hourly rates are set out in ATTACHMENT A,
"Direct Labor Schedule," dated February 5, 1997.
The hourly rate specified is inclusive of direct hourly wages,
overhead, general and administrative expense, and profit, with the
exception of the NAVSEA "On-Site" rate which is also inclusive of
all travel expenses except for airline tickets.
Fractional parts of an hour shall be payable on a prorated basis.
Personnel qualifications for each of the above listed labor
categories are contained in ATTACHMENT B, Statement of Work, dated
February 5, 1997.
The hourly rate is applicable for both straight time (40 hour week)
and any required overtime.
(2) TRAVEL AND PER DIEM
All travel must be authorized in advance by the Intergraph
Technical Representative (ITR). Except for NAVSEA "On-Site"
travel, which is set out separately below, Intergraph will
reimburse the Subcontractor for actual travel expenses in
accordance with Department of Defense Civilian Personnel Joint
Travel Regulations (JTR). Auto rental will be reimbursed at
actual cost. The travel reimbursable herein includes only that
travel which is authorized in writing by Intergraph. Travel at
U.S. Military Installations, where Government transportation is
available to and from work, will not be reimbursed hereunder.
Travel costs incurred in the replacement of personnel will not
be reimbursed by Intergraph when such replacement is
accomplished at the Subcontractor's or employee's convenience.
5
<PAGE>
Supporting documentation sufficient to verify amounts invoiced for
travel, such as copies of travel receipts and employee travel
reimbursement forms, shall be submitted with invoices containing
travel charges.
For NAVSEA "On-Site" travel, only airline ticket expense will be
reimbursed.
Relocation costs and travel costs incident to relocation are not
allowable and will not be reimbursed hereunder.
With the exception of NAVSEA "On-Site", the Subcontractor will be
reimbursed for the expense of meals, lodging, and transportation
between places of lodging or business and places where meals are
taken and any other miscellaneous travel and living expenses
incurred in the performance of this contract. Per diem rate shall
be payable only when the Subcontractor employee is in an authorized
travel status. The per diem shall be established in accordance with
the Department of Defense Civilian Personnel Joint Travel
Regulations (JTR).
SECTION C - STATEMENT OF WORK
Subcontractor performance of this Contract shall be in accordance with
ATTACHMENT B, Statement of Work, dated February 5, 1997, and with individual
task statements of work issued with each Purchase Order against this
Subcontract.
SECTION D - PACKAGING AND MARKING
D-1. STANDARD PACKING
Except as otherwise specified in the Purchase Order, the packaging and
packing of all items shall comply with ASTM-D-3951-88, "Standard Practice
for Commercial Packaging."
In addition, software that is distributed by a non-rigid physical media
(e.g., a floppy disk) shall be packaged in a rigid package designed for
shipping or mailing. Flexible envelopes shall not be used.
D-2. CONTAINER MARKING
Container markings shall comply with MIL-STD-129K, "Marking for Shipment
and Storage." In addition, the Subcontractor shall mark each container
with "Computer Equipment-Not for Outside Storage."
6
<PAGE>
D-3. PROHIBITED PACKING MATERIALS
The use of asbestos, excelsior, newspaper, or shredded paper (all types
including waxed paper, computer paper, and similar hygroscopic or
non-neutral material) is prohibited.
D-4. UNPACKING INSTRUCTIONS
Unpacking instructions shall accompany each shipment of complex or
delicate equipment. Shipping containers shall be marked: CAUTION--THIS
EQUIPMENT MAY BE SERIOUSLY DAMAGED UNLESS UNPACKING INSTRUCTIONS ARE
CAREFULLY FOLLOWED. UNPACKING INSTRUCTIONS ARE LOCATED (state where
located). The unpacking instructions shall be located such that no
unpacking is required by the Government to locate the instructions.
SECTION E - INSPECTION AND ACCEPTANCE
E-1. CLAUSE INCORPORATED BY REFERENCE
This Contract incorporates the following FAR clauses by reference, with
the same force and effect as if they were given in full text.
<TABLE>
<S> <C>
52.246-2 Inspection of Supplies-Fixed Price (JUL 1985)
52.246-4 Inspection of Services-Fixed Price (FEB 1992)
52.246-6 Inspection - Time-and-Material and Labor-Hour (JAN 1986)
52.246-16 Responsibility for Supplies (APR 1984)
252.246-7000 Material Inspection and Receiving Report (DEC 1969)
252.246-7001 Warranty of Data (NOV 1974)
252.270-7002 Contractor Representation (APR 1984)
</TABLE>
E-2. INSPECTION/ACCEPTANCE AUTHORITY
Responsibility for inspecting, approving and accepting equipment,
software, and/or services rendered by the Subcontractor in the performance
of this contract shall rest with Intergraph's Technical Representative
(ITR). The ITR will be specified on each individual Purchase Order.
Technical support services will be inspected for conformance with the
Requirements contained in each Purchase Order and the Statement of Work,
prior to acceptance.
Resumes of support personnel will be reviewed by the Government as
required and overall performance of tasking will also be reviewed.
7
<PAGE>
SECTION F - DELIVERIES OR PERFORMANCE
F-1. CLAUSES INCORPORATED BY REFERENCE
This Contract incorporates the following FAR clauses by reference, with
the same force and effect as if they were set out in full text.
<TABLE>
<S> <C>
52.212-13 Stop Work Order (AUG 1989)
52.212-15 Government Delay of Work (APR 1984)
52.247-34 F.O.B. Destination (APR 1984)
52.247-35 F.O.B. Destination, Within Consignee's Premises (APR 1984)
</TABLE>
F-2. PLACE OF DELIVERY AND PERFORMANCE
The place of performance and/or delivery for all services acquired
hereunder will be specified in individual Purchase Orders issued under
this Subcontract.
F-3. PERIOD OF PERFORMANCE
The period of performance for all services required hereunder shall be
specified in individual Purchase Orders issued under this Subcontract.
SECTION G - CONTRACT ADMINISTRATION DATA
G-1. INVOICES
An original and one copy of accurate and complete invoices, in accordance
with the FAR 52.232-7, PAYMENTS UNDER TIME-AND-MATERIALS AND LABOR-HOUR
CONTRACTS (APR 1984), may be submitted MONTHLY to the following address:
Intergraph Corporation
Huntsville, AL 35894-0009
Attn: Lisa Hall
Mail Stop IW1506
In no case shall charges for more than one Purchase Order appear on the
same invoice. AN AUTHORIZED REPRESENTATIVE OF THE SUBCONTRACTOR MUST SIGN
AND CERTIFY ALL INVOICES TO ATTEST TO THEIR ACCURACY.
Invoices shall contain Purchase Order Number and Work Authorization
Number(s). Invoices shall also include total hours and dollars by Contract
Line Item Number (CLIN) and labor category for the current invoice period
and cumulative hours and dollars by CLIN and labor category from Purchase
Order inception. Travel charges must be itemized on the invoice under the
categories of "Travel - Air Fare"
8
<PAGE>
and "Travel - Other". Supporting documentation sufficient to verify
amounts invoiced for travel, such as copies of travel receipts and
employee travel reimbursement forms, the approved weekly status reports
(or other approved documentation) required under Clause H-1 of this
Subcontract, and other substantiation approved by Intergraph, shall be
submitted with invoices for reimbursement.
Work shall be invoiced on a MONTHLY basis. The format of the invoice must
be approved by Intergraph. All work must be invoiced and the invoice
received by Intergraph not later than two weeks after the last day of the
period being invoiced. SUBMITTAL OF ACCURATE AND TIMELY INVOICES, WITH
PROPER SUBSTANTIATION, IS CONSIDERED A MATERIAL PART OF THIS CONTRACT.
FAILURE TO COMPLY WITH THIS REQUIREMENT MAY RESULT IN TERMINATION OF THIS
SUBCONTRACT.
Invoices will be paid within thirty (30) days after receipt from the
Subcontractor of a correct, formal invoice with appropriate documentation
and Intergraph Technical Representative's approval and acceptance.
SECTION H - SPECIAL CONTRACT REQUIREMENTS
H-1. STATUS REPORTS
A separate status report shall be prepared for each Purchase Order issued
under this Subcontract. Information to be included in the status reports
shall include the Purchase Order Number and the Work Authorization
Number(s). Also included shall be the period of performance, the name of
the Intergraph Technical Representative, the CLIN, the employee's name,
the employee's labor category, the number of hours worked, the specific
location where work was performed, the labor rate, and the total charges
against Purchase Order for the report period. Travel shall also be shown
on the report separated as "Travel - Airfare" and "Travel - Other", and
summing to "Travel - Subtotal". In addition, a summary shall detail the
cumulative activity by CLIN and travel charges for the Purchase Order.
Variations from this format shall have the approval of the Intergraph
Technical Representative. FAILURE TO SUBMIT THESE REPORTS WILL RESULT IN
DELAYED PAYMENT OF INVOICES. (A sample format is shown in ATTACHMENT C.)
Status reports of all work performed shall be submitted weekly by the
Tuesday following the period covered by the report to the appropriate
Intergraph Technical Representative (ITR). The ITR will verify the
information reported. If approved, the ITR will sign and date the status
report and return it to the Subcontractor. The Subcontractor shall submit
with each invoice the signed status reports corresponding to the
applicable work period(s).
9
<PAGE>
Other documentation, such as weekly employee time sheets, may be accepted
in lieu of the status reports, if approved by the ITR. If the ITR accepts
time sheets in lieu of the weekly status reports, the time sheets shall be
signed by the ITR. The Subcontractor shall submit as supporting
documentation with each invoice the signed time sheets corresponding to
the applicable work period(s).
H-2. NOTIFICATION OF EXPENDITURE OF HOURS
Subcontractor shall notify the Intergraph Subcontract Administrator in
writing when eighty-five percent (85%) of the hours for any CLIN for a
given Purchase Order are anticipated to be expended within the ensuing
thirty (30) day period.
H-3. NON-PUBLICITY
It is a specific condition of this Agreement that the Subcontractor shall
not use or allow to be used any aspect of this Subcontract for publicity
or advertisement purposes.
H-4. OVERTIME
The Subcontractor shall not invoice any amount for overtime worked, unless
such overtime has the express prior written approval of the cognizant
Intergraph Technical Representative (ITR). Any overtime worked shall be
unallowable unless approved in advance by the cognizant ITR, and unless
shown as a separate category of cost (with associated hours worked) on the
Subcontractor's invoice. No premium shall be payable for overtime worked.
Approved overtime shall only be compensated at the appropriate straight
time labor rate.
H-5. CERTIFICATION OF SUBCONTRACTOR EMPLOYEES
Prior to performance under this Subcontract, Subcontractor shall supply to
the Intergraph Subcontract Administrator the credentials (in the resume
format specified by the Intergraph Subcontract Administrator) for the
Subcontractor's employee(s) anticipated to be utilized in the performance
of this Subcontract. Upon verification that the proposed employee's
credentials meet the minimum requirements as stated in ATTACHMENT B,
Statement of Work, for the labor category for which he/she is proposed,
Intergraph will incorporate a listing of those approved employee(s) into
this Subcontract (ATTACHMENT D). Subcontractor shall not propose or allow
unapproved employees to perform work under this Agreement without the
prior written approval of the Intergraph Subcontract Administrator.
Intergraph reserves the right to accept or reject the proposed individuals
and shall have the right to request a no cost change of the
Subcontractor's personnel under this Contract, should such personnel be
found not to meet the requirements as stated in the ATTACHMENT B,
Statement of Work, to this Contract.
10
<PAGE>
H-6. SUBSTITUTION OF PERSONNEL
The Subcontractor shall provide the appropriate personnel as specified in
individual Purchase Orders. Prior to diverting any of the specified
individuals to other programs, the Subcontractor shall provide notice of
at least thirty (30) calendar days to the Intergraph Subcontract
Administrator and shall submit written justification (including proposed
substitutes) in sufficient detail to permit evaluation of the impact on
the program. Intergraph reserves the right to accept or reject individuals
proposed as replacements.
H-7. FUNDING
This Subcontract will be incrementally funded by CLIN, by specific
Purchase Orders. Intergraph shall not be obligated to pay the
Subcontractor any amount in excess of the funded Purchase Order, unless
and until Intergraph has notified the Subcontractor in writing that the
allotted amount of incremental funding has been increased. The
Subcontractor shall not be obligated to continue performance if to do so
would exceed the currently allotted funded Purchase Order.
H-8. INTERGRAPH'S TECHNICAL REPRESENTATIVE (ITR)
The Intergraph Technical Representative (ITR) provides technical direction
and discussion as necessary with respect to the specifications or
Statement of Work, issues task orders when so authorized, and monitors the
progress and quality of Subcontractor performance. The ITR IS NOT a
Subcontract Administrator and DOES NOT have the authority to take any
action, either directly or indirectly, that would change the pricing,
quantity, quality, place of performance, delivery schedule, or any other
terms and conditions of the basic contract, or to direct the
accomplishment of effort which goes beyond the scope of the basic
contractual Statement of Work.
When, in the opinion of the Subcontractor, the ITR requests effort outside
the existing scope of the Subcontract, the Subcontractor shall promptly
notify the Intergraph Subcontract Administrator in writing. No action
shall be taken by the Subcontractor under such direction until the
Intergraph Subcontract Administrator has issued a contractual change or
otherwise resolved the issue.
The name of the ITR will be specified in individual Purchase Order(s)
issued against this Subcontract.
H-9. SECURITY CLEARANCES
If required, Subcontractor facility and personnel clearance requirements
for the performance of this Contract will be specified with each Purchase
Order on a DD Form 254. Subcontractor personnel shall obtain from the
Defense Investigative
11
<PAGE>
Service (DIS), at a minimum, an interim CONFIDENTIAL clearance subject to
final clearance approval within 40 days of the clearance request. There
may be instances where a higher clearance level is required (i.e., SECRET
and/or TOP SECRET). Unless security clearance levels are specified on an
individual Purchase Order this requirement does not apply.
Personnel substituted under the Subcontract shall conform to the above
requirements as applicable and have a minimum, interim facility and
personnel security clearances before commencing services under the
Purchase Order.
H-10. PRIORITY RATING
This Contract is a rated order under DPAS (15 CFR 350). The rating for
NAVAIR and NAVFAC is A-7. The rating for NAVSEA is A-3. The applicable
DPAS rating will be specified in each individual purchase order issued
under this subcontract.
H-11. NON-DISCLOSURE AGREEMENT
During the performance of work under individual Purchase Order(s) issued
pursuant to this Contract, it may be necessary to share and/or exchange
information and data which may be considered confidential, proprietary
and/or competition sensitive. Further, during performance of work under
this Contract, the parties recognize that the presence of Subcontractor
personnel in Intergraph's and/or Customer's facilities may subject
Subcontractor personnel to information and/or data that is considered by
Intergraph and/or Customer to be confidential, proprietary and/or
competition sensitive. Therefore, the Subcontractor agrees to the
following:
a. Any confidential, proprietary and/or competition sensitive
information exchanged by the parties and entitled to protection
hereunder shall be identified by the furnishing party as
confidential, proprietary and/or competition sensitive by (i)
appropriate stamp or marking on the documents exchanged, or (ii)
written notice of any disclosures made under assertion of
confidentiality, sent to the receiving party no later than two
(2) weeks after disclosure, with listings of all proprietary
material and appropriately stamped or marked summaries of such
other disclosures.
b. Verbal communications which are considered confidential,
proprietary and/or competition sensitive may also be conducted as
part of the normal discussion activities. Prior to these
verbal communications, an announcement will be made that the
conversation to follow is to be considered confidential,
proprietary and/or competition sensitive, and at the conclusion
of that part of the conversation that is considered confidential,
proprietary and/or competition sensitive, an ending comment will
be made so as to bracket the information which is considered to
be confidential. Both
12
<PAGE>
parties agree to hold such verbal information in confidence in accordance
with this Agreement.
c. The receiving party will hold such confidential, proprietary and/or
competition sensitive information in confidence for a period of three
(3) years from the date of receipt under this Agreement, and during
such period will use such information only for evaluation purposes and
will make such information available only to its employees having a
"need to know" in order to carry out their functions in connection with
the purpose of this Agreement. Unless authorized in writing by the
party originally transmitting such confidential, proprietary and/or
competition sensitive information hereunder, the receiving party will
not otherwise use or disclose such confidential, proprietary and/or
competition sensitive information during the above-mentioned three (3)
year period.
Information shall not be afforded the protection of this Agreement if, on
the effective date hereof, such information has been or from the time
thereafter such information is:
(1) lawfully developed by the receiving party independently of the
information received from furnishing party;
(2) rightfully obtained without restriction by the receiving party from
a third party;
(3) publicly available other than through the fault or negligence of
the receiving party;
(4) released without restriction by the furnishing party to any third
party,
d. Should the receiving party be faced with legal action regarding
disclosure of information under this Agreement, the receiving party
shall forthwith notify the furnishing party, and, upon the request and
at the expense of the latter, shall cooperate with the furnishing party
in contesting such a disclosure. Except in connection with failure to
discharge responsibilities set forth in the preceding sentence, neither
party shall be liable in damages for any disclosures pursuant to
judicial actions or for inadvertent disclosure where the proper degree
of care has been exercised; provided, that upon discovery of such
inadvertent disclosure, it shall have endeavored to prevent any further
inadvertent disclosure and to correct the effects of any such
inadvertent disclosure.
e. All proprietary information furnished hereunder shall remain the property
of the furnishing party and shall be returned to it or destroyed promptly
at its request together with all copies made thereof by the receiving
party hereunder. The parties shall employ the same standard of care it
uses to
13
<PAGE>
protect its own proprietary information, but in any event, no
less than reasonable care.
f. No license under any patents or any other proprietary right is
granted or conveyed by one party's transmitting proprietary
information or other information to the other party hereunder, nor
shall such a transmission constitute any representation, warranty,
assurance, guaranty of inducement by the transmitting party to the
other party with respect to infringement of patent or any other
proprietary right of others.
g. The receiving party shall not disclose or deliver, directly or
indirectly, any technical data or any product utilizing any such
data to any person to whom such disclosure or delivery is
prohibited by the U.S. Government, nor export, directly or
indirectly, any technical data acquired pursuant to this Agreement
or any product utilizing any such data to any country for which the
U.S. Government or any agency thereof at the time of export
requires an export license or other Government approval without
first obtaining such license or approval.
AS A MATERIAL PART OF THIS CONTRACT, THE SUBCONTRACTOR AGREES TO MAKE
KNOWN THE PROVISIONS OF THIS CLAUSE TO EACH OF THE PERSONNEL THE
SUBCONTRACTOR ASSIGNS TO PERFORM WORK UNDER THIS CONTRACT AND HAVE THE
PERSONNEL SIGN A STATEMENT AGREEING TO ABIDE BY THE PROVISIONS CONTAINED
IN THIS CLAUSE.
H-12. INCORPORATION OF SECTION K - "REPRESENTATIONS, CERTIFICATIONS, AND OTHER
STATEMENTS OF OFFERORS"
"Section K - Representations, Certifications, and Other Statements of
Offers", executed by Tomahawk II, Inc., February 19, 1997, is incorporated
herein by reference and made a part of this contract.
H-13. INSURANCE - WORK ON A GOVERNMENT INSTALLATION
(a) In accordance with FAR 28.307-2, the Subcontractor shall at its own
expense, procure and maintain during the entire performance period of this
Subcontract, insurance of at least the kinds and minimum amounts set forth
below:
<TABLE>
<S> <C>
Worker's Compensation and Employer's Liability Insurance $100,000
General Liability Insurance For Bodily Injury Liability -
Minimum Per Occurrence $500,000
Automobile Liability Insurance
Minimum Per Person $200,000
Minimum Per Occurrence for Bodily Injury $500,000
Minimum Per Occurrence for Property Damage $ 20,000
</TABLE>
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<PAGE>
(b) Prior to the commencement of work hereunder, the Subcontractor shall
furnish to the Subcontract Administrator a certificate or written
statement of the above required insurance., The policies evidencing
required insurance shall contain an endorsement to the effect that
cancellation or any material change in the policies adversely affecting
the interest of Intergraph Corporation in such insurance shall not be
effective for such period as may be prescribed by the laws of the State in
which this Subcontract is to be performed and in no event less than thirty
(30) days after written notice thereof to the Subcontract Administrator.
(c) The Subcontractor shall insert the substance of this clause, including
this paragraph (c), in all lower tier subcontracts hereunder. The
Subcontractor shall furnish (or ensure that there has been furnished to
the Subcontract Administrator a current Certificate of Insurance, meeting
the requirements of (b) above, for each such lower tier subcontractor, at
least five (5) days prior to entry of each lower tier subcontractor's
personnel on the Government Installation.
H-14. FIRM-FIXED PRICE-REQUIREMENTS SUPPORT SERVICES
(a) STATEMENT OF WORK (SOW)
Upon the Customer determining and defining project requirements, the
Customer and the Intergraph Technical Representative (ITR) will then
develop a Statement of Work (SOW) and forward it to the Intergraph
Subcontract Administrator for certification approvals. The SOW will
describe the technical requirement, description of work, acceptance
criteria, benchmarks, labor categories required, and will provide an
estimated number of staff-hours per labor category, an estimate of
computer time required to perform the effort for the request, and a
performance schedule. The SOW shall also include a price percentage
breakdown by deliverable of the total purchase order price (e.g.,
item/deliverable #1 = 70%, item/deliverable #2 = 30% of the total purchase
order price). The Intergraph Subcontract Administrator will forward the
SOW to the Subcontractor omitting any reference to staff-hours or labor
categories. This request shall provide a detailed analysis of tasks and
subtasks to be performed, sufficient to permit the Subcontractor to
develop a technical proposal to estimate, by the task and subtask, the
type of labor categories anticipated to fulfill the requirements, the
number of staff-hours per labor category, a task completion date and total
proposed price.
(b) ORDERING PROCESS
A SOW will be issued to the Subcontractor for review and preparation of a
proposal. The Intergraph Subcontract Administrator and the Subcontractor
will then negotiate a finalized firm-fixed price completion purchase
order, which requires the Subcontractor to complete and deliver the
specified end product at the established price. Finalized purchase orders
will identify labor categories and the
15
<PAGE>
hours negotiated for each purchase order. The process and special terms
and conditions are as follows:
(i) The Subcontractor shall pick up the SOW from the Intergraph
Subcontract Administrator within ten (10) working days of
notification. The SOW will specify the time within which the
Subcontractor's responding proposal is due. The proposal will
include the number of staff-hours by skill category, task and
subtask, computer time, other resources required, beginning date,
milestone dates, completion date, proposed purchase order total
price, pricing arrangement and a technical approach to indicate the
Subcontractor's understanding of the requirement. The labor rates
utilized by the Subcontractor in preparing the proposal will be
those set forth in this Subcontract, which shall include all direct
labor, facilities, incidental supplies, supervision, indirect
charges, profit and local travel. The Subcontractor is responsible
for certifying that resumes of the proposed personnel have been
verified, and are true and accurate presentations of experience and
performance. Resumes shall indicate the skill level under the
Subcontract within which the individual is included, and shall be
in the detail and format required by Intergraph.
(ii) Negotiations will take place at a time and place arranged by the
Intergraph Subcontract Administrator. Following negotiations, a
finalized firm-fixed price completion purchase order will be
executed by the Subcontractor and the Intergraph Subcontract
Administrator. No work will be performed and no payment will be
allowed for any work performed except as authorized by a purchase
order signed by the Intergraph Subcontract Administrator. The
purchase order shall be the authority for the Subcontractor to
proceed based upon the agreed terms and conditions of the purchase
order. The Subcontractor shall acknowledge receipt of each purchase
order issued under this Subcontract by signing and returning one
(1) copy to the Intergraph Subcontract Administrator within ten
(10) calendar days.
H-15. ADMINISTRATION
For the duration of this subcontract, the parties mutually agree to
the following terms and conditions:
- For each proposal with a dollar value greater than $500,000
that is submitted to the Government for work to be performed
under this subcontract, it is mutually agreed that Intergraph
shall include a minimum of five (5) hours per month for
administration. The exact number of hours to be included in
each proposal greater than $500,000 shall be mutually
determined by Tomahawk II and Intergraph.
16
<PAGE>
- The applicable labor rate to be paid Tomahawk II per hour, as
set out in Attachment A, shall be based on the cumulative
value of Government Delivery Orders from NAVAIR, NAVFAC and
NAVSEA to Intergraph for support services (labor and travel)
resulting from Tomahawk II's efforts. Software, hardware and
training amounts contained in Delivery Orders are not to be
included in the cumulative total.
- The initial period of performance shall run from February 13,
1997 through October 3, 1997. Subsequent time periods are
specified in Attachment A.
- The hourly rate sliding scale is based on a percentage of the
CAD-2 prime billable rates for each specific contract. The
initial rates are 84% of the applicable prime rate for
cumulative delivery order value of $0 to $750,000; 87% of the
applicable prime rate for cumulative delivery order value of
$750,001 to $1,500,000; and 92% of the applicable prime rate
for cumulative delivery order value of greater than
$1,500,000. The cumulative delivery order value will be reset
to zero dollars ($0) at the beginning each subsequent time
period. Each applicable date is denoted in Attachment A.
SECTION I - CONTRACT CLAUSES
This Contract incorporates the following FAR clauses by reference, with the same
force and effect as if they were given in full text.
<TABLE>
<CAPTION>
Clause Number Clause Title And Date
------------- ---------------------
<S> <C>
52.202-1 Definitions (Sep 1991)
52.203-1 Officials Not To Benefit (Apr 1984)
52.203-3 Gratuities (Apr 1984)
52.203-5 Covenant Against Contingent Fees (Apr 1984)
52.203-6 Restrictions On Subcontractors Sales To The Government (Jul 1985)
52.203-7 Anti-Kickback Procedures (Oct 1988)
52.203-9 Requirement For Certificate Of Procurement Integrity - Modification (Sep 1990)
52.203-10 Price Or Fee Adjustment For Illegal Or Improper Activity (Sep 1990)
52.203-11 Certification And Disclosure Regarding Payments To Influence Certain Federal
Transactions (Jan 1990)
52.203-12 Limitation On Payments To Influence Certain Federal Transactions (Jan 1990)
52.204-2 Security Requirements (Apr 1984)
52.208-1 Required Sources For Jewel Bearings And Related Items (Apr 1984)
52.209-6 Protecting The Government's Interest When Subcontracting With Contractors
Debarred, Suspended, Or Proposed For Debarment (Jun 1991)
52.210-5 New Material (Apr 1984)
52.212-8 Defense Priority And Allocation Requirements (Sep 1990)
52.212-13 Stop-Work Order (Aug 1989)
52.215-1 Examination Of Records By Comptroller General (Feb 1993)
52.215-2 Audit - Negotiation (Feb 1993)
52.215-23 Price Reduction For Defective Cost Or Pricing Data-Modifications (Dec 1991)
17
<PAGE>
52.215-25 Subcontractor Cost Or Pricing Data Modifications (Dec 1991)
52.215-26 Integrity Of Unit Prices (Apr 1991)
52.215-33 Order Of Precedence (Jan 1986)
52.216-21 ' Requirements (Apr 1984)
52.219-8 Utilization Of Small Business Concerns And Small Disadvantaged Business
Concerns (Feb 1990)
52.219-9 Small Business And Small Disadvantaged Business Subcontracting Plan (Jan 1991)
52.219-13 Utilization Of Women-Owned Small Businesses (Aug 1986)
52.219-16 Liquidated Damages-Small Business Subcontracting Plan (Aug 1989)
52.220-1 Preference For Labor Surplus Area Concerns (Apr 1984)
52.220-3 Utilization Of Labor Surplus Area Concerns (Apr 1984)
52.220-4 Labor Surplus Area Subcontracting Program (Apr 1984)
52.222-1 Notice To The Government Of Labor Disputes (Apr 1984)
52.222-3 Convict Labor (Apr 1984)
52.222-20 Walsh-Healey Public Contracts Act (Apr 1984)
52.222-26 Equal Opportunity (Apr 1984)
52.222-28 Equal Opportunity Preaward Clearance Of Subcontracts (Apr 1984)
52.222-29 Notification Of Visa Denial (Apr 1984)
52.222-35 Affirmative Action For Special Disabled And Vietnam Era Veterans (Apr 1984)
52.222-36 Affirmative Action For Handicapped Workers (Apr 1984)
52.222-37 Employment Reports On Special Disabled Veterans And Veterans Of The Vietnam
Era (Jan 1988)
52.223-2 Clean Air And Water (Apr 1984)
52.223-6 Drug-Free Workplace (Jul 1990)
52.224-2 Privacy Act (Apr 1984)
52.225-10 Duty Free Entry (Apr 1984)
52.225-11 Restrictions On Certain Foreign Purchases (May 1992)
52.225-13 Restrictions On Contracting With Sanctioned Persons (May 1989
52.227-2 Notice And Assistance Regarding Patent And Copyright Infringement (Apr 1984)
52.227-3 Patent Indemnity (Apr 1984)
52.228-5 Insurance-Work On A Government Installation (Sep 1989)
52.229-3 Federal, State, And Local Taxes (Jan 1991)
52.230-3 Cost Accounting Standards (Sep 1987)
52.230-4 Administration Of Cost Accounting Standards (Sep 1987)
52.230-5 Disclosure And Consistency Of Cost Accounting Practices (Sep 1987)
52.230-6 Consistency In Cost Accounting Practices (Sep 1987)
52.232-1 Payments (Apr 1984)
52.232-7 Payments Under Time-And-Materials And Labor Hour Contracts (Apr 1984)
52.232-11 Extras (Apr 1984)
52.232-17 Interest (Jan 1991)
52.232-23 Assignment Of Claims (Jan 1986)
52.233-1 Disputes (Dec 1991)
52.237-2 Protection Of Government Building, Equipment, And Vegetation (Apr 1984)
52.237-3 Continuity Of Services (Jan 1991)
52.242-13 Bankruptcy (Apr 1991)
52.243-1 Changes - Fixed Price (Aug 1987)
52.243-1 Changes - Fixed Price (Alternate li) (Apr 1984)
52.243-3 Changes - Time-And-Materials Or Labor-Hours (Aug 1987)
52.243-6 Change Order Accounting (Apr 1984)
52.244-1 Subcontracts (Fixed Price Contracts) (Apr 1991)
52.244-3 Subcontracts (Time-And-Materials And Labor-Hour Contracts) (Apr 1985)
52.246-6 Inspection -Time-And-Material And Labor-Hour (Jan 1986)
52.247-63 Preference For U.S.- Flag Air Carriers (Apr 1984)
52.249-2 Termination For Convenience Of The Government (Fixed Price) (Apr 1984)
52.249-8 Default (Fixed Price Supply And Service) (Apr 1984)
52.249-14 Excusable Delays (Apr 1984)
252.203-7000 Statutory Prohibition On Compensation To Former Department Of Defense
Employees (Dec 1991)
252.203-7001 Special Prohibition On Employment (Apr 1993)
252.203-7002 Display Of DOD Hotline Poster (Dec 1991)
252.204-7000 Disclosure Of Information (Dec 1991)
18
<PAGE>
252.215-7000 Pricing Adjustment (Dec 1991)
252.219-7003 Small Business And Small Disadvantaged Business Subcontracting Plan
(DOD Contracts) (Apr 1993)
252.223-7500 Drug-Free Work Force (Dec 1991)
252.225-7001 Buy American Act And Balance Of Payments Program (Dec 1991)
252.225-7002 Qualifying Country Sources As Subcontractors (Dec 1991)
252.225-7007 Trade Agreements Act (Dec 1991)
252.227-7013 Rights In Technical Data And Computer Software (Oct 1988)
252.227-7018 Restrictive Markings On Technical Data (Oct 1988)
252.227-7019 Identification Of Restricted Rights Computer Software (Apr 1988)
252.227-7026 Deferred Delivery Of Technical Data Or Computer Software (Apr 1988)
252.227-7027 Deferred Ordering Of Technical Data Or Computer Software (Apr 1988)
252.227-7028 Requirement For Technical Data Representation (Oct 1988)
252.227-7029 Identification Of Technical Data (Apr 1988)
252.227-7030 Technical Data - Withholding Of Payment (Oct 1988)
252.227-7031 Data Requirements (Oct 1988)
252.227-7036 Certification Of Technical Data Conformity (May 1987)
252.227-7037 Validation Of Restrictive Markings On Technical Data (Apr 1988)
252.233-7000 Certification Of Requests For Adjustment Or Relief Exceeding $100,000 (Apr 1993)
252.243-7001 Pricing Of Adjustments (Dec 1991)
252.270-7000 Recovery Of Non-Recurring Costs And Royalty Fees On Commercial Sales (Dec 1991)
252.270-7001 Warranty Exclusion And Limitation Of Damages (Feb 1983)
252.270-7008 Rights In Privacy Safeguards (Apr 1984)
252.271-7001 Recovery Of Non-Recurring Costs On Commercial Sales Of Defense Products And
Technology And Of Royalty Fees For Use Of DOD Technical Data (Feb 1989)
</TABLE>
SECTION J - LIST OF ATTACHMENTS
The following attachments constitute a part of this Contract:
<TABLE>
<S> <C>
ATTACHMENT A - Direct Labor Schedule, dated February 5, 1997
ATTACHMENT B - Statement of Work, dated February 5, 1997
ATTACHMENT C - Status Report Format (Section H, Clause H-l)
ATTACHMENT D - List of Approved Employees, dated February 5, 1997
</TABLE>
19
<PAGE>
Page 1 of 9
ATTACHMENT A
DIRECT LABOR SCHEDULE
SECTION B-2(a)(1)
FEBRUARY 5, 1997
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750 OVER
NAVAIR CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 97.00 $ 81.48 $ 84.39 $ 89.24
29AB01 Senior Computer Engineer (SCE) $ 75.00 $ 63.00 $ 65.25 $ 69.00
29AC01 Computer Technician (CT) $ 36.00 $ 30.24 $ 31.32 $ 33.12
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 61.00 $ 51.24 $ 53.07 $ 56.12
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 75.00 $ 63.00 $ 65.25 $ 69.00
CY* $750K OVER
NAVFAC CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 92.00 $ 77.28 $ 80.04 $ 84.64
0033AB Computer Scientist (CS) $ 66.00 $ 55.44 $ 57.42 $ 60.72
0033AJ Associate Computer Scientist (ACS) $ 51.00 $ 42.84 $ 44.37 $ 46.92
0033AC Computer Science Technician (CST) $ 35.00 $ 29.40 $ 30.45 $ 32.20
0033AD Senior Engineer (SE) $ 71.00 $ 59.64 $ 61.77 $ 65.32
3033AE Engineer (E) $ 55.00 $ 46.20 $ 47.85 $ 50.60
0033AF Engineering Technician (ET) $ 35.00 $ 29.40 $ 30.45 $ 32.20
0033AG Senior Clerical Assistant (SCA) $ 31.00 $ 26.04 $ 26.97 $ 28.52
0033AH Clerical Assistant (CA) $ 24.00 $ 20.16 $ 20.88 $ 22.08
CY* $750K OVER
NAVSEA CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 53.40 $ 44.86 $ 46.46 $ 49.13
SS08AB Computer Engineer, Level 2 (CE2) $ 64.39 $ 54.09 $ 56.02 $ 59.24
SS08AC Computer Engineer, Level 3 (CE3) $ 77.75 $ 65.31 $ 67.64 $ 71.53
SS08AD Computer Engineer, Level 4 (CE4) $ 100.86 $ 84.72 $ 87.75 $ 92.79
SS08AE Computer Technician, Level 1 (CT1) $ 31.91 $ 26.80 $ 27.76 $ 29.36
SS08AF Computer Technician, Level 2 (CT2) $ 38.49 $ 32.33 $ 33.49 $ 35.41
SS08AG Computer Technician, Level 3 (CT3) $ 49.23 $ 41.35 $ 42.83 $ 45.29
SS08AH Computer Technician, Level 4 (CT4) $ 53.40 $ 44.86 $ 46.46 $ 49.13
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 82.92 $ 69.65 $ 72.14 $ 76.29
SS08AK Computer Engineer, Level 2 (CE2) $ 93.91 $ 78.88 $ 81.70 $ 86.40
SS08AL Computer Engineer, Level 3 (CE3) $ 107.27 $ 90.11 $ 93.32 $ 98.69
SS08AM Computer Engineer, Level 4 (CE4) $ 130.38 $ 109.52 $ 113.43 $ 119.95
SS08AN Computer Technician, Level 1 (CT1) $ 61.43 $ 51.60 $ 53.44 $ 56.52
SS08AP Computer Technician, Level 2 (CT2) $ 68.01 $ 57.13 $ 59.17 $ 62.57
SS08AQ Computer Technician, Level 3 (CT3) $ 78.75 $ 66.15 $ 68.51 $ 72.45
SS08AR Computer Technician, Level 4 (CT4) $ 82.92 $ 69.65 $ 72.14 $ 76.29
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 58.47 $ 49.11 $ 50.87 $ 53.79
SS08AT Computer Engineer, Level 2 (CE2) $ 70.51 $ 59.23 $ 61.34 $ 64.87
SS08AU Computer Engineer, Level 3 (CE3) $ 85.14 $ 71.52 $ 74.07 $ 78.33
SS08AV Computer Engineer, Level 4 (CE4) $ 110.44 $ 92.77 $ 96.08 $ 101.60
SS08AW Computer Technician, Level 1 (CT1) $ 34.94 $ 29.35 $ 30.40 $ 32.14
SS08AX Computer Technician, Level 2 (CT2) $ 42.15 $ 35.41 $ 36.67 $ 38.78
SS08AY Computer Technician, Level 3 (CT3) $ 53.91 $ 45.28 $ 46.90 $ 49.60
SS08AZ Computer Technician, Level 4 (CT4) $ 58.47 $ 49.11 $ 50.87 $ 53.79
</TABLE>
*GFY1997 Rate is valid from February 13, 1997 through October 3, 1997.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 105.00 $ 88.20 $ 91.35 $ 96.60
29AB01 Computer Scientist/Engineer (CS/E) $ 81.00 $ 68.04 $ 70.47 $ 74.52
29AC01 Computer Technician (CT) $ 40.00 $ 33.60 $ 34.80 $ 36.80
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 67.00 $ 56.28 $ 58.29 $ 61.64
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 81.00 $ 68.04 $ 70.47 $ 74.52
CY* $750K OVER
NAVFAC CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 98.00 $ 82.32 $ 85.26 $ 90.16
0033AB Computer Scientist (CS) $ 70.00 $ 58.80 $ 60.90 $ 64.40
0033AJ Associate Computer Scientist (ACS) $ 53.00 $ 44.52 $ 46.11 $ 48.76
0033AC Computer Science Technician (CST) $ 37.00 $ 31.08 $ 32.19 $ 34.04
0033AD Senior Engineer (SE) $ 76.00 $ 63.84 $ 66.12 $ 69.92
0033AE Engineer (E) $ 59.00 $ 49.56 $ 51.33 $ 54.28
0033AF Engineering Technician (ET) $ 37.00 $ 31.08 $ 32.19 $ 34.04
0033AG Senior Clerical Assistant (SCA) $ 32.00 $ 26.88 $ 27.84 $ 29.44
0033AH Clerical Assistant (CA) $ 26.00 $ 21.84 $ 22.62 $ 23.92
CY* $750K OVER
NAVSEA CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 57.67 $ 48.44 $ 50.17 $ 53.06
SS08AB Computer Engineer, Level 2 (CE2) $ 69.54 $ 58.41 $ 60.50 $ 63.98
SS08AC Computer Engineer, Level 3 (CE3) $ 83.96 $ 70.53 $ 73.05 $ 77.24
SS08AD Computer Engineer, Level 4 (CE4) $ 108.93 $ 91.50 $ 94.77 $ 100.22
SS08AE Computer Technician, Level 1 (CT1) $ 34.46 $ 28.95 $ 29.98 $ 31.70
SS08AF Computer Technician, Level 2 (CT2) $ 41.57 $ 34.92 $ 36.17 $ 38.24
SS08AG Computer Technician, Level 3 (CT3) $ 53.17 $ 44.66 $ 46.26 $ 48.92
SSO8AH Computer Technician, Level 4 (CT4) $ 57.67 $ 48.44 $ 50.17 $ 53.06
ON-SITE
SSO8AJ Computer Engineer, Level 1 (CE1) $ 88.88 $ 74.66 $ 77.33 $ 81.77
SSO8AK Computer Engineer, Level 2 (CE2) $ 100.75 $ 84.63 $ 87.65 $ 92.69
SS08AL Computer Engineer, Level 3 (CE3) $ 115.17 $ 96.74 $ 100.20 $ 105.96
SS08AM Computer Engineer, Level 4 (CE4) $ 140.14 $ 117.72 $ 121.92 $ 128.93
SS08AN Computer Technician, Level 1 (CT1) $ 65.67 $ 55.16 $ 57.13 $ 60.42
SSO8AP Computer Technician, Level 2 (CT2) $ 72.78 $ 61.14 $ 63.32 $ 66.96
SS08AQ Computer Technician, Level 3 (CT3) $ 84.38 $ 70.88 $ 73.41 $ 77.63
SS08AR Computer Technician, Level 4 (CT4) $ 88.88 $ 74.66 $ 77.33 $ 81.77
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 63.15 $ 53.05 $ 54.94 $ 58.10
SS08AT Computer Engineer, Level 2 (CE2) $ 76.15 $ 63.97 $ 66.25 $ 70.06
SS08AU Computer Engineer, Level 3 (CE3) $ 91.94 $ 77.23 $ 79.99 $ 84.58
SS08AV Computer Engineer, Level 4 (CE4) $ 119.28 $ 100.20 $ 103.77 $ 109.74
SS08AW Computer Technician, Level 1 (CT1) $ 37.73 $ 31.69 $ 32.83 $ 34.71
SSO8AX Computer Technician, Level 2 (CT2) $ 45.52 $ 38.24 $ 39.60 $ 41.88
SS08AY Computer Technician, Level 3 (CT3) $ 58.22 $ 48.90 $ 50.65 $ 53.56
SS08AZ Computer Technician, Level 4 (CT4) $ 63.15 $ 53.05 $ 54.94 $ 58.10
</TABLE>
*GFY 1998 Rates are valid from October 4, 1997 through October 2, 1998
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 99 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 113.00 $ 94.92 $ 98.31 $ 103.96
29AB01 Senior Computer Engineer (SCE) $ 87.00 $ 73.08 $ 75.69 $ 80.04
29AC01 Computer Technician (CT) $ 43.00 $ 36.12 $ 37.41 $ 39.56
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 72.00 $ 60.48 $ 62.64 $ 66.24
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 87.00 $ 73.08 $ 75.69 $ 80.04
CY* $750K OVER
NAVFAC CATEGORY 99 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 104.00 $ 87.36 $ 90.48 $ 95.68
0033AB Computer Scientist (CS) $ 74.00 $ 62.16 $ 64.38 $ 68.08
0033AJ Associate Computer Scientist (ACS) $ 55.00 $ 46.20 $ 47.85 $ 50.60
0033AC Computer Science Technician (CST) $ 40.00 $ 33.60 $ 34.80 $ 36.80
0033AD Senior Engineer (SE) $ 80.00 $ 67.20 $ 69.60 $ 73.60
0033AE Engineer (E) $ 62.00 $ 52.08 $ 53.94 $ 57.04
0033AF Engineering Technician (ET) $ 40.00 $ 33.60 $ 34.80 $ 36.80
0033AG Senior Clerical Assistant (SCA) $ 34.00 $ 28.56 $ 29.58 $ 31.28
0033AH Clerical Assistant (CA) $ 27.00 $ 22.68 $ 23.49 $ 24.84
CY* $750K OVER
NAVSEA CATEGORY 99 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 62.28 $ 52.32 $ 54.18 $ 57.30
SS08AB Computer Engineer, Level 2 (CE2) $ 75.10 $ 63.08 $ 65.34 $ 69.09
SS08AC Computer Engineer, Level 3 (CE3) $ 90.69 $ 76.18 $ 78.90 $ 83.43
SS08AD Computer Engineer, Level 4 (CE4) $ 117.63 $ 98.81 $ 102.34 $ 108.22
SS08AE Computer Technician, Level 1 (CT1) $ 37.22 $ 31.26 $ 32.38 $ 34.24
SS08AF Computer Technician, Level 2 (CT2) $ 44.89 $ 37.71 $ 39.05 $ 41.30
SS08AG Computer Technician, Level 3 (CT3) $ 57.43 $ 48.24 $ 49.96 $ 52.84
SS08AH Computer Technician, Level 4 (CT4) $ 62.28 $ 52.32 $ 54.18 $ 57.30
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 95.31 $ 80.06 $ 82.92 $ 87.69
SS08AK Computer Engineer, Level 2 (CE2) $ 108.13 $ 90.83 $ 94.07 $ 99.48
SS08AL Computer Engineer, Level 3 (CE3) $ 123.72 $ 103.92 $ 107.64 $ 113.82
SS08AM Computer Engineer, Level 4 (CE4) $ 150.66 $ 126.55 $ 131.07 $ 138.61
SS08AN Computer Technician, Level 1 (CT1) $ 70.25 $ 59.01 $ 61.12 $ 64.63
SS08AP Computer Technician, Level 2 (CT2) $ 77.92 $ 65.45 $ 67.79 $ 71.69
SS08AQ Computer Technician, Level 3 (CT3) $ 90.46 $ 75.99 $ 78.70 $ 83.22
SS08AR Computer Technician, Level 4 (CT4) $ 95.31 $ 80.06 $ 82.92 $ 87.69
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 68.20 $ 57.29 $ 59.33 $ 62.74
SS08AT Computer Engineer, Level 2 (CE2) $ 82.23 $ 69.07 $ 71.54 $ 75.65
SS08AU Computer Engineer, Level 3 (CE3) $ 99.31 $ 83.42 $ 86.40 $ 91.37
SS08AV Computer Engineer, Level 4 (CE4) $ 128.80 $ 108.19 $ 112.06 $ 118.50
SS08AW Computer Technician, Level 1 (CT1) $ 40.76 $ 34.24 $ 35.46 $ 37.50
SS08AX Computer Technician, Level 2 (CT2) $ 49.15 $ 41.29 $ 42.76 $ 45.22
SS08AY Computer Technician, Level 3 (CT3) $ 62.89 $ 52.83 $ 54.71 $ 57.86
SS08AZ Computer Technician, Level 4 (CT4) $ 68.20 $ 57.29 $ 59.33 $ 62.74
</TABLE>
*GFY 1999 Rates valid from October 3, 1998 through October 1, 1999
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 00 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 122.00 $ 102.48 $ 106.14 $ 112.24
29AB01 Senior Computer Engineer (SCE) $ 94.00 $ 78.96 $ 81.78 $ 86.48
29AC01 Computer Technician (CT) $ 46.00 $ 38.64 $ 40.02 $ 42.32
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 78.00 $ 65.52 $ 67.86 $ 71.76
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 94.00 $ 78.96 $ 81.78 $ 86.48
CY* $750K OVER
NAVFAC CATEGORY 00 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 110.00 $ 92.40 $ 95.70 $ 101.20
0033AB Computer Scientist (CS) $ 78.00 $ 65.52 $ 67.86 $ 71.76
0033AJ Associate Computer Scientist (ACS) $ 57.00 $ 47.88 $ 49.59 $ 52.44
0033AC Computer Science Technician (CST) $ 42.00 $ 35.28 $ 36.54 $ 38.64
0033AD Senior Engineer (SE) $ 85.00 $ 71.40 $ 73.95 $ 78.20
0033AE Engineer (E) $ 66.00 $ 55.44 $ 57.42 $ 60.72
0033AF Engineering Technician (ET) $ 42.00 $ 35.28 $ 36.54 $ 38.64
3033AG Senior Clerical Assistant (SCA) $ 36.00 $ 30.24 $ 31.32 $ 33.12
3033AH Clerical Assistant (CA) $ 29.00 $ 24.36 $ 25.23 $ 26.68
CY* $750K OVER
NAVSEA CATEGORY 00 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 67.27 $ 56.51 $ 58.52 $ 61.89
SS08AB Computer Engineer, Level 2 (CE2) $ 81.11 $ 68.13 $ 70.57 $ 74.62
SS08AC Computer Engineer, Level 3 (CE3) $ 97.94 $ 82.27 $ 85.21 $ 90.10
SS08AD Computer Engineer, Level4 (CE4) $ 127.04 $ 106.71 $ 110.52 $ 116.88
SS08AE Computer Technician, Level 1 (CT1) $ 40.18 $ 33.75 $ 34.96 $ 36.97
SS08AF Computer Technician, Level 2 (CT2) $ 48.48 $ 40.72 $ 42.18 $ 44.60
SS08AG Computer Technician, Level 3 (CT3) $ 62.03 $ 52.11 $ 53.97 $ 57.07
SS08AH Computer Technician, Level 4 (CT4) $ 67.27 $ 56.51 $ 58.52 $ 61.89
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 102.24 $ 85.88 $ 88.95 $ 94.06
SSO8AK Computer Engineer, Level 2 (CE2) $ 116.08 $ 97.51 $ 100.99 $ 106.79
SS08AL Computer Engineer, Level 3 (CE3) $ 132.91 $ 111.64 $ 115.63 $ 122.28
SS08AM Computer Engineer, Level 4 (CE4) $ 162.01 $ 136.09 $ 140.95 $ 149.05
SS08AN Computer Technician, Level 1 (CT1) $ 75.15 $ 63.13 $ 65.38 $ 69.14
SS08AP Computer Technician, Level 2 (CT2) $ 83.45 $ 70.10 $ 72.60 $ 76.77
SS08AQ Computer Technician, Level 3 (CT3) $ 97.00 $ 81.48 $ 84.39 $ 89.24
SS08AR Computer Technician, Level 4 (CT4) $ 102.24 $ 85.88 $ 88.95 $ 94.06
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 73.66 $ 61.87 $ 64.08 $ 67.77
SS08AT Computer Engineer, Level 2 (CE2) $ 88.82 $ 74.61 $ 77.27 $ 81.71
SSO8AU Computer Engineer, Level 3 (CE3) $ 107.24 $ 90.08 $ 93.30 $ 98.66
SS08AV Computer Engineer, Level 4 (CE4) $ 139.11 $ 116.85 $ 121.03 $ 127.98
SSO8AW Computer Technician, Level 1 (CT1) $ 44.00 $ 36.96 $ 38.28 $ 40.48
SS08AX Computer Technician, Level 2 (CT2) $ 53.09 $ 44.60 $ 46.19 $ 48.84
SS08AY Computer Technician, Level 3 (CT3) $ 67.92 $ 57.05 $ 59.09 $ 62.49
SS08AZ Computer Technician, Level 4 (CT4) $ 73.66 $ 61.87 $ 64.08 $ 67.77
</TABLE>
*GFY 2000 Rates valid from October 2, 1999 through September 29, 2000
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 01 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 132.00 $ 110.88 $ 114.84 $ 121.44
29AB01 Senior Computer Engineer (SCE) $ 102.00 $ 85.68 $ 88.74 $ 93.84
29AC01 Computer Technician (CT) $ 50.00 $ 42.00 $ 43.50 $ 46.00
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 84.00 $ 70.56 $ 73.08 $ 77.28
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 102.00 $ 85.68 $ 88.74 $ 93.84
CY* $750K OVER
NAVFAC CATEGORY 01 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 117.00 $ 98.28 $ 101.79 $ 107.64
0033AB Computer Scientist (CS) $ 83.00 $ 69.72 $ 72.21 $ 76.36
0033AJ Associate Computer Scientist (ACS) $ 60.00 $ 50.40 $ 52.20 $ 55.20
0033AC Computer Science Technician (CST) $ 45.00 $ 37.80 $ 39.15 $ 41.40
0033AD Senior Engineer (SE) $ 90.00 $ 75.60 $ 78.30 $ 82.80
0033AE Engineer (E) $ 70.00 $ 58.80 $ 60.90 $ 64.40
0033AF Engineering Technician (ET) $ 45.00 $ 37.80 $ 39.15 $ 41.40
0033AG Senior Clerical Assistant (SCA) $ 39.00 $ 32.76 $ 33.93 $ 35.88
0033AH ClericalAssistant (CA) $ 30.00 $ 25.20 $ 26.10 $ 27.60
CY* $750K OVER
NAVSEA CATEGORY 01 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 72.65 $ 61.03 $ 63.21 $ 66.84
SS08AB Computer Engineer, Level 2 (CE2) $ 87.60 $ 73.58 $ 76.21 $ 80.59
SS08AC Computer Engineer, Level 3 (CE3) $ 105.78 $ 88.86 $ 92.03 $ 97.32
SS08AD Computer Engineer, Level 4 (CE4) $ 137.22 $ 115.26 $ 119.38 $ 126.24
SS08AE Computer Technician, Level 1 (CT1) $ 43.41 $ 36.46 $ 37.77 $ 39.94
SS08AF Computer Technician, Level 2 (CT2) $ 52.36 $ 43.98 $ 45.55 $ 48.17
SS08AG Computer Technician, Level 3 (CT3) $ 66.99 $ 56.27 $ 58.28 $ 61.63
SS08AH Computer Technician, Level 4 (CT4) $ 72.65 $ 61.03 $ 63.21 $ 66.84
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 109.70 $ 92.15 $ 95.44 $ 100.92
SS08AK Computer Engineer, Level 2 (CE2) $ 124.65 $ 104.71 $ 108.45 $ 114.68
SS08AL Computer Engineer, Level 3 (CE3) $ 142.83 $ 119.98 $ 124.26 $ 131.40
SS08AM Computer Engineer, Level 4 (CE4) $ 174.27 $ 146.39 $ 151.61 $ 160.33
SS08AN Computer Technician, Level 1 (CT1) $ 80.46 $ 67.59 $ 70.00 $ 74.02
SS08AP Computer Technician, Level 2 (CT2) $ 89.41 $ 75.10 $ 77.79 $ 82.26
SS08AQ Computer Technician, Level 3 (CT3) $ 104.04 $ 87.39 $ 90.51 $ 95.72
SS08AR Computer Technician, Level 4 (CT4) $ 109.70 $ 92.15 $ 95.44 $ 100.92
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 79.55 $ 66.82 $ 69.21 $ 73.19
SS08AT Computer Engineer, Level 2 (CE2) $ 95.92 $ 80.57 $ 83.45 $ 88.25
SS08AU Computer Engineer, Level 3 (CE3) $ 115.83 $ 97.30 $ 100.77 $ 106.56
SS08AV Computer Engineer, Level 4 (CE4) $ 150.26 $ 126.22 $ 130.73 $ 138.24
SS08AW Computer Technician, Level 1 (CT1) $ 47.53 $ 39.93 $ 41.35 $ 43.73
SS08AX Computer Technician, Level 2 (CT2) $ 57.33 $ 48.16 $ 49.88 $ 52.74
SS08AY Computer Technician, Level 3 (CT3) $ 73.35 $ 61.61 $ 63.81 $ 67.48
SS08AZ Computer Technician, Level 4 (CT4) $ 79.55 $ 66.82 $ 69.21 $ 73.19
</TABLE>
*GFY 2001 Rates valid from September 30, 2000 through October 5, 2001
<PAGE>
Page 7 of 9
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 02 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 142.00 $ 119.28 $ 123.54 $ 130.64
29AB01 Senior Computer Engineer (SCE) $ 109.00 $ 91.56 $ 94.83 $ 100.28
29AC01 Computer Technician (CT) $ 55.00 $ 46.20 $ 47.85 $ 50.60
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 91.00 $ 76.44 $ 79.17 $ 83.72
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 109.00 $ 91.56 $ 94.83 $ 100.28
CY* $750K OVER
NAVFAC CATEGORY 02 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 124.00 $ 104.16 $ 107.88 $ 114.08
0033AB Computer Scientist (CS) $ 88.00 $ 73.92 $ 76.56 $ 80.96
0033AJ Associate Computer Scientist (ACS) $ 62.00 $ 52.08 $ 53.94 $ 57.04
0033AC Computer Science Technician (CST) $ 47.00 $ 39.48 $ 40.89 $ 43.24
0033AD Senior Engineer (SE) $ 96.00 $ 80.64 $ 83.52 $ 88.32
0033AE Engineer (E) $ 74.00 $ 62.16 $ 64.38 $ 68.08
0033AF Engineering Technician (ET) $ 47.00 $ 39.48 $ 40.89 $ 43.24
0033AG Senior Clerical Assistant (SCA) $ 41.00 $ 34.44 $ 35.67 $ 37.72
0033AH Clerical Assistant (CA) $ 32.00 $ 26.88 $ 27.84 $ 29.44
CY* $750K OVER
NAVSEA CATEGORY 02 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 78.44 $ 65.89 $ 68.24 $ 72.16
SS08AB Computer Engineer, Level 2 (CE2) $ 94.60 $ 79.46 $ 82.30 $ 87.03
SS08AC Computer Engineer, Level 3 (CE3) $ 114.24 $ 95.96 $ 99.39 $ 105.10
SS08AD Computer Engineer, Level 4 (CE4) $ 148.19 $ 124.48 $ 128.93 $ 136.33
SS08AE Computer Technician, Level 1 (CT1) $ 46.88 $ 39.38 $ 40.79 $ 43.13
SS08AF Computer Technician, Level 2 (CT2) $ 56.55 $ 47.50 $ 49.20 $ 52.03
SS08AG Computer Technician, Level 3 (CT3) $ 72.34 $ 60.77 $ 62.94 $ 66.55
SS08AH Computer Technician, Level 4 (CT4) $ 78.44 $ 65.89 $ 68.24 $ 72.16
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 117.72 $ 98.88 $ 102.42 $ 108.30
SS08AK Computer Engineer, Level 2 (CE2) $ 133.88 $ 112.46 $ 116.48 $ 123.17
SS08AL Computer Engineer, Level 3 (CE3) $ 153.52 $ 128.96 $ 133.56 $ 141.24
SS08AM Computer Engineer, Level 4 (CE4) $ 187.47 $ 157.47 $ 163.10 $ 172.47
SS08AN Computer Technician, Level 1 (CT1) $ 86.16 $ 72.37 $ 74.96 $ 79.27
SS08AP Computer Technician, Level 2 (CT2) $ 95.83 $ 80.50 $ 83.37 $ 88.16
SS08AQ Computer Technician, Level 3 (CT3) $ 111.62 $ 93.76 $ 97.11 $ 102.69
SS08AR Computer Technician, Level 4 (CT4) $ 117.72 $ 98.88 $ 102.42 $ 108.30
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 85.89 $ 72.15 $ 74.72 $ 79.02
SS08AT Computer Engineer, Level 2 (CE2) $ 103.59 $ 87.02 $ 90.12 $ 95.30
SS08AU Computer Engineer, Level 3 (CE3) $ 125.09 $ 105.08 $ 108.83 $ 115.08
SS08AV Computer Engineer, Level 4 (CE4) $ 162.27 $ 136.31 $ 141.17 $ 149.29
SS08AW Computer Technician, Level 1 (CT1) $ 51.33 $ 43.12 $ 44.66 $ 47.22
SS08AX Computer Technician, Level 2 (CT2) $ 61.92 $ 52.01 $ 53.87 $ 56.97
SS08AY Computer Technician, Level 3 (CT3) $ 79.21 $ 66.54 $ 68.91 $ 72.87
SS08AZ Computer Technician, Level 4 (CT4) $ 58.89 $ 49.47 $ 51.23 $ 54.18
</TABLE>
*GFY 2002 Rates valid from October 5, 2001 through October 4, 2002
<PAGE>
Page 8 of 9
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 03 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 153.00 $ 128.52 $ 133.11 $ 140.76
29A301 Senior Computer Engineer (SCE) $ 117.00 $ 98.28 $ 101.79 $ 107.64
29AC01 Computer Technician (CT) $ 60.00 $ 50.40 $ 52.20 $ 55.20
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 98.00 $ 82.32 $ 85.26 $ 90.16
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 117.00 $ 98.28 $ 101.79 $ 107.64
CY* $750K OVER
NAVFAC CATEGORY 03 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 131.00 $ 110.04 $ 113.97 $ 120.52
0033AB Computer Scientist (CS) $ 93.00 $ 78.12 $ 80.91 $ 85.56
0033AJ Associate Computer Scientist (ACS) $ 65.00 $ 54.60 $ 56.55 $ 59.80
0033AC Computer Science Technician (CST) $ 50.00 $ 42.00 $ 43.50 $ 46.00
0033AD Senior Engineer (SE) $ 101.00 $ 84.84 $ 87.87 $ 92.92
0033AE Engineer (E) $ 78.00 $ 65.52 $ 67.86 $ 71.76
0033AF Engineering Technician (ET) $ 50.00 $ 42.00 $ 43.50 $ 46.00
0033AG Senior Clerical Assistant (SCA) $ 43.00 $ 36.12 $ 37.41 $ 39.56
0033AH Clerical Assistant (CA) $ 34.00 $ 28.56 $ 29.58 $ 31.28
*GFY 2003 Rates valid from October 5, 2002 through October 3, 2003
CY* $750K OVER
NAVAIR CATEGORY 04 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 162.00 $ 136.08 $ 140.94 $ 149.04
29AB01 Senior Computer Engineer (SCE) $ 126.00 $ 105.84 $ 109.62 $ 115.92
29AC01 Computer Technician (CT) $ 64.00 $ 53.76 $ 55.68 $ 58.88
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 105.00 $ 88.20 $ 91.35 $ 96.60
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 126.00 $ 105.84 $ 109.62 $ 115.92
CY* $750K OVER
NAVFAC CATEGORY 04 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 139.00 $ 116.76 $ 120.93 $ 127.88
0033AB Computer Scientist (CS) $ 99.00 $ 83.16 $ 86.13 $ 91.08
0033AJ Associate Computer Scientist (ACS) $ 67.00 $ 56.28 $ 58.29 $ 61.64
0033AC Computer Science Technician (CST) $ 53.00 $ 44.52 $ 46.11 $ 48.76
0033AD Senior Engineer (SE) $ 108.00 $ 90.72 $ 93.96 $ 99.36
0033AE Engineer (E) $ 83.00 $ 69.72 $ 72.21 $ 76.36
0033AF Engineering Technician (ET) $ 53.00 $ 44.52 $ 46.11 $ 48.76
0033AG Senior Clerical Assistant (SCA) $ 46.00 $ 38.64 $ 40.02 $ 42.32
0033AH Clerical Assistant (CA) $ 36.00 $ 30.24 $ 31.32 $ 33.12
</TABLE>
*GFY 2004 Rates valid from October 4, 2003 through October 1, 2004
<PAGE>
Page 9 of 9
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 05 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 172.00 $ 144.48 $ 149.64 $ 158.24
29AB01 Senior Computer Engineer (SCE) $ 133.00 $ 111.72 $ 115.71 $ 122.36
29AC01 Computer Technician (CT) $ 69.00 $ 57.96 $ 60.03 $ 63.48
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 110.00 $ 92.40 $ 95.70 $ 101.20
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 133.00 $ 111.72 $ 115.71 $ 122.36
CY* $750K OVER
NAVFAC CATEGORY 05 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 139.00 $ 116.76 $ 120.93 $ 127.88
0033AB Computer Scientist (CS) $ 99.00 $ 83.16 $ 86.13 $ 91.08
0033AJ Associate Computer Scientist (ACS) $ 70.00 $ 58.80 $ 60.90 $ 64.40
0033AC Computer Science Technician (CST) $ 53.00 $ 44.52 $ 46.11 $ 48.76
0033AD Senior Engineer (SE) $ 108.00 $ 90.72 $ 93.96 $ 99.36
0033AE Engineer (E) $ 83.00 $ 69.72 $ 72.21 $ 76.36
0033AF Engineering Technician (ET) $ 53.00 $ 44.52 $ 46.11 $ 48.76
0033AG Senior Clerical Assistant (SCA) $ 46.00 $ 38.64 $ 40.02 $ 42.32
0033AH Clerical Assistant (CA) $ 36.00 $ 30.24 $ 31.32 $ 33.12
*GFY2005 Rates valid from October 2, 2004 through September 30, 2005
CY* $750K OVER
NAVAIR CATEGORY 06 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 182.00 $ 152.88 $ 158.34 $ 167.44
29AB01 Senior Computer Engineer (SCE) $ 143.00 $ 120.12 $ 124.41 $ 131.56
29AC01 Computer Technician (CT) $ 74.00 $ 62.16 $ 64.38 $ 68.08
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 117.00 $ 98.28 $ 101.79 $ 107.64
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 143.00 $ 120.12 $ 124.41 $ 131.56
</TABLE>
*GFY 2006 Rates valid from October 1, 2005 through September 29, 2006
<PAGE>
ATTACHMENT B
STATEMENT OF WORK
February 5, 1997
B-1: NAVAIR - STATEMENT OF WORK- OCTOBER 16, 1995
C14.2. PERSONNEL QUALIFICATIONS
The Contractor shall employ, in the performance of the work specified herein,
only personnel who are fully qualified and competent to perform their assigned
work and who possess the minimum qualifications for each labor category shown
herein. The experience shall be compatible with the engineering discipline
associated with each task ordered. Given the requirement for a fully qualified
and competent work force as defined above, the Contractor shall provide the
necessary apprentice/trainee program which reflects the needs of the Government
for entry level positions.
C14.2.1. SUPPORT PERSONNEL CATEGORIES
C14.2.1.1. COMPUTER SCIENTIST / ENGINEER
C14.2.1.1.1. SENIOR COMPUTER SCIENTIST (SCS)/SENIOR ENGINEER (SE)
a. Academic:
A Bachelor's degree in physics, mathematics, electrical or
electronic engineering or computer sciences from an accredited
college or university. Personnel without a bachelor's degree or with
a degree in an unrelated field will have two (2) years' relevant
professional experience for every year of academic deficiency. The
same experience may not be counted toward an academic substitution
and the experience requirements below.
b. Experience:
A minimum of 3 years as a task team leader plus an additional 6
years experience in system or software engineering, including
responsibility for performing, without supervision, such tasks as
system and software analysis, design studies (including trade-off
studies), configuration and data management, quality assurance,
planning, costing and specification definition for automated systems
projects.
1
<PAGE>
C14.2.1.1.2. COMPUTER SCIENTIST (CS) / ENGINEER (E)
a. Academic:
A Bachelor's degree in physics, mathematics, electrical or
electronic engineering or computer sciences from an accredited
college or university. Personnel without a bachelor's degree or with
a degree in an unrelated field will have two (2) years' relevant
professional experience for every year of academic deficiency. The
same experience may not be counted toward an academic substitution
and the experience requirements below.
b. Experience:
A minimum of one year as a task team leader plus an additional six
years experience in system or software engineering, including
responsibility for performing, with minimum supervision, such tasks
as system and software analysis, design studies (including trade off
studies), configuration and data management, quality assurance,
planning, costing and specification definition tasks for automated
system projects.
C14.2.1.1.3. COMPUTER TECHNICIAN (CT)
a. Academic:
A high school diploma.
b. Experience:
A minimum of 3 years experience in system or software engineering,
including performing such tasks as system programming, graphics
programming, data base programming, applications programming,
equipment testing, system operation, system and network installation
and system monitoring.
C14.2.1.1.4. COMPUTER SPECIALIST (CS) / SOFTWARE SPECIALIST (SS)
a. Academic:
A Bachelor's degree in computer science, mathematics, physics,
engineering or a related discipline from an accredited college or
university. Personnel without a bachelor's degree or with a degree
in an unrelated field will have two (2) years' relevant professional
experience for every year of academic deficiency. The same
experience may not be counted toward an academic substitution and
the experience requirements below.
2
<PAGE>
b. Experience:
1. Level 1: Three years of relevant professional experience in
the use of similar application software including at least
one year specific experience with the offered application
software package. Must exercise responsibility for technical
accuracy and be able to function with nominal supervision.
2. Level 2: Six years of relevant professional experience in
the use of similar application software including at least
one year specific experience with the offered applications
software package.
- -------------------------------------------------------------------------------
B-2: NAVFAC - STATEMENT OF WORK - September 1996
For the purpose of this Statement of Work, the term contract shall mean
subcontractor or seller.
C13.2. PERSONNEL QUALIFICATIONS
The Contractor shall provide, in the performance of the work specified in
individual Purchase Orders, only personnel who are fully qualified and competent
to perform their assigned work and who possess the minimum qualifications for
each labor category shown herein. The experience shall be compatible with the
engineering discipline associated with each task ordered.
C13.2.1. COMPUTER SCIENTIST
C13.2.1.1. SENIOR COMPUTER SCIENTIST (SCS)
a. Academic - A Bachelor's degree in physics, mathematics, electrical
engineering or computer sciences from an accredited college or
university.(1)
b. Experience - A minimum of 3 years as a task team leader plus an
additional 5 years of experience in software engineering, including
responsibility for performing, without supervision such tasks as
system and network communications, hardware, and software analysis;
design studies (including trade-off studies); performance analysis;
configuration and data management; quality assurance; planning;
costing; and specification definition for automated systems
projects.
- -------------------
(1) The requirements for a Bachelor's degree in computer sciences for a Computer
Scientist as shown in Section C 13.2.1.2.a will be modified to allow for a
Bachelor's degree in the disciplines of either physics, mathematics, electrical
engineering or computer sciences.
3
<PAGE>
C13.2.1.2. COMPUTER SCIENTIST (CS)
a. Academic - A Bachelor's degree in computer sciences from an
accredited college or university.
b. Experience - A minimum of 4 years experience in system or software
engineering, including responsibility for performing, with minimum
supervision, such tasks as system and network communications,
hardware, and software analysis; design studies (including
trade-off studies); performance analysis; configuration and data
management; quality assurance; planning; costing; and specification
definition tasks for automated system projects.
C13.2.1.3. ASSOCIATE COMPUTER SCIENTIST (ACS)
a. Academic - a Bachelor's degree in computer sciences, physics,
mathematics or electrical engineering from an accredited college or
university.
b. Experience - A minimum of six (6) months experience in system or
software engineering. This is an entry level position for recent
college graduates. Performs such tasks as various types of
programming; database creation; and system/network operations. All
efforts are performed under close supervision with detailed
instructions as to required tasks and results expected.
C13.2.1.4. COMPUTER SCIENCE TECHNICIAN (CST)
a. Academic - A high school diploma.
b. Experience - A minimum of 3 years experience in system or software
engineering, including performing such tasks as system programming,
graphics programming, data base programming, applications
programming, equipment testing, system operation, system and
network installation and system monitoring.
C13.2.2. ENGINEERING
The following three qualification levels apply to the disciplines of:
architecture, cartography, civil engineering, electrical engineering,
mechanical engineering, and structural engineering.(2)
- -------------------
(2) The requirement for Professional registration in the field commensurate with
the application discipline category is hereby deleted for the cartography
discipline under Section C13.2.2. Reference Intergraph letter AHW-FAC-003 dated
20 Nov 1993.
4
<PAGE>
C13.2.2.1. SENIOR ENGINEER (SE)
a. Academic - A Bachelor's degree from an accredited college or
university in the field commensurate with the application
discipline category.
b. Registration - Professional registration in the field commensurate
with the application discipline category.
c. Experience - A minimum of 3 years as a task team leader plus an
additional 3 years of experience in application software
engineering, including responsibility for performing, without
supervision, such tasks as system and software analysis, design
studies (including trade-off studies), configuration and data
management, quality assurance, planning, costing, and specification
definition for application software projects. A minimum of 6 years
experience with common facilities projects.
C13.2.2.2. ENGINEER (E)
a. Academic - A Bachelor's degree from an accredited college or
university in the field commensurate with the application
discipline category.
b. Registration - Professional or Engineer-in-Training registration in
the field commensurate with the application discipline category.
c. Experience - A minimum of 2 years experience in application
software engineering, including responsibility for performing,
without supervision, such tasks as system and software analysis,
design studies (including trade-off studies), configuration and
data management, quality assurance, planning, costing, and
specification definition for application software projects. A
minimum of 2 years experience with common facilities projects.
C13.2.2.3. ENGINEERING TECHNICIAN (ET)
a. Academic - A high school diploma.
b. Experience - A minimum of 5 years experience in application
software use commensurate with the respective application
discipline. At least one year analytic geometry and drafting.
C13.2.3. CLERICAL SUPPORT
C13.2.3.1. SENIOR CLERICAL ASSISTANT (SCA)
a. Academic - A high school diploma.
b. Experience - A minimum of 4 years experience typing,
word-processing, data entry, filing, and library maintenance.
C13.2.3.2. CLERICAL ASSISTANT (CA)
a. Academic - a high school diploma.
5
<PAGE>
b. Experience - A minimum of 2 years experience typing,
word-processing, data entry, filing, and library maintenance.
C13.3. REVIEW OF CONTRACTOR EMPLOYEE QUALIFICATIONS
The Contractor shall, within 60 days of contract award, provide resumes to
the COTR verifying education, professional background, experience, and
other information for all personnel included in each labor category except
clerical. Substitution of personnel shall be in accordance with Section
H17.
C13.4. TRAVEL FOR TECHNICAL SUPPORT SERVICES
As ordered and described by individual Delivery Orders issued under the
terms of this contract, Contractor personnel travel and per diem expenses
shall be reimbursed in accordance with the DOD Joint Travel Regulation
(JTR). The cost for travel shall be on a not to exceed (NTE) price, to be
negotiated for the individual Delivery Order. (Refer to Section H21.) The
Contractor shall be reimbursed for the actual hours worked plus his actual
travel time from point of departure to the Government site and his return
to his home office.
C13.5. MATERIAL FOR TECHNICAL SUPPORT SERVICES
As ordered and described by Delivery Orders issued under this contract,
payments for material required for technical support services shall be made in
accordance with FAR 52.216-07 "Allowable Cost and Payments Clause."
B-3: NAVSEA - STATEMENT OF WORK - April 15, 1994
- -------------------------------------------------------------------------------
GENERAL
Subcontractor may from time to time, as ordered under a Purchase Order issued
pursuant to this Contract, be required to supply the following services as
annotated below.
In performance of these various support services, the Subcontractor is
responsible for coordinating his efforts such that any problem discovered in
performing any specific task or function is identified and corrected. When
problems relate to Intergraph or Government controlled documentation, or has
a cost, schedule, or other impact, the Subcontractor shall notify the
Intergraph Subcontract Administrator of the problem immediately in writing
following identification of the problem, and request authorization to
implement the necessary corrective action. Unless stipulated in the Purchase
Order(s), orders placed under this Subcontract for support services will be
on a level-of-effort basis using the labor categories and rates defined in
Section B-2, CONSIDERATION.
6
<PAGE>
1. SOFTWARE SUPPORT SERVICES
The Subcontractor may be required under Purchase Orders, to provide the
following services:
a. Development of Government-specific software.
b. Development of Government-specific training courses.
c. Development of Government-specific documentation.
d. Software application support.
e. Porting of software to the Navy CAD-2 platform.
f. Other software engineering services as appropriate.
2. PERSONNEL QUALIFICATIONS
The Subcontractor shall employ only personnel who are fully qualified and
competent to perform their assigned work and who possess the minimum
qualifications for each labor category shown herein. The experience shall
be compatible with the discipline associated with each Purchase Order
issued under the Subcontract. The resume of these employees is subject to
review by Intergraph for purposes of determining acceptance of these
employees for work contracted for by Intergraph. The following defines the
qualifications of the types of personnel expected to be ordered under a
Purchase Order pursuant to this Contract.
2.1 COMPUTER ENGINEERS
Professional Computer Engineers (CE) shall have the following
qualifications and applicable experience levels:
a. Academic:
A Bachelor degree in computer science, mathematics, physics,
engineering, or a related discipline from an accredited college or
university; or a Bachelor degree in an unrelated discipline with
units and grades in one of the above fields equivalent to the
requirements for a major at an accredited university. Personnel
without a Bachelor's degree will have four years of relevant
professional experience in addition to the experience needed to
fulfill the CE Levels 1-4 requirements described in the following
paragraphs.
7
<PAGE>
b. Experience:
1. CE LEVEL 1 - At least one year of relevant professional experience.
2. CE LEVEL 2 - At least three years of relevant professional
experience including at least one year at the CE Level 1 or
equivalent level. Must exercise responsibility for technical
accuracy and be able to function with nominal supervision.
3. CE LEVEL 3 - At least six years of relevant professional experience
including at least two years at the CE Level 2 or equivalent level.
Must function without supervision except for general policy and
guidelines.
4. CE LEVEL 4 - Nine years of relevant professional experience
including at least two years recent experience at the CE Level 3 or
equivalent level and must have demonstrated the ability to
establish and utilize sound engineering and management principles
to accomplish the research and/or development goals of an ADP
related program, and to perform overall management of major ADP
development and systems implementation efforts.
2.2 COMPUTER TECHNICIAN
Computer Technicians (CT) shall have the following qualifications and applicable
experience levels:
a. Academic:
A high school diploma.
b. Experience:
1. CT LEVEL 1 - At least twelve months of relevant experience
2. CT LEVEL 2 - At least three years of relevant experience including
at least six months at the CT Level 1 or equivalent.
3. CT LEVEL 3 - At least six years of relevant experience including at
least two years at the CT Level 2 or equivalent level. Must
function at a professional level of competence and require little
or no supervision except for policy and general guidelines.
4. CT LEVEL 4 - At least 9 years of relevant experience including at
least five years recent experience at the CT Level 3. Must function
at a professional level of competence and must have demonstrated
the ability to provide "task team" or "project" leadership, if
required.
8
<PAGE>
ATTACHMENT C
STATUS REPORT FORMAT
(SECTION H, CLAUSE H-1)
- -------------------------------------------------------------------------------
WEEKLY STATUS REPORT (PO XXXXXX) SUBCONTRACTOR NAME
<TABLE>
<CAPTION>
LABOR
WA NAME CATEGORY CLIN RATE HOURS $ TOTAL PERIOD OF PERFORMANCE TASK ITR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2100-1000 Doe, John SCS / SE 29AA01 $40.00 10.00 $400.00 1/1/98 - 1/15/98 JTIDS SCHACHT
Roe, Jana SC / E 29AB01 $30.00 20.00 $600.00 1/1/98 - 1/15/98 JTIDS SCHACHT
Smith, Mary CT 29AC01 $20.00 40.00 $800.00 1/1/98 - 1/15/98 JTIDS SCHACHT
LABOR - TOTAL $1,800.00
TRAVEL - AIRFARE $200.00
TRAVEL - OTHER $100.00
TRAVEL - TOTAL $300.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 2100-1000 $2,100.00
- ------------------------------------------------------------------------------------------------------------------------------------
2100-1001 Jones, Tom CS / SS1 29AD01 $30.00 40.00 $1,200.00 1/1/98 - 1/15/98 JTIDS SCHACHT
Ward, Burt CS / SS2 29AE01 $40.00 30.00 $1,200.00 1/1/98 - 1/15/98 JTIDS SCHACHT
LABOR - TOTAL $2,400.00
TRAVEL - AIRFARE $0.00
TRAVEL - OTHER $250.00
TRAVEL - TOTAL $250.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 2100-1001 $2,650.00
- ------------------------------------------------------------------------------------------------------------------------------------
2100-1002 Doe, John SCS / SE 29AA01 $40.00 30.00 $1,200.00 1/1/98 - 1/15/98 JTIDS SCHACHT
Roe, Jane SC / E 29AB01 $30.00 20.00 $600.00 1/1/98 - 1/15/98 JTIDS SCHACHT
Ward, Burt CS / SS2 29AE01 $40.00 10.00 $400.00 1/1/98 - 1/15/98 JTIDS SCHACHT
LABOR - TOTAL $2,200.00
TRAVEL - AIRFARE $ 0.00
TRAVEL - OTHER $ 0.00
TRAVEL - TOTAL $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 2100-1002 $2,200.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL WEEKLY AMOUNT TO BE INVOICED THIS P.O. $6,950.00
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
P.O. XXXXXX SUMMARY
<CAPTION>
TOTAL EXPANDED
LABOR HOURS THRU HOURS
CATEGORY CLIN AUTHORIZED THIS P.O. BALANCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SCS 29AA01 1000 40 960 Intergraph Technical Representative
SC 29AB01 1000 40 960 APPROVAL:
CT 29AC01 2000 40 1960
CS / SS1 29AD01 1000 40 960
CS / SS2 29AE01 1000 40 960 --------------------- ------------
Travel $10,000.00 $550.00 $9,450.00 (Signature) (Date)
</TABLE>
<PAGE>
ATTACHMENT D
LIST OF APPROVED EMPLOYEES
(Section H, Clause H-5)
February 5, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NAVAIR
LABOR CATEGORY EMPLOYEE NAME
- -------------- -------------
<S> <C>
Senior Computer Scientist/Senior Engineer (SCS/SE)
Computer Scientist/Engineer (CS/E)
Computer Technician (CT)
Computer Specialist/Software Specialist, Level 1 (SS/CS-1)
Computer Specialist/Software Specialist, Level 2 (SS/CS-2)
- -------------------------------------------------------------------------------
NAVFAC
LABOR CATEGORY EMPLOYEE NAME
- -------------- -------------
<S> <C>
Senior Computer Scientist (SCS)
Computer Scientist (CS)
Associate Computer Scientist (ACS)
Computer Science Technician (CST) Ingrid Gardelin
Nathan P. Stewart
Senior Engineer (SE) James K. Finnegan
Frederick W. Holderman
Raymond J. Kusmer
Jeffrey R. Loitfellner
Engineer (E) Francisco Bordon
Carlos A. Degarate
Ralph E. Dilts
M. J. Funke
Michael Hansen
1
<PAGE>
LABOR CATEGORY EMPLOYEE NAME
- -------- -------------
<S> <C>
Computer Technician, Level 4 (CT4) Anthony J. Bernardo
Francis M. Briggs
Ralph E. Dilts
James K. Finnegan
Gary Flemming
M. J. Funke
Errol Ivy
Kenneth Larsen
Ronald J. Moore
Rich Orvin
Sergio Palacio
Evelyn T. Picozzi
David Rose
Joseph M. Sheer
Jim Thayer
Craig L. Thompson
Bradley J. Wahl
Ronald P. Wilson
2
<PAGE>
- -------------------------------------------------------------------------------
NAVSEA
LABOR CATEGORY EMPLOYEE NAME
- -------------- -------------
<S> <C>
Computer Engineer, Level 1 (CE1)
Computer Engineer, Level 2 (CE2) Michael Hansen
Elisa A. Hoyt
Computer Engineer, Level 3 (CE3) Francisco Bordon
Computer Engineer, Level 4 (CE4) Frederick W. Holderman
Computer Technician, Level 1 (CT1)
Computer Technician, Level 2 (CT2) Perry P. Breauz
William M. Daniels
Carlos A. Degarate
Mary Gan
Lynn A. Halwix
Deneta B. Jones
Roger Mifsud
Gilberto Moreno
Michael J. Nunez
Augustine Roddy
Nathan P. Stewart
Brian Wood
Computer Technician, Level 3 (CT3) James D. Deitrick
Craig J. Doscher
Christine L. Fox
Ingrid Gardelin
Paul M. Giovannoni
David W. Hausmann
Rachel M. Hubbard
Michael D. Morales
Marie Nadel
Jill Parkey
Fernando Velasco
Richard A. Watts
Renard Wynn
3
<PAGE>
LABOR CATEGORY EMPLOYEE NAME
- -------------- -------------
<S> <C>
Engineer (E) (Cont'd) Elisa A. Hoyt
Mario J. Lataillade
Sergio Palacio
Renard Wynn
Engineering Technician (ET) Anthony M. Bernardo
Perry P. Breauz
Francis M. Briggs
William Daniels
James D. Deitrick
Craig J. Doscher
Gary Flemming
Christine L. Fox
Mary Gan
Paul M. Giovannoni
Lynn A. Halwix
David W. Hausmann
Rachel M. Hubbard
Errol Ivy
Deneta B. Jones
Kenneth Larsen
Roger Mifsud
Ronald J. Moore
Michael D. Morales
Gilberto Moreno
Marie Nadel
Michael J. Nunez
Rich Orvin
Jill Parkey
Evelyn T. Picozzi
Augustine Roddy
David Rose
Joseph M. Sheer
Jim Thayer
Craig L. Thompson
Fernando Velasco
Bradley j. Wahl
Richard A. Watts
Ronald P. Wilson
Brian Wood
Senior Clerical Assistant (SCA)
Clerical Assistant (CA) April Stenger
</TABLE>
4
<PAGE>
ATTACHMENT B
SECTION K - REPRESENTATIONS, CERTIFICATIONS,
AND OTHER STATEMENTS OF OFFERORS
K-1. CERTIFICATE OF INDEPENDENT PRICE DETERMINATION
(APR 1985) (FAR 52.203-2)
a. The offeror certifies that --
(1) The prices in this offer have been arrived at independently, without,
for the purpose of restricting competition, any consultation,
communication, or agreement with any other offeror or competitor relating
to (i) those prices, (ii) the intention to submit an offer, or (iii) the
methods or factors used to calculate the prices offered;
(2) The prices in this offer have not been and will not be knowingly
disclosed by the offeror, directly or indirectly, to any other offeror or
competitor before bid opening (in the case of a sealed bid solicitation) or
contract award (in the case of a negotiated solicitation) unless otherwise
required by law; and
(3) No attempt has been made or will be made by the offeror to induce any
other concern to submit or not to submit an offer for the purpose of
restricting competition.
b. Each signature on the offer is considered to be a certification by the
signatory that the signatory --
(1) Is the person in the offeror's organization responsible for determining
the prices being offered in this bid or proposal, and that the signatory
has not participated and will not participate in any action contrary to
subparagraphs (a)(1) through (a)(3) above; or
(2) (i) Has been authorized, in writing, to act as agent for the following
principals in certifying that those principals have not participated,
and will not participate in any action contrary to subparagraphs
(a)(1) through (a)(3) above
Michael H. Lorber, Vice President-Finance & CFO
-----------------------------------------------
Phillip W. Card, Vice President Operations
-----------------------------------------------
(insert full name of person(s) in the offeror's organization
responsible for determining the prices offered in this bid or proposal,
and the title of his
1
<PAGE>
or her position in the offeror's organization); (ii) As an authorized
agent, does certify that the principals named in subdivision (b)(2)(i)
above have not participated, and will not participate, in any
action contrary to subparagraphs (a)(1) through (a)(3) above; and
(iii) As an agent, has not personally participated, and will not
participate, in any action contrary to subparagraphs (a)(1) though
(a)(3) above.
c. If the offeror deletes or modifies subparagraph (a)(2) above, the offeror
must furnish with its offer a signed statement setting forth in detail the
circumstances of the disclosure.
K-2. CONTINGENT FEE REPRESENTATION AND AGREEMENT
(APR 1984) (FAR 52.203-4)
(a) REPRESENTATION. The offeror represents that, except for full-time bona
fide employees working solely for the offeror, the offeror --
(Note: The offeror must check the appropriate boxes. For interpretation of
the representation, including the term "bona fide employee," see Subpart 3.4
of the Federal Acquisition Regulation.)
(1) [ ] has, [X] has not employed or retained any person or company to
solicit or obtain this contract; and
(2) [ ] has, [X] has not paid or agreed to pay to any person or company
employed or retained to solicit or obtain this contract any commission,
percentage, brokerage, or other fee contingent upon or resulting from the award
of this contract.
(b) AGREEMENT. The offeror agrees to provide information relating to the above
Representation as requested by the Contracting Officer and, when subparagraph
(a)(1) or (a)(2) is answered affirmatively, to promptly submit to the
Contracting Officer --
(1) A completed Standard Form 119, Statement of Contingent
or Other Fees, (SF 119); or
(2) A signed statement indicating that the SF 119 was previously submitted
to the same contracting office, including the date and applicable solicitation
or contract number, and representing that the prior SF 119 applies to this offer
or quotation.
2
<PAGE>
K-3. ANTI-KICKBACK PROCEDURES (OCT 1988) (FAR 52.203-7)
(a) Definitions.
"Kickback," as used in this clause, means any money, fee commission,
credit, gift, gratuity, thing of value, or compensation of any kind which is
provided, directly or indirectly, to any prime Contractor, prime Contractor
employee, subcontractor, or subcontractor employee for the purpose of improperly
obtaining or rewarding favorable treatment in connection with a prime contract
or in connection with a subcontract relating to a prime contract.
"Person," as used in this clause, means a corporation, partnership,
business association of any kind, trust, joint-stock company, or individual.
"Prime contract," as used in this clause, means a contract or contractual
action entered into by the United States for the purpose of obtaining supplies,
materials, equipment, or services of any kind.
"Prime Contractor," as used in this clause, means a person who has entered
into a prime contract with the United States.
"Prime Contractor employee," as used in this clause, means any officer,
partner, employee, or agent of a prime Contractor.
"Subcontract," as used in this clause, means a contract or contractual
action entered into by a prime Contractor or subcontractor for the purpose of
obtaining supplies, materials, equipment, or services of any kind under a prime
contract.
"Subcontractor," as used in this clause, (1) means any person, other than
the prime Contractor, who offers to furnish or furnishes any supplies,
materials, equipment, or services of any kind under a prime contract or a
subcontract entered into in connection with such prime contract, and (2)
includes any person who offers to furnish or furnishes general supplies to the
prime Contractor or a higher tier subcontractor.
"Subcontractor employee," as used in this clause, means any officer,
partner, employee, or agent of a subcontractor.
(b) The Anti-Kickback Act of 1986 (41 U.S.C. 51-58) (the Act), prohibits
any person from --
(1) Providing or attempting to provide or offering to
provide any kickback;
(2) Soliciting, accepting, or attempting to accept any
3
<PAGE>
kickback; or
(3) Including, directly or indirectly, the amount of any kickback in the
contract price charged by a prime Contractor to the United States or in the
contract price charged by a subcontractor to a prime Contractor or higher
tier subcontractor.
(c) (1) The Contractor shall have in place and follow reasonable procedures
designed to prevent and detect possible violations described in paragraph
(b) of this clause in its own operations and direct business relationships.
(2) When the Contractor has reasonable grounds to believe that a violation
described in paragraph (b) of this clause may have occurred, the Contractor
shall promptly report in writing the possible violation. Such reports shall
be made to the inspector general of the contracting agency, the head of the
contracting agency if the agency does not have an inspector general, or the
Department of Justice.
(3) The Contractor shall cooperate fully with any Federal agency
investigating a possible violation described in paragraph (b) of this
clause.
(4) The Contracting Officer may (i) offset the amount of the kickback
against any monies owed by the United States under the prime contract
and/or (ii) direct that the Prime Contractor withhold, from sums owed a
subcontractor under the prime contract, the amount of any kickback. The
Contracting Officer may order that monies withheld under subdivision
(c)(4)(ii) of this clause be paid over to the Government unless the
Government has already offset those monies under subdivision (c)(4)(i) of
this clause. In either case, the Prime Contractor shall notify the
Contracting Officer when the monies are withheld.
(5) The Contractor agrees to incorporate the substance of this clause,
including this subparagraph (c)(5) but excepting subparagraph (c)(1), in
all subcontracts under this contract.
K-4. REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY
(MAY 1989) (FAR 52.203-8)
(a) DEFINITIONS. The definitions at FAR 3.104-4 are hereby incorporated in
this provision.
(b) CERTIFICATIONS. As required in paragraph (c) of this provision, the
officer or employee responsible for this offer shall execute the following
certification:
4
<PAGE>
CERTIFICATE OF PROCUREMENT INTEGRITY
(1) I, Michael H. Lorber (Name of certifier), am the officer or employee
responsible for the preparation of this offer or bid and hereby certify that, to
the best of my knowledge and belief, with the exception of any information
described in this certificate, I have no information concerning a violation or
possible violation of subsection 27(a), (b), (d), or (e) of the Office of
Federal Procurement Policy Act* (41 U.S.C. 423), (hereinafter referred to as
"the Act"), as implemented in the FAR, occurring during the conduct of this
procurement ________________________________________ (solicitation number).
(2) As required by subsection 27(d)(1)(B) of the Act, I further certify
that each officer, employee, agent, representative, and consultant of TomaHawk
II, Inc. (Name of Offeror) who has participated personally and substantially in
the preparation or submission of this offer has certified that he or she is
familiar with, and will comply with, the requirements of subsection 27(a) of the
Act, as implemented in the FAR, and will report immediately to me any
information concerning a violation or possible violation of the Act, as
implemented in the FAR, pertaining to this procurement.
(3) Violation or possible violations: (Continue on plain bond paper
if necessary and label Certificate of Procurement Integrity (Continuation
Sheet). ENTER NONE IF NONE EXIST)
None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
/s/ Michael H. Lorber
---------------------------------------------------------------------------
(Signature of the officer or employee responsible for the offer and date)
Michael H. Lorber
---------------------------------------------------------------------------
(Typed name of the officer or employee responsible for the offer)
* Section 27 became effective on July 16, 1989.
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF
THE UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18, UNITED
STATES CODE, SECTION 1001.
5
<PAGE>
(c) The signed certification in paragraph (b) of this provision shall be
executed and submitted as follows:
(1) If this is an invitation for bids (IFB), with bid submissions
exceeding $100,000.
(2) If this is a procurement using the two-step sealed bidding
procedure (see FAR Subpart 14.5), with bids exceeding $100,000, with submission
to the Government of step-two sealed bids.
(3) If this is a request for proposal (RFP) or quotation (RFQ), by the
successful offeror as close as practicable to, but in no event later than, the
date of award of a contract exceeding $100,000.
(4) If this is an invitation for bids for an indefinite delivery-type
contract, and if the estimated value of orders to be placed under the contract
is expected to exceed $100,000, with the bid submission.
(5) If this is an RFQ or RFP for an indefinite delivery-type contract,
and if the estimated value or orders to be placed under the contract is expected
to exceed $100,000, by the successful offeror as close as practicable to, but in
no event later than, the date of contract award.
(6) For letter contracts, prior to award of the letter contract and
prior to definitization of the letter contracts.
(7) For other procurement actions in excess of $100,000, prior to award
or execution as specified by the Contracting Officer.
(8) The certificate required by subparagraphs (c)(3) and (c)(5) through
(c)(7) of this provision shall be submitted to the Contracting Officer within
the time period specified by the Contracting Officer when requesting the
certificate.
(d) Pursuant to FAR 3.104-9(d), the Offeror may be requested to execute
additional certifications at the request of the Government.
(e) Failure of an Offeror to submit the certification required by FAR
3.104-9(b) or any additional certification pursuant to FAR 3.104-9(d) will
render the offeror ineligible for contract award (see FAR 9.104-1(g)).
(f) A certification containing a disclosure of a violation or possible
violation will not necessarily result in the withholding of an award under this
solicitation. However, the
6
<PAGE>
Government, after evaluation of the disclosure, may cancel this procurement or
take any other appropriate actions in the interests of the Government, such as
disqualification of the Offeror.
(g) In making the certification in subparagraph (b)(2) of this provision, the
offeror may rely upon the certification by an officer, employee, agent,
representative, or consultant that such person is in compliance with the
requirements of subsections 27(a), (b), (c), or (e) of the Office of Federal
Procurement Policy Act (41 U.S.C. 423), as implemented in the FAR, unless the
offeror knows, or should have known, of reasons to the contrary. The offeror may
rely upon periodic certifications that must be obtained at least annually,
supplemented with periodic training programs. These certifications shall be
maintained by the Contractor for 6 years from the date of execution.
(h) The certifications in paragraph (b) and (d) of this provision are a
material representation of fact upon which reliance will be placed in awarding a
contract.
K-5. TAXPAYER IDENTIFICATION (NOV 1988) (FAR 52.204-3)
(a) DEFINITIONS.
"Common parent," as used in this solicitation provision, means an offeror
that is a member of an affiliated group of corporations that files its Federal
income tax returns on a consolidated basis.
"Corporate status," as used in this solicitation provision, means a
designation as to whether the offeror is a corporate entity, an unincorporated
entity (e.g., sole proprietorship or partnership), or a corporation providing
medical and health care services.
"Taxpayer Identification Number (TIN)," as used in this solicitation
provision, means the number required by the IRS to be used by the offeror in
reporting income tax and other returns.
(b) The offeror is required to submit the information required in paragraphs
(c) through (e) of this solicitation provision in order to comply with reporting
requirements of 26 U.S.C. 6041, 6041A, and 6050M and implementing regulations
issued by the Internal Revenue Service (IRS). If the resulting contract is
subject to reporting requirements described in FAR 4.902(a), the failure or
refusal by the offeror to furnish the information may result in a 20 percent
reduction of payments otherwise due under the contract.
7
<PAGE>
(c) TAXPAYER IDENTIFICATION NUMBER (TIN).
(X) TIN: 36-3873499
---------------------------------
( ) TIN has been applied for.
( ) TIN is not required because:
( ) Offeror is a nonresident alien, foreign corporation, or foreign
partnership that does not have income effectively connected with the conduct of
a trade or business in the U.S. and does not have an office or place of business
or a fiscal paying agent in the U.S.;
( ) Offeror is an agency or instrumentality of a
foreign government;
( ) Offeror is an agency or instrumentality of a
state, or local government;
( ) Other. State basis. ___________________________________
(d) CORPORATE STATUS.
( ) Corporation providing medical and health care services,
or engaged in the billing and collecting of payments for such
services;
(X) Other corporate entity;
( ) Not a corporate entity;
( ) Sole proprietorship;
( ) Partnership;
Hospital or extended care facility described in 26 CFR 501(c)(3) that
is exempt from taxation under 26 CFR 501(a).
(e) COMMON PARENT.
(X) Offeror is not owned or controlled by a common parent as defined in
paragraph (a) of this clause.
( ) Name and TIN of common parent:
Name ________________________________________________________________
TIN ________________________________________________________________
8
<PAGE>
K-6. JEWEL BEARINGS AND RELATED ITEMS CERTIFICATE
(APR 1984) (FAR 52.208-2)
(a) This is to certify that --
(1) Jewel bearings and/or related items, as defined in the Required
Sources for Jewel Bearings and Related Items clause, will not be incorporated
into any item covered by this offer;
(2) Any jewel bearing required (or equal quantity of the same type,
size, and tolerances) will be ordered from the William Langer Plant, Rolla,
North Dakota 58367, as provided in the Required Sources for Jewel Bearings and
Related Items clause, and
(3) Any related items required (or an equal quantity of the same type,
size, and tolerance) will be required from domestic manufacturers, including the
Plant, if the items can be obtained
(b) Attached to this certificate are estimates of the quantity, type, and size
(including tolerance) of the jewel bearings and related items required, and
identification of the components, subassemblies, or parts that require jewel
bearings or related items.
Date of Execution ____________________________________________________________
Solicitation Number __________________________________________________________
Name _________________________________________________________________________
Time _________________________________________________________________________
Firm _________________________________________________________________________
Address ______________________________________________________________________
K-7. CERTIFICATION REGARDING DEBARMENT, SUSPENSION, PROPOSED
DEBARMENT, AND OTHER RESPONSIBILITY MATTERS
(MAY 1989) (FAR 52.209-5)
(a)(1) The Offeror certifies, to the best of its knowledge and
belief, that --
(i) The Offeror and/or any of its Principals --
(A) Are ( ) are not (X) presently debarred, suspended, proposed for
debarment, or declared ineligible for the award of contracts by any Federal
agency;
(B) Have ( ) have not (X), within a three-year period preceding this
offer, been convicted of or had a civil judgment rendered against them for:
commission of fraud or a criminal
9
<PAGE>
offense in connection with obtaining, attempting to obtain, or performing a
public (Federal, state, or local) contract or subcontract; violation of Federal
or state antitrust statutes relating to the submission of offers; or commission
of embezzlement, theft, forgery, bribery, falsification or destruction of
records, making false statements, or receiving stolen property; and
(C) Are ( ) are not (X) presently indicted for, or otherwise
criminally or civilly charged by a governmental entity with, commission of any
of the offenses enumerated in subdivision (a)(1)(i)(B) of this provision.
(ii) The Offeror has ( ) has not (X), within a three-year period
preceding this offer, had one or more contracts terminated for default by any
Federal agency.
(2) "Principals," for the purposes of this certification, means officer;
director; owners; partners; and, persons having primary management or
supervisory responsibilities within a business entity (e.g., general manager;
plant manager; head of a subsidiary, division, or business segment, and similar
positions).
This certification concerns a matter within the jurisdiction of an agency of
the United States and the making of a false, fictitious, or fraudulent
certification may render the maker subject to prosecution under section 1001,
title 18, United States Code.
(b) The Offeror shall provide immediate written notice to the Contracting
Officer if, at any time prior to contract award, the Offeror learns that its
certification was erroneous when submitted or has become erroneous by reason of
changed circumstances.
(c) A certification that any of the items in paragraph (a) of this provision
exists will not necessarily result in withholding of an award under this
solicitation. However, the certification will be considered in connection with a
determination of the Offeror's responsibility. Failure of the Offeror to furnish
a certification or provide such additional information as requested by the
Contracting Officer may render the Offeror nonresponsible.
(d) Nothing contained in the forgoing shall be construed to require
establishment of a system of records in order to render, in good faith, the
certification required by paragraph (a) of this provision. The knowledge and
information of an Offeror is not required to exceed that which is normally
possessed by a prudent person in the ordinary course of business dealings.
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(e) The certification in paragraph (a) of this provision is a material
representation of fact upon which reliance was placed when making award. If it
is later determined that the Offeror knowingly rendered an erroneous
certification, in addition to the other remedies available to the Government,
the Contracting Officer may terminate the contract resulting from this
solicitation for default.
K-8. TYPE OF BUSINESS ORGANIZATION (JUL 1987) (FAR 52.215-6)
The offeror or quoter, by checking the applicable box,
represents that --
(a) It operates as [X] a corporation incorporated under the laws of the
State of Illinois, [ ] an individual, [ ] a partnership, [ ] a nonprofit
organization, or [ ] a joint venture.
(b) If the offeror or quoter is a foreign entity, it operates as [ ] an
individual, [ ] a partnership, [ ] a nonprofit organization, [ ] a joint
venture, or [ ] a corporation, registered for business in _________ (country).
K-9. AUTHORIZED NEGOTIATORS (APR 1984) (FAR 52.215-11)
The offeror or quoter represents that the following persons are authorized
to negotiate on its behalf with the Government in connection with this request
for proposals or quotations: (list names, titles, and telephone numbers of the
authorized negotiators).
Name Michael H. Lorber, Phillip W. Card, Steven M. Caira
---------------------------------------------------------------------------
Title VP-Finance & CEO VP Operations President & CEO
--------------------------------------------------------------------------
Telephone Number (619) 623-0920
---------------------------------------------------------------
K-10. PLACE OF PERFORMANCE (APR 1984) (FAR 52.215-20)
(a) The offeror or quoter, in the performance of any contract resulting
from this solicitation, [X] intends, [ ] does not intend (check applicable
block) to use one or more plants or facilities located at a different address
from the address of the offeror or quoter as indicated in this proposal or
quotation.
(b) If the offeror or quoter checks "intends" in paragraph (a) above,
it shall insert in the spaces provided below the required information:
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Place of Performance (Street Name and Address of Owner
Address, City, County, and Operator of the Plant
State, Zip Code) or Facility if Other than
Offeror or Quoter
TomaHawk II, Inc.
- ----------------------------- -------------------------
400 Lake Cook Rd. #203
- ----------------------------- -------------------------
Deerfield, IL 60015
- ----------------------------- -------------------------
K-11. SMALL BUSINESS CONCERN REPRESENTATION (MAY 1986)
(FAR 52.219-1)
The offeror represents and certifies as part of its offer that it [x] is,
[ ]is not a small business concern and that [ ] all, [ ] not all end items to
be furnished will be manufactured or produced by a small business concern in
the United States, its territories or possessions, or Puerto Rico, or the
Trust Territory of the Pacific Islands. "Small business concern," as used in
this provision, means a concern, including its affiliates, that is
independently owned and operated, not dominant in the field of operation in
which it is bidding on Government contracts, and qualified as a small
business under the size standards in this solicitation.
K-12. SMALL DISADVANTAGED BUSINESS CONCERN REPRESENTATION
(DOD FAR SUPPLEMENT DEVIATION) (DEC 1991)
(DFARS 252.219-7000)
(a) DEFINITION. "Small disadvantaged business concern", as used in this
provision, means a small business concern, including mass media, owned and
controlled by individuals who are both socially and economically
disadvantaged, as defined by the Small Business Administration at 13 CFR part
124, the majority of earnings of which directly accrue to such individuals.
(13 CFR part 124 generally provides that a small disadvantaged business
concern is a small business concern (1) which is at least fifty-one percent
(51%) owned by one or more socially and economically disadvantaged
individuals; or in the case of any publicly owned business, at least
fifty-one percent (51%) of the voting stock of which is owned by one or more
socially and economically disadvantaged individuals, and (2) whose management
and daily business operations are controlled by one or more such
individuals.) (See 13 CFR 124.101 through 124.110)
(b) REPRESENTATION. The Offeror represents that its qualifying
ownership falls within at least one of the following categories (check the
applicable categories):
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<PAGE>
Subcontinent Asian (Asian-Indian) American (U.S. citizen with origins
- ----- from India, Pakistan, Bangladesh, or Sri Lanka)
Asian-Pacific American (U.S. citizen with origins from Japan, China,
- ----- the Philippines, Vietnam, Korea, Samoa, Guam, U.S. Trust Territory of
the Pacific Islands, Northern Mariana Islands, Laos, Cambodia, or
Taiwan)
Black American (U.S. citizen)
- -----
Hispanic American (U.S. citizen with origins from South America,
- ----- Central America, Mexico, Cuba, the Dominican Republic, Puerto Rico,
Spain, or Portugal)
Native American (American Indians, Eskimos, Aleuts, or Native
- ----- Hawaiians)
Individual/concern certified for participation in the Minority Small
- ----- Business and Capital Ownership Development Program under section 8(a)
of the Small Business Act (15 U.S.C. 637(a))
Other (In addition to (c)(1), Offeror must complete (c)(2) below)
- -----
(c) Certification.
(1) The offeror represents and certifies, as part of its offer, that it is
, is not X a small disadvantaged business concern.
- ----- -----
(2) (Complete only if item (b) above is checked "Other") The offeror
represents and certifies, as part of its offer, that the Small Business
Administration (SBA) has _____, has not _____ made a determination concerning
the offeror's status as a small disadvantaged business concern. If the SBA
has made a determination, the date of the determination was ____________ and
the offeror certifies that it was _____, was not _____ found by the SBA to be
socially and economically disadvantaged as a result of that determination and
that no circumstances have changed to vary that determination.
(d) NOTIFICATION. The offeror agrees to notify the Contracting Officer
before award of any change in its status as a small disadvantaged business
concern occurring between the submission of its offer and contract award.
(e) PENALTY. The offeror represents and certifies that the above
information is true and understands that whoever for the purpose of securing
a contract or subcontract under subsection
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(a) of Section 1207 of Public Law 99-661 misrepresents the status of any concern
or person as a small disadvantaged concern owned and controlled by a minority
(as described in subsection (a)) shall be punished by imposition of a fine of
not less than $10,000 or by imprisonment for not more than one year, or both.
K-13. WOMEN-OWNED SMALL BUSINESS REPRESENTATION
(APR 1984) (FAR 52.219-3)
(a) REPRESENTATION. The offeror represents that it [ ] is, [X] is not a
women-owned small business concern.
(b) DEFINITIONS.
"Small business concern," as used in this provision, means a concern,
including its affiliates, that is independently owned and operated, not dominant
in the field of operation in which it is bidding on government contracts, and
qualified as a small business under the criteria and size standards in 13 CFR
121.
"Women-owned, " as used in this provision, means a small business that is
at least 51 percent owned by a woman or women who are U.S. citizens and who also
control and operate the business.
K-14. PREFERENCE FOR LABOR SURPLUS AREA CONCERNS
(APR 1984) (FAR 52.220-1)
(a) This acquisition is not a set-aside for labor surplus area (LSA)
concerns. However, the offeror's status as such a concern may affect (1)
entitlement to award in case of tie offers or (2) offer evaluation in
accordance with the Buy American Act clause of this solicitation. In order to
determine whether the offeror is entitled to a preference under (1) or (2)
above, the offeror must identify, below, the LSA in which the costs to be
incurred on account of manufacturing or production (by the offeror or the
first-tier subcontractors) amount to more than 50 percent of the contract
price.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(b) Failure to identify the locations as specified above will preclude
consideration of the offeror as an LSA concern. If the offeror is awarded a
contract as an LSA concern and would not have otherwise qualified for award,
the offeror shall perform the contract or cause the contract to be performed
in accordance with the obligations of an LSA concern.
14
<PAGE>
K-15. WALSH-HEALEY PUBLIC CONTRACT ACT REPRESENTATION
(APR 1984) (FAR 52.222-19)
The offeror represents as a part of this offer that the offeror is [X] or is
not [ ] a regular dealer in, or is [ ] or is not [ ] manufacturer of the
supplies offered.
K-16. CERTIFICATION OF NONSEGREGATED FACILITIES (APR 1984)
(FAR 52.222-21)
(a) "Segregated facilities," as used in this provision, means any
waiting rooms, work areas, rest rooms and wash rooms, restaurants and other
eating areas, time clocks, locker rooms and other storage or dressing areas,
parking lots, drinking fountains, recreation or entertainment areas,
transportation, and housing facilities provided for employees, that are
segregated by explicit directive or are in fact segregated on the basis of
race, color, religion, or national origin because of habit, local custom, or
otherwise.
(b) By the submission of this offer, the offeror certifies that it does
not and will not maintain or provide for its employees any segregated
facilities at any of its establishments, and that it does not and will not
permit its employees to perform their services at any location under its
control where segregated facilities are maintained. The offeror agrees that a
breach of this certification is a violation of the Equal Opportunity clause
in the contract.
(c) The offeror further agrees that (except where it has obtained
identical certifications from proposed subcontractors for specific time
periods) it will --
(1) Obtain identical certifications from proposed subcontractors before
the award of subcontracts under which the subcontractor will be subject to
the Equal Opportunity clause;
(2) Retain the certifications in the files; and
(3) Forward the following notice to the proposed subcontractors (except
if the proposed subcontractors have submitted identical certifications for
specific time periods):
NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR
CERTIFICATIONS OF NONSEGREGATED FACILITIES.
A Certification of Nonsegregated Facilities must be submitted before the
award of a subcontract under which the subcontractor will be subject to the
Equal Opportunity clause. The certification may be submitted either for each
subcontract or
15
<PAGE>
for all subcontracts during a period (i.e., quarterly, semiannually, or
annually).
NOTE: The penalty for making false statements in offers is
prescribed in 18 U.S.C. 1001.
K-17. PREVIOUS CONTRACTS AND COMPLIANCE REPORTS (APR 1984)
(FAR 52.222-22)
The offeror represents that --
(a) It [X] has, [ ] has not, participated in a previous contract or
subcontract subject either to the Equal Opportunity clause of this solicitation,
the clause originally contained in Section 310 of Executive Order No. 10925, or
the clause contained in Section 201 of Executive Order No. 11114;
(b) It [ ] has, [X] has not, filed all required compliance reports; and
(c) Representations indicating submission of required compliance reports,
signed by proposed subcontractor, will be obtained before subcontract awards.
K-18. AFFIRMATIVE ACTION COMPLIANCE (APR 1984)
(FAR 52.222-25)
The offeror represents that (a) it [ ] has developed and has on file, [X] has
not developed and does not have on file, at each establishment, affirmative
action programs required by the rules and regulations of the Secretary of Labor
(41 CFR 60-1 and 60-2), or (b) it [ ] has not previously had contracts subject
to the written affirmative action programs requirement of the rules and
regulations of the Secretary of Labor.
K-19. EQUAL OPPORTUNITY (APR 1984) (FAR 52.222-26)
(a) If, during any 12-month period (including the 12 months preceding the
award of this contract), the Contractor has been or is awarded nonexempt Federal
contracts and/or subcontracts that have an aggregate value in excess of $10,000,
the Contractor shall comply with subparagraphs (b)(1) through (11) below. Upon
request, the Contractor shall provide information necessary to determine the
applicability of this clause.
(b) During performing this contract, the Contractor agrees as follows:
16
<PAGE>
(1) The Contractor shall not discriminate against any employee or applicant
for employment because of race, color, religion, sex, or national origin.
(2) The Contractor shall take affirmative action to ensure that applicants
are employed, and that employees are treated during employment, without
regard to their race, color, religion, sex, or national origin. This shall
include, but not be limited to, (i) employment, (ii) upgrading, (iii)
demotion, (iv) transfer, (v) recruitment or recruitment advertising, (vi)
layoff or termination, (vii) rates of pay or other forms of compensation,
and (viii) selection for training, including apprenticeship.
(3) The Contractor shall post in conspicuous places available to employees
and applicants for employment the notices to be provided by the Contracting
Officer that explain this clause.
(4) The Contractor shall, in all solicitations or advertisement for
employees placed by or on behalf of the Contractor, state that all
qualified applicants will receive consideration for employment without
regard to race, color, religion, sex, or national origin.
(5) The Contractor shall send, to each labor union or representative of
workers with which it has a collective bargaining agreement or other
contract or understanding, the notice to be provided by the Contracting
Officer advising the labor union or workers' representative of the
Contractor's commitments under this clause, and post copies of the notice
in conspicuous places available to the employees and applicants for
employment.
(6) The Contractor shall comply with Executive Order 11246, as amended, and
the rules, regulations, and orders of the Secretary of Labor.
(7) The Contractor shall furnish to the contracting agency all information
required by Executive Order 11246, as amended, and by the rules,
regulations, and orders of the Secretary of Labor. Standard Form 100
(EEO-1), or any successor form, is the prescribed form to be filed within
30 days following the award, unless filed within 12 months preceding the
date of the award.
(8) The Contractor shall permit access to its books, records, and accounts
by the contracting agency or the Office of Federal Contract Compliance
Programs (OFCCP) for the purposes of investigation to ascertain the
Contractor's compliance with the applicable rules, regulations, and
17
<PAGE>
orders.
(9) If the OFCCP determines that the Contractor is not in compliance with
this clause or any rule, regulation, or order of the Secretary of Labor,
this contract may be canceled, terminated or suspended in whole or in part
and the Contractor may be declared ineligible for further Government
contracts, under the procedures authorized in Executive Order 11246, as
amended. In addition, sanctions may be imposed and remedies invoked against
the Contractor as provided in Executive Order 11246, as amended, the rules,
regulations, and orders of the Secretary of Labor, or as otherwise provided
by law.
(10) The Contractor shall include the terms and conditions of subparagraph
(b)(1) through (11) of this clause in every subcontract or purchase order
that is not exempted by the rules, regulations, or orders of the Secretary
of Labor issued under Executive Order 11246, as amended, so that these
terms and conditions will be binding upon each subcontractor or vendor.
(11) The Contractor shall take such action with respect to any subcontract
or purchase order as the contracting agency may direct as a means of
endorsing these terms and conditions, including sanctions for
noncompliance; provided, that if the Contractor becomes involved in, or is
threatened with, litigation with a subcontractor or vendor as a result of
any direction, the Contractor may request the United States to enter into
the litigation to protect the interests of the United States.
(c) Notwithstanding any other clause in this contract, disputes relative to
this clause will be governed by the procedures in 41 CFR 60-1.1.
K-20. CLEAN AIR AND WATER CERTIFICATION
(APR 1984) (FAR 52.223-1)
The Offeror certifies that --
(a) Any facility to be used in the performance of this proposed contract is
[ ], is not [ ] listed on the Environmental Protection Agency (EPA) List of
Violating Facilities;
(b) The Offeror will immediately notify the Contracting Officer, before award,
of the receipt of any communication from the Administrator, or a designee, of
the EPA, indicating that any facility that the Offeror proposes to use for the
performance of the contract is under consideration to be listed on the EPA List
of Violating Facilities; and
18
<PAGE>
(c) The Offeror will include a certification substantially the same as this
certification, including this paragraph (c), in every nonexempt subcontract.
K-21. RECOVERED MATERIAL CERTIFICATION (APR 1984)
(FAR 52.223-4)
The offeror certifies, by signing this offer, that recovered materials, as
defined in section 23.402 of the Federal Acquisition Regulation, will be used as
required by the applicable specifications.
K-22. CERTIFICATION REGARDING A DRUG-FREE WORKPLACE
(JUL 1990) (FAR 52.223-5)
(a) Definitions. As used in this provision,
"Controlled substance" means a controlled substance in schedules I through V
of section 202 of the Controlled Substances Act (21 U.S.C. 812) and as further
defined in regulation at 21 CFR 1308.11-1308.15.
"Conviction" means a finding of guilt (including a plea of nolo contendere)
or imposition of sentence, or both, by any judicial body charged with the
responsibility to determine violations of the Federal or State criminal drug
statutes.
"Criminal drug statute" means a Federal or non-Federal criminal statute
involving the manufacture, distribution, dispensing, possession or use of any
controlled substance.
"Drug-free workplace" means the site(s) for the performance of work done by
the contractor in connection with a specific contract at which employees of the
Contractor are prohibited from engaging in the unlawful manufacture,
distribution, dispensing, possession, or use of a controlled substance.
"Employee" means an employee of a Contractor directly engaged in the
performance of work under a Government contract. "Directly engaged" is defined
to include all direct cost employees and any other Contractor employee who has
other than a minimal impact or involvement in contract performance.
"Individual" means an offeror/contractor that has no more
than one employee including the offeror/contractor.
(b) By submission of its offer, the offeror, if other than an individual, who
is making an offer that equals or exceeds $25,000, certifies and agrees, that
with respect to all employees
19
<PAGE>
of the offeror to be employed under a contract resulting from this solicitation,
it will -- no later than 30 calendar days after contract award (unless a longer
period is agreed to in writing), for contracts of 30 calendar days or more
performance duration: or as soon as possible for contracts of less than 30
calendar days performance duration, but in any case, by a date prior to when
performance is expected to be completed --
(1) Publish a statement notifying such employees that the unlawful
manufacture, distribution, dispensing, possession or use of a controlled
substance is prohibited in the Contractor's workplace and specifying the actions
that will be taken against employees for violations of such prohibition;
(2) Establish an ongoing drug-free awareness program to inform such
employees about --
(i) The dangers of drug abuse in the workplace;
(ii) The Contractor's policy of maintaining a drug-free workplace;
(iii) Any available drug counseling, rehabilitation, and employee
assistance programs; and
(iv) The penalties that may be imposed upon employees for drug abuse
violations occurring in the workplace;
(3) Provide all employees engaged in performance of the contract with a
copy of the statement required by subparagraph (b)(1) of this provision;
(4) Notify such employees in writing in the statement required by
subparagraph (b)(1) of this provision that, as a condition of continued
employment on the contract resulting from this solicitation, the employee will
- --
(i) Abide by the terms of the statement; and
(ii) Notify the employer in writing of the employee's conviction under a
criminal drug statute for a violation occurring in the workplace no later than 5
calendar days after such conviction;
(5) Notify the Contracting Officer in writing within 10 calendar days after
receiving notice under subdivision (b)(4)(ii) of this provision, from an
employee or otherwise receiving actual notice of such conviction. The notice
shall include the position title of the employee; and
20
<PAGE>
(6) Within 30 calendar days after receiving notice under subdivision
(b)(4)(ii) of this provision of a conviction, take one of the following actions
with respect to any employee who is convicted of a drug abuse violation
occurring in the workplace:
(i) Take appropriate personnel action against such employee, up to
and including termination; or
(ii) Require such employee to satisfactorily participate in a drug
abuse assistance or rehabilitation program approved for such purposes by a
Federal, State, or local health, law enforcement, or other appropriate agency.
(7) Make a good faith effort to maintain a drug-free workplace through
implementation of subparagraphs (b)(1) through (b)(6) of this provision.
(c) By submission of its offer, the offeror, if an individual who is
making an offer of any dollar value, certifies and agrees that the offeror
will not engage in the unlawful manufacture, distribution, dispensing,
possession, or use of a controlled substance in the performance of the
contract resulting from this solicitation.
(d) Failure of the offeror to provide the certification required by
paragraphs (b) or (c) of this provision, renders the offeror unqualified and
ineligible for award. (See FAR 9.104-1(g) and 19.602-1(a)(2)(i).)
(e) In addition to other remedies available to the Government, the
certification in paragraphs (b) or (c) of this provision concerns a matter
within the jurisdiction of an agency of the United States and the making of a
false, fictitious, or fraudulent certification may render the maker subject
to prosecution under Title 18, United States Code. Section 1001.
K-23. NOTICE OF RESTRICTIONS ON CONTRACTING WITH
SANCTIONED PERSONS (MAY 1989) (FAR 52.225-12)
(a) Statutory prohibitions have been imposed on contracting with
sanctioned persons, as specified in Federal Acquisition Regulation (FAR)
52.225-13, Restrictions on Contracting with Sanctioned Persons.
(b) By submission of this offer, the Offeror represents that no products
or services, except those listed in this paragraph (b), delivered to the
government under any contract resulting from this solicitation will be
products or services of a sanctioned person, as defined in the clause
referenced in paragraph (a) of this provision, unless one of the exceptions in
21
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paragraph (d) of the clause at FAR 52.225-13 applies. N/A - None
PRODUCT OR SERVICE SANCTIONED PERSON
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(List as necessary)
K-24. BUY AMERICAN -- TRADE AGREEMENTS -- BALANCE
OF PAYMENTS PROGRAM CERTIFICATE
(MAY 1986) (DFARS 252.225-7006)
(a) The Offeror hereby certifies that each end product, except the end
products listed below, is a domestic end product (as defined in the clause
entitled "Buy American Act, Trade Agreements Act, and Balance of Payments
Program") and that components of unknown origin have been considered to have
been mined, produced, or manufactured outside the United States or a
qualifying country.
EXCLUDED END PRODUCTS
Note: (An entry for all "fill-ins" is required. Offeror must
either list line item numbers or enter "None).
LINE ITEM NO. COUNTRY OF ORIGIN
None
- ------------------------ -------------------------------------------
- ------------------------ -------------------------------------------
(List as necessary)
(b) Offers will be evaluated by giving certain preferences to domestic
end products, qualifying country end products, and Caribbean Basin country
end products over other end products. In order to obtain such preferences in
the evaluation of each excluded end product listed in (a) above, it is
necessary that offerors identify and certify, below, those excluded end
products identified above that are qualifying country end products,
designated country end products, or Caribbean Basin end products. Offerors
must certify by inserting the applicable line item numbers in the appropriate
brackets:
(i) The offeror certifies that the following supplies qualify as
"participating country end products" as that term is defined in the clause
entitled "Buy American Act, Trade Agreement Act, Balance of Payments Program."
-------------------------------------------------------------------
22
<PAGE>
(insert line item number)
(ii) The Offeror certifies that the following supplies qualify as
"FMS/Offset arrangement country end products" as that term is defined in the
clause entitles "Buy American Act, Trade Agreement Act, and Balance of Payments
Program," if the Government makes the necessary waivers.
-------------------------------------------------------------------
(insert line item number)
(iii) The Offeror certifies that the following supplies qualify as "defense
cooperation country end products" as that term is defined in the clause entitled
"Buy American Act, Trade Agreements Act, and Balance of Payments Program."
-------------------------------------------------------------------
(insert line item number)
(iv) The Offeror certifies that the following supplies qualify as
"designated country end products" as that term is defined in the clause
entitled "Buy American Act, Trade Agreements Act, and Balance of Payments
Program".
-------------------------------------------------------------------
(insert line item number)
(v) The Offeror certifies that the following supplies qualify as "Caribbean
Basin country end products" as the term is defined in the clause entitled "Buy
American Act, Trade Agreements Act, and Balance of Payments Program".
-------------------------------------------------------------------
(insert line item number)
(c) Offers will be evaluated in accordance with the policies and
procedures of FAR Part 25 and DOD FAR Supplement Part 25.
K-25. CERTIFICATION OR DISCLOSURE OF OWNERSHIP OR CONTROL BY
A FOREIGN GOVERNMENT THAT SUPPORTS TERRORISM
(NOV 1987) (DFARS 252.209-7000)
(a) "Significant interest," as used in this provision,
means --
(1) Ownership of or beneficial interest in five percent (5%) or more of
the firm's or subsidiary's securities. Beneficial interest includes holding
five percent (5%) or more of any class of the firm's securities in "nominee
shares," "street shares," or some other method of holding securities that
does not
23
<PAGE>
disclose the beneficial owner;
(2) Holding a management position in the firm, such as a director or
officer;
(3) Ability to control or influence the election, appointment, or tenure of
directors or officers of the firm;
(4) Ownership of ten percent (10%) or more of the assets of a firm such as
equipment, buildings, real estate, or other tangible assets of the firm; or
(5) Holding 50 percent (50%) or more of the indebtedness of a firm.
(b) Unless paragraph (c) below has been completed, the Offeror, by
submission of its offer, certifies, to the best of its knowledge and belief,
that no government of a foreign country, or agent, or instrumentality of a
foreign country, listed below, has, directly or indirectly, a significant
interest in the Offeror or, if the Offeror is a subsidiary, in the firm that
owns or controls, directly or indirectly, the Offeror. Such countries
currently include:
(1) Cuba;
(2) Iran;
(3) Libya;
(4) Syria; and
(5) South Yemen.
(c) If the Offeror is unable to certify in accordance with (b) above,
the Offeror represents that the following country or countries (listed in (b)
above) or an agent or instrumentality of such country or countries, have a
significant interest in the Offeror's firm:
Country
-------------------------------------------------------------------
Significant Interest
------------------------------------------------------
K-26. REQUIREMENT FOR TECHNICAL DATA CERTIFICATION
(APR 1988) (DFAR 252.227-7028)
The Offeror shall submit with his offer a certification as to whether the
Offeror has delivered or is obligated to deliver to the Government under any
contract or subcontract the same or substantially the same technical data
with other than unlimited rights included in its offer; if so, the Offeror
shall identify:
(a) one existing contract or subcontract under which the technical data was
delivered or will be delivered, and the place of such delivery; and
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<PAGE>
(b) The limitation on the Government's right to use the data, including
identification of the earliest date the limitation expires.
K-27. COST ACCOUNTING STANDARDS NOTICES AND CERTIFICATION
(NATIONAL DEFENSE) (SEP 1987) (FAR 52.230-1)
Note: This notice does not apply to small businesses or foreign
governments. This notice is in four parts, identified by roman numerals I
through IV.
Offerors shall examine each part and provide the requested information in
order to determine Cost Accounting Standards (CAS) requirements applicable to
any resultant contract.
I. DISCLOSURE STATEMENT -- COST ACCOUNTING PRACTICES AND
CERTIFICATION
(a) Any contract in excess of $100,000 resulting from this solicitation,
except contracts in which the price negotiated is based on (1) established
catalog or market prices of commercial items sold in substantial quantities
to the general public, or (2) prices set by law or regulation, will be
subject to the requirements of the Federal Acquisition Regulation (FAR)
Subparts 30.3 and 30.4, except for those contracts which are exempt as
specified in FAR 30.201-1.
(b) Any offeror submitting a proposal which, if accepted, will result in
a contract subject to the requirements of the FAR Subparts 30.3 and 30.4
must, as a condition of contracting, submit a Disclosure Statement as
required by FAR 30.202. The Disclosure Statement must be submitted as a part
of the offeror's proposal under this solicitation unless the offeror has
already submitted a Disclosure Statement disclosing the practices used in
connection with the pricing of this proposal. If an applicable Disclosure
Statement has already been submitted, the offeror may satisfy the requirement
for submission by providing the information requested in paragraph (c) below.
CAUTION: A practice disclosed in a Disclosure Statement shall not, by virtue
of such disclosure, be deemed to be a proper, approved, or agreed-to practice
for pricing proposals or accumulating and reporting contract performance cost
data.
(c) Check the appropriate box below:
[ ] (1) Certificate of Concurrent Submission of Disclosure
Statement.
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The offeror hereby certifies that, as a part of the offer, copies
of the Disclosure Statement have been submitted as follows: (i)
original and one copy to the cognizant Administrative Contracting
Officer (ACO), and (ii) one copy to the cognizant contract
auditor.
(Disclosure must be on form No. CASB DS-1. Forms may be-obtained
from the cognizant ACO.)
Date of Disclosure Statement:
----------------------------------
Name and Address of Cognizant ACO where filed:
---------------------------------------------------------------
---------------------------------------------------------------
The offeror further certifies that practices used in estimating
costs in pricing this proposal are consistent with the cost
accounting practices disclosed in the Disclosure Statement.
[ ] (2) Certificate of Previously Submitted Disclosure Statement.
The offeror hereby certifies that Disclosure Statement was filed
as follows:
Date of Disclosure Statement:
----------------------------------
Name and Address of Cognizant ACO where filed:
---------------------------------------------------------------
---------------------------------------------------------------
The offeror further certifies that the practices used in
estimating costs in pricing this proposal are consistent with the
cost accounting practices disclosed in the applicable disclosure
statement.
[ ] (3) Certificate of Monetary Exemption.
The offeror, hereby certifies that the offeror, together with all
divisions, subsidiaries, and affiliates under common control, did
not receive net awards of negotiated national defense prime
contracts and subcontracts subject to CAS totaling more than $10
million in the cost accounting period immediately preceding the
period in which
26
<PAGE>
this proposal was submitted. The offeror further certifies that
if such status changes before an award resulting from this
proposal, the offeror will advise the Contracting Officer
immediately.
[ ] (4) Certificate of Interim Exemption.
The offeror hereby certifies that (i) the offeror first exceeded
the monetary exemption for disclosure, as defined in (3) of this
subsection, in the cost accounting period immediately preceding
the period in which this offer was submitted and (ii) in
accordance with FAR 30.202- 1, the offeror is not yet required to
submit a Disclosure Statement. The offeror further certifies that
if an award resulting from this proposal has not been made within
90 days after the end of that period, the offeror will
immediately submit a revised certificate to the Contracting
Officer, in the form specified under subparagraphs (c) (1) or (c)
(2) above, as appropriate, to verify submission of a completed
Disclosure Statement.
CAUTION: Offerors currently required to disclose because they were
awarded a CAS-covered national defense prime contract or subcontract of $10
million or more in the current cost accounting period may not claim this
exemption (4). Further, the exemption applies only in connection with
proposals submitted before expiration of the 90-day period following the cost
accounting period in which the monetary exemption was exceeded.
II. COST ACCOUNTING STANDARDS -- EXEMPTION FOR CONTRACTS OF
$500,000 OR LESS
If this proposal is expected to result in the award of a contract of
$500,000 or less, the offeror shall indicate whether the exemption below is
claimed. Failure to check the box below shall mean that the resultant contract
is subject to requirements or that the offeror elects to comply with such
requirements.
[ ] The offeror claims an exemption from the CAS requirements under the
provisions of FAR 30.201-1(b)(7) and certifies that notification of
final acceptance of all deliverable items has been received on all
prime contracts or subcontracts containing the Cost Accounting
Standards clause or the Disclosure and Consistency of Cost Accounting
Practices clause. The offeror further certifies that the Contracting
Officer will be immediately notified in writing when an award of any
other contract or subcontract containing Cost Accounting Standards
clauses is received by the offeror
27
<PAGE>
subsequent to this certificate but before the date of any award
resulting from this proposal.
III. COST ACCOUNTING STANDARDS -- ELIGIBILITY FOR MODIFIED
CONTRACT COVERAGE
If the offeror is eligible to use the modified provisions of FAR
30.201-2(b) and elects to do so, the offeror shall indicate by checking the
box below. Checking the box below shall mean that the resultant contract is
subject to the Disclosure and Consistency of Cost Accounting Practices clause
in lieu of the Cost Accounting Standards clause.
[ ] The offeror hereby claims an exemption from the Cost Accounting
Standards clause under the provisions of FAR 30.201-2(b) and certifies
that the offeror is eligible for use of the Disclosure and Consistency
of Cost Accounting Practices clause because (i) during the cost
accounting period immediately preceding the period in which this
proposal was submitted, the offeror received less than $10 million in
awards of CAS-covered prime contracts and subcontracts, and (ii) the
sum of such awards equaled less than 10 percent of total sales during
that cost accounting period. The offeror further certifies that if
such status changes before an award resulting from this proposal, the
offeror will advise the Contracting Officer immediately.
CAUTION: An offeror may not claim the above eligibility for modified
contract coverage if this proposal is expected to result in the award of a
national defense contract of $10 million or more or if, during its current cost
accounting period, the offeror has been awarded a single CAS-covered national
defense prime contract or subcontract of $10 million or more.
IV. ADDITIONAL COST ACCOUNTING STANDARDS APPLICABLE TO EXISTING
CONTRACTS
The offeror shall indicate below whether award of the contemplated contract
would, in accordance with subparagraph (a) (3) of the Cost Accounting Standards
clause, require a change in established cost accounting practices affecting
existing contracts and subcontracts.
[ ] YES [ ] NO
28
<PAGE>
K-28. REPRESENTATION OF EXTENT OF TRANSPORTATION OF
SUPPLIES BY SEA (MAR 1989) (DFAR 252.247-7202)
The clause at 252.247-7203, Transportation of Supplies by Sea, will be
included in any contract resulting from this solicitation. The Offeror is
required to indicate whether transportation by sea is anticipated under the
resultant contract by checking the appropriate blank as follows:
The Offeror represents that it [] does [] does not anticipate that any of
the supplies, as defined in the above-referenced clause, will be transported
by sea in the performance of any contract or subcontract resulting from this
solicitation. Notwithstanding this representation, the Offeror recognizes and
will comply with the requirements of the above-referenced clause.
K-29. SIC CODE AND SMALL BUSINESS SIZE STANDARD
(JAN 1991) (FAR 52.219-22)
(a) The standard industrial classification (SIC) code for
this acquisition is 7363.
(b) (1) The small business size standard is _______.
(2) The small business size standard for a concern which submits an
offer in its own name, other than on a construction or service
contract, but which proposes to furnish a product which it did not
itself manufacture, is 500 employees.
29
<PAGE>
INTERGRAPH
- ------------------------------------------------------------------------------
October 8, 1998
TomaHawk II, Inc.
8315 Century Park Court
Suite 200
San Diego, CA 92123
Attention: Mr. Michael H. Lorber, Vice President & Chief Financial Officer
Subject: FSN0292, Amendment #5
Dear Mr. Lorber:
This document constitutes Amendment #5 to CAD-2 Subcontract FSN0292. The purpose
of this Amendment is to modify Attachment A, Direct Labor Schedule to add reates
for GFY 1999. Accordingly, Subcontract FSN0292 is modified as follows:
1. Attachment A, "Direct Labor Schedule, dated January 21, 1998" is deleted in
its entirety and replaced by the attached Attachment A, "Direct Labor Schedule,
dated October 8, 1998," which adds Exhibit 4 that contains rates for GFY 1999.
Except as modified herein, all other terms and conditions of Subcontract FSN0292
remain unchanged.
Indicate your acceptance of this Amendment by fully executing both copies.
Please return one (1) fully executed copy to Jan Lasater, Mail Stop IW1506, at
your earliest convenience. If you have any questions, please call Mrs. Lasater
at 256-730-7843.
Sincerely, ACKNOWLEDGED AND ACCEPTED:
INTERGRAPH CORPORATION TOMAHAWK II, INC.
BY /s/ Michael H. Lorber
------------------------------
NAME: Michael H. Lorber
/s/ Jan Lasater ---------------------------
- -------------------------------- TITLE: VP-Finance & CFO
Jan Lasater --------------------------
Subcontracts Administrator DATE: 10/27/98
FEDERAL SUBCONTRACTS ---------------------------
Intergraph Corporation
- ------------------------------------------------------------------------------
Huntsville, Alabama 35894-0009
Phone: 256-730-7843 Fax: 256-730-6248
<PAGE>
ATTACHMENT A
DIRECT LABOR SCHEDULE
SECTION B-2(a)(1)
OCTOBER 8, 1998
<PAGE>
EXHIBIT 1
THIS EXHIBIT CONTAINS RATES VALID FOR
THE FOLLOWING PURCHASE ORDERS ONLY:
P.O. 370715
P.O. 368327
THE PERIOD OF PERFORMANCE ON EACH OF THESE PURCHASE ORDERS
ENDS SEPTEMBER 30, 1998
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750 OVER
NAVAIR CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 97.00 $ 81.48 $ 84.39 $ 89.24
29AB01 Senior Computer Engineer (SCE) $ 75.00 $ 63.00 $ 65.25 $ 69.00
29AC01 Computer Technician, Level 1 (CT1) $ 36.00 $ 30.24 $ 31.32 $ 33.12
29AF01 Computer Technician, Level 2 (CT2) $ 47.00 $ 39.48 $ 40.89 $ 43.24
29AG01 Computer Technician, Level 3 (CT3) $ 51.00 $ 42.84 $ 44.37 $ 46.92
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 61.00 $ 51.24 $ 53.07 $ 56.12
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 75.00 $ 63.00 $ 65.25 $ 69.00
CY* $750 OVER
NAVFAC CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 92.00 $ 77.28 $ 80.04 $ 84.64
0033AB Computer Scientist (CS) $ 66.00 $ 55.44 $ 57.42 $ 60.72
0033AJ Associate Computer Scientist (ACS) $ 51.00 $ 42.84 $ 44.37 $ 46.92
0033AC Computer Science Technician (CST) $ 35.00 $ 29.40 $ 30.45 $ 32.20
0033AD Senior Engineer (SE) $ 71.00 $ 59.64 $ 61.77 $ 65.32
0033AE Engineer (E) $ 55.00 $ 46.20 $ 47.85 $ 50.60
0033AF Engineering Technician (ET) $ 35.00 $ 29.40 $ 30.45 $ 32.20
0033AG Senior Clerical Assistant (SCA) $ 31.00 $ 26.04 $ 26.97 $ 28.52
0033AH Clerical Assistant (CA) $ 24.00 $ 20.16 $ 20.88 $ 22.08
CY* $750 OVER
NAVSEA CATEGORY 97 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 53.40 $ 44.86 $ 46.46 $ 49.13
SS08AB Computer Engineer, Level 2 (CE2) $ 64.39 $ 54.09 $ 56.02 $ 59.24
SS08AC Computer Engineer, Level 3 (CE3) $ 77.75 $ 65.31 $ 67.64 $ 71.53
SS08AD Computer Engineer, Level 4 (CE4) $ 100.86 $ 84.72 $ 87.75 $ 92.79
SS08AE Computer Technician, Level 1 (CT1) $ 31.91 $ 26.80 $ 27.76 $ 29.36
SS08AF Computer Technician, Level 2 (CT2) $ 38.49 $ 32.33 $ 33.49 $ 35.41
SS08AG Computer Technician, Level 3 (CT3) $ 49.23 $ 41.35 $ 42.83 $ 45.29
SS08AH Computer Technician, Level 4 (CT4) $ 53.40 $ 44.86 $ 46.46 $ 49.13
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 82.92 $ 69.65 $ 72.14 $ 76.29
SS08AK Computer Engineer, Level 2 (CE2) $ 93.91 $ 78.88 $ 81.70 $ 86.40
SS08AL Computer Engineer, Level 3 (CE3) $ 107.27 $ 90.11 $ 93.32 $ 98.69
SS08AM Computer Engineer, Level 4 (CE4) $ 130.38 $ 109.52 $ 113.43 $ 119.95
SS08AN Computer Technician, Level 1 (CT1) $ 61.43 $ 51.60 $ 53.44 $ 56.52
SS08AP Computer Technician, Level 2 (CT2) $ 68.01 $ 57.13 $ 59.17 $ 62.57
SS08AQ Computer Technician, Level 3 (CT3) $ 78.75 $ 66.15 $ 68.51 $ 72.45
SS08AR Computer Technician, Level 4 (CT4) $ 82.92 $ 69.65 $ 72.14 $ 76.29
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 53.40 $ 44.86 $ 46.46 $ 49.13
SS08AT Computer Engineer, Level 2 (CE2) $ 64.39 $ 54.09 $ 56.02 $ 59.24
SS08AU Computer Engineer, Level 3 (CE3) $ 77.75 $ 65.31 $ 67.64 $ 71.53
SS08AV Computer Engineer, Level 4 (CE4) $ 100.86 $ 84.72 $ 87.75 $ 92.79
SS08AW Computer Technician, Level 1 (CT1) $ 31.91 $ 26.80 $ 27.76 $ 29.36
SS08AX Computer Technician, Level 2 (CT2) $ 38.49 $ 32.33 $ 33.49 $ 35.41
SS08AY Computer Technician, Level 3 (CT3) $ 49.23 $ 41.35 $ 42.83 $ 45.29
SS08AZ Computer Technician, Level 4 (CT4) $ 53.40 $ 44.86 $ 46.46 $ 49.13
</TABLE>
*GFY1997 Rate is valid from February 13, 1997 through October 3, 1997
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CY* $750K OVER
NAVAIR CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 105.00 $ 88.20 $ 91.35 $ 96.60
29AB01 Computer Scientist/Engineer (CS/E) $ 81.00 $ 68.04 $ 70.47 $ 74.52
29AC01 Computer Technician, Level 1 (CT1) $ 40.00 $ 33.60 $ 34.80 $ 36.80
29AF01 Computer Technician, Level 2 (CT2) $ 51.00 $ 42.84 $ 44.37 $ 46.92
29AG01 Computer Technician, Level 3, (CT3) $ 55.00 $ 46.20 $ 47.85 $ 50.60
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 67.00 $ 56.28 $ 58.29 $ 61.64
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 81.00 $ 68.04 $ 70.47 $ 74.52
CY* $750K OVER
NAVFAC CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M
0033AA Senior Computer Scientist (SCS) $ 98.00 $ 82.32 $ 85.26 $ 90.16
0033AB Computer Scientist (CS) $ 70.00 $ 58.80 $ 60.90 $ 64.40
0033AJ Associate Computer Scientist (ACS) $ 53.00 $ 44.52 $ 46.11 $ 48.76
0033AC Computer Science Technician (CST) $ 37.00 $ 31.08 $ 32.19 $ 34.04
0033AD Senior Engineer (SE) $ 76.00 $ 63.84 $ 66.12 $ 69.92
0033AE Engineer (E) $ 59.00 $ 49.56 $ 51.33 $ 54.28
0033AF Engineering Technician (ET) $ 37.00 $ 31.08 $ 32.19 $ 34.04
0033AG Senior Clerical Assistant (SCA) $ 32.00 $ 26.88 $ 27.84 $ 29.44
0033AH Clerical Assistant (CA) $ 26.00 $ 21.84 $ 22.62 $ 23.92
CY* $750K OVER
NAVSEA CATEGORY 98 PRIME $0 TO $750K TO $1.5M $1.5M
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 57.67 $ 48.44 $ 50.17 $ 53.06
SS08AB Computer Engineer, Level 2 (CE2) $ 69.54 $ 58.41 $ 60.50 $ 63.98
SS08AC Computer Engineer, Level 3 (CE3) $ 83.96 $ 70.53 $ 73.05 $ 77.24
SS08AD Computer Engineer, Level 4 (CE4) $ 108.93 $ 91.50 $ 94.77 $ 100.22
SS08AE Computer Technician, Level 1 (CT1) $ 34.46 $ 28.95 $ 29.98 $ 31.70
SS08AF Computer Technician, Level 2 (CT2) $ 41.57 $ 34.92 $ 36.17 $ 38.24
SS08AG Computer Technician, Level 3 (CT3) $ 53.17 $ 44.66 $ 46.26 $ 48.92
SS08AH Computer Technician, Level 4 (CT4) $ 57.67 $ 48.44 $ 50.17 $ 53.06
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 88.88 $ 74.66 $ 77.33 $ 81.77
SS08AK Computer Engineer, Level 2 (CE2) $ 100.75 $ 84.63 $ 87.65 $ 92.69
SS08AL Computer Engineer, Level 3 (CE3) $ 115.17 $ 96.74 $ 100.20 $ 105.96
SS08AM Computer Engineer, Level 4 (CE4) $ 140.14 $ 117.72 $ 121.92 $ 128.93
SS08AN Computer Technician, Level 1 (CT1) $ 65.67 $ 55.16 $ 57.13 $ 60.42
SS08AP Computer Technician, Level2 (CT2) $ 72.78 $ 61.14 $ 63.32 $ 66.96
SS08AQ Computer Technician, Level 3 (CT3) $ 84.38 $ 70.88 $ 73.41 $ 77.63
SS08AR Computer Technician, Level 4 (CT4) $ 88.88 $ 74.66 $ 77.33 $ 81.77
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 57.67 $ 48.44 $ 50.17 $ 53.06
SS08AT Computer Engineer, Level 2 (CE2) $ 69.54 $ 58.41 $ 60.50 $ 63.98
SS08AU Computer Engineer, Level 3 (CE3) $ 83.96 $ 70.53 $ 73.05 $ 77.24
SS08AV Computer Engineer, Level 4 (CE4) $ 108.93 $ 91.50 $ 94.77 $ 100.22
SS08AW Computer Technician, Level 1 (CT1) $ 34.46 $ 28.95 $ 29.98 $ 31.70
SS08AX Computer Technician, Level 2 (CT2) $ 41.57 $ 34.92 $ 36.17 $ 38.24
SS08AY Computer Technician, Level 3 (CT3) $ 53.17 $ 44.66 $ 46.26 $ 48.92
SS08AZ Computer Technician, Level 4 (CT4) $ 57.67 $ 48.44 $ 50.17 $ 53.06
</TABLE>
*GFY 1998 Rates are valid from October 4, 1997 through October 2, 1998
<PAGE>
EXHIBIT 2
THIS EXHIBIT CONTAINS RATES VALID FOR THE
FOLLOWING PURCHASE ORDERS ONLY:
P.O. 370710
P.O. 370792
P.O. 373915
P.O. 373998
P.O. 373914
THE PERIOD OF PERFORMANCE FOR P.O. 370710 ENDS JUNE 1, 1998
AND ON EACH OF THE REMAINING PURCHASE ORDERS
ENDS SEPTEMBER 30, 1998
<PAGE>
<TABLE>
<S> <C> <C> <C>
GFY* GFY**
NAVAIR CATEGORY 1997 1998
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 81.48 $ 84.74
29AB01 Senior Computer Engineer (SCE) $ 63.00 $ 65.52
29AC01 Computer Technician,Level 1 (CT1) $ 30.24 $ 31.45
29AF01 Computer Technician, Level 2 (CT2) $ 39.48 $ 41.06
29AG01 Computer Technician, Level 3 (CT3) $ 42.84 $ 44.55
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 51.24 $ 53.29
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 63.00 $ 65.52
GFY* GFY**
NAVFAC CATEGORY 1997 1998
0033AA Senior Computer Scientist (SCS) $ 77.28 $ 80.37
0033AB Computer Scientist (CS) $ 55.44 $ 57.66
0033AJ Associate Computer Scientist (ACS) $ 42.84 $ 44.55
0033AC Computer Science Technician (CST) $ 29.40 $ 30.58
0033AD Senior Engineer (SE) $ 59.64 $ 62.03
0033AE Engineer (E) $ 46.20 $ 48.05
0033AF Engineering Technician (ET) $ 29.40 $ 30.58
0033AG Senior Clerical Assistant (SCA) $ 26.04 $ 27.08
0033AH Clerical Assistant (CA) $ 20.16 $ 20.97
GFY* GFY**
NAVSEA CATEGORY 1997 1998
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 44.86 $ 46.65
SS08AB Computer Engineer, Level 2 (CE2) $ 54.09 $ 56.25
SS08AC Computer Engineer, Level 3 (CE3) $ 65.31 $ 67.92
SS08AD Computer Engineer, Level 4 (CE4) $ 84.72 $ 88.11
SS08AE Computer Technician, Level 1 (CT1) $ 26.80 $ 27.87
SS08AF Computer Technician, Level 2 (CT2) $ 32.33 $ 33.62
SS08AG Computer Technician, Level 3 (CT3) $ 41.35 $ 43.00
SS08AH Computer Technician, Level 4 (CT4) $ 44.86 $ 46.65
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 69.65 $ 72.44
SS08AK Computer Engineer, Level 2 (CE2) $ 78.88 $ 82.04
SS08AL Computer Engineer, Level 3 (CE3) $ 90.11 $ 93.71
SS08AM Computer Engineer, Level 4 (CE4) $ 109.52 $ 113.90
SS08AN Computer Technician, Level 1 (CT1) $ 51.60 $ 53.66
SS08AP Computer Technician, Level 2 (CT2) $ 57.13 $ 59.42
SS08AQ Computer Technician, Level 3 (CT3) $ 66.15 $ 68.80
SS08AR Computer Technician, Level 4 (CT4) $ 69.65 $ 72.44
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 44.86 $ 46.65
SS08AT Computer Engineer, Level 2 (CE2) $ 54.09 $ 56.25
SS08AU Computer Engineer, Level 3 (CE3) $ 65.31 $ 67.92
S08AV Computer Engineer, Level 4 (CE4) $ 84.72 $ 88.11
SS08AW Computer Technician, Level 1 (CT1) $ 26.80 $ 27.87
SS08AX Computer Technician, Level 2 (CT2) $ 32.33 $ 33.62
SS08AY Computer Technician, Level 3 (CT3) $ 41.35 $ 43.00
SS08AZ Computer Technician, Level 4 (CT4) $ 44.86 $ 46.65
</TABLE>
*GFY1997 Rate is valid from June 16, 1997 through October 3, 1997
**GFY1998 Rate is valid from October 4, 1997 through October 2, 1998
<PAGE>
EXHIBIT 3
CONTAINS RATES VALID FOR PURCHASE ORDERS ISSUED
ON OR AFTER JANUARY 21, 1998
<PAGE>
<TABLE>
<S> <C> <C>
GFY*
NAVAIR CATEGORY 1998
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 85.05
29AB01 Senior Computer Engineer (SCE) $ 65.61
29AC01 Computer Technician, Level 1 (CT1) $ 32.40
29AF01 Computer Technician, Level 2 (CT2) $ 41.31
29AG01 Computer Technician, Level 3 (CT3) $ 44.55
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 54.27
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 65.61
GFY*
NAVFAC CATEGORY 1998
0033AA Senior Computer Scientist (SCS) $ 82.32
0033AB Computer Scientist (CS) $ 58.80
0033AJ Associate Computer Scientist (ACS) $ 44.52
0033AC Computer Science Technician (CST) $ 31.08
0033AD Senior Engineer (SE) $ 63.84
0033AE Engineer (E) $ 49.56
0033AF Engineering Technician (ET) $ 31.08
0033AG Senior Clerical Assistant (SCA) $ 26.88
0033AH Clerical Assistant (CA) $ 21.84
GFY*
NAVSEA CATEGORY 1998
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 46.71
SS08AB Computer Engineer, Level 2 (CE2) $ 56.33
SS08AC Computer Engineer, Level 3 (CE3) $ 68.01
SS08AD Computer Engineer, Level 4 (CE4) $ 88.23
SS08AE Computer Technician, Level 1 (CT1) $ 27.91
SS08AF Computer Technician, Level 2 (CT2) $ 33.67
SS08AG Computer Technician, Level 3 (CT3) $ 43.07
SS08AH Computer Technician, Level 4 (CT4) $ 46.71
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 71.99
SS08AK Computer Engineer, Level 2 (CE2) $ 81.61
SS08AL Computer Engineer, Level 3 (CE3) $ 93.29
SS08AM Computer Engineer, Level 4 (CE4) $ 113.51
SS08AN Computer Technician, Level 1 (CT1) $ 53.19
SS08AP Computer Technician, Level 2 (CT2) $ 58.95
SS08AQ Computer Technician, Level 3 (CT3) $ 68.35
SS08AR Computer Technician, Level 4 (CT4) $ 71.99
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 51.15
SS08AT Computer Engineer, Level 2 (CE2) $ 61.68
SS08AU Computer Engineer, Level 3 (CE3) $ 74.47
SS08AV Computer Engineer, Level 4 (CE4) $ 96.62
SS08AW Computer Technician, Level 1 (CT1) $ 30.56
SS08AX Computer Technician, Level 2 (CT2) $ 36.87
SS08AY Computer Technician, Level 3 (CT3) $ 47.16
SS08AZ Computer Technician, Level 4 (CT4) $ 51.15
</TABLE>
*GFY 1998 rates valid from January 21, 1998 through October 2, 1998
<PAGE>
EXHIBIT 4
CONTAINS RATES VALID FOR PURCHASE ORDERS ISSUED
ON
OCTOBER 1, 1998 THROUGH SEPTEMBER 30, 1999
<PAGE>
TOMAHAWK 1999 RATES
<TABLE>
<S> <C> <C>
GFY*
NAVAIR CATEGORY 1999
29AA01 Senior Computer Scientist/Senior Engineer (SCS/SE) $ 91.53
29AB01 Senior Computer Engineer (SC/E) $ 70.47
29AC01 Computer Technician, Level 1 (CT1) $ 34.83
29AF01 Computer Technician, Level 2 (CT2) $ 44.55
29AG01 Computer Technician, Level 3 (CT3) $ 46.98
29AD01 Computer Specialist/Software Specialist, Level 1 (CS/SS-1) $ 58.32
29AE01 Computer Specialist/Software Specialist, Level 2 (CS/SS-2) $ 70.47
GFY*
NAVFAC CATEGORY 1999
0033AA Senior Computer Scientist (SCS) $ 87.36
0033AB Computer Scientist (CS) $ 62.16
0033AJ Associate Computer Scientist (ACS) $ 46.20
0033AC Computer Science Technician (CST) $ 33.60
0033AD Senior Engineer (SE) $ 67.20
0033AE Engineer (E) $ 52.08
0033AF Engineering Technician (ET) $ 33.60
0033AG Senior Clerical Assistant (SCA) $ 28.56
0033AH Clerical Assistant (CA) $ 22.68
GFY*
NAVSEA CATEGORY 1999
OFF-SITE
SS08AA Computer Engineer, Level 1 (CE1) $ 50.45
SS08AB Computer Engineer, Level 2 (CE2) $ 60.83
SS08AC Computer Engineer, Level 3 (CE3) $ 73.46
SS08AD Computer Engineer, Level 4 (CE4) $ 95.28
SS08AE Computer Technician, Level 1 (CT1) $ 30.15
SS08AF Computer Technician, Level 2 (CT2) $ 36.36
SS08AG Computer Technician, Level 3 (CT3) $ 46.52
SS08AH Computer Technician, Level 4 (CT4) $ 50.45
ON-SITE
SS08AJ Computer Engineer, Level 1 (CE1) $ 77.20
SS08AK Computer Engineer, Level 2 (CE2) $ 87.59
SS08AL Computer Engineer, Level 3 (CE3) $ 100.21
SS08AM Computer Engineer, Level 4 (CE4) $ 122.03
SS08AN Computer Technician, Level 1 (CT1) $ 56.90
SS08AP Computer Technician, Level 2 (CT2) $ 63.12
SS08AQ Computer Technician, Level 3 (CT3) $ 73.27
SS08AR Computer Technician, Level 4 (CT4) $ 77.20
CRYSTAL CITY
SS08AS Computer Engineer, Level 1 (CE1) $ 55.24
SS08AT Computer Engineer, Level 2 (CE2) $ 66.61
SS08AU Computer Engineer, Level 3 (CE3) $ 80.44
SS08AV Computer Engineer, Level 4 (CE4) $ 104.33
SS08AW Computer Technician, Level 1 (CT1) $ 33.02
SS08AX Computer Technician, Level 2 (CT2) $ 39.81
SS08AY Computer Technician, Level 3 (CT3) $ 50.94
SS08AZ Computer Technician, Level 4 (CT4) $ 55.24
</TABLE>
<PAGE>
EXHIBIT 10.3
[LOGO]
FINOVA Capital Corporation
115 West Century Road
P.O. Box 907
Paramus, New Jersey 07653
Telephone (201) 634-3300
EQUIPMENT LEASE
No. C0856001
FINOVA Capital Corporation, (herein called "Lessor"), with its
principal place of business at Dial Tower, Dial Corporate Center,
Phoenix, Arizona, hereby agrees to lease to the Lessee named on the
signature page hereof (herein called "Lessee") and Lessee hereby
agrees to lease and rent from Lessor, the equipment described on
any attached schedule(s), (herein with all replacement parts,
repairs, additions, and accessories called "Equipment"), on the
terms and conditions hereof and as set forth on any schedule
(herein called "Schedule"). Lessee agrees that, at the option of
Lessor, any Schedule shall be a separately enforceable Lease which
incorporates all of the terms and conditions set forth herein.
1. ORDERING AND INSTALLATION OF EQUIPMENT. Lessee hereby requests Lessor to
order the Equipment from a supplier (herein called "Supplier"), and to arrange
for delivery thereof to Lessee at Lessee's expense. Lessee agrees to install or
cause the Equipment to be installed at the location set forth on the Schedule
thereof (the "Location") at Lessee's cost.
2. DISCLAIMER OF WARRANTIES AND WAIVER OF DEFENSES.
LESSOR, NEITHER BEING THE MANUFACTURER, NOR A SUPPLIER, NOR A DEALER IN
THE EQUIPMENT, MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO ANYONE, AS TO
DESIGN, CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER ASPECT OF THE EQUIPMENT
OR ITS MATERIAL OR WORKMANSHIP. LESSOR ALSO DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR USE OR PURPOSE WHETHER ARISING BY OPERATION OF
LAW OR OTHERWISE. LESSOR FURTHER DISCLAIMS ANY LIABILITY FOR LOSS, DAMAGE OR
INJURY TO LESSEE OR THIRD PARTIES AS A RESULT OF ANY DEFECTS, LATENT OR
OTHERWISE, IN THE EQUIPMENT WHETHER ARISING FROM THE APPLICATION OF THE LAWS
OF STRICT LIABILITY OR OTHERWISE. AS TO THE LESSOR, LESSEE LEASES THE
EQUIPMENT "AS IS". LESSEE ACKNOWLEDGES THAT LESSEE HAS SELECTED THE SUPPLIER
OF THE EQUIPMENT AND THAT LESSOR HAS NOT RECOMMENDED SUPPLIER. LESSOR SHALL
HAVE NO OBLIGATION TO INSTALL, MAINTAIN, ERECT, TEST, ADJUST OR SERVICE THE
EQUIPMENT. REGARDLESS OF CAUSE, LESSEE AGREES NOT TO ASSERT ANY CLAIM
WHATSOEVER AGAINST LESSOR FOR LOSS OF ANTICIPATORY PROFITS OR ANY OTHER
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, NOR SHALL LESSOR BE RESPONSIBLE
FOR ANY DAMAGES OR COSTS WHICH MAY BE ASSESSED AGAINST LESSEE IN ANY ACTION
FOR INFRINGEMENT OF ANY UNITED STATES LETTERS PATENT. LESSOR MAKES NO
WARRANTY AS TO THE TREATMENT OF THIS LEASE FOR TAX OR ACCOUNTING PURPOSES. If
the Equipment is unsatisfactory for any reason, Lessee shall make claim on
account thereof solely against the manufacturer, the Supplier or any dealer
and shall nevertheless pay Lessor all rent and other charges payable under the
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Lease. Lessor hereby assigns to Lessee, any rights which Lessor may have against
the Supplier, the manufacturer or any dealer for breach of warranty or other
representations respecting the Equipment. Lessee understands and agrees that
neither the Manufacturer, the Supplier, any dealer nor any agent of the
foregoing is an agent of Lessor or is authorized to waive or alter any term or
condition of this Lease.
3. TERM AND RENT. The Lease term of each Schedule shall commence as of the
date that any of the Equipment under such Schedule is delivered to Lessee or
Lessee's Agent, or such later date as Lessor designates in writing (the
"Commencement Date") and shall continue until the obligations of Lessee under
this Lease shall have been fully performed. Advance rentals shall not be
refundable if the Lease term for any reason does not commence or if this Lease
or any Schedule is duly terminated by Lessor. The sum of all periodic
installments of rent indicated on any Schedule shall constitute the aggregate
rent reserved. The aggregate rent reserved shall be payable periodically in
advance, in the installments indicated on any Schedule, the first such payment
being due on the Commencement Date, or such later date as Lessor designates in
writing (the "First Payment Date"), and subsequent payments shall be due on the
same day of each successive rent period thereafter until the balance of the rent
and any charges or expenses payable by Lessee under this Lease shall have been
paid in full. If the First Payment Date is later than the Commencement Date,
Lessee shall, on the First Payment Date, in addition to the periodic rent, pay
Lessor interim rent from the Commencement Date to the First Payment Date at a
daily rate equal to the periodic installment of rent divided by the number of
days of the period. Lessee's obligation to pay all rent shall be absolute and
unconditional and not subject to any abatement, set-off, defense or counterclaim
for any reason whatsoever.
4. NON-CANCELABLE LEASE. NEITHER THE LEASE NOR ANY SCHEDULE CAN BE CANCELED
BY LESSEE DURING THE TERM HEREOF OR THEREOF.
5. LESSOR TERMINATION BEFORE EQUIPMENT ACCEPTANCE. If within ninety (90)
days from the date Lessor orders the Equipment, the same has not been delivered,
installed and accepted by Lessee (in form satisfactory to Lessor) for all
purposes of this Lease, Lessor may, on ten (10) days' written notice to Lessee,
terminate this Lease and the related Schedule and its obligations to Lessee.
6. TITLE, RECORDING, DOCUMENTATION, ADMINISTRATIVE FEES AND PERSONAL
PROPERTY. The Equipment is, and shall at all times remain, the property of
Lessor, and except as herein set forth, Lessee shall have no right, title or
interest therein. If Lessor supplies Lessee with labels indicating that the
Equipment is owned by Lessor, Lessee shall affix such labels to and keep them in
a prominent place on the Equipment. Lessee hereby authorizes Lessor to insert in
this Lease or any Schedule the serial numbers, and other identification data, of
Equipment when determined by Lessor. In order to perfect Lessor's security
interest in the Equipment in the event this Lease is determined to be a security
agreement, Lessee hereby grants Lessor a security interest in the Equipment and
authorizes Lessor, at Lessee's expense, to cause this Lease, or any statement or
other instrument in respect of this Lease showing the interest of Lessor in the
Equipment, including Uniform Commercial Code Financing Statements, to be filed
or recorded, and grants Lessor, where permitted, the right to execute Lessee's
name thereto. Lessee agrees to pay or reimburse Lessor for its costs and out of
pocket expenses relating to any searches undertaken by Lessor, or any filing,
recording, stamp fees or taxes arising from the filing or recording of any such
instrument or statement and any other costs, expenses or charges incurred by
Lessor in documenting, administering and terminating this Lease. Lessee shall,
at its expense, protect and defend Lessor's title to the Equipment against all
persons claiming against or through Lessee, at all times keeping the Equipment
free from any legal process or encumbrance whatsoever including but not limited
to liens, attachments, levies and executions, and shall give Lessor immediate
written notice thereof and shall indemnify Lessor from any loss caused thereby.
Upon Lessor's request, Lessee shall execute or obtain from third parties and
deliver to Lessor such further instruments and assurances as Lessor deems
necessary or advisable for the confirmation or perfection of Lessor's rights
hereunder. The Equipment is, and shall at all times be and remain, personal
property notwithstanding that the Equipment or any part thereof may now be, or
hereafter become, in any manner affixed or attached to real property or any
improvements thereon.
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7. CARE, USE, LOCATION AND ALTERATION. Lessee shall, at its sole cost and
expense, service, repair, overhaul and maintain each item of Equipment in good
operating order and in the condition when delivered to Lessee, ordinary wear and
tear excepted. All such maintenance shall be consistent with prudent industry
practice and all maintenance practices recommended by the Supplier or
manufacturer and meet all legal and regulatory requirements. Upon request,
Lessee shall provide Lessor with evidence of such compliance. Lessee shall
maintain logs of the maintenance and service of the Equipment and permit Lessor,
on reasonable prior notice to inspect the Equipment and the right to make copies
of the logs and service reports. Lessee shall forthwith correct any deficiencies
disclosed by such inspection. Lessee shall use the Equipment solely for business
purposes, in compliance with all applicable laws, ordinances, regulations, and
the conditions of all insurance policies required to be maintained by Lessee
pursuant to the Lease. Lessee shall make all additions, modifications and
improvements to the Equipment required by applicable law and except for such
required changes, shall not alter the Equipment without Lessor's prior written
consent. Lessee shall replace all worn, lost, stolen or destroyed parts of the
Equipment with replacement parts at least meeting the standards required herein,
all of which shall become the property of Lessor, except for such additions,
modifications and improvements that can be readily removed without causing
damage to, or impairing the commercial value or utility of, such Equipment,
which shall remain Lessee's property and may be removed by Lessee at its expense
before the Equipment is surrendered to Lessor. Lessee shall repair all damage to
any item resulting from such installation or removal. If Lessee has not
purchased an item of Equipment pursuant to any option to purchase granted to
Lessee at the end of the Lease term for such item, Lessor shall be entitled to
purchase any such addition, modifications and improvements from Lessee for its
then fair market value. The Equipment shall not be removed from the Location
without Lessor's prior written consent.
8. NOTICE AND CONDITIONS OF REDELIVERY. Lessee shall provide Lessor not
less than One Hundred Twenty (120) days prior written notice of its intention
to exercise its option to purchase the Equipment if granted on the related
Schedule or return the Equipment to Lessor (the "Required Notice"). If Lessee
shall have timely provided such Required Notice and has elected to return the
Equipment to Lessor upon the expiration of the Term of the Schedule, Lessee
shall, at its sole expense, return the Equipment covered thereby, freight
prepaid, to Lessor in a manner and to a location within the continental
United States designated by Lessor in the condition and repair required by
the terms of this Lease, free of all liens and advertising insignia. If
Lessee shall fail to return any item of Equipment as provided herein, Lessee
shall be responsible for all cost and expense incurred by Lessor in returning
the Equipment to such required condition or any reduction in value as a
result thereof. If the Equipment or its component parts were packed or crated
for shipping when new, Lessee shall pack or crate the same carefully and in
accordance with any recommendations of the Supplier or manufacturer before
redelivering the item to Lessor. Lessee shall also deliver to Lessor the
plans, specifications, operating manuals, software documentation, discs,
warranties and other documents furnished by the manufacturer or Supplier of
the Equipment and such other documents in Lessee's possession relating to the
maintenance and method of operation of such Equipment. At Lessor's written
request, Lessee shall provide free storage for any item of Equipment for a
period not to exceed sixty (60) days after the expiration of the Schedule
term before returning such item to Lessor and permit Lessor access to the
Equipment for inspection and/or resale. If Lessee fails to timely provide
such Required Notice the Equipment shall continue to be held and leased
hereunder, and this Lease and the related Schedule term shall thereupon be
extended for a period ending one hundred twenty (120) days following receipt
by Lessor of Lessee's notice of intent to return the Equipment, for the fair
market rental value of the Equipment as determined by Lessor not to exceed
the periodic installment of rent with respect to such Equipment for such
period. If Lessee has timely provided the Required Notice but upon expiration
Lessee does not immediately return the Equipment to Lessor, (unless otherwise
requested by Lessor) the Equipment shall continue to be held and leased
hereunder, and this Lease and the related Schedule term shall thereupon be
extended for successive thirty (30) day periods at the fair market rental
value of the Equipment as determined by Lessor not to exceed the periodic
installment of rent with respect to such Equipment for such period.
9. RISK OF LOSS. Lessee shall bear all risks of loss of and damage to the
Equipment from any cause and the occurrence of such loss or damage shall not
relieve Lessee of any obligation hereunder. In the event of loss or damage,
Lessee, at its option, provided it is not in default hereunder, otherwise at
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Lessor's option, shall: (a) place the damaged Equipment in good repair,
condition and working order; or (b) replace lost or damaged Equipment with like
equipment in good repair, condition and working order with documentation
creating clear title thereto in Lessor; or (c) pay to Lessor the then present
value computed at five (5%) percent per annum of both the unpaid balance of the
aggregate rent reserved under the Lease and related Schedule and the value of
Lessor's residual interest in the Equipment. Upon Lessor's receipt of such
payment, Lessee and/or Lessee's insurer shall be entitled to Lessor's interest
in said item for salvage purposes, in its then condition and location, as is,
without warranty, express or implied.
10. INSURANCE. Until redelivered to Lessor, Lessee shall maintain and
deliver evidence to Lessor of such insurance required by, written by insurers,
and in amounts satisfactory to Lessor. Should Lessee fail to provide such
insurance coverage, Lessor may obtain coverage for part or all of the term of
this Lease or any Schedule or such period beyond the term as is required by the
insurance company issuing such coverage protecting interests of Lessor and
Lessee or the interest of Lessor only. The proceeds of such insurance, at the
option of Lessee, provided it is not in default hereunder, otherwise at Lessor's
option, shall be applied toward (i) the replacement, restoration or repair of
the Equipment or (ii) payment of the obligations of Lessee hereunder. Lessee
hereby appoints Lessor as Lessee's attorney-in-fact to make claims for, receive
payment of, and execute and endorse all documents, checks, or drafts for loss or
damage under any said insurance policies.
11. NET LEASE; TAXES. Lessee intends the rental payments hereunder to be
net to Lessor, and Lessee shall pay all sales, use, excise, stamp, documentary
and ad valorem taxes, license and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession or use of the
Equipment during the term of this Lease or any Schedule; shall pay all taxes
(except Lessor's Federal or State net income taxes) imposed on Lessor or Lessee
with respect to the rental payments hereunder, and shall reimburse Lessor upon
demand for any taxes paid by or advanced by Lessor. Unless Lessee is otherwise
directed by Lessor, in writing, Lessor shall file for and pay all personal
property taxes assessed with respect to the Equipment during the term of this
Lease and Lessee shall, upon Lessor's demand, forthwith reimburse Lessor for the
full amount of such taxes without regard to any discounts obtained by Lessor due
to early payment or otherwise. Lessor may, if it elects, estimate such personal
property taxes and bill Lessee periodically in advance therefor.
12. INDEMNITY. Lessee shall hold Lessor harmless from, indemnify and defend
Lessor against, any and all claims, actions, suits, proceedings, costs,
expenses, damages and liabilities, including attorney's fees arising out of,
connected with or resulting from the Equipment or this Lease or any Schedule,
including, without limitation, the manufacture, selection, delivery, possession,
use, operation or return of the Equipment. These indemnities shall survive the
termination or expiration of this Lease or any Schedule.
13. DEFAULT AND REMEDIES. If (i) Lessee defaults in any payment required
under this Lease or any Schedules or under any other lease or agreement between
Lessor and Lessee, or (ii) Lessee breaches any of the representations or
warranties contained herein or fails to perform any of the terms, covenants or
conditions of this Lease or any Schedule or (iii) a petition in bankruptcy,
arrangement, insolvency or reorganization is filed by or against Lessee or any
guarantor of Lessee's obligations hereunder, or (iv) Lessee or any guarantor of
Lessee's obligations makes an assignment for the benefit of creditors, or (v)
without Lessor's written consent, Lessee sells all or a substantial part of
Lessee's assets or a majority of Lessee's voting stock is transferred, or (vi)
during the term of the Lease or any Schedule there is a material adverse change
in the financial condition of Lessee or any guarantor of Lessee's obligations,
or (vii) an "Event of Default", [as defined in the Secured Business Loan
Agreement dated as of March 4, 1998, as may be amended from time to time, (the
"Credit Agreement"), between Lessee and Bank of America National Trust and
Savings Association (the "Lender")], (after all applicable cure periods have
run), shall be a default under the Lease. Lessee will promptly deliver to Lessor
copies of all notices received by Lessee from the Lender or delivered by Lessee
(or officer of Lessee) to the Lender to the effect that an Event of Default has
occurred under the Credit Agreement, Lessee will also promptly deliver to Lessor
written notice of the occurrence of any such Event of Default, if Lessee has not
otherwise notified Lessor in accordance with the immediately preceding sentence,
then Lessor may, to the extent permitted by law, exercise any one or more of the
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following remedies: (a) to declare the entire balance of rent for the full term
of any or all Schedules covered hereby immediately due and payable and to
similarly accelerate the balances under any other leases or agreements between
Lessor and Lessee without notice or demand, (b) to sue for and recover all
rents, and other monies due and to become due under any or all Schedules
hereunder and the residual value of the Equipment covered thereby discounted to
the date of default at five (5%) percent per annum; (c) to require Lessee at
Lessee's expense, to assemble all the Equipment at a place reasonably designated
by Lessor, (d) to remove any physical obstructions for removal of the Equipment
from the place where the Equipment is located and take possession of any or all
items of Equipment, without demand or notice, wherever same may be located,
disconnecting and separating all such Equipment from any other property, with or
without any court order or pre-taking hearing or other process of law, it being
understood that facility of repossession in the event of default is a basis for
the financial accommodation reflected by this Lease. Lessee hereby waives any
and all damages occasioned by such retaking. Lessor may, at its option, use,
ship, store, repair or lease all Equipment so removed and sell or otherwise
dispose of any such Equipment at a private or public sale. Lessor may expose and
resell the Equipment at Lessee's premises at reasonable business hours without
being required to remove the Equipment. In the event Lessor takes possession of
the Equipment, Lessor shall give Lessee credit for any sums received by Lessor
from the sale, or present value of the rental, of the Equipment computed at the
implicit rate of the Schedule after deduction of the expenses of sale or rental.
Lessee shall also be liable for and shall pay to Lessor on demand (a) all
expenses incurred by Lessor in connection with the enforcement of any of
Lessor's remedies, including all expenses of repossession, storing, shipping,
repairing and selling the Equipment, (b) Lessor's reasonable attorney's fees and
(c) interest on all sums due Lessor from the date of default until paid at the
rate of one and one-half (1.5%) percent per month, but only to the extent
permitted by law. Lessor and Lessee acknowledge the difficulty in establishing a
value for the unexpired Lease term and owing to such difficulty agree that the
provisions of this paragraph represent an agreed measure of damages and are not
to be deemed a forfeiture or penalty.
Whenever any payment hereunder is not made by Lessee within ten (10) days when
due, Lessee agrees to pay to Lessor, not later than one month thereafter, an
amount calculated at the rate of ten cents per one dollar of each such delayed
payment, as an administrative fee to offset Lessor's collection costs, but only
to the extent allowed by law. Such amount shall be payable in addition to all
amounts payable by Lessee as a result of exercise of any of the remedies herein
provided.
All remedies of Lessor hereunder are cumulative, are in addition to any other
remedies provided for by law, and may, to the extent permitted by law, be
exercised concurrently or separately. The exercise of any one remedy shall not
be deemed to be an election of such remedy or to preclude the exercise of any
other remedy. No failure on the part of the Lessor to exercise and no delay in
exercising any right or remedy shall operate as a waiver thereof or modify the
terms of this Lease. A waiver of default by Lessor on any one occasion shall not
be deemed a waiver of any other or subsequent default. In the event this Lease
is determined to be a security agreement, Lessor's recovery shall in no event
exceed the maximum permitted by law.
14. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS. In the event Lessee
fails to comply with any provision of this Lease, Lessor shall have the
right, but shall not be obligated, to effect such compliance on behalf of
Lessee upon ten (10) days prior written notice to Lessee. In such event, all
monies advanced or expended by Lessor, and all expenses of Lessor in
effecting such compliance, shall be deemed to be additional rent, and shall
be paid by Lessee to Lessor at the time of the next periodic payment of rent.
15. ASSIGNMENT; QUIET ENJOYMENT. LESSOR MAY, WITHOUT LESSEE'S CONSENT,
ASSIGN THIS LEASE OR ANY SCHEDULE AND/OR THE RENTALS DUE THEREUNDER OR SELL
OR GRANT A SECURITY INTEREST IN THE EQUIPMENT AND LESSEE AGREES THAT NO
ASSIGNEE OF LESSOR SHALL BE BOUND TO PERFORM ANY DUTY, COVENANT OR CONDITION
OR WARRANTY (EXPRESS OR IMPLIED) ATTRIBUTABLE TO LESSOR AND LESSEE FURTHER
AGREES NOT TO RAISE ANY CLAIM OR DEFENSE ARISING OUT OF THIS LEASE OR
OTHERWISE AGAINST LESSOR AS A DEFENSE, COUNTERCLAIM OR OFFSET TO ANY ACTION
BY ANY ASSIGNEE
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HEREUNDER. NOTWITHSTANDING ANY ASSIGNMENT BY LESSOR, PROVIDING LESSEE IS NOT IN
DEFAULT HEREUNDER, LESSEE SHALL QUIETLY ENJOY USE OF THE EQUIPMENT, SUBJECT TO
THE TERMS AND CONDITIONS OF THE LEASE.
WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT ASSIGN, TRANSFER,
PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THE EQUIPMENT OR ANY INTEREST
THEREIN, OR SUBLET OR LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER
THAN LESSEE OR LESSEE'S EMPLOYEES.
16. NOTICES. Service of all notices under this Lease shall be sufficient if
given personally or mailed to the intended party at its respective address set
forth herein, or at such other address as said party may provide in writing from
time to time. Any such notice mailed to said address shall be effective three
(3) days following the date when deposited in the United States mail, duly
addressed and with postage prepaid.
17. REPRESENTATIONS AND COVENANTS OF LESSEE. Lessee represents that all
financial and other information furnished to Lessor was, at the time of
delivery, true and correct. As soon as practicable, and in any event within
ninety (90) days after the close of each fiscal year of Lessee, Lessee shall
furnish to Lessor Tomahawk Corporation's consolidated annual audited reports for
such year, including statements of income, retained earnings and changes in
financial position of Lessee for such fiscal year and balance sheets as of the
close of such fiscal year, reviewed without qualification by independent
certified public accountants of recognized standing selected by Lessee and
reasonably satisfactory to Lessor, together with (or included in such review) a
written statement of such accountants substantially to the effect that (i) such
accountants reviewed such financial statements in accordance with generally
accepted auditing standards and accordingly made such tests of accounting
records and such other auditing procedures as they considered necessary in the
circumstances and (ii) in the opinion of such accountants such financial
statements present fairly the financial position of Lessee as of the end of such
fiscal year and the results of its operations and the changes in its financial
position for the fiscal year then ended, in conformity with GAAP applied on a
basis consistent with that of the preceding fiscal year (except for changes in
application in which such accountants concur).
Within sixty (60) days after the end of each of the first three fiscal quarters
of each fiscal year, Lessee shall furnish to Lessor a copy of Tomahawk
Corporation's interim financial statements, certified by an Executive Officer of
Tomahawk Corporation or if Tomahawk Corporation chooses, audited as set forth
above and certified by an Executive Officer of Tomahawk Corporation, in
conformity with GAAP.
During the term of the Lease, Lessee shall provide Lessor with such additional
financial statements as Lessor requests.
Lessee has taken all action necessary to assure that there will be no material
adverse change to Lessee's business by reason of the advent of the year 2000,
including without limitation that all computer-based systems, embedded
microchips and other processing capabilities effectively recognize and process
dates after April 1, 1999. At Lessor's request, Lessee shall provide to Lessor
assurance reasonably acceptable to Lessor that Lessee's computer-based systems,
embedded microchips and other processing capabilities are year 2000 compatible.
18. GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS; WAIVER OF TRIAL
BY JURY. THIS LEASE SHALL BE BINDING WHEN ACCEPTED IN WRITING BY THE LESSOR AND
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA, PROVIDED, HOWEVER, IN THE
EVENT THIS LEASE OR ANY PROVISION HEREOF IS NOT ENFORCEABLE UNDER THE LAWS OF
THE STATE OF ARIZONA THEN THE LAWS OF THE STATE WHERE THE EQUIPMENT IS LOCATED
SHALL GOVERN. ANY DISPUTE UNDER THIS LEASE SHALL BE LITIGATED BY LESSEE ONLY IN
FEDERAL OR STATE COURTS
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LOCATED IN MARICOPA COUNTY, ARIZONA, AND LESSEE IRREVOCABLY SUBMITS TO THE
PERSONAL JURISDICTION OF SUCH COURTS AND WAIVES ANY OBJECTION THAT MAY EXIST AS
TO VENUE OR CONVENIENCE OF SUCH FORUMS. NOTHING CONTAINED HEREIN SHALL PRECLUDE
LESSOR FROM COMMENCING ANY ACTION IN ANY COURT HAVING JURISDICTION THEREOF.
SERVICE OF PROCESS IN ANY SUCH ACTION SHALL BE SUFFICIENT IF SERVED BY CERTIFIED
MAIL RETURN RECEIPT REQUESTED TO THE ADDRESS OF THE PARTY SET FORTH FOLLOWING
THE SIGNATURES AT THE END OF THIS LEASE. TO THE EXTENT PERMITTED BY LAW, LESSEE
WAIVES TRIAL BY JURY IN ANY ACTION BY OR AGAINST LESSOR HEREUNDER.
19. GENERAL. This Lease inures to the benefit of and is binding upon the
heirs, legatees, personal representatives, successors and assigns of the parties
hereto. Time is of the essence of this Lease. This Lease and all Schedules
attached hereto contain the entire agreement between Lessor and Lessee, and no
modification of this Lease or any Schedule shall be effective unless in writing
and executed by an executive officer of Lessor. If more than one Lessee is named
in this Lease, the liability of each shall be joint and several. In the event
any provision of this Lease should be unenforceable, then such provision shall
be deemed deleted, however, no other provision hereof shall be affected thereby.
20. FINANCE LEASE STATUS. Lessor and Lessee agree that if Article 2A - Leases
of the Uniform Commercial Code ("Code") governs the terms of this Lease, then
this Lease will be deemed a "finance lease". By executing this Lease, Lessee
acknowledges that (a) Lessor has advised Lessee of (i) the identity of the
Supplier; (ii) that Lessee may have rights under the "supply contract" as
defined in the Code, pursuant to which Lessor is purchasing the Equipment, and
(iii) that Lessee may contact the Supplier for a description of any such rights.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL RIGHTS AND
REMEDIES CONFERRED UPON A LESSEE BY THE CODE, INCLUDING SECTIONS 2A - 508
THROUGH 522 THEREOF.
21. PUBLICITY. Lessor is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION TOMAHAWK II, INC.
BY: BY: /s/ Michael H. Lorber
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PRINTED NAME: PRINTED NAME: Michael H. Lorber
-------------------- ---------------------
TITLE: TITLE: VP Finance & CFO
-------------------------- ----------------------------
Taxpayer Identification No.: 36-3873499
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ADDRESS: ADDRESS:
115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200
PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123
DATE ACCEPTED: DATED: 11/19/98
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Exhibit A
FINOVA Capital Corporation
115 West Century Road
P.O. Box 907
Paramus, New Jersey 07653
Telephone (201) 634 3300
MASTER LEASE SCHEDULE
NO. C0856001 TO EQUIPMENT LEASE NO. C0856001 (THE "LEASE")
EQUIPMENT LEASED SUPPLIER:
See Schedule "A" attached hereto CNC Associates, Inc.
2800 Sturgis Road
Oxnard, CA 93030
LOCATION OF EQUIPMENT
8315 Century Park
Court #200
San Diego, CA 92123
TERM OF SCHEDULE: FORTY-EIGHT (48) MONTHS
SIX (6) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $6,435.43
FOLLOWED BY FORTY-TWO (42) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT
OF $11,329.53, SUBJECT TO THE INDEXING PROVISION CONTAINED HEREIN, PAYABLE IN
ARREARS.
ADDITIONAL TERMS AND CONDITIONS
1. LEASE OF EQUIPMENT. Lessor hereby agrees to lease to Lessee, and Lessee
hereby agrees to lease and rent from Lessor the Equipment listed above, or on
any Schedule attached hereto, for the term and the rental payments provided
herein, all subject to the terms and conditions of the Lease.
2. OPTION TO PURCHASE. Provided Lessee is not in default under the Lease or this
Schedule or under any other Lease or agreement with Lessor, Lessee shall have
the right, at the expiration of the Term of this Schedule or any extended term
thereof, upon not less than 120 days' prior written notice to Lessor, to
purchase the Equipment leased hereunder, in whole but not in part, on an as-is,
where-is basis for the fair market value thereof which the parties agree is
$1.00.
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3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In
addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall
(i) lubricate the Equipment on a basis that conforms to the maintenance manual
and/or lubrication schedule recommended by the manufacturer of the Equipment,
and (ii) purchase replacement parts only from sources approved by the
manufacturer. Copies of all purchase orders for such replacement parts are to
be retained in Lessee's file relating to the Equipment.
4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to
Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle
and handle the Equipment in accordance with the manufacturer's specifications or
normal industry accepted practices for new equipment. Any special transportation
devices, such as metal skids, lifting slings, brackets, etc., which were with
the Equipment when it was delivered or equivalent devices must be used; (ii)
block all sliding members, secure all swinging doors, pendants and other
swinging components, wrap, box, band and label all components and documents in
an appropriate manner to facilitate the efficient reinstallation of the
components; (iii) remove all process fluids from the Equipment and dispose of
the same in accordance with prevailing waste disposal laws and regulations; (iv)
clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with
the equipment; (vi) fill all internal fluids such as lube oil and hydraulic oil
to operating levels, secure filler caps and seal disconnected hoses; (vii) wire
together all lock keys and secure the same to a major external component of the
equipment; (viii) cause the Equipment to be complete, fully functional with no
missing components or attachments, rust free with all boots, guards and seals
clean and with all batteries for control memories fully charged.
Lessor shall have the right to attempt to resell the Equipment at the
Location for a period of 120 days from the expiration of the Term of the
Schedule or any extensions thereof. During this period the Equipment must remain
operational and Lessee must provide adequate electrical power, lighting, heat,
water and compressed air, necessary to permit Lessor to demonstrate the
Equipment to any potential buyer. If an auction is necessary to dispose of the
Equipment, Lessor shall be permitted to auction the Equipment at the Location.
5. INDEXING. If on the Commencement Date, the highest yield on four (4) year
Treasury Notes, as published in THE WALL STREET JOURNAL, with a maturity date on
or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33%
(the "Yield"), the Monthly Rental Payment provided herein shall automatically
be increased for the full term to reflect such increase in the Yield. As soon as
practicable thereafter, Lessor shall provide Lessee with written notice of any
increase in the Monthly Rental Payment. Lessor's calculations shall be
conclusive absent manifest error.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION TOMAHAWK II, INC.
BY: BY: Michael H. Lorber
------------------------------- ----------------------------
PRINTED NAME: PRINTED NAME: Michael H. Lorber
--------------------- ------------------
TITLE: TITLE: VP Finance & CFO
---------------------------- -------------------------
ADDRESS: ADDRESS:
115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200
PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123
DATE ACCEPTED: DATED: 11/19/98
--------------------- --------------------------
<PAGE>
3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In
addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall
(i) lubricate the Equipment on a basis that conforms to the maintenance manual
and/or lubrication schedule recommended by the manufacturer of the Equipment,
and (ii) purchase replacement parts only from sources approved by the
manufacturer. Copies of all purchase orders for such replacement parts are to
be retained in Lessee's file relating to the Equipment.
4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to
Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle
and handle the Equipment in accordance with the manufacturer's specifications or
normal industry accepted practices for new equipment. Any special transportation
devices, such as metal skids, lifting slings, brackets, etc., which were with
the Equipment when it was delivered or equivalent devices must be used; (ii)
block all sliding members, secure all swinging doors, pendants and other
swinging components, wrap, box, band and label all components and documents in
an appropriate manner to facilitate the efficient reinstallation of the
components; (iii) remove all process fluids from the Equipment and dispose of
the same in accordance with prevailing waste disposal laws and regulations; (iv)
clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with
the equipment; (vi) fill all Internal fluids such as lube oil and hydraulic oil
to operating levels, secure filler caps and seal disconnected hoses; (vii) wire
together all lock keys and secure the same to a major external component of the
equipment; (viii) cause the Equipment to be complete, fully functional with no
missing components or attachments, rust free with all boots, guards and seals
clean and with all batteries for control memories fully charged.
Lessor shall have the right to attempt to resell the Equipment at the
Location for a period of 120 days from the expiration of the Term of the
Schedule or any extensions thereof. During this period the Equipment must remain
operational and Lessee must provide adequate electrical power, lighting, heat,
water and compressed air, necessary to permit Lessor to demonstrate the
Equipment to any potential buyer. If an auction is necessary to dispose of the
Equipment, Lessor shall be permitted to auction the Equipment at the Location.
5. INDEXING. If on the Commencement Date, the highest yield on four (4) year
Treasury Notes, as published in The Wall Street Journal, with a maturity date on
or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33%
(the "Yield"), the Monthly Rental Payment provided herein shall automatically
be increased for the full term to reflect such increase in the Yield. As soon as
practicable thereafter, Lessor shall provide Lessee with written notice of any
increase in the Monthly Rental Payment. Lessor's calculations shall be
conclusive absent manifest error.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION TOMAHAWK II, INC.
BY: /s/ A. Holland BY: /s/ Michael H. Lorber
-------------------------------- ----------------------------
PRINTED NAME: A. Holland PRINTED NAME: Michael H. Lorber
TITLE: Director, Contr Admin TITLE: VP Finance & CFO
-------------------------
ADDRESS: ADDRESS:
115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200
PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123
DATE ACCEPTED: 12-2-98 DATED: 12/19/98
<PAGE>
FINOVA
FINANCIAL INNOVATORS
VIA FACSIMILE
115 WEST CENTURY ROAD
P.O. BOX 907
PARAMUS, NEW JERSEY 07653
December 1, 1998 TEL (201) 634-3300
Mr. Michael H. Lorber
Tomahawk II, Inc.
8315 Century Park
Court #200
San Diego, CA 92123
Re: Master Lease Schedule No. C0856001 to Equipment Lease No. C0856001 between
Tomahawk II, Inc. as Lessee and FINOVA Capital Corporation as Lessor (the "Lease
Agreement").
Dear Mr. Lorber:
Please be advised that the monthly rental payments as currently stated
on the Master Lease Agreement, being six months at $6,435.43 followed by
forty-two months at $11,329.53 were calculated based upon CNC
Associates. Inc. payoff (the "CNC Payoff") amount of $397,248.60.
It has been determined that the CNC Payoff has been increased to
$398,158.86 and therefore the monthly rental payments will increase to
six months at $6,450.17 followed by forty-two months at $11,355.49.
All other terms and conditions of the Lease Agreement remain unchanged.
Your signature below will acknowledge the foregoing.
Very truly yours,
FINOVA Capital Corporation
Anthony M. Holland
Director, Contract Administration
ACKNOWLEDGED AND AGREED:
BY: TOMAHAWK II, INC.
By: /s/ Michael H. Lorber
Dated: 12/1/98
<PAGE>
Exhibit B
FINOVA Capital Corporation
115 West Century Road
P.O. Box 907
Paramus, New Jersey 07653
Telephone (201) 634-3300
CORPORATE RESOLUTION AUTHORIZING LEASE
I, Michael Lorber the duly elected Secretary of Tomahawk II, Inc., a
California corporation do hereby certify that at a Special Meeting of the Board
of Directors of said Corporation held on the 23rd day of October, 1998, the
following resolution was adopted and remains in full force and effect:
"RESOLVED, that any President, Vice President, Treasurer or
Secretary or if not such officer then the authorized signatory
listed below, be and are authorized and directed to enter into,
execute and deliver on behalf of this Corporation a Lease
Agreement with FINOVA Capital Corporation whereby this
Corporation will lease certain equipment on such terms and
conditions as set forth in said lease, a copy of which lease was
exhibited to the Board of Directors or such other terms as such
officers deem advisable."
Fill in name of authorized signatory
if an officer does not execute Lease ______________________________
IN WITNESS WHEREOF, I have affixed my name as Secretary of said
Corporation and have caused the corporate seal of said Corporation to be
hereunto affixed this 19th day of November, 1998.
/s/ Michael H. Lorber
-------------------------
(Secretary)
<PAGE>
Exhibit C
________________, 1998
FINOVA Capital Corporation
115 West Century Road
Paramus, NJ 07652
BILL OF SALE
For good and valuable consideration, the receipt of which is hereby
acknowledged, Tomahawk II, Inc. ("Tomahawk") hereby sells to FINOVA Capital
Corporation ("FINOVA") all it's rights, title and interest in and to the
equipment ("Equipment") which is the subject of and is described on that certain
Master Lease Schedule No. C0856001 to Equipment Lease No. C0856001 between
FINOVA as Lessor and Tomahawk as Lessee on an "AS IS' "WHERE IS" basis and
conveys onto FINOVA good and marketable title to the Equipment, free and clear
of all liens, security interests, pledges, claims, charges, encumbrances,
agreements, rights or interests of third parties or other imperfections of
title.
Tomahawk II, Inc.
By: /s/ Michael H. Lorber
---------------------------
Printed Name: Michael H. Lorber
-----------------
Title: VP - Finance & CFO
------------------------
<PAGE>
FINOVA Capital Corporation
113 West Century Road
P.O. Box 951
Paramus, New Jersey 07653
(201) 631-3300
[STAMP]
Exhibit D
GUARANTY
1. RECITALS
(a) This Guaranty is made by the undersigned (hereinafter each called
a "Guarantor"), in favor of FINOVA Capital Corporation ("FINOVA")
(b) FINOVA intends to enter into one or more financial transactions
(collectively "Transactions") with Tomahawk II, Inc. ("Debtor") evidenced by
certain equipment leases, notes, security agreements, mortgages, deeds of
trust or other instruments ("Agreements").
(c) Guarantor has a financial or other interest in Debtor and/or the
Transactions, and expects to obtain a financial or other benefit if FINOVA
enters into the Transactions.
2. GUARANTY
In order to induce FINOVA to enter into one or more Transactions and
Agreements with Debtor, and in consideration thereof.
(a) Guarantor unconditionally guarantees to FINOVA the prompt payment,
when due, of all now existing or hereafter arising indebtedness and
obligations of Debtor to FINOVA of every kind or nature, however arising
("Indebtedness").
(b) Guarantor unconditionally guarantees to FINOVA the prompt, full
and faithful performance and discharge by Debtor of each and every term,
condition, agreement representation, warranty and provision of the part of
Debtor made in connection with the Transactions and the Agreements or any
modification, amendment or substitution thereof.
(c) Guarantor shall, on demand, reimburse FINOVA for all expenses,
collection charges, court costs and reasonable attorneys' fees incurred by
FINOVA in endeavoring to collect or enforce any of FINOVA's rights and
remedies against Debtor and/or Guarantor or any other person or concern
liable thereto.
(d) Guarantor shall pay all of the foregoing amounts and perform all
of the foregoing terms, covenants and conditions notwithstanding that any
part or all of the Transactions or the Agreements shall be void or voidable
as against Debtor or any of Debtor's creditors, including a trustee in
bankruptcy of Debtor, by reason of any fact or circumstances including,
without limitation, failure by any person to file any document or to take any
other action to make any of the Transactions or Agreements enforceable in
accordance with their respective terms.
3. PRIMARY NATURE OF GUARANTY
The liability of Guarantor hereunder is primary, absolute, unconditional,
direct and independent of the obligations of Debtor. Nothing shall discharge
or satisfy Guarantor's liability hereunder except the full performance and
payment of all of Debtor's obligations to FINOVA, with interest. Guarantor
also agrees that the obligations of Guarantor hereunder shall not be relieved
in the event FINOVA fails to protect or otherwise impairs any collateral.
4. WAIVERS BY GUARANTOR
(a) Guarantor waives notice of acceptance hereof and of all notices
and demands of any kind to which Guarantor may be entitled including without
limitation, all demands of payment and notice of nonpayment, protest and
dishonor to Guarantor, or Debtor, or the makers or endorsers of any notes or
other instruments for which Guarantor is or may be liable hereunder.
Guarantor further waives notice of and hereby consents to any agreement or
arrangement for subordination, composition, arrangement, discharge or
release of any part of Debtor's obligations under any of the Transactions or
Agreements or release of other guarantors, or for compromise of any sums due
in any way whatsoever; and the same shall in no way impair Guarantor's
liability hereunder.
(b) Guarantor waives any right to require FINOVA to: (i) proceed
against Debtor; (ii) proceed against or exhaust any security held by FINOVA
of Debtor or others; or (iii) pursue any other remedy which FINOVA may have,
including against any other guarantor of Debtor's obligations to FINOVA.
(c) Guarantor expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
it may now or hereafter have against the Debtor or any person directly or
contingently liable for the obligations guaranteed hereunder, or against or
with respect to the Debtor's property (including, without limitation property
collateralizing the obligations guaranteed hereunder), arising from the
existence or performance of this Guaranty.
5. GUARANTOR'S PROPERTY AS SECURITY FOR GUARANTY
All sums at any time to Guarantor's credit and any of Guarantor's property at
any time in FINOVA's possession shall be deemed held by FINOVA as security
for any and all of Guarantor's obligations to FINOVA hereunder.
1
<PAGE>
6. SUBORDINATION - WAIVER OR RIGHT OF SUBROGATION
Any and all present and future indebtedness and obligations of Debtor to
Guarantor are hereby postponed in favor or and subordinated to the full
payment and performance of all present and future obligations of Debtor to
FINOVA.
To the extent FINOVA receives payment on account of the indebtedness
guaranteed hereby, which payment is thereafter set aside or required to be
repaid by FINOVA in whole or in part, then, to the extent of any sum not
finally retained by FINOVA (regardless of whether such sum is recovered from
FINOVA by Debtor, its trustee or any other party acting for, on behalf of or
through Debtor), Guarantor's obligations to FINOVA under this Guaranty, as
amended, modified or supplemented, shall remain in full force and effect (or
be reinstated) until Guarantor has made payment to FINOVA for such repaid
payments.
Guarantor hereby irrevocably waives and relinquishes all statutory,
contractual, common law, equitable and all other claims against Debtor, any
collateral for the indebtedness guaranteed hereby or other assets of Debtor
or any other obligor, for subrogation, reimbursement, exoneration,
contribution, indemnification, setoff or other recourse in respect of sums
paid or payable to FINOVA by Guarantor hereunder and Guarantor hereby further
irrevocably and unconditionally waives and relinquishes any and all other
benefits which Guarantor might otherwise directly or indirectly receive or be
entitled to receive by reason of any amounts paid by or collected or due from
Guarantor Debtor or any other obligor with respect to the indebtedness
guaranteed hereby or realized from their property.
7. EVENTS OF DEFAULT
If Guarantor or Debtor should at any time become insolvent, or make a general
assignment for the benefit of creditors, or if a proceeding shall be
commenced by, against or in respect of Guarantor or Debtor under the Federal
Bankruptcy Code or any state insolvency law, or if any individual Guarantor
dies, any and all of Guarantors obligations under this Guaranty shall, at
FINOVA's option, forthwith become due and payable without notice.
8. CONTINUING NATURE OF GUARANTY
This is a continuing guaranty. This instrument shall continue in full force
and effect until terminated by the actual receipt by FINOVA of written notice
of termination from a Guarantor. Such termination shall be applicable only to
the Agreements or Transactions having their inception thereafter, and rights
and obligations arising out of the Agreements or Transactions having their
inception prior to such termination shall not be affected.
9. NO WAIVER BY FINOVA
No failure, omission or delay on the part of FINOVA in exercising any rights
hereunder or in taking any action, to collect or enforce payment or
performance of any of the Agreements or any of the Transactions, either
against Debtor or any other person liable therefore, shall operate as a
waiver of any such right or shall, in any manner, prejudice the rights of
FINOVA against Guarantor.
10. CUMULATIVE REMEDIES
All of FINOVA's rights, remedies and recourse under the Agreements or
Transactions or this Guaranty, are separate and cumulative and may be pursued
separately, successively or concurrently, are non-exclusive and the exercise
of any one or more of them, shall in no way limit or prejudice any other
legal or equitable right, remedy or recourse to which FINOVA may be entitled.
11. MODIFICATIONS
No provision hereof shall be modified or limited, except by a written
agreement expressly referring hereto and to the provision so modified or
limited, and signed by Guarantor and FINOVA.
12. COVENANTS OF GUARANTOR
Guarantor represents that all financial and other information furnished to
FINOVA was, at the time of delivery, true and correct. Guarantor agrees to
provide FINOVA with such financial information as set forth in the Loan and
Security Agreement between Debtor and FINOVA dated , 1998 and such
other financial or credit information as FINOVA reasonably requests until all
obligations of Debtor to FINOVA are paid in full.
13. MERGER
This writing is intended by the parties as a final expression of this
agreement of guaranty and is intended also as a complete and exclusive
statement of the terms of this agreement of guaranty. No course of prior
dealings between the parties, no usage of the trade, and no parole or
extrinsic evidence of any nature shall be used or be relevant to supplement
or explain or modify any term used in this agreement of guaranty.
14. SEVERABILITY
In case any one or more of the provisions contained in this Guaranty shall
for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof, and this Guaranty shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
2
<PAGE>
15. NOTICES
Guarantor agrees that any notice or demand upon Guarantor shall be deemed to
be sufficiently given or served if it is in writing and is personally served,
or in lieu of personal service is mailed by first class certified mail,
postage prepaid, or by private courier such as Federal Express, addressed to
Guarantor at the addresses set forth below. Any notice or demand so mailed
shall be deemed received on the date of actual receipt or the first business
day following mailing, whichever first occurs.
16. GOVERNING LAW
THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA. GUARANTOR CONSENTS TO THE
PERSONAL JURISDICTION OF ANY FEDERAL COURT IN THE STATE OF ARIZONA OR ANY
STATE COURT LOCATED IN MARICOPA COUNTY, ARIZONA WITH RESPECT TO ANY LEGAL
ACTION COMMENCED HEREUNDER AND TO THE FULLEST EXTENT ALLOWED BY LAW.
GUARANTOR HEREBY WAIVES ANY OBJECTION GUARANTOR MAY HAVE TO THE VENUE OF SUCH
COURTS OR THE CONVENIENCE OF THIS FORUM. NOTHING CONTAINED HEREIN IS INTENDED
TO PRECLUDE FINOVA FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING
JURISDICTION THEREOF.
GUARANTOR WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED HEREON. GUARANTOR ALSO WAIVES THE BENEFIT OF ANY STATUTE OF
LIMITATIONS AFFECTING GUARANTOR'S LIABILITY HEREUNDER OR THE ENFORCEMENT
THEREOF.
17. SUCCESSORS AND ASSIGNS
This Guaranty shall inure to the benefit of FINOVA, its successors and
assigns and shall be binding on Guarantor and its successors and assigns,
and/or heirs, administrators or personal representatives.
IN WITNESS WHEREOF, the undersigned Guarantor has duly executed this
Guaranty this 1st day of December, 1998.
CORPORATE GUARANTOR
TOMAHAWK CORPORATION
By: /s/ S. M. CAIRA President
-------------------------------------
(Title)
8315 Century Park Court, Ste 200
-------------------------------------
(Street Address)
San Diego, CA 92123
-------------------------------------
(City, State, Zip Code)
<PAGE>
CORPORATE RATIFICATION
I TOM DUSMET, duly authorized Corporate Secretary declare and ratify on
behalf of the TOMAHAWK CORPORATION the following:
I am the duly elected Corporate Secretary of the TOMAHAWK CORPORATION,
pursuant to the bylaws of the corporation, and I am authorized by the
corporation to make this ratification.
STEVEN M. CAIRA, President of the TOMAHAWK CORPORATION, is lawfully and duly
authorized to enter into the above-executed Guaranty Agreement with FINOVA
FINANCIAL CORPORATION INC. The above signature is that of STEVEN M. CAIRA,
President of the TOMAHAWK CORPORATION.
The TOMAHAWK CORPORATION hereby ratifies the GUARANTY AGREEMENT between
TOMAHAWK CORPORATION and FINOVA FINANCIAL CORPORATION as executed by TOMAHAWK
CORPORATION President STEVEN M. CAIRA.
Executed this First day of December 1998.
/s/ Tom Dusmet Corporate Secretary
- ----------------
IN WITNESS WHEROF, I have affixed my name as Secretary of the Corporation and
have caused the corporate seal of the Corporation to be affixed this First
day of December 1998
/s/ Tom Dusmet Corporate Secretary
- ----------------
TOM DUSMET
<PAGE>
FINOVA Capital Corporation
115 West Century Road
P.O. Box 907
Paramus, New Jersey 07653
Telephone (201) 634-3300
Exhibit E
MASTER LEASE SCHEDULE
NO. C0856002 TO EQUIPMENT LEASE NO. C0856001 (THE "LEASE")
EQUIPMENT LEASED: SUPPLIER:
See Schedule "A" attached hereto CMM Products
3185 Airway Avenue
Costa Mesa, CA 92626
LOCATION OF EQUIPMENT:
8315 Century Park
Court #200
San Diego, CA 92123
TERM OF SCHEDULE: FORTY-EIGHT (48) MONTHS
SIX (6) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $1,782.00
FOLLOWED BY FORTY-TWO (42) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT
OF $3,137.20, SUBJECT TO THE INDEXING PROVISION CONTAINED HEREIN, PAYABLE IN
ARREARS.
ADDITIONAL TERMS AND CONDITIONS
1. LEASE OF EQUIPMENT. Lessor hereby agrees to lease to Lessee, and Lessee
hereby agrees to lease and rent from Lessor the Equipment listed above, or on
any Schedule attached hereto, for the term and the rental payments provided
herein, all subject to the terms and conditions of the Lease.
2. OPTION TO PURCHASE. Provided Lessee is not in default under the Lease or this
Schedule or under any other Lease or agreement with Lessor, Lessee shall have
the right, at the expiration of the Term of this Schedule or any extended term
thereof, upon not less than 120 days' prior written notice to Lessor, to
purchase the Equipment leased hereunder, in whole but not in part, on an as-is,
where-is basis for the fair market value thereof which the parties agree is
$1.00.
<PAGE>
3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In
addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall
(i) lubricate the Equipment on a basis that conforms to the maintenance manual
and/or lubrication schedule recommended by the manufacturer of the Equipment,
and (ii) purchase replacement parts only from sources approved by the
manufacturer. Copies of all purchase orders for such replacement parts are to
be retained in Lessee's file relating to the Equipment.
4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to
Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle
and handle the Equipment in accordance with the manufacturer's specifications or
normal industry accepted practices for new equipment. Any special transportation
devices, such as metal skids, lifting slings, brackets, etc., which were with
the Equipment when it was delivered or equivalent devices must be used; (ii)
block all sliding members, secure all swinging doors, pendants and other
swinging components, wrap, box, band and label all components and documents in
an appropriate manner to facilitate the efficient reinstallation of the
components; (iii) remove all process fluids from the Equipment and dispose of
the same in accordance with prevailing waste disposal laws and regulations; (iv)
clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with
the equipment; (vi) fill all internal fluids such as lube oil and hydraulic oil
to operating levels, secure filler caps and seal disconnected hoses; (vii) wire
together all lock keys and secure the same to a major external component of the
equipment; (viii) cause the Equipment to be complete, fully functional with no
missing components or attachments, rust free with all boots, guards and seals
clean and with all batteries for control memories fully charged.
Lessor shall have the right to attempt to resell the Equipment at the
Location for a period of 120 days from the expiration of the Term of the
Schedule or any extensions thereof. During this period the Equipment must remain
operational and Lessee must provide adequate electrical power, lighting, heat,
water and compressed air, necessary to permit Lessor to demonstrate the
Equipment to any potential buyer. If an auction is necessary to dispose of the
Equipment, Lessor shall be permitted to auction the Equipment at the Location.
5. INDEXING. If on the Commencement Date, the highest yield on four (4) year
Treasury Notes, as published in THE WALL STREET JOURNAL, with a maturity date on
or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33%
(the "Yield"), the Monthly Rental Payment provided herein shall automatically be
increased for the full term to reflect such increase in the Yield. As soon as
practicable thereafter, Lessor shall provide Lessee with written notice of any
increase in the Monthly Rental Payment. Lessor's calculations shall be
conclusive absent manifest error.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION TOMAHAWK II INC.
BY: BY: /s/ Michael H. Lorber
------------------------- ----------------------------
PRINTED NAME: PRINTED NAME: Michael H. Lorber
--------------- -------------------
TITLE: TITLE: VP-Finance & CFO
---------------------- --------------------------
ADDRESS: ADDRESS:
115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200
PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123
DATE ACCEPTED: DATED: 1/18/99
------------------ ---------------
<PAGE>
Schedule "A" to Master Lease Schedule No. C0856002 to
Equipment Lease No. C0856001 between Tomahawk II, Inc.
as Lessee and FINOVA Capital Corporation as Lessor.
Qty Description
1 DEA Gamma 1204 CNC CMM
Measuring Range: 80" x40" x27"
Accuracy: .0008 (Volumetric - Over entire envelope)
Repeatability: +/- .0002"
Virtual-Dimis Measuring Software:
Direct Joystick Measurement
Self Teach Part Programming
CNC Part Program Execution
Graphical On & Off-Line Part Program Creation
3D Direct CAD Link
Solid Model Graphical Representation
Multi-Tasking Capabilities
Comprehensive Multi-Media Help
Software Algorithms Approved to EUR 13417 Test Report
Networking Capabilities
New Computer Hardware Specifications:
IMS 450 Mhz Pentium II w/MMX Processor
128 MB SDRAM
4.0 GB Hard Drive
32 X Max Variable CD-ROM Drive
3.5" Diskette Drive
4 MB PCI Graphics Accelerator
16-Bit Stereo Sound System
Universal Serial Bus Connections
56K External Modem
Network Card
Microsoft Windows '98 Pre-Installed
17" Color Monitor
HP 722C Ink Jet Printer
Measuring Software Upgrade System:
M9 Based Electronic System, 32-Bit Transputer-Based Continuous
Motion Serve Control Card Assembled into the PC
Portable Joystick Teach Box Unit w/ Interface
System Desk for Computer & Peripherals
On-Line System Diagnostic Software
Probing System:
Renishaw Motorized PH-9 Probe Head
Renishaw TP-2 Touch Probe
Renishaw Probe Kit
<PAGE>
Surface Module Included
Miscellaneous Accessories:
Wilkerson Air Dryer
Norgren H20 & Particle Seperators
Reference Sphere
Clamping Kit
Training Applications Support & Software Maintenance:
Virtual-Dimis Training Course, 4 Days for 2 Persons in Brea, CA
Six Months Software Up-Dates at No Charge
Installation & Standard Calibration Included
<PAGE>
FINOVA Capital Corporation
115 West Century Road
P.O. Box 907
Paramus, New Jersey 07653
Telephone (201) 634-3300
Exhibit F
MASTER LEASE SCHEDULE
NO. C0856002 TO EQUIPMENT LEASE NO. C0856001 (THE "LEASE")
EQUIPMENT LEASED: SUPPLIER:
See Schedule "A" attached hereto CMM Products
3185 Airway Avenue
Costa Mesa, CA 92626
LOCATION OF EQUIPMENT:
8315 Century Park
Court #200
San Diego, CA 92123
TERM OF SCHEDULE: FORTY-EIGHT (48) MONTHS
SIX (6) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT OF $1,879.20
FOLLOWED BY FORTY-TWO (42) SUCCESSIVE MONTHLY RENTAL PAYMENTS EACH IN THE AMOUNT
OF $3,308.32, SUBJECT TO THE INDEXING PROVISION CONTAINED HEREIN, PAYABLE IN
ARREARS.
ADDITIONAL TERMS AND CONDITIONS
1. LEASE OF EQUIPMENT. Lessor hereby agrees to lease to Lessee, and Lessee
hereby agrees to lease and rent from Lessor the Equipment listed above, or on
any Schedule attached hereto, for the term and the rental payments provided
herein, all subject to the terms and conditions of the Lease.
2. OPTION TO PURCHASE. Provided Lessee is not in default under the Lease or this
Schedule or under any other Lease or agreement with Lessor, Lessee shall have
the right, at the expiration of the Term of this Schedule or any extended term
thereof, upon not less than 120 days' prior written notice to Lessor, to
purchase the Equipment leased hereunder, in whole but not in part, on an as-is,
where-is basis for the fair market value thereof which the parties agree is
$1.00.
<PAGE>
3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In
addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall
(i) lubricate the Equipment on a basis that conforms to the maintenance manual
and/or lubrication schedule recommended by the manufacturer of the Equipment,
and (ii) purchase replacement parts only from sources approved by the
manufacturer.. Copies of all purchase orders for such replacement parts are to
be retained in Lessee's file relating to the Equipment.
4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to
Lessee's obligations under Paragraph 8 of the Lease, Lessee shall (i) dismantle
and handle the Equipment in accordance with the manufacturer's specifications or
normal industry accepted practices for new equipment. Any special transportation
devices, such as metal skids, lifting slings, brackets, etc., which were with
the Equipment when it was delivered or equivalent devices must be used; (ii)
block all sliding members, secure all swinging doors, pendants and other
swinging components, wrap, box, band and label all components and documents in
an appropriate manner to facilitate the efficient reinstallation of the
components; (iii) remove all process fluids from the Equipment and dispose of
the same in accordance with prevailing waste disposal laws and regulations; (iv)
clean and dry sumps and tanks; (v) not ship any "Hazardous Waste" materials with
the equipment; (vi) fill all internal fluids such as lube oil and hydraulic oil
to operating levels, secure filler caps and seal disconnected hoses; (vii) wire
together all lock keys and secure the same to a major external component of the
equipment; (viii) cause the Equipment to be complete, fully functional with no
missing components or attachments, rust free with all boots, guards and seals
clean and with all batteries for control memories fully charged.
Lessor shall have the right to attempt to resell the Equipment at the
Location for a period of 120 days from the expiration of the Term of the
Schedule or any extensions thereof. During this period the Equipment must remain
operational and Lessee must provide adequate electrical power, lighting, heat,
water and compressed air, necessary to permit Lessor to demonstrate the
Equipment to any potential buyer. If an auction is necessary to dispose of the
Equipment, Lessor shall be permitted to auction the Equipment at the Location.
5. INDEXING. If on the Commencement Date, the highest yield on four (4) year
Treasury Notes, as published in THE WALL STREET JOURNAL, with a maturity date on
or closest to the maturity date of this Schedule (the "Index"), exceeds 4.33%
(the "Yield"), the Monthly Rental Payment provided herein shall automatically be
increased for the full term to reflect such increase in the Yield. As soon as
practicable thereafter, Lessor shall provide Lessee with written notice of any
increase in the Monthly Rental Payment. Lessor's calculations shall be
conclusive absent manifest error.
This Master Lease Schedule cancels and supercedes previous dated January 18,
1999 by Lessee.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION TOMAHAWK II, INC.
BY: /s/ A. Holland BY: /s/ Michael H. Lorber
---------------------- -----------------------------
PRINTED NAME: A. Holland PRINTED NAME: Michael H. Lorber
------------------- --------------------
TITLE: Director, Cont. Admn. TITLE: VP-Finance & CFO
------------------------ ---------------------------
ADDRESS: ADDRESS:
115 WEST CENTURY ROAD, P.O. BOX 907 8315 CENTURY PARK, COURT #200
PARAMUS, NEW JERSEY 07653 SAN DIEGO, CALIFORNIA 92123
DATE ACCEPTED: 2/24/99 DATED: 2/22/99
-------------------- -------------------------
<PAGE>
EXHIBIT 10.4
MASTER EQUIPMENT LEASE
THIS LEASE, made this 10th day of June 1997 between BOSTON FINANCIAL & EQUITY
CORPORATION (herein called "Lessor"), a Massachusetts corporation with its
principal place of business at 20 Overland St., Boston, Massachusetts, and
TOMAHAWK II, INC. (herein called "Lessee"), an Illinois corporation, with its
principal place of business at 8315 Century Park Court, Suite 200, San Diego,
CA 92123.
WITNESSETH
In consideration of the premises, the parties covenant and agree as follows:
1. Definitions. As herein used:
1.1 "Equipment" means the equipment manufactured or sold by the
Manufacturers or Distributors described in the Schedule of Leased
Equipment ("Schedule") annexed hereto and made a part hereof,
together with any replacements or substitution of parts,
improvements or additions thereto, and such other equipment which,
by agreement, may from time to time be hereafter described on any
supplemental schedule of leased equipment ("Schedule") which may
be annexed hereto and made a part hereof (the equipment on all
such schedules being collectively herein referred to as
"Equipment"). The term "Equipment" also includes all software and
other intellectual property described on the Schedule as well as
operating software and application software used or usable in
connection with any item set forth on any Schedule whether or not
such software or other intellectual property is specifically
identified on the Schedule, and also includes all tangible
representations of all such software.
1.2 "Commencement Date" means the first day of the calendar quarter
following the delivery of all the Equipment.
1.3 "Monthly Rent" means the amount of rent payable by Lessee each
month pursuant to Paragraph 3 of the Schedule as well as all
maintenance charges payable, if any, if, according to the
Schedule, Lessor is furnishing maintenance as indicated on the
Schedule.
1.4 "Net Proceeds of Sale" means the net amount received by Lessor
after deducting from the gross proceeds of sale of the Equipment
or in the event of a subsequent lease by the Lessor, the net
present value of rent due under such subsequent lease, all
expenses incurred in the termination of this lease and any amounts
for which, if not paid, Lessor would be liable or which, if not
paid, would constitute a lien on the Equipment.
1.5 "Lessor's Depreciated Book Value" means the original cost of the
equipment less the straight line depreciation for five year
property, all as reflected on Lessor's books of account.
1.6 "Lease Term" means the period specified in Section 2 of the
applicable Schedule thereof.
1.7 "Addendum" means any amendment to this Master Equipment Lease
which is specifically identified as such, and when so identified
shall be a part hereof.
2. Lessor does hereby lease to the Lessee, and Lessee hereby leases and
hires from the Lessor the Equipment subject to the terms, provisions,
conditions and agreements in this lease set forth.
3. Delivery. Lessee hereby acknowledges: (a) the Equipment is of the
manufacture, design and capacity selected by Lessee; (b) the Equipment
is suitable for Lessee's purposes, and (c) Lessor has made no
representation or warranty, expressed or implied, with respect to the
Equipment or any of the foregoing matters. Lessor will assign or
otherwise make available to Lessee all of Lessor's rights (if any and if
assignable) under the manufacturer's warranty on the Equipment and
maintenance agreement relating thereto, all costs and charges thereof
and therefore to be borne by Lessee.
At the termination of the applicable Schedule, Lessee shall, at its
expense, return the Equipment subject thereto to Lessor at the location
designated by Lessor within the continental United States by surface
transportation, only if not shipped directly to a successor Lessee. The
Equipment returned to Lessor shall, at the time it is disconnected from
its then location in Lessee's premises, be in the same condition and
working order as when delivered to Lessee, reasonable wear and tear and
casualty loss excepted, and shall be at the then current engineering
change level recommended by the Equipment Manufacturer (if required in
the Schedule).
4. In addition to the Monthly Rent, Lessee shall pay, promptly when due,
all costs, expenses, fees, charges and taxes incurred in connection with
the use and operation of the Equipment. Such items shall include, but
not be limited to:
4.1.1 all costs of operating the Equipment.
4.1.2 all federal, state, county, municipal or other taxes whatsoever,
without proration, and any penalties and interest thereon
("Taxes") (including any Taxes with an assessment date which
occurred during the Lease Term or any extension thereof). If the
payment due date or reimbursement date for a Tax should occur
after the expiration or termination of the Lease Term or any
extension thereof, Lessee's liability for such Tax shall survive
such expiration or termination.
4.1.3 all shipping, installation, and transportation charges from the
manufacturer or vendor to the installation site.
4.1.4 all de-installation, shipping and transportation charges from the
installation site to a location designated by the Lessor at the
conclusion of the Lease or any extension thereof.
4.2 If Lessee should fail to pay any of the costs, expenses, fees,
charges and taxes (including attorney's fees) for which Lessee is
liable hereunder, Lessor may, but shall not be required to, pay
the same for the account
<PAGE>
of Lessee. Lessee shall reimburse, upon demand, for the full amount
of any such costs, expenses, fees, charges and taxes paid by Lessor.
4.3 If, at the termination of the applicable Schedule, Lessee fails to
return to Lessor the Equipment subject thereto in accordance with
the provisions of the second paragraph of Section 3, Lessee
shall, until such Equipment is so returned: pay to Lessor on
account of damages a monthly amount equal to the amount shown in
Section 5 of such Schedule, and perform or observe all other of
its agreements and covenants under this Lease; but such payment,
performance, and observance shall not limit or impair Lessor's
right to recover the Equipment or any other of Lessor's rights
under this Lease, nor shall it represent an extension of the term
provided in the applicable schedule, nor shall it represent a
consent by the Lessor to such failure by Lessee to return, and,
in all events notwithstanding such payment, performance and
observance, Lessee's obligation so to return shall remain in full
force and effect.
5. Use of Equipment. Lessee shall use the Equipment only for lawful
purposes in the regular course of its business or the business of any
subsidiary or affiliate of Lessee within the United States or its
possessions. Lessee shall, concurrently with the execution of this
Lease, notify Lessor in writing where all Equipment is principally
located, and upon any change in such principal location of any
Equipment, notify Lessor in writing within ten (10) days thereafter of
the new principal location of such Equipment. Lessee shall use every
reasonable precaution to prevent loss or damage to Equipment from fire
and other hazards. Lessee's servants and agents shall cooperate fully
with Lessor in the investigation of any claims and suits relating to the
Equipment. Lessee shall keep the Equipment free from all liens and
encumbrances. This Lease and the interest of Lessee hereunder shall not
be assigned, alienated, pledged or hypothecated voluntarily by Lessee or
by operation of law, nor shall Lessee permit the Equipment to come into
the possession of any third person except a subsidiary or affiliate of
Lessee, provided, however, that Lessee shall remain obligated to Lessor
hereunder with respect to any such Equipment.
6. Lessee will enter into a Master Maintenance Agreement with Lessor.
Except to the extent of the Lessor's obligation to provide maintenance
(as provided in the aforesaid Master Maintenance Agreement) Lessee
shall, at its own expense, keep the Equipment in first-class condition
and repair and in good and efficient working order (including the
replacement or substitution of parts, improvements or additions to the
Equipment). Lessee shall not, without Lessor's prior written consent,
make any substitution of any part(s) of the Equipment, whether or not
such part(s) are specifically identified by manufacturer or serial
number. Without the prior written consent of Lessor, Lessee will not,
through the installation of accessory devices or any other method,
impair the originally intended function of any Equipment. Any
replacement or substitution of parts, improvements or additions to the
Equipment made by Lessee shall become and remain the property of the
Lessor.
7. Insurance. Lessee shall, at its expense, procure and maintain, at all
times, in a responsible insurance company acceptable to Lessor,
insurance in an amount not less than the estimated market value of all of
the Equipment protecting Lessor and Lessee, as their interest may
appear, against loss and/or damage to the Equipment arising out of any
risk covered by fire and extended coverage and by employee theft and
dishonesty. All such insurance shall cover the period from delivery of
the Equipment to Lessee to the date of termination of the Lease with
respect thereto, and shall provide for ten (10) days prior written
notice to Lessor of any cancellation or reduction in coverage. Lessee
shall deliver to Lessor within ten (10) days after the Commencement
Date, the insurance policy, and a Certificate of Insurance satisfactory
to Lessor. Lessor shall have no duty to examine such policies or
certificates, or to advise Lessee of any noncompliance of such insurance
with this Lease. If Lessee fails to provide the aforesaid insurance,
Lessor may, at its own option, provide such insurance and add the amount
of the premiums to the next rental installment together with interest
thereon at the rate of Twenty Four Per Cent (24%) per annum, or the rate
permitted by law (whichever is less), from the date of payment thereon
until paid in full. The proceeds of such insurance whether resulting
from loss, damage, return premium or otherwise, shall be payable to
Lessor and Lessee, as the interests may appear. If Lessee should be in
default under Section 10 hereof, Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of and
execute or endorse all documents, checks or drafts for loss, damage,
return premium otherwise under any insurance policy issued on Equipment.
8. Indemnity. Lessee shall indemnify and hold Lessor harmless against any
and all claims, demands, liabilities, losses, damages and injuries of
whatsoever kind and nature, direct or consequential, and all fees, costs
and expenses relating to or in any way arising out of the possession,
maintenance, use, operation, control, loss, damage, destruction, return,
surrender, sale or other disposition of the Equipment. The foregoing
indemnity shall not be affected by any termination of the Lease.
9. Termination of Lease Equipment Through Loss or Destruction. Lessee
shall bear all risks of loss, damage, or destruction of the Equipment
during the Lease Term in the event the Equipment is damaged beyond
repair, the Lessee shall be liable to the Lessor for an amount equal to
the cost of purchasing similar Equipment less the amount of any
insurance or other recoveries received by the Lessor in connection
therewith.
10. Events of Default. The following events of default by Lessee shall give
rise to rights on the part of Lessor described in Section 11:
10.1 (a) Default in the payment of Monthly Rent hereunder, and such
default not having been remedied in three (3) days from due date.
(b) Default
<PAGE>
in the payment or performance of any other liability, obligation
or covenant of Lessee under this Lease and the continuance of such
default for fifteen (15) days after written notice thereof to
Lessee sent by certified mail or via fax; or
10.2 Breach of any representation or warranty, or default in the
performance of any agreement, of Lessee contained in this Lease;
or
10.3 The Making of a general assignment for the benefit of creditors by
Lessee, the suspension of business or the commission by Lessee of
any act amounting to a business failure, any change in, or
termination of, Lessee's corporate existence (except a merger,
consolidation or reorganization in which the obligations of Lessee
are assumed by the surviving corporation), or the levy of an
attachment or filing of a tax lien (other than a Federal tax lien)
against Lessee affecting Equipment, and the failure of Lessee to
cause such attachment or tax lien to be discharged within thirty
(30) days thereafter, or the filing of a Federal Tax lien against
Lessee, the Equipment or any of Lessee's property; or
10.4 The institution of bankruptcy, reorganization, liquidation or
receivership proceedings by or against Lessee and, if instituted
against Lessee, its consent thereto or the failure to cause such
proceedings to be discharged within thirty (30) days thereafter.
11. Rights of Lessor Upon Default of Lessee. Upon occurrence of any of the
Events of Default described in Section 10, Lessor may, at its
discretion, do one or more of the following:
11.1 Terminate this Lease upon five (5) days' written notice to Lessee
sent by certified mail or via fax;
11.2 Whether or not this Lease be terminated, take immediate possession
of any or all of the Equipment, including substituted parts,
accessories or equipment, wherever situated, and for such purpose,
enter upon any premises without liability for so doing. Lessor
shall hold the Equipment so repossessed free and clear of this
Lease and of any of the rights of Lessee hereunder;
11.3 Whether or not any action has been taken under Section 11.1 or
11.2 above, sell, dispose of, hold, use or lease any Equipment as
Lessor at its sole discretion, may decide, without any duty to
account to Lessee with respect to such action or any proceeds
thereof, and free of any interest of Lessee therein.
If, after default, Lessee should deliver the Equipment to Lessor, or if
Lessor should repossess the Equipment or if Lessor should terminate this
Lease, and in addition to all rights of Lessor set forth above, Lessee
shall be liable for, and Lessor may recover from Lessee, as liquidated
damages for the breach of this Lease: (i) all unpaid rent to the date of
such delivery, repossession or termination, (ii) all rent due to Lessor
between the date of such delivery, repossession or termination and the
end of the present Lease Term, (iii) in the event of a sale pursuant to
Section 11.3, the amount of any deficiency existing between the Net
Proceeds of Sale of the Equipment and the Lessor's Depreciated Book
Value of the Equipment at the time of such repossession, (iv) all such
sums payable by Lessee pursuant to the provisions hereof, (v) all other
losses and damages sustained by reason of the default, and (vi) all
costs and expenses, including but not limited to costs associated with
repossession, deinstallation, transportation charges and necessary
repair expenses, incurred by Lessor by reason of the default. If, for
any reason, Lessor should be unable to effect repossession of the
Equipment, Lessor may recover, as liquidated damages, the amounts
aforesaid, except that instead of item (iii), Lessee shall be liable to
Lessor in an amount equal to the replacement cost of the Equipment as
determined by the Lessor.
12. In addition to all other sums payable by Lessee hereunder, Lessee shall
pay to Lessor all expenses incurred by Lessor, including, without
limitation, reasonable attorneys' fees and court expenses of enforcing
any rights of Lessor hereunder, whether against Lessee or any other
party primarily or secondarily liable with respect to the Lessee's
obligations or against the Equipment.
13. Equipment to Be and Remain Personal Property. It is the intention and
understanding of both Lessor and Lessee that all Equipment shall be and
at all times remain personal property.
14. Rentals to be Paid Directly to Lessor. Lessee shall make payment of all
rent and other payments due hereunder directly to Lessor at the
following mailing address: BOSTON FINANCIAL & EQUITY CORPORATION, Post
Office Box 15071, Boston, Massachusetts 02215, or to such other address
as Lessor shall instruct.
15. Miscellaneous
15.1 Time is of the essence hereof.
15.2 This agreement is and is intended to be a True Lease. Lessee does
not acquire hereby any right, title or interest in or to the
Equipment, except the right to use the same under the terms
hereof. Lessor and Lessee agree that for tax purposes this lease
will be treated as a finance lease by the Lessee.
15.3 The relationship between Lessor and Lessee shall always and only
be that of Lessor and Lessee. Lessee shall never at any time
during the term of this Lease for any purpose whatsoever be or
become the agent of the Lessor, and Lessor shall not be
responsible for the acts or omissions of Lessee, or its agents.
15.4 Lessor shall have the right to inspect any Equipment at any
reasonable time; provided however, that such right shall be
limited to the extent required by any applicable United States
Government security regulations.
15.5 Should the Lessee not pay the monthly rental payment when due and
owing under the provisions of this Lease, the Lessee agrees to pay
to the Lessor five per cent (5%) of the monthly payment as a
delinquency charge, or the maximum permitted by law, (whichever
is less).
15.6 Lessor's rights and remedies with respect to any of the terms and
conditions of this Lease shall be cumulative and not exclusive,
and shall be in addition to all other rights and remedies in its
favor.
2
<PAGE>
15.7 No party hereto shall, by act, delay, omission or otherwise, be
deemed to have waived any of its rights or remedies hereunder, or
under any other instrument executed in connection herewith,
unless such waiver is in writing. A waiver on any one occasion
shall not be construed as a waiver on any future occasion.
15.8 The invalidity of any portion of this Lease shall not affect the
force and effect of the remaining valid portions thereof.
15.9 All notices shall be binding upon the parties hereto if sent to
the address set forth herein (unless a subsequent address has
been furnished) by certified mail, by one party to the other.
15.10 Lessee will provide Lessor with copies of Annual Financial
Reports prepared by Lessee's independent accounting firm within
fourteen (14) days of the issuance of said Report. In addition,
Lessee will provide Lessor with copies of interim, year-to-date
or monthly financial reports which reports shall be prepared at
least every three (3) months. Lessee will make every effort to
prepare and deliver to Lessor all financial reports in a timely
fashion upon request by the Lessor. Lessee also agrees to make
available financial books and records for review by Lessor during
regular business hours, as well as other contracts, agreements, or
materials the Lessor may deem appropriate.
15.11 No representations, warranties, promises, guaranties or
agreements, oral or written, expressed or implied, have been made
by either party hereto with respect to this Lease or the
Equipment, except as expressly provided herein.
15.12 This Lease shall be construed in accordance with the laws of the
Commonwealth of Massachusetts without regard to the choice of law
rules thereof. Lessee hereby irrevocably submits to the
jurisdiction of the courts of said Commonwealth or any federal
court sitting within said Commonwealth, over any suit, action, or
proceeding arising out of or relating to this Lease or the
Equipment and agrees that any suit, action, or proceeding brought
by the Lessee against or involving the Lessor shall be brought
only in said courts. Lessee further consents to process being
served in the manner described for notices under Section 15.9
above.
This Lease constitutes the entire agreement between the parties
hereto with respect to the leasing of the Equipment. Any change
or modification of this Lease must be in writing and signed by
the parties hereto.
15.13 Lessor and Lessee, each having had opportunity of review by
counsel, each irrevocably waive all right to trial by jury in any
proceeding hereinafter instituted by or against either of them in
respect of this Lease or arising out of any document executed in
connection herewith or in connection with the Equipment.
16. Lessor may assign its rights under this Lease and if (1) Lessor does
assign this Lease, the assignee shall be entitled, upon notifying the
Lessee, to performance of all of Lessee's obligations and agreements under
this Lease and to all of the rights and remedies of the Lessor, and (2)
Lessee will assert no claim or defenses it may have against the Lessor
against the assignee.
17. Lease is conditional upon approval of Lessor, and is neither consummated
nor binding on Lessor until accepted by an authorized officer of Lessor.
Such acceptance will be rendered only after submission of all necessary
information to the Lessor and an evaluation by the Lessor of the
acceptability of the Lessee for the Equipment Lease herein described.
Signature of this Lease by the Lessor shall constitute acceptance and
all aforementioned terms and conditions shall be effective upon
endorsement by the Lessor.
18. Supplemental Equipment Schedules may from time to time be included under
this Master Equipment Lease. The addition of supplemental Schedules is
conditional upon approval by Lessor and is neither consummated nor
binding on Lessor until accepted by an authorized officer of Lessor.
Such acceptance will be rendered only after submission of all necessary
information to the Lessor and an evaluation by the Lessor.
19. The terms and conditions of the Master Equipment Lease and any other
documents associated herewith are confidential and proprietary. Lessee
agrees not to disclose the same to any other party without prior written
consent of Lessor.
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Lease as of the
day and year first above written.
LESSEE: TOMAHAWK II, INC.
------------------------
Signature: Michael H. Lorber
--------------------
Name: Michael H. Lorber
--------------------------
Title: VP-Finance and CFO
-------------------------
Date: 6/16/97
--------------------------
ATTEST: Steven M. Caira
------------------------
LESSOR: BOSTON FINANCIAL & EQUITY CORPORATION
Signature: Adolf F. Monosson
---------------------
Name: Adolf F. Monosson
--------------------------
Title: President
-------------------------
Date: July 7, 1997
--------------------------
ATTEST: [ILLEGIBLE]
------------------------
<PAGE>
EXHIBIT A
MASTER MAINTENANCE AGREEMENT
BOSTON FINANCIAL & EQUITY CORPORATION
20 Overland Street
Boston, Massachusetts 02215
Contract # 1286
-------------------------------------------------------------------
Lessee ("Customer"):
TOMAHAWK II, INC.
- ------------------------------------------------------------------------------
Michael Lorber
- ------------------------------------------------------------------------------
Contact
- ------------------------------------------------------------------------------
Telephone
619-874-7692 X101
- ------------------------------------------------------------------------------
TERM OF AGREEMENT: Subject to the Terms and Conditions below, Boston
Financial & Equity Corporation (hereinafter referred to as BFEC) agrees to
maintain equipment it accepts for coverage, for a period of three (3) years
from the Commencement Date or during any subsequent renewal period as
indicated in Section 1 below.
1. TERM/CANCELLATION
(a) Maintenance coverage begins as of the Commencement Date shown on the
written acceptance from BFEC and shall remain in effect for an
Initial Term of 36 months. After the Initial Term, coverage shall
continue in effect until termination, discontinuance or cancellation
of all Service pursuant to the provisions herein.
(b) Upon ninety days prior written notice, Customer may terminate
coverage in its entirety at the end of the Initial Term.
(c) Without prejudice to any other rights or remedies, BFEC may elect to
cancel coverage and with or without cancellation repossess any BFEC
property furnished hereunder pursuant to Section 10 of the Master
Equipment Lease.
2. PRODUCT SERVICE
(a) BFEC shall provide Service (as defined in this section) to restore
the Equipment to good working order. Payment of the Unit Base
Service Charges shall entitle the Customer to such Service, which
will be performed during the Principal Period of Maintenance (PPM).
The PPM consists of the hours of 8:30 a.m. to 5 p.m., five days per
week, Monday through Friday, excluding holidays.
(b) "Service" shall be deemed to include field repairs, equipment
replacement, or any other means that, in the opinion and discretion
of BFEC, produces prompt response to a Customer's equipment failure.
(c) The Customer is responsible for the use, care and cleaning of the
Equipment in accordance with equipment manufacturers'
instructions. When the need arises for Service, the customer shall
notify BFEC and allow BFEC full and free access to the equipment if
necessary.
(d) Service will include inspection, adjustment and replacement of parts
as deemed necessary by BFEC. Parts, which will be either new or
reconditioned to perform as new, will be furnished on an exchange
basis and the exchanged parts will become the property of BFEC. The
replacement of parts, such as cathode ray tubes (CRT's) is limited
to failure of the parts; but BFEC shall not replace parts due to
occurrences such as burnt phosphor of the CRT screen.
(e) If the Commencement Date for an item is later than the Contract
Date, BFEC may require an inspection of the Equipment prior to the
Commencement Date. Where such inspection reveals failure of or
damage to the Equipment, the failure and/or damage shall be repaired
at Customer expense prior to the assumption of normal Service on
that Equipment by BFEC.
(f) BFEC shall not be obligated to provide Service to Equipment at any
location other than the Equipment location originally submitted by
the customer. If the Customer wishes to relocate Equipment, it shall
give timely prior notice to BFEC pursuant to the terms of the Master
Equipment Lease and relocation and the resumption of Service, if
any, of such Equipment shall be subject to agreement between
authorized representatives of the parties.
(g) IT IS EXPRESSLY UNDERSTOOD BY THE CUSTOMER THAT BFEC WILL NOT BE
LIABLE FOR ANY CHARGES INCURRED BY THE CUSTOMER UNLESS THESE CHARGES
HAVE BEEN PRE-AUTHORIZED IN WRITING BY BFEC.
3. CHARGES
(a) The Customer is liable for charges starting on the Commencement Date.
(b) The Charges do not include: (1) accessories and consumable supplies;
(2) repair of damage, replacement parts or increased service time
due to any cause external to the Equipment, including, but not
limited to, electrical work, unsuitable environment, neglect,
improper use or misuse; (3) repainting or refinishing; (4)
installation, deinstallation or moving of equipment; (5) furnishing
or installing cables; (6) alterations to the Equipment made after
the Service Start Date; or (7) any service required by changes in or
to the Equipment or their connectivity to other machines or devices.
(c) Additional charges covering travel and related expenses in
accordance with BFEC policies shall apply when the Equipment
Location address is located outside the perimeter of BFEC's then
normal service area.
(d) Maintenance charges assume normal equipment usage of not more than
sixty (60) hours per week. BFEC has the right to adjust charges in
the event usage exceeds this amount.
4. USE OF COMPUTER, SOFTWARE, AND DOCUMENTATION
(a) When BFEC performs Services which require the use of the computer,
software or documentation, the Customer shall make it available at
reasonable times and for reasonable time increments, and will not
charge BFEC for such use.
(b) The Customer represents and warrants that it has the legal right and
authority to permit BFEC to use without restriction, all maintenance
documentation and/or diagnostics supplied to BFEC by the Customer.
5. ALTERATIONS AND ATTACHMENTS
BFEC reserves the right to cancel Services or to adjust the specified
charges, if any new equipment specifications, attachments, features or
changes are made or added to the Equipment after the Commencement Date.
6. ADDITION/DELETION OF ITEMS
Equipment may be added subject to this Agreement at any time. Such
Equipment will be added by means of an amendment executed by duly
authorized representatives of the parties and such amendment shall
include Equipment location address, model numbers, serial numbers, and
billing instructions.
7. LIMITATIONS OF LIABILITY AND REMEDY
(a) BFEC's OBLIGATIONS UNDER THIS AGREEMENT ARE IN LIEU OF ALL
WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE.
BFEC DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR PARTICULAR PURPOSE FOR THE SERVICES RENDERED HEREUNDER.
(b) If BFEC fails after repeated attempts to perform any of its
obligations set forth in this Agreement, BFEC's entire liability and
the Customer's sole and exclusive remedy for claims related to or
arising out of this Agreement for any cause and regardless of the
form of action, whether in contract or in tort, including negligence
and strict liability, shall be the Customer's actual, direct damages
such as would be provable in a court of law, but not to exceed the
charges paid to BFEC for the specific item that caused the damages.
<PAGE>
(c) IN NO EVENT SHALL BFEC BE LIABLE FOR: (1) ANY INCIDENTAL, INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS
OF USE, REVENUE OR PROFIT, EVEN IF BFEC HAS BEEN ADVISED, KNEW OR
SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES; OR (2) DAMAGES
CAUSED BY THE CUSTOMER'S FAILURE TO PERFORM ITS OBLIGATIONS UNDER
THIS AGREEMENT; OR (3) CLAIMS, DEMANDS OR ACTIONS AGAINST THE
CUSTOMER BY ANY OTHER PARTY.
(d) BFEC shall not be responsible for technical services of any sort
related to system design or operation, programming or software.
Services provided under this Agreement do not assure uninterrupted
operation of the equipment.
(e) It is the responsibility of the Customer to ensure that all of its
files are adequately duplicated and documented. BFEC will not be
responsible for Customer's failure to do so, nor for the cost of
reconstructing data stored on disk files, tapes, memories, etc.
lost during the course of performance of Service.
8. GENERAL PROVISIONS
(a) The Customer represents that it is the owner or lessee of the
Equipment subject to this Agreement.
(b) All property of BFEC except for the replacement parts incorporated
into the Equipment or purchased by the Customer or consumed in
Service, shall be returned to BFEC upon termination of coverage for
the Equipment.
(c) BFEC is not responsible for failure to fulfill its obligations
hereunder due to labor disputes, shortages of parts or materials or
any other causes similar or dissimilar, beyond its reasonable
control.
(d) The Customer shall not assign or transfer its rights or obligations
under this Agreement, except with BFEC's written consent and any
prohibited assignment or transfer shall be void. BFEC shall have
the right to sub-contract and/or assign any or all of its rights and
obligations under this Agreement.
(e) This Agreement shall be interpreted in accordance with laws, but not
the rules relating to the choice of law, of the Commonwealth of
Massachusetts.
(f) This Agreement and the Master Equipment Lease together constitute
the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous proposals, both oral
and written, negotiations, representations, commitments, writings,
agreements, and all other communications between the parties. The
terms of this Agreement shall prevail notwithstanding any variance
with the terms and conditions of any order submitted by the Customer.
(g) This Agreement may not be changed, released or discharged except by
a subsequent written agreement entered into by duly authorized
representatives of the parties.
(h) No action, regardless of form, related to or arising out of this
Agreement may be brought by either party more than two years after
the cause of action has accrued.
YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT, UNDERSTAND IT, AND AGREE
TO BE BOUND BY ITS TERMS AND CONDITIONS, FURTHER, YOU AGREE THAT IT IS THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN YOU AND BFEC WHICH
SUPERSEDES ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER
COMMUNICATIONS BETWEEN YOU AND BFEC RELATING TO THE SUBJECT MATTER.
ACCEPTED AND AGREED TO BY:
TOMAHAWK II, INC.
- --------------------
Company
Michael H. Lorber
- --------------------
Signature
Michael H. Lorber
- --------------------
Name
VP-Finance & CFO
- --------------------
Title
6/16/97
- --------------------
Date
ACCEPTED BY:
BOSTON FINANCIAL & EQUITY CORPORATION
Adolf F. Monosson
- --------------------
Signature
Adolf F. Monosson
- --------------------
Name
President
- --------------------
Title
July 7, 1997
- --------------------
Date
<PAGE>
Exhibit B
LEASE SCHEDULE NO. 01
to Master Equipment Lease between BOSTON FINANCIAL & EQUITY CORPORATION,
Lessor, and TOMAHAWK II, INC., Lessee (Lease No. 1286) dated as of June 17,
1997.
1. Description of Equipment:
DELTA TECHNOLOGY
HARDWARE:
<TABLE>
<CAPTION>
Qty Description
- --- -----------
<S> <C>
(7) IBM 7043-43P 166MHz RISC System/6000
- 1MB L2 cache
- 128MB RAM
- 2.1GB Hard Drive
- Internal CD ROM
- 20" Color Monitor
- GXT800P 24 Bit Color with Z-Buffer 1280 x 1024 graphics
- Keyboard
- 3 Button Mouse
- 3.5" Disk Drive
- 2003 Spaceball
Includes 3 yr. Maintenance on Hardware
SOFTWARE:
<CAPTION>
Qty Description
- --- -----------
<S> <C>
(7) CATIA 5626-ADD Advanced Part Design & Detailing Config.
- Object Manager
- Library
- Dynamic Sketcher
- 3D Wireframe
- 3D Parametric Variational Modeler
- Exact Solids
- Feature-Based Design
- Drafting Product
- Draw-space(2D/3D) integration Product
- 2D Wireframe & Annotation
- Surface Design
- Advanced Surface Design
(6) CATIA 5626-NCB Mfg. Interface Product
(4) CATIA 5626-NC5 Multi Axis Milling product
(7) 5765-393 AIX V4.1.5 Operating System
(7) 5696-907 PEX and PHIGS
(7) 5696-939 Open GL
Includes 1 Yr Maintenance on Software
</TABLE>
2. Lease Term. This Lease Schedule shall be effective as of the date hereof, and
unless terminated as provided herein, shall continue in full force and effect
for a period of thirty-six (36) months from Commencement Date.
- 1 -
<PAGE>
3. Payment of Rent. Lessee shall pay to Lessor as Monthly Rent for the above
Equipment the sum of Twenty-Seven Thousand Seven Hundred Fifty-Eight Dollars
($27,758) each month for the first twelve (12) months; Seven Thousand Eight
Hundred Eighty-Nine Dollars ($7,889) each month for the subsequent twelve (12)
months; and Six Thousand Two Hundred Sixty-Nine Dollars ($6,269) each month for
the final twelve (12) months. Payment will be made in advance on or before the
first day of each month of Lease Term, or any extensions thereof. Rental
payments for Months One (1) and Thirty-Six (36) are due upon signing of this
agreement with the Rental payment for the first month being applied to the month
beginning with the Commencement Date.
If delivery of the Equipment takes place on other than the first day of a month,
the rent for such partial first month shall be the amount obtained by
multiplying the following: Fraction of Monthly Rent as set forth above times the
number of days remaining in such partial first month: provided, however, that if
less than all of the Equipment is delivered prior to the Commencement Date then
Lessee shall pay rent to the Lessor for the period between such date of delivery
and Commencement Date, which rent for each full month of such period shall be
determined by multiplying by a fraction whose numerator shall be the cost of the
Equipment so delivered and whose denominator shall be the total cost of all of
the Equipment.
3a. Maintenance of the Equipment is being furnished by the Lessor pursuant to a
Master Maintenance Agreement dated June 17, 1997 with the Lessee. Any charges
with respect to such maintenance are included in the stated rent. Lessor,
however, may, on thirty (30) days prior written notice, increase the charges for
maintenance and thereupon the rent to be paid with respect to the Equipment
shall be increased by the amount of such increase in the maintenance charges.
4. Extension of Lease. Lessee shall have the option to extend this Lease
Schedule at the end of the present term for a twenty-four (24) month period at a
monthly rental charge of Two Thousand Five Hundred Ninety Dollars ($2,590)
each month, plus the then current monthly maintenance charges, and a subsequent
option to extend this Lease Schedule for sixty (60) months at a monthly rental
charge of One Thousand Three Hundred Sixty-Eight Dollars ($1,368) each month,
plus the then current monthly maintenance charges.
4a. Security Deposit. In addition to all other payments required of Lessee
hereunder, upon execution of this Lease Schedule, Lessee will pay to Lessor
the sum of Fifty-Six Thousand Four Hundred Eighty-Seven Dollars ($56,487) as
a Security Deposit. Such deposit may be applied by Lessor in whole or partial
satisfaction of any liability of Lessee hereunder which is not paid when due.
Lessor agrees to return $34,403 of the Security Deposit at month thirteen (13)
and $22,084 of the Security Deposit at the completion of Month Thirty-Six (36)
provided that none of the Events of Default have occurred (whether or not the
same is continuing).
5. Should Lessee wish to exercise the extension option under Section 4, Lessor
must be notified in writing by Lessee, via certified mail, of Lessee's intention
to exercise this option. Said notification must be received at least ninety (90)
days prior to termination of this Lease Schedule. Should said notice not be
delivered to Lessor, Lessee shall forfeit the option
- 2 -
<PAGE>
contained in Section 4 and all Equipment shall be delivered to the Lessor at the
conclusion of the Lease Term. Should Lessee forfeit the option contained in
Section 4 and all Equipment is not received by the Lessor at the conclusion of
the Lease Term, Lessee shall, until such Equipment is so returned, pay to Lessor
on account of damages a monthly amount equal to Six Thousand Two Hundred
Sixty-Nine Dollars ($6,269), plus the then current monthly maintenance charges.
6. Termination of Lease. Should Lessee not wish to exercise the extension option
under Section 4, Lessor must be notified in writing, via certified mail, of
Lessee's intention to terminate this Lease Schedule. Said notification must be
received at least ninety (90) days prior to the end of the term of this Lease
Schedule. All Equipment shall be delivered to Lessor at the conclusion of the
Lease Term pursuant to Section 3 of the Master Equipment Lease. Should said
notice not be delivered to Lessor and all Equipment is not received at the
conclusion of the Lease Term, Lessee shall, until such Equipment is so returned,
pay to Lessor on account of damages a monthly amount equal to Six Thousand Two
Hundred Sixty-Nine Dollars ($6,269), plus the then current monthly maintenance
charges.
7. Equipment Location (complete address):
TOMAHAWK II, INC.
8315 CENTURY PARK COURT, SUITE 200
SAN DIEGO, CA 92123
8. Lessee's Billing Address:
TOMAHAWK II, INC.
8315 CENTURY PARK COURT, SUITE 200
SAN DIEGO, CA 92123
9. All of the provisions of the above-mentioned Master Equipment Lease are
incorporated by reference herein as if set forth fully herein.
10. This Lease Schedule is conditional upon approval of Lessor, and is neither
consummated nor binding on Lessor until accepted by an authorized officer of
Lessor. Such acceptance will be rendered only after submission of all necessary
information to the Lessor and an evaluation by the Lessor of the acceptability
of the Lessee for the Lease Schedule herein described.
Signature of this Lease Schedule by the Lessor shall constitute acceptance and
all aforementioned terms and conditions and shall be effective upon endorsement
by the Lessor.
LESSEE LESSOR
TOMAHAWK II, INC. BOSTON FINANCIAL & EQUITY CORPORATION
/s/ Michael H. Lorber /s/ Adolf F. Monosson
- ------------------------------- -------------------------------------
(Signature) (Signature)
Michael H. Lorber Adolf F. Monosson
- ------------------------------- -------------------------------------
(Name) (Name)
VP-Finance & CFO President
- ------------------------------- -------------------------------------
(Title) (Title)
7/1/97 July 7, 1997
- ------------------------------- -------------------------------------
(Date) (Date)
- 3 -
<PAGE>
EXHIBIT C
CERTIFICATE OF ACCEPTANCE AND SATISFACTION
BOSTON FINANCIAL & EQUITY CORPORATION
P.O. Box 15071
Boston, Massachusetts 02215
The undersigned, the Lessee, hereby acknowledges receipt of the equipment
itemized herein.
SCHEDULE NO. 1
Page 1 of 2
<TABLE>
<CAPTION>
Serial Delivery Installation
Qty Equipment Description Number Date Date
- --- --------------------- ------ -------- ------------
<S> <C> <C> <C>
DELTA TECHNOLOGY EQUIPMENT
HARDWARE:
(7) IBM 7043-43P 166 MHz RISC System/6000 26-03543 2/15/97 2/15/97 (3)
- 1MB L2 cache 26-03542
- 128MB RAM
- 2.1GB Hard Drive 26-03536 2/31/97 2/31/97 (3)
- Internal CD ROM 26-03537 3/5/97 3/5/97 (1)
- 20" Color Monitor 26-03541
- GXT800P 24 Bit Color with Z-Buffer
1280 x 1024 graphics 26-03550
- Keyboard 26-03860
- 3 Button Mouse
- 3.5" Disk Drive
- 2003 Spaceball
SOFTWARE
(7) CATIA 5626-ADD Advanced Part Design
& Detailing Config.
- Object Manager 2/15/97 2/15/97 (3)
- Library
- Dynamic Sketcher 2/31/97 2/31/97 (3)
- 3D Wireframe
- 3D Parametric Variational Modeler 3/5/97 3/5/97 (1)
- Exact Solids
- Feature-Based Design
- Drafting Product
- Draw-space (2D/3D) integration Product
- 2D Wireframe & Annotation
<CAPTION>
NCB NC5
--- ---
<S> <C> <C> <C> <C>
- Surface Design 2/15/97 2/15/97 (1) (1)
- Advanced Surface Design 2/31/97 2/31/97 (1) (1)
(6) CATIA 5626-NCB Mfg. Interface Product 3/5/97 3/5/97 (1) (1)
(4) CATIA 5626-NC5 Multi Axis Milling Product 5/27/97 5/27/97 (3) (1)
(7) 5765-393 AIX V4.1.5 Operating System 2/15/97 2/15/97 (3)
(7) 5696-907 PEX and PHIGS 2/31/97 2/31/97 (3)
(7) 5696-939 Open GL 3/5/97 3/5/97 ( )
</TABLE>
User further acknowledges the following:
(A) That the Lessee selected the equipment and that neither the supplier
from whom the Lessor purchased the equipment nor any salesman or other
agent of the supplier is an agent or representative of the Lessor; and
<PAGE>
CERTIFICATE OF ACCEPTANCE AND SATISFACTION
BOSTON FINANCIAL & EQUITY CORPORATION
P.O. Box 15071
Boston, Massachusetts 02215
The undersigned, the Lessee, hereby acknowledges receipt of the equipment
itemized herein.
SCHEDULE NO. 1
Page 2 of 2
(B) That, having examined the equipment, its parts and accessories, the Lessee
is completely satisfied with its delivery and installation and that it meets
all the tests of suitability, merchantability and fitness for the particular
purpose for which it was leased; and Lessee hereby authorizes and requests
Lessor to make payment for the Equipment to the supplier thereof; and
(C) That the Lessee understands and agrees that the Lessor makes no warranty
expressed or implied as to any matter whatsoever concerning the condition of
the equipment and that neither Lessor nor its assignees shall be liable
to Lessee for any loss, damage, or expense of any kind or nature caused
directly or indirectly by the equipment or the use or maintenance thereof,
or the failure of operation thereof; Lessor will not be liable to Lessee for
any consequential or incidental damages to Lessee; and
(D) That if the equipment is not properly installed, does not operate as
represented by supplier, or is unsatisfactory for any reason, Lessee shall
make claim on account thereof solely against supplier and shall nevertheless
pay Lessor all rent payable under this lease; Lessee hereby waiving any and
all rights, claims and set-offs against the Lessor that might have otherwise
arisen under the purchase agreement.
(E) That the date hereunder is the actual date of Equipment Acceptance and
Satisfaction.
The Lessee further acknowledges receiving a copy of this certificate for
retention in Lessee's files.
Lessee: TOMAHAWK II, INC.
By: /s/ Michael H. Lorber
------------------------------------
Title: VP Finance & CFO
---------------------------------
Date Accepted: 7/1/97 Date Signed: 7/1/97
---------------- ---------------------------
<PAGE>
Exhibit D
LEASE SCHEDULE NO. 2
to Master Equipment Lease between BOSTON FINANCIAL & EQUITY CORPORATION,
Lessor, and TOMAHAWK II, INC., Lessee (Lease No. 1286) dated as of July 7, 1997.
1. Description of Equipment: SOFTWARE
<TABLE>
<CAPTION>
QTY. DESCRIPTION
---- -----------
<S> <C>
(2) CATIA 5626 NC5 MULTI AXIS MILLING PRODUCT
INCLUDES 1 YR MAINTENANCE AND 1 YR LICENSE CHARGE
</TABLE>
2. Lease Term. This Lease Schedule shall be effective as of the date hereof, and
unless terminated as provided herein, shall continue in full force and effect
for a period of thirty-six (36) months from Commencement Date.
3. Payment of Rent. Lessee shall pay to Lessor as Monthly Rent for the above
Equipment the sum of One Thousand Seven Hundred Thirteen Dollars ($1713) each
month for the first twelve (12) months and One Hundred Eighty-Seven Dollars
($187) each month for the final twenty-four (24) months. Payment will be made in
advance on or before the first day of each month of Lease Term, or any
extensions thereof. Rental payments for Months One (1) and Thirty-Six (36) are
due upon signing of this agreement with the Rental payment for the first month
being applied to the month beginning with the Commencement Date.
If delivery of the Equipment takes place on other than the first day of a month,
the rent for such partial first month shall be the amount obtained by
multiplying the following: Fraction of Monthly Rent as set forth above times the
number of days remaining in such partial first month: provided, however, that if
less than all of the Equipment is delivered prior to the Commencement Date then
Lessee shall pay rent to the Lessor for the period between such date of delivery
and Commencement Date, which rent for each full month of such period shall be
determined by multiplying by a fraction whose numerator shall be the cost of the
Equipment so delivered and whose denominator shall be the total cost of all of
the Equipment.
4. Extension of Lease. Lessee shall have the option to extend this Lease
Schedule at the end of the present term for a twenty-four (24) month period
at a monthly rental charge of Ninety-Four Dollars ($94) each month, and a
subsequent option to extend this Lease Schedule for sixty (60) months at a
monthly rental charge of Forty-Seven Dollars ($47) each month.
- 1 -
<PAGE>
4a. Security Deposit. In addition to all other payments required of Lessee
hereunder, upon execution of this Lease Schedule, Lessee will pay to Lessor the
sum of Two Thousand Eight Hundred Eight Dollars ($2808) as a Security Deposit.
Such deposit may be applied by Lessor in whole or partial satisfaction of any
liability of Lessee hereunder which is not paid when due. Lessor agrees to
return One Hundred Percent (100%) of the Security Deposit at the completion of
Month twelve (12) provided that none of the Events of Default have occurred
(whether or not the same is continuing).
5. Should Lessee wish to exercise the extension option under Section 4, Lessor
must be notified in writing by Lessee, via certified mail, of Lessee's intention
to exercise this option. Said notification must be received at least ninety (90)
days prior to termination of this Lease Schedule. Should said notice not be
delivered to Lessor, Lessee shall forfeit the option contained in Section 4 and
all Equipment shall be delivered to the Lessor at the conclusion of the Lease
Term. Should Lessee forfeit the option contained in Section 4 and all Equipment
is not received by the Lessor at the conclusion of the Lease Term, Lessee shall,
until such Equipment is so returned, pay to Lessor on account of damages a
monthly amount equal to One Hundred Eighty-Seven Dollars ($187).
6. Termination of Lease. Should Lessee not wish to exercise the extension option
under Section 4, Lessor must be notified in writing, via certified mail, of
Lessee's intention to terminate this Lease Schedule. Said notification must be
received at least ninety (90) days prior to the end of the term of this Lease
Schedule. All Equipment shall be delivered to Lessor at the conclusion of the
Lease Term pursuant to Section 3 of the Master Equipment Lease. Should said
notice not be delivered to Lessor and all Equipment is not received at the
conclusion of the Lease Term, Lessee shall, until such Equipment is so returned,
pay to Lessor on account of damages a monthly amount equal to One Hundred
Eighty-Seven Dollars ($187).
7. Equipment Location (complete address):
TOMAHAWK II, INC.
Suite 200
8315 Century Park Court
San Diego, CA 92123
8. Lessee's Billing Address:
TOMAHAWK II, INC.
Suite 200
8315 Century Park Court
San Diego, CA 92123
9. All of the provisions of the above-mentioned Master Equipment Lease are
incorporated by reference herein as if set forth fully herein.
-2-
<PAGE>
10. This Lease Schedule is conditional upon approval of Lessor, and is neither
consummated nor binding on Lessor until accepted by an authorized officer of
Lessor. Such acceptance will be rendered only after submission of all necessary
information to the Lessor and an evaluation by the Lessor of the acceptability
of the Lessee for the Lease Schedule herein described.
Signature of this Lease Schedule by the Lessor shall constitute acceptance and
all aforementioned terms and conditions and shall be effective upon endorsement
by the Lessor.
LESSEE LESSOR
TOMAHAWK II, INC. BOSTON FINANCIAL & EQUITY CORPORATION
/s/ Michael H. Lorber /s/ Adolf F. Monosson
- ----------------------------------- -------------------------------------
(Signature) (Signature)
Michael H. Lorber Adolf F. Monosson
- ----------------------------------- -------------------------------------
(Name) (Name)
VP Finance & CFO President
- ----------------------------------- -------------------------------------
(Title) (Title)
9/24/97 10/3/97
- ----------------------------------- -------------------------------------
(Date) (Date)
- 3 -
<PAGE>
Exhibit E
PURCHASE AGREEMENT ASSIGNMENT AND CONSENT
THIS AGREEMENT dated as of June 19, 1997, is entered into by Boston Financial &
Equity Corporation ("Lessor"), TomaHawk II, Inc. ("Lessee"), and Delta
Technology ("Vendor"), in connection with the equipment lease ("Lease") between
Lessor and Lessee dated June 17, 1997, for the Equipment identified on the
attached Exhibit I.
RECITALS
(A) Lessee desires to lease the equipment ("Equipment") described in the
attached Exhibit I which was shipped under Lessee Purchase Order Nos. 196284,
196270 and 196293, collectively the ("Purchase Agreement") in the amount of
Three Hundred Seventy-Six Thousand Five Hundred Seventy-Nine Dollars
($376,579) issued to Vendor and Lessor is willing to accept assignment of
certain of Lessee's rights and interest under the Purchase Agreement.
(B) Lessor and Lessee wish Vendor, and Vendor is willing, to consent to such
assignment, and all three parties wish to define their respective rights and
obligations in connection with the sale of Equipment to Lessor pursuant thereto.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
(1) Lessee hereby assigns and sets over to Lessor all of Lessee's right and
interest in and to the Equipment, and in and to the Purchase Agreement as the
same relates to the Equipment, including without limitation in such assignment
(i) the right to purchase the Equipment pursuant to the Purchase Agreement and
(ii) all claims for damages in respect of the Equipment arising as a result of
any default by Vendor under the Purchase Agreement, including without limitation
all warranty and indemnity provisions contained therein and all claims arising
thereunder. On and subject to the remaining provisions of this Agreement, Lessor
hereby accepts, and Vendor hereby consents to, such assignment.
(2) The parties agree that except as otherwise expressly provided in the
remainder of this Agreement, (a) Lessee shall at all times remain liable to
Vendor to perform all of the duties and obligations of the purchaser under the
Purchase Agreement to the same extent as if this Agreement had not been
executed; (b) the execution of this Agreement shall not modify any contractual
rights or obligations of Vendor under the Purchase Agreement, and Lessor shall
have no greater rights against Vendor than would Lessee if this Agreement had
not been executed; (c) the exercise by Lessor of any of the rights assigned
hereunder shall not release Lessee from any of its duties or obligations to
Vendor under the Purchase Agreement, and (d) Lessor shall not have any
obligation or liability under the Purchase Agreement by reason of, or arising
out of, this Agreement.
(3) Lessor agrees that upon timely satisfaction of all conditions precedent
specified with respect to the Equipment in the Lease and/or in any commitment
letter between Lessor and Lessee relating to the Equipment, Lessor will become
unconditionally obligated to purchase and pay the price of the Equipment to
Vendor, such price to be payable not later than 30 days following the date on
which Lessor receives Certificate of Acceptance and Satisfaction from Lessee.
Vendor agrees to submit an invoice acceptable to the Lessor for the Equipment.
Vendor agrees, any provision of the Purchase Agreement to the contrary
notwithstanding, that if Lessor shall become obligated to purchase the Equipment
as provided above, and shall pay for the Equipment in full, Lessee shall be
relieved of its payment obligations thereunder; otherwise, Lessee shall be
obligated to purchase and pay for the Equipment to the same extent as if this
Agreement had not been executed. Lessor will promptly notify Vendor when all
such conditions precedent have been met.
(4) The parties agree, any provision of the Purchase Agreement to the contrary
notwithstanding, that subject to satisfaction, at or prior to such time, of the
conditions precedent referred to in Section 3 hereof to Lessor's obligation to
purchase the Equipment, title to the Equipment shall pass to Lessor.
1
<PAGE>
(5) Vendor agrees, any provision of the Purchase Agreement to the contrary
notwithstanding, that it will not retain any security interest, lien or other
encumbrance on the Equipment after the time at which title thereto shall pass to
Lessor in accordance with Section 4 hereof and payment has been received by
Vendor. Vendor shall execute such documents as Lessor may reasonably request
evidencing the release of such security interest, lien or encumbrance.
(6) Vendor agrees, any term of the Purchase Agreement to the contrary
notwithstanding, that if Lessor acquires title to the Equipment as provided
above, Lessor and its successors and assigns shall be entitled to the full
benefit of all warranties applicable to such Equipment which Lessee would be
entitled to enforce if this Agreement had not been executed. Vendor agrees to
extend full warranty period for the Equipment to the Lessor upon execution of
this Agreement.
(7) Lessor agrees that so long as no default (or event which, with notice and
the lapse of time or both, would constitute a default) under the Lease has
occurred and is continuing, Lessee shall be and hereby is authorized on behalf
of Lessor, but in the name of Lessee, to exercise all rights and powers of the
purchaser under the Purchase Agreement with respect to the Equipment and to
retain any recovery or benefit resulting from the enforcement of any warranty,
indemnity or right to damages under the Purchase Agreement or otherwise existing
against Vendor with respect to the Equipment. Vendor consents to such
authorization. All parties hereto agree that upon written notice from Lessor to
Lessee and Vendor at their respective addresses set forth below (or at such
other address as either party may hereafter designate in writing) that a default
by Lessee (or an event which, with notice or lapse of time or both, would
constitute a default) under the Lease has occurred and is continuing, Lessee's
authorization set forth in this section shall terminate, and Vendor's
obligations under the Purchase Agreement (and all other rights against Vendor
with respect to the Equipment) shall thereafter be enforceable only by Lessor.
(8) This Agreement and the Purchase Agreement together constitute the sole
agreement of the parties concerning the purchase of the Equipment by Lessee or,
if the conditions precedent referred to in Section 3 hereof are satisfied, by
Lessor, and supersede all other prior and contemporaneous agreements, whether
written or oral, with respect thereto.
(9) This Agreement and the terms and conditions contained herein is confidential
and proprietary. Lessee and Vendor agree not to disclose the same to any other
party without the prior written consent of Lessor.
This Agreement may be amended only by a written instrument executed by all
parties.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date set
forth below their respective signatures.
VENDOR: DELTA TECHNOLOGY LESSEE: TOMAHAWK II, INC.
By: /s/ [Illegible] By: /s/ Michael H. Lorber
--------------------------- ----------------------------
Title: LLC MEMBER, SECRETARY Title: VP Finance & CFO
--------------------------- ----------------------------
Address: 373 Van Ness Ave, Suite 100 Address: 8315 Century Park Ct, #200
Torrance, CA 90501 San Diego, CA 92133
--------------------------- ----------------------------
LESSOR BOSTON FINANCIAL & EQUITY CORPORATION
By: /s/ [Illegible]
-----------------------------------
Title: Exec VP
-----------------------------------
Date: 7/9/97
-----------------------------------
Address: 20 Overland Street, Boston, Massachusetts 02215
2
<PAGE>
E X H I B I T I TO PURCHASE AGREEMENT ASSIGNMENT AND CONSENT
LESSEE: TOMAHAWK II, INC. LESSOR: BOSTON FINANCIAL & EQUITY CORPORATION
DELTA TECHNOLOGY EQUIPMENT
- --------------------------
HARDWARE:
<TABLE>
<CAPTION>
Qty Description Unit UNIT EXT
- --- ----------- ------- --------
<S> <C> <C> <C>
(7) IBM 7043-43P 166MHz RISC System/6000 $21,032 $147,225
- 1MB L2 cache
- 128MB RAM
- 2.1GB Hard Drive
- Internal CD ROM
- 20" Color Monitor
- GXT800P 24 Bit Color with
Z-Buffer 1280 x 1024 graphics
- Keyboard
- 3 Button Mouse
- 3.5" Disk Drive
- 2003 Spaceball
HARDWARE TOTAL includes 3 yrs Maintenance $147,225
--------
--------
</TABLE>
SOFTWARE:
<TABLE>
<CAPTION>
Qty Description PLC ALC
- --- ----------- --- ---
<S> <C> <C> <C>
(7) CATIA 5626-ADD Advanced Part Design $138,600 $21,560
& Detailing Config.
- Object Manager
- Library
- Dynamic Sketcher
- 3D Wireframe
- 3D Parametric Variational Modeler
- Exact Solids
- Feature-Based Design
- Drafting Product
- Draw-space(2D/3D) integration Product
- 2D Wireframe & Annotation
- Surface Design
- Advanced Surface Design
(6) CATIA 5626-NCB Mfg. Interface Product $ 16,200 $ 2,520
(4) CATIA 5626-NC5 Multi Axis Milling product $ 32,400 $ 5,040
(7) 5765-393 AIX V4.1.5 Operating System $ 4,760
(7) 5696-907 PEX and PHIGS $ 4,137
(7) 5696-939 Open GL $ 4,137
--------
SOFTWARE TOTAL includes 1 yr Maintenance on Software. $229,354
--------
--------
</TABLE>
Notes: 1. New ALC charges of $29,120 will be billed direct to Tomahawk II
12 Mo. from installation date.
2. Above Hardware system comes with extended 2yr Maintenance to run
3yrs from date of installation.
3. Above systems have been ordered and installed on Tomahawk's P.O.
#196284, 196270, & 196293.
<PAGE>
Exhibit F
[BOSTON FINANCIAL & EQUITY CORPORATION LETTERHEAD]
VIA: FEDERAL EXPRESS
---------------------
June 20, 1997
Mr. Michael Lorber
Chief Financial Officer
TOMAHAWK II, INC.
8315 Century Park Court, Suite 200
San Diego, CA 92123
RE: LEASE LINE AGREEMENT
Dear Mr. Lorber:
Boston Financial & Equity Corporation ("BF&EC") is pleased to make the following
Lease Line Agreement ("Agreement") with TomaHawk II, Inc. ("TomaHawk") to
provide equipment leasing to TomaHawk in the amount hereinafter specified and
for the period ("Availability Period") and on the terms and conditions
hereinafter specified:
1. During the Availability Period, we would propose to lease equipment to
TomaHawk, which equipment, in the aggregate, would have a cost of not more
than up to $230,000 for Software and up to $130,000 for Hardware. All costs
relating to the installation, freight, training, insurance and any other
cost related to the acquisition, installation or operation of the leased
equipment would be paid directly by TomaHawk and would not be included as
part of the Agreement.
2. The Availability Period commences on June 5, 1997 and expires on June 4,
1998. To the extent leases have not been executed and the purchase orders
submitted by BF&EC to the supplier of the proposed leased equipment, and
accepted by the supplier during the Availability Period, this Agreement will
be of no further effect.
3. For each item of equipment leased during the Availability Period, the lease
will have an initial term of thirty-six (36) months with a monthly rental
factor of .0460 for Hardware and .0915 for Software for months one (1)
through twelve (12); .0380 for Hardware and .0100 for Software for months
thirteen (13) through twenty-four (24); and .0270 for Hardware and
.0100 for Software for the final twelve (12) months. The actual monthly
rental will be determined by multiplying the cost of the equipment by the
applicable monthly rental factor, plus any monthly maintenance charges.
Advance rental payments for Months One (1) and Thirty-Six (36) are due upon
execution of each lease schedule.
Continued ...
<PAGE>
[BOSTON FINANCIAL & EQUITY CORPORATION LETTERHEAD]
Page Two
Mr. Michael Lorber
TOMAHAWK II, INC.
June 20, 1997
4. The proposed lease transaction is intended to be a true lease and TomaHawk
will have no option of any kind to acquire title to the leased equipment.
However, at the end of the initial term, TomaHawk will have the right,
assuming no default and upon no less than ninety (90) days written notice,
to extend the lease term for an additional twenty-four (24) months at a
monthly rental factor of .0098 for Hardware and .0050 for Software per
month, plus any monthly maintenance charges, and a subsequent right,
assuming no default and upon no less than ninety (90) days written notice,
to extend the lease term for an additional sixty (60) months at a monthly
rental factor of .0054 for Hardware and .0025 for Software per month, plus
any monthly maintenance charges.
5. All of TomaHawk's obligations under the lease are guaranteed, jointly and
severally, by each of TomaHawk Corporation of Alberta, Canada and TomaHawk
Imaging & Financial, Inc. of Alberta, Canada.
6. We reserve the right to require a security deposit equal in amount to
Fifteen Percent (15%) of the aggregate equipment cost under each lease or
lease schedule.
7. TomaHawk extends to BF&EC the right of first refusal on subsequent equipment
needs.
8. The documentation to be utilized in connection with each lease transaction
pursuant to this Agreement will be BF&EC's Standard Master Equipment Lease,
with appropriate lease schedules, as well as a filing of appropriate
financing statements to give public notice of the lease transaction, and the
delivery by TomaHawk of such other instruments, documents and certificates
as BF&EC or its counsel may require.
9. TomaHawk must furnish to BF&EC, on a regular basis, pursuant to the terms of
the Master Equipment Lease, financial statements and at any time as
Tomahawk's financial condition shall not be satisfactory to BF&EC, BF&EC may
forthwith terminate this Agreement.
10. In all events, BF&EC reserves the right to reject TomaHawk's request to
lease any particular item of equipment. BF&EC's obligation to lease the same
to TomaHawk, assuming that BF&EC does not reject TomaHawk's request, is
based upon the availability of the equipment at a price satisfactory to
BF&EC.
Continued ...
<PAGE>
[BOSTON FINANCIAL & EQUITY CORPORATION LETTERHEAD]
Page Three
Mr. Michael Lorber
TOMAHAWK II, INC.
June 20, 1997
11. This Agreement and the terms and conditions contained herein is confidential
and proprietary. TomaHawk agrees not to disclose the same to any other party
without the prior written consent of BF&EC.
12. This Agreement and the respective obligations herein shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts.
13. As part of this Lease Line Agreement, TomaHawk Corporation will issue to
BF&EC 115,000 shares of its Common Stock in accordance with the rules and
regulations of the Alberta Stock Exchange, to be delivered at time of
execution of this Lease Line Agreement in a form acceptible to BF&EC. -
14. TomaHawk agrees that it shall not transfer funds to its parent company,
TomaHawk Imaging & Financial, Inc., or to TomaHawk Imaging & Financial,
Inc.'s parent company, TomaHawk Corporation, other than those funds
necessary to satisfy the requirements of the Alberta Stock Exchange,
and reasonable legal and accounting and other corporate expenses.
If this Agreement is satisfactory to TomaHawk, please accept the same by signing
and returning the enclosed counterpart with 115,000 shares of TomaHawk
Corporation Common Stock issued to BF&EC. Unless such counterpart is accepted by
TomaHawk and received by BF&EC with such Common Stock (allowing for reasonable
delay for receipt by BF&EC of such Common Stock) on or before June 25, 1997,
this Agreement shall be of no further force and effect. The non-refundable fee
of $7,000 has already been received by BF&EC.
Sincerely,
BOSTON FINANCIAL & EQUITY CORPORATION
Ida Bratsis
Contract Manager
AGREED AND ACCEPTED:
TOMAHAWK II, INC.
/s/ Michael H. Lorber
- --------------------------
(Signature)
Michael H. Lorber
- --------------------------
(Name)
VP-Finance & CFO
- --------------------------
(Title)
7/1/97
- --------------------------
(Date)
<PAGE>
Exhibit 10.5
The convertible note represented hereby is not transferable. The common
shares issuable upon conversion of the convertible note are not transferable
in the Province of Alberta prior to January 8, 1998 except pursuant to a
prospectus exemption pursuant to applicable securities legislation or an
order of the applicable securities commission. The securities represented
hereby may be subject to additional restrictions or resale and in Canadian
jurisdictions other than Alberta, the securities represented hereby may be
subject to hold periods of indefinite duration. Investors must consult their
own legal advisers prior to resale.
This convertible note and the common shares to be issued upon the conversion
thereof have not been registered under the United States Securities Act of
1933, as amended (the "1933 Act"), or the securities laws of any state or
jurisdiction of the United States. The securities represented hereby have not
been qualified pursuant to a prospectus in any Canadian jurisdiction. The
convertible note may not be exercised by or on behalf of a person in the
United States or by a U.S. Person unless registered under the 1933 Act and
the applicable securities laws of any state or an exemption from such
registration is available. "United States" and "U.S. Person" are as defined
by Regulation S under the 1933 Act.
TOMAHAWK CORPORATION
(Incorporated under the laws of the Province of Alberta)
U.S. $250,000 AMENDED CONVERTIBLE NOTE
DUE JANUARY 8, 2001
TOMAHAWK CORPORATION, (the "Corporation"), for value received hereby promises
to pay to NORMAN SIEGEL, 1836 N. SEDGWICK, CHICAGO, ILLINOIS, USA, 60614 (the
"Holder") or to his heir, successor or assign who becomes the registered
Holder hereof, on (or, at the option of the Corporation, before) January 8,
2001, on presentation and surrender of this Note at the head office of the
Corporation at 9591 Waples Street, San Diego, California, USA (or such other
office as the Corporation shall subsequently advise the Holder of in
writing), the sum of TWO HUNDRED FIFTY THOUSAND DOLLARS in lawful money of
the United States of America (U.S. $250,000).
PAYMENT OF INTEREST
The Corporation hereby promises to pay to the Holder, interest on the
principal ("Principal") being, U.S. $250,000 or such lesser amount of
principal balance hereof which shall from time to time be outstanding and
unpaid pursuant to this Note after giving effect to one or more partial
repayments, redemptions or conversions as permitted and contemplated herein.
Interest shall be calculated at the rate of 1% above the index rate as
established and announced from time to time by the Bank of America, Chicago,
Illinois, (which rate may not be the lowest rate of interest charged by Bank
of America to its customers) such interest to be calculated from December 31,
1996 to January 8, 2001. Changes in the index rate shall take effect on the
date set forth in each such announcement by the Bank of America of such
change. Interest shall be payable and required to be paid monthly on the first
day of each and every month and shall be calculated on the basis of the
actual number of days elapsed over a year of 360 days but shall not exceed
the maximum rate of interest allowable under applicable law for loans of this
type. Principal due hereunder shall bear interest after maturity, whether
pursuant to acceleration, expiration of the term of this Note or otherwise at
3% per annum over the prematurity rate.
As interest on this Note becomes due, the Corporation (except in case of
payment at maturity or on conversion at which time payment of interest will
be made upon surrender of this Note) shall forward or cause to be forwarded
by ordinary post to the office of the Holder at 1836 N. Sedgwick, Chicago,
Illinois, USA, 60614 (or such other office as the Holder shall advise the
Corporation in writing), a cheque or bank draft drawn on the Corporation's
bankers for such interest, less any tax required by law to be paid.
Notwithstanding anything herein to the contrary, the Holder shall never be
entitled to charge, take or receive as interest any amount in excess of the
maximum rate of interest permitted by law. If the Holder shall receive
documents in excess of such maximum permitted rate, such excess shall be
applied to unpaid principal hereunder, or if no principal remains unpaid,
refunded to the Corporation.
Unless otherwise agreed to by the parties and consented to by any applicable
securities regulatory bodies, including The Alberta Stock Exchange, all
interest on principal, interest on unpaid interest or any other interest or
other
<PAGE>
payments due or payable pursuant to this Note, other than payment of the
Principal shall be payable in cash money and shall not be payable in Common
Shares of the Corporation.
CONVERSION OF NOTE
Subject to the section entitled "Adjustments" herein, this Note is
convertible, at the option of the Holder, in whole or in part, in one or more
parts, at any time and from time to time on or before JANUARY 8, 2001, in
such amounts as the Holder may elect, into fully paid and non-assessable
common shares ("Common Shares") in the capital of the Corporation as presently
constituted (without adjustment for dividends on shares issuable upon
conversion) at a conversion rate of U.S. $0.1695 PER SHARE (being Cdn. $0.23
per share as at the date August 26, 1996, being the date such price was fixed
with The Alberta Stock Exchange, based on a U.S./Cdn. dollar exchange rate of
1.3566) up to an aggregate maximum of 1,474,565 Common Shares.
In order to exercise the conversion privilege, the Holder shall surrender
this Note to the Corporation at its head office, accompanied by written
notice (which shall be irrevocable) signed by the Holder stating that he
elects to convert all or a portion of this Note into common shares, and such
notice shall clearly state the number of Common Shares to be subscribed for.
Such notice shall also state the name or names in which the certificates form
Common Shares shall be issuable upon such conversion and shall include the
addresses of such person(s) so named.
If any of the Common Shares into which this Note is to be converted are to be
issued to a person or persons other than the Holder of this Note, such notice
shall be accompanied by payment to the Corporation of any transfer or other
tax which may be payable by reason thereof. The surrender of this Note
accompanied by such written notice shall be deemed to constitute a contract
between the Holder and the Corporation whereby:
(i) the Holder subscribes for the number of Common Shares which
he shall be entitled to receive on such conversion;
(ii) the Holder releases the Corporation from any and all
liability thereon or the portion thereof which is converted, as the
case may be, and agrees to execute such discharge and/or such other
documents as the Corporation may reasonably request or require;
(iii) the Corporation agrees that the surrender of this Note for
conversion constitutes full payment of the subscription price for
the Common Shares issuable upon such conversion; and
(iv) the Corporation agrees upon each conversion in whole or in
part of the Note to forthwith issue and cause to be delivered both
a new note representing the balance of the indebtedness not
converted and certificates representing that number of fully paid
and non-assessable Common Shares as have been converted and
subscribed.
ENFORCEABILITY
The whole of the Principal herein referred to shall become forthwith due and
payable, upon the happening of any one or more of the following events:
(i) if the Corporation makes default in payment of the Principal of
this Note when the same becomes due;
(ii) if the Corporation makes default in payment in money of any
interest due on any interest payment date and such failure shall have
continued for a period of 90 days after the default of such payment;
(iii) if the Corporation makes a declaration of bankruptcy, a receiver
or receiver-manager is appointed, or if any steps are taken for the
winding up or liquidation of the Corporation or if the Corporation makes
a general assignment for the benefit of its creditors;
(iv) if the Corporation neglects to observe or perform any covenant
or condition of this Note and the Corporation fails to remedy such
neglect within 90 days after receipt of a written notice from the Holder
requiring the Corporation to remedy such neglect; or
(v) in the event of default under the Security Agreement referred to
under the heading "Other Agreements and Security" herein.
2
<PAGE>
REPAYMENT AND REDEMPTION
The Corporation may, without penalty or premium, at any time and from time to
time on or before January 8, 2001, repay the total or any part of the
Principal upon payment of accrued interest to the date of such repayment. The
Corporation agrees upon each redemption in whole or in part of the Note to
forthwith issue and cause to be delivered a new Note representing the balance
of the indebtedness not repaid. If this Note is actually redeemed in full by
the Corporation it shall be cancelled and shall not be reissued.
TRANSFERABILITY
This Note is non-transferable. The transfer of any Common Shares resulting
from the conversion of this Note shall be subject to and restricted by the
provisions of applicable securities legislation. THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THE NOTE ARE NOT TRANSFERABLE IN THE PROVINCE OF ALBERTA
UNTIL JANUARY 8, 1998 AND IN OTHER CANADIAN JURISDICTIONS MAY BE SUBJECT TO
AN INDEFINITE HOLD PERIOD. THE CERTIFICATES REPRESENTING THE SECURITIES
REFERRED TO HEREIN WILL BE LEGENDED WITH APPLICABLE HOLD PERIODS. HOLDERS ARE
ADVISED TO CONSULT THEIR OWN LEGAL COUNSEL IN THIS REGARD.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
CORPORATION THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (C)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR (D) WITH THE PRIOR WRITTEN CONSENT OF THE
CORPORATION, PURSUANT TO ANOTHER APPLICABLE EXEMPTION UNDER THE U.S.
SECURITIES ACT OR THE REGULATIONS OR POLICIES PROMULGATED THERETO AND ANY
APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE GOOD DELIVERY IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN
CANADA. DELIVERY OF WHICH WILL CONSTITUTE GOOD DELIVERY, MAY BE OBTAINED
FROM THE REGISTRAR AND TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A
DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND
TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT. THE HOLDER BY PURCHASING SUCH
SECURITIES AGREES FOR THE BENEFIT OF THE CORPORATION THAT THE CORPORATION HAS
NO MADE NO REPRESENTATION AS TO THE AVAILABILITY OF AN APPLICABLE EXEMPTION.
OTHER AGREEMENTS AND SECURITY
Each of the parties indicated on the last page hereof, acknowledge and agree
that this Convertible Note is intended to and does revoke, replace and
supersede the Secured Promissory Note dated November 19, 1996 between
TomaHawk II, Inc., the Corporation's wholly owned subsidiary and the Holder.
Notwithstanding the foregoing, and in limitation thereof, the parties
acknowledge and agree that that certain Security Agreement dated November 19,
1996 between TomaHawk II, Inc. and the Holder hereof shall continue in full
force and effect and the terms and conditions of which are incorporated by
reference herein and the amounts owing hereunder continue to be secured as
set forth in such Security Agreement. Without limiting the generality of the
foregoing and for greater certainty, any choice of laws or conflict of laws
provisions in said Security Agreement shall continue to govern the
interpretation and enforcement of such Security Agreement.
NO RIGHTS OF SHAREHOLDER UNTIL CONVERSION
The Holder shall have no rights whatsoever as a shareholder (including any
right to receive dividends or other distribution to shareholders or to vote
or attend at a general or other meeting of the shareholders of the
Corporation), other than in respect of Common Shares which the Holder shall
have exercised his right to convert hereunder and which the Holder shall have
actually converted pursuant to the terms hereof and paid for or in respect of
such other securities of the Corporation which the Holder may own. Holders
shall be bound by any resolution passed at a meeting of the shareholders of
the Corporation held in accordance with the provisions of the BUSINESS
CORPORATIONS ACT (Alberta).
3
<PAGE>
NO FRACTIONAL COMMON SHARES
No fractional Common Shares will be issued upon conversion of the Note, nor
shall any compensation be made for such fractional Common Shares, if any. To
the extent that the Holder would otherwise be entitled to purchase a fraction
of a Common Share, such right may be exercised in combination with other
rights which, in the aggregate, entitles the Holder hereof to purchase a
whole number of Common Shares. Any fractional Common Shares shall be rounded
downwards to the next whole number.
ADJUSTMENT
If prior to January 8, 2001 or conversion or repayment or redemption in full
of the Note evidenced herein, the Corporation shall at any time arrange or
merge into another corporation, or if there is a subdivision, consolidation
or other reclassification of the shares of the Corporation, the Holder will
thereafter receive, upon the conversion of the Note evidenced herein, the
securities or properties to which a holder of the number of shares then
deliverable upon the exercise of the Note would have otherwise been entitled
to receive immediately prior to such arrangement, merger, subdivision,
consolidation or other reclassification. The Corporation shall take steps as
may be necessary to assure that the provisions hereof shall thereafter be
applicable, in relation to any securities or property thereafter deliverable
upon the conversion of the Note evidenced herein. A sale of all or
substantially all of the assets of the Corporation for consideration (apart
from the assumption of obligations), constituting securities shall be deemed
to be an arrangement or merger for the foregoing purposes.
MISCELLANEOUS
If this Note or any replacement or additional Note certificate is lost,
mutilated, destroyed or stolen, the Corporation may, on such reasonable terms
as to cost and indemnity or otherwise as they may impose, respectively issue
a replacement Note certificate similar as to denomination, tenor and date as
the Note certificate so lost, mutilated, destroyed or stolen.
THE NOTE AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THE NOTE ARE NOT
QUALIFIED FOR SALE OR REGISTERED UNDER THE LAWS OF ANY PROVINCE, TERRITORY,
STATE OR PURSUANT TO THE LAWS OF THE UNITED STATES. COMPLIANCE WITH THE
APPLICABLE SECURITIES LEGISLATION IS THE RESPONSIBILITY OF THE HOLDER AND THE
HOLDER OF COMMON SHARES.
The Note represented hereby shall be governed by the laws in force in the
Province of Alberta. If any provision of this Note shall be prohibited or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the remainder
of such provision or the remaining provisions of this Note.
TIME SHALL BE OF THE ESSENCE.
No delay on the part of the Holder hereof in the exercise of any right or
remedy shall operate as a waiver thereof; no single or partial exercise by
the Holder of any right or remedy shall preclude any other future exercise
thereof of the exercise of any other right or remedy; no waiver or indulgence
by the Holder of any default shall be effective unless in writing and signed
by the Holder hereof and no waiver or one occasion shall be construed as or
be a bar to or a waiver of the enforcement of such right or the exercise of a
remedy on a future occasion.
The Corporation and TomaHawk II, Inc. hereby consent to any extension or
postponement of the time for payment hereunder and the release of any
security interest securing this Note; or the addition of any party hereto; or
the release or discharge of, or suspension of any rights or remedies against
the Corporation or TomaHawk II, Inc., or any person who may be liable for the
payment of the indebtedness evidenced hereby.
4
<PAGE>
IN WITNESS WHEREOF the Corporation has authorized its duly authorized officer
to execute and deliver this certificate effective the ___ day of ________, 1999.
TOMAHAWK CORPORATION
By: /s/ S. M. Caira
---------------------------------
Steven M. Caira, President, CEO
and director
Acknowledged and agreed to this __day Acknowledged and agreed to by NORMAN
of _______, 1999 by TOMAHAWK SIEGEL this 25 day of February, 1999.
II, INC. in the presence of: -- --------
/s/ S. M. Caira /s/ Norman Siegel
- ------------------------------------ -------------------------------------
Steven M. Caira, President and director [signature of Norman Siegel]
as evidenced by affixing of the
corporate seal of TomaHawk II, Inc.
-------------------------------------
[witness to signature of Mr. Siegel]
- ---------------------------
c/s
- ---------------------------
5
<PAGE>
EXHIBIT 10.6
NON-NEGOTIABLE PROMISSORY NOTE
SUBJECT TO RIGHT OF SET-OFF
U.S. $1,100,000 Dated: August 20, 1998
San Diego, California
1. Principal.
FOR VALUE RECEIVED, the undersigned, TOMAHAWK II, INC., an Illinois
corporation ("Maker"), HEREBY PROMISES TO PAY to ROBIN HARTLEY, an individual
resident of the State of California ("Holder"), the principal sum of One Million
One Hundred Thousand United States Dollars (US$1,100,000) (subject to set-off as
set forth below, the "Principal"), in accordance with the terms and conditions
of this Promissory Note. This Promissory Note is executed and delivered in
accordance with Section 1.7 of the Asset Purchase Agreement, dated as of August
1, 1998, by and between Maker and Holder (which agreement is incorporated herein
by this reference and made a part hereof, the "Purchase Agreement").
THIS PROMISSORY NOTE IS SECURED AND NON-NEGOTIABLE. ANY ATTEMPTED
TRANSFER OF THIS PROMISSORY NOTE WITHOUT THE PRIOR WRITTEN CONSENT OF MAKER
SHALL BE VOID AND MAKER MAY TREAT THE ABOVE MENTIONED HOLDER AS THE SOLE PAYEE
FOR ALL PURPOSES HEREUNDER. THIS NOTE IS SUBORDINATED TO CERTAIN INDEBTEDNESS AS
SET FORTH BELOW.
2. Interest.
No interest shall accrue on the Principal during the period
commencing on the date of this Promissory Note and concluding on December 18,
1998. Thereafter, during the period (the "Second Period") commencing on December
19, 1998 and concluding on March 18, 1999, the unpaid balance of the Principal
shall accrue interest at the rate equal to the U.S. prime rate as published in
the Wall Street Journal (the "Prime Rate"), plus one percent (1%) per annum.
Thereafter, during the period (the "Third Period") commencing on March 19, 1999
and concluding on March 19, 2004 (the "Final Payment Date"), the unpaid balance
of the Principal shall accrue interest at the Prime Rate plus two percent (2%)
per annum. The Prime Rate shall be determined initially on December 19, 1998 and
then shall be adjusted on January 1 (or the first Business Day thereafter) of
each year through the Final Payment Date. All interest due hereunder shall be
computed on the basis of a year of 365 days for the actual number of days
elapsed. Interest not paid when due shall be added to the unpaid principal
balance and shall thereafter bear interest at the same rate as the Principal.
<PAGE>
3. Payment of Principal and Interest.
(a) Unless previously accelerated or prepaid pursuant to the terms
hereof, the unpaid balance of the Principal and the accrued and unpaid interest
hereunder shall be paid as follows:
(i) within five days of the end of each calendar month during
the Second Period, Maker shall pay to Holder an amount equal to the interest
accrued during each such month (or portion thereof) on the unpaid balance of the
Principal;
(ii) within five days of the end of each calendar month during
the Third Period, Maker shall pay to Holder an amount equal to the sum of (x)
the portion of the unpaid balance of the Principal equal to Eighteen Thousand
Three Hundred Thirty-Three Dollars and Thirty-Three Cents ($18,333.33), or such
lesser amount of the unpaid balance of the Principal, as applicable, and (y) an
amount equal to the interest accrued during each such month (or portion thereof)
on the unpaid balance of the Principal; and
(iii) on the Final Payment Date, Maker shall pay to Holder in
full the unpaid balance of the Principal, if any, on the Final Payment Date,
together with any and all accrued and unpaid interest hereunder.
(b) Each such payment of a portion of the unpaid balance of the
Principal pursuant to Section 3(a)(ii)(x) above shall constitute a reduction of
the unpaid balance of the Principal then outstanding. In the event that Maker
fails to pay any amount when due hereunder, Maker shall pay to Holder a one-time
late payment fee equal to five percent (5%) of such amount.
(c) Notwithstanding the foregoing, in the event that (i) Maker and
Holder are resolving a claim or dispute pursuant to the arbitration provisions
of Section 10.15 of the Purchase Agreement and (ii) the aggregate dollar value
at issue in any and all such claims and disputes is greater than or equal to
Forty-Five Thousand Dollars ($45,000) (as reasonably determined by Maker in a
written notice to Holder and the escrow agent), Maker shall deliver any and all
payments hereunder into the escrow account referred to in Section 5 of this
Promissory Note until the conclusion of the corresponding arbitration
proceedings and the issuance of the final arbitration order. In no event shall
the aggregate amount of such payments delivered by Maker into such escrow
account cause the value of such escrow account to exceed Five Hundred Thousand
Dollars ($500,000).
(d) Maker shall have the right at any time to prepay all or any
portion of the amounts owing hereunder without penalty or premium.
(e) The payment of this Promissory Note is and shall be subordinate,
to the extent and the manner hereinafter set forth, in right of payment to the
payment in full of all Senior Debt. "Senior Debt" shall mean and refer to all
indebtedness and obligations of Maker now or hereinafter existing in respect of
indebtedness for money borrowed from Bank of America NT & SA ("Bank").
-2-
<PAGE>
Maker may make payments on this Promissory Note at the times and in the amounts
pursuant to the terms and conditions set forth herein, but without giving effect
to any acceleration or prepayment of this Promissory Note if, at the time of
making any such payment and immediately after giving effect thereto, an event of
default shall have occurred and be continuing under the Senior Debt (a
"Subordination Event"). Once a Subordination Event has occurred and is
continuing, Maker shall not make payment, directly or indirectly, in cash or
other property, of all or any part of the indebtedness evidenced by this
Promissory Note until Maker is no longer in default under the Senior Debt. Maker
shall not prepay this Promissory Note without the prior written consent of Bank
if Bank's consent is required pursuant to the terms and conditions of the
instruments or documents creating the Senior Debt. This Promissory Note shall
not be accelerated or declared in default until Bank, upon its request of notice
in writing, shall have received at least ten (10) days' advance written notice
of the intention to accelerate or declare this Promissory Note in default. No
such acceleration or declaration of default of this Promissory Note shall be
effective until such written notice shall have been given to Bank, if such
notice was requested in writing by Bank.
4. Manner of Payment.
All amounts payable hereunder shall be paid to Holder in lawful
currency of the United States of America at such account or address as Holder
may from time to time notify Maker in writing. If payment of any amount
hereunder is due on a day other than a Business Day, the payment of such amount
shall be due on the next succeeding Business Day. As used herein, "Business Day"
means a day other than a Saturday, Sunday or a day on which banks are authorized
to close in San Diego, California.
5. Escrow Amount.
In the event that the payment of the unpaid balance of the Principal
is accelerated before the first anniversary of the date of this Promissory Note,
Maker first shall place One Hundred Twenty Thousand Dollars ($120,000) of the
Principal into an escrow account in accordance with Section 1.7 of the Purchase
Agreement, as partial security for Holder's indemnity obligations under the
Purchase Agreement.
6. Set-Off.
Maker is hereby authorized at any time and from time to time, to
set-off and apply any and all amounts owing by Maker to Holder under this
Promissory Note against any and all of the obligations (whether matured or
unmatured) of Holder to Maker (or an affiliate of Maker) now or hereafter
existing under the Purchase Agreement (subject to the conditions set forth in
Section 3(c) hereunder) and/or any other agreement between them (other than the
Consulting Agreement, dated as of the date hereof, by and between Maker and
Holder). Maker shall provide Holder with ten (10) days' written notice of: (a)
its intention to exercise its set-off rights hereunder; and (b) a description of
the underlying basis giving rise to such exercise of its set-off rights. In the
event that Maker exercises its set-off rights and all or a portion of such
set-off is later found to be due and owing (the
-3-
<PAGE>
"Improper Set-Off Amount") by a final determination in an arbitration proceeding
pursuant to Section 10.15 of the Purchase Agreement, then the Improper Set-Off
Amount shall be due and payable within thirty (30) Business Days after the date
of such determination. The rights of Maker under this section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which Maker may have.
7. Acceleration. Subject to Sections 5 and 6 of this Promissory Note,
Holder shall have the right to accelerate payment of the unpaid balance of the
Principal, together with any and all accrued and unpaid interest hereunder, in
the event that Maker obtains debt or equity financing in the aggregate amount
greater than or equal to Ten Million Dollars ($10,000,000) prior to the Final
Payment Date.
8. Security Agreement.
This Promissory Note is secured by, and entitled to the benefits of,
that certain Security Agreement, dated as of the date hereof, by and between
Maker and Holder.
9. Headings.
Headings used in this Promissory Note are inserted for convenience
only and shall not be deemed to constitute a part hereof.
10. Attorneys' Fees.
Maker agrees to pay all reasonable attorneys' fees incurred by
Holder in connection with the enforcement of any obligation of Maker under this
Promissory Note.
11. Amendment.
No provisions of this Promissory Note may be changed, modified,
amended or terminated except by a written instrument signed by Maker and Holder.
12. Governing Law.
This Promissory Note is and shall be governed by and construed and
enforced in accordance with the laws of the State of California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be
executed and delivered by its duly authorized officer, as of the date first
above written.
TOMAHAWK II, INC.,
an Illinois corporation
/s/ Michael H. Lorber
-----------------------------------------------
By: Michael H. Lorber, Vice President - Finance
and Chief Financial Officer
[SIGNATURE PAGE TO PROMISSORY NOTE]
-5-
<PAGE>
Exhibit 10.7
CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT
NON-INTEREST BEARING
$854,832 NON-INTEREST BEARING
This note, effective as of November 1, 1998, memorializes the terms of an
agreement between Norm Siegel hereinafter "Borrower" and TomaHawk II, Inc.
hereinafter "Lender".
For value received, in the amount of Eight Hundred Fifty Four Thousand Eight
Hundred and Thirty Two Dollars and no cents ($854,832), which the undersigned
Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II,
Inc. an Illinois Corporation the sum of ($854,832); which is due and payable
without interest on November 1, 2004.
This note consolidates and replaces three notes previously entered into by
Borrower and Lender for the respective sums of $407,028, $223,965, and
$223,839, which are secured by the respective Tomahawk Corporation stock
certificates as follows: C01096 for 3,196,000 shares, C00882 for 3,400,250
shares, C01103 for 1,474,565 shares.
A waiver of payment or noncompliance with the due date shall not be construed
as a waiver of a subsequent nonpayment or subsequent non-compliance with the
terms of this note. Borrower shall also enter into a Stock Pledge and
Security Agreement contemporaneously with the execution of this note. The
foregoing notwithstanding, the parties agree to cooperate reasonably and in
good faith to arrange a sale of that portion of the shares Secured and
Pledged as is reasonably appropriate to raise funds necessary to satisfy
Borrower's obligations hereunder. It is expressly understood that to the
extent that Borrower is unable to satisfy this note, Borrower's recourse is
against the stock pledged under the Stock Security and Pledge Agreement and
that there shall be no deficiency obligation of Borrower.
All payments shall be payable in lawful currency of the Unites States of
America.
By:________________________
Norm Siegel, Borrower
<PAGE>
Exhibit 10.8
SECURITY AND STOCK PLEDGE AGREEMENT
This Security and Stock Pledge Agreement effective as of November 1, 1998 by
and between Norm Siegel ("Borrower") and TomaHawk II Inc. ("Lender").
In consideration of the mutual terms, conditions and covenants herein under
set forth, Borrower and Lender agree as follows:
(1) In exchange of consideration stated in three Promissory Notes aggregating
the sum of Eight Hundred Fifty Four Thousand Eight Hundred and Thirty two
Dollars ($854,832) all of which were consolidated in a Consolidated
Promissory Note, Borrower agrees to provide as security shares of stock of
the Tomahawk Corporation, which are evidenced and represented by the
following Stock Certificates for the number of shares identified and for
the following sums of money as herein identified.
(a) Certificate C01096, No. of Shares 3,196,000, Amount $407,028
(b) Certificate C00882, No. of Shares 3,400,250, Amount $223,965
(c) Certificate C01103, No. of Shares 1,474,565, Amount $223,839
(2) As security for the loan, evidenced in the accompanying Consolidated
Promissory Note, Borrower hereby pledges, assigns, transfers and grants to
Lender a security interest in the number of shares as listed in the
preceding paragraph.
(3) In furtherance of the pledge, assignment, transfer and grant of the
security interest, Borrower shall, and has, delivered to Lender the number
of shares as listed in paragraph (1) of this agreement as evidenced and
represented by Stock Certificate Nos. C01096, C00882, C01103.
(4) Borrower shall not pledge, borrow against, collaterize against,
hypothecate, assign, transfer, sell or in any other manner diminish or
impair the value of the stock pledged or the security interest without the
express written authorization of the Lender.
(5) During the term of this agreement, which shall run contemporaneously with
the accompanying promissory note, the Borrower shall own the pledged
shares. The pledged stock shall be held in trust by Lender for Borrower in
a safe place and Lender shall not alienate, transfer, assign, hypothecate,
sell,
<PAGE>
SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (NORM SIEGEL)
pledge, or in any other manner dispose of, or impair the value of the
pledged stock until such time as the Borrower is in default of the
accompanying Consolidated Promissory Note. Lender shall return the
security pledged in this agreement to Borrower upon the compliance within
the terms contained in the accompanying Consolidated Promissory Note. Upon
default and after exhausting efforts to sell the stock as referenced in
paragraph 6 of this agreement, the Lender and/or Borrower, depending upon
which party is in possession, shall return any unsold shares to the
Tomahawk Corporation.
(6) If in default under the terms of this agreement or the accompanying
Consolidated Promissory Note is not paid when due, Lender shall be deemed
the owner of the stock described above and Borrower hereby consents to the
transfer to the stock to Lender without further notice The foregoing
notwithstanding, at any time Borrower seeks to sell the
stock pledged under this agreement, the parties agree to cooperate
reasonably and in good faith to arrange a sale of that portion of the
shares of stock pledged under this agreement as is reasonably appropriate
to raise funds necessary to satisfy Borrower's obligation. Borrower agrees
that all proceeds from the sale of pledged stock shall first be applied to
satisfy Borrowers obligation under the Consolidated Promissory Note. It is
expressly understood that to the extent that the stock secured and pledged
by this agreement upon sale does not satisfy the debt, the Borrower is not
liable for any deficiency. To the extent that any balance of the shares
remains after satisfaction of the debt, such shares shall be returned to
Borrower.
(7) Borrower shall have the right to exercise all voting rights to the stock
pledged.
(8) The parties may amend or modify this agreement in writing.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and
Pledge Agreement to be executed as of the date first above written.
___________________________ ________________________
NORM SIEGEL, Borrower TOMAHAWK II, INC. Lender
BY:
<PAGE>
Exhibit 10.9
CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT
NON-INTEREST BEARING
$735,295 NON-INTEREST BEARING
This note, effective as of November 1, 1998, memorializes the terms of an
agreement between Steve Caira hereinafter "Borrower" and TomaHawk II, Inc.
hereinafter "Lender".
For value received, in the amount of Seven Hundred Thirty Five Thousand Two
Hundred and Ninety Five Dollars and no cents ($735,295), which the
undersigned Borrower acknowledges receipt of, Borrower promises to pay to
TomaHawk II, Inc. an Illinois Corporation the sum of ($735,295); which is due
and payable without interest on November 1, 2004.
This note consolidates and replaces four notes previously entered into by
Borrower and Lender for the respective sums of $33,154, $109,765, $50,000,
$13,049, $53,751.59, $293,250 and $182,325, which are secured by the
respective Tomahawk Corporation stock certificates as follows: C00722 for
137,700 shares, C00724 for 653,750 shares, C00679 for 1,275,000 shares,
C00767 for 105,146 shares, C00879 for 544,040 shares, C00891 for 2,500,000
shares, C01091 for 1,275,000 shares.
A waiver of payment or noncompliance with the due date shall not be construed
as a waiver of a subsequent nonpayment or subsequent non-compliance with the
terms of this note. Notwithstanding the due date of November 1, 2004,
Borrower agrees to an acceleration of payments, with all sums due and payable
one hundred twenty (120) days following termination of Borrower's employment
with Lender. Borrower shall also enter into a Stock Pledge and Security
Agreement contemporaneously with the execution of this note. The foregoing
notwithstanding, the parties agree to cooperate reasonably and in good faith
to arrange a sale of that portion of the shares secured and pledged as is
reasonably appropriate to raise funds necessary to satisfy Borrower's
obligations hereunder. It is expressly understood that to the extent that
Borrower is unable to satisfy this note, Borrower's recourse is against the
stock pledged under the Stock Security and Pledge Agreement and that there
shall be no deficiency obligation of Borrower.
All payments shall be payable in lawful currency of the Unites States of
America.
By:
-------------------- Steve Caira, Borrower
<PAGE>
Exhibit 10.10
SECURITY AND STOCK PLEDGE AGREEMENT
This Security and Stock Pledge Agreement effective as of November 1, 1998 by
and between Steve Caira ("Borrower") and TomaHawk II Inc. ("Lender").
In consideration of the mutual terms, conditions and covenants herein under set
forth, Borrower and Lender agree as follows:
(1) In exchange of consideration stated in seven Promissory Notes aggregating
the sum of Seven Hundred Thirty Five Thousand Two Hundred and Ninety Five
Dollars ($735,295) all of which were consolidated in a Consolidated
Promissory Note, Borrower agrees to provide as security shares of stock of
the Tomahawk Corporation, which are evidenced and represented by the
following Stock Certificates for the number of shares identified and for
the following sums of money as herein identified.
(a) Certificate C00722, No. of Shares 137,700, Amount $33,154
(b) Certificate C00724, No. of Shares 653,750, Amount $109,765
(c) Certificate C00679, No. of Shares 1,275,000, Amount $50,000
(d) Certificate C00767, No. of Shares 105,146, Amount $13,049
(e) Certificate C00879, No. of Shares 544,040, Amount $53,751
(f) Certificate C00891, No. of Shares 2,500,000, Amount $293,250
(g) Certificate C01091, No. of Shares 1,275,000, Amount $182,325
(2) As security for the loan, evidenced in the accompanying Consolidated
Promissory Note, Borrower hereby pledges, assigns, transfers and grants to
Lender a security interest in the number of shares as listed in the
preceding paragraph.
(3) In furtherance of the pledge, assignment, transfer and grant of the
security interest, Borrower shall, and has, delivered to Lender the number
of shares as listed in paragraph (1) of this agreement as evidenced and
represented by Stock Certificate Nos. C00722, C00724, C00679, C00767,
C00879, C00891, C01091.
(4) Borrower shall not pledge, borrow against, collaterize against,
hypothecate, assign, transfer, sell or in any other manner diminish or
impair the value of the stock pledged or the security interest without the
express written authorization of the Lender.
(5) During the term of this agreement, which shall run contemporaneously with
the accompanying Consolidated Promissory Note, the Borrower shall own the
<PAGE>
pledged shares. The pledged stock shall be held in trust by Lender for
SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (STEVE CAIRA)
Borrower in a safe place and Lender shall not alienate, transfer, assign,
hypothecate, sell, pledge, or in any other manner dispose of, or impair
the value of the pledged stock until such time as the Borrower is in
default of the accompanying Consolidated Promissory Note. Lender shall
return the security pledged in this agreement to Borrower upon the
compliance within the terms contained in the accompanying Consolidated
Promissory Note. Upon default and after exhausting efforts to sell the
stock as referenced in paragraph 6 of this agreement, the Lender and/or
Borrower, depending upon which party is in possession, shall return any
unsold shares to the Tomahawk Corporation.
(6) If in default under the terms of this agreement or the accompanying
Consolidated Promissory note is not paid when due, Lender shall be
deemed the owner of the stock described above and Borrower hereby
consents to the transfer to he stock to Lender without further notice.
The foregoing notwithstanding, at any time Borrower seeks to sell the
stock pledged under this agreement, the parties agree to cooperate
reasonably and in good faith to arrange a sale of that portion of the
shares of stock pledged under this agreement as is reasonably
appropriate to raise funds necessary to satisfy Borrower's obligation.
Borrower agrees that all proceeds from the sale of pledged stock shall
first be applied to satisfy Borrowers obligation under the Consolidated
Promissory Note. It is expressly understood that to the extent that the
stock secured and pledged by this agreement upon sale does not satisfy
the debt, the Borrower is not liable for any deficiency. To the extent
that any balance of the shares remains after satisfaction of the debt,
such shares shall be returned to Borrower.
(7) Borrower shall have the right to exercise all voting rights to the stock
pledged.
(8) The parties may amend or modify this agreement in writing.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and
Pledge Agreement to be executed as of the date first above written.
- --------------------------- -----------------------
STEVE CAIRA, Borrower TOMAHAWK II, INC. Lender
BY:
<PAGE>
Exhibit 10.11
CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT
NON-INTEREST BEARING
$188,974 NON-INTEREST BEARING
This note, effective as of November 1, 1998, memorializes the terms of an
agreement between Michael Lorber hereinafter "Borrower" and TomaHawk II, Inc.
hereinafter "Lender".
For value received, in the amount of One Hundred Eighty Eight Thousand Nine
Hundred and Seventy Four Dollars and no cents ($188,974), which the undersigned
Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc.
an Illinois Corporation the sum of ($188,974); which is due and payable without
interest on November 1, 2004.
This note consolidates and replaces three notes previously entered into by
Borrower and Lender for the respective sums of $71,500, $58,824, $58,650, which
are secured by the respective Tomahawk Corporation stock certificates as
follows: C01092 for 500,000 shares, C00678 for 500,000 shares, C00893 for
500,000 shares.
A waiver of payment or noncompliance with the due date shall not be construed
as a waiver of a subsequent nonpayment or subsequent non-compliance with the
terms of this note. Notwithstanding the due date of November 1, 2004,
Borrower agrees to an acceleration of payments, with all sums due and payable
one hundred and twenty days (120) days following termination of Borrower's
employment with Lender. Borrower shall also enter into a Stock Pledge and
Security Agreement contemporaneously with the execution of this note. The
foregoing notwithstanding, the parties agree to cooperate reasonably and in
good faith to arrange a sale of that portion of the shares Secured and
Pledged as is reasonably appropriate to raise funds necessary to satisfy
Borrower's obligations hereunder. It is expressly understood that to the
extent that Borrower is unable to satisfy this note, Lender's recourse is
against the stock pledged under the Stock Security and Pledge Agreement and
that there shall be no deficiency obligation of Borrower.
All payments shall be payable in lawful currency of the Unites States of
America.
By:
-----------------------------
Michael Lorber, Borrower
<PAGE>
Exhibit 10.12
SECURITY AND STOCK PLEDGE AGREEMENT
This Security and Stock Pledge Agreement effective as of November 1, 1998 by
and between Michael Lorber ("Borrower") and TomaHawk II Inc. ("Lender").
In consideration of the mutual terms, conditions and covenants herein under
set forth, Borrower and Lender agree as follows:
(1) In exchange of consideration stated in three Promissory Notes aggregating
the sum of One Hundred Eighty Eight Thousand Nine Hundred and Seventy Four
Dollars ($188,174) all of which were consolidated in a Consolidated
Promissory Note, Borrower agrees to provide as security shares of stock of
the Tomahawk Corporation, which are evidenced and represented by the
following Stock Certificates for the number of shares identified and for
the following sums of money as herein identified.
(a) Certificate C01092, No. of Shares 500,000, Amount $71,500
(b) Certificate C00678, No. of Shares 500,000, Amount $58,824
(c) Certificate C00893, No. of Shares 500,000, Amount $58,650
(2) As security for the loan, evidenced in the accompanying Consolidated
Promissory Note, Borrower hereby pledges, assigns, transfers and grants to
Lender a security interest in the number of shares as listed in the
preceding paragraph.
(3) In furtherance of the pledge, assignment, transfer and grant of the
security interest, Borrower shall, and has, delivered to Lender the number
of shares as listed in paragraph (1) of this agreement as evidenced and
represented by Stock Certificate Nos. C01092, C00678, C00893.
(4) Borrower shall not pledge, borrow against, collaterize against,
hypothecate, assign, transfer, sell or in any other manner diminish or
impair the value of the stock pledged or the security interest without the
express written authorization of the Lender.
(5) During the term of this agreement, which shall run contemporaneously with
the accompanying Consolidated Promissory Note, the Borrower shall own the
pledged shares. The pledged stock shall be held in trust by Lender for
Borrower in a safe place and Lender shall not alienate, transfer, assign,
hypothecate, sell, pledge, or in any other manner dispose of, or impair
the value of the pledged stock until such time as the Borrower is in
default of
<PAGE>
SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (MICHAEL LORBER)
the accompanying Consolidated Promissory Note. Lender shall return the
security pledged in this agreement to Borrower upon the compliance within
the terms contained in the accompanying Consolidated Promissory Note. Upon
default and after exhausting efforts to sell the stock as referenced in
paragraph 6 of this agreement, the Lender and/or Borrower, depending upon
which party is in possession, shall return any unsold shares to the
Tomahawk Corporation.
(6) If in default under the terms of this agreement or the accompanying
Consolidated Promissory note is not paid when due, Lender shall be deemed
the owner of the stock described above and Borrower hereby consents to the
transfer to the stock to Lender without further notice. The foregoing
notwithstanding, any time Borrower seeks to sell the stock pledged under
this agreement, the parties agree to cooperate reasonably and in good faith
to arrange a sale of that portion of the shares of stock pledged under this
agreement as is reasonably appropriate to raise funds necessary to satisfy
Borrower's obligation. Borrower agrees that all proceeds from the sale of
pledged stock shall first be applied to satisfy Borrowers obligation under
the Consolidated Promissory Note. It is expressly understood that to the
extent that the stock secured and pledged by this agreement upon sale does
not satisfy the debt, the Borrower is not liable for any deficiency. To the
extent that any balance of the shares remains after satisfaction of the
debt, such shares shall be returned to Borrower.
(7) Borrower shall have the right to exercise all voting rights to the stock
pledged.
(8) The parties may amend or modify this agreement in writing.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and
Pledge Agreement to be executed as of the date first above written.
- --------------------------- -----------------------
MICHAEL LORBER, Borrower TOMAHAWK II, INC. Lender
BY:
<PAGE>
Exhibit 10.13
CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT
NON-INTEREST BEARING
$176,636 NON-INTEREST BEARING
This note, effective as of November 1, 1998, memorializes the terms of an
agreement between Phil Card hereinafter "Borrower" and TomaHawk II, Inc.
hereinafter "Lender".
For value received, in the amount of One Hundred Seventy Six Thousand Six
Hundred and Thirty Six Dollars and no cents ($176,636), which the undersigned
Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II,
Inc. an Illinois Corporation the sum of ($176,636); which is due and payable
without interest on November 1, 2004.
This note consolidates and replaces four notes previously entered into by
Borrower and Lender for the respective sums of $60,775, $38,985, $50,000, and
$26,876, which are secured by the respective Tomahawk Corporation stock
certificates as follows: C01094 for 425,000 shares, C00892 for 425,000
shares, C00681 for 425,000 shares, C00881 for 272,020 shares.
A waiver of payment or noncompliance with the due date shall not be construed
as a waiver of a subsequent nonpayment or subsequent non-compliance with the
terms of this note. Notwithstanding the due date of November 1, 2004,
Borrower agrees to an acceleration of payments, with all sums due and payable
one hundred and twenty (120) days following termination of Borrower's
employment with Lender. Borrower shall also enter into a Stock Pledge and
Security Agreement contemporaneously with the execution of this note. The
foregoing notwithstanding, the parties agree to cooperate reasonably and in
good faith to arrange a sale of that portion of the shares Secured and
Pledged as is reasonably appropriate to raise funds necessary to satisfy
Borrower's obligations hereunder. It is expressly understood that to the
extent that Borrower is unable to satisfy this note, Lender's recourse is
against the stock pledged under the Stock Security and Pledge Agreement and
that there shall be no deficiency obligation of Borrower.
All payments shall be payable in lawful currency of the Unites States of
America.
By:________________________
Phil Card, Borrower
<PAGE>
Exhibit 10.14
SECURITY AND STOCK PLEDGE AGREEMENT
This Security and Stock Pledge Agreement effective as of November 1, 1998 by
and between Phil Card ("Borrower") and TomaHawk II Inc. ("Lender").
In consideration of the mutual terms, conditions and covenants herein under
set forth, Borrower and Lender agree as follows:
(1) In exchange of consideration stated in four Promissory Notes aggregating
the sum of One Hundred Seventy Six Thousand Six Hundred and Thirty Six
Dollars ($176,636) all of which were consolidated in a Consolidated
Promissory Note, Borrower agrees to provide as security shares of stock of
the Tomahawk Corporation, which are evidenced and represented by the
following Stock Certificates for the number of shares identified and for
the following sums of money as herein identified.
(a) Certificate C01094, No. of Shares 425,000, Amount $60,775
(b) Certificate C00892, No. of Shares 425,000, Amount $38,985
(c) Certificate C00681, No. of Shares 425,000, Amount $50,000
(d) Certificate C00881, No. of Shares 272,020, Amount $26,876
(2) As security for the loan, evidenced in the accompanying Consolidated
Promissory Note, Borrower hereby pledges, assigns, transfers and grants to
Lender a security interest in the number of shares as listed in the
preceding paragraph.
(3) In furtherance of the pledge, assignment, transfer and grant of the
security interest, Borrower shall, and has, delivered to Lender the number
of shares as listed in paragraph (1) of this agreement as evidenced and
represented by Stock Certificate Nos. C01094, C00892, C00681, C00881.
(4) Borrower shall not pledge, borrow against, collaterize against,
hypothecate, assign, transfer, sell or in any other manner diminish or
impair the value of the stock pledged or the security interest without the
express written authorization of the Lender.
(5) During the term of this agreement, which shall run contemporaneously with
the accompanying Consolidated Promissory Note, the Borrower shall own the
pledged shares. The pledged stock shall be held in trust by Lender for
Borrower in a safe place and Lender shall not alienate, transfer, assign,
hypothecate, sell, pledge, or in any other manner dispose of, or impair
the value of the pledged stock until such time as the Borrower is in
default of the
<PAGE>
SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (PHIL CARD)
Accompanying Consolidated Promissory Note. Lender shall return the security
pledged in this agreement to Borrower upon the compliance within the terms
contained in the accompanying Consolidated Promissory Note. Upon default
and after exhausting efforts to sell the stock as referenced in paragraph 6
of this agreement, the Lender and/or Borrower, depending upon which party
is in possession, shall return any unsold shares to the Tomahawk
Corporation.
(6) If in default under the terms of this agreement or the accompanying
Consolidated Promissory Note is not paid when due, Lender shall be deemed
the owner of the stock described above and Borrower hereby consents to
the transfer to the stock to Lender without further notice. The foregoing
notwithstanding, at any time Borrower seeks to sell the stock pledged
under this agreement, the parties agree to cooperate reasonably and in
good faith to arrange a sale of that portion of the shares of stock
pledged under this agreement as is reasonably appropriate to raise funds
necessary to satisfy Borrower's obligation. Borrower agrees that all
proceeds from the sale of pledged stock shall first be applied to satisfy
Borrowers obligation under the Consolidated Promissory Note. It is
expressly understood that to the extent that the stock secured and pledged
by this agreement upon sale does not satisfy the debt, the Borrower is not
liable for any deficiency. To the extent that any balance of the shares
remains after satisfaction of the debt, such shares shall be returned to
Borrower.
(7) Borrower shall have the right to exercise all voting rights to the stock
pledged.
(8) The parties may amend or modify this agreement in writing.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and
Pledge Agreement to be executed as of the date first above written.
- --------------------------- -----------------------
PHIL CARD, Borrower TOMAHAWK II, INC. Lender
BY:
<PAGE>
Exhibit 10.15
CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT
NON-INTEREST BEARING
$110,775 NON-INTEREST BEARING
This note, effective as of November 1, 1998, memorializes the terms of an
agreement between John Peace hereinafter "Borrower" and TomaHawk II, Inc.
hereinafter "Lender".
For value received, in the amount of One Hundred Ten Thousand Seven Hundred
and Seventy Five Dollars and no cents ($110,775), which the undersigned
Borrower acknowledges receipt of, Borrower promises to pay to TomaHawk II,
Inc. an Illinois Corporation the sum of ($110,775); which is due and payable
without interest on November 1, 2004.
This note consolidates and replaces two notes previously entered into by
Borrower and Lender for the respective sums of $50,000, $60,000, which are
secured by the respective Tomahawk Corporation stock certificates as follows:
C00680 for 425,000 shares, C01102 for 425,000 shares.
A waiver of payment or noncompliance with the due date shall not be construed
as a waiver of a subsequent nonpayment or subsequent non-compliance with the
terms of this note. Notwithstanding the due date of November 1, 2004,
Borrower agrees to an acceleration of payments, with all sums due and payable
one hundred and twenty days (120) days following termination of Borrower's
employment with Lender. Borrower shall also enter into a Stock Pledge and
Security Agreement contemporaneously with the execution of this note. The
foregoing notwithstanding, the parties agree to cooperate reasonably and in
good faith to arrange a sale of that portion of the shares Secured and
Pledged as is reasonably appropriate to raise funds necessary to satisfy
Borrower's obligations hereunder. It is expressly understood that to the
extent that Borrower is unable to satisfy this note, Lender's recourse is
against the stock pledged under the Stock Security and Pledge Agreement and
that there shall be no deficiency obligation of Borrower.
All payments shall be payable in lawful currency of the Unites States of
America.
By:________________________
JOHN PEACE, Borrower
<PAGE>
Exhibit 10.16
SECURITY AND STOCK PLEDGE AGREEMENT
This Security and Stock Pledge Agreement effective as of November 1, 1998 by
and between John Peace ("Borrower") and TomaHawk II Inc. ("Lender").
In consideration of the mutual terms, conditions and covenants herein under set
forth, Borrower and Lender agree as follows:
(1) In exchange of consideration stated in two Promissory Notes aggregating
the sum of One Hundred Ten Thousand Seven Hundred and Seventy Five
Dollars ($110,775) all of which were consolidated in a Consolidated
Promissory Note, Borrower agrees to provide as security shares of stock
of the Tomahawk Corporation, which are evidenced and represented by the
following Stock Certificates for the number of shares identified and for
the following sums of money as herein identified.
(a) Certificate C00680, No. of Shares 425,000, Amount $50,000
(b) Certificate C01102, No. of Shares 425,000, Amount $60,000
(2) As security for the loan, evidenced in the accompanying Consolidated
Promissory Note, Borrower hereby pledges, assigns, transfers and grants to
Lender a security interest in the number of shares as listed in the
preceding paragraph.
(3) In furtherance of the pledge, assignment, transfer and grant of the
security interest, Borrower shall, and has, delivered to Lender the number
of shares as listed in paragraph (1) of this agreement as evidenced and
represented by Stock Certificate Nos. C00680, C01102.
(4) Borrower shall not pledge, borrow against, collaterize against,
hypothecate, assign, transfer, sell or in any other manner diminish or
impair the value of the stock pledged or the security interest without the
express written authorization of the Lender.
(5) During the term of this agreement, which shall run contemporaneously with
the accompanying Consolidated Promissory Note, the Borrower shall own the
pledged shares. The pledged stock shall be held in trust by Lender for
Borrower in a safe place and Lender shall not alienate, transfer, assign,
hypothecate, sell, pledge, or in any other manner dispose of, or impair
the value of the pledged stock until such time as the Borrower is in
default of the
<PAGE>
SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (JOHN PEACE)
accompanying Consolidated Promissory Note. Lender shall return the
security pledged in this agreement to Borrower upon the compliance
within the terms contained in the accompanying Consolidated Promissory
Note. Upon default and after exhausting efforts to sell the stock as
referenced in paragraph 6 of this agreement, the Lender and/or Borrower,
depending upon which party is in possession, shall return any unsold
shares to the Tomahawk Corporation.
(6) If in default in the terms of this agreement or the accompanying
Consolidated Promissory note is not paid when due, Lender shall be deemed
the owner of the stock described above and Borrower hereby consents to the
transfer to the stock to Lender without further notice The foregoing
notwithstanding, at any time Borrower seeks to sell the
stock pledged under this agreement, the parties agree to cooperate
reasonably and in good faith to arrange a sale of that portion of the
shares of stock pledged under this agreement as is reasonably appropriate
to raise funds necessary to satisfy Borrower's obligation. Borrower agrees
that all proceeds from the sale of pledged stock shall first be applied to
satisfy Borrowers obligation under the Consolidated Promissory Note. It is
expressly understood that to the extent that the stock secured and pledged
by this agreement upon sale does not satisfy the debt, the Borrower is not
liable for any deficiency. To the extent that any balance of the shares
remains after satisfaction of the debt, such shares shall be returned to
Borrower.
(7) Borrower shall have the right to exercise all voting rights to the stock
pledged.
(8) The parties may amend or modify this agreement in writing.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and
Pledge Agreement to be executed as of the date first above written.
- --------------------------- ------------------------
JOHN PEACE, Borrower TOMAHAWK II, INC. Lender
BY:
<PAGE>
Exhibit 10.17
CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT
NON-INTEREST BEARING
$89,586 NON-INTEREST BEARING
This note, effective as of November 1, 1998, memorializes the terms of an
agreement between Elliott Broidy hereinafter "Borrower" and TomaHawk II, Inc.
hereinafter "Lender".
For value received, in the amount of Eighty Nine Thousand Five Hundred and
Eighty Six Dollars and no cents ($89,586), which the undersigned Borrower
acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an
Illinois Corporation the sum of ($89,586); which is due and payable without
interest on November 1, 2004.
This note consolidates and replaces a note previously entered into by
Borrower and Lender for the sum of $89,586, which is secured by Tomahawk
Corporation stock certificates C01884 for 1,360,000 shares.
A waiver of payment or noncompliance with the due date shall not be construed
as a waiver of a subsequent nonpayment or subsequent non-compliance with the
terms of this note. Borrower shall also enter into a Stock Pledge and
Security Agreement contemporaneously with the execution of this note. The
foregoing notwithstanding, the parties agree to cooperate reasonably and in
good faith to arrange a sale of that portion of the shares Secured and
Pledged as is reasonably appropriate to raise funds necessary to satisfy
Borrower's obligations hereunder. It is expressly understood that to the
extent that Borrower is unable to satisfy this note, Lender's recourse is
against the stock pledged under the Stock Security and Pledge Agreement and
that there shall be no deficiency obligation of Borrower.
All payments shall be payable in lawful currency of the Unites States of
America.
By:
-----------------------------
Elliott Broidy, Borrower
<PAGE>
Exhibit 10.18
SECURITY AND STOCK PLEDGE AGREEMENT
This Security and Stock Pledge Agreement effective as of November 1, 1998 by
and between Elliott Broidy ("Borrower") and TomaHawk II Inc. ("Lender").
In consideration of the mutual terms, conditions and covenants herein under
set forth, Borrower and Lender agree as follows:
(1) In exchange of consideration stated in a Promissory Note for the sum of
Eighty Nine Thousand Five Hundred and Eighty Six Dollars ($89,586) which
was consolidated in a Consolidated Promissory Note, Borrower agrees to
provide as security shares of stock of the Tomahawk Corporation, which are
evidenced and represented by the following Stock Certificate, amount of
shares and amount secured.
(a) Certificate C00884, No. of Shares 1,360,100 Amount $89,586.00
(2) As security for the loan, evidenced in the accompanying Consolidated
Promissory Note, Borrower hereby pledges, assigns, transfers and grants to
Lender a security interest in the number of shares as listed in the
preceding paragraph.
(3) In furtherance of the pledge, assignment, transfer and grant of the
security interest, Borrower shall, and has, delivered to Lender the number
of shares as listed in paragraph (1) of this agreement as evidenced and
represented by Stock Certificate No. C00884.
(4) Borrower shall not pledge, borrow against, collaterize against,
hypothecate, assign, transfer, sell or in any other manner diminish or
impair the value of the stock pledged or the security interest without the
express written authorization of the Lender.
(5) During the term of this agreement, which shall run contemporaneously with
the accompanying promissory note, the Borrower shall own the pledged
shares. The pledged stock shall be held in trust by Lender for Borrower in
a safe place and Lender shall not alienate, transfer, assign, hypothecate,
sell, pledge, or in any other manner dispose of, or impair the value of
the pledged stock until such time as the Borrower is in default of the
accompanying
<PAGE>
SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (ELLIOTT BROIDY)
Consolidated Promissory Note. Lender shall return the security pledged in
this agreement to Borrower upon the compliance within the terms contained
in the accompanying Consolidated Promissory Note. Upon default and after
exhausting efforts to sell the stock as referenced in paragraph 6 of this
agreement, the Lender and/or Borrower, depending upon which party is in
possession, shall return any unsold shares to the Tomahawk Corporation.
(6) If in default under the terms of this agreement or the accompanying
Consolidated Promissory note is not paid when due, Lender shall be deemed
the owner of the stock described above and Borrower hereby consents to the
transfer to the stock to Lender without further notice The foregoing
notwithstanding, at any time Borrower seeks to sell the stock pledged under
this agreement, the parties agree to cooperate reasonably and in good faith
to arrange a sale of that portion of the shares of stock pledged under this
agreement as is reasonably appropriate to raise funds necessary to satisfy
Borrower's obligation. Borrower agrees that all proceeds from the sale of
pledged stock shall first be applied to satisfy Borrowers obligation under
the Consolidated Promissory Note. It is expressly understood that to the
extent that the stock secured and pledged by this agreement upon sale does
not satisfy the debt, the Borrower is not liable for any deficiency. To
the extent that any balance of the shares remains after satisfaction of
the debt, such shares shall be returned to Borrower.
(7) Borrower shall have the right to exercise all voting rights to the stock
Pledged.
(8) The parties may amend or modify this agreement in writing.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and
Pledge Agreement to be executed as of the date first above written.
- --------------------------- ------------------------
ELLIOTT BROIDY, Borrower TOMAHAWK II, INC. Lender
BY:
<PAGE>
Exhibit 10.19
CONSOLIDATED PROMISSORY NOTE--FIXED PAYMENT
NON-INTEREST BEARING
$60,775 NON-INTEREST BEARING
This note, effective as of November 1, 1998, memorializes the terms of an
agreement between Doug Loughran hereinafter "Borrower" and TomaHawk II, Inc.
hereinafter "Lender".
For value received, in the amount of Sixty Thousand Seven Hundred and Seventy
Five Dollars and no cents ($60,775), which the undersigned Borrower
acknowledges receipt of, Borrower promises to pay to TomaHawk II, Inc. an
Illinois Corporation the sum of ($60,775); which is due and payable without
interest on November 1, 2004.
This note consolidates and replaces a note previously entered into by
Borrower and Lender for the sum of $60,775, which is secured by Tomahawk
Corporation stock certificate C01095 for 425,000 shares.
A waiver of payment or noncompliance with the due date shall not be construed
as a waiver of a subsequent nonpayment or subsequent non-compliance with the
terms of this note. Notwithstanding the due date of November 1, 2004,
Borrower agrees to an acceleration of payments, with all sums due and payable
one hundred and twenty days (120) days following termination of Borrower's
Membership on Lender's Board of Directors. Borrower shall also enter into a
Stock Pledge and Security Agreement contemporaneously with the execution of
this note. The foregoing notwithstanding, the parties agree to cooperate
reasonably and in good faith to arrange a sale of that portion of the shares
Secured and Pledged as is reasonably appropriate to raise funds necessary to
satisfy Borrower's obligations hereunder. It is expressly understood that to
the extent that Borrower is unable to satisfy this note, Lender's recourse is
against the stock pledged under the Stock Security and Pledge Agreement and
that there shall be no deficiency obligation of Borrower.
All payments shall be payable in lawful currency of the Unites States of
America.
By:________________________
Doug Loughran, Borrower
<PAGE>
Exhibit 10.20
SECURITY AND STOCK PLEDGE AGREEMENT
This Security and Stock Pledge Agreement effective as of November 1, 1998 by
and between Doug Loughran ("Borrower") and TomaHawk II Inc. ("Lender").
In consideration of the mutual terms, conditions and covenants herein under
set forth, Borrower and Lender agree as follows:
(1) In exchange of consideration stated in a Promissory Note for the sum of
Sixty Thousand Seven Hundred and Seventy Five Dollars ($60,775) which was
consolidated in a Consolidated Promissory Note, Borrower agrees to provide
as security shares of stock of the Tomahawk Corporation, which are
evidenced and represented by the following Stock Certificate, amount of
shares and amount secured.
(a) Certificate C01095, No. of Shares 425,000 Amount $60,775.00
(2) As security for the loan, evidenced in the accompanying Consolidated
Promissory Note, Borrower hereby pledges, assigns, transfers and grants to
Lender a security interest in the number of shares as listed in the
preceding paragraph.
(3) In furtherance of the pledge, assignment, transfer and grant of the
security interest, Borrower shall, and has, delivered to Lender the number
of shares as listed in paragraph (1) of this agreement as evidenced and
represented by Stock Certificate No. C01095.
(4) Borrower shall not pledge, borrow against, collaterize against,
hypothecate, assign, transfer, sell or in any other manner diminish or
impair the value of the stock pledged or the security interest without the
express written authorization of the Lender.
(5) During the term of this agreement, which shall run contemporaneously with
the accompanying Consolidated Promissory Note, the Borrower shall own the
pledged shares. The pledged stock shall be held in trust by Lender for
Borrower in a safe place and Lender shall not alienate, transfer, assign,
hypothecate, sell, pledge, or in any other manner dispose of, or impair
the value of the pledged stock until such time as the Borrower is in
default of the
<PAGE>
SECURITY AND STOCK PLEDGE AGREEMENT PAGE 2 (DOUG LOUGHRAN)
accompanying Consolidated Promissory Note. Lender shall return the security
pledged in this agreement to Borrower upon the compliance within the terms
contained in the accompanying Consolidated Promissory Note. Upon default
and after exhausting efforts to sell the stock as referenced in paragraph 6
of this agreement, the Lender and/or Borrower, depending upon which party
is in possession, shall return any unsold shares to the Tomahawk
Corporation.
(6) If in default under the terms of this agreement or the accompanying
Consolidated Promissory Note is not paid when due, Lender shall be deemed
the owner of the stock described above and Borrower hereby consents to the
transfer to the stock to Lender without further notice The foregoing
notwithstanding, at any time Borrower seeks to sell the stock pledged
under this agreement, the parties agree to cooperate reasonably and in
good faith to arrange a sale of that portion of the shares of stock
pledged under this agreement as is reasonably appropriate to raise funds
necessary to satisfy Borrower's obligation. Borrower agrees that all
proceeds from the sale of pledged stock shall first be applied to satisfy
Borrowers obligation under the Consolidated Promissory Note. It is
expressly understood that to the extent that the stock secured and
pledged by this agreement upon sale does not satisfy the debt, the
Borrower is not liable for any deficiency. To the extent that any balance
of the shares remains after satisfaction of the debt, such shares shall
be returned to Borrower.
(7) Borrower shall have the right to exercise all voting rights to the stock
Pledged.
(8) The parties may amend or modify this agreement in writing.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Security and
Pledge Agreement to be executed as of the date first above written.
- --------------------------- -----------------------
DOUG LOUGHRAN, Borrower TOMAHAWK II, INC. Lender
BY:
<PAGE>
Exhibit 10.21
SUBORDINATION AGREEMENT
WHEREAS, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
having its principal place of business at ___________ ("BOA") holds a lien on
and security interest in, among other things, all whether now owned or
hereafter acquired equipment of TOMAHAWK II, INC., having its principal place
of business at 8315 Century Park, Court #200, San Diego, California 92123
("Borrower"), which lien and security interest secures obligations of
Borrower to BOA arising under certain loan and security documents with BOA;
WHEREAS, Borrower has requested that FINOVA Capital Corporation, having a
place of business at 115 West Century Road, Paramus, New Jersey 07652 ("FINOVA")
provide financing (the "FINOVA Lease Transaction") to Borrower pursuant to a
certain Lease Agreement;
WHEREAS, in order to secure the due payment and performance of all now
existing or hereafter arising indebtedness, liabilities and obligations of
Borrower to FINOVA (the "FINOVA Obligations"), Borrower will enter into that
certain Lease Agreement with FINOVA and FINOVA will provide the financing for
the equipment described on the Schedule A annexed hereto (the "FINOVA
Equipment"); and
WHEREAS, FINOVA is unwilling to enter into the FINOVA Lease Transaction
with Borrower unless, among other things, BOA enters into this Agreement with
FINOVA;
NOW THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, it is hereby agreed that:
1. BOA hereby consents to the FINOVA Lease Transaction and to the
exercise of FINOVA's rights under the agreements, instruments and documents
executed in connection therewith.
2. Notwithstanding the provisions of applicable law with respect to the
priority of security interests and irrespective of the order of filing or
perfection, BOA hereby subordinates, to the fullest extent possible, all of the
liens, security interests and other interests held by BOA in and to the FINOVA
Equipment, to the interest of FINOVA (the "FINOVA Interest") in and to the
FINOVA Equipment, which FINOVA Interest shall be senior and superior to those
held by BOA in and to the FINOVA Equipment.
3. Any proceeds of the FINOVA Equipment which may inadvertently be paid
to or received by BOA shall be held in trust by BOA for the benefit of FINOVA
and shall be promptly paid and delivered by BOA to FINOVA in the same form
received.
4. All notices and correspondence between the parties herein shall be
addressed to the parties at their respective addresses set forth above, if to
BOA, to the attention of
<PAGE>
_________________________, and if to FINOVA, to the attention of Pamela
Marchant, Vice President.
5. The respective rights of the parties hereunder shall in no way be
altered or affected by virtue of any action being taken by or against Borrower
under any state or federal bankruptcy or insolvency law.
6. This Agreement is intended solely to establish the respective rights
as between FINOVA and BOA; shall not in any way affect or impair the validity or
enforceability of their respective security interests as against any other
person or entity; and no such other person or entity (whether a trustee in
bankruptcy or otherwise) shall have any rights or benefits hereunder.
7. BOA acknowledges that Borrower is not in default or breach of any
provision contained in any agreement and the consummation and execution of the
FINOVA Lease Transaction will not be a breach or default under any such
agreement.
8. THIS AGREEMENT SHALL BE BINDING UPON THE SUCCESSORS AND ASSIGNS OF THE
PARTIES HERETO AND SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF ARIZONA.
IN WITNESS WHEREOF, this Agreement has been executed on this _____ day
of ___________, 1999.
FINOVA CAPITAL CORPORATION
By:
------------------------------------------
Title:
---------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
------------------------------------------
Title:
---------------------------------------
AGREED TO:
TOMAHAWK II, INC.
By: /s/ Michael H. Lorber
------------------------
Title: VP - Finance & CFO
---------------------
-2-
<PAGE>
Schedule "A" to Master Lease Schedule No. C0856002 to
Equipment Lease No. C0856001 between Tomahawk II, Inc.
as Lessee and FINOVA Capital Corporation as Lessor.
<TABLE>
<CAPTION>
QTY DESCRIPTION
<S> <C>
1 DEA Gamma 1204 CNC CMM
Measuring Range: 80" x40" x27"
Accuracy: .0008 (Volumetric - Over entire envelope)
Repeatability: +/- .0002"
Virtual-Dimis Measuring Software:
Direct Joystick Measurement
Self Teach Part Programming
CNC Part Program Execution
Graphical On & Off-Line Part Program Creation
3D Direct CAD Link
Solid Model Graphical Representation
Multi-Tasking Capabilities
Comprehensive Multi-Media Help
Software Algorithms Approved to EUR 13417 Test Report
Networking Capabilities
New Computer Hardware Specifications:
IMS 450 Mhz Pentium II w/MMX Processor
128 MB SDRAM
4.0 GB Hard Drive
32 X Max Variable CD-ROM Drive
3.5" Diskette Drive
4 MB PCI Graphics Accelerator
16-Bit Stereo Sound System
Universal Serial Bus Connections
56K External Modem
Network Card
Microsoft Windows '98 Pre-Installed
17" Color Monitor
HP 722C Ink Jet Printer
Measuring Software Upgrade System:
M9 Based Electronic System, 32-Bit Transputer-Based Continuous
Motion Serve Control Card Assembled into the PC
Portable Joystick Teach Box Unit w/ Interface
System Desk for Computer & Peripherals
On-Line System Diagnostic Software
Probing System:
Renishaw Motorized PH-9 Probe Head
Renishaw TP-2 Touch Probe
Renishaw Probe Kit
<PAGE>
Surface Module Included
Miscellaneous Accessories:
Wilkerson Air Dryer
Norgren H20 & Particle Seperators
Reference Sphere
Clamping Kit
Training Applications Support & Software Maintenance:
Virtual-Dimis Training Course, 4 Days for 2 Persons in Brea, CA
Six Months Software Up-Dates at No Charge
Installation & Standard Calibration Included
</TABLE>
<PAGE>
Exhibit 10.22
SUBLEASE
THIS SUBLEASE (this "Sublease") is made this 4th day of March, 1997 by
and between MEDAPHIS PHYSICIAN SERVICES CORPORATION, a Delaware corporation
("Sublandlord") and TomaHawk II, Inc. an Illinois corporation and TomaHawk
Corporation, incorporated in Alberta, Canada ("Subtenant"):
WITNESSETH:
1. RECITALS. This Sublease is made with reference to the following facts:
1 Century Park I Joint Venture ("Master Landlord") and Medaphis
Physician Services Corporation, as tenant, entered into a written lease dated
May 5, 1995, a copy of which is attached hereto as EXHIBIT A ("Master Lease")
covering the Premises (the "Master Premises") described in Article 3 of the
Master Lease.
2 The Master Lease was amended on July, 1995. Such amendment(s) are
included in the reference to Master Lease.
3 Subtenant desires to sublet a portion of the Master Premises
described in Article 3 of the Master Lease from Sublandlord on the terms and
conditions contained in this Sublease.
2. BASIC SUBLEASE PROVISIONS.
1 Building or Project Name: Century Park
Floors: Second Floor
Premises Address: 8315 Century Park Court
San Diego, CA 92123
The Sublease Premises (the "Premises") are more fully described on EXHIBIT B
annexed hereto.
2 Rentable Area of Premises: approximately 23,622 Square Feet.
Usuable Area of Premises: approximately 22,300 Square Feet.
3 Subtenant's Percentage Share: 36.4% of Master Premises Operating
Expenses
Subtenant's Percentage Share: 28.9% of Total Building Operating
Expenses
Subtenant's Percentage Share: 11.9% of Total Project Operating
Expenses
4 Commencement Date: Subtenant may have access to space March 1,
1997 for the purpose of fixturizing the space but under no circumstances shall
they be able to conduct regular business until April 1, 1997 or until the
substantial completion of the demising of the space by Sublandlord if later
than April 1, 1997. Subtenant will not interfere with Sublandlord contractors.
Any inconvenience to Subtenant is not a basis for a breach or default of
Sublandlord.
5 Expiration Date: July 31, 2000.
6 Basic Monthly Rent: See Below. At the execution of this lease by
Subtenant, Subtenant will pay the initial month's rent equal to $18,897.60 to
Sublandlord. If the sublandlord is not substantially finished with the
demising of the space by April 1, 1997, then the rent Commencement date will
be moved back until the space is turned over to the Subtenant. Sublandlord
will give notice to Subtenant when the space is substantially completed and
ready for occupancy. If the Premises are not ready within 90 days of the
suggested Commencement Date then
<PAGE>
the Subtenant will have the option to terminate this lease. All rent shall be
paid monthly without demand, deduction, set-off or counter claim, in advance
of the first day of each calendar month during the term of this Sublease, and
in the event of a partial rental month, rent shall be prorated on the basis
of a thirty (30) day month.
<TABLE>
<S> <C>
3/1/97 - 3/3/97 $0.00
4/1/97 - 4/31/97 $18,897.60
5/1/97 - 5/31/97 $0.00
6/1/97 - 3/31/98 $18,897.60
4/1/98 - 3/31/99 $22,440.90
4/1/99 - 7/31/00 $23,622.00
</TABLE>
7 Permitted Use: General Office.
8 Sublandlord will pay for all costs to demise the premises and provide
necessary fire rated corridors and access for the space to meet code and laws to
convert the second floor to facilitate Subtenant's lease of the Premises as
described herein, and are those plans, Exhibit B pages 2 and 3, but those items
bubbled on Exhibit B shall be constructed by Sublandlord at Subtenant's expense,
which such expense pertaining to subtenant's portion of the contract shall be
limited to amounts contained in Contractors bid as well as reasonable design and
Permitting charges, as mutually agreed upon by Sublandlord, Subtenants and if
necessary Landlord. Within Fourteen (14) days of Sublandlords written request
and following completion of the items bubbled, Subtenant shall reimburse
Sublandlord for the Costs of Construction and reasonable, design and permitting
fees. Should Subtenant not pay Sublandlord within Fourteen (14) days, Subtenant
shall be in default of the Sublease as described in the Sublease and Master
Lease. The Sublandlord will pay to make at Sublandlord's expense the ground
floor fire rated and will remodel entry, as shown on Page 3 Exhibit B.
9 Late Charges: The parties agree that late payments by Subtenant to
Sublandlord of rent will cause Sublandlord to incur costs not contemplated by
this Sublease, the amount of which is extremely difficult to ascertain.
Therefore, the parties agree that if any installment of rent is not received
by Sublandlord within ten (10) days after rent is due, Subtenant will pay to
Sublandlord a sum equal to 10% of the monthly rent as a late charge.
10 Electricity: Electricity will be separately submetered and paid
by subtenant from the commencement of the lease. Subtenant will pay
to Sublandlord $2,362.20 per month which will be an estimate. At
the end of each six (6) months of the sublease term, or as soon
thereafter as possible, Sublandlord will provide a reconciliation
of the utility costs and either owe a credit for the next month to
Subtenant or will invoice Subtenant for the shortage. This
paragraph will survive the expiration of the lease. If there is a
difference of over 15% between the $0.10 per foot per month and the
actual usage, the monthly utility amount paid with the basic rent
for the next 6 months shall be adjusted to the actual usage.
11 Options to Extend: Subject to (I) Sublandlord not terminating its
lease, (ii) approval of financials, (iii) no major default during
the term, and (iv) if necessary, Landlord's consent, subtenant may
extend the term of the sublease to be co-terminus with
sublandlord's lease and option to terminate per article 40 of the
main lease at market rents for the space currently subleased by
subtenant or any other premises that may be mutually agreed upon.
12 Rent for Option Period: Fair Market Rate is 100% of the then fair
annual market rental rate.
2
<PAGE>
13 Option Exercise Deadline: Sublandlord will give Subtenant six (6)
months notice if it plans on not exercising its option to Terminate and
Subtenant must give Sublandlord written notice of the exercise of the option
set forth in Paragraph 2.11 above Four (4) months prior to the date the
Sublease would terminate if such option were not exercised ("Option Exercise
Deadline").
14 Acceptance of Premises: Subject to the work to be performed by
Sublandlord for Subtenant pursuant to Paragraph 2.8, Subtenant agrees to
accept the Premises in an "as is" condition. Without limiting the foregoing,
Subtenant's rights in the Premises are subject to all local, state and
federal laws, regulations and ordinances governing and regulating the use and
occupancy of the Premises and subject to all matters now or hereafter of
record. Subtenant acknowledges that neither Sublandlord nor Sublandlord's
agent has made any representation or warranty as to:
(i) the present or future suitability of the Premises for
the conduct of Subtenant's business;
(ii) the physical condition of the Premises;
(iii) the expenses of operation of the Premises;
(iv) the safety of the Premises, whether for the use of
Subtenant or any other person, including Subtenant's employees, agents,
invitees or customers; or
(v) any other matter or thing affecting or related to the
Premises.
15 Subtenant acknowledges that no rights, easements or licenses are
acquired by Subtenant by implication or otherwise except as expressly set
forth herein. Subtenant shall, prior to delivery of possession of the
Premises, inspect the Premises and become thoroughly acquainted with their
condition, and acknowledges that the taking of possession of the Premises by
Subtenant shall be conclusive evidence that the Premises were in good and
satisfactory condition at the time such possession was so taken. Subtenant
specifically agrees that Sublandlord has no duty to make any disclosures
concerning the condition of the Building and the Premises and/or the fitness
of the Building and the Premises for Subtenant's intended use and Subtenant
expressly waives any duty which Sublandlord might have to make any such
disclosures. Subtenant further agrees that, in the event Subtenant subleases
all or any portion of the Premises, Subtenant will indemnify and defend
Sublandlord (in accordance with Paragraph 9 hereof) for, from and against any
matters which arise as a result of Subtenant's failure to disclose any
relevant information about the Building or the Premises to any subtenant or
assignee. Subtenant shall comply with all laws and regulations relating to
the use or occupancy of the Premises and to the common areas including,
without limitation, making structural alterations or providing auxiliary aids
and services to the Premises as required by the Americans with Disabilities
Act of 1990, 42 U.S.C. Section 12101 ET SEQ. (the "ADA"). Sublandlord will
let Subtenant know of any problems or major defects relating to the Premises
or Building before Subtenant moves into the building.
16 Base Year for Operating Expenses and Taxes: 1997. Any subsequent
calendar year increases over the 1997 expenses will be per the lease and payable
by Subtenant to Sublandlord per the lease based on Subtenant's pro rata share of
the Premises, however Subtenant shall pay no operating expenses in excess of the
1997 base year during the first 12 months of the lease term.
17 Parking: Subtenant shall be entitled to 36% of the 252 parking
spaces allotted to Sublandlord in the Master Lease, including their pro rata
share of covered and reserved spaces.
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Signage: Subtenant may have exclusive use of the monument under the
terms outlined in the Master Lease. All costs associated with changes to the
monument shall be the expense of the Subtenant. Any signage will be subject
to Landlord's approval.
18 Address for payment of rent and notices:
Sublandlord:
Medaphis Physician Services Corporation
2700 Cumberland Parkway
Suite 300
Atlanta, GA 30339
ATT: Real Estate Department
Subtenant:
TomaHawk II
8315 Century Park Court
San Diego, CA 92123
19 Security Deposit: Subtenant shall deposit with Sublandlord upon
Subtenant's execution hereof Eighteen Thousand Eight Hundred Ninety-seven and
60/100 Dollars ($18,897.60) ("Deposit") as security for Subtenant's faithful
performance of Subtenant's obligations hereunder. If Subtenant fails to pay
rent or other charges due hereunder, or otherwise defaults with respect to
any provision of this Sublease, Sublandlord may use, apply or retain all or
any portion of the Deposit for the payment of any rent or other charge in
default or for the payment of any other sum which Sublandlord incurs by
reason of Subtenant's default, or to compensate Sublandlord for any loss or
damage which Sublandlord may suffer thereby. If Sublandlord uses or applies
all or any portion of the Deposit, Subtenant shall within ten (10) days after
written demand therefor deposit cash with Sublandlord in an amount sufficient
to restore the Deposit to its full amount and Subtenant's failure to do so
shall be a material breach of this Sublease. Sublandlord shall not be
required to keep the Deposit separate from its general accounts. If Subtenant
performs all of Subtenant's obligations hereunder, the Deposit, or so much
thereof as has not been used or applied by Sublandlord, shall be returned, to
Subtenant (or at Sublandlord's option, to the last assignee, if any, of
Subtenant's interest hereunder) at the expiration of the term hereof, and
after Subtenant has vacated the Premises. No trust relationship is created
herein between Sublandlord and Subtenant with respect to the Deposit. Any
deposit under the Master Lease which may be returned by the Master Landlord
shall be the property of Sublandlord.
19. Broker: John Burnham & Company and Grubb & Ellis.
3. INCORPORATION BY REFERENCE; ASSUMPTION. All of the Sections of the Master
Lease are incorporated into this Sublease as if fully set forth in this
Sublease except the following: 1.01, 3.01, 38, and 39.
1 If any provisions of this Sublease conflict with any portion of the
Master Lease as incorporated herein, the terms of this Sublease shall govern.
2 Subtenant shall assume and perform to Sublandlord the Tenant's
obligations under the Master Lease provisions to the extent that the
provisions are applicable to the Premises. Subtenant shall pay to Sublandlord
all taxes, utilities, common area charges and any other sums payable by
Sublandlord, applicable to subtenant's premises under the Master Lease not
later than ten (10) days prior to the date any such amounts are due and
payable by Sublandlord as per Paragraph 2.15.
3 Sublandlord does not assume the obligations of the Master Landlord
under the Master Lease.
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4 With respect to work, services, repairs, repainting, restoration, the
provision of utilities, elevator or HVAC services, or the performance of other
obligations required of Master Landlord under the Master Lease, Sublandlord's
sole obligation with respect thereto shall be to request the same, on request in
writing by Subtenant, and to use reasonable efforts to obtain the same from
Master Landlord. Subtenant shall cooperate with Sublandlord as may be required
to obtain from Master Landlord any such work, services, repairs, repainting
restoration, the provision of utilities, elevator or HVAC services, or the
performance of any of Master Landlord's other obligations under the Master
Lease.
4. SUBTENANT'S PERFORMANCE UNDER MASTER LEASE. At any time and on reasonable
prior notice to Subtenant, Sublandlord can elect to require Subtenant to perform
its obligations under this Sublease directly to Master Landlord, in which event
Subtenant shall send to Sublandlord from time to time copies of all notices and
other communications it shall send to and receive from Master Landlord.
5. COVENANT OF QUIET ENJOYMENT. Sublandlord represents that the Master Lease
is in full force and effect and that there are no defaults on Sublandlord's part
under it as of the Commencement Date set forth in Paragraph 2.4 above.
Sublandlord represents that if Subtenant performs all the provisions in this
Sublease to be performed by Subtenant, Subtenant shall have and enjoy throughout
the term of this Sublease the quiet and undisturbed possession of the Premises.
Sublandlord shall have the right to enter the Premises at any time, in the case
of an emergency, and otherwise at reasonable times with reasonable advance
notice, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Subtenant with this Sublease and the Master Lease and to
permit Sublandlord to perform its obligations under this Sublease and the Master
Lease.
6. Option to Expand: Should Sublandlord elect to market any additional space
at 8315 Century Park Court, they will first advise Subtenant of the availability
of the space. Providing Subtenant is not and has not been in major default of
the Sublease, and subject to review and approval of subtenant's new financials,
an amendment to the original Sublease shall be executed by both parties and be
subject to the Landlord's approval. Should subtenant elect to Sublease the
space it would be per the same terms as this sublease with any rental payable
after the period July 31, 2000, to be consistent with the Base rent negotiated
between sublandlord and subtenant as per Paragraph 2.11 of this sublease.
Should Subtenant not elect to Sublease the additional space within ten (10) days
of written notice, Sublandlord may lease the space to any third party.
7. MASTER LEASE.
1 Subtenant shall not do or permit to be done anything which would
constitute a violation or breach of any of the terms, conditions or provisions
of the Master Lease or which would cause the Master Lease to be terminated or
forfeited by virtue of any risks of termination or forfeiture reserved by or
vested in Master Landlord.
2 If the Master Lease terminates, this Sublease shall terminate and the
parties shall be relieved from all liabilities and obligations under this
Sublease: except that if this Sublease terminates as a result of a default of
one of the parties under this Sublease or the Master Lease, the defaulting party
shall be liable to the non-defaulting party for all damage suffered by the
non-defaulting party as a result of the termination.
3 Intentionally Deleted.
8. HAZARDOUS MATERIALS. For the purposes of this Sublease, the following
terms have the following meanings:
(a) "Hazardous Materials Laws" means any and all laws, statutes,
ordinances or regulations pertaining to health, industrial hygiene or the
environment including, without limitation, CERCLA
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(Comprehensive Environmental Response Compensation and Liability Act of
1980) and RCRA (Resources Conservation and Recovery Act of 1976).
(b) "Hazardous Materials" means asbestos or any substance, material
or waste which is or becomes designated, classified or regulated as being
"toxic" or "hazardous" or a "pollutant" or which is or becomes similarly
designated, classified or regulated under any federal, state or local law.
At its own expense, Subtenant will procure, maintain in effect and comply
with all conditions of any and all permits, licenses and other governmental and
regulatory approvals required for Subtenant's use of the Premises, including,
without limitation, discharge of appropriately treated materials or wastes into
or through any sanitary sewer serving the Premises. Except as discharged into
the sanitary sewer in strict accordance and conformity with all applicable
Hazardous Materials Laws, Subtenant will cause any and all Hazardous Materials
removed from the Premises to be removed and transported solely by duly licensed
haulers to duly licensed facilities for final disposal. Subtenant will, in all
respects, handle, treat, deal with and manage any and all Hazardous Materials
in, on, under or about the Premises in total conformity with all applicable
Hazardous Materials Laws and prudent industry practices regarding management of
such Hazardous Materials. Upon expiration or earlier termination of the term of
this Sublease, Subtenant will cause all Hazardous Materials placed on, under or
about the Premises by Subtenant or at Subtenant's direction to be removed and
transported for use, storage or disposal in accordance and compliance with all
applicable Hazardous Materials Laws. Subtenant will not take any remedial
action in response to the presence of any Hazardous Materials in or about the
Premises or any building, nor enter into any settlement agreement, consent
decree or other compromise in respect to any claims relating to any Hazardous
Materials in any way connected with the Premises without first notifying Master
Landlord and Sublandlord of Subtenant's intention to do so and affording Master
Landlord and Sublandlord ample opportunity to appear, intervene or otherwise
appropriately assert and protect Master Landlord's and Sublandlord's interests
with respect thereto. To the best of Sublandlord's knowledge there are no
Hazardous Materials on the Premises.
9. INDEMNITY. Subtenant will indemnify, defend (by counsel reasonably
acceptable to Sublandlord), protect and hold Sublandlord harmless from and
against any and all claims, demands, losses, damages, costs and expenses
(including attorneys' fees) arising out of or relating to (i) the death of or
injury to any person, or damage to any property whatsoever, on or about the
Premises; or (ii) Subtenant's breach or default under this Sublease (including,
without limitation, Subtenant's breach of Paragraph 7 above) or, to the extent
incorporated herein, the Master Lease.
10. ATTORNEYS' FEES. If there is any legal or arbitration action or
proceeding between Sublandlord and Subtenant to enforce any provision of this
Sublease or to protect or establish any right or remedy of either Sublandlord
or Subtenant hereunder, the unsuccessful party to such action or proceeding
will pay to the prevailing party all costs and expenses, including reasonable
attorneys' fees (including allocated costs of Sublandlord's in-house attorneys)
incurred by such prevailing party in such action or proceeding and in any
appearance in connection therewith, and if such prevailing party recovers a
judgment in any such action, proceeding or appeal, such costs, expenses and
attorney's fees will be determined by the court or arbitration panel handling
the proceeding and will be included in and as a part of such judgment.
11. NO ENCUMBRANCE. Subtenant shall not voluntarily or by operation of law
mortgage or otherwise encumber all or any part of Subtenant's interest in the
Sublease or the Premises.
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12. ASSIGNMENT AND SUBLETTING.
11.1 Subtenant shall not voluntarily or by operation of law assign this
Sublease or any interest therein and shall not sublet the Premises or any part
thereof, or any right or privilege appurtenant thereto, without first obtaining
the written consent of Sublandlord, which consent shall not be unreasonably
withheld. Determining whether or not to consent to the proposed assignment or
subletting, Sublandlord may consider among other factors:
(i) whether the proposed sublessee or assignee has a net worth equal
to or greater than Subtenant;
(ii) whether the proposed use of the Premises by the proposed
sublessee or assignee is consistent with Paragraph 2.7;
(iii) the experience and business reputation of the proposed
sublessee or assignee; and
(iv) whether Sublandlord's consent will result in a breach of any
other lease or agreement to which Sublandlord is a party affecting the Property
or Premises.
11.2 Any attempted assignment or subletting, without Sublandlord's
consent shall be null and void and of no effect. No permitted assignment or
subletting of Subtenant's interest in this Sublease, shall relieve Subtenant of
its obligations to pay the rent and to perform all the other obligations to be
performed by Subtenant hereunder. The acceptance of rent by Sublandlord from
any other person shall not be deemed to be a waiver by Sublandlord of any
provision of this Sublease or to be a consent to any subletting or assignment.
Consent to one sublease or assignment shall not be deemed to constitute consent
to any subsequent attempted subletting or assignment.
11.3 Within ten (10) days following the date received by Subtenant from
any assignee or sublessee, Subtenant shall pay to Sublandlord as additional
rent, one hundred percent (100%) of the amount by which the rent payable by
such assignee or sublessee to Subtenant exceeds the rent payable by Subtenant
to Sublandlord under this Sublease until the rent paid by Subtenant to
Sublandlord equals the amount paid by Sublandlord to Master Landlord under the
Master Lease and thereafter, fifty percent (50%) of the amount by which the
rent payable by such assignee or sublessee to Subtenant throughout the term
exceeds the rent paid by Subtenant to Sublandlord under this Sublease. By way
of example, if during a year of the term the annual rent under the Master Lease
is $12 per square foot, the rent under the Sublease is $10 per square foot, and
the rent under such subsublease is $14 per square foot, of the $14 per square
foot paid to Subtenant by its subsublessee, $13 per square foot will be paid by
Subtenant to Sublandlord hereunder. If Subtenant receives a lump sum payment in
connection with an assignment, such amount shall be allocated between Subtenant
and Sublandlord, in the same manner taking into account the total rents payable
during the remaining terms of the Master Lease and Sublease.
The foregoing is a freely negotiated arrangement between Subtenant and
Sublandlord respecting the allocation of appreciated rents. This covenant
shall survive the expiration of the term of this Sublease. Notwithstanding the
foregoing, Subtenant shall not be obligated to pay Sublandlord any portion of
such appreciated rentals until Subtenant has recovered any costs it has
reasonably incurred in connection with the subletting of the Premises to any
third party broker or for improvements to the Premises. Any such costs to be
deducted from appreciated rents shall be submitted to Sublandlord and shall be
subject to Sublandlord's reasonable approval.
13. ALTERATIONS.
1 ALTERATIONS AND IMPROVEMENTS BY SUBTENANT. As per the Article 8 of
the main lease.
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2 REMOVAL OF PERSONAL PROPERTY. All articles of personal property, and
all business and trade fixtures, machinery and equipment, cabinet work,
furniture and movable partitions, if any, owned or installed by Subtenant at
its expense in the Premises shall be and remain the property of Subtenant and
may be removed by Subtenant at any time, provided that Subtenant, at its
expense, shall repair any damage to the Premises caused by such removal or by
the original installation. Sublandlord may elect to require Subtenant to remove
all or any part of such property at the expiration or sooner termination of
this Sublease, in which event such removal shall be done at Subtenant's
expense, and Subtenant shall at its own expense repair any damage to the
Premises caused by such removal prior to the termination of this Sublease.
14. HOLDING OVER. Subtenant will, at the termination of the Sublease by lapse
of time or otherwise, yield up immediately possession of the Premises to
Sublandlord. If Subtenant retains possession of the Premises or any part
thereof after such termination, or if any of Subtenant's property remains, then
such holding over shall constitute a tenancy at sufferage, and the monthly
rental (or daily rental) shall, in addition to all other sums which are to be
paid by Subtenant hereunder, be equal to two hundred percent (200%) of the
rental being paid monthly to Subtenant under this Sublease immediately prior to
such termination of this sublease. Subtenant shall also pay to Sublandlord all
damages sustained by Sublandlord resulting from retention of possession by
Subtenant.
15. LIENS. Subtenant will keep the Premises and the Building free from any
liens arising out of any work performed, materials furnished, or obligations
incurred by Subtenant. Sublandlord has the right to post and keep posted on
the Premises any notices that may be provided by law or which Sublandlord may
deem to be proper for the protection of Sublandlord, the Premises and the
Building from such liens.
16. MAINTENANCE AND REPAIRS. Subtenant acknowledges that the Premises are
in good order and repair. At all times during the term of this Sublease,
Subtenant, at its sole cost and expense, will maintain the Premises and every
part thereof as per the Master Lease. At the end of the term of this
Sublease, Subtenant will surrender the Premises in as good condition as
received, normal wear and tear excepted. Subtenant shall be responsible for
all repairs required to be performed by the Tenant under the Master Lease.
17. INSURANCE. At all times during the term of this Sublease, Subtenant shall,
at its sole expense, procure and maintain the following types of insurance
coverage:
1 Comprehensive general liability insurance against any and all damages
and liability, including attorneys' fees on account or arising out of injuries
to or the death of any person or damage to property, however occasioned, in, on
or about the Premises with at least a single combined liability and property
damage limit of $2,000,000.
2 Insurance on all plate or tempered glass to the extent required as per
the Master Lease.
3 Insurance adequate in amount to cover damage to the Premises including,
without limitation, leasehold improvements, trade fixtures, furnishings,
equipment, goods and inventory.
4 Rent insurance in an amount equal to all rent payable under this Lease
for a period of at least twelve (12) months commencing with the date of loss.
5 Employer's liability insurance and worker's compensation insurance as
required by applicable law.
6 All such insurance shall be in a form satisfactory to Sublandlord and
carried with companies admitted to do business in the state of California.
Subtenant shall provide Sublandlord with a certificate of insurance showing
Sublandlord as additional insured. The certificate shall provide for a
thirty-day written notice to Sublandlord in the event of cancellation or
material change of coverage.
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7 Sublandlord and Subtenant shall each obtain from their respective
insurers under all policies of fire, theft, public liability, workers'
compensation and other insurance maintained by either of them at any time
during the term hereof insuring or covering the Premises, a waiver of all
rights of subrogation which the insurer of one party might otherwise have, if
at all, against the other party.
18. EVENTS OF DEFAULT. If one or more of the following events ("Event of
Default") occurs, such occurrence constitutes a breach of this Sublease by
Subtenant:
1 Subtenant fails to pay any monthly Basic Monthly Rent or Operating
Expenses and Taxes, if applicable, as and when the same become due and
payable, and such failure continues for more than five (5) days after
Sublandlord gives written notice thereof to Subtenant; or
2 Subtenant fails to pay any other sum or charge payable by Subtenant
hereunder as and when the same becomes due and payable, and such failure
continues for more than ten (10) days after Sublandlord gives written notice
thereof to Subtenant; or
3 Subtenant fails to perform or observe any other agreement, covenant,
condition or provision of this Sublease to be performed or observed by
Subtenant as and when performance or observance is due, and such failure
continues for more than thirty (30) days after Sublandlord gives written
notice thereof to Subtenant, or if the default cannot be cured within said
thirty (30) day period and Subtenant fails within said period to commence
with due diligence and dispatch the curing of such default or, having so
commenced, thereafter fails to prosecute or complete with due diligence and
dispatch the curing of such default; or
4 Subtenant (a) files or consents by answer or otherwise to the filing
against it of a petition for relief or reorganization or arrangement or any
other petition in bankruptcy or liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction; (b) makes an assignment for
the benefit of its creditors; (c) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers of itself or of any
substantial part of its property; or (d) takes action for the purpose of any
of the foregoing; or
5 A court or governmental authority of competent jurisdiction, without
consent by Subtenant, enters an order appointing a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial power of its property, or constituting an order
for relief or approving a petition for relief or reorganization or any other
petition in bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding up or liquidation of Subtenant, or if any such petition
is filed against Subtenant and such petition is not dismissed within ninety
(90) days; or
6 This Sublease or any estate of Subtenant hereunder is levied upon
under any attachment or execution and such attachment or execution is not
vacated within ninety (90) days.
19. REMEDIES OF SUBLANDLORD ON DEFAULT.
1 In the event of any breach of this Sublease by Subtenant, Sublandlord
may, at its option, terminate the Sublease and recover from Subtenant (a) the
worth at the time of award of the unpaid rent which was earned at the time of
termination; (b) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
the award exceeds the amount of such rental loss that the Subtenant proves
could have been reasonably avoided; (c) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Subtenant proves could be
reasonably avoided; and (d) any other amount necessary to compensate
Sublandlord for all detriment proximately caused by Subtenant's failure to
perform this obligations under the Lease or which in the ordinary course of
things would be likely to result therefrom.
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2 Sublandlord may, in the alternative, continue this Sublease in
effect, as long as Sublandlord does not terminate Subtenant's right to
possession, and Sublandlord may enforce all his rights and remedies under the
Sublease, including the right to recover the rent as it becomes due under the
Sublease. If said breach of the Sublease continues, Sublandlord may, at any
time thereafter, elect to terminate the Sublease. Nothing contained herein
shall be deemed to limit any other rights or remedies which Sublandlord may
have.
20. ESTOPPEL CERTIFICATES.
1 Subtenant shall at any time upon not less than ten (10) days' prior
written notice from Sublandlord execute, acknowledge and deliver to
Sublandlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Sublease, as so modified, is in
full force and effect), the amount of any security deposit, and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Subtenant's knowledge, any uncured
defaults on the part of Sublandlord hereunder, or specifying such defaults if
any are claimed. Any such statement may be conclusively relied upon by any
prospective purchaser or encumbrancer to the Premises.
2 At Sublandlord's option, Subtenant's failure to deliver such
statement within such time shall be conclusive upon Subtenant (i) that this
Sublease is in full force and effect, without modification except as may be
represented by Sublandlord, (ii) that there are no uncured defaults in
Sublandlord's performance, and (iii) that not more than one month's rent has
been paid in advance, or such failure may be considered by Sublandlord as a
material default by Subtenant under this Sublease.
3 If the Master Landlord desires to finance, refinance, or sell the
Premises, or any part thereof, Subtenant hereby agrees to deliver to any
lender or purchaser designated by Master Landlord such financial statements
of Subtenant as may be reasonably required by such lender or purchaser. Such
statements shall include the past three years' financial statements of
Subtenant.
21. REAL ESTATE BROKERS. Each party warrants to the other that there are no
brokerage commissions or fees payable in connection with this Sublease except
to the broker set forth in Paragraph 2.19. Each party further agrees to
indemnify and hold the other party harmless, from any cost, liability and
expense (including attorney's fees) which the other party may incur as the
result of any breach of this Paragraph 21.
22. MASTER LANDLORD DEFAULT; CONSENTS The provisions of this Paragraph 22
shall apply to the resolution of disputes between Sublandlord and Subtenant
unless the Master Landlord is or may become a party to the dispute, in which
event the provisions of this Paragraph 22 shall apply only if the Master
Landlord agrees to settle the dispute pursuant to the terms hereof.
Notwithstanding any provision of this Sublease to the contrary, (a)
Sublandlord shall not be liable or responsible in any way for any loss,
damage, cost, expense, obligation or liability suffered by Subtenant by
reason or as the result of any breach, default or failure to perform by the
Master Landlord under the Master Lease, and (b) whenever the consent or
approval of Sublandlord and Master Landlord is required for a particular act,
event or transaction (i) any such consent or approval by Sublandlord shall be
subject to the consent or approval of Master Landlord, and (ii) should Master
Landlord refuse to grant such consent or approval, under all circumstances,
Sublandlord shall be released from any obligation to grant its consent or
approval.
23. NOTICES. All notices given under this Sublease must be in writing and
shall be effectively served upon delivery, or if mailed, upon the first to
occur of receipt or the expiration of forty-eight hours after deposit in
certified United States mail, postage prepaid, sent to the party at its
address set forth in Paragraph 2.17. Those addresses may be changed by either
party by notice to the other party.
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24. MASTER LANDLORD'S CONSENT. This Sublease is expressly conditioned upon
receipt of the written consent of Master Landlord.
IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this
Sublease as of the day and year first above written.
SUBLANDLORD:
MEDAPHIS PHYSICIAN SERVICES CORPORATION
/s/ Jon Anderson
----------------------------------
By: Jon Anderson
------------------------------
Title: Vice President
---------------------------
SUBTENANT:
TOMAHAWK II, INC. AN ILLINOIS CORPORATION
/s/ Steven M. Caira
----------------------------------
Steven M. Caira
President
TOMAHAWK CORPORATION, INCORPORATED IN ALBERTA, CANADA
/s/ Steven M. Caira
----------------------------------
Steven M. Caira
President
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Exhibit A
CONSENT TO SUBLETTING
CENTURY PARK I JOINT VENTURE, a Delaware joint venture, having an office
at 411 West Putnam Avenue, Greenwich, Connecticut 06830 ("LANDLORD"), hereby
consents to subletting (the "SUBLETTING"), by MEDAPHIS PHYSICIAN SERVICES
CORPORATION, a Georgia corporation, having an office at 2700 Cumberland
Parkway, Suite 100, Atlanta, Georgia 30339 ("TENANT"), to TOMAHAWK II, INC.,
an Illinois corporation and TOMAHAWK CORPORATION, incorporated in Alberta,
Canada, each having its principal office at 8315 CENTURY PARK COURT, #200,
SAN DIEGO * (collectively, "SUBTENANT"), pursuant to a sublease, dated March 4,
1997, (the "SUBLEASE"), of certain space (hereinafter referred to as
"SUBLET SPACE"), being a portion of the 2nd floor of the building
("BUILDING") known as Building 2 and located at 8315 Century Park Court, San
Diego, California 92123, which Sublet Space is a portion of the premises (the
"PREMISES") now leased and demised by Landlord to Tenant by a lease, dated as
of May 5, 1995, as amended by an amendment, dated July, 1995 (which lease, as
the same has been and may hereafter be modified and amended, is hereinafter
called the "LEASE"). The consent contained herein is subject to and upon the
following terms and conditions, to each of which Tenant and Subtenant
expressly agree:
* California, 92123
1. SUBLEASE SUBORDINATE TO LEASE, ETC.
(a) The Sublease shall be subject and subordinate at all times to
the Lease and to all of the provisions, covenants, agreements, terms and
conditions (collectively, "PROVISIONS") of the Lease (including, without
limitation, the Rules and Regulations which are a part thereof) and this
Consent, and Subtenant shall not do or permit anything to be done in
connection with Subtenant's occupancy of the Sublet Space which would violate
any of said provisions. Any breach or violation of any provision of the Lease
by Subtenant (whether by act or omission) beyond any applicable grace or cure
period as provided in the Lease shall be deemed to be and shall constitute a
default by Tenant in fulfilling such provision and, in such event, Landlord
shall have all of the rights, powers and remedies provided in the Lease or at
law or in equity or by statute or otherwise with respect to defaults.
(b) Nothing herein contained shall be construed to (i) modify,
waive, impair or affect any of the provisions contained in the Lease (except
as may be expressly provided herein), (ii) waive any present or future breach
of, or default under, the Lease or any rights of Landlord against any person,
firm, association or corporation liable or responsible for the performance
thereof or (iii) enlarge or increase Landlord's obligations or Tenant's
rights under the Lease or otherwise; and
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all provisions of the Lease are hereby declared by Tenant to be in full force
and effect.
(c) Nothing herein contained shall be construed as a consent to or
approval or ratification by Landlord of any of the particular provisions of
the Sublease (except as may be herein expressly provided) or as a
representation or warranty by Landlord. Landlord has not, and will not,
review or pass upon any of the provisions of the Sublease and shall not be
bound or estopped in any way by the provisions of the Sublease.
(d) Tenant shall be and remain liable and responsible for the due
keeping, and full performance and observance, of all of the provisions of the
Lease on the part of Tenant to be kept, performed and observed, including,
without limitation, the payment of Fixed Rent and Additional Rent (as such
terms are defined in the Lease).
(e) In the event of any default by Tenant or Subtenant in the full
performance and observance of any of their respective obligations hereunder
beyond any applicable grace or cure period as provided in the Lease or in the
event any representation of Tenant or Subtenant contained herein should prove
to be untrue, such event may, at Landlord's option, be deemed to be a default
under the Lease, and Landlord shall have all of the rights, powers and
remedies provided for in the Lease or at law or in equity or by statute or
otherwise with respect to defaults.
(f) In case of any conflict between the provisions of (i) the Lease
and the Sublease, then the provisions of the Lease shall prevail, and
(ii) this Consent and the Lease, then the provisions of this Consent shall
prevail.
2. NO ASSIGNMENT
Neither this Consent nor any right created hereunder may be assigned by
Tenant or Subtenant.
3. NO FURTHER SUBLET, ETC.
This Consent is not, and shall not be construed as, a consent by
Landlord to, or as permitting, any other or further subletting by either
Tenant or Subtenant. Notwithstanding anything to the contrary contained in
the Lease or the Sublease, without the prior written consent of Landlord in
each instance: (a) the Sublease shall not be assigned, extended or renewed
(provided, however, that the Sublease may be renewed as expressly provided
for in the Sublease so long as (i) such renewal term does not extend beyond
the term of the Lease, (ii) no default by Tenant under the Lease or by Tenant
or Subtenant under this Consent beyond any applicable notice and cure period
shall have occurred and be continuing and (iii) thirty (30) days' prior
written notice of such renewal shall have been given to Landlord)
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and (b) neither the Sublet Space nor any part thereof shall be further sublet
by Subtenant. Notwithstanding the foregoing, so long as there is no default
beyond any applicable notice and cure period under the Lease or this Consent,
Subtenant shall be permitted to have one or more individuals occupy portions
of the Sublet Space not to exceed 500 square feet in the aggregate if such
individuals are performing work related to the business of Subtenant in the
Sublet Space; provided, however, that (i) Landlord is given 10 days' prior
written notice of the name and amount of space to be occupied by each such
individual and (ii) such further information with respect to such occupant or
occupancy as Landlord shall reasonably request is delivered to Landlord
within 3 days after request therefor.
4. USE.
The Sublet Space and each part thereof shall be used by Subtenant solely
for general office purposes and for no other purpose. Neither Tenant nor
Subtenant shall use or permit the use of the Sublet Space or any part thereof
(a) in any way which would violate any of the provisions of the Lease,
(b) for any unlawful purpose or (c) in any unlawful manner.
5. TERMINATION OF LEASE, PRIME SUBLEASE.
(a) If, during the term of the Sublease, the term of the Lease shall
expire or the Lease shall sooner terminate, or Tenant shall surrender the
Lease to Landlord, on the tenth (10th) day (the "ATTORNMENT DAY") after
receipt of written notice given to Subtenant of such expiration, termination
or surrender, and without any additional or further agreement of any kind on
the part of Subtenant, subtenant shall attorn to Landlord on the terms and
conditions of the Lease and on such Attornment Day, the Sublease shall be
deemed to be terminated; provided that (i) Subtenant shall have delivered to
Landlord any security deposit which is required by the terms of the Lease and
a sum equal to the then Fixed Rent and Additional Rent under the Lease for
the month in which the Attornment Day occurs (prorated on a per diem basis if
the Attornment Day is not the first day of a calendar month) plus the next
succeeding months' Fixed Rent and Additional Rent under the Lease and
(ii) Subtenant shall have reimbursed Landlord for any costs that may be
incurred by Landlord in connection with such attornment, including, without
limitation, reasonable legal costs in connection with such attornment.
Subtenant, upon demand of Landlord, shall execute and deliver such instrument
or instruments as Landlord may reasonably request to evidence and confirm the
foregoing provisions of this Paragraph 5(a).
(b) In the event that (i) Subtenant does not elect to attorn to
Landlord pursuant to Paragraph 5(a) above, Subtenant shall give written
notice (the "NOTICE") thereof to Landlord, before the expiration of the ten
(10) day period (the "NOTICE
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PERIOD") referred to in Paragraph 5(a) hereof, or (ii) Subtenant does not
make the payments to Landlord required by Paragraph 5(a) above, then, in
either such case, on or before the ninetieth (90th) day after the expiration
of the Notice Period, Subtenant shall vacate the Sublet Space. In case of the
failure of Subtenant to so vacate the Sublet Space, Landlord shall be
entitled to all of the rights and remedies which are available to a Landlord
against a tenant holding over after the expiration of a term and to such
other rights and remedies as may be provided for in the Lease, at law or in
equity, and Tenant and Subtenant, from and after the ninetieth (90th) day
after the expiration of the Notice Period, at Landlord's option, shall be
deemed to be occupying the Sublet Space as tenants from month to month, at a
monthly rental equal to the greater of (i) three times the Fixed Rent and
Additional Rent payable under the Lease with respect to the Sublet Space for
the calendar month immediately preceding the expiration, termination or
surrender of the Lease and (ii) three times the rent (including all
additional rent) payable under the Sublease with respect to the Sublet Space
for the calendar month immediately preceding the expiration, termination or
surrender of the Lease. If the Sublet Space is less than the Premises the
Fixed Rent and Additional Rent shall be adjusted on a square foot basis to
determine the amount payable under clause (i) above.
(c) Notwithstanding anything to the contrary contained in this
Paragraph (5) if Subtenant shall be in default under this Consent beyond any
applicable notice and cure period, the 10-day notice to be given by Landlord
pursuant to Paragraph 5(a) hereof may, at Landlord's option, demand that
Subtenant vacate the Sublet Space. In that event, Subtenant shall vacate the
Sublet Space on or before the ninetieth (90th) day after the Notice Period
and the provisions of Paragraph 5(b) above shall apply.
6. NO ALTERATIONS, ETC.
No alterations, additions (electrical or otherwise), or physical changes
shall be made in the Sublet Space, or any part thereof, without Landlord's
prior written consent in each instance except as may otherwise be provided in
the Lease. Landlord consents to the alterations delineated in the TomaHawk II,
Century Office Park Plans, Final Approved Floor Plan, date stamped 3/10/97
prepared by Facilities Solutions, subject to all other applicable provisions
of the Lease with respect to the performance of such alterations.
7. NO AMENDMENT.
Notwithstanding anything to the contrary contained in the Lease or the
Sublease, Tenant and Subtenant shall not, without the prior written consent
of Landlord in each instance, execute any amendment to or modification or
extension of the Sublease, and any amendment or modification or extension
entered into without such consent shall be void and of no force or effect;
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provided, however, that the Sublease term may be renewed as provided in
Paragraph 3 hereof in compliance with Paragraph 3 hereof.
8. REPRESENTATION OF PRIME SUBTENANT AND SUBTENANT.
Tenant and Subtenant jointly and severally represent to and agree with
Landlord that: (a) the term of the Sublease, including any extension or
renewal thereof, will expire not later than the date set for the expiration
of the term of the Lease; (b) Subtenant is financially responsible, of good
reputation and engaged in a business which is in keeping with the standards
of Landlord in those respects for the Building and its occupancy and (c) other
than those payments provided for in the Sublease, Subtenant has not made, nor
is it obligated to make, any payments to Tenant in connection with the Sublease.
9. INDEMNITY.
Tenant and Subtenant warrant and represent to Landlord that they have
dealt with no broker or finder in connection with the Sublease other than
John Burnham & Company and Grubb & Ellis (collectively, the "BROKER"). Tenant
hereby indemnifies Landlord against, and agrees to hold Landlord harmless
from, any and all liability resulting from any claims that may be made
against Landlord by Subtenant or any brokers (including the Broker) or other
persons claiming a commission or similar compensation in connection with the
Sublease.
10. COLLATERAL ASSIGNMENT OF RENTS BY TENANT.
(a) Subject to the license granted in this Paragraph, Tenant hereby
unconditionally and irrevocably grants, transfers, assigns and sets over to
Landlord all of Tenant's interest in the rents, issues and profits of the
Sublease (collectively, the "RENTS") together with full power and authority,
in the name of Tenant, or otherwise, to demand, receive, enforce, collect or
receipt for any or all of the foregoing, to endorse or execute any checks or
other instruments or orders, to file to take any claims and to take any other
action which Landlord may deem necessary or advisable in connection
therewith; provided, that no exercise of such rights by Landlord shall
release Tenant or Subtenant from any of its obligations under the Lease, the
Sublease or this Consent. The parties intend that the assignment described in
this Paragraph 10 shall be a present, actual, absolute and unconditional
assignment; provided, however, that so long as no default by Tenant beyond
the expiration of any applicable grace or cure period shall have occurred and
be continuing under the Lease, Tenant shall have a license to collect the
Rents, but neither prior to accrual nor more than one month in advance
(except for security deposits and escalations provided for in the Sublease).
Upon the occurrence of any default by Tenant beyond the expiration of any
applicable grace
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and cure period under the terms and conditions of the Lease, this Consent
shall constitute a direction to and full authority to Subtenant to pay all
Rents to Landlord without proof to the Subtenant of the default relied upon.
Tenant hereby irrevocably authorizes Subtenant to rely upon and comply with
any notice or demand by Landlord for the payment to Landlord of any Rents due
or to become due. Landlord will simultaneously give a copy of such notice and
demand to Tenant and Subtenant. Landlord shall be accountable only for the
Rents actually collected hereunder and not for the rental value of the Sublet
Space.
(b) Neither this Consent nor the assignment described in this Paragraph
10 nor any action or inaction on the part of Landlord shall constitute an
assumption on the part of Landlord of any duty or obligation under the Lease
or the Sublease, nor shall Landlord have any duty or obligation to make any
payment to be made by Tenant or Subtenant under the Lease or the Sublease, or
to present or file any claim, or to take any other action to collect or
enforce the payment of any amounts which have been assigned to Landlord or to
which it may be entitled hereunder at any time or times. The collection and
application of the Rents or other charges, or any other action taken by
Landlord in connection therewith, shall not (i) cure or waive any default
under the Lease, the Sublease or this Consent, (ii) waive or modify any
notice thereof theretofore given by Landlord, (iii) subject to Landlord's
option to require Subtenant to attorn to Landlord as provided in the Lease
and in Paragraph 5(a) hereof, create any direct tenancy between Landlord and
Subtenant or (iv) otherwise limit in any way the rights of Landlord hereunder
or under the Lease.
(c) Tenant, at its expense, will execute and deliver all such
instruments and take all such action as Landlord, from time to time, may
reasonably request in order to obtain the full benefits of the assignment
provided for in this Paragraph 10.
(d) Rents collected by Landlord (less the reasonable cost of collection)
under this Paragraph 10 will be applied against Tenant's obligations under
the Lease.
11. AGENT FOR SERVICE OF PROCESS.
(a) Subtenant acknowledges and agrees that all disputes arising,
directly or indirectly, out of or relating to the Lease, the Sublease or this
Consent may be dealt with and adjudicated in the state courts of California
or the federal courts sitting in California, and Subtenant hereby expressly
and irrevocably submits the person of Subtenant to the jurisdiction of such
courts in any suit, action or proceeding arising, directly or indirectly, out
of or relating to the Lease, the Sublease or this Consent. So far as is
permitted under the applicable law, this Consent to personal jurisdiction
shall be self-operative and no further instrument or action, other than
service of process in
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one of the manners specified in this Consent, or as otherwise permitted by
law, shall be necessary in order to confer jurisdiction upon the person of
Subtenant in any such court.
(b) Subtenant hereby irrevocably designates and appoints Tomahawk II,
Inc., an Illinois corporation, having an office at the Sublet Space ("AGENT")
as its authorized agent to accept and acknowledge on its behalf service of
any and all process which may be served in any suit, action or proceeding of
the nature referred to in this Consent. Agent, by executing this Consent
irrevocably consents to and accepts its designation and appointment as agent
for service of process upon Subtenant. Said designation and appointment shall
be irrevocable until one year after the date upon which the term of the
Sublease, including any extension thereof, expires. Agent covenants and
agrees that it shall not cease so to act unless and until Subtenant shall
have irrevocably designated and appointed another such agent or agents
reasonably satisfactory to Landlord as agent and Subtenant shall have
delivered to Landlord or any of its successors or assigns evidence in writing
of such other agent's acceptance of such appointment. Any attempt by Agent to
cease to so act as agent shall be ineffective and without force or effect
unless the foregoing provisions of this sentence shall be complied with.
(c) Subtenant hereby consents to process being served in any suit,
action or proceeding of the nature referred to in this Consent by the mailing
of a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to Agent at the address for Agent set forth in Paragraph
11(b) of this Consent, with a copy to Subtenant at the address set forth on
page 1 of this Consent, or to any other address of which Subtenant shall have
given written notice to Landlord. Provided that service is made in accordance
with this Paragraph 11 or otherwise as permitted by law, Subtenant
irrevocably waives, to the fullest extent permitted by law, all claim of
error by reason of any such service and agrees that such service (a) shall be
deemed in every respect effective service of process upon Subtenant in any
such suit, action or proceeding, whether or not Agent gives notice thereof to
Subtenant and (b) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to Subtenant.
(d) Nothing in this Consent shall affect the right of Landlord to serve
process in any manner permitted by law or limit the right of Landlord or any
of its successors or assigns, to bring proceedings against Subtenant in the
courts of any jurisdiction or jurisdictions.
12. MISCELLANEOUS
(a) This Consent is conditioned upon (i) Subtenant's delivering to
Landlord, within 10 days he commencement of the term of the Sublease, notice
of such commencement and a true,
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correct and complete copy of the Sublease and (ii) Tenant's payment to
Landlord of the reasonable costs (including attorneys' fees and disbursements
of Landlord's counsel) incurred by Landlord in connection with the Sublease.
(b) This Consent may not be altered, amended, modified or changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any such alteration, amendment, modification or change is
being sought.
(c) Captions are inserted for convenience only and will not affect the
construction hereof.
(d) Any bills, statements, notices, demands, requests, consents or other
communications given or required to be given under this Consent shall be
effective only if rendered or given in writing and delivered personally or
sent by mail (registered or certified, return receipt requested), postage
prepaid, addressed to the respective party at the address hereinabove set
forth or at such other address as such party may designate as its new address
for such purpose by notice in accordance with the provisions hereof, or, if
addressed to Subtenant after the date on which Subtenant first occupies the
Sublet Space, addressed to the Building; the same shall be deemed to have
been rendered or given on the date delivered, if delivered personally, or on
the third date after mailing, if mailed. Landlord shall not be required to
send any such notice to Tomahawk Corporation. All notices to Subtenant may be
sent to Tomahawk II, Inc. at the address set forth in this Paragraph 12(d)
and Landlord may rely upon any action, inaction or statement by Tomahawk II,
Inc. as binding Subtenant. The foregoing shall not be construed as relieving
Tomahawk Corporation of any obligation or liability under the Sublease or
this Consent.
(e) This Consent constitutes the entire agreement of the parties hereto
with respect to the matters stated herein.
(f) This Consent will for all purposes be construed in accordance with
and governed by the laws of the State of California applicable to agreements
made and to be performed wholly therein.
(g) This Consent shall not be effective until executed by all the
parties hereto and may be executed in several counterparts, each of which
will constitute an original instrument and all of which will together
constitute one and the same instrument.
(h) Each right and remedy of Landlord provided for in this Consent or in
the Lease shall be cumulative and shall be in addition to every other right
and remedy provided for herein or therein or now or hereafter existing at law
or in equity or by statute or otherwise, and the exercise or beginning of the
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exercise by Landlord of any one or more of the rights or remedies so provided
for or existing shall not preclude the simultaneous or later exercise by
Landlord of any or all other rights or remedies so provided for or so
existing.
(i) The terms and provisions of this Consent shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns
except that no violation of the provisions of Paragraph 2 hereof shall operate
to vest any rights in any successor or assignee of Tenant or Subtenant.
(j) If any one or more of the provisions contained in this Consent shall
be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in
any way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed as of March 26, 1997.
CENTURY PARK I JOINT VENTURE
By: Resources Supervising Management Corp,
as agent
By: /s/ Frederick Simon
------------------------------------
Print Name: Frederick Simon
----------------------------
Print Title: Vice President
---------------------------
MEDAPHIS PHYSICIAN SERVICES CORPORATION
By: /s/ Jon Anderson
-----------------------------------
Print Name: Jon Anderson
---------------------------
Print Title: Vice President
--------------------------
(signatures continued on
following page)
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TOMAHAWK II, INC.
By: /s/ Steve Caira
-----------------------------
Print Name: STEVE CAIRA
---------------------
Print Title: PRES. & CEO
--------------------
TOMAHAWK CORPORATION
By: /s/ Steve Caira
-----------------------------
Print Name: STEVE CAIRA
---------------------
Print Title: PRES. & CEO
--------------------
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EXHIBIT 10.23
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
June 5, 1998, is made by and between Hamann/Martin/Whitaker ("LESSOR") and
TomaHawk II, an Illinois Corporation ("LESSEE"), (collectively the "PARTIES,"
or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 7140 Opportunity Road, San Diego, CA
92111 located in the County of San Diego State of California and generally
described as (describe briefly the nature of the property) a concrete tilt-up
industrial building comprising approximately 48,522 square feet (SEE ADDENDUM
SECTION 1) ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: Five (5) years and 4 months ("ORIGINAL TERM") commencing July 1,
1998 ("COMMENCEMENT DATE") and ending October 31, 2003 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See Paragraphs 3.2
and 3.3 for further provisions.)
1.5 BASE RENT: $27,172.00 per month ("BASE RENT"), payable on the first day
of each month commencing SEE ADDENDUM TO LEASE, SECTION 1 (See Paragraph 4 for
further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $13,586.00 as Base Rent for the period
August 1, 1998 to August 31, 1998 (SEE ADDENDUM TO LEASE, SECTION 1)
1.7 SECURITY DEPOSIT: $27,172.00 (SEE ADDENDUM SECTION 12) ("SECURITY
DEPOSIT"). (See Paragraph 5 for further provisions.)
1.8 PERMITTED USE: Manufacturing & Assembly in conjunction with Lessee's
document conversion and engineering services business. (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
N/A represents
- ---------------------------------------------------------------------
John Burnham & Co. represents
- ---------------------------------------------------------------------
[X] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1 through 12 and Exhibits 1 through 5 all of which constitute a part
of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee (does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
Initials [ILLEGIBLE]
-----------
[ILLEGIBLE]
-----------
PAGE 1
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date
is specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in
such case, Lessee shall not, except as otherwise provided herein, be obligated
to pay rent or perform any other obligation of Lessee under the terms of this
Lease until Lessor delivers possession of the Premises to Lessee. If
possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing
to Lessor within ten (10) days thereafter, cancel this Lease, in which event
the Parties shall be discharged from all obligations hereunder; provided,
however, that if such written notice by Lessee is not received by Lessor
within said ten (10) day period, Lessee's right to cancel this Lease shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the term actually commences, if possession
is not tendered to Lessee when required by this Lease and Lessee does not
terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from
the date of delivery of possession and continue for a period equal to what
Lessee would otherwise have enjoyed under the terms hereof, but minus any
days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit moneys with Lessor sufficient to restore
said Security Deposit to the full amount required by this Lease. Any time the
Base Rent increases during the term of this Lease, Lessee shall, upon
written request from Lessor, deposit additional moneys with Lessor sufficient
to maintain the same ratio between the Security Deposit and the Base Rent as
those amounts are specified in the Basic Provisions. Lessor shall not be
required to keep all or any part of the Security Deposit separate from its
general accounts. Lessor shall, at the expiration or earlier termination of
the term hereof and after Lessee has vacated the Premises, return to Lessee
(or, at Lessor's option, to the last assignee, if any, of Lessee's interest
herein), that portion of the Security Deposit not used or applied by Lessor.
Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises
in a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any
written request by Lessee, Lessees assignees or subtenants, and by
prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the
premises may be used or occupied, so long as the same will not impair the
structural integrity of the improvements on the Premises, the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises and the improvements thereon, and is otherwise permissible pursuant
to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall
within five (5) business days give a written notification of same, which
notice shall include an explanation of Lessor's reasonable objections to the
change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material
or waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about the
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3) "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in,
on, or about the Premises, including but not limited to all such documents as
may be involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits
and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for
Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6
shall include, but not be limited to, the effects of any contamination or
injury to person, property or the environment created or suffered by Lessee,
and the cost of investigation (including consultant's and attorney's fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used
in this Lease to include all laws, rules, regulations, ordinances,
directives, covenants, easements and restrictions of record, permits, the
requirements of any applicable fire insurance underwriter or rating bureau,
and the recommendations of Lessor's engineers and/or consultants, relating in
any manner to the Premises (including but not limited to matters pertaining
to (i) industrial hygiene, (ii) environmental conditions on, in, under or
about the Premises, including soil and groundwater conditions, and (iii) the
use, generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or
storage tank), now in effect or which may hereafter come into effect, and
whether or not reflecting a change in policy from any previously existing
policy. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information,
including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Law specified by Lessor, and shall immediately upon receipt,
notify Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited
to the installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance or storage tank on or from the Premises. The costs
and expenses of any such inspections shall be paid by the party requesting
same, unless a Default or Breach of this Lease, violation of Applicable Law,
or a contamination, caused or materially contributed to by Lessee is found to
exist or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times keep the Premises and every part thereof in good order, condition and
repair, non-structural (whether or not such portion of the Premises requiring
repairs, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as
a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including
fire alarm and/or smoke detection systems and equipment, fire hydrants,
fixtures, walls (interior), ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining
walls, signs, sidewalks and parkways located in, on, about, or adjacent to
the Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through
the plumbing or sanitary sewer system) and shall promptly, at Lessee's
expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of
any contamination of, and for the maintenance, security and/or monitoring of
the Premises, the elements surrounding same, or neighboring properties, that
was caused or materially contributed to by Lessee, or pertaining to or
involving any Hazardous Substance and/or storage tank brought onto the
Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor
may require Lessee to repaint the exterior of the buildings on the Premises
as reasonably required, but not more frequently than once every seven (7)
years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection, (iv) landscaping and
irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt
and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises),
2.3 (relating to compliance with covenants, restrictions and building code),
9 (relating to destruction of the Premises) and 14 (relating to condemnation
of the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises,
the improvements located thereon, or the equipment therein, or non structural,
all of which obligations are intended to be that of the Lessee under
Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with
the terms of this Lease with respect to, or which affords Lessee the right to
make repairs at the expense of Lessor or to terminate this Lease by reason of
any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that
can be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on the Premises
from that which are provided by Lessor under the terms of this Lease, other
than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by lessee that are not yet
owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do
not involve puncturing, relocating or removing the roof or any existing
walls, and the cumulative cost thereof during the term of this Lease as
extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor prior
to commencement of the work thereon, and (iii) the compliance by Lessee with
all conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and in compliance with all Applicable Law. Lessee shall promptly
upon completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $10,000 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation and/or upon Lessee's posting an additional Security
Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at
or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorney's fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or
by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified in writing by Lessor, the Premises, as
surrendered, shall include the Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment,
and Alterations and/or Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Law and/or good service practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease. LESSOR, AT THE TIME LESSEE SUBMITS LESSEE'S TENANT
IMPROVEMENT PLANS FOR LESSOR'S APPROVAL, SHALL NOTICE LESSEE IN WRITING
WITHIN TEN (10) DAYS OF LESSOR'S RECEIPT OF SAID TENANT IMPROVEMENT PLANS AS
TO WHETHER SUCH IMPROVEMENTS MUST BE REMOVED BY LESSEE AT THE EXPIRATION OF
THE LEASE OR ANY EXTENSION THERETO.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums
for policy periods commencing prior to or extending beyond the Lease term
shall be prorated to correspond to the Lease term. Payment shall be made by
Lessee to Lessor within ten (10) days following receipt of an invoice for any
amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
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8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss
or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the improvements involved, such latter amount
is less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation provision
in lieu of any coinsurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance coverage
amount by a factor of not less than the adjusted U.S. Department of Labor
Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such insurance coverage has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence, and Lessee
shall be liable for such deductible amount in the event of an Insured Loss,
as defined in Paragraph 9.1 (c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of
the full rental and other charges payable by Lessee to Lessor under this
Lease for one (1) year (including all real estate taxes, insurance costs, and
any scheduled rental increases). Said insurance shall provide that in the
event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one full
year's loss of rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, property taxes, insurance premium costs and other
expenses, if any, otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or
if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's
option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to
that carried by the Insuring Party under Paragraph 8.3. Such insurance shall
be full replacement cost coverage with a deductible of not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee
for the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party
with respect to the insurance required by this Paragraph 8.4 and shall
provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders
Rating" of at least B +, V, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be
delivered to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No such policy
shall be cancellable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with evidence of renewals
or "insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the Insuring
Party under this Paragraph 8, the other Party may, but shall not be required
to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the
other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the
right to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment, and whether well
founded or not. In case any action or proceeding be brought against Lessor by
reason of any of the foregoing matters, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make the insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect,
then this Lease shall terminate sixty (60) days following the occurrence of
the damage or destruction. Unless otherwise agreed, Lessee shall in no event
have any right to reimbursement from Lessor for
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any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to
Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such repairs as soon
as reasonably possible and the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date
of occurrence of such damage. Provided, however, if Lessee at that time has
an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such
funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in
the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice
of Lessee's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after receipt of such notice, this Lease shall continue in full force and
effect. "COMMENCE" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as
reasonably possible and the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by
Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such
taxes have been paid. If any such taxes to be paid by Lessee shall cover any
period of time prior to or after the expiration or earlier termination of the
term hereof, Lessee's share of such taxes shall be equitably prorated to
cover only the period of time within the tax fiscal year this Lease is in
effect, and Lessor shall reimburse Lessee for any overpayment after such
proration. If Lessee shall fail to pay any Real Property Taxes required by
this Lease to be paid by Lessee, Lessor shall have the right to pay the same,
and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be
paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal
to the installment due, at least twenty (20) days prior to the applicable
delinquency date, or (ii) monthly in advance with the payment of the Base
Rent. If Lessor elects to require payment monthly in advance, the monthly
payment shall be that equal monthly amount which, over the number of months
remaining before the month in which the applicable tax installment would
become delinquent (and without interest thereon), would provide a fund large
enough to fully discharge before delinquency the estimated installment of
taxes to be paid. When the actual amount of the applicable tax bill is known,
the amount of such equal monthly advance payment shall be adjusted as
required to provide the fund needed to pay the applicable taxes before
delinquency. If the amounts paid to Lessor by Lessee under the provisions of
this Paragraph are insufficient to discharge the obligations of Lessee to pay
such Real Property Taxes as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums as are necessary to pay such
obligations. All moneys paid to Lessor under this Paragraph may be inter-
mingled with other moneys of Lessor and shall not bear interest. In the event
of a Breach by Lessee in the performance of the obligations of Lessee under
this Lease, then any balance of funds paid to Lessor under the provisions of
this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but
not limited to a change in the ownership of the Premises or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property
Taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be determined by Lessor from the respective
valuations
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assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively.
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of the execution by Lessor of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Lessee was or is greater, shall be
considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be
a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a noncurable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice ("Lessor's Notice"), increase the monthly
Base Rent to fair market rental value or one hundred ten percent (110%) of
the Base Rent then in effect, whichever is greater. Pending determination of
the new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against
the next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar
adjustment to the then fair market value (without the Lease being considered
an encumbrance or any deduction for depreciation or obsolescence, and
considering the Premises at its highest and best use and in good condition),
or one hundred ten percent (110%) of the price previously in effect,
whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of
such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the
market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or any one else responsible for the performance of the Lessee's obligations
under this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may
be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for
the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed
or performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically consented in
writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction. *
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not,
by reason of this or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee,
or, until the Breach has been cured, against Lessor, for any such rents and
other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said Default. A "DEFAULT" is
defined as a failure by the Lessee to observe, comply with or perform any of
the terms, covenants, conditions or rules applicable to Lessee under this
Lease. A "BREACH"
* The foregoing notwithstanding, in the event the Lessee sublets the premises
and Lessee receives base rent which is greater than the base rent the Lessee
is paying the Lessor at the time of the subletting, the Lessee shall pay to
Lessor all and any sublet rents which are in excess of the base rent at the
time of the sublet; however, Lessee shall have the right to offset any
leasing commissions or tenant improvement costs against this excess rent
payment to Lessor.
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is defined as the occurrence of any one or more of the following Defaults,
and, where a grace period for cure after notice is specified herein, the
failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third
party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law
per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii)
the execution of any document requested under Paragraph 42 (easements), or
(viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this
Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent (1%). Efforts by
Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease
shall not waive Lessor's right to recover damages under this Paragraph. If
termination of this Lease is obtained through the provisional remedy of
unlawful detainer, Lessor shall have the right to recover in such proceeding
the unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable
grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice,
and the failure of Lessee to cure the Default within the greater of the two
such grace periods shall constitute both an unlawful detainer and a Breach of
this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS,"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph
13.1, any such inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph shall not be deemed a waiver by
Lessor of the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "CONDEMNATION"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes
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title or possession, whichever first occurs. If more than ten percent (10%)
of the floor area of the Premises, or more than twenty-five percent (25%) of
the land area not occupied by any building, is taken by condemnation, Lessee
may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in the same proportion as the rentable floor area of
the Premises taken bears to the total rentable floor area of the building
located on the Premises. No reduction of Base Rent shall occur if the only
portion of the Premises taken is land on which there is no building. Any
award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of
the fee, or as severance damages; provided, however, that Lessee shall be
entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to
the extent of its net severance damages received, over and above the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation, except to the extent that
Lessee has been reimbursed therefor by the condemning authority. Lessee shall
be responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
of Lessee and such Guarantors as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior
Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to
be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but
not exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this
Lease shall be that Party's address for delivery or mailing of notice
purposes. Either Party may by written notice to the other specify a different
address for notice purposes, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for the purpose
of mailing or delivering notices to Lessee. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier. If
any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Sunday or legal holiday, it
shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically
agreed to in writing by Lessor at or before the time of deposit of such
payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease, UNLESS LESSOR AND LESSEE HAVE MADE PRIOR AGREEMENT TO THE
HOLDOVER.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be
bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorney's fees award shall not
be computed in accordance with any court fee schedule, but shall be such as
to fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises with 24 hours verbal or written
prior notice, in the case of an emergency, and otherwise at reasonable times
for the purpose of showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or additions to
the Premises or to the building of which they are a part, as Lessor may
reasonably deem necessary. Lessor may at any time place on or about the
Premises or building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred twenty (120) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of
Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the
roof) such signs as are reasonably required to advertise Lessee's own
business. The installation of any sign on the Premises by or for Lessee shall
be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless otherwise expressly
agreed herein, Lessor reserves all rights to the use of the roof and the
right to install, and all revenues from the installation of, such advertising
signs on the Premises, including the roof, as do not unreasonably interfere
with the conduct of Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses (including
but not limited to architects', attorneys', engineers' or other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee
for any Lessor consent pertaining to this Lease or the Premises, including
but not limited to consents to an assignment, a subletting or the presence or
use of a Hazardous Substance, practice or storage tank, shall be paid by
Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. Subject to Paragraph 12.2(e) (applicable to assignment or
subletting), Lessor may, as a condition to considering any such request by
Lessee, require that Lessee deposit with Lessor an amount of money (in
addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering
and responding to Lessee's request. Except as otherwise provided, any unused
portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as
Lessee under this Lease, including but not limited to the obligation to
provide the Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and
including in the case of a corporate Guarantor, a certified copy of a
resolution of its board of directors authorizing the making of such guaranty,
together with a certificate of incumbency showing the signature of the
persons authorized to sign on its behalf, (b) current financial statements of
Guarantor as may from time to time be requested by Lessor, (c) a Tenancy
Statement, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is
in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
Initials [ILLEGIBLE]
-----------
[ILLEGIBLE]
-----------
NET PAGE 9
<PAGE>
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care, and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part of
said Party to pay such sum or any part thereof, said Party shall be entitled
to recover such sum or so much thereof as it was not legally required to pay
under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at San Diego, CA Executed at San Diego, CA
on on
------------------------------ -------------------------------------
by LESSOR: by LESSEE:
Hamann/Martin/Whitaker TomaHawk II, Inc. an Illinois Corporation
By /s/ Jeffrey C. Hamann By /s/ Steven M. Caira
------------------------------ -------------------------------------
Name Printed: Jeffrey C. Hamann Name Printed: Steven M. Caira
Title: Joint Venture Partner Title: CEO and President
By /s/ Daniel M. Whitaker By
------------------------------ -------------------------------------
Name Printed: Daniel M. Whitaker Name Printed: Steve Caira
Title: Joint Venture Partner Title: President
Address: 475 West Bradley Avenue Address: 8315 Century Park Court, Suite 210
El Cajon, Ca 92020 San Diego, CA 92123
Tel. No. (619) 440-7424 Tel. No. (619) 874-7692
Fax No. (619) 440-8914 Fax No. (619) 874-2371
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213)
687-8777. Fax. No. (213) 687-8616.
<PAGE>
ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") is made by and between
Hamann/Martin/Whitaker, a Joint Venture,("Lessor"), and TomaHawk II, Inc., an
Illinois Corporation, ("Lessee"), and is intended to supplement that certain
Standard Industrial/Commercial Single-Tenant Lease-Net between Lessor and
Lessee dated June 5, 1998 ("Lease") to which this Addendum is annexed. If
there is any inconsistency between this Addendum and the Lease, the terms of
this Addendum shall supercede and control. Lessor and Lessee agree as follows:
1. PREMISES BASE RENT/RENT SCHEDULE. Pursuant to Paragraph 1.5 of the Lease,
the base rent shall be paid by Lessee to Lessor per the following rent
schedule:
<TABLE>
Square Feet
-----------
<S> <C> <C>
July 1, 1998 - July 31, 1998 24,261 Sq. Ft. Rent Abated
("Fixturization Period")
August 1, 1998 - January 31, 1999 24,261 Sq. Ft. $13,586.00/mo.
February 1, 1999 - June 30, 1999 48,522 Sq. Ft. $27,172.00 per month
July 1, 1999 - June 30, 2000 48,522 Sq. Ft. $27,987.00 per month
July 1., 2000 - June 30, 2001 48,522 Sq. Ft. $28,827.00 per month
July 1, 2001 - June 30, 2002 48,522 Sq. Ft. $29,692.00 per month
July 1, 2002 - June 30, 2003 48,522 Sq. Ft. $30,583.00 per month
July 1, 2003 - October 31, 2003 48,522 Sq. Ft. $31,501.00 per month
</TABLE>
The foregoing reflects an increase in the base rent commencing July 1,
1999 and at the beginning of each lease year thereafter in an amount
equal to three percent (3%) of the amount of the scheduled Base Rent for
the immediately preceding lease year.
2. LESSEE'S PAYMENT OF OPERATING EXPENSES. Beginning on August 1, 1998, in
addition to payment of the Base Rent, Lessee shall be responsible for the
payment of all "Operating Expenses" which is estimated to be
approximately $.078 per square foot per month based on the full building
size, 48,522 Sq. Ft., (as defined below). The term "Operating Expenses"
means the following expenses and costs of the ownership and operation of
the Premises: (a) amounts payable for maintenance contracts required to
be procured pursuant to Paragraph 7.1 (b) of the Lease (but not the cost
of repairs or replacements payable by Lessee), (b) insurance required to
be maintained by Lessor or Lessee under the Lease (exclusive of the
insurance maintained by Lessee under Paragraph 8.4 of the Lease), (c)
Real Property Taxes, (d) a reasonable reserve for replacement of the
roof, (e) a fire sprinkler monitoring contract if payable separate from
the fire sprinkler maintenance contract described in Paragraph 7. 1(b) of
the Lease, (f) a reasonable reserve for exterior painting, (g) a
reasonable reserve for paving maintenance and (h) the reasonable amount
of other ordinary and necessary expenses and costs of operation of the
Premises, which are customarily incurred in the operation of similarly
situated real estate projects; provided, however, the term "Operating
Expenses" does not include any other items of expense which the terms of
the Lease expressly require to be paid or incurred by lessee, including
all utility and trash charges payable by Lessee under Paragraph 11 of the
Lease. See EXHIBIT "2".
3. TENANT IMPROVEMENTS. Lessor, at Lessor's cost and expense, shall perform
the following:
a. Inspect, repair where necessary, the roof exterior and shall
maintain the roof in a "watertight" condition during the lease
term.
Page 1 of 3
<PAGE>
b. Inspect, repair where necessary, the existing HVAC system which
services the existing office area to insure it is in good working
condition. This HVAC system shall be warrantied for one (1) year,
by the Lessor, from the commencement date.
c. Cap all roof venting where specified by Lessee.
d. Patch, repair, slurry coat, and re-stripe all existing asphalt
areas of the driveways and parking lot on the west and south sides
of the Premises. In addition, Lessor, at Lessor's sole option, may
install a concrete drive lane between the parking stalls on the
south side of the building and between the dock high loading area
and Cardin Street on the west side of the building.
e. Repaint the exterior of the building with building standard paint
with the color(s) to be selected by Lessor.
f. Reattach ceiling insulation where necessary.
Other than the foregoing, the Lessee accepts the Premises in an "as is,
where is" condition as Lessee and Lessee's representatives have
previously inspected the Premises.
4. EQUIPMENT OWNED BY PREVIOUS TENANT. Lessor and Lessee acknowledge the
previous tenant ("Tenant") was Martin Furniture, Inc. and the Lessee has
requested the previous Tenant to leave certain equipment and improvements
("Equipment") in the Premises after the Tenant has vacated the Premises.
The Tenant, with the Lessor's concurrence, has agreed to leave the
following Equipment in the Premises for the Lessee's use, free of charge.
a. One (1) paint fluid distribution system (piping only, does not include
pumps)
b. One (1) hazardous area mixing room located on the north side of the
Premises
c. One (1) compressed air distribution system (piping only, no
compressors)
d. Uninterrupted Power Service (UPS) currently located in Northeast
corner of the Premises.
e. One (1) working area paint booth (Stain)
f. One (1) working area paint booth (Top Coat)
g. One (1) working area paint booth (Sealer)
Lessor and Lessee agree that all this Equipment listed in this Section
shall remain the property of the Lessor, however, the Lessee shall be
responsible for the proper operation, maintenance and care of the
equipment and shall enter into service contracts for the maintenance of
said Equipment.
5. CANCELLATION OF LEASE. Lessee shall have the one (1) time right to cancel
and terminate this Lease at the end of the fortieth (40th) month or
October 31, 2001 ("Cancellation Date") with Lessee giving Lessor at least
six (6) months prior written notice of Lessee's intent to exercise
Lessee's right to cancel the Lease. The foregoing notwithstanding, any
obligations incurred by the Lessee to the Lessor pursuant to the Lease
which occurred prior to the cancellation date shall survive the
cancellation date. In the event the Lessee cancels this Lease pursuant to
this Section, the Lessee shall pay to Lessor within thirty (30) days
after the Cancellation Date (i) the unamortized leasing commissions which
shall be equivalent to $36,527.00 and (ii) the unamortized free rent
which shall be equivalent to $30,568.00.
6. SIGNAGE. The Lessee, at Lessee's cost and expense and at Lessee's option,
shall install signage on the exterior of the Building subject to review
and approval of Lessee's sign plan by Lessor and the City of San Diego.
All sign work must be permitted through the City of San Diego, if
necessary, and the sign work and installation shall be performed by a
contractor licensed in the State of California to do such work. The
foregoing notwithstanding, the Lessor shall contribute $750.00 towards
Lessee sign expense. Lessee shall provide Lessor with an invoice from
Lessee's sign contractor which shall detail the costs of Lessee's sign.
Page 2 of 3
<PAGE>
7. PARKING. Aside from the work described in Section 3(d) of this Addendum,
the Lessee shall accept the parking areas as they are currently configured
and the Lessor shall not receive any rental for these parking areas.
8. HAZARDOUS MATERIAL QUESTIONNAIRE. Without limiting Lessee's obligations
under Subparagraph 6.2 of the Lease regarding compliance with Applicable
Laws concerning Hazardous Substances, Lessee shall, within ten (10) days
from the execution of this Lease, complete and deliver to Lessor for its
filing with applicable government authorities a Hazardous Material
Questionnaire in the form as set forth in EXHIBIT "3" annexed to this
Addendum.
9. ENVIRONMENTAL SITE ASSESSMENT UPDATE. Lessor's consultant, Marc A. Boogay,
has prepared an "Environmental Site Assessment Update" dated June 2, 1998
which is annexed to this Addendum as EXHIBIT "4".
10. CURRENT RULES AND REGULATIONS. Pursuant to Paragraph 6.1 of the Lease,
Lessor has adopted the Rules and Regulations as annexed to this Addendum
as EXHIBIT "5" governing the use of the Premises and such Rules and
Regulations shall remain in effect until changes by Lessor in accordance
with the Lease.
11. NO BINDING OFFER. LESSOR'S SUBMISSION OF THIS DOCUMENT FOR EXAMINATION,
NEGOTIATION AND/OR SIGNATURE BY LESSEE DOES NOT CONSTITUTE AN OFFER TO
LEASE, NOR A RESERVATION OF, NOR AN OPTION FOR THE LEASE OF THE PREMISES.
THE DOCUMENT SHALL NOT BE BINDING AND IN EFFECT AGAINST EITHER PARTY UNTIL
AT LEAST ONE COUNTERPART OF THIS LEASE IS FULLY EXECUTED AND DELIVERED BY
LESSOR AND LESSEE.
12. SECURITY DEPOSIT. Pursuant to Section 5 of the Lease, Lessee shall pay a
Security Deposit to Lessor in an amount equal to the first months rent
which shall be paid one-half (1/2) upon execution of this Lease and
one-half (1/2) on January 4, 1999
"LESSOR"
Hamann//Martin/Whitaker, a Joint Venture.
By: /s/ Jeffrey C. Hamann Date: 6/22/98
------------------------------------------ ----------------
Jeffrey C. Hamann, Joint Venture Partner
By: /s/ Daniel M. Whitaker Date: 6-19-98
------------------------------------------ ----------------
Daniel M. Whitaker, Joint Venture Partner
"LESSEE"
TomaHawk, Inc., an Illinois Corporation
By: /s/ Steven M. Caira Date: 6/19/98
------------------------------------------ ----------------
Steven M. Caira, CEO and President
Page 3 of 3
<PAGE>
EXHIBIT 1
Blueprint of
EXISTING BUILDING
[BLUEPRINT]
<PAGE>
Exhibit 2
ESTIMATED MONTHLY OPERATING EXPENSES
<TABLE>
<S> <C>
Property Taxes $.0359
Insurance $.0040/PSF
Utilities
Electricity By Tenant
Telephone $.0010/PSF
Alarm Monitoring $.0027/PSF
Landscape Water By Tenant
HVAC Maintenance By Tenant
Landscape $.0050/PSF
Management Fee (2%) $.0112/PSF
Painting Reserve $.0019/PSF
Paving Maintenance & Reserve $.0063/PSF
Roof Maintenance & Reserve $.0100/PSF
----------
$.078 Per Square Foot Per Month
</TABLE>
<PAGE>
[STAMP]
CITY OF SAN DIEGO
BUILDING INSPECTION DEPARTMENT
HAZARDOUS MATERIALS QUESTIONNAIRE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Business Name Contact Person Telephone
- ---------------------------------------------------------------------------------------------------------------------
Mailing Address City State Zip Plan File #
- ---------------------------------------------------------------------------------------------------------------------
Project Address City State Zip Permit #
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PART I: CITY OF SAN DIEGO FIRE DEPARTMENT - HAZARDOUS MATERIALS MANAGEMENT
DIVISION: OCCUPANCY CLASSIFICATION
- --------------------------------------------------------------------------------
Indicate, by circling the item, whether your
business will or did process or store any of the following hazardous materials.
If any of the items are checked off, applicant must contact the Fire
Department-Hazardous Materials Management Division, 1222 First Ave., San Diego,
CA 92101 - 4th Floor - Telephone (619) 236-6883 (except item #15).
<TABLE>
<S> <C> <C>
1. Explosives or Blasting Agents 6. Oxidizers 11. Highly Toxic or Toxic Materials
2. Compressed Gases 7. Pyrophorics 12. Radioactives
3. Flammable or Combustible Liquids 8. Unstable (reactive) Materials 13. Corrosives
4. Flammable Solids 9. Water-Reactives 14. Other Health Hazards
5. Organic Peroxides 10. Cryogenics 15. None of These Items
</TABLE>
PART II: COUNTY OF SAN DIEGO HEALTH DEPARTMENT - HAZARDOUS MATERIALS MANAGEMENT
DIVISION: CONTINGENCY PLAN REVIEW
- --------------------------------------------------------------------------------
If the answer to any of the questions is yes, applicant must contact the County
of San Diego Health Department Hazardous Materials Management Division,
1225 Imperial Avenue, 3rd floor, San Diego, CA 92138, Telephone (619) 338-2222
prior to the Issuance of a building permit.
<TABLE>
<CAPTION>
YES NO (FEE MAY BE REQUIRED) OFFICE USE ONLY
<S> <C> <C>
1. / / / / Is your business type listed on the reverse side of this form?
2. / / / / Will your business dispose of Hazardous Substances or Medical
Wastes in any amount? / / RMPP Exempt
3. / / / / Will your business store, or handle Hazardous Substances in
quantities equal to or greater than 55 gallons, 500 pounds or 200
cubic feet or carcinogens/reproductive toxins in any quantity? --------/---------------
Date Initials
4. / / / / Will your business use an existing, or install an underground
storage tank?
5. / / / / Will your business store, use or handle carcinogens,
reproductive toxins, or Acutely Hazardous Materials? / / RMPP Required
6. / / / / For Demolition Permits Only: Does the building or structure for --------/---------------
which this demolition permit is requested contain any friable Date Initials
asbestos?
/ / RMPP Completed
--------/---------------
Date Initials
</TABLE>
PART III: SAN DIEGO AIR POLLUTION CONTROL DISTRICT
- --------------------------------------------------------------------------------
If the answer to any of the questions is yes, applicant must contact the Air
Pollution Control District, 9150 Chesapeake Drive,
San Diego, CA 92113. Telephone (619) 694-3307 prior to the Issuance of a
building permit.
<TABLE>
<CAPTION>
YES NO
<S> <C>
1. / / / / Will the intended occupant install or use any of the equipment
listed on the Listing of Air Pollution Control District Permit
Categories, on the reverse side of this form.
2. / / / / (ANSWER ONLY IF THE ANSWER TO QUESTION 1 IS YES.) Will the
subject facility be located within 1,000 feet of the outer
boundary of a school (K thru 12) as listed in the current
Directory of School and Community College Districts, published by
the San Diego County Office of Education and the current
California Private School Directory, compiled in accordance with
provisions of Education Code Section 33190.
3. / / / / For Demolition Permits Only: Does the building or structure for
which this demolition permit is requested contain any friable
asbestos?
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Briefly Describe Nature of the intended Business Activity:
- -------------------------------------------------------------------------------
Name of Owner or Authorized Agent:
- -------------------------------------------------------------------------------
Signature of Owner or Authorized Agent: I declare under penalty of perjury that
to the best of my knowledge and belief the responses made herein are true and
correct.
Date:
--------------------------------------------- ------------------
DO NOT WRITE BELOW THIS LINE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FIRE DEPARTMENT OCCUPANCY CLASSIFICATION:
--------------------------------------
BY: Date:
---------------------------------------------------- -----------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
EXEMPT FROM PERMIT REQUIREMENTS APPROVED FOR BUILDING PERMIT, BUT NOT FOR OCCUPANCY APPROVED FOR OCCUPANCY
COUNTY HMMD APCD COUNTY HMMD APCD COUNTY HMMD APCD
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LIST OF BUSINESSES WHICH REQUIRE REVIEW AND APPROVAL FROM COUNTY
OF SAN DIEGO HEALTH DEPT.-
THE HAZARDOUS MATERIALS MANAGEMENT DIVISION
<TABLE>
<CAPTION>
AUTOMOTIVE CHEMICAL HANDLING OTHERS AND MISCELLANEOUS
- ---------- ----------------- ------------------------
<S> <C> <C>
Battery Manufacturing/Recycling Agricultural Suppliers/Distributors Asphalt Plant
Boat Yard Chemical Suppliers/Distributors Chiropractic Offices
Car Wash Chemical Manufacturer Co-Generation Plant
Dealership Maintenance and Paint Coatings/Adhesives Dental Clinic/Offices
Machine Shop Compressed Gas Supplier/Distributor Dialysis Centers
Painting Dry Cleaning Frozen Food Processing Facilities
Radiator Shop Fiberglass/Resin Applications Government Agencies
Rental Yard Equipment Gas Station Hazardous Waste Haulers
Repair, Preventive Maintenance Industrial Laundry Hospitals/Convalescent Homes
Repair, Major Overhaul Laboratories Laboratories, Biological Laboratories
Transportation Services Laboratory Suppliers/Distributors Medical Clinics/Offices
Wrecking and Recycling Oil and Fuel Bulk Supply Public Utilities
Pesticide Operator/Distributor Rock Quarry
METAL WORKING Photographic Processing Veterinary Clinic/Hospitals
- ------------- Pool Supplies/Maintenance Wood/Furniture Manufacturer/Refinishing
Anodizing Printing/Blue Printing Ship Repair/Construction
Chemical Milling/Etching Road Coatings
Finish-Coating, Painting Swimming Pool (Gas Chlorination AEROSPACE
Flame Spraying Systems Only) ----------
Foundry Toxic Gas Handler Aerospace Industry
Machine Shop-Drilling, Lathes, Mills Toxic Gas Mfg. Aircraft Manufacturing
Metal Plating Aircraft Maintenance
Metal Prepping/Chemical Coating ELECTRONICS
Precious Metal Recovery -----------
SandBlasting, Grinding Electronics Components Mfg.
Steel Fabricator Electronics Assembly and Sub Assembly
Wrought Iron Manufacturing Printed Circuit Board Mfg.
</TABLE>
NOTE: THE ABOVE LIST INCLUDES BUSINESSES WHICH TYPICALLY USE, STORE, HANDLE AND
DISPOSE OF HAZARDOUS SUBSTANCES. ANY BUSINESS NOT INCLUDED ON THIS LIST WHICH
HANDLES, USES OR DISPOSES OF HAZARDOUS SUBSTANCES MAY STILL REQUIRE HAZARDOUS
MATERIALS MANAGEMENT DIVISION (HMMD) REVIEW OF BUSINESS PLANS. FOR MORE
INFORMATION CALL (619) 338-2222.
LISTING OF AIR POLLUTION CONTROL DISTRICT PERMIT CATEGORIES
Businesses which include any of the following operations or equipment
will require clearance from the Air Pollution Control District.
<TABLE>
<CAPTION>
CHEMICAL COMBUSTION ROCK AND MINERAL
- -------- ----------- ----------------
<S> <C> <C>
47-Organic Gas Sterilizers 34-Piston Internal-Combustion Engines 04-Hot Asphalt Batch Plants
32-Acid Chemical Milling 13-Boilers & Heaters (1 Million 05-Rock Drills
33-Can & Coil Manufacturing Btu/Hr. or Larger) 07-Sand Rock & Aggregate Plants
44-Evaporators, Dryers & Stills 13-Gas Turbines, and Turbine Test 08-Concrete Batch, CTB, Concrete
Processing Organic Materials Cells & Stands Mixers, Mixers & Silos
24-Dry Chemical Mixing & 14-Incinerators & Crematories 10-Brick Manufacturing
Detergent Spray Towers 15-Burn Out Ovens
35-Bulk Dry Chemical Storage 16-Core Ovens SOLVENT USE
-----------
COATINGS & SURFACE PREPARATION ELECTRONICS 28-Vapor & Cold Degreasing
- ------------------------------ ----------- 30-Solvent & Extract Driers
01-Abrasive Blasting Equipment 29-Solder Levelers 31-Dry Cleaning
27-Coating & Painting 29-Hydrosqueegees
37-Plasma Arc & Ceramic 42-Electronic Component Manufacturing OTHER
Deposition Spray Booths ------
38-Paint, Stain & Ink Mfg. FOOD 03-Asphalt Roofing Kettles and Tankers
---- 46-Reverse Osmosis Membrane Mfg.
METALS 12-Fish Canneries 51-Aqueous Waste Neutralization
- ------ 12-Smoke Houses 11-Tire Buffers
18-Metal Melting Devices 50-Coffee Roasters 17-Brake Debonders
19-Oil Quenching & Salt Baths 35-Bulk Flour & Powdered Sugar Storage 23-Bulk Grain & Dry Chemical Transfer &
32-Hot Dip Galvanizing Storage
39-Precious Metals Refining 45-Rubber Mixers
48-Landfill Gas Flare or Recovery Systems
ORGANIC COMPOUND MARKETING (GASOLINE, ETC.) 21-Waste Disposal Reclamation Units
- ------------------------------------------- 36-Grinding Booths & Rooms
25-Gasoline & Alcohol Bulk Plants & Terminals 40-Asphalt Pavement Heaters
25-Intermediate Refuelers 43-Ceramic Slip Casting
26-Gasoline & Alcohol Fuel Dispensing 41-Perlite Processing
40-Cooling Towers-Registration Only
</TABLE>
NOTE: OTHER EQUIPMENT NOT LISTED HERE THAT IS CAPABLE OF EMITTING AIR
CONTAMINANTS MAY REQUIRE AN AIR POLLUTION CONTROL DISTRICT PERMIT. IF THERE ARE
ANY QUESTIONS, CONTACT THE AIR POLLUTION CONTROL DISTRICT AT (619) 694-3307.
<PAGE>
EXHIBIT 4
ENVIRONMENTAL SITE
ASSESSMENT UPDATE
7140 OPPORTUNITY ROAD
in
SAN DIEGO, CALIFORNIA
CLIENT: Hamann-Martin-Whitaker
475 West Bradley Avenue
El Cajon, CA 92020
PREPARED BY: MARC A. BOOGAY
CONSULTING ENGINEER
2141 El Camino Real
Oceanside, California 92054
(760) 721-1959
DATE: June 2, 1998
PROJECT NUMBER: 98-0507
IMPORTANT NOTICE: This report is confidential. It may
be read, and relied upon, only by
the client.
The Environmental Site Assessment update is too large to be attached to
Addendum. Lessee acknowledges receipt of said report.
Lessee: TomaHawk II, An Illinois Corporation
/s/ Steven M. Caira Date: 6/19/98
- ----------------------------------- -------------
Steven M. Caira, CEO and President
<PAGE>
EXHIBIT 5
7140 Opportunity Road
San Diego, CA 92111
RULES AND REGULATIONS
These Rules and Regulations ("Rules") are adopted by the Lessor pursuant to the
Lease to which the rules are annexed. The Rules supplement the Lease and in the
event of any conflict or inconsistency between the Lease and the Rules, the
Lease will control. The Rules may be changed from time to time by Lessor,
subject to any restrictions set forth in the Lease, and any such changes shall
be effective immediately upon delivery to Lessee. Accordingly, the Lessor adopts
the following Rules:
GENERAL RULES
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside, or inside if visible from
the exterior, of any building without the prior written consent of Lessor.
Lessor shall have the right to remove, at Lessee's expense and without
notice, any item installed or displayed in violation of the Rule. All
approved signs or lettering on doors and walls shall be printed, painted,
affixed or inscribed at the expense of Lessee and in a configuration and
style approved by Lessor, in its sole discretion.
2. If Lessor objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill, which is
visible from the exterior of the Premises, Lessee shall immediately discontinue
such use. Lessee shall not place anything against or near glass partitions,
doors or windows which is visible from outside the Premises without Lessor's
consent.
3. Concurrently with Lessee's occupancy of the Premises, Lessee shall
furnish Lessor, free of charge, one set of keys to each door lock on the
Premises. Lessee shall be entitled to make or have made additional keys as
Lessee desires. Lessee shall not alter any lock or install a new additional lock
or bolt on any door of its Premises without furnishing Lessor, without charge, a
new set of keys. Lessee, upon the termination of its Lease, shall deliver to
Lessor the keys to all doors within the Premises.
4. If Lessee requires telegraphic, telephonic, burglar alarm or similar
services which require penetrations of the roof or building shell walls, it
shall first obtain, and comply with, Lessor's installation instructions for any
such equipment.
5. Lessee shall be responsible for all repairs and replacements to the
Project required on account of damage or injury caused by deliveries to Lessee's
Premises.
6. Lessee shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Lessor shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Project. Heavy objects shall, if considered necessary by
Lessor, stand on such platforms as determined by Lessor to be necessary to
properly distribute the weight, which platforms
1
<PAGE>
shall be provided at Lessee's expense. Business machines and mechanical
equipment belonging to Lessee, which cause noise or vibration that may be
transmitted to any structure of the Project or to any space therein to such a
degree as to be placed and maintained by Lessee, at Lessee's expense, on
vibration eliminators or other devices sufficient to eliminate noise or
vibration. Lessor will not be responsible for loss of, or damage to, any such
equipment or other property from any cause, and all damage done to the Project
by maintaining or moving such equipment or other property shall be repaired at
the expense of Lessee.
7. Lessee shall not use or keep in the Premises or about the Project any
kerosene, gasoline or inflammable or combustible fluid or materials other than
those limited quantities necessary for the operation or maintenance of office
equipment. Lessee shall not use or permit to be used in the Premises any foul or
noxious gas or substance.
8. Lessee shall not use any method of heating or air-conditioning other
than that approved by Lessor, in its reasonable discretion.
9. Lessee shall not waste electricity, water or air-conditioning and agrees
to cooperate fully with Lessor to assure the most effective operation of the
Project's heating and air-conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Lessee has actual notice.
10. Lessee shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus, and electricity, gas or air
outlets before Lessee and its employees leave the Premises. Lessee shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Project or by Lessor arising from Lessee's noncompliance with this Rule.
11. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Lessee who, or whose employees or
invitee's, shall have caused it.
12. Lessee shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of any building, except with
Lessor's consent. Lessee shall not interfere with radio or television
broadcasting or reception from or in the Project or elsewhere.
13. All Lessee's installations, improvements and alterations shall be
carried out in a manner and method designed to minimize any damage to the
Premises on account of the installation or removal of such items. Lessee shall
repair any damage resulting from Lessee's installations, improvements and
alterations and the removal thereof upon termination of the Lease.
14. Lessor reserves the right to exclude or expel from the Project any
person who, in Lessor's judgement, is intoxicated or under the influence of
liquor or drugs or who is in violations of any of the Rules, provided Lessor
shall be under no obligation to do so nor have any liability to Lessee on
account of Lessor's failure to exclude any person.
15. Lessee shall store all its trash and garbage within its Premises or in
other facilities provided by Lessor. Lessee shall
2
<PAGE>
not place in any trash box or receptacle any material which cannot be disposed
of in the ordinary and customary manner of trash and garbage disposal. All
garbage and refuse disposal shall be made in accordance with directions issued
from time to time by Lessor. All trash placed in the trash box or receptacle
shall be generated within the Premises. Lessee shall not import any trash or
waste generated in the conduct of the Lessee's business into the Premises nor
shall Lessee use the trash box or receptacles to dispose of this trash or waste.
Lessee will instruct Lessee's employees, agents, clients or invitees to dispose
all trash or waste in a clean, orderly manner, to break down all cardboard
containers and to place all trash IN the trash box or receptacle and not on or
about the trash box or receptacle.
16. Equipment Storage - No material, equipment, supplies, or products shall
be stored or permitted to remain on the property outside a permanent structure
unless prior approval is obtained from the Lessor and the City of San Diego.
Approval of outside storage will be granted only where storage is visually
screened from all approaches.
17. Pets or Animals - No pets or animals are allowed on the property or
within Lessee's Premises.
18. Without the written consent of Lessor, Lessee shall not use the name of
the Project in connection with or in promoting or advertising the business of
Lessee except as Lessee's address.
19. Lessee shall comply with all safety, fire protection and evacuation
procedures and regulations established by Lessor or any governmental agency.
20. Lessee assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
21. The Rules are in addition to, and shall not be construed to in any way
modify or amend, in whole or in part, the terms, covenants, agreements and
conditions of Lessee's Lease of its Premises.
22. Lessee shall be responsible for the observance of all of the Rules by
Lessee's employees, agents, clients, customers, invitee's and guests.
PARKING RULES
23. Lessor shall not be responsible for loss, injury or damage to any
vehicle arising from the use of parking areas in the Project. In the event the
general exclusion of liability set forth in the preceding sentence is determined
not to apply to any particular claim, specific limitations on liability set
forth below shall apply to any claim against Lessor arising in connection with
the use of parking areas in the Project. All claimed damage or loss must be
reported and itemized in writing, delivered to the Lessor within two (2)
business days after any claimed damage or loss occurs. Any claim not so made is
waived. Lessor has the option to make repairs, at its expense, of any claimed
damage within two (2) business days after filing of any claim. In all court
actions the burden of proof to establish a claim remains with the Lessee. Court
actions by Lessee for any claim must be filed within ninety (90) days from date
of parking when a claimed loss occurred. Lessor is not responsible for damage by
water, fire or defective brakes, or part, or for the act of omissions of others,
or for articles left in the car. The total liability of Lessor is limited to
$250.00 for all damages or loss to any vehicle. Lessor is not responsible for
loss of
3
<PAGE>
use.
24. Lessee may leave vehicles in the parking area overnight or park any
vehicles in the parking areas including automobiles, motorcycles, motor driven
or non-motor driven bicycles. Lessor shall not be responsible for Lessee's
vehicles.
25. Vehicles must be parked entirely with the painted stall lines of a
single parking stall. All directional signs and arrows must be observed. The
speed limit within all parking areas shall be five (5) miles per hour.
26. Parking is prohibited: (a) in areas not striped for parking; (b) in
aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in cross
hatched areas and in fire lanes; and (f) in such other areas as may be
designated by Lessor.
27. Every vehicle owner is required to park and lock his own vehicle. All
responsibility for damage to a vehicle or theft of property from a vehicle is
assumed by the vehicle owner.
28. Parking areas are for the temporary parking of vehicles only. No
storage of vehicles or other items will be permitted. Washing, waxing, cleaning
or servicing of any vehicle is prohibited.
29. Lessee shall acquaint all employees, customers and guests of these
rules.
30. Lessor reserves the right to modify and/or adopt such other reasonable
and non-discriminatory rules and regulations for the parking facilities as it
deems necessary for the operation of the parking facilities. Lessor may refuse
to permit any person who violates these rules to park in the parking facilities,
and any violation of the rules shall subject the vehicle to removal.
4
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 12, 1999 included in the Proxy Statement
and Information Circular of TomaHawk Corporation that is made a part of the
Registration Statement (Form S-4) of TomaHawk Corporation for the
registration of shares of its common stock.
Ernst & Young LLP
San Diego, California
July 6, 1999
<PAGE>
Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, TAX ADVISOR
We consent to the reference to our firm under the caption "Tax Matters" and
to the use of our tax opinion dated June 4, 1999 regarding the U.S. and
Canadian federal income tax consequences of the Domestication and Share
Consolidation of TomaHawk Corporation, included as an Exhibit to the
Registration Statement (Form S-4) of TomaHawk Corporation for the
registration of shares of its common stock.
Ernst & Young LLP
San Diego, California
July 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 169,129
<SECURITIES> 0
<RECEIVABLES> 2,477,292
<ALLOWANCES> 298,939
<INVENTORY> 0
<CURRENT-ASSETS> 2,437,206
<PP&E> 3,235,547
<DEPRECIATION> 943,137
<TOTAL-ASSETS> 6,453,870
<CURRENT-LIABILITIES> 4,150,623
<BONDS> 0
0
547
<COMMON> 9,358,973
<OTHER-SE> (8,968,453)
<TOTAL-LIABILITY-AND-EQUITY> 6,453,870
<SALES> 13,546,510
<TOTAL-REVENUES> 13,546,510
<CGS> 9,564,315
<TOTAL-COSTS> 9,564,315
<OTHER-EXPENSES> 316,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321,195
<INCOME-PRETAX> (1,564,645)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,564,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,564,645)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 74,578
<SECURITIES> 0
<RECEIVABLES> 2,023,423
<ALLOWANCES> 298,939
<INVENTORY> 0
<CURRENT-ASSETS> 2,006,035
<PP&E> 3,374,289
<DEPRECIATION> 1,115,792
<TOTAL-ASSETS> 5,963,232
<CURRENT-LIABILITIES> 4,209,883
<BONDS> 0
0
547
<COMMON> 9,585,025
<OTHER-SE> (9,964,837)
<TOTAL-LIABILITY-AND-EQUITY> 5,963,232
<SALES> 2,481,621
<TOTAL-REVENUES> 2,481,621
<CGS> 1,947,097
<TOTAL-COSTS> 1,947,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,924
<INCOME-PRETAX> (858,848)
<INCOME-TAX> 0
<INCOME-CONTINUING> (858,848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (858,848)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
