US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
PEAKSOFT CORPORATION
VANCOUVER, BRITISH COLUMBIA, CANADA
CALGARY, ALBERTA, CANADA
3614 Meridian St, #100, Bellingham, Washington 98225 USA
Securities registered or to be registered pursuant to Section 12 (b)of the Act.
Title of each class: Common Shares
Name of each exchange on which registered: Alberta Stock Exchange
Securities registered or to be registered pursuant to Section 12 (g) of the
Act: Common Shares
Securities for which there is a reporting obligation pursuant to Section 15 (d)
of the Act: None
Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report: 13,515,464 Common Shares
Indicate the check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Page 0 of 34file such
reports) and (2) has been subject to such filing requirement for the past
90 days.
[ ] Yes [X] No
Indicate by check mark which financial statement item the Registrant has
elected to follow.
[X] Item 17 [ ] Item 18
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
[X] N/A [ ] Yes [ ] No
Page 1 of 220
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1 - THE CORPORATION AND DESCRIPTION OF BUSINESS
ITEM 2 - DESCRIPTION OF PROPERTY
ITEM 3 - LEGAL PROCEEDINGS
ITEM 4 - CONTROL OF REGISTRANT
ITEM 5 - NATURE OF TRADING MARKET
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
ITEM 7 - TAXATION
ITEM 8 - SELECTED FINANCIAL DATA
ITEM 9 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
ITEM 11 - COMPENSATION OF OFFICERS AND DIRECTORS
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
DIRECTORS, OFFICERS AND EMPLOYEES.
ITEM 13 - INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
PART II
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS. - NOT APPLICABLE.
PART IV
ITEM 17 - FINANCIAL STATEMENTS
ITEM 18 - FINANCIAL STATEMENTS NOT APPLICABLE
ITEM 19 - FINANCIAL STATEMENTS - SEE ITEM 17
Page 2 of 220
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
PeakSoft Corporation (hereinafter referred to variously as PeakSoft, Peak,
or the Corporation) was incorporated under the laws of the Province of British
Columbia on August 24, 1994 under the name Peak Technologies Inc., and was
continued in the Province of Alberta under the Business Corporations Act of
that province on August 16, 1996. The Canadian head office of the Corporation
is located at #501 - 675 West Hastings St. Vancouver, British Columbia. The
registered office of the Corporation is located at 2nd Floor, 5233 - 49th
Avenue, Red Deer, Alberta, Canada.
On October 27, 1997 at a Special General Meeting of the Corporation its
shareholders approved the change of the Corporations name from Peak
Technologies Inc. to PeakSoft Corporation.
At this point in time the Corporation has but one active wholly owned
subsidiary -- PeakSoft Corporation (USA) (PeakSoft USA), a Washington State
company. It has in the past had other active wholly owned subsidiaries:
(1) BREEZ Business Management Systems Inc. (BREEZ - currently inactive), a
Washington State company, which provided computer support services by
telephone and computer repair services from a depot facility;
(2) Peak Media, Inc. (currently inactive), another Washington State company
which was incorporated to develop and to publish multi-media CD-ROM works
for the consumer market; and
(3) Chameleon Bridge Technologies Corp. (CBT), a British Columbia company,
which was acquired for its computer software research and develop
capabilities, capabilities which have now been absorbed by PeakSoft, its
parent company.
PeakSoft is the main operating entity, which has utilized PeakSoft USA as its
U.S. marketing and operations division. CBT was acquired for its research and
development capabilities, which have now been transferred to PeakSoft, and is
currently not active. The Corporations senior management reside in different
localities in the United States and Canada with the focal point being the
Corporations head office in Bellingham, Washington where Mr. Douglas Foster,
PeakSofts Chief Executive Officer resides. Mr. Liam Taylor, Chief Technology
Officer, resides in the Vancouver, British Columbia area where he maintains a
home office. The senior management group maintains daily contact through
phone, fax and e-mail. In addition, management meetings are held at irregular
intervals in Bellingham.
Background of the Corporation
The Corporation was founded by Mr. Douglas Foster in the summer of 1994 to
combine the operations of Peak Media, Inc. and BREEZ. For ease of exposition,
when used herein to describe the Corporations business, the terms PeakSoft or
the Corporation shall, unless otherwise indicated, include the activities of
its subsidiaries.
In mid-1995, Peak launched its first CD-ROM product entitled Mt. Everest Quest
for The Summit of Dreams, Volume 1; The North Side. This multimedia title
tells the tale of eight international teams attempting to reach the summit of
Page 3 of 220
<PAGE>
Mt. Everest from its north side in 1994. In 1995 and early 1996, Peak
developed and began selling two additional CD-ROM products. Approximately
3,000 units of these CD-ROMs have been sold to date. In early 1996, however,
PeakSoft determined that its resources would be more profitably deployed in
the development of Internet products. The Corporation does not anticipate
creating any further content-based CD-ROM products.
PeakSoft (at the time still known as Peak Technologies Corporation) was listed
on The Alberta Stock Exchange, under the symbol PKT, on August 10, 1995.
In August 1995, Peak completed its initial public offering by exchange offering
prospectus. The Corporation issued 1,750,000 Common Shares at a price of
CDN$0.40 per common share for gross proceeds of CDN$700,000.
On November 18, 1996, Peak released its initial Internet software product
Net.Jet, since renamed and now called PeakJet. PeakJet is a Java-based
accelerator for the Internet. It is designed to reduce waiting time
significantly and to increase the speed with which a user can browse and
view pages and links within a website and travel from site to site on the
World Wide Web. Typically, browsers utilize less than 11 percent of the
total available throughput speed of a modem. With PeakJet, modem speeds of
50 percent to 90 percent of capacity are possible, resulting in reduced waiting
times and faster web browsing. PeakJet runs on any IBM-compatible computer
system running Windows 95 or Windows NT. PeakJet works as an add-on for
browsers like Netscape Navigator, Microsoft Internet Explorer, Oracle Power
Browser and other Java-enabled browsers running on a PC. On November 18, 1996,
Peak completed a private placement of 500,000 Second Special Warrants at a
price of CDN$0.75 per Second Special Warrant for gross proceeds of CDN$375,000.
The Second Special Warrants currently entitle the holders thereof to acquire an
aggregate of 550,000 Common Shares and 275,000 Share Purchase Warrants for no
additional consideration. Finders fees (inclusive of expenses) of CDN$18,953.98
were paid by the Corporation to GTL Securities (U.S.A.) Inc., a party at arms
length to the Corporation, in connection with certain subscriptions for Second
Special Warrants.
In May 1996, Peak completed the arms length acquisition of all of the capital
stock of CBT by allotting 1,500,000 common shares to those persons having a
right to CBT shares at an issue price of CDN$1.11 per share for an aggregate
purchase price of CDN$1,665,000. The Common Shares issued to the shareholders
of CBT were subject to an escrow agreement which required tjat three milestones
to be met, two which were passed shortly following the completion of the
agreement. The final milestone was also expected to be met.
It was represented to Peak that by the time of the acquisition, CBT had invested
approximately CDN$500,000 and 5 man-years in the development of certain
Java-based proprietary technology which has proved useful in advancing
functionality, interactive content, animation and ease of use of the World Wide
Web.
On May 10, 1996, Peak completed a private placement of 466,665 units at a price
of CDN$0.75 per unit, for gross proceeds of approximately CDN$350,000. Each unit
consisted of one common share and one share purchase warrant (the First
Warrants) which enabled the holder of it to purchase one common share at a price
of CDN$1.00. These warrants expired on May 9, 1998.
Page 4 of 220
<PAGE>
In May 1996, the Corporation acquired certain proprietary Java server technology
known as ExpressO in an arms length transaction from Mr. Charles T. Russell,
who was carrying on business as Innovative Desktop. This technology was
purchased in exchange for 133,890 Common Shares at an issue price of CDN$1.33
per common share for an aggregate purchase price of US$130,000. To date,
133,890 Common Shares have been issued. Two additional allotments of 15,449
shares each will be issued upon achievement of certain performance milestones.
Pursuant to a Software License and Joint Marketing Agreement dated June 5, 1996
and an Addendum dated June 24, 1996 between Peak and Infinop, Inc. (the Infinop
Agreement), the Corporation obtained an exclusive worldwide license with an
initial term of three years, subject to automatic one year renewals thereafter
(unless terminated earlier in accordance with the provisions of the Infinop
agreement), for the utilization, marketing and distribution of the Lightning
Strike program written in Java, which is a wavelet compression technology
which provides up to 200 to 1 compression for image transmission and increases
the speed of picture and graphics transmission over the Internet. Peak issued
35,700 Common Shares to Infinop for the license at a price of CDN$0.94 per
common share for an aggregate acquisition fee of CDN$33,558. Pursuant to the
Infinop agreement, Peak was required to make an advance royalty payment of
CDN$68,095 and monthly payments of CDN$13,619 for ten months in the initial
year. The parties have subsequently reached an agreement to cancel this
license, and Peak has ceased making any payments thereunder, as the Lightning
Strike program has not ultimately been incorporated into any of PeakSofts
products.
On October 7, 1996, Peak completed a private placement of 1,333,333 units at
a price of CDN$0.60 per unit for gross proceeds of approximately CDN 800,000.
Each of these units, which were referred to as "First Special Warrants",
consisted of one common share of Peak coupled with one warrant which entitled
the holder therof to acquire an additional share at a price of CDN$.70 -
unless a prospectus was not filed by Peak in provinces of Alberta, British
Columbia, and Ontario on or before December 23, 1996, in which event the holder
of a First Special Warrant became entitled to 1.1 common shares and 1.1
warrants. As this prospectus filing date was not met, the First Special
Warrants entitle the holders therof to acquire in the aggregate 1,466,667
common shares and 1,466,667 share purchase warrants. Finders fees (inclusive
of expenses) were n with certain subscriptions were paid by the Corporation of
CDN$4,282.10 to GTL Securities (U.S.A.) Inc., of CDN$12,284.46 to Chalfont
Holdings and of CDN$4,850 to Brent Harbar, each of whom is at arms length to the
Corporation, in connection with certain subscriptions for First Special
Warrants. The First Special Warrants expired on December 31, 1996.
On November 18, 1996, Peak completed a private placement of 500,000 Second
Special Warrants at a price of CDN$0.75 per Second Special Warrant for gross
proceeds of CDN$375,000. Each of these units, which were referred to as
"Second Special Warrants", consisted of one common share coupled with one
warrant which entitled the holder thereof to acquire an additional share at a
price of CDN$0.70 - unless a prospectus was not filed by Peak in each provinces
of Alberta, British Columbia, and Ontario on or before December 23, 1996, in
whhich event the holder of a First Special Warrant became entitled to 1.1 common
shares and 1.1 warrants. As this prospectus filing date was not met, the First
Special Warrants entitled the holders thereof to acquire in the aggregate
Page 5 of 220
<PAGE>
550,000 common shares and 550,000 share purchase warrants. Finders fees
(inclusive of expenses) of CDN$18,953 were paid by the Corporation to GTL
Securities (U.S.A.) Inc., a party at arms length to the Corporation, in
connection with certain subscriptions for Second Special Warrants. In the year
1996 65,518 shares were issued for services.
On January 17, 1997 Peak completed a private placement of 690,000 units at a
price of CDN$1.11 per unit for gross proceeds of CD$765,900. Each of these
units, which were referred to as "Third Special Warrants", consist of one
common share of Peak coupled with 1/3 of a warrant. A full warrant entitled
the holder thereof to acquire an additional at a price of CDN$1.35 - unless a
prospectus was not filed by Peak in each of the provinces of Alberta, British
Columbia and Ontario on or before April 21, 1997, in which event the holder of
a Third Special Warrant became entitled to 1.1 common shares and 0.367 warrants.
As this prospectus filing date was not met, the Third SPecial Warrants entitled
the holders thereof to acquire in the aggregate 759,000 common shares and
253,230 share purchase warrants. The Agents and Research Capital Corporation
(Research Capital) of Toronto, Ontario (as an additional sub-agent of GTL)
received as compensation, in part, in connection with the distribution of the
Third Special Warrants, non-assignable Brokers Warrants entitling them to
acquire an aggregate of CDN$69,000 non-assignable Agents Purchase Warrants.
Each Agents Purchase Warrant entitled the holder to acquire one common share
at the excercise price of CDN$1.35 per share at any time on or before January
16, 1998. The Common Shares and the Fourth Warrants issuable on excercise of
the Third Special Warrants and 34,500 of the Agents Purchase Warrants issuable
on excercise of the Brokers Warrants (on a pro rata basis among the holders
thereof) are qualified for distribution. The Third Special Warrants expire on
July 17, 1998.
On June 11, 1997 the Company issued and had accepted a prospectus in British
Columbia, Alberta, and Ontario and cleared the First, Second, and Third Special
Warrants. As a result on June 11, 1997 the Company issued 2,775,667 Common
Shares of these shares 63,942 were issued for services provided to the Company,
and the balance of 2,711,725 shares were issued for cash. The Company became a
reporting issuer in British Columbia, Alberta, and Ontario at that time.
On August 11, 1997 PeakSoft announced the signing of a letter of intent for a
US$2 million financing commitment with Elliott Associates LP, (Elliott), the
manager of a New York Investment group, in consideration of promissory notes
bearing interest at 12 percent per annum and warrants to purchase Common Shares.
The first stage of the financing agreement of US$1,125,000 closed on September
9, 1997. The notes payable were issued in September, 1997 and represent 12
percent senior promissory notes held by Liverpool Limited Partnership and
Westgate International L.P. Attatched to the issued notes are warrants to
purchase 3,120,075 common shares at a price of CDN$.50 per share expiring in
September 1999 and a right of first refusal on future capital raising
transactions. The notes reflect an effective interest rate of 18% per annum
and a value of CDN$173,759 has been attributed to the warrants issued and
recorded as other paid-in capital.
A second issuance of 12 percent senior promissory notes of CDN $1,207,500
(USD $875,000) were to have been issued subject to certain terms and
conditions, with warrants attached to purchase 1,879,925 common shares of the
Company at a price of $0.64 per share expiring in February, 2000. The terms
and conditions of this second purchase of notes required the Company to attain
Page 6 of 220
<PAGE>
certain targets which were not achieved, in the result of which the amount of
the second advance was renegotiated downward to USD $140,000, this advance being
made on March 19, 1998 against the issuance of a second set of promissory
notes and of 500,000 Share Purchase Warrants which are convertible into Common
Shares at a price of CDN$0.40.
PeakSoft began shipping its most recent product, NetMagnet, on January 21, 1998.
NetMagnet, which has been well received by evaluators of and commentators upon
computer software, is a web accelerator / caching / presentation utility which
substantially enhances the speed with which information can be gathered from the
World Wide Web and presented to others.
BUSINESS OF THE CORPORATION
Overview
PeakSoft is primarily a software and Internet technology company that is
developing and marketing products to enhance the browsing ability of Internet
users. Using proprietary Java-based technology, PeakSoft is developing products
that address the Internet performance concerns of consumers and businesses.
The Technology
In early 1995, the Corporation made a research and development commitment to
develop products for the Internet. The result was the development of the
Corporations Java-based technology.
As a result of its acquisition of CBT developers who were employed by that
company, the Corporation secured the ability to develop applications utilizing
the Java programming language.
PeakSofts primary proprietary technology is based on the Java server ExpressO
and is complemented by other technologies, including Javalin, a Java based
development environment. ExpressO provides the Corporation with the benefits
of a complete Java server in developing Internet applications and, in
particular, those applications which address browsing speed and performance
issues.
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being merchantable
or completed, but in the opinion of management offered promise for the company
to establish itself in the Internet market. Approximately six months after the
acquisition Peak did, in fact, successfully commercialize the product and
continue to expand the core technology. As an example the company released
Web Animator in 1996 which was re-named Jet Effects in 1997 and continuess to
be sold by the company today. In addition the technology was applied
to the creation of NetJet in November 1996, now known as PeakJet and to the
creation of NetMagnet released in January 1998. While there is no guarantee
that the technology will continue to be marketable, the Company released
PeakJet 2000 in July 1998 and has five other products based upon this technology
underdevelopment.
Page 7 of 220
<PAGE>
Products
PeakSofts core technology has been translated into a comprehensive product
strategy.
The company announced PeakJet 2000 and commenced sales of this product on
July 2, 1998. PeakJet 2000 is a next generation of the company's original
browser accelerator offering new features and specific features for the
International marketplace.
The company licensed its technology to InfoBuild Networks Inc. InfoBuild has
released its first application targeted at the financial industry, BSmarter and
is in the process of launching its next product BFaster.
The company is preparing to release its first value added solution, LawTrack
with a price point of $395 targeted at providing Internet Research to the legal
community. The company also is developing other value added solution products
based upon its core technology.
Marketing Strategy
To capitalize on its technology, PeakSoft is addressing the needs of the rapidly
growing market of Internet users. The Corporation plans to apply its technology
to performance solutions for business in the emerging intranet marketplace, and
will shortly be releasing a product to assist members of the legal profession
to access and to organize the resources available to them on the Internet. In
addition, PeakSoft is proposing to license other companies to develop its
software for corporate and institutiona
Since its inception PeakSoft has applied its core Java based technology to
solving problems associated with the speed, ease of use and information
management issues of the Internet. PeakSofts first products; NetJet, released
in November 1996, PeakJet 1.55 released in March 1997 and Jet Effects released
in March 1997 were marketed using traditional software sales strategies.
These strategies include: 1) Sales through traditional distributors into major
retail locations across North America, 2) Bundling of the products with other
complimentary applications, 3) Offering trials of the products through
compatible distribution partnerships such as modems and other computer devices,
4) Creating a presence on the WWW for the offer to try or to purchase the
products, 5) Establishing International sales relationships.
The number of users of the Internet is projected to continue to grow through
the next 5 years. In 1998 the emergence of E-Commerce and Electronic Software
Distribution has created opportunities for the company to expand its product
offering and establish new channels of distribution. In addition to our
previous strategies, which continue to be refined, PeakSoft is establishing
Internet retail partnerships and co-marketing alliances based upon a profit
sharing model.
Page 8 of 220
<PAGE>
Marketing activities and Public relations focus on the Internet as the primary
vehicle for creating interest in the companys products followed by traditional
press and print focus.
The company plans to release new applications focused on solving specific
industry problems and allowing them to gain maximum value from the Internet.
While there is no guarantee that these applications will be accepted, the
company sees an opportunity to increase its product pricing and specialize its
products for specific industries and tasks.
Management, Staff and Facilities
PeakSoft has 19 employees who work primarily from its leased office space in
Bellingham, Washington. Certain members of management also work from home
offices in the Vancouver area of British Columbia (see The Corporation). The
Corporations Bellingham facilities are used for its inventory storage, customer
service, accounting, legal, marketing and product quality assurance functions.
PeakSofts programmers work both from the Bellingham office and from home
offices. The Corporation had at one time a British Columbia office, but this was
closed in March 1997.
Senior management of Peak possesses a strong industry background in business
management, finance, technology, sales and marketing. Peaks Board of Directors
provides a breadth of public company, software industry and corporate finance
experience. The organization and duties of the Corporations management are as
follows:
President & C.E.O. - Douglas Foster
Overall responsibility for the planning and execution of the Corporations
business with marketing being his primary focus. Mr. Foster reports to the
Board of Directors.
Chief Technology Officer - Liam Taylor
Mr. Taylor is responsible for keeping the Corporation abreast of current
technology developments and their impact on its current and impending products.
He proposes new product research and development. Mr. Taylor reports to the
President.
Chief Operations Officer - Timothy Metz
Mr. Metz is responsible for the financial operations and day-to-day management
of the Corporation.
Core Technology
Javalin Technology
PeakSofts initial investment in Java following its acquisition of CBT resulted
in the development of Javalin. Javalin is proprietary technology that allows
PeakSoft to quickly develop high performance Java applications. It incorporates
a real time multimedia enhancement for the Internet that is designed to animate
Page 9 of 220
<PAGE>
and increase the impact of content on the World Wide Web. Javalins Java-based
software framework will run in conjunction with all major browsers and Windows
95 and Windows NT computer platforms. Its modular structure requires no special
plug-ins or readers. Its layered architecture creates a steady multimedia
presentation flow. Even with todays Internet bandwidth limitations, the
problems of lengthy downloading delays are reduced.
Javalin has a graphic user interface for intuitive drag and drop authoring, and
a scripting language for simple but detailed control of the structure and
behavior of objects. Its layered architecture introduces presentation
structures in hypertext, vector metagraphics, scalable bitmaps and animation.
Sequenced effects such as movements, color and texture changes, zooms,
rotations, fades, and wipes can be applied to objects in each level. Conditional
events such as collision detection between objects and user interaction can
create independent chains of sequences. Javalins modular construction can be
layered to create multi-stated, multifaceted graphics and environments. It can
also be directed to low level programming functions.
Javalin was developed specifically for web authors, a market the Corporation
has subsequently determined to be less attractive than Internet users who want
enhanced performance. For this reason, the Corporations Javalin technology has
not been developed into a completed consumer product, but rather is used
internally by the Corporation as a tool to develop its other products.
PeakSoft ExpressO
In May 1996, PeakSoft acquired ExpressO server technology from Innovative
Desktop Inc. ExpressO is a multi threaded server written entirely in Java
and is currently perceived as an architecture that may form the basis of many
applications to come. ExpressO has a well-defined architecture and has
programming interfaces, which make it a flexible software building block.
Since 1996, PeakSoft has developed additional technology in Java which includes
agents and caching capabilities complementary to ExpressO and Javalin. The
Corporation owns all technology outright.
MARKETPLACE
Overview
According to a June, 1996 study by the Georgia Institute of Technology (reported
on the website of Forrester Research), in the first three months of 1996, nearly
35 million persons in the United States over the age of 16 used the Internet or
accessed on-line services. This represents a growth rate of 52 percent over
1995. According to Dataquest, the Internet is one of the fastest growing
markets in the world with 1997 growth of 71 percent to 82 million computers
worldwide online. Driven by increased business and international expansion the
year 2001 is projected to exceed 268 million computers online.
Users expect the Internet to be fast and easy to use. While the Internet is the
fastest growing communications, entertainment and marketing medium in the world,
most people find it frustrating to use. Access is slow, content is static, and
information is often difficult to find and access.
Page 10 of 220
<PAGE>
According to Forrester Research, Internet software revenue will increase from an
estimated US$1.4 billion in 1997 to US$8.5 billion by 1999. These revenues will
be generated in the following market categories (according to a 1996 industry
study by I/PRO reported on the Forrester Research website):
Fast growth and transition to non-technical use has created technical
(bandwidth) problems for the Internet. As reported by most industry
publications, and confirmed by PeakSofts focus groups, the primary frustration
with the Internet is the slow speed of navigation followed by ease of access,
ease of searching for information and underwhelming content.
Users do not want to wait long minutes to view pages and graphics, and they are
not willing and often not capable of going through the tedious and confusing
process of down-loading and setting up plug-ins and players in order to view
interesting content. What they really want is the experience to be as easy as
dealing with other household appliances, with instantaneous results.
PeakSoft has recognized these problems, and has released Peak Net.Jet (now known
as PeakJet) and NetMagnet, and is developing other products to address aspects
of the Internet opportunity.
Target Markets
Primary - Consumers and Small Business, Internet Research
The largest potential market for PeakSoft products is the large and growing
group of individuals who, and businesses and households which, want access to
the Internet. PeakSoft intends to address this market through traditional
consumer-based distribution channels, World Wide Web based distribution
programs, and direct to business marketing.
PeakSoft is launching a series of products targeted at solving key problems
which users are experiencing on the Web - those relating to speed of access,
ease of use and productivity. PeakJet addresses the biggest problem by
increasing the speed of information delivery to users. The Peak Jet Effects is
targeted to web-site authors and graphic artists. With the introduction of
NetMagnet users now have a sophisticated caching and presentation tool as well
as a web browser accelerator.
High quality, Java-based products combined with impulse level pricing have
helped to reduce PeakSofts barriers to entry in the distribution channel. High
impact packaging, promotion and advertising programs lead retailers to place
PeakSofts products in high profile areas. Additionally, World Wide Web
marketing programs help develop the market and provide initial feedback as well
as permit the offering of limited use versions at little or no cost.
Corporate Intranet and Research
PeakSofts technology is being targeted to the growing intranet market as well.
PeakSofts server technology is being bundled into a product strategy, with the
planned launch into the intranet market of work group and information
management products later in 1998. These products and tools will be targeted at
corporations as well as Web service and site providers.
Page 11 of 220
<PAGE>
PRODUCTS
The following is an overview of PeakSofts initial products.
PeakJet 1.5
PeakJet (formerly called Peak Net.Jet) is an accelerator for the Internet. It
directly addresses the primary problem with the Internet: lack of speed while
viewing the World Wide Web. PeakJet can significantly reduce the waiting time
and increase the speed with which a user can view pages and links within a site
and when traveling from site to site.
PeakJets performance enhancement varies, depending upon the users activity.
Users will notice speed increases beyond their normal browser capacity, both for
sites browsed for the first time and for those previously visited and cached.
PeakJet reduces waiting time regardless of the content type being loaded whether
text, sound or images. PeakJet reduces access time to all sites, Java or
otherwise. Additional speed gains are realized when accessing sites utilizing
Peaks ExpressO Java server. PeakJet boosts Web surfing performance on both 14.4
and 28.8 modems, as well as on ISDN, T3 and TI connections.
PeakJet works with PC (Windows 95 and Windows NT) compatible systems and runs
with any Java-enabled browser, including Netscape 2.0 or later, Microsoft
Internet Explorer 3.0 or later, JavaSofts HotJava, and Oracles Power Browser.
PeakJet was released on November 18, 1996 at a suggested retail price of US
$29.95. PeakSoft has plans to release PeakJet 2.0 during the latter part of
1998.
JetEffects
A Java-based tool for World Wide Web authors, JetEffects allows animations,
special effects and sounds to be added to text and graphics. JetEffects provides
a graphic user interface, allowing non-programmers to bring static Web sites to
life.
JetEffects began selling separately over the Internet for US $49.95 beginning in
November 1996 and was released into the retail channel on March 10, 1997. This
product also offers potential bundling and original equipment manufacturer
opportunities.
NetMagnet (consumer) from PeakSoft
NetMagnet is a new software suite of products that improves the efficiency of
the Internet and WWW as an information tool. NetMagnet is a research tool that
enables the user to obtain information that is located on the Internet and
offers options to annotate, edit, organize and save Web searches, and has
functionality to publish or send those searches to other Web users. PeakJet
1.5 users can be upgraded to combine with NetMagnet to enable the user to
significantly accelerate the searches and retrieval of Internet information.
This technology is currently being enhanced for distribution in the professional
and financial markets.
Page 12 of 220
<PAGE>
ExpressO from PeakSoft
ExpressO is a full-featured easily customized Java Web server that enables peer
to peer communication between users. Its small size and cross-platform
compatibility allows it to reside on a broad range of computer platforms
supporting a Java interpreter. Ideal for both Internet and intranet users,
ExpressO products include Commercial Web Server, a Lite Personal Web Server, the
ExpressO Programmer Kit and the Server Construction Kit.
ExpressO products will be sold to corporations, through original equipment
manufacturer agreements and to World Wide Web developers. These products are
expected to be released in 1998.
MARKETING AND DISTRIBUTION
Main Channels
A number of trends are changing the face of distribution for software companies.
Since PeakSoft sells Internet solutions it is important to understand the trends
in this category as well. Below we will briefly introduce the trends and how
they effect PeakSoft strategies.
1. Growth of Internet Commerce in all markets. E-Commerce is experiencing
substantial growth as consumers become more confident about conducting
financial transactions over the Web. PeakSofts strategy is to develop
Internet retail locations where its product may be purchased using secure
commerce technology and delivered electronically or in disk form.
2. Internet software sales are increasing on the Web. It follows that Internet
users are tending to purchase software on the Web. The result has been
lower than expected performance of Internet software and utilities in the
traditional retail channel, and a corresponding increase in sales on-line.
PeakSoft has upgraded its e-commerce capability and opened the PeakStore at
www.peak.com to take advantage of this trend.
3. Increase in e-commerce has led to increase in Web based retail
opportunities. Non-traditional companies are entering the e-commerce market
as a way to increase profits. Firms that are not thought of as traditional
retailers are creating partnerships and profit sharing arrangements. As an
example, software and other products can be purchased at Web boutiques on
sites such as The Wall Street Journal, Ziff Davis, CBS and others. PeakSoft
has established an Alliance Program to increase its participation in these
forms of retail opportunities.
4. Retailers have moved to the Web, Egghead, Comp USA and others. Peak has
established over 20 retail locations so far and is seeking to improve its
terms of payment in these new markets.
5. Direct to Customer strategies are producing promising results, firms like
Dell, Gateway, RealNetworks and others have established substantial
improvement in margins and sales through these programs. PeakSoft alliance
programs are based upon a profit sharing strategy through partnerships that
can reach directly to potential customers.
Page 13 of 220
<PAGE>
PeakSoft Web Site
The Corporation has developed and maintains high profile website: www.peak.com.
This site, complete with product and corporate information, is where visitors
can see samples of PeakSofts products, read press releases and critical reviews.
PeakSoft offers customer support, forums for feedback and links to other topical
sites. Guests can even get a current stock quote, view the Corporations chart
or calculate the value of their PeakSoft holdings. Since April 1996, the
Corporation has positioned teaser samples of Javalin animations on the site,
which have been very active and growing in popularity.
PeakSoft has developed well its presence into a showcase for its products and
technology and a gathering place for consumers. PeakSoft regards the Internet
and its websites as low cost marketing tools and has developed a focused plan
to take advantage of this opportunity. In 1996 and 1997 the Corporation has
uploaded to consumers over 100,000 units of its products.
All of PeakSofts current and planned products are World Wide Web-enabled. This
means that every PeakSoft software program has an automatic launch capability to
www.peak.com where it could be automatically updated with minor releases of the
software. Currently, upgrades have been unspecified and are expected to be
minimal and infrequent. This automatic update function provides PeakSoft with
a continuing access to its customer base.
Direct distribution software is one of the few products that can take
advantage of the low cost distribution channel of the Internet. Most PeakSoft
products and services can be sold and distributed via the Internet, (although
PeakSofts more advanced products will be sold by licensees dedicated to their
professional and institutional markets). PeakSoft provides direct consumer
delivery for all of its consumer products by the simple expedient of their being
downloaded from one of PeakSofts websites. ExpressO, the Corporations Java
server, is also deliverable via the Internet. Product upgrade programs
requiring small program extensions are promoted and delivered directly over the
Internet as well, a practice which will be extended to PeakSofts more
sophisticated products. Currently, upgrades have been unspecified and are
expected to be minimal and infrequent. While PeakSoft expects modest results
in the short term, the Corporation expects this area to grow into a
significant revenue center in 1998 and 1999.
Support
PeakSofts support programs are geared toward developing brand awareness in
addition to providing a high level of support. The first level and highest
priority for support calls will be through the World Wide Web sites. Users can
enter their support issues directly in the support area of the site.
Additionally, they can view the frequently asked questions area where most of
the common support issues will be answered. Responses to the customers support
issues are most commonly made via e-mail.
Phone calls for support, unless critical, receive a secondary priority behind
World Wide Web support calls. Whenever possible PeakSoft emails the response
or calls back if required. If the solution were available in the frequently
asked questions area or more easily attainable through the World Wide Web,
PeakSoft mentions that fact to urge the customer to use electronic support in
the future.
Page 14 of 220
<PAGE>
Implementation of this plan addresses a number of issues. It provides an
efficient low cost support structure. Directing a response back to the customer
will be easier and faster as it will not be dependent on the customers
availability and doesnt require a long distance phone call. Additionally, it
brings people to the site where the Corporation can utilize each connection as
an opportunity to market additional products and services.
MANUFACTURING
PeakSoft Corporation has contracted with Saturn Solutions of Toronto, Ontario
and Essex, Vermont, to manufacture and assemble the software products for
distribution in the retail channel. Saturn Solutions replicates CD-ROMs and
produces packaging for all Peak software products, which are shipped out of the
Essex, Vermont, fulfillment facility. PeakSoft Corporation has also entered
into a similar agreement with Hart Graphics of Austin, Texas.
COMPETITION
Browser Accelerators
Currently there are a small number of competitors that have entered the market
with software products that include some features similar to PeakJet. Speed
Surfer from ViaSoft, based in Australia, markets a shareware program that
claims to speed browser performance on the Web. Because Speed Surfer is
designed to run totally in the background and has no user interface, evaluating
user benefit is difficult. Speed Surfer is priced at about US$30. GoAhead from
GotIt has similar features to PeakJet, including look-ahead agents, cache
fresheners and automatic software updates. GotIt users can browse offline and
the software will initiate an Internet connection if a page is requested that is
not in the cache. The user interface resembles a TV remote control that
enables the user to determine the benefit of the product. GotIt is available
on-line only with no retail distribution. Net Accelerator from IMSI was
shipping in July to most retailers. Priced at US $29.95 this product makes many
claims similar to PeakJet. PeakSofts testing indicates that this product does
not contain caching technology. PeakSofts tests show PeakJet is 5-15 times
faster. A recent evaluation of browser accelerator software by CNET, a major
evaluator and purveyor of software on the Internet, concluded unequivocally that
PeakJet was the fastest product of its type.
While there is currently no direct competitive product to NetMagnet in the
market, the Company believes that as more favorable reviews are published and
sales increase; competitive products will arrive in the market. The Company
plans to maintain its lead in the market through new technology.
Animation Tools
JetEffects, retailing at US $49.95, entered a highly competitive market with
similar animation tools such as Jamba from Aimtech, Liquid Motion Pro and Liquid
Reality from DimensionX. Jamba allows creation of applets similar to any other
applet author. It has been awarded best of the test in a comparison of seven
animation software products in Internet World (Feb/97) and is priced at US
$299.00. Liquid Motion Pro is an applet authoring tool which allows the
creation of interactive 2D animations. This product has been well received by
the press and is priced at US $725.00 with a free trial available. Liquid
Reality enables users to create interactive 3D VRML Java environments. A free
beta version is available, but no retail price has been announced.
Page 15 of 220
<PAGE>
RESEARCH AND DEVELOPMENT
As of September 30, 1997 the Company had 8 hardware and software engineers
employed full time in research and development.
Research, development and associated expenses were CDN$180,413 for 1st. Qtr.
Fiscal 98, CDN$641,426 for fiscal 97, CDN$321,740 for fiscal 96, and CDN$31,871
for fiscal 1995.
RISK FACTORS
The purchase of Common Shares of the Corporation must be considered highly
speculative due to the nature of the Corporations business, its relatively early
stage of development and the intensely competitive, rapidly changing nature of
the Internet industry which has a number of participants which possess greater
resources than the Corporation.
The Corporation is a development stage company, which has not yet achieved
profitability. Its accumulated deficit, in accordance with generally accepted
accounting principles in Canada, as of September 30, 1997 was CDN$6,415,400.
There can be no assurance that the Corporation will be able to achieve or
sustain profitable operations. The Corporation expects to continue to incur
significant operating losses as it continues to devote significant financial
resources to the commercialization of its products, the expansion of the
Corporations operations and product development activities. There can be no
assurance that the Corporation will successfully commercialize such products and
reach break-even or profitability in the near future, or ever. Due to extensive
development costs and marketing expenses for its proprietary products, there was
a loss incurred for the fiscal year ended September 30, 1997 of CDN$4,091,490.
As a result of the foregoing, investors could lose their entire investment in
the Corporation.
While the Corporation has established sales revenues they should be considered
early stage. In September of 1997, the Corporation concluded a US$1.125
million financing, a financing which was augmented by a second advance of
US$140,000, during the third week of March 1998. The Corporations future
capital requirements will depend on many factors, including the amount and the
timing of future revenues and continued progress in its research and
development. There can be no assurance that any necessary additional financing
will be available when required by the Corporation for product commercialization
on acceptable terms or at all. If adequate funds are not available, the
Corporation may be required to change, delay, reduce or eliminate its planned
product commercialization strategy or take other actions to raise funds, which
could have a materially adverse effect on the Corporations business, the results
of its operations, and hence its financial condition. To date, the Corporation
has relied on sales of its equity capital for the largest measure of its
financing, and is likely to remain reliant thereon in the near term. To the
extent further equity financings are available, they may result in substantial
dilution to existing shareholders.
The production of technology-based products such as computer software carries
with it a high risk of the emergence of new competitive products in the same
market niches as those being targeted by the Corporation. There is in this
Page 16 of 220
<PAGE>
industry a substantial risk of unforeseen change in the underlying technologies
during the development of technology-based products, which may have negative
effects on the marketability of such products. The Corporation has no
technological advantage over any other competitor. There can be no assurance of
market acceptance of the Corporations products, or if there is acceptance, that
such acceptance will be sustained. Internet markets are new and relatively
unproven, and thus carry higher risk than more established markets.
The technology involved in the development of software for Internet users is
subject to constant, often rapid, development. This technology and the products
developed therefrom may, even within a short time, become obsolete or superseded
by technology with a greater market acceptance. As a result, the Corporation
could be required to expend significant amounts for research and development in
order to maintain its competitive edge. There can be no assurance that the
Corporation will be able to develop or improve its existing technology or to
develop new technology. Hence there can be no assurance that it will continue
to have access to adequate financial resources to fund necessary research and
development.
The market for the Corporations products is relatively new, and its potential
has not yet been determined. The Corporation believes that the market for its
products has significant growth potential, but whether that potential will be
realized depends upon numerous factors outside the Corporations control. Even
if the market for Internet products were to develop as anticipated, the success
of the Corporations products will depend upon the Corporations ability to
anticipate and to respond to trends in the demands of the marketplace for such
products.
The Internet products industry is ferociously competitive. The Corporation
competes against a large number of companies of varying size and resources,
including large companies with substantially greater financial, technical and
marketing resources than PeakSoft. The Corporation believes that competition in
its business depends largely upon sustained technological advancement and the
development of appropriate channels for the marketing of its products. The
Corporation is attempting to meet these needs through the expansion of its
technical expertise and by developing multiple sales channels for its
products. There can be no assurance, however, that the Corporation will be
successful in these efforts.
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when financial
statements are affected by conditions and events that cast substantial doubt on
the Companys ability to continue as a going concern, such as those described in
note 1 to the financial statements. The auditors report to the directors
dated December 12, 1997 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors report when these are adequately disclosed in the financial statements.
Accordingly, the auditors included a notice to US readers to this effect.
Existing external financing remains in place and has been increased. Management
is also seeking some additional external financing. The Company has obtained
financing aggregating to US$545,206 since September 30, 1997, and is attempting
to raise further financing at this time. Accordingly, the Company has concluded
that the going-concern assumption is appropriate.
Page 17 of 220
<PAGE>
Management is aggressively taking steps to remedy its current financial
situation. Implemented cost reduction programs have reduced operating cost by
44% and fulfillment cost by 31% since December 31, 1997. Terms and conditions
of sales have been modified in order to enhance cash flow. Management is
implementing a new strategic marketing and sales program, both domestically and
internationally, to increase sales while reducing costs. The Company plans to
maximize the potential of its technology by simultaneously addressing both
vertical and horizontal markets with existing and new scheduled products.
The Corporation has not registered trademarks and service marks with respect to
all of its products. In June 1997, the Corporation settled a lawsuit alleging
infringement upon a trademark in connection with the use of the name Net.Jet.
See Legal Proceedings. There can be no assurance that others will not assert
infringement claims against the Corporation in the future. Such claims, even
if unfounded, can be costly to defend, and could have a materially adverse
effect upon the Corporations operations.
The Corporation is dependent upon the management and leadership skills of Mr.
Douglas Foster and its existing management. The Corporation is not party to
material contracts of employment with Mr. Foster or key members of current
management. There is intense competition for qualified personnel in the
software industry, and the loss of key personnel or an inability to attract,
retain and motivate key personnel could adversely affect the Corporations
business. The Corporation does maintain policy of key man insurance on the life
of Mr. Foster having a value of US$500,000. There is no assurance that the
Corporation will be able to retain its existing senior management personnel or
to attract additional qualified personnel.
Following exercise of the First Special Warrants, Second Special Warrants and
Third Special Warrants, the Corporations principal shareholder will, in the
aggregate, beneficially own approximately 6.86 percent of the Corporations
outstanding Common Shares (excluding Common Shares issuable upon exercise of
stock options, Agents Purchase Warrants, First Warrants, Second Warrants, Third
Warrants and Fourth Warrants). As a result, such shareholder may be able to
influence materially most matters requiring approval by the shareholders of the
Corporation, including the election of a majority of the directors. The voting
power of the principal shareholder under certain circumstances could have the
effect of delaying or preventing a change in control of the Corporation, which
in turn could affect the market price of the Common Shares.
There has been significant volatility in the market price of securities of
technology companies. Factors such as technology and product announcements by
the Corporation or its competitors, disputes relating to proprietary rights and
variations in quarterly operating results have had, in the past, and may
continue to have in the future, a significant impact on the market price of the
Common Shares. In addition, the securities markets have experienced volatility,
which is often unrelated to the operating performance of particular companies.
To the extent that external sources of capital, including the issuance of
additional Common Shares, might be limited or become unavailable, PeakSofts
ability to make the necessary capital, development and marketing expenditures
to create and distribute new products will be impaired.
Page 18 of 220
<PAGE>
The Corporation has not paid any dividends since its inception and does not
contemplate that any dividends will be paid in the foreseeable future.
The Corporation sells a substantial part of its products and services outside
of the United States and Canada. Its profitability may therefore be subject
to fluctuations in exchange rates. The Company does not manage the risks
related to foreign currency, interest rates or inflation by using hedging
arrangements.
There are potential conflicts of interest to which the directors of the
Corporation may be subject to, from time to time, in connection with the
operations of PeakSoft. Conflicts, if any, will be subject to the procedures
and remedies mandated by the Business Corporations Act (Alberta) and the common
law of Alberta.
ITEM 2 - DESCRIPTION OF PROPERTY
The executive offices and support facilities of PeakSoft USA, which are located
at 3614 Meridian Street, Suite 100, Bellingham, Washington, USA, occupy
approximately 5,392 square feet. These offices were leased, effective September
15, 1997, for a term of 54 months at an annual lease rate of US$67,100. The
Company at one time leased commercial space located at 100 Park Royal, West
Vancouver, British Columbia, Canada for research and development and business
development offices. These offices have been sublet, but a shortfall between
the rent received from the subtenant and that due to the landlord of
CDN$1,518.46 per month must be made up.
ITEM 3 - LEGAL PROCEEDINGS
On December 4, 1996, the Corporation was served with a formal complaint from
Netjet Communications, Inc., a California corporation, alleging trademark
infringement with respect to the Corporations Internet software product, Peak
Net.Jet, and commencing legal proceedings with respect thereto in the U.S.
District Court, Northern District of California. The complaint sought
unspecified damages, profits, injunctive and other equitable relief. A
settlement of the complaint, the terms of which are confidential, was reached by
the parties on June 10, 1997. Payment was made in full on September 13, 1997.
In the spring of 1997, the Corporation received a series of bills totaling
CDN$71,884.60 from its then general and securities counsel, the law firm of
Bennett Jones Verchere in Calgary, Alberta, for legal services allegedly
performed during the years 1995 and 1996. PeakSoft believes that these invoices
have been remitted improperly, and is contesting them in a taxation proceeding
which is ongoing before an officer of the Court of Queens Bench of Alberta.
ITEM 4 - CONTROL OF REGISTRANT
PRINCIPAL SHAREHOLDERS
The only persons who own of record, or who are known to the directors of the
Corporation to own beneficially, directly or indirectly, more than 10 percent of
the issued and outstanding Common Shares, as at March 23, 1998, are:
Page 19 of 220
<PAGE>
Name and Municipality of Residence: Douglas H. Foster, Bellingham, Washington
(1)
Type of Ownership: Legal and beneficial, indirect
Number of Shares: 1,470,050
Percent of Common Shares: 10.88
Percent of Common Shares after giving effect to the exercise of the First
Warrants, the First Special Warrants, the Second Special Warrants, the Third
Special Warrants (2) and the Fourth Special Warrants: 6.86
Notes:
(1) Mr. Foster holds 115,000 shares personally and is the sole shareholder,
director and manager of Foster Murphy & Sons Holding Co. Ltd., a British
Columbia company which is the registered holder of 1,355,050 Common Shares.
(2) This does not include Common Shares issuable upon exercise of stock options,
Agents Purchase Warrants, Second Warrants, Third Warrants or Fourth
Warrants.
The directors and officers of the Corporation beneficially own directly and
indirectly 13.0 percent of the issued and outstanding Common Shares of the
Corporation.
Title of Class Identity of Person or Group Amount Owned Percent of Class
- -------------- --------------------------- ------------ ----------------
Common Stock D. Foster (Individual) 115,000 .9
Common Stock Foster Murphy & Sons- 1,355,050 10.0
Doug Foster (Individual)
Common Stock Carl Conti (Individual) 112,000 .8
Common Stock Donald McInnes (Individual) 85,000 .6
Common Stock Peter Janssen (Individual) 51,750 .4
Common Stock Nick Vermeulen 33,000 .2
Common Stock Thomas Taylor 1 .0
Common Shares All Directors/Officers 1,751,801 13.0
as a Group
ITEM 5 - NATURE OF TRADING MARKET
TRADING HISTORY OF COMMON SHARES
The Common Shares of PeakSoft are listed and posted for trading on The
Alberta Stock Exchange under the trading symbol PKT.A. The following table
sets forth the reported high and low sale prices and volume of trading of the
Common Shares as reported by The Alberta Stock Exchange for the periods
indicated:
Page 20 of 220
<PAGE>
1996 Price Range Trading Volume
- ---- High $ Low $
------ -----
First Quarter 1.55 0.45 2,885,900
Second Quarter 1.85 1.20 1,615,806
Third Quarter 1.45 0.50 2,211,441
Fourth Quarter 1.60 0.60 3,659,653
1997
- ----
First Quarter 1.30 0.80 2,598,231
Second Quarter 1.18 0.57 1,714,955
Third Quarter 0.93 0.40 2,048,481
Fourth Quarter 0.90 0.40 1,160,214
1998
- ----
First Quarter 0.61 0.50 1,676,102
The closing price of the Common Shares of PeakSoft on the Alberta Stock Exchange
on March 25, 1998 was $0.43.
As of March 27, 1998, 39.2 percent of the registered shares were held in the
U.S.
ESCROW
Pursuant to an agreement dated July 12, 1995 among the Corporation, Montreal
Trust Company of Canada, Foster Murphy & Sons Holding Co. Ltd., McGillicutty
Management Corp. - and - Eric Simonson and Kathy Simonson, (the Original Escrow
Agreement), an aggregate of 2,461,523 Common Shares owned by these shareholders
were placed in escrow with Montreal Trust Company of Canada. The Original
Escrow Agreement provides that the shares held in escrow are released as to 10
percent immediately after the expiry of nine months from the date of the final
receipt of the initial exchange offering prospectus of the Corporation (July 12,
1995), as to 20 percent at the end of each of the first, second and third
anniversaries from the date of the initial release of escrowed Common Shares and
30 percent at the end of the fourth anniversary from the date of the initial
release of escrowed Common Shares. 1,723,066 Common Shares remain in escrow
under the Original Escrow Agreement.
Pursuant to an agreement dated May 31, 1996 among the Corporation, Montreal
Trust Company of Canada and James Bickel, Gwen Cameron, Robert Casilio, Glenn
Guthrie, Elliot Holden, Ashley Holden, Cuthbert Huckvale, Edna Anne Judge,
Cliff Kondratiuk, Frank Lang, Stefan Liere, Carolyn May MacDonald, Dick
McKenzie, Allison McKenzie, Shonna McKenzie, Hashim Mitha, Sadru Mitha,
Gulshan Mitha, Joseph Gerard Monaghan, Alice Monaghan, Thomas Jacob Monaghan,
Matthew John Monaghan, Julie Marie Monaghan, Warwick Parker, John Taylor,
Liam Taylor, Harry Weatherill, Thomas Taylor, RBP Business Systems Inc.,
G.S.K. Investments Ltd., Hasker Management Ltd., Headline Technologies Ltd.
and Wunderware Software Corp. (the New Escrow Agreement), an aggregate of
897,568 Common Shares owned by these shareholders were placed in escrow with
Montreal Trust Company of Canada in connection with the acquisition of CBT by
the Corporation. The shares held in escrow are to be released on the
following basis:
Page 21 of 220
<PAGE>
(a) one-third of the Common Shares held by each shareholder shall be releasable
upon the confirmation by the Corporation to The Alberta Stock Exchange of
completion of a beta release of a product by the Corporation employing the
Javalin-based technology previously belonging to CBT;
(b) one-third of the escrowed Common Shares held by each shareholder shall be
releasable upon the confirmation by the Corporation to the ASE of
commercial release of a product by the Corporation employing the
Javalin-based technology previously belonging to CBT; and
(c) one-third of the escrowed Common Shares held by each shareholder shall be
releasable upon the Corporation achieving total revenues of CDN$1 million or
greater in any six-month period. Notwithstanding the terms of paragraphs
(a) and (b) above, the maximum number of Common Shares to be released from
escrow to a shareholder from the original number of Common Shares held in
escrow on behalf of such shareholder shall be one-third within the first
six months from the date of the agreement, two-thirds during the first
twelve months from the date of the agreement and the total original number
within the first eighteen months from the date of the agreement. The first
two-thirds of the Common Shares escrowed under the New Escrow Agreement
have now been released.
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital into Canada which affect the
remittances of interest, dividends or other payments to non-resident holders of
shares of the Companys stock. Any such remittances to US residents, however,
are subject to withholding tax under the Income Tax Act (Canada) (the Tax Act),
which is generally reduced to a rate of 15 percent pursuant to Articles X and
XI of the Canada-US Income Tax convention.
Except as provided in the Investment Canada Act (the Investment Act), as
amended by the Canada-United States Free Trade Agreement Implementation Act
(Canada) (the FTA Implementation Act), there are no limitations under the laws
of Canada, the Province of Alberta or in the charter of any other constituent
documents of the Company with respect to the right of foreigners to hold and/or
vote the shares of the Companys stock.
The Investment Act requires a non-Canadian making an investment to acquire
control of a Canadian business, the gross assets of which exceed certain defined
threshold levels, to file an application for review with Investment Canada, the
federal agency created by the Investment Act. Under the provisions of the
Investment Act, an investment by a non-Canadian (other than an American, as
defined in the Investment Act) in a Canadian business is reviewable if it is
(i) a direct acquisition, which is defined as the acquisition of the assets or
voting shares of a Canadian business or control of its Canadian parent in Canada
or a Canadian business with assets of CDN$5,000,000 or more, or (ii) an indirect
acquisition, which is defined as the acquisition of control of a Canadian
business with assets of CDN$50,000,000 or more, where the assets of the Canadian
business represent 50 percent or less of the value of the total assets acquired,
through control of its Canadian parent entity outside Canada. Where the value
of the assets of the Canadian business represents 50 percent or more of the
value of the total assets acquired, the direct acquisition threshold applies.
As a result of the FTA Implementation Act, the threshold for review of
acquisition by Americans has been increased. The threshold is presently
Page 22 of 220
<PAGE>
CDN$25,000,000 for direct acquisitions and CDN$100,000,000 for indirect
acquisitions. Acquisitions of control of certain types of Canadian businesses
are excluded from these higher thresholds. An acquisition of a Canadian
business, the gross assets of which do not exceed the above-threshold amounts,
will not be subject to review and the non-Canadian will simply be required to
notify Investment Canada within certain prescribed time limits.
The Investment Act also requires the filing of a notice with Investment Canada
by a non-Canadian making an investment to establish a Canadian business. Where
the business activity is, in Investment Canadas opinion, related to Canadas
cultural heritage or national identity, an order can be issued making the
investment renewable.
If Investment Canada is satisfied that the investment is likely to be of net
benefit to Canada (as compared with the test under the prior investment act that
the investment is of significant benefit to Canada), then the non-Canadian may
proceed to complete the investment. If Investment Canada is not satisfied that
the investment is likely to be of net benefit to Canada, then the non-Canadian
may not make the proposed investment or, if the investment has been implemented,
shall divest itself of control of the Canadian business that is the subject of
the investment.
ITEM 7 - TAXATION
The following discussion summarizes some of the primary Canadian income tax
considerations to non-residents of Canada owning Common Shares of a corporation
resident in Canada. The comments are confined to consideration of the Tax Act,
the regulations thereunder and PeakSofts counsels understanding of the current
administrative practices of Revenue Canada Taxation.
Cash dividends paid by a corporation resident in Canada on Common Shares held
by non-residents of Canada will generally be subject to Canadian withholding tax
under the Tax Act. This withholding tax is levied at the basic rate of 25
percent, but may be reduced by the terms of any applicable tax treaty. For
residents of the United States not having a permanent establishment in Canada,
the Canada-US Income Tax Convention reduces the rate of withholding tax to 15
percent generally and to 6 percent for corporations owning at least 25 percent
of the voting stock of the payer corporation.
Stock dividends paid by Canadian public companies are treated as taxable
dividends and are subject to withholding tax as discussed above. The amount of
a stock dividend paid by a corporation is deemed to be equal to the amount of
the increase in the paid-up capital of the corporation arising by virtue of the
payment of the stock dividend. A shareholder receiving a stock dividend is
deemed to acquire the shares that are the subject of the dividend at a cost
equal to the amount of the dividend.
A non-resident of Canada who holds Common Shares as capital property will not be
subject to tax in Canada under the Tax Act on capital gains realized on the
disposition of the shares, unless the shares are taxable Canadian property
within the meaning of the Tax Act. Generally, the Common Shares of a public
company would not be taxable Canadian property unless the non-resident used the
shares in carrying on a business in Canada, the non-resident was previously a
resident of Canada and elected to deem the Common Shares to be taxable Canadian
property on ceasing to be a Canadian resident or, at any time during the five
Page 23 of 220
<PAGE>
years before the disposition of the shares, the non-resident owned, together
with other persons with whom he did not deal at arms length, greater than 25
percent of the issued shares of any class of the capital stock of the public
company. The Canada-US Income Tax Convention provides that US residents will be
subject to tax in Canada under the Tax Act on capital gains realized on the
disposition of shares in a Canadian resident public company where such shares
comprise taxable Canadian property as discussed above and where more than 50
percent of the share value is derived from real property situated in Canada.
ITEM 8 - SELECTED FINANCIAL DATA
Set forth below is certain selected consolidated financial data of the Company
for the six months ended of March 31, 1998, and the comparable period in 1997.
The selected consolidated financial information is derived from the Companys
unaudited consolidated financial statements for such periods. The Companys
consolidated financial statements are prepared in accordance with Canadian GAAP.
The information set forth below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations.
SUMMARY OF OPERATIONS (unaudited)
Stated in Canadian Dollars
SIX MONTHS ENDED MARCH 31
1998 1997
---- ----
Sales 899,582 709,384
Net Earnings (Loss) from
Continuing Operations (1,262,607) (1,782,304)
Earnings (Loss per Share)
from Continuing Operations (.09) (.20)
SUMMARY OF BALANCE SHEET (unaudited)
Stated in Canadian Dollars
SIX MONTHS ENDED MARCH 31
1998 1997
---- ----
Working Capital* (396,348) (465,789)
Total Assets 1,355,088 2,505,249
Total Current Liabilities 879,791 1,162,050
Long Term Debt and
Obligation Under Capital Leases 1,667,210 49,571
Shareholders Equity (Deficit) (1,191,913) 1,293,628
Set forth below is certain selected consolidated financial data of the Company
for each year in its existence ended September 30, 1997. The selected
consolidated financial information is derived from the Companys audited
consolidated financial statements for such periods. The Companys consolidated
financial statements are prepared in accordance with Canadian GAAP. The
information set forth below should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and
the Companys audited financial statements.
Page 24 of 220
<PAGE>
SUMMARY OF OPERATIONS
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1997 1996 1995
---- ---- ----
Sales 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (4,091,490) (927,480) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.33) (.11) .02
SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1997 1996 1995
---- ---- ----
Working Capital* 341,546 (445,693) 88,060
Total Assets 2,402,271 2,118,027 570,303
Total Current Liabilities 1,042,639 523,681 288,858
Long Term Debt and
Obligation Under Capital Leases 1,421,918 64,044 36,164
Shareholders Equity (Deficit) (62,286) 1,530,302 245,281
Had the Companys consolidated financial statements been prepared in accordance
with generally accepted accounting principles in the United States (see Note 14
to the audited financial statements), selected consolidated financial
information would have been as follows:
SUMMARY OF OPERATIONS
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1997 1996 1995
---- ---- ----
Sales 1,340,200 784,900 556,096
Net Earnings (Loss) from
Continuing Operations (3,354,661) (2,577,078) 55,794
Earnings (Loss Per Share)
from Continuing Operations (.35) (.31) .02
SUMMARY OF BALANCE SHEET
Stated in Canadian Dollars
FISCAL YEAR ENDED SEPTEMBER 30
1997 1996 1995
---- ---- ----
Working Capital* 341,546 (445,693) 88,060
Total Assets 1,579,972 473,429 570,303
Total Current Liabilities 1,042,639 523,681 288,858
Long Term Debt and Obligation
Under Capital Leases 1,369,576 12,702 36,164
Shareholders Equity (Deficit) (975,055) (118,688) 245,281
Page 25 of 220
<PAGE>
(a) CANADIAN AND US DOLLAR EXCHANGE RATES
A history of US-Canadian dollar exchange rates, as of September 30, for the
indicated years is set forth below. All amounts shown represent noon buying
rates for cable transfers in New York City certified funds for customs purposes
by the Federal Reserve Bank of New York. The source for this data is the Federal
Reserve Bulletin and Digest.
HIGH SCAN LOW SCAN AVERAGE
CAN/US US/CAN CAN/US US/CAN CAN/US US/CAN
------ ------ ------ ------ ------ ------
1991 1.1229 .8906 1.1589 .8628 1.1457 .87283
1992 1.1748 .8512 1.2858 .7777 1.214 .8237
1993 1.2497 .8002 1.3367 .7481 1.2901 .7751
1994 1.3408 .7458 1.4086 .7099 1.3736 .7280
1995 1.3507 .7404 1.4074 .7105 1.3686 .7307
1996 1.3852 .7219 1.3290 .7525 1.3630 .7337
1997 1.4395 .6947 1.3364 .7483 1.3850 .7220
1998* 1.4395 .6947 1.4314 .6986
*The exchange rate stated for the year 1998 was as of April 15th.
(b) DIVIDENDS
The Company has not paid any cash dividends since its inception. The Company
does not intend to pay any cash dividends in the foreseeable future, but
intends to retain all earnings, if any, for use in its business operations.
ITEM 9 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto.
The Companys financial statements are prepared in accordance with generally
accepted accounting principles in Canada and are presented in Canadian dollars.
Significant differences between generally accepted accounting principles in
Canada and the United States are disclosed in note 14 to the financial
statements.
The Company chose to launch a new application NetMagnet ahead of its planned
next generation PeakJet. The delay in releasing PeakJet 2000, let that demand
for that product slip. The resulting decrease in sales reflects the impact of
a) not shipping NetMagnet on time and b) declining sales of PeakJet 1.55 due
to the anticipation that a new version would be coming. Subsequent to the
quarter end PeakSoft released NetMagnet (Jan 98) and released its next
generation PeakJet 2000 (Jul 98).
Six Months Ended March 31, 1998 Compared to Six Months Ended March 31, 1997.
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being
merchantable or completed, but in the opinion of management offered promise
Page 26 of 220
<PAGE>
for the company to establish itself in the Internet market. Subsequent to the
acquisition Peak did, in fact, successfully commercialize the product and
continue to expand the core technology. As an example the company released Web
Animator in 1996 which was re-named JetEffects in 1997 and continues to be sold
by the company today. In addition the technology was applied to the creation
of NetJet in November 1996, now known as PeakJet and to the creation of
NetMagnet released in January 1998. While there is no guarantee that the
technology will continue to be marketable, the company released PeakJet 2000 in
July 1998 and has five other products based upon this technology under
development.
Revenue for the six months ended March 31, 1998 increased from $709,384 in the
comparable period in 1997, to $899,582, an increase of $190,198 or 26.8%, and
was due primarily to the growing sales volume of Peaks Internet software
products. The operating loss decreased from $1,782,304 to $1,262,607,
reflecting higher sales volume and a significant reduction in operating
expenses. Management has drastically reduced expenditures in all areas,
especially in cost of goods sold, research and development, and selling and
marketing. These reductions reflect managements ability to produce and sell a
more cost-efficient product with minimal marketing. The Company is actively
creating budgets to place emphasis on marketing its current and future products
in the next quarters to capture a higher sales volume. The amortization expense
includes the amortization on the research and development that was acquired in
1996 from Chameleon Bridge Technologies Corp, which is capitalized according to
Canadian GAAP. The Companys cash position was decreased from $110,784 in 1997,
to $61,084 in 1998 and remains an area of critical importance and is being
actively addressed by management. The Company does not have access to any
unused lines of credit at this time. Due to managements increased control
over cash flow, there are no expected non-operation expenditures. In general,
the results for the six months reflect the Companys continuing growth in this
fast-paced, rapidly expanding Internet market.
Management expects that the activity level for the Company will continue to
increase, with operating expenses in excess of income, for at least the next
quarter. In order to reduce the overall costs of maintaining its presence in
the retail sales channel, the Company has entered into a contract with a third
party, Re:Launch, based in Berkeley, California, to manage this activity. The
Company plans to direct the major portion of its marketing resources in 1998 to
corporate, international, educational, and other institutional sales
opportunities for its products, Net Magnet, PeakJet, and JetEffects.
March of 1998 witnessed a further infusion of investment capital in the amount
of US$140,000. Thus the Company has obtained financing aggregating to
US$545,206 since Septmeber 30, 1997.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations. The Company presently believes that,
with modifications to existing software and converting to new software, the Year
Page 27 of 220
<PAGE>
2000 problem will not pose significant operational problems for the Companys
computer systems as so modified and converted. The Company has completed the
required modifications and conversions. The Company is in the process of
obtaining Year 2000 compliance statements from vendors, suppliers, and all other
third parties that do business with the Company.
Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
The acquisition of CBT brought new engineering staff and unfinished technology
to Peak. The technology known as Javalin had no guarantee of being merchantable
or completed, but in the opinion of management offered promise for the company
to establish itself in the Internet market. Subsequent to the acquisition Peak
did, in fact, successfully commercialize the product and continue to expand
the core technology. As an example the company released Web Animator in 1996
which was re-named JetEffects in 1997 and continues to be sold by the company
today. In addition the technology was applied to the creation of NetJet
(now known as PeakJet) in November 1996, and to the creation of NetMagnet
released in January 1998. While there is no guarantee that the technology will
continue to be marketable, the Company released PeakJet 2000 in July 1998 and
has five other products based upon this technology under development.
In 1997, PeakSoft Corporation completed its first full year totally focused on
its goal of becoming a leading Internet/intranet software company. During this
year, PeakSoft Corporation (formerly Peak Technologies Inc.) introduced two new
Internet software products, PeakJet and JetEffects, and started developing a
third major productivity suite, NetMagnet, for release in early 1998. As of
September 30, 1997, PeakJet and JetEffects have sold over 40,000 units through
top software retailers in the USA as well as into international markets in Japan
and the United Kingdom.
The costs associated with building a management and technical team, launching
PeakJet and JetEffects into retail and Internet sales channels, developing new
products and establishing the foundation for growth are reflected in this years
financial statements. These costs represent the Companys investment in building
the future success of PeakSoft in the fast growing and challenging
Internet/intranet software industry.
Operations
Sales for 1997 were CDN$1,340,200 versus CDN$784,900 in 1996, an increase of
CDN$555,300 or 71%. The increase was due primarily to increased retail
sales/volume of the companys Internet software products, PeakJet and JetEffects,
which were launched in the first and second quarters of fiscal 1997. The gross
profit margin increased from 45.5% in 1996 to 66.5% in 1997, reflecting the
higher margins available in the software industry.
General and administrative expenses were CDN$1,245,114 in 1997 and CDN$312,361
in 1996, an increase of CDN$932,753. This was due primarily to significantly
higher costs for professional fees, communications costs, additional staff
salaries and the general expenses associated with building an infrastructure to
support the Company.
Page 28 of 220
<PAGE>
Marketing and sales expenses increased from CDN$531,170 in 1996 to CDN$1,682,437
in 1997, an increase of CDN$1,151,267 or 217% due mainly to the higher
advertising and promotion expenses associated with introducing two new products
into the consumer retail channel. In addition, the Company incurred increased
salary expenses resulting from hiring new senior staff members to carry out the
sales and marketing program. Costs associated with pursuing bundling
opportunities with channel partners and supporting international distribution
were also factors in the increase.
Research and development expenses increased from CDN$321,740 in 1996 to
CDN$641,426 in 1997, an increase of CDN$319,686 or 99%. This increase resulted
from hiring additional technical staff and allocating more resources to this
area in order to develop and bring new products to market.
Amortization increased significantly from CDN$118,968 in 1996 to CDN$1,050,965
in 1997, an increase of CDN$931,997. The increase occurred as a result of the
amortization of the acquisition of Chameleon Bridge Technologies Corp. in 1996.
Research (valued at CDN$1,644,598) acquired in the transaction, is being
amortized over its estimated useful life of two years.
In 1997 the Company wrote off CDN$53,169 of assets that were obsolete or no
longer functional.
The Company incurred an expense of CDN$310,042 for the settlement of a name
infringement lawsuit in 1997. This amount includes legal, settlement and
product recall costs associated with this matter.
During 1996, the Company discontinued its Multi-Media Division and has charged
the net loss from this activity to the Statement of Operations. This resulted
in a deficit of CDN$745,844 for 1996.
The loss for 1997 was CDN$4,091,490 ($.42 per share) versus CDN$1,673,324
($.20 per share) in 1996, a difference of CDN$2,418,166. The increased loss
resulted primarily from the significant costs associated with building a larger
organization including additional management and technical staff and launching
software products into the retail channel.
Liquidity and Capital Resources
As of September 30, 1997, the Company had a cash balance of CDN$1,071,366. The
Company issued 3,640,106 Common Shares during 1997, raising CDN$2,380,551. The
Company also issued promissory notes for cash proceeds of CDN$1,554,760 (see
note 6). An additional 1,250,000 shares were issued after year end for proceeds
of CDN$500,000($399,900 of which had been received prior to September 30, 1997.)
The company has no available lines of credit.
Accounts receivable decreased by CDN$45,917 during the year ended September 30,
1996. This was mainly due to the effect of discontinuing the Multi-Media
Division, which had generated accounts receivable at September 30, 1995. It is
anticipated that accounts receivable will grow significantly next year as the
Internet Software Division begins selling its products through retail channels.
Page 29 of 220
<PAGE>
Accounts receivable increased by CDN$70,918 from CDN$26,727 in 1996 to
CDN$97,645 due primarily to the increased sales to wholesalers of the Companys
software.
Inventory increased from CDN$13,362 in 1996 to CDN$59,128 in 1997, a difference
of CDN$45,766 due to the buildup of retail packages of software in anticipation
of increasing sales.
The increase in prepaid expenses and deposits from CDN$7,936 in 1996 to
CDN$156,046 in 1997 was primarily due to the deposits required for trade shows
in the next fiscal year and prepaid product marketing costs.
Net fixed assets were reduced by CDN$174,485 from CDN$370,272 in 1996 to
CDN$195,787 in 1997 due to the write-off of obsolete equipment and normal
amortization. The Company made only minor purchases of computer equipment and
furniture during the year but invested CDN$41,094 in software. The major portion
of the software purchased was attributable to the Companys acquisition of
ExpressO; a Java based server software, which is utilized in the Companys own
software products.
Accounts payable and accrued expenses increased from CDN$380,119 in 1996 to
CDN$893,398 in 1997, an increase of CDN$513,279. The increase resulted from the
additional overall size of the Companys operation and a buildup at year-end just
prior to completing the issuance of promissory notes. Subsequent to year-end,
the amount was reduced by CDN$210,000 as a result of negotiated settlements of
trade accounts with 12 different suppliers to one of the Companys subsidiaries
and resumption of normal payments under trade credit terms. One of these
settlements was reached on September 30, 1997, 10 were effected on October 20,
1997, and the last was concluded on November 6, 1997. Each of the creditors
with whom a settlement was effected accepted an immediate lump sum payment in
satisfaction of its account in preference to having a balance paid out over
time.
The increase in long term debt from CDN$12,702 in 1996 to CDN$1,380,991 in 1997
is attributable to the issuance of promissory notes during the year. The
current portion of long-term debt also decreased from CDN$23,507 in 1996 to
CDN$14,936 in 1997 as a result of the issuance of notes.
Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
The Companys primary business in the year ending September 30, 1995 was in the
fields of computer services and multi-media products. The Company provided
on-line diagnostics and on-site repair of a network of computer equipment for
retail chains. It also developed multi-media CD-ROM products.
In June 1996, the Company added to its technology base by acquiring the Java
server software owned by Innovative Desktop, a Pennsylvania based software
business. It also exclusively licensed the Java version of Lightning Strike,
a proprietary compression technology from Infinop, Inc. With all these
technology tools available, the Company set out aggressive development targets
to capitalize on the fast growing Internet marketplace. In particular, the
Companys first consumer product, Peak Net.Jet, was designed for Internet users
who wanted to increase the speed at which they surfed the Net. Significant
Page 30 of 220
<PAGE>
progress was made in bringing this product to the release stage, which occurred
subsequent to year-end (late November 1996). An additional consumer product,
JetEffects (previously named Peak Web Animator) was also developed and will be
introduced in the first calendar quarter of 1997.
In order to fund the development of applications from the base technology, the
Company sold additional shares in a private placement, which closed in April
1996. While revenue from the service business was solidly maintained, the
additional expenses incurred in engineering, marketing development and the
necessary additions to infrastructure to support a significant product launch
made additional infusions of capital necessary and thus, subsequent to year-end
the Company completed three more private placements.
In May 1996, the Company acquired Chameleon Bridge Technologies Corporation; a
company with an advanced Java-based software development environment, Javalin,
which facilitated the rapid development of Java-based Internet software. This
provided the Company with a solid entry into the Internet software business with
a technological lead in a fast growing marketplace. It was determined by the
Companys directors and management that the highest growth potential for the
Company would come from marketing Internet software using the Javalin
technology. As a result, a decision was made to discontinue the adventure
travel CD-ROM division of the Company and to dedicate all available resources to
the Internet Software Division.
In August of 1995, the Company completed an initial public offering, raising
CDN$700,000 on the Alberta Stock Exchange in order to finance the growth of its
multi-media CD-ROM division, which specialized in adventure travel titles.
During 1996, the Company completed and published three CD-ROM titles.
The following discussion should be read in conjunction with the financial
statements and notes thereto:
Operations
Sales for 1996 were $781,345, an increase of $225,249 or 41% over the $556,096
reported in 1995. This resulted from a large upgrade program, resulting in
increased volumes, conducted by one of the Companys major customers as well as
the introduction of a preventative maintenance program for all of this clients
retail locations. Gross profit in 1996 was $353,204, which represents 45.2%
gross profit margin compared to 35.6% gross profit margin of $198,157 in 1995.
Gross profit margins increased by 9.6% due mainly to a change in the mix.
General and Administrative expenses decreased from $58,306 in 1995 to $58,004
in 1996, a decrease of $302. While the overall decrease is insignificant, there
are variations in individual items within this category. An increase in
salaries and benefits of $28,705 occurred as the Company hired additional
support staff and a reduction in facilities costs from $21,573 in 1995 to
$12,845 was due primarily to the Company moving into less expensive offices in
Bellingham, WA, and reductions in professional fees and general office costs
also tended to offset the increases in other areas.
Start-up of Software Division
There were a number of items which significantly impacted the statement of
operations in 1996. Startup costs associated with the new Internet Software
Division of the Company resulted in a total charge of $1,079,384 in the current
year and $31,872 in 1995. The Company earned $18,305 from a third party for
Page 31 of 220
<PAGE>
software customization as part of its development in 1996 and spent $531,170 for
the startup cost on marketing development, $321,740 on additional research and
development and $244,779 on general and administrative costs. These costs have
been charged to the income statement in the year incurred and represent the
initial costs of preparing a new division of the Company to become fully
operational in the next fiscal year.
During 1996, the Company discontinued its Multi-Media Division and has charged
the net loss from this activity to the statement of operations. This resulted
in a charge to the statement of operations and deficit of CDN$745,844 in 1996
and CDN$598,448 in 1995.
Liquidity and Capital Resources
At September 30, 1996, the Company had CDN$29,963 of cash in the bank. The
Company issued 1,151,147 shares during 1996, raising CDN$628,189 of cash to
finance the startup of its Internet Software Division. An additional
1,704,210 shares were issued, valued at CDN$1,874,848 in order to purchase CBT,
ExpressO and an exclusive Java version software license to Lightning Strike
compression software. These formed the major assets of the Companys Internet
Software Division.
Subsequent to year-end, three additional rounds of financing were completed for
total gross proceeds of CDN$1,940,900. The Company anticipates that additional
financing over the course of the next year will be required in order to fund the
anticipated growth of the Internet Software Division.
Accounts receivable decreased by CDN$45,917 during the year ended September 30,
1996. This was mainly due to the effect of discontinuing the Multi-Media
Division, which had generated accounts receivable at September 30, 1995. It is
anticipated that accounts receivable will grow significantly next year as the
Internet Software Division begins selling its products through retail channels.
Inventory was reduced by CDN$129,926 from CDN$143,288 in 1995 to CDN$13,362 in
1996 due primarily to the one time buildup of inventory at September 30, 1995
to support a major installation program for a client. In addition, the write
down of the inventory associated with the Multi-Media Division served to
reduce the net realizable value of the inventory on hand at September 30, 1996.
The Company purchased CDN$150,486 of fixed assets in the year ended September 30
1996, both as direct purchases and as capital leases. These purchases of
furniture, computer equipment and software were primarily to support the
increased staff and activity of the Internet Software Division.
While cash resources at year end were low, management believes that it will
continue to be successful in attracting the cash resources necessary to fund the
anticipated growth of the Company over the next fiscal year through additional
private placements of Common Stock, the exercise of warrants and options, and
expect to receive cash generated from operations.
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
Directors and Officers
The current directors and officers of the Corporation, their respective
positions held with the Corporation and the principal occupation of each are set
forth in the table below. The directors were elected at the annual general
Page 32 of 220
<PAGE>
meeting of the Corporation held March 16, 1998, to hold office until the close
of the first annual meeting of shareholders following their election: Business
Corporations Act (Alberta) subsection 101(6). Officers of the Corporation hold
office at the pleasure of the board of directors.
Name and Municipality Positions Held with
Of Residence the Corporation
Douglas H. Foster President, Chief Executive Officer
Bellingham, Washington and Director
Principal Occupation: President and Chief Executive Officer of PeakSoft.
Donald McInnes Secretary and Director
Vancouver, British Columbia
Principal Occupation: President of Blackstone Resources, Inc., a public mining
company.
William Baker Director
North Vancouver, British Columbia
Principal Occupation: President of Willabeth Capital Corporation, a private
financial consulting firm.
Peter Janssen Director
Seattle, WA
Principal Occupation: President of Peter Janssen & Associates, a private
consulting firm (newly appointed in September of 1997)
Carl Conti Director
South Salem, New York
Principal Occupation: Independent Management Consultant
A detailed summary of the background of each director and officer of the
Corporation setting forth their principal occupation within the five preceding
years is set forth below.
Doug Foster, President and Chief Executive Officer, since 1994
Mr. Foster is one of the founders of the Corporation and has been President,
Chief Executive Officer and a director of the Corporation since its
incorporation in August 1994. Mr. Foster has over 16 years of sales and
management experience in the computer industry. From 1991 to 1994, Mr. Foster
was President of BREEZ. From 1989 to 1991, Mr. Foster was a director and
President of Lynxx Microsystems Inc., a systems integration company, which had
operations in Vancouver, British Columbia, Seattle, Washington and San Francisco
California. Prior to 1989, Mr. Foster was Western Region Financial Branch
Manager with Unisys Corporation and a Senior Sales Representative with AES Data
Inc. and Xerox Corporation.
Page 33 of 220
<PAGE>
Donald McInnes, Secretary and Director, since 1995
Mr. McInnes has been Secretary and a director of the Corporation since February
1995. Since 1993, Mr. McInnes has been President of McGillicutty Management
Corp., a public management company that is involved in venture finance and
business consulting. He is currently President of Blackstone Resources Inc.,
a public mining company, whose shares trade on The Alberta Stock Exchange. He
currently also manages and is a director of another public company, Western
Keltic Mines Inc., whose shares are listed on the Vancouver Stock Exchange.
Prior to 1993, Mr. McInnes was Project Manager for Equity Engineering Ltd., a
mineral exploration consulting firm.
William Baker, Director, since 1997
Mr. Baker is a Chartered Accountant who has provided financial consulting
services through Willabeth Capital Corporation since 1979. Mr. Baker was also
Chief Executive Officer of Pop-Media Ltd., a private electronic
point-of-purchase media company, from 1986 to 1994.
Peter Janssen, Director, since 1997
Peter Janssen has spent the last thirty years in a series of marketing,
merchandising, and sales roles for both retailers and technology manufacturers.
Mr. Janssen runs a consulting firm focused on helping high tech companies bring
their products to market. This includes providing services to Software
Publishers, PC and Peripheral manufacturers in the areas of product marketing,
marketing strategies and tactics, and sales and distribution strategies. During
the past year, Peter Janssen & Associates have completed consulting assignments
for both small companies and major corporations including: Acer, Toshiba,
Capital One Financial Corporation, Design Intelligence, Netscape, HumanCAD
Systems, Motorola, and Phillips.
Carl Conti, Director, since 1997
Mr. Conti is currently an independent management consultant. Prior thereto,
Mr. Conti, who was the originator of the concepts underlying modern cache
memory, spent 32 years at IBM in various capacities, including as Vice President
of the General Technology division, President of the Data Systems Division,
group executive for the Information and Storage Group, member of the IBM
Corporate Management Board, and finally as IBM Senior Vice President and General
Manager of IBM Enterprise Systems where Mr. Conti directed an organization of
30,000 employees with annual revenues in excess of $20 billion. Mr. Conti is
also a director of Adaptec Corporation, a NASDAQ traded company.
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
Executive Compensation
PeakSoft currently has two executive officers (following the resignation of one
executive officer in April 1997), none of whom received, directly or indirectly,
compensation exceeding US$100,000. The aggregate cash compensation paid to the
two executive officers of PeakSoft, directly or indirectly, during the year
ended September 30, 1997 was CDN$212,000. There are no funds set aside or
accrued by the Company for pension, retirement, or similar benefits.
Page 34 of 220
<PAGE>
Compensation Summary
The table below sets forth information concerning the compensation of the
Corporations Chief Executive Officer for the fiscal years ended September 30,
1997, 1996, 1995, and 1994.
Annual Compensation
Name and ------------------- All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
Douglas H. Foster 1997 85,000 - -
President and 1996 82,800 - -
Chief Executive Officer 1995 82,800 - -
& Director 1994 70,400
Long-Term Compensation Awards:
Securities Under Options/SARs Granted:
1997 302,000
1996 321,250
1995 250,000
1994 -
Restricted Shares or Restricted Share Units: none
Payouts:
LTIP Payouts: none
All Other Compensation: none
The following information concerns individual grants of options to purchase
or acquire securities of the Corporation made during the year ended September
30, 1997 to the Corporations Chief Executive Officer.
Name Securities percent of Total Exercise or
Under Options Options Granted Option Price
Granted (#) to Employees in ($/Security)
Financial Year
- --------------------------------------------------------------------------------
Douglas H. Foster 130,625 16.81 percent $0.64
Common Shares per share
Market Value of Securities Underlying Options on Date of Grant ($/Security):
$0.64 per share
Expiration date: May 12, 1998
The following information concerns the cash exercise of options during the
year ended September 30, 1997 by the Corporations Chief Executive Officer and
the year-end value of unexercised options held, on an aggregate basis.
Page 35 of 220
<PAGE>
Name Securities Acquired on Aggregate Value Realized
Exercise (#)
- --------------------------------------------------------------------------------
Douglas H. Foster 321,250 240,938
Unexercised Options Value of Unexercised in
at Year End (#) the Money Options at
Year-end ($)
- --------------------------------------------------------------------------------
130,625 83,600
Payments to Directors: None.
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Stock Option Plan
On February 7, 1996, the shareholders of the Corporation approved a stock option
plan (the Stock Option Plan), pursuant to which options to acquire an aggregate
of 86,000 Common Shares have been issued and are currently outstanding. The
Corporation has also conditionally reserved for allotment options to purchase
an additional 832,000 Common Shares, subject to receipt of regulatory approvals.
Under the terms of the Stock Option Plan, options to acquire Common Shares may
be granted by the directors of the Corporation, subject to the restriction that
the aggregate number of Common Shares issuable upon the exercise of options
granted under the Stock Option Plan shall not exceed 10 percent of the
outstanding Common Shares. The exercise price associated with any options
granted under the Stock Option Plan shall be determined by the directors in
compliance with the applicable laws, rules and regulations and shall not be less
than the market price of the Common Shares on The Alberta Stock Exchange less
the discount permitted by the rules of The Alberta Stock Exchange. The options
vest on the date of grant and expire at the time set by the directors, being
not more than 10 years from the date of grant, provided that any outstanding
options will expire on the 90th day following the date that the holder ceases to
be an officer, director, employee or consultant of the Corporation or six
months following the death of the holder. Options granted are non-assignable.
Outstanding options granted under the Stock Option Plan may be adjusted in
certain events, as to exercise price and number of Common Shares, to prevent
dilution.
At September 30, 1997, the following options to acquire Common Shares are
outstanding:
Group Number of Common Date of Grant Exercise Price Per
Shares Under Option Common Share
- --------------------------------------------------------------------------------
Management, 86,000 April 30, 1996 $0.60
employees, 646,375 May 1, 1997 $0.64
and directors
Page 36 of 220
<PAGE>
Expiry Date
August 30, 1998
May 1, 1998
ITEM 13 - INTEREST OF MANAGEMENT IN MATERIAL CERTAIN
TRANSACTIONS
The directors, officers and principal shareholders of the Corporation (and the
known associates and affiliates of such persons) have had no direct or indirect
interest in any material transaction involving the Corporation during the 36
month period preceding the date hereof not otherwise disclosed herein, except
as follows:
1. On May 15, 1996, the Corporation acquired all of the issued and outstanding
shares and entitlements to shares of CBT, in exchange for the issuance of
an aggregate of 1,500,000 Common Shares of the Corporation at a deemed
price of CDN$1.11 per common share. See The Corporation - Background of the
Corporation. Thomas Taylor, who for a period of time subsequent to this
transaction became a director and officer of the Corporation, was formerly
the sole director and officer of CBT and held, directly or indirectly,
approximately 31 percent of the shares and share entitlements of CBT, for
which he received, directly or indirectly, 460,886 Common Shares of the
Corporation pursuant to that transaction. The initial cost of Mr. Taylors
holding in CBT was CDN$80,000.
2. In May 1996, the Corporation acquired the Java server technology known as
ExpressO from Mr. Charles Russell, who was carrying on business as
Innovative Desktop. The technology was purchased for 133,890 Common Shares
at an issue price of CDN$1.33 per Common Share for an aggregate purchase
price of US$130,000. To date, 133,890 Common Shares have been issued. Two
additional allotments of 15,449 shares each will be issued upon achievement
of certain performance milestones. Mr. Russell subsequently became Vice
President of Software Systems of the Corporation, but has since resigned
that position. See The Corporation - Background of the Corporation.
3. During the 1996 fiscal year, consulting fees and expense reimbursements
totaling CDN$19,283 were paid by the Corporation to a former director. A
salary of CDN$49,000 was also paid by the Corporation to Lorena Foster who
is also a relative of Douglas Foster, the President of the Corporation.
4. During the 1997 fiscal year, consulting fees and expense reimbursements
totaling CDN$64,000 were paid by the Corporation to directors. A salary of
CDN$33,000 was also paid by the Corporation to an administrative employee
who is also a relative of one of the directors.
5. Foster Murphy & Sons Holding Co. Ltd. of Bellingham, Washington sold all of
its 4,900,000 shares in BREEZ to the Corporation on October 1, 1994 in
exchange for 490,000 Common Shares of the Corporation. Mr. Douglas Foster,
President of PeakSoft, was then the sole director and the manager of Foster
Murphy & Sons Holding Co. Ltd. That company then had four shareholders, two
of which were members of Mr. Fosters family. Mr. Foster, then,
substantially controlled the Corporation. The transaction had a deemed
value of CDN$98,000, or CDN$0.20 per common share of the Corporation.
Foster Murphy & Sons Holding Co. Ltd. acquired the BREEZ shares for
approximately CDN$200.
Page 37 of 220
<PAGE>
6. Pursuant to an Interactive Media Rights Agreement dated December 19, 1994,
Eric Simonson, a former director of the Corporation, and Kathryn Simonson,
his wife, both of Ashford, Washington granted the Corporation the right to
use the Summit of Dreams documentary which was a component of the
Corporations Mt. Everest CD-ROM product. PeakSoft issued 459,000 Common
Shares to Mr. Simonson and Ms. Simonson for the Summit of Dreams
documentary. This transaction had a deemed value of approximately
CDN$20,000.
Director/Officer Indebtedness: None.
PART II
ITEM 14 - Description of Securities to be Registered.
The Articles of Continuance of PeakSoft Corporation provide as follows:
The Common Shares shall have attached thereto the following rights, privileges,
restrictions and conditions:
(i) the right to one vote at all meetings of shareholders of the
Corporation, except meetings at which only holders of a specified class of
shares are entitled to vote;
(ii) subject to the prior rights and privileges attaching to any other
class of shares of the Corporation, the right to receive any dividend
declared by the Corporation; and
(iii) subject to the prior rights and privileges attaching to any
other class of shares of the Corporation, the right to receive the
remaining property and assets of the Corporation upon dissolution.
The Articles provide for the issuance of preferred shares by the directors of
the Company, but as of this writing no preferred shares have been allotted.
PART III
ITEM 15 - Defaults upon Senior Securities - Not Applicable
ITEM 16 - Changes in Securities, Changes in Security for Registered Securities
and Use of Proceeds. - Not Applicable.
PART IV
Page 38 of 220
<PAGE>
ITEM 17 - Financial Statements
PEAKSOFT CORPORATION
SECOND QUARTER REPORT (unaudited)
For the Six Months Ended March 31, 1998
Letter to Shareholders
During this quarter, the Company focused on the fundamentals. Our major
objectives included the launch of NetMagnet, a reduction in non-essential
expenses, the development of strategic partnerships in key areas, and increased
revenue. The Company also conducted a thorough review of its product, marketing
and sales strategies in an effort to gain maximum value for its technology and
products.
NetMagnet was launched on January 21, 1998. The product is available through
leading retailers including CompUSA, Fry's and Best Buy. In addition, it is
being sold on the Company's Web site and through Internet retail and banner
partnerships. Initial response to NetMagnet has been favorable, with a number
of positive reviews and an "A List" placement in PC Computing. The product is
very leading edge and the target market is sophisticated early adopters and
innovators. Those who use the Internet as an essential business tool
will see great benefits from NetMagnet.
Expenses for administration, selling and marketing, and research and development
decreased by 30.3% over the same period a year ago and by 22.3% over the
previous quarter ended December 31, 1997. Revenue increased by 74% over the
same period last year and by 250% over the quarter ended December 31, 1997.
The sales growth resulted largely from licensing agreements with Macmillan and
InfoBuild. The Company believes it can continue to streamline its costs in the
coming quarter through new partnerships that reduce expenses but provide
powerful marketing and sales benefits.
The Company received approval from the OTC-BB to commence trading in the U.S.
under the symbol PEAFF on March 13, 1998. The company then filed Form 20-F
to become a reporting foreign issuer with the SEC, via EDGAR, on April 10,
1998. Once our Form 20-F achieves a "No Comment" status with the SEC we will
be in a position to trade fully on the Bulletin Board in conjunction with the
Alberta Stock Exchange, symbol PKT.
Canadian and U.S. GAAP (Generally Accepted Accounting Principles) regulations
differ regarding the acquisition of research and development from Chameleon
Bridge Technologies. This leads to a significant reduction in loss per share
when our financial statements are reconciled for U.S. GAAP. According to U.S.
GAAP, the acquisition is expensed as incurred, not amortized over a period of
time.
The Company continues to evaluate market opportunities and positioning in the
fast paced market of intranets and the Internet. We are committed to adding
value to our existing applications and to bringing new products to market.
We hope to continue the trend started in the last quarter and accomplish even
greater improvements through the remainder of the year.
Sincerely yours,
Douglas H. Foster
President and CEO
May 4, 1998
Page 39 of 220
<PAGE>
PeakSoft Corporation
Consolidated Balance Sheet
(Prepared by Management - unaudited))
March 31, 1998 and 1997
1998 1997
---- ----
(in Canadian dollars)
Assets
Current assets:
Cash $ 61,084 $ 110,784
Accounts receivable 281,734 429,913
Inventories 98,051 39,557
Prepaids and deposits 42,574 116,007
710,487 379,465
Capital assets 176,496 350,731
Acquired research and development 411,149 1,439,023
Licenses -- 19,234
Investment in InfoBuild 284,000 --
$ 1,355,088 $ 2,505,249
Liabilities and Shareholders Equity
Current liabilities:
Demand loan $ -- $ 20,756
Accounts payable and accrued
liabilities 797,449 1,010,768
Deferred revenue -- 84,337
Reserve for returns & allowances 54,208 --
Current portion of long-term debt -- 24,573
Current portion of obligations under
capital leases 28,134 21,616
$ 879,791 $ 1,162,050
Long-term debt 1,622,951 --
Obligations under capital leases 44,259 49,571
Shareholders equity:
Share capital 6,312,335 3,458,942
Other paid-in capital 173,759 --
$ 6,486,094 $ 3,458,942
Obligation to issue share capital -- 1,940,900
Accumulated deficit 7,678,007 4,106,214
(1,191,913) 1,293,628
$ 1,355,088 $ 2,505,249
Page 40 of 220
<PAGE>
PeakSoft Corporation
Consolidated Statement of Operations and Deficit (unaudited)
Six months ended March 31, 1998 and 1997
1998 1997
---- ----
Sales $ 899,582 $ 709,384
Cost of goods sold 158,840 231,232
740,742 478,152
Expenses:
General and administrative 870,107 472,734
Selling and marketing 695,999 1,148,054
Research and development 324,010 374,690
1,890,116 1,995,478
Earnings (loss) before the
undernoted $(1,149,374) $(1,517,326)
Amortization 500,593 264,978
Recovery of expenses from
settlements of liabilities 252,562 --
Earnings (loss) from
operations (1,397,558) (1,782,304)
Gain on sale of contract 134,951 --
Net Earnings (loss) (1,262,607) (1,782,304)
Accumulated deficit,
beginning of period (6,415,400) (2,323,910)
Accumulated deficit,
end of period $(7,678,007) $(4,106,214)
Loss per common share $ (0.09) $ (0.20)
Page 41 of 220
<PAGE>
PeakSoft Corporation
Statement of Changes in Financial Position (unaudited)
Six months ended March 31, 1998 and 1997
1998 1997
---- ----
Cash provided by (used in):
Operations:
Net earnings (loss) $(1,262,607) $(1,782,304)
Items not involving cash:
Amortization 500,693 264,978
Change in non-cash operating
working capital (236,470) 98,871
(998,384) (1,418,455)
Financing:
Funds transferred to escrow --
Repayments of long-term debt (14,936) (12,702)
Decrease in obligations under
capital leases 6,842 (1,771)
Decrease in obligation to issue
shares (399,900) --
Issuance of share capital 512,144 1,545,632
104,150 1,531,159
Investments:
Purchase of capital assets (116,048) (31,883)
Increase (decrease) in cash
position (1,010,282) 80,821
Cash, beginning of period 1,071,366 29,963
Cash, end of period $ 61,084 $ 110,784
Page 42 of 220
<PAGE>
Second Quarter Review
Net loss for the quarter ended March 31, 1998 decreased from $1,098,334 in the
comparable period in 1997, to $335,228 a decrease of $763,106, or 69.9%.
Management has drastically reduced expenditures this past quarter in all areas,
especially in cost of goods sold, research and development, and selling and
marketing. The Company is actively creating budgets to place emphasis on
marketing in the next quarters to capture a higher sales volume. Revenue
reflects an increase of 74.2% over second quarter 1997 reported revenue. The
increase is primarily due to the recent launch of Peak's third Internet product,
NetMagnet, various licensing agreements, and the growing sales volume of
PeakJet. The Company has received 800,000 shares of InfoBuild as a partial
consideration for a $300,000 license agreement, which is valued at its most
recent funding share value. PeakSoft recognizes that there is no guarantee
that this value can be realized in the short-term. In general, this quarters
results reflect the Companys continuing growth in
y expanding Internet market.
Six Month Review
Revenue for the six months ended March 31, 1998 increased from $709,384 in the
comparable period in 1997, to $899,582, an increase of $190,198 or 26.8%, and
was due primarily to the growing sales volume of Peak's Internet software
products. The operating loss decreased from $1,782,304 to $1,262,607,
reflecting higher sales volume and a significant reduction in operating
expenses. The decreases in expenses reflect a reduction in expenditures,
while continuing to keep a significant investment in marketing for Netmagent and
future products.
The amortization expense includes the amortization on the research and
development that was acquired in 1996 from Chameleon Bridge Technologies Corp,
which is capitalized according to Canadian GAAP. (In accordance with United
States GAAP, research and development costs, including the costs of research and
development acquired in a business combination is expensed as incurred. The
results would be a lower loss per common share of $0.06 compared with $0.09).
In addition, for US GAAP purposes, the settlement of liabilities is recorded
as an extraordinary item of $252,562.
The Companys cash position was decreased from $110,784 in 1997, to $61,084 in
1998 while accounts receivable decreased from $429,913 to $281,734. Cash
remains an area of critical importance and is being actively addressed by
management. In general, the results for the quarter are indicative of the
Companys increasing level of marketing activity and its stage of development.
Page 43 of 220
<PAGE>
Consolidated Financial Statements of
PEAK TECHNOLOGIES INC.
(in Canadian dollars)
Years ended September 30, 1997 and 1996
AUDITORS REPORT TO THE DIRECTORS
We have audited the consolidated balance sheet of Peak Technologies Inc. as at
September 30, 1997 and the consolidated statements of operations and deficit
and changes in financial position for the year then ended. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 30,
1997 and the consolidated results of its operations and the changes in its
financial position for the year then ended in accordance with generally accepted
accounting principles.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the year ended September 30, 1997
and shareholders equity to the extent summarized in note 14 to the financial
statements.
Chartered Accountants
KPMG
New Westminster, Canada
December 12, 1997
Page 44 of 220
<PAGE>
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADIAN-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Companys ability to continue as a going concern, such as those described in
note 1 to the financial statements. Our report to the shareholders dated
December 12, 1997 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors
report when these are adequately disclosed in the financial statements.
Chartered Accountants
KPMG
New Westminster, Canada
December 12, 1997
Page 45 of 220
<PAGE>
GORDON K.W. GEE
Chartered Accountant
An incorporated professional 488-625 Howe Street
Vancouver, BC V6T 2T6
Telephone: (604) 689 - 8815
Facsimile: (604) 689 - 8838
Auditors Report
To the Directors of Peak Technologies Inc.
I have audited the consolidated balance sheet of Peak Technologies Inc. as at
September 30, 1996 and the consolidated statements of operations and deficit
and changes in cash flow for the years ended September 30, 1996 and 1995. These
consolidated financial statements are the responsibility of the company's
management. my responsibility is to express an opinion on these consolidated
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require I plan and perform an audit to obtain reasonable
assurance whether the consolidated financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assesing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation.
In my opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company at September 30, 1996
and 1995 and the results of its operations and the changes in its financial
position for the years ended September 30, 1996 and 1995 in accordance with
generally accepted accounting principles.
Accounting principles generally accepted in Canada vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operation for the year ended September 30, 1996
and September 30, 1995 and shareholder's equity to the extent summarized
in Note 14 to the financial statements.
"Gordon K.W. Gee"
CHARTERED ACCOUNTANT
Vancouver, B.C.
January 9, 1997
Page 46 of 220
<PAGE>
PEAK TECHNOLOGIES INC.
Consolidated Balance Sheet
(in Canadian dollars)
September 30, 1997 and 1996
1997 1996
Assets ---- ----
Current assets:
Cash $ 1,071,366 $ 29,963
Accounts receivable 97,645 26,727
Inventories 59,128 13,362
Prepaids and deposits 156,046 7,936
----------- -----------
1,384,185 77,988
----------- -----------
Capital assets (note 3) 195,787 370,272
Acquired research and
development (note 4) 822,299 1,644,598
Licences -- 25,169
----------- -----------
$ 2,402,271 $ 2,118,027
=========== ===========
Liabilities and Shareholders Equity
Current liabilities:
Demand loan $ -- $ 23,152
Accounts payable and
accrued liabilities 893,398 380,119
Deferred revenue (note 5) 109,681 81,033
Current portion of
long-term debt (note 6) 14,936 23,507
Current portion of obligations
under capital leases (note 7) 24,624 15,870
----------- -----------
1,042,639 523,681
----------- -----------
Long-term debt (note 6) 1,380,991 12,702
Obligations under capital
leases (note 7) 40,927 51,342
Shareholders equity:
Share capital (note 8) 5,779,455 3,398,904
Other paid-in capital
(note 6) 173,759 --
----------- -----------
5,953,214 3,398,904
Obligation to issue share
capital (note 8) 399,900 455,308
Accumulated deficit 6,415,400 2,323,910
----------- -----------
(62,286) 1,530,302
----------- -----------
$ 2,402,271 $ 2,118,027
=========== ===========
Page 47 of 220
<PAGE>
Continuing operations (note 1)
Subsequent events (note 11)
See accompanying notes to consolidated financial statements.
PEAK TECHNOLOGIES INC.
Consolidated Statement of Operations and Deficit
Years ended September 30, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Sales $ 1,340,200 $ 784,900 $ 556,096
Cost of goods sold 448,537 428,141 357,939
$ 891,663 $ 356,759 $ 198,157
Expenses:
Amortization 1,050,965 118,968 45,635
General and
administrative 1,245,114 312,361 64,857
Marketing 1,682,437 531,170 --
Research and development 641,426 321,740 31,871
4,619,942 1,284,239 142,363
Earnings (loss) before
the undernoted (3,728,279) (927,480) 55,794
Other earnings (expenses):
Write-off of assets (53,169) -- --
Loss on settlement of
lawsuit (note 10) (310,042) -- --
$ (363,211) -- --
Earnings (loss) from
continuing operations (4,091,490) (927,480) 55,794
Loss from discontinued
operations (note 15) -- (745,844) (598,448)
Loss 4,091,490 1,673,324 542,654
Accumulated deficit,
beginning of year 2,323,910 650,586 107,932
Accumulated deficit,
end of year $ 6,415,400 $ 2,323,910 $ 650,586
Loss per common share $ (0.42) $ (0.20) $ (0.16)
See accompanying notes to consolidated financial statements.
Page 48 of 220
<PAGE>
PEAK TECHNOLOGIES INC.
Statement of Changes in Financial Position
Years ended September 30, 1997, 1996 and 1995
1997 1996 1995
Cash provided by (used in): ---- ---- ----
Operations:
Net earnings (loss) $(4,091,490) $ (927,480) $ 55,794
Items not involving cash:
Loss from discontinued operations -- (745,844) (598,448)
Amortization 1,050,965 118,968 45,635
Write-off of assets 53,169 -- --
Change in non-cash
operating working capital 253,980 404,452 22,283
(2,733,376) (1,149,904) (474,736)
Financing:
Repayments of long-term debt (21,273) (23,462) --
Increase (decrease) in obligations
under capital leases (1,661) 51,342 --
Issuance of long-term debt 1,554,750 -- --
Increase (decrease) in obligation
to issue shares (55,408) 455,308 36,163
Issuance of share capital 2,380,551 2,503,037 801,287
3,856,959 2,986,225 837,450
Investments:
Purchase of capital assets (82,180) (150,486) (220,296)
Acquisition of licences -- (33,559) --
Business combination (note 4) -- (1,644,598) --
Acquisition of software technology -- (136,979) --
(82,180) (1,965,622) (220,296)
Increase (decrease) in cash
position 1,041,403 (129,301) 142,418
Cash, beginning of year 29,963 159,264 16,846
Cash, end of year $ 1,071,366 $ 29,963 $ 159,264
See accompanying notes to consolidated financial statements.
Page 49 of 220
<PAGE>
PEAK TECHNOLOGIES INC.
Notes to Consolidated Financial Statements
Years ended September 30, 1997 and 1996
The Company is incorporated under the laws of Alberta and its principal business
activities are providing Internet software to corporate and individual users.
1. Continuing operations:
These consolidated financial statements have been prepared using generally
accepted accounting principles that are applicable to a going concern, not
withstanding that the Company incurred significant operating losses in the
current and prior years. This basis of preparation may be inappropriate because
significant doubt exists about the appropriateness of the going concern
assumption. The Companys ability to continue as a going concern is dependent
upon obtaining additional external financing and by reducing costs. Management
is of the opinion that additional external financing will be obtained by
achieving certain predetermined targets previously agreed upon in a loan
agreement as a result of their new product launch or by renegotiating the
terms under which such financing will be made available. Management is also
in the process of renegotiating fulfillment costs as well as significantly
reducing operating costs. For these reasons, the financial statements do not
reflect adjustments in the carrying values of the assets and liabilities, the
reported revenues and expenses and the balance sheet classifications used that
would be necessary if the going concern assumption were not appropriate.
2. Significant accounting policies:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned American subsidiary Peak Media, Inc. and its wholly-owned
Canadian subsidiary Chameleon Bridge Technologies Corporation. All significant
inter-company transactions and balances have been eliminated on
consolidation. The 1996 consolidation includes the accounts of Breez
Business Management Systems Inc. which was no longer active in 1997.
(b) Revenue recognition:
Revenue from product sales is recognized as products are shipped, title to
the product is transferred, no significant obligations remain, and
collectibility is probable. An allowance for product returns is recognized
at the time of the sale. The Company provides customers with a telephone
support line at no cost to the customer, which it is not contractually obligated
to provide. A provision is made at the time of the sale for the cost of such
services.
Revenue from service contracts is recognized when the work is completed.
Deferred revenue represents payments received from customers for services not
yet performed.
Page 50 of 220
<PAGE>
The Companys revenue recognition policies are consistent with the American
Institute of Certified Public Accountants Statement of Position ("SOP"91-1),
"Software Revenue Recognition".
(c) Foreign currency translation:
Foreign currency transactions entered into directly by the Company as well as
the financial statements of the integrated foreign operations are translated
using the temporal method. Under this method, monetary assets and liabilities
are translated at year end exchange rates. Other balance sheet items are
translated at historical exchange rates. Income statement items are translated
at average rates of exchange prevailing during the year except for depreciation
expense which is translated at historical rates. Translation gains and losses
are included in income except for unrealized gains and losses arising from the
translation of long-term monetary assets and liabilities which are deferred and
amortized over the remaining lives of related items.
(d) Capital assets:
Capital assets are stated at cost. Amortization is provided on the declining
balance basis using the following annual rates:
Asset Rate
- ----- ----
Furniture and equipment 4 years
Computer equipment 4 years
Computer software 3 years
Leasehold improvements 4 years
(e) Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is
determined on a first-in, first-out basis.
(f) Research and development:
The costs of the Companys research and development activities are expensed as
incurred except for development costs which meet the criteria for deferral under
generally accepted accounting principles ("GAAP") in Canada.
Specifically, GAAP requires all of the following criteria to be satisfied:
(a) The product is clearly defined and the costs attributable are identified.
(b) The technical feasibility of the product or prices has been established.
(c) Management has the intention to produce and market the product.
(d) The future market is clearly defined.
(e) Adequate resources exist.
As at September 30, 1997 no costs have been deferred.
Page 51 of 220
<PAGE>
Acquired research and development is capitalized and amortized over its
estimated useful life beginning in the period such acquired technology is
placed in commercial production or use. The acquired research and development
represents technology and advances purchased in the acquisition of Chameleon
Bridge Technologies Inc. in 1996. These assets are being amortized over their
estimated useful life of two years.
(g) Use of estimates:
The presentation 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.
Significant areas requiring the use of management estimates relate to the
determination of net recoverable value of assets, in particular as it relates
to acquired research and development, useful lives for amortization, recognition
of revenue and the determination of deferred revenue.
(h) Financial instruments:
The Company has applied retroactively the new accounting standard with respect
to the presentation of financial instruments. The retroactive adoption of the
new standard had no impact in the financial statements except the additional
disclosures in note 9.
3. Capital assets:
1997
Accumulated Net book
Cost amortization value
---- ------------ -----
Furniture and equipment $ 73,731 $ 40,094 $ 33,637
Computer equipment 155,974 91,141 64,833
Computer software 178,073 89,037 89,036
Leasehold improvements 131,057 122,776 8,281
$ 538,835 $ 343,048 $ 195,787
1996
Accumulated Net book
Cost amortization value
---- ------------ -----
Furniture and equipment $ 115,067 $ 63,233 $ 45,783
Computer equipment 192,477 74,938 122,208
Computer software 136,979 34,245 102,734
Leasehold improvements 131,057 31,510 99,547
$ 575,580 $ 203,926 $ 370,272
Page 52 of 220
<PAGE>
Assets acquired under capital leases in the amount of $79,148 (1996 - $73,377)
and related accumulated amortization of $54,614 (1996 - $18,474) are included in
furniture and equipment as well as computer equipment.
4. Acquired research and development:
1997
Accumulated Net book
Cost amortization value
---- ------------ -----
Research and development $ 1,644,598 $ 822,299 $ 822,299
1996
Accumulated Net book
Cost amortization value
---- ------------ -----
Research and development $ 1,644,598 $ - $ 1,644,598
On May 16, 1996, the Company acquired research in the amount of $1,644,598
through the acquisition of Chameleon Bridge Technologies Corp. The Company
acquired all of the 1,950,000 issued and outstanding shares of Chameleon Bridge
Technologies Corporation in exchange for 1,500,000 shares of Peak Technologies
Inc. The fair market value of Peak Technologies Inc.s shares at the date the
transaction was announced, regulatory approval was obtained, and the shares
were exchanged was $1.11 per share. Accordingly, the allocation of the
purchase price is as follows:
Acquired research and development $1,644,598
Other net assets acquired 20,402
Purchase value based on shares issued in May, 1996: $ 1,665,000
5. Deferred revenue:
Deferred revenue consists primarily of advance quarterly billings for a computer
service agreement.
Page 53 of 220
<PAGE>
6. Long-term debt:
1997 1996
---- ----
Renovation loan,
secured by a charge on leasehold improvements,
bearing interest at 11.5% per annum,
maturing on March 15, 1998 $ 14,936 $ 36,209
Notes payable,
secured by the Company's inventory and
accounts receivable, bearing interest
at 12% per annum with interest paid quarterly,
maturing on September 9, 1999 (U.S. $1,125,000) 1,554,750 --
Less: other paid-in capital (173,759) --
1,395,927 36,209
Current portion of long-term debt 14,936 23,507
$ 1,380,991 $ 12,702
The notes payable were issued in September, 1997 and represent 12% senior
promissory notes held by Liverpool Limited Partnership and Westgate
International L.P.. Attached to the issued notes are warrants to purchase
3,120,075 common shares at a price of $0.50 per share expiring in September,
1999 and a right of first refusal on future capital raising transactions. The
notes reflect an effective interest rate of 18% per annum and a value of
$173,759 has been attributed to the warrants issued and recorded as other
paid-in capital.
The terms and conditions of the notes payable include an escrow agreement
whereby the Company is required to deposit funds into an escrow account in
order to satisfy the debt payment obligations as they become due. The amount
of deposits required is equal to 25% of all cash received from revenues and
25% of proceeds form the exercise of options and warrants. The maximum amount
to be contributed to the escrow account is equal to the principal and
accumulated interest outstanding on the notes. The first escrow deposit is
required in October, 1997.
A second amount of 12% senior promissory notes of $1,207,500 (US $875,000)
were to be issued subject to certain terms and conditions, with warrants
attached to purchase 1,879,925 common shares of the Company at a price of
$0.64 per share expiring in February, 2000. The terms and conditions of this
second purchase of notes required the Company to attain certain targets which
have not been achieved.
7. Obligations under capital leases:
The Company has capital leases on equipment expiring at various dates through
2001 requiring the following minimum lease payments:
Page 54 of 220
<PAGE>
1997 1996
---- ----
1997 $ -- $ 28,246
1998 32,713 25,019
1999 24,180 17,194
2000 19,965 17,194
2001 4,430 1,433
Total minimum lease payments 81,288 89,086
Less imputed interest at
varying rates (15,737) (21,874)
Present value of net
minimum capital lease
payments 65,551 67,212
Current portion of obligations
under capital lease 24,624 15,870
$ 40,927 $ 51,342
8. Share capital:
Shares Amount
------ ------
Authorized:
Unlimited voting common shares without
par value
Unlimited non-voting preferred shares
without par value
Common shares issued:
Balance, October 1, 1994 656,293 $ 94,580
Issued amount year ended September 30, 1995:
Issued to founders 2,344,148 --
Issued for cash 2,594,302 948,865
Issue for services and technology 155,257 45,700
Less share issuance costs -- (193,278)
Issued amount year ended September 30, 1996:
Issued for cash 1,151,147 667,500
Issued for services and technology 1,704,210 1,835,537
Issued amount year ended September 30, 1997:
Issued for cash 3,545,266 2,496,498
Issued for services and technology 94,840 75,969
Less share issuance costs -- (191,916)
Balance, September 30, 1997 12,245,463 $ 5,779,455
No preferred shares have been issued.
Page 55 of 220
<PAGE>
During 1995, and prior to the initial public offering, the Company's share
capital was reorganized in the nature of a stock split resulting in 2,344,148
shares being issued to its founders in proportion to their original
shareholdings.
Included in shares issued for cash during 1997 are 833,541 (1996 - 750,000,
1995 - Nil) shares for approximately $556,498 (1996 - $317,500, 1995 - $Nil)
issued pursuant to the exercise of management, employees and directors' stock
options. The remaining shares of 2,711,725 (1996 - 401,147, 1995 - 2,594,302)
for $1,940,000 (1996 - $350,000, 1995 - $948,865) were issued pursuant to
private placements.
(a) Management, employees and directors' options:
During 1997, the Company issued 777,000 options expiring May 12, 1998,
exercisable to acquire 777,000 shares at $0.64 each.
During 1996, the Company issued 888,916 options expiring between December 22,
1997 and August 30, 1998, exercisable to acquire 888,916 shares ranging from
$0.40 to $1.35 each.
During 1995 the Company issued 650,000 options expiring between August 9, 1997
and May 16, 1998, exercisable to acquire 650,000 shares at $0.40 each.
At September 30, 1997, the Company had the following management, employees and
directors' options outstanding:
86,000 options expiring August 30, 1998, exercisable to acquire 86,000 shares at
$0.60 each
646,375 options expiring May 1, 1998, exercisable to acquire 646,375 shares at
$0.64 each.
(b) Warrants:
At September 30, 1997, 466,665 first warrants from a private placement are
outstanding, entitling the holder to acquire one additional share for $1.00
each. The warrants expire in May, 1998.
At September 30, 1997, 1,466,667 first special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional share
for $0.70 each. The warrants expire in March, 1998.
At September 30, 1997, 275,000 second special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional share
for $1.00 each. The warrants expire in November, 1997.
At September 30, 1997, 253,230 third special warrants from a private placement
issuance are outstanding, entitling the holder to acquire one additional
share for $1.35 each. The warrants expire in January, 1998.
At September 30, 1997, 3,120,075 first warrants were attached to the notes
payable (see note 6) entitling the holder to acquire one additional share for
$0.50 each. The warrants expire in September, 1999.
Page 56 of 220
<PAGE>
(c) Subsequent transaction:
Subsequent to September 30, 1997, the Company issued 1,250,000 common shares at
$0.40 per share for an aggregate amount of $500,000. At the year end, the
Company had received proceeds from the share issue in advance in the amount of
$399,900 and the balance subsequent to year end.
9. Fair value of financial instruments:
The methods and assumptions used to estimate the fair value of each class of
financial instruments for which it is practical to estimate a value are as
follows:
(a) Short-term financial assets and liabilities:
The carrying amount of these financial assets and liabilities are a reasonable
estimate of the fair values because of the short maturity of these instruments.
Short-term financial assets comprise cash and accounts receivable. Short-term
financial liabilities comprise accounts payable and accrued liabilities.
(b) Long-term financial liabilities:
The carrying value of long-term debt is a reasonable estimate of the fair value
due to the recency of the issuance of the debt.
10. Loss on settlement of lawsuit:
This amount represents the costs of a settlement, including legal fees and
product returns, causing the Company to cease the use of a certain trade name.
11. Subsequent events:
Subsequent to September 30, 1997, the Company changed its legal name from Peak
Technologies Inc. to PeakSoft Corporation.
In addition, subsequent to September 30, 1997, the Company has negotiated a
settlement with certain creditors to repay accounts payable and accrued
liabilities at amounts of approximately $210,000 less than recorded in the
financial statements. This settlement has not been reflected in the financial
statements and will be recorded in the 1998 year end.
12. Loss per common share:
Loss per common share is based on the weighted average number of common shares
outstanding during the year.
13. Related party transactions:
The following are related party transactions, not already disclosed elsewhere in
the notes to the financial statements:
Page 57 of 220
<PAGE>
1997 1996
---- ----
Salaries to directors and officers $212,000 $104,000
Consulting fees and expense reimbursements
to directors 64,000 19,283
Salary paid to a relative of one of the directors 33,000 49,000
-------- --------
$309,000 $172,283
These transactions are in the normal course of operations and are measured at
the exchange amount which is the amount of consideration established and agreed
to by related parties.
14. United States GAAP reconciliation:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. These principles
differ in the following material respects from those in the United States as
summarized below:
(a) Loss and loss per share:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Loss in accordance with Canadian GAAP $(4,091,490) $(1,673,324) $ (542,655)
Difference in accounting for acquired
research and development (note d) 822,299 (1,644,598) --
Stock options (note e) (85,470) (5,000) --
Loss in accordance with
United States GAAP $(3,354,661) $(3,322,922) $ (542,655)
Loss per common share (0.35) (0.40) (0.16)
Weighted average number of shares used
for calculation 9,615,270 8,294,805 3,391,593
</TABLE>
(b) Balance sheet:
The amounts in the consolidated balance sheet that differ from those reported
under Canadian GAAP are as follows:
Page 58 of 220
<PAGE>
September 30, 1997 September 30, 1996
Canadian United States Canadian United States
GAAP GAAP GAAP GAAP
---- ---- ---- ----
Assets:
Acquired research and
development $ 822,299 $ -- $ 1,644,598 $ --
Acquired research and
development $ 822,299 $ -- $ 1,644,598 $ --
Shareholders equity:
Other paid-in capital 173,759 264,229 -- 5,000
Obligation to issue 399,900 500,000 -- --
share capital
Subscription receivable -- (100,100) -- --
Accumulated deficit 6,415,400 7,328,169 2,323,302 3,972,900
(c) Statement of cash flows:
Cash used in operations and cash provided by financing activities would decrease
by $75,969 (1996 - $1,874,848, 1995 - $45,700) because shares issued for
services and technology would be considered non-cash transactions.
Under United States GAAP, cash used in investments and cash provided by
financing activities in 1996 would decrease $51,342 for obligations under
capital lease and $1,665,000 for common share consideration on an acquisition.
(d) Research and development:
In accordance with United States GAAP, research and development costs, including
the costs of research and development acquired in a business combination is
expensed as it is incurred.
(e) Stock based compensation:
The Company records compensation expense for United States GAAP purposes
following the intrinsic value principles of Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for the
options issued under the Company's stock option plan. Under APB 25, $85,470
compensation expense has been recognized for its stock based compensation plans
in 1997 (1996 - $5,000, 1995 - Nil).
The Company has elected the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", for United States GAAP purposes. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the
grant date for awards under those plans consistent with the measurement
provisions of FAS 123, the Company's loss and loss per share under United States
GAAP would have been adjusted as follows:
Page 59 of 220
<PAGE>
1997 1996 1995
---- ---- ----
Loss - as reported $ 3,354,661 $ 3,322,922 $ 547,655
Loss - stock option value adjusted 3,475,718 3,510,536 672,950
Loss per common share - as reported 0.35 0.40 0.16
Loss per common share - adjusted 0.36 0.42 0.20
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option-pricing model with the following assumptions:
1997 1996 1995
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected stock price volatility 70% 70% 70%
Risk-free interest rate 5.5% 5.5% 5.5%
Expected life of options 1 yr. 2 yrs. 2-3 yrs.
The weighted average fair value of the options granted is $0.26 (1996 - $0.22,
1995 - $0.20) per option.
(f) Taxation:
For U.S. GAAP purposes, income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes". FAS 109 requires the asset and liability method whereby
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing asset and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. A valuation allowance is provided on deferred tax assets
to the extent it is not more likely than not that such deferred tax assets will
be realized. Under FAS 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company has deferred tax assets of approximately $2,140,000
(1996 - $750,000) arising from losses carried forward (see note 17). The
Company has provided a valuation allowance against the entire deferred tax asset
amount as it is more likely than not that they will not be realized.
15. Loss from discontinued operations
During 1996, the company discontinued its multi-media segment of its business.
The costs related to this are summarized as follows, and the 1995 comparative
amounts have been reclassified to reflect this change in direction.
1996 1995
Revenue $ (43,818) $ (4,274)
Marketing 332,835 197,724
Research and development 368,119 317,564
General and administrative 88,708 87,434
--------- ---------
$ 745,844 $ 598,448
Page 60 of 220
<PAGE>
16. Commitments:
The Company has entered into a long-term operating lease for facilities
expiring August 31, 1999 for which the annual lease payments are $64,308.
17. Income taxes:
The Company has non-capital losses from foreign and Canadian operations
available for offset against future taxable income totaling approximately
$2,900,000 in the United States and $2,500,000 in Canada.
18. Comparative figures:
Certain of the comparative figures have been reclassified to conform with the
financial presentation adopted in 1997.
ITEM 18 - Financial Statements See Item 17.
ITEM 19 - Financial Statements and Exhibits
(A) Financial Statements
Peak Technologies Inc.
Supplementary Data: Quarterly Financial Data (unaudited)
Report of Independent Auditors
Comments by Audditor for US readers on Canadian - US reporting difference
Report of Independent Auditors
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations and Deficit for the Years
Ended September 30, 1997, 1996 and 1995
Consolidated Statement of Changes in Financial Position for the
Years Ended September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(B) Exhibits
Exhibit 1 - Articles and By-Laws
Exhibit 2 - Registration Rights Agreement - September 9, 1997
Exhibit 3 - PeakSoft Corporation Register of Options - June 8, 1998
Exhibit 4 - Opinion of Legal Counsel Regarding Shares of Registrant
- July 23, 1998
Page 61 of 220
<PAGE>
Exhibit 5 - Valuation of Chameleon Bridge Technologies Corp. -
April 26, 1996
Exhibit 6 - Security Agreement - September 9, 1997
Exhibit 7 - Note Purchase Agreement - September 9, 1997
Exhibit 8 - Escrow Agreement - September 9, 1997
Exhibit 9 - Senior Promissory Note - September 9, 1997
Exhibit 10 - Senior Promissory Note - September 9, 1997
Exhibit 11 - Guaranty of Peak Media Inc. - September 9, 1997
Exhibit 12 - Amendment Agreement - March 1998
Exhibit 13 - Amendment to Note Purchase Agreement - March 1998
Exhibit 14 - Senior Promissory Note - March 1998
Exhibit 15 - Guaranty of PeakSoft Corporation (USA) Inc. - March
1998
Exhibit 16 - Note Purchase Agreement - June 10, 1998
Exhibit 17 - Senior Promissory Note - June 10, 1998
Exhibit 18 - Senior Promissory Note - June 10, 1998
Exhibit 19 - Guaranty of PeakSoft Corporation (USA) Inc. - June 1998
Exhibit 20 - Guaranty of PeakSoft Corporation (USA) Inc. and the
Liverpool Limited Partnership - June 1998
Page 62 of 220
<PAGE>
Exhibit 1 - Articles and By-Laws
INDEX
Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . 1
SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Number . . . . . . . . . . . . . . . . . . . . . . 2
Vacancies. . . . . . . . . . . . . . . . . . . . . 2
Powers . . . . . . . . . . . . . . . . . . . . . . 2
Duties . . . . . . . . . . . . . . . . . . . . . . 2
Qualification. . . . . . . . . . . . . . . . . . . 2
Term of Office . . . . . . . . . . . . . . . . . . 3
Election . . . . . . . . . . . . . . . . . . . . . 3
Consent to Election. . . . . . . . . . . . . . . . 3
Removal. . . . . . . . . . . . . . . . . . . . . . 4
Vacation of Office . . . . . . . . . . . . . . . . 4
Validity of Acts . . . . . . . . . . . . . . . . . 4
MEETINGS OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . 4
Place of Meeting . . . . . . . . . . . . . . . . . 4
Notice . . . . . . . . . . . . . . . . . . . . . . 4
Waiver of Notice . . . . . . . . . . . . . . . . . 5
Omission of Notice . . . . . . . . . . . . . . . . 5
Telephone Participation. . . . . . . . . . . . . . 5
Adjournment. . . . . . . . . . . . . . . . . . . . 5
Quorum and Voting. . . . . . . . . . . . . . . . . 5
Resolution in Lieu of Meeting. . . . . . . . . . . 5
COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . 6
General. . . . . . . . . . . . . . . . . . . . . . 6
Audit Committee. . . . . . . . . . . . . . . . . . 7
REMUNERATION OF DIRECTORS, OFFICERS AND EMPLOYEES. . . . . . . . . . 7
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO . . . . . . . . . . . . . 8
SHAREHOLDERS FOR APPROVAL. . . . . . . . . . . . . . . . . . . . . . 8
CONFLICT OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . 8
FOR THE PROTECTION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . 8
INDEMNITIES TO DIRECTORS AND OTHERS. . . . . . . . . . . . . . . . . 9
Page 63 of 220
<PAGE>
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Appointment of Officers . . . . . . . . . . . . . 10
Removal of Officers and Vacation of Office. . . . 10
Vacancies . . . . . . . . . . . . . . . . . . . . 10
Chairman of the Board . . . . . . . . . . . . . . 10
President . . . . . . . . . . . . . . . . . . . . 10
Vice-President. . . . . . . . . . . . . . . . . . 11
Secretary . . . . . . . . . . . . . . . . . . . . 11
Treasurer . . . . . . . . . . . . . . . . . . . . 11
Assistant Secretary and Assistant Treasurer . . . 11
Managing Director . . . . . . . . . . . . . . . . 12
Duties of Officers may be Delegated . . . . . . . 12
SHAREHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . . . . 12
Annual Meeting. . . . . . . . . . . . . . . . . . 12
Special Meetings. . . . . . . . . . . . . . . . . 12
Meeting on Requisition of Shareholders. . . . . . 12
Notice. . . . . . . . . . . . . . . . . . . . . . 12
Waiver of Notice. . . . . . . . . . . . . . . . . 13
Omission of Notice. . . . . . . . . . . . . . . . 13
Record Dates. . . . . . . . . . . . . . . . . . . 13
Chairman of the Meeting . . . . . . . . . . . . . 14
Votes . . . . . . . . . . . . . . . . . . . . . . 14
Right to Vote . . . . . . . . . . . . . . . . . . 14
Proxies . . . . . . . . . . . . . . . . . . . . . 15
Telephone Participation . . . . . . . . . . . . . 16
Adjournment . . . . . . . . . . . . . . . . . . . 16
Quorum. . . . . . . . . . . . . . . . . . . . . . 16
Resolution in Lieu of Meeting . . . . . . . . . . 17
SHARES AND TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . 17
Issuance. . . . . . . . . . . . . . . . . . . . . 17
Security Certificates . . . . . . . . . . . . . . 17
Agent . . . . . . . . . . . . . . . . . . . . . . 17
Dealings with Registered Holder . . . . . . . . . 17
Surrender of Security Certificates. . . . . . . . 17
Defaced, Destroyed, Stolen or Lost
Security Certificates . . . . . . . . . . . . . . 18
Enforcement of Lien for Indebtedness. . . . . . . 18
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
VOTING SECURITIES IN OTHER BODIES CORPORATE . . . . . . . . . . . . 19
NOTICES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Service . . . . . . . . . . . . . . . . . . . . . 19
Failure to Locate Shareholder . . . . . . . . . . 19
Shares Registered in More than one Name . . . . . 20
Persons Becoming Entitled by Operation of Law . . 20
Deceased Shareholder. . . . . . . . . . . . . . . 20
Signatures upon Notices . . . . . . . . . . . . . 20
Computation of Time . . . . . . . . . . . . . . . 20
Proof of Service. . . . . . . . . . . . . . . . . 20
CUSTODY OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . 20
Page 64 of 220
<PAGE>
EXECUTION OF CONTRACTS, ETC . . . . . . . . . . . . . . . . . . . . 21
FISCAL PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Page 65 of 220
<PAGE>
PEAK TECHNOLOGIES INC.
BY-LAW NO. 1
A by-law relating generally to the conduct of the business and affairs of PEAK
TECHNOLOGIES INC. (hereinafter called the "Corporation").
IT IS HEREBY ENACTED as a by-law of the Corporation as follows:
DEFINITIONS
1. In this by-law and all other by-laws of the Corporation, unless the context
otherwise specifies or requires:
(a) "Act" means the Business Corporations Act (Alberta) and the regulations made
thereunder, as from time to time amended, and in the case of such amendment any
reference in the by-laws shall be read as referring to the amended provisions
thereof;
(b) "board" means the board of directors of the Corporation;
(c) "by-laws" means the by-laws of the Corporation from time to time in force
and effect;
(d) all terms contained in the by-laws which are defined in the Act shall have
the meanings given to such terms in the Act;
(e) words importing the singular number only shall include the plural and vice
versa; words importing the masculine gender shall include the feminine and
neuter genders; and
(f) the headings used in the by-laws are inserted for reference purposes only
and are not to be considered or taken into account in construing the terms or
provisions thereof or to be deemed in any way to clarify, modify or explain the
effect of any such terms or provisions.
REGISTERED OFFICE
2. The Corporation shall at all times have a registered office within Alberta.
Subject to subsection (4) of section 19 of the Act, the directors of the
Corporation may at any time:
(a) change the address of the registered office within Alberta;
(b) designate, or revoke or change a designation of, a records office within
Alberta; or
(c) designate, or revoke or change a designation of, a post office box within
Alberta as the address for service by mail of the Corporation.
SEAL
3. The corporate seal of the Corporation shall be such as the directors may by
resolution from time to time adopt.
Page 66 of 220
<PAGE>
DIRECTORS
4. Number. The number of directors shall be the number fixed by the articles, or
where the articles specify a variable number, the number shall be not less than
the minimum and not more than the maximum number so specified and shall be
determined from time to time within such limits by resolution of the
shareholders or the board of directors. Subject to subsection (4) of section 100
of the Act, at least half of the directors shall be resident Canadians.
5. Vacancies. Subject to section 106 of the Act, a quorum of directors may fill
a vacancy among the directors, except a vacancy resulting from an increase in
the number or minimum number of directors or from a failure to elect the number
or minimum number of directors required by the articles. If there is not a
quorum of directors, or if there has been a failure to elect the number or
minimum number of directors required by the articles, the directors then in
office shall forthwith call a special meeting of shareholders to fill the
vacancy and, if they fail to call a meeting or if there are no directors then in
office, the meeting may be called by any shareholder. If the shareholders have
adopted an amendment to the articles to increase the number or minimum number of
directors, and have not, at the meeting at which they adopted the amendment,
elected an additional number of directors authorized by the amendment, the
directors then in office shall forthwith call a special meeting of shareholders
to fill the vacancy.
A director appointed or elected to fill a vacancy holds office for the unexpired
term of his predecessor.
6. Powers. Subject to any unanimous shareholder agreement, the directors shall
manage the business and affairs of the Corporation and may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation and are not expressly directed or required to be done in some other
manner by the Act, the articles, the by-laws, any special resolution of the
Corporation, a unanimous shareholder agreement or by statute.
7. Duties. Every director and officer of the Corporation in exercising his
powers and discharging his duties shall:
(a) act honestly and in good faith with a view to the best interests of the
Corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
8. 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,
Page 67 of 220
<PAGE>
(iii) is the subject of an order under The Mentally Incapacitated Persons Act
appointing a committee of his person or estate or both, or
(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; and
(d) a person who has the status of bankrupt.
Unless the articles otherwise provide, a director of the Corporation is not
required to hold shares issued by the Corporation.
9. Term of Office. A directors term of office (subject to the provisions, if
any, of the Corporations articles or any unanimous shareholder agreement, and
subject to his election for an expressly stated term) shall be from the date of
the meeting at which he is elected or appointed until the close of the first
annual meeting of shareholders following his election or appointment or until
his successor is elected or appointed.
10. Election. Subject to sections 101 and 102 of the Act, shareholders of the
Corporation shall, by ordinary resolution at the first meeting of shareholders
and at each succeeding annual meeting at which an election of directors is
required, elect directors to hold office for a term expiring not later than the
close of the next annual meeting of shareholders following the election. A
director not elected for an expressly stated term ceases to hold office at the
close of the first annual meeting of shareholders following his election but, if
qualified, is eligible for re-election. Notwithstanding the foregoing, if
directors are not elected at a meeting of shareholders, the incumbent directors
continue in office until their successors are elected.
If a meeting of shareholders fails to elect the number or the minimum number
of directors required by the articles by reason of the disqualification or death
of any candidate, the directors elected at that meeting may exercise all the
powers of the directors if the number of directors so elected constitutes a
quorum.
11. Consent to Election. A person who is elected or appointed a director is not
a director unless he was present at the meeting when he was elected or appointed
and did not refuse to act as a director or, if he was not present at the meeting
when he was elected or appointed, he consented to act as a director in writing
before his election or appointment or within 10 days after it or he has acted as
a director pursuant to the election or appointment.
12. Removal. Subject to sections 102 and 104 of the Act, the shareholders of the
Corporation may by ordinary resolution at a special meeting remove any director
from office before the expiration of his term of office and may, by a majority
of votes cast at the meeting, elect any person in his stead for the remainder of
his term.
13. Vacation of Office. A director of the Corporation ceases to hold office
when:
Page 68 of 220
<PAGE>
(a) he dies or resigns;
(b) he is removed from office; or
(c) he becomes disqualified.
A resignation of a director becomes effective at the time a written resignation
is sent to the Corporation, or at the time specified in the resignation,
whichever is later.
14. Validity of Acts. An act of a director or officer is valid notwithstanding
an irregularity in his election or appointment or a defect in his qualification.
An act of the directors or a committee of directors is valid notwithstanding
non-compliance with paragraphs 4, 21 or 23 hereof.
MEETING OF DIRECTORS
15. Place of Meeting. Unless the articles otherwise provide, meetings of
directors and of any committee of directors may be held at any place. A meeting
of directors may be convened by the Chairman of the Board (if any), the
President or any director at any time and the Secretary shall upon direction of
any of the foregoing convene a meeting of directors.
16. Notice. Notice of the time and place for the holding of any meeting of
directors or of any committee of directors shall be sent to each director or
each director who is a member of such committee, as the case may be, not less
than forty-eight (48) hours before the time of the meeting; provided that a
meeting of directors or of any committee of directors may be held at any time
without notice if all the directors or members of such committee are present
(except where a director attends the meeting for the express purpose of
objecting to the transaction of any business on the grounds that the meeting is
not lawfully called) or if all the absent directors waive notice of the meeting.
The notice of a meeting of directors shall specify any matter referred to in
subsection (3) of section 110 of the Act that is to be dealt with at the
meeting, but need not specify the purpose or the business to be transacted at
the meeting.
For the first meeting of directors to be held following the election of
directors at an annual or special meeting of the shareholders or for a meeting
of directors at which a director is appointed to fill a vacancy in the board, no
notice of such meeting need be given to the newly elected or appointed director
or directors in order for the meeting to be duly constituted, provided a quorum
of the directors is present.
17. Waiver of Notice. Notice of any meeting of directors or of any committee of
directors or the time for the giving of any such notice or any irregularity in
any meeting or in the notice thereof may be waived by any director in writing or
by telecopy, telegram, cable or telex addressed to the Corporation or in any
other manner, and any such waiver may be validly given either before or after
the meeting to which such waiver relates. Attendance of a director at any
meeting of directors or of any committee of directors is a waiver of notice of
such 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.
Page 69 of 220
<PAGE>
18. Omission of Notice. The accidental omission to give notice of any meeting of
directors or of any committee of directors to or the non-receipt of any notice
by any person shall not invalidate any resolution passed or any proceeding taken
at such meeting.
19. Telephone Participation. A director may participate in a meeting of
directors or of any committee of directors by means of telephone or other
communication facilities that permit all persons participating in the meeting to
hear each other, and a director participating in a meeting by those means is
deemed for the purposes of the Act and this by-law to be present at that
meeting.
20. Adjournment. Any meeting of directors or of any committee of directors may
be adjourned from time to time by the chairman of the meeting, with the consent
of the meeting, to a fixed time and place. Notice of an adjourned meeting of
directors or committee of directors is not required to be given if the time and
place of the adjourned meeting is announced at the original meeting. Any
adjourned meeting shall be duly constituted if held in accordance with the terms
of the adjournment and a quorum is present thereat. The directors who formed a
quorum at the original meeting are not required to form the quorum at the
adjourned meeting. If there is no quorum present at the adjourned meeting, the
original meeting shall be deemed to have terminated forthwith after its
adjournment. Any business may be brought before or dealt with at the adjourned
meeting which might have been brought before or dealt with at the original
meeting in accordance with the notice calling the same.
21. Quorum and Voting. Subject to the articles, a majority of the number of
directors constitutes a quorum at any meeting of directors and, notwithstanding
any vacancy among the directors, a quorum of directors may exercise all the
powers of the directors. Subject to subsections (3) and (4) of section 109 of
the Act, directors shall not transact business at a meeting of directors unless
a quorum is present and at least half of the directors present are resident
Canadians. Questions arising at any meeting of directors shall be decided by a
majority of votes. In the case of an equality of votes, the chairman of the
meeting in addition to his original vote shall have a second or casting vote.
22. Resolution in Lieu of Meeting. Subject to the articles or a unanimous
shareholder agreement, a resolution in writing, signed by all the directors
entitled to vote on that resolution at a meeting of directors or committee of
directors, is as valid as if it had been passed at a meeting of directors or
committee of directors. A resolution in writing dealing with all matters
required by the Act or this by-law to be dealt with at a meeting of directors,
and signed by all the directors entitled to vote at that meeting, satisfies all
the requirements of the Act and this by-law relating to meetings of directors.
COMMITTEES OF DIRECTORS
23. General. The directors may from time to time appoint from their number a
managing director, who must be a resident Canadian, or a committee of directors,
at least half of whom shall be resident Canadians, and may delegate to the
managing director or such committee any of the powers of the directors, except
that no managing director or committee shall have the authority to:
Page 70 of 220
<PAGE>
(a) submit to the shareholders any question or matter requiring the
approval of the shareholders;
(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities except in the manner and on the terms authorized
by the directors;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by the
Corporation, except in the manner and on the terms authorized
by the directors;
(f) pay a commission referred to in section 39 of the Act;
(g) approve a management proxy circular;
(h) approve any annual financial statements to be placed before the
shareholders of the Corporation; or
(i) adopt, amend or repeal by-laws of the Corporation.
Notwithstanding the foregoing and subject to the articles or any
unanimous shareholder agreement, the directors may, by resolution, delegate to a
director, managing director or committee of directors the power to:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the
Corporation;
(c) subject to section 42 of the Act, give a guarantee on behalf of
the Corporation to secure performance of an obligation of any
person; and
(d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the
Corporation.
24. Audit Committee. Subject to subsection (3) of section 165 of the Act, if any
of the issued share of the Corporation, or securities of the Corporation which
may or might be exchanged for or converted into shares of the Corporation, were
part of a distribution to the public and the Corporation has more than fifteen
shareholders, the directors shall elect annually from among their number an
audit committee to be composed of not fewer than three directors, a majority of
whom are not officers or employees of the Corporation or any of its affiliates.
Each member of the audit committee shall serve during the pleasure of the board
of directors and, in any event, only so long as he shall be a director. The
directors may fill vacancies in the audit committee by election from among their
number.
Page 71 of 220
<PAGE>
The audit committee shall have power to fix its quorum at not less than a
majority of its members and to determine its own rules of procedure subject
to any regulations imposed by the board of directors from time to time and to
the following paragraph.
The auditor of the Corporation is entitled to receive notice of every meeting
of the audit committee and, at the expense of the Corporation, to attend and be
heard thereat, and, if so requested by a member of the audit committee, shall
attend every meeting of the committee held during the term of office of the
auditor. The auditor of the Corporation or any member of the audit committee
may call a meeting of the committee.
The audit committee shall review the financial statements of the Corporation
prior to approval thereof by the board and shall have such other powers and
duties as may from time to time by resolution be assigned to it by the board.
REMUNERATION OF DIRECTORS, OFFICER AND EMPLOYEES
25. Subject to the articles or any unanimous shareholder agreement, the
directors of the Corporation may fix the remuneration of the directors, officers
and employees of the Corporation. Any remuneration paid to a director of the
Corporation shall be in addition to the salary paid to such director in his
capacity as an officer or employee of the Corporation. The directors may also by
resolution award special remuneration to any director in undertaking any special
services on the Corporations behalf other than the routine work ordinarily
required of a director of the Corporation. The confirmation of any such
resolution by the shareholders shall not be required. The directors, officers
and employees shall also be entitled to be paid their travelling and other
expenses properly incurred by them in connection with the affairs of the
Corporation.
The aggregate remuneration paid to the directors and the aggregate remuneration
paid to the five highest paid officers and employees, other than directors,
shall be disclosed to the shareholders at every annual meeting.
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL
26. The directors in their discretion may submit any contract, act or
transaction for approval, ratification or confirmation at any annual meeting of
the shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and any contract, act or transaction that shall
be approved, ratified or confirmed by resolution passed by a majority of the
votes cast at any such meeting (unless any different or additional requirement
is imposed by the Act or by the Corporations articles or by any other by-law)
shall be as valid and as binding upon the Corporation and upon all the
shareholders as though it had been approved, ratified and/or confirmed by every
shareholder of the Corporation.
CONFLICT OF INTEREST
27. A director or officer of the Corporation who is party to a material contract
or proposed material contract with the Corporation, or is a director or an
officer of or has a material interest in any person who is a party to a material
contract or proposed material contract or proposed material contract with the
Page 72 of 220
<PAGE>
Corporation shall disclose the nature and extent of his interest at the time and
in the manner provided in the Act. Except as provided in the Act, no such
director of the Corporation shall vote on any resolution to approve such
contract. If a material contract is made between the Corporation and one or more
of its directors or officers, or between the Corporation and another person of
which a director or officer of the Corporation is a director or officer or in
which he has a material interest, (i) the contract is neither void nor voidable
by reason only of that relationship, or by reason only that a director with an
interest in the contract is present at or is counted to determine the presence
of a quorum at a meeting of directors or committee of directors that authorized
the contract, and (ii) a director or officer or former director or officer of
the Corporation to whom a profit accrues as a result of making of the contract
is not liable to account to the Corporation for that profit by reason only of
holding office as a director or officer, if the director or officer disclosed
his interest in accordance with the provisions of the Act and the contract was
approved by the directors or the shareholders and it was reasonable and fair to
the Corporation at the time it was approved. This paragraph is subject to any
unanimous shareholder agreement.
FOR THE PROTECTION OF DIRECTORS AND OFFICERS
28. No director of officer for the time being of the Corporation shall be liable
to the Corporation for the acts, receipts, neglects or defaults of any other
director or officer or employee or for joining in any receipt or 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 by the
Corporation or 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 or belonging to
the Corporation shall be placed out or invested or for any loss or damage
arising from the bankruptcy, insolvency or tortious act of any person, firm or
corporation including any person, firm or corporation with whom or which any
monies, securities or effects shall be lodged or deposited or for any loss,
conversion, misapplication or misappropriation of or any damage resulting from
any dealings with any monies, securities or other assets belonging to the
Corporation or for any other loss, damage or misfortune whatever which may
happen in the execution of the duties of his respective office of trust or in
relation thereto, unless the same shall happen by or through his failure to
exercise the powers and to discharge the duties of his office honestly, in good
faith with a view to the best interests of the Corporation, and in connection
therewith to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances, provided that nothing herein
contained shall relieve a director or officer from the duty to act in accordance
with the Act or relieve him from liability under the Act. The directors for the
time being of the Corporation shall not be under any duty or responsibility in
respect of any contract, act or transaction whether or not made done or entered
into in the name or on behalf of the Corporation, except such as shall have been
submitted to and authorized or approved by the directors. If any director or
officer of the Corporation shall be employed by or shall perform services for
the Corporation otherwise than as a director or officer or shall be a member of
a firm or a shareholder, director or officer of a body corporate which is
employed by or performs services for the Corporation, the fact of his being a
shareholder, director or officer of the Corporation or body corporate or member
of the firm shall not disentitle such director or officer or such firm or body
corporate, as the case may be, from receiving proper remuneration for such
services.
Page 73 of 220
<PAGE>
INDEMNITIES TO DIRECTORS AND OTHERS
29. (1) Subject to section 119 of the Act, except in respect of an action by or
on behalf of the Corporation or body corporate to procure a judgment in its
favour, the Corporation shall indemnify a director or officer of the
Corporation, a former director or officer of the Corporation 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, and his
heirs and legal representatives, against all costs,
(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.
(2) The Corporation shall, subject to the approval of a Court (as defined in the
Act), indemnify a person referred to in subparagraph 29(1) hereof in respect of
an action by or on behalf of the Corporation or a body corporate to procure a
judgment in its favour, to which he is made a party by reason of being or having
been a director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with such
action if he fulfills the conditions set out in subparagraph 29(1)(a) and (b)
hereof.
(3) Notwithstanding anything in this paragraph 29, a person referred to in
subparagraph 29(1) shall be entitled to indemnity from the Corporation in
respect of all costs, charges and expenses reasonably incurred by him in
connection with the defence 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 body corporate, if the person seeking
indemnity:
(a) was substantially successful on the merits of his defence of the action or
proceeding; and
(b) fulfills the conditions set out in subparagraph 29(1)(a) and (b) hereof.
OFFICERS
30. Appointment of Officers. Subject to the articles or any unanimous
shareholder agreement, the directors annually or as often as may be required may
appoint from among themselves a Chairman of the Board and shall appoint a
President and a Secretary and if deemed advisable may appoint one or more
Vice-Presidents, a Treasurer and one or more Assistant Secretaries and/or one or
more Assistant Treasurers. None of such officers except the Chairman of the
Board need be a director of the Corporation although a director may be appointed
to any office of the Corporation. Two or more offices of the Corporation may be
held by the same person. In case and whenever the same person holds the offices
of Secretary and Treasurer he may but need not be known as the
Secretary-Treasurer. The directors may from time to time appoint such other
officers, employees and agents as they shall deem necessary who shall have such
authority and shall perform such functions and duties as may from time to time
be prescribed by resolution of the directors. The directors may from time to
time and subject to the provisions of the Act, vary, add to or limit the duties
and powers of any officer, employee or agent.
Page 74 of 220
<PAGE>
31. Removal of Officers and Vacation of Office. Subject to the articles or any
unanimous shareholder agreement, all officers, employees and agents, in the
absence of agreement to the contrary, shall be subject to removal by resolution
of the directors at any time, with or without cause.
An officer of the Corporation ceases to hold office when he dies, resigns or is
removed from office. A resignation of an officer becomes effective at the time
a written resignation is sent to the Corporation, or at the time specified in
the resignation, whichever is later.
32. Vacancies. If the office of President, Vice-President, Secretary, Assistant
Secretary, Treasurer, Assistant Treasurer, or any other office created by the
directors pursuant to paragraph 30 hereof shall be or become vacant by reason of
death, resignation or in any other manner whatsoever, the directors shall, in
the case of the President and Secretary, and may, in the case of any other
officers, appoint an individual to fill such vacancy.
33. Chairman of the Board. The Chairman of the Board (if any) shall, if present,
preside as chairman at all meetings of the board and of shareholders. He shall
sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and shall perform such other duties
as may from time to time be assigned to him by resolution of the directors.
34. President. The President shall be the chief executive officer of the
Corporation (except as may otherwise be specified by the board of directors) and
shall, subject to the direction of the board of directors, exercise general
supervision and control over the business and affairs of the Corporation. In the
absence of the Chairman of the Board (if any), and if the President is also a
director of the Corporation, the President shall, when present, preside as
chairman at all meetings of directors and shareholders. He shall sign such
contracts, documents or instruments in writing as require his signature and
shall have such other powers and shall perform such other duties as may from
time to time be assigned to him by resolution of the directors or as are
incident to his office.
35. Vice-President. The Vice-President or, if more than one, the Vice-Presidents
in order of seniority, shall be vested with all the powers and shall perform all
the duties of the President in the absence or inability or refusal to act of the
President, provided, however, that a Vice-President who is not a director shall
not preside as chairman at any meeting of directors or shareholders. The
Vice-President or, if more than one, the Vice-Presidents shall sign such
contracts, documents or instruments in writing as require his or their
signatures and shall have such other powers and shall perform such other duties
as may from time to time be assigned to him or them by resolution of the
directors.
36. Secretary. The Secretary shall give or cause to be given notices for all
meetings of directors, any committee of directors and shareholders when directed
to do so and shall, subject to the provisions of the Act, maintain the records
referred to in subsections (1), (3) and (5) of section 20 of the Act. He shall
sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and shall perform such other duties
as may from time to time be assigned to him by resolution of the directors or as
are incident to his office.
37. Treasurer. Subject to the provisions of any resolution of the directors, the
Treasurer shall have the care and custody of all the funds and securities of the
Page 75 of 220
<PAGE>
Corporation and shall deposit the same in the name of the Corporation in such
bank or banks or with such other depositary or depositaries as the directors may
by resolution direct. He shall prepare and maintain adequate accounting records.
He shall sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and shall perform such other duties
as may from time to time be assigned to him by resolution of the directors or as
are incident to his office. He may be required to give such bond for the
faithful performance of his duties as the directors in their uncontrolled
discretion may require and no director shall be liable for failure to require
any such bond or for the insufficiency of any such bond or for any loss by
reason of the failure of the Corporation to receive any indemnity thereby
provided.
38. Assistant Secretary and Assistant Treasurer. The Assistant Secretary or, if
more than one, the Assistant Secretaries in order of seniority, and the
Assistant Treasurer or, if more than one, the Assistant Treasurers in order of
seniority, shall be vested with all the powers and shall perform all the duties
of the secretary and Treasurer, respectively, in the absence or inability or
refusal to act of the Secretary or Treasurer as the case may be. The Assistant
Secretary or, if more than one, the Assistant Secretaries and the Assistant
Treasurer or, if more than one, the Assistant Treasurers shall sign such
contracts, documents or instruments in writing as require his or their
signatures respectively and shall have such other powers and shall perform such
other duties as may from time to time be assigned to him or them by resolution
of the directors.
39. Managing Director. The directors may from time to time appoint from their
number a Managing Director who must be a resident Canadian and may delegate to
the Managing Director any of the powers of the directors subject to the limits
on authority provided by subsection (3) of section 110 of the Act. The Managing
Director shall conform to all lawful orders given to him by the directors and
shall at all reasonable times give to the directors or any of them all
information they may require regarding the affairs of the Corporation. Any agent
or employee appointed by the Managing Director shall be subject to discharge by
the directors.
40. Duties of Officers may be Delegated. In case of the absence or inability or
refusal to act of any officer of the Corporation or for any other reason that
the directors may deem sufficient, the directors may delegate all or any of the
powers of such officer to any other officer or to any director for the time
being.
SHAREHOLDERS MEETINGS
41. Annual Meeting. Subject to sections 126 and 127 of the Act, the annual
meeting of shareholders shall be held at the registered office of the
Corporation or at a place elsewhere within Alberta determined by the directors
on such day in each year and at such time as the directors may determine.
42. Special Meetings. The directors of the Corporation may at any time call a
special meeting of shareholders to be held on such day and at such time and,
subject to section 126 of the Act, at such place within Alberta as the directors
may determine.
43. Meeting on Requisition of Shareholders. The holders of not less than five
percent (5%) of the issued shares of the Corporation that carry the right to
vote at a meeting sought to be held may requisition the directors to call a
Page 76 of 220
<PAGE>
meeting of shareholders for the purposes stated in the requisition. The
requisition shall state the business to be transacted at the meeting and shall
be sent to each director and to the registered office of the Corporation.
Subject to subsection (3) of section 137 of the Act, upon receipt of the
requisition, the directors shall call a meeting of shareholders to transact the
business stated in the requisition. If the directors do not within twenty-one
days after receiving the requisition call a meeting, any shareholder who signed
the requisition may call the meeting.
44. Notice. A notice in writing of a meeting of shareholders stating the day,
hour and place of meeting and if special business is to be transacted thereat,
stating (i) the nature of that business in sufficient detail to permit the
shareholder to form a reasoned judgment on that business and (ii) the text of
any special resolution to be submitted to the meeting, shall be sent to each
shareholder entitled to vote at the meeting, who on the record date for notice
is registered on the records of the Corporation or its transfer agent as a
shareholder, to each director of the Corporation and to the auditor of the
Corporation not less than 21 days and not more than 50 days (exclusive of the
day of mailing and of the day for which notice is given) before the date of the
meeting; provided that a meeting of shareholders may be held for any purpose on
any day and at any time and, subject to section 126 of the Act, at any place
without notice if all the shareholders and all other persons entitled to attend
such meeting are present in person or represented by proxy at the meeting
(except where a shareholder or other person attends the meeting for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called) or if all the shareholders and all other persons
entitled to attend such meeting and not present in person nor represented by
proxy thereat waive notice of the meeting.
A director of the Corporation is entitled to receive notice of and to attend and
be heard at every meeting of shareholders of the Corporation.
The auditor of the Corporation is entitled to receive notice of every meeting of
shareholders of the Corporation and, at the expense of the Corporation, to
attend and be heard at every meeting on matters relating to his duties as
auditor.
45. Waiver of Notice. Notice of any meeting of shareholders or the time for the
giving of any such notice or any irregularity in any meeting or in the notice
thereof may be waived by any shareholder, the duly appointed proxy of any
shareholder, any director or the auditor of the Corporation in writing or by
telecopy, telegram, cable or telex addressed to the Corporation or in any other
manner, and any such waiver may be validly given either before or after the
meeting to which such waiver relates. Attendance of a shareholder or any other
any other person entitled to attend a meeting of shareholders is a waiver of
notice of such meeting, except when he 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.
46. Omission of Notice. The accidental omission to give notice of any meeting of
shareholders to or the non-receipt of any notice by any person shall not
invalidate any resolution passed or any proceeding taken at any such meeting.
47. Record Dates. The directors may fix in advance a date as the record date for
the determination of shareholders (i) entitled to receive payment of a dividend,
(ii) entitled to participate in a liquidation distribution or (iii) for any
other purpose except the right to receive notice of or to vote at a meeting of
shareholders, but such record date shall not precede by more than 50 days the
particular action to by taken.
Page 77 of 220
<PAGE>
The directors may also fix in advance a date as the record date for the
determination of shareholders entitled to receive notice of a meeting of
shareholders, but such record date shall not precede by more than 50 days or by
less than 21 days the date on which the meeting is to be held.
If no record date is fixed,
(a) the record date for the determination of shareholders entitled to receive
notice of a meeting of shareholders shall be
(i) at the close of business on the last business day preceding the day on which
the notice is sent; or
(ii) if no notice is sent, the day on which the meeting is held, and
(b) the record date for the determination of shareholders for any purpose other
than to establish a shareholders right to receive notice of a meeting or to vote
shall be at the close of business on the day on which the directors pass the
resolution relating to that purpose.
48. Chairman of the Meeting. In the absence of the Chairman of the Board (if
any), the President and any Vice-President who is a director, the shareholders
present entitled to vote shall elect another director as chairman of the meeting
and if no director is present or if all the directors present decline to take
the chair then the shareholders present shall elect one of their number to be
chairman.
49. Votes. Votes at meetings of shareholders may be given either personally or
by proxy. Every question submitted to any meeting of shareholders shall be
decided on a show of hands except when a ballot is required by the chairman of
the meeting or is demanded by a shareholder or proxyholder entitled to vote at
the meeting. A shareholder or proxyholder may demand a ballot either before or
on the declaration of the result of any vote by show of hands. At every meeting
at which he is entitled to vote, every shareholder present in person and every
proxyholder shall have one (1) vote on a show of hands. Upon a ballot in which
he is entitled to vote every shareholder present in person or by proxy shall
(subject to the provisions, if any, of the articles) have one (1) vote for every
share registered in his name. In the case of an equality of votes the chairman
of the meeting shall not, either on ashow of hands or an a ballot, have a second
or casting vote in addition to the vote or votes to which he may be entitled as
a shareholder or proxyholder.
At any meeting, unless a ballot is demanded by a shareholder or proxyholder
entitled to vote at the meeting a declaration by the chairman of the meeting
that a resolution has been carried unanimously or by a particular majority or
lost or not carried by a particular majority shall by conclusive evidence of the
fact without proof of the number of proportion of votes recorded in favour of or
against the resolution.
If at any meeting a ballot is demanded on the election of a chairman or on the
question of adjournment or termination, the ballot shall be taken forthwith
without adjournment. If a ballot is demanded on any other question or as to the
election of directors, the ballot shall be taken in such manner and either at
once or later at the meeting or after adjournment as the chairman of the meeting
directs. The result of a ballot shall be deemed to be the resolution of the
meeting at which the ballot was demanded. A demand for a ballot may be
withdrawn.
50. Right to Vote. Subject to section 132 of the Act or unless the articles
otherwise provide, each share of the Corporation entitles the holder of it to
one vote at a meeting of shareholders.
Page 78 of 220
<PAGE>
Where a body corporate or association is a shareholder of the Corporation, any
individual authorized by a resolution of the directors or governing body of the
body corporate or association to represent it at meetings of shareholders of the
Corporation is the person entitled to vote at all such meetings of shareholders
in respect of the shares held by such body corporate or association.
Where a person holds shares as a personal representative, such person or his
proxy is the person entitled to vote at all meetings of shareholders in respect
of the shares so held by him.
Where a person mortgages, pledges or hypothecates his shares, such person or his
proxy is the person entitled to vote at all meetings of shareholders in respect
of such shares so long as such person remains the registered owner of such
shares unless, in the instrument creating the mortgage, pledge or hypothec, he
has expressly empowered the person holding the mortgage, pledge or hypothec to
vote in respect of such shares, in which case, subject to the articles, such
holder or his proxy is the person entitled to vote in respect of the shares.
Where two or more persons hold shares jointly, one of those holders present at a
meeting of shareholders may in the absence of the others vote the shares, but if
two or more of those persons who are present, in person or by proxy, vote, they
shall vote as one on the shares jointly held by them.
51. Proxies. Every shareholder, including a shareholder that is a body
corporate, entitled to vote at a meeting of shareholders may by means of a proxy
appoint a proxyholder and one or more alternate proxyholders, who are not
required to be shareholders, to attend and act at the meeting in the manner and
to the extent authorized by the proxy and with the authority conferred by the
proxy.
An instrument appointing a proxyholder shall be in written or printed form and
shall be executed by the shareholder or by his attorney authorized in writing
and is valid only at the meeting in respect of which it is given or any
adjournment of that meeting.
An instrument appointing a proxyholder may be in the following form or in any
other form which complies with the requirements of the Act:
The undersigned shareholder of _________________ hereby appoints ______________
of _________________, whom failing, ________________ of ________________ as the
nominee of the undersigned to attend and act for and on behalf of the
undersigned at the meeting of the shareholders of the said Corporation to be
held on the ___ day of _______, 19___ and at any adjournment thereof in the same
manner, to the same extent and with the same power as if the undersigned were
personally present at the said meeting or such adjournment thereof.
Dated the ___ day of __________, 19____.
____________________________
Signature of Shareholder
The directors may specify in a notice calling a meeting of shareholders a time
not exceeding forty-eight (48) hours, excluding Saturdays, Sundays and holidays,
preceding the meeting or an adjournment of the meeting before which time proxies
to be used at the meeting must be deposited with the Corporation or its agent.
The chairman of the meeting of shareholders in his discretion accept any written
communication (including without limitation any telecopy, telegram, cable or
Page 79 of 220
<PAGE>
telex) as to the authority of anyone claiming to vote on behalf of and to
represent a shareholder notwithstanding that no instrument of proxy conferring
such authority has been deposited with the Corporation, and any votes given in
accordance with such written communication accepted by the chairman of the
meeting shall be valid and shall be counted.
52. Telephone Participation. 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 for the purposes of the Act and this
by-law to be present at the meeting.
53. Adjournment. The chairman of the meeting may with the consent of the meeting
adjourn any meeting of shareholders from time to time to a fixed time and place
and if the meeting is adjourned by one or more adjournments for an aggregate of
less than thirty (30) days it is not necessary to give notice of the adjourned
meeting other than by announcement at the time of an adjournment. If a meeting
of shareholders is adjourned by one or more adjournments for an aggregate of
thirty (30) days or more, notice of the adjourned meeting shall be given given
as for an original meeting but, unless the meeting is adjourned by one or more
adjournments for an aggregate of more than ninety (90) days, subsection (1) of
section 143 of the Act does not apply.
Any adjourned meeting shall be duly constituted if held in accordance with the
terms of the adjournment and a quorum is present thereat. The persons who
formed a quorum at the original meeting are not required to form the quorum at
the adjourned meeting. If there is no quorum present at the adjourned meeting,
the original meeting shall be deemed to have terminated forthwith after its
adjournment. Any business may be brought before or dealt with at the original
meeting which might have been brought before or dealt with at the
original meeting in accordance with the notice calling the same.
54. Quorum. Two (2) persons present and each holding or representing by proxy at
least one (1) issued share of the Corporation shall be a quorum at any meeting
of shareholders for the election of a chairman of the meeting and for the
adjournment of the meeting to a fixed time and place but not for the transaction
of any other business; for all other purposes two (2) persons present and
holding or representing by proxy one-twentieth of the shares entitled to vote at
the meeting shall be a quorum. If a quorum is present at the opening of a
meeting of share-holders, the shareholders present may proceed with the business
of the meeting, notwithstanding that a quorum is not present throughout the
meeting.
Notwithstanding the foregoing, if the Corporation has only one shareholder, or
one shareholder holding a majority of the shares entitled to vote at the
meeting, that shareholder present in person or by proxy constitutes a meeting
and a quorum for such meeting.
55. Resolution in Lieu of Meeting. A resolution in writing signed by all the
shareholders entitled to vote on that resolution is as valid as if it had been
passed at a meeting of the shareholders. A resolution in writing dealing with
all matters required by the Act or this by-law to be dealt with at a meeting of
shareholders, and signed by all the shareholders entitled to vote at that
meeting, satisfies all the requirements of this Act or the by-law relating to
meetings of shareholders.
Page 80 of 220
<PAGE>
SHARES AND TRANSFERS
56. Issuance. Subject to the articles, any unanimous shareholder agreement and
to section 28 of the Act, shares in the Corporation may be issued at the times
and to the persons and for the consideration that the directors determine;
provided that a share shall not be issued until the consideration for the share
is fully paid in money or in property or past service that is not less in value
than the fair equivalent of the money that the Corporation would have received
if the share had been issued for money.
57. Security Certificates. A security holder is entitled at his option to a
security certificate that complies with the Act or a non-transferable written
acknowledgement of his right to obtain a security certificate from the
Corporation in respect of the securities of the Corporation held by him.
Security certificates shall (subject to compliance with section 45 of the Act)
be in such form as the directors may from time to time by resolution approve and
such certificates shall be signed by at least one director or officer of the
Corporation, or by or on behalf of a registrar, transfer agent or branch
transfer agent of the Corporation, or by a trustee who certifies it in
accordance with a trust indenture. Any signatures required on a security
certificate may be printed or otherwise mechanically reproduced on it. If a
security certificate contains a printed or mechanically reproduced signature of
a person, the Corporation may issue the security certificate, notwithstanding
that the person has ceased to be a director or an officer of the Corporation,
and the security certificate is as valid as if he were a director or an officer
at the date of its issue.
58. Agent. The directors may from time to time by resolution appoint or remove
(i) one or more trust companies registered under the Trust Companies Act as its
agent or agents to maintain a central securities register or registers or (ii)
an agent or agents to maintain a branch secureceived a new, reissued or
re-registered security, a new security certificate may be issued in re sident, a
Vice-President, the Secretary or the Treasurer of the Corporation or by
resolution of the directors.
59. Dealings with Registered Holder. Subject to the Act, the Corporation may
treat the registered owner of a security as the person esclusively entitled to
vote, to receive notices, to receive any interest, dividen or other payments in
respect of the security, and otherwise to excercise all the rights and powers of
an owner of the security.
60. Surrender of Security Certificates. Subject to the Act, no transfer of a
security issued byt the Corporation shall be registered unless or until the
security certificate representing the security to be transferred has been
presented for registration or, if no security certificate has been issued by the
Corporation in respect of such security, unless or until a duly executed
transfer in respect thereof has been presented for registration.
61. Defaced, Destroyed, Stolen or Lost Security Certificates. In case of the
defacement, destruction, theft or loss of a security certificate, the fact of
such defacement, destruction, theft or loss shall be reported by the owner to
the Corporation or to an agent of the Corporation (if any), on behalf of the
Corporation, with a statement verified by oath or statutory declaration as to
the defacement, destruction, theft or loss and the circumstances concerning the
Page 81 of 220
<PAGE>
same and with a request for the issuance of a new security certificate to
replace the one so defaced, destroyed, stolen or lost. Upon the giving to the
Corporation (or if there be an agent, hereinafter in this paragraph referred to
as the "Corporation's agent", then to the Corporation and the Corporation's
agent) of a bond of a surety company (or other security approved by the
directors) in such form as is approved by the directors or by the Chairman of
the Board (if any), the President, a Vice-President, the Secretary or the
Treasurer of the Corporation, indemnifying the porations agent if any) against
all loss, damage or expense, which the Corporation and/or the Corporations agent
may suffer or be liable for by reason of the issuance of a new security
certificate to such owner, and provided the Corporation or the Corporations
agent does not have notice that the security has been acquired by a bona fide
purchaser and before a purchaser described in section 64 of the Act has received
a new, reissued or re-registered security, a new security certificate may be
issued in replacement of the one defaced, destroyed, stolen or lost, if such
issuance is ordered and authorized by any one of the Chairman of the Board (if
any), the President, a Vice-President, the Secretary or the Treasurer of the
Corporation or by resolution of the directors.
62. Enforcement of Lien and Indebtedness. Subject to subsection (8) of section
45 of the Act, if the articles of the Corporation provide taht the Corporation
has a lien on the shares registered in the name of a shareholder or his legal
representative for a debt of that shareholder to the Corporation, the directors
of the Corporation may sell any such shares in such manner as they think fit
until the debt has beenpaid in full. No sale shall be made until such time as
the debt ought to be paid and until a demand and notice in writing stating the
amount due and demanding payment and giving notice of intention to sell in
default shall have been served on the holder or his legal representative of the
shares subject to the lien and default shall have been made in payment of such
debt for seven days after service of such notice. Upon any such sale, the
proceeds shall be applied, firstly, in payment of all costs of such sale, and,
secondly, in satisfaction of such debt and the residue (if any) shall be paid to
such shareholder or his legal representative or as he shall direct. Upon any
such sale, the directors may enter or causse to be entered the purchasers name
in the securities register of the Corporation as a holder of shares, and the
purchaser shall not be bound to see to the regularity or validity of, or be
effective by, any irregularity or invalidity in the proceedings or be bound to
see to the application of the purchase money, and after his name or the name of
his legal representative has been entered in the securities register, the
regularity and validity of the sale shall not be impeached by a person.
DIVIDENDS
63. The directors may from time to time by resolution declare and the
Corporation may pay dividends on its issued shares, subject to the provisions
(if any) of the Corporations articles.
The directors shall not declare and the Corporation shall not pay a dividend
if there are reasonable grounds for believing that:
(a) the Corporation is, or would be after the payment be, unable to pay its
liabilities as they become due; or
(b) the realizable value of the Corporations assets would thereby be less than
the aggregate of its liabilities and stated capital of all classes.
Page 82 of 220
<PAGE>
The Corporation may pay a dividend by issuing fully paid shares of the
Corporation and, subject to section 40 of the Act, the Corporation may pay a
dividend in money or property.
64. In case several persons are registered as the joint holders of any
securities of the Corporation, any one of such persons may give effectual
receipts for all dividends and payments on account of dividends, principal,
interest and/or redemption payments in respect of such securities.
VOTING SECURITIES IN OTHER BODIES CORPORATE
65. All securities of any other body corporate carrying voting rights held form
time to time by the Corporation may be voted at all meetings of shareholders,
bondholders, debenture holders or holders of such securities, as the case may
be, of such other body corporate and in such manner and by such person or
persons as the directors of the Corporation shall from time to time determine
and authorize by resolution. The duly authorized signing officers of the
Corporation may also from time to time execute and deliver for and on behalf of
the Corporation proxies and arrange for the issuance of voting certificates or
other evidence of the right to vote in such names as they may determine without
the necessity of a resolution or any other action by the directors.
NOTICES, ETC.
66. Service. Any notice or document required by the Act, the articles or the
by-laws to be sent to any shareholder or director of the Corporation may be
delivered personally to or sent by mail addressed to:
(a) the shareholder at his latest address as shown in the records of the
Corporation or its transfer agent; and
(b) the director at his latest address as shown in the records of the
Corporation or in the last notice filed under section 101 or 108 of the Act.
Such notice or document shall be deemed to have been sent on the day of personal
delivery or mailing. With respect to every notice or document sent by mail it
shall be sufficient to prove that the envelope or wrapper containing the notice
or document was properly addressed and put into a post office or into a post
office letter box.
67. Failure to Locate Shareholder. If the Corporation sends a notice or document
to a shareholder and the notice or document is returned on three consecutive
occasions because the shareholder cannot be found, the Corporation is not
required to send any further notices or documents to the shareholder until he
informs the Corporation in writing of his new address.
68. Shares Registered in More than one Name. All notices or documents shall,
with respect to any shares in the capital of the Corporation registered in more
than one name, be sent to whichever of such persons is named first in the
records of the Corporation and any notice or document so sent shall be deemed to
have been duly sent to all the holders of such shares.
69. Persons Becoming Entitled by Operation of Law. Every person who by operation
of law, transfer or by any other means whatsoever shall become entitled to any
Page 83 of 220
<PAGE>
shares in the capital of the Corporation shall be bound by every notice or
document in respect of such shares which prior to his name and address being
entered on the records of the Corporation in respect of such shares shall have
been duly sent to the person or persons from whom he derives his title to such
shares.
70. Deceased Shareholder. Any notice or document sent to any shareholder in
accordance with paragraph 66 hereof shall, notwithstanding that such shareholder
be then deceased and whether or not the Corporation has notice of his decease,
be deemed to have been duly sent in respect of the shares held by such
shareholder (whether held solely or with other persons) until some other person
be entered in his stead in the records of the Corporation as the holder or one
of the holders thereof and shall be deemed to have been duly sent to his heirs,
executors, administrators and legal representatives and all persons (if any)
interested with him in such shares.
71. Signatures upon Notices. The signature of any director or officer of the
Corporation upon any notice may be written, stamped, typewritten or printed or
partly written, stamped, typewritten or printed.
72. Computation of Time. All computations of time required to be made pursuant
to the articles or by-laws of the Corporation shall be made (i) in accordance
with the provisions of the Interpretation Act, to the extent such provisions are
applicable, and (ii) in any other case, in accordance with the customary meaning
ascribed to the words requiring such computation of time.
73. Proof of Science. A certificate of any officer of the Corporation in office
at the time of the making of the certificate or of an agent of the Corporation
as to facts in relation to the sending of any notice or document to any
shareholder, director, office or auditor or publication of any notice or
document shall be conclusive evidence thereof and shall be binding on every
shareholder, director, officer or auditor of the Corporation, as the case may
be.
CUSTODY OF SECURITIES
74. All securities (including without limitation warrants) owned by the
Corporation may be lodged (in the name of the Corporation) with a chartered bank
or a trust company or in a safety deposit box or, if so authorized by resolution
of the directors, with such other depositaries or in such other manner as may be
determined from time to time by the directors.
All securities (including without limitation warrants) belonging to the
Corporation may be issued and held in the name of a nominee or nominees of the
Corporation (and if issued or held in the names of more than one nominee shall
be held in the names of the nominees jointly with right of survivorship) and
shall be endorsed in blank with endorsement guaranteed in order to enable
transfer thereof to be completed and registration thereof to be effected.
EXECUTION OF CONTRACTS, ETC.
75. Contracts, documents or instruments in writing requiring the signature of
the Corporation may be signed by the President alone or any person or persons
authorized by resolution of the directors and all contracts, documents or
instruments in writing so signed shall be binding upon the Corporation without
Page 84 of 220
<PAGE>
any further authorization or formality. The directors are authorized from time
to time by resolution to appoint any person or persons on behalf of the
Corporation either to sign contracts, documents or instruments in writing
generally or to sign specific contracts, documents or instruments in writing.
The corporate seal of the Corporation may, when required, be affixed by the
President to contracts, documents or instruments in writing signed by him as
aforesaid or by the person or persons appointed as aforesaid by resolution of
the directors.
The term "contracts, documents or instruments in writing" as used in this by-law
shall include deeds, mortgages, hypothecs, charges, cheques, drafts, orders for
the payment of money, notes, acceptances, bills of exchanges, conveyances,
transfers and assignments of property, real or personal, immovable or movable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of securities and all paper
writings.
The signature or signatures of the President or any person or persons appointed
as aforesaid by resolution of the directors may, if specifically authorized by
resolution of the directors, be printed, engraved, lithographed or otherwise
mechanically reproduced upon all contracts, documents or instruments in writing
or bonds, debentures or other securities of the Corporation executed or issued
by or on behalf of the Corporation and all contracts, documents or instruments
in writing or securities of the Corporation on which the signature or
signatures of any of the foregoing persons shall be so reproduced, by
authorization by resolution of the directors, shall be deemed to have been
manually signed by such persons whose signature or signatures is or are so
reproduced and shall be as valid to all intents and purposes as if they had been
signed manually and notwithstanding that the persons whose signature or
signatures is or are so reproduced may have ceased to hold office at the date
of the delivery or issue of such contracts, documents or instruments in writing
or securities of the Corporation.
FISCAL PERIOD
76. The fiscal period of the Corporation shall terminate on such day in each
year as the board of directors may from time to time by resolution determine.
ENACTED the 16th day of August, 1996.
- ---------------------------- ---------------------------
President Secretary
Page 85 of 220
<PAGE>
PEAK TECHNOLOGIES INC.
BY-LAW NO. 2
A by-law respecting the borrowing of money, the giving of guarantees and the
giving of security by PEAK TECHNOLOGIES INC. (hereinafter called the
"Corporation").
IT IS HEREBY ENACTED as a by-law of the Corporation as follows:
The directors of Corporation may from time to time:
(a) borrow money on the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the Corporation,
including without limitation, bonds, debentures, notes or other evidences of
indebtedness or guarantee of the Corporation, whether secured or unsecured;
(c) give a guarantee on behalf of the Corporation to secure performance of an
obligation of any individual, partnership, association, body corporate, trustee,
executor, administrator or legal representative;
(d) mortgage, hypothecate, pledge or otherwise create an interest in or charge
on all or any property of the Corporation, owned or subsequently acquired, to
secure payment of a debt or performance of any other obligation of the
Corporation;
(e) delegate to one or more directors, a committee of directors or one or more
officers of the Corporation as may be designated by the directors, all or any of
the powers conferred by the foregoing clauses of this by-law to such extent and
in such manner as the directors shall determine at the time of each such
delegation.
In the event any provision of any other by-law of the Corporation now in force
is inconsistent with or in conflict with any provision of this by-law, the
provisions of this by-law shall prevail to the extent necessary to remove the
inconsistency or conflict.
This by-law shall remain in force and be binding upon the Corporation as regards
any party acting on the faith thereof until a copy, certified by the Secretary
of the Corporation, of a by-law repealing of replacing this by-law shall have
been received by such party and duly acknowledged in writing.
ENACTED the 16th day of August, 1996.
Page 86 of 220
<PAGE>
Exhibit 2 - Registration Rights Agreement - September 9, 1997
This Registration Rights Agreement entered into as of September 9, 1997, between
Peak Technologies Inc., an Alberta corporation ("Company"), Westgate
International, L.P., a Cayman Islands limited partnership ("Westgate"), and The
Liverpool Limited Partnership, a Bermuda limited partnership ("Liverpool" and
together with Westgate, the "Purchasers").
W I T N E S S E T H:
Whereas, Purchasers have purchased 12% senior promissory notes of the Company,
dated the date hereof, in the aggregate original principal amount of
US$1,125,000 (the "First Notes"), pursuant to a Note Purchase Agreement, dated
as of September 9, 1997 by and between the Company and Purchasers (the "Note
Purchase Agreement");
Whereas, pursuant to the terms and conditions of the Note Purchase Agreement,
Purchasers may purchase additional 12% senior promissory notes of the Company,
in the aggregate original principal amount of US$875,000 (the "Second Notes" and
together with the First Notes, the "Notes"); and
Whereas, pursuant to the terms of, and in partial consideration for, the
Purchasers' agreement to enter into the Note Purchase Agreement, the Company has
issued warrants to purchase 3,120,075 of its common shares ("Common Shares") to
Purchasers (the "First Warrants") and, upon the purchase of the Second Notes,
the Company will issue to Purchasers warrants to purchase an additional
1,879,925 Common Shares (the "Second Warrants" and together with the First
Warrants, the "Warrants") and the Company has agreed to provide the Purchasers
with certain registration rights with respect to the Common Shares issuable
upon exercise of Warrants ("Warrant Shares") and certain other rights and
remedies with respect to the Notes and Warrants as set forth in this Agreement;
Now, Therefore, in consideration of the mutual promises, representations,
covenants and conditions set forth in the Note Purchase Agreement and this
Agreement, the Company and Purchasers agree as follows:
Section 1. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
"ASC" shall mean The Alberta Securities Commission.
"ASE" shall mean the Alberta Stock Exchange.
"Covered Shares" shall mean all of the Warrant Shares (including any additional
shares issuable due to anti-dilution adjustments pursuant to the term of the
Warrants) and any securities issued in substitution or exchange for either
pursuant to a merger, reclassification, exchange or consolidation or as a
distribution thereon.
"Exchange Act" shall mean the U.S. Securities Exchange Act of 1934, as amended.
"Purchased Securities" shall mean the Notes and the Warrants.
"SEC" shall mean the U.S. Securities and Exchange Commission.
Page 87 of 220
<PAGE>
"Securities Act" shall mean the U.S. Securities Act of 1933, as amended.
Section 2. Resale of the Covered Shares in Alberta.
(a) The Company hereby represents and warrants to Purchasers that the Warrant
Shares have been approved for listing on the ASE.
(b) Provided that Purchasers shall have complied with the provisions of Sections
4(b) and 4(c) of the Note Purchase Agreement, the Company hereby represents,
warrants and covenants that, subject to the compliance by the Company with
paragraph (c) below and the receipt of the approvals set forth therein, upon the
termination of the applicable Restricted Period (as defined in the Note Purchase
Agreement), (i) the Purchased Securities may freely be resold in Alberta,
without legal restriction (in which event, es shall be deemed "Alberta
Qualified"); (ii) the Covered Shares (A) may freely be resold in Alberta,
without legal restriction and (B) shall be listed and posted for trading on the
ASE (in the event that clauses (A) and (B) apply to any Covered Shares, such
Covered Shares shall be deemed "Alberta Qualified.").
(c) The Company undertakes to make such filings, to pay such fees and other
expenses and to use its best efforts to obtain such approvals as shall be
necessary to cause the Purchased Securities and the Covered Shares to become,
and to continue to be, Alberta Qualified, including, without limitation,
obtaining any required approvals from the ASE and Canadian regulatory
authorities, including, without limitation, the ASC.
(d) The Company undertakes to comply with all applicable laws, rules, and
regulations of the ASE and of Canadian regulatory authorities, including,
without limitation, the filing of any Disclosure Documents (as defined in the
Note Purchase Agreement) with the ASC, ASE or other Canadian regulatory
authority, as shall be required to maintain the Alberta Qualified status of the
Purchased Securities and the Covered Shares in Alberta, as set forth in
Subsection (b) above.
Section 3. U.S. Registration.
(a) Not later than the date the Company shall have applied to have Common Shares
approved for listing on the NASDAQ National Market, the NASDAQ Small Cap Market
or on any exchange or automated quotation system in connection with which the
Company would be required to be registered (or to register a class of it
securities) pursuant to Section 12 of the Exchange Act (the "US Filing Date")
and provided the Covered Shares cannot be resold pursuant to Rule 144(k) under
the Securities Act, the Company shall (i) have filed with the SEC a registration
statement under the Securities Act registering the Covered Shares for resale and
shall use its best efforts to have the SEC declare such registration statement
effective, not later than the date the Common Shares shall have been approved
for listing on the NASDAQ National Market, NASDAQ Small Cap Market or other
NASDAQ listing; (ii) have filed with the NASDAQ National Market, NASDAQ Small
Cap Market or other NASDAQ listing, as the case may be, an application for the
listing of the Covered Shares thereon and shall use its best efforts to cause
such listing to be approved and effective concurrently with the effectiveness of
the registration statement filed with the SEC and covering the Covered Shares;
and (iii) use its best efforts to cause the resale of the Covered Shares by the
holders thereof to be registered or exempted under the securities or "blue sky"
laws of such states as shall have been specified by the Purchasers to the
Page 88 of 220
<PAGE>
Company. In the event that the Covered Shares shall be (x) registered for resale
pursuant to a effective registration statement under the Securities Act; (y)
listed for trading on the NASDAQ National Market, NASDAQ Small Cap or other
NASDAQ listing; and (z) registered or exempted for resale in such states as
shall have been specified by the Purchasers to, such Covered Shares shall be
deemed "U.S. Registered."
(b) The Company shall maintain the effectiveness and the listings set forth in
subsection (a) above (i) until all of the Covered Shares shall have been sold
pursuant to such registrations or listings or (ii) until the Covered Shares may
be sold pursuant to Rule 144(k) under the Securities Act.
Section 4. Piggy-Back Registration.
(a) If the Company at any time (provided that the Covered Shares cannot be
resold pursuant to Rule 144(k) under the Securities Act) proposes for any reason
to register any of its securities under the Securities Act (other than
registrations on Forms S-4 or S-8 or any similar or successor form), other than
pursuant to Section 3 hereof, it shall each such time promptly give written
notice to Purchasers and the then holders of Covered Shares (if different from
Purchasers) of its intention so to do, and, upon the written request, given
within 30 days after receipt of any such notice, of any holder or holders of the
Covered Shares then outstanding, to register any Covered Shares (which request
shall specify the Covered Shares intended to be sold or disposed of by such
holders and shall state the intended method of disposition of such Covered
Shares by the prospective seller), the Company shall use its best efforts to
cause all such Covered Shares to be registered under the Securities Act promptly
upon receipt of the written request of such holders for such registration, all
to the extent requisite to permit the sale or other disposition (in accordance
with the intended methods thereof, as aforesaid) by the prospective seller or
sellers of the Covered Shares so registered. In the event that the proposed
registration by the Company is, in whole or in part, an underwritten public
offering of securities of the Company, any request pursuant to this Section 4(a)
to register Covered Shares shall specify that such shares are to be included in
the underwriting (a) on the same terms and conditions as the Common Shares, if
any, otherwise being sold through underwriters under such registration or (b) on
terms and conditions comparable to those normally applicable to offerings of
Common Shares in reasonably similar circumstances in the event that no other
Common Shares are being sold through underwriters under such registration;
provided, however, that if the managing underwriter determines in good faith and
advises in writing that the inclusion of all Covered Shares proposed to be
included therein by the Company would interfere with the successful marketing
(including pricing) of such securities, then the number of Covered Shares to be
included in the underwritten public offering shall be reduced pro rata among the
holders of Covered Shares (based upon the total number of Covered Shares then
outstanding).
(b) If the Company, at any time proposes for any reason to distribute any of its
securities by way of a prospectus filed in accordance with any provincial
securities regulations (a "Canadian Prospectus"), the Company shall each such
time promptly give written notice to Purchasers and the then holders of Covered
Shares (if different from Purchasers) of its intention to do so, and, upon the
written request, given within 30 days after receipt of any such notice, of any
holder or holders of the Covered Shares then outstanding, to qualify the
distribution of such Covered Shares by the Canadian Prospectus (which request
Page 89 of 220
<PAGE>
shall specify the number of Covered Shares intended to be sold or disposed of by
such holders and shall state the intended method of disposition of such Covered
Shares by the prospective seller). The Company shall promptly use its best
efforts to cause the proposed distribution of all such Covered Shares to be
qualified by the Canadian Prospectus promptly upon receipt of the written
request of such holders, all to the extent requisite to permit the sale or other
disposition (in accordance with the intended methods thereof, as aforesaid) by
the prospective seller or sellers of the Covered Shares so qualified. In the
event that the proposed distribution by the Company is, in whole or in part, an
underwritten public offering of securities of the Company, any request pursuant
to this Section 4(b) to qualify the distribution of Covered Shares shall specify
that such shares are to be included in the underwriting: (i) on the same terms
and conditions as the Common Shares, if any, otherwise being sold through
underwriters under such distribution; or (ii) on terms and conditions comparable
to those normally applicable to offerings of common shares in reasonably similar
circumstances in the event that no other Common Shares are being sold through
underwriters under such distribution; provided however, that if the lead
underwriter determines in good faith and advises in writing that the inclusion
of all Covered Shares proposed to be included therein by the Company would
interfere with the successful marketing (including pricing) of such securities,
then the number of Covered Shares to be included in the underwritten public
offering shall be reduced pro rata among the holders of the Covered Shares
(based upon the total number of Covered Shares then outstanding).
Section 5. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Agreement to use its best efforts
to effect the registration of any Covered Shares, the Company shall, as
expeditiously as practicable:
(a) prepare and file with the SEC, no later than 30 days after the obligation
arises, a registration statement, under Rule 415 under the Securities Act, with
respect to such Covered Shares and use its best efforts to cause such
registration statement to become and remain effective;
(b) prepare and file with the SEC such amendments and supplements to such
registration statements and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for the period set
forth in Section 3(b);
(c) furnish to each selling holder of Covered Shares such number of copies of a
summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such seller may reasonably request in order to facilitate the public sale or
other disposition of such Covered Shares;
(d) use its best efforts to register or qualify the Covered Shares covered by
such registration statement under the securities or blue sky laws of such
jurisdictions, as each such holder (or, in the case of an underwritten offering,
the managing underwriter) shall reasonably request (provided, however, that the
Company shall not be required to consent to general service of process for all
purposes in any jurisdiction where it is not then qualified or to register or
qualify the Covered Shares covered by such registration statments in any
jurisdiction which would require the Company to ammend its certificate of
incorporation or by-laws or covenant or undertake to do any other act or make
any other change regarding its capitalization or share ownership prior to the
effectiveness of such registration or qualification);
Page 90 of 220
<PAGE>
(e) prepare and file any required filings and do such other actions as may be
required to qualify and list the Covered Shares for trading on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") National
Market or Small Cap Market and maintain such listings for the period set forth
in Section 3(b);
(f) notify in a timely fashion each seller of Covered Shares covered by such
registration statement, at any time when a prospectus relating to the Covered
Shares covered by such registration statement is required to be delivered under
the Securities Act within the appropriate period mentioned in clause (b) of this
Section 5, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and promptly prepare and furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing; and
(g) at the request of any holder of Covered Shares, if such Covered Shares are
being sold through underwriters, furnish to the underwriters on the date that
such Covered Shares are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, or, if such Covered Shares are
not being sold through underwriters, furnish to such holder or holders on the
date that the registration statement with respect to such Covered Shares becomes
effective, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the holder or holders making such request;
and (ii) a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in any underwritten
public offering, addressed to the underwriters, if any, and to the holder or
holders making such request.
Section 6. Default Payments; Suspension of Effectiveness.
(a) In the event that after the expiration of any applicable Restricted Period
(as defined in the Note Purchase Agreement), the Covered Shares or Purchased
Securities to which such Restricted Period applies are not Alberta Qualified, or
in the event that any Alberta Qualified Purchased Securities or Covered Shares
cease to be so qualified, then the Company shall pay to the holders of the Notes
an amount equal to 3% of the outstanding principal amount thereon (as defined in
the Notes), in cash, for each 30 day period that at any Covered Shares or
Purchased Securities are not Alberta Qualified (which payment shall be pro rata
for any period less than 30 days). Notwithstanding the foregoing, this provision
shall not apply to the extent that the holders of the Notes shall not have
complied with Sections 4(b) and 4(c) of the Note Purchase Agreement.
(b) In the event that all Covered Shares shall not have been U.S. Registered
concurrently with the listing of the Common Shares on the designated market
referred to in Section 3(a) herein, then the Company shall pay to holders of the
Page 91 of 220
<PAGE>
Notes an amount equal to 2% of the outstanding principal amount thereon, in
cash, for the first 45 day period, and 3% of the outstanding principal amount
thereon, in cash, for each subsequent 45 day period that any Covered Shares are
not U.S. Registered (in each case which payment shall be pro rata for any period
less than 45 days).
(c) The Company may suspend dispositions under any registration statement filed
under the Securities Act (a "Registration Statement") and notify the holders of
any Covered Shares that it may not sell the Covered Shares pursuant to any
Registration Statement or prospectus contained therein (a "Prospectus") (a
"Blocking Notice") if the Companys management determines in its reasonable good
faith judgment that the Companys obligation to ensure that such Registration
Statement and Prospectus are current and complete would require the Company to
take actions that might reasonably be expected to have a materially adverse (to
the Company as a whole) detrimental effect on any proposal, negotiations or plan
by the Company or any of its subsidiaries to engage in any material acquisition
of assets (other than in the ordinary course of business) or any material
merger, consolidation, tender offer, reorganization or similar transaction;
provided that such suspension pursuant to a Blocking Notice or the Notice
described below may not exceed twenty (20) consecutive days or an aggregate of
thirty (30) days in any twelve (12) month period. Upon receipt of a Blocking
Notice or "Notice" from the Company of the existence of any fact of the kind
described in the following sentence, no holder of Covered Shares shall dispose
of, sell or offer for sale the Covered Shares pursuant to the Registration
Statement until such holder receives (i) copies of the supplemented or amended
Prospectus, or until counsel for the Company shall have determined that such
disclosure is not required due to subsequent events, (ii) notice in writing (the
"Advice") from the Company that the use of the Prospectus may be resumed and
(iii) copies of any additional or supplemental filings that are incorporated by
reference in the Prospectus. Pursuant to the immediately preceding sentence, the
Company shall provide such Notice to the holder upon the determination by the
Company of the existence of any fact or the happening or any event that makes
any statement of a material fact made in the Registration Statement, the
Prospectus, any amenedment or supplement thereto, or any document incorporated
by reference therein untrue in any material respect, or that requires the making
of any additions to or changes in the Registration Statement or the Prospectus,
in order to make the statements therein not misleading in any material respect.
If so directed by the Company in connection with any such notice, each holder of
Covered Shares will deliver to the Company (at the Companys expense) all copies,
other than permanent file copies then in such holders possession, of the
Prospectus covering such Covered Shares that was current immediately prior to
the time of receipt of such Notice. In the event the Company shall give any such
Blocking Notice or Notice, the time regarding the effectiveness of such
Registration Statement and the term of the Warrants shall be extended by one and
one-half (1-1/2) times the number of days during the period from and including
the date of the giving of such Blocking Notice or Notice to and including the
date when the holder shall have received the copies of the supplemented or
amended Prospectus, the Advice and any additional or supplemental filings that
are incorporated by reference in the Prospectus. Delivery of a blocking Notice
or Notice and the related suspension of any Registration Statement shall not
constitute a default under this Agreement and shall not create any obligation to
pay the default payments under this Section. However, if the holders ability to
sell under the Registration Statement is suspended for more than the twenty or
thirty day periods described above, then the default payment provisions of
Section 6(b) herein shall apply from the date that the Blocking Notice or Notice
was received.
Page 92 of 220
<PAGE>
(d) The Company acknowledges that any failure, refusal or inability by the
Company described in the foregoing paragraphs (a) through (c) above will cause
the holders of Covered Shares to suffer damages in an amount that will be
difficult to ascertain, including without limitation damages resulting from the
loss of liquidity in the Covered Shares and the additional investment risk in
holding the Covered Shares. Accordingly, the parties agree that it is
appropriate to include in this Agreement the foregoing provisions for default
payments in order to compensate the holders of Covered Shares for such damages.
The parties acknowledge and agree that the default payments set forth above
represent the parties' good faith effort to quantify such damages and, as such,
agree that the form and amount of such default payments are reasonable and will
not constitute a penalty. In the event that any default payments hereunder are
not paid when due, the holders of the Notes may accelerate the Notes. The
default payments provided for above are in addition to and not in lieu or
limitation of any other rights the holders of Covered Shares may have at law, in
equity or under the terms of the Notes, the Note Purchase Agreement, the
Warrants or this Agreement, including without limitation, the right to specific
performance.
Section 7. Expenses. All expenses incurred by the Company in complying with
Sections 2, 3, 4 and 5, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.), fees and expenses of complying with
securities and blue sky laws, Canadian provincial laws, listing fees for
exchanges or other markets (including without limitation the ASE, NASDAQ
National Market and NASDAQ Small Cap), printing expenses and of counsel
including with respect to each registration or filing effected pursuant to such
sections, reasonable fees and disbursements of not more than one counsel for the
sellers requesting registration hereunder to the Company, and of the independent
certified public accountants for the Company (including the expense of any
special audits in connection with any such registration) shall be paid by the
Company; provided, however, that all underwriting discounts and selling
commissions applicable to the Covered Shares covered by such registration shall
be borne by the seller or sellers, in proportion to the number of Covered Shares
sold by such seller or sellers.
Section 8. Indemnification.
(a) In connection with any registration of any Covered Shares under the
Securities Act or the Alberta qualification or registration under Canadian
provincial law of any Purchased Securities or Covered Shares pursuant to this
Agreement, the Company shall indemnify and hold harmless the seller of such
securities, any employees, officers, directors, members, partners or agents of
such seller ("Seller Indemnitees"), each underwriter, broker or any other person
acting on behalf of such seller and each other person, if any, who controls any
of the foregoing persons within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several (or actions in respect
thereof), to which any of the foregoing persons may become subject under the
Securities Act, applicable Canadian provincial law, or otherwise insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement under which such Covered
Shares were registered under the Securities Act, any preliminary Prospectus or
final Prospectus contained therein or otherwise filed with the SEC, or any
Canadian Prospectus or disclosure document filed with Canadian regulatory
Page 93 of 220
<PAGE>
authorities, any amendment or supplement thereto or any document incident to
registration or qualification of any Covered Shares or Purchased Securities, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading or, with respect to any Prospectus, necessary
to make the statements therein in light of the circumstances under which they
were made not misleading, or any violation by the Company of the Securities Act,
the Exchange Act or state securities, blue sky laws or Canadian provincial laws
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration or qualification under such state
securities, blue sky laws or Canadian provincial laws; and, subject to the
provisions of Section 8(c), the Company shall reimburse such seller, Seller
Indemnitee, such underwriter, such broker or such other person acting on behalf
of such seller and each such controlling person for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said Registration Statement, preliminary Prospectus, final Prospectus, Canadian
Prospectus or Canadian disclosure document, amendment, supplement or document
incident to registration or qualification of any Covered Shares or Purchased
Securities in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such seller or underwriter
specifically for use in the preparation thereof.
(b) In connection with any registration of Covered Shares under the Securities
Act or the Alberta qualification or registration under Canadian provincial law
of any Purchased Securities or Covered Shares pursuant to this Agreement, each
seller of Purchased Securities or Covered Shares shall indemnify and hold
harmless (in the same manner as set forth in paragraph (a) of this Section 7)
the Company and each officer and director of the Company who shall sign such
Registration Statement, each underwriter, broker or other person acting on
behalf of such seller, each person who controls any of the foregoing within the
meaning of the Securities Act and each other seller of Covered Shares or
Purchased Securities under such Registration Statement, Canadian Prospectus or
Canadian disclosure document with respect to any statement or omission from such
Registration Statement, any preliminary Prospectus or final Prospectus contained
therein or otherwise filed with the SEC, Canadian Prospectus or Canadian
disclosure document, any amendment or supplement thereto or any document
incident to registration or qualification of any Covered Shares or Purchased
Securities, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company or such underwriter
through an instrument duly executed by such seller specifically for use in
connection with the preparation of such Registration Statement, preliminary
Prospectus, final Prospectus, Canadian Prospectus or Canadian disclosure
document, amendment, supplement or document or any failure to deliver any
Registration Statement, preliminary Prospectus, final Prospectus, Canadian
Prospectus or Canadian disclosure document, amendment, supplement or document;
provided, however, that the maximum amount of liability in respect of such
indemnification (including, but not limited to, attorneys' fees and expenses)
shall be limited, in the case of each seller of Covered Shares or Purchased
Securities, to an amount equal to the proceeds actually received by such seller
from the sale of such securities effected pursuant to such registration, less
underwriter or broker commissions or expenses ("Net Proceeds").
Page 94 of 220
<PAGE>
(c) Promptly after receipt by an indemnified party of notice of any claim
referred to in paragraphs (a) or (b) of this Section 8, such indemnified party
will, if a claim in respect thereof is made against an indemnifying party, give
written notice to the latter of the commencement of such action. In case any
such action is brought against an indemnified party, the indemnifying party will
be entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnified party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be responsible for
any legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to
or conflict with those available to the indemnifying party, or the idemnifying
party shall have failed to assume, within seven (7) business days of receipt of
notice from the indemnified party, the defense of the indemnified party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party and such indemnifying party shall reimburse
such indemnified party and any person controlling such indemnified party for
that portion of the reasonable fees and expenses of any one counsel retained by
all the indemnified parties which is reasonably related to the matters covered
by the indemnity agreement provided in this Section 8.
(d) If the indemnification provided for in this Section 8 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and for the indemnified party on the other in connection with the
statements or omissions which resulted in such loss, claim, damage, liability or
action as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) In no event shall the obligation of any indemnifying party to contribute
under this Section 8 exceed the amount that such indemnifying party would have
been obligated to pay by way of indemnification if the indemnification provided
for under hereof had been available under the circumstances.
(f) Company and the Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the holders or the underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraphs.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraphs shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
Page 95 of 220
<PAGE>
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this section, no holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of any holder, the Net Proceeds or (ii) in the case of an underwriter, the
total price at which the Covered Shares or Purchased Securities purchased by it
and distributed to the public were offered to the public exceeds, in any such
case, the amount of any damages that such holder or underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(g) The indemnity and contribution agreements contained in this Section 8 shall
remain operative and in full force and effect regardless of (i) any termination
of this Agreement or the Note Purchase Agreement or any underwriting agreement,
(ii) any investigation made by or on behalf of any indemnified party or by or on
behalf of Company, and (iii) the consummation of the sale or successive resales
of the Covered Shares.
Section 9. Information by Holder. Each holder of Covered Shares included in
any registration effected pursuant to this Agreement shall furnish to the
Company such information with respect to such holder and the proposed
distribution by such holder as the Company shall request in writing on a timely
basis and as shall, in the reasonable opinion of Counsel for the Company be
required by Canadian Provincial, U.S. Federal or applicable state securities
laws in connection with such registration effected pursuant to this Agreement.
Section 10. Publicity. The Company agrees that it will not disclose, and will
not include in any public announcement, the name of any holder of the Purchased
Securities or Covered Shares without its consent, unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. The Company agrees that it will deliver a copy of
any public announcement regarding the matters covered by this Agreement or any
agreement and document executed in connection herewith to each
holder and any public announcement including the name of a holder to such
holder, prior to publication of such announcements.
Section 11. Covenants of Company.
(a) Company shall at all times reserve and keep available out of its authorized
but unissued Common Shares, such number of Underlying Shares as shall from time
to time be sufficient to effect the exchange of the outstanding amount of the
Note, and to effect the exercise of the outstanding Warrants, respectively.
(b) Once the Covered Shares are registered pursuant to Sections 3 or 4 herein,
Company will cause the Common Shares to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Exchange Act.
(c) Without limiting the generality of Section 2(c), the Company shall make such
filings and take such actions: (i) as shall be necessary to maintain its status
as a "reporting issuer" not in default, under the laws of the Province of
Page 96 of 220
<PAGE>
Alberta; and (ii) as shall be necessary to maintain the listing and posting of
the Common Shares on the ASE until the Covered Shares shall have been U.S.
Registered for a period of six months.
Section 12. Successors and Assigns. All covenants and agreements in this
Agreement or on behalf of the parties hereto will bind and inure to the benefit
of the respective successors and permitted assigns of the parties hereto.
Section 13. Miscellaneous.
(a) Amendment or Waiver; Assignment. This Agreement may not be modified or
amended without the prior consent of the parties hereto. No failure or delay on
the part of either party in exercising any right hereunder shall operate as a
waiver; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other rights. No waiver
of any such right or amendment hereof shall be effective unless given in
writing. No waiver of any such right shall be deemed a waiver of any other right
hereunder. Neither this Agreement nor any right or benefits hereunder may be
assigned by the Company, but a Purchaser may assign this Agreement and the
rights hereunder, in whole or in part, without the consent of the Company, to
any transferee of any Purchased Securities or any Covered Shares; provided,
however, that such assignment shall not be effected in connection with the
assignment of any Note, unless the requirements for assignment set forth in
Section 15 of the Notes shall have been complied with.
(b) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
(c) Severability. If any provision hereof shall be held to be void, illegal or
unenforceable it shall be deemed severable from the remaining provisions hereof
which shall remain in full force and effect.
(d) Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, seven days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery
if to Liverpool:
The Liverpool Limited Partnership
c/o A.S. & K Services Ltd.
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Attention: Yvonne Powell
Telephone: 011-441-295-2244
Telecopier:011-441-295-5328
Page 97 of 220
<PAGE>
if to Westgate:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Greg Taylor
Telephone: (809) 949-7755
Telecopier:(809) 949-7634
if to the Company
Peak Technologies Inc.
1211 Cornwall Avenue
Bellingham, Washington 98226
Attention: Doug Foster
Telephone: (800) 453-5322
Telecopier:(360) 733-7818
with a copy to:
Bennett Jones Verchere
4500 Bankers Hall East
855 2nd Street S.W.
Calgary, Alberta T2P 4K7
Attention: Chris Brown
Telephone: (403) 298-3651
Telecopier:(403) 265-7219
(e) Governing Law; Jurisdiction.
(i) This agreement and the obligations of the parties hereunder, will be
governed by and construed in accordance with the laws of the State of New York
without regard to any conflicts of laws provisions thereof that would otherwise
require the application of the law of any other jurisdiction.
(ii) Each of the parties irrevocably submits to the exclusive jurisdiction of
any State or Federal Court sitting in the State of New York over any suit,
action, or proceeding arising out of or relating to this Agreement. Each of the
Parties irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
Each party agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon such party in any such suit or
proceeding. Nothing herein shall affect Purchasers' right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
Page 98 of 220
<PAGE>
(iii) Each party hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Agreement. Each party is hereby
authorized to submit, as conclusive evidence of such waiver of jury trial, this
Agreement to a court that has jurisdiction over the subject matter of such
litigation and the parties to this Agreement.
(f) Entire Agreement. This Agreement contains the entire agreement between the
parties relating to the subject matter herein and supersedes all previous oral
statements and other writings with respect thereto.
(g) Headings. The headings of the sections and subsections of this Agreement are
asserted for convenience only and shall not be deemed to constitute a part
hereof.
(h) Execution in Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
PEAK TECHNOLOGIES INC.
By:
Name:
Title:
THE LIVERPOOL LIMITED PARTNERSHIP
By: Liverpool Associates, Ltd.
General Partner
By:
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
Page 99 of 220
<PAGE>
Exhibit 3 - PeakSoft Corporation Register of Options - June 8, 1998
Agmt Name of # of Xfrd Xfrd Issue Expiry Excse Date Number
No. Optionee Options From To Date Date Price Cncld/Excsd/ Excsd
Xfrd
- --------------------------------------------------------------------------------
0 J. Storey 12,000 grtd 8/30/96 8/30/98 0.60
0 A. Wong 12,000 grtd 8/30/96 8/30/98 0.60
0 L. Taylor 20,000 grtd 8/30/96 8/30/98 0.60
0 C. Russell 22,000 grtd 8/30/96 8/30/98 0.60
0 D. Foster 130,625 grtd excsd 5/1/97 5/1/99 0.64 6/17/97 130,625
A01 P. Janssen 75,000 grtd 12/18/97 12/18/99 0.40
A02 D. McInnes 75,000 grtd 12/18/97 12/18/99 0.40
A03 C. Patterson 320,000 grtd A13 12/18/97 12/18/99 0.40 3/27/98 50,000
A04 R. Miles 40,000 grtd cncld 12/18/97 12/18/99 0.40 5/11/98
A05 C. Russell 25,000 grtd 12/18/97 12/18/99 0.40
A06 D. Villareal 20,000 grtd cncld 12/18/97 12/18/99 0.40 5/11/98
A07 J. Storey 18,000 grtd 12/18/97 12/18/99 0.40
A08 A. Wong 18,000 grtd 12/18/97 12/18/99 0.40
A09 M. Ashworth 13,000 grtd cncld 12/18/97 12/18/99 0.40 5/11/98
A10 A. Williams 5,000 grtd 12/18/97 12/18/99 0.40
A11 D. Harvey 5,000 grtd 12/18/97 12/18/99 0.40
A12 C. Woods 5,000 grtd 12/18/97 12/18/99 0.40
A13 C. Patterson 270,000 grtd 3/27/98 12/18/99 0.40
A14 L. Taylor 25,000 grtd 5/26/98 5/26/00 0.30
A15 C. Conti 75,000 grtd 5/26/98 5/26/00 0.30
A16 T. Metz 75,000 grtd 5/26/98 5/26/00 0.30
A17 C. Temple 10,000 grtd 5/26/98 5/26/00 0.30
A18 K. Nelson 2,500 grtd 5/26/98 5/26/00 0.30
A19 D. Harvey 5,000 grtd 5/26/98 5/26/00 0.30
A20 M. Stewart 10,000 grtd 5/26/98 5/26/00 0.30
A21 C. Woods 5,000 grtd 5/26/98 5/26/00 0.30
A22 K. Weick 5,000 grtd 5/26/98 5/26/00 0.30
A23 L. Foster 5,000 grtd 5/26/98 5/26/00 0.30
A24 S. Fu 7,500 grtd 5/26/98 5/26/00 0.30
A25 S. Fowler 50,000 grtd 5/26/98 5/26/00 0.30
A26 W. Baker 25,000 grtd 5/27/98 5/27/00 0.30
A27 F. Burn 5,000 grtd 7/9/98 7/9/00 0.22
A28 J. Boehland 5,000 grtd 7/9/98 7/9/00 0.22
A29 J. Garcia 5,000 grtd 7/9/98 7/9/00 0.22
A30 M. Mandel & 40,000 grtd 7/9/98 7/9/00 0.22
J. Codespoti
(Joint
Tenants)
A31 D. Foster 320,000 grtd 7/9/98 7/9/00 0.22
grtd=Granted
cncld=Cancelled
excsd=Exercised
xfrd=Transferred
Page 100 of 220
<PAGE>
Exhibit 4 - Opinion of Legal Counsel Regarding Shares of Registrant - July 23,
1998
July 23, 1998
United States Securities
and Exchange Commission
Judiciary Plaza
450 Fifth Street N.W.
Washington, D.C.
USA 20549
Dear Sirs:
Re: Peaksoft Corporation
We are counsel to Peaksoft Corporation (the "Corporation") and provide this
letter as an exhibit to the Corporation's Form 20 F.
Subject to the assumptions and limitations described below, we are of the
opinion that when the Corporation issues common shares, such common shares when
issued will be validly issued as fully paid and non-assessable shares in the
capital of the Corporation.
For the purposes of this opinion we assume that at the time of issue of such
common shares:
(a) the directors of the Corporation have duly authorized the issue of such
common shares and have expressed in such authorization the consideration payable
for each common share; and
(b) the Corporation has received the full consideration for such common shares.
We are qualified to practice law in the Province of British Columbia and express
no opinion as to the laws of any other jurisdiction. Our opinion is based upon
our review of such books and records of the Corporation and certificates as have
been available on the date hereof.
Yours truly,
CGB/sle
- 1 -
Page 101 of 220
<PAGE>
Exhibit 5 - Valuation of Chameleon Bridge Technologies Corp. - April 26, 1996
Ralph F. Proceviat, Chartered Accountant
4817 Oaktree Court
Burnaby, B.C. V5G 4K9
(604) 439-7477
Fax (604) 439-0217
April 26, 1996
Mr. Doug Foster
President and CEO
Peak Technologies Inc.
Suite 140, 265 25th Street
West Vancouver, B.C. V7H 4H9
Re: Support for the value of shares of Chameleon Bridge Technologies Corp.
Dear Mr. Foster,
I have been engaged by the management of Peak Technologies Inc. to assist them
in supporting a value of $1,665,000 ($1.11 X 1,500,000 shares) Chameleon Bridge
Technologies Corp. (CBT) as at April 26, 1996, in accordance with the terms of
the engagement letter dated April 22, 1996.
This report is intended to be used solely for the purpose of providing
management with a reasonable assessment, rather than a justification, of the
value placed on CBT's proprietary technology, known as Javalin. Using
information provided by management, a range of estimated values has been
generated to assist management. I have not audited, reviewed or otherwise
attempted to verify the accuracy or completeness of the information provided
by management, therefore readers are cautioned that the range of val
te for their purposes.
My report does not include evaluating the support for the assumptions or other
information underlying the revenue forecasts associated with CBTs proprietary
Javalin technology and products. Accordingly, I do not express an opinion, or
any other form of assurance, on the revenue projections, assumptions and
resulting valuation estimates. Further, since the revenue projections for the
Javalin technology and products are based on assumptions regarding future
events, actual results will vary from the information presented by management.
Furthermore, I have no responsibility to update this report for events and
circumstances occurring after the date of this report.
BACKGROUND
The value attributed by Peak Technologies Inc. to the proprietary technology
developed by CBT is based in part, upon the following factors:
- - An awareness that INTERNET is fast becoming the next potential platform for
the distribution of multimedia content;
- - That Peak is looking to add value to its existing multimedia products,
particularly with products and services associated with the INTERNET.
Page 102 of 220
<PAGE>
- - For Peak, the time to market is of the essence. Peak is looking to leapfrog
its competition, (relative to the market) by getting early access to
proprietary technology. Peaks objective is to become the market leader in
this relatively small but growing and evolving market. Establishing itself
ahead of the market and maintaining an established lead over its competition
positions Peak to set and become the de-facto standard for its respective
industry.
Examples of this strategy include Microsofts introduction of MS DOS, word
Processing and spreadsheet products from Word Perfect and Lotus, a personal
Finance package aimed at home use developed by Quicken and Corel's graphics
Package aimed at PC users as opposed to Mac users.
- - Peak had content but did not have a proprietary technology to leverage its
content and market driven vision. CBT had proprietary technology, product
development and delivery capability, but did not necessarily possess a strong
marketing capability. The synergy arising between the two organizations
results in a competitive advantage for Peak.
- - Peaks vision is to provide real time multimedia over the INTERNET. The
ability to deliver interactive but high volume information via CD-ROM using
traditional distribution channels, can now be combined with the simultaneous
ability to deliver lower volume (due to existing bandwidth limitations with
current INTERNET use) but totally up to date, current information to
customers, in real time. This capability will differentiate Peak from its
competition via the use of enabling technology and the fact that it will
extend the product life cycle of content CD-ROMS (Web Enabled Multimedia).
- - CBT technology will also be packaged in a unique suite of INTERNET performance
improvement software products. These products will generate a new revenue
stream independent of Peaks content.
VALUATION METHODOLOGIES
The following three valuation methodologies were used to estimate the current
value of CBT:
1.0 Best estimates of the net present value of the future cash flows
(net revenues) associated with the Javalin technology and related
products, discounted back to the present at a discount rate that
reflects the risk associated with the company and the rate of return
that investors would expect to generate is view of that risk.
2.0 Best estimate of the replacement value to develop the Javalin
technology and products from "scratch" using a third party software
developer.
3.0 Using comparative market valuations based upon a Price-to-Revenue
multiple for similar companies associated with the INTERNET.
In each of the above methodologies, the Javalin product line revenue projections
were provided by management and are contained in the April 1996 Strategic
Operations Plan. As such, the valuations are contingent upon the company
performing to Plan.
Page 103 of 220
<PAGE>
1.0 Net Present Value Method
Two scenarios were examined using the Net Present Value Method:
- Using cash flows from revenues generated by the sale of Javalin
products for the 24 month period, April 1996-March 1998.
- Using cash flows from revenues generated by the sale of Javalin
products for the 36 month period, April 1996-March 1999.
The following assumptions were used in both cases:
- That revenues in the first 12 months reflect a conservative approach
to to the sale of the Javalin Product
- That unit volumes and selling prices for OEM. Upgrades and Internet
sales are acceptable to the marketplace vis-...-vis the competition
- Javalin revenues are stated net of cost of sales
- A discount factor of 25% was used to reflect the high risk nature of
the investment
RESULTS:
The net present value analysis indicates an estimated valuation of $4,609,978
for the 24 month period and $10,960,265 for the 36 month period.
(See Appendices 1 and 2 for details.)
2.0 Replacement Value Method
This method reflects the estimated costs for Peak to develop the Javalin
Technology from scratch using a team of external consultants. The following
factors have been considered in establishing the costs to duplicate the
proprietary core technology developed by CBT:
- Java language skills may not be easily available on a contract
basis.
- The core development team of CBT, with a combined 25 man years of
experience, has established a proven track record for delivering
marketable products. - CBT was able to benefit from a lower salary
component as a result of pay cuts taken by members of the
development team and staff. - Using outside consultants will
necessitate the need for more man days because of the steep learning
curve associated with this type of development and the requirement
to provide corporate resources to manage third party consultants. -
There is no guarantee that the products will be delivered on time,
on budget and according to specifications. - Time to market is
critical-the CBT technology provides a 6-12 month head start.
The following assumptions were used in the analysis of replacement cost:
- The rate for outside consultants is estimated at $1,200 per day (the
daily rate as published by Andersen Consulting ranges from
$800-$1500).
Page 104 of 220
<PAGE>
- Man days to develop the proprietary Javalin technology is estimated
at 1,560 (6 engineers working 260 days per year).
- A 10-15% overhead factor was applied to total people costs to cover
G&A, hardware, premises, telephone, travel, management overhead,
etc.
RESULT:
An estimated replacement value in the range of $2.1-2.2 million would be
realistic if the development of the Javalin technology was contracted out to
third party development shop. (See Appendix 3 for details).
3.0 Price-to-Revenue Multiple
This valuation methodology is similar to the Price/Earnings methodology.
However, as with many high technology companies involved on the INTERNET,
earnings and earnings history is lacking. As a result, any near-term
earnings based valuation methodology is essentially meaningless. INTERNET
based companies are focused on securing proprietary content and market
share thus a valuation based upon revenues better captures the value of
what the company has created.
This valuation methodology is used more for comparative purposes and
Produces the most extreme value for CBTs proprietary technology. Examples
Of recent valuations of U.S. INTERNET based companies using this method
Include:
- Netscape Communications Corporation-range between 75x and 12.5
calendar 1997 revenues (1)
- Spyglass Inc.-currently trading at 10.0x estimated calendar 1996
revenues and at approximately 8.0x estimated calendar 1997 revenues
(1)
(1)Source: Smith Barney - Special Situation Research - The Internet and the
Online Services Segment: Content, Access and Equity Valuations -
Jonathan H. Cohen - Dec. 11, 1995.
Comparable Canadian companies:
- SoftQuad International Inc.-(SKI)-Toronto A leading vendor of
electronic publishing for use on the INTERNET Market Cap at end of
March 1996-$61,816,352 (7.8x1995 Revenue)
- Totally Hip-THW (ASE) Provides technology to the authoring tools
market for multimedia on Bandwidth-constrained networks on the
INTERNET Market Cap at April 25, 1996-$21,600,000-$1.80 per share
RESULT:
Based upon the estimated 1997 fiscal year Javalin product revenues of $6,304,000
and using a Price-to-Revenue multiple ranging between 2x and 5x, the estimated
value for CBT would lie between $12-32 million.
Page 105 of 220
<PAGE>
CONCLUSION
Based upon the information supplied by management and its ability to meet its
revenue targets as outlined in the April 1996 Strategic Operations Plan, my
analyses using three valuation methods, suggests that a value of $1,665,000 for
the shares of Chameleon Bridge Technologies Corp. is supportable.
If you have any questions, please do not hesitate to contact me.
Yours sincerely,
Ralph Proceviat, CA
Page 106 of 220
<PAGE>
Appendix 1
Peak Technologies Inc.
Support for Valuation of Chameleon Bridge Technologies Corp. (CBT)
Prepared: April 25, 1996
Source: Peak Technologies Inc.-Strategic Operations Plan (April 1996)
Net incremental proforma revenues associated with JAVALIN Technology and
Products:
UNITS SELLING PRICE REVENUE
Month OEM Upgrade Internet OEM Upgrade Internet OEM Upgrade Internet Total
Sales Sales Sales Net Mo.
Revenue
- --------------------------------------------------------------------------------
Apr96 $3.00 $0.00 0.00 0 0 0 0
May96 3.00 0.00 0.00 0 0 0 0
Jun96 3.00 0.00 0.00 0 0 0 0
Jul96 1,500 3.00 0.00 0.00 0 0 0 0
Aug96 1,500 3.00 0.00 0.00 0 0 0 0
Sep96 2,000 3.00 0.00 0.00 0 0 0 0
Oct96 2,200 3.00 0.00 0.00 0 0 0 0
Nov96 2,500 3.00 0.00 0.00 0 0 0 0
Dec96 2,500 3.00 0.00 0.00 0 0 0 0
Jan97 2,500 3.00 25.00 50.00 0 0 125,000 125,000
Feb97 3,500 3,000 3.00 25.00 50.00 10,500 0 150,000 160,500
Mar97 4,000 525 3,000 3.00 25.00 50.00 12,000 13,125 150,000 175,125
Apr97 25,000 600 3,000 3.00 40.00 50.00 75,000 24,000 150,000 249,000
May97 25,000 3,750 3,500 3.00 40.00 50.00 75,000 150,000 175,000 400,000
Jun97 25,000 3,750 4,000 3.00 40.00 50.00 75,000 150,000 200,000 425,000
Jul97 25,000 3,750 4,000 3.00 40.00 50.00 75,000 150,000 200,000 425,000
Aug97 30,000 3,750 5,000 3.00 40.00 50.00 90,000 150,000 250,000 490,000
Sep97 30,000 4,500 5,000 3.00 40.00 50.00 90,000 180,000 250,000 520,000
Oct97 30,000 4,500 6,000 3.00 40.00 50.00 90,000 180,000 300,000 570,000
Nov97 30,000 4,500 6,000 3.00 40.00 50.00 90,000 180,000 300,000 570,000
Dec97 30,000 4,500 7,500 3.00 40.00 50.00 90,000 180,000 375,000 645,000
Jan98 30,000 4,500 8,000 3.00 40.00 50.00 90,000 180,000 400,000 670,000
Feb98 30,000 4,500 8,000 3.00 40.00 50.00 90,000 180,000 400,000 670,000
Mar98 30,000 4,500 8,000 3.00 40.00 50.00 90,000 180,000 400,000 670,000
Apr98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
May98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Jun98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Jul98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Aug98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Sep98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Oct98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Nov98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Dec98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Jan99 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Feb99 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Mar99 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Totals
Page 107 of 220
<PAGE>
UNITS REVENUE
OEM Upgrade Internet OEM Upgrade Internet Total Net
Sales Sales Mo. Revenue
- --------------------------------------------------------------------------------
36 Mo.
Total 707,500 167,625 208,700 2,122,500 6,697,125 9,825,000 18,644,625
Net Present Value of Discounted Net Revenue from the Javalin Product Line (24
months-April 1996-March 1998):
NPV
Discount Rate 25.00% 4,609,978
Discount Rate 20.00% 4,971,863
Discount Rate 15.00% 5,365,152
Discount Rate 10.00% 5,792,808
Annual Revenue
Year 1 460,625
Year 2 6,304,000
Year 3 11,880,000
Total 18,644,625
UNITS SELLING PRICE REVENUE
Page 108 of 220
<PAGE>
Appendix 2
Peak Technologies Inc.
Support for Valuation of Chameleon Bridge Technologies Corp. (CBT)
Prepared: April 26, 1996
Source: Peak Technologies Inc.-Strategic Operations Plan (April 1996)
Net incremental proforma revenues associated with JAVALIN Technology and
Products:
Month OEM Upgrade Internet OEM Upgrade Internet OEM Upgrade Internet Total
Sales Sales Sales Net Mo.
Revenue
- --------------------------------------------------------------------------------
Apr96 3.00 0.00 0.00 0 0 0 0
May96 3.00 0.00 0.00 0 0 0 0
Jun96 3.00 0.00 0.00 0 0 0 0
Jul96 1,500 3.00 0.00 0.00 0 0 0 0
Aug96 1,500 3.00 0.00 0.00 0 0 0 0
Sep96 2,000 3.00 0.00 0.00 0 0 0 0
Oct96 2,200 3.00 0.00 0.00 0 0 0 0
Nov96 2,500 3.00 0.00 0.00 0 0 0 0
Dec96 2,500 3.00 0.00 0.00 0 0 0 0
Jan97 2,500 3.00 25.00 50.00 0 0 125,000 125,000
Feb97 3,500 3,000 3.00 25.00 50.00 10,500 0 150,000 160,500
Mar97 4,000 525 3,000 3.00 25.00 50.00 12,000 13,125 150,000 175,125
Apr97 25,000 600 3,000 3.00 40.00 50.00 75,000 24,000 150,000 249,000
May97 25,000 3,750 3,500 3.00 40.00 50.00 75,000 150,000 175,000 400,000
Jun97 25,000 3,750 4,000 3.00 40.00 50.00 75,000 150,000 200,000 425,000
Jul97 25,000 3,750 4,000 3.00 40.00 50.00 75,000 150,000 200,000 425,000
Aug97 30,000 3,750 5,000 3.00 40.00 50.00 90,000 150,000 250,000 490,000
Sep97 30,000 4,500 5,000 3.00 40.00 50.00 90,000 180,000 250,000 520,000
Oct97 30,000 4,500 6,000 3.00 40.00 50.00 90,000 180,000 300,000 570,000
Nov97 30,000 4,500 6,000 3.00 40.00 50.00 90,000 180,000 300,000 570,000
Dec97 30,000 4,500 7,500 3.00 40.00 50.00 90,000 180,000 375,000 645,000
Jan98 30,000 4,500 8,000 3.00 40.00 50.00 90,000 180,000 400,000 670,000
Feb98 30,000 4,500 8,000 3.00 40.00 50.00 90,000 180,000 400,000 670,000
Mar98 30,000 4,500 8,000 3.00 40.00 50.00 90,000 180,000 400,000 670,000
Apr98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
May98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Jun98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Jul98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Aug98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Sep98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Oct98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Nov98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Dec98 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Jan99 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Feb99 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Mar99 30,000 10,000 10,000 3.00 40.00 50.00 90,000 400,000 500,000 990,000
Totals
Page 109 of 220
<PAGE>
UNITS REVENUE
OEM Upgrade Internet OEM Upgrade Internet Total Net
Sales Sales Mo. Revenue
- --------------------------------------------------------------------------------
36 Mo.
Total 707,500 167,625 208,700 2,122,500 6,697,125 9,825,000 18,644,625
Net Present Value of Discounted Net Revenue from the Javalin Product Line (36
months-April 1996-March 1999):
NPV
Discount Rate 25.00% 10,960,265
Discount Rate 20.00% 12,159,339
Discount Rate 15.00% 13,505,954
Discount Rate 10.00% 15,019,985
Annual Revenue
Year 1 460,625
Year 2 6,304,000
Year 3 11,880,000
Total 18,644,625
Page 110 of 220
<PAGE>
Appendix 3
Peak Technologies Inc.
Support for Valuation of Chameleon Bridge Technologies Corp. (CBT)
Prepared: April 25, 1996
INTERNAL COSTS TO DEVELOP JAVALIN
Third Party Costs:
Hardware
Hardware Maintenance
Software Licences
Software Maintenance
Third Party Tools
Total Third Party Costs 65,933
Internal Costs:
Human Resources(1)
Capitalized wages and benefits
Total Human Resource Costs 468,810
Total Development Costs 534,743
(1) Software development activities include:
Developing Functional Specifications
Developing System Specifications
Designing, Building, Testing, Interfacing
Documentation, Training, Project Management
(3) The company also incurred $156,440 in general and admin. expenses which the
company chose to charge to the P&L.
Page 111 of 220
<PAGE>
ESTIMATED REPLACEMENT COST TO DEVELOP JAVALIN
Third Party Costs:
Hardware
Hardware Maintenance
Software Licences
Software Maintenance
Third Party Tools
Total Third Party Costs 75,000
Consulting Costs
Human Resources(2)
Man Years=6
Man days/yr=260
Total Man day=1,560
Cost/day(2)=$1,200
Total Human Resource Costs 1,872,000
Total Costs before overhead 1,947,000 1,947,000
Overhead 10.00% 187,200 15.00% 280,800
Total Development Costs 2,134,200 2,227,800
(2) Average Daily rate with a reputable development house such as Andersen
Consulting or DMR would average $1000 per day plus expenses.
Extra man year added due to learning curve factor.
Page 112 of 220
<PAGE>
Exhibit 6 - Security Agreement - September 9, 1997
This SECURITY AGREEMENT, dated as of September 9, 1997, is made by PEAK
TECHNOLOGIES INC., a corporation organized under the laws of the province of
Alberta (the "Company"), with its principal offices located at 1211 Cornwall
Avenue, Bellingham, Washington, 98226 and by PEAK MEDIA INC., a corporation
organized under the laws of the State of Washington, with its principal offices
located at 1211 Cornwall Avenue, Bellingham, Washington, 98226 (the "Grantor",
and together with the Company, the "Debtors"), in favor of WESTGATE
INTERNATIONAL, L.P., a Cayman Islands limited partnership ("Westgate") and THE
LIVERPOOL LIMITED PARTNERSHIP, a Bermuda limited partnership ("Liverpool" and
together with Westgate, the "Lenders"), severally and not jointly.
W I T N E S S E T H :
WHEREAS, the Company and Lenders have entered into a Note Purchase Agreement
dated September 9, 1997 (as the same may be amended or modified from time to
time, together with all exhibits and schedules, the "Note Purchase Agreement")
which provides for Lenders to purchase from the Company 12% Senior Notes (the
"Notes") of the Company on the terms and conditions set forth therein; and
WHEREAS, the Grantor, a wholly-owned subsidiary of the Company, has guaranteed
the Company's obligations under the Notes, pursuant to subsidiary guaranties,
dated the date hereof (the "Subsidiary Guaranty);
WHEREAS, it is a condition to the purchase of the Notes under the Note Purchase
Agreement that the Debtors shall have executed and delivered to the Lenders a
security agreement providing for the grant to Lenders of a security interest in
all accounts receivable and inventory of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein and in order to induce the Lenders to purchase the Notes pursuant to the
Note Purchase Agreement, the Debtors hereby agree with Lenders as follows:
SECTION 1: DEFINITIONS
1.1 Definitions. The following words shall have the following meanings when used
in this Security Agreement. All terms used herein not otherwise defined in this
Security Agreement shall have the meanings attributed to such terms in the Note
Purchase Agreement, and if not defined in the Note Purchase Agreement, then the
New York Uniform Commercial Code, as may be amended from time to time. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
"Account Debtor" means any person who is or who may become obligated under, with
respect to, or on account of an Account.
"Accounts" means all presently existing and hereafter arising accounts, contract
rights, and all other forms of obligations owing to the Debtors or any
Subsidiaries or joint ventures thereof arising out of the sale or lease of goods
or the rendition of services by such persons, or arising out of the sale or
lease of goods or the rendition of services by a person other than such persons
Page 113 of 220
<PAGE>
and acquired by such persons from such person by assignment or purchase,
including, without limitation, rights to payment with respect to accounts
of the direct or indirect Subsidiaries of the Debtors that are sold or assigned
to the Debtors, irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.
"Collateral" means each of the following: the Accounts; the Inventory; and the
proceeds and products, whether tangible or intangible, of any of the foregoing
including proceeds of insurance covering any or all of the Collateral, and any
and all tangible or intangible, real or personal, property resulting from the
sale, exchange, collection, or other disposition of the Collateral, or any
portion thereof or interest therein, and the proceeds of any and all of the
foregoing.
"Event of Default" means and includes any of the Events of Default set forth in
Section 3.1.
"Indebtedness" means all amounts due and owing to the Lenders pursuant to the
Notes, the Subsidiary Guaranty, and the Note Purchase Agreement together with
all reasonable expenses relating to enforcement thereof, including, without
limitation, reasonable legal fees.
"Inventory" means all present and future inventory in which the Debtors or any
Subsidiaries or joint ventures thereof have any interest, including goods held
for sale or lease or to be furnished under a contract of service and all of
such persons' present and future raw materials, work in process, finished goods,
and packing and shipping materials, wherever located, and any documents of title
representing any of the above.
"Registration Rights Agreement" means the Registration Rights Agreement, dated
as of September 9, 1997 by and among the Company and the Lenders.
"Security Agreement" means this Security Agreement, as this Security Agreement
may be amended or modified from time to time, together with all exhibits and
schedules attached to this Security Agreement from time to time.
"Subsidiary" means each subsidiary (as defined under U.S. generally accepted
accounting principles) of the Debtors.
SECTION 2: GRANT OF SECURITY INTEREST; OBLIGATIONS OF THE COMPANY
2.1 Grant of Security Interest. As collateral security for all of the
Indebtedness, the Debtors hereby grant to Lenders a continuing first security
interest in all currently existing and hereafter acquired or arising Collateral
to secure prompt repayment of any and all Indebtedness and to secure prompt
performance by the Company of each of their covenants and duties under the Note
Purchase Agreement, the Subsidiary Guaranty and the Registration Rights
Agreement. The Debtors further agree that Lenders shall have the rights stated
in this Security Agreement with respect to the Collateral in addition to all
other rights which Lenders may have by law.
2.2 Representations and Obligations of the Company. Each of the Debtors
represents, warrants and covenants to Lenders as follows:
Page 114 of 220
<PAGE>
(a) Perfection of Security Interest. Each of the Debtors agrees to execute at
any time and from time to time such financing statements and to take whatever
other actions are requested by Lenders to perfect and continue Lenders' security
interest in the Collateral. Upon request of the Lenders, each Debtor will
deliver to the Lenders copies of any and all documents evidencing or
constituting the Collateral and upon request of the Lenders following the
occurrence of an Event of Default (as defined in Section 3.1 hereof), such
Debtor will deliver the originals of such documents to the Lenders. Upon request
of the Lenders, the Debtors will note Lenders' interest, as the case may be,
upon any and all Accounts if not delivered to Lenders for possession by Lenders.
Lenders may at any time and from time to time, and without further authorization
from the Debtors, file a carbon, photographic or other reproduction of any
financing statement or of this Security Agreement for use as a financing
statement. The Debtors will reimburse Lenders for all reasonable expenses for
the perfection and the continuation of the perfection of Lenders' security
interest in the Collateral. Each Debtor will promptly notify Lenders of any
change in its name including any change to the assumed business names of such
Debtor. This is a continuing Security Agreement and will continue in effect
until all of the Indebtedness is paid in full and Lenders shall release their
interest in the Collateral upon the full and final payment and satisfaction of
the Indebtedness. If payment is made by a Debtor, whether voluntarily or
otherwise, or by any third party, on the Indebtedness and thereafter Lenders are
forced to remit the amount of that payment to such Debtors trustee in bankruptcy
or to any similar person under any federal, state or foreign bankruptcy law or
other law for the relief of debtors, the Indebtedness shall be considered unpaid
for the purpose of enforcement of this Security Agreement.
(b) Power of Attorney. Each Debtor hereby irrevocably makes, constitutes, and
appoints each Lender (and all of such Lender's general partners, officers,
employees, or agents designated by such Lender) as its true and lawful attorney,
with power to: (i) sign such Debtor's name on any of the documents described
hereunder or on any other similar documents to be executed, recorded, or filed
in order to perfect or continue perfected Lenders' security interest in the
Collateral; (ii) at any time that an Event of Default has occurred and is
continuing, execute, sign and endorse such Debtor's name on any invoice or bill
of lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (iii) send requests for verification of Accounts; (iv) at any time that
an Event of Default has occurred and is continuing, execute, sign and endorse
the such Debtor's name on any checks, notices, instruments, acceptances, money
orders, drafts, warrants or other item of payment or security that may come into
Lenders' possession; (v) at any time that an Event of Default has occurred and
is continuing, demand, collect, receive, receipt for, sue and recover all sums
of money or other property which may now or hereafter become due, owing or
payable from the Collateral; (vi) file any claim or claims or, following an
Event of Default, take any action or institute or take part in any proceedings,
either in its own name or in the name of such Debtor, or otherwise, which in the
discretion of Lenders may seem to be necessary or advisable; (vii) at any time
that an Event of Default has occurred and following acceleration of the
Indebtedness, direct the Account Debtors and other persons sending mail to the
Debtors to send all mail relating to the Collateral to the Lenders; (viii) at
any time that an Event of Default has occurred and is continuing, make, settle,
and adjust all claims under the Debtors policies of insurance and make all
determinations and decisions with respect to such policies of insurance; and
(ix) at any time that an Event of Default has occurred and following
Page 115 of 220
<PAGE>
acceleration of the Indebtedness, settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms which Lenders determine to be reasonable, and Lenders may cause to be
executed and delivered any documents and releases which Lenders determine to be
necessary. The appointment of Lenders as such Debtor's attorneys, and each and
every one of Lenders' rights and powers, being coupled with an interest, is
irrevocable and shall remain in full force and effect until all of the
Indebtedness has been fully repaid and performed and Lenders renounce such
appointment.
(c) No Violation. The execution and delivery of this Security Agreement does not
violate any law or agreement governing any Debtor or to which any Debtor is a
party, and the Debtors' certificate or articles of incorporation and bylaws or
other constating documents do not prohibit any term or condition of this
Security Agreement. The execution and delivery hereof is in the interest of the
Debtors.
(d) Enforceability of Collateral. With respect to the Accounts, the Collateral
is enforceable in accordance with its terms, is genuine, and complies in all
material respects with applicable laws concerning form, content and manner of
preparation and execution, and, to the best the knowledge of the Debtors, all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are in fact obligated as they appear to be on the Collateral.
(e) Accounts. All Accounts existing as of the date hereof are good and valid
Accounts representing an undisputed, bona fide indebtedness incurred by the
Account Debtors, and there exists no set-offs or counterclaims against any such
Accounts and no agreements under which any deductions or discounts may be
claimed with any Account Debtor except as disclosed to Lenders in writing.
(f) Removal of Collateral; Transactions Involving Collateral. To the extent the
Collateral consists of Accounts, the records and other documents pertaining to
the Collateral shall be kept at the offices of the Debtors at 1211 Cornwall
Avenue, Bellingham, Washington 98226, or at such other locations as are
reasonably acceptable to Lenders. Except for transactions in the ordinary course
of business in accordance with past practice or for sales or dispositions on
arms length terms and for fair equivalent value, the Debtors shall not sell,
offer to sell, or otherwise transfer, dispose of or encumber the Collateral. The
Debtors shall not pledge, mortgage, encumber or otherwise permit the Collateral
to be subject to any lien, security interest, encumbrance, or charge, other than
the security interest provided for in this Security Agreement and Permitted
Liens (as set forth in the Note Purchase Agreement), without the prior written
consent of Lenders which may be withheld for any reason in Lenders sole
discretion; provided however, that the Debtors may grant a junior lien in the
Collateral to a person other than the Lenders if: (i) a majority in interest of
the holders of the Notes shall have consented; (ii) the book value (determined
in accordance with generally accepted accounting principles consistently
applied) of the Inventory and Accounts is in excess of two times the difference
between (A) the principal and accrued interest outstanding on the Notes and (B)
the amount in cash held in the Escrow Account (as defined in the Note Purchase
Agreement); and (iii) the junior secured party shall have entered into a
subordination agreement with the Lenders, in form and substance reasonably
satisfactory to the Lenders. This Subsection applies to all security interests
even if junior in right to the security interests granted under this Security
Agreement.
Page 116 of 220
<PAGE>
(g) Title. The Debtors represent and warrant to Lenders that as of the date
hereof, the Grantor holds good and marketable title to the Collateral, free and
clear of all liens and encumbrances except for the lien of this Security
Agreement and Permitted Liens. No financing statement or other evidence of a
lien or transfer covering any of the Collateral is on file in any public office
in any jurisdiction other than those which reflect the security interest created
by this Security Agreement or Permitted Liens. The Debtors shall defend Lenders
rights in the Collateral against any and all claims and demands.
(h) Prepayments. The Debtors represent and warrant to Lenders that none of the
Collateral has been prepaid by any Account Debtor for any Accounts.
(i) Collateral Schedules and Locations. Upon Lenders' request, on a monthly
basis, the Debtors shall deliver to Lenders schedules of the Collateral,
including such information as Lenders may require, including without limitation
names and addresses of Account Debtors and agings of Accounts, including without
limitation the location of mobile goods or changes in any certificates of title.
The Debtors represent and warrant to Lenders that a detailed list of the
Collateral existing as of the date hereof is set forth on Schedule A attached
hereto, and such Schedule A (x) is true, accurate and complete in all material
respects, (y) identifies those items of Collateral which contain a certificate
of title along with the jurisdiction of such certificates, and (z) those items
of Collateral which are mobile goods along with the present location of such
goods. Schedule A shall be updated monthly by the Debtors to reflect any changes
thereto.
(j) Application of Payments Received With Respect to Collateral. Any amounts
received by or on behalf of the Debtors with respect to any Account pledged as
Collateral hereunder shall be applied in accordance with the Notes.
(k) Possession and Collection of Accounts. Following an Event of Default and
following acceleration of the Indebtedness, the records and documents evidencing
the Accounts pledged as Collateral hereunder shall, upon Lenders request, be
delivered to Lenders or their agent and held in accordance with the terms of
this Security Agreement.
(l) Maintenance and Inspection of Collateral. The Debtors shall maintain or
cause to be maintained all tangible Collateral in good condition and repair
except for ordinary wear and tear. The Debtors will not commit or permit
material damage to or destruction of the Collateral or any material part of the
Collateral. Lenders and their designated representatives and agents shall have
the right at all reasonable times, upon reasonable advance notice, to examine,
inspect, and audit the Collateral wherever located and the books, records or any
property which is otherwise used in connection with the Collateral. The Debtors
shall immediately notify Lenders of all material cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events materially adversely
affecting the Collateral or the value or the amount of the Collateral.
(m) Taxes, Assessments and Liens. The Debtors will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Security Agreement, upon the Notes or any other promissory note or notes
evidencing the Indebtedness, or upon the Note Purchase Agreement, the Subsidiary
Guaranty, or the Registration Rights Agreement. The Debtors may withhold any
Page 117 of 220
<PAGE>
such payment or may elect to contest any lien if the Debtors are in good faith
conducting an appropriate proceeding to contest the obligation to pay and so
long as Lenders interest in the Collateral is not jeopardized in Lenders sole
reasonable opinion. If any of the Collateral is subjected to a lien which is not
discharged within thirty (30) days, the Debtors shall deposit with Lenders cash,
a sufficient corporate surety bond or other security satisfactory to Lenders (in
their discretion) in an amount adequate to provide for the discharge of the lien
plus any interest, reasonable costs, attorneys fees or other charges that could
accrue as a result of foreclosure or sale of the Collateral. In any contest the
Debtors shall defend themselves and Lenders and shall satisfy any final adverse
judgment before enforcement against the Collateral. The Debtors shall name
Lenders as an additional obligee under any surety bond furnished in such contest
proceedings.
(n) Incorporation by Reference. The Debtors hereby restate and affirm all
representations, warranties and agreements contained in the Note Purchase
Agreement, the terms and conditions of which are hereby incorporated herein by
reference.
(o) Compliance With Governmental Requirements. The Debtors shall comply promptly
with all laws, ordinances and regulations of all governmental authorities
applicable to the production, disposition, or use of the Collateral,
non-compliance with which would have a material adverse effect on the Collateral
or the business of the Debtors. The Debtors may contest in good faith any such
law, ordinance or regulation and withhold compliance during any proceeding,
including appropriate appeals, so long as Lenders interest in the Collateral, in
Lenders sole reasonable opinion, is not jeopardized.
(p) Insurance. The Debtors shall comply with all insurance requirements and
provisions set forth in the Note Purchase Agreement.
(q) The Companys Right to Possession and to Collect Accounts. Until the
occurrence of an Event of Default and acceleration of Indebtedness and except as
otherwise provided herein with respect to the Accounts, the Debtors may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Security Agreement or the Transaction Documents, provided that the Debtors right
to possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by Lenders is required by law to perfect Lenders
security interest in such Collateral. At any time an Event of Default and
following acceleration of Indebtedness, Lenders may exercise their right to
directly collect the Accounts and to notify Account Debtors to make payments
directly to Lenders for application to the Indebtedness, and the Debtors
authorize and direct the Account Debtors, if Lenders exercise such right, to
make payments on the Accounts to Lenders. If Lenders at any time have possession
of any Collateral, whether before or after an Event of Default, Lenders shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral if Lenders take such action for that purpose as the Company shall
reasonably request or as Lenders, in Lenders' sole reasonable discretion, shall
deem appropriate under the circumstances, but failure to honor any request by
the Company shall not of itself be deemed to be a failure to exercise reasonable
care. Lenders shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Collateral. Lenders shall
have the right to direct who shall collect and service the Accounts.
Page 118 of 220
<PAGE>
(r) Transactions with Others. Lenders may (i) extend time for payment or other
performance, (ii) grant a renewal or change in terms or conditions, or (iii)
compromise, compound or release any obligation, with the Debtors, endorsers or
any guarantor of the Indebtedness as Lenders deem advisable, without obtaining
the prior written consent of the Debtors, and no such act or failure to act
shall affect Lenders rights against the Debtors or the Collateral.
(s) Expenditures by Lenders. If not discharged or paid when due, and provided
that such items have not been contested as permitted herein Lenders may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by the Company under this Security Agreement, including
without limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lenders also may (but
shall not be obligated to) pay all reasonable costs for insuring, maintaining
and preserving the Collateral. All such expenditures incurred or paid by Lenders
for such purposes will then bear interest at the then rate charged under the
Notes from the date incurred or paid by Lenders to the date of repayment by the
Company. All such expenses shall become a part of the Indebtedness and, at
Lenders' option, will (i) be payable on demand or (ii) be added to the balance
of the Notes, becoming a part of the outstanding principal amount due and
payable on the applicable Interest Payment Dates (as defined in the Notes). This
Security Agreement also will secure payment of these amounts. Such right under
this subsection shall be in addition to all other rights and remedies to which
Lenders may be entitled upon the occurrence of an Event of Default.
(t) Sale or Factoring of Accounts; Release of Accounts. Except with respect to
Permitted Liens, the Debtors shall not sell or otherwise transfer or encumber
any of the Accounts without Lenders' written consent. It is expressly agreed
that Lenders are under no obligation to grant such a consent and will do so only
in its sole and absolute discretion on terms and conditions they deem acceptable
in their sole and absolute discretion.
(u) Location. The Debtors represent and warrant that all of the Collateral is
located in the United States.
(v) In the event that in the future, any Accounts or Inventory are held by
Subsidiaries, affiliates or joint ventures of the Company other than the
Grantor, then the Company shall cause such entities to grant the Lenders an
exclusive first priority lien in such Accounts and Inventory, to cause such
entities to enter into security agreements reasonably satisfactory to Lenders,
and to take all actions necessary to perfect such security interests.
SECTION 3: EVENTS OF DEFAULT; REMEDIES
3.1 Events of Default. Each of the following shall constitute an Event of
Default under this Security Agreement:
(a) Event of Default under Note Purchase Agreement or Other Documents. The
occurrence of an Event of Default under the Note Purchase Agreement, the
Subsidiary Guaranty or the Notes.
(b) Other Defaults. Failure of any Debtor to comply with or to perform when due
or required (after any applicable cure period) any term, obligation, covenant or
condition contained in this Security Agreement, the Subsidiary Guaranty, in the
Page 119 of 220
<PAGE>
Note Purchase Agreement, or in any other agreement or instruments between
Lenders and the Debtors.
(c) False Statements. Any warranty, representation or statement made or
furnished to Lenders by or on behalf of the Debtors under this Security
Agreement, the Note Purchase Agreement, the Subsidiary Guaranty, or the
Registration Rights Agreement is false or misleading in any material respect,
either now or at the time made or furnished.
(d) Defective Collateralization. As a result of any act or failure to act by the
Debtors, this Security Agreement, the Note Purchase Agreement, the Subsidiary
Guaranty or Registration Rights Agreement ceases to be in full force and effect
(including failure of the to create a valid and perfected security interest or
lien as intended) at any time and for any reason, or if any of the Collateral is
materially impaired.
(e) Insolvency. The dissolution or termination of any Debtor's existence as a
going business, the insolvency of any Debtor, the appointment of a receiver for
any part of such Debtor's property, any assignment for the benefit of creditors,
or the commencement of any insolvency proceeding by or against any of the
Debtors, which proceeding shall not have been dismissed within sixty (60) days
thereafter.
(f) Creditor Proceedings. Commencement of foreclosure, whether by judicial
proceeding, self-help, repossession or any other method, by any creditor of the
Debtors (with respect to indebtedness equal to or in excess of $25,000) against
the Collateral or any other collateral securing the Indebtedness. This includes
a garnishment of any of any Debtors accounts, including without limitation
deposit accounts. However, this Event of Default shall not apply if there is a
good faith dispute by the Debtors as to the validity or reasonableness of the
claim which is the basis of the creditor proceeding and if the Debtors gives
Lenders written notice of the creditor proceeding and deposits with Lenders
monies or a surety bond for the creditor proceeding, in an amount determined by
Lenders, in their sole discretion, as being an adequate reserve or bond for the
dispute.
(g) Material Adverse Change. Lenders shall have determined in good faith (which
determination shall be conclusive) that a material adverse change has occurred
in the condition, value or operation of a material portion of the Collateral.
3.2 Rights and Remedies on Default. If an Event of Default occurs and is
continuing under this Security Agreement, at any time thereafter, Lenders shall
have all the rights of a secured party under the New York Uniform Commercial
Code. In addition and without limitation, Lenders may exercise any one or more
of the following rights and remedies:
(a) Accelerate Indebtedness. Lenders may declare the entire Indebtedness
immediately due and payable, upon three business days notice, if prior notice
with respect to the Event of Default shall not have been previously given.
(b) Assemble Collateral. Lenders may require the Debtors to deliver to Lenders
all or any portion of the Collateral and other documents relating to the
Collateral. Lenders may require the Debtors to assemble the Collateral and make
it available to Lenders at a place to be designated by Lenders. Lenders also
shall have full power to enter upon the property of the Debtors to take
possession of and remove the Collateral.
Page 120 of 220
<PAGE>
(c) Sell the Collateral. Lenders shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name or
that of the Debtors. Lenders may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Lenders will give the Debtors
reasonable notice of the time after which any private sale or any other intended
disposition of the Collateral is to be made. The requirements of reasonable
notice shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the disposition of the
Collateral, including without limitation the expenses of retaking, holding,
insuring, preparing for sale and selling the Collateral, shall become a part of
the Indebtedness secured by this Security Agreement and shall be payable on
demand, with interest at the lower of eighteen percent (18%) per annum or the
highest rate permitted by law from date of expenditure until repaid.
(d) Foreclosure. Maintain a judicial suit for foreclosure and sale of the
Collateral.
(e) Appoint Receiver. To the extent permitted by applicable law, Lenders shall
have the following rights and remedies regarding the appointment of a receiver:
(i) Lenders may have a receiver appointed as a matter of right, and (ii) all
reasonable fees of the receiver and the receivers attorney shall become part of
the Indebtedness secured by this Security Agreement and shall be payable on
demand, with interest at the lower of eighteen percent (18%) per annum or the
highest rate permitted by law from date of expenditure until repaid.
(f) Transfer Title. Effect transfer of title upon sale of all or part of the
Collateral. For this purpose, the Debtors irrevocably appoints Lenders, acting
singly, as its attorneys-in-fact to execute endorsements, assignments and
instruments in the name of the Debtors as shall be necessary or reasonable.
(g) Collect Revenues, Apply Accounts. Lenders, either themselves or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lenders may at any time in their discretion transfer any Collateral
into their own names or that of their nominees and receive the payments, rents,
income, and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in such order of
preference as Lenders may determine. Lenders may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lenders may determine, whether or not the Indebtedness is then due. For these
purposes, Lenders may, on behalf of and in the name of the Debtors, following an
Event of Default and acceleration of Indebtedness, direct Account Debtors and
other parties sending mail relating to the Collateral to Debtors, to send such
mail directly to the Lenders; and endorse notes, checks, drafts, money orders,
documents of title, instruments and items pertaining to payment, shipment, or
storage of any Collateral. To facilitate collection, Lenders may, following an
Event Default, notify Account Debtors and obligors on any Collateral to make
payments directly to Lenders.
(h) Obtain Deficiency. If Lenders choose to sell any or all of the Collateral
and/or pursue any other remedy available hereunder, under any other agreement,
at law or in equity, Lenders may obtain a judgment against the Debtors for any
deficiency remaining on the Indebtedness due to Lenders after application of all
amounts received from the exercise of the rights provided in this Security
Agreement. The Debtors shall be liable for a deficiency even if the transaction
described in this Subsection is a sale of accounts or chattel paper.
Page 121 of 220
<PAGE>
(i) Application of Proceeds. The proceeds of any foreclosure or realization upon
the Collateral shall be applied:
(A) First, to the reasonable costs and expenses of collection;
(B) Second, to overdue interest;
(C) Third, to the outstanding principal amount of the Indebtedness; and
(D) Fourth, any excess to the Debtors or other party or parties in accordance
with applicable law or court order.
(j) Other Rights and Remedies. Lenders shall have and may exercise any or all
rights and remedies they may have available at law, in equity, or otherwise.
3.3 Cumulative Remedies. All of Lenders rights and remedies, whether evidenced
by this Security Agreement, the Note Purchase Agreement, the Subsidiary Guaranty
or the Transaction Documents (as defined in the Note Purchase Agreement) or by
any other writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lenders to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of the Company under this Security Agreement, after the
Debtors failure to perform, shall not affect Lenders right to declare a default
and to exercise their remedies. The Lenders shall not be required to proceed
against or exercise its remedies with respect to any Collateral prior to or in
lieu of pursuing any other remedy.
SECTION 4: MISCELLANEOUS PROVISIONS
4.1 Entire Agreement; Amendments. This Security Agreement, together with the
Note Purchase Agreement, the Notes, the Subsidiary Guaranty and the Transaction
Documents, constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Security Agreement. No alteration of or
amendment to this Security Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by the
alteration or amendment.
4.2 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. The validity of this Security
Agreement, its construction, interpretation, and enforcement, and the rights of
the parties hereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of New York. The parties
irrevocably and unconditionally agree (1) that all actions or proceedings
arising in connection with this Security Agreement shall be tried and litigated
only in the state and federal courts located in the State of New York, County of
New York and that the parties shalsdiction of such courts, and only such courts
and (2) that service of process by certified mail, return receipt requested (and
service so made shall be deemed complete five days after the same has been
posted as aforesaid) or by personal service shall be deemed in every respect
effective service upon such party in any such suit or proceeding. Each of the
Debtors and Lenders waives, to the extent permitted under applicable law, any
right each may have to assert the doctrine of forum non conveniens or to object
to venue to the extent any proceeding is brought in accordance with this Section
4.2. The Debtors and Lenders hereby waive their respective rights to a jury
trial of any claim or cause of action based upon or arising out of this Security
Agreement or any of the actions contemplated herein, including without
Page 122 of 220
<PAGE>
limitation contract claims, tort claims, breach of duty claims, and all other
common law or statutory claims. The Debtors and Lenders represent that each has
reviewed this waiver and each knowingly and voluntarily waives its jury trial
rights following consultation with legal counsel. In the event of litigation, a
copy of this Agreement may be filed as a written consent to a trial by the
court.
4.3 Attorneys Fees; Expenses. The Debtors agrees to pay, jointly and severally
upon demand all of Lenders costs and expenses, including without limitation
reasonable attorneys fees and legal expenses, incurred in connection with the
enforcement of this Security Agreement. Lenders may pay someone else to help
enforce this Security Agreement, and the Debtors shall pay the reasonable costs
and expenses of such enforcement. Costs and expenses include without limitation
Lenders reasonable attorneys fees and legal expenses whether or not there is a
lawsuit, including without limitation reasonable attorneys fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. The Debtors also shall pay all court costs and such
additional fees as may be directed by the court.
4.4 Caption Headings. Caption headings in this Security Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Security Agreement.
4.5 Notices. All notices required to be given under this Security Agreement
shall be given in writing and shall be effective when actually delivered or
seven (7) days after being deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given or, if
via facsimile, when sent via facsimile transmission to the party to whom the
notice is to be given and confirmation of such transmission has been received,
at the address and/or facsimile number shown below:
if to Liverpool:
The Liverpool Limited Partnership
c/o A.S. & K. Services Ltd.
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Attention: Yvonne Powell
Telephone:011-441-295-2244
Telecopier:011-441-295-5328
if to Westgate:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Greg Taylor
Telephone:(809) 949-7755
Telecopier:(809) 949-7634
Page 123 of 220
<PAGE>
if to the Company or the Grantor:
Peak Technologies Inc.
1211 Cornwall Avenue
Bellingham, Washington 98226
Attention: Doug Foster
Telephone:(800) 453-5322
Facsimile:(360) 733-7818
with a copy to:
Bennett Jones Verchere
4500 Bankers Hall East
855 2nd Street, S.W.
Calgary, Alberta T2P 4K7
Attention: Chris Brown
Telephone:(403) 298-3651
Telecopier:(403) 265-7219
Any party may change its address for notices under this Security Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the partys address. For notice purposes, the
Debtors agrees to keep Lenders informed at all times of the Debtors current
addresses.
4.6 Severability. The parties acknowledge and agree that the Lenders are not
agents or partners of each other, that all representations, warranties,
covenants and agreements of the Lenders hereunder are several and not joint,
that no Lender shall have any responsibility or liability for the
representations, warrants, agreements, acts or omissions of any other Lender,
and that any rights granted to "Lenders" hereunder shall be enforceable by each
Lender hereunder. If a court of competent jurisdiction finds any provision of
this Security Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken, and all other provisions of this Security
Agreement in all other respects shall remain valid and enforceable and such
offending provision shall not be affected in any other jurisdiction.
4.7 Successor Interests. Subject to the limitations set forth above on transfer
of the Collateral, this Security Agreement shall be binding upon and inure to
the benefit of the parties, their successors and assigns. The Debtors shall not,
however, have the right to assign this Security Agreement without the prior
written consent of Lenders which may be withheld for any reason in Lenders sole
discretion.
4.8 Waiver. Lenders shall not be deemed to have waived any rights under this
Security Agreement unless such waiver is given in writing and signed by Lenders.
No delay or omission on the part of Lenders in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lenders of a
provision of this Security Agreement shall not prejudice or constitute a waiver
of Lenders right otherwise to demand strict compliance with that provision or
Page 124 of 220
<PAGE>
any other provision of this Security Agreement. No prior waiver by Lenders, nor
any course of dealing between Lenders and the Debtors, shall constitute a waiver
of any of Lenders rights or of any of the Debtors obligations as to any future
transactions. Whenever the consent of Lenders is required under this Security
Agreement, the granting of such consent by Lenders in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the sole
discretion of Lenders.
4.9 Indemnity. Except to the extent caused directly by Lenders' gross negligence
or willful misconduct, the Debtors agree, jointly and severally, to indemnify,
pay and hold each Lender and the officers, partners, directors, employees,
agents and affiliates of each Lender (collectively, the "indemnitees") harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel) that may be imposed on, incurred by, or
asserted against any indemnitee, in any manner relating to or arising out of
this Security Agreement and any action undertaken or contemplated hereby. This
indemnification shall survive the satisfaction and payment of the Indebtedness
and termination of this Security Agreement.
[SIGNATURE PAGE FOLLOWS]
Page 125 of 220
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
executed as of the date first written above.
PEAK TECHNOLOGIES INC.
By: ____________________________________
Name:
Title:
PEAK MEDIA INC.
By: ____________________________________
Name:
Title:
THE LIVERPOOL LIMITED PARTNERSHIP
By: Liverpool Associates, Ltd., General Partner
By: ____________________________________
WESTGATE INTERNATIONAL. L.P.
By: Martley International, Inc. Attorney-In-Fact
By: ____________________________________
Page 126 of 220
<PAGE>
SCHEDULE A
Identification and Location of Collateral
Please see attachments.
Page 127 of 220
<PAGE>
Exhibit 7 - Note Purchase Agreement - September 9, 1997
Note Purchase Agreement, dated as of September 9, 1997, by and among Peak
Technologies Inc., an Alberta corporation (the "Company"), Westgate
International, L.P., a Cayman Islands limited partnership ("Westgate") and
The Liverpool Limited Partnership, a Bermuda limited partnership ("Liverpool"
and together with Westgate, "Purchasers").
W I T N E S S E T H:
Whereas, the Company desires to sell to Purchasers, and Purchasers desire to
purchase from the Company, subject to the terms and provisions of this
Agreement, 12% senior promissory notes, in the aggregate original principal
amount of $2,000,000 and maturing on September 9, 1999, (the "Notes" and
together with the First Notes, the "Notes"), which Notes shall consist of (i)
initial Notes in the aggregate original principal amount of $1,125,000, in the
form of EXHIBIT A attached hereto (the "First Notes"); an (ii) further Notes in
the aggregate original principal amount of $875,000, in the form of EXHIBIT B
attached hereto, the purchase of which by Purchasers shall be subject to
certain additional conditions set forth herein (the "Second Notes" and together
with the First Notes, the "Notes"); and
Whereas, among other things set forth in this Agreement, the parties desire in
addition that
(i) the Notes be secured by all of the Company's inventory and accounts
receivable; and (ii) upon each purchase of a Note by each Purchaser hereunder,
such Purchaser be issued warrants, to purchase common shares of the Company
("Common Shares"), all subject to the terms and provisions of this Agreement;
Now, Therefore, in consideration of the mutual covenants and agreements
contained herein, the parties to this Agreement (the "Parties") hereby agree
as follows:
1. Definitions. All references herein to "$" or "Dollars" shall refer to U.S.
Dollars.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Canadian Person" means: (i) any natural person resident in Canada; (ii) any
unincorporated association, syndicate, or other organization, partnership or
corporation resident in Canada or organized or incorporated under the laws of
Canada or any province or territory thereof; (iii) any estate situated in Canada
or of which the sole executor or administrator or a majority of the executors or
administrators are Canadian Persons; (iv) any trust situated in Canada or of
which the sole trustee or a majority of the trustees are Canadian
Persons; (v) a non-Canadian entity (or any agency or branch thereof) located
in Canada; (vi) any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or account
of a Canadian Person; and (vii) any non-Canadian partnership or corporation
formed by a Canadian Person principally for investing in securities exempt
from the registration and prospectus requirements of Canadian securities laws;
provided, that, notwithstanding clause (v) above, any agency or branch of a
Page 128 of 220
<PAGE>
Canadian Person located outside of Canada shall not be deemed to be a
Canadian Person if (x) the agency or branch is operated for valid business
reasons, and (y) it is engaged in the business of insurance or banking and is
subject to substantive insurance or banking regulations, respectively, in the
jurisdiction where it is located and is purchasing as principal or as agent
for a non-Canadian entity (or an agency or branch thereof) located outside of
Canada.
"Investment" means as applied to any Person, any direct or indirect purchase or
other acquisition by such Person of stock or other securities of any other
Person, or any direct or indirect loan, advance (other than advances to
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by
such Person to any other Person.
"Material" means material to the business of the Company and its subsidiaries
taken as a whole.
"Material Adverse Effect" means any effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is material and adverse to the financial
condition or business operations of such entity or to other entities controlling
or controlled by such entity, and/or any condition or situation which would
prohibit or otherwise interfere with the ability of the entity with respect to
which said term is used to enter into and perform its obligations under the
Transaction Documents.
"Ordinary Course of Business" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"Permitted Liens" means (i) liens imposed by mandatory provisions of law such as
materialmens, mechanics or warehousemens; (ii) liens for taxes, assessments
and governmental charges or levies imposed upon the Company or its
subsidiaries or their income, profits or property, if the same are not yet due
and payable or if the same are contested in good faith and as to which adequate
reserves have been provided; (iii) pledges or deposits made to secure payment of
workers compensation insurance, unemployment social security programs or to
secure the performance of letters of credits, bids, tenders, public or statutory
obligations, surety, performance bonds and other similar obligations; and (iv)
encumbrances consisting of zoning restrictions, easements, or other restrictions
on the use of real property, provided that such do not impair the use of such
property for the uses intended and none of which is violated by existing or
proposed structures or land use.
"Person" means an individual, a partnership, a corporation, an association, a
joint stock company, a trust, a limited liability company, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Transaction Documents" means this Agreement, the First Notes, the First
Warrants, the Registration Rights Agreement, the Security Agreement, the
Subsidiary Guaranty, the Subordination Agreement and the Escrow Agreement
(each as defined in Section 8(a)) and shall, with respect to the Second Closing
(as defined in Section 2) also include the Second Notes and the Second Warrants
and the Amendment Agreement (each as defined in Section 9(a)).
Page 129 of 220
<PAGE>
2. Purchase and Sale of the Notes.
(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, each Purchaser agrees to purchase from the Company, and the Company
agrees to sell to such Purchaser, the Notes, in the amounts set forth on
Schedule A attached hereto opposite such Purchaser's name, for the
consideration, and subject to the conditions, specified below in this Section 2.
(b) Purchase Price. Each Purchaser agrees to pay to the Company the sums for the
Notes set forth opposite such Purchaser's name on Schedule A attached hereto.
(c) The First Closing. The closing of the purchase of the First Notes (the
"First Closing") shall take place at the offices of Kleinberg, Kaplan, Wolff &
Cohen, P.C. in New York, New York, or such other place as the parties may agree
to, commencing at 11:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the purchase of the First Notes (other than conditions with respect
to actions the respective Parties will take at the First Closing itself) or such
other date as the Purchasers and the Company may mutually determine (the "First
Closing Date").
(d) The Second Closing. The closing of the purchase of the Second Notes (the
"Second Closing") shall take place at the offices of Kleinberg, Kaplan, Wolff &
Cohen, P.C. in New York, New York, or at such other place as the parties may
agree to, commencing at 11:00 a.m. local time on or around February 15, 1998,
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the purchase of the Second Notes (other than conditions
with respect to actions the respective Parties will take at the Second Closing
itself) or such other date as the Purchaser and the Company may mutually
determine (the "Second Closing Date").
(e) Deliveries at the Closings. At each of the First Closing and the Second
Closing (each a "Closing"), (i) the Company will deliver to the Purchasers the
various certificates, instruments, and documents referred to in Section 8(a), in
the case of the First Closing and Section 9(a) in the case of the Second
Closing, and (ii) the Purchasers will deliver to the Company the consideration
specified for such Closing in Section 2(b) above.
3. Representations and Warranties of the Company. The Company hereby represents
and warrants to each Purchaser that:
(a) Organization; Good Standing. It is a corporation duly organized, validly
existing and in good standing under the laws of the Province of Alberta and has
all requisite corporate power and authority to carry on its business as now
conducted. Attached as EXHIBIT 3(a) hereto are copies of the constating
documents of the Company. Each direct or indirect subsidiary of the Company
(each a "Subsidiary" and collectively, the "Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Attached as SCHEDULE 3(a) is a list of all
Subsidiaries, indicating domiciles and jurisdictions of organization.
(b) Foreign Qualification; Offices. It and each Subsidiary is duly qualified and
in good standing, as a foreign corporation authorized to do business in each
jurisdiction (other than its jurisdiction of organization) in which the nature
of its activities or the character of the properties it owns or leases makes
Page 130 of 220
<PAGE>
such qualification necessary. Set forth in SCHEDULE 3(b) is a list of all
foreign jurisdictions where business is conducted by the Company or any
Subsidiary and where the Company or any Subsidiary is qualified as a foreign
corporation. The Company has its principal offices at 1211 Cornwall Avenue,
Bellingham, Washington 98226.
(c) Authorization, Enforceability. (i) It and each Subsidiary has the requisite
corporate power and authority to enter into and perform the Transaction
Documents to which it is a party, (ii) the execution, issuance, delivery and
performance of the Transaction Documents have been, or shall have been prior to
the First Closing Date, duly authorized by all necessary corporate action, and
no further consent or authorization of its or the Subsidiaries Board of
Directors or shareholders is, or will be, prior to the First Closing Date,
required, (iii) the Transaction Documents have been duly executed and delivered
by it or the Subsidiaries, as the case may be; (iv) the Transaction Documents to
which it is a party are its valid and binding obligations enforceable against it
in accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors rights and remedies or by other
equitable principles of general application; and (v) the Transaction Documents
to which each Subsidiary is a party are such Subsidiarys valid and binding
obligations enforceable against such Subsidiary in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors rights and remedies or by other equitable principles of general
application.
(d) Non-Contravention. The execution, delivery and performance of the
Transaction Documents by it and by the Subsidiaries and the consummation by them
of the transactions contemplated hereby and thereby, do not and will not (i)
result in a violation of the articles of incorporation or certificate of
organization, as applicable, or by-laws or other organizational or constating
documents of the Company or the Subsidiaries; (ii) conflict with, or constitute
a default (or an event which with notice of lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Material agreement, indenture or instrument
to which it or any Subsidiary is a party; or (iii) result in a violation of any
applicable law, rule, regulation, order, judgment or decree applicable to it or
any Subsidiary or by which any of its property or assets or the property or
assets of any Subsidiary is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect).
(e) Capitalization. The Company has an authorized capitalization consisting of
(i) an unlimited number of Common Shares of which 12,245,463 shares are
outstanding and (ii) an unlimited number of non-voting preferred shares, none of
which are outstanding. All of the issued and outstanding Common Shares have been
duly and validly authorized and issued and are fully paid and non-assessable.
Except as set forth in SCHEDULE 3(e), there are no options, warrants,
convertible securities, contracts or other rights to purchase, exchange or
convert into, any shares of the capital stock of the Company nor any voting
trust or arrangements relating thereto. Upon exercise of the Warrants for Common
Shares issuable upon such exercise ("Warrant Shares"), the Warrant Shares so
issued will be duly and validly authorized and issued, fully paid and
non-assessable. All outstanding shares of capital stock of the Subsidiaries are
Page 131 of 220
<PAGE>
owned by the Company, free and clear of any liens, claims, charges, options, or
other encumbrances.
(f) [Intentionally left blank]
(g) Reservation of Shares. The Warrant Shares have been duly reserved by the
Company.
(h) Consents; Filings. Other than (i) the approval of the Alberta Stock Exchange
of the transactions contemplated by the Transaction Documents, which approval
has been received and is attached as EXHIBIT 3(h); and (ii) required filings
under the Registration Rights Agreement and the Security Agreement (each as
defined in Section 8(a)), it is not required under any applicable law, rule or
regulation in the United States or Canada to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency, or any non-governmental third person, in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents,
including without limitation, any filing under the U.S. Hart-Scott-Rodino
Antitrusts Improvement Act of 1976, as amended, or any Form 20 filing in the
Province of Alberta.
(i) Title to Assets. It and each Subsidiary has record or registered title in
fee simple to, or valid and subsisting leasehold interests in, all of its real
property and good title to all of its personal property, and none of such
property is subject to any lien, claim, option, charge or encumbrance of any
nature, except for (i) Permitted Liens; and (ii) the liens created by the
Security Agreement.
(j) Intellectual Property. The Company (and/or the Subsidiaries) owns or has
licenses to use certain patents, copyrights and trademarks ("Intellectual
Property") associated with its business, which are set forth on SCHEDULE 3(j).
The Company and the Subsidiaries have no reason to believe that the Intellectual
Property rights which it owns are invalid or unenforceable or that the use of
such Intellectual Property by the Company or its Subsidiaries infringes upon or
conflicts with any right of any third party, and neither the Company nor any
Subsidiaries has received notice of any such infringement or conflict. The
Company and the Subsidiaries have no knowledge of any infringement of their
Intellectual Property by any third party.
(k) Legal Compliance; Securities Law. Its business (and the business of the
Subsidiaries) is not being conducted in violation of any applicable law,
ordinance or regulation of any governmental entity in which it is incorporated,
domiciled, or conducts business, except for possible violations which either
singly or in the aggregate do not and will not have a Material Adverse Effect.
Without limiting the generality of the foregoing, the Company is a reporting
issuer not in default of any requirement of the Securities Act (Alberta), or of
any requirements of the Alberta Stock Exchange.
(l) No Litigation. There is no litigation, investigation or proceeding of or
before any arbitrator, court or other governmental authority pending, or to its
best knowledge, threatened by or against the Company, any Subsidiary or against
any of their respective properties or revenues which could have a Material
Adverse Effect.
Page 132 of 220
<PAGE>
(m) Disclosure Documents; Financial Statements. The Common Shares are listed for
trading on the Alberta Stock Exchange and the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Alberta Stock Exchange, the Alberta Securities Commission, or pursuant to
any applicable law, rule or regulation. The Company has delivered or made
available to the Purchaser true and complete copies of all such documents,
together with all reports distributed to sharehgolders (colectively "Disclosure
Documents") filed or distributed since December 31, 1994; such documents are
listed on SCHEDULE 3(m). As of their respective dates, the Disclosure Documents
complied in all material respects with the requirements of applicable law, rules
and regulations, and none of the Disclosure Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the Disclosure Documents comply as to form
in all material respects with applicable accounting requirements and applicable
rules and regulations. Such financial statements have been prepared in
accordance with Canadian generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(n) No Material Adverse Change. Since June 30, 1997, the date through which the
most recent annual questionnaire has been prepared and filed with the Alberta
Stock Exchange, a copy of which is included in the Disclosure Documents, no
change which would have a Material Adverse Effect has occurred or exists with
respect to the Company or the Subsidiaries.
(o) No Undisclosed Liabilities. The Company and the Subsidiaries have no
liabilities or obligations not disclosed in the Disclosure Documents, other than
those liabilities incurred in the Ordinary Course of Business since June 30,
1997, which liabilities, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company or the Subsidiaries.
(p) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or the Subsidiaries or their
respective businesses, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
4. Representations, Warranties and Covenants of the Purchasers.
(a) Each Purchaser hereby represents, warrants and agrees that the Notes and the
Warrants are being acquired for its own account and for investment and not with
a view to resale or distribution.
(b) Each Purchaser represents that it is not a "Canadian Person."
(c) No Purchaser will offer to sell or sell the Notes, the Warrants or the
Warrant Shares prior to the expiration of the period ending 90 days from the
date such securities are acquired (the "Restricted Period"), to a person in
Canada or to a Canadian Person or to any other person for the account or benefit
of a Canadian Person, except for offers or sales of such securities on a basis
Page 133 of 220
<PAGE>
in compliance with or exempt from the registration requirements, and in
compliance with or exempt from the prospectus preparation filing requirements,
of applicable Canadian securities laws. Each Purchaser agrees to require each
person who purchases any such securities from such Purchaser prior to the
expiration of the Restricted Period to agree that by purchasing such securities,
such buyer represents and agrees that it will comply with the restrictions on
offers and sales set forth above and will require of any other purchaser to whom
it sells such securities a notice containing substantially the same statement.
For purposes hereof, the Restricted Period for the Warrant Shares shall be
deemed to have commenced upon the acquisition of the Warrants.
(d) Each Purchaser further agrees not to sell Notes, the Warrants or the Warrant
Shares in the U.S. or to persons resident in the U.S. except in transactions
which satisfy all applicable U.S. securities laws. Each Purchaser agrees to
require each person who purchases any such securities from such Purchaser prior
to the expiration of the Restricted Period to agree that by purchasing such
securities, such buyer represents and agrees that it will comply with the
restrictions on offers and sales set forth above and will require any other
purchaser to whom it sells such securities a notice containing substantially the
same statement.
(e) Each Purchaser is duly organized and validly existing and in good standing
under the laws of its jurisdiction of organization. Each of the Transaction
Documents to which each Purchaser is a party has been duly authorized by all
necessary partnership action on the part of such Purchaser.
5. Affirmative Covenants. The Company covenants that from the date hereof and
for so long as any portion of the Notes (or any amendment thereto or instrument
issued in exchange therefor) shall remain outstanding, it will (and will cause
each of the Subsidiaries to) observe or perform the following:
(a) Corporate Existence. It will maintain its corporate existence in good
standing and remain qualified to do business as a foreign corporation in each
jurisdiction in which the nature of its activities or the character of the
properties it owns or leases makes such qualification necessary.
(b) Continuation of Business. It will continue to conduct its business of
internet software manufacture and development in compliance with all applicable
rules and regulations of applicable governmental authorities.
(c) Disclosure Documents. It will furnish to Purchasers a copy of each
Disclosure Document filed or distributed hereinafter, not later than the date
such document is filed with regulatory authorities or distributed to
shareholders.
(d) Preservation of Business. It will keep its business and properties
substantially intact, including present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers, and
employees and will maintain its existing insurance policies.
(e) Full Access. Upon written request, the Company will permit representatives
of the Purchasers to have full access at all reasonable times, and in a manner
so as not to interfere with the normal business operations of the Company, to
all premises, properties, personnel, books, records, contracts, and documents of
or pertaining to the Company. Notwithstanding the foregoing, the Company shall
Page 134 of 220
<PAGE>
not provide the Purchaser any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company prior to
the date provided to the Purchaser, but which has not been disclosed.
(f) Reservation of Warrant Shares. The Company shall at all times reserve and
keep available out of its authorized but unissued Common Shares, such number of
Warrant Shares as shall be from time to time be sufficient to effect the
exercise of the Warrants.
(g) NASDAQ Listing. The Company agrees to apply, as soon as practicable, to have
the Common Shares listed on either (i) the NASDAQ National Market ("NNM") or
(ii) the NASDAQ Small Cap Market ("NASDAQ Small Cap"), and concurrently
therewith shall take all actions within its power and use its best efforts to
have the Common Shares (i) registered under the U.S. Securities Exchange Act of
1934, as amended and the rules promulgated thereunder; and (ii) listed and
trading on the NNM or the NASDAQ Small Cap.
(h) Alberta Stock Exchange Listing and Reporting Issuer Status. Until the
Warrant Shares shall have been registered under the Securities Act of 1933, as
amended pursuant to the Registration Rights Agreement (as defined in Section
8(a) hereof) for a period of six months, the Company will maintain the listing
of its Common Shares on the Alberta Stock Exchange and will maintain its status
as a "reporting issuer not in default" under the Securities Act (Alberta).
(i) Escrow. Upon the First Closing Date, the Company shall, pursuant to the
terms of the Escrow Agreement (as defined in Section 8(a) below) establish an
escrow account for the benefit of the holders of the Notes (the "Escrow
Account") pursuant to which it shall: (i) deposit 25% of all cash received from
revenues received by the Company on a monthly basis up to a maximum amount (the
"Escrow Cap") equal to the principal and accrued interest outstanding on the
Notes; (ii) deposit all proceeds received from the excercise of the Warrants
when received; and (iii) with respect to options and warrants other than the
Warrants, deposit 25% of the proceeds received therefrom when received provided,
that, if the Second Closing shall have occurred, 50% of the proceeds received
therefrom on or after January 31, 1998 (retroactive from such date) shall be
deposited, when received. In connection with the foregoing, the Company shall
reserve 25% of the proceeds received from any such warrant or option exercises
received between January 31, 1998 and the Second Closing (in addition to the 25%
deposited) and shall contribute such additional amounts if the Second Closing
shall have occurred on the Second Closing Date. The Company shall provide that
all such option or warrant exercises must be for cash. Not later than ten
working days after the close of each month, the Company shall provide each
Purchaser with a statement of monthly revenues, indicating the amount placed in
escrow. The Company shall authorize the release of funds from the Escrow Account
for the prepayment of the Notes when such funds equal or exceed the amount of
the principal outstanding on the Notes together with the interest accrued
thereon.
(j) Board Representation. The holders of the Notes shall be entitled to elect
one member of the Companys Board of Directors ("Board") and the Company shall
increase the size of the Board to provide for such member. The Company shall
provide such designee with customary indemnification and directors and officers
insurance coverage. However, thereafter the Company shall not further increase
the size of the Board and in any case the maximum number of directors shall not
exceed six.
Page 135 of 220
<PAGE>
6. Negative Covenants. The Company covenants that from the date hereof and for
so long as any amounts under the Notes (or any amendment thereto or instrument
issued in exchange therefor) remains outstanding, it will not (and will cause
the Subsidiaries not to), without the prior written approval of holders of a
majority in principal amount under the Notes:
(a) Enter into any merger or consolidation or acquire assets of any other
person, or sell, lease or otherwise dispose of its assets, or lease, license or
permit the use of any Intellectual Property or other property, except in the
Ordinary Course of Business where such transaction is at arm's length and in
exchange for fair market value consideration, provided that the Company may sell
or transfer assets not to exceed $100,000 in the aggregate outside the Ordinary
Course of Business.
(b) Sell or otherwise dispose of any shares of its capital stock or issue any
additional shares of its capital stock or securities convertible, exchangeable
or exercisable into shares of its capital stock other than pursuant to (i)
exercise of the Warrants; (ii) pursuant to the current terms of options and
warrants outstanding on the date hereof; or (iii) the issuance of incentive
stock options to employees, officers and directors and consultants, not to be
exercisable, in the aggregate, for more than 10% of the Common Shares
outstanding from time to time; provided that such options shall be issued with
an exercise price no lower than the closing market price for the Common Shares
on the Alberta Stock Exchange at the time of issuance and shall comply with the
rules of the Alberta Stock Exchange and other relevant regulatory authorities.
(c) Except as otherwise provided in the Transaction Documents, declare any
dividends on any shares of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption or other retirement of, or set
apart any sum for the payment of any dividends on, or for the purchase,
redemption or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of its capital
stock;
(d) Directly or indirectly create, incur, assume, guarantee, or otherwise become
or remain directly or indirectly liable with respect to, any indebtedness of any
kind, other than indebtedness existing on the date hereof which amount is no
greater than $320,000, not including indebtedness pursuant to the Notes,
indebtedness to insiders in an amount not exceeding Cdn. $500,000 (which
indebtedness shall be converted to equity not later than one month from the date
hereof), indebtedness to Purchasers, or indebtedness to trade creditors in the
Ordinary Course of Business;
(e) Directly or indirectly create, incur, assume or permit to exist any lien,
pledge, charge or encumbrance on or with respect to any of its property or
assets (including any document or instrument in respect of goods or accounts
receivable) or those of any of the Subsidiaries, whether now owned or held or
hereafter acquired, or any income or profits therefrom, except for liens
securing the Notes, Permitted Liens and as permitted pursuant to the terms of
the Security Agreement;
(f) Directly or indirectly make or own any Investment in any Person except that
the Company may form subsidiaries or enter into joint ventures, where the cash
expenditures involved, do not, in the aggregate for all such entities exceed
$100,000;
Page 136 of 220
<PAGE>
(g) Purchase or otherwise acquire any assets, in excess of $100,000 in the
aggregate, after the date hereof, other than assets used in the Ordinary Course
of Business;
(h) Relocate the principal offices of the Company or any Subsidiary, provided
that the Company or such Subsidiary may relocate its offices to another location
in Bellingham, Washington, provided that the Company undertakes to make such
filings as may be required to reflect the new address with respect to filings
perfecting the security interests created by the Security Agreement (as defined
in Section 8(a));
(i) Amend its articles, by-laws or other organizational documents, or effect any
stock split, reverse stock split or other recapitalization, except as may be
required to register Common Shares with the U.S. Securities and Exchange
Commission or to list the Common Shares on the NNM or NASDAQ Small Cap;
(j) Engage in any transaction with any Affiliate, except on arm's length terms,
for fair market value consideration and in the Ordinary Course of Business;
(k) Increase, by more than 10% annually, the base compensation of any director,
officer or employee; or
(l) Otherwise engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business.
7. Pre-Closing Covenants.
(a) General. Each of the Parties will use its best efforts to take all action
and do all things necessary, proper, or advisable in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Sections 8 and 9 below).
(b) Notice of Developments. The Company will give prompt written notice to the
Purchasers of any Material adverse development causing a breach of any of the
representations and warranties in Section 3 above.
(c) Alberta Stock Exchange Approval. The Company will apply to have the Warrant
Shares listed on the Alberta Stock Exchange, and shall obtain approval for such
listing and for the resale thereof (after a 90 day holding period) not later
than the First Closing Date.
8. Conditions and Obligations to Close First Closing.
(a) Conditions to Obligation of the Purchaser. The obligation of each Purchaser
to consummate the transactions to be performed by it in connection with the
First Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 3 above shall be
true and correct in all Material respects at and as of the Closing Date, as if
made on such date;
(ii) The Company shall have performed and complied with all of its covenants
hereunder in all Material respects through the First Closing;
Page 137 of 220
<PAGE>
(iii) The Company shall have delivered to the Purchasers a certificate to the
effect that each of the conditions specified above in Sections 8(a)(i) and
8(a)(ii) is satisfied in all Material respects;
(iv) The Company shall have executed and delivered the First Notes;
(v) The Company and its subsidiary Peak Media Inc. ("Peak Media") shall have
executed and delivered the Security Agreement in the form and substance
satisfactory to the Purchasers hereto (the "Security Agreement") and shall have
effected the deliveries and registrations provided in Section 2.2(a) therein;
(vi) The Company shall have executed and delivered the Registration Rights
Agreement relating to the registration for resale of the Warrant Shares under
U.S. securities laws and Canadian securities laws and the listing of such shares
for trading on the Alberta Stock Exchange and the NNM or the NASDAQ Small Cap,
in form and substance satisfactory to the Purchasers hereto (the "Registration
Rights Agreement");
(vii) The Company shall have executed and delivered, in the amounts set forth on
Schedule A, the Warrants exercisable for a period of two years for an aggregate
3,120,075 Common Shares at CDN$0.50 per share, in form and substance
satisfactory to Purchasers (the "First Warrants"); provided that the exercise
price of the First Warrants may at the option of the Purchasers, be revised to
the five day average closing price prior to the First Closing Date, if less than
CDN$0.50; provided that in such event the Company may elect within 2 business
days to terminate the sale of the First Notes, in which case the Purchasers
shall be released from any obligation to purchase the Second Notes;
(viii) The Alberta Stock Exchange shall have approved the listing of the Warrant
Shares thereon, and a copy of written notice of such approval shall have been
delivered to Purchasers;
(ix) Counsel for the Company shall have delivered legal opinions, in form and
substance satisfactory to Purchasers, from U.S. and Canadian counsel to the
Company (the "First Closing Opinions"); and
(x) Douglas Foster, Donald MacInnes, the Company and Key Bank shall have
executed and delivered a Subordination Agreement, in form and substance
satisfactory to the Purchasers (the "Subordination Agreement");
(xi) Peak Media shall have executed and delivered subsidiary guaranties in favor
of the Purchasers, in form and substance satisfactory to the purchasers (the
"Subsidiary Guaranty"); and
(xii) The Purchasers shall have received, to their satisfaction, such additional
certificates, opinions and other documentation from the Company as shall have
been reasonably requested by them.
(b) Conditions to Obligations of the Company. The obligation of the Company to
consummate the transactions to be performed by it in connection with the First
Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 4 above shall be
true and correct in all material respects at and as of the Closing Date;
Page 138 of 220
<PAGE>
(ii) The Purchasers shall have performed and complied with all of their
covenants hereunder in all material respects through the First Closing; and
(iii) No litigation or proceeding shall be pending before any arbitrator, court
or other governmental entity wherein an unfavorable injunction, judgment, order,
decree, ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling or charge shall be in effect).
9. Conditions and Obligations to Close Second Closing.
(a) Conditions to Obligation of the Purchaser. The obligation of each Purchaser
to consummate the transactions to be performed by it in connection with the
Second Closing is subject to satisfaction of the following conditions:
(i) The Company shall have: (A) obtained revenue from operation, equal to or in
excess of $1 million for the first fiscal quarter of 1998 (commencing October 1,
1997 and ending December 31, 1997); (B) placed in escrow an amount in cash of at
least $562,500 on or prior to January 31, 1998; and (C) an average closing price
for the Common Shares on the Alberta Stock Exchange for the twenty trading days
ending January 31, 1998 of at least CDN$1.00 (as adjusted for stock splits,
reverse stock splits or Common Share dividends).
(ii) The representations and warranties set forth in Section 3 above shall be
true and correct in all material respects at and as of the Second Closing Date,
as if made on such date;
(iii) The Company shall have performed and complied with all of its covenants
hereunder in all Material respects through the Second Closing;
(iv) The Company shall have delivered to the Purchasers a certificate to the
effect that each of the conditions specified above in Sections 9(a)(i)- (iii) is
satisfied in all Material respects;
(v) The Company shall have executed and delivered the Second Notes;
(vi) The Company shall have executed and delivered, in the amounts set forth in
Schedule A, the Second Warrants, exercisable for a period of two years for an
aggregate of 1,879,925 Common Shares at an exercise price equal to CDN$0.645, in
substantially the form of the First Warrants (the "Second Warrants");
(vii) The Company shall have executed and delivered the Amendment Agreement,
amending the terms of the Pledge Agreement and the Registration Rights Agreement
to reflect the Second Notes and the Second Warrants, in form and substance
satisfactory to Purchasers (the "Amendment Agreement");
(viii) Counsel for the Company shall have delivered legal opinions from Canadian
and U.S. counsel to the Company in form and substance satisfactory to Purchasers
(the "Second Closing Opinions");
(ix) The Purchasers shall have completed their updated due diligence review of
the Company to its satisfaction; and
Page 139 of 220
<PAGE>
(x) The Purchasers shall have received, to their satisfaction, such additional
certificates, opinions and other documentation from the Company as shall have
been reasonably requested by them.
(b) Conditions to Obligation of the Company. The obligation of the Company to
consummate the transactions to be performed by it in connection with the Second
Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 4 above shall be
true and correct in all Material respects at and as of the Second Closing Date;
(ii) The Purchasers shall have performed and complied with all of its covenants
hereunder in all Material respects through the Second Closing;
(iii) No action, suit, or proceeding shall be pending before any arbitrator,
court or other governmental entity wherein an unfavorable injunction, judgment,
order, decree, ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling or charge shall be in effect).
10. Breakup Fee.
In the event that either the First Closing or the Second Closing fails to occur
(other than due to any failure by the Purchasers to meet the conditions set
forth in Sections 8(b) or 9(b)), then the Company shall pay to the Purchasers,
the sum of $50,000 (payable in the amount of $25,000 to each Purchaser) in
addition to any amounts owed to them pursuant to Section 12 hereof and in
addition to any other remedies available to Purchasers at law or equity.
Notwithstanding the foregoing, such sum shall not be payable if: (i) the
Purchasers shall have opted to adjust the exercise price of the First Warrants
below CDN$0.50 and the Company shall have on account of such adjustment decided
to terminate the transaction or (ii) applicable regulatory authorities shall not
have approved of the transaction prior to September 8, 1997, provided that the
Company shall have used its best efforts to secure such approval. Neither of the
events described in (i) and (ii) above shall affect the Companys obligations to
pay the amount set forth in Section 12 below. With respect to the Second
Closing, no such sum shall be payable unless the Company shall have refused to
close notwithstanding the willingness of Purchasers to fund the transaction.
10A. Coby Capital. In connection with this transaction, the Company is paying
Coby Capital Corporation ("Coby") a finder's fee of 3.75% of the Purchase Price
in cash and 3.75% of the Purchase Price in Common Shares. With respect to such
Common Shares, Coby has entered into a letter agreement, agreeing not to sell
such Common Shares for a period of one year from the First Closing Date.
11. Right of First Refusal.
Without limiting the scope of the covenants contained in Sections 5 and 6, in
the event that, while any amounts remain outstanding on the Notes, the Company
or any Subsidiary desires to enter into any capital raising transaction or
series of transactions, the Purchasers shall have a right of first refusal with
respect to such transactions and shall have the right to match the terms of any
bona fide offer with respect thereto received from a third party; provided, in
the case of an offer consisting in whole or in part of consideration other than
Page 140 of 220
<PAGE>
cash, Purchasers shall have the right to offer the cash equivalent of such
offer. To effect the foregoing, the Company shall provide written notice of the
terms of such proposed transaction to the Purchasers promptly following receipt
of such offer. The Purchasers may then exercise their right to match by issuing
a written counternotice of their intention to do so within 20 days of receipt of
the notice from the Company and the consummation of such counteroffer shall
occur by the later of (i) the time provided by the original bona fide third
party offer or (ii) 30 days from the receipt of the Purchasers' counteroffer.
12. Reimbursement of Expenses.
Regardless of whether the Transaction Documents are consummated or not, the
Company shall bear its own expenses and shall reimburse the Purchasers on demand
at any time or times (including on signing hereof) for all reasonable and
documented expenses, not to exceed US $40,000 in the aggregate, including,
without limitation, legal, accounting and investment banking fees and
disbursements, incurred by them in connection with the Transaction Documents
and the transactions contemplated thereby, which shall include, without
limitation, expenses relating to negotiation, documentation and due
diligence, regardless of whether any such transactions are entered into or
consummated.
13. Survival; Indemnification.
(a) All of the representations and warranties of the Parties contained in this
Agreement shall survive the First Closing and the Second Closing hereunder (even
if the damaged party knew or had reason to know of any breach of
representations, or warranty at the time of such Closing) until two years from
the Second Closing Date if such Second Closing shall occur, and if not, until
two years from the First Closing Date.
(b) The Company hereby agrees to defend, indemnify and hold harmless each
Purchaser and its partners, members, employees and agents against any and all
expenses, liabilities, costs, risks and threats (including, but not limited to,
all expenses of defense and investigation related thereto), of any and every
nature and description, arising out of the breach of any representation,
warranty, agreement or covenant of the Company or any Subsidiary contained in
this Agreement or any other Transaction Document.
(c) Sections 10, 12 and this Section 13 shall survive any termination of this
Agreement.
14. Miscellaneous.
(a) Amendment or Waiver; Assignment. This Agreement may not be modified or
amended without the prior written consent of the Parties. No failure or delay on
the part of any Party in exercising any right hereunder shall operate as a
waiver; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other rights. No waiver
of any such right or amendment hereof shall be effective unless given in
writing. No waiver of any such right shall be deemed a waiver of any other right
hereunder. Neither this Agreement nor any right or benefits hereunder may be
assigned by the Company, but each Purchaser may assign its rights under this
Agreement, and the Transaction Documents to any transferee of the Notes.
Page 141 of 220
<PAGE>
(b) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns.
(c) Severability. If any provision hereof shall be held to be void, illegal or
unenforceable it shall be deemed severable from the remaining provisions hereof
which shall remain in full force and effect.
(d) Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, three days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery
if to Liverpool:
The Liverpool Limited Partnership
c/o A.S. & K. Services Ltd.
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Attention: Yvonne Powell
Telephone: 011-441-295-2244
Telecopier:011-441-295-5328
if to Westgate:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Greg Taylor
Telephone: (809) 949-7755
Telecopier:(809) 949-7634
if to the Company
Peak Technologies Inc.
1211 Cornwall Avenue
Bellingham, Washington 98226
Attention: Doug Foster
Telephone: (800) 453-5322
Facsimile: (360) 733-7818
with a copy to:
Bennett Jones Verchere
4500 Bankers Hall East
855 2nd Street, S.W.
Calgary, Alberta T2P 4K7
Attention: Chris Brown
Telephone: (403) 298-3651
Telecopier:(403) 265-7219
Page 142 of 220
<PAGE>
(e) Governing Law; Jurisdiction; Agent for Service of Process
(i) This agreement and the obligations of the parties hereunder, will be
governed by and construed in accordance with the laws of the State of New York
without regard to any conflicts of laws provisions thereof that would otherwise
require the application of the law of any other jurisdiction.
(ii) Each of the Parties irrevocably submits to the exclusive jurisdiction of
any State or Federal Court sitting in the State of New York over any suit,
action, or proceeding arising out of or relating to this Agreement. Each of the
Parties irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an
Each Party agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posted as aforesaid) or by personal service shall be deemed
in every respect effective service of process upon such party in any such suit
or proceeding. Nothing herein shall affect Purchasers' right to serve process
in any other manner permitted by law. The Company agrees that a final non-
appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
(iii) Each Party hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Agreement. Each Party is hereby
authorized to submit, as conclusive evidence of such waiver of jury trial, this
Agreement to a court that has jurisdiction over the subject matter of such
litigation and the parties to this Agreement.
(f) Entire Agreement. This Agreement contains the entire agreement between the
Parties relating to the subject matter herein and supersedes all previous oral
statements and other writings with respect thereto.
(g) Headings. The headings of the sections and subsections of this Agreement are
asserted for convenience only and shall not be deemed to constitute a part
hereof.
(h) Execution in Counterparts. This Agreement may be executed in any number of
counterparts and by different Parties in separate counterparts, each of which
Page 143 of 220
<PAGE>
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
Peak Technologies Inc.
By:
Name:
Title:
The Liverpool Limited Partnership
By: Liverpool Associates, Ltd.
General Partner
By:
Westgate International, L.P.
By: Martley International, Inc.
Attorney-In-Fact
By:
Page 144 of 220
<PAGE>
SCHEDULE A
Purchaser Amt of First Amt of 2nd Amt of Warrants Amt of Warrant
Notes Notes to be Issued Upon to be issued Upon
Purchased Purchased 1st Note Purchase 2nd Note Purchase
- --------------------------------------------------------------------------------
Westgate $562,500 $437,500 to purchase 1,560,038 to purchase 939,962
Common Shares Common Shares
Liverpool $562,500 $437,500 to purchase 1,560,037 to purchase 939,963
Common Shares Common Shares
Page 145 of 220
<PAGE>
SCHEDULE 3(a)
List of Subsidiaries
Peak Media Inc., a Washington State corporation
Chameleon Bridge Technology Corp., a British Columbia corporation.
Page 146 of 220
<PAGE>
SCHEDULE 3(b)
Foreign Jurisdictions Where Business
is Conducted by the Company or any Subsidiary
British Columbia
Washington State
Page 147 of 220
<PAGE>
SCHEDULE 3(m)
Disclosure Documents
1. Alberta Stock Exchange Questionnaire as of June 30, 1997
2. Second Quarter Report for the Six Months ended March 31, 1997.
3. First Quarter Report for the Three Months ended December 31, 1996.
4. 1996 Annual Report
5. [Other Documents from 12/31/94 through 1996?]
Page 148 of 220
<PAGE>
Exhibit 8 - Escrow Agreement - September 9, 1997
This ESCROW AGREEMENT, dated as of September 9, 1997, is entered into by and
among The Liverpool Limited Partnership, a Bermuda limited partnership
("Liverpool"), Westgate International, L.P., a Cayman Islands limited
partnership ("Westgate" and together with Liverpool, the "Purchasers"), Peak
Technologies Inc., an Alberta corporation (the "Company") and Key Trust Company,
N.A. as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Purchasers and the Company are parties to the Note Purchase
Agreement, dated as of September 9, 1997 (the "Note Purchase Agreement"),
pursuant to which the Purchasers were issued the Company's 12% Senior Promissory
Notes, due September 9, 1999, in the aggregate amount of $1,125,000 (the "First
Notes") and may, subject to certain conditions purchase an additional $875,000
principal amount of the Company's 12% Senior Promissory Notes (the "Second
Notes" and together with the First Notes, the "Notes");
WHEREAS, pursuant to the terms of the Note Purchase Agreement, the payment of
amounts due on the Notes is to be secured by a cash escrow account established
for the benefit of the holders of the Notes; and
WHEREAS, to implement the foregoing, the parties are entering into this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein, the receipt and sufficiency of which is hereby acknowledged, the parties
hereby agree as follows:
1. Appointment of Escrow Agent; Escrow Account.
(a) The Company and the Purchasers hereby appoint the Escrow Agent as
escrow agent to serve in accordance with the terms of this Agreement.
(b) Concurrently with the execution and delivery of this Agreement, the
Escrow Agent has established an interest bearing account titled The Victory U.S.
Government Money Market Fund (a fund of the Escrow Agent) (acct. #________) (the
"Escrow Account").
2. Deposit of Funds into Escrow Agreement.
The Company shall deposit funds into the Escrow Account in accordance with
Section 5(i) of the Note Purchase Agreement; provided, that the Company shall
not be obligated to deposit funds if the amounts in the Escrow Account equal or
exceed the outstanding principal and accrued interest with respect to the Notes.
The Escrow Agent shall not be responsible for determining the amounts required
to be deposited in the Escrow Account, or pursuing the origin and timeliness of
such deposits.
3. Disbursement of Funds from the Escrow Agreement.
Amounts contained in the Escrow Account shall be disbursed (in amounts
equal to the lesser of the amounts contained in the Escrow Account or the amount
Page 149 of 220
<PAGE>
requested in the applicable written notice) to the Purchasers (pro rata in
accordance with the principal amount of Notes held by them) after the occurrence
of the following:
(a) Immediately upon receipt of joint written instructions from the Company
and the Purchasers;
(b) Immediately upon receipt of a written notice from (i) the Company or
(ii) the Purchasers, that the amounts in the Escrow Account are equal to or
greater than the principal amount with accrued interest outstanding on the
Notes;
(c) Two business days after receipt of a written notice from the
Purchasers:
(i) that an "Event of Default" under the Notes has occurred and describing
such Event of Default; and (ii) indicating the outstanding amount of
principal and accrued interest on the Notes. A copy of such notice shall be
concurrently sent by the Purchasers to the Company by telecopier; or
(d) Upon written instructions from the Company, to release amounts (up to
$45,000, in the aggregate), toward the first quarterly interest payment due on
the First Notes.
4. Application of Funds received by Purchasers.
(a) All amounts disbursed to Purchasers by the Escrow Agent pursuant to
Section 3 above shall be applied to the payment of the Notes, which amounts
shall be applied to the payment first of accrued interest and then to principal.
(b) In the event that the funds disbursed pursuant to Section 3 above shall
be sufficient to pay all principal and accrued interest with respect to the
Notes, then the Purchasers shall, within 5 business days of receipt of such
funds, deliver the Notes to the Company for cancellation.
5. Release of Funds to the Company.
Funds in the Escrow Account shall be disbursed to the Company after the
occurrence of the following:
(a) Immediately upon receipt of joint written instructions from the Company
and the Purchasers; or
(b) Upon termination of this Agreement.
6. Termination of the Escrow Agreement.
(a) This Agreement shall terminate upon receipt by the Escrow Agent of a
joint notice from the Purchasers and the Company indicating the following:
(i) Payment in full of all principal and accrued interest on the Notes,
whether pursuant to the disbursement of funds hereunder or otherwise; or
(ii) Mutual agreement to terminate.
Page 150 of 220
<PAGE>
(b) Notwithstanding the foregoing, Section 7(f) shall survive termination
of this Agreement.
7. The Escrow Agent.
(a) The Escrow Agent shall be entitled to an annual fee of $3,500.00, the
initial annual fee to be paid when the Escrow Account is established. The Escrow
Agent's fees shall be borne by the Company.
(b) The Escrow Agent shall provide, on a monthly basis, a statement of the
balance in the Escrow Account to the Company and the Purchasers and shall also
provide to the Company and the Purchasers, upon request (which may be oral), the
daily balance in the Escrow Account.
(c) Nothing herein contained shall be deemed to impose upon the Escrow
Agent any duty to exercise discretion regarding the payment of the funds in the
Escrow account, it being the intention of the parties hereto that the Escrow
Agent shall not be obligated to act except upon written instructions or
direction or as specifically stated herein. The Escrow Agent shall not be bound
to act or refrain from acting except as herein provided, and the Escrow Agent is
hereby empowered to act upon any instrument, notice, receipt, statement or other
document purporting and believed by the Escrow Agent to be genuine and to
satisfy the requirements of this Agreement.
(d) The Escrow Agent may resign and be discharged from its duties hereunder
at any time by giving notice of such resignation to the Company and the
Purchasers, specifying a date when such resignation shall take effect. Upon such
notice, a successor party shall be appointed with the consent of the Company and
the Purchasers, such successor to become Escrow Agent hereunder on the
resignation date specified in such notice, subject to the acceptance in writing
of such appointment by such successor. If the Purchasers and the Company are
unable to agree upon a successor party within five days after such notice, the
resigning Escrow Agent shall be entitled to appoint its successor, which shall
be a court of competent jurisdiction (or trustee appointed thereby), bank or
other financial institution. The Escrow Agent shall continue to serve until its
successor accepts its appointment and receives the Escrow Account funds.
(e) The Escrow Agent shall not be liable for any action taken or omitted to
be taken in good faith and believed by it to be authorized hereby or within the
rights or powers conferred upon it hereunder, nor for any mistake of fact, error
of judgment or any other acts or omissions of any kind unless constituting
willful misconduct, gross negligence, bad faith or fraud.
(f) Each of the Company and the Purchasers agree to indemnify the Escrow
Agent and to hold the Escrow Agent harmless against any and all losses,
liabilities and expenses incurred by the Escrow Agent hereunder as a consequence
of the indemnifying party's action, including the costs and expenses of the
Escrow Agent in defending itself against any claim of liability, and such
parties agree to indemnify the Escrow Agent hereunder that are not a consequence
of any partys action, including the costs and expenses of the Escro Agent in
defending itself against any claim of liability, except in either case for
losses, liabilities and expenses incurred by the Escrow Agent resulting from its
own willful misconduct, gross negligence, bad faith or fraud.
Page 151 of 220
<PAGE>
8. Miscellaneous.
(a) Amendment or Waiver; Assignment. This Agreement may not be modified or
amended without the prior written consent of the parties. No failure or delay on
the part of any party in exercising any right hereunder shall operate as a
waiver; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other rights. No waiver
of any such right or amendment hereof shall be effective unless given in
writing. No waiver of any such right shall be deemed a waiver of any other right
hereunder. Neither this Agreement nor any right or benefits hereunder may be
assigned by the Company, but each Purchaser may assign its rights under this
Agreement, to any transferee of the Notes.
(b) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
(c) Severability. If any provision hereof shall be held to be void, illegal
or unenforceable it shall be deemed severable from the remaining provisions
hereof which shall remain in full force and effect.
(d) Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, three days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery if to Liverpool:
The Liverpool Limited Partnership c/o A.S. & K. Services Ltd.
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Attention: Yvonne Powell
Telephone: 011-441-295-2244
Telecopier: 011-441-295-5328
if to Westgate:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Greg Taylor
Telephone: (809) 949-7755
Telecopier: (809) 949-7634
if to the Company:
Peak Technologies Inc.
1211 Cornwall Avenue
Bellingham, Washington 98226
Attention: Doug Foster
Telephone: (800) 453-5322
Facsimile: (360) 733-7818
Page 152 of 220
<PAGE>
with a copy to:
Bennett Jones Verchere
4500 Bankers Hall East
855 2nd Street, S.W.
Calgary, Alberta T2P 4K7
Attention: Chris Brown
Telephone: (403) 298-3651
Telecopier: (403) 265-7219
if to the Escrow Agent:
Key Trust Company, N.A.
127 Public Square
MC: OH-01-27-1509
Cleveland, Ohio 44114
Attention: Terrence J. Stone
Telephone: (216) 689-3226
Telecopier: (216) 689-3777
(e) Governing Law; Jurisdiction; Agent for Service of Process
i. This agreement and the obligations of the parties hereunder, will be
governed by and construed in accordance with the laws of the State of New
York without regard to any conflicts of laws provisions thereof that would
otherwise require the application of the law of any other jurisdiction.
ii. Each of the parties irrevocably submits to the exclusive jurisdiction
of any State or Federal Court sitting in the State of New York over any
suit, action, or proceeding arising out of or relating to this Agreement.
Each of the parties irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the
venue of any such suit, action, or proceeding brought in such a court and
any claim that suit, action, or proceeding has been brought in an
inconvenient form.
iii. Each party agrees that the service of process upon it mailed by
certified or registered mail (and service so made shall be deemed complete
five days after the same has been posted as aforesaid) or by personal
service shall be deemed in every respect effective service of process upon
such party in any such suit or proceeding. Nothing herein shall affect
Purchasers' right to serve process in any other manner permitted by law.
The Company agrees that a final non- appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
iv. Each party hereto knowingly and voluntarily waives any and all rights
it may have to a trial by jury with respect to any litigation based on, or
arising out of, under, or in connection with, this Agreement. Each party is
hereby authorized to submit, as conclusive evidence of such waiver of jury
trial, this Agreement to a court that has jurisdiction over the subject
matter of such litigation and the parties to this Agreement.
(f) Entire Agreement. This Agreement contains the entire agreement between
the parties relating to the subject matter herein and supersedes all previous
oral statements and other writings with respect thereto.
Page 153 of 220
<PAGE>
(g) Headings. The headings of the sections and subsections of this
Agreement are asserted for convenience only and shall not be deemed to
constitute a part hereof.
(h) Execution in Counterparts. This Agreement may be executed in any number
of counterparts and by different parties in separate counterparts, each of which
when so execute shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(i) Execution in Counterparts. This Agreement may be executed in any number
of counterparts and by different parties in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
KEY TRUST COMPANY, N.A., AS ESCROW AGENT
By:
Name:
Title:
PEAK TECHNOLOGIES INC.
By:
Name:
Title:
THE LIVERPOOL LIMITED PARTNERSHIP
By: Liverpool Associates, Ltd. General Partner
By:
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc. Attorney-In-Fact
By:
Page 154 of 220
<PAGE>
Exhibit 9 - Senior Promissory Note - September 9, 1997
This note has not been registered under the U.S. Securities Act of 1933, as
amended. This Note has been acquired for investment and may not be sold,
assigned or transferred in the absence of an effective registration statement
under the Securities Act of 1933, as amended or an exemption therefrom. This
note may not be transferred to any resident of the Province of Alberta until
December 9, 1997.
Senior Promissory Note
U.S.$562,500 Dated: September 9, 1997
For Value Received, the undersigned, Peak Technologies Inc., an Alberta
corporation with offices at 1211 Cornwall Avenue, Bellingham, Washington 98226
("the Company"), promises to pay to the order of Westgate International, L.P.,
c/o Midland Bank Trust Corporation (Cayman) Limited, P.O. Box 1109, Mary Street,
Grand Cayman, Cayman Island, British West Indies ("Lender"), in lawful money
of the United States, the principal sum of Five Hundred Sixty Two Thousand
Five Hundred Dollars ($562,500) on September 9, 1999 or at such earlier time
at which this Promissory Note (this "Note") becomes due and payable in
accordance with its terms (the "Maturity Date") and to pay interest on the
principal sum outstanding on this Note in cash, at the rate of 12% per annum
due quarterly in arrears on the first day of January, April, July and October
of each year (each "an Interest Payment Date"), with the first payment due on
January 1, 1998. Terms used herein and not defined shall have the meaning set
forth in the Note Purchase Agreement (as defined below).
This Note is subject to the following additional provisions:
1. Default Interest. Notwithstanding anything contained herein, this Note shall
bear interest, from and after the occurrence and during the continuance of a
default hereunder, at the rate equal to the lower of eighteen percent (18%) per
annum or the highest rate permitted by law. Unless otherwise agreed or required
by applicable law, payments will be applied first to any unpaid collection
costs, then to unpaid interest and fees and any remaining amount to principal.
2. Optional Redemption. The Company may, at its option, redeem this Note, in
whole or in part (an "Optional Redemption"), provided that (i) such redemption
be for a minimum of US$100,000 and (ii) the Company shall have also elected to
simultaneously redeem pro rata (a) all other First Notes and (b) all Second
Notes if such Notes are issued, by sending the Lender written notice (a
"Redemption Notice"), which shall specify a date for such redemption (the
"Redemption Date") which shall be a date not less than 20 nor more than 30 days
from the date of the Redemption Notice. Upon receipt by Lender of such Notice
the Note shall be become due and payable on the Redemption Date in the amount of
principal amount to be redeemed on the Redemption Date plus any accrued interest
on such date. This Note shall not be prepayable or redeemable except in
accordance with this Section 2.
3. No Impairment. The Company shall not intentionally take any action which
would impair the rights of Lender hereunder.
Page 155 of 220
<PAGE>
4. Obligations Absolute. No provision of this Note shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place and rate, and in the
manner, herein prescribed.
5. Waivers of Demand, Etc. The Company and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
6. Replacement Note. In the event that Lender notifies the Company that this
Note has been lost, stolen or destroyed, a replacement Note identical in all
respects to the original Note (except for the outstanding principal amount, if
different than that shown on the original Note), shall be delivered to Lender,
provided that the Lender executes and delivers to the Company an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note.
7. Note Purchase Agreement; Other Agreements. This Note is being executed and
delivered to Lender by the Company pursuant to a certain Note Purchase
Agreement, dated as of September 9, 1997, by and between the Company and Lender
(the "Note Purchase Agreement") and is entitled to the benefits thereof. The
Company's obligations under this Note are secured by a (i) first Lien on all of
the inventory and accounts receivable of a subsidiary of the Company pursuant to
the Security Agreement, dated the date hereof, by and between Lender and the
Company (the "Security Agreement") and (ii) a quaranty of such subsidiary (the
"Subsidiary Guranty") and, in each case, are entitled to the benefits therof. In
addition the obligations under this Note are secured by a cash escrow agreement
between the Lender, the Company and Key Trust Company, N.A. as escrow agent (the
"Escrow Agreement") and are entitled to the benefits thereof. Pursuant to the
terms of the Escrow Agreement, up to US$45,000, in the aggregate, from the
amount held in escrow thereunder maybe applied towards the first quarterly
interest payment due on this Note and the other First Notes.
8. Merger, Consolidation. If at any time there occurs any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions in
which in excess of 50% of the Companys voting power is transferred or sale of
all or substantially all of the Companys assets (a "Section 8 Transaction"),
Lender may (but is not required to) treat the Commencement Date of any Section 8
Transaction as a Redemption Date and shall be entitled to have the Company
redeemed this Note in whole or in part at the redemption price equal to 110% of
the principal amount in addition to accrued interest thereon. The Company shall
provide Lender at least 20 days prior written notice of any Section 8
Transaction. Lender shall be entitled to make such an election at any time up to
10 days after receipt of such written notice of a Section 8 Transaction. For
purposes of this Section 8, the "Commencement Date" shall be the earlier of (i)
the day upon which the Section 8 Transaction is announced by the Company to the
public or (ii) the day upon which notice of such transaction is received by
Lender.
Page 156 of 220
<PAGE>
9. Payment of Expenses. The Company agrees to pay all debts and expenses,
including reasonable attorneys fees and expenses, which may be incurred by the
Lender in enforcing this Note and/or collecting any amount due under this Note
or the Note Purchase Agreement.
10. Gross-up. All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless such deduction or
withholding is required by applicable law, in which case the Company shall pay
Lender such additional amount as is necessary to ensure that the net amount
received by Lender on this Note shall equal the full amount it would have
received had no such deduction or withholding been required.
11. Savings Clause. In case any provision of this Note is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of interest paid
hereunder exceed the maximum rate of interest on the unpaid principal balance
hereof allowable by applicable law. If any sum is collected in excess of the
applicable maximum rate, the excess collected shall be applied to reduce the
principal debt. If the interest actually collected hereunder is still in excess
of the applicable maximum rate, the interest rate shall be reduced so as not to
exceed the maximum amount allowable under law.
12. Amendment. Neither this Note nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Company and Lender.
13. Assignment, Etc. Lender may without notice transfer or assign this Note or
any interest herein and may mortgage, encumber or transfer any of its rights or
interest in and to this Note or any part hereof and, without limitation, each
assignee, transferee and mortgagee (which may include any affiliate of the
Lender) shall have the right to transfer or assign its interest. Each such
assignee, transferee and mortgagee shall have all of the rights of Lender under
this Note, the Note Agreement, the Security Agreement and the Registration
Rights Agreement and shall be subject to the terms thereof. This Note shall be
binding upon the Company and its successors and shall inure to the benefit of
Lender and its successors and assigns.
14. Events of Default. If one or more of the following described "Events of
Default" shall occur:
(i) Failure of the Company to timely pay in full any amounts due under this
Note;
(ii) Breach of any provision of Section 6 of the Note Purchase Agreement by the
Company or any subsidiary of the Company;
(iii) Any other breach or non-compliance by the Company or subsidiary of the
Company with any provision, including, without limitation, any representation,
warranty or covenant, hereof, in the Note Purchase Agreement, in the
Registration Rights Agreement, in the Security Agreement. the Subsidiary
Guaranty or the Warrants (as defined in the Note Purchase Agreement), provided,
that in such events the Lender shall have provided the Company with written
Page 157 of 220
<PAGE>
notice of such breaches or non-compliance and shall provide an opportunity to
cure for a period of 30 days;
(iv) The Company shall (1) become insolvent; (2) admit in writing its inability
to pay its debts generally as they mature; (3) make a general assignment for the
benefit of creditors or commence proceedings for its dissolution; or (4) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business;
(v) A trustee, liquidator or receiver shall be appointed for the Company or for
a substantial part of its property or business without its consent and shall not
be discharged within forty-five (45) days after such appointment;
(vi) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within forty-five (45) days thereafter;
(vii) Any money judgment, writ or warrant of attachment, or similar process in
excess of Five Hundred Thousand U.S. Dollars (US$500,000) in the aggregate shall
be entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded and unstayed for a period of
forty-five (45) days;
(viii) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings, or relief under any bankruptcy law or any law for the relief
of debt shall be instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within forty-five (45) days after such
institution or the Company shall by action or answer approve of, consent to ,
or acquiesce in any such proceedings or admit to any material allegations of,
or default in answering a petition filed in, any such proceeding;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Lender (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Lender and in the Lender's sole discretion, the Lender may, by notice to the
Company declare this Note immediately due and payable, and the Lender may
immediately, and without expiration of any period of grace, enforce any and
all of the Lender's rights and remedies provided herein or any other
rights or remedies afforded by law.
15. No Waiver. No failure on the part of Lender to exercise, and no delay in
exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right, remedy
or power hereunder preclude any other or future exercise of any other right,
remedy or power. Each and every right, remedy or power hereby granted to Lender
or allowed it by law or other agreement shall be cumulative and not exclusive of
any other, and may be exercised by Lender from time to time.
16. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to the Company hereunder shall be sufficiently given if in writing
and personally delivered or mailed to the Company by certified mail, return
receipt requested, at its address set forth above or such other address as it
may designate for itself in such notice to Lender, and communications shall be
deemed to have been received when delivered personally or, if sent by mail or
Page 158 of 220
<PAGE>
facsimile, then when actually received by the party to whom it is addressed.
Whenever the sense of this Note requires, words in the singular shall be deemed
to include the plural and words in the plural shall be deemed to include the
singular. Upon any change of the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may (1) renew, extend (repeatedly and for any
length of time) or modify this Note, or release any party or any guarantor or
collateral, (2) impair, fail to realize upon or perfect any security interest
Lender may have from time to time in collateral, or (3) take any other action
deemed necessary by Lender, in each case without the consent of or notice to
anyone and without releasing the Company or any guarantor from any liability.
17. Choice of Law and Venue; Waiver of Jury Trial.
(a) This Note will be governed by and construed in accordance with the
laws of the State of New York without regard to any conflicts of laws provisions
thereof that would otherwise require the application of the law of any other
jurisdiction.
(b) The Company irrevocably submits to the exclusive jurisdiction of any
State or Federal Court sitting in the State of New York over any suit, action,
or proceeding arising out of or relating to this Agreement. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit,
action, or proceeding brought in such a court and any claim that suit, action,
or proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete 5 days after the
same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Lenders right to serve process in
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(c) The Company hereto knowingly and voluntarily waives any and all
rights it may have to trial by jury with respect to any litigation based on, or
arising out of, under, or in connection with, this Note.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
PEAK TECHNOLOGIES INC.
By:
Print Name:
Print Title:
Fax No:______________
ATTEST
Page 159 of 220
<PAGE>
Exhibit 10 - Senior Promissory Note - September 9, 1997
Securities Act of 1933, as amended. This Note has been acquired for investment
and may not be sold, assigned or transferred in the absence of an effective
registration statement under the Securities Act of 1933, as amended or an
exemption therefrom. This note may not be transferred to any resident of the
Province of Alberta until December 9, 1997.
Senior Promissory Note
U.S.$562,500 Dated: September 9, 1997
For Value Received, the undersigned, Peak Technologies Inc., an Alberta
corporation with offices at 1211 Cornwall Avenue, Bellingham, Washington 98226
("the Company"), promises to pay to the order of The Liverpool Limited
Partnership, c/o A.S.& K. Services Ltd., P.O. Box HM 1179, Hamilton, Bermuda
HM EX ("Lender"), in lawful money of the United States, the principal sum of
Five Hundred Sixty Two Thousand Five Hundred Dollars ($562,500) on September
9, 1999 or at such earlier time at which this Promissory Note (this "Note")
becomes due and payable in accordance with its terms (the "Maturity Date") and
to pay interest on the principal sum outstanding on this Note in cash, at the
rate of 12% per annum due quarterly in arrears on the first day of January,
April, July and October of each year (each "an Interest Payment Date"), with
the first payment due on January 1, 1998. Terms used herein and not defined
shall have the meaning set forth in the Note Purchase Agreement (as defined
below).
This Note is subject to the following additional provisions:
1. Default Interest. Notwithstanding anything contained herein, this Note
shall bear interest, from and after the occurrence and during the continuance of
a default hereunder, at the rate equal to the lower of eighteen percent (18%)
per annum or the highest rate permitted by law. Unless otherwise agreed or
required by applicable law, payments will be applied first to any unpaid
collection costs, then to unpaid interest and fees and any remaining amount to
principal.
2. Optional Redemption. The Company may, at its option, redeem this Note,
in whole or in part (an "Optional Redemption"), provided that (i) such
redemption be for a minimum of US$100,000 and (ii) the Company shall have also
elected to simultaneously redeem pro rata (a) all other First Notes and (b) all
Second Notes if such Notes are issued, by sending the Lender written notice (a
"Redemption Notice"), which shall specify a date for such redemption (the
"Redemption Date") which shall be a date not less than 20 nor more than 30 days
from the date of the Redemption Notice. Upon receipt by Lender of such Notice,
the Note shall become due and payable on the Redemption Date in the amount of
principal amount to be redeemed on the Redemption Date plus any accrued interest
on such date. This Note shall not be prepayable or redeemable except in
accordance with this Section 2.
3. No Impairment. The Company shall not intentionally take any action
which would impair the rights of Lender hereunder.
4. Obligations Absolute. No provision of this Note shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay the
Page 160 of 220
<PAGE>
principal of, and interest on, this Note at the time, place and rate, and in the
manner, herein prescribed.
5. Waivers of Demand, Etc. The Company and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligencem, act or omission as or with
respect to the collection of any amount called for hereunder.
6. Replacement Note. In the event that Lender notifies the Company that
this note has been lost, stolen or destroyed, a replacement Note identical in
all respects to the original Note (except for the outstanding principal amount,
if different than that shown on the original Note), shall be delivered to
Lender, provided that the Lender executes and delivers to the Company an
agreement reasonably satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with this Note.
7. Note Purchase Agreement; Other Agreements. This Note is being executed
and delivered to Lender by the Company pursuant to a certain Note Purchase
Agreement, dated as of September 9, 1997, by and between the Company and Lender
(the "Note Purchase Agreement") and is entitled to the benefits thereof. The
Companys obligations under this Note are secured by a (i) first Lien on all of
the inventory and accounts receivable of a subsidiary of the Company pursuant to
the Security Agreement, dated the date hereof, by and between Lender and the
Company (the "Security Agreement") and (ii) a guaranty of such subsidiary (the
"Subsidiary Guaranty") and, in each case, are entitled to the benefits thereof.
In addition the obligations under this Note are secured by a cash escrow
agreement between the Lender, the Company and Key Trust Company, N.A. as escrow
agent (the "Escrow Agreement") and are entitled to the benefits thereof.
Pursuant to the terms of the Escrow Agreement, up to US$45,000, in the
aggregate, from the amount held in escrow thereunder may be applied towards the
first quarterly interest payment due on this Note and the other First Notes.
8. Merger, Consolidation. If at any time there occurs any consolidation
or merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions in
which in excess of 50% of the Company's voting power is transferred or sale of
all or substantially all of the Company's assets (a "Section 8 Transaction"),
Lender may (but is not required to) treat the Commencement Date of any Section 8
Transaction as a Redemption Date and shall be entitled to have the Company
redeem this Note in whole or in part at the redemption price equal to 110% of
the principal amount in addition to accrued interest thereon. The Company shall
provide Lender at least 20 days' prior written notice of any Section 8
Transaction. Lender shall be entitled to make such election at any time up to 10
days after receipt of such written notice of a Section 8 Transaction. For
purposes of this Section 8, the "Commencement Date" shall be earlier of (i) the
day upon which the Section 8 Transaction is announced by the Company to the
public or (ii) the day upon which notice of such transaction is received by
Lender.
Page 161 of 220
<PAGE>
9. Payment of Expenses. The Company agrees to pay all debts and expenses,
including reasonable attorneys' fees and expenses, which may be incurred by the
Lender in enforcing this Note and/or collecting any amount due under this Note
or the Note Purchase Agreement.
10. Gross-up. All payments under this Note will be made without any
deduction or withholding on account of any withholding tax unless such deduction
or withholding is required by applicable law, in which case the Company shall
pay Lender such additional amount as is necessary to ensure that the net amount
received by Lender on this Note shall equal the full amount it would have
received had no such deduction or withholding been required.
11. Savings Clause. In case any provision of this Note is held by a court
of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of interest paid
hereunder exceed the maximum rate of interest on the unpaid principal balance
hereof allowable by applicable law. If any sum is collected in excess of the
applicable maximum rate, the excess collected shall be applied to reduce the
principal debt. If the interest actually collected hereunder is still in excess
of the applicable maximum rate, the interest rate shall be reduced so as not to
exceed the maximum amount allowable under law.
12. Amendment. Neither this Note nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the Company and Lender.
13. Assignment, Etc. Lender may without notice transfer or assign this
Note or any interest herein and may mortgage, encumber or transfer any of its
rights or interest in and to this Note or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Lender) shall have the right to transfer or assign its
interest. Each such assignee, transferee and mortgagee shall have all of the
rights of Lender under this Note, the Note Agreement, the Security Agreement and
the Registration Rights Agreement and shall be subject to the terms thereof.
This Note shall be binding upon the Company and its successors and shall inure
to the benefit of the Lender and its successors and assigns.
14. Events of Default. If one or more of the following described "Events
of Default" shall occur:
(i) Failure of the Company to timely pay in full any amounts due under
this Note;
(ii) Breach of any provision of Section 6 of the Note Purchase Agreement
by the Company or any subsidiary of the Company;
(iii) Any other breach or non-compliance by the Company or subsidiary of
the Company with any provision, including, without limitation, any
representation, warranty or covenant, hereof, in the Note Purchase Agreement, in
the Registration Rights Agreement, in the Security Agreement, the Subsidiary
Guaranty or the Warrants (as defined in the Note Purchase Agreement), provided,
that in such events the Lender shall have provided the Company with written
Page 162 of 220
<PAGE>
notice of such breaches or non-compliance and shall provide an opportunity to
cue for a period of 30 days;
(iv) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make a general
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (4) apply for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial part of its property or
business;
(v) A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its consent and
shall not be discharged within forty-five (45) days after such appointment;
(vi) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within forty-five (45) days thereafter;
(vii) Any money judgment, writ or warrant of attachment, or similar
process in excess of Five Hundred Thousand U.S. Dollars (US$500,000) in the
aggregate shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated, unbonded and unstayed for a
period of forty-five (45) days;
(viii) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings, or relief under any bankruptcy law or any law for the
relief of debt shall be instituted by or against the Company and, if instituted
against the Company, shall not be dismissed within forty-five (45) days after
such institution or the Company shall by action or answer approve of, consent
to, or acquiesce in any such proceedings or admit to any material allegations
of, or default in answering a petition filed in, any such proceeding;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Lender (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Lender and in the Lender's sole discretion, the Lender may, by notice to
the Company declare this Note immediately due and payable, and the Lender may
immediately, and without expiration of any period of grace, enforce any and
all of the Lender's rights and remedies provided herein or any other rights
or remedies afforded by law.
15. No Waiver. No failure on the part of Lender to exercise, and no delay
in exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right, remedy
or power hereunder preclude any other or future exercise of any other right,
remedy or power. Each and every right, remedy or power hereby granted to Lender
or allowed it by law or other agreement shall be cumulative and not exclusive of
any other, and may be exercised by Lender from time to time.
16. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to the Company hereunder shall be sufficiently given if in writing
and personally delivered or mailed to the Company by certified mail, return
receipt requested, at its address set forth above or such other address as it
may designate for itself in such notice to Lender, and communications shall be
Page 163 of 220
<PAGE>
deemed to have been received when delivered personally or, if sent by mail or
facsimile, then when actually received by the party to whom it is addressed.
Whenever the sense of this Note requires, words in the singular shall be deemed
to include the plural and words in the plural shall be deemed to include the
singular. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may (1) renew, extend (repeatedly and for any
length of time) or modify this Note, or release any party or any guarantor or
collateral, (2) impair, fail to realize upon or perfect any security interest
Lender may have from time to time in collateral, or (3) take any other action
deemed necessary by Lender, in each case without the consent of or notice to
anyone and without releasing the Company or any guarantor from any liability.
17. Choice of Law and Venue; Waiver of Jury Trial.
(a) This Note will be governed by and construed in accordance with the
laws of the State of New York without regard to any conflicts of laws provisions
thereof that would otherwise require the application of the law of any other
jurisdiction.
(b) The Company irrevocably submits to the exclusive jurisdiction of any
State or Federal Court sitting in the State of New York over any suit, action,
or proceeding arising out of or relating to this Agreement. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit,
action, or proceeding brought in such a court and any claim that suit, action,
or proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posted as aforesaid) or by personal service shall be deemed
in every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Lender's right to serve process in
any other manner permitted by law. The Company agrees that a final non-
appealable judgment in any such suit or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(c) The Company hereto knowingly and voluntarily waives any and all
rights it may have to a trial by jury with respect to any litigation based on,
or arising out of, under, or in connection with, this Note.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
PEAK TECHNOLOGIES INC.
By:
Print Name:
Print Title:
Fax No: ____________________
ATTEST
Page 164 of 220
<PAGE>
Exhibit 11 - Guaranty of Peak Media Inc. - September 9, 1997
PEAK TECHNOLOGIES INC., an Alberta corporation (the "Company"), and the
corporate parent and sole shareholder of PEAK MEDIA INC., a Washington
corporation (the "Guarantor,"), has issued to THE LIVERPOOL LIMITED PARTNERSHIP,
a Bermuda limited partnership ("Payee"), a 12% senior note, dated the date
hereof and due September 9, 1999, in the original principal amount of
US$562,500 (the "First Note") and may, pursuant to the terms of the Note
Purchase Agreement, dated as of September 9, 1997, by and among the Company and
Payee the Note Purchase Agreement") issue to Payee a second 12% senior note due
September 9, 1999, in the original principal amount of US$437,500 (the "Second
Note" and together with the First Note, the "Notes").
Section 1. Guaranty. In consideration of Payee purchasing the First Note, the
Guarantor hereby irrevocably and unconditionally guarantees to the Payee the
full performance when due of any and all obligations and undertakings of the
Company under the Notes (such obligations and undertakings shall hereinafter be
referred to as the "Obligations"), together with all reasonable attorneys fees,
disbursements and all other costs and expenses of collections incurred by Payee
in enforcing any of such Obligations
Section 2. Certain Guarantor Waivers.
(a) Waivers of Notice, Etc. The Guarantor waives notice of acceptance of this
Guaranty and notice of the creation or performance of any of the Obligations,
and waives presentment, demand of payment, protest or notice of protest, notice
of dishonor or nonperformance of any of the Obligations, suit or taking other
action or non-action by the Payee, the Company or any other guarantor against,
and any other notice to, any party liable thereon (including, without
limitation, Guarantor). The Guarantor also hereby waives any notice of default
by the Company and any other notice to which the Guarantor might otherwise be
entitled, the right to interpose any counterclaim or consolidate any other
action with an action on this Guaranty, and the benefit of any statute of
limitations affecting its liabilities hereunder or the enforcement hereof. No
act or omission of any kind in connection with any of the foregoing shall in any
way impair or otherwise affect the legality, validity, binding effect or
enforceability of any term or provision of this Guaranty or any of the
obligations of any Guarantor hereunder.
(b) Guaranty Not Affected. The Guarantor hereby covenants, agrees and consents
that Payee may, at any time and from time to time (whether or not after
revocation or termination of this Guaranty), without incurring responsibility to
Guarantor, and without impairing or releasing any of the obligations of
Guarantor hereunder and, upon or without any terms or conditions, and in whole
or in part: (i) agree with the Company to change the manner, place or terms of
performance, including (without limitation) any change or extend time of
performance of, renew or alter, any of the Obligations, any security therefor,
or any other liability incurred directly or indirectly in respect thereof or to
make any other change in the Obligations, and the guaranty herein made shall
apply to the Obligations as so changed, extended, renewed or altered; (ii) take
additional security as per agreement with the Company, for or sell, exchange,
release, surrender, substitute, realize upon or otherwise deal with in any
manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or liabilities (included any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset
Page 165 of 220
<PAGE>
thereagainst; (iii) exercise or refrain from exercising any rights against the
Company or others (including, without limitation, Guarantor) or otherwise act or
refrain from acting; (iv) settle or compromise any Obligation, any security
therefor, or any liability (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof, and/or subordinate the performance
of all or any part thereof to the performance of any of the Obligations (whether
due or not) to creditors of the Company other than Payee and Guarantor; (v)
apply any sums by whomsoever paid or howsoever realized to any Obligation
regardless of what Obligations remain unperformed; (vi) cancel, compromise,
modify or waive the provisions of any document relating to any of the
Obligations; (vii) release any other guarantor or surety of the Obligations; and
(viii) grant the Company any indulgence as Payee may, at its sole discretion,
determine.
(c) Failure to Perfect Lien, Etc. No failure by Payee to file, record or
otherwise perfect any lien or security interest, nor any improper filing or
recording, nor any failure by Payee to insure or protect any security nor any
other dealing (or failure to deal) with any security by Payee with respect to
any of the Obligations, shall impair or release any of the obligations of the
Guarantor hereunder. No invalidity, irregularity or unenforceability of all or
any part of the Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty is a primary obligation of the
Guarantor.
(d) Waiver of Subrogation. No payment by the Guarantor except the indefeasible
performance in full of the Obligations shall entitle the Guarantor to be
subrogated to any of the rights of Payee. The Guarantor shall not have any right
of reimbursement or indemnity whatsoever or any right of recourse to or with
respect to any assets or property of the Company or to any security for the
Obligations, unless and until all of the Obligations have been indefeasibly
performed in full, other than as such reimbursement or indemnity rights are
waived in the next paragraph below.
(e) Payment Guaranty; Waiver of Defenses, Counterclaims, Etc. The Guarantor
hereby agrees that this Guaranty constitutes guaranty of payment, performance
and compliance (and not a guaranty of collection only), and waives any right to
require that any resort be had by Payee to the Company or any other guarantor or
to any security pledged with respect to the performance of any of the
Obligations. Further, this guaranty of payment is absolute and unconditional,
and shall remain valid, binding and fully enforceable irrespective of any
circumstance of any nature that might otherwise constitute a defense, offset,
claim, abatement or counterclaim that the Guarantor or the Company may assert
against Payee with respect to any of the Obligations or otherwise, including,
but not limited to, failure of consideration, fraudulent inducement, breach of
warranty, statute of frauds, statute of limitations, accord and satisfaction,
and usury, and irrespective of the validity, legality, binding effect or
enforceability of the terms of any agreement or instrument relating to any of
the Obligations. The Guarantor hereby absolutely, unconditionally and
irrevocably waives any and all rights to assert any such defenses, offsets,
claims, abatements and counterclaims. In the event Payee is not permitted or
otherwise unable (because of the pendency of any bankruptcy, insolvency,
receivership or similar proceeding) to accelerate the Obligations but would
otherwise be permitted to do so at such time pursuant to the Notes, Payee may
demand performance in full under this Guaranty as if all of the Obligations had
been duly accelerated, and Guarantor will not raise, and hereby expressly waive,
any claim or defense with respect to such acceleration.
Page 166 of 220
<PAGE>
Section 3. Remedies. In the case of any proceedings to collect any obligations
of the Guarantor, the Guarantor shall pay all reasonable costs and expenses of
every kind incurred in respect of collection and enforcement of this Guaranty,
including reasonable attorneys' fees and disbursements. Upon the occurrence and
during the continuance of any failure of any of the Obligations to be performed
when due, the Payee may elect to nonjudicially or judicially foreclose against
any real or personal property security it holds for the Obligations, including,
without limitation, security under the Security Agreement, dated the date
hereof, between the Payee and the Guarantor (the "Security Agreement"), or any
part thereof or accept an assignment of any such security in lieu of foreclosure
or compromise or adjust any part of the Obligations, or make any other
accommodation with the Company or any other guarantor, pledgor or surety, or
exercise any other remedy against the Company or any other guarantor, pledgor or
surety, or any security, in accordance with and subject to the provisions of the
documents creating such security interests. No such action by Payee will
release, limit or otherwise affect the Obligations of the Guarantor to Payee,
even if the effect of that action is to deprive such Guarantor of the right to
collect any reimbursement from the Company or any other person for any sums paid
to Payee and such Guarantor, unless such action results in Payee being paid in
full for all Notes outstanding.
Section 4. Reinstatement, Indemnification, Etc. If claim is ever made upon Payee
for repayment, return, restoration or other recovery of any amount or amounts
received by Payee in payment or on account of any of the Obligations, and Payee
repays all or part of such amount: (a) because such payment or application of
proceeds is or may be avoided, invalidated, declared fraudulent, set aside or
determined to be void or voidable as a preferential transfer, fraudulent
conveyance, impermissible set-off or a diversion of trust funds; or (b) for any
other reason, including (without limitation) by reason of (i) any judgment,
decree or order of any court or administrative body having jurisdiction over
Payee or any of its property, or (ii) any settlement or compromise of any such
claim effected by Payee with any such claimant (including the Company); then, in
such event, the Guarantor decrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Guarantor, not withstanding
any revocation hereof or the cancellation of any note or other instrument or
document evidencing any of the Obligations and the obligations of the Guarantor
hereunder shall continue to apply, or shall automatically (and without further
action) be reinstated if not then in effect, as the case may be, and the
Guarantor shall be and remain liable to Payee hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by Payee. The Guarantor hereby indemnifies Payee, and agrees to
reimburse and hold Payee harmless on demand, from and against all actions,
claims, losses, judgments, damages, amounts paid in settlement and expenses
(including reasonable attorneys fees and court costs) brought against or
incurred by Payee and arising out of, relating to or in connection with any of
the Obligations.
Section 5. Waiver of Rights, Etc. No delay on the part of Payee in exercising
any of its options, powers or rights, or partial or single exercise thereof,
shall constitute a waiver thereof. No waiver of any of its rights hereunder, and
no modification or amendment of this Guaranty, shall be deemed to be made by
Payee unless the same shall be in writing, duly signed by an authorized
representative of Payee on behalf of Payee, and each such waiver, if any, shall
apply only with respect to the specific instance involved, and shall in no way
impair the rights of Payee or the obligations of the Guarantor to Payee in any
other respect at any other time.
Page 167 of 220
<PAGE>
Section 6. Enforcement, Etc. Payee, in its sole discretion, may proceed to
exercise or enforce any right, power, privilege, remedy or interest that Payee
may have under this Guaranty, the Obligations or any applicable law, at law, in
equity, in rem or in any other forum available under applicable law, without
notice except as otherwise expressly required by law provided herein; without
pursuing, exhausting or otherwise exercising or enforcing any other right,
power, privilege, remedy or interest that Payee may have against or in respect
of the Guarantor, the Obligations, the Company, any other guarantor, surety,
pledgor, collateral or any person or thing; and without to any act or omission
of Payee or any other person.
Section 7. Representation and Covenants. The Guarantor hereby restates the
representations and warranties applicable to it contained in Section 3 of the
Note Purchase Agreement and the Guarantor agrees to comply with the covenants
contained in Sections 5 and 6 of the Note Purchase Agreement.
Section 8. Reliance. The Guarantor expressly acknowledges that the Guarantor has
not received or relied upon any oral or written agreements, understandings,
representations or warranties from Payee or any other party with respect to this
Guaranty (or any of Guarantor's obligations hereunder), and that this Guaranty
contains the entire understanding of the parties with respect to the subject
matter hereof and supersedes and replaces any and all prior oral or written
agreements and understandings with respect thereto.
Section 9. Successors and Assigns; Assignment. This Guaranty is binding upon the
Guarantors and their successors, and shall inure to the benefit of Payee and its
successors and assigns. This Guaranty may not be assigned by the Guarantor, but
the Payee may assign this Guaranty to any assignee of the Notes.
Section 10. Modification, Etc. This Guaranty cannot be terminated or changed
orally and no provision hereof may be modified or waived except in writing by
Payee and the Guarantor.
Section 11. Section and Other Headings. The Sections and other headings
contained in this Guaranty are for reference purposes only and shall not affect
the meaning or interpretation of this Guaranty.
Section 12. Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, three days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery
if to Payee:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Frank White
Telephone: (809) 949-7755
Telecopier: (809) 949-7634
Page 168 of 220
<PAGE>
if to the Guarantor:
Peak Media Inc.
1211 Cornwall Avenue
Bellingham, Washington 98226
Telephone: (800) 453-5322
Telecopier: (360) 733-7818
Attention: Doug Foster
with a copy to:
[SUPPLY]
Section 13. Choice of Law and Venue; Waiver of Jury Trial.
(a) THIS GUARANTY WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS
THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION.
(b) The Guarantor irrevocably submits to the exclusive jurisdiction of any State
or Federal Court sitting in the State of New York, New York County, over any
suit, action, or proceeding arising out of or relating to this Agreement. The
Guarantor irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
The Guarantor further agrees that the service of process upon it, mailed by
certified or registered mail (and service so made shall be deemed complete five
days after the same has been posted as aforesaid) or by personal service shall
be deemed in every respect effective service of process upon it in any such suit
or proceeding. Nothing herein shall affect Payee's right to serve process in
any other manner permitted by law. The Guarantor agrees that a final non-
appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in
any other lawful manner.
(c) The Guarantor hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Guaranty.
Dated the 9th day of September, 1997
PEAK MEDIA INC.
By:
(..continued)
Page 169 of 220
<PAGE>
Exhibit 12 - Amendment Agreement - March 1998
This AMENDMENT AGREEMENT, dated as of March __, 1998, by and among PEAKSOFT
CORPORATION (formerly Peak Technologies, Inc.), an Alberta Corporation (the
"Company"), WESTGATE INTERNATIONAL, L.P., a Cayman Islands limited partnership
("Westgate") and THE LIVERPOOL LIMITED PARTNERSHIP, a Bermuda limited
partnership ("Liverpool" and together with Westgate, "Purchasers") and KEY TRUST
COMPANY, N.A., as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, pursuant to a Note Purchase Agreement, dated as of September 9, 1997,
as amended through the date hereof (the "Note Purchase Agreement"), Purchasers
have, concurrently with the execution and delivery of this Agreement, purchased
from the Company U.S.$140,000 principal amount of the Company 12% promissory
notes (the "Second Notes"); and
WHEREAS, the parties desire that the Second Notes be entitled to the benefits
of: (i) the Registration Rights Agreement, dated as of September 9, 1997, by
and among the Company and the Purchasers (the "Registration Rights Agreement");
and (ii) the Escrow Agreement, dated as of September 9, 1997, as amended as of
January 29 and February 26, 1998 by and among the Company, Purchasers and the
Escrow Agent (the "Escrow Agreement"); and
WHEREAS, the parties desire to amend the Registration Rights Agreement and the
Pledge Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreement contained
herein, the parties to this Agreement hereby agree as follows:
1. Definitions in Registration Rights Agreement.
The definition of "Second Warrants" in the Preamble to the Registration Rights
Agreement shall be amended to refer to the warrants to purchase the 500,000
Common Shares issued in conjunction with the Second Notes.
2. Definitions in Escrow Agreement.
The definition of "Second Notes" in Preamble of the Escrow Agreement, shall be
amended to refer to the Second Notes issued on the date hereof, or any
extension, modification, renewal or refinancing thereof.
3. Effect of Amendment.
As amended herein, the Escrow Agreement and the Registration Rights Agreement
shall remain in full force and effect.
Page 170 of 220
<PAGE>
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
PeakSoft Corporation
By:
Name:
Title:
The Liverpool Limited Partnership
By: Liverpool Associates, Ltd.
General Partner
By:
Paul Singer, President
Westgate International, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
Paul Singer, President
Key Trust Company, N.A.
as Escrow Agent
By:
Page 171 of 220
<PAGE>
Exhibit 13 - Amendment to Note Purchase Agreement - March 1998
Amendment to Note Purchase Agreement, dated as of March __, 1998, by and among
PeakSoft Corporation (formerly Peak Technologies, Inc.), an Alberta corporation
(the "Company"), Westgate International, L.P., a Cayman Islands limited
partnership ("Westgate") and The Liverpool Limited Partnership, a Bermuda
limited partnership ("Liverpool" and together with Westgate, "Purchasers").
W I T N E S S E T H:
WHEREAS, the parties hereto (the "Parties") entered into a Note Purchase
Agreement, dated as of September 9, 1997 (the "Original Agreement"), pursuant to
which Purchasers purchased from the Company $1,125,000 principal amount of 12%
promissory notes due September 9, 1999 (the "First Notes"); and
WHEREAS, pursuant to amendments, dated January 29, 1998 and February 26, 1998
(the "Amendments"), certain modifications were made to the terms of the Original
Agreement; and
WHEREAS, the Original Agreement provided that upon the satisfaction of certain
conditions, the Purchasers would purchase from the Company an additional
$875,000 principal amount of 12% promissory notes (the "Second Notes"); and
WHEREAS, the parties desire to modify the terms of the Second Notes and the
conditions to their purchase by the Purchasers.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereby agree as follows:
1. Purchase and Sale of the Notes.
(a) Amended Terms of the Second Notes. The terms and provisions of the Second
Notes shall be amended and shall be as set forth in Exhibit A hereto.
(b) Purchase of Second Notes. Schedule A to the Original Agreement is hereby
amended to read as set forth in Schedule A hereto.
2. Representation and Warrants of the Company. The representations and
warranties of the Company set forth in Section 3 of the Original Agreement are
hereby restated in their entirety, except as amended below:
(a) The last sentence of Section 3(b) is replaced in its entirety with: "The
Company has its principal offices at 3614 Meridian, Suite 100, Bellingham,
Washington 98225".
(b) The following shall be added to Section 3(c) of the Original Agreement:
The execution, issuance delivery and performance of the Transaction Documents
relating to the Second Closing have been, or shall have been, prior to the
Second Closing Date, duly authorized by all necessary corporate action, and no
further consent or authorization of its or its Subsidiaries' Board of Directors
or shareholders is, or will be, prior to the Second Closing Date, required.
Page 172 of 220
<PAGE>
(c) Schedule 3(a), Schedule 3(b) and Schedule 3(c), as amended, are attached
hereto.
(d) The Subordinated Obligations (as defined in the Subordination Agreement)
have been paid and discharged in full and other than the Notes, there is no
outstanding indebtedness of the Company for borrowed money.
3. Condition to the Second Closing
Section 9(a) of the Original Agreement is hereby amended and restated in its
entirety to read as follows:
"(a) Conditions to Obligation of the Purchaser. The obligation of each Purchaser
to consummate the transactions to be performed by it in connection with the
Second Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 3 above shall be
true and correct in all Material respects at and as of the Second Closing Date,
as if made on such date;
(ii) The Company shall have performed and complied with all of its covenants
hereunder in all Material respects through the Second Closing;
(iii) The Company shall have received ASE approval and all other required
regulatory approvals to the purchase of the Second Notes and the Second Warrants
(as defined below) and to the terms and provisions of the documents relating
thereto and the Common Shares issuable upon exercise of the Second Warrants
shall have been duly approved for listing on the ASE;
(iv) The Company shall have delivered to the Purchasers a certificate to the
effect that each of the conditions specified above in Sections 9(a)(i) through
9(a)(iii) is satisfied in all Material respects;
(v) The Company shall have executed and delivered the Second Notes;
(vi) The Company shall have executed and delivered, in the amount set forth in
Schedule A, the Second Warrants, exercisable for a period of two years for an
aggregate of 500,000 Common Shares at an exercise price equal to CDN $.40, in
substantially the form of the First Warrants (the "Second Warrants");
(vii) The Company shall have executed and delivered the Amendment Agreement,
amending the terms of the Escrow Agreement and the Registration Rights Agreement
to reflect the Second Notes, in form and substance satisfactory to Purchasers
(the "Amendment Agreement");
(viii) The Company shall have delivered the amended Subsidiary Guaranties, in
form and substance satisfactory to the Purchasers (the "Amended Guaranties");
(ix) The Purchasers shall have completed their updated due diligence review of
the Company to its satisfaction; and
(x) The Purchasers shall have received, to their satisfaction, such additional
certificates, opinions and other documentation from the Company as shall have
been reasonably requested by them."
Page 173 of 220
<PAGE>
4. Additional Covenant.
(a) The Company shall use best efforts to enter into a license agreement for its
retail marketing business (the "Retail Marketing License") on or prior to May
30, 1998. The Retail Marketing Licenses will entitle such licensee to the
exclusive rights to vend the Company's current products and any enhancements
thereof worldwide, whether as packaged products or as downloads from websites.
(b) The Company shall apply 50% of the proceeds of the Retail Marketing License
to the prepayment of the Notes and Purchasers shall agree to the discharge of
the Notes as follows:
(i) If such amounts shall be paid in cash only, Purchasers shall accept the
amount of U.S. $1.5 million as payment in full of the Notes;
(ii) If such amounts shall be payable in cash and shares, the Purchasers shall
accept the amount of U.S. $1.7 million as payment in full of the Notes, to be
remitted 50% in cash and 50% in shares; provided, however, that the Purchasers
shall, in their discretion, have determined that the issuer of the shares, the
terms and conditions of the issuance of the shares and the shares shall be
satisfactory to them and that the shares shall be fully tradeable, and duly
registered and listed on the NASDAQ or a recognized national securities
exchange, subject to restrictions on resale imposed by licensee;
(iii) In the event that 50% of the consideration shall be less than U.S. $1.5
million (in the case of all cash payments) or U.S. $1.7 million (in the case of
payments in cash and shares), the Company shall remain liable or the Notes to
the extent of the difference between such amount and the amount prepaid; and
(iv) Notwithstanding paragraph (ii) above, in the event that the consideration
received shall be (A) less than U.S. $3 million and (b) partly in cash and
partly in shares, then the Company shall apply 50% of the cash and 50% of the
shares received towards prepayment of the Notes (subject to the conditions set
forth in paragraph (ii)) and the Company shall remain liable for the difference
between U.S. $1.7 million and the amount prepaid.
(c) In all cases in Section 4(b) above, any shares issued as consideration for
the Retail Marketing License shall be valued by Purchasers in their reasonable
discretion, which valuation shall be conclusive.
(d) Counsel for the Company shall have delivered legal opinions from Canadian
and U.S. counsel to the Company, in form and substance satisfactory to
Purchasers, not later than five days from the date hereof.
5. Notices. Section 14(d) of the Original Agreement is hereby amended such that
the Company's address for notices shall be:
PeakSoft Corporation
3614 Meridian, Suite 100
Bellingham, Washington 98225
Attention: Doug Foster
Telephone: (360) 752-1100
Telecopier: (360) 752-0086
The reference to Bennett Jones Verchere in such section shall be deleted.
Page 174 of 220
<PAGE>
6. Effect of Amendment. As amended herein, the Original Agreement, as amended by
the Amendments, shall remain in full force and effect.
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
PeakSoft Corporation
By:
Name:
Title:
The Liverpool Limited Partnership
By: Liverpool Associates, Ltd.
General Partner
By:
Paul Singer, President
Westgate International, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By:
Paul Singer, President
Page 175 of 220
<PAGE>
SCHEDULE A
Purchaser Amt of First Amt of 2nd Amt of Warrants Amt of Warrants
First Notes Notes to be Issued Upon to be issued Upon
Purchased Purchased 1st Note Purchase 2nd Note Purchase
- --------------------------------------------------------------------------------
Westgate $562,500 $ 70,000 to purchase 1,560,038 to purchase 250,000
Common Sahres Common Shares
Liverpool $562,500 $ 70,000 to purchase 1,560,037 to purchase 250,000
Common Shares Common Shares
Page 176 of 220
<PAGE>
Exhibit 14 - Senior Promissory Note - March 1998
This note has not been registered under the U.S. Securities Act of 1933, as
amended. This Note has been acquired for investment and may not be sold,
assigned or transferred in the absence of an effective registration statement
under the Securities Act of 1933, as amended or an exemption therefrom. This
note may not be transferred to any resident of the Province of Alberta until
June __, 1997.
Senior Promissory Note
U.S.$70,000 Dated: March ___, 1998
For Value Received, the undersigned, PeakSoft Corporation (formerly Peak
Technologies Inc.), an Alberta corporation with offices at 3614 Meridian,
Suite 100, Bellingham, Washington 98225 ("the Company"), promises to pay to
the order of Westgate International, L.P., c/o Midland Bank Trust Corporation
(Cayman) Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman Island,
British West Indies ("Lender"), in lawful money of the United States, the
principal sum of Seventy Thousand Dollars ($70,000) on September 9, 1999 or at
such earlier time at which this Promissory Note (this "Note") becomes due and
payable in accordance with its terms (the "Maturity Date") and to pay interest
on the principal sum outstanding on this Note in cash, at the rate of 12% per
annum due quarterly in arrears on the first day of January, April, July and
October of each year (each "an Interest Payment Date"), with the first payment
due on July 1, 1998. Terms used herein and not defined shall have the meaning
set forth in the Note Purchase Agreement (as defined below).
This Note is subject to the following additional provisions:
1. Default Interest. Notwithstanding anything contained herein, this Note shall
bear interest, from and after the occurrence and during the continuance of a
default hereunder, at the rate equal to the lower of eighteen percent (18%) per
annum or the highest rate permitted by law. Unless otherwise agreed or required
by applicable law, payments will be applied first to any unpaid collection
costs, then to unpaid interest and fees and any remaining amount to principal.
2. Optional Redemption. The Company may, at its option, redeem this Note, in
whole only (an "Optional Redemption"), provided that the Company shall have also
elected to simultaneously redeem pro rata (a) all First Notes and (b) all other
Second Notes if, by sending the Lender written notice (a "Redemption Notice"),
which shall specify a date for such redemption (the "Redemption Date") which
shall be a date not less than 20 nor more than 30 days from the date of the
Redemption Notice. Upon receipt by Lender of such Notice, the Note shall become
due and payable on the Redemption Date in the amount of principal amount to be
redeemed on the Redemption Date plus any accrued interest on such date. This
Note shall not be prepayable or redeemable except in accordance with this
Section 2.
3. No Impairment. The Company shall not intentionally take any action which
would impair the rights of Lender hereunder.
Page 177 of 220
<PAGE>
4. Obligations Absolute. No provision of this Note shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place and rate, and in the
manner, herein prescribed.
5. Waivers of Demand, Etc. The Company and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
6. Replacement Note. In the event that Lender notifies the Company that this
Note has been lost, stolen or destroyed, a replacement Note identical in all
respects to the original Note (except for the outstanding principal amount, if
different than that shown on the original Note), shall be delivered to Lender,
provided that the Lender executes and delivers to the Company an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note.
7. Note Purchase Agreement; Other Agreements. This Note is being executed and
delivered to Lender by the Company pursuant to a certain Note Purchase
Agreement, dated as of September 9, 1997, as amended through the date hereof and
from time to time thereafter, by and between the Company and Lender (the "Note
Purchase Agreement") and is entitled to the benefits thereof. The Companys
obligations under this Note are secured by a (i) first Lien on all of the
inventory and accounts receivable of a subsidiary of the Company pursuant to the
Security Agreement, dated the date hereof, by and between Lender and the Company
(the "Security Agreement") and (ii) a guaranty of such subsidiary (the
"Subsidiary Guaranty") and, in each case, are entitled to the benefits thereof.
In addition the obligations under this Note are secured by a cash escrow
agreement between the Lender, the Company and Key Trust Company, N.A. as escrow
agent, as amended through the date hereof and from time to time thereafter (the
"Escrow Agreement") and are entitled to the benefits thereof.
8. Merger, Consolidation. If at any time there occurs any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions in
which in excess of 50% of the Company's voting power is transferred or sale of
all or substantially all of the Company's assets (a "Section 8 Transaction"),
Lender may (but is not required to) treat the Commencement Date of any Section 8
Transaction as a Redemption Date and shall be entitled to have the Company
redeem this Note in whole or in part at the redemption price equal to 110% of
the principal amount in addition to accrued interest thereon. The Company shall
provide Lender at least 20 days' prior written notice of any Section 8
Transaction. Lender shall be entitled to make such election at any time up to 10
days after receipt of such written notice of a Section 8 Transaction. For
purposes of this Section 8, the "Commencement Date" shall be earlier of (i) the
day upon which the Section 8 Transaction is announced by the Company to the
public or (ii) the day upon which notice of such transaction is received by
Lender.
Page 178 of 220
<PAGE>
9. Payment of Expenses. The Company agrees to pay all debts and expenses,
including reasonable attorneys' fees and expenses, which may be incurred by the
Lender in enforcing this Note and/or collecting any amount due under this Note
or the Note Purchase Agreement.
10. Gross-up. All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless such deduction or
withholding is required by applicable law, in which case the Company shall pay
Lender such additional amount as is necessary to ensure that the net amount
received by Lender on this Note shall equal the full amount it would have
received had no such deduction or withholding been required.
11. Savings Clause. In case any provision of this Note is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of interest paid
hereunder exceed the maximum rate of interest on the unpaid principal balance
hereof allowable by applicable law. If any sum is collected in excess of the
applicable maximum rate, the excess collected shall be applied to reduce the
principal debt. If the interest actually collected hereunder is still in excess
of the applicable maximum rate, the interest rate shall be reduced so as not to
exceed the maximum amount allowable under law.
12. Amendment. Neither this Note nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Company and Lender.
13. Assignment, Etc. Lender may without notice transfer or assign this Note or
any interest herein and may mortgage, encumber or transfer any of its rights or
interest in and to this Note or any part hereof and, without limitation, each
assignee, transferee and mortgagee (which may include any affiliate of the
Lender) shall have the right to transfer or assign its interest. Each such
assignee, transferee and mortgagee shall have all of the rights of Lender under
this Note, the Note Agreement, the Security Agreement and the Registration
Rights Agreement and shall be subject to the terms thereof. This Note shall be
binding upon the Company and its successors and shall inure to the benefit of
the Lender and its successors and assigns.
14. Events of Default. If one or more of the following described "Events of
Default" shall occur:
(i) Failure of the Company to timely pay in full any amounts due under this
Note;
(ii) Breach of any provision of Section 6 of the Note Purchase Agreement by the
Company or any subsidiary of the Company;
(iii) Any other breach or non-compliance by the Company or subsidiary of the
Company with any provision, including, without limitation, any representation,
warranty or covenant, hereof, in the Note Purchase Agreement, in the
Registration Rights Agreement, in the Security Agreement. the Subsidiary
Guaranty or the Warrants (as defined in the Note Purchase Agreement), provided,
that in such events the Lender shall have provided the Company with written
Page 179 of 220
<PAGE>
notice of such breaches or non-compliance and shall provide an opportunity to
cure for a period of 30 days;
(iv) The Company shall (1) become insolvent; (2) admit in writing its inability
to pay its debts generally as they mature; (3) make a general assignment for the
benefit of creditors or commence proceedings for its dissolution; or (4) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business;
(v) A trustee, liquidator or receiver shall be appointed for the Company or for
a substantial part of its property or business without its consent and shall not
be discharged within forty-five (45) days after such appointment;
(vi) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within forty-five (45) days thereafter;
(vii) Any money judgment, writ or warrant of attachment, or similar process in
excess of Five Hundred Thousand U.S. Dollars (US$500,000) in the aggregate shall
be entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded and unstayed for a period of
forty-five (45) days;
(viii) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings, or relief under any bankruptcy law or any law for the relief
of debt shall be instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within forty-five (45) days after such
institution or the Company shall by action or answer approve of, consent to, or
acquiesce in any such proceedings or admit to any material allegations of, or
default in answering a petition filed in, any such proceeding;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Lender (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Lender and in the Lender's sole discretion, the Lender may, by notice to the
Company declare this Note immediately due and payable, and the Lender may
immediately, and without expiration of any period of grace, enforce any and all
of the Lender's rights and remedies provided herein or any other rights or
remedies afforded by law.
15. No Waiver. No failure on the part of Lender to exercise, and no delay in
exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right, remedy
or power hereunder preclude any other or future exercise of any other right,
remedy or power. Each and every right, remedy or power hereby granted to Lender
or allowed it by law or other agreement shall be cumulative and not exclusive of
any other, and may be exercised by Lender from time to time.
16. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to the Company hereunder shall be sufficiently given if in writing
and personally delivered or mailed to the Company by certified mail, return
receipt requested, at its address set forth above or such other address as it
may designate for itself in such notice to Lender, and communications shall be
deemed to have been received when delivered personally or, if sent by mail or
Page 180 of 220
<PAGE>
facsimile, then when actually received by the party to whom it is addressed.
Whenever the sense of this Note requires, words in the singular shall be deemed
to include the plural and words in the plural shall be deemed to include the
singular. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing,, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may (1) renew, extend (repeatedly and for any
length of time) or modify this Note, or release any party or any guarantor or
collateral, (2) impair, fail to realize upon or perfect any security interest
Lender may have from time to time in collateral, or (3) take any other action
deemed necessary by Lender, in each case without the consent of or notice to
anyone and without releasing the Company or any guarantor from any liability.
17. Choice of Law and Venue; Waiver of Jury Trial.
(a) This Note will be governed by and construed in accordance with the laws of
the State of New York without regard to any conflicts of laws provisions thereof
that would otherwise require the application of the law of any other
jurisdiction.
(b) The Company irrevocably submits to the exclusive jurisdiction of any State
or Federal Court sitting in the State of New York over any suit, action, or
proceeding arising out of or relating to this Agreement. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such suit, action, or
proceeding brought in such a court and any claim that suit, action, or
proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Lender's right to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(c) The Company hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Note.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
PEAKSOFT CORPORATION
By:
Print Name:
Print Title:
Fax No: ____________________
ATTEST
Page 181 of 220
<PAGE>
Exhibit 15 - Guaranty of PeakSoft Corporation (USA), Inc. - March 1998
PEAK TECHNOLOGIES INC., an Alberta corporation (the "Company"), and the
corporate parent and sole shareholder of PEAKSOFT CORPORATION (USA), INC., a
Washington corporation (the "Guarantor,"), has issued to THE LIVERPOOL LIMITED
PARTNERSHIP, a Bermuda limited partnership ("Payee"), a 12% senior note, dated
the date hereof and due September 9, 1999, in the original principal amount of
US$562,500 (the "First Note") and may, pursuant to the terms of the Note
Purchase Agreement, dated as of September 9, 1997, by and among the Company
and Payee (the "Note Purchase Agreement") issue to Payee a second 12% senior
note due September 9, 1999, in the original principal amount of US$437,500
(the "Second Note" and together with the First Note, the "Notes").
Section 1. Guaranty. In consideration of Payee purchasing the First Note, the
Guarantor hereby irrevocably and unconditionally guarantees to the Payee the
full performance when due of any and all obligations and undertakings of the
Company under the Notes (such obligations and undertakings shall hereinafter be
referred to as the "Obligations"), together with all reasonable attorneys fees,
disbursements and all other costs and expenses of collections incurred by Payee
in enforcing any of such Obligations
Section 2. Certain Guarantor Waivers.
(a) Waivers of Notice, Etc. The Guarantor waives notice of acceptance of this
Guaranty and notice of the creation or performance of any of the Obligations,
and waives presentment, demand of payment, protest or notice of protest, notice
of dishonor or nonperformance of any of the Obligations, suit or taking other
action or non-action by the Payee, the Company or any other guarantor against,
and any other notice to, any party liable thereon (including, without
limitation, Guarantor). The Guarantor also hereby waives any notice of default
by the Company and any other notice to which the Guarantor might otherwise be
entitled, the right to interpose any counterclaim or consolidate any other
action with an action on this Guaranty, and the benefit of any statute of
limitations affecting its liabilities hereunder or the enforcement hereof. No
act or omission of any kind in connection with any of the foregoing shall in any
way impair or otherwise affect the legality, validity, binding effect or
enforceability of any term or provision of this Guaranty or any of the
obligations of any Guarantor hereunder.
(b) Guaranty Not Affected. The Guarantor hereby covenants, agrees and consents
that Payee may, at any time and from time to time (whether or not after
revocation or termination of this Guaranty), without incurring responsibility to
Guarantor, and without impairing or releasing any of the obligations of
Guarantor hereunder and, upon or without any terms or conditions, and in whole
or in part: (i) agree with the Company to change the manner, place or terms of
performance, including (without limitation) any change or extend the time of
performance of, renew or alter, any of the Obligations, any security therefor,
or any other liability incurred directly or indirectly in respect thereof, or to
make any other change in the Obligations, and the guaranty herein made shall
apply to the Obligations as so changed, extended, renewed or altered; (ii) take
additional security, as per agreement with the Company, for or sell, exchange,
release, surrender, substitute, realize upon or otherwise deal with in any
manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, any of the Obligations or any other
Page 182 of 220
<PAGE>
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and/or any offset thereagainst; (iii) exercise or
refrain from exercising any rights against the Company or others (including,
without limitation, Guarantor) or otherwise act or refrain from acting; (iv)
settle or compromise any Obligation, any security therefor, or any liability
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and/or subordinate to the performance of all or any part
thereof to the performance of any of the Obligations (whether due or not) to
creditors of of the Company other than Payee and Guarantor; (v) apply any sums
by whomsoever paid or howsoever realized to any Obligation regardless of what
Obligations remain unperformed; (vi) cancel, compromise, modify or waive the
provisions of any document relating to any of the Obligations; (vii) release any
other guarantor or surety of the Obligations; and (viii) grant the Company any
indulgence as Payee may, in its sole discretion, determine.
(c) Failure to Perfect Lien, Etc. No failure by Payee to file, record or
otherwise perfect any lien or security interest, nor any improper filing or
recording, nor any failure by Payee to insure or protect any security nor any
other dealing (or failure to deal) with any security by Payee with respect to
any of the Obligations, shall impair or release any of the Obligations of the
Guarantor hereunder. No invalidity, irregularity or unenforceability of all or
any part of the Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty is a primary obligation of the
Guarantor.
(d) Waiver of Subrogation. No payment by the Guarantor except the indefeasible
performance in full of the Obligations shall entitle the Guarantor to be
subrogated to any of the rights of Payee. The Guarantor shall not have any right
of reimbursement or indemnity whatsoever or any right of recourse to or with
respect to any assets or property of the Company or to any security for the
Obligations unless and until all of the Obligations have been indefeasibly
performed in full, other than as such reimbursement or indemnity rights are
waived in the next paragraph below.
(e) Payment Guaranty; Waiver of Defenses, Counterclaims, Etc. The Guarantor
hereby agrees that this Guaranty constitutes guaranty of payment, performance
and compliance (and not a guaranty of collection only), and waives any right to
require that any resort be had by Payee to the Company or any other guarantor or
to any security pledged with respect to the performance of any of the
Obligations. Further, this guaranty of payment is absolute and unconditional,
and shall remain valid, binding and fully enforceable irrespective of any
circumstance of any nature that might otherwise constitute a defense, offset,
claim, abatement or counterclaim that the Guarantor or the Company may assert
against Payee with respect to any of the Obligations or otherwise, including,
but not limited to, failure of consideration, fraudulent inducement, breach of
warranty, statute of frauds, statute of limitations, accord and satisfaction,
and usury, and irrespective of the validity, legality, binding effect or
enforceability of the terms of any agreement or instrument relating to any of
the Obligations. The Guarantor hereby absolutely, unconditionally and
irrevocably waives any and all rights to assert any such defenses, offsets,
claims, abatements and counterclaims. In the event Payee is not permitted or
otherwise unable (because of the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding) to accelerate the Obligations but
would otherwise be permitted to do so at such time pursuant to the Notes, Payee
may demand performance in full under this Guaranty as if all of the Obligations
Page 183 of 220
<PAGE>
had been duly accelerated, and Guarantor will not raise, and hereby expressly
waive, any claim or defense with respect to such acceleration.
Section 3. Remedies. In the case of any proceedings to collect any obligations
of the Guarantor, the Guarantor shall pay all reasonable costs and expenses of
every kind incurred in respect of collection and enforcement of this Guaranty,
including reasonable attorneys' fees and disbursements. Upon the occurrence and
during the continuance of any failure of any of the Obligations to be performed
when due, the Payee may elect to nonjudicially or judicially foreclose against
any real or personal property security it holds for the Obligations, including,
without limitation, security under the Security Agreement, dated the date
hereof, between the Payee and the Guarantor (the "Security Agreement"), or any
part thereof, or accept an assignment of any such security in lieu of
foreclosure or compromise or adjust any part of the Obligations, or make any
other accommodation with the Company or any other guarantor, pledgor or surety,
or exercise any other remedy against the Company or any other guarantor, pledgor
or surety, or any security, in accordance with and subject to the provisions of
the documents creating such security interests. No such action by Payee will
release, limit or otherwise affect the obligations of the Guarantor to Payee,
even if the effect of that action is to deprive such Guarantor of the right to
collect any reimbursement from the Company or any other person for any sums paid
to Payee and such Guarantor, unless such action results in Payee being paid in
full for all Notes outstanding.
Section 4. Reinstatement, Indemnification, Etc. If claim is ever made upon Payee
for repayment, return, restoration or other recovery of any amount or amounts
received by Payee in payment or on account of any of the Obligations, and Payee
repays all or part of such amount: (a) because such payment or application of
proceeds is or may be avoided, invalidated, declared fraudulent, set aside or
determined to be void or voidable as a preferential transfer, fraudulent
conveyance, impermissible set-off or a diversion of trust funds; or (b) for any
other reason, including (without limitation) by reason of (i) any judgment,
decree or order of any court or administrative body having jurisdiction over
Payee or any of its property, or (ii) any settlement or compromise of any such
claim effect by Payee with any such claimant (including the Company); then, and
in such event, the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Guarantor, notwithstanding
any revocation hereof or the cancellation of any note or other instrument or
document evidencing any of the Obligations and the obligations of the Guarantor
hereunder shall continue to apply, or shall automatically (and without further
action) be reinstated if not then in effect, as the case may be, and the
Guarantor shall be and remain liable to Payee hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally received
by Payee. The Guarantor hereby indemnifies Payee, and agrees to reimburse and
hold Payee harmless on demand, amounts paid in settlement and expenses
(including reasonable attorneys fees and courts costs) brought against or
incurred by Payee and arising out of, relating to or in connection with any of
the Obligations.
Section 5. Waiver of Rights, Etc. No delay on the part of Payee in exercising
any of its options, powers or rights, or partial or single exercise thereof,
shall consitute a waiver thereof. No waiver of any of its rights hereunder, and
no modification or amendment of this Guaranty, shall be deemed to be made by
Payee unless the same shall be in writing, duly signed by an authorized
representative of Payee on behalf of Payee, and each such waiver, if any, shall
Page 184 of 220
<PAGE>
apply only with respect to the specific instance involved, and shall in no way
impair the rights of Payee or the obligations of the Guarantor to Payee in any
other respect at any other time.
Section 6. Enforcement, Etc. Payee, in its sole discretion, may proceed to
exercise or enforce any right, power, privilege, remedy or interest that Payee
may have under this Guaranty, the Obligations or any applicable law, at law, in
equity, in rem or in any other forum available under applicable law, without
notice except as otherwise expressly required by law provided herein; without
pursuing, exhausting or otherwise exercising or enforcing any other right,
power, privilege, remedy or interest that Payee may have against or in respect
of the Guarantor, the Obligations, the Company, any other guarantor, surety,
pledgor, collateral or any other person or thing; and without regard to any act
or omission of Payee or any other person.
Section 7. Representation and Covenants. The Guarantor hereby restates the
representations and warranties applicable to it contained in Section 3 of the
Note Purchase Agreement and the Guarantor agrees to comply with the covenants
contained in Sections 5 and 6 of the Note Purchase Agreement.
Section 8. Reliance. The Guarantor expressly acknowledges that the Guarantor has
not received or relied upon any oral or written agreements, understandings,
representations or warranties from Payee or any other party with respect to this
Guaranty (or any of Guarantors obligations hereunder), and that this Guaranty
contains the entire understanding of the parties with respect to the subject
matter hereof and supersedes and replaces any and all prior oral or written
agreements and understandings with respect thereto.
Section 9. Successors and Assigns; Assignment. This Guaranty is binding upon the
Guarantors and their successors, and shall inure to the benefit of Payee and its
successors and assigns. This Guaranty may not be assigned by the Guarantor, but
the Payee may assign this Guaranty to any assignee of the Notes.
Section 10. Modification, Etc. This Guaranty cannot be terminated or changed
orally and no provision hereof may be modified or waived except in writing by
Payee and the Guarantor.
Section 11. Section and Other Headings. The Sections and other headings
contained in this Guaranty are for reference purposes only and shall not affect
the meaning or interpretation of this Guaranty.
Section 12. Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, three days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery
Page 185 of 220
<PAGE>
if to Payee:
The Liverpool Limited Partnership
A.S. & K. Services Ltd.
P.O. HM 1179
Hamilton HM EX
Bermuda
Attention: Yvonne Powell
Telephone: (441) 295-2244
Telecopier: (441) 295-5328
if to the Guarantor:
PeakSoft Corporation (USA), Inc.
3614 Meridian, Suite 100
Bellingham, Washington 98225
Telephone: (360) 752-1100
Telecopier:(360) 752-0086
Attention: Doug Foster
Section 13. Choice of Law and Venue; Waiver of Jury Trial.
(a) THIS GUARANTY WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS
THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION.
(b) The Guarantor irrevocably submits to the exclusive jurisdiction of any State
or Federal Court sitting in the State of New York, New York County, over any
suit, action, or proceeding arising out of or relating to this Agreement. The
Guarantor irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
The Guarantor further agrees that the service of process upon it, mailed by
certified or registered mail (and service so made shall be deemed complete five
days after the same has been posted as aforesaid) or by personal service shall
be deemed in every respect effective service of process upon it in any such suit
or proceeding. Nothing herein shall affect Payee's right to serve process in any
other manner permitted by law. The Guarantor agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(c) The Guarantor hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Guaranty.
Dated the __ day of March, 1998
PEAKSOFT CORPORATION (USA), INC.
By:
Page 186 of 220
<PAGE>
Exhibit 16 - Note Purchase Agreement - June 10, 1998
Note Purchase Agreement, dated as of June 10, 1998, by and among PeakSoft
Corporation (Formerly Peak Technologies, Inc.,) an Alberta corporation (the
"Company"), Westgate International, L.P., a Cayman Islands limited partnership
("Westgate") and The Liverpool Limited Partnership, a Bermuda limited
partnership ("Liverpool" and together with Westgate, "Purchasers").
W I T N E S S E T H:
Whereas, the Company desires to sell to Purchasers, and Purchasers desire to
purchase from the Company, subject to the terms and provisions of this
Agreement, 12% senior promissory notes, in the aggregate original principal
amount of $150,000 and maturing on June 10, 2000, in the form of Exhibit A
attached hereto (the "Notes" ); and
Whereas, among other things set forth in this Agreement, the parties desire in
addition that the Notes be secured by all of the Company's inventory and
accounts receivable.
Now, Therefore, in consideration of the mutual covenants and agreements
contained herein, the parties to this Agreement (the "Parties") hereby agree
as follows:
1. Definitions. All references herein to "$" or "Dollars" shall refer to U.S.
Dollars.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Canadian Person" means: (i) any natural person resident in Canada; (ii) any
unincorporated association, syndicate, or other organization, partnership or
corporation resident in Canada or organized or incorporated under the laws of
Canada or any province or territory thereof; (iii) any estate situated in Canada
or of which the sole executor or administrator or a majority of the executors or
administrators are Canadian Persons; (iv) any trust situated in Canada or of
which the sole trustee or a majority of the trustees are Canadian Persons;
(v) a non-Canadian entity (or any agency or branch thereof) located in Canada;
(vi) any non-discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a
Canadian Person; and (vii) any non-Canadian partnership or corporation formed
by a Canadian Person principally for investing in securities exempt from the
registration and prospectus requirements of Canadian securities laws; provided,
that, notwithstanding clause (v) above, any agency or branch of a Canadian
Person located outside of Canada shall not be deemed to be a Canadian Person if
(x) the agency or branch is operated for valid business reasons, and (y) it is
engaged in the business of insurance of banking and is subject to substantive
insurance or banking regulations, respectively, in the jurisdiction where it is
located and is purchasing as principal or as agent for a non-Canadian entity
(or an agency or branch thereof) located outside of Canada.
"Investment" means as applied to any Person, any direct or indirect purchase or
other acquisition by such Person of stock or other securities of any other
Person, or any direct or indirect loan, advance (other than advances to
Page 187 of 220
<PAGE>
employees for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business) or capital contribution by such
Person to any other Person.
"Material" means material to the business of the Company and its subsidiaries
taken as a whole.
"Material Adverse Effect" means any effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is material and adverse to the financial
condition or business operations of such entity or to other entities controlling
or controlled by such entity, and/or any condition or situation which would
prohibit or otherwise interfere with the ability of the entity with respect to
which said term is used to enter into and perform its obligations under the
Transaction Documents.
"Ordinary Course of Business" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"Permitted Liens" means (i) liens imposed by mandatory provisions of law such as
materialmens, mechanic's or warehousemen's; (ii) liens for taxes, assessments
and governmental charges or levies imposed upon the Company or its subsidiaries
or their income, profits or property, if the same are not yet due and payable or
if the same are contested in good faith and as to which adequate reserves have
been provided; (iii) pledges or deposits made to secure payment of workers'
compensation insurance, unemployment insurance, pensions or social security
programs or to secure the performance of letters of credits, bids, tenders,
public or statutory obligations, surety, performance bonds and other similar
obligations; and (iv) encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property, provided that such
do not impair the use of such property for the uses intended and none of which
is violated by existing or proposed structures or land use.
"Person" means an individual, a partnership, a corporation, an association, a
joint stock company, a trust, a limited liability company, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Transaction Documents" means this Agreement, the Notes, the Security Agreement
and the Subsidiary Guaranty (each as defined in Section 8(a)).
2. Purchase and Sale of the Notes.
(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, each Purchaser agrees to purchase from the Company, and the Company
agrees to sell to such Purchaser, the Notes, in the amounts set forth on
Schedule A attached hereto opposite such Purchaser's name, for the
consideration, and subject to the conditions, specified below in this Section 2.
(b) Purchase Price. Each Purchaser agrees to pay to the Company the sums for the
Notes set forth opposite such Purchaser's name on Schedule A attached hereto.
(c) The Closing. The closing of the purchase of the Notes (the "Closing") shall
take place at the offices of Kleinberg, Kaplan, Wolff & Cohen, P.C. in New York,
Page 188 of 220
<PAGE>
New York, or such other place as the parties may agree to, commencing at 11:00
a.m. local time on the second business day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the purchase
of the Notes (other than conditions with respect to actions the respective
Parties will take at the Closing itself) or such other date as the Purchasers
and the Company may mutually determine (the "Closing Date").
(d) Deliveries at the Closing. At the Closing, (i) the Company will deliver to
the Purchasers the various certificates, instruments, and documents referred to
in Section 8(a) and (ii) the Purchasers will deliver to the Company the
consideration specified for such Closing in Section 2(b) above.
3. Representations and Warranties of the Company. The Company hereby represents
and warrants to each Purchaser that:
(a) Organization; Good Standing. It is a corporation duly organized, validly
existing and in good standing under the laws of the Province of Alberta and has
all requisite corporate power and authority to carry on its business as now
conducted. Attached as EXHIBIT 3(a) hereto are copies of the constating
documents of the Company. Each direct or indirect subsidiary of the Company
(each a "Subsidiary" and collectively, the "Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Attached as SCHEDULE 3(a) is a list of all
Subsidiaries, indicating domiciles and jurisdictions of organization.
(b) Foreign Qualification; Offices. It and each Subsidiary is duly qualified and
in good standing, as a foreign corporation authorized to do business in each
jurisdiction (other than its jurisdiction of organization) in which the nature
of its activities or the character of the properties it owns or leases makes
such qualification necessary. Set forth in SCHEDULE 3(b) is a list of all
foreign jurisdictions where business is conducted by the Company or any
Subsidiary and where the Company or any Subsidiary is qualified as a foreign
corporation. The Company has its principal offices at 3614 Meridian, Suite 100,
Bellingham, Washington 98225.
(c) Authorization, Enforceability. (i) It and each Subsidiary has the requisite
corporate power and authority to enter into and perform the Transaction
Documents to which it is a party, (ii) the execution, issuance, delivery and
performance of the Transaction Documents have been, or shall have been prior to
the Closing Date, duly authorized by all necessary corporate action, and no
further consent or authorization of its or the Subsidiaries' Board of Directors
or shareholders is, or will be, prior to the Closing Date, required, (iii) the
Transaction Documents have been duly executed and delivered by it or the
Subsidiaries, as the case may be; (iv) the Transaction Documents to which it is
a party are its valid and binding obligations enforceable against it in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application; and (v) the Transaction Documents
to which each Subsidiary is a party are such Subsidiarys valid and binding
obligations enforceable against such Subsidiary in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors rights and remedies or by other equitable principles of general
application.
Page 189 of 220
<PAGE>
(d) Non-Contravention. The execution, delivery and performance of the
Transaction Documents by it and by the Subsidiaries and the consummation by them
of the transactions contemplated hereby and thereby, do not and will not (i)
result in a violation of the articles of incorporation or certificate of
organization, as applicable, or by-laws or other organizational or constating
documents of the Company or the Subsidiaries; (ii) conflict with, or constitute
a default (or an event which with notice of lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Material agreement, indenture or instrument
to which it or any Subsidiary is a party; or (iii) result in a violation of any
applicable law, rule, regulation, order, judgment or decree applicable to it or
any Subsidiary or by which any of its property or assets or the property or
assets of any Subsidiary is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect).
(e) Capitalization. The Company has an authorized capitalization consisting of
(i) an unlimited number of Common Shares of which 13,565,464 shares are
outstanding and (ii) an unlimited number of non-voting preferred shares, none of
which are outstanding. All of the issued and outstanding Common Shares have been
duly and validly authorized and issued and are fully paid and non-assessable.
Except as set forth in SCHEDULE 3(e), there are no options, warrants,
convertible securities, contracts or other rights to purchase, exchange or
convert into, any shares of capital stock of the Company nor any voting trust or
arrangements relating thereto.
(f) [Intentionally left blank]
(g) [Intentionally left blank]
(h) Consents; Filings. Other than required filings under the Security Agreement
(as defined in Section 8(a)), it is not required under any applicable law, rule
or regulation in the United States or Canada to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency, or any non-governmental third person, in order for it to
execute, deliver or perform any of its obligations under the Transaction
Documents, including without limitation, any filing under the U.S.
Hart-Scott-Rodino Antitrusts Improvement Act of 1976, as amended, or any Form 20
filing in the Province of Alberta.
(i) Title to Assets. It and each Subsidiary has record or registered title in
fee simple to, or valid and subsisting leasehold interests in, all of its real
property and good title to all of its personal property, and none of such
property is subject to any lien, claim, option, charge or encumbrance of any
nature, except for (i) Permitted Liens; (ii) liens securing other indebtedness
to Purchasers and (iii) the liens created by the Security Agreement.
(j) Intellectual Property. The Company (and/or the Subsidiaries) owns or has
licenses to use certain patents, copyrights and trademarks ("Intellectual
Property") associated with its business, which are set forth on SCHEDULE 3(j).
The Company and the Subsidiaries have no reason to believe that the Intellectual
Property rights which it owns are invalid or unenforceable or that the use of
such Intellectual Property by the Company or its Subsidiaries infringes upon or
conflicts with any right of any third party, and neither the Company nor any
Subsidiaries has received notice of any such infringement or conflict. The
Page 190 of 220
<PAGE>
Company and the Subsidiaries have no knowledge of any infringement of their
Intellectual Property by any third party.
(k) Legal Compliance; Securities Law. Its business (and the business of the
Subsidiaries) is not being conducted in violation of any applicable law,
ordinance or regulation of any governmental entity in which it is incorporated,
domiciled, or conducts business, except for possible violations which either
singly or in the aggregate do not and will not have a Material Adverse Effect.
Without limiting the generality of the foregoing, except as set forth on
SCHEDULE 3(k), the Company is a reporting issuer not in default of any
requirement of the Securities Act (Alberta), or of any requirements of the
Alberta Stock Exchange.
(l) No Litigation. Except as set forth on SCHEDULE 3(l), there is no litigation,
investigation or proceeding of or before any arbitrator, court or other
governmental authority pending, or to its best knowledge, threatened by or
against the Company, any Subsidiary or against any of their respective
properties or revenues which could have a Material Adverse Effect.
(m) Disclosure Documents; Financial Statements. The Common Shares are listed for
trading on the Alberta Stock Exchange and the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Alberta Stock Exchange, the Alberta Securities Commission, or pursuant to
any applicable law, rule or regulation. Alberta Stock Exchange approval is not
required with respect to the sale of the Notes hereunder. The Company has
delivered or made available to the Purchaser true and complete copies of all
such documents, together with all reports distributed to shareholders
(collectively "Disclosure Documents") filed or distributed since December 31,
1994; such documents are listed on SCHEDULE 3(m). As of their respective dates,
the Disclosure Documents complied in all material respects with the requirements
of applicable law, rules and regulations, and none of the Disclosure Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Disclosure
Documents comply as to form in all material respects with applicable accounting
requirements and applicable rules and regulations. Such financial statements
have been prepared in accordance with Canadian generally accepted accounting
principles applied on a consistent basis during the periods involved and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
agreements).
(n) No Material Adverse Change. Since June 30, 1997, the date through which the
most recent annual questionnaire has been prepared and filed with the Alberta
Stock Exchange, a copy of which is included in the Disclosure Documents, no
change which would have a Material Adverse Effect has occurred or exists with
respect to the Company or the Subsidiaries.
(o) No Undisclosed Liabilities. The Company and the Subsidiaries have no
liabilities or obligations not disclosed in the Disclosure Documents, other than
those liabilities incurred in the Ordinary Course of Business since June 30,
1997, which liabilities, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company or the Subsidiaries.
Page 191 of 220
<PAGE>
(p) No Undisclosed Events or Circumstances. No event or circumstance has
occurred or exists with respect to the Company or the Subsidiaries or their
respective businesses, properties, prospects, operations or financial
conditions, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
4. Representations, Warranties and Covenants of the Purchasers.
(a) Each Purchaser hereby represents, warrants and agrees that the Notes and the
Warrants are being acquired for its own account and for investment and not with
a view to resale or distribution.
(b) Each Purchaser represents that it is not a "Canadian Person."
(c) No Purchaser will offer to sell or sell the Notes prior to the expiration of
the period ending 90 days from the date such securities are acquired (the
"Restricted Period"), to a person in Canada or to a Canadian Person or to any
other person for the account or benefit of a Canadian Person, except for offers
or sales of such securities on a basis in compliance with or exempt from the
registration requirements, and in compliance with or exempt from the prospectus
preparation and filing requirements, of applicable Canadian securities laws.
Each Purchaser agrees to require each person who purchases any such securities
from such Purchaser prior to the expiration of the Restricted Period to agree
that by purchasing such securities, such buyer represents and agrees that it
will comply with the restrictions on offers and sales set forth above and will
require of any other purchaser to whom it sells such securities a notice
containing substantially the same statement.
(d) Each Purchaser further agrees not to sell Notes in the U.S. or to persons
resident in the U.S. except in transactions which satisfy all applicable U.S.
securities laws. Each Purchaser agrees to require each person who purchases any
such securities from such Purchaser prior to the expiration of the Restricted
Period to agree that by purchasing such securities, such buyer represents and
agrees that it will comply with the restrictions on offers and sales set forth
above and will require of any other purchaser to whom it sells such securities a
notice containing substantially the same statement.
(e) Each Purchaser is duly organized and validly existing and in good standing
under the laws of its jurisdiction of organization. Each of the Transaction
Documents to which each Purchaser is a party has been duly authorized by all
necessary partnership action on the part of such Purchaser.
5. Affirmative Covenants. The Company covenants that from the date hereof and
for so long as any portion of the Notes (or any amendment thereto or instrument
issued in exchange therefor) shall remain outstanding, it will (and will cause
each of the Subsidiaries to) observe or perform the following:
(a) Corporate Existence. Except as provided in the Consolidation (as defined in
Section 9 herein), it will maintain its corporate existence in good standing and
remain qualified to do business as a foreign corporation in each jurisdiction in
which the nature of its activities or the character of the properties it owns or
leases makes such qualification necessary.
Page 192 of 220
<PAGE>
(b) Continuation of Business. It will continue to conduct its business of
internet software manufacture and development in compliance with all applicable
rules and regulations of applicable governmental authorities.
(c) Disclosure Documents. It will furnish to Purchasers a copy of each
Disclosure Document filed or distributed hereinafter, not later than the date
such document is filed with regulatory authorities or distributed to
shareholders.
(d) Preservation of Business. It will keep its business and properties
substantially intact, including present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers, and
employees and will maintain its existing insurance policies.
(e) Full Access. Upon written request, the Company will permit representatives
of the Purchasers to have full access at all reasonable times, and in a manner
so as not to interfere with the normal business operations of the Company, to
all premises, properties, personnel, books, records, contracts, and documents of
or pertaining to the Company. Notwithstanding the foregoing, the Company shall
not provide the Purchaser any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company prior to
the date provided to the Purchaser, but which has not been disclosed.
(f) NASDAQ Listing. The Company agrees to apply, as soon as practicable, to have
the Common Shares listed on either (i) the NASDAQ National Market ("NNM") or
(ii) the NASDAQ Small Cap Market ("NASDAQ Small Cap"), and concurrently
therewith shall take all actions within its power and use its best efforts to
have the Common Shares (i) registered under the U.S. Securities Exchange Act of
1934, as amended and the rules promulgated thereunder; and (ii) listed and
trading on the NNM or the NASDAQ Small Cap.
6. Negative Covenants. The Company covenants that from the date hereof and for
so long as any amounts under the Notes (or any amendment thereto or instrument
issued in exchange therefor) remains outstanding, it will not (and will cause
the Subsidiaries not to), without the prior written approval of holders of a
majority in principal amount under the Notes:
(a) Except in connection with the Consolidation (as defined in Section 9), enter
into any merger or consolidation or acquire assets of any other person, or sell,
lease or otherwise dispose of its assets, or lease, license or permit the use of
any Intellectual Property or other property, except in the Ordinary Course of
Business where such transaction is at arm's length and in exchange for fair
market value consideration, provided that the Company may sell or transfer
assets not to exceed $100,000 in the aggregate outside the Ordinary Course of
Business.
(b) Except in connection with the Consolidation or a transaction, in the amount
of $300,000, in connection with the Consolidation (the "Permitted Financing"),
sell or otherwise dispose of any shares of its capital stock or issue any
additional shares of its capital stock or securities convertible, exchangeable
or exercisable into shares of its capital stock other than pursuant to (i)
exercise of the Warrants; (ii) pursuant to the current terms of options and
warrants outstanding on the date hereof; or (iii) the issuance of incentive
stock options to employees, officers and directors and consultants, not to be
exercisable, in the aggregate, for more than 10% of the Common Shares
Page 193 of 220
<PAGE>
outstanding from time to time; provided that such options shall be issued with
an exercise price no lower than the closing market price for the Common Shares
on the Alberta Stock Exchange at the time of issuance and shall comply with the
rules of the Alberta Stock Exchange and other relevant regulatory authorities.
(c) Except as otherwise provided in the Transaction Documents, declare any
dividends on any shares of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption or other retirement of, or set
apart any sum for the payment of any dividends on, or for the purchase,
redemption or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of its capital
stock;
(d) Directly or indirectly create, incur, assume, guarantee, or otherwise become
or remain directly or indirectly liable with respect to, any indebtedness of any
kind, other than indebtedness existing on the date hereof which amount is no
greater than $300,000 not including indebtedness pursuant to the Notes,
indebtedness to Purchasers, or indebtedness to trade creditors in the Ordinary
Course of Business;
(e) Directly or indirectly create, incur, assume or permit to exist any lien,
pledge, charge or encumbrance on or with respect to any of its property or
assets (including any document or instrument in respect of goods or accounts
receivable) or those of any of the Subsidiaries, whether now owned or held or
hereafter acquired, or any income or profits therefrom, except for liens
securing the Notes, Permitted Liens and as permitted pursuant to the terms of
the Security Agreement;
(f) Except in connection with the Consolidation, directly or indirectly make or
own any Investment in any Person except that the Company may form subsidiaries
or enter into joint ventures, where the cash expenditures involved, do not, in
the aggregate for all such entities exceed $100,000;
(g) Except in connection with the Consolidation, purchase or otherwise acquire
any assets, in excess of $100,000 in the aggregate, after the date hereof, other
than assets used in the Ordinary Course of Business;
(h) Relocate the principal offices of the Company or any Subsidiary, provided
that the Company or such Subsidiary may relocate its offices to another location
in Bellingham, Washington, provided that the Company undertakes to make such
filings as may be required to reflect the new address with respect to filings
perfecting the security interests created by the Security Agreement (as defined
in Section 8(a));
(i) Except in connection with the Consolidation, amend its articles, by-laws or
other organizational documents, or effect any stock split, reverse stock split
or other recapitalization, except as may be required to register Common Shares
with the U.S. Securities and Exchange Commission or to list the Common Shares on
the NNM or NASDAQ Small Cap;
(j) Engage in any transaction with any Affiliate, except on arm's length terms,
for fair market value consideration and in the Ordinary Course of Business;
(k) Increase, by more than 10% annually, the base compensation of any director,
officer or employee; or
Page 194 of 220
<PAGE>
(l) Except in connection with the Consolidation, otherwise engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business.
7. Pre-Closing Covenants.
(a) General. Each of the Parties will use its best efforts to take all action
and do all things necessary, proper, or advisable in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Sections 8 and 9 below).
(b) Notice of Developments. The Company will give prompt written notice to the
Purchasers of any Material adverse development causing a breach of any of the
representations and warranties in Section 3 above.
(c) Alberta Stock Exchange Approval. The Company will apply to have the Warrant
Shares listed on the Alberta Stock Exchange, and shall obtain approval for such
listing and for the resale thereof (after a 90 day holding period) not later
than the Closing Date.
8. Conditions and Obligations to Closing.
(a) Conditions to Obligation of the Purchaser. The obligation of each Purchaser
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 3 above shall be
true and correct in all Material respects at and as of the Closing Date, as if
made on such date;
(ii) The Company shall have performed and complied with all of its covenants
hereunder in all Material respects through the First Closing;
(iii) The Company shall have delivered to the Purchasers a certificate to the
effect that each of the conditions specified above in Sections 8(a)(i) and 8(a)
(ii) is satisfied in all Material respects;
(iv) The Company shall have executed and delivered the Notes;
(v) The Company and its subsidiary, PeakSoft Corporation (USA), Inc. shall have
executed and delivered the Security Agreement in the form and substance
satisfactory to the Purchasers hereto (the "Security Agreement") and shall have
effected the deliveries and registrations provided in Section 2.2(a) therein;
(vi) Counsel for the Company shall have delivered legal opinions, in form and
substance satisfactory to Purchasers, from U.S. and Canadian counsel to the
Company (the "Opinions");
(vii) PeakSoft Corporation (USA), Inc. shall have executed and delivered
subsidiary guaranties in favor of the Purchasers, in form and substance
satisfactory to the purchasers (the "Subsidiary Guaranty"); and
(viii) The Purchasers shall have received, to their satisfaction, such
additional certificates, opinions and other documentation from the Company as
shall have been reasonably requested by them.
Page 195 of 220
<PAGE>
(b) Conditions to Obligations of the Company. The obligation of the Company to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 4 above shall be
true and correct in all material respects at and as of the Closing Date;
(ii) The Purchasers shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing; and
(iii) No litigation or proceeding shall be pending before any arbitrator, court
or other governmental entity wherein an unfavorable injunction, judgment, order,
decree, ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling or charge shall be in effect).
9. Consolidation.
(a) The Company shall use best efforts to consummate its proposed amalgamation
with Innotech Multimedia Corporation, an Ontario corporation (the
"Consolidation"), including, without limitation, obtaining all required
regulatory and shareholders approvals.
(b) The Purchasers agree to exchange the Notes and all other notes of the
Company held by them, in connection with the Consolidation, for other
securities, pursuant to the terms of an exchange agreement acceptable to them.
(c) In the event that the Consolidation shall not have been consummated on or
prior to October 1, 1998, the Company shall, at the option of the Purchasers,
redeem the Notes based on the outstanding principal amount and accrued interest
thereon.
10. Right of First Refusal.
Without limiting the scope of the covenants contained in Sections 5 and 6, in
the event that, while any amounts remain outstanding on the Notes, the Company
or any Subsidiary desires to enter into any capital raising transaction or
series of transactions, other than the Permitted Financing, the Purchasers shall
have a right of first refusal with respect to such transactions and shall have
the right to match the terms of any bona fide offer with respect thereto
received from a third party; provided, in the case of an offer consisting in
whole or in part of consideration other than cash, Purchasers shall have the
right to offer the cash equivalent of such offer. To effect the foregoing, the
Company shall provide written notice of the terms of such proposed transaction
to the Purchasers promptly following receipt of such offer. The Purchasers may
then exercise their right to match by issuing a written counternotice of their
intention to do so within 20 days of receipt of the notice from the Company and
the consummation of such counteroffer shall occur by the later of (i) the time
provided by the original bona fide third party offer or (ii) 30 days from the
receipt of the Purchasers' counteroffer.
11. Reimbursement of Expenses.
Regardless of whether the Transaction Documents are consummated or not, the
Page 196 of 220
<PAGE>
Company shall bear its own expenses and shall reimburse the Purchasers on demand
at any time or times (including on signing hereof) for all reasonable and
documented expenses, not to exceed US $20,000 in the aggregate, including,
without limitation, legal, accounting and investment banking fees and
disbursements, incurred by them in connection with the Transaction Documents and
the transactions contemplated thereby, which shall include, without limitation,
expenses relating to negotiation, documentation and due diligence, regardless of
whether any such transactions are entered into or consummated.
12. Survival; Indemnification.
(a) All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing (even if the damaged party knew or had
reason to know of any breach of representations, or warranty at the time of such
Closing) until two years from the Closing Date.
(b) The Company hereby agrees to defend, indemnify and hold harmless each
Purchaser and its partners, members, employees and agents against any and all
expenses, liabilities, costs, risks and threats (including, but not limited to,
all expenses of defense and investigation related thereto), of any and every
nature and description, arising out of the breach of any representation,
warranty, agreement or covenant of the Company or any Subsidiary contained in
this Agreement or any other Transaction Document.
(c) Section 11 and this Section 12 shall survive any termination of this
Agreement.
13. Miscellaneous.
(a) Amendment or Waiver; Assignment. This Agreement may not be modified or
amended without the prior written consent of the Parties. No failure or delay on
the part of any Party in exercising any right hereunder shall operate as a
waiver; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other rights. No waiver
of any such right or amendment hereof shall be effective unless given in
writing. No waiver of any such right shall be deemed a waiver of any other right
hereunder. Neither this Agreement nor any right or benefits hereunder may be
assigned by the Company, but each Purchaser may assign its rights under this
Agreement, and the Transaction Documents to any transferee of the Notes.
(b) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns.
(c) Severability. If any provision hereof shall be held to be void, illegal or
unenforceable it shall be deemed severable from the remaining provisions hereof
which shall remain in full force and effect.
(d) Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, three days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery
Page 197 of 220
<PAGE>
if to Liverpool:
The Liverpool Limited Partnership
c/o A.S. & K. Services Ltd.
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Attention: Deborah Hendrickson
Telephone: 011-441-295-2244
Telecopier:011-441-295-5328
if to Westgate:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Greg Taylor
Telephone: (809) 949-7755
Telecopier:(809) 949-7634
if to the Company:
PeakSoft Corporation
3614 Meridian, Suite 100
Bellingham, Washington 98225
Attention: Cal Patterson
Telephone: (360) 752-1100
Facsimile: (360) 752-0086
(e) Governing Law; Jurisdiction; Agent for Service of Process
(i) This agreement and the obligations of the parties hereunder, will be
governed by and construed in accordance with the laws of the State of New York
without regard to any conflicts of laws provisions thereof that would otherwise
require the application of the law of any other jurisdiction.
(ii) Each of the Parties irrevocably submits to the exclusive jurisdiction of
any State or Federal Court sitting in the State of New York over any suit,
action, or proceeding arising out of or relating to this Agreement. Each of the
Parties irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
Each Party agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon such party in any such suit or
proceeding. Nothing herein shall affect Purchasers' right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
Page 198 of 220
<PAGE>
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(iii) Each Party hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Agreement. Each Party is hereby
authorized to submit, as conclusive evidence of such waiver of jury trial, this
Agreement to a court that has jurisdiction over the subject matter of such
litigation and the parties to this Agreement.
(f) Entire Agreement. This Agreement contains the entire agreement between the
Parties relating to the subject matter herein and supersedes all previous oral
statements and other writings with respect thereto.
(g) Headings. The headings of the sections and subsections of this Agreement are
asserted for convenience only and shall not be deemed to constitute a part
hereof.
(h) Execution in Counterparts. This Agreement may be executed in any number of
counterparts and by different Parties in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
In Witness Whereof, the parties have caused this Agreement to be duly executed
and delivered as of the date first above written.
PeakSoft Corporation
By:
Name:
Title:
The Liverpool Limited Partnership
By: Liverpool Associates, Ltd.
General Partner
By:
Westgate International, L.P.
By: Martley International, Inc.
Attorney-In-Fact
By:
Page 199 of 220
<PAGE>
SCHEDULE A
Purchaser Amount of Notes Purchased
Westgate $75,000
Liverpool
$75,000
Page 200 of 220
<PAGE>
Exhibit 17 - Senior Promissory Note - June 10, 1998
This note has not been registered under the U.S. Securities Act of 1933, as
amended. This Note has been acquired for investment and may not be sold,
assigned or transferred in the absence of an effective registration statement
under the Securities Act of 1933, as amended or an exemption therefrom. This
note may not be transferred to any resident of the Province of Alberta until
September 10, 1998.
Senior Promissory Note
U.S.$75,000 Dated: June 10, 1998
For Value Received, the undersigned, PeakSoft Corporation (formerly Peak
Technologies Inc.), an Alberta corporation with offices at 3614 Meridian, Suite
100, Bellingham, Washington 98225 ("the Company"), promises to pay to the order
of Westgate International, L.P., c/o Midland Bank Trust Corporation (Cayman)
Limited, P.O. Box 1109, Mary Street, Grand Cayman Islands, British West Indies
("Lender"), in lawful money of the United States, the principal sum of Seventy
Five Thousand Dollars ($75,000) on June 10, 2000 or at such earlier
time at which this Promissory Note (this "Note") becomes due and payable in
accordance with its terms (the "Maturity Date") and to pay interest on the
principal sum outstanding on this Note in cash, at the rate of 12% per annum
due quarterly in arrears on the first day of January, April, July and October
of each year (each "an Interest Payment Date"), with the first payment due on
July 1, 1998. Terms used herein and not defined shall have the meaning set
forth in the Note Purchase Agreement, dated as of the date hereof, by and
among the Company, Lender and The Liverpool Limited Partnership (the "Note
Purchase Agreement") (as defined below).
This Note is subject to the following additional provisions:
1. Default Interest. Notwithstanding anything contained herein, this Note shall
bear interest, from and after the occurrence and during the continuance of a
default hereunder, at the rate equal to the lower of eighteen percent (18%) per
annum or the highest rate permitted by law. Unless otherwise agreed or required
by applicable law, payments will be applied first to any unpaid collection
costs, then to unpaid interest and fees and any remaining amount to principal.
2. Optional Redemption. The Company may, at its option, redeem this Note, in
whole only (an "Optional Redemption"), provided that the Company shall have also
elected to simultaneously redeem pro rata (a) all other Notes issued pursuant to
the Note Purchase Agreement and (b) all notes issued pursuant to the Note
Purchase Agreement, dated as of September 9, 1997 and amended from time to time
thereafter (the "Original Note Purchase Agreement") by and among the Company,
Lender and Westgate International, L.P., by sending the Lender written notice (a
"Redemption Notice"), which shall specify a date for such redemption (the
"Redemption Date") which shall be a date not less than 20 nor more than 30 days
from the date of the Redemption Notice. Upon receipt by Lender of such Notice,
the Note shall become due and payable on the Redemption Date in the amount of
principal amount to be redeemed on the Redemption Date plus any accrued interest
on such date. This Note shall not be prepayable or redeemable except in
accordance with this Section 2.
Page 201 of 220
<PAGE>
3. No Impairment. The Company shall not intentionally take any action, which
would impair the rights of Lender hereunder.
4. Obligations Absolute. No provision of this Note shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place and rate, and in the
manner, herein prescribed.
5. Waivers of Demand, Etc. The Company and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
6. Replacement Note. In the event that Lender notifies the Company that this
Note has been lost, stolen or destroyed, a replacement Note identical in all
respects to the original Note (except for the outstanding principal amount, if
different than that shown on the original Note), shall be delivered to Lender,
provided that the Lender executes and delivers to the Company an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note.
7. Note Purchase Agreement; Other Agreements. This Note is being executed and
delivered to Lender by the Company pursuant to the Note Purchase Agreement, as
amended from time to time and is entitled to the benefits thereof. The Companys
obligations under this Note are secured by a (i) first Lien on all of the
inventory and accounts receivable of a subsidiary of the Company pursuant to the
Security Agreement, dated the date hereof, by and between Lender, such
subsidiary and the Company (the "Security Agreement") and (ii) a guaranty of
such subsidiary (the "Subsidiary Guaranty") and, in each case, are entitled to
the benefits thereof.
8. Merger, Consolidation. If at any time there occurs any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions in
which in excess of 50% of the Company's voting power is transferred or sale of
all or substantially all of the Company's assets (a "Section 8 Transaction"),
Lender may (but is not required to) treat the Commencement Date of any Section 8
Transaction as a Redemption Date and shall be entitled to have the Company
redeem this Note in whole or in part at the redemption price equal to 110% of
the principal amount in addition to accrued interest thereon. The Company shall
provide Lender at least 20 days' prior written notice of any Section 8
Transaction. Lender shall be entitled to make such election at any time up to 10
days after receipt of such written notice of a Section 8 Transaction. For
purposes of this Section 8, the "Commencement Date" shall be earlier of (i) the
day upon which the Section 8 Transaction is announced by the Company to the
public or (ii) the day upon which notice of such transaction is received by
Lender.
Page 202 of 220
<PAGE>
9. Payment of Expenses. The Company agrees to pay all debts and expenses,
including reasonable attorneys' fees and expenses, which may be incurred by the
Lender in enforcing this Note and/or collecting any amount due under this Note
or the Note Purchase Agreement.
10. Gross-up. All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless such deduction or
withholding is required by applicable law, in which case the Company shall pay
Lender such additional amount as is necessary to ensure that the net amount
received by Lender on this Note shall equal the full amount it would have
received had no such deduction or withholding been required.
11. Savings Clause. In case any provision of this Note is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of interest paid
hereunder exceed the maximum rate of interest on the unpaid principal balance
hereof allowable by applicable law. If any sum is collected in excess of the
applicable maximum rate, the excess collected shall be applied to reduce the
principal debt. If the interest actually collected hereunder is still in excess
of the applicable maximum rate, the interest rate shall be reduced so as not to
exceed the maximum amount allowable under law.
12. Amendment. Neither this Note nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Company and Lender.
13. Assignment, Etc. Lender may without notice transfer or assign this Note or
any interest herein and may mortgage, encumber or transfer any of its rights or
interest in and to this Note or any part hereof and, without limitation, each
assignee, transferee and mortgagee (which may include any affiliate of the
Lender) shall have the right to transfer or assign its interest. Each such
assignee, transferee and mortgagee shall have all of the rights of Lender under
this Note, the Note Agreement, the Security Agreement and the Registration
Rights Agreement and shall be subject to the terms thereof. This Note shall be
binding upon the Company and its successors and shall inure to the benefit of
the Lender and its successors and assigns.
14. Events of Default. If one or more of the following described "Events of
Default" shall occur:
(i) Failure of the Company to timely pay in full any amounts due under this
Note;
(ii) Breach of any provision of Section 6 of the Note Purchase Agreement by the
Company or any subsidiary of the Company;
(iii) Any other breach or non-compliance by the Company or subsidiary of the
Company with any provision, including, without limitation, any representation,
warranty or covenant, hereof, in the Note Purchase Agreement, in the Security
Agreement or the Subsidiary Guaranty or the Warrants (as defined in the Note
Purchase Agreement), provided, that in such events the Lender shall have
provided the Company with written notice of such breaches or non-compliance and
shall provide an opportunity to cure for a period of 30 days;
Page 203 of 220
<PAGE>
(iv) The Company shall (1) become insolvent; (2) admit in writing its inability
to pay its debts generally as they mature; (3) make a general assignment for the
benefit of creditors or commence proceedings for its dissolution; or (4) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business;
(v) A trustee, liquidator or receiver shall be appointed for the Company or for
a substantial part of its property or business without its consent and shall not
be discharged within forty-five (45) days after such appointment;
(vi) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within forty-five (45) days thereafter;
(vii) Any money judgment, writ or warrant of attachment, or similar process in
excess of Five Hundred Thousand U.S. Dollars (US$500,000) in the aggregate shall
be entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded and unstayed for a period of forty-
five (45) days;
(viii) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings, or relief under any bankruptcy law or any law for the relief
of debt shall be instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within forty-five (45) days after such
institution or the Company shall by action or answer approve of, consent to , or
acquiesce in any such proceedings or admit to any material allegations of, or
default in answering a petition filed in, any such proceeding;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Lender (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Lender and in the Lender's sole discretion, the Lender may, by notice to the
Company declare this Note immediately due and payable, and the Lender may
immediately, and without expiration of any period of grace, enforce any and all
of the Lender's rights and remedies provided herein or any other rights or
remedies afforded by law.
15. No Waiver. No failure on the part of Lender to exercise, and no delay in
exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right, remedy
or power hereunder preclude any other or future exercise of any other right,
remedy or power. Each and every right, remedy or power hereby granted to Lender
or allowed it by law or other agreement shall be cumulative and not exclusive of
any other, and may be exercised by Lender from time to time.
16. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to the Company hereunder shall be sufficiently given if in writing
and personally delivered or mailed to the Company by certified mail, return
receipt requested, at its address set forth above or such other address as it
may designate for itself in such notice to Lender, and communications shall be
deemed to have been received when delivered personally or, if sent by mail or
facsimile, then when actually received by the party to whom it is addressed.
Whenever the sense of this Note requires, words in the singular shall be deemed
to include the plural and words in the plural shall be deemed to include the
Page 204 of 220
<PAGE>
singular. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may (1) renew, extend (repeatedly and for any
length of time) or modify this Note, or release any party or any guarantor or
collateral, (2) impair, fail to realize upon or perfect any security interest
Lender may have from time to time in collateral, or (3) take any other action
deemed necessary by Lender, in each case without the consent of or notice to
anyone and without releasing the Company or any guarantor from any liability.
17. Choice of Law and Venue; Waiver of Jury Trial.
(a) This Note will be governed by and construed in accordance with the laws of
the State of New York without regard to any conflicts of laws provisions thereof
that would otherwise require the application of the law of any other
jurisdiction.
(b) The Company irrevocably submits to the exclusive jurisdiction of any State
or Federal Court sitting in the State of New York over any suit, action, or
proceeding arising out of or relating to this Agreement. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such suit, action, or
proceeding brought in such a court and any claim that suit, action, or
proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Lender's right to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(c) The Company hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Note.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
PEAKSOFT CORPORATION
By:
Print Name:
Print Title:
Fax No: ____________________
ATTEST
Page 205 of 220
<PAGE>
Exhibit 18 - Senior Promissory Note - June 10, 1998
This note has not been registered under the U.S. Securities Act of 1933, as
amended. This Note has been acquired for investment and may not be sold,
assigned or transferred in the absence of an effective registration statement
under the Securities Act of 1933, as amended or an exemption therefrom. This
note may not be transferred to any resident of the Province of Alberta until
September 10, 1998.
Senior Promissory Note
U.S.$75,000 Dated: June 10, 1998
For Value Received, the undersigned, PeakSoft Corporation (formerly Peak
Technologies Inc.), an Alberta corporation with offices at 3614 Meridian,
Suite 100, Bellingham, Washington 98225 ("the Company"), promises to pay to
the order of The Liverpool Limited Partnership, P.O. Box HM 1179, Hamilton, HM
EX, Bermuda ("Lender"), in lawful money of the United States, the principal sum
of Seventy Five Thousand Dollars ($75,000) on June 10, 2000 or at such earlier
time at which this Promissory Note (this "Note") becomes due and payable in
accordance with its terms (the "Maturity Date") and to pay interest on the
principal sum outstanding on this Note in cash, at the rate of 12% per annum
due quarterly in arrears on the first day of January, April, July and October
of each year (each "an Interest Payment Date"), with the first payment due on
July 1, 1998. Terms used herein and not defined shall have the meaning set
forth in the Note Purchase Agreement, dated as of the date hereof, by and among
the Company, Lender and Westgate International, L.P. (the "Note Purchase
Agreement") (as defined below).
This Note is subject to the following additional provisions:
1. Default Interest. Notwithstanding anything contained herein, this Note shall
bear interest, from and after the occurrence and during the continuance of a
default hereunder, at the rate equal to the lower of eighteen percent (18%) per
annum or the highest rate permitted by law. Unless otherwise agreed or required
by applicable law, payments will be applied first to any unpaid collection
costs, then to unpaid interest and fees and any remaining amount to principal.
2. Optional Redemption. The Company may, at its option, redeem this Note, in
whole only (an "Optional Redemption"), provided that the Company shall have also
elected to simultaneously redeem pro rata (a) all other Notes issued pursuant to
the Note Purchase Agreement and (b) all notes issued pursuant to the Note
Purchase Agreement, dated as of September 9, 1997 and amended from time to time
thereafter (the "Original Note Purchase Agreement") by and among the Company,
Lender and Westgate International, L.P., by sending the Lender written notice (a
"Redemption Notice"), which shall specify a date for such redemption (the
"Redemption Date") which shall be a date not less than 20 nor more than 30 days
from the date of the Redemption Notice. Upon receipt by Lender of such Notice,
the Note shall become due and payable on the Redemption Date in the amount of
principal amount to be redeemed on the Redemption Date plus any accrued interest
on such date. This Note shall not be prepayable or redeemable except in
accordance with this Section 2.
Page 206 of 220
<PAGE>
3. No Impairment. The Company shall not intentionally take any action which
would impair the rights of Lender hereunder.
4. Obligations Absolute. No provision of this Note shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place and rate, and in the
manner, herein prescribed.
5. Waivers of Demand, Etc. The Company and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, hereby expressly
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
all other notices whatsoever and bringing of suit and diligence in taking any
action to collect amounts called for hereunder, and will be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
6. Replacement Note. In the event that Lender notifies the Company that this
Note has been lost, stolen or destroyed, a replacement Note identical in all
respects to the original Note (except for the outstanding principal amount, if
different than that shown on the original Note), shall be delivered to Lender,
provided that the Lender executes and delivers to the Company an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note.
7. Note Purchase Agreement; Other Agreements. This Note is being executed and
delivered to Lender by the Company pursuant to the Note Purchase Agreement, as
amended from time to time and is entitled to the benefits thereof. The Companys
obligations under this Note are secured by a (i) first Lien on all of the
inventory and accounts receivable of a subsidiary of the Company pursuant to the
Security Agreement, dated the date hereof, by and between Lender, such
subsidiary and the Company (the "Security Agreement") and (ii) guaranty of such
subsidiary (the "Subsidiary Guaranty") and, in each case, are entitled to the
benefits thereof.
8. Merger, Consolidation. If at any time there occurs any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation), or any other
corporate reorganization or transaction or series of related transactions in
which in excess of 50% of the Company's voting power is transferred or sale of
all or substantially all of the Company's assets (a "Section 8 Transaction"),
Lender may (but is not required to) treat the Commencement Date of any Section 8
Transaction as a Redemption Date and shall be entitled to have the Company
redeem this Note in whole or in part at the redemption price equal to 110% of
the principal amount in addition to accrued interest thereon. The Company shall
provide Lender at least 20 days' prior written notice of any Section 8
Transaction. Lender shall be entitled to make such election at any time up to 10
days after receipt of such written notice of a Section 8 Transaction. For
purposes of this Section 8, the "Commencement Date" shall be earlier of (i) the
day upon which the Section 8 Transaction is announced by the Company to the
public or (ii) the day upon which notice of such transaction is received by
Lender.
Page 207 of 220
<PAGE>
9. Payment of Expenses. The Company agrees to pay all debts and expenses,
including reasonable attorneys' fees and expenses, which may be incurred by the
Lender in enforcing this Note and/or collecting any amount due under this Note
or the Note Purchase Agreement.
10. Gross-up. All payments under this Note will be made without any deduction or
withholding on account of any withholding tax unless such deduction or
withholding is required by applicable law, in which case the Company shall pay
Lender such additional amount as is necessary to ensure that the net amount
received by Lender on this Note shall equal the full amount it would have
received had no such deduction or withholding been required.
11. Savings Clause. In case any provision of this Note is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby. In no event shall the amount of interest paid
hereunder exceed the maximum rate of interest on the upaid balance hereof
allowable by applicable law. If any sum is collected in excess of the applicable
maximum rate, the excess collected shall be applied to reduce the principal
debt. If the interest actually collected hereunder is still in excess of the
applicable maximum rate, the interest rate shall be reduced so as not to exceed
the maximum amount allowable under law.
12. Amendment. Neither this Note nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Company and Lender.
13. Assignment, Etc. Lender may without notice transfer or assign this Note or
any interest herein and may mortgage, encumber or transfer any of its rights or
interest in and to this Note or any part hereof and, without limitation, each
assignee, transferee and mortgagee (which may include any affiliate of the
Lender) shall have the right to transfer or assign its interest. Each such
assignee, transferee and mortgagee shall have all of the rights of Lender under
this Note, the Note Agreement, the Security Agreement and the Registration
Rights Agreement and shall be subject to the terms thereof. This Note shall be
binding upon the Company and its successors and shall inure to the benefit of
the Lender and its successors and assigns.
14. Events of Default. If one or more of the following described "Events of
Default" shall occur:
(i) Failure of the Company to timely pay in full any amounts due under this
Note;
(ii) Breach of any provision of Section 6 of the Note Purchase Agreement by the
Company or any subsidiary of the Company;
(iii) Any other breach or non-compliance by the Company or subsidiary of the
Company with any provision, including, without limitation, any representation,
warranty or covenant, hereof, in the Note Purchase Agreement, in the Security
Agreement or the Subsidiary Guaranty (as defined in the Note Purchase
Agreement), provided, that in such events the Lender shall have provided the
Company with written notice of such breaches or non- compliance and shall
provide an opportunity to cure for a period of 30 days;
Page 208 of 220
<PAGE>
(iv) The Company shall (1) become insolvent; (2) admit in writing its inability
to pay its debts generally as they mature; (3) make a general assignment for the
benefit of creditors or commence proceedings for its dissolution; or (4) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business;
(v) A trustee, liquidator or receiver shall be appointed for the Company or for
a substantial part of its property or business without its consent and shall not
be discharged within forty-five (45) days after such appointment;
(vi) Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company and shall
not be dismissed within forty-five (45) days thereafter;
(vii) Any money judgment, writ or warrant of attachment, or similar process in
excess of Five Hundred Thousand U.S. Dollars (US$500,000) in the aggregate shall
be entered or filed against the Company or any of its properties or other assets
and shall remain unpaid, unvacated, unbonded and unstayed for a period of
forty-five (45) days;
(viii) Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings, or relief under any bankruptcy law or any law for the relief
of debt shall be instituted by or against the Company and, if instituted against
the Company, shall not be dismissed within forty-five (45) days after such
institution or the Company shall by action or answer approve of, consent to, or
acquiesce in any such proceedings or admit to any material allegations of, or
default in answering a petition filed in, any such proceeding;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Lender (which
waivershall not be deemed to be a waiver of any subsequent default) at the
option of the Lender and in the Lender's sole discretion, the Lender may, by
notice to the Company declare this Note immediately due and payable, and the
Lender may immediately, and without expiration of any period of grace, enforce
any and all of the Lender's rights and remedies provided herein or any other
rights or remedies afforded by law.
15. No Waiver. No failure on the part of Lender to exercise, and no delay in
exercising any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right, remedy
or power hereunder preclude any other or future exercise of any other right,
remedy or power. Each and every right, remedy or power hereby granted to Lender
or allowed it by law or other agreement shall be cumulative and not exclusive of
any other, and may be exercised by Lender from time to time.
16. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to the Company hereunder shall be sufficiently given if in writing
and personally delivered or mailed to the Company by certified mail, return
receipt requested, at its address set forth above or such other address as it
may designate for itself in such notice to Lender, and communications shall be
deemed to have been received when delivered personally or, if sent by mail or
facsimile, then when actually received by the party to whom it is addressed.
Whenever the sense of this Note requires, words in the singular shall be deemed
to include the plural and words in the plural shall be deemed to include the
Page 209 of 220
<PAGE>
singular. Upon any change in the terms of this Note, and unless otherwise
expressly stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may (1) renew, extend (repeatedly and for any
length of time) or modify this Note, or release any party or any guarantor or
collateral, (2) impair, fail to realize upon or perfect any security interest
Lender may have from time to time in collateral, or (3) take any other action
deemed necessary by Lender, in each case without the consent of or notice to
anyone and without releasing the Company or any guarantor from any liability.
17. Choice of Law and Venue; Waiver of Jury Trial.
(a) This Note will be governed by and construed in accordance with the laws of
the State of New York without regard to any conflicts of laws provisions thereof
that would otherwise require the application of the law of any other
jurisdiction.
(b) The Company irrevocably submits to the exclusive jurisdiction of any State
or Federal Court sitting in the State of New York over any suit, action, or
proceeding arising out of or relating to this Agreement. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such suit, action, or
proceeding brought in such a court and any claim that suit, action, or
proceeding has been brought in an inconvenient forum.
The Company agrees that the service of process upon it mailed by certified or
registered mail (and service so made shall be deemed complete five days after
the same has been posted as aforesaid) or by personal service shall be deemed in
every respect effective service of process upon it in any such suit or
proceeding. Nothing herein shall affect Lender's right to serve process in any
other manner permitted by law. The Company agrees that a final non- appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(c) The Company hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Note.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized.
PEAKSOFT CORPORATION
By:
Print Name:
Print Title:
Fax No: ____________________
ATTEST
Page 210 of 220
<PAGE>
Exhibit 19 - Guaranty of PeakSoft Corporation (USA), Inc. - June 1998
PEAKSOFT CORPORATION, an Alberta corporation (the "Company"), and the
corporate parent and sole shareholder of PEAKSOFT CORPORATION (USA), INC., a
Washington corporation (the "Guarantor,"), has issued to WESTGATE INTERNATIONAL,
L.P., a Bermuda limited partnership ("Payee"), a 12% senior note, dated the date
hereof and due June 10, 2000, in the original principal amount of US$75,000 (the
"Note").
Section 1. Guaranty. In consideration of Payee purchasing the Note, the
Guarantor hereby irrevocably and unconditionally guarantees to the Payee the
full performance when due of any and all obligations and undertakings of the
Company under the Note (such obligations and undertakings shall hereinafter be
referred to as the "Obligations"), together with all reasonable attorneys fees,
disbursements and all other costs and expenses of collections incurred by Payee
in enforcing any of such Obligations and/or this Guaranty.
Section 2. Certain Guarantor Waivers.
(a) Waivers of Notice, Etc. The Guarantor waives notice of acceptance of this
Guaranty and notice of the creation or performance of any of the Obligations,
and waives presentment, demand of payment, protest or notice of protest, notice
of dishonor or nonperformance of any of the Obligations, suit or taking other
action or non-action by the Payee, the Company or any other guarantor against,
and any other notice to, any party liable thereon (including, without
limitation, Guarantor). The Guarantor also hereby waives any notice of default
by the Company and any other notice to which the Guarantor might otherwise be
entitled, the right to interpose any counterclaim or consolidate any other
action with an action on this Guaranty, and the benefit of any statute of
limitations affecting its liabilities hereunder or the enforcement hereof. No
act or omission of any kind in connection with any of the foregoing shall in any
way impair or otherwise affect the legality, validity, binding effect or
enforceability of any term or provision of this Guaranty or any of the
obligations of any Guarantor hereunder.
(b) Guaranty Not Affected. The Guarantor hereby covenants, agrees and consents
that Payee may, at any time and from time to time (whether or not after
revocation or termination of this Guaranty), without incurring responsibility to
Guarantor, and without impairing or releasing any of the obligations of
Guarantor hereunder and, upon or without any terms or conditions, and in whole
or in part: (i) agree with the Company to change the manner, place or terms of
performance, including (without limitation) any change or extend the time of
performance of, renew or alter, any of the Obligations, any security therefor,
or any other liability incurred directly or indirectly in respect thereof, or to
make any other change in the Obligations, and the guaranty herein made shall
apply to the Obligations as so changed, extended, renewed or altered; (ii) take
additional security, as per agreement with the Company, for or sell, exchange,
release, surrender, substitute, realize upon or otherwise deal with in any
manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, any of the Obligations or any other
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and/or any offset thereagainst; (iii) exercise or
refrain from exercising any rights against the Company or others (including,
without limitation, Guarantor) or otherwise act or refrain from acting; (iv)
settle or compromise any Obligation, any security therefor, or any liability
Page 211 of 220
<PAGE>
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and/or subordinate the performance of all or any part thereof
to the performance of any of the Obligations (whether due or not) to creditors
of the Company other than Payee and Guarantor; (v) apply any sums by whomsoever
paid or howsoever realized to any Obligation regardless of what Obligations
remain unperformed; (vi) cancel, compromise, modify or waive the provisions of
any document relating to any of the Obligations; and (viii) grant the Company
any indulgence as Payee may, in its sole discretion, determine.
(c) Failure to Perfect Lien, Etc. No failure by Payee to file, record or
otherwise perfect any lien or security interest, nor any improper filing or
recording, nor any failure by Payee to insure or protect any security nor any
other dealing (or failure to deal) with any security by Payee with respect to
any of the Obligations, shall impair or release any of the obligations of the
Guarantor hereunder. No invalidity, irregularity or unenforceability of all or
any part of the Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty is a primary obligation of the
Guarantor.
(d) Waiver of Subrogation. No payment by the Guarantor except the indefeasible
performance in full of the Obligations shall entitle the Guarantor to be
subrogated to any of the rights of Payee. The Guarantor shall not have any right
of reimbursement or indemnity whatsoever or any right of recourse to or with
respect to any assets or property of the Company or to any security for the
Obligations, unless and until all of the Obligations have been indefeasibly
performed in full, other than as such reimbursement or indemnity rights are
waived in the next paragraph below.
(e) Payment Guaranty; Waiver of Defenses, Counterclaims, Etc. The Guarantor
hereby agrees that this Guaranty constitutes guaranty of payment, performance
and compliance (and not a guaranty of collection only), and waives any right to
require that any resort be had by Payee to the Company or any other guarantor or
to any security pledged with respect to the performance of any of the
Obligations. Further, this guaranty of payment is absolute and unconditional,
and shall remain valid, binding and fully enforceable irrespective of any
circumstance of any nature that might otherwise constitute a defense, offset,
claim, abatement or counterclaim that the Guarantor or the Company may assert
against Payee with respect to any of the Obligations or otherwise, including,
but not limited to, failure of consideration, fraudulent inducement, breach of
warranty, statute of frauds, statute of limitations, accord and satisfaction,
and usury, and irrespective of the validity, legality, binding effect or
enforceability of the terms of any agreement or instrument relating to any of
the Obligations. The Guarantor hereby absolutely, unconditionally and
irrevocably waives any and all rights to assert any such defenses, offsets,
claims, abatements and counterclaims. In the event Payee is not permitted or
otherwise unable (because of the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding) to accelerate the Obligations but
would otherwise be permitted to do so at such timme pursuant to the Notes, Payee
may demand performance in full under this Guaranty as if all of the Obligations
had been duly accelerated, and Guarantor will not raise, and hereby expressly
waive, any claim or defense with respect to such acceleration.
Section 3. Remedies. In the case of any proceedings to collect any obligations
of the Guarantor, the Guarantor shall pay all reasonable costs and expenses of
every kind incurred in respect of collection and enforcement of this Guaranty,
Page 212 of 220
<PAGE>
including reasonable attorneys' fees and disbursements. Upon the occurrence and
during the continuance of any failure of any of the Obligations to be performed
when due, the Payee may elect to nonjudicially or judicially foreclose against
any real or personal property security it holds for the Obligations, including,
without limitation, security under the Security Agreement, dated the date
hereof, between the Payee and the Guarantor (the"Security Agreement"), or any
part thereof, or accept an assignment of any such security in lieu of
foreclosure or compromise or adjust any part of the Obligations, or make any
other accommodation with the Company or any other guarantor, pledgor or surety,
or exercise any other remedy against the Company or any other guarantor,
pledgor or surety, or any security, in accordance with and subject to the
provisions of the documents creating such security interests. No such action
by Payee will release, limit or otherwise affect the obligations of the
Guarantor to Payee, even if the effect of that action is to deprive such
Guarantor of the right to collect any reimbursement from the Company or any
other person for any sums paid to Payee and such Guarantor, unless such action
results in Payee being paid in full for all Notes outstanding.
Section 4. Reinstatement, Indemnification, Etc. If claim is ever made upon Payee
for repayment, return, restoration or other recovery of any amount or amounts
received by Payee in payment or on account of any of the Obligations, and Payee
repays all or part of such amount: (a) because such payment or application of
proceeds is or may be avoided, invalidated, declared fraudulent, set aside or
determined to be void or voidable as a preferential transfer, fraudulent
conveyance, impermissible set-off or a diversion of trust funds; or (b) for any
other reason, including (without limitation) by reason of (i) any judgment,
decree or order of any court or adminstrative body having jurisdiction over
Payee or any of its property, or (ii) any settlement or compromise of any such
claim effected by Payee with any such claimant (including the Company); then,
and in such event, the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Guarantor, notwithstanding
any revocation hereof or the cancellation of any note or other instrument or
document evidencing any of the Obligations and the obligations of the Guarantor
hereunder shall continue to apply, or shall automatically (and without further
action) be reinstated if not then in effect, as the case may be, and the
Guarantor shall be and remain liable to Payee hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by Payee. The Guarantor hereby indemnifies Payee, and agrees to
reimburse and hold Payee harmless on demand, from and against all actions,
claims, losses, judgments, damages, amounts paid in settlement and expenses
(including reasonable attorneys fees and court costs) brought against or
incurred by Payee and arising out of, relating to or in connection with any of
the Obligations.
Section 5. Waiver of Rights, Etc. No delay on the part of Payee in exercising
any of its options, powers or rights, or partial or single exercise thereof,
shall constitute a waiver thereof. No waiver of any of its rights hereunder, and
no modification or amendment of this Guaranty, shall be deemed to be made by
Payee unless the same shall be in writing, duly signed by an authorized
representative of Payee on behalf of Payee, and each such waiver, if any, shall
apply only with respect to the specific instance involved, and shall in no way
impair the rights of Payee or the obligations of the Guarantor to Payee in any
other respect at any other time.
Page 213 of 220
<PAGE>
Section 6. Enforcement, Etc. Payee, in its sole discretion, may proceed to
exercise or enforce any right, power, privilege, remedy or interest that Payee
may have under this Guaranty, the Obligations or any applicable law, at law, in
equity, in rem or in any other forum available under applicable law, without
notice except as otherwise expressly required by law provided herein; without
pursuing, exhausting or otherwise exercising or enforcing any other right,
power, privilege, remedy or interest that Payee may have against or in respect
of the Guarantor, the Obligations, the Company, any other gurantor, surety,
pledgor, collateral or any other person or thing; and without regard to any act
or omission of Payee or any other person.
Section 7. Representation and Covenants. The Guarantor hereby restates the
representations and warranties applicable to it contained in Section 3 of the
Note Purchase Agreement, dated the date hereof, between the Company and Payee
(the "Note Purchase Agreement") and the Guarantor agrees to comply with the
covenants contained in Sections 5 and 6 of the Note Purchase Agreement.
Section 8. Reliance. The Guarantor expressly acknowledges that the Guarantor has
not received or relied upon any oral or written agreements, understandings,
representations or warranties from Payee or any other party with respect to this
Guaranty (or any of Guarantor's obligations hereunder), and that this Guaranty
contains the entire understanding of the parties with respect to the subject
matter hereof and supersedes and replaces any and all prior oral or written
agreements and understandings with respect thereto.
Section 9. Successors and Assigns; Assignment. This Guaranty is binding upon the
Guarantors and their successors, and shall inure to the benefit of Payee and its
successors and assigns. This Guaranty may not be assigned by the Guarantor, but
the Payee may assign this Guaranty to any assignee of the Notes.
Section 10. Modification, Etc. This Guaranty cannot be terminated or changed
orally and no provision hereof may be modified or waived except in writing by
Payee and the Guarantor.
Section 11. Section and Other Headings. The Sections and other headings
contained in this Guaranty are for reference purposes only and shall not affect
the meaning or interpretation of this Guaranty.
Section 12. Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, three days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery
if to Payee:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Island, B.W.I.
Attention: Greg Taylor
Telephone: (345) 949-7755
Telecopier: (345) 949-7634
Page 214 of 220
<PAGE>
if to the Guarantor:
PeakSoft Corporation (USA), Inc.
3614 Meridian, Suite 100
Bellingham, Washington 98225
Telephone: (360) 752-1100
Telecopier:(360) 752-0086
Attention: Doug Foster
Section 13. Choice of Law and Venue; Waiver of Jury Trial.
(a) THIS GUARANTY WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS
THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION.
(b) The Guarantor irrevocably submits to the exclusive jurisdiction of any State
or Federal Court sitting in the State of New York, New York County, over any
suit, action, or proceeding arising out of or relating to this Agreement. The
Guarantor irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
The Guarantor further agrees that the service of process upon it, mailed by
certified or registered mail (and service so made shall be deemed complete five
days after the same has been posted as aforesaid) or by personal service shall
be deemed in every respect effective service of process upon it in any such suit
or proceeding. Nothing herein shall affect Payee's right to serve process in any
other manner permitted by law. The Guarantor agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(c) The Guarantor hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Guaranty.
Dated the __ day of June, 1998
PEAKSOFT CORPORATION (USA), INC.
By:
Page 215 of 220
<PAGE>
Exhibit 20 - Guaranty of PeakSoft Corporation (USA), Inc. and the Liverpool
Limited Partnership - June 1998
PEAKSOFT CORPORATION, an Alberta corporation (the "Company"), and the
corporate parent and sole shareholder of PEAKSOFT CORPORATION (USA), INC.,
a Washington corporation (the "Guarantor,"), has issued to THE LIVERPOOL
LIMITED PARTNERSHIP, a Bermuda limited partnership ("Payee"), a 12% senior
note, dated the date hereof and due June 10, 2000, in the original principal
amount of US$75,000 (the "Note").
Section 1. Guaranty. In consideration of Payee purchasing the Note, the
Guarantor hereby irrevocably and unconditionally guarantees to the Payee the
full performance when due of any and all obligations and undertakings of the
Company under the Note (such obligations and undertakings shall hereinafter be
referred to as the "Obligations"), together with all reasonable attorneys fees,
disbursements and all other costs and expenses of collections incurred by Payee
in enforcing any of such Obligations and/or this Guaranty.
Section 2. Certain Guarantor Waivers.
(a) Waivers of Notice, Etc. The Guarantor waives notice of acceptance of this
Guaranty and notice of the creation or performance of any of the Obligations,
and waives presentment, demand of payment, protest or notice of protest, notice
of dishonor or nonperformance of any of the Obligations, suit or taking other
action or non-action by the Payee, the Company or any other guarantor against,
and any other notice to, any party liable thereon (including, without
limitation, Guarantor). The Guarantor also hereby waives any notice of default
by the Company and any other notice to which the Gurantor might otherwise be
entitled, the right to interpose any counterclaim or consolidate any other
action with an action on this Guaranty, and the benefit of any statute of
limitations affecting its liabilities hereunder or the enforcement hereof. No
act or omission of any kind in connection with any of the foregoing shall in way
impair or otherwise affect the legality, validity, binding effect or
enforceability of any term or provision of this Guaranty or any of the
obligations of any Guarantor hereunder.
(b) Guaranty Not Affected. The Guarantor hereby covenants, agrees and consents
that Payee may, at any time and from time to time (whether or not after
revocation or termination of this Guaranty), without incurring responsibility to
Guarantor, and without impairing or releasing any of the obligations of
Guarantor hereunder and, upon or without any terms or conditions, and in whole
or in part: (i) agree with the Company to change the manner, place or terms of
performance, including (without limitation) any change or extend the time of
performance of, renew or alter, any of the Obligations, any security therefor,
or any liability incurred directly or indirectly in respect thereof, or to make
any other change in the Obligations, and the guaranty herein made shall apply to
the Obligations as so changed, extended, renewed or altered; (ii) take
additional security, as per agreement with the Company, for or sell, exchange,
release, surrender, substitute, realize upon or otherwise deal with in any
manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, any of the Obligations or any other
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and/or any offset thereagainst; (iii) exercise or
refrain from exercising any rights against the Company or others (including,
Page 216 of 220
<PAGE>
without limitation, Guarantor) or otherwise act or refrain from acting; (iv)
settle or compromise any Obligation, any security therefor, or any liability
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and/or subordinate the performance of all or any part thereof
to the performance of any of the Obligations (whether due or not) to creditors
of the Company other than Payee and Guarantor; (v) apply any sums by whomsoever
paid or howsoever realized to any Obligation regardless of what Obligations
remain unperformed; (vi) cancel, compromise, modify or waive the provisions of
any document relating to any of the Obligations; (vii) release any other
guarantor or surety of the Obligations; and (viii) grant the Company any
indulgence as Payee may, in its sole discretion, determine.
(c) Failure to Perfect Lien, Etc. No failure by Payee to file, record or
otherwise perfect any lien or security interest, nor any improper filing or
recording, nor any failure by Payee to insure or protect any security nor any
other dealing (or failure to deal) with any security by Payee with respect to
any of the Obligations, shall impair or release any of the obligations of the
Guarantor hereunder. No invalidity, irregularity or unenforceability of all or
any part of the Obligations or of any security therefor shall affect, impair or
be a defense to this Guaranty, and this Guaranty is a primary obligation of the
Gurantor.
(d) Waiver of Subrogation. No payment by the Guarantor except the indefeasible
performance in full of the Obligations shall entitle the Guarantor to be
subrogated to any of the rights of Payee. The Guarantor shall not have any right
of reimbursement or indemnity whatsoever or any right of recourse to or with
respect to any assets or property of the Company or to any security for the
Obligations, unless and until all of the Obligations have been indefeasibly
performed in full, other than as such reimbursement or indemnity rights are
waived in the next paragraph below.
(e) Payment Guaranty; Waiver of Defenses, Counterclaims, Etc. The Guarantor
hereby agrees that this Guaranty constitutes guaranty of payment, performance
and compliance (and not a guaranty of collection only), and waives any right to
require that any resort be had by Payee to the Company or any other guarantor or
to any security pledged with respect to the performance of any of the
Obligations. Further, this guaranty of payment is absolute and unconditional,
and shall remain valid, binding and fully enforceable irrespective of any
circumstance of any nature that might otherwise constitute a defense, offset,
claim, abatement or counterclaim that the Guarantor or the Company may assert
against Payee with respect to any of the Obligations or otherwise, including,
but not limited to, failure of consideration, fraudulent inducement, breach of
warranty, statute of frauds, statute of limitations, accord and satisfaction,
and usury, and irrespective of the validity, legality, binding effect or
enforceability of the terms of any agreement or instrument relating to any of
the Obligations. The Guarantor hereby absolutely, unconditionally and
irrevocably waives any and all rights to assert any such defenses, offsets,
claims, abatements and counterclaims. In the event Payee is not permitted or
otherwise unable (because of the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding) to accelerate the Obligations but
would otherwise be permitted to do so at such time pursuant to the Notes, Payee
may demand performance in full under this Guaranty as if all of the Obligations
had been duly accelerated, and Guarantor will not raise, and hereby expressly
waive, any claim or defense with respect to such acceleration.
Page 217 of 220
<PAGE>
Section 3. Remedies. In the case of any proceedings to collect any obligations
of the Guarantor, the Guarantor shall pay all reasonable costs and expenses of
every kind incurred in respect of collection and enforcement of this Guaranty,
including reasonable attorneys' fees and disbursements. Upon the occurrence and
during the continuance of any failure of any of the Obligations to be performed
when due, the Payee may elect to nonjudicially or judicially foreclose against
any real or personal property security it holds for the Obligations, including,
without limitation, security under the Security Agreement, dated the date
hereof, between the Payee and the Guarantor (the "Security Agreement"), or any
part thereof, or accept an assignment of any such security in lieu of
foreclosure or compromise or adjust any part of the Obligations, or make any
other accommodation with the Company or any other guarantor, pledgor or surety,
or exercise any other remedy against the Company or any other guarantor, pledgor
or surety, or any security, in accordance with and subject to the provisions of
the documents creating such security interests. No such action by Payee will
release, limit or otherwise affect the obligations of the Guarantor to Payee,
even if the effect of that action is to deprive such Guarantor of the right to
collect any reimbursement from the Company or any other person for any sums paid
to Payee and such Guarantor, unless such action results in Payee being paid in
full for all Notes outstanding.
Section 4. Reinstatement, Indemnification, Etc. If claim is ever made upon Payee
for repayment, return, restoration or other recovery of any amount or amounts
received by Payee in payment or on account of any of the Obligations, and Payee
repays all or part of such amount: (a) because such payment or application of
proceeds is or may be avoided, invalidated, declared fraudulent, set aside or
determined to be void or voidable as a preferential transfer, fraudulent
conveyance, impermissible set-off or a diversion of trust funds; or (b) for any
other reason, including (without limitation) by reason of (i) any judgment,
decree or order of any court or administrative body having jurisdiction over
Payee or any of its property, or (ii) any settlement or compromise of any such
claim effected by Payee with any such claimant (including the Company); then,
and in such event, the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon the Guarantor, notwithstanding
any revocation hereof or the cancellation of any note or other instrument or
document evidencing any of the Obligations and the obligations of the Guarantor
hereunder shall continue to apply, or shall automatically (and without further
action) be reinstated if not then in effect, as the case may be, and the
Guarantor shall be and remain liable to Payee hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by Payee. The Guarantor hereby indemnifies Payee, and agrees to
reimburse and hold Payee harmless on demand, from and against all actions,
claims, losses, judgments, damages, amounts paid in settlement and expenses
(including reasonable attorneys fees and court costs) brought against or
incurred by Payee and arising out of, relating to or in connection with any of
the Obligations.
Section 5. Waiver of Rights, Etc. No delay on the part of Payee in exercising
any of its options, powers or rights, or partial or single exercise thereof,
shall constitute a waiver thereof. No waiver of any of its rights hereunder, and
no modification or amendment of this Guaranty, shall be deemed to be made by
Payee unless the same shall be in writing, duly signed by an authorized
representative of Payee on behalf of Payee, and each such waiver, if any, shall
apply only with respect to the specific instance involved, and shall in no way
impair the rights of Payee or the obligations of the Guarantor to Payee in any
other respect at any other time.
Page 218 of 220
<PAGE>
Section 6. Enforcement, Etc. Payee, in its sole discretion, may proceed to
exercise or enforce any right, power, privilege, remedy or interest that Payee
may have under this Guaranty, the Obligations or any applicable law, at law, in
equity, in rem or in any other forum available under applicable law, without
notice except as otherwise expressly required by law provided herein; without
pursuing, exhausting or otherwise exercising or enforcing any other right,
power, privilege, remedy or interest that Payee may have against or in respect
of the Guarantor, the Obligations, the Company, any other guarantor, surety,
pledgor, collateral or any other person or thing; and without regard to any act
or omission of Payee or any other person.
Section 7. Representation and Covenants. The Guarantor hereby restates the
representations and warranties applicable to it contained in Section 3 of the
Note Purchase Agreement, dated the date hereof, between the Company and Payee
(the "Note Purchase Agreement") and the Guarantor agrees to comply with the
covenants contained in Sections 5 and 6 of the Note Purchase Agreement.
Section 8. Reliance. The Guarantor expressly acknowledges that the Guarantor has
not received or relied upon any oral or written agreements, understandings,
representations or warranties from Payee or any other party with respect to this
Guaranty (or any of Guarantor's obligations hereunder), and that this Guaranty
contains the entire understanding of the parties with respect to the subject
matter hereof and supersedes and replaces any and all prior oral or written
agreements and understandings with respect thereto.
Section 9. Successors and Assigns; Assignment. This Guaranty is binding upon the
Guarantors and their successors, and shall inure to the benefit of Payee and its
successors and assigns. This Guaranty may not be assigned by the Guarantor, but
the Payee may assign this Guaranty to any assignee of the Notes.
Section 10. Modification, Etc. This Guaranty cannot be terminated or changed
orally and no provision hereof may be modified or waived except in writing by
Payee and the Guarantor.
Section 11. Section and Other Headings. The Sections and other headings
contained in this Guaranty are for reference purposes only and shall not affect
the meaning or interpretation of this Guaranty.
Section 12. Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, three days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery
if to Payee:
The Liverpool Limited Partnership
A.S. & K. Services Ltd.
P.O. HM 1179
Hamilton HM EX
Bermuda
Attention: Deborah Hendrickson
Telephone: (441) 295-2244
Telecopier: (441) 295-5328
Page 219 of 220
<PAGE>
if to the Guarantor:
PeakSoft Corporation (USA), Inc.
3614 Meridian, Suite 100
Bellingham, Washington 98225
Telephone: (360) 752-1100
Telecopier:(360) 752-0086
Attention: Doug Foster
Section 13. Choice of Law and Venue; Waiver of Jury Trial.
(a) THIS GUARANTY WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS
THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION.
(b) The Guarantor irrevocably submits to the exclusive jurisdiction of any State
or Federal Court sitting in the State of New York, New York County, over any
suit, action, or proceeding arising out of or relating to this Agreement. The
Guarantor irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
The Guarantor further agrees that the service of process upon it, mailed by
certified or registered mail (and service so made shall be deemed complete five
days after the same has been posted as aforesaid) or by personal service shall
be deemed in every respect effective service of process upon it in any such suit
or proceeding. Nothing herein shall affect Payee's right to serve process in any
other manner permitted by law. The Guarantor agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
(c) The Guarantor hereto knowingly and voluntarily waives any and all rights it
may have to a trial by jury with respect to any litigation based on, or arising
out of, under, or in connection with, this Guaranty.
Dated the __ day of June, 1998
PEAKSOFT CORPORATION (USA), INC.
By:
Page 220 of 220
