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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
GLOBAL ELECTION SYSTEMS INC.
(Name of Small Business Issuer in Its Charter)
BRITISH COLUMBIA, CANADA 85-0394190
(Other Jurisdiction of Incorporation) (IRS Employer Identification No.)
1611 WILMETH ROAD, MCKINNEY, TX 75069
(Address of Principal Executive Offices) (Zip Code)
972-542-6000
Registrant's Telephone Number, Including Area Code
Securities to be registered pursuant to Section 12(b) of the Act:
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Title Of Each Class Name of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
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Securities to be registered pursuant to Section 12(g) of the Act:
NO PAR VALUE COMMON STOCK
(Title of Class)
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CERTAIN OF THE INFORMATION IN THIS REGISTRATION STATEMENT CONTAINS
FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY, AND IS SUBJECT TO A NUMBER OF RISKS AND OTHER
FACTORS WHICH COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTAINED IN ANY FORWARD LOOKING STATEMENTS. AMONG THESE FACTORS ARE: GENERAL
BUSINESS AND ECONOMIC CONDITIONS; CUSTOMER ACCEPTANCE AND DEMAND FOR THE
COMPANY'S PRODUCTS; THE COMPANY'S OVERALL ABILITY TO DESIGN, TEST AND INTRODUCE
NEW PRODUCTS ON A TIMELY BASIS; THE NATURE OF THE MARKETS ADDRESSED BY THE
COMPANY'S PRODUCTS; THE INTERACTION WITH GOVERNMENTAL ENTITIES IN THE UNITED
STATES AND WORLDWIDE WHICH PURCHASE THE COMPANY'S PRODUCTS; AND OTHER RISK
FACTORS LISTED FROM TIME TO TIME IN DOCUMENTS FILED BY THE COMPANY WITH THE SEC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
Global Election Systems Inc. (the "Company") is the leading
manufacturer and seller, through its wholly-owned United States subsidiary,
Global Election Systems Inc., ("Global USA") of state of the art computerized
electronic election management systems designed for convenient voting. Its
compact systems permit efficient early voting and non-geographic voting. Unlike
other systems which require terminals to be configured to the polling district,
the Company's systems are stand-alone and offer every ballot style required for
a voting jurisdiction, even for an entire state. The Company's signature
products are the ES-2000 AccuVote Voting System ("AccuVote"), and the paperless
Accu-Touch touch screen voting system ("Accu-Touch") using the Voter Access Card
"smart card" ("Smart Card"). The AccuVote Voting System and the Accu-Touch
system are each complete voting systems which are both a precinct count and
central accumulation system and which permit management control of the voting
process from ballot preparation to verification of results. The Smart Card and
the AccuTouch, which are both "paperless DRE", or direct record equipment, were
added to the Company's product line
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in 1997 when the Company acquired all of the assets of I-Mark Systems, Inc.
The Company was formed in British Columbia, Canada on November 22,
1991, through the amalgamation of North American Professional Technologies B.C.
Ltd. and Macrotrends International Ventures Inc. Global USA was incorporated in
Delaware in 1991. The address of the Company's executive offices is 1611 Wilmeth
Road, McKinney, TX 75069; and its telephone number is (972) 542-6000. The
Company's no par value common stock ("Common Stock") is traded on the Toronto
Exchange under the symbol GSM. References in this document to the "Company"
include its wholly-owned subsidiary, Global USA, unless the context otherwise
requires. All funds are reported in U.S. dollars unless otherwise specified.
Canadian funds are designated by "C$".
INDUSTRY OVERVIEW
All over the world, elections are held under the auspices of various
governmental systems, especially those in democratic countries. Until the
1960's, almost all elections were conducted with paper ballots and lever voting
machines which were mechanical counters. These machines, which were bulky and
heavy and the mechanisms of which had many moving parts, required significant
maintenance, and were expensive to warehouse. This method of voting and tallying
votes, in addition to being cumbersome and inefficient, was susceptible to
inaccuracies in tallying, significant time delays, and other not insignificant
difficulties. In 1964, the punch card voting system was patented. While this
system has not been built in quantity since about the mid-1980's, it remains the
most used system in the world. By the early 1980's, a scanning system which
could read ballots optically was introduced.
In recent years, the election industry, characterized by inertia in
adoption of new technology, has begun to computerize in response to increased
public acceptance and familiarity with using computers. Computers offer the
opportunity to count ballots accurately and speedily, as well as a method to
offer efficient early voting and to adopt more convenient ways to vote in order
to encourage
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participation. In addition, service and support have become increasingly
important components of technologically advanced newer election systems. In
spite of the development of the election systems industry, however, many
available election systems have continued to lag in application of state-of-the
art computer technology, and have lacked durability, flexible functionality and
sufficient pre-election to post-election support.
GLOBAL ELECTION'S STRATEGY
The Company is the leading manufacturer and seller of state of the art
computerized electronic election management systems designed for convenient
voting. Its compact systems permit efficient early voting and precinct-based
voting. The Company capitalizes on its advanced product design, and customer
support to market its election systems to voting jurisdictions in the United
States, Canada, and world-wide. Its objective is to become a leading supplier of
comprehensive voter registration and election systems to governments in the
United States, Canada, and around the world. The Company believes that the
continuing need for accurate, efficient election systems and the increasingly
recognized need for the voting process to be highly voter accessible and simple
to use will provide numerous opportunities for the Company to expand the scope
of its activity.
* Expand Market Penetration Through Internal Growth. The Company has
achieved growth in its market and has expanded its market through continual
innovation in and expansion of its product line and aggressive marketing of its
election systems to increasingly populous voting jurisdictions. For example, the
Company has recently entered into an agreement with King County, Washington. The
Company provides election solutions, such as voter registration technology and
systems, complimentary to its election system products. It also seeks to apply
its products to governmental information management needs outside of the
election process but operating similarly, such as vehicle registration.
* Compliment Internal Growth Through Acquisition or Selling
Arrangements. The Company has developed its business, in part, through
acquisition of an election
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products company and entering into arrangements with other companies which
produce leading edge technology products to offer those products in conjunction
with the Company's products . As a result, the Company is able to offer state of
the art integrated election systems to its customers, which has permitted it to
expand into more populous markets.
* Continued Technology Innovation and Integration. The Company conducts
on-going research and development to improve product performance and provide
innovative solutions to the needs of the voting jurisdictions and other
governmental applications. For example, while continually upgrading its existing
products, the Company has developed a Windows NT(R)-based, state of the art
system which will identify a voter by a finger swipe on the voting screen. All
of the products offered by the Company are designed to be used together to
integrate the entire election process, from voter registration and election
management through tabulation and reporting of election results.
* International Sales. The Company seeks to sell its state of the art
electronic computerized election systems not only in the United States and
Canada, but throughout the world, initially primarily in Latin America, where
the Company believes there is demand for election systems perceived to be
accurate by the voting public.
* Customer Support. Customer support is a significant part of the
Company's marketing strategy and its system sales. The Company intends to
continue its commitment to, and to enhance, its pre-election through
post-election assistance to its customers. It offers service contracts for all
aspects of the election process, including election management training,
assistance with the conduct of elections, and complete running of the election.
GLOBAL ELECTION'S PRODUCTS
The products currently offered by the Company are election system
products which are comprised of state of the art computerized electronic voting
systems and software products such as the voting registration
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and election management systems that lay out ballots, tabulate results and
print reports.
State of the Art Computerized Electronic Voting Systems. The Company's
signature product is its patented Accu-Vote ES-2000 Election System. The
Accu-Vote system, patented in Canada and the United States, automates all facets
of election administration from initial ballot layout through certification of
results. The ballot processing unit optically scans marked voted paper ballots
and produces printed precinct level results immediately after the polls close.
Totals are captured on a memory card and transferred to the counting center or
sent from the precinct tabulator directly to the host computer over a modem
using common carrier lines. Designed for security and integrity, the ballot
processing unit nevertheless is compact and lightweight and is easily
transported to and from the polling place.
The Accu-Vote Vote Tally System ("VTS") software automates the entire
election administration cycle from ballot layout through certification of
results. VTS is used to define all election-specific parameters.
Smart Card and Electronic Balloting Products. The Company offers
additional, technologically-advanced election assistance products through its
Smart Card. The "Voter Access Card" is a "smart card" which stores voter
identification information, allowing the automatic selection of any ballot style
for any voter at any polling place. The Voter Access Card can permit the
placement of voting stations in places where people assemble, like shopping
malls, rather than in specific precinct locations.
The Company's Accu-Touch(TM) ballot station, is designed to eliminate
the need for paper ballots. A voter accesses the appropriate ballot screen by
inserting the voter's Voter Access Card and votes by touching the screen. Each
station can house thousands of ballot styles, accessed on demand for a specific
precinct, ward, block, or language. In addition, the Accu-Touch system software
permits election officials to design all ballot formats, provide multi-lingual
ballots, merge totals from early voting, postal and election-day voting, and
customize and generate post-election reports and audits.
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Accu-Vote and Accu-Touch can be used as a blended system, permitting
flexibility in solving the particular problems and requirements of a voting
jurisdiction. For instance, Accu-Touch can be used for early voting, where its
capacity to store all ballot styles allows early voters from all precincts to
insert Smart Cards into the same unit to select their particular precinct
ballot. Accu-Vote systems can be used at the precinct level during the election.
The vote tallies from both the Accu-Vote and Accu-Touch units are then sent to a
host computer to be combined to determine the election result.
Accu-Vote and Accu-Touch systems units have a list price of
approximately $6,500 per unit, to which quantity discounts and additional
products may be added, depending upon the needs and size of the election
district.
Other Product Arrangements. The Company occasionally makes arrangements
with companies producing other products which are complementary to and enhance
the Company's product offering to a particular voting jurisdiction. For
instance, in King County, Washington, the Company is providing, through a
license, additional voter registration software. These arrangements are
generally made on a case-by-case basis, depending on the need and size of a
voting jurisdiction.
Backlog. At March 31, 1998, nine months into the current fiscal
year, the Company had a backlog of approximately $1,500,000, representing 300
units, of orders for its Accu-Vote, Accu-Touch and Smart Card products. This
backlog compared to a backlog of $250,000 on June 30, 1997 (short fiscal year)
and $1,500,000 at December 31, 1996. Backlogs are principally the result of
customer-scheduled shipment dates, which are usually a period of months after
the contract date and which may also be in installments. The increase in the
backlog is attributable primarily to increased sales and to the timing of
delivery schedules.
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CUSTOMER SUPPORT SERVICES
The Company emphasizes continuing service support to its customers.
These services begin with initial equipment acceptance and testing and continue
through on-site election day and election night support. Some election-specific
services provided by the Company are pre-election consultation, ballot
design/layout assistance, precinct worker training, voter education assistance,
system testing and verification, and on-site election day and election night
support.
CUSTOMERS
The Company's customers include approximately 600 voting jurisdictions
in the United States and Canada. Recent contract awards include the State of
North Carolina, King County, Washington, Chatham County, Georgia, Tular County,
California, Pima and Yavapi Counties, Arizona, and the State of Alaska. No one
customer was responsible for 10% or more of the Company's sales during the
fiscal years ended June 30, 1997 (a six-month fiscal year due to a fiscal year
change), December 31, 1996, and December 31, 1995, although in the current
fiscal year, King County and Pima County are each expected to represent more
than 10% of sales.
SALES AND MARKETING
The Company markets its products both domestically and internationally
to governments. Because of the close involvement of the Company in the use of
its election systems by customer governments and the Company's desire to
maintain a high level of contact and service, sales are made by salaried,
commissioned salespersons employed by the Company and assigned to various
territories. Salespersons work directly with the election officials in each
territory to close and implement sales. At March 31, 1998, the Company employed
13 of these salespersons, who were assigned to specific territories in the
United States and Canada. The Company also has five resellers which are
established in the election business and have contracts for specific
territories. Sales outside the United States and Canada are supervised by the
Company's sales staff. The Company plans to use in-country representatives in
these countries, but currently has none.
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Payment for sales is typically made in United States and Canadian
dollars. As a result, the Company's actual receipts are subject to fluctuation
based upon currency exchange rates between the United States and Canada and,
should the Company accept payment in another currency, to the fluctuations in
that currency's exchange rate.
The Company, because it sells election products and services, could
tend to operate on a two-year business cycle because in the United States, a
substantially larger number of elections for public office are held in
even-numbered years than in odd-numbered years. As a result, revenues and
underlying production and support activities for a majority of the Company's
products and services could significantly increase or decrease in accordance
with the election cycle. However, because the Company's fiscal year ends June
30, and because many voting jurisdictions now attempt to purchase election
products and services immediately after an election, the Company believes that
it has ameliorated the possible effect of the United States' biennial election
cycle. Also, in Canada, elections are conducted on an irregular schedule which
differs in and among national, provincial and municipal elections. Thus, the
Company's Canadian business may also be expected to ameliorate any United States
cyclicality.
RESEARCH AND DEVELOPMENT
The Company expended approximately $184,414, $451,113 and $674,144 for
research and development during the fiscal years ended June 30, 1997 (a six
month fiscal year due to a fiscal year change), December 31, 1996, and December
31, 1995, respectively. All of the Company's in-house research efforts are
conducted at its facilities in Vancouver, Canada, and McKinney, Texas.
COMPETITION
The election system market is defined by the voting needs and
specifications of voting jurisdictions. In that regard, sales, and therefore
competition, are directed to election officials in each voting jurisdiction who
issue requests for proposals in which desired specifications are set forth.
Responsive bids are submitted to these officials and other specified reviewers
for their
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evaluation and the selection of the company awarded the project. Competitive
factors include accuracy, security and speed of voting and tallying of votes,
ease of use of the system, flexibility in ballot preparation, cost and customer
support. Because of its ability to offer a complete, state of the art,
integrated election system which can be tailored to the customer's needs, the
Company believes it is able to compete in all major areas of the election
systems market. However, several of the Company's existing and potential
competitors have financial, and could develop technological and marketing,
resources significantly greater than those of the Company. They may have
established relationships with customers or potential customers that afford them
a competitive advantage. There can be no assurance that the Company will be able
to compete effectively in its current or future markets or that competitive
pressures will not adversely affect its business, financial condition or results
of operations.
In North America, the Company competes primarily with moderately-sized
companies (some of which are affiliates of much larger companies) in the overall
election system market and with some small companies who offer some aspect
otherwise included in the overall system, such as voting equipment. The
Company's largest competitors in the North American election system market are
Sequoia Pacific Systems, Inc. ("Sequoia"), a subsidiary of Jefferson Smurfit,
and ES&S ("ESS"). ESS and Sequioia offer local and state election management
systems, optical scan ballot tallying and reporting, and election information
management software. Microvote, Inc., of Indianapolis, offers a direct record
voting system. The Company also competes with a number of companies, including
those mentioned previously, which produce and sell products designed to provide
specific election-related functions.
MANUFACTURING
The Company assembles its Accu-Vote products at its recently-opened
plant in McKinney, Texas, and contracts for the assembly of its Accu-Touch
system. With the exception of its visible light optical reader (which it obtains
from another source but could replace with an in-house product) and its ballot
box (for which the Company owns the molds and could obtain an alternate
manufacturer), the Company
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obtains components for its products largely from various off-the-shelf vendors
of electronic components, any of which could be replaced by another vendor
should the need present itself.
INTELLECTUAL PROPERTY
Patents. The Company holds the United States and Canadian patents, the
rights to which it purchased in 1991, on its Accu-Vote ES-2000 system
("Patent"). Except for the Patent, the Company has not sought patent protection
for its technology, even though it believes that some of its processes and
equipment are proprietary to it. The Company has relied upon industrial
know-how, and trade secret laws. The Company cannot assure that its proprietary
processes and equipment will provide it with sufficient competitive advantage to
overcome its lack of patent protection, nor can it assure that others will not
independently develop equivalent or superior products or technology. Also, the
Company cannot assure that it will be able to establish trade secret protection
or that trade secret obligations will be honored. To the extent that
consultants, employees and other parties apply technological information
developed independently by them or others to Company projects, disputes may
arise as to the proprietary rights to that information, which may not be
resolved in favor of the Company. It is also possible that litigation may be
necessary to enforce the Company's proprietary rights, to protect its trade
secrets, to determine the validity and scope of the intellectual property rights
of others or to defend against claims of infringement. Litigation of that nature
could result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
results of operation.
Patent applications in the United States are not disclosed until the
patents issue; therefore, patent applications could have been filed which relate
to the Company's processes and equipment. The Company does not believe that it
infringes any patents of which it is aware; however, it cannot assure that
patent infringement claims will not be asserted against the Company. These
claims, if
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asserted, could have a material adverse effect on the Company's business,
financial condition or results of operation. If infringement or invalidity
claims were to be asserted against the Company, litigation could become
necessary to defend the Company against those claims. In certain circumstances,
the Company might choose to seek to obtain a license under the third party's
intellectual property rights, which the Company cannot assure would be
available, if at all, on terms acceptable to the Company.
Trademarks and Tradenames. The Company has no registered trademarks or
tradenames, but claims proprietary rights to Accu-Vote. A trademark registration
application has been filed for Accu-Vote in the United States, but no assurance
can be given that this trademark will issue.
GOVERNMENT REGULATION
The Company's products are sold almost exclusively to governmental
units. The Company's Accu-Vote and Accu-Touch election products meet or exceed
United States Federal Election Commission ("FEC") standards and are required to
be, and are, tested to FEC standards by Wyle Labs, the industry's designated
Independent Testing Authority. In the United States, election systems must also
be certified in each State where they are used. Currently, one or the other or
both of the Company's systems are certified in 34 States. Canada does not
require testing and certification.
Each governmental unit to which the Company markets its products
specifies its own particular requirements for system operation. Without
exception, the Company's customers seek, and require, tamper-proof, efficient,
confidential and expeditious election equipment and systems. These requirements
and others typically are embodied in the customer's Request for Proposal
("RFP"), issued to solicit bids from the Company and others. Because the Company
must be able to respond with complying bids to RFP's, the Company must
continually monitor, adapt to, anticipate and design for changes in
specifications and in the expectations that governmental units have for
efficient systems. For example, in the United States, promoting and increasing
voter participation is a concern of many jurisdictions. As a result, enhancing
convenience and opportunity to vote are increasingly important. The
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Company's products are a direct response to these changing needs. To the extent
that the Company is or becomes unable to anticipate or respond to the concerns
of jurisdictions, its ability to submit responsive bids to RFP's will be
impeded.
Because the Company is incorporated and does business in British
Columbia and its subsidiary, Global USA, is incorporated in the State of
Delaware and does business in the United States and internationally, the Company
as a whole is subject to both Canadian and United States tax laws. Additionally,
the Company must comply with the taxation, export and import, currency, and
other laws of each country in which it sells products or otherwise does
business. These laws can be burdensome. To the extent that the Company is unable
or unwilling to comply, its business in a particular country may be expected to
be materially adversely affected.
WARRANTIES. Key to all elections is the reliability of the system, including the
voting equipment, accuracy of voting results, and accuracy of tallying of
results. The Company's equipment is designed to optimize this reliability. The
Company warrants its election systems for a period of one year from purchase,
unless another period is specified by the RFP from a voting jurisdiction. The
Company self-insures against warranty claims. The Company has never been the
subject of any such claims; however, if a claim were to be made and to prevail,
a lack or insufficiency of insurance coverage could have a material adverse
effect on the Company. However, all contracts with customers require insurance
to be in place before execution of the contract.
ENVIRONMENTAL COMPLIANCE
The Company operates a manufacturing plant in McKinney, Texas. Although
its manufacturing consists largely of parts assembly, the Company is required to
comply with United States and Texas environmental and Occupational Safety and
Health Act requirements applicable to electronics manufacturing operations in
general, including, for example, storage, marking, and disposal of various
products used for cleaning parts to be assembled. Although the Company takes
appropriate measures to comply with these requirements, violations can occur.
The Company was cited once by the New York Department of Environmental
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Conservation for alleged violation of certain storage, marking and disposal
requirements applicable to two of these substances used at its former New York
manufacturing facility and responded immediately to correct the situation. The
Company believes that its compliance programs are adequate, but cannot assure
that no problems will arise in the future, some of which could have a material
adverse impact on the Company and its business.
EMPLOYEES
As of March 31, 1998, the Company had approximately 49 employees, of
whom all were full-time, at its 3 locations in Canada and the United States. Of
the full-time employees, 9 were in executive and administrative positions, 11
were in sales, marketing and customer relations, 5 were in research and
development, 12 were in manufacturing, and 12 were in field customer support.
RISK FACTORS
In addition to the matters set forth in the foregoing discussion of the
Company's business, the operations and financial performance of the Company are
subject to the risks, among others, described below.
FLUCTUATIONS IN OPERATING RESULTS. The Company has experienced fluctuations in
its operating results in the past and may experience those fluctuations in the
future. Sales, on both an annual and quarterly basis, are subject to
fluctuations as a result of a variety of factors, many of which are beyond the
control of the Company. These factors include the timing of customer orders,
delays in shipment due to component shortages or defects which must be remedied,
production problems, cancellation of orders, and regulatory changes. In
addition, the Company, because it sells election products and services, could
tend to operate on a two-year business cycle because in the United States, a
substantially larger number of elections for public office are held in
even-numbered years than in odd-numbered years. As a result, revenues and
underlying production and support activities for a majority of the Company's
products and services could significantly increase or decrease in accordance
with the election cycle.
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However, because the Company's fiscal year ends June 30, and because many voting
jurisdictions now attempt to purchase election products and services immediately
after an election, the Company believes that it has ameliorated the possible
effect of the United States' biennial election cycle. Also, in Canada, elections
are conducted on an irregular schedule which differs in and among national,
provincial and municipal elections. Thus, the Company's Canadian business may
also be expected to ameliorate any United States cyclicality. Given the
possibility of fluctuations, the Company believes that comparisons of the
results of its operations for the preceding year or quarters are not necessarily
meaningful and that the results for any particular year or quarter should not be
relied upon as an indication of future performance. If the Company's sales or
earnings for any year or quarter are less than the level expected by securities
analysts or the market in general, the shortfall could have an immediate and
significant adverse impact on the market price of the Company's Common Stock.
INTEGRATION OF ACQUIRED BUSINESSES AND DISTRIBUTORSHIP. One of the Company's
strategies is to increase its scope of business and the product lines it offers
by acquiring other election businesses and products or entering into
distributorship or similar arrangements with other producers. There can be no
assurance that the Company's management and financial controls, personnel, and
other corporate support systems will be adequate to manage the increase in the
size and diversity of scope of the Company's operations as a result of any such
acquisition or distributorship. Also, there can be no assurance that the
acquisition or distributorship arrangement will be accretive to earnings. By its
nature, a distributorship does not give the Company complete control over the
distributed products' manufacturing, shipment or quality, all of which are the
responsibility of the manufacturer. Problems in any of these areas should they
occur, could materially adversely affect the Company and its business.
If and when appropriate acquisition opportunities, some of which could
be material, arise, the Company intends to pursue them actively. No assurance
can be given that any acquisition by the Company will or will not occur, that if
such an acquisition does occur that it will not, despite
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the Company's efforts, materially and adversely affect the Company, or that any
such acquisition will be successful in enhancing the Company's business.
DEPENDENCE ON TESTING AND CERTIFICATION; GOVERNMENTAL IMPACT. In the United
States, the Company's ability to respond to RFP's from voting jurisdictions and
to make sales to those jurisdictions is dependent upon satisfactory completion
of testing of the Accu-Vote and Accu-Touch (and similar future products or
variations) by Wylie Labs, the industry's designated Independent Testing
Authority and upon certification by each State. The Company's products have
never had unsatisfactory testing results; however, if for some reason not now
known or anticipated, a product did not test satisfactorily, the Company's
business could be materially adversely affected to the extent it was unable to
offer and sell that product. Similarly, the failure of a product to be certified
in a State would prevent the sale of the product in that State and the voting
jurisdictions in that State.
Because the Company deals with governmental authorities in making
offers and sales of its products, it can also be adversely affected by changes
in those authorities, revisions to or promulgation of new requirements and
standards in a State, and unanticipated or unforeseen impediments in the
bidding, award and implementation process.
INTERNATIONAL SALES IN GENERAL. The Company sells its election systems primarily
in the United States and Canada, but intends to market actively to other
countries throughout the world, particularly in Latin America. Sales of the
Company's election systems will subject it to various governmental regulations,
exports controls, and the normal risks involved in international sales. Sales of
products and services in Latin America and elsewhere are subject to political,
economic and other uncertainties, including, among others, risk of war,
revolution, expropriation, renegotiation or modification of existing contracts,
election laws and regulations, standards and tariffs, and taxation policies, as
well as international monetary fluctuations which may make payment in United
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States dollars more expensive for foreign customers, and other uncertainties and
trade barriers.
CHANGES IN EXCHANGE RATES. Substantially all of the Company's revenues to date
have been received in United States and Canadian dollars; however, some sales in
the future may be in other currencies. Any decline in the value of other
currencies in which the Company makes sales against the United States dollar
will have the effect of decreasing the Company's earnings when stated in United
States dollars. The Company does not engage in any hedging transactions that
might have the effect of minimizing the consequences of currency fluctuations
(which are not currently material) and does not intend to do so in the immediate
future.
TRANSFER PRICING. The Company and Global USA have entered into various
agreements between themselves with respect to the transfer of technology,
services and manufactured product. As the Company is generally subject only to
Canadian taxation and Global USA is generally subject only to U.S. taxation,
issues of transfer pricing arise. Both the Canadian and U.S. tax authorities
generally require that pricing arrangements between the Company and Global USA
be entered into on a fair market basis. Further, Canada will now require that
contemporaneous documentation be completed evidencing the arrangements. While
the Company is attempting to meet its obligations in this regard, the Company
could be subject to various penalties, and increased tax, if the taxing
authorities take issue with the transfer pricing arrangements reached between
the Company and Global USA. Because appropriate transfer price cannot be arrived
at with certainty, there is no assurance that the taxing authorities would agree
with the Company's transfer pricing arrangements.
POLITICAL INSTABILITY. The political and economic instability in some countries
in Latin America and elsewhere could result in the adoption of new trade
policies or lead to trade disputes, which could materially adversely affect the
Company and its business. The Company has no insurance against political
instability.
COMPETITION. The election system market is dependent upon the voting needs and
specifications of governmental
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jurisdictions. In that regard, sales, and therefore competition, are directed to
secretaries of state and election officials in each voting jurisdiction who
prepare requests for proposals in which desired specifications are set forth.
Responsive bids are submitted to these officials for their evaluation and the
selection of the company awarded the project. Competitive factors include
accuracy, security and speed of voting and tallying of votes, ease of use of the
system, flexibility in ballot preparation, cost and customer support. Because of
its ability to offer a complete, state of the art, integrated election system
which can be tailored to the customer's needs, or segments of a system if only
one function is desired, the Company believes it is able to compete in all major
areas of the election system market. However, several of the Company's existing
and potential competitors could have resources significantly greater than those
of the Company and may have established relationships with customers or
potential customers that afford them a competitive advantage. There can be no
assurance that the Company will be able to compete effectively in its future
markets or that competitive pressures will not adversely affect its business,
financial condition or results of operations. See "--Competition" above.
INTELLECTUAL PROPERTY
Patents. The Company holds the United States and Canadian patents, the
rights to which it purchased in 1991, on its Accu-Vote ES-2000 system
("Patent"). Except for the Patent, the Company has not sought patent protection
for its technology, even though it believes that some of its processes and
equipment are proprietary to it. The Company has relied upon industrial
know-how, and trade secret laws. The Company cannot assure that its proprietary
processes and equipment will provide it with sufficient competitive advantage to
overcome its lack of patent protection, nor can it assure that others will not
independently develop equivalent or superior products or technology. Also, the
Company cannot assure that it will be able to establish trade secret protection
or that trade secret obligations will be honored. To the extent that
consultants, employees and other parties apply technological information
developed independently by them or others to Company projects, disputes may
arise as to the proprietary rights to that
18
<PAGE> 19
information, which may not be resolved in favor of the Company. It is also
possible that litigation may be necessary to enforce the Company's proprietary
rights, to protect its trade secrets, to determine the validity and scope of the
intellectual property rights of others or to defend against claims of
infringement. Litigation of that nature could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business, financial condition and results of operation.
Patent applications in the United States are not disclosed until the
patents issue; therefore, patent applications could have been filed which relate
to the Company's processes and equipment. The Company does not believe that it
infringes any patents of which it is aware; however, it cannot assure that
patent infringement claims will not be asserted against the Company. These
claims, if asserted, could have a material adverse effect on the Company's
business, financial condition or results of operation. If infringement or
invalidity claims were to be asserted against the Company, litigation could
become necessary to defend the Company against those claims. In certain
circumstances, the Company might choose to seek to obtain a license under the
third party's intellectual property rights, which the Company cannot assure
would be available, if at all, on terms acceptable to the Company.
Trademarks and Tradenames. The Company has no registered trademarks or
tradenames, but claims proprietary rights to Accu-Vote. A trademark registration
application has been filed for Accu-Vote in the United States, but no assurance
can be given that this trademark will issue.
DEPENDENCE UPON CERTAIN OFFICERS. The success of the Company is dependent upon
the services of its President, Mr. Van Pelt, its Vice President of Operations,
Mr. Ensminger, and its Vice President of Sales/Marketing/Business Development,
Mr. Urosevich. The Company has employment agreements with Mr. Van Pelt and Mr.
Urosevich, but not Mr. Ensminger. However, the loss of the services of any one
of them for any reason could materially impede the Company's marketing effort
and strategic planning.
19
<PAGE> 20
POTENTIAL DILUTIVE EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. As of March 31,
1998, the Company had 1,295,000 options and 166,667 warrants for Common Stock
outstanding. To the extent that any outstanding options and warrants for Common
Stock are exercised, there will be additional dilution in excess of that
resulting from use of common and common equivalent shares in earnings
calculations.
LACK OF MARKET IN UNITED STATES; VOLATILITY OF STOCK PRICE. The Company's Common
Stock is traded on the Toronto (Canada) Exchange and is expected to trade on the
Nasdaq electronic bulletin board. While a public market for the Company's Common
Stock currently exists in Canada, no such market exists in the United States as
yet and, even though the Common Stock will be registered under Section 12(g) of
the Securities Exchange Act of 1934, no assurance can be given that any market
for the Common Stock will develop in the United States. The number of shares in
the Canadian market is, and the number of shares expected to be in the United
States market is, about 95% of the 18,457,440 shares of Common Stock outstanding
at March 31, 1998. However, trading volume in the four weeks ended March 31,
1998 in Canada averaged 73,745 shares traded per day. Thus, even though a
substantial percentage of the Company's outstanding shares could be traded,
trading of relatively small blocks of stock can have a significant impact on the
price at which the stock is traded. In addition, the Nasdaq electronic bulletin
board has experienced, and is likely to experience in the future, significant
price and volume fluctuations which could adversely affect the market price of
the Common Stock without regard to the operating performance of the Company. The
Company believes that factors such as quarterly and annual fluctuations in
financial results, announcements by competitors, or changes in securities
analysts' recommendations may cause the market price to fluctuate, perhaps
substantially. These fluctuations, as well as general economic conditions, such
as recessions or high interest rates, may adversely affect the market price of
the Common Stock. See "Part IV. Item 1. Market Price of and Dividends on the
Registrant's Common Equity and Other Shareholder Matters".
SHARES ELIGIBLE FOR FUTURE SALE; PREFERRED SHARES. Future sales by existing
shareholders could adversely affect the prevailing market price of the Common
Stock. At
20
<PAGE> 21
March 31, 1998, the Company had 18,457,440 shares of Common Stock outstanding,
of which about 998,671 shares will become eligible for sale under the provisions
of Rule 144 under the Securities Act of 1933 in December 1998.
In addition, the authorized capital of the Company includes 20,000,000
shares of Preferred Stock, none of which had been issued as of March 31, 1998.
See "Item 8. Description of Securities". However, the Board of Directors may
determine at any time and from time to time to set the terms and preferences of
the Preferred Stock, or a series of it, and to issue it, subject to approval of
the Toronto Stock Exchange.
ABSENCE OF DIVIDENDS. Since its inception, the Company has not paid cash
dividends on its Common Stock. The Company intends to retain future earnings, if
any, to provide funds for business operations and, accordingly, does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The discussion and analysis of the operating results and the financial
position of the Company should be read in conjunction with the financial
statements and the notes to them set out in this Registration Statement. See
"Financial Statements". The financial statements have been prepared in United
States dollars in accordance with Canadian GAAP. See Note 17 of the Notes to
Consolidated Financial Statements for an explanation of differences between
Canadian GAAP and United States GAAP.
CONDENSED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS 6 MONTHS 6 MONTHS
ENDED ENDED ENDED ENDED
31-MAR-98 31-MAR-97 30-JUN-97 30-JUN-96
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES AND OPERATING INCOME $ 12,086,413 $ 7,083,753 $ 6,758,954 $ 1,918,564
OTHER INCOME 90,606 47,835 51,496 27,922
------------ ----------- ----------- -----------
12,177,019 7,131,588 6,810,450 1,946,486
------------ ----------- ----------- -----------
COST OF SALES AND OPERATING EXPENSES 5,764,909 4,135,740 2,815,680 1,372,730
SELLING, ADMINISTRATIVE AND GENERAL
EXPENSES 3,344,678 2,374,736 1,655,250 1,284,006
RESEARCH AND DEVELOPMENT EXPENSES 311,464 356,469 184,414 178,522
AMORTIZATION 263,461 86,919 70,472 83,039
INTEREST 72,470 66,996 27,845 8,317
LOSS ON CAPITAL LEASE RECEIVABLE - - - -
SETTLEMENT OF LAWSUIT AND LEGAL COSTS - - - -
OTHER EXPENSES - 1,104 3,277 400
------------ ----------- ----------- -----------
9,756,982 7,021,964 4,756,938 2,927,014
------------ ----------- ----------- -----------
NET INCOME (LOSS) FOR THE PERIOD $ 2,420,037 $ 109,624 $ 2,053,512 $ (980,528)
------------ ----------- ----------- -----------
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
31-DEC-96 31-DEC-95 31-DEC-94
--------- --------- ---------
<S> <C> <C> <C>
SALES AND OPERATING INCOME $ 6,041,173 $ 5,961,586 $ 4,519,457
OTHER INCOME 66,606 34,834 57,420
------------ ------------ ------------
6,107,779 5,996,420 4,576,877
------------ ------------ ------------
COST OF SALES AND OPERATING EXPENSES 4,216,805 2,757,247 2,423,255
SELLING, ADMINISTRATIVE AND GENERAL
EXPENSES 2,969,256 2,650,174 2,544,553
RESEARCH AND DEVELOPMENT EXPENSES 451,113 674,144 464,616
AMORTIZATION 135,140 183,857 169,853
INTEREST 71,166 7,044 1,320
LOSS ON CAPITAL LEASE RECEIVABLE - 550,735 414,175
SETTLEMENT OF LAWSUIT AND LEGAL COSTS - 202,138 6,422
OTHER EXPENSES 956 13,123 60,897
------------ ------------ ------------
7,844,436 7,038,462 6,085,091
------------ ------------ ------------
NET INCOME (LOSS) FOR THE PERIOD $ (1,736,657) $ (1,042,042) $ (1,508,214)
------------ ------------ ------------
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Sales and operating income. In the nine months ended March 31, 1998,
sales and operating income increased 71%, or $5.0 million, from $7.1 million in
the 1997 period to $12.1 million . This increase resulted largely from a
significant increase in sales of the Company's AccuVote
21
<PAGE> 22
Voting System in the United States, reflecting increases in unit volume, new
product introductions, and the addition of new customers.
Other income. In the nine months ended March 31, 1998, other income
increased 89.4%, or $43,000, from $48,000 in the 1997 period to $91,000. This
increase resulted largely from more warranties expiring, resulting in the
purchase of maintenance agreements.
Cost of sales and operating expenses. In the nine months ended March
31, 1998, cost of sales and operating expenses increased 39.4%, or $1.7 million,
from $4.2 million in the 1997 period to $5.8 million. This increased amount
resulted from the additional expense incurred to support the increased sales of
systems during the period. In the 1998 period, cost of sales and operating
expenses as a percentage of sales and operating income decreased from 58.4% in
the 1997 period to 47.7%, largely as a result of more efficient use of labor and
reduction in the cost of parts.
Selling, administrative and general expenses. In the nine months ended
March 31, 1998, selling, administrative and general expenses increased 40.8%, or
$970,000 , from $2.4 million in the 1997 period to $3.4 million. This increase
was largely due to additional staff.
Research and development expenses. In the nine months ended March 31,
1998, research and development expenses decreased 13%, or $45,000, from $356,000
in the 1997 period to $312,000. This reduction resulted primarily from reduction
in the cost of consulting services.
Amortization. In the nine months ended March 31, 1998, amortization
increased 203.1%, or $177,000, from $87,000 in the 1997 period to $264,000. This
increase was due primarily to the acquisition of $487,000 of capital assets and
the capitalization of $1,200,000 of goodwill in the nine months ended March 31,
1998.
Interest. In the nine months ended March 31, 1998, interest expense
increased 8.2%, or $5,500, from $67,000 to $72,500. This increase resulted
primarily from the increase in loans payable to finance operations.
22
<PAGE> 23
Other expenses. In the nine months ended March 31, 1998, other expenses
decreased to none, from $1,100 in the 1997 period. Other expenses generally
include fiscal agency fees, loss on sale or disposal of assets. The decrease in
the 1998 period was due primarily to no expenses being incurred for that
period.
SHORT YEAR ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
In this discussion, please note that figures for the six months ended
June 30, 1997 have been audited; figures for the six months ended June 30, 1996
are unaudited.
Sales and operating income. In the six months ended June 30, 1997,
sales and operating income increased 252.3%, or $4.9 million, from $2.0 million
in the 1996 period to $6.8 million. This increase resulted largely from a
significant increase in sales of the Company's AccuVote Voting System in the
United States, reflecting increases in unit volume, and the addition of new
customers.
Other income. In the six months ended June 30, 1997, other income
increased 94.4%, or $24,000, from $28,000 in the 1996 period to $51,000. Other
income includes income from maintenance agreements and ballot preparation. This
increase resulted primarily from the increase in sales volumes.
Cost of sales and operating expenses. In the six months ended June 30,
1997, cost of sales and operating expenses increased 105.1%, or $1.5 million,
from $1.4 million in the 1996 period to $2.8 million. This increased amount
results from the additional expenses incurred to support the increased sales of
systems during the period. In the 1997 period, cost of sales and operating
expenses as a percentage of sales and operating income decreased from 71.5% in
the 1996 period to 66.9%, largely as a result of economies of scale.
Selling, administrative and general expenses. In the six months ended
June 30, 1997, selling, administrative and general expenses increased %, or
$371,300, from
23
<PAGE> 24
$1.3 million in the 1996 period to $1.7. This increase was largely due to
additional personnel requirements.
Research and development expenses. In the six months ended June 30,
1997, research and development expenses increased 2.3%, or $4,000, from
$180,000 in the 1996 period to $184,000. This increase resulted primarily from
production improvements of hardware and software.
Amortization. In the six months ended June 30, 1997, amortization
decreased 15%, or $13,000, from $83,000 in the 1996 period to $70,000. This
decrease was due primarily to the use of the declining balance method of
amortization on capital assets and very minor new acquisitions.
Interest. In the six months ended June 30, 1997, interest expense
increased 234%, or $19,600, from $8,300 to $27,000. This increase resulted
primarily from an increase in loans payable to finance operations.
Other expenses. In the six months ended June 30, 1997, other expenses
increased 719.3%, or $2,900, from $400 in the 1996 period to $3,000. Other
expenses generally include fiscal agency fees, loss on sale or disposal of
assets. The increase in the 1997 period was due primarily to increases in built
and installed systems.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Sales and operating income. In fiscal 1996, sales and operating income
increased 1.3%, or $80,000, from $5.9 million in fiscal 1995 to $6.0 million.
Sales remained essentially the same for the two fiscal years, largely due to
market conditions.
Other income. In fiscal 1996, other income increased 91.2%, or $32,000,
from $35,000 in fiscal 1995 to $67,000. Other income includes income from
maintenance agreements and ballot preparation. In fiscal 1996, the increase
resulted largely from the expiration of initial warranty
24
<PAGE> 25
agreements and the consequent sale of maintenance agreements.
Cost of sales and operating expense. In fiscal 1996, cost of sales and
operating expense increased 52.9%, or $1.5 million, from $2.8 million in fiscal
1995 to $4.2 million. This increase resulted largely from costly third party
manufacturing and increased product cost.
Selling, administrative and general expenses. In fiscal 1996, selling,
administrative and general expenses increased 12.0%, or $319,000, from $2.7
million in fiscal 1995 to $3.0 million. This increase resulted largely from
additional personnel and increased operating costs.
Research and development expenses. In fiscal 1996, research and
development expenses decreased 33.1%, or $223,000, from $674,000 in fiscal 1995
to $460,000. This reduction resulted primarily from a decrease in outside
consulting fees.
Amortization. In fiscal 1996, amortization decreased 26.5%, or $48,000,
from $184,000 in fiscal 1995 to $135,000. This decrease was due primarily to the
use of the declining balance method of amortization and very minimal new
acquisitions.
Interest. In fiscal 1996, interest expense increased 910.3%, or
$64,000, from $7,000 to $71,000. This increase resulted primarily from the
increase in loans payable to finance operations.
Loss on write-down of capital lease receivable. In fiscal 1996, loss on
write-down of capital lease receivable decreased 100.0%, or $551,000, from
$551,000 in fiscal 1995 to $0. This loss, which was written off in fiscal 1995,
resulted from the government of Venezuela's failure to pay for lease of
Accu-Vote equipment entered into by a previous government.
Settlement of lawsuit and related legal costs. In fiscal 1996, expense
incurred in the settlement of lawsuit and related legal costs decreased 100.0%,
or $202,000, from $202,000 in fiscal 1995 to $0. This expense was incurred in
fiscal 1995 in connection with the settlement of a
25
<PAGE> 26
lawsuit for alleged breach of contract brought by CEC, Inc. in California.
Other expenses. In fiscal 1996, other expenses decreased 92.7%, or
$12,000, from $13,000 in fiscal 1995 to $1,000. Other expenses generally include
loss on disposal of fixed assets. The decline in fiscal 1996 was due primarily
to decreases in loss in fixed asset disposal.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Sales and operating income. In fiscal 1995, sales and operating income
increased 31.9%, or $1.4 million, from $4.5 million in fiscal 1994 to $6.0
million. The increase reflected increases in unit sales.
Other income. In fiscal 1995, other income decreased 39.3%, or $23,000,
from $57,000 in fiscal 1994 to $35,000. Other income includes maintenance
agreements and ballot preparation. In fiscal 1995, the decrease resulted largely
from a decline in income from ballot preparation.
Cost of sales and operating expense. In fiscal 1995, cost of sales and
operating expense increased 13.8%, or $334,000, from $2.4 million in fiscal 1994
to $2.8 million. This increase resulted largely from increases in supplier
prices due to the Company's request for increased product capability.
Selling, administrative and general expenses. In fiscal 1995, selling,
administrative and general expenses increased 4.2%, or $106,000, from $2.5
million in fiscal 1994 to $2.7 million. This increase resulted largely from
increases in the sales staff.
Research and development expenses. In fiscal 1995, research and
development expenses increased 45.1%, or $210,000, from $465,000 in fiscal 1994
to $674,000. This increase resulted primarily from expenditures related to
enhancement of reader capability and new product development.
Amortization. In fiscal 1995, amortization increased 8.2%, or $14,000,
from $170,000 in fiscal 1994 to $184,000.
26
<PAGE> 27
This increase was due primarily to the acquisition of new capital assets during
1994 and 1995.
Interest. In fiscal 1995, interest expense increased 433.7%, or $6,000,
from $1,000 in fiscal 1994 to $7,000. This increase resulted primarily from
additional borrowing to fund operations.
Other expenses. In fiscal 1995, other expenses decreased 78.5%, or
$48,000, from $61,000 in fiscal 1994 to $13,000. Other expenses generally
include fiscal agency fees and other miscellaneous amounts. The decline in
fiscal 1995 was due primarily to decreases in fiscal agency fees paid in the
year.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses a combination of internally generated funds and bank
borrowings to finance its acquisitions, working capital requirements, capital
expenses and operations.
During the short fiscal year ended June 30, 1997 and the last full
fiscal year ended December 31, 1996, the Company generated most of its funding
needs through cash flow.
At June 30, 1997, the Company cash totaled $78,000, a decrease of
$402,000 from December 31, 1996, while accounts receivable increased to $4.8
million at June 30, 1997 from $1.2 million at December 31, 1996, in each case
reflecting the particular payment schedules of the Company's contracts. Because
of the nature of the Company's business, timing of payments on large contracts
may vary significantly, causing significant variances from period to period in
the mix of cash and other liquid funds and accounts receivable. Likewise,
inventory figures may vary significantly, depending upon delivery dates for
voting systems. At June 30, 1997, inventory was $1.6 million, very similar to
the $1.9 million in inventory at December 31, 1996; however, this may not
necessarily be
27
<PAGE> 28
representative of the figure at the end of any given fiscal period.
Also in connection with its contractual arrangements with customers,
the Company may extend credit terms for the payment of amounts due for voting
systems. At June 30, 1997, loans receivable, less current portion, stood at
$900,000, approximately the same amount as was reported at December 31, 1996.
These loans are repaid on varying terms and with varying interest rates,
determined on a case by case basis. The Company has not historically experienced
any default rate in connection with loans due from customers, except for amounts
due from Venezuela under a 1991 agreement, which were written off.
The Company currently has two loans outstanding, each with Western
Bank, Albuquerque, New Mexico. One loan in the amount of $600,000 is secured by
Global USA accounts receivable. This loan bears an interest rate of Western Bank
of Albuquerque Prime Rate and is due January 6, 1999. The second loan is in the
amount of $770,000 and is secured by a specific Global USA contract valued at
$2,100,000. This loan bears an interest rate of 1% above the Western Bank of
Albuquerque Prime Rate and is payable on November 15, 1998. In order to avoid
cash flow constrictions, the Company occasionally enters into short-term loan
arrangements. The Company entered into, on March 31, 1998, loans of C$500,000
each with two Canadian individuals. Partial funding of these loans was received
on March 31, 1998 and the remaining on April 1, 1998. They were due and payable
on March 31, 1999, but were repaid in full on June 1, 1998. The loans were
evidenced by promissory notes and bore interest at a rate of 8% per year,
calculated and payable on the last day of each month. Each loan was secured by
an Accounts Security Agreement, which has since been released which grants to
each lender a security interest in Global USA's debts, accounts, claims,
demands, monies and choses in action and proceeds therefrom. As additional
compensation to the lenders, the Company issued to each of them a Share Purchase
Warrant for 83,333 shares and 83,334 respectively, of Common Stock, immediately
exercisable at a price of C$1.89 and expiring at 4:00 p.m. local time in
Vancouver, B.C. on March 31, 2001.
During the Company's three most recently ended fiscal years, the
Company has experienced no material impact from
28
<PAGE> 29
inflation or changing prices on its net sales and revenues or on income from
continuing operations.
Management believes that financial resources, including internally
generated funds and available bank borrowings will be sufficient to finance the
Company's current operations and capital expenditures, excluding acquisitions,
for the next twelve months.
The following table sets out the exchange rates, based on the noon
buying rates in New York City for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York, for the
conversion of Canadian dollars into United States dollars in effect at the end
of the following periods, and the average exchange rates (based on the average
of the exchange rates on the last day of each month in those periods) and the
range of high and low exchange rates for those periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 YEAR ENDED
JUNE 30, 1997
1993 1994 1995 1996
<S> <C> <C> <C> <C>
END OF PERIOD 1.32550 1.40700 1.36550 1.36769 1.38799
AVERAGE FOR PERIOD 1.2092 1.3664 1.3725 1.3849
HIGH FOR PERIOD 1.24279 4.31030 1.32849 1.33199 1.33920
LOW FOR PERIOD 1.34429 1.40350 1.42379 1.38220 1.29789
</TABLE>
On June 30, 1997, the noon rate of exchange as reported by the Federal Reserve
Bank of New York for the conversion of United States dollars into Canadian
dollars was $0.724113 (US$1.00=C$1.38799). As of March 31, 1998, the noon rate
of exchange as reported by the Federal Reserve Bank of New York for the
conversion of United States dollars into Canadian dollars was $0.705219
(US$1.00=C$1.417999).
THE YEAR 2000 ISSUE. The year 2000 issue ("Y2K") arises from a computer's
inability to recognize the two-digit field "00" as the year 2000 instead of the
year 1900. The computer's mistaking "00" as the year 1900 could result in system
failures or miscalculations causing disruptions to operations, including
manufacturing, a temporary inability
29
<PAGE> 30
to process transactions, send invoices, or engage in other normal business
activities. This is a significant issue for most companies, with far-reaching
implications, some of which cannot be anticipated or predicted with any degree
of certainty.
The Company has completed an assessment of the magnitude of the Y2K
issue with respect to the Company's products. The Company's Accu-Vote and
Accu-Touch systems are designed to be Y2K compliant, which is generally a
requirement in RFP's for voting systems, and the Company does not expect any
material problems or difficulties to arise out of its systems. The Company is
communicating with its customers to determine the extent of the Company's
vulnerability to the failure of third parties to remediate their own Y2K issues.
In conjunction with the Company's assessment of Y2K issues which might
affect it, the Company is formulating plans to address the Y2K issue, including
contingencies to address unforeseen problems. The Company has not been required
to incur costs for remedial work and accordingly has not set aside any
contingency fund to deal with any contingencies which may arise. The costs for
Y2K compliance are based upon management's best estimates, which were derived
form numerous assumptions about future events, including third-party
modification plans and other factors. However, there can be no guarantee that
those estimates will be accurate and actual results could differ materially from
those plans. Specific factors that might cause material differences include, but
are not limited to, the availability and cost of personnel trained in this area
and the ability to identify and correct all relevant computer codes.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases office and manufacturing facilities in McKinney,
Texas, in Omaha, Nebraska and Vancouver, British Columbia. The Company's
standard practice is to lease its facilities, and to insure the facilities and
their contents under an insurance plan.
30
<PAGE> 31
The McKinney, Texas, leased facility consists of about 13,050 square
feet in a stand-alone, one-story building. This facility includes the Company's
manufacturing operations and its United States corporate headquarters. The
current capacity utilization of the manufacturing area is about 100%. Management
anticipates that this facility may be expanded at some time during the next
fiscal year. The lease term commenced on August 1, 1997 and continues for a
period of five years, with two five-year options to renew.
The Vancouver, British Columbia leased facility consists of about 8,150
square feet in an office warehouse, one-story building. This facility houses the
Company's Canadian corporate headquarters and most of its research and
development activities. The lease term commenced on May 1, 1993 and continued
for a period of five years. The Company has executed a Lease Renewal agreement
for a term of eight months beginning May 1, 1998 and terminating December 31,
1998 on the same terms and conditions as contained in the original Lease. The
Company plans to move its Vancouver operations to smaller premises.
The Omaha, Nebraska leased facility consists of approximately 610
square feet. The facility is used for field support. The lease term commenced
on September 1, 1997 and continues for a period of two years.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership, as of March 31, 1998, of (i) each person known to the Company to own
beneficially more than 5% of the Common Stock, (ii) each Director of the
Company, (iii) each of the Company's Executive Officers, and (iv) all Officers
and Directors as a group. Except as otherwise noted, the Company believes that
the persons listed below have sole investment and voting power with respect to
the Common Stock owned by them.
31
<PAGE> 32
<TABLE>
<CAPTION>
NAME SHARES PERCENT OF CLASS
BENEFICIALLY OWNED (1)
<S> <C> <C>
David H. Brown (2) 1,310,067 7.1%
Howard Van Pelt (3) 941,469(4) 5.1
Clinton H. Rickards(2) 921,019(5) 5.0
Larry Ensminger (3) 402,835(5) 2.2
Maurice E. Sokulski(3) 215,000(6) 1.6
Robert Urosevich(3) 160,000(7) *
George Cobbe (3) 100,000(6) *
Nicholas Glass (2) 50,000(5) *
All Directors and Officers as a group 4,100,390(8) 22.2%
</TABLE>
* less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by that person within 60 days from the date of this Registration
Statement upon exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that are
held by that person and that are exercisable within 60 days from the date of
this Registration Statement have been exercised.
(2) The address of the shareholder is 1562 Rand Avenue, Vancouver, British
Columbia, Canada V6P 3G2.
(3) The address of the shareholder is 1611 Wilmeth Road, McKinney, Texas 75069.
(4) Includes options for 50,000 shares which are currently exercisable at C$1.25
per share and 9,380 shares owned by Mr. Van Pelt's wife (as to which he
disclaims beneficial ownership). The options have been issued subject to Toronto
Stock Exchange and shareholder approval.
(5) Includes options, for 50,000 shares which are currently exercisable at
C$1.25 per share, subject to shareholder approval, and, as Messrs. Rickards and
Glass, Toronto Stock Exchange approval.
(6) Includes options issued subject to Toronto Stock Exchange and shareholder
approval, for 100,000 shares which are currently exercisable at C$1.25 per share
(7) Includes options for 120,000 shares which are currently exercisable at
C$1.25 per share.
(8) Includes options for 520,000 shares which are currently exercisable at
C$1.25 per share.
32
<PAGE> 33
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
EXECUTIVE OFFICERS AND DIRECTORS
The Executive Officers and Directors of the Company are as follows:
<TABLE>
<S> <C> <C>
David H. Brown 69 Chairman of the Board, Director
Howard T. Van Pelt 56 President, Chief Financial Officer of
Registrant and of Global USA, Director
Clinton H. Rickards 50 Vice President for Canada Sales and
Stockholder Relations, Director
Larry Ensminger 59 Vice President of Operations
Maurice E. Sokulski 54 Treasurer, Controller
Robert Urosevich 50 Vice President for Sales/Marketing/New Business
George Cobbe 60 Director
Nicholas Glass 53 Director
</TABLE>
David H. Brown has been a Director of the Company since 1991 and its Chairman of
the Board since 1993. At his retirement in 1989, Mr. Brown was vice chairman of
the investment firm Burns Fry Limited, Toronto, Ontario, Canada. Mr. Brown holds
a bachelor of science degree from Concordia University, and a master of business
administration from Harvard University.
33
<PAGE> 34
Howard T. Van Pelt has been President and Chief Financial Officer of the Company
since 1993 and of Global USA since 1991, and has been a Director since 1991. In
1970, he became a regional marketing manager for Computer Election Systems Inc.,
an election voting machine company, and was regional manager, Southern division,
of that company when it was sold in 1981 to Hale Bros. From 1964 to 1968, Mr.
Van Pelt was a marketing representative for IBM Corporation, and from 1968 to
1970, he was a registered representative for Rauscher Pierce Securities. Mr. Van
Pelt attended the University of New Mexico from 1960 to 1964 and the New York
Institute of Finance in 1968.
Clinton H. Rickards has been the Company's Vice President for Canada Sales and
Stockholder Relations since 1993, and a Director since 1991. He has been in the
computer industry for almost 30 years. In 1980, he, together with partners he
subsequently bought out, founded the private computer company NAPT. This company
began the development of the ES-2000, the Company's signature product, in 1986.
Larry Ensminger has been the Company's Vice President of Operations since 1997.
From 1993 to 1997, he was the manager of sales and operations, and from 1991 to
1993, he was a sales representative, for the Company. Mr. Ensminger holds an
Associate of Arts degree in education from Dodge City Community College, and a
Bachelor of Science and a Master of Science in engineering from Kansas State
College.
Maurice E. Sokulski has been Treasurer of the Company since 1994, Controller
since 1996, and served as a Director of the Company from 1996 to 1997. From 1993
to 1994, he was controller of Northcoast Building Products Ltd., a British
Columbia distributor of lumber products. In 1992, he was controller for Adagio
Enterprises Ltd., a British Columbia manufacturer and distributor of lingerie.
He is a chartered accountant and holds a bachelor of commerce degree from the
University of Alberta.
Robert Urosevich has been the Company's Vice President for Sales/Marketing/
Business Development since August 1997. From 1995 to 1997, he was president of
I-Mark Systems, Inc., which was acquired by the Company in 1997. From 1994 to
1995, he was president of DATA Duplicating, Inc. Mr. Urosevich attended Coe
College from 1966 to 1970.
34
<PAGE> 35
George Cobbe has been a Director of the Company since 1997. Mr. Cobbe has worked
in various marketing and executive capacities for Hewlett-Packard Company since
1961. Since 1993, he has been general manager and director of North American
Field Operations for Hewlett-Packard Company, and, since 1995, a vice president
of that company. Mr. Cobbe holds a bachelor of science degree in electrical
engineering from Stanford University.
Nicholas Glass has been a Director of the Company since 1997. Mr. Glass is a
member of the Bar of British Columbia, and of England and Wales, and currently
practices in the field of labor relations as a mediator and arbitrator. He is a
director of CTI Conservation Technologies, a private British Columbia company in
the business of powerline carrier communications, is an advisor to the board of
directors of Q-Media Software Corporation, a public company traded on the
Toronto Stock Exchange which is a manufacturer and distributor to the software
industry, and is a director of Belvedere Resources, a public company traded on
the Vancouver Stock Exchange which owns mineral rights in Finland. From 1992 to
1996, Mr. Glass was a director of Tradepoint Investment Exchange, a public
company traded on AIM in London and the Vancouver Stock Exchange which has
started a new electronic stock exchange based in London. From 1972 to 1990, he
was a civil trial lawyer at the firm of Swinton and Company in Vancouver. Mr.
Glass holds a Master of Arts degree from Trinity College, Oxford University.
No Director or Executive Officer of the Company is related to any other by blood
or marriage.
ITEM 6. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS. The following table sets forth an overview
of compensation for the fiscal years ended June 30, 1997 (as short fiscal year),
and December 31, 1996, and 1995 to the Company's Chief Executive Officer and
each of the Company's other Executive Officers whose total compensation exceeded
$100,000.
35
<PAGE> 36
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Annual Compensation Long-Term All Other
Compensation Compensation
Salary Bonus Restricted Securities
Stock Under-
Award lying
Option
(#Shares)*
<S> <C> <C> <C> <C> <C>
Howard T. Van Pelt (1)
1997 $ 75,000 $ 65,000 -0- -0- $
1996 150,000 -0- -0- -0- 1,339
1995 150,000 -0- -0- -0- 1,072
Clinton H. Rickards
1997 C68,000 C33,750
1996 C147,083 -0- -0- -0- 324
1995 C150,000 342
Larry Ensminger
1997(2) 90,000
1996 90,000
1995 90,000
Maurice E. Sokulski
1997(3) 27,324
1996 50,000
1995 50,000
Robert Urosevich
1997(4) 115,000
1996
1995
Robert W. Ross,Jr.(5)
1997 29,938
1996 135,000 -0- -0- -0- 5,192
1995 135,000 -0- -0- -0- 4,009
</TABLE>
* For information on performance share options granted to certain Directors,
officers and employees in November 1991, amended as to term in December 1996,
see "Item 7. Certain Relationships and Related Transactions."
(1) Effective August 1, 1997, Mr. Van Pelt's salary was adjusted to $180,000 per
year.
(2) Effective August 1, 1998, Mr. Ensminger's salary was adjusted to $96,000 per
year.
36
<PAGE> 37
(3) Effective July 1, 1997, Mr. Sokulski's salary was adjusted to $75,000 per
year.
(4) Effective August 1, 1997, Mr. Urosevich's salary was adjusted to $115,000
per year.
(5) Mr. Ross resigned from his position as Vice President, U.S., for
Manufacturing Operations in December, 1996.
Robert W. Ross, Jr., a former Director, received c$41,330 in FY1997,
c$191,152 in FY 1996, and c$190,804 in FY1995 in consulting fees from the
Company.
The Company granted no options for Common Stock and made no awards
under long-term incentive plans to named Executive Officers during the fiscal
year ended June 30, 1997 (a short fiscal year), or during the previous fiscal
year ended December 31, 1996. See Item 4. Security Ownership of Certain
Beneficial Owners and Management.
The following table sets out information with respect to stock options
held by Executive Officers and option values as of June 30, 1997, the end of the
fiscal year. Exercisable options are indicated by an "E"; unexercisable options
are indicated by a "U".
<TABLE>
<CAPTION>
Value of
Unexercised
Shares Underlying In-The-Money
Shares Acquired on Unexercised Options at
Name Exercise Value Realized Options at 6/30/97 6/30/97
- ---- ------------------ -------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Howard Van Pelt -0- -0- -0- -0-
Clinton Rickards -0- -0- -0- -0-
Robert Ross, Jr.(1) -0- -0- -0- -0-
</TABLE>
(1) Resigned in December, 1996.
38
<PAGE> 38
COMPENSATION OF DIRECTORS. Non-employee Directors, with the exception of Mr.
Brown, are not paid cash compensation for their service. Expenses incurred in
connection with attending Board and committee meetings were in fiscal 1997 and
are reimbursed. Mr. Brown, as Chairman of the Board, receives, and received in
the last fiscal year, a fee of C$50,000. Directors Cobbe and Glass, who joined
the Board after the end of the last fiscal year, each received options for
Common Stock in connection with their agreement to serve. Option agreements
relating to these options have not been executed, pending Toronto Stock Exchange
and shareholder approval. See Item 4. Security Ownership of Certain Beneficial
Owners and Management. The Company has no other Director compensation plans in
place, but is considering cash compensation payments to its other non-employee
Board Members.
EMPLOYMENT AGREEMENTS
The Company has a three-year employment agreement dated August 1, 1997
with its President, Mr. Van Pelt under which he is paid a salary of $180,000 per
year and a bonus of 3% of earnings not to exceed $200,000. The employment
agreement also provides that Mr. Van Pelt's employment may be terminated only
for cause and that upon termination for other than criminal behavior, the
Company will pay a severance benefit equal to six months base salary at the time
of termination.
Under a two-year employment agreement dated September 30, 1996, the
Company pays its Vice President of Sales for Canada and Stockholder Relations,
Mr. Rickards, an annual salary of C$136,000 plus a bonus of 3% of Canadian sales
and 1% of the pre-tax earnings, net of the Canadian gross profit. The agreement
may be terminated for cause or not for cause upon six months' notice by either
party.
The Company has no compensatory plan or arrangement for its Executive
Officers with respect to their termination of employment or a change in control
of the Company other than as set out in their respective employment agreements.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the employment arrangements discussed under Item 6.
Executive Compensation, the Company employs
38
<PAGE> 39
Larry Ensminger, its Vice President of Operations, at a salary of $96,000 per
year. Until the beginning of the current fiscal year, the Company paid Mr.
Ensminger a salary of $90,000 per year. The Company employs its Treasurer,
Maurice E. Sokulski, at a salary of $75,000 per year; for the previous three
fiscal years, the Company paid Mr. Sokulski a salary in the amount of C$75,000.
Robert Urosevich, the Company's Vice President for Sales/Marketing/New Business
since August 1997, is paid a salary of $115,000 per year pursuant to a three
year employment contract which commenced in August of 1997.
Until May 1998, when the lease was terminated by agreement of the
parties and payment by the Company of a $29,000 termination fee, the Company
leased from Robert W. Ross, Jr., a former Director and Vice President who
resigned in December 1996, the Company's former manufacturing facility in
Honeoye Falls, New York.
The Company also leased office space from a company controlled by
Howard Van Pelt, a Director. During the fiscal years ended June 30, 1997 and
December 31, 1996 and 1995, the Company paid rent in the amount of $18,530.
By an agreement dated November 22, 1991, the Company reserved for
issuance 4,150,000 treasury shares for issuance as "performance shares". These
shares were to be issued at $0.08 per share, and, upon issuance, were to be held
in escrow and released to specified employees on the basis of "cumulative cash
flow". Two of the original allotees ceased to be employees of the Company and,
therefore, were no longer eligible for performance shares. Their 270,000 share
allotment was canceled, leaving a balance of 3,880,000 reserved for issuance.
During 1996, the Directors resolved to cancel 1,142,000 of the allotted but
unissued performance shares and to extend the earn-out period on the remaining
2,738,000 performance shares from January 17, 1997 to January 17, 2000. The
Directors' resolution was subsequently approved by shareholders and regulatory
authorities. On December 6, 1996, the Company
39
<PAGE> 40
entered into an Amended and Restated Performance Shares Allotment Agreement with
respect to the remaining shares which extended the earn-out time from January
17, 1997 to January 17, 2000, but retained the earn-out requirements of the
earlier agreement. Those requirements provided that performance shares would
have to be earned out on the basis of one performance share for every C$0.7975
cumulative cash flow. The following Directors and Officers were awarded the
following performance shares, subject to the escrow terms: Howard Van Pelt,
2,187,581; David H. Brown, 88,208; and Clinton H. Rickards, 282,267. Subsequent
to the end of the last fiscal year, in January 1998, the performance shares were
earned, purchased and released from escrow. Of Mr. Van Pelt's allotment,
1,305,492 were issued to other employees, leaving him a balance of 882,089
shares.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 100,000,000
common shares without par value ("Common Shares") and 20,000,000 convertible
voting preferred shares without par value ("Preferred Shares").
COMMON SHARES
As of March 31, 1998, 18,457,440 Common Shares were issued and
outstanding. All of the authorized Common Shares are of the same class and rank
equally as to dividends, voting powers and participation in assets. Holders of
Common Shares are entitled to one vote, either in person or by proxy, on all
matters that may be voted upon by the registered holders thereof at meetings of
shareholders.
Holders of Common Shares do not have any pre-emptive rights or rights
to subscribe for additional shares of the Company. Pursuant to the Articles of
the Company, the Company may, by a resolution of its Directors and in compliance
with the Company Act (British Columbia) ("Company Act"), purchase any of the
Common Shares at a price and upon the terms specified in that resolution. The
40
<PAGE> 41
Common Shares are not redeemable and there are no sinking fund provisions.
PREFERRED SHARES
The Preferred Shares may be issued at any time and from time to time in
one or more series. The Directors may, by resolution, alter the Memorandum of
the Company to fix the number of Preferred Shares in, and to determine the
designation of Preferred Shares of, that series and alter the Memorandum or
Articles to create, define and attach special rights and restrictions to the
Preferred Shares of that series relating only to the conversion of those
Preferred Shares into Common Shares of the Company. The Company currently has no
Preferred Shares outstanding and the Directors have not yet designated any
series thereof. The Company has no present plan to issue any Preferred Shares.
Each Preferred Share held is entitled to one vote, in person or by proxy, at all
general meetings of the Company.
Holders of Preferred Shares are entitled, on the distribution of assets
of the Company upon liquidation, dissolution or winding-up of the Company or on
any other distribution of assets of the Company among its members for the
purpose of winding up its affairs, to receive before any distribution to holders
of Common Shares or any other shares of the Company ranking junior to the
Preferred Shares with respect to repayment of capital, the amount paid up with
respect to each Preferred Share held by them. After payment to holders of
Preferred Shares of the amounts so payable to them, they are not entitled to
share in any further distribution of the property or assets of the Company.
No dividends may be paid to the holders of Common Shares or to holders
of other shares of the Company ranking junior to the Preferred Shares unless the
Directors have previously declared that the holders of the Preferred Shares are
entitled to receive dividends in an amount per Preferred Share equal to or
greater than any dividend per Common Share which may be paid to the holders of
the Common Shares.
41
<PAGE> 42
No Preferred Shares which are to be convertible into Common Shares may
be allocated or issued without the Company first obtaining the written consent
of the Toronto Stock Exchange or any other stock exchange on which the
securities of the Company are traded.
The Preferred Shares are not redeemable and there are no sinking fund
provisions.
CERTAIN PROVISIONS OF THE BRITISH COLUMBIA COMPANY ACT
The Company Act provides that shareholders are entitled to dissent in
respect of certain actions proposed to be taken by the Company. If the Company
proposes to:
(a) continue out of the jurisdiction of the Company Act;
(b) offer financial assistance for the purpose of purchasing
shares or convertible debt obligations of the Company or on the security of a
pledge of or charge on shares of the Company given by that person to the
Company, or in any other case, unless there are reasonable grounds for believing
that, or the Directors are of the opinion that, the giving of financial
assistance is in the best interests of the Company;
(c) sell, lease or otherwise dispose of the whole or
substantially the whole of the Company's undertaking;
(d) alter its Memorandum by altering any restriction on the
business carried on or to be carried on by the Company or on its powers;
(e) convert from a specially limited company(as defined in
Section 243 of the Company Act;
(f) amalgamate with another corporation; or
(g) transfer or sell the whole or part of its business or
property to another company when it is being wound-up and for that transfer or
sale, the members of the
42
<PAGE> 43
Company receive shares, debentures or other similar interests from the other
company, or instead or in addition to cash, shares, debentures or other similar
interests, have the right to participate in profits of or receive any other
benefit from the other company;
a shareholder may exercise a right of dissent and is entitled to be paid the
fair value of the shareholder's shares as of the day before the date on which
the shareholders' resolution approving the transaction was passed.
The Company Act further provides that Directors must not sell, lease or
otherwise dispose of the whole or substantially the whole of the undertaking of
the Company unless they have the approval of the members by a resolution passed
by a majority of not less than three-quarters of the votes cast by those members
of the Company voting at a general meeting.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no governmental laws, decrees or regulations in Canada or the
Province of British Columbia that restrict the export or import of capital,
including foreign exchange controls, or that affect the remittance of dividends,
interest or other payments to non-resident holders of the Company's securities,
other than withholding tax on dividend payments, as described below under the
heading "Taxation".
Except as provided in the Investment Canada Act (the "Investment Act")
and the British Columbia Company Act (the "Company Act"), there are no
limitations under the laws of Canada, the Province of British Columbia or in the
charter or any other constituent documents of the Company on the right of
foreigners to hold or vote the Common Shares.
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or government agency, corporation,
partnership, trust or joint venture that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless after review the minister responsible
for the Investment Act is satisfied that the investment is likely to be of net
benefit to
43
<PAGE> 44
Canada. An investment in Common Shares by a non-Canadian (other than an
"American" as defined in the Investment Act) will be reviewable under the
Investment Act if it is an investment to acquire control of the Company and the
value of the assets of the company is then $5 million or more. A non-Canadian
will be deemed to acquire control of the Company for the purposes of the
Investment Act if he or she acquires a majority of the outstanding Common
Shares. A non-Canadian will be presumed to acquire control of the Company if he
acquires more than one-third (but less than a majority) of the outstanding
Common Shares, unless it can be established that, on the acquisition, the
Company is not controlled in fact by the non-Canadian through the ownership of
such shares. A non-Canadian will be deemed not to acquire control if he or she
acquires less than one-third of the outstanding Common Shares.
The Investment Act was amended with the Canada-United States Free Trade
Agreement to provide for special review thresholds for "Americans", as defined
in the Investment Act. The definition of American includes American-controlled
entities, as defined in the Investment Act. Under the Investment Act, as
amended, an investment in the Common Shares by an American will be reviewable
only if it is an investment to acquire control of the Company and the value of
the assets of the Company is equal to or greater than a specified amount (the
"Review Threshold"), which increases in stages. The Review Threshold is adjusted
annually each year after 1992 to be equivalent to $150 million in constant 1992
dollars (calculated as prescribed in the Investment Act).
If a non-Canadian acquires control of the Company by the acquisition of
Common Shares, but the transaction is not reviewable as described above, the
non-Canadian is required to notify the government and to provide certain basic
information relating to the investment. If the business of the Company is then a
prescribed type of business activity related to Canada's cultural heritage or
national identity, and if the government considers it to be in the public
interest to do so, then the government may give a notice in writing within 21
days requiring the investment to be reviewed.
44
<PAGE> 45
For non-Canadians (other than Americans, as defined in the Investment
Act), an indirect acquisition of control, by the acquisition of voting interests
of an entity that directly or indirectly controls the Company, is reviewable if
the value of the assets of the Company is then $50 million or more. This
requirement does not apply to an American, as defined in the Investment Act.
As a company incorporated under, and governed by, the provisions of the
Company Act, the Company is required to have at least one director resident in
the Province of British Columbia and a majority of directors must be residents
of Canada. Accordingly, the ability of shareholders to elect directors is
constrained to the extent that the board of directors of the Company must at all
times meet these requirements.
CANADIAN TAXATION OF UNITED STATES PERSONS
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to the purchase, disposition and ownership
of Common Shares of the Company by residents and citizens of the United States
and is not a complete analysis or listing of all possible tax consequences of
such purchase, disposition or ownership. Nor does this summary deal with all
aspects of Canadian federal taxation that may be relevant to particular
investors. This summary is general information only and is not intended to be,
nor should it be construed to be, legal or tax advice to any particular person.
Holders of Common Shares should seek independent advice from their own tax
advisors as to the income tax consequences to them having regard to their
particular circumstances.
The following summary is based upon the current provisions of the
Income Tax Act (Canada) (the "ITA") and the regulations thereunder publicly
released by the Minister of Finance as of the date hereof. Except for the
foregoing, this summary does not take into account or anticipate changes in the
law or the administrative or assessing practices of Revenue Canada, Taxation and
all proposed amendments to the ITA and the regulations
45
<PAGE> 46
thereunder publicly released by the Minister of Finance as of the date hereof.
Except for the foregoing, this summary does not take into account or anticipate
changes in the law or the administrative or assessing practices of Revenue
Canada, Taxation whether by legislative, governmental, or judicial action and
does not take into account or anticipate provincial, territorial or foreign tax
considerations.
This summary relates to the principal Canadian federal income tax
considerations under the ITA generally applicable to holders of Common Shares
who, for purposes of the ITA, are not and will not be or be deemed to be
resident in Canada at any time while they hold Common Shares, deal at an arm's
length with the Company, will hold their Common Shares as capital property and
do not use or hold, and or not deemed under the ITA to use or hold their Common
Shares in, or in the course of carrying on a business in Canada.
A holder who is not resident in Canada for purposes of the ITA will
generally not be subject to tax under the ITA in respect of any capital gain or
capital loss realized on the disposition of a Common Share unless such share is
"taxable Canadian property" for purposes of the ITA and the holder is not
entitled to relief under an applicable tax treaty between Canada and the
holder's jurisdiction of residence. A Common Share will be "taxable Canadian
property" of the holder, if, at any time during the five year period immediately
preceding the disposition of the Common Share, not less than 25% of the issued
shares of any class or series of the Company belongs to the holder, to persons
with whom the holder did not deal at arm's length or a combination thereof. In
addition, the Canada-United States Income Tax Convention (1980) (the "Treaty")
will generally exempt a holder who is resident of the United States for purposes
of the Treaty from income tax in respect of a disposition of Common Shares
provided the value of the shares of the Company is not derived principally from
real property (including resource property) situated in Canada and provided such
holder does not have and has not had within the twelve month period preceding
the disposition a permanent establishment or fixed base available to such holder
in Canada.
46
<PAGE> 47
In general, a holder who receives a dividend in respect of a Common
Share will be subject to Canadian withholding tax at the rate of 25% of the
gross amount of the dividend (computed in Canadian dollars), unless such rate is
reduced under the provisions of a tax treaty between Canada and the holder's
jurisdiction of residence. Under the Treaty, the rate of withholding tax on
dividends payable to U.S. resident individuals is reduced to 15%. The Treaty
also reduces the rate of withholding tax to 5% for dividends paid to a company
which beneficially owns at least 10% of the voting stock of the Company.
When a holder dies holding Common Shares, the holder will be deemed for
Canadian tax purposes to have disposed of those Common Shares for an amount
equal to the fair market value thereof immediately before the holder's death and
will be subject to the tax treatment with respect to dispositions described
above. Any person who acquires those Common Shares as a consequence of the death
of such holder will be deemed to have acquired such shares for the fair market
value at that time. There is currently no Canadian federal estate tax.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock is traded on the Toronto Stock Exchange
under the symbol "GSM". The following table sets forth for the periods indicated
the high and low closing prices of the Company's Common Stock as reported by the
Toronto Stock Exchange, in Canadian funds.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year 1996
Quarter ended March 31, 1996 $ 1.15 0.82
Quarter ended June 30, 1996 1.09 0.74
Quarter ended September 30, 1996 0.93 0.61
Quarter ended December 31, 1996 0.85 0.55
Fiscal Year 1997(as short year)
Quarter ended March 31, 1997 0.70 0.51
Quarter ended June 30, 1997 0.68 0.50
Fiscal Year 1998
Quarter ended September 30, 1997 1.50 0.45
Quarter ended December 31, 1997 2.15 1.38
Quarter ended March 31, 1998 2.05 1.35
</TABLE>
47
<PAGE> 48
The last sale price of the Company's Common Stock on July 23, 1998 as
reported on the Toronto [Canada] Stock Exchange was C$3.65 per share. As of
March 31, 1998, there were approximately 705 holders of record of the Company's
Common Stock, of whom approximately 72.1% were in the United States. At that
date, approximately 29.8% of the outstanding 18,457,440 shares of Common Stock
was held in the United States.
Since its inception, the Company has not paid cash dividends on its
Common Stock. The Company intends to retain future earnings, if any, to provide
funds for business operations and, accordingly, does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal proceedings
and is not aware of any proceeding that a governmental authority is
contemplating.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the Registrant's two most recent fiscal years or any later
interim period, the Registrant's principal independent accountants were Staley,
Okada, Chandler & Scott, Chartered Accountants, Burnaby, British Columbia,
Canada, and that firm is currently retained in that capacity.
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<PAGE> 49
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Since January 15, 1995, the Registrant has issued the following
securities without registration under the Securities Act of 1933, pursuant to
exemptions from registration under that Act:
<TABLE>
<CAPTION>
DATE ISSUANCE EXEMPTION RELIED UPON
<S> <C> <C>
7/31/97 1,000,000 shares of Common Stock to I-Mark Systems, Inc. in the Section 4(2): Pur-
acquisition of the assets of I-Mark Systems, Inc., a Nebraska chaser had access to
corporation. all information
needed to make an
investment decision
through its due dili-
gence in the acquisi-
tion.
1/16/98 2,738,000 performance shares to Directors, Officers and Issued under Canadian
selected employees, as approved by the Toronto Stock Exchange law
8/22/97 Options for 1,145,000 shares issued to 26 employees, including Issued under Canadian
officers law and, as to
U.S. residents, Rule
701.
12/17/97 Options for 50,000 shares issued to Nicholas Glass, a Director Issued under Canadian
law
2/13/98 Options for 100,000 shares issued to George Cobbe, a Director Issued under Canadian
law
3/31/98 Warrants for 166,667 shares issued to David Ross and Victoria Issued under Canadian
Ross law
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated pursuant to the Company Act of British
Columbia, Canada. Section 128 of the Company Act permits the Company, with the
approval of the Supreme Court of British Columbia, to indemnify a person who is
a Director, or former Director of the Company against all costs, charges and
expenses, including (i) an
49
<PAGE> 50
amount paid to settle an action or satisfy a judgment, actually and reasonably
incurred by the person, (ii) an amount paid to settle an action or satisfy a
judgment in a civil, criminal or administrative action or proceeding to which
the person is made a party because of having been a Director of the Company,
(iii) an action brought by the Company, if the person acted honestly and in good
faith with a view to the best interests of the Company, and, in the case of a
criminal or administrative action or proceeding, the person had reasonable
grounds for believing that the person's conduct was lawful. Part 20 of the
Company's Articles embodies the statutory provisions and also provides for
indemnification of officers, employees and agents of the Company, as well as for
the purchase of insurance for the persons indemnified.
Article XI of the Certificate of Incorporation of Global USA provides
for limitation of director liability and for indemnification of directors,
officers and employees of the corporation. This limitation and indemnification
is in addition to that provided under the laws of British Columbia for Directors
and Officers of the Company and benefits persons serving Global USA, whether or
not they also serve the Company. The directors of Global USA are the same
persons who are Directors of the Company. A Global USA director will not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for breach of the duty of
loyalty to the corporation or its stockholders, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
liability under Section 174 of the Delaware General Corporation Law, or for any
transaction from which the Director derives improper personal benefit. The
Article also provides that changes in Delaware law further eliminating or
limiting liability of Directors will be automatically applied to directors of
the corporation.
Article XI provides for indemnification of and the purchase of
insurance covering directors, officers and employees of Global USA and to those
serving in another entity at the request of the corporation to the fullest
extent allowed by law. Indemnification includes expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, and may be paid in
advance of final
50
<PAGE> 51
disposition of an action, suit or proceeding. It does not limit other rights to
which any person seeking indemnification from the corporation may be entitled
under an agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company also maintains a claims made Directors, Officers and
Corporate Liability Policy in the aggregate amount of $5 million.
PART FS
The following financial statements of the Registrant are included:
Fiscal Year ended December 31, 1996:
Audited Consolidated Balance Sheet as of December 31, 1996
Audited Consolidated Statement of Loss
Audited Consolidated Statement of Deficit
Audited Consolidated Statement of Changes in Financial Condition
Fiscal Year ended June 30, 1997 (short year):
Audited Consolidated Balance Sheet as of June 30, 1997
Audited Consolidated Statement of Loss
Audited Consolidated Statement of Deficit
Audited Consolidated Statement of Changes in Financial Condition
Nine months ended March 31 (unaudited):
Consolidated Balance Sheet as of March 31, 1998
Nine months ended March 31, 1997 and December 31, 1996:
Consolidated Statement of Loss
Consolidated Statement of Deficit
consolidated Statement of Changes in Financial Condition
51
<PAGE> 52
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibits to this Form 10-SB are as follows:
EXHIBIT
2(1) Memorandum and Articles of Incorporation, as amended.
3 Instruments Defining the Rights of Security Holders
3(1) Parts 7, 10, 12 and 27 of the Registrant's Memorandum and Articles of
Incorporation, as amended, set forth in Exhibit 2(1)
5 Voting Trust Agreement
6 Material Contracts
6(1)(i) Employment Agreement with Howard Van Pelt dated August 1, 1997
(ii) Employment Agreement, dated October 1, 1996, with Clinton H. Rickards
(iii) Employment Agreement with Robert J. Urosevich dated August 1, 1997
6(2) Amended and Restated Performance Share Allotment Agreement dated December
6, 1996
6(3)(i) Lease (Vancouver, British Columbia)
(ii) Lease (McKinney, Texas)
(iii) Lease (Omaha, Nebraska)(to be filed by Amendment)
6(4) Purchase Agreement between the Registrant and I-Mark Systems, Inc. dated
July 31, 1997
6(5) Promissory Notes and associated Accounts Security Agreements and Stock
Purchase Warrants, all dated March 31, 1998, to each of David Ross and
Victoria Ross. Termination of each Promissory Note.
6(6) Option agreements:
(i) Form of Option Agreement with employees
(ii) Option Agreement dated August 22, 1997 between the Company and Howard
T. Van Pelt
52
<PAGE> 53
(iii) Option Agreement dated August 22, 1997 between the Company and
Clinton H. Rickards
(iv) Option Agreement dated August 22, 1997 between the Company and Larry
Ensminger
(v) Option Agreement dated August 22, 1997 between the Company and
Maurice E. Sokulski
(vi) Option Agreement dated August 22, 1997 between the Company and Robert
Urosevich
6(7) Other material agreements
(i) Promissory Note to Western Bank Albuquerque for $770,000.
(ii) Promissory Note to Western Bank Albuquerque for $600,000.
12 Additional Exhibits
13 Form F-X
<PAGE> 54
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of McKinney, State of
Texas, on July 31, 1998.
Global Election Systems, Inc.
By: /s/ HOWARD T. VAN PELT
---------------------------------------------
Howard T. Van Pelt
President and Chief Executive
Officer
<PAGE> 55
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Howard T. Van Pelt and Maurice E.
Sokulski, and each of them, with full power to act as his true and lawful
attorney-in-fact, with full power of substitution and resubstitution for him in
his name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this registration statement,
or a related registration statement filed pursuant to Rule 462(b), and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ DAVID H. BROWN
- ------------------------------- Chairman of the Board 7/28/98
David H. Brown and Director
/s/ HOWARD T. VAN PELT
- -------------------------------- President, Chief Executive 7/24/98
Howard T. Van Pelt Officer, Chief Financial Officer
and Director
/s/ CLINTON H. RICKARDS
- -------------------------------- Vice President of Marketing, 7/24/98
Clinton H. Rickards Canada, and Stockholder
Relations, and Director
/s/ MAURICE E. SOKULSKI
- ------------------------------- Treasurer, Comptroller 7/24/98
Maurice E. Sokulski
/s/ GEORGE COBBE
- ------------------------------ Director 7/24/98
George Cobbe
/s/ NICHOLAS GLASS
- ----------------------------- Director 7/25/98
Nicholas Glass
</TABLE>
<PAGE> 56
GLOBAL ELECTION SYSTEMS INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
UNAUDITED - SEE NOTICE TO READER
U.S. FUNDS
STALEY, OKADA, CHANDLER & SCOTT
Chartered Accountants
<PAGE> 57
NOTICE TO READER
- --------------------------------------------------------------------------------
We have compiled the interim consolidated balance sheet of Global Election
Systems Inc. as at 31 March 1998 and the interim consolidated statements of
changes in shareholders' equity, income and cash flow for the nine months then
ended from information provided by management. We have not audited, reviewed or
otherwise attempted to verify the accuracy or completeness of such information.
Readers are cautioned that these statements may not be appropriate for their
purposes.
Burnaby, B.C. STALEY, OKADA, CHANDLER & SCOTT
25 June 1998 CHARTERED ACCOUNTANTS
- --------------------------------------------------------------------------------
<PAGE> 58
GLOBAL ELECTION SYSTEMS INC. Statement 1
INTERIM CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH
U.S. Funds
Unaudited - See Notice to Reader
<TABLE>
<CAPTION>
ASSETS 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT
Cash and short term deposits $ 1,120,041 $ 503,716
Accounts receivable 7,166,869 3,015,552
Deposits and prepaid expenses 126,621 63,731
Inventory (Note 3) 3,598,180 1,631,585
Current portion of loan receivable 447,129 498,837
------------ ------------
12,458,840 5,713,421
AGREEMENTS RECEIVABLE (Note 4) 480,430 871,170
CAPITAL ASSETS (Note 5) 435,857 198,531
OTHER ASSETS (Note 6) 1,209,498 152,930
------------ ------------
$ 14,584,625 $ 6,936,052
============ ============
LIABILITIES
- --------------------------------------------------------------------------------------------------------------
CURRENT
Bank loan (Note 7) $ 370,000 $ 190,538
Accounts payable and accrued liabilities 2,688,408 1,274,615
Deferred revenue 164,172 312,884
Current portion of loans payable 2,179,410 156,680
------------ ------------
5,401,990 1,934,717
------------ ------------
LOANS PAYABLE (Note 8) 55,912 212,750
------------ ------------
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------
SHARE CAPITAL
Authorized:
100,000,000 common voting shares, without par value
20,000,000 convertible voting preferred shares, without par value
Issued and fully paid:
18,457,440 common shares (1997 - 14,689,440) 10,104,539 9,374,197
DEFICIT - Statement 2 (977,816) (4,585,612)
------------ ------------
9,126,723 4,788,585
------------ ------------
$ 14,584,625 $ 6,936,052
============ ============
</TABLE>
ON BEHALF OF THE BOARD:
, Director
- -------------------
, Director
- -------------------
- See Accompanying Notes -
<PAGE> 59
GLOBAL ELECTION SYSTEMS INC. Statement 2
INTERIM CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
U.S. Funds
Unaudited - See Notice to Reader
<TABLE>
<CAPTION>
Common Shares
Shares Amount Deficit Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - 31 December 1993 13,527,237 $ 8,419,336 $(1,164,452) $ 7,254,884
Issuance of shares for name and operating assets
of Lynro Manufacturing Corporation ($1.74 per
share) 250,000 434,626 -- 434,626
Issuance of shares for expenses ($0.83 per share) 58,334 48,594 -- 48,594
Issuance of shares on exercise of options ($0.48 per
share) 50,000 23,904 -- 23,904
Loss for the year -- -- (1,508,214) (1,508,214)
----------- ----------- ----------- -----------
Balance - 31 December 1994 13,885,571 8,926,460 (2,672,666) 6,253,794
Issuance of shares on exercise of warrants ($0.77
per share) 203,869 156,538 -- 156,538
Issuance of shares on exercise of options ($0.56
per share) 100,000 55,777 -- 55,777
Loss for the year -- -- (1,042,042) (1,042,042)
----------- ----------- ----------- -----------
Balance - 31 December 1995 14,189,440 9,138,775 (3,714,708) 5,424,067
Issuance of shares on exercise of options ($0.47
per share) 500,000 235,422 -- 235,422
Loss for the year -- -- (1,736,657) (1,736,657)
----------- ----------- ----------- -----------
Balance - 31 December 1996 14,689,440 9,374,197 (5,451,365) 3,922,832
Net income for the period -- -- 2,053,512 2,053,512
----------- ----------- ----------- -----------
Balance - 30 June 1997 (Note 1a) 14,689,440 9,374,197 (3,397,853) 5,976,344
Issuance of shares for name and operating assets
of I-Mark Systems, Inc. ($0.55 per share) 1,000,000 548,148 -- 548,148
Issuance of performance shares from escrow ($0.06
per share) 2,738,000 155,562 -- 155,562
Issuance of shares on exercise of options ($0.89
per share) 30,000 26,632 -- 26,632
Net income for the period - Statement 3 -- -- 2,420,037 2,420,037
----------- ----------- ----------- -----------
Balance - 31 March 1998 18,457,440 $10,104,539 $ (977,816) $ 9,126,723
=========== =========== =========== ===========
</TABLE>
- See Accompanying Notes -
<PAGE> 60
GLOBAL ELECTION SYSTEMS INC. Statement 3
INTERIM CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED 31 MARCH
U.S. Funds
Unaudited - See Notice to Reader
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales and operating revenues $12,086,413 $ 7,083,753
Other income 90,606 47,835
----------- -----------
12,177,019 7,131,588
----------- -----------
COSTS AND EXPENSES
Costs of sales and operating expenses 5,764,909 4,135,740
Selling, administrative and general expenses 3,344,678 2,374,736
Research and development expenses 311,464 356,469
Amortization 263,461 86,919
Interest 72,470 66,996
Other expenses -- 1,104
----------- -----------
9,756,982 7,021,964
----------- -----------
NET INCOME FOR THE PERIOD $ 2,420,037 $ 109,624
=========== ===========
EARNINGS PER SHARE
Basic $ 0.14 $ 0.01
Fully diluted $ 0.13 $ 0.01
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
Basic 16,766,344 14,689,440
Fully diluted 18,114,677 17,478,810
=========== ===========
</TABLE>
- See Accompanying Notes -
<PAGE> 61
GLOBAL ELECTION SYSTEMS INC. Statement 4
INTERIM CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED 31 MARCH
U.S. Funds
Unaudited - See Notice to Reader
<TABLE>
<CAPTION>
CASH RESOURCES PROVIDED BY (USED IN) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income for the period $ 2,420,037 $ 109,624
Item not affected by cash
Amortization 263,461 86,919
----------- -----------
2,683,498 196,543
Changes in non-cash working capital (3,114,094) 634,756
----------- -----------
(430,596) 831,299
----------- -----------
INVESTING ACTIVITIES
Capital assets acquired (483,058) (9,678)
Other assets acquired, net (682,506) --
Proceeds on sale of capital assets 125,375 --
Agreements receivable 383,870 (526,231)
----------- -----------
(656,319) (535,909)
----------- -----------
FINANCING ACTIVITIES
Bank loan 80,000 (396,526)
Loans payable 1,866,932 369,430
Common shares issued 182,194 235,422
----------- -----------
2,129,126 208,326
----------- -----------
NET INCREASE IN CASH 1,042,211 503,716
Cash position - Beginning of period 77,830 --
----------- -----------
CASH POSITION - END OF PERIOD $ 1,120,041 $ 503,716
=========== ===========
</TABLE>
- See Accompanying Notes -
<PAGE> 62
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements have been prepared using
generally accepted accounting principles of Canada as follows:
a) PERIOD OF OPERATIONS
The company adopted a new year-end of 30 June which resulted in a six
month period of operations for the period ended 30 June 1997.
These interim consolidated financial statements are for the nine month
period of operations to 31 March 1998. The comparative figures have
been compiled from the records of the company and cover the operations
of the company for the nine months ended 31 March 1997.
b) NATURE OF OPERATIONS
The company markets a complete electronic voting system which includes
vote tally and voter registration software.
c) CONSOLIDATION
These interim consolidated financial statements include the accounts
of the company and its wholly-owned subsidiary, Global Election
Systems, Inc., a company incorporated in Delaware and operating in New
Mexico, U.S.A. The purchase method of accounting has been applied to
this acquisition.
d) FOREIGN CURRENCY TRANSLATION
The accounts of the company were prepared in Canadian funds through to
30 June 1997 as follows:
o Monetary assets and liabilities at year-end rates,
o All other assets and liabilities at historical rates, and
o Revenue and expense items at the average rate of exchange
prevailing during the year.
Exchange gains and losses arising from these transactions were
reflected in income or expense in the year.
Subsequent to 30 June 1997, the company adopted the U.S. currency as
its reporting currency and accordingly, has prepared its financial
statements on that basis. Accordingly, all prior years' figures are
recast in the U.S. currency through a "translation of convenience"
whereby all amounts appearing are restated from Canadian to U.S.
currency using the exchange rate prevailing at 30 June 1997.
e) INVENTORY
Inventory of finished goods and work-in-progress is valued at the
lower of cost and net realizable value as estimated by management. Raw
materials, which consist of parts and components, are valued at
average cost less any allowances for obsolescence. Inventory of goods
taken in trade is valued at the lesser of trade-in value and net
realizable value as estimated by management.
<PAGE> 63
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES - Continued
f) AMORTIZATION
Capital assets are recorded at cost and the company provides for
amortization on the following basis:
Demonstration and computer equipment - 20% to 30% declining balance
method Manufacturing equipment - 20% declining balance method
Furniture and equipment - 20% declining balance method Leasehold
improvements - straight-line over 5 years
One-half of the rate is applied in the year of acquisition.
g) PATENTS
Patents are recorded at cost and the company provides for amortization
on a straight-line basis over 10 years.
h) GOODWILL
Goodwill is recorded at cost and the company provides for amortization
on a straight-line basis over 5 years.
i) REVENUE RECOGNITION
Revenue from sales of products and supplies is recognized at the time
of shipment of products and supplies to customers. Revenue from sales
of services is recognized on completion of the related services. The
company defers a portion of revenue received related to contracted
future services to match against management's estimate of the future
costs of providing these services to customers.
j) WARRANTY RESERVE
Provisions for future estimated warranty costs are recorded in the
accounts based upon historical maintenance records. Management
periodically reviews the warranty reserve to determine the adequacy of
the provision.
k) RESEARCH AND DEVELOPMENT TAX CREDITS
Research and development tax credits are applied against research and
development expenses in the period in which the tax credit is
received.
l) EARNINGS PER SHARE
Basic earnings per share computations are based on the weighted
average number of shares outstanding during the year. Fully diluted
earnings per share are based on the actual number of shares
outstanding at the end of the year plus performance shares, and share
purchase options and warrants as if they had been issued as at the
beginning of the year.
- --------------------------------------------------------------------------------
<PAGE> 64
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and short term deposits, accounts receivable,
deposits, loans receivable, bank loans, accounts payable and customer
deposits approximates their fair value due to their short term maturity or
capacity of prompt liquidation.
- --------------------------------------------------------------------------------
3. INVENTORY
Details are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Supplies $ 769,259 $1,313,367
Work-in-progress 25,320 18,639
Trade-in goods 1,491,240 227,431
Finished goods 1,312,361 72,148
---------- ----------
$3,598,180 $1,631,585
---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
4. AGREEMENTS RECEIVABLE
Details of amounts receivable from customers are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Sales agreement receivable with interest at 5% per annum,
repayable in 60 equal monthly payments commencing 15
December 1995, secured by the underlying goods (i) $ 488,080 $ 658,863
Sales agreement receivable with interest at 10% per annum
commencing 1 June 1997 and due in full by 31 December 1998 78,020 78,020
Sales agreement receivable with interest at 5% per annum
commencing 20 November 1996, repayable on 20 November 1998
(ii) 250,000 500,000
Sales agreement receivable with interest at 9% per annum
commencing 25 June 1996, repayable at $33,646 per annum for
principal and interest on 1 July 1997 to 1 July 2001 (ii) 111,459 133,124
----------- -----------
927,559 1,370,007
Less: Current portion (447,129) (498,837)
----------- -----------
$ 480,430 $ 871,170
----------- -----------
</TABLE>
(i) The sales agreement receivable has been pledged as security for the
bank loan (Note 7).
(ii) The sales agreement receivable has been pledged as security for the
related loan payable (Note 8).
<PAGE> 65
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
4. AGREEMENTS RECEIVABLE - Continued
Scheduled principal repayments on the sales agreements receivable are as
follows:
<TABLE>
<S> <C>
31 March 1999 $447,129
31 March 2000 287,130
31 March 2001 182,779
31 March 2002 10,521
--------
$927,559
--------
</TABLE>
- --------------------------------------------------------------------------------
5. CAPITAL ASSETS
Details are as follows:
<TABLE>
<CAPTION>
1998 1997
Accumulated NET BOOK Net Book
Cost Amortization VALUE Value
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
Demonstration and $539,418 $292,477 $246,941 $106,581
computer equipment
Manufacturing equipment 95,278 69,441 25,837 58,461
Furniture and equipment 242,779 84,510 158,269 32,298
Leasehold improvements 18,361 13,551 4,810 1,191
-------- -------- -------- --------
$895,836 $459,979 $435,857 $198,531
-------- -------- -------- --------
</TABLE>
- --------------------------------------------------------------------------------
6. OTHER ASSETS
Details are as follows:
<TABLE>
<CAPTION>
1998 1997
Accumulated NET BOOK Net Book
Cost Amortization VALUE Value
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Patents $ 165,000 $ 103,125 $ 61,875 $ 78,375
Goodwill 1,450,960 303,337 1,147,623 74,555
---------- ---------- ---------- ----------
$1,615,960 $ 406,462 $1,209,498 $ 152,930
---------- ---------- ---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
7. BANK LOAN
Details are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Line of credit, bearing interest at bank prime, interest
payments due quarterly beginning 6 January 1998, due in full by 6
January 1999, secured by the $488,080 agreement receivable (Note 4) $ 370,000 $190,538
--------- --------
</TABLE>
The maximum approved line of credit is U.S. $371,450
- --------------------------------------------------------------------------------
<PAGE> 66
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
8. LOANS PAYABLE
Details are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Note payable, bearing interest at bank prime, repayable in full $ 137,602 $ 275,204
on 15 November 1998, secured by the $250,000 sales
agreement receivable (Note 4)
Note payable, bearing interest at bank prime payable quarterly 74,550 94,226
commencing 12 December 1996, repayable at $18,637 per annum
commencing 1 July 1997, secured by the $111,459 sales
agreement receivable (Note 4)
Note payable, bearing interest at bank prime plus 1%, repayable 770,000 --
at $632,100 plus interest on 11 June 1998 and the balance
due in full on 15 November 1998, secured by a blanket
assignment of accounts receivable
Note payable, bearing interest at bank prime plus 1%, repayable 570,000 --
in full plus interest on 28 April 1998, secured by a
blanket assignment of accounts receivable
Note payable, bearing interest at 8% per annum, repayable by 31 341,585 --
March 1999 plus bonus interest of $15,713, secured by an
accounts security agreement covering all assets of the
company
Note payable, bearing interest at 8% per annum, repayable by 31 341,585 --
March 1999 plus bonus interest to a minimum of $15,713, secured by an
accounts security agreement covering all assets of the company
----------- -----------
2,235,322 369,430
Less: Current portion (2,179,410) (156,680)
----------- -----------
$ 55,912 $ 212,750
----------- -----------
Scheduled principal repayments on the loans payable are as follows:
31 March 1999 $ 2,179,410
31 March 2000 18,637
31 March 2001 18,637
31 March 2002 18,638
-----------
$ 2,235,322
-----------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 67
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
9. SHARE CAPITAL
a) The authorized share capital is 120,000,000 shares divided into
100,000,000 voting common shares without par value and 20,000,000
convertible voting preferred shares without par value.
The issued and outstanding share capital consists of:
<TABLE>
<CAPTION>
Common Unit
Shares Value Amount
---------- ----- -----------
<S> <C> <C> <C>
Balance - 31 December 1993 13,527,237 $ 8,419,336
Acquisition of name and operating assets 250,000 $1.74 434,626
of Lynro Manufacturing Corporation
Fiscal agency fees 58,334 $0.83 48,594
Options exercised 50,000 $0.48 23,904
----------- ----- -----------
Balance - 31 December 1994 13,885,571 8,926,460
Warrants exercised 203,869 $0.77 156,538
Options exercised 100,000 $0.56 55,777
----------- ----- -----------
Balance - 31 December 1995 14,189,440 9,138,775
Options exercised 500,000 $0.47 235,422
----------- ----- -----------
Balance - 31 December 1996 and 30 June 1997 14,689,440 9,374,197
Acquisition of name and operating assets 1,000,000 $0.53 548,148
of I-Mark Systems, Inc.
Issuance of performance shares 2,738,000 $0.06 155,562
Options exercised 30,000 $0.89 26,632
----------- ----- -----------
Balance - 31 March 1998 18,457,440 $10,104,539
----------- ----- -----------
</TABLE>
b) By agreement dated 22 November 1991, the company reserved for issuance
4,150,000 treasury shares. These shares were to be issued at $0.06 per
share, and upon issuance, were to be held in escrow and released on
the basis of "cumulative cash flow" (as defined). Two of the original
allottees are no longer employees nor directors of the company and
therefore have ceased to be eligible for performance shares and
accordingly 270,000 of the original shares reserved for issuance have
been cancelled leaving a balance of 3,880,000 shares reserved for
issuance.
During 1996, the directors passed a resolution to cancel 1,142,000 of
the allotted but unissued performance shares and to extend the
earn-out period on the remaining 2,738,000 performance shares from 17
January 1997 to 17 January 2000. The resolution was then passed by the
shareholders at an extraordinary general meeting on 6 December 1996
and subsequently approved by the regulatory authorities. On 6 December
1996, the company entered into an Amended and Restated Performance
Shares Allotment Agreement on the remaining 2,738,000 allotted but
unissued treasury shares under the same release provisions as the
original 22 November 1991 agreement.
Based upon the "cumulative cash flow" of the company to 30 June 1997,
the 2,738,000 performance shares were approved for release by the
regulatory authorities and were issued on 27 January 1998 upon receipt
of $155,562 from the holders of the performance shares.
<PAGE> 68
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
9. SHARE CAPITAL - Continued
c) STOCK OPTION PLAN
The company has a stock option plan which covers its officers and
directors. The options are granted for varying terms ranging from
three to five years and are immediately vested upon grant. The
following is a schedule of the activity pursuant to this stock option
plan:
<TABLE>
<CAPTION>
Price per
Number of Share
Shares (CDN $) Expiration Date
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500,000 $0.65 22 November 1996
30,000 $0.75 04 February 1997
100,000 $2.30 22 April 1997
200,000 $0.77 09 February 1998
200,000 $2.40 17 September 1998
100,000 $3.10 15 November 1998
150,000 $1.89 20 September 1999
100,000 $1.33 01 November 1999
- ----------------------------------------------------------------------------------------------------------
Balance - 31 December 1994 1,380,000 $0.65 to $ 3.10
Options exercised (100,000) $0.77 09 February 1998
Options expired (100,000) $0.77 09 February 1998
Options expired (80,000) $3.10 15 November 1998
Options expired (20,000) $1.89 20 September 1999
New options granted 100,000 $1.35 22 February 2000
New options granted 100,000 $1.00 17 August 2000
- ----------------------------------------------------------------------------------------------------------
Balance - 31 December 1995 1,280,000 $0.65 to $ 3.10
Options exercised (500,000) $0.65 22 November 1996
Options expired (200,000) $2.40 17 September 1998
Options expired (100,000) $1.00 17 August 2000
- ----------------------------------------------------------------------------------------------------------
Balance - 31 December 1996 480,000 $1.33 to $ 3.10
Options expired (30,000) $0.75 04 February 1997
Options expired (100,000) $1.35 22 February 2000
Options expired (100,000) $2.30 22 April 1997
- ----------------------------------------------------------------------------------------------------------
Balance - 30 June 1997 250,000 $1.33 to $ 3.10
New options granted 1,075,000 $1.25 22 August 2002
New options granted 50,000 $1.49 17 December 2002
New options granted 100,000 $1.80 07 January 2003
Options cancelled (20,000) $3.10 15 November 1998
Options cancelled (130,000) $1.89 20 September 1999
Options exercised (30,000) $1.25 22 August 2002
- ----------------------------------------------------------------------------------------------------------
Balance - 31 March 1998 1,295,000 $1.25 - $1.80
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 69
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
9. SHARE CAPITAL - Continued
d) STOCK PURCHASE WARRANTS
During the period ended 31 March 1998 the company granted stock
purchase warrants as an incentive to arrange short-term financing as
follows:
<TABLE>
<CAPTION>
Price per
Number of Share Expiration Date
Shares (CDN $)
------------------ --------- --------- ---------------
<S> <C> <C> <C>
166,667 $ 1.88 31 March 2001
------------------ -------- ------- --------------
</TABLE>
- --------------------------------------------------------------------------------
10. INCOME TAXES
a) A summary of the taxable income of the company for the nine months
ended 31 March 1998 is as follows:
<TABLE>
<CAPTION>
Canadian Parent U.S. Subsidiary Total
--------------- --------------- -----------
<S> <C> <C> <C>
Net income (loss) before taxes per $ (186,905) $ 2,606,942 $ 2,420,037
financial statements
Application of losses carried forward -- (2,606,942) (2,606,942)
- ------------------------------------------- ----------- ----------- -----------
Taxable income (loss) $ (186,905) $ -- $ (186,905)
- ------------------------------------------- ----------- ----------- -----------
</TABLE>
Accordingly, no provision for income taxes has been recorded in these
interim consolidated financial statements.
b) The company has unclaimed scientific research and experimental
development deductions, for Canadian tax purposes, in the amount of
$104,000 which may be carried forward to be applied against future
taxable income. The future tax benefits, if any, of these deductions
have not been recognized in the accounts.
c) The company has unclaimed investment tax credits, for Canadian tax
purposes, arising from its research and development activities in the
amount of $425,000 which may be carried forward to be applied against
future federal taxes payable. The future tax benefits, if any, of
these tax credits have not been recognized in the accounts and expire
as follows:
<PAGE> 70
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
10. INCOME TAXES - Continued
c) Continued
<TABLE>
<S> <C>
1998 $109,000
1999 85,000
2000 37,000
2003 68,000
2004 126,000
--------
$425,000
--------
</TABLE>
d) The company has tax losses, for Canadian tax purposes, of
approximately $186,905 which may be carried forward to be applied
against future taxable income. The future benefits, if any, of these
tax losses have not been recognized in the accounts of the company and
expire in 2005.
e) The company's subsidiary has tax losses, for U.S. tax purposes, of
approximately $1,482,000 which may be carried forward to be applied
against future taxable income. The future benefits, if any, of these
tax losses have not been recognized in the accounts of the company and
expire in 2010.
- --------------------------------------------------------------------------------
11. COMMITMENTS
a) By way of a management services agreement, the company has secured the
services of a key employee for a term expiring 30 September 1998. The
contract contains fixed annual compensation totalling $100,000 per
annum plus a bonus of:
i) 3% of Canadian sales; and
ii) 1% of the net profits before taxes for all sales (excluding those
in Canada) of the company.
b) Under the terms of a lease agreement dated 1 May 1993, the company is
committed to minimum annual lease payments of $37,668 plus its share
of common area costs. The lease was for a five year term to 30 April
1998 and the lease has been extended for an additional 8 month term to
31 December 1998 on the same terms representing a lease commitment of
$28,251 for the 12 month period ending 31 March 1999.
<PAGE> 71
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
11. COMMITMENTS - Continued
c) By an agreement dated 4 March 1997, the company's United States
subsidiary has agreed to lease 13,050 square feet of general office
and warehouse space in McKinney, Texas for five years from 1 July
1997. The annual lease amount is $110,272 representing a minimum lease
commitment of:
<TABLE>
<S> <C>
31 March 1999 $ 110,272
31 March 2000 110,272
31 March 2001 110,272
31 March 2002 110,272
31 March 2003 27,568
---------
$ 468,656
---------
</TABLE>
The lease may be extended for two additional terms of five years with
the rate to be the current base rental plus the lesser of a consumer
price adjustment or a fair rental value adjustment.
- --------------------------------------------------------------------------------
12. CONTINGENCY
By an agreement dated 25 November 1991, the company retained Overseas
Management Services, Inc. ("OMS") as its exclusive sales and marketing
representative for Venezuela for an initial term of 5 years. OMS was to
receive a 20% commission on all sales of the product within Venezuela and
was responsible for its own out-of-pocket costs.
Management believes OMS breached certain conditions of its agreement with
the company and has given OMS the required 30 day notice of cancellation.
OMS collected approximately U.S. $96,000 of the U.S. $209,700 commission it
has claimed on the Consejo capital lease. The balance of the commission
payable to OMS has not been recorded in these consolidated financial
statements due to the alleged breach of contract.
The company has initiated a lawsuit against OMS for damages resulting from
the alleged breaches by OMS of the 25 November 1991 agreement. The outcome
of this case and the amount of damages to be received by the company, if
any, cannot be reasonably determined at this time.
OMS has filed a counter-claim against the company in New Hampshire
alleging, interalia, a claim for future commissions on the capital lease.
- --------------------------------------------------------------------------------
<PAGE> 72
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
In addition to items disclosed elsewhere in these consolidated financial
statements, the company conducted the following transactions with related
parties:
a) EXPENDITURES
Details are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Paid/accrued salaries and fees to four directors all of $382,712 $257,254
whom are officers of the company
Paid rent for premises to a company controlled by a 5,765 17,294
director
Paid rent (at fair market value) to a company controlled 75,000 75,000
by a former director
-------- --------
$463,477 $349,548
-------- --------
</TABLE>
b) SHARE CAPITAL
During the nine months ended 31 March 1998, the company issued
2,558,056 shares to directors of the 2,738,000 performance shares
issued in the period for cash in the amount of $145,338.
During the nine months ended 31 March 1998, the company granted
directors 350,000 share purchase options at exercise prices ranging
from $1.25 to $1.80 and option expiry dates ranging from 22 August
2002 to 7 January 2003.
- --------------------------------------------------------------------------------
14. I-MARK SYSTEMS, INC.
By an agreement dated 31 July 1997, the company acquired the assets,
business and the name of I-Mark Systems, Inc., a Nebraska corporation.
Consideration for the acquisition was $1,000,000 cash (paid) and 1,000,000
common shares of the company (issued at a deemed amount of $548,148).
The consideration given was allocated to the net identifiable assets
acquired as follows:
<TABLE>
<S> <C> <C>
Capital assets o Furniture and fixtures $ 68,148
o Demonstration and computer equipment 280,000
Goodwill 1,200,000
-----------
$ 1,548,148
-----------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 73
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
15. SALES AND OPERATING INCOME
Details of sales and operating income generated from customers which
account for more than 10% of that period's consolidated sales and operating
income are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Number of large customers 1 1
----------- -----------
Amount of sales to large customers $ 2,024,080 $ 1,090,233
----------- -----------
Total consolidated sales and operating income $12,086,413 $ 7,083,753
----------- -----------
Total percentage of consolidated sales and operating income
generated from large customers 16.7% 15.4%
----------- -----------
</TABLE>
Due to the nature of the company's business, large sales to individual
customers are generated on a non-recurring basis. As a result, the company
is not dependent on any single customer or small group of customers such
that the loss of any of these would have a material adverse effect on the
future results of the company.
- --------------------------------------------------------------------------------
<PAGE> 74
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
16. SEGMENT INFORMATION
The company operated in only one industry segment in Canada and the United
States as follows:
<TABLE>
<CAPTION>
Canada United States
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales to customers $ 466,212 $ 1,860,590 $11,620,202 $ 5,223,163
Sales between the segments 802,880 327,376 3,095,970 1,470,248
----------- ----------- ----------- -----------
Total sales revenue $ 1,269,092 $ 2,187,966 $14,716,172 $ 6,693,411
----------- ----------- ----------- -----------
Operating profits $ 269,660 $ 202,695 $ 5,567,536 $ 2,793,153
----------- ----------- ----------- -----------
General corporate expenses
Interest
Net income
Identifiable assets $ 1,088,312 $ 2,919,743 $13,518,920 $ 4,038,916
----------- ----------- ----------- -----------
Capital expenditures $ 15,696 $ -- $ 1,698,016 $ 9,678
----------- ----------- ----------- -----------
Amortization of capital and other
assets $ 20,071 $ 6,954 $ 243,390 $ 79,965
----------- ----------- ----------- -----------
<CAPTION>
Elimination Consolidated
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales to customers $ -- $ -- $12,086,414 $ 7,083,753
Sales between the segments (3,898,850) (1,797,624) -- --
----------- ----------- ----------- -----------
Total sales revenue $(3,898,850) $(1,797,624) $12,086,414 $ 7,083,753
----------- ----------- ----------- -----------
Operating profits $ -- $ -- 5,837,196 2,995,848
----------- -----------
General corporate expenses 3,344,678 2,819,228
Interest 72,480 66,996
----------- -----------
Net income $ 2,420,038 $ 109,624
----------- -----------
Identifiable assets $ (22,607) $ (22,607) $14,584,625 $ 6,936,052
----------- ----------- ----------- -----------
Capital expenditures $ -- $ -- $ 1,713,712 $ 9,678
----------- ----------- ----------- -----------
Amortization of capital and other
assets $ -- $ -- $ 263,461 $ 86,919
----------- ----------- ----------- -----------
</TABLE>
<PAGE> 75
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
17. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These interim consolidated financial statements are prepared in accordance
with accounting principles generally accepted in Canada. Any differences in
United States accounting principles as they pertain to the accompanying
interim consolidated financial statements are not material except as
follows:
a) COMPENSATION EXPENSE
Under accounting principles generally accepted in the United States,
there is a compensation expense associated with the release of
escrowed shares of the company, as those shares become eligible for
release. No compensation expense is applied under accounting
principles generally accepted in Canada.
b) FINANCIAL STATEMENT RECONCILIATION
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
i) Share capital - Canadian basis $ 10,104,539 $ 9,374,197
Add: Escrow share compensation expense - prior years 3,194,621 3,194,621
------------ ------------
Share capital - U.S. basis $ 13,299,160 $ 12,568,818
------------ ------------
ii) Deficit - Canadian basis $ (977,816) $ (4,185,612)
Less: Escrow share compensation expense - prior years (3,194,621) (3,194,621)
------------ ------------
Deficit - U.S. basis $ (4,172,437) $ (7,380,233)
------------ ------------
</TABLE>
<PAGE> 76
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
17. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - Continued
b) FINANCIAL STATEMENT RECONCILIATION - Continued
iii) U.S. GAAP consolidated statement of shareholders' equity
<TABLE>
<CAPTION>
Common Shares
Shares Amount Deficit Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance - 31 December 1993 - Canadian 13,527,237 $ 8,419,336 $(1,164,452) $ 7,254,884
basis
Escrow share compensation expense - -- 3,194,621 (3,194,621) --
prior years
----------- ----------- ----------- -----------
Balance - 31 December 1993 - U.S. basis 13,527,237 11,613,957 (4,359,073) 7,254,884
Issuance of shares for name and 250,000 434,626 -- 434,626
operating assets of Lynro
Manufacturing Corporation ($1.74 per
share)
Issuance of shares for expenses ($0.83 58,334 48,594 -- 48,594
per share)
Issuance of shares on exercise of
options ($0.48 per share) 50,000 23,904 -- 23,904
Loss for the year -- -- (1,508,214) (1,508,214)
----------- ----------- ----------- -----------
Balance - 31 December 1994 - U.S. basis 13,885,571 12,121,081 (5,867,287) 6,253,794
Issuance of shares on exercise of 203,869 156,538 -- 156,538
warrants ($0.77 per share)
Issuance of shares on exercise of 100,000 55,777 -- 55,777
options ($0.56 per share)
Loss for the year -- -- (1,042,042) (1,042,042)
----------- ----------- ----------- -----------
Balance - 31 December 1995 - U.S. basis 14,189,440 12,333,396 (6,909,329) 5,424,067
Issuance of shares on exercise of
options ($0.47 per share) 500,000 235,422 -- 235,422
Loss for the year -- -- (1,736,657) (1,736,657)
----------- ----------- ----------- -----------
Balance - 31 December 1996 - U.S. basis 14,689,440 12,568,818 (8,645,986) 3,922,832
Net income for the period -- -- 2,053,512 2,053,512
----------- ----------- ----------- -----------
Balance - 30 June 1997 - U.S. basis 14,689,440 12,568,818 (6,592,474) 5,976,344
Issuance of shares for name and
operating assets of I-Mark Systems,
Inc. ($0.55 per share) 1,000,000 548,148 -- 548,148
Issuance of performance shares from
escrow ($0.06 per share) 2,738,000 155,562 -- 155,562
Issuance of shares on exercise of
options ($0.89 per share) 30,000 26,632 -- 26,632
Net income for the period -- -- 2,420,037 2,420,037
----------- ----------- ----------- -----------
Balance -31 March 1998 - U.S. basis 18,457,440 $13,299,160 $(4,172,437) $ 9,126,723
----------- ----------- ----------- -----------
</TABLE>
c) EARNINGS PER SHARE - BASIC OR PRIMARY
Under accounting principles generally accepted in the United States,
stock options and stock warrants are treated as common stock
equivalents in the determination of basic or primary earnings per
share if they would have a dilutive effect. Stock options and stock
warrants are not treated as common stock equivalents in the
determination of basic or primary earnings per share in Canada.
<PAGE> 77
GLOBAL ELECTION SYSTEMS INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
31 MARCH 1998
U.S. Funds
Unaudited - See Notice to Reader
- --------------------------------------------------------------------------------
17. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES - Continued
c) EARNINGS PER SHARE - BASIC OR PRIMARY - Continued
Reconciliation of Canadian to U.S. basis - Basic Earnings per Share:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Weighted average number of common shares outstanding - 16,766,344 14,689,440
Canadian basis
Add: Dilutive stock options 1,348,333 250,000
----------- -----------
Weighted average number of common shares outstanding - U.S. 18,114,677 14,939,440
basis
----------- -----------
Net income for the period $ 2,420,037 $ 109,624
----------- -----------
Primary earnings per share $ 0.13 $ 0.01
- U.S. basis
----------- -----------
- Canadian basis $ 0.14 $ 0.01
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2(1) Memorandum and Articles of Incorporation, as amended.
3 Instruments Defining the Rights of Security Holders
3(1) Parts 7, 10, 12 and 27 of the Registrant's Memorandum and Articles of
Incorporation, as amended, set forth in Exhibit 2(1)
5 Voting Trust Agreement
6 Material Contracts
6(1)(i) Employment Agreement with Howard Van Pelt dated August 1, 1997
(ii) Employment Agreement, dated October 1, 1996, with Clinton H. Rickards
(iii) Employment Agreement with Robert J. Urosevich dated August 1, 1997
6(2) Amended and Restated Performance Share Allotment Agreement dated December
6, 1996
6(3)(i) Lease (Vancouver, British Columbia)
(ii) Lease (McKinney, Texas)
(iii) Lease (Omaha, Nebraska)(to be filed by Amendment)
6(4) Purchase Agreement between the Registrant and I-Mark Systems, Inc. dated
July 31, 1997
6(5) Promissory Notes and associated Accounts Security Agreements and Stock
Purchase Warrants, all dated March 31, 1998, to each of David Ross and
Victoria Ross. Termination of each Promissory Note.
6(6) Option agreements:
(i) Form of Option Agreement with employees
(ii) Option Agreement dated August 22, 1997 between the Company and Howard
T. Van Pelt
(iii) Option Agreement dated August 22, 1997 between the Company and
Clinton H. Rickards
(iv) Option Agreement dated August 22, 1997 between the Company and Larry
Ensminger
(v) Option Agreement dated August 22, 1997 between the Company and
Maurice E. Sokulski
(vi) Option Agreement dated August 22, 1997 between the Company and Robert
Urosevich
6(7) Other material agreements
(i) Promissory Note to Western Bank Albuquerque for $770,000.
(ii) Promissory Note to Western Bank Albuquerque for $600,000.
12 Additional Exhibits
13 Form F-X
</TABLE>
<PAGE> 1
EXHIBIT 2.(1)
[LOGO]
COMPANY ACT
CERTIFICATE
415821
Canada
Province of British Columbia
I HEREBY CERTIFY that NORTH AMERICAN PROFESSIONAL TECHNOLOGIES B.C. LTD.,
incorporation No. 268666 and MACROTRENDS INTERNATIONAL VENTURES INC.,
incorporation No. 350205, are this day amalgamated pursuant to the Company Act
as one company with the name GLOBAL ELECTION SYSTEMS INC.
GIVEN under my hand and seal of office at Victoria, B.C., this
[SEAL] 22nd day of November, one thousand nine hundred and ninety-one
/s/ [ILLEGIBLE]
--------------------------------------------
A/Deputy Registrar of Companies.
<PAGE> 2
I HEREBY CERTIFY THAT THIS IS A COPY
OF A DOCUMENT FILED WITH THE
REGISTRAR OF COMPANIES
AUG 24 1993
------------------------------------
/s/ ILLEGIBLE
------------------------------------ NO. A932257
FOR REGISTRAR OF COMPANIES VANCOUVER REGISTRY
FOR THE PROVINCE OF BRITISH COLUMBIA
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF THE COMPANY ACT, R.S.B.C. 1979
CHAPTER 59 AND AMENDMENTS THERETO
[SEAL]
RE: GLOBAL ELECTION SYSTEMS INC.
O R D E R
[SEAL]
BEFORE MASTER TOKAREK ) ON TUESDAY THE 22ND
)
) OF JUNE, 1993
UPON THE APPLICATION of the Petitioner, coming on for hearing ex parte
on this day at the Courthouse, in the City of Vancouver, Province of British
Columbia; AND UPON HEARING THOMAS HULLEY, ESQ., Counsel for the Petitioner; AND
UPON READING the Affidavit of Douglas Garrod, sworn the 17th day of June, 1993,
and the Affidavit of Kenneth Scott, sworn the 18th day of June, 1993, and filed
herein;
THIS COURT ORDERS that the Special Resolution of the Petitioner,
Global Election Systems Inc., reducing the said company's capital, passed the
24th day of June, 1992, be and the same is hereby confirmed pursuant to section
257 of the B.C. Company Act.
BY THE COURT
/s/ [ILLEGIBLE]
----------------------------
DEPUTY DISTRICT REGISTRAR
Certified a true copy according to
the records of the Supreme Court
at Vancouver, B.C.
This 06 day of July 1993
/s/ D.M. Smith
- ----------------------------------
Authorized Signing Officer
[STAMP]
<PAGE> 3
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
Certificate of
Incorporation No. 415821
COMPANY ACT
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned Company on
the date stated:
Name of Company: GLOBAL ELECTION SYSTEMS INC.
Date resolution passed: JUNE 24, 1992
Resolution:
RESOLVED, as a Special Resolution, THAT the capital of the Company be and it is
hereby reduced in the amount of $11,240,260 by way of a write-down of the
Company's deficit pursuant to Section 257(1) of the B.C. Company Act.
Certified a true copy of the 23rd day of August, 1993.
(Signature) /s/ [ILLEGIBLE]
--------------------------
(Relationship to Company) Solicitor
<PAGE> 4
I HEREBY CERTIFY THAT THIS IS A COPY
OF A DOCUMENT FILED WITH THE
REGISTRAR OF COMPANIES
JULY 12, 1993
/s/ [ILLEGIBLE]
____________________________________
FOR REGISTRAR OF COMPANIES
FOR THE PROVINCE OF BRITISH COLUMBIA
FORM 21
(Section 371)
PROVINCE OF BRITISH COLUMBIA
Certificate of
Amalgamation No. 415821
COMPANY ACT
SPECIAL RESOLUTION
The following special resolution was passed by the under-mentioned Company on
the date stated:
Name of Company: GLOBAL ELECTION SYSTEMS INC.
Date resolution passed: JUNE 23, 1993
Resolution:
RESOLVED, as a Special Resolution, THAT:
UPON MOTION, IT WAS RESOLVED, as a Special Resolution, THAT:
1. the existing Articles of the Company as filed with the Registrar of
Companies be cancelled and that the form of Articles attached hereto and
marked Schedule "A" be adopted as the Articles of the Company in
substitution for, and to the exclusion of, the existing Articles of the
Company;
2. the authorized capital of the Company be increased from 100,000,000 Common
shares without par value to 120,000,000 shares divided into 100,000,000
Common shares without par value and 20,000,000 Convertible Voting Preferred
shares without par value;
3. there be attached to the 20,000,000 Convertible Voting Preferred shares the
special rights and restrictions set forth in the Articles of the Company as
Part 27;
4. Paragraph 2 of the Memorandum be altered to read as follows:
"2. The authorized capital of the Company consists of 120,000,000 shares
divided into:
(a) 100,000,000 Common shares without par value; and
<PAGE> 5
(b) 20,000,000 Convertible Voting Preferred shares without par value
and having attached thereto the special rights and restrictions
set forth in the Articles of the Company."
The Memorandum as altered is attached.
Certified a true copy the 6th day of July, 1993.
(Signature) /s/ [ILLEGIBLE]
------------------------
(Relationship to Company) Solicitor
<PAGE> 6
COMPANY ACT
GLOBAL ELECTION SYSTEMS INC.
ALTERED MEMORANDUM
(as altered by special resolution
passed June 23, 1993)
1. The name of the Company is Global Election Systems Inc.
2. The authorized capital of the Company consists of 120,000,000 shares
divided into:
(a) 100,000,000 Common shares without par value; and
(b) 20,000,000 Convertible Voting Preferred shares without par value and
having attached thereto the special rights and restrictions set forth
in the Articles of the Company.
<PAGE> 7
SCHEDULE "A"
ARTICLES
- of -
GLOBAL ELECTION SYSTEMS INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part Page
---- ----
<S> <C> <C>
1. Interpretation 1
2. Shares and Share Certificates 2
3. Issue of Shares 4
4. Share Registers 5
5. Transfer of Shares 5
6. Transmission of Shares 7
7. Alteration of Capital 8
8. Purchase and Redemption of Shares 10
9. Borrowing Powers 10
10. General Meetings 12
11. Proceedings at General Meetings 13
12. Votes of Members 16
13. Directors 19
14. Election and Removal of Directors 20
15. Powers and Duties of Directors 22
16. Disclosure of Interest of Directors 22
17. Proceedings of Directors 24
18. Executive and Other Committees 26
19. Officers 27
20. Indemnity and Protection of Directors,
Officers and Employees 28
21. Dividends and Reserve 29
22. Record Dates 31
23. Documents, Records and Financial Statements 32
24. Notices 32
25. Seal 33
26. Prohibitions 34
27. Special Rights and Restrictions attached
to Convertible Voting Preferred Shares 35
</TABLE>
<PAGE> 8
COMPANY ACT
ARTICLES
GLOBAL ELECTION SYSTEMS INC.
PART 1
INTERPRETATION
1.1 In these Articles, unless the context otherwise requires:
(a) "Company Act" means the Company Act of the Province of British Columbia
from time to time in force and all amendments thereto and includes all
regulations and amendments thereto made pursuant to that Act;
(b) "designated security" means a security of the Company that is not a debt
security and that:
(i) carries a voting right in all circumstances or under some
circumstances that have occurred and are continuing, or
(ii) carries a residual right to participate in the earnings of the
Company or, upon the liquidation or winding up of the Company, in its
assets;
(c) "Directors", "Board of Directors" or "Board" means the Directors or, if the
Company has only one Director, the Director of the Company for the time
being;
(d) "month" means calendar month;
(e) "registered address" of a Director means the address of the Director
recorded in the register of directors;
(f) "registered address" of a member means the address of the member recorded
in the register of members;
(g) "registered owner" or "registered holder" when used with respect to a share
in the capital of the Company means the person registered in the register
of members in respect of such share;
(h) "regulations" means the regulations made pursuant to the Company Act;
(i) "seal" means the common seal of the Company, if the Company has one.
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<PAGE> 9
1.2 Expressions referring to writing shall be construed as including
references to printing, lithography, typewriting, photography and other modes of
representing or reproducing words in a visible form.
1.3 Words importing the singular include the plural and vice versa, words
importing male persons include female persons and words importing persons shall
include corporations.
1.4 The meaning of any words or phrases defined in the Company Act shall,
if not inconsistent with the subject or context, bear the same meaning in these
Articles.
1.5 The rules of construction contained in the Interpretation Act shall
apply, mutatis mutandis, to the interpretation of these Articles.
1.6 The provisions contained in Table A in the First Schedule to the
Company Act shall not apply to the Company.
PART 2
SHARES AND SHARE CERTIFICATES
2.1 Every share certificate issued by the Company shall be in such form as
the Directors may approve from time to time and shall contain such statements
as are required by, and shall otherwise comply with, the Company Act.
2.2 Every member is entitled, without charge, to one certificate
representing the share or shares of each class held by him except that, in
respect of a share or shares held jointly by several members, the Company shall
not be bound to issue more than one certificate, and delivery of a certificate
for a share to one of several joint registered holders or to his duly
authorized agent shall be sufficient delivery to all. The Company shall not be
bound to issue certificates representing redeemable shares if such shares are to
be redeemed within one month of the date on which they were allotted.
2.3 Any share certificate may be sent by registered mail to the member
entitled thereto, and neither the Company nor any transfer agent shall be
liable for any loss occasioned to the member resulting from the loss or theft
of any such share certificate so sent.
2.4 If a share certificate:
(a) is worn or defaced, the Directors may, upon production to the Company
of the certificate and upon such other terms, if any, as they may think
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<PAGE> 10
fit, order the certificate to be cancelled and issue a new
certificate in lieu thereof;
(b) is lost, stolen, or destroyed, the Directors may, upon proof thereof
to their satisfaction and upon such indemnity, if any, being given as
they consider adequate, issue a new share certificate in lieu thereof
to the person entitled to such lost, stolen or destroyed certificate;
or
(c) represents more than one share and the registered owner thereof
surrenders it to the Company with a written request that the Company
issue in his name two or more certificates each representing a
specified number of shares and in the aggregate representing the same
number of shares as the certificate so surrendered, the Directors
shall cancel the certificate so surrendered and issue in lieu thereof
certificates in accordance with such request.
2.5 If a member owns shares of a class or series represented by more than
one share certificate and surrenders the certificates to the Company with a
written request that the Company issue in his name one certificate representing
in the aggregate the same number of shares as the certificates so surrendered,
the Directors shall cancel the certificates so surrendered and issue in lieu
thereof a certificate in accordance with such request.
2.6 The Directors may from time to time determine the amount of a charge,
not exceeding an amount prescribed by the regulations or the Company Act, to be
imposed for each certificate issued pursuant to Articles 2.4 and 2.5.
2.7 Every share certificate shall be signed manually by at least one
officer or Director of the Company, or by or on behalf of a registrar, branch
registrar, transfer agent or branch transfer agent of the Company and any
additional signatures may be printed or otherwise mechanically reproduced and,
in such event, a certificate so signed is as valid as if signed manually,
notwithstanding that any person whose signature is so printed or mechanically
reproduced shall have ceased to hold the office that he is stated on such
certificate to hold at the date of the issue of the certificate.
2.8 Except as required by law, statute or these Articles, no person shall
be recognized by the Company as holding any share upon any trust, and the
Company shall not be bound by or compelled in any way to recognize (even when
having notice thereof) any equitable, contingent future or partial interest in
any share or in any fractional part of a share or (except
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as provided by law, statute or these Articles or as ordered by a court of
competent jurisdiction) any other rights in respect or any share except an
absolute right to the entirety thereof in its registered holder.
Part 3
ISSUE OF SHARES
3.1 Except as provided in the Company Act, the Memorandum of the Company and
these Articles, and subject to any direction to the contrary contained in a
resolution of the members authorizing any increase or alteration of capital,
the shares of the Company shall be under the control of the Directors who may,
subject to the rights of the holders of issued shares of the Company, allot and
issue, or grant options in respect of shares authorized but not issued or
issued and redeemed or purchased, at such times and to such persons, including
Directors, and in such manner and upon such terms and conditions, and at such
price or for such consideration, as the Directors in their absolute discretion
may determine.
3.2 If the Company is, or becomes, a company which is not a reporting company
and the Directors are required by the Company Act before allotting any shares
to offer them pro rata to the members, the Directors shall, before allotting
any shares, comply with the applicable provisions of the Company Act.
3.3 Subject to the provisions of the Company Act, the Company may pay a
commission or allow a discount to any person in consideration of his
subscribing or agreeing to subscribe, whether absolutely or conditionally, for
its shares, or procuring or agreeing to procure subscriptions, whether
absolutely or conditionally, for any such shares, but if the Company is not a
specially limited company, the rate of the commission and discount shall not in
the aggregate exceed 25% of the amount of the subscription price of such shares.
3.4 No share may be issued until it is fully paid and the Company shall have
received the full consideration therefor in cash, property or past services
actually performed for the Company. A document evidencing indebtedness of the
allottee is not property for the purpose of this Article. The value of property
or services for the purpose of this Article shall be the value determined by
the Directors by resolution to be, in all the circumstances of the transaction,
no greater than the fair market value thereof. The full consideration received
for a share issued by way of dividend
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<PAGE> 12
shall be the amount determined by the Directors to be the amount of the
dividend.
PART 4
SHARE REGISTERS
4.1 The Company shall keep or cause to be kept a register of members, a
register of transfers and a register of allotments within British Columbia, all
as required by the Company Act, and may combine one or more of such registers.
If the Company's capital shall consist of more than one class of shares, a
separate register of members, register of transfers and register of allotments
may be kept in respect of each class of shares. The Directors may appoint a
trust company to keep the aforesaid registers or, if there is more than one
class of shares, the Directors may appoint a trust company, which need not be
the same trust company, to keep the registers for each class of shares. The
Directors may also appoint one or more trust companies, including the trust
company which keeps the said registers of its shares or of a class thereof, as
transfer agent for its shares or such class thereof, as the case may be, and the
same or another trust company or companies as registrar for its shares or such
class thereof, as the case may be. The Directors may terminate the appointment
of any such trust company at any time and may appoint another trust company in
its place.
4.2 Unless prohibited by the Company Act, the Company may keep or cause
to be kept within the Province one or more branch registers of members and may,
if the Company is, or becomes, a reporting company, cause to be kept outside the
Province one or more branch register of members.
4.3 The Company shall not at any time close its register of members.
PART 5
TRANSFER OF SHARES
5.1 Subject to the provisions of the Memorandum of the Company and these
Articles and to restrictions on transfer, if any, contained in these Articles,
any member may transfer any of his shares by instrument of transfer executed by
or on behalf of such member and delivered to the Company or its transfer agent.
The instrument of transfer shall be in the form, if any, on the back of the
Company's share certificates or in such other form as the Directors may from
time to time approve. If the Directors so require, each instrument of
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<PAGE> 13
transfer shall be in respect of only one class of shares. Except to the extent
that the Company Act may otherwise provide, the transferor shall be deemed to
remain the holder of the shares until the name of the transferee is entered in
the register of members or a branch register of members in respect thereof.
5.2 The signature of the registered owner of any shares, or of his duly
authorized attorney, upon an authorized instrument of transfer shall constitute
a complete and sufficient authority to the Company, its Directors, officers and
agents to register in the name of the transferee as named in the instrument of
transfer the number of shares specified therein or, if no number is specified,
all the shares of the registered owner represented by share certificates
deposited with the instrument of transfer. If no transferee is named in the
instrument of transfer, the instrument of transfer shall constitute a complete
and sufficient authority to the Company, its Directors, officers and agents to
register, in the name of the person on whose behalf any certificate for the
shares to be transferred is deposited with the Company for the purpose of having
the transfer registered, the number of shares specified in the instrument of
transfer or, if no number is specified, all the shares represented by all share
certificates deposited with the instrument of transfer.
5.3 The Company and its Directors, officers and transfer agent or agents
shall not be bound to enquire into the title of the person named in the form of
transfer as transferee or, if no person is named therein as transferee, of the
person on whose behalf the certificate is deposited with the Company for the
purpose of having the transfer registered, or be liable to any claim by such
registered owner or by any intermediate owner or holder of the certificate or of
any of the shares represented thereby or any interest therein for registering
the transfer, and the transfer, when registered, shall confer upon the person in
whose name the shares have been registered a valid title to such shares.
5.4 Every instrument of transfer shall be executed by the transferor and
left at the registered office of the Company or at the office of its transfer
agent or registrar for registration together with the share certificate for the
shares to be transferred and such other evidence, if any, as the Directors, the
transfer agent or registrar may require to prove the title of the transferor or
his right to transfer the shares and the right of the transferee to have the
transfer registered. All instruments of transfer where the transfer is
registered shall be retained by the Company or its transfer agent or registrar
and any instrument of transfer, where the transfer is not registered, shall be
returned to the person depositing the same together with the share
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<PAGE> 14
certificate which accompanied the same when tendered for registration.
5.5 There shall be paid to the Company in respect of the registration of
any transfer such sum, if any, as the Directors may from time to time determine.
PART 6
TRANSMISSION OF SHARES
6.1 In the case of the death of a member, the survivor or survivors where
the deceased was a joint registered holder of shares, and the legal personal
representative of the deceased member where he was the sole holder, shall be the
only persons recognized by the Company as having any title to his interest in
the shares. Before recognizing any legal personal representative the Directors
may require him to produce a certified copy of a grant of probate or letters of
administration, or grant of representation, will, order or other instrument or
other evidence of the death under which title to the shares is claimed to vest,
and such other documents as the Company Act requires.
6.2 Upon the death or bankruptcy of a member, his personal representative
or trustee in bankruptcy, as the case may be, although not a member, shall have
the same rights, privileges and obligations that attach to the shares formerly
held by the deceased or bankrupt member if the documents required by the Company
Act shall have been deposited at the Company's registered office.
6.3 Any person becoming entitled to a share in consequence of the death or
bankruptcy of a member shall, upon such documents and evidence being produced to
the Company as the Company Act requires, or who becomes entitled to a share as a
result of an order of a Court of competent jurisdiction or a statute, have the
right either to be registered as a member in his representative capacity in
respect of such share or, if he is a personal representative or trustee in
bankruptcy, instead of being registered himself, to make such transfer of the
share as the deceased or bankrupt person could have made; but the Directors
shall, as regards a transfer by a personal representative or trustee in
bankruptcy, have the same right, if any, to decline or suspend registration of a
transferee as they would have in the case of a transfer of a share by the
deceased or bankrupt person before the death or bankruptcy.
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<PAGE> 15
PART 7
ALTERATION OF CAPITAL
7.1 The Company may by ordinary resolution amend its Memorandum to
increase its authorized capital by:
(a) creating shares with par value or shares without par value, or both;
(b) increasing the number of shares with par value or shares without par
value, or both; or
(c) increasing the par value of a class of shares with par value, if no
shares of that class are issued.
7.2 The Company may by special resolution alter its Memorandum to:
(a) subdivide all or any of its unissued or fully paid issued shares with
par value into shares with smaller par value;
(b) subdivide all or any of its unissued or fully paid issued shares
without par value so that the number of those shares is increased;
(c) consolidate all or any of its shares with par value into shares of
larger par value;
(d) consolidate all or any of its shares without par value so that the
number of those shares authorized is reduced;
(e) change all or any of its unissued or fully paid issued shares with par
value into shares without par value;
(f) change all or any of its unissued shares without par value into
shares with par value;
(g) alter the name or designation of all or any of its issued or unissued
shares; or
(h) alter the provisions as to the maximum price or consideration at or
for which shares without par value may be issued,
but only to such extent, in such manner and with such consents of members
holding shares of a class or series which are the subject of or are affected by
such alteration as the Company Act provides.
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<PAGE> 16
7.3 The Company may alter its Memorandum or these Articles:
(a) by special resolution, to create, define and attach special rights or
restrictions to any shares, whether issued or unissued, and
(b) by special resolution and by otherwise complying with any applicable
provision of its Memorandum or these Articles, to vary or abrogate any
special rights or restrictions attached to any shares, whether issued
or unissued,
and in each case by filing a certified copy of such resolution with the
Registrar but no right or special right attached to any issued shares shall be
prejudiced or interfered with unless all members holding shares of each class
or series whose right or special right is so prejudiced or interfered
with consent thereto in writing, or unless a separate resolution is consented
thereto by the members holding shares of each such class or series passed by
a majority of 3/4 of the votes cast, or such greater majority as may be
specified by the special rights attached to the class or series, of the issued
shares of such class or series.
7.4 Notwithstanding such consent in writing or such separate resolution,
no such alteration shall be valid as to any part of the issued shares of any
class or series unless the holders of the rest of the issued shares of such
class or series either all consent thereto in writing or consent thereto by a
separate resolution passed by a majority of 3/4 of the votes cast.
7.5 If the Company is, or becomes, a reporting company, no resolution to
create, vary or abrogate any special right of conversion or exchange attaching
to any shares shall be submitted to any general meeting, class meeting or
series meeting of members unless, if so required by the Company Act, the
Superintendent of Brokers, the British Columbia Securities Commission, or other
applicable regulatory authority, as the case may be, has first consented to the
resolution.
7.6 Unless these Articles otherwise provide, the provisions of these
Articles relating to general meetings shall apply, with the necessary changes
and so far as they are applicable, to a class meeting or series meeting but the
quorum at a class meeting or series meeting shall be one person holding or
representing by proxy one-third of the shares affected.
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<PAGE> 17
PART 8
PURCHASE AND REDEMPTION
OF SHARES
8.1 Subject to the special rights and restrictions attached to any shares, the
Company may, by a resolution of the Directors and in compliance with the Company
Act, purchase any of its shares at the price and upon the terms specified in
such resolution or redeem any shares that have a right of redemption attached to
them in accordance with the special rights and restrictions attaching thereto.
No such purchase or redemption shall be made if the Company is insolvent at the
time of the proposed purchase or redemption or if the proposed purchase or
redemption would render the Company insolvent.
8.2 Unless shares are to be purchased by the Company through a stock exchange
or the Company is purchasing the shares from a dissenting member pursuant to
the requirements of the Company Act or the Company is purchasing the shares
from a bona fide employee or bona fide former employee of the Company or of an
affiliate of the Company, the Company shall make its offer to purchase pro rata
to every member who holds shares of the class or series to be purchased.
8.3 If the Company proposes at its option to redeem some but not all of the
shares of a particular class or series, the Directors may, subject to the
special rights and restrictions attached to the shares of such class or series,
decide the manner in which the shares to be redeemed shall be selected.
8.4 Subject to the provisions of the Company Act, the Company may reissue a
cancelled share that it has redeemed or purchased, or sell a share that it has
redeemed or purchased but not cancelled, but the Company may not vote or pay or
make any dividend or other distribution in respect of a share that it has
redeemed or purchased.
PART 9
BORROWING POWERS
9.1 The Directors may from time to time in their discretion authorize the
Company to:
(a) borrow money in such amount, in such manner, on such security, from
such sources and upon such terms and conditions as they think fit;
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(b) guarantee the repayment of money borrowed by any person or the
performance of any obligation of any person;
(c) issue bonds, debentures, notes and other debt obligations either
outright or as continuing security for any indebtedness or
liability, direct or indirect, or obligations of the Company or
of any other person; and
(d) mortgage, charge (whether by way of specific or floating charge)
or give other security on the undertaking or on the whole or any
part of the property and assets of the Company, both present and
future.
9.2 Any bonds, debentures, notes or other debt obligations of the Company may
be issued at a discount, premium or otherwise and with any special privileges as
to redemption, surrender, drawing, allotment of or conversion into or exchange
for shares or other securities, attending and voting at general meetings of the
Company, appointment of Directors or otherwise and may by their terms be
assignable free from any equities between the Company and the person to whom
they were issued or any subsequent holder thereof, all as the Directors may
determine.
9.3 The Company shall keep or cause to be kept within the Province of British
Columbia in accordance with the Company Act a register of its debentures and a
register of debentureholders, which registers may be combined, and, subject to
the provisions of the Company Act, may keep or cause to be kept one or more
branch registers of its debentureholders at such place or places as the
Directors may from time to time determine and the Directors may by resolution,
regulation or otherwise make such provisions as they think fit respecting the
keeping of such branch registers.
9.4 Every bond, debenture, note or other debt obligation of the Company shall
be signed manually by at least one Director or officer of the Company or by or
on behalf of a trustee, registrar, branch registrar, transfer agent or branch
transfer agent for the bond, debenture, note or other debt obligation appointed
by the Company or under any instrument under which the bond, debenture, note or
other debt obligation is issued and any additional signatures may be printed or
otherwise mechanically reproduced thereon and, in such event, a bond,
debenture, note or other debt obligation so signed is as valid as if signed
manually notwithstanding that any person whose signature is so printed or
mechanically reproduced shall have ceased to hold the office that he is
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stated on such bond, debenture, note or other debt obligation to hold at the
date of the issue thereof.
9.5 If the Company is, or becomes, a reporting company, it shall keep or
cause to be kept a register of its indebtedness to every Director or officer of
the Company or an associate of any of them in accordance with the provisions of
the Company Act.
PART 10
GENERAL MEETINGS
10.1 Subject to any extensions of time permitted under the Company Act, the
first annual general meeting of the Company shall be held within 15 months from
the date of incorporation and thereafter an annual general meeting shall be held
once in every calendar year at such time (not being more than 13 months after
the date that the last annual general meeting was held or was deemed to have
been held) and place as may be determined by the Directors.
10.2 If the Company is, or becomes, a company which is not a reporting
company and all the members entitled to attend and vote at an annual general
meeting consent in writing to the business required to be transacted at such
meeting, the meeting shall be deemed to have been held on the date specified in
the consent or in the resolutions consented to in writing dealing with such
business and the meeting need not be held.
10.3 The Directors may, whenever they think fit, convene a general
meeting. A general meeting, if requisitioned in accordance with the Company Act,
shall be convened by the Directors or, if not convened by the Directors, may be
convened by the requisitions as provided in the Company Act.
10.4 If the Company is, or becomes, a reporting company, advance notice of
any general meeting at which Directors are to be elected shall be published in
the manner required by the Company Act.
10.5 A notice convening a general meeting, specifying the place, date and
hour of the meeting and, in case of special business, the general nature of that
business, shall be given as provided in the Company Act and in the manner
provided in these Articles, or in such other manner (if any) as may be
prescribed by ordinary resolution, whether previous notice thereof has been
given or not, to such persons as are entitled by law or pursuant to these
Articles to receive such
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notice from the Company. Accidental omission to give notice of a meeting to, or
the non-receipt of notice of a meeting, by any member shall not invalidate the
proceedings at that meeting.
10.6 All the members of the Company entitled to attend and vote at a
general meeting may, by unanimous consent in writing given before, during or
after the meeting, or if they are present at the meeting by a unanimous vote,
waive or reduce the period of notice of such meeting and an entry in the minute
book of such waiver or reduction shall be sufficient evidence of the due
convening of the meeting.
10.7 Except as otherwise provided by the Company Act, where any special
business at a general meeting includes considering, approving, ratifying,
adopting or authorizing any document or the execution thereof or the giving of
effect thereto, the notice convening the meeting shall, with respect to such
document, be sufficient if it states that a copy of the document or proposed
document is or will be available for inspection by members at the registered
office or records office of the Company or at some other place in British
Columbia designated in the notice during usual business hours up to the date of
such general meeting.
PART 11
PROCEEDINGS AT GENERAL MEETINGS
11.1 All business shall be deemed special business which is transacted at:
(a) an annual general meeting, with the exception of the conduct of and
voting at such meeting, consideration of the financial statements and
the respective reports of the Directors and the auditor, fixing or
changing the number of directors, the election of Directors, the
appointment of an auditor, fixing of the remuneration of the auditor
and such other business as by these Articles or the Company Act may be
transacted at a general meeting without prior notice thereof being
given to the members or any business which is brought under
consideration by the report of the Directors; and
(b) any other general meeting, with the exception of the conduct of and
voting at such meeting.
11.2 No business, other than election of the chairman or the adjournment
or termination of the meeting, shall be conducted at any general meeting unless
the required quorum
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of members, entitled to attend and vote, is present at the commencement of the
meeting, but a quorum need not be present throughout the meeting.
11.3 Except as provided in the Company Act and these Articles a quorum
shall be two persons present and being, or representing by proxy, members
holding not less than 10% of the shares entitled to be voted at the meeting. If
there is only one member the quorum is one person present and being, or
representing by proxy, such member. The Directors, the senior officers of the
Company, the solicitor of the Company and the auditor of the Company, if any,
shall be entitled to attend at any general meeting but no such person shall be
counted in the quorum or be entitled to vote at any general meeting unless he
shall be a member or proxyholder entitled to vote at such meeting.
11.4 If within half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if convened upon the requisition of members,
shall be terminated. In any other case the meeting shall stand adjourned to the
same day in the next week, at the same time and place, and, if at the adjourned
meeting a quorum is not present within half an hour from the time appointed for
the meeting, the person or persons present and being, or representing by proxy,
a member or members entitled to attend and vote at the meeting shall be a
quorum.
11.5 The Chairman of the Board or in his absence, or if there is no
Chairman of the Board, the President or in his absence a Vice-President, if
any, shall be entitled to preside as chairman at every general meeting of the
Company.
11.6 If at any general meeting neither the Chairman of the Board nor the
President nor a Vice-President is present within 15 minutes after the time
appointed for holding the meeting or if any of them is present and none of them
is willing to act as chairman, the Directors present shall choose one of their
number to be chairman, or if all the Directors present decline to take the
chair or shall fail to so choose or if no Director is present, the members
present shall choose one of their number or any other person to be chairman.
11.7 The chairman of a general meeting may, with the consent of the
meeting if a quorum is present, and shall, if so directed by the meeting,
adjourn the meeting from time to time and from place to place, but no business
shall be transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place. When a meeting
is adjourned for 30 days or more, notice, but not "advance notice", of the
adjourned meeting
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<PAGE> 22
shall be given as in the case of the original meeting. Save as aforesaid, it
shall not be necessary to give any notice of an adjourned meeting or of the
business to be transacted at an adjourned meeting.
11.8 No motion proposed at a general meeting need be seconded and the
chairman may propose or second a motion.
11.9 Subject to the provisions of the Company Act, every motion or
question submitted to a general meeting shall be decided on a show of hands,
unless (before or on the declaration of the result of the show of hands) a poll
is directed by the chairman or demanded by at least on member entitled to vote
who is present in person or by proxy. The chairman shall declare to the meeting
the decision on every motion or question in accordance with the result of the
show of hands or the poll, and such decision shall be entered in the record of
proceedings of the Company. A declaration by the chairman that a motion or
question has been carried, or carried unanimously, or by a particular majority,
or lost, or not carried by a particular majority and an entry to that effect in
the record of the proceedings of the Company shall be conclusive evidence of
the fact without proof of the number or proportion of the votes recorded in
favour of or against that motion or question.
11.10 The chairman of the meeting shall be entitled to vote any shares
carrying the right to vote held by him but in the case of an equality of votes,
whether on a show of hands or on a poll, the chairman shall not have a second
or casting vote in addition to the vote or votes to which he may be entitled as
a member.
11.11 No poll may be demanded on the election of a chairman. A poll
demanded on a question of adjournment shall be taken forthwith. A poll demanded
on any other question shall be taken as soon as, in the opinion of the
chairman, is reasonably convenient, but in no event later than 7 days after the
meeting and at such time and place and in such manner as the chairman of the
meeting directs. The result of the poll shall be deemed to be the resolution of
and passed at the meeting at which the poll was demanded. Any business other
than that upon which the poll has been demanded may be proceeded with pending
the taking of the poll. A demand for a poll may be withdrawn. In any dispute as
to the admission or rejection of a vote the decision of the chairman made in
good faith shall be final and conclusive.
11.12 Every ballot cast upon a poll and every proxy appointing a proxyholder
who casts a ballot upon a poll shall be retained by the Secretary for such
period and be subject to such inspection as the Company Act may provide.
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11.13 On a poll a person entitled to cast more than one vote need not, if
he votes, use all his votes or cast all the votes he uses in the same way.
11.14 Unless the Company Act, the Memorandum or these Articles otherwise
provide, any action to be taken by a resolution of the members may be taken by
an ordinary resolution.
PART 12
VOTES OF MEMBERS
12.1 Subject to any voting rights or restrictions attached to any class of
shares and the restrictions as to voting on joint registered holders of shares,
on a show of hands every member who is present in person and entitled to vote at
a general meeting or class meeting shall have one vote and on a poll every
member entitled to vote shall have one vote for each share of which he is the
registered holder and may exercise such vote either in person or by proxyholder.
12.2 Any person who is not registered as a member but is entitled to vote
at a general meeting or class meeting in respect of a share, may vote the share
in the same manner as if he were a member but, unless the Directors have
previously admitted his right to vote at the meeting in respect of the share,
he shall satisfy the Directors of his right to vote the share before the time
for holding the meeting, or adjourned meeting, as the case may be, at which he
proposes to vote.
12.3 Any corporation, not being a subsidiary of the Company, which is a
member of the Company may by resolution of its directors or other governing body
authorize such person as it thinks fit to act as its representative at any
general meeting or class meeting and to speak and vote at any such meeting or to
sign resolutions of members. The person so authorized shall be entitled to
exercise in respect of and at any such meeting the same powers on behalf of the
corporation which he represents as that corporation could exercise if it were an
individual member of the Company personally present, including, without
limitation, the right, unless restricted by such resolution, to appoint a
proxyholder to represent such corporation, and he shall be counted for the
purpose of forming a quorum if present at the meeting. Evidence of the
appointment of any such representative may be sent to the Company by written
instrument, telegram, telex, telecopier or any method of transmitting legibly
recorded messages. Notwithstanding the foregoing, a corporation being a member
may appoint a proxyholder.
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12.4 In the case of joint registered holders of a share the vote of the
senior who exercises a vote, whether in person or by proxyholder, shall be
accepted to the exclusion of the votes of the other joint registered holders;
and for this purpose seniority shall be determined by the order in which the
names stand in the register of members. Several legal personal representatives
of a deceased member whose shares are registered in his sole name shall for the
purpose of this Article be deemed joint registered holders.
12.5 A member of unsound mind entitled to attend and vote, in respect of
whom an order has been made by any court having jurisdiction, may vote, whether
on a show of hands or on a poll, by his committee, curator bonis, or other
person in the nature of a committee or curator bonis appointed by that court,
and any such committee, curator bonis or other person may appoint a proxyholder.
12.6 A member holding more than one share in respect of which he is
entitled to vote shall be entitled to appoint one or more proxyholders to
attend, act and vote for him on the same occasion. If such a member should
appoint more than one proxyholder for the same occasion he shall specify the
number of shares each proxyholder shall be entitled to vote. A member may also
appoint one or more alternate proxyholders to act in the place and stead of an
absent proxyholder.
12.7 A form of proxy shall be in writing under the hand of the appointor
or of his attorney duly authorized in writing, or, if the appointor is a
corporation, either under the seal of the corporation or under the hand of a
duly authorized officer or attorney.
12.8 Any person may act as proxyholder whether or not he is a member. The
proxy may authorize the proxyholder to act as such for the appointer for such
period, at such meeting or meetings and to the extent permitted by the Company
Act.
12.9 A form of proxy and the power of attorney or other authority, if any,
under which it is signed or a notarially certified copy thereof shall be
deposited at the registered office of the Company or at such other place as
is specified for that purpose in the notice calling the meeting, or shall be
deposited with the chairman of the meeting. In addition to any other method of
depositing proxies provided for in these Articles, the Directors may from time
to time by resolution make regulations relating to the depositing of proxies at
any place or places and providing for particulars of such proxies to be sent to
the Company or any agent of the Company in writing or by letter, telegram,
telex, telecopier or any method of transmitting legibly recorded messages so as
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to arrive before the commencement of the meeting or adjourned meeting at the
registered office of the Company or at the office of any agent of the Company
appointed for the purpose of receiving such particulars and also providing that
proxies so deposited may be acted upon as though the proxies themselves were
deposited as required by this Part, and votes given in accordance with such
regulations shall be valid and shall be counted.
12.10 Unless the Company Act or any other statute or law which is
applicable to the Company or to any class or series of its shares requires any
other form of proxy, a proxy, whether for a specified meeting or otherwise,
shall be in the following form, or in such other form that the Directors or the
chairman of the meeting shall approve:
(Name of Company)
The undersigned, being a member of the above Company, hereby appoints
___________________________________________ or failing him _______________
____________________________ as proxyholder for the undersigned to attend,
act and vote for and on behalf of the undersigned at the general meeting of
the Company to be held on the ____ day of _________________, 19___ and at
any adjournment thereof.
Signed this ____ day of _________________, 19___.
________________________________________
(Signature of member)
12.11 A vote is given in accordance with the terms of a proxy is valid
notwithstanding the previous death or incapacity of the member giving the proxy
or revocation of the proxy or of the authority under which the proxy was
executed or transfer of the share or shares in respect of which the proxy is
given unless notification in writing of such death, incapacity, revocation or
transfer shall have been received at the registered office of the Company or by
the chairman of the meeting or adjourned meeting for which the proxy is given
before the vote is taken.
12.12 Every proxy may be revoked by an instrument in writing:
(a) executed by the member giving the same or by his attorney authorized
in writing or, where the member is a corporation, by a duly authorized officer
or attorney of the corporation; and
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(b) delivered either at the registered office of the Company at any time
up to and including the last business day preceding the day of the
meeting or adjourned meeting for which the proxy is given, or to the
chairman of the meeting on the day of the meeting or any adjournment
thereof before any vote in respect of which the proxy is given shall
have been taken, or in any other manner provided by law.
PART 13
DIRECTORS
13.1 The subscribers to the Memorandum of the Company are the first
Directors. The Directors to succeed the first Directors may be appointed in
writing by all the subscribers or by resolution passed at a meeting of the
subscribers or, if not so appointed, they shall be elected by the members
entitled to vote on the election of Directors and the number of Directors shall
be the same as the number of Directors so appointed or elected. The number of
Directors, excluding additional Directors, may be fixed or changed from time to
time by ordinary resolution, whether previous notice thereof has been given or
not, but notwithstanding anything contained in these Articles the number of
Directors shall never be less than one or, if the Company is, or becomes, a
reporting company, less than three.
13.2 The remuneration of the Directors as such may from time to time be
determined by the Directors or, if the Directors shall so decide, by the
members. Such remuneration may be in addition to any salary or other
remuneration paid to any officer or employee of the Company as such who is also
a Director. The Directors shall be repaid such reasonable travelling,
accommodation and other expenses as they incur in and about the business of the
Company and if any Director shall perform any professional or other services
for the Company that in the opinion of the Directors are outside the ordinary
duties of a Director or shall otherwise be specially occupied in or about the
Company's business, he may be paid a remuneration to be fixed by the Board, or,
at the option of such Director, by the Company in general meeting, and such
remuneration may be either in addition to or in substitution for any other
remuneration that he may be entitled to receive. Unless otherwise determined by
ordinary resolution, the Directors on behalf of the Company may pay a gratuity,
pension or retirement allowance to any Director who has held any office or
appointment with the Company or to his spouse or dependants and may make
contributions to any fund and pay premiums for the purchase or provision of any
such gratuity, pension or allowance.
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13.3 A Director shall not be required to hold a share in the capital of
the Company as qualification for his office but shall be qualified to become or
act as a Director as required by the Company Act.
PART 14
ELECTION AND REMOVAL OF DIRECTORS
14.1 At each annual general meeting of the Company all the Directors shall
retire and the members entitled to vote at the meeting shall elect a Board of
Directors consisting of the number of Directors for the time being fixed
pursuant to these Articles. If the Company is, or becomes, a company that is not
a reporting company and all the members entitled to attend and vote at an annual
general meeting consent in writing to the business required to be transacted at
such meeting, the meeting shall be deemed for the purpose of this Part to have
been held on the date specified in the consent or in the resolutions consented
to in writing dealing with such business.
14.2 A retiring Director shall be eligible for re-election.
14.3 Where the Company fails to hold an annual general meeting or the
members fail to consent to the business required to be transacted at such
meeting, the Directors then in office shall be deemed to have been elected or
appointed as Directors on the last day on which the annual general meeting
could have been held pursuant to these Articles and they may continue to hold
office until other Directors are appointed or elected or until the day on which
the next annual general meeting is held.
14.4 If at any general meeting at which there should be an election of
Directors, the places of any of the retiring Directors are not filled by such
election, such of the retiring Directors who are not re-elected as may be
requested by the newly elected Directors shall, if willing to do so, continue in
office to complete the number of Directors for the time being fixed pursuant to
these Articles until further new Directors are elected at a general meeting
convened for the purpose. If any such election or continuance of Directors does
not result in the election or continuance of the number of Directors for the
time being fixed pursuant to these Articles such number shall be fixed at the
number of Directors actually elected or continued in office.
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14.5 Any casual vacancy occurring in the Board of Directors may be filled
by the remaining Directors or Director.
14.6 The office of a Director shall be vacated if the Director:
(a) resigns his office by notice in writing delivered to the registered
office of the Company; or
(b) ceases to be qualified to act as a Director pursuant to the Company
Act.
14.7 The Company may by special resolution remove any Director before the
expiration of his period of office and may by an ordinary resolution appoint
another person in his stead.
14.8 Notwithstanding anything contained in these Articles, the Company may
at any time by ordinary resolution, increase the number of Directors previously
fixed or determined and may, by ordinary resolution, elect such person or
persons to fill the vacancy or vacancies thereby created.
14.9 Between successive annual general meetings the Directors shall have
power to appoint one or more additional Directors but the number of additional
Directors shall not at any time exceed 1/3 of the number of Directors elected
or appointed at the last annual general meeting of the Company. Any additional
Director so appointed shall hold office only until the next following annual
general meeting of the Company but shall be eligible for election at such
meeting and so long as he is an additional Director the number of Directors
shall be increased accordingly.
14.10 Any Director may by instrument in writing, telegram, telex, telecopier
or any other method of transmitting legibly recorded messages delivered or sent
to the Company appoint any person to be his alternate to act in his place at
meetings of the Directors at which he is not present unless the Directors shall
have disapproved of the appointment of such person as an alternate and shall
have given notice to that effect to the Director appointing the alternate
within a reasonable time after delivery of such instrument to the Company.
Every such alternate shall be entitled to notice of meetings of the Directors
and to attend and vote as a Director at a meeting at which the person
appointing him is not personally present and, if he is a Director, to have a
separate vote on behalf of the Director by whom he was appointed in addition
to his own vote. A Director may at any time by instrument, telegram, telex,
telecopier or any other method of transmitting legibly recorded messages
delivered or sent to the Company revoke the appointment of an alternate
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appointed by him. The remuneration payable to such an alternate shall be
payable out of the remuneration of the Director appointing him.
PART 15
POWERS AND DUTIES OF DIRECTORS
15.1 The Directors shall manage, or supervise the management of, the
affairs and business of the Company and shall have authority to exercise all
such powers of the Company as are not, by the Company Act, the Memorandum of
the Company or these Articles, required to be exercised by the Company in
general meeting.
15.2 The Directors may from time to time by power of attorney or other
instrument under the seal of the Company appoint any person to be the attorney
of the Company for such purposes, and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the Directors
under these Articles and excepting the powers of the Directors relating to the
constitution of the Board and of any of its committees and the appointment or
removal of officers and the power to declare dividends) and for such period,
with such remuneration and subject to such conditions as the Directors may
think fit, and any such appointment may be made in favour of any of the
Directors or any of the members of the Company or in favour of any corporation,
or of any of the members, directors, nominees or managers of any corporation,
firm or joint venture and any such power of attorney may contain such
provisions for the protection or convenience of persons dealing with such
attorney as the Directors think fit. Any such attorney may be authorized by the
Directors to sub-delegate all or any of the powers, authorities and discretions
for the time being vested in him.
PART 16
DISCLOSURE OF INTEREST OF DIRECTIONS
16.1 A Director who is, in any way, directly or indirectly interested in
an existing or proposed contract or transaction with the Company or who holds
any office or possesses any property whereby, directly or indirectly, a duty
or interest might be created to conflict with his duty or interest as a
Director shall declare the nature and extent of his interest in such contract
or transaction or of the conflict or potential conflict with his duty and
interest as a Director, as the case may be, in accordance with the provisions
of the Company Act.
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16.2 A Director shall not vote in respect of any such contract or
transaction with the Company in which he is interested and if he shall do so
his vote shall not be counted, but he shall be counted in the quorum present at
the meeting at which such vote is taken. Subject to the provisions of the
Company Act, the foregoing prohibitions shall not apply to:
(a) any such contract or transaction relating to a loan to the Company,
which a Director or a specified corporation or a specified firm in
which he has an interest has guaranteed or joined in guaranteeing the
repayment of the loan or any part of the loan;
(b) any contract or transaction made or to be made with, or for the
benefit of a holding corporation or a subsidiary corporation of which
a Director is a director;
(c) any contract by a Director to subscribe for or underwrite shares or
debentures to be issued by the Company or a subsidiary of the Company,
or any contract, arrangement or transaction in which a Director is,
directly or indirectly, interested if all the other Directors are
also, directly or indirectly interested in the contract, arrangement
or transaction;
(d) determining the remuneration of the Directors;
(e) purchasing and maintaining insurance to cover Directors against
liability incurred by them as Directors; or
(f) the indemnification of any Director or officer by the Company.
The foregoing exceptions may from time to time be suspended or amended to any
extent approved by the Company in general meeting and permitted by the Company
Act, either generally or in respect of any particular contract or transaction
or for any particular period.
16.3 A Director may hold any office or appointment with the Company
(except as auditor of the Company) in conjunction with his office of Director
for such period and on such terms (as to remuneration or otherwise) as the
Directors may determine and no Director or intended Director shall be
disqualified by his office from contracting with the Company either with regard
to his tenure of any such other office or appointment or as vendor, purchaser
or otherwise and, subject
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to compliance with the provisions of the Company Act, no contract or
transaction entered into by or on behalf of the Company in which a Director is
in any way interested shall be liable to be voided by reasons thereof.
16.4 Subject to compliance with the provisions of the Company Act, a
Director or his firm may act in a profession capacity for the Company (except
as auditor of the Company) and he or his firm shall be entitled to remuneration
for professional services as if he were not a Director.
16.5 A Director may be or become a director or officer or employee of, or
otherwise interested in, any corporation or firm in which the Company may be
interested as a member or otherwise, and, subject to compliance with the
provisions of the Company Act, such Director shall not be accountable to the
Company for any remuneration or other benefits received by his as director,
officer or employee of, or from his interest in, such other corporation or
firm, unless the Company in general meeting otherwise directs.
PART 17
PROCEEDINGS OF DIRECTORS
17.1 The Chairman of the Board or, in his absence or if there is no
Chairman of the Board, the President shall preside as chairman at every meeting
of the Directors.
17.2 If at any meeting of Directors neither the Chairman of the Board nor
the President is present within 15 minutes after the time appointed for holding
the meeting or if either of them is present but is not willing to act as
chairman or if the Chairman of the Board, if any, and the President have advised
the Secretary that they will not be present at the meeting, the Directors
present shall choose one of their number to be chairman of the meeting.
17.3 The Directors may meet together for the dispatch of business, adjourn
and otherwise regulate their meetings as they think fit. Questions arising at
any meeting shall be decided by a majority of votes. In case of an equality of
votes the chairman shall not have a second or casting vote.
17.4 A Director may participate in a meeting of the Board or of any
committee of Directors by means of telephone or other communications facility
by means of which all Directors participating in the meeting can hear each
other and provided that all such Directors agree to such participation. A
meeting so held in accordance with this Article shall be deemed to be an actual
meeting of the Board
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and any resolution passed at such meeting shall be as valid and effectual as if
it had been passed at a meeting where the Directors are physically present. A
Director participating in a meeting in accordance with this Article shall be
deemed to be present at the meeting and to have so agreed and shall be counted
in the quorum therefor and be entitled to speak and vote at the meeting.
17.5 A Director may at any time, and the Secretary or an Assistant
Secretary upon request of a Director shall, call a meeting of the Board.
17.6 Notice of a meeting of the Board shall be given to each Director and
alternate Director at least 48 hours before the time fixed for the meeting and
may be given orally, personally or by telephone, or in writing, personally or by
delivery through the post or by letter, telegram, telex, telecopier or any other
method of transmitting legibly recorded messages in common use. When written
notice of a meeting is given to a Director, it shall be addressed to him at his
registered address. Where the Board has established a fixed time and place for
the holding of its meetings, no notices of meetings to be held at such fixed
time and place need be given to any Director. A Director entitled to notice of a
meeting may waive or reduce the period of notice convening the meeting and may
give such waiver before, during or after the meeting.
17.7 For the first meeting of the Board to be held immediately following
the election of a Director at an annual general meeting of the Company or for
a meeting of the Board at which a Director is appointed to fill a vacancy on
the Board, no notice of such meeting shall be necessary to such newly appointed
or elected Director in order for the meeting to be properly constituted.
17.8 Any Director who may be absent temporarily from the Province may file
at the registered office of the Company a waiver of notice, which may be by
letter, telegram, telex, telecopier or any other method of transmitting legibly
recorded messages, of meetings of the Directors and may at any time withdraw
the waiver, and until the waiver is withdrawn, no notice of meetings of
Directors shall be sent to that Director, and any and all meetings of
Directors, notice of which has not been given to that Director shall, provided
a quorum of the Directors is present, be valid and effective.
17.9 The quorum necessary for the transaction of the business of the
Directors may be fixed by the Directors and if not so fixed shall be a majority
of the Directors or, if the number of Directors is fixed at one, shall be one
Director.
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17.10 The continuing Directors may act notwithstanding any vacancy in their
body but, notwithstanding Article 17.9, if and so long as their number is
reduced below the number fixed pursuant to these Articles as the necessary
quorum of Directors, the continuing Directors may act for the purpose of
increasing the number of Directors to that number or of summoning a general
meeting of the Company, but for no other purpose.
17.11 Subject to the provisions of the Company Act, all acts done by any
meeting of the Directors or of a committee of Directors, or by any person
acting as a Director, shall, notwithstanding that it be afterwards discovered
that there was some defect in the qualification, election or appointment of
any such Directors or of the members of such committee or person acting as
aforesaid, or that they or any of them were disqualified, be as valid as if
every such person had been duly elected or appointed and was qualified to be a
Director.
17.12 A resolution consented to in writing, whether by document, telegram,
telex, telecopier or any method of transmitting legibly recorded messages or
other means, by all of the Directors for the time being in office without
their meeting together shall be as valid and effectual as if it had been
passed at a meeting of the Directors duly called and held, shall be deemed to
relate back to any date stated therein to be the effective date thereof
and shall be filed in the minute book of the Company accordingly. Any such
resolution may consist of one or several documents each duly signed by one or
more Directors which together shall be deemed to constitute one resolution in
writing.
PART 18
EXECUTIVE AND OTHER COMMITTEES
18.1 The Directors may by resolution appoint an Executive Committee
consisting of such member or members of the Board as they think fit, which
Committee shall have, and may exercise during the intervals between the meetings
of the Board, all the powers vested in the Board except the power to fill
vacancies in the Board, the power to change the membership of or fill vacancies
in said Committee or any other committee of the Board and such other powers, if
any, as may be specified in the resolution. The said Committee shall keep
regular minutes of its transactions and shall cause them to be recorded in books
kept for that purpose, and shall report the same to the Board of Directors at
such times as the Board of Directors may from time to time require. The Board
shall have the power at any time to revoke or override the authority
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given to or acts done by the Executive Committee except as to acts done before
such revocation or overriding and to terminate the appointment or change the
membership of such Committee and to fill vacancies in it.
18.2 The Directors may by resolution appoint one or more other committees
consisting of such member or members of the Board as they think fit and may
delegate to any such committee between meetings of the Board such powers of the
Board (except the power to fill vacancies in the Board, the power to change the
membership of or fill vacancies in any committee of the Board, the power to
appoint or remove officers appointed by the Board and such other powers as may
be specified in the resolution) subject to such conditions as may be prescribed
in such resolution, and all committees so appointed shall keep regular minutes
of their transactions and shall cause them to be recorded in books kept for that
purpose, and shall report the same to the Board of Directors at such times as
the Board of Directors may from time to time require. The Directors shall also
have power at any time to revoke or override any authority given to or acts to
be done by any such committee except as to acts done before such revocation or
overriding and to terminate the appointment or change the membership of a
committee and to fill vacancies in it.
18.3 Committees appointed under this Part may make rules for the conduct of
their business and may appoint such assistants as they may deem necessary. A
majority of the members of a committee shall constitute a quorum thereof.
18.4 Committees appointed under this Part may meet and adjourn as they
think proper. Questions arising at any meeting of a committee shall be
determined by a majority of votes of the members of the committee present, and
in case of an equality of votes the chairman shall not have a second or casting
vote. The provisions of Article 17.12 shall apply mutatis mutandis to
resolutions consented to in writing by the members of a committee appointed
under this Part.
PART 19
OFFICERS
19.1 The Directors shall from time to time appoint a President and a
Secretary and such other officers, if any, as the Directors shall determine and
the Directors may at any time terminate any such appointment. No officer shall
be appointed unless he is qualified in accordance with the provisions of the
Company Act.
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19.2 One person may hold more than one of such offices except that the
offices of President and Secretary shall be held by different persons unless
the Company has only one member. Any person appointed as the Chairman of the
Board, President or Managing Director shall be a Director. The other officers
need not be Directors.
19.3 The remuneration of the officers of the Company as such and the terms
and conditions of their tenure of office or employment shall from time to time
be determined by the Directors. Such remuneration may be by way of salary,
fees, wages, commission or participation in profits or any other means or all
of these modes and an officer may in addition to such remuneration be entitled
to receive after he ceases to hold such office or leaves the employment of the
Company a gratuity, pension or retirement allowance.
19.4 The Directors may decide what functions and duties each officer shall
perform and may entrust to and confer upon him any of the powers exercisable by
them upon such terms and conditions and with such restrictions as they think
fit and may from time to time revoke, withdraw, alter or vary all or any of
such functions, duties and powers. The Secretary shall, inter alia, perform the
functions of the secretary specified in the Company Act.
19.5 Every officer of the Company who holds any office or possesses any
property whereby, whether directly or indirectly, duties or interests might be
created in conflict with his duties or interests as an officer of the Company
shall, in writing, disclose to the President the fact and the nature,
character and extent of the conflict.
PART 20
INDEMNITY AND PROTECTION OF
DIRECTORS, OFFICERS AND EMPLOYEES
20.1 Subject to the provisions of the Company Act, the Directors may, with
the approval of the Court, cause the Company to indemnify a Director or former
Director of the Company or a director or former director of a corporation of
which the Company is or was a member, and the heirs and personal
representatives of any such person, against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, actually
and reasonably incurred by him, including an amount paid to settle an action
or satisfy a judgment in a civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
Director of the Company or a director of such corporation, including any action
or proceeding
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brought by the Company or any such corporation. Each Director of the Company on
being elected or appointed shall be deemed to have contracted with the Company
on the terms of the foregoing indemnity.
20.2 Subject to the provisions of the Company Act, the Directors may cause
the Company to indemnify any officer, employee or agent of the Company or of a
corporation of which the Company is or was a member (notwithstanding that he is
also a Director) and his heirs and personal representatives against all costs,
charges and expenses whatsoever incurred by him and resulting from his acting
as an officer, employee or agent of the Company or such corporation. In
addition the Company shall indemnify the Secretary or an Assistant Secretary of
the Company (if he shall not be a full time employee of the Company and
notwithstanding that he is also a Director) and his heirs and personal
representatives against all costs, charges and expenses whatsoever incurred
by him and arising out of the functions assigned to the Secretary by the
Company Act or these Articles. Each such Secretary and Assistant Secretary on
being appointed shall be deemed to have contracted with the Company on the
terms of the foregoing indemnity.
20.3 For the purposes of Article 20.1, a civil, criminal or administrative
action or proceeding shall include a civil, criminal, administrative or other
investigation or enquiry the subject of which concerns the acts or conduct of
the Director or former Director of the Company while a Director of the Company.
20.4 The failure of a Director or officer of the Company to comply with
the provisions of the Company Act, the Memorandum of the Company or these
Articles shall not invalidate any indemnity to which he is entitled under this
Part.
20.5 The Directors may cause the Company to purchase and maintain
insurance for the benefit of any person who is or was serving as a Director,
officer, employee or agent of the Company or as a director, officer, employee
or agent of any corporation of which the Company is or was a member and his
heirs or personal representatives against any liability incurred by him as such
Director, director, officer, employee or agent.
PART 21
DIVIDENDS AND RESERVE
21.1 The Directors may from time to time declare and authorize payment of
such dividends, if any, as they may deem
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advisable and need not give notice of such declaration to any member. No
dividend shall be paid otherwise than out of funds or assets properly available
for the payment of dividends and a declaration by the Directors as to the amount
of such funds or assets available for dividends shall be conclusive. The Company
may pay any such dividend wholly or in part by the distribution of specific
assets and in particular by paid up shares, bonds, debentures or other
securities of the Company or any other corporation or in any one or more such
ways as may be authorized by the Company or the Directors and where any
difficulty arises with regard to such a distribution the Directors may settle
the same as they think expedient, and in particular may fix the value for
distribution of such specific assets or any part thereof, and may determine that
cash payments in substitution for all or any part of the specific assets to
which any members are entitled shall be made to any members on the basis of the
value so fixed in order to adjust the rights of all parties and may vest any
such specific assets in trustees for the persons entitled to the dividend as may
seem expedient to the Directors.
21.2 Any dividend declared on shares of any class may be made payable on
such date as is fixed by the Directors.
21.3 Subject to the rights of members, if any, holding shares with special
rights as to dividends, all dividends on shares of any class shall be declared
and paid according to the number of such shares held.
21.4 The Directors may, before declaring any dividend, set aside out of
the funds properly available for the payment of dividends such sums as they
think proper as a reserve or reserves, which shall, at the discretion of the
Directors, be applicable for meeting contingencies or for equalizing dividends
or for any other purpose to which such funds of the Company may be properly
applied, and pending such application may, at the like discretion, either be
employed in the business of the Company or be invested in such investments as
the Directors may from time to time think fit. The Directors may also, without
placing the same in reserve, carry forward such funds which they think prudent
not to divide.
21.5 If several persons are registered as joint holders of any share, any
one of them may give an effective receipt for any dividend, interest or other
moneys payable in respect of the share.
21.6 No dividend shall bear interest. Where the dividend to which a member
is entitled includes a fraction of a cent, such fraction shall be disregarded
in making payment thereof and such payment shall be deemed to be payment in
full.
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<PAGE> 38
21.7 Any dividend, interest or other moneys payable in respect of shares
may be paid by cheque or warrant sent by mail directed to the registered
address of the holder, or in the case of joint holders, to the registered
address of that one of the joint holders who is first named on the register, or
to such person and to such address as the holder or joint holders may direct in
writing. Every such cheque or warrant shall be made payable to the order of the
person to whom it is sent. The mailing of such cheque or warrant shall, to the
extent of the sum represented thereby (plus the amount of any tax required by
law to be deducted) discharge all liability for the dividend, unless such
cheque or warrant shall not be paid on presentation or the amount of tax so
deducted shall not be paid to the appropriate taxing authority.
21.8 Notwithstanding anything contained in these Articles the Directors
may from time to time capitalize any undistributed surplus on hand of the
Company and may from time to time issue as fully paid and non-assessable any
unissued shares or any bonds, debentures or other debt obligations of the
Company as a dividend representing such undistributed surplus on hand or any
part thereof.
21.9 A transfer of a share shall not pass the right to any dividend
declared thereon before the registration of the transfer in the register.
PART 22
RECORD DATES
22.1 The Directors may fix in advance a date, which shall not be more than
the maximum number of days permitted by the Company Act preceding the date of
any meeting of members or any class or series thereof or of the payment of any
dividend or of the proposed taking of any other proper action requiring the
determination of members, as the record date for the determination of the
members entitled to notice of, or to attend and vote at, any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend or
for any other proper purpose and, in such case, notwithstanding anything
elsewhere contained in these Articles, only members of record on the date so
fixed shall be deemed to be members for the purposes aforesaid.
22.2 Where no record date is so fixed for the determination of members as
provided in the preceding Article the date on which the notice is mailed or on
which the resolution declaring the dividend is passed, as the case may be,
shall be the record date for such determination.
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<PAGE> 39
PART 23
DOCUMENTS, RECORDS AND FINANCIAL STATEMENTS
23.1 The Company shall keep its records office or at such other place as
the Company Act may permit, the documents, copies, registers, minutes, and
records which the Company is required by the Company Act to keep at its
records office or such other place, as the case may be.
23.2 The Company shall cause to be kept proper books of account and
accounting records in respect of all financial and other transactions of the
Company in order properly to record the financial affairs and condition of the
Company and to comply with the Company Act.
23.3 Unless the Directors determine otherwise or unless otherwise
determined by an ordinary resolution, no member of the Company shall be
entitled to inspect the accounting records of the Company.
23.4 The Directors shall from time to time at the expense of the Company
cause to be prepared and laid before the Company in general meeting such
financial statements and reports as are required by the Company Act.
23.5 Every member shall be entitled to be furnished once gratis on demand
with a copy of the latest annual financial statement of the Company and, if so
required by the Company Act, a copy of each such annual financial statement and
interim financial statement shall be mailed to each member
PART 24
NOTICES
24.1 A notice, statement or report may be given or delivered by the
Company to any member either by delivery to him personally or by sending it by
mail to him to his address as recorded in the register of members. Where a
notice, statement or report is sent by mail, service or delivery of the notice,
statement or report shall be deemed to be effected by properly addressing and
mailing the notice, statement or report and to have been given on the day,
Saturdays, Sundays and holidays excepted, following the date of mailing. A
certificate signed by the Secretary or other officer of the Company or of any
other corporation acting in that behalf for the Company that the letter,
envelope or wrapper containing the notice, statement or report was so addressed
and mailed shall be conclusive evidence thereof.
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<PAGE> 40
24.2 A notice, statement or report may be given or delivered by the
Company to the joint holders of a share by giving or delivering it to the joint
holder first named in the register of members in respect of that share.
24.3 A notice, statement or report may be given or delivered by the
Company to the persons entitled to a share in consequence of the death,
bankruptcy or incapacity of a member by sending it through the mail addressed
to them by name or by the title of representatives of the deceased or
incapacitated person or trustee of the bankrupt, or by any like description, at
the address, if any, supplied to the Company for the purpose by the persons
claiming to be so entitled or, until such address has been so supplied, by
giving it in a manner in which the same might have been given if the death,
bankruptcy or incapacity had not occurred.
24.4 Notice of every general meeting or meeting of members holding shares
of a class or series shall be given in a manner hereinbefore authorized to
every member holding at the time of the issue of the notice or the date fixed
for determining the members entitled to such notice, whichever is the earlier,
shares which confer the right to notice of and to attend and vote at any such
meeting. No other person except the auditor of the Company and the Directors of
the Company shall be entitled to receive notices of any such meeting.
PART 25
SEAL
25.1 The Directors may provide a seal for the Company and, if they do so,
shall provide for the safe custody and use of the seal which shall not be
affixed to any instrument except in the presence of, or attested by the
signatures of, the following persons, namely:
(a) any two Directors, or
(b) any one of the Chairman of the Board, the President, the Managing
Director, a Director and a Vice-President together with any one of the
Secretary, the Treasurer, the Secretary-Treasurer, and Assistant
Secretary, an Assistant Treasurer and an Assistant
Secretary-Treasurer, or
(c) if the Company shall have only one member, the President or the
Secretary, or
- 33 -
<PAGE> 41
(d) such person or persons as the Directors may from time to time by
resolution appoint, and any such resolution may be general in its
nature,
and the said Directors, officers, person or persons in whose presence the seal
is so affixed to an instrument shall sign such instrument. For the purpose of
certifying under seal true copies of any document or resolution the seal may be
affixed in the presence of any one of the foregoing persons.
25.2 To enable the seal of the Company to be affixed to any bonds,
debentures, share certificates, or other securities of the Company, whether in
definitive or interim form, on which facsimiles of any of the signatures of the
Directors or officers of the Company are, in accordance with the Company Act or
these Articles, printed or otherwise mechanically reproduced there may be
delivered to the firm or company employed to engrave, lithograph or print such
definitive or interim bonds, debentures, share certificates or other securities
one or more unmounted dies reproducing the Company's seal and the Chairman of
the Board, the President, the Managing Director or a Vice-President and the
Secretary, Treasurer, Secretary-Treasurer, an Assistant Secretary, an Assistant
Treasurer or an Assistant Secretary-Treasury may by a document authorize such
firm or company to cause the Company's seal to be affixed to such definitive or
interim bonds, debentures, share certificates or other securities by the use of
such dies. Bonds, debentures, share certificates or other securities to which
the Company's seal has been so affixed shall for all purposes be deemed to be
under and to bear the Company's seal lawfully affixed thereto.
25.3 The Company may have for use in any other province, state, territory
or country an official seal which shall have on its face the name of the
province, state, territory or country where it is to be used and all of the
powers conferred by the Company Act with respect thereto may be exercised by
the Directors or by a duly authorized agent of the Company.
PART 26
PROHIBITIONS
26.1 If the Company is, or becomes, a company which is not a reporting
company, the number of person who beneficially own designated securities of the
Company (counting any two or more joint registered owners as one beneficial
owner) shall be limited to 50, excluding persons that:
(a) are employed by the Company or an affiliate of it, or
- 34 -
<PAGE> 42
(b) beneficially owned, directly or indirectly, designated securities of
the Company while employed by it or by an affiliate of it and, at all
times since ceasing to be so employed, have continued to beneficially
own, directly or indirectly, at least one designated security of the
Company.
26.2 If the Company is, or becomes, a company which is not a reporting
company, no designated securities of the Company, and no securities that are
convertible into or exchangeable for designated securities of the Company,
shall be:
(a) offered for sale to the public; or
(b) transferred without the previous consent of the Directors expressed by
a resolution of the Board and the Directors shall not be required to
give any reason for refusing to consent to any such proposed transfer.
PART 27
SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO CONVERTIBLE
VOTING PREFERRED SHARES WITH A PAR VALUE OF $1.00 EACH
27.1 The Preferred shares as a class shall have attached thereto the
special rights and restrictions specified in this Part 27.
27.2 The Preferred shares may be issued at any time and from time to time
in one or more series. The directors may from time to time, by resolution
passed before the issue of any Preferred shares of any particular series, alter
the Memorandum of the Company to fix the number of Preferred shares in, and to
determine the designation of the Preferred shares of, that series and alter the
Memorandum or the Articles to create, define and attach special rights and
restrictions to the Preferred shares of that series relating only to the
conversion of such Preferred shares into common shares of the Company. For
greater certainty, the special rights and restrictions to the Preferred shares
specified in Parts 27.3, 27.4, 27.5 and 27.6 herein shall not in any way be
varied or abrogated by the directors pursuant to this Part 27.2.
27.3 The holders of Preferred shares shall be entitled, on the
distribution of assets of the Company on the liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, or on any other
distribution
- 35 -
<PAGE> 43
of assets of the Company among its members for the purpose of winding up its
affairs, to receive before any distribution shall be made to holders of common
shares without par value or any other shares of the Company ranking junior to
the Preferred shares with respect to repayment of capital, the amount paid up
with respect to each Preferred share held by them. After payment to holders of
Preferred shares of the amounts so payable to them, they shall not be entitled
to share in any further distribution of the property or assets of the Company.
27.4 Holders of the Preferred shares shall be entitled to receive notice
of, and to attend and vote at, any general meeting of members of the Company.
Each Preferred share held shall entitle the holder thereof to one (1) vote in
person or by proxy at all general meetings of the Company.
27.5 No dividends shall be paid to the holders of common shares without
par value, or to the holders of other shares of the Company ranking junior to
the Preferred shares, unless the directors have previously declared that the
holders of the Preferred shares are entitled to receive, out of the moneys of
the Company from which dividends may properly be paid, dividends in an amount
per Preferred share equal to or greater than any dividend per common share,
which may be paid to the holders of common shares without par value.
27.6 No Preferred shares which are to be convertible under any
circumstance or circumstances into common shares of the Company may be allotted
or issued without the Company requesting and receiving the prior written
consent of the Vancouver Stock Exchange (the "Exchange") if the common shares
of the Company are listed for trading on the Exchange or, if such common shares
are not so listed for trading on the Exchange, the Superintendent of Brokers.
- 36 -
<PAGE> 1
EXHIBIT 6(1)(i)
EMPLOYMENT AGREEMENT
Global Election Systems, Inc. (U.S.A.) ("Company") and Howard T. Van Pelt
("Employee") agree:
1. EMPLOYMENT. Company employs Employee for the period beginning on the
date of this Employment Agreement and ending three years from its date or upon
discharge or resignation of Employee, if earlier (the "Employment Period").
During the Employment Period, Employee will serve as President and chief
executive officer of Company. Employee will devote sufficient time and energies
to the business of Company to accomplish the duties assigned, will perform to
the best of Employee's ability all duties assigned to Employee by Company and
will devote Employee's best efforts to advance the interests of Company.
Employee will have the power and authority normally held by a President and
chief executive officer of a corporation.
2. COMPENSATION. For all services performed by Employee for Company
during the Employment Period, Company will pay Employee the salary set forth on
Schedule A. Employee will be entitled to participate in employee benefit plans
established by Company. Vacation in amounts designated by Company will be taken
at the times designated by Company. During that vacation, Employee will receive
Employee's usual compensation.
3. REIMBURSEMENT OF EXPENSES. Company recognizes that Employee, in
performing Employee's duties hereunder, may be required to spend sums of money
in connection with those duties for the benefit of Company. Employee may
present to Company an itemized voucher listing expenses paid by Employee in the
<PAGE> 2
performance of Employee's duties on behalf of Company, and, on presentation of
such itemized voucher, Company will reimburse Employee for all reasonable
expenses itemized thereon, including, but not limited to, travel, meals,
lodging, entertainment, and promotion. Employee may receive advances from
Company for anticipated expenses. Employee agrees that the amount by which an
advance exceeds actual expenses ("Amount") will be promptly refunded to Company
upon determination by Company that it is due.
4. SICK LEAVE AND DISABILITY. Employee will be entitled to sick leave
for the number of days determined by Company ("Sick Leave"). Employee will be
considered to be disabled during any period in excess of Sick Leave during
which Employee is unable to work because of illness or incapacity ("Disability
Period"). Employee will be entitled to receive Employee's full salary during
Sick Leave and will be deemed to be on leave, without pay, during the
Disability Period. If the Sick Leave plus Disability Period exceeds the initial
eligibility or waiting period between the time of disability and the date
disability benefits commence as provided in any disability insurance policy
provided by the Company for the benefit of Employee, or, if there is no such
policy, 180 days, Employee will be considered to have resigned as of the end of
the waiting period or 180 days, as the case may be, and will receive no further
compensation. In no event will Employee be entitled to payment or other
compensation for unused Sick Leave or Disability Period, unless required by law
or otherwise provided in a policy or employment manual adopted by the Board of
Directors of Company.
2
<PAGE> 3
5. RESIGNATION AND DISCHARGE. Employee may resign by giving two weeks
written notice to Company before resigning. Employee's death will constitute a
resignation. Company may discharge Employee only for cause. If Employee is
discharged for cause for other than criminal behavior, Employee will receive
six months severance benefit, determined on Employee's base salary at the time
of discharge. If Employment Period is terminated by resignation, Employee will
be paid Employee' salary on a pro rata basis through the effective date of
resignation ("Effective Date"), and if requested by Company, Employee will
continue to render Employees services through the Effective Date. If Employee
refuses, upon Company's request, or fails to render services competently and in
good faith to the Company's benefit through the Effective Date, Company may
deem the Effective Date to be the date of refusal or failure, as the case may
be. In no event will Employee be entitled, upon resignation or discharge, to
payment for sick leave or similar benefits of any kind, unless required by law
or otherwise provided in a policy or employment manual adopted by the Board of
Directors of Company.
6. CONFIDENTIAL INFORMATION. Employee acknowledges and recognizes that
Employee is, or will be, employed by Company in a confidential relationship and
may receive and have access to the confidential business information, customer
names, contracts and other customer data, business methods, techniques and
trade secrets of Company not otherwise known by Employee and not information
generally known in the Industry in which Company is engaged
3
<PAGE> 4
("Confidential Information"). Employee may receive disclosures of ideas,
conceptions, inventions, processes, methods, products and improvements made by
other employees of Company ("Company Inventions"). Employee may participate
with Company in improving and developing Confidential Information and Company
Inventions. Confidential Information and Company Inventions developed on behalf
of Company are neither commonly known nor readily accessible to others, and are
used by Company in its business to obtain a competitive advantage over
Company's competitors who do not know or use the Confidential Information or
Company Inventions. Protection of the Confidential Information and Company
Inventions against unauthorized disclosure and use is of critical importance to
Company in maintaining its competitive position. Employee agrees that Employee
will assign to Company Inventions developed on Company time, and that Company
is the owner of those Company Inventions. Employee agrees that Employee will
not, at any time, during or after the Employment Period, make any independent
use of, or disclose to any other person or organization, except as authorized
by Company in writing, any Confidential Information or Company Inventions.
Upon termination of the Employment Period for any reason, Employee shall
promptly deliver to Company all drawings, manuals, letters, notes, notebooks,
reports, customer lists, customer data, mailing lists, and all other materials
and records of any kinds, and all copies thereof, that may be in the possession
of, or under the control of, Employee, and which contain any Confidential
Information or Company Inventions.
4
<PAGE> 5
7. PERSONNEL POLICIES. Company's personnel policies apply to all of the
Company's employees, including Employee, and describe additional terms and
conditions of employment of Employee. Those terms and conditions, as they may
be revised from time to time by Company, are incorporated by reference into
this Employment Agreement. Company reserves the right to revise the personnel
policies from time to time, as Company deems necessary. If any personnel policy
provision conflicts with a provision of this Employment Agreement, the terms of
this Employment Agreement shall govern.
8. ALCOHOL AND DRUG TESTING. Employee agrees to comply with and submit to
any Company program or policy for testing for alcohol abuse or use of drugs.
9. BINDING EFFECT. This Employment Agreement constitutes the entire
understanding of the parties, may be modified only in writing, is governed by
laws of Texas, U.S.A., and will bind and inure to the benefit of Employee and
Employee's personal representative and Company and Company's successors and
assigns.
DATED: August 1st, 1997
EMPLOYEE COMPANY
GLOBAL ELECTION SYSTEMS, INC.
(U.S.A.)
/s/ HOWARD T. VAN PELT BY: /s/ DAVID H. BROWN
- ------------------------ ----------------------------
Howard T. Van Pelt ITS: /s/ Chairman
----------------------------
Aug 7/97
5
<PAGE> 6
SCHEDULE "A"
TO EMPLOYMENT AGREEMENT BETWEEN
GLOBAL ELECTION SYSTEMS, INC. (U.S.A.) and
HOWARD T. VAN PELT, "EMPLOYEE"
Base Salary: $180,000.00 per year.
Bonus: Three percent (3%) of earnings, not to exceed $200,000 per
year.
6
<PAGE> 1
EXHIBIT 6(1)(ii)
EMPLOYMENT AGREEMENT
This Agreement, made October 1, 1996, by and between Global Election
Systems, Inc. (Canada & USA) hereinafter "Global", and Clinton E. Rickards,
hereinafter "Employee."
1. SERVICES.
Global hereby retains Employee as Director of Marketing for Canada and
Director of Investor Relations for Canada and the United States. Employee agrees
to perform and provide such services upon the terms and conditions contained in
this Agreement.
2. TERM.
The initial term of this Agreement is for two years commencing upon the
date first written above and ending 730 days thereafter.
3. REMUNERATION.
A. Employee shall be paid the sum of $100,000 (US) per year in twelve
equal monthly installments, payable on the last business day of each month.
B. Employee shall also receive a commission of three percent (3%) on all
sales made within Canada. The employee will distribute as he sees fit to the
value of Canadian Sureties.
C. Employee shall also receive one percent (1%) of the net profits
before taxes for all sales (excluding those in Canada) of Global during the term
of this Agreement.
4. REIMBURSEMENT OF EXPENSES.
Employee shall be reimbursed for the following, provided he first
furnishes statements and vouchers for all such expenses to Global:
A. all reasonable travelling and other out-of-pocket expenses actually
and properly incurred by Employee in connection with his duties hereunder;
B. all medical and dental expenses which are expenses covered by the
medical and dental plan or plans of Global incurred by Employee for himself or
for his spouse or children.
5. AUTHORITY.
Employee shall have such authority as shall be given to him by the
President of Global, from time to time. Without limiting the generality of the
foregoing, Employee shall have the
<PAGE> 2
authority to enter into contracts, engagements or commitments of a kind entered
into in the ordinary course of business.
6. DUTIES.
Employee will:
A. perform and conform to all lawful instructions and direction given
by the President from time to time;
B. devote his full time to the business and affairs of Global; and
C. use his best efforts to promote and sell Global products and
services.
7. CONFIDENTIALITY.
Employee shall not, during the term of this Agreement or at any time
thereafter, use for his own purposes or for any purposes other than those of
Global any intellectual property or knowledge or confidential information of
any kind whatsoever which he may acquire in relation to Global's business or
the business of any of its subsidiaries, and such shall be and remain the
property of Global and of its subsidiaries, as the case may be.
8. NON-COMPETITION.
Employee shall not, without the prior written consent of Global,
during the term of this Agreement and during the two-year period immediately
following the termination of this Agreement, should he initiate the termination
of this Agreement, or the one-year period following this Agreement, if Global
should initiate the termination of this Agreement, within those areas of the
world in which Global or any of its subsidiaries or its successors or assigns
("Global Group") is doing business at the time of such termination, either
directly or indirectly, either alone or with others, and either individually or
as a partner, shareholder, agent, manager, owner, advisor or financial backer
of any person, persons, firm, association, venture, entity or corporation of
any kind whatsoever;
A. canvass, solicit or accept orders for any product or service or
both which is or has been developed, manufactured, produced, provided,
marketed, distributed or otherwise dealt in by the Global Group from any
person, firm or company which is at the time of such termination, or has been
at any time within the eighteen-month period ending on the date of such
termination, a customer of any company in the Global Group or a prospective
customer of any company in the Global Group; or
2
<PAGE> 3
B. divert or attempt to divert any business of, or any customers of,
the Global Group to any other competitive establishment, by direct or indirect
inducement or otherwise.
9. TERMINATION FOR CAUSE.
Notwithstanding any other provision of this Agreement, if
three-quarters of the Directors determine that Employee is guilty of misconduct
that would constitute just cause for dismissal, Global may give Employee three
months notice in writing of its intention to terminate this Agreement, and on
the expiration of such period, this Agreement shall be wholly terminated. Such
three months notice may expire on any day of the month, and any remuneration
payable hereunder shall be proportioned to the date of such termination. For
purposes of this Agreement, the term "cause" shall mean a reasonable
determination by vote of three-quarters of the members of the Board of
Directors then holding office (other than Employee if he is then a director)
that one on the following conditions exists or one of the following events has
occurred:
A. the unjustified refusal by Employee to perform such services as
may reasonably be delegated or assigned to him, consistent with his position,
by the Chairman of the Board or President; or
B. the willful misconduct or gross negligence of Employee in
connection with the performance of his duties hereunder; or
C. the breach by Employee of any provision of Sections 6, 7 or 8 of
this Agreement; or
10. TERMINATION FOR NO CAUSE.
Either party may terminate this Agreement at any time upon giving six
(6) months written notice.
11. INUREMENT.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, personal
representatives, successors and permitted assigns. This Agreement may not be
assigned by either party hereto without the prior express written consent of
the other party.
12. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties
hereto relating to the subject matter hereof and may not be amended, waived or
discharged except by an instrument in writing executed by the party against
whom enforcement of such
3
<PAGE> 4
amendment, waiver or discharge is sought, and this Agreement supersedes all
prior agreements between the parties.
13. FURTHER ACTS.
Each of the parties hereto hereby covenants and agrees to execute
such further and other documents and instruments and do such further acts and
other things as may be necessary to implement and carry out the intent of this
Agreement. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
14. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed by postage prepaid double registered mail to the addresses noted
below or to such other address as may be given in writing, and shall be deemed
to have been received, if delivered, on the date of delivery and if mailed as
aforesaid, then on the fifth business day following the posting thereof.
Global Election Systems, Inc.
(Canada & USA)
By: /s/ HOWARD T. VAN PELT /s/ CLINTON E. RICKARDS
------------------------------ -------------------------------
Howard T. Van Pelt, President Clinton E. Rickards
Global Election Systems, Inc. 13961 32 Avenue
5605 Uptown Blvd NE Suite 330 Surray, BC
Albuquerque, NM 87110 Canada V4P 232
4
<PAGE> 5
GLOBAL ELECTION SYSTEMS, INC.
1611 Wilmeth Rd.
McKinney, Texas 75069
Phone: 972-542-6000
Fax: 972-542-6044
Fax Cover
To: Louise Peterson
Fax: 505-872-0900
Date: May 29, 1998
From: Susan Martin
Pages: 5 including cover
Re: Rickards agreement
<PAGE> 1
EXHIBIT 6(1)(iii)
EMPLOYMENT AGREEMENT
GLOBAL ELECTION SYSTEMS, INC. (U.S.A.) ("Company"), and ROBERT J. UROSEVICH
("Employee") agree:
1. EMPLOYMENT. Company employs Employee for the period beginning on the
date of this Employment Agreement and ending three years from its date or upon
discharge or resignation of Employee, if earlier (the "Employment Period").
During the Employment Period, Employee will serve as Vice President of Sales and
Marketing of Company. Employee will devote sufficient time and energies to the
business of Company to accomplish the duties assigned, will perform to the best
of Employee's ability all duties assigned to Employee by Company and will devote
Employee's best efforts to advance the interests of Company. Employee will have
the power and authority normally held by a Vice President of a corporation.
2. COMPENSATION. For all services performed by Employee for Company during
the Employment Period, Company will pay Employee the salary set forth on
Schedule A. Employee will be entitled to participate in employee benefit plans
established by Company. Vacation in amounts designated by Company will be taken
at the times designated by Company. During that vacation, Employee will receive
Employee's usual compensation.
3. REIMBURSEMENT OF EXPENSES. Company recognizes that Employee, in
performing Employee's duties hereunder, may be required to spend sums of money
in connection with those duties for the benefit of Company. Employee may present
to Company an itemized voucher listing expenses paid by Employee in the
<PAGE> 2
performance of Employee's duties on behalf of Company, and, on presentation of
such itemized voucher, Company will reimburse Employee for all reasonable
expenses itemized thereon, including, but not limited to, travel, meals,
lodging, entertainment, and promotion. Employee may receive advances from
Company for anticipated expenses. Employee agrees that the amount by which an
advance exceeds actual expenses ("Amount") will be promptly refunded to Company
upon determination by Company that it is due.
4. SICK LEAVE AND DISABILITY. Employee will be entitled to sick leave for
the number of days determined by Company ("Sick Leave"). Employee will be
considered to be disabled during any period in excess of Sick Leave during which
Employee is unable to work because of illness or incapacity ("Disability
Period"). Employee will be entitled to receive Employee's full salary during
Sick Leave and will be deemed to be on leave, without pay, during the Disability
Period. If the Sick Leave plus Disability Period exceeds the initial eligibility
or waiting period between the time of disability and the date disability
benefits commence as provided in any disability insurance policy provided by the
Company for the benefit of Employee, or, if there is no such policy, 180 days,
Employee will be considered to have resigned as of the end of the waiting period
or 180 days, as the case may be, and will receive no further compensation. In no
event will Employee be entitled to payment or other compensation for unused Sick
Leave or Disability Period, unless required by law or otherwise provided in a
policy or employment manual adopted by the Board of Directors of Company.
2
<PAGE> 3
5. RESIGNATION AND DISCHARGE. Employee may resign by giving two weeks
written notice to Company before resigning. Employee's death will constitute a
resignation. Company may discharge Employee only for cause. For purposes of this
Agreement, the term "cause" shall include Employee's dishonesty, violation of
any of the provisions of this Agreement, and Employee's indictment, conviction,
plea of guilty or nolo contendere of any felony or a misdemeanor involving moral
turpitude. If Employee is discharged for cause for other than criminal behavior,
Employee will receive twelve months severance benefit, determined on Employee's
base salary at the time of discharge. If Employment Period is terminated by
resignation, Employee will be paid Employee's salary on a pro rata basis through
the effective date of resignation ("Effective Date"), and if requested by
Company, Employee will continue to render Employees services through the
Effective Date. If Employee refuses, upon Company's request, or fails to render
services competently and in good faith to the Company's benefit through the
Effective Date, Company may deem the Effective Date to be the date of refusal or
failure, as the case may be. In no event will Employee be entitled, upon
resignation or discharge, to payment for sick leave or similar benefits of any
kind, unless required by law or otherwise provided in a policy or employment
manual adopted by the Board of Directors of Company.
6. CONFIDENTIAL INFORMATION. Employee acknowledges and recognizes that
Employee is, or will be, employed by Company in a confidential relationship and
may receive and have access to the
3
<PAGE> 4
confidential business information, customer names, contracts and other customer
data, business methods, techniques and trade secrets of Company not otherwise
known by Employee and not information generally known in the Industry in which
Company is engaged ("Confidential Information"). Employee may receive
disclosures of ideas, conceptions, inventions, processes, methods, products and
improvements made by other employees of Company ("Company Inventions"). Employee
may participate with Company in improving and developing Confidential
Information and Company Inventions. Confidential Information and Company
Inventions developed on behalf of Company are neither commonly known nor readily
accessible to others, and are used by Company in its business to obtain a
competitive advantage over Company's competitors who do not know or use the
Confidential Information or Company Inventions. Protection of the Confidential
Information and Company Inventions against unauthorized disclosure and use is of
critical importance to Company in maintaining its competitive position. Employee
agrees that Employee will assign to Company Inventions developed on Company
time, and that Company is the owner of those Company Inventions. Employee agrees
that Employee will not, at any time, during or the Employment Period, make any
independent use of, or disclose to any other person or organization, except as
authorized by Company in writing, any Confidential Information or Company
Inventions. Upon termination of the Employment Period for any reason, Employee
shall promptly deliver to Company all drawings, manuals, letters, notes,
notebooks, reports, customer
4
<PAGE> 5
lists, customer data, mailing lists, and all other materials and records of any
kinds, and all copies thereof, that may be in the possession of, or under the
control of, Employee, and which contain any Confidential Information or Company
Inventions.
7. PERSONNEL POLICIES. Company's personnel policies apply to all of the
Company's employees, including Employee, and describe additional terms and
conditions of employment of Employee. Those terms and conditions, as they may be
revised from time to time by Company, are incorporated by reference into this
Employment Agreement. Company reserves the right to revise the personnel
policies from time to time, as Company deems necessary. If any personnel policy
provision conflicts with a provision of this Employment Agreement, the terms of
this Employment Agreement shall govern.
8. ALCOHOL AND DRUG TESTING. Employee agrees to comply with and submit to
any Company program or policy for testing for alcohol abuse or use of drugs.
9. BINDING EFFECT. This Employment Agreement constitutes the entire
understanding of the parties, may be modified only in writing, is governed by
laws of Texas, U.S.A., and will bind and inure to the benefit of Employee and
Employee's personal representative and Company and Company's successors and
assigns.
DATED: AUGUST 1, 1997
5
<PAGE> 6
EMPLOYEE COMPANY
GLOBAL ELECTION SYSTEMS, INC.
(U.S.A.)
/s/ ROBERT J. UROSEVICH BY: /s/ HOWARD T. VAN PELT
- --------------------------------- ------------------------------
Robert J. Urosevich
ITS: President
-----------------------------
6
<PAGE> 7
SCHEDULE "A"
TO EMPLOYMENT AGREEMENT BETWEEN
GLOBAL ELECTION SYSTEMS, INC. (U.S.A.) and
ROBERT J. UROSEVICH, "EMPLOYEE"
Base Salary: $115,000.00 per year, together with such salary adjustments as may
be awarded to employee from time to time.
Moving Expenses: The Company shall also reimburse for reasonable living and
travel expenses until such time as the Employee is able to move his family and
residence to the McKinney, Texas area. The Company shall also provide Employee
with a reasonable moving allowance to be agreed upon by the parties.
Stock Options: The Employee will be provided with a Stock Option Agreement to
purchase the Company's stock, the terms and conditions of which to be mutually
agreed upon by the parties.
7
<PAGE> 1
EXHIBIT (6)(2)
AMENDED AND RESTATED
PERFORMANCE SHARES ALLOTMENT AGREEMENT
THIS AGREEMENT made the 22nd day of November, 1991 and amended the 6th day of
December, 1996.
BETWEEN:
GLOBAL ELECTION SYSTEMS INC. (formerly Macrotrends
International Ventures.) a corporation duly incorporated
under the laws of the Province of British Columbia having an
office at 1562 Rand Avenue, Vancouver, B.C., V6P 3G2;
(the "Issuer")
OF THE FIRST PART
AND:
THE INDIVIDUALS LISTED ON SCHEDULE "A" ATTACHED TO THIS AGREEMENT;
(individually a "Principal" and collectively the "Principals")
OF THE SECOND PART
WHEREAS:
A. The Principals are "principals" of the Issuer within the meaning of
Local Policy Statement 3-07, dated effective March 1, 1990, of the British
Columbia Securities Commission;
B. The Principals wish to subscribe for 2,738,000 performance escrow
shares of the Company (the "Shares") and the Company has agreed to issue the
Shares to the Principals upon the terms and subject to the conditions contained
in this Agreement as set out in Schedule "A" to this Agreement;
C. The Shares, when issued, will be escrowed pursuant to a Performance
Shares Escrow Agreement in the form attached as Schedule "B" to this Agreement
(the "Escrow Agreement");
<PAGE> 2
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
covenants and agreements herein contained, the parties hereto do covenant and
agree (the "Agreement") each with the other as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE ISSUER
1.1 The Issuer represents and warrants to, and covenants and agrees with
the Principals that the Issuer has good and sufficient right and authority to
enter into this Agreement on the terms and conditions set forth herein and to
issue the Shares to the Principals as provided for hereunder.
2. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
2.1 The Principals each individually represent and warrant to, and covenant
and agree with the Issuer that they are principals of the Issuer and each has
good and sufficient right and authority to enter into this Agreement on the
terms and conditions set forth herein.
2.2 The representations, warranties, covenants and agreements of the
Principals shall be true as of the date that the Principals' Shares are
subscribed for by the Principals (the "Subscription Date") as though such
representations, warranties, covenants and agreements were made at and as of the
Subscription Date.
3. ALLOTMENT AND ISSUANCE OF SHARES
3.1 ON the basis of the representations, warranties, covenants and
agreements of the parties hereto as set forth herein and subject to the terms of
this Agreement, the Principals agree to subscribe from the Issuer, and the
Issuer agrees to allot for issuance to the Principals, the Shares as set out in
Schedule "A" attached hereto.
3.2 As full payment for the Shares, the Principals shall pay the Issuer
$0.08 per Share. Upon receipt of full payment for Shares and an executed copy of
an Escrow Agreement from a Principal, the Company shall issue the Shares to each
Principal, provided that the Company shall not issue shares to a Principal until
receipt of full payment for all Shares allotted to that Principal as set out in
Schedule "A".
3.3 The Company's obligation to issue Shares to any Principal pursuant to
paragraph 3.2 shall expire on the earlier of January 17, 2000 or on the date on
which application is made to the British Columbia Securities Commission for the
first release of Shares from escrow. In the event such application is made, if a
Principal has not subscribed and fully paid for his Shares, then the allotment
of the Shares to such Principal shall be withdrawn and such Principal shall have
no right to acquire any of the Shares previously he Shares previously allotted
to him.
-2-
<PAGE> 3
4. REGULATORY APPROVAL
4.1 This Agreement is subject to all necessary securities regulatory
approvals of the British Columbia Securities Commission. The Issuer shall use
its best efforts to obtain such necessary approvals to this agreement by no
later than January 17, 1997.
5. GENERAL
5.1 Time and each of the terms and conditions of this Agreement shall be of
the essence of this Agreement.
5.2 The Schedules to this Agreement incorporated by reference and the
recitals to this Agreement constitute a part of this Agreement.
5.3 This Agreement constitutes the entire agreement between the parties
hereto in respect of the matters referred to herein and there are no
representations, warranties, covenants or agreements, expressed or implied,
collateral hereto other than as expressly set forth or referred to herein.
5.4 The headings in this Agreement are for reference only and do not
constitute terms of the Agreement.
5.5 The provisions contained in this Agreement which, by their terms,
require performance by a party to this Agreement subsequent to the execution of
this Agreement, shall survive the execution of this Agreement.
5.6 Whenever the singular or masculine is used in this Agreement the same
shall be deemed to include the plural or the feminine or the body corporate as
the context may require.
5.7 The parties hereto shall execute and deliver all such further documents
and instruments and do all such acts and things as any party may, either before
or after the Closing Date, reasonably require in order to carry out the full
intent and meaning of this Agreement.
5.8 Any notice, request, demand and other communication to be given under
this Agreement shall be in writing and shall be delivered by hand to the parties
at their respective addresses appearing on the cover page of this Agreement, or
to such other addresses as may be given in writing by the parties hereto in the
manner provided for in this paragraph, and shall be deemed to have been received
on the date of delivery.
5.9 This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
-3-
<PAGE> 4
5.10 This Agreement shall be subject to, governed by, and construed in
accordance with the laws of the Province of British Columbia.
5.11 This Agreement may be signed by the parties in as many counterparts
as may be deemed necessary, each of which so signed shall be deemed to be an
original, and all such counterparts together shall constitute one and the same
instrument.
IN WITNESS WHEREOF the parties have hereunto set their hands and
seals effect as of the Effective Date first above written.
The COMMON SEAL of GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
)
)
/s/ ILLEGIBLE ) c/s
- ---------------------------------- )
Authorized Signatory )
)
)
/s/ ILLEGIBLE )
- ---------------------------------- )
Authorized Signatory )
SIGNED, SEALED AND DELIVERED by )
CLINTON RICKARDS in the presence of: )
)
)
/s/ ILLEGIBLE ) /s/ CLINTON RICKARDS
- ---------------------------------- ) -----------------------------------
Signature of Witness ) CLINTON RICKARDS
)
Name: MAURICE SOKULSKI )
---------------------------- )
)
)
Address: 2101-8805 HUDSON ST. )
------------------------- )
)
VANCOUVER, B.C. )
- ---------------------------------- )
)
Occupation: ACCOUNTANT )
---------------------- )
- 4 -
<PAGE> 5
SIGNED, SEALED AND DELIVERED by )
DAVID BROWN in the presence of: )
)
)
)
/s/ P. BROWN ) /s/ DAVID H. BROWN
- ---------------------------------- ) ------------------------------------
Signature of Witness ) DAVID BROWN
)
)
Name: P. BROWN )
---------------------------- )
)
Address: 56 WROXETER AVE. )
------------------------- )
)
TORONTO M4J IE6 )
- ---------------------------------- )
)
Occupation: SALES )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
THE ESTATE OF RONALD GUNN in the )
presence of: )
)
)
- ---------------------------------- ) -----------------------------------
Signature of Witness ) THE ESTATE OF RONALD GUNN
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
<PAGE> 6
SIGNED, SEALED AND DELIVERED by )
DAVID BROWN in the presence of: )
)
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) DAVID BROWN
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
THE ESTATE OF RONALD GUNN in the )
presence of: )
)
/s/ IDA McINTYRE ) /s/ FAYE KEPTLEMON, EXECUTORY
- ---------------------------------- ) -----------------------------------
Signature of Witness ) THE ESTATE OF RONALD GUNN
)
Name: IDA McINTYRE )
---------------------------- )
)
Address: 35 Resdon Court )
------------------------- )
)
Etobicoke, Ont M9E 4E6 )
- ---------------------------------- )
)
Occupation: EXECUTIVE SECRETARY )
---------------------- )
- 5 -
<PAGE> 7
SIGNED, SEALED AND DELIVERED by )
CHARLES CONRAD in the presence of: )
)
/s/ ELIZABETH R. HAWKINS ) /s/ CHARLES M. CONRAD
- ---------------------------------- ) ------------------------------------
Signature of Witness ) CHARLES CONRAD
)
Name: Elizabeth Hawkins )
---------------------------- )
)
Address: 6605 Uptown Blvd. #330 )
------------------------- )
Albuquerque, New Mexico )
- ---------------------------------- )
)
Occupation: Secretary )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
TALBOT IREDALE in the presence of: )
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) TALBOT IREDALE
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
IAN PIPER in the presence of: )
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) IAN PIPER
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
OCCUPATION: )
---------------------- )
- 6 -
<PAGE> 8
SIGNED, SEALED AND DELIVERED by )
CHARLES CONRAD in the presence of: )
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) CHARLES CONRAD
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
TALBOT IREDALE in the presence of: )
)
/s/ M. I. SOKULSKI ) /s/ TALBOT IREDALE
- ---------------------------------- ) ------------------------------------
Signature of Witness ) TALBOT IREDALE
)
Name: MAURICE SOKULSKI )
---------------------------- )
)
Address: 2101-8805 HUDSON ST. )
------------------------- )
)
VANCOUVER, B.C. )
- ---------------------------------- )
)
Occupation: ACCOUNTANT )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
IAN PIPER in the presence of: )
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) IAN PIPER
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
- 6 -
<PAGE> 9
SIGNED, SEALED AND DELIVERED by )
CHARLES CONRAD in the presence of: )
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) CHARLES CONRAD
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
TALBOT IREDALE in the presence of: )
)
/s/ M. I. SOKULSKI ) /s/ TALBOT IREDALE
- ---------------------------------- ) ------------------------------------
Signature of Witness ) TALBOT IREDALE
)
Name: MAURICE SOKULSKI )
---------------------------- )
)
Address: 2101-8805 HUDSON ST. )
------------------------- )
)
VANCOUVER, B.C. )
- ---------------------------------- )
)
Occupation: ACCOUNTANT )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
IAN PIPER in the presence of: )
)
/s/ M. I. SOKULSKI ) /s/ IAN PIPER
- ---------------------------------- ) ------------------------------------
Signature of Witness ) IAN PIPER
)
Name: MAURICE SOKULSKI )
---------------------------- )
)
Address: 2101-8805 HUDSON ST. )
------------------------- )
)
VANCOUVER, B.C. )
- ---------------------------------- )
)
Occupation: ACCOUNTANT )
---------------------- )
- 6 -
<PAGE> 10
SIGNED, SEALED AND DELIVERED by )
MICHAEL MASSULLO in the presence of: )
)
)
/s/ ERIC LAU ) /s/ MICHAEL MASSULLO
- ---------------------------------- ) ------------------------------------
Signature of Witness ) MICHAEL MASSULLO
)
Name: ERIC LAU )
---------------------------- )
)
Address: 1158 EAST 18TH AVE. )
------------------------- )
VANCOUVER, B.C. )
- ---------------------------------- )
)
Occupation: Accountant )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
Howard Van Pelt in the presence of: )
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) HOWARD VAN PELT
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
- 7 -
<PAGE> 11
SIGNED, SEALED AND DELIVERED by )
MICHAEL MASSULLO in the presence of: )
)
) /s/ MICHAEL MASSULLO
- ---------------------------------- ) ------------------------------------
Signature of Witness ) MICHAEL MASSULLO
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
SIGNED, SEALED AND DELIVERED by )
HOWARD VAN PELT in the presence of: )
)
/s/ ELIZABETH R. HAWKINS ) /s/ HOWARD VAN PELT
- ---------------------------------- ) ------------------------------------
Signature of Witness ) HOWARD VAN PELT
)
Name: Elizabeth Hawkins )
---------------------------- )
)
Address: 6605 Uptown Blvd. #330 )
------------------------- )
Albuquerque, New Mexico )
- ---------------------------------- )
)
Occupation: Secretary )
---------------------- )
- 7 -
<PAGE> 12
SCHEDULE "A"
NAME OF PRINCIPAL NUMBER OF SHARES
Clinton Rickards 282,267
13961 - 33rd Avenue
Surrey, B.C. V6P 3G2
David Brown 88,208
Apt. 701 - 625 Avenue Road
Toronto, Ontario M4V 2K7
Estate of Ronald Gunn 17,641
c/o FAYE STEPHENSON
OENEST, MURRAY BESBRISAY T LANEK
YOO - 130 ADELAIDE ST., WEST
TORONTO ONT M5H 4C1
Charles Conrad 35,283
Route 1
Box 118J
Chouteau, Oklahoma
14337
Talbot Iredale 70,566
3657 West 28th Avenue
Vancouver, B.C. V6S 1S3
Ian Piper 28,227
303 - 4690 HAZEL ST.
BURNARY B.C. V5H 1S5
Michael Massullo 28,227
#101 - 2736 Victoria Drive
Vancouver, B.C. V5N 4L4
Howard Van Pelt 2,187,581
1709 Conestoga SE
Albuquerque, NM 87123
---------
TOTAL: 2,738,000
=========
<PAGE> 13
SCHEDULE "B"
PERFORMANCE SHARES ESCROW AGREEMENT
<PAGE> 14
PERFORMANCE SHARES ESCROW AGREEMENT
THIS AGREEMENT IS DATED FOR REFERENCE THE __ DAY OF ___, 199_;
AMONG:
MONTREAL TRUST COMPANY OF CANADA, 4th Flr., 510 Burrard Street,
Vancouver, B.C., V6C 3B9
(the "Escrow Agent")
AND:
GLOBAL ELECTION SYSTEMS INC. (formerly Macrotrends International
Ventures Inc.) a corporation duly incorporated under the laws of the
Province of British Columbia having an office at 1562 Rand Avenue,
Vancouver, B.C., V6P 3G2;
(the "Issuer")
AND:
EACH SHAREHOLDER, as defined in this Agreement
(collectively, the "Parties");
WHEREAS each Shareholder has acquired or is about to acquire Shares of the
Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent in respect of the
Shares upon the acquisition of the Shares by the Shareholder;
NOW THEREFORE in consideration of the covenants contained in this Agreement and
other good and valuable consideration (the receipt and sufficiency of which is
acknowledged), the Parties agree (the "Agreement") as follows:
1. INTERPRETATION
In this Agreement:
(a) "Acceptance Date" means the date on which this agreement was
accepted by the Commission;
<PAGE> 15
(b) "Acknowledgement" means the acknowledgement and agreement to
be bound in the form attached as Schedule "A" to this
Agreement;
(c) "Act" means the Securities Act, S.B.C. 1985, c. 83;
(d) "Cash Flow" means net income or loss before tax, adjusted to
add back the following expenses:
(i) depreciation,
(ii) amortization of goodwill and deferred research and
development costs, excluding general and
administrative costs,
(iii) expenses research and development costs, excluding
general and administrative costs, and
(iv) any other amounts permitted or required by the
Executive Director;
(e) "Commission" means the British Columbia Securities Commission;
(f) "Cumulative Cash Flow" means, at any time, the aggregate cash
flow of the Issuer up to that time from a date no earlier than
the Issuer's financial year end immediately preceding the
Acceptance Date, net of any negative cash flow;
(g) "Executive Director" means the Executive Director appointed
under the Act;
(h) "Local Policy Statement 3-07" means the Commission Local
Policy Statement 3-07 in effect as of the date of reference of
this Agreement and attached as Schedule "B" to this
Agreement;
(i) "Shareholder" means a holder of shares of the Issuer who
executes this Agreement or an Acknowledgement; and
(j) "Shares" means the shares of the Shareholder described in
Schedule "C" to this Agreement, as amended from time to time
in accordance with section 9.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with the Escrow Agent and shall
deliver the certificates representing the Shares to the Escrow Agent as soon as
practicable.
-2-
<PAGE> 16
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all
voting rights attached to the Shares.
4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waives the rights attached to the Shares:
(a) to vote the Shares on a resolution to cancel any of
the Shares;
(b) to receive dividends; and
(c) to participate in the assets and property of the
Issuer on a winding up or dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall abstain
from voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(1) the Shareholder shall not transfer any of the Sharers except in
accordance with Local Policy Statement 3-07 and with the consent of the
Executive Director.
(2) The Escrow Agent shall not effect a transfer of the Shares within
escrow unless the Escrow Agent has received:
(a) a copy of an Acknowledgement executed by the person
to whom the Shares are to be transferred; and
(b) a letter from the Executive Director consenting to
the transfer.
(3) Upon the death or bankruptcy of a Shareholder, the Escrow Agent shall
hold the Shares subject to this Agreement for the person that is
legally entitled to become the registered owner of the Shares.
(4) In the event the Shareholder ceases to be a "principal" (as that term
is defined in Local Policy Statement 3-07) of the Issuer, the
Shareholder shall do all such things in respect of the Shares as may be
required by the Company including, without in any way limiting the
generality of the foregoing, gifting back the Shares, or any part of
them, to the issuer or transferring the Shares, or any part of them, to
a person or persons directed by the Company.
-3-
<PAGE> 17
7. RELEASE FROM ESCROW
(1) The Shareholder irrevocably directs the Escrow Agent to retain the
Shares until the Shares are released from escrow pursuant to subsection
(2) or surrendered for cancellation pursuant to section 8.
(2) The Escrow Agent shall not release the Shares from escrow unless the
Escrow Agent has received a letter from the Executive Director
consenting to the release.
(3) The approval of the Executive Director to a release from escrow of any
of the Shares shall terminate this Agreement only in respect of the
Shares so released.
(4) The Shares will be released, on a pro-rata basis to the Shareholders,
pursuant to subsection (2) on the basis of one Share for every $0.7975
of Cumulative Cash Flow generated by the Issuer.
(5) Notwithstanding any other provision in this Agreement, any Shares not
released before January 17, 2000 shall be cancelled.
8. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation by the Issuer and
the Escrow Agent shall deliver the certificates representing the Shares to the
Issuer:
(a) at the time of a major reorganization of the Issuer, if
required as a condition of the consent to the reorganization
by the Executive Director;
(b) where the Issuer's shares have been subject to a cease trade
order issued under the Act for a period of 2 consecutive
years; and
(c) where required by section 6(4).
9. AMENDMENT OF AGREEMENT
(1) Subject to subsection (2), this Agreement may be amended only by a
written agreement among the Parties and with the written consent of the
Executive Director.
(2) Schedule "C" to this Agreement shall be amended upon:
(a) a transfer of Shares pursuant to section 6;
(b) a release of Shares from escrow pursuant to section 7; and
(c) a surrender of Shares for cancellation pursuant to section 8;
-4-
<PAGE> 18
and the Escrow Agent shall note the amendment on the Schedule "C" in its
possession.
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release, indemnify and
save harmless the Escrow Agent from all costs, charges, claims, demands,
damages, losses and expenses resulting from the Escrow Agent's compliance in
good faith with this Agreement.
11. RESIGNATION OF ESCROW AGENT
(1) If the Escrow Agent wishes to resign as escrow agent in respect of the
Shares, the Escrow Agent shall give notice to the Issuer.
(2) If the Issuer wishes the Escrow Agent to resign as escrow agent in
respect of the Shares, the Issuer shall give notice to the Escrow
Agent.
(3) A notice referred to in subsection (1) or (2) shall be in writing and
delivered to:
(a) the Issuer at its address appearing on the cover page of this
Agreement; or
(b) the Escrow Agent at its address appearing on the cover page of
this Agreement;
and the notice shall be deemed to have been received on the date of
delivery. The Issuer or the Escrow Agent may change its address for
notice by giving notice to the other party in accordance with this
subsection.
(4) A copy of a notice referred to in subsection (1) or (2) shall
concurrently be delivered to the Executive Director.
(5) The resignation of the Escrow Agent shall be effective and the Escrow
Agent shall cease to be bound by this Agreement on the date that is 180
days after the date of receipt of the notice referred to in subsection
(1) or (2) or on such other date as the Escrow Agent and the Issuer may
agree upon (the "resignation date").
(6) The Issuer shall, before the resignation date and with the written
consent of the Executive Director, appoint another escrow agent and
that appointment shall be binding on the Issuer and the Shareholders.
12. ENTIRE AGREEMENT
This Agreement supersedes and replaces all other escrow agreements applying to
the Shares required by securities regulators and all such Agreements are
terminated and of no further force and effect from the reference date of this
Agreement.
-5-
<PAGE> 19
13. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform any acts
necessary to carry out the intent of this Agreement.
14. TIME
Time is of the essence of this Agreement.
15. GOVERNING LAWS
This Agreement shall be construed in accordance with and governed by the laws
of British Columbia and the laws of Canada applicable in British Columbia.
16. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original and all of which shall constitute one agreement.
17. LANGUAGE
Wherever a singular expression is used in this Agreement, that expression is
deemed to include the plural or the body corporate where required by the
context.
18. ENUREMENT
This Agreement inures to the benefit of and is binding on the Parties and their
heirs, executors, administrators, successors and permitted assigns.
The Parties have executed and delivered this Agreement as of the date of
reference of this Agreement.
The COMMON SEAL of ESCROW AGENT )
was hereunto affixed in the presence of: )
)
) c/s
- ---------------------------------------- )
Authorized Signatory )
)
- ---------------------------------------- )
Authorized Signatory )
- 6 -
<PAGE> 20
<TABLE>
<S> <C>
The COMMON SEAL of GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
)
)
) c/s
)
)
- ------------------------------------------ )
Authorized Signatory )
)
)
- ------------------------------------------ )
Authorized Signatory )
SIGNED, SEALED AND DELIVERED by )
CLINTON RICKARDS in the presence of: )
)
- ------------------------------------------ ) ----------------------------------------
Signature of Witness ) CLINTON RICKARDS
)
)
Name: )
------------------------------------- )
)
Address: )
---------------------------------- )
)
- ------------------------------------------ )
)
Occupation: )
------------------------------ )
)
SIGNED, SEALED AND DELIVERED by )
HOWARD VAN PELT in the presence of: )
)
- ------------------------------------------ ) ----------------------------------------
Signature of Witness ) HOWARD VAN PELT
)
)
Name: )
------------------------------------- )
)
Address: )
---------------------------------- )
)
- ------------------------------------------ )
)
Occupation: )
------------------------------ )
</TABLE>
- 7 -
<PAGE> 21
SIGNED, SEALED AND DELIVERED by )
DAVID BROWN in the presence of: )
)
)
------------------------------- ) ----------------------------
Signature of Witness ) DAVID BROWN
)
Name: )
-------------------------- )
)
Address: )
----------------------- )
)
------------------------------- )
)
Occupation: )
-------------------- )
SIGNED, SEALED AND DELIVERED by )
THE ESTATE OF RONALD GUNN in the )
presence of: )
)
)
------------------------------- ) ----------------------------
Signature of Witness ) THE ESTATE OF RONALD GUNN
)
Name: )
-------------------------- )
)
Address: )
----------------------- )
)
------------------------------- )
)
Occupation: )
-------------------- )
- 8 -
<PAGE> 22
SIGNED, SEALED AND DELIVERED by )
CHARLES CONRAD in the presence of: )
)
- ---------------------------------- ) ----------------------------------
Signature of Witness ) CHARLES CONRAD
)
Name: )
----------------------------- )
)
Address: )
-------------------------- )
)
- ---------------------------------- )
)
Occupation: )
----------------------- )
SIGNED, SEALED AND DELIVERED by )
TALBOT IREDALE in the presence of: )
)
- ---------------------------------- ) ----------------------------------
Signature of Witness ) TALBOT IREDALE
)
Name: )
----------------------------- )
)
Address: )
-------------------------- )
)
- ---------------------------------- )
)
Occupation: )
----------------------- )
SIGNED, SEALED AND DELIVERED by )
IAN PIPER in the presence of: )
)
- ---------------------------------- ) ----------------------------------
Signature of Witness ) IAN PIPER
)
Name: )
----------------------------- )
)
Address: )
-------------------------- )
)
- ---------------------------------- )
)
Occupation: )
----------------------- )
- 9 -
<PAGE> 23
SIGNED, SEALED AND DELIVERED by )
MICHAEL MASSULLO in the presence of: )
)
)
- ------------------------------------- ) -----------------------------------
Signature of Witness ) MICHAEL MASSULLO
)
Name: )
------------------------------- )
)
Address: )
---------------------------- )
)
)
- ------------------------------------- )
)
)
Occupation: )
------------------------- )
- 10 -
<PAGE> 24
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100 - 865 Hornby Street
Vancouver, B.C.
V6Z 2H4
I, __________________ (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTIONS SYSTEMS INC. (the
"Issuer") under which _______ shares of the Issuer (the "Shares") will be
transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated for
reference November __, 1991 (the "Escrow Agreement"), a copy of which is
attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at _________ on __, 199_.
Where the Transferee is an individual:
SIGNED, SEALED AND DELIVERED by )
the Transferee in the presence of: )
)
_________________________________ ) _______________________________
Signature of Witness )
)
Name:____________________________ )
)
Address:_________________________ )
)
_________________________________ )
)
Occupation:______________________ )
<PAGE> 25
Where the Transferee is a company:
The CORPORATE SEAL of the Transferee )
was hereunto affixed in the presence of: )
)
)
) c/s
- ------------------------------------------- )
Authorized Signatory )
)
- ------------------------------------------- )
Authorized Signatory )
- 2 -
<PAGE> 26
SCHEDULE "B" TO ESCROW AGREEMENT
Local Policy Statement 3-07 in effect as of the date of the Escrow
Agreement.
<PAGE> 27
[PROVINCE OF BRITISH COLUMBIA LETTERHEAD]
BRITISH COLUMBIA SECURITIES COMMISSION
- --------------------------------------------------------------------------------
LOCAL POLICY STATEMENT 3-07
POLICY GUIDELINES RESPECTING TRADING SHARES,
PERFORMANCE SHARES AND OTHER CONSIDERATION
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART TITLE PAGE
- ---- ----- ----
<S> <C> <C>
1. IMPLEMENTATION 1
2. APPLICATION 1
2.1 Pre-prospectus
2.2 Reactivations and reorganizations
3. TRANSITION 2
3.1 Agreements made under former policy statement
3.2 Option of conforming with new policy statement
4. DEFINITIONS 2
4.1 Defined terms
4.2 Terms defined in legislation
5. GENERAL MATTERS 5
5.1 Review of opinions and reports
5.2 Requirement for valuation opinion
5.3 Out of pocket costs
5.4 Confirmation of fair value
6. ISSUANCE OF TRADING SHARES 6
6.1 Minimum price and maximum aggregate value
6.2 Interest in operating subsidiary
6.3 Value assigned to non-cash assets
6.4 Purchase of interest in mineral property
6.5 Accumulated deficit related to issuer's stated business purpose
6.6 Exclusion of amounts by Superintendent
</TABLE>
December 21, 1989
- --------------------------------------------------------------------------------
<PAGE> 28
LPS 3-07
<TABLE>
<CAPTION>
PART TITLE PAGE
- ---- ----- ----
<S> <C> <C>
7. ISSUANCE OF PERFORMANCE SHARES 8
7.1 Issuance to principals
7.2 Natural resource issuer
7.3 Industrial issuer
7.4 Escrow requirement
7.5 Escrow agreement
7.6 Limitations on rights of holders of performance shares
7.7 Rights on ceasing to be a principal
7.8 Undertaking of holding company
8. TRANSFER OF PERFORMANCE SHARES WITHIN ESCROW 10
8.1 Permitted transferees
8.2 Request for consent to transfer
8.3 Documents to be filed with request for consent to transfer
8.4 Letter of consent or objection
8.5 No transfer during period between prospectus receipt and listing
9. RELEASE OF PERFORMANCE SHARES FROM ESCROW 11
9.1 Release of shares of natural resource issuer
9.2 Reduction in release for natural resource issuer
9.3 Release of shares of industrial issuer
9.4 Adjustment of release calculation
9.5 Requirements for release
9.6 Annual release based on annual audited financial statements
9.7 Request for consent to release
9.8 Documents to be filed with request for consent to release
9.9 Letter of consent or objection
9.10 Request by holder of performance shares for consent to release
10. SURRENDER OF PERFORMANCE SHARES FOR CANCELLATION 14
</TABLE>
December 21, 1989
<PAGE> 29
LPS 3-07
<TABLE>
<CAPTION>
PART TITLE PAGE
- ---- ----- ----
<S> <C> <C>
11. OTHER CONSIDERATION 14
11.1 Natural resource issuer
11.2 Industrial issuer
</TABLE>
Appendix A Escrow Agreement
Appendix B Examples of earn-out prices for performance
shares issued by an industrial issuer
Appendix C Undertaking Required from Non-Reporting or
Closely Held Company
December 21, 1989
<PAGE> 30
LPS 3-07
PART 1 IMPLEMENTATION
1.1 The following local policy statements are hereby rescinded and this local
policy statement substituted therefor, effective March 1, 1990:
(a) Local Policy Statement 3-07, dated February 6, 1987 (the "Former
Policy Statement"), and
(b) Local Policy Statements 3-08, 3-09 and 3-10, each dated February 1,
1987.
PART 2 APPLICATION
2.1 Pre-prospectus. This local policy statement sets out guidelines for
issuance of shares and payment of consideration for assets by an issuer
intending to do an initial public offering and obtain a listing on the Vancouver
Stock Exchange. This local policy statement addresses
(a) the issuance of trading shares, which are common shares issued as
consideration for cash or assets contributed to the issuer and, in
certain cases, expenses incurred to advance the business of the
issuer,
(b) the issuance of and escrow restrictions imposed on performance shares,
which are common shares issued to directors, officers, promoters and
other principals of the issuer to provide them with both a reasonable
assurance of control during the formative stages of the issuer's
development and an incentive to support the issuer, and
(c) the payment of other consideration by the issuer for assets or
services.
2.2 Reactivations and reorganizations - This local policy statement applies,
with the necessary changes, to
(a) the reactivation of an issuer by way of a prospectus, carried out in
accordance with Local Policy Statement 3-35 and the policies of the
Vancouver Stock Exchange, and
December 21, 1989
<PAGE> 31
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LPS 3-07
(b) a major reorganization of an issuer, including a reverse take over,
carried out in accordance with the policies of the British Columbia
Securities Commission and the Vancouver Stock Exchange.
PART 3 TRANSITION
3.1 Agreements made under former policy statement - Subject to section 3.2,
shares issued in accordance with the Former Policy Statement will continue
to be governed by any agreements made in accordance with the Former Policy
Statement. Such shares, however, will be subject to the transfer
restrictions and procedures set out in Part 8 and the release criteria and
procedures set out in sections 9.5 through 9.10 of this local policy
statement.
3.2 Option of conforming with new policy statement - An issuer that has issued
shares in accordance with the Former Policy Statement may reorganize its
capital to fully conform with this local policy statement. Before doing so,
the issuer must obtain the approval of its shareholders and the written
consent of the Superintendent of Brokers, if the issuer's shares are not
listed on the Vancouver Stock Exchange, or the Vancouver Stock Exchange, if
the issuer's shares are listed on that exchange. Both the approval and
consent must be obtained by March 1, 1991.
PART 4 DEFINITIONS
4.1 Defined terms - In this local policy statement:
"ACT" means the Securities Act, S.B.C. 1985, c. 83;
"ARM'S LENGTH TRANSACTION" means a transaction other than a non-arm's
length transaction;
"CASH FLOW" means net income or loss before tax, adjusted to add back the
following expenses:
(a) depreciation,
(b) amortization of goodwill and deferred research and development costs,
excluding general and administrative costs,
December 21, 1989
<PAGE> 32
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LPS 3-07
(c) expensed research and development costs, excluding general and
administrative costs, and
(d) any other amounts permitted or required by the Superintendent;
"CUMULATIVE CASH FLOW" means, at any time, the aggregate cash flow of an
issuer up to that time from a date no earlier than the issuer's financial
year end immediately preceding the date of its IPO, net of any negative
cash flow;
"EARN-OUT FACTOR" means the number obtained by squaring the performance
share percentage, expressed as a decimal, and multiplying by four;
"EARN-OUT PRICE" means the IPO price multiplied by the earn-out factor;
"ESCROW AGREEMENT" means an agreement in the form attached as Appendix A to
this local policy statement;
"EXCHANGE" means the Vancouver Stock Exchange;
"INDUSTRIAL ISSUER" means an issuer other than a natural resource issuer;
"IPO" means the initial public offering of common shares of an issuer under
a prospectus which has been filed with, and for which a receipt has been
obtained from, the Superintendent under section 42 of the Act;
"IPO PRICE" means the price per share paid by the public on an issuer's
IPO;
"NON-ARM'S LENGTH TRANSACTION" means a transaction between the issuer and a
person that, at any time from the date of the transaction until the date
of completion of the issuer's IPO, is
(a) an insider, associate, affiliate or principal of the issuer,
(b) a person that
(i) has a control person, insider or promoter that is a control
person, insider or promoter of the issuer, or
December 21, 1989
<PAGE> 33
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LPS 3-07
(ii) has a control person, insider or promoter that is an associate
or affiliate of a control person, insider or promoter of the
issuer
except where the person's insiders that are described in paragraphs
(i) and (ii) hold in total less than 10% of the voting securities of
the person, or
(c) determined by the Superintendent not to be at arm's length to the
issuer;
"PERFORMANCE SHARES" means common shares of an issuer issued in accordance
with Part 7 of this local policy statement, so long as they are held in
escrow in accordance with this local policy statement;
"PERFORMANCE SHARE PERCENTAGE" means the percentage, determined on the date
the issuer's shares are listed, posted and called for trading on the
Exchange, that the issued performance shares of the issuer are of the total
issued and outstanding voting securities of the issuer;
"PRINCIPAL" means, in relation to an issuer,
(a) a promoter of the issuer,
(b) a director of the issuer or of an operating subsidiary of the issuer,
(c) a full time management employee of the issuer, or of an operating
subsidiary of the issuer, whose direct or indirect employment is with
the issuer or the subsidiary,
(d) a person who has provided key services or contributed a fundamental
asset to the issuer and has elected to be treated as a principal, or
(e) a company all the voting securities of which are owned by one or more
of the persons referred to in subsections (a) through (d);
"REGULATION" means the Securities Regulation, B.C. Reg. 270/86;
December 21, 1989
<PAGE> 34
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LPS 3-07
"SUPERINTENDENT OR THE EXCHANGE" means the Superintendent, if the issuer's
shares are not listed on the Exchange, and the Exchange, if the issuer's
shares are listed on the Exchange;
"TRADING SHARES" means shares of the class of common shares issued on an
issuer's IPO, excluding performance shares issued in accordance with Part 7
of this local policy statement;
"VALUATION OPINION" means, in respect of
(a) a natural resource issuer, a written opinion prepared by a qualified
expert as to the fair market value of a resource property, determined
either through the computation of present value or some other
recognized method of valuation acceptable to the Superintendent, and
(b) an industrial issuer, a written opinion prepared in accordance with
generally applied valuation approaches by a Chartered Business
Valuator, or another expert acceptable to the Superintendent, as to
the highest price available for the issuer's business, assets or
shares in an open and unrestricted market between informed, prudent
parties, acting at arm's length and under no compulsion to act,
expressed in terms of money or money's worth.
4.2 Terms defined in legislation - Subject to section 4.1, terms defined in the
Act, the Regulation and the Interpretation Act, R.S.B.C. 1979, c. 206 and
used in this local policy statement have the same meaning as in the Act,
the Regulation and the Interpretation Act.
PART 5 GENERAL MATTERS
5.1 Review of opinions and reports - The Superintendent may, with the agreement
of an issuer, seek the opinion of an engineer, appraiser, business
valuator, accountant or other expert to determine the acceptability of a
valuation opinion or other report filed pursuant to this local policy
statement and, in such circumstances, the issuer will be liable for the
fees charged by such person in connection with providing the opinion.
December 21, 1989
<PAGE> 35
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LPS 3-07
5.2 Requirement for valuation opinion - The Superintendent may, at the time
of reviewing an issuer's prospectus for its IPO, require a valuation
opinion in support of the value attributed to any non-cash assets.
5.3 Out of pocket costs - Where this local policy statement provides that the
value of trading shares issued or other consideration paid to a person by
an issuer for a non-cash asset must be calculated on the basis of the out
of pocket costs incurred by the person in respect of the non-cash asset,
those out of pocket costs must
(a) be reasonable,
(b) have contributed or be reasonably expected to contribute to the future
operations of the issuer,
(c) be supported by an audited statement of costs, and
(d) in respect of a resource property, be restricted to acquisition costs
and such other costs as are necessary to secure a preliminary
evaluation of the resource property and to lead to the identification
of exploration targets.
5.4 Confirmation of fair value - The onus will be on an issuer, if questioned,
to satisfy the Superintendent that fair value was received for costs or
expenditures associated with a non-arm's length transaction.
PART 6 ISSUANCE OF TRADING SHARES
6.1 Minimum price and maximum aggregate value - Although in most cases trading
shares will be paid for in cash, trading shares may be issued for
consideration other than cash. Subject to sections 6.2 through 6.6, an
issuer may issue trading shares at a minimum price of $.25 per share up to
an aggregate value equal to:
(a) the amount of cash paid in as share capital; plus
(b) the fair market value of any non-cash assets contributed as share
capital; plus
(c) the issuer's retained earnings, if any; less
(d) where the issuer has an accumulated deficit, that portion of the
accumulated deficit that does not directly relate to the issuer's
stated business purpose at the time of its IPO.
December 21, 1989
<PAGE> 36
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LPS 3-07
6.2 Interest in operating subsidiary - Where an issuer has an operating
subsidiary, or is proposing to issue trading shares in order to acquire an
operating subsidiary, and the value of that operating subsidiary is not
supported by a current valuation opinion, the principles of this Part will
apply to the operating subsidiary for the purpose of determining the number
of trading shares that may be issued by the issuer in respect of its
interest in the operating subsidiary.
6.3 Value assigned to non-cash assets - For the purpose of section 6.1(b),
where non-cash assets are contributed to an issuer by a person in a
non-arm's length transaction, the fair market value attributed to the
non-cash assets must be either
(a) supported by a valuation opinion, or
(b) limited to an amount equal to the out of pocket costs incurred by
the person in respect of the non-cash assets, determined in
accordance with section 5.3.
6.4 Purchase of interest in mineral property - A natural resource issuer that,
in an arm's length transaction, agrees to issue trading shares as
consideration for a mineral property or an option on a mineral property,
the value of which is not supported by a current valuation opinion, will
generally be required to meet the following conditions:
(a) The consideration must consist of not more than 200,000 trading shares
issuable in no fewer than four blocks, each block consisting of not
more than 50,000 trading shares.
(b) One block of shares may be issued prior to the date the issuer's
shares are listed, posted and called for trading on the Exchange.
(c) The remaining blocks of shares may be issued in stages upon the filing
with the Exchange of engineering reports, acceptable to the Exchange,
recommending further work on the mineral property.
6.5 Accumulated deficit related to issuer's stated business purpose - For the
purpose of section 6.1(d), that portion of the issuer's accumulated deficit
that directly relates to the issuer's stated business purpose at the time
of its IPO includes
December 21, 1989
<PAGE> 37
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LPS 3-07
(a) for a natural resource issuer, expenses incurred
(i) in exploring and developing the resource properties upon which
the issuer's IPO proceeds are to be spent, and
(ii) in exploring and developing other resource properties, provided
that these expenses do not exceed the expenses referred to in
paragraph (i), and
(b) for an industrial issuer, expenses incurred in respect of the project
or business to be financed by the issuer's IPO proceeds.
6.6 Exclusion of amounts by Superintendent - The Superintendent may require
that an amount be excluded from the determination of the number of trading
shares that may be issued under this Part if in the circumstances he
considers that to include any such amount would be inappropriate or
unconscionable. For example, the Superintendent would question the
appropriateness of issuing trading shares for non-cash assets unrelated to
the issuer's stated business purpose at the time of its IPO or for
excessive administrative expenses.
PART 7 ISSUANCE OF PERFORMANCE SHARES
7.1 Issuance to principals - Performance shares may be issued for cash to the
principals of an issuer
(a) to provide the principals with a measure of control to facilitate the
development of the issuer in an orderly fashion,
(b) to provide an incentive for the principals to diligently support the
affairs of the issuer, and
(c) to provide an incentive for the principals to contribute management
services or fundamental assets to the issuer.
7.2 Natural resource issuer - A natural resource issuer may issue to its
principals up to a total of 750,000 performance shares, at a minimum price
of $.01 per share.
7.3 Industrial issuer - An industrial issuer may issue performance shares to
its principals, at a minimum price of $.01 per share, provided that the
resulting performance share percentage does not exceed 65%.
December 21, 1989
<PAGE> 38
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LPS 3-07
7.4 Escrow requirement - Performance shares are required to be escrowed. It
should be noted that the higher the performance share percentage, the more
difficult it becomes to obtain a release of the performance shares from
escrow. The table attached as Appendix B to this local policy statement
provides some examples of the operation of the release provisions for
industrial issuers set out in Part 9 of this local policy statement.
7.5 Escrow agreement Prior to or at the time of acquiring performance shares,
principals must execute an escrow agreement. The certificates representing
the performance shares must be registered in the names of the holders of
the shares and deposited with the escrow agent in accordance with the
terms of the escrow agreement. Only a trust company carrying on business
in British Columbia or a company approved by the Superintendent may act as
an escrow agent.
7.6 Limitations on rights of holders of performance shares - The escrow
agreement provides that the holders of performance shares waive any rights
attached to those shares to receive dividends or to participate in the
assets and property of the issuer on a winding up or dissolution. Holders
of performance shares do retain the right to vote those shares, except on a
resolution respecting their cancellation.
7.7 Rights on ceasing to be a principal - The escrow agreement requires that
the parties to it set out in the agreement any rights or obligations of a
person who ceases to be a principal, dies or becomes bankrupt to retain,
transfer or surrender to the issuer for cancellation any performance shares
then held by the person.
7.8 Undertaking of holding company - Where performance shares are to be issued
to a non-reporting or closely held company, wherever situate, rather than
to an individual, the company must, prior to or at the time of acquiring
the performance shares, execute an undertaking in the form attached as
Appendix C to this local policy statement. In the undertaking, the company
agrees not to effect or permit any transfer of ownership of shares of the
company nor to issue further shares of any class in the company without the
consent of the Superintendent or the Exchange, so long as the company
continues to hold any of the issuer's performance shares. An application
for consent should be made in the same manner as an application for consent
to a transfer of performance shares pursuant to Part 8 of this local policy
statement.
December 21, 1989
<PAGE> 39
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LPS 3-07
PART 8 TRANSFER OF PERFORMANCE SHARES WITHIN ESCROW
8.1 Permitted transferees - Performance shares may be transferred only to
(a) other principals, including incoming principals,
(b) the issuer of the performance shares, or
(c) an offeror under a formal bid (as defined in section 74 of the Act).
8.2 Request for consent to transfer - In order to transfer performance shares,
the holder of performance shares must deliver to the Superintendent or the
Exchange a written request for consent to the transfer. The request for
consent to the transfer must include:
(a) the name of the escrow agent and the reference date of the escrow
agreement,
(b) an explanation of the reason for the transfer,
(c) a description of the consideration to be paid for the performance
shares,
(d) where the performance shares are to be transferred to a principal,
confirmation that the transferee is a principal or will become a
principal on or before the date of the proposed transfer, and
(e) a description of the exemptions in the Act or the Regulation, if any,
being relied upon to make the transfer.
8.3 Documents to be filed with request for consent to transfer - The request
for consent to the transfer must be accompanied by:
(a) a copy of the transfer agreement,
(b) an acknowledgement and agreement to be bound in the form attached as
Schedule A to the escrow agreement, executed by the transferee,
(c) where the performance shares are to be transferred to a non-reporting
or closely held company, wherever situate, rather than to an
individual, an undertaking by the company in the form attached as
Appendix C to this local policy statement,
December 21, 1989
<PAGE> 40
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LPS 3-07
(d) where applicable, evidence that the proposed change of control has
been approved by the shareholders of the issuer, and
(e) the appropriate application fee.
8.4 Letter of consent or objection - Upon receiving a request for consent to a
transfer and accompanying documents that comply with sections 8.2 and 8.3,
the Superintendent or the Exchange will issue to the applicant a letter
that either consents or objects to the transfer. A letter consenting to the
transfer will be copied to the escrow agent.
8.5 No transfer during period between prospectus receipt and listing - The
Superintendent will generally refuse to consent to a transfer of
performance shares during the period between the date of the receipt for
the issuer's prospectus for its IPO and the date the issuer's securities
are listed, posted and called for trading on the Exchange.
PART 9 RELEASE OF PERFORMANCE SHARES FROM ESCROW
9.1 Release of shares of natural resource issuer - Holders of performance
shares of a natural resource issuer will be entitled to the pro-rata
release of those performance shares on the basis of 15% of the original
number of performance shares for every $100,000 expended on exploration and
development of a resource property by
(a) the issuer, or
(b) a person other than the issuer in order to earn an interest in the
resource property, but only in respect of that proportion of the
expenditure equal to the issuer's remaining proportionate interest in
the resource property after the person's interest has been earned,
provided that
(c) no more than 50% of the original number of performance shares may be
released in any 12 month period, and
(d) no expenditure on exploration and development made prior to the date
of the receipt for the issuer's prospectus for its IPO may be
included.
December 21, 1989
<PAGE> 41
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LPS 3-07
9.2 Reduction in release for natural resource issuer - Where administrative
expenses exceed 33% of total expenditures during the period on which the
calculation in section 9.1 is based,
(a) the pro-rata release factor of 15% will be reduced to 7.5%, and
(b) the percentage of the original number of performance shares available
for release in any 12 month period will be reduced to 25%.
9.3 Release of shares of industrial issuer - Holders of performance shares of
an industrial issuer will be entitled to the pro-rata release of a number
of performance shares equal to the amount of cumulative cash flow, not
previously applied towards release, divided by the earn-out price.
9.4 Adjustment of release calculation - On a consolidation, subdivision,
amalgamation or reclassification of the issuer's shares, the release
calculation must be adjusted so that the proportion of the outstanding
performance shares available for release is unaffected by the
consolidation, subdivision, amalgamation or reclassification.
9.5 Requirements for release - No performance shares may be released from
escrow unless, at the time of the application for release,
(a) the issuer is meeting its current obligations in the ordinary course
of business as they generally become due, as evidenced by a statutory
declaration of the president or chief financial officer of the issuer,
(b) the issuer's shares are listed, posted and called for trading on all
stock exchanges having jurisdiction over it, as evidenced by letters
from those stock exchanges,
(c) the issuer is not in default of any requirement of the Act or the
Regulation, as evidenced by a certificate issued by the Commission,
and
December 21, 1989
<PAGE> 42
- 13 -
LPS 3-07
(d) the issuer is in good standing with respect to its filing of returns
with the Registrar of Companies under the Company Act or, if the
issuer is incorporated, organized or continued in a jurisdiction
other than British Columbia, with the registrar of companies or
similar authority in that jurisdiction, as evidenced by a certificate
issued by the Registrar of Companies or by that similar authority.
9.6 Annual release based on annual audited financial statements - Performance
shares may be released only once during an issuer's financial year. The
release calculation must be based on the issuer's annual audited financial
statements for the year or years during which the release requirements were
met in respect of the performance shares to be released.
9.7 Request for consent to release - In order to obtain a release of
performance shares, the issuer must deliver to the Superintendent or the
Exchange a written request for consent to the release. The request for
consent to the release must include the name of the escrow agent and the
reference date of the escrow agreement.
9.8 Documents to be filed with request for consent to release - The request for
consent to the release must be accompanied by:
(a) written evidence of compliance with the requirements of section 9.5,
(b) annual audited financial statements of the issuer for the financial
year or years during which the release requirements were met in
respect of the performance shares to be released,
(c) where expenditures on a resource property were made by a person other
than the issuer, an audited statement of costs,
(d) a calculation, prepared by the issuer's auditor, of the number of
performance shares to be released, and
(e) the appropriate application fee.
December 21, 1989
<PAGE> 43
- 14 -
LPS 3-07
9.9 Letter of consent or objection - Upon receiving a request for consent to
a release and accompanying documents that comply with sections 9.7 and
9.8, the Superintendent or the Exchange will issue to the issuer a letter
that either consents or objects to the release. A letter consenting to the
release will be copied to the escrow agent.
9.10 Request by holder of performance shares for consent to release - A holder
of performance shares may apply to the Superintendent or the Exchange for
release where the issuer is unable or unwilling to do so. If the president
or chief financial officer of the issuer refuses to provide the statutory
declaration referred to in section 9.5(a), the Superintendent or the
Exchange may waive that requirement.
PART 10 SURRENDER OF PERFORMANCE SHARES FOR CANCELLATION
10.1 Performance shares must be surrendered to the issuer for cancellation
(a) at the time of a major reorganization of the issuer, if required as a
condition of the consent to the reorganization by the Superintendent
or the Exchange,
(b) where the issuer's shares have been subject to a cease trade order
issued under the Act for a period of 2 consecutive years, or
(c) 10 years from the later of the date of issue of the performance shares
and the date of the receipt for the issuer's prospectus for its IPO.
PART 11 OTHER CONSIDERATION
11.1 Natural resource issuer - Where a natural resource issuer proposes to
acquire from a person a resource property or an option on a resource
property, the value of which is not supported by a valuation opinion, the
following principles apply:
(a) In an arm's length transaction, the issuer may pay the person cash
consideration.
December 21, 1989
<PAGE> 44
- 15 -
LPS 3-07
(b) In an arm's length transaction, the issuer may agree to pay the person
additional consideration at such time as the resource property
commences commercial production. Such additional consideration may,
depending on the circumstances, consist of cash consideration,
reasonable payments from net profits, securities, or any combination
of these.
(c) In a non-arm's length transaction, the issuer may pay the person cash
consideration up to the amount of the out of pocket costs incurred by
the person in respect of the resource property, determined in
accordance with section 5.3.
(d) In a non-arm's length transaction, the issuer may agree to pay the
person additional consideration at such time as the resource property
commences commercial production, where the person has carried out
extensive exploration with results that indicate that the resource
property appears to have substantial merit. The extent of the person's
effort, skill and risk in developing the resource property will be
taken into account by the Superintendent in determining whether
additional consideration is justified. Such additional consideration
may, depending on the circumstances, consist of cash consideration,
reasonable payments from net profits, securities, or any combination
of these. A 15% net profits interest would normally be considered
reasonable.
11.2 Industrial issuer - Where an industrial issuer proposes to acquire from a
person non-cash assets, the value of which are not supported by a valuation
opinion, the following principles apply:
(a) In an arm's length transaction, the issuer may pay the person cash
consideration, a royalty or a combination of these.
(b) In a non-arm's length transaction, the issuer may pay the person cash
consideration up to the amount of the out of pocket costs incurred by
the person in respect of the non-cash assets, determined in accordance
with section 5.3.
DATED at Vancouver, British Columbia this 21st day of December 1989.
/s/ DOUGLAS M. HYNDMAN
Douglas M. Hyndman
Chairman
December 21, 1989
<PAGE> 45
LPS 3-07
APPENDIX A TO LOCAL POLICY STATEMENT 3-07
ESCROW AGREEMENT
THIS AGREEMENT is dated for reference __________________, 19___ and made
AMONG:
(the "Escrow Agent");
AND:
(the "Issuer");
AND: EACH SHAREHOLDER, as defined in this Agreement
(collectively, the "Parties").
WHEREAS the Shareholder has acquired or is about to acquire shares of the
Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent in respect of the
shares upon the acquisition of the shares by the Shareholder;
NOW THEREFORE in consideration of the covenants contained in this agreement and
other good and valuable consideration (the receipt and sufficiency of which is
acknowledged), the Parties agree as follows:
1. INTERPRETATION
In this agreement:
(a) "ACKNOWLEDGEMENT" means the acknowledgement and agreement to be bound in
the form attached as Schedule A to this agreement;
(b) "ACT" means the Securities Act, S.B.C.1985, c. 83;
(c) "EXCHANGE" means the Vancouver Stock Exchange;
December 21, 1989
<PAGE> 46
- 2 -
LPS 3-07
(d) "IPO" means the initial public offering of common shares of the Issuer
under a prospectus which has been filed with, and for which a receipt has
been obtained from, the Superintendent under section 42 of the Act;
(e) "LOCAL POLICY STATEMENT 3-07 means the Local Policy Statement 3-07 in
effect as of the date of reference of this agreement and attached as
Schedule B to this agreement;
(f) "SHAREHOLDER" means a holder of shares of the Issuer who executes this
agreement or an Acknowledgement;
(g) "SHARES" means the shares of the Shareholder described in Schedule C to
this agreement, as amended from time to time in accordance with section 9;
(h) "SUPERINTENDENT" means the Superintendent of Brokers appointed under the
Act; and
(i) "SUPERINTENDENT OR THE EXCHANGE" means the Superintendent, if the shares of
the Issuer are not listed on the Exchange, or the Exchange, if the shares
of the Issuer are listed on the Exchange.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with the Escrow Agent and shall
deliver the certificates representing the Shares to the Escrow Agent as soon as
practicable.
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all voting
rights attached to the Shares.
4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waives the rights attached to the Shares
(a) to vote the Shares on a resolution to cancel any of the Shares,
(b) to receive dividends, and
December 21, 1989
<PAGE> 47
LPS 3-07
- 3 -
(c) to participate in the assets and property of the Issuer on a winding up or
dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall abstain from
voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(1) The Shareholder shall not transfer any of the Shares except in accordance
with Local Policy Statement 3-07 and with the consent of the Superintendent
or the Exchange.
(2) The Escrow Agent shall not effect a transfer of the Shares within escrow
unless the Escrow Agent has received
(a) a copy of an Acknowledgement executed by the person to whom the Shares
are to be transferred, and
(b) a letter from the Superintendent or the Exchange consenting to the
transfer.
(3) Upon the death or bankruptcy of a Shareholder, the Escrow Agent shall hold
the Shares subject to this agreement for the person that is legally
entitled to become the registered owner of the Shares.
(4) [Set out in this subsection the rights and obligations of a Shareholder who
ceases to be a principal, as that term is defined in Local Policy Statement
3-07, dies, or becomes bankrupt, to retain, transfer or surrender to the
Issuer for cancellation any shares held by the Shareholder.]
7. RELEASE FROM ESCROW
(1) THE Shareholder irrevocably directs the Escrow Agent to retain the Shares
until the Shares are released from escrow pursuant to subsection (2) or
surrendered for cancellation pursuant to section 8.
December 21, 1989
<PAGE> 48
LPS 3-07
- 4 -
(2) The Escrow Agent shall not release the Shares from escrow unless the
Escrow Agent has received a letter from the Superintendent or the
Exchange consenting to the release.
(3) The approval of the Superintendent or the Exchange to a release from escrow
of any of the Shares shall terminate this agreement only in respect of the
Shares so released.
B. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation and the Escrow Agent
shall deliver the certificates representing the Shares to the Issuer
(a) at the time of a major reorganization of the Issuer, if required as a
condition of the consent to the reorganization by the Superintendent
or the Exchange,
(b) where the Issuer's shares have been subject to a cease trade order
issued under the Act for a period of 2 consecutive years,
(c) 10 years from the later of the date of issue of the Shares and the
date of the receipt for the Issuer's prospectus on its IPO, or
(d) where required by section 6(4).
9. AMENDMENT OF AGREEMENT
(1) Subject to subsection (2), this agreement may be amended only by a
written agreement among the Parties and with the written consent of the
Superintendent or the Exchange.
(2) Schedule C to this agreement shall be amended upon
(a) a transfer of Shares pursuant to section 6,
(b) a release of Shares from escrow pursuant to section 7, or
December 21, 1989
<PAGE> 49
LPS 3-07
- 5 -
(c) a surrender of Shares for cancellation pursuant to section 8,
and the Escrow Agent shall note the amendment on the Schedule C in its
possession.
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release, indemnify and
save harmless the Escrow Agent from all costs, charges, claims, demands,
damages, losses and expenses resulting from the Escrow Agent's compliance in
good faith with this agreement.
11. RESIGNATION OF ESCROW AGENT
(1) If the Escrow Agent wishes to resign as escrow agent in respect of the
Shares, the Escrow Agent shall give notice to the Issuer.
(2) If the Issuer wishes the Escrow Agent to resign as escrow agent in respect
of the Shares, the Issuer shall give notice to the Escrow Agent.
(3) A notice referred to in subsection (1) or (2) shall be in writing and
delivered to
(a) the Issuer at ____________________, or
(b) the Escrow Agent at ____________________
and the notice shall be deemed to have been received on the date of
delivery. The Issuer or the Escrow Agent may change its address for notice
by giving notice to the other party in accordance with this subsection.
(4) A copy of a notice referred to in subsection (1) or shall concurrently be
delivered to the Superintendent or the Exchange.
(5) The resignation of the Escrow Agent shall be effective and the Escrow Agent
shall cease to be bound by this agreement on the date that is 180 days
after the date of receipt of the notice referred to in subsection (1) or
(2) or on such other date as the Escrow Agent and the Issuer may agree
upon (the "resignation date").
December 21, 1989
<PAGE> 50
- 6 -
LPS 3-07
(6) The Issuer shall, before the resignation date and with the written consent
of the Superintendent or the Exchange, appoint another escrow agent and
that appointment shall be binding on the Issuer and the Shareholders.
12. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform any acts
necessary to carry out the intent of this agreement.
13. TIME
Time is of the essence of this agreement.
14. GOVERNING LAWS
This agreement shall be construed in accordance with and governed by the laws of
British Columbia and the laws of Canada applicable in British Columbia.
15. COUNTERPARTS
This agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original and all of which shall constitute one agreement.
16. LANGUAGE
Wherever a singular expression is used in this agreement, that expression is
deemed to include the plural or the body corporate where required by the
context.
17. ENUREMENT
This Agreement enures to the benefit of and is binding on the Parties and their
heirs, executors, administrators, successors and permitted assigns.
December 21, 1989
<PAGE> 51
LPS 3-07
- 7 -
The Parties have executed and delivered this agreement as of the date of
reference of this agreement.
The Corporate/Common Seal of )
[Escrow Agent] was affixed )
in the presence of: )
) c/s
- --------------------------------- )
Authorized signatory )
)
- --------------------------------- )
Authorized signatory )
The Corporate/Common Seal of )
[Issuer] was affixed )
in the presence of: )
) c/s
- --------------------------------- )
Authorized signatory )
)
- --------------------------------- )
Authorized signatory )
Where the Shareholder is an individual:
Signed, sealed and delivered by )
[Shareholder] in the presence of: )
)
- --------------------------------- )
Name )
)
- --------------------------------- ) ------------------------------
Address ) [Shareholder]
)
- --------------------------------- )
)
)
- --------------------------------- )
)
)
- --------------------------------- )
Occupation
December 21, 1989
<PAGE> 52
LPS 3-07
- 8 -
Where the Shareholder is a company:
The Corporate/Common Seal of )
[Shareholder] was affixed )
in the presence of: )
)
)
) c/s
- ------------------------------- )
Authorized signatory )
)
)
- ------------------------------- )
Authorized signatory )
December 21, 1989
<PAGE> 53
LPS 3-07
SCHEDULE A TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Superintendent of Brokers or Vancouver Stock Exchange
#1100 - 865 Hornby Street 609 Granville Street
Vancouver, B.C. Vancouver, B.C.
V6Z 2H4 V7Y 1H1
(if the shares are not (if the shares are listed
listed on the Vancouver on the Vancouver Stock
Stock Exchange) Exchange)
I acknowledge that
(a) I have entered into an agreement with _________________ under which
_____________ shares of ______________ (the"Shares") will be transferred
to me upon receipt of regulatory approval, and
(b) the Shares are held in escrow subject to an escrow agreement dated for
reference ___________________, 19_____ (the "Escrow Agreement"), a copy of
which is attached as Schedule A to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at ________________________ on __________________ 19____.
Where the transferee is an individual:
Signed sealed and delivered by )
[transferee] in the presence of: )
)
)
- ------------------------------- )
Name )
)
)
- ------------------------------- ) ------------------------
Address ) [transferee]
)
)
- ------------------------------- )
)
)
- ------------------------------- )
Occupation
December 21, 1989
<PAGE> 54
LPS 3-07
Where the transferee is a company:
The Corporate/Common Seal of )
[transferee] was affixed )
in the presence of: )
)
)
) c/s
- ------------------------------- )
Authorized signatory )
)
)
- ------------------------------- )
Authorized signatory )
December 21, 1989
<PAGE> 55
LPS 3-07
SCHEDULE C TO ESCROW AGREEMENT
- --------------------------------------------------------------------------------
NAME OF SHAREHOLDER NUMBER OF SHARES HELD IN ESCROW
- --------------------------------------------------------------------------------
December 21, 1989
<PAGE> 56
LPS 3-07
APPENDIX B TO LOCAL POLICY STATEMENT 3-07
EXAMPLES OF EARN-OUT PRICES FOR PERFORMANCE SHARES
ISSUED BY AN INDUSTRIAL ISSUER
--------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------
EARN-OUT PRICE IN DOLLARS
- -------------------------------------------------------------------------------
PERFORMANCE SHARE
PERCENTAGE 5% 25% 45% 65%
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARN-OUT FACTOR .01x .25x .81x 1.69x
- -------------------------------------------------------------------------------
I
P $0.40 .004 .10 .324 .676
O
$0.60 .006 .15 .486 1.014
P
R $0.80 .008 .20 .648 1.352
I
C $1.00 .010 .25 .810 1.690
E
- -------------------------------------------------------------------------------
</TABLE>
The earn-out price represents the amount of cash flow that must be generated to
release one performance share from escrow. The following definitions are
applicable to the calculation.
EARN-OUT PRICE:
The IPO price multiplied by the EARN-OUT FACTOR.
IPO PRICE:
The price per share paid by the public on the issuer's IPO.
EARN-OUT FACTOR:
The number obtained by squaring the PERFORMANCE SHARE PERCENTAGE,
expressed as a decimal, and multiplying the result by four.
PERFORMANCE SHARE PERCENTAGE:
The percentage, determined on the date the issuer's shares are listed,
posted and called for trading on the Exchange, that the issued performance
shares of the issuer are of the total issued and outstanding voting
securities of the issuer.
December 21, 1989
<PAGE> 57
LPS 3-07
--------
APPENDIX C TO LOCAL POLICY STATEMENT 3-07
UNDERTAKING REQUIRED FROM NON-REPORTING
OR CLOSELY HELD COMPANY
---------------------------------------
To: Superintendent of Brokers or Vancouver Stock Exchange
#1100 - 865 Hornby Street 609 Granville Street
Vancouver, B.C. Vancouver, B.C.
V6Z 2H4 V7Y 1H1
(if the Issuer's shares (if the Issuer's shares
are not listed on the are listed on the
Vancouver Stock Exchange) Vancouver Stock Exchange)
________________ (the "Company") undertakes, for the duration of the time that
the Company is the registered owner of escrowed shares of ____________________
(the "Issuer"),
(a) to effect or permit transfer of ownership in the shares of the Company, or
(b) to allot and issue further shares of any class of shares of the Company
only upon receipt of the written consent of the Superintendent of Brokers, if
the Issuer's shares are not listed on the Vancouver Stock Exchange (the
"Exchange"), or the Exchange, if the Issuer's shares are listed on the Exchange.
Dated at ___________________________ on __________________ 19 ____.
The Corporate/Common Seal of )
[Company] was affixed )
in the presence of: )
)
)
- --------------------------------- ) c/s
Authorized signatory )
)
- -------------------------------- )
Authorized signatory )
December 21, 1989
<PAGE> 58
SCHEDULE "C" TO ESCROW AGREEMENT
- -------------------------------------------------------------------------------
NAME OF SHAREHOLDER NUMBER OF SHARES HELD IN ESCROW
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Clinton Rickards 282,267
13961 - 33rd Avenue
Surrey, B.C. V6P 3G2
David Brown 88,208
Apt. 701 - 625 Avenue Road
Toronto, Ontario M4V 2K7
Estate of Ronald Gunn 17,641
c/o Faye Stephenson
Genest, Murray, Desbrisah & Lanek
700 - 130 Adelaide St. West
Toronto, Ontario M5H 4C1
Charles Conrad 35,283
Route 1
Box 118J
Chouteau, Oklahoma
14337
Talbot Iredale 70,566
3657 West 28th Avenue
Vancouver, B.C. V6S 1S3
Ian Piper 28,227
#303 - 4690 Hazel St.
Burnaby, B.C. V5H 1S5
Michael Massullo 28,227
#101 - 2736 Victoria Drive
Vancouver, B.C. V5N 4L4
Howard Van Pelt 2,187,581
1709 Conestoga SE
Albuquerque, NM 87123
---------
TOTAL: 2,738,000
=========
</TABLE>
- 2 -
<PAGE> 59
PERFORMANCE SHARES ESCROW AGREEMENT
THIS AGREEMENT IS DATED FOR REFERENCE THE 16 DAY OF January, 1998.
AMONG:
MONTREAL TRUST COMPANY OF CANADA, 4th Flr., 510 Burrard Street,
Vancouver, B.C., V6C 3B9
(the "Escrow Agent")
AND:
GLOBAL ELECTION SYSTEMS INC. (formerly Macrotrends International
Ventures Inc.) a corporation duly incorporated under the laws of the
Province of British Columbia having an office at 1562 Rand Avenue,
Vancouver, B.C., V6P 3G2;
(the "Issuer")
AND:
EACH SHAREHOLDER, as defined in this Agreement
(collectively, the "Parties");
WHEREAS each Shareholder has acquired or is about to acquire Shares of the
Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent in respect of the
Shares upon the acquisition of the Shares by the Shareholder;
NOW THEREFORE in consideration of the covenants contained in this Agreement and
other good and valuable consideration (the receipt and sufficiency of which is
acknowledged), the Parties agree (the "Agreement") as follows:
1. INTERPRETATION
In this Agreement:
(a) "Acceptance Date" means the date on which this agreement was accepted
by the Commission;
(b) "Acknowledgement" means the acknowledgement and agreement to be bound
in the form attached as Schedule "A" to this Agreement;
<PAGE> 60
(c) "Act" means the Securities Act, S.B.C. 1985. c.83;
(d) "Cash Flow" means net income or loss before tax, adjusted to add
back the following expenses:
(i) depreciation,
(ii) amortization of goodwill and deferred research and
development costs, excluding general and administrative
costs,
(iii) expenses research and development costs, excluding general
and administrative costs, and
(iv) any other amounts permitted or required by the Executive
Director,
(e) "Commission" means the British Columbia Securities Commission;
(f) "Cumulative Cash Flow" means, at any time, the aggregate cash
flow of the Issuer up to that time from a date no earlier than
the Issuer's financial year end immediately preceding the
Acceptance Date, net of any negative cash flow;
(g) "Executive Director" means the Executive Director appointed under
the Act;
(h) "Local Policy Statement 3-07" means the Commission Local Policy
Statement 3-07 in effect as of the date of reference of this
Agreement and attached as Schedule "B" to this Agreement;
(i) "Shareholder" means a holder of shares of the Issuer who executes
this Agreement or an Acknowledgement; and
(j) "Shares" means the shares of the Shareholder described in
Schedule "C" to this Agreement, as amended from time to time in
accordance with section 9.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with the Escrow Agent and shall
deliver the certificates representing the Shares to the Escrow Agent as soon as
practicable.
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all voting
rights attached to the Shares.
4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waive's the rights attached to the Shares:
(a) to vote the Shares on a resolution to cancel any of the Shares;
- 2 -
<PAGE> 61
(b) to receive dividends; and
(c) to participate in the assets and property of the Issuer on a winding
up or dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall abstain from
voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(1) the Shareholder shall not transfer any of the Sharers except in accordance
with Local Policy Statement 3-07 and with the consent of the Executive
Director.
(2) The Escrow Agent shall not effect a transfer of the Shares within escrow
unless the Escrow Agent has received:
(a) a copy of an Acknowledgement executed by the person to whom the Shares
are to be transferred; and
(b) a letter from the Executive Director consenting to the transfer.
(3) Upon the death or bankruptcy of a Shareholder, the Escrow Agent shall hold
the Shares subject to this Agreement for the person that is legally
entitled to become the registered owner of the Shares.
(4) In the event the Shareholder ceases to be a "principal" (as that term is
defined in Local Policy Statement 3-07) of the Issuer, the Shareholder
shall do all such things in respect of the Shares as may be required by the
Company including, without in any way limiting the generality of the
foregoing, gifting back the Shares, or any part of them, to the issuer or
transferring the Shares, or any part of them, to a person or persons
directed by the Company.
7. RELEASE FROM ESCROW
(1) The Shareholder irrevocably directs the Escrow Agent to retain the Shares
until the Shares are released from escrow pursuant to subsection (2) or
surrendered for cancellation pursuant to section 8.
(2) The Escrow Agent shall not release the Shares from escrow unless the Escrow
Agent has received a letter from the Executive Director consenting to the
release.
(3) The approval of the Executive Director to a release from escrow of any of
the shares shall terminate this Agreement only in respect of the shares
so released.
- 3 -
<PAGE> 62
(4) The Shares will be released, on a pro-rata basis to the Shareholders,
pursuant to subsection (2) on the basis of one Share for every $0.7975 of
Cumulative Cash Flow generated by the Issuer.
(5) Notwithstanding any other provision in this Agreement, any Shares not
released before January 17, 2000 shall be cancelled.
8. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation by the Issuer and
the Escrow Agent shall deliver the certificates representing the Shares to the
Issuer:
(1) at the time of a major reorganization of the Issuer, if required as a
condition of the consent to the reorganization by the Executive Director;
(2) where the Issuer's shares have been subject to a cease trade order issued
under the Act for a period of 2 consecutive years; and
(3) where required by section 6(4).
9. AMENDMENT OF AGREEMENT
(1) SUBJECT TO subsection (2), this Agreement may be amended only by a written
agreement among the Parties and with the written consent of the Executive
Director.
(2) Schedule "C" to this Agreement shall be amended upon:
(a) a transfer of Shares pursuant to section 6;
(b) a release of Shares from escrow pursuant to section 7; and
(c) a surrender of Shares for cancellation pursuant to section 8;
and the Escrow Agent shall note the amendment on the Schedule "C" in its
possession.
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release, indemnify and
save harmless the Escrow Agent from all costs, charges, claims, demands,
damages, losses and expenses resulting from the Escrow Agent's compliance in
good faith with this Agreement.
11. RESIGNATION OF ESCROW AGENT
(1) If the Escrow Agent wishes to resign as escrow agent in respect of the
Shares, the Escrow Agent shall give notice to the Issuer.
(2) If the Issuer wishes the Escrow Agent to resign as escrow agent in respect
of the Shares, the Issuer shall give notice to the Escrow Agent.
- 4 -
<PAGE> 63
(3) A notice referred to in subsection (1) or (2) shall be in writing and
delivered to:
(a) the Issuer at its address appearing on the cover page of this
Agreement; or
(b) the Escrow Agent at its address appearing on the cover page of this
Agreement;
and the notice shall be deemed to have been received on the date of delivery.
The Issuer or the Escrow Agent may change its address for notice by giving
notice to the other party in accordance with this subsection.
(4) A copy of a notice referred to in subsection (1) or (2) shall concurrently
be delivered to the Executive Director.
(5) The resignation of the Escrow Agent shall be effective and the Escrow
Agent shall cease to be bound by this Agreement on the date that is 180
days after the date of receipt of the notice referred to in subsection (1)
or (2) or on such other date as the Escrow Agent and the Issuer may agree
upon (the "resignation date").
(6) The Issuer shall, before the resignation date and with the written consent
of the Executive Director, appoint another escrow agent and that
appointment shall be binding on the Issuer and the Shareholders.
12. ENTIRE AGREEMENT
This Agreement supersedes and replaces all other escrow agreements applying to
the Shares required by securities regulators and all such Agreements are
terminated and of no further force and effect from the reference date of this
Agreement.
13. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform any acts
necessary to carry out the intent of this Agreement.
14. TIME
Time is of the essence of this Agreement.
15. GOVERNING LAWS
This Agreement shall be construed in accordance with and governed by the laws of
British Columbia and the laws of Canada applicable in British Columbia.
16. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original and all of which shall constitute one agreement.
- 5 -
<PAGE> 64
17. LANGUAGE
Wherever a singular expression is used in this Agreement, that expression is
deemed to include the plural or the body corporate where required by the
context.
18. ENUREMENT
This Agreement inures to the benefit of and is binding on the Parties and their
heirs, executors, administrators, successors and permitted assigns.
The Parties have executed and delivered this Agreement as of the date of
reference of this Agreement.
THE COMMON SEAL of ESCROW AGENT )
was hereunto affixed in the presence of:)
)
/s/ KAREN )
- --------------------------------------- )
Authorized Signatory )
)
/s/ ILLEGIBLE )
- --------------------------------------- )
Authorized Signatory
THE COMMON SEAL of GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
)
)
)
/s/ CLINTON H. RICKARDS )
- --------------------------------------- )
Clinton H. Rickards
-6-
<PAGE> 65
SIGNED, SEALED AND DELIVERED )
by CLINTON RICKARDS )
in the presence of: )
)
/s/ BONNIE MERRITT ) /s/ CLINTON RICKARDS
- ------------------------------------- ) -----------------------------------
Signature of Witness ) CLINTON RICKARDS
)
Name: Bonnie Merritt )
------------------------------- )
)
Address: 11339-87 Ave. )
---------------------------- )
)
N. Delta, B.C. O4C 2Z6 )
- ------------------------------------- )
)
)
Occupation: Administrative Assistant )
------------------------- )
SIGNED, SEALED AND DELIVERED )
by HOWARD VAN PELT )
in the presence of: )
)
/s/ SUSAN MARTIN ) /s/ HOWARD VAN PELT
- ------------------------------------- ) -----------------------------------
Signature of Witness ) HOWARD VAN PELT
)
Name: Susan Martin )
------------------------------- )
)
Address: 1611 Wilmeth Rd. )
---------------------------- )
)
McKinney, TX 75069 )
- ------------------------------------- )
)
)
Occupation: Adm. Asst. )
------------------------- )
- 7 -
<PAGE> 66
SIGNED, SEALED & DELIVERED )
by DAVID BROWN )
in the presence of: )
)
/s/ SHIRLEY A. BROWN ) /s/ DAVID H. BROWN
- ---------------------------- ) ------------------------
Signature of Witness ) DAVID BROWN
)
Name: Shirley A. Brown )
------------------------ )
)
Address: 625 Avenue Rd. #701 )
--------------------- )
Toronto ONT M4V 2K7 )
--------------------- )
Occupation: Retired )
------------------ )
SIGNED, SEALED & DELIVERED )
by THE ESTATE OF RONALD GUNN )
in the presence of: )
)
)
- ----------------------------- ) -----------------------------
Signature of Witness ) THE ESTATE OF RONALD GUNN
)
Name: )
------------------------ )
)
Address: )
--------------------- )
)
--------------------- )
Occupation: )
--------------------- )
- 8 -
<PAGE> 67
SIGNED, SEALED & DELIVERED )
by DAVID BROWN )
in the presence of: )
)
)
- ----------------------------------- ) ------------------------------------
Signature of Witness ) DAVID BROWN
)
Name: )
----------------------------- )
)
Address: )
-------------------------- )
)
)
- ----------------------------------- )
)
Occupation: )
----------------------- )
SIGNED, SEALED & DELIVERED )
by THE ESTATE OF RONALD GUNN ) /s/ DONNA I. COPPER, TRUSTEE
in the presence of: )
)
/s/ BLAIV MACKENZIE ) /s/ [ILLEGIBLE] TRUSTEE
- ----------------------------------- ) ------------------------------------
Signature of Witness ) THE ESTATE OF RONALD GUNN
)
Name: Blaiv MacKenzie )
----------------------------- )
)
Address: 8 King St East, Suite 1400 )
-------------------------- )
)
Toronto, Ontario M5C IBJ )
- ----------------------------------- )
)
Occupation: C.A. )
---------------------- )
- 8 -
<PAGE> 68
SIGNED, SEALED, & DELIVERED )
by CHARLES CONRAD )
in the presence of: )
)
/s/ EDDIE L. CONRAD ) /s/ CHARLES CONRAD
- ---------------------------------- ) -----------------------
Signature of Witness ) CHARLES CONRAD
)
Name: Eddie L. Conrad )
---------------------------- )
)
Address: Rt. 1 Box 118 J )
------------------------- )
Chouteau, OK 74337 )
--------------------------------- )
)
Occupation: Housewife )
----------------------- )
SIGNED, SEALED, & DELIVERED )
by TALBOT IREDALE )
in the presence of: )
)
)
- ---------------------------------- ) -----------------------
Signature of Witness ) TALBOT IREDALE
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
- ---------------------------------- )
)
Occupation: )
----------------------- )
<PAGE> 69
SIGNED, SEALED & DELIVERED )
by CHARLES CONRAD )
in the presence of: )
)
)
- ---------------------------------- ) ------------------------------------
Signature of Witness ) CHARLES CONRAD
)
Name: )
---------------------------- )
)
Address: )
------------------------- )
)
)
- ---------------------------------- )
)
Occupation: )
---------------------- )
SIGNED, SEALED & DELIVERED )
by TALBOT IREDALE )
in the presence of )
)
/s/ C. H. RICKARDS ) /s/ TALBOT IREDALE
- ---------------------------------- ) ------------------------------------
Signature of Witness ) TALBOT IREDALE
)
Name: C. H. RICKARDS )
---------------------------- )
)
Address: 13961 33RD AVE. )
------------------------- )
SURREY B.C. )
- ---------------------------------- )
)
Occupation: MARKETING )
---------------------- )
- 9 -
<PAGE> 70
SIGNED, SEALED & DELIVERED )
by IAN PIPER )
in the presence of: )
)
/s/ SUSAN MARTIN ) /s/ IAN S. PIPER
- ---------------------------------- ) ------------------------------------
Signature of Witness ) IAN PIPER
)
Name: Susan Martin )
---------------------------- )
)
Address: 1611 Wilmeth Rd. )
------------------------- )
McKinney, TX 75069 )
- ---------------------------------- )
)
Occupation: Adm. Asst. )
---------------------- )
SIGNED, SEALED & DELIVERED )
by MICHAEL MASSULLO )
in the presence of: )
)
/s/ M. G. STEVENSON ) /s/ MIKE MASSULLO
- ---------------------------------- ) ------------------------------------
Signature of Witness ) MICHAEL MASSULLO
)
Name: M. G. STEVENSON )
---------------------------- )
)
Address: 2821 MARA DR. )
------------------------- )
COQUITLAM B.C. V3C 5T9 )
- ---------------------------------- )
)
Occupation: PROGRAMMER )
---------------------- )
- 10 -
<PAGE> 71
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100-865 Hornby Street
Vancouver, B.C.
V6Z 2H4
I, CLINTON H. RICKARDS (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTION SYSTEMS INC.
(the "Issuer") under which 282,267 shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at Vancouver on JAN 16th, 1998.
Where the Transferee is an individual:
SIGNED, SEALED & DELIVERED )
by the Transferee in the presence of: )
)
/s/ BONNIE MERRITT ) /s/ CLINTON H. RICKARDS
- ------------------------------------ ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: Bonnie Merritt )
------------------------------ )
)
Address: 11339 ____ AVENUE )
--------------------------- )
N. DELTA, B.C. V4C 2Z6 )
- ------------------------------------ )
)
Occupation: Administrative Assistant )
------------------------ )
-1-
<PAGE> 72
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100- 865 Hornby Street
Vancouver, B.C.
V6Z ZH4
I, HOWARD T. VAN PELT (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTION SYSTEMS INC.
(the "Issuer") under which ______ shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at McKinney, TX on January 15, 1998.
Where the Transferee is an individual:
SIGNED, SEALED & DELIVERED )
by the Transferee in the presence of: )
)
/s/ SUSAN MARTIN ) /s/ HOWARD T. VAN PELT
- ---------------------------------- ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: Susan Martin )
---------------------------- )
)
Address: 1611 Wilmeth Rd. )
------------------------- )
)
McKinney, TX 75069 )
- ---------------------------------- )
)
Occupation: Adm. Asst. )
---------------------- )
-1-
<PAGE> 73
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100- 865 Hornby Street
Vancouver, B.C.
V6Z 2H4
I, DAVID H. BROWN (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTION SYSTEMS INC.
(the "Issuer") under which 88,208 shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at TORONTO on JAN 15, 1998.
Where the Transferee is an individual:
SIGNED, SEALED & DELIVERED )
by the Transferee in the presence of: )
)
/s/ SHIRLEY A. BROWN ) /s/ DAVID H. BROWN
- ---------------------------------- ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: SHIRLEY A. BROWN )
---------------------------- )
)
Address: 625 AVENUE __ #701 )
------------------------- )
)
TORONTO, ONT. M4V 2K7 )
- ---------------------------------- )
)
Occupation: RETIRED )
---------------------- )
-1-
<PAGE> 74
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100- 865 Hornby Street
Vancouver, B.C.
V6Z ZH4
The undersigned as Trustees of the Estate of Ronald Gunn (the "Transferee"),
acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTION SYSTEMS INC.
(the "Issuer") under which 17,641 shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at TORONTO on __________________, 1998.
Where the Transferee is an individual:
SIGNED, SEALED & DELIVERED )
by the Transferee in the presence of: ) /s/ DONNA I COPPER, Trustee
)
/s/ BLAIV MACKENZIE ) /s/ ILLEGIBLE, Trustee
- ---------------------------------- ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: Blaiv MacKenzie )
---------------------------- )
)
Address: 8 King St E )
------------------------- )
)
Toronto, Ontario M5C JB5 )
- ---------------------------------- )
)
Occupation: C.A. )
---------------------- )
- 1 -
<PAGE> 75
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
TO: Executive Director
1100-865 Hornby Street
Vancouver, B.C.
V6Z 2H4
I, CHARLES M. CONRAD (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTIONS SYSTEMS INC.
(the "Issuer") under which 35,283 shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval, and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at Chouteau, OK on Jan. 15, 1998.
Where the Transferee is an individual:
SIGNED, SEALED AND DELIVERED )
by the Transferee in the presence of: )
)
/s/ EDDIE L. CONRAD ) /s/ CHARLES M. CONRAD
- ---------------------------------- ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: Eddie L. Conrad )
---------------------------- )
)
Address: Rt. 1 Box 118 J )
------------------------- )
Chouteau, OK 74337 )
- ---------------------------------- )
)
Occupation: Housewife )
---------------------- )
<PAGE> 76
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100- 865 Hornby Street
Vancouver, B.C.
V6Z ZH4
I, TALBOT IREDALE (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTIONS SYSTEMS INC.
(the "Issuer") under which 70,566 shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at Vancouver on JAN 16, 1998.
Where the Transferee is an individual:
SIGNED, SEALED AND DELIVERED )
by the Transferee in the presence of: )
)
/s/ C. H. RICKARDS ) /s/ TALBOT IREDALE
- ---------------------------------- ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: C. H. RICKARDS )
---------------------------- )
)
Address: 13961 33RD AVE. )
------------------------- )
SURREY B.C. )
- ---------------------------------- )
)
Occupation: MARKETING )
---------------------- )
-1-
<PAGE> 77
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100- 865 Hornby Street
Vancouver, B.C.
V6Z ZH4
I, IAN S. PIPER (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTIONS SYSTEMS INC.
(the "Issuer") under which ______ shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at McKinney, TX on January 15, 1998.
Where the Transferee is an individual:
SIGNED, SEALED AND DELIVERED )
by the Transferee in the presence of: )
)
/s/ SUSAN MARTIN ) /s/ IAN S. PIPER
- ---------------------------------- ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: SUSAN MARTIN )
---------------------------- )
)
Address: 1611 Wilmeth Rd. )
------------------------- )
McKinney, TX 75069 )
- ---------------------------------- )
)
Occupation: ADM. ASST. )
---------------------- )
-1-
<PAGE> 78
SCHEDULE "A" TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Executive Director
1100- 865 Hornby Street
Vancouver, B.C.
V6Z ZH4
I, MIKE MASSOLLO (the "Transferee"), acknowledge that:
(a) I have entered into an agreement with GLOBAL ELECTIONS SYSTEMS INC.
(the "Issuer") under which 28,227 shares of the Issuer (the "Shares")
will be transferred to me upon receipt of regulatory approval; and
(b) the Shares are held in escrow subject to an escrow agreement dated
for reference January ____, 1998 (the "Escrow Agreement"), a copy of
which is attached as Schedule "A" to this acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at Vancouver on Jan 16, 1998.
Where the Transferee is an individual:
SIGNED, SEALED AND DELIVERED )
by the Transferee in the presence of: )
)
/s/ M. G. STEVENSON ) /s/ MIKE MASSOLLO
- ---------------------------------- ) ------------------------------------
Signature of Witness ) (Signature of Transferee)
)
Name: M. G. STEVENSON )
---------------------------- )
)
Address: 2821 MARA DR. )
------------------------- )
COQUITLAM, B.C. V3C5T9 )
- ---------------------------------- )
)
Occupation: PROGRAMMER )
---------------------- )
-1-
<PAGE> 79
Where the Transferee is a company:
THE CORPORATE SEAL of the Transferee )
was hereunto affixed in the presence of: )
)
)
- ---------------------------------------- ) c/s
)
)
- ---------------------------------------- )
- 2 -
<PAGE> 80
SCHEDULE "B" TO ESCROW AGREEMENT
Local Policy Statement 3-07 in effect as of the date of the Escrow Agreement.
<PAGE> 81
LOCAL POLICY STATEMENTS 3-07
LOCAL POLICY STATEMENT 3-07
POLICY GUIDELINES RESPECTING TRADING SHARES, PERFORMANCE SHARES AND
OTHER CONSIDERATION
- ------------------------------------------------------------------------------
See NIN 92/3 "Clarification of waivers relating to Local Policy Statement 3-07".
The Executive Director confirms the waiver of the requirements to enter into a
pooling or escrow agreement if a person who is not a control person holds shares
in the capital of an issuer which becomes an exchange issuer.
Re PLC Systems Inc., Logan Anderson, Harry C. Moll and Derek van Laare (1993),
1 C.C.L.S. 53 (B.C. Sec. Comm.).
Where an escrow agreement provides that the escrow shares will be released
"from time to time in accordance with the general policies of the
Superintendent (now known as the Executive Director) or Exchange", the general
policies to be applied by the Superintendent in deciding the appropriate
application for the release of the escrow shares are the policies in effect at
the time the application is made. It would be patently unreasonable for the
applicants to expect the Executive Director, in deciding an escrow release
application, to apply a policy inconsistent with that of the Commission.
Considerable mischief will result if holders of escrow shares are able to have
those shares released on a more favourable basis simply because the issuer of
the shares had been delisted from the Exchange. It is in the public interest
that the Commission's policy directives with respect to the release of escrow
shares be consistently applied by the Executive Director and the Exchange.
Re Ingot Group Holdings Inc., [1993] 35 B.C.S.C. Weekly Summary 16 (B.C. Sec.
Comm.).
An escrow agreement provided that where the property for which the escrow shares
have been issued is lost or alienated, the Exchange may, at its discretion,
cancel the shares as it deems advisable. The Exchange must determine on the
facts whether the property has been lost or alienated prior to it exercising its
discretion. In concurring reasons, Commissioner Hira stated that cancelling
escrow shares is a significant alienation of property rights, particularly from
the prospective of the person whose escrow shares are being cancelled.
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
1. IMPLEMENTATION
2. APPLICATION
2.1 Pre-prospectus
2.2 Reactivations and reorganizations
3. TRANSITION
3.1 Agreements made under former policy statement
3.2 Option of conforming with new policy statement
4. DEFINITIONS
4.1 Defined terms
4.2 Terms defined in legislation
5. GENERAL MATTERS
5.1 Review of opinions and reports
5.2 Requirement for valuation opinion
5.3 Out of pocket costs
5.4 Confirmation of fair value
6. ISSUANCE OF TRADING SHARES
6.1 Minimum price and maximum aggregate value
6.2 Interest in operating subsidiary
7-33
<PAGE> 82
LOCAL POLICY STATEMENTS 3-07
initial public offering and obtain a listing on the Vancouver Stock
Exchange. This local policy statement addresses
(a) the issuance of trading shares, which are common shares issued as
consideration for cash or assets contributed to the issuer and,
in certain cases, expenses incurred to advance the business of
the issuer,
(b) the issuance of escrow restrictions imposed on performance
shares, which are common shares issued to directors, officers,
promoters and other principals of the issuer to provide them with
both a reasonable assurance of control during the formative
stages of the issuer's development and an incentive to support
the issuer, and
(c) the payment of other consideration by the issuer for assets or
services.
2.2 Reactivations and reorganizations -- This local policy statement
applies, with the necessary changes, to
(a) the reactivation of an issuer by way of a prospectus, carried out
in accordance with Local Policy Statement 3-35 and the policies
of the Vancouver Stock Exchange, and
(b) a major reorganization of an issuer, including a reverse take
over, carried out in accordance with the policies of the British
Columbia Securities Commission and the Vancouver Stock Exchange.
PART 3 TRANSITION
3.1 Agreements made under former policy statement -- Subject to section
3.2, shares issued in accordance with the Former Policy Statement will
continue to be governed by any agreements made in accordance with the
Former Policy Statement. Such shares, however, will be subject to the
transfer restrictions and procedures set out in Part 8 and the release
criteria and procedures set out in sections 9.5 through 9.10 of this
local policy statement.
3.2 Option of conforming with new policy statement -- An issuer that has
issued shares in accordance with the Former Policy Statement may
reorganize its capital to fully conform with this local policy
statement. Before doing so, the issuer must obtain the approval of its
shareholders and the written consent of the Superintendent of Brokers,
if the issuer's shares are not listed on the Vancouver Stock Exchange,
or the Vancouver Stock Exchange, if the issuer's shares are listed on
that exchange. Both the approval and consent must be obtained by March
1, 1991.
PART 4 DEFINITIONS
4.1 Defined terms -- In this local policy statement:
"Act" means the Securities Act, S.B.C. 1985, c. 83;
"arm's length transaction" means a transaction other than a non-arm's
length transaction;
"cash flow" means net income or loss before tax, adjusted to add back the
following expenses:
(a) depreciation,
(b) amortization of goodwill and deferred research and development
costs, excluding general and administrative costs,
(c) expensed research and development costs, excluding general and
administrative costs, and
(d) any other amounts permitted or required by the Superintendent;
"cumulative cash flow" means, at any time, the aggregate cash flow of an
issuer up to that time from a date no earlier than the issuer's financial year
end immediately preceding the date of its IPO, net of any negative cash flow;
- -----------------------------------------------------------------------------
The practice of the Commission is to allow the issuer to choose either its
financial year end immediately prior to or immediately subsequent to its
initial public offering as the time from which the cumulative cash flow shall
be calculated.
- -----------------------------------------------------------------------------
<PAGE> 83
3-07 LOCAL POLICY STATEMENTS
"earn-out factor" means the number obtained by squaring the
performance share percentage, expressed as a decimal, and multiplying by four;
"earn-out price" means the IPO price multiplied by the earn-out factor;
"escrow agreement" means an agreement in the form attached as Appendix A to
this local policy statement;
"Exchange" means the Vancouver Stock Exchange;
"industrial issuer" means an issuer other than a natural resource issuer;
"IPO" means the initial public offering of common shares of an issuer
under a prospectus which has been filed with, and for which a receipt has been
obtained from, the Superintendent under section 42 of the Act;
"IPO price" means the price per share paid by the public on an issuer's
IPO;
"non-arm's length transaction" means a transaction between the issuer and
a person that, at any time from the date of the transaction until the date of
completion of the issuer's IPO, is
(a) an insider, associate, affiliate or principal of the issuer,
(b) a person that
(i) has a control person, insider or promoter that is a
control person, insider or promoter of the issuer, or
(ii) has a control person, insider or promoter that is an
associate or affiliate of a control person, insider or
promoter of the issuer
except where the person's insiders that are described in
paragraphs (i) and (ii) hold in total less than 10% of the voting
securities of the person, or
(c) determined by the Superintendent not to be at arm's length to
the issuer;
"performance shares" means common shares of an issuer issued in accordance
with Part 7 of this local policy statement, so long as they are held in escrow
in accordance with this local policy statement;
"performance share percentage" means the percentage, determined on the
date the issuer's shares are listed, posted and called for trading on the
Exchange, that the issued performance shares of the issuer are of the total
issued and outstanding voting securities of the issuer;
"principal" means, in relation to an issuer,
(a) a promoter of the issuer,
(b) a director of the issuer or of an operating subsidiary of the
issuer,
(c) a full time management employee of the issuer, or of an operating
subsidiary of the issuer, whose direct or indirect employment
is with the issuer or the subsidiary,
(d) a person who has provided key services or contributed a
fundamental asset to the issuer and has elected to be treated
as a principal, or
(e) a company all the voting securities of which are owned by one
or more of the persons referred to in subsections (a) through
(d); -- "Regulation" means the Securities Regulation, B.C.
Reg. 270/86;
"Superintendent or the Exchange" means the Superintendent, if the issuer's
shares are not listed on the Exchange, and the Exchange, if the issuer's
shares are listed on the Exchange;
"trading shares" means shares of the class of common shares issued on an
issuer's IPO, excluding performance shares issued in accordance with Part 7 of
this local policy statement;
"valuation opinion" means, in respect of
(a) a natural resource issuer, a written opinion prepared by a
qualified expert as to the fair market value of a resource
property, determined either through the computation of present
value or some other recognized method of valuation acceptable to
the Superintendent, and
(b) an industrial issuer, a written opinion prepared in accordance
with generally applied valuation approaches by a Chartered
Business Valuator, or
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LOCAL POLICY STATEMENTS
another expert acceptable to the Superintendent, as to the
highest price available for the issuer's business, assets or
shares in an open and unrestricted market between informed,
prudent parties, acting at arm's length and under no compulsion
to act, expressed in terms of money or money's worth.
4.2 Terms defined in legislation -- Subject to section 4.1, terms defined
in the Act, the Regulation and the Interpretation Act, R.S.B.C. 1979,
c. 206 and used in this local policy statement have the same meaning
as in the Act, the Regulation and the Interpretation Act.
PART 5 GENERAL MATTERS
5.1 Review of opinions and reports -- The Superintendent may, with the
agreement of an issuer, seek the opinion of an engineer, appraiser,
business valuator, accountant or other expert to determine the
acceptability of a valuation opinion or other report filed pursuant to
this local policy statement and, in such circumstances, the issuer
will be liable for the fees charged by such person in connection with
providing the opinion.
5.2 Requirement for valuation opinion -- The Superintendent may, at the
time of reviewing an issuer's prospectus for its IPO, require a
valuation opinion in support of the value attributed to any non-cash
assets.
5.3 Out of pocket costs -- Where this local policy statement provides that
the value of trading shares issued or other consideration paid to a
person by an issuer for a non-cash asset must be calculated on the
basis of the out of pocket costs incurred by the person in respect of
the non-cash asset, those out of pocket costs must
(a) be reasonable,
(b) have contributed or be reasonably expected to contribute to the
future operations of the issuer,
(c) be supported by an audited statement of costs, and
(d) in respect of a resource property, be restricted to acquisition
costs and such other costs as are necessary to secure a
preliminary evaluation of the resource property and to lead to
the identification of exploration targets.
5.4 Confirmation of fair value -- The onus will be on an issuer, if
questioned, to satisfy the Superintendent that fair value was received
for costs or expenditures associated with a non-arm's length
transaction.
PART 6 ISSUANCE OF TRADING SHARES
6.1 Minimum price and maximum aggregate value -- Although in most cases
trading shares will be paid for in cash, trading shares may be issued
for consideration other than cash. Subject to sections 6.2 through
6.6, an issuer may issue trading shares at a minimum price of $.25 per
share up to an aggregate value equal to:
(a) the amount of cash paid in as share capital; plus
(b) the fair market value of any non-cash assets contributed as
share capital; plus
(c) the issuer's retained earnings, if any; less
(d) where the issuer has an accumulated deficit, that portion of the
accumulated deficit that does not directly relate to the issuer's
stated business purpose at the time of its IPO.
6.2 Interest in operating subsidiary -- Where an issuer has an operating
subsidiary, or is proposing to issue trading shares in order to
acquire an operating subsidiary, and the value of that operating
subsidiary is not supported by a current valuation opinion, the
principles of this Part will apply to the operating subsidiary for the
purpose of determining the number of trading shares that may be issued
by the issuer in respect of its interest in the operating subsidiary.
6.3 Value assigned to non-cash assets -- For the purpose of section
6.1(b), where non-cash assets are contributed to an issuer by a person
in a non-arm's length transaction, the fair market value attributed to
the non-cash assets must be either
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3-07 LOCAL POLICY STATEMENTS
(a) supported by a valuation opinion, or
(b) limited to an amount equal to the out of pocket costs incurred by
the person in respect of the non-cash assets, determined in
accordance with section 5.3.
6.4 Purchase of interest in mineral property - A natural resource issuer
that, in an arm's length transaction, agrees to issue trading shares
as consideration for a mineral property or an option on a mineral
property, the value of which is not supported by a current valuation
opinion, will generally be required to meet the following conditions:
(a) The consideration must consist of not more than 200,000 trading
shares issuable in no fewer than four blocks, each block
consisting of not more than 50,000 trading shares.
(b) One block of shares may be issued prior to the date the issuer's
shares are listed, posted and called for trading on the Exchange.
(c) The remaining blocks of shares may be issued in stages upon the
filing with the Exchange of engineering reports, acceptable to
the Exchange, recommending further work on the mineral property.
6.5 Accumulated deficit related to issuer's stated business purpose - For
the purpose of section 6.1(d), that portion of the issuer's
accumulated deficit that directly relates to the issuer's stated
business purpose at the time of its IPO includes
(a) for a natural resource issuer, expenses incurred
(i) in exploring and developing the resource properties upon
which the issuer's IPO proceeds are to be spent, and
(ii) in exploring and developing other resource properties,
provided that these expenses do not exceed the expenses
referred to in paragraph (i), and
(b) for an industrial issuer, expenses incurred in respect of the
project or business to be financed by the issuer's IPO proceeds.
6.6 Exclusion of amounts by Superintendent - The Superintendent may
require that an amount be excluded from the determination of the
number of trading shares that may be issued under this Part if in the
circumstances he considers that to include any such amount would be
inappropriate or unconscionable. For example, the Superintendent would
question the appropriateness of issuing trading shares for non-cash
assets unrelated to the issuer's stated business purposes at the time
of its IPO or for excessive administrative expenses.
PART 7 ISSUANCE OF PERFORMANCE SHARES
7.1 Issuance to principals - Performance shares may be issued for cash to
the principals of an issuer
(a) to provide the principals with a measure of control to facilitate
the development of the issuer in an orderly fashion,
(b) to provide an incentive for the principals to diligently support
the affairs of the issuer, and
(c) to provide an incentive for the principals to contribute
management services or fundamental assets to the issuer.
7.2 Natural resource issuer - A natural resource issuer may issue to its
principals up to a total of 750,000 performance shares, at a minimum
price of $.01 per share.
7.3 Industrial issuer - An industrial issuer may issue performance shares
to its principals, at a minimum price of $.01 per share, provided that
the resulting performance share percentage does not exceed 65%.
7.4 Escrow requirement - Performance shares are required to be escrowed.
It should be noted that the higher the performance share percentage,
the more difficult it becomes to obtain a release of the performance
shares from escrow. The table attached as Appendix B to this local
policy statement provides some examples of
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LOCAL POLICY STATEMENTS 3-07
the operation of the release provisions for industrial issuers set out
in Part 9 of this local policy statement.
7.5 Escrow agreement -- Prior to or at the time of acquiring performance
shares, principals must execute an escrow agreement. The certificates
representing the performance shares must be registered in the names of
the holders of the shares and deposited with the escrow agent in
accordance with the terms of the escrow agreement. Only a trust
company carrying on business in British Columbia or a company approved
by the Superintendent may act as an escrow agent.
7.6 Limitations on rights of holders of performance shares -- The escrow
agreement provides that the holders of performance shares waive any
rights attached to those shares to receive dividends or to participate
in the assets and property of the issuer on a winding up or
dissolution. Holders of performance shares do retain the right to vote
those shares, except on a resolution respecting their cancellation.
7.7 Rights on ceasing to be a principal -- The escrow agreement requires
that the parties to it set out in the agreement any rights or
obligations of a person who ceases to be a principal, dies or becomes
bankrupt to retain, transfer or surrender to the issuer for
cancellation any performance shares then held by the person.
7.8 Undertaking of holding company - Where performance shares are to be
issued to a non-reporting or closely held company, wherever situate,
rather than to an individual, the company must, prior to or at the
time of acquiring the performance shares, execute an undertaking in
the form attached as Appendix C to this local policy statement. In
the undertaking, the company agrees not to effect or permit any
transfer of ownership of shares of the company nor to issue further
shares of any class in the company without the consent of the
Superintendent or the Exchange, so long as the company continues to
hold any of the issuer's performance shares. An application for
consent should be made in the same manner as an application for
consent to a transfer of performance shares pursuant to Part 8 of
this local policy statement.
PART 8 TRANSFER OF PERFORMANCE SHARES WITHIN ESCROW
8.1 Permitted transferees -- Performance shares may be transferred only to
(a) other principals, including incoming principals,
(b) the issuer of the performance shares, or
(c) an offeror under a formal bid (as defined in section 74 of the
Act).
8.2 Request for consent to transfer -- In order to transfer performance
shares, the holder of performance shares must deliver to the
Superintendent or the Exchange a written request for consent to the
transfer. The request for consent to the transfer must include:
(a) the name of the escrow agent and the reference date of the escrow
agreement,
(b) an explanation of the reason for the transfer,
(c) a description of the consideration to be paid for the performance
shares,
(d) where the performance shares are to be transferred to a
principal, confirmation that the transferee is a principal or
will become a principal on or before the date of the proposed
transfer, and
(e) a description of the exemptions in the Act or the Regulation, if
any, being relied upon to make the transfer.
8.3 Documents to be filed with request for consent to transfer -- The
request for consent to the transfer must be accompanied by:
(a) a copy of the transfer agreement,
(b) an acknowledgement and agreement to be bound in the form attached
as Schedule A to the escrow agreement, executed by the
transferee,
(c) where the performance shares are to be transferred to a
non-reporting or closely held company, wherever situate, rather
than to an individual, an
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3-07 LOCAL POLICY STATEMENTS
undertaking by the company in the form attached as Appendix C to
this local policy statement,
(d) where applicable, evidence that the proposed change of control
has been approved by the shareholders of the issuer, and
(e) the appropriate application fee.
8.4 Letter of consent or objection - Upon receiving a request for consent
to a transfer and accompanying documents that comply with sections 8.2
and 8.3, the Superintendent or the Exchange will issue to the
applicant a letter that either consents or objects to the transfer. A
letter consenting to the transfer will be copied to the escrow agent.
8.5 No transfer during period between prospectus receipt and listing - The
Superintendent will generally refuse to consent to a transfer of
performance shares during the period between the date of the receipt
for the issuer's prospectus for its IPO and the date the issuer's
securities are listed, posted and called for trading on the Exchange.
PART 9 RELEASE OF PERFORMANCE SHARES FROM ESCROW
9.1 Release of shares of natural resource issuer - Holders of performance
shares of a natural resource issuer will be entitled to the pro-rata
release of those performance shares on the basis of 15% of the
original number of performance shares for every $100,000 expended on
exploration and development of a resource property by
(a) the issuer, or
(b) a person other than the issuer in order to earn an interest in
the resource property, but only in respect of that proportion of
the expenditure equal to the issuer's remaining proportionate
interest in the resource property after the person's interest has
been earned,
provided that
(c) no more than 50% of the original number of performance shares
may be released in any 12 month period, and
(d) no expenditure on exploration and development made prior to the
date of the receipt for the issuer's prospectus for its IPO may
be included.
9.2 Reduction in release for natural resource issuer - Where
administrative expenses exceed 33% of total expenditures during the
period on which the calculation in section 9.1 is based,
(a) the pro-rata release factor of 15% will be reduced to 7.5%, and
(b) the percentage of the original number of performance shares
available for release in any 12 month period will be reduced to
25%.
9.3 Release of shares of industrial issuer - Holders of performance shares
of an industrial issuer will be entitled to the pro-rata release of a
number of performance shares equal to the amount of cumulative cash
flow, not previously applied towards release, divided by the earn-out
price.
9.4 Adjustment of release calculation - On a consolidation, subdivision,
amalgamation or reclassification of the issuer's shares, the release
calculation must be adjusted so that the proportion of the outstanding
performance shares available for release is unaffected by the
consolidation, subdivision, amalgamation or reclassification.
9.5 Requirements for release - No performance shares may be released from
escrow unless, at the time of the application for release,
(a) the issuer is meeting its current obligations in the ordinary
course of business as they generally become due, as evidenced by
a statutory declaration of the president or chief financial
officer of the issuer.
(b) the issuer's shares are listed, posted and called for trading on
all stock exchanges having jurisdiction over it, as evidenced by
letters from those stock exchanges,
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LOCAL POLICY STATEMENTS 3-07
(c) the issuer is not in default of any requirement of the Act or
the Regulation, as evidenced by a certificate issued by the
Commission, and
(d) the issuer is in good standing with respect to its filing of
returns with the Registrar of Companies under the Company Act or,
if the issuer is incorporated, organized or continued in a
jurisdiction other than British Columbia, with the registrar of
companies or similar authority in that jurisdiction, as evidenced
by a certificate issued by the Registrar of Companies or by that
similar authority.
9.6 Annual release based on annual audited financial statements -
Performance shares may be released only once during an issuer's
financial year. The release calculation must be based on the issuer's
annual audited financial statements for the year or years during which
the release requirements were met in respect of the performance shares
to be released.
9.7 Request for consent to release - In order to obtain a release of
performance shares, the issuer must deliver to the Superintendent or
the Exchange a written request for consent to the release. The request
for consent to the release must include the name of the escrow agent
and the reference date of the escrow agreement.
9.8 Documents to be filed with request for consent to release - The
request for consent to the release must be accompanied by:
(a) written evidence of compliance with the requirements of section
9.5,
(b) annual audited financial statements of the issuer for the
financial year or years during which the release requirements
were met in respect of the performance shares to be released,
(c) where expenditures on a resource property were made by a person
other than the issuer, an audited statement of costs,
(d) a calculation, prepared by the issuer's auditor, of the number
of performance shares to be released, and
(e) the appropriate application fee.
9.9 Letter of consent or objection - Upon receiving a request for consent
to a release and accompanying documents that comply with sections 9.7
and 9.8, the Superintendent or the Exchange will issue to the issuer a
letter that either consents or objects to the release. A letter
consenting to the release will be copied to the escrow agent.
9.10 Request by holder of performance shares for consent to release - A
holder of performance shares may apply to the Superintendent or the
Exchange for release where the issuer is unable or unwilling to do so.
If the president or chief financial officer of the issuer refuses to
provide the statutory declaration referred to in section 9.5(a), the
Superintendent or the Exchange may waive that requirement.
PART 10 SURRENDER OF PERFORMANCE SHARES FOR CANCELLATION
10.1 Performance shares must be surrendered to the issuer for cancellation
(a) at the time of a major reorganization of the issuer, if required
as a condition of the consent to the reorganization by the
Superintendent or the Exchange,
(b) where the issuer's shares have been subject to a cease trade
order issued under the Act for a period of 2 consecutive years,
or
(c) 10 years from the later of the date of issue of the performance
shares and the date of receipt for the issuer's prospectus for
its IPO.
PART 11 OTHER CONSIDERATION
11.1 Natural resource issuer - Where a natural resource issuer proposes to
acquire from a person a resource property or an option on a resource
property, the value of which is not supported by a valuation opinion,
the following principles apply:
(a) In an arm's length transaction, the issuer may pay the person
cash consideration.
(b) In an arm's length transaction, the issuer may agree to pay the
person
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3-07 LOCAL POLICY STATEMENTS
additional consideration at such time as the resource property
commences commercial production. Such additional consideration
may, depending on the circumstances, consist of cash
consideration, reasonable payments from net profits, securities,
or any combination of these.
(c) In a non-arm's length transaction, the issuer may pay the person
cash consideration up to the amount of the out of pocket costs
incurred by the person in respect of the resource property,
determined in accordance with section 5.3.
(d) In a non-arm's length transaction, the issuer may agree to pay
the person additional consideration at such time as the resource
property commences commercial production, where the person has
carried out extensive exploration with results that indicate that
the resource property appears to have substantial merit. The
extent of the person's effort, skill and risk in developing the
resource property will be taken into account by the
Superintendent in determining whether additional consideration is
justified. Such additional consideration may, depending on the
circumstances, consist of cash consideration, reasonable payments
from net profits, securities or any combination of these. A 15%
net profits interest would normally be considered reasonable.
11.2 Industrial issuer -- Where an industrial issuer proposes to acquire
from a person non-cash assets, the value of which are not supported
by a valuation opinion, the following principles apply:
(a) In an arm's length transaction, the issuer may pay the person
cash consideration, a royalty or a combination of these.
(b) In a non-arm's length transaction, the issuer may pay the person
cash consideration up to the amount of the out of pocket costs
incurred by the person in respect of the non-cash assets,
determined in accordance with section 5.3.
DATED at Vancouver, British Columbia, this 21st day of December 1989.
Douglas M. Hyndman
Chairman
APPENDIX A TO LOCAL POLICY STATEMENT 3-07
ESCROW AGREEMENT
THIS AGREEMENT is dated for reference ______________, 19__ and made
AMONG:
(the "Escrow Agent");
AND:
(the "Issuer");
AND: EACH SHAREHOLDER, as defined in this Agreement
(collectively, the "Parties").
WHEREAS the Shareholder has acquired or is about to acquire shares of the
Issuer;
AND WHEREAS the Escrow Agent has agreed to act as escrow agent in respect
of the shares upon the acquisition of the shares by the Shareholder;
NOW THEREFORE in consideration of the covenants contained in this
agreement and other good and valuable consideration (the receipt and
sufficiency of which is acknowledged), the Parties agree as follows:
1. INTERPRETATION
In this agreement:
(a) "Acknowledgement" means the acknowledgement and agreement to be
bound in the form attached as Schedule A to this agreement;
(b) "Act" means the Securities Act, S.B.C. 1985, c. 83;
(c) "Exchange" means the Vancouver Stock Exchange;
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LOCAL POLICY STATEMENTS 3-07
(d) "IPO" means the initial public offering of common shares of the
Issuer under a prospectus which has been filed with, and for
which a receipt has been obtained from, the Superintendent under
section 42 of the Act;
(e) "Local Policy Statement 3-07" means the Local Policy Statement
3-07 in effect as of the date of reference of this agreement and
attached as Schedule B to this agreement;
(f) "Shareholder" means a holder of shares of the Issuer who executes
this agreement or an Acknowledgement;
(g) "Shares" means the shares of the Shareholder described in
Schedule C to this agreement, as amended from time to time in
accordance with section 9;
(h) "Superintendent" means the Superintendent of Brokers appointed
under the Act; and
(i) "Superintendent or the Exchange" means the Superintendent, if the
shares of the Issuer are not listed on the Exchange, or the
Exchange, if the shares of the Issuer are listed on the Exchange.
2. PLACEMENT OF SHARES IN ESCROW
The Shareholder places the Shares in escrow with Escrow Agent and shall deliver
the certificates representing the Shares to the Escrow Agent as soon as
practicable.
3. VOTING OF SHARES IN ESCROW
Except as provided by section 4(a), the Shareholder may exercise all voting
rights attached to the Shares.
4. WAIVER OF SHAREHOLDER'S RIGHTS
The Shareholder waives the rights attached to the Shares
(a) to vote the Shares on a resolution to cancel any of the Shares,
(b) to receive dividends, and
(c) to participate in the assets and property of the Issuer on a
winding up or dissolution of the Issuer.
5. ABSTENTION FROM VOTING AS A DIRECTOR
A Shareholder that is or becomes a director of the Issuer shall abstain from
voting on a directors' resolution to cancel any of the Shares.
6. TRANSFER WITHIN ESCROW
(1) The Shareholder shall not transfer any of the Shares except in
accordance with Local Policy Statement 3-07 and with the consent of
the Superintendent or the Exchange.
(2) The Escrow Agent shall not effect a transfer of the Shares within
escrow unless the Escrow Agent has received
(a) a copy of an Acknowledgement executed by the person to whom the
Shares are to be transferred, and
(b) a letter from the Superintendent or the Exchange consenting to
the transfer.
(3) Upon the death or bankruptcy of a Shareholder, the Escrow Agent shall
hold the Shares subject to this agreement for the person that is
legally entitled to become the registered owner of the Shares.
(4) [Set out in this subsection the rights and obligations of a
Shareholder who ceases to be a principal, as that term is defined in
Local Policy Statement 3-07, dies, or becomes bankrupt, to retain,
transfer or surrender to the Issuer for cancellation any Shares held
by the Shareholder.]
7. RELEASE FROM ESCROW
(1) The Shareholder irrevocably directs the Escrow Agent to retain the
Shares until the Shares are released from escrow pursuant to
subsection (2) or surrendered for cancellation pursuant to section 8.
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3-07 LOCAL POLICY STATEMENTS
(2) The Escrow Agent shall not release the Shares from escrow unless the
Escrow Agent has received a letter from the Superintendent or the
Exchange consenting to the release.
(3) The approval of the Superintendent or the Exchange to a release
from escrow of any of the Shares shall terminate this agreement only
in respect of the Shares so released.
8. SURRENDER FOR CANCELLATION
The Shareholder shall surrender the Shares for cancellation and the Escrow
Agent shall deliver the certificates representing the Shares to the Issuer.
(a) at the time of a major reorganization of the Issuer, if required
as a condition of the consent to the reorganization by the
Superintendent or the Exchange,
(b) where the Issuer's shares have been subject to a cease trade
order issued under the Act for period of 2 consecutive years.
(c) 10 years from the later of the date of issue of the Shares and
the date of the receipt for the Issuer's prospectus on its IPO,
or
(d) where required by section 6(4).
9. AMENDMENT OF AGREEMENT
(1) Subject to subsection (2), this agreement may be amended only by a
written agreement among the Parties and with the written consent of the
Superintendent or the Exchange.
(2) Schedule C to this agreement shall be amended upon
(a) a transfer of Shares pursuant to section 6,
(b) a release of Shares from escrow pursuant to section 7, or
(c) a surrender of Shares for cancellation pursuant to section 8,
and the Escrow Agent shall note the amendment on the Schedule C
in its possession.
10. INDEMNIFICATION OF ESCROW AGENT
The Issuer and the Shareholders, jointly and severally, release, indemnify and
save harmless the Escrow Agent from all costs, charges, claims, demands,
damages, losses and expenses resulting from the Escrow Agent's compliance in
good faith with this agreement.
11. RESIGNATION OF ESCROW AGENT
(1) If the Escrow Agent wishes to resign as escrow agent in respect of
the Shares, the Escrow Agent shall give notice to the Issuer.
(2) If the Issuer wishes the Escrow Agent to resign an escrow agent in
respect of the Shares, the Issuer shall give notice to the Escrow
Agent.
(3) A notice referred to in subsection (1) or (2) shall be in writing and
delivered to
(a) the Issuer at ________________________, or
(b) the Escrow Agent at _________________________
and the notice shall be deemed to have been received on the date
of delivery. The Issuer or the Escrow Agent may change its
address for notice by giving notice to the other party in
accordance with this subsection.
(4) A copy of a notice referred to in subsection (1) or shall
concurrently be delivered to the Superintendent or the Exchange.
(5) The resignation of the Escrow Agent shall be effective and the Escrow
Agent shall cease to be bound by this agreement on the date that is
180 days after the date of receipt of the notice referred to in
subsection (1) or (2) or on such other date as the Escrow Agent and
the Issuer may agree upon (the "resignation date").
(6) The Issuer shall, before the resignation date and with the written
consent of the Superintendent or the Exchange, appoint another escrow
agent and that appointment shall be binding on the Issuer and the
Shareholders.
12. FURTHER ASSURANCES
The Parties shall execute and deliver any documents and perform any acts
necessary to carry out the intent of this agreement.
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LOCAL POLICY STATEMENTS 3-07
- --------------------------------------------------------------------------------
13. TIME
Time is of the essence of this agreement.
14. GOVERNING LAWS
This agreement shall be construed in accordance with and governed by the laws
of British Columbia and the laws of Canada applicable in British Columbia.
15. COUNTERPARTS
This agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original and all of which shall constitute one agreement.
16. LANGUAGE
Wherever a singular expression is used in this agreement, that expression is
deemed to include the plural or the body corporate where required by the
context.
17. ENUREMENT
This Agreement enures to the benefit of and is binding on the Parties and their
heirs, executors, administrators, successors and permitted assigns.
The Parties have executed and delivered this agreement as of the date of
reference of this agreement.
The Corporate/Common Seal of )
[Escrow Agent] was affixed )
in the presence of: )
) c/s
- -------------------------------------- )
Authorized signatory )
)
- -------------------------------------- )
Authorized signatory )
)
The Corporate/Common Seal of )
[Issuer] was affixed )
in the presence of: )
) c/s
- -------------------------------------- )
Authorized signatory )
)
- -------------------------------------- )
Authorized signatory )
Where the Shareholder is an individual:
Signed, sealed and delivered by )
[Shareholder] in the presence of: )
)
- -------------------------------------- )
Name )
)
- -------------------------------------- ) -----------------------------
Address ) [Shareholder]
)
- -------------------------------------- )
)
- -------------------------------------- )
Occupation
Where the Shareholder is a company:
The Corporate/Common Seal of )
[Shareholder] was affixed )
in the presence of: )
)
- -------------------------------------- ) c/s
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3-07 LOCAL POLICY STATEMENTS
- -------------------------------------------------------------------------------
Authorized signatory )
)
- -----------------------------------)
Authorized signatory )
SCHEDULE A TO ESCROW AGREEMENT
ACKNOWLEDGEMENT AND AGREEMENT TO BE BOUND
To: Superintendent of Brokers or Vancouver Stock Exchange
#1100 - 865 Hornby Street 609 Granville Street
Vancouver, B.C. Vancouver, B.C.
V6Z 2H4 V7Y 1H1
(if the shares are not (if the shares are listed
listed on the Vancouver on the Vancouver
Stock Exchange) Stock Exchange)
I acknowledge that
(a) I have entered into an agreement with _________________________
under which ____________ shares of _____________ (the "Shares")
will be transferred to me upon receipt of regulatory approval,
and
(b) the Shares are held in escrow subject to an escrow agreement
dated for reference ______________________, 19___ (the "Escrow
Agreement"), a copy of which is attached as Schedule A to this
acknowledgement.
In consideration of $1.00 and other good and valuable consideration (the
receipt and sufficiency of which is acknowledged) I agree, effective upon
receipt of regulatory approval of the transfer to me of the Shares, to be bound
by the Escrow Agreement in respect of the Shares as if I were an original
signatory to the Escrow Agreement.
Dated at _________________ on ____________ 19___.
Where the transferee is an individual:
Signed, sealed and delivered by )
[transferee] in the presence of: )
)
- -------------------------------------- )
Name )
)
- -------------------------------------- ) -----------------------------
Address [transferee]
)
- -------------------------------------- )
)
- -------------------------------------- )
Occupation
Where the transferee is a company:
The Corporate/Common Seal of )
[transferee] was affixed )
in the presence of: )
)
- -------------------------------------- ) c/s
Authorized signatory )
)
- -------------------------------------- )
Authorized signatory )
7-46
<PAGE> 94
LOCAL POLICY STATEMENTS 3-07
- --------------------------------------------------------------------------------
SCHEDULE C TO ESCROW AGREEMENT
- --------------------------------------------------------------------------------
NAME OF SHAREHOLDER NUMBER OF SHARES HELD IN ESCROW
- --------------------------------------------------------------------------------
APPENDIX B TO LOCAL STATEMENT 3-07
EXAMPLES OF EARN-OUT PRICES FOR PERFORMANCE SHARES
ISSUED BY AN INDUSTRIAL ISSUER
<TABLE>
<CAPTION>
----------------------------------------------------------------------
EARN-OUT PRICE IN DOLLARS
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERFORMANCE SHARE 5% 25% 45% 65%
PERCENTAGE
-------------------- ----- ---- ---- ---- -----
EARN-OUT FACTOR .01x .25x .81x 1.69x
-------------------- ----- ---- ---- ---- -----
I
-------------------- ----- ---- ---- ---- -----
P $0.40 .004 .10 .34 676
-------------------- ----- ---- ---- ---- -----
O .60 .006 .15 .486 1.014
-------------------- ----- ---- ---- ---- -----
P
-------------------- ----- ---- ---- ---- -----
R $0.80 .008 .20 .648 1.352
-------------------- ----- ---- ---- ---- -----
I
-------------------- ----- ---- ---- ---- -----
C $1.00 .010 .25 .810 1.690
-------------------- ----- ---- ---- ---- -----
E
-------------------- ----- ---- ---- ---- -----
</TABLE>
The earn-out price represents the amount of cash flow that must be generated to
release one performance share from escrow. The following definitions are
applicable to the calculation.
Earn-out Price:
The IPO price multiplied by the earn-out factor.
IPO Price:
The price per share paid by the public on the issuer's IPO.
Earn-out Factor:
The number obtained by squaring the performance share percentage, expressed
as a decimal, and multiplying the result by four.
Performance Share Percentage:
The percentage, determined on the date the issuer's shares are listed,
posted and called for trading on the Exchange, that the issued performance
shares of the issuer are of the total issued and outstanding voting
securities of the issuer.
APPENDIX C TO LOCAL POLICY STATEMENT 3-07
UNDERTAKING REQUIRED FROM NON-REPORTING
OR CLOSELY HELD COMPANY
To: Superintendent of Brokers or Vancouver Stock Exchange
#1100-865 Hornby Street 609 Granville Street
Vancouver, B.C. Vancouver, B.C.
V6Z 2H4 V7Y 1H1
(if the shares are not (if the shares are listed
listed on the Vancouver on the Vancouver Stock
Stock Exchange Exchange)
_________ (the "Company") undertakes, for the duration of the time that the
Company is the registered owner of escrowed shares of ___________________ (the
"Issuer"),
7-47
<PAGE> 95
3-12 LOCAL POLICY STATEMENTS
- -------------------------------------------------------------------------------
(a) to effect or permit transfer of ownership in the shares of the
Company, or
(b) to allot and issue further shares of any class of shares of the
Company
only upon receipt of the written consent of the Superintendent of Brokers, if
the Issuer's shares are not listed on the Vancouver Stock Exchange (the
"Exchange"), or the Exchange, if the Issuer's shares are listed on the Exchange.
Dated at _______________________ on ________________ 19___.
The Corporate/Common Seal of )
[Company] was affixed )
in the presence of: )
)
) c/s
- ------------------------------------ )
Authorized signatory )
)
- ------------------------------------ )
Authorized signatory
<PAGE> 96
SCHEDULE "C" TO ESCROW AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
NAME OF SHAREHOLDER NUMBER OF SHARES HELD IN ESCROW
- ------------------------------------------------------------------------------
<S> <C>
Clinton Rickards 282,267
13961 - 33rd Avenue
Surrey, B.C. V6P 3G2
David Brown 88,208
Apt. 701 - 625 Avenue Road
Toronto, Ontario M4V 2K7
Estate of Ronald Gunn 17,641
c/o Faye Stephenson
Genest, Murray, Desbria & Lanek
700 - 130 Adelaide Street, West
Toronto, Ontario M5H 4C1
Charles Conrad 35,283
Route 1
Box 118J
Chouteau, Oklahoma
14337
Talbot Iredale 70,566
3657 West 28th Avenue
Vancouver, B.C. V6S 1S3
Ian Piper 28,227
303 - 4690 Hazel Street
Burnaby, B.C. V5H 1S5
Michael Massullo 28,227
#101 - 2736 Victoria Drive
Vancouver, B.C. VSN 4L4
Howard Van Pelt 2,187,581
1709 Conestoga SE
Albuquerque, NM 87123
TOTAL: 2,738,000
---------
</TABLE>
<PAGE> 1
EXHIBIT (6)(3)(i)
I N D U S T R I A L
L E A S E
BETWEEN:
GRANVILLE SOUTH BUSINESS CENTRE HOLDINGS LTD.
(the Landlord)
AND:
GLOBAL ELECTION SYSTEMS INC.
(the Tenant)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1 - BASIC TERMS, SCHEDULES, DEFINITIONS
<S> <C> <C>
1.01 Basic Terms ................................................ 1
1.02 Schedules .................................................. 3
1.03 Definitions ................................................ 3
ARTICLE 2 - PREMISES
2.01 Premises ................................................... 3
2.02 Adjustment of Floor Area ................................... 3
ARTICLE 3 - TERM
3.01 Term ....................................................... 3
3.02 Commencement Date .......................................... 3
ARTICLE 4 - RENT
4.01 Rent ....................................................... 3
(a) Annual Base Rent ...................................... 3
(b) Additional Rent ....................................... 3
4.02 Payment of Rent ............................................ 4
(a) Annual Base Rent ...................................... 4
(b) Additional Rent Payments .............................. 4
(c) Review of Additional Rent ............................. 4
(d) Apportionment of Additional Rent ...................... 4
(e) Basis of Determining Rent ............................. 4
(f) Post-dated Cheques .................................... 5
4.03 Rent for Irregular Periods ................................. 5
4.04 Waiver of Offset ........................................... 5
4.05 Application of Payments .................................... 5
4.06 Payments Generally ......................................... 5
4.07 Net Lease .................................................. 5
4.08 Tenant's Responsibility .................................... 6
ARTICLE 5 - TENANT'S COVENANTS
5.01 Rent ....................................................... 6
5.02 Permitted Use .............................................. 6
5.03 Waste and Nuisance ......................................... 6
5.04 Insurance Risks ............................................ 6
5.05 Cleanliness ................................................ 6
5.06 Compliance with Laws ....................................... 6
5.07 Fire Exit Doors ............................................ 6
5.08 Rules and Regulations ...................................... 7
5.09 Overholding ................................................ 7
5.10 Signs ...................................................... 7
5.11 Inspection and Access ...................................... 7
5.12 Showing Premises ........................................... 8
5.13 Pollution .................................................. 8
5.14 Obstruction of Roads ....................................... 8
ARTICLE 6 - LANDLORD'S COVENANTS
6.01 Quiet Enjoyment ............................................ 9
6.02 Entrances, Lobbies and other Common Areas .................. 9
6.03 Maintenance of Common Areas ................................ 9
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 7 - REPAIR, DAMAGE AND DESTRUCTION
7.01 Landlord's Repairs ......................................... 9
7.02 Tenant's Repairs ........................................... 9
7.03 No Abatement ............................................... 10
7.04 Substantial Damage or Destruction .......................... 11
7.05 Rebuilding ................................................. 11
7.06 Expropriation .............................................. 11
7.07 Service Interruptions ...................................... 12
ARTICLE 8 - TAXES AND OPERATING COSTS
8.01 Landlord's tax Obligations ................................. 12
8.02 Tenant's Tax Obligations ................................... 12
8.03 Goods and Services Taxes ................................... 12
8.04 Tenant's Tax Cost .......................................... 13
8.05 Right to Contest ........................................... 13
8.06 Receipts for Payment ....................................... 13
8.07 Allocation of Taxes ........................................ 13
8.08 Operating Cost ............................................. 14
8.09 Allocation to Particular Tenant ............................ 14
ARTICLE 9 - UTILITIES AND ADDITIONAL SERVICES
9.01 Additional Services ........................................ 14
9.02 Extra Operating Cost ....................................... 15
9.03 Energy Conservation ........................................ 15
9.04 Not Guaranteed Supply ...................................... 15
9.05 Parking .................................................... 15
ARTICLE 10 - LICENSES, ASSIGNMENTS AND SUBLETTINGS
10.01 Licenses, Franchises and Concessions ....................... 16
10.02 Assignment and Subletting .................................. 17
10.03 Change in Control of Tenant ................................ 17
10.04 Advertising for Sublease ................................... 18
Article 11 - FIXTURES, IMPROVEMENTS, RELOCATION AND ALTERATIONS
11.01 Installation of Fixtures and Improvements .................. 18
11.02 Liens and Encumbrances on Fixtures and
Improvements ............................................. 19
11.03 Removal of Fixtures and Improvements ....................... 19
11.04 Alterations by Landlord .................................... 20
ARTICLE 12 - INSURANCE AND LIABILITY
12.01 Landlord's Insurance ....................................... 20
12.02 Tenant's Insurance ......................................... 20
12.03 Limitation of Landlord's Liability ......................... 22
12.04 Limitation of Tenant's Liability ........................... 23
12.05 Indemnity of Landlord ...................................... 23
12.06 Increases in Rates ......................................... 23
ARTICLE 13 - SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES
13.01 Sale or Financing of Building .............................. 23
13.02 Subordination and Attornment ............................... 23
13.03 Registration ............................................... 24
13.04 Certificates ............................................... 24
13.05 Assignment by Landlord ..................................... 24
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE 14 - OCCURRENCE OF DEFAULT
<S> <C> <C>
14.01 Unavoidable Delay ........................................... 24
14.02 No Admission ................................................ 25
14.03 Part Payment ................................................ 25
14.04 Events of Default ........................................... 25
ARTICLE 15 - TENANT'S DEFAULT, REMEDIES OF LANDLORD AND SURRENDER
15.01 Remedying by Landlord, Non-payment and Interest ............. 26
15.02 Remedies Cumulative ......................................... 27
15.03 Right of Re-entry on Event of Default ....................... 27
15.04 Termination and Re-entry .................................... 27
15.05 Certain Consequences of Termination and Re-entry ............ 27
15.06 Waiver of Distress .......................................... 28
15.07 Re-letting and Sale of Personalty ........................... 28
15.08 Surrender on Termination .................................... 28
ARTICLE 16 - EVENTS TERMINATING LEASE
16.01 Cancellation of Insurance ................................... 29
16.02 Prohibited Occupancy, Bankruptcy and Other Events ........... 29
ARTICLE 17 - MISCELLANEOUS
17.01 Notices ..................................................... 29
17.02 Extraneous Agreements ....................................... 30
17.03 Time of Essence ............................................. 30
17.04 Certificate of Architect and Auditor ........................ 30
17.05 Successors and Assigns ...................................... 30
17.06 Frustration ................................................. 30
17.07 Waiver ...................................................... 30
17.08 Governing Law and Severability .............................. 31
17.09 Captions .................................................... 31
17.10 Acceptance .................................................. 31
17.11 Deposit ..................................................... 31
17.12 Security Deposit ............................................ 31
17.13 Modifications ............................................... 32
17.14 No Brokerage Commissions .................................... 32
</TABLE>
SCHEDULE A - LEGAL DESCRIPTION OF LAND AND FLOOR PLAN OF PREMISES
SCHEDULE B - DEFINITIONS
SCHEDULE C - RULES AND REGULATIONS
SCHEDULE D - INSURANCE CERTIFICATE
SCHEDULE E - FINAL INSPECTION REPAIR STANDARDS
SCHEDULE F - SPECIAL PROVISIONS
(iii)
<PAGE> 5
THIS LEASE, dated April 29, 1993, is made and entered into by the
Landlord and Tenant named herein who, in consideration of the covenants
herein contained, agree as follows:
ARTICLE I
BASIC TERMS, SCHEDULES, DEFINITIONS
1.01 BASIC TERMS.
(a) (i) LANDLORD: Granville South Business Centre
---------------------------------------
Holdings Ltd.
---------------------------------------
(ii) ADDRESS OF LANDLORD: c/o
Maple Leaf Property Management Inc.
Third Floor, 100 Park Royal
West Vancouver, B.C. V7T 1A2
(b) (i) TENANT: Global Election Systems Inc.
------------------------------------
(ii) ADDRESS OF TENANT: 1562 Rand Avenue
------------------------------------
Vancouver, B.C. V6P 3G2
------------------------------------
(bb) (i) INDEMNIFIER: N/A
------------------------------------
(ii) ADDRESS OF
INDEMNIFIER: N/A
------------------------------------
------------------------------------
(c) PREMISES: Building: 1562 Rand Avenue
---------------------------
Unit No.(s): N/A
------------------------
(d) FLOOR AREA: 8,150 square feet
-------------------------
(e) (i) TERM: Five (5) years, N/A days
------------- -----
(ii) COMMENCEMENT DATE: May 1, 1993
------------------------------------
(iii) LEASE EXPIRATION
DATE: April 30, 1998
------------------------------------
(f) ANNUAL BASE RENT:
Lease Years Per Square Foot Per Annum Per Month
1 - 5 $6.50 $52,975.00 $4,414.58
------- ------- ------------ -----------
(g) PERMITTED USE: The premises shall be used as offices, storage
and light manufacturing of electronic equipment.
(h) INTENTIONALLY DELETED.
<PAGE> 6
(i) (i) Deposit: $ N/A , to be applied to
---------
first month's Base and Additional
Rent including G.S.T
(ii) Security Deposit: $6,077.60
The foregoing Basic Terms are hereby approved by the parties
and each reference in this Lease to any of the Basic Terms shall be
construed to include the provisions set forth above as well as all
of the additional terms and conditions of the applicable Sections of
this Lease where such Basic Terms are more fully set forth.
- 2 -
<PAGE> 7
1.02 SCHEDULES. All Schedules to this Lease are incorporated into and form an
integral part of this Lease.
1.03 DEFINITIONS. In this Lease, the words, phrases and expressions set forth in
Schedule "B" are used with the meanings defined therein.
ARTICLE 2
PREMISES
2.01 PREMISES. In consideration of the rents, covenants and agreements
hereinafter reserved and contained on the part of the Tenant to be paid,
observed and performed, the Landlord hereby demises and leases to the Tenant the
Premises.
2.02 ADJUSTMENT OF FLOOR AREA. Within thirty (30) days of the Tenant having
taken possession of the Premises pursuant to Section 2.01, the Landlord or the
Tenant may cause the Premises to be measured at its expense and if a discrepancy
is determined and confirmed by the Architect, the Floor Area of the Premises
shall be revised accordingly with a corresponding adjustment in Annual Base Rent
and Additional Rent pursuant to Section 4.02.
ARTICLE 3
TERM
3.01 TERM. The Term of this Lease shall be for the period set out in Section
1.01(e)(i), beginning on the Commencement Date.
3.02 COMMENCEMENT DATE. The Term and the Tenant's obligations under this Lease,
including the Tenant's obligations to pay Rent, shall commence on the
Commencement Date. If the Tenant should open for business prior to the
Commencement Date, the Tenant shall pay Rent and observe and perform all the
other terms of this Lease from the day it opens for business.
ARTICLE 4
RENT
4.01 RENT. YIELDING AND PAYING THEREFOR unto the Landlord, at the address set
out in Section 1.01(a)(ii) or at such other place as the Landlord may direct in
writing, during the Term in lawful money of Canada without any set off,
abatement, compensation or deduction whatsoever on the days and at the times
hereinafter specified, Rent which shall include the aggregate of the sums
specified in clauses (a) and (b) below:
(a) Annual Base Rent. Annual Base Rent in the amount per annum set
out in Section 1.01(f) (i) for the respective year of the
Term, payable in equal consecutive monthly installments in
advance on the first day of each month during the Term in the
amount set out in Section 1.01(f)(i), subject to the
adjustment provisions of Section 4.02 (c)
(b) Additional Rent. Together with the aggregate of the
following:
(i) the Tenant's Share of Tax Cost;
(ii) the Tenant's Share of Operating Cost; and
- 3 -
<PAGE> 8
(iii) such other amounts, charges, costs and expenses as
are required to be paid by the Tenant to the Landlord
pursuant to this Lease in addition to Annual Base
Rent;
4.02 PAYMENT OF RENT. The Rent provided for in this Article 4 shall be paid by
the Tenant as follows:
(a) Annual Base Rent. The Annual Base Rent shall be paid in
equal consecutive monthly instalments in advance on the first
day of each and every month during the Term. Unless otherwise
provided herein, the first monthly instalment of the Annual
Base Rent shall be paid by the Tenant on the Commencement
Date. Where the Commencement Date is not the first day of a
calendar month, the Annual Base Rent for the period from the
Commencement Date to the first day of the next ensuing
calendar month shall be pro-rated on a per diem basis and paid
on the Commencement Date as an instalment of the Annual Base
Rent for the period from the Commencement Date to the
beginning of the first full calendar month of the Term;
thereafter subsequent monthly instalments shall each be paid
in advance on the first day of each ensuing calendar month
during the Term.
(b) Additional Rent Payments. The amount of any or all of the
items of Additional Rent pursuant to Section 4.01(b) which the
Tenant is to pay may be estimated by the Landlord for such
period as the Landlord may determine from time to time. The
Tenant agrees to pay to the Landlord the amount of such
estimate in monthly instalments in advance in amounts and
during the period specified by the Landlord on the dates and
at the times for payment of the Annual Base Rent provided for
in this Lease. The Landlord may make its estimates so that the
Tenant's Share of Additional Rent will be payable to the
Landlord prior to the time the Landlord is obliged to pay the
costs in respect of which the Additional Rent is payable. The
Landlord may submit to the Tenant at any time during a period
a re-estimate of the amount of Additional Rent payable by the
Tenant pursuant to Section 4.01(b) and a revised monthly
instalment amount. Within a reasonable time after the end of
the period for which such estimated payments have been made,
the Tenant shall be advised of the actual amount required to
be paid as Additional Rent pursuant to Section 4.01(b) and if
necessary an adjustment shall thereupon be made between the
parties.
(c) Review of Additional Rent. Notwithstanding Section 4.02(b), no
party hereto may claim a re-adjustment in respect of any item
of Additional Rent whether paid or payable in instalments or
otherwise, if based on any error of estimation, allocation,
calculation or computation thereof, unless claimed in writing
prior to the expiration of one year from the conclusion of the
period in respect of which such item of Additional Rent
accrued.
(d) Apportionment of Additional Rent. Whenever, in the Landlord's
reasonable opinion, an item of Additional Rent properly
relates to only a portion of the Building and the Premises are
located within such portion, the Tenant's Share of such item
or category shall be calculated in relation to the Floor Area
of such portion.
(e) Basis of Determining Rent. The Tenant acknowledges that the
Annual Base Rent is calculated on the basis of the
- 4 -
<PAGE> 9
Floor Area of the Premises being as set out in Section 1.01(d)
and at the rate set out in Section 1.01(f)(i) for each
square foot of Floor Area. The Tenant agrees that the Landlord
may adjust the Annual Base Rent and the Additional Rent if the
Floor Area of the Premises is found to be different than the
Floor Area stated above.
(f) Post-dated Cheques. If requested by the Landlord from time to
time, the Tenant will provide to the Landlord without
prejudice to any other right or remedy of the Landlord a
series of cheques, post-dated to the respective due dates of
payments, for the amounts of the Rent and estimates on account
thereof which are periodically payable under this Lease.
4.03 RENT FOR IRREGULAR PERIODS. All Rent reserved herein shall be deemed to
accrue from day to day, and if for any reason it shall become necessary to
calculate Rent for irregular periods of less than one year or one month, as the
case may be, an appropriate pro-rata adjustment shall be made on a daily basis
in order to compute Rent for such irregular period.
4.04 WAIVER OF OFFSET. The Tenant hereby waives and renounces any and all
existing and future claims, offsets and compensation against any Rent and agrees
to pay such Rent regardless of any claim, offset or compensation which may be
asserted by the Tenant or on its behalf.
4.05 APPLICATION OF PAYMENTS. All payments by the Tenant to the Landlord under
this Lease shall be applied toward such amounts then outstanding hereunder as
the Landlord determines and the Landlord may subsequently alter the application
of any such payment.
4.06 PAYMENTS GENERALLY. All payments by the Tenant to the Landlord of
whatsoever nature required or contemplated by this Lease shall be:
(a) paid to the Landlord by the Tenant in lawful currency
of Canada;
(b) made when due hereunder, without prior demand therefor and
without any set-off, compensation or deduction whatsoever;
(c) deemed to be Rent, in partial consideration for which this
Lease has been entered into, and shall be payable and
recoverable as Rent, such that the Landlord shall have all
rights and remedies against the Tenant for default in making
any such payment which may not be expressly said to be Rent as
the Landlord has for default in payment of Rent; and
(d) subject to an overdue charge if any such payment is not made
when due, which charge shall be that amount referred to in
Section 15.01(c) (but in any case such charge shall be not
less than Fifty Dollars ($50.00) per month) payable with the
next monthly installment of Annual Base Rent, all without
prejudice to any other right or remedy of the Landlord.
4.07 NET LEASE. The Tenant acknowledges and agrees that it is intended that this
Lease shall be a completely net lease for the Landlord except as shall be
otherwise provided in the specific provisions contained in this Lease, and that
the Landlord shall not be responsible during the Term for any costs, charges,
expenses and outlays of any nature whatsoever arising from or relating to the
Premises, and the Tenant, except as shall be otherwise provided in
- 5 -
<PAGE> 10
the specific provisions contained in this Lease, shall pay all charges,
impositions and costs of every nature and kind relating to the Premises whether
or not referred to herein and whether or not within the contemplation of the
Landlord or the Tenant and the Tenant covenants with the Landlord accordingly.
4.08 TENANT'S RESPONSIBILITY. The Tenant shall be responsible during the Term
for any and all costs, charges, expenses and outlays of any nature whatsoever
arising from or relating to the Premises, as well as the Tenant's Share of any
and all costs, charges, expenses and outlays relating to the Building and Land,
whether foreseen or unforeseen, and whether or not within the contemplation of
the parties at the Commencement Date, except as is otherwise expressly provided
in this Lease.
ARTICLE 5
TENANT'S COVENANTS
The Tenant covenants with the Landlord as follows:
5.01 RENT. To pay the Annual Base Rent and Additional Rent on the days and in
the manner provided herein.
5.02 PERMITTED USE. To use the Premises only for the purpose set out in Section
1.01(g) and not to use or permit to be used the Premises or any part thereof for
any other purpose.
5.03 WASTE AND NUISANCE. Not to commit or permit any waste or injury to the
Building or the Premises including the Leasehold Improvements and the trade
fixtures therein; any overloading of the floors thereof; any conduct which
impedes or in the opinion of the Landlord acting reasonably could impede the
business of any other occupant of the Building or which constitutes or, in the
opinion of the Landlord acting reasonably, could constitute a nuisance to the
Landlord, any other occupant of the Building or anyone else; or any other use or
manner of use which annoys or interferes with the operations of any other
occupant of the Building or in the opinion of the Landlord acting reasonably may
have an adverse impact on the reputation of the Building.
5.04 INSURANCE RISKS. Not to do, omit to do or be done or permit to be done or
omitted to be done upon the Premises anything which would cause the Landlord's
cost of insurance to be increased (and, without waiving the foregoing
prohibition the Landlord may demand, and the Tenant shall pay to the Landlord
upon demand the amount of any such increase of cost caused by anything so done
or omitted to be done) or which shall cause any policy of insurance to be
subject to cancellation.
5.05 CLEANLINESS. Not to permit the Premises or surrounding lands, loading areas
and access routes to become untidy, unsightly or hazardous or permit
unreasonable quantities of waste or refuse to accumulate therein, and to comply
with Schedule "E" upon termination of this Lease.
5.06 COMPLIANCE WITH LAWS. To comply at its own expense with all municipal,
federal, provincial, sanitary, fire and safety laws, by-laws, regulations and
requirements pertaining to the operation and use of the Premises, the condition
of the Leasehold Improvements, trade fixtures, furniture and equipment installed
therein and the making by the Tenant of any repairs, changes or improvements
therein.
5.07 FIRE EXIT DOORS. To permit the installation by the Landlord of any door in
any wall of the Premises necessary to comply with the requirements of any
statute, law, by-law,
- 6 -
<PAGE> 11
ordinance, order or regulation referred to in Section 5.06, and to permit
ingress and egress to and from the Premises by the Landlord or by other tenants
of the Landlord or by their respective employees, servants, workmen and
invitees, by use of such doors in case of fire or emergency.
5.08 RULES AND REGULATIONS. To observe, and to cause its employees, invitees and
others over whom the Tenant can reasonably be expected to exercise control to
observe the Rules and Regulations attached as Schedule "C" hereto, and such
further and other reasonable rules and regulations and amendments and changes
therein as may hereafter be made by the Landlord of which notice in writing
shall be given to the Tenant and all such rules and regulations shall be deemed
to be incorporated into and form part of this Lease, and the breach of which
shall entitle the Landlord to exercise any remedies for default provided herein,
or any remedies available at law or in equity. The Landlord will not be
responsible to the Tenant for the non-observation of the Rules and Regulations
by any other tenant or person.
5.09 HOLDING OVER. If the Tenant continues to occupy the Premises with the
written consent of the Landlord after the expiration or other termination of the
Term, then, without any further written agreement, the Tenant shall be a monthly
lessee at the aggregate of:
(a) a minimum monthly Rent equal to twice the monthly installments
of Annual Base Rent; and
(b) Additional Rent as herein provided;
and subject always to all of the other provisions in this Lease insofar as the
same are applicable to a month to month tenancy and a tenancy from year to year
shall not be created by implication of law; provided that if the Tenant
continues to occupy the Premises without the written consent of the Landlord at
the expiration or other termination of the Term, then the Tenant shall be a
tenant at sufferance and shall pay to the Landlord, as liquidated damages and
not as Rent, an amount equal to the aggregate set forth above during the period
of such occupancy, accruing from day to day and adjusted pro rata accordingly
and subject always to all of the other provisions of this Lease insofar as they
are applicable to a tenancy at sufferance and a tenancy from month to month or
from year to year shall not be created by implication of law; provided that
nothing herein contained shall preclude the Landlord from taking action for
recovery of possession of the Premises.
5.10 SIGNS. Not to paint, display, inscribe, place or affix any sign, symbol,
notice or lettering of any kind anywhere outside the Premises (whether on the
outside or inside of the Building) or within the Premises so as to be visible
from the outside of the Premises, with the exception only of building standard
identification signage and to be subject to the approval of the Landlord as to
design, size and location. Such identification sign shall be installed at the
expense of the Tenant, and the Landlord reserves the right to install the sign
as an Additional Service.
5.11 INSPECTION AND ACCESS. To permit the Landlord at any time and from time to
time upon reasonable notice to enter and to have its authorized agents,
employees and contractors enter the Premises for the purpose of inspection,
window cleaning, maintenance, making repairs, alterations or improvements to the
Premises or the Building, or to have access to utilities and services (including
underfloor heater ducts and access panels, which the Tenant agrees not to
obstruct) or to determine the electric light and power consumption by the Tenant
in the Premises and the Tenant shall provide free and unimpeded access for the
purpose, and shall not be entitled to compensation for any
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inconvenience, nuisance or discomfort caused thereby, but the Landlord in
exercising its rights hereunder shall proceed to the extent reasonably possible
so as to minimize interference with the Tenant's use and enjoyment of the
Premises.
5.12 SHOWING PREMISES. To permit the Landlord and its authorized agents and
employees to show the Premises to prospective tenants during the Normal Business
Hours of the last six (6) months of the Term. The Landlord shall have the right
within six (6) months prior to the expiration of the Term to place upon the
Premises a notice, of reasonable dimensions and reasonably placed so as not to
interfere with the business of the Tenant, stating that the Premises are to let
and the Tenant shall not remove or obscure such notice or permit the same to be
removed or obscured.
5.13 POLLUTION. The Tenant shall not discharge nor permit the discharge of any
oil or grease or any deleterious, objectionable, dangerous, radioactive,
poisonous or explosive matter or substance into any water, ditches, water
courses, culverts, drains or sewers and the Tenant shall take all reasonable
measures for ensuring that any effluent discharged shall not be corrosive,
poisonous or otherwise harmful to or cause obstruction, deposit or pollution
within any waters, ditches, water courses, culverts, drains or sewers or to or
within any sewage disposal works or to the bacteriological process of sewage
purification, and the Tenant shall forthwith at the Landlord's request provide
facilities for testing and monitoring any such effluent from the Tenant's
operations and shall permit the Landlord access to the Premises for the purposes
of carrying out such testing and monitoring from time to time. In addition, the
Tenant shall not at any time whatsoever dispose of or permit to be disposed of
on, in or under the Premises, any oil or grease or any deleterious,
objectionable, dangerous, poisonous or explosive substance or matter nor permit
any such substance or matter to be discharged or accumulated on, in or under the
Premises, including without limitation, any radioactive matter or substance, any
radioactivity, or any microwaves. The Tenant shall, to the extent permitted by
the Landlord construct, maintain and operate every furnace and burner employed
on the Premises so as to substantially consume or burn the smoke arising from
every furnace and burner and shall not use or suffer any such furnace or burner
to be used negligently so that the smoke arising therefrom is not substantially
consumed or burned and shall not cause or permit any grit, dust or noxious or
offensive effluvia to be emitted from any engine, furnace, burner or apparatus
on the Premises without using the best practicable means reasonably available
for preventing or counteracting such emissions.
5.14 OBSTRUCTION OF ROADS. The Tenant shall not permit any vehicles owned by or
under the control of the Tenant to cause an obstruction on any roadways in or
about the Project and the Tenant shall use its best endeavours to ensure that
all persons doing business with the Tenant and their servants and workmen shall
not permit any vehicles to cause such obstruction as aforesaid and the Tenant
shall also use its best endeavours to ensure that vehicles owned by or under the
control of the Tenant, its employees or persons doing business with the Tenant
shall observe any regulations and instructions made or given by the Landlord or
by any other person, corporation or body having authority to make or give such
regulations or instructions with regard to the operation and parking or vehicles
on the said roadways or other areas provided for the parking of vehicles in the
Project.
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ARTICLE 6
LANDLORD'S COVENANTS
The Landlord covenants with the Tenant as follows:
6.01 QUIET ENJOYMENT. For so long as the Tenant is not in default hereunder, the
Tenant shall and may peaceably possess and have quiet enjoyment of the Premises
for the Term hereby granted, except as otherwise herein provided.
6.02 ENTRANCES, LOBBIES AND OTHER COMMON AREAS. To permit the Tenant and its
employees and invitees to have the use in common with others entitled thereto of
the common entrances, lobbies, stairways and corridors of the Building giving
access to the Premises (subject to the Rules and Regulations referred to in
Section 5.08 and such other reasonable limitations as the Landlord may from time
to time impose).
6.03 MAINTENANCE OF COMMON AREAS. To cause the common entrances, lobbies,
stairways, corridors, parking areas and other parts of the Building from time to
time provided for common use and enjoyment to be swept, cleaned or otherwise
properly maintained.
ARTICLE 7
REPAIR, DAMAGE AND DESTRUCTION
7.01 LANDLORD'S REPAIRS. The Landlord covenants with the Tenant:
(a) subject to Section 7.04, to keep in a good and reasonable
state of repair, and consistent with the general standards of
buildings of similar age, character and comparable location in
British Columbia:
(i) the Building (other than the Premises and premises of
other tenants) including the foundation, roof,
exterior walls including exterior glass portions
thereof, the systems for interior climate control,
the elevators, entrances, stairways, corridors and
lobbies and washrooms from time to time provided for
use in common by the Tenant and other tenants of the
Building and the systems provided for bringing
utilities to the Premises; and
(ii) the structural members or elements of the Premises;
and
(b) to repair defects in construction performed or installations
made by the Landlord in the Premises and Insured Damage.
7.02 TENANT'S REPAIRS. Notwithstanding Section 7.01, the Tenant covenants with
the Landlord: The Tenant shall examine the Premises before taking possession
hereunder and such taking of possession shall be conclusive evidence as against
the Tenant that at the Commencement Date the Premises were in good order and
repair, except for any material defects of a structural nature in the Roof,
foundations, exterior walls or floor of the Building existing as at the
Commencement Date and in respect of which the Tenant gives written notice to the
Landlord not later than thirty (30) days after the Commencement Date. Excepting
only the repair of such defects, reasonable wear and tear and repairs for which
the Landlord is responsible under
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this Lease, the Tenant shall, at all times during the Term and any renewal
thereof, promptly, at its own expense, repair and maintain the Premises and all
equipment, fixtures and improvements in a first class condition. At the end or
sooner termination of the Term or any renewal thereof the Tenant shall yield up
to the Landlord, without notice from the Landlord, the Premises repaired and
maintained in the condition aforesaid. In addition, and without limiting the
generality of the foregoing, the Tenant shall repaint all internal work of the
Premises which the Landlord may from time to time reasonably require to be
painted, such painting to be done by the Tenant at the following times:
(a) at least once during every five Lease Years; and
(b) during the earlier of:
(i) the last year of the Term or any renewal thereof, or:
(ii) the thirty (30) day period immediately following the
termination of this Lease by the Landlord.
All painting shall be in accordance with original specifications approved by the
Landlord and shall be completed to the satisfaction of the Landlord;
(c) that the Landlord may enter and view the state of repair, and
that the Tenant will repair according to notice in writing,
and that the Tenant will leave the Premises in a good and
reasonable state of repair, subject always to the exceptions
referred to in Section 7.02(a); and
(d) that if any part of the Building, including the systems for
interior climate control and for the provision of utilities
becomes out of repair, damaged or destroyed through the
negligence or misuse of the Tenant or its employees, invitees
or others over which the Tenant can reasonably be expected to
exercise control, the expense of repairs or replacements
thereto necessitated thereby shall be reimbursed to the
Landlord promptly upon demand.
The Tenant shall, upon expiry or earlier termination of this Lease, leave the
Premises in good order and repair and expressly comply with the obligations set
out in Schedule "E".
7.03 NO ABATEMENT. If during the Term the Premises shall be damaged or destroyed
by any cause whatsoever such that the Premises are rendered unfit for occupancy
by the Tenant, then:
(a) if and to the extent the Landlord recovers such Annual Base
Rent and Additional Rent under the policy or policies of
insurance against rental loss, if any, which the Landlord has
taken out, Annual Base Rent and Additional Rent shall abate
for the period of time required to repair the Premises as
required by this Lease; but
(b) if and to the extent the Landlord does not recover such Annual
Base Rent and Additional Rent under any such policies, Annual
Base Rent and Additional Rent shall not abate.
It is hereby agreed that, in the event of damage or destruction of the
Premises as aforesaid, the Landlord shall first have recourse against its
insurers, if any, in respect of Annual Base Rent and Additional Rent owing by
the Tenant hereunder and shall only have recourse against the Tenant if and to
the extent such Annual Base Rent and Additional Rent is not recovered by the
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Landlord from such insurers. The Landlord's insurers shall have no right to be
subrogated to the claims of the Landlord in respect of Annual Base Rent and
Additional Rent which abates pursuant to paragraph (a) above and the Landlord
hereby waives and releases the Tenant from any and all claims against the Tenant
in respect of the Annual Base Rent and Additional Rent which abates pursuant to
paragraph (a) above but not otherwise.
7.04 SUBSTANTIAL DAMAGE OR DESTRUCTION. In the event of substantial damage or
destruction of the Premises, or of any other portion of the Building which
comprises, in aggregate, an area equal to or greater than twenty-five percent
(25%) of the Floor Area of those premises in the Building designated for lease
(whether leased or not), whether or not the Premises be affected thereby, the
Landlord may, within sixty (60) days after such damage or destruction and on
giving thirty (30) days' written notice to the Tenant, declare this Lease
terminated forthwith and, in such event, the Term shall be deemed to have
expired and the Tenant shall deliver up possession of the Premises accordingly,
Rent shall be apportioned and shall be payable up to the date of termination
stated in such notice and the Tenant shall be entitled to be repaid by the
Landlord any Rent paid in advance and unearned or an appropriate portion
thereof. "Substantial damage or destruction" means damage or destruction that,
in the opinion of the Architect, requires repair, alteration or reconstruction
of the Premises or of such other portion of the Building that cannot be
completed within a period of one hundred eighty (180) days from the time of such
damage or destruction.
7.05 REBUILDING. If this Lease is not terminated pursuant to Section 7.04, and
such damage or destruction is insured against by the Landlord pursuant to
Section 7.04, the Landlord shall cause such damage or destruction to be
repaired, restored or reconstructed, save as to items which are the
responsibility of the Tenant pursuant to Section 7.02. In effecting such
repair, restoration or reconstruction, the Landlord may use plans and
specifications other than those used in the former construction and may alter
the configuration of, or enlarge or reduce the size of the Building or alter or
relocate the Premises, provided that the Premises as altered or relocated shall
be of substantially the same size and have substantially the same attributes as
the original Premises.
7.06 EXPROPRIATION.
(a) If during the Term title is taken to the whole or any part of
the Building (whether or not such part includes the Premises)
by any competent authority under the power of eminent domain
or by expropriation, which taking, in the reasonable opinion
of the Landlord, does not leave a sufficient remainder to
constitute an economically viable development, the Landlord
may at its option terminate this Lease effective on the date
possession is taken by or on behalf of such authority. Upon
such termination, the Tenant shall immediately deliver up
possession of the Premises, Rent shall be payable up to the
date of such termination and the Tenant shall be entitled to
be repaid by the Landlord any Rent paid in advance and
unearned or an appropriate portion thereof.
(b) in the event of any such taking, the Tenant shall have no
claim upon the Landlord for the value of its property or the
unexpired portion of the Term, but the parties shall each be
entitled to separately advance their claims for compensation
for the loss of their respective interests and to receive and
retain such compensation as may be awarded to each
respectively. If an award compensation made to the Landlord
specifically includes
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an award for the Tenant, the Landlord will account therefor to the
Tenant. In this Section 7.06 the word "expropriation" includes a sale
by the Landlord to an authority with powers of expropriation, in lieu
or under threat of expropriation.
7.07 SERVICE INTERRUPTIONS. The Tenant acknowledges to the Landlord that the
operation of systems and the availability of facilities may be interrupted from
time to time in cases of accident and emergency, in order to carry out
maintenance, repairs, alterations, replacements and upgrading, or for any other
reasonable reason required by the Landlord. During periods of such interruption,
any obligation of the Landlord to provide access to such systems and facilities
or common areas of the Building shall be suspended and the provisions of Section
14.01 shall apply.
ARTICLE 8
TAXES AND OPERATING COSTS
8.01 LANDLORD'S TAX OBLIGATIONS. The Landlord covenants with the Tenant,
subject to the provisions of Section 8.02, to pay to the taxing authority or
authorities having jurisdiction, all Taxes.
8.02 TENANT'S TAX OBLIGATIONS. The Tenant covenants with the Landlord:
(a) to pay when due, all taxes, business taxes, business license
fees, and other taxes, rates, duties or charges levied,
imposed or assessed by lawful authority in respect of the use
and occupancy of the Premises by the Tenant, the business or
businesses carried on therein, or the equipment, machinery or
fixtures brought therein by or belonging to the Tenant, or to
anyone occupying the Premises with the Tenant's consent, or
from time to time levied, imposed or assessed in the future in
lieu thereof, and to pay to the Landlord upon demand the
portion of any tax, rate, duty or charge levied or assessed
upon the Land and Building that is attributable to any
equipment, machinery or fixtures on the Premises which are not
the property of the Landlord, or which may be removed by the
Tenant;
(b) to pay promptly to the Landlord when demanded or otherwise due
hereunder all Taxes in respect of all Leasehold Improvements
in the Premises;
(c) to pay to the Landlord in the manner specified in Section
4.02(b) the Tenant's Share of the Tax Cost.
8.03 GOODS AND SERVICES TAXES. The Tenant shall pay to the Landlord an amount
equal to any and all Goods and Services Taxes, it being the intention of the
parties that the Landlord shall be fully reimbursed by the Tenant with respect
to any and all Goods and Services Taxes at the full tax rate applicable from
time to time in respect thereof. The amount of the Goods and Services Taxes so
payable by the Tenant shall be calculated by the Landlord in accordance with the
applicable legislation and shall be paid to the Landlord at the same time as the
amounts to which such Goods and Services Taxes apply are payable to the Landlord
under the terms of this Lease or upon demand at such other time or times as the
Landlord from time to time determines. Notwithstanding any other Section of this
Lease, the amount payable by the Tenant under this Section shall be deemed not
to be Rent, but the Landlord shall have the same remedies for and rights of
recovery of such amount as it has for recovery of Rent under this Lease.
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<PAGE> 17
8.04 TENANT'S TAX COST. After the commencement of the Term of this Lease and
prior to the commencement of each calendar year thereafter which commences
during the Term, the Landlord may estimate the Tax Cost, or any installment on
account thereof, to become due on any date during the ensuing calendar year or
(if applicable) portion thereof, as the case may be, and the amount thereof
which will be payable by the Tenant under Section 8.02, and notify the Tenant in
writing of such estimate. When the Tax Cost for the calendar year or portion of
the calendar year in question becomes finally determined, the Landlord shall
recalculate the same. If the Tenant has overpaid such Tax Cost, the Landlord
shall refund any excess paid, but if any balance remains unpaid, the Landlord
shall fix monthly installments for the then remaining balance of such calendar
year, or portion thereof, such that, after giving credit for installments paid
by the Tenant hereunder in respect of such calendar year, the Tenant's entire
share of Tax Cost will be fully payable during such calendar year or portion
thereof. If for any reason the Tax Cost is not finally determined within such
calendar year, or portion thereof, the parties shall make the appropriate
readjustment when such Tax Cost becomes finally determined. Any report of the
Landlord's accountant as to the Tax Cost shall be conclusive as to the amount
thereof for any period to which such report relates.
8.05 RIGHT TO CONTEST. The Tenant shall have the right to contest the validity
or amount of any taxes contemplated by Section 8.02 provided that:
(a) the Tenant first obtains the Landlord's written consent, which
consent shall not be unreasonably withheld so long as the
Landlord's interest in the Premises or the Building is not
rendered subject to forfeiture, sale or disturbance;
(b) the Tenant first provides such security in lieu of payment as
the Landlord may require; and
(c) the Tenant first provides an indemnity to the Landlord in a
form acceptable to it, indemnifying and holding the Landlord
harmless against all liability which may result from the
contest, including indemnity against any increase in taxes
resulting from the Tenant exercising its right under this
Section;
in which case during the bona fide period of such contest the Tenant shall not
be deemed to be in default hereunder, but upon the first determination of such
contest, the Tenant shall immediately pay and satisfy the amount found to be due
thereby, if any, together with all costs, penalties or interest, and shall then
be entitled to the release of any such security.
8.06 RECEIPTS FOR PAYMENT. Whenever requested by the Landlord, the Tenant will
deliver to it receipts for payment of all taxes, rates, duties, levies and
assessments payable by the Tenant pursuant to Section 8.02(a) and (b) hereof and
furnish such other information in connection therewith as the Landlord may
reasonably require.
8.07 ALLOCATION OF TAXES. If a separate allocation of Taxes is not issued by the
relevant taxing authority with respect to any Leasehold Improvements, the
Landlord or the Tenant may from time to time apply to the taxing authority for a
determination of the portion of Taxes attributable to such Leasehold
Improvements, which determination shall be conclusive for the purposes of this
Article. If no such determination may be obtained from the taxing authority, the
Landlord shall establish the portion of Taxes attributable to such Leasehold
Improvements using the then current established principles of assessment used by
the taxing authority, or such
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other method which is fair, reasonable and equitable as determined by the
Landlord.
8.08 OPERATING COST. During the Term of the Lease the Tenant shall pay to the
landlord in the manner set forth in this Section the Tenant's Share of the
Operating Cost. Prior to the commencement of the Term of this Lease and the
commencement of each fiscal period selected by the Landlord thereafter which
commences during the Term, the Landlord shall estimate the amount of Operating
Cost for the ensuing fiscal period or, if applicable, a portion thereof, as the
case may be, and notify the Tenant in writing of such estimate and the Tenant's
monthly installments on account thereof. The Landlord may from time to time
alter the fiscal period selected, in which case, and in the case where only a
portion of a fiscal period is included within the Term, the appropriate
adjustment in monthly installments shall be made. From time to time during a
fiscal period the Landlord may re-estimate the amount of Operating Cost in which
event the Landlord shall notify the Tenant in writing of such re-estimate and
fix monthly installments for the then remaining balance of such fiscal period or
portion thereof such that, after giving credit for installments paid by the
Tenant on the basis of the previous estimate or estimates, the estimated portion
of Operating Cost payable by the Tenant will be fully payable during such fiscal
period or portion thereof. As soon as practicable after the expiration of each
fiscal period, the Landlord shall make a final determination of Operating Cost
for such fiscal period or, if applicable, the portion thereof and notify the
Tenant, and the parties shall make the appropriate readjustment and any money
owing by or to one party by the other upon final determination shall be paid to
the other within thirty (30) days of the final determination. Notices by the
Landlord stating the amount of any estimate, re-estimate or determination of
Operating Cost, or monthly installments payable need not include particulars of
Operating Cost. The Operating Cost for a period of which the Term forms a part
shall be reported by the Landlord's accountant and a copy of such report shall
be furnished to the Tenant upon request. Any report of the accountant appointed
by the Landlord as to the Operating Cost shall be conclusive as to the amount
thereof for any period to which such report relates.
8.09 ALLOCATION TO PARTICULAR TENANT. Notwithstanding any of the foregoing,
whenever in the Landlord's reasonable opinion any Operating Cost or item of
Operating Cost properly relates to a particular tenant or tenants within the
Building, the Landlord may allocate such Operating Cost or item of Operating
Cost to such tenant or tenants. Any amount allocated by the Landlord to the
Tenant pursuant to this Section shall be payable by the Tenant forthwith upon
demand.
ARTICLE 9
UTILITIES AND ADDITIONAL SERVICES
9.01 ADDITIONAL SERVICES. The Landlord, if it shall from time to time so elect,
shall have the exclusive right, by way of Additional Services, to provide or
have its designated agents or contractors provide any janitorial or cleaning
services to the Premises required by the Tenant which are additional to those
required to be provided by the Landlord under Section 6.03, including the
Additional Services which the Landlord agrees to provide by arrangement and to
provide or have its designated agents or contractors provide any servicing and
maintenance of mechanical and electrical equipment and systems in the Premises,
and the making of repairs or alterations conducted within the Premises. The Cost
of Additional Services (including the Landlord's administration fee) provided to
the Tenant, whether the Landlord shall be obligated hereunder or shall elect to
provide them as
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Additional Services, shall be paid to the Landlord by the Tenant from time to
time promptly upon receipt of invoices therefor from the Landlord. Cost of
Additional Services charged directly to the Tenant and other tenants shall be
credited in computing Operating Cost to the extent that they would otherwise
have been included.
9.02 EXTRA OPERATING COST. Upon request by the Tenant, the Landlord may, in its
sole discretion, agree from time to time to arrange for extra heating,
ventilating and air conditioning supply, electrical supply or for the supply of
other services to the Premises above those normally provided to tenants of the
Building. The Tenant will pay to the Landlord in the manner in which Operating
Cost is paid from time to time hereunder any and all additional costs and
expenses of the Landlord which may arise in respect of the use by the Tenant of
the Premises in respect of extra heating, ventilating and air conditioning
supply, electrical supply and other services which are arranged to be provided
to the Tenant as a result of its activities over and above those normally
provided to tenants of the Building, plus an administration fee equal to fifteen
percent (15%) of each component thereof. The Landlord reserves the right to
install at the Tenant's expense meters to check the Tenant's consumption of
electricity, water or other utilities.
9.03 ENERGY CONSERVATION. The Tenant covenants with the Landlord:
(a) that the Tenant will cooperate with the Landlord in the
conservation of all forms of energy in the Building,
including, without limitation, the Premises;
(b) that the Tenant will comply with all laws, by-laws,
regulations and orders relating to the conservation of energy
and affecting the Premises or the Building;
(c) that the Tenant will pay all rates, charges, costs and
expenses as may be assessed or levied by all suppliers of
utilities directly to the Premises, and at its own cost and
expense comply with all reasonable requests and demands of the
Landlord made with a view to any energy conservation measure;
and
(d) that any and all costs and expenses paid or incurred by the
Landlord in complying with such laws, by-laws, regulations and
orders, so far as the same shall apply to, or reasonably be
apportioned to, the Building by the Landlord, shall be
included in Operating Cost.
The Landlord shall not be liable to the Tenant in any way for
any loss, costs, damages or expenses, whether direct or consequential,
paid, suffered or incurred by the Tenant as a result of any reduction
in the services provided by the Landlord to the Tenant or to the
Building as a result of the Landlord's compliance with such laws,
by-laws, regulations or orders.
9.04 NOT GUARANTEED SUPPLY. Nothing in this Lease shall be deemed to be an
undertaking or guarantee by the Landlord that it shall continue to supply
electricity, heating, ventilating, air-conditioning or other utilities to the
Premises throughout the Term. If the Landlord no longer supplies any or all such
utilities to the Premises and any or all such utilities are furnished directly
to the Tenant from the supplier utility, the Additional Rent in relation to such
utilities shall abate absolutely, with respect to the charges for such utilities
as are no longer being supplied by the Landlord.
9.05 PARKING. The Tenant will not park or suffer or permit to be parked any
vehicles owned or leased by it or under its control
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or owned or leased by or under the control of any of its employees, agents or
invitees, or suffer or permit any loading or unloading of vehicles upon any
portion of the Land or lands owned or controlled by the Landlord at or in the
vicinity of the Building, except in areas designated for such purposes by the
Landlord. The Tenant also agrees that:
(a) the land and each portion thereof will be under the absolute
control of the Landlord. The Landlord may, without notice and
at any time and from time to time:
(i) designate parking, loading and no-parking areas;
(ii) change or reduce designated parking, paid parking,
loading and no-parking areas;
(iii) cause any parking or loading areas to be shared with
other tenants;
(iv) use any parking OR loading areas for any purpose; and
(v) establish and maintain any security or control
devices.
Designated parking areas may be within or without the Land and
at varying distances from the Building;
(b) any vehicles parked, loaded or unloaded in undesignated areas
or in designated no-parking areas on the Land or lands owned
or controlled by the Landlord at or in the vicinity of the
Building and may be removed without notice at any time at the
cost of the Tenant, and the Tenant will indemnify and save the
Landlord harmless from any and all damages, costs, charges or
claims arising from such removal, whether such vehicles are
owned, leased or under its control or are owned, leased or
under the control of any of its employees, agents or invitees;
(c) the Landlord will have no liability whatsoever for any loss,
damage, injury or accident of any kind or nature whatsoever
which may be occasioned to or by any person, motor vehicle or
goods or objects whatsoever and the Tenant agrees that each
vehicle left on the Land, including, without limitation, the
designated parking areas, is left at the sole risk of the
owner; and
(d) the tenant will advise all of its employees, agents and
invitees who park within designated parking areas of the
provisions in paragraph (c) of section 9.05 and will indemnify
and save the Landlord harmless from any and all damages,
costs, charges or claims sustained or incurred by the Landlord
or made against the Landlord by any employee, agent or invitee
of the Tenant in respect of the use by such person of a
designated parking area.
ARTICLE 10
LICENSES, ASSIGNMENTS AND SUBLETTINGS
10.01 LICENSES, FRANCHISES AND CONCESSIONS. The Tenant shall not suffer or
permit any part of the Premises to be occupied by any persons other than the
Tenant, any subtenants permitted under Section 10.02 and the employees of the
Tenant and any such permitted subtenant, or suffer or permit any part of the
Premises to be occupied by any licensee, franchisee or concessionaire, or suffer
or permit any persons to be upon the Premises other than the
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Tenant, such permitted subtenants and their respective employees, customers and
others having lawful business with them.
10.02 ASSIGNMENT AND SUBLETTING. The Tenant shall not assign this Lease or
sublet the whole or any part of the Premises, unless (1) it shall have received
or procured a bona fide written offer to take an assignment or sublease which is
not inconsistent with, and the acceptance of which would not breach any
provision of this Lease if this Section is complied with and which the Tenant
has determined to accept subject to this Section being complied with, and (2) it
shall have first requested and obtained the consent in writing of the Landlord
thereto. Any request for such consent shall be in writing and accompanied by a
true copy of such offer, and the Tenant shall furnish to the Landlord all
information available to the Tenant and requested by the Landlord as to the
responsibility, reputation, financial standing and business of the proposed
assignee or subtenant. Within thirty (30) days after the receipt by the Landlord
of such request for consent and of all information which the Landlord shall have
requested hereunder (and if no such information has been requested, within
thirty (30) days after receipt of such request for consent), the Landlord shall
have the right upon written notice to the Tenant, if the request is to assign
this Lease or sublet the whole of the Premises, to cancel and terminate this
Lease, or if the request is to sublet a part of the Premises only, to cancel and
terminate this Lease with respect to such part, in each case effective on a
termination date to be stipulated in the notice of termination which shall not
be less than sixty (60) days or more than ninety (90) days following the giving
of such notice, and in such event the Tenant shall surrender the whole or part,
as the case may be, of the Premises in accordance with such notice and Rent
shall be apportioned and paid to the date of surrender and, if a part only of
the Premises is surrendered, Rent payable under Section 4.01 shall thereafter
abate proportionately. If the Landlord shall not exercise the foregoing right of
cancellation, then the Landlord's consent to the Tenant's request for consent to
assign or sublet shall not be unreasonably withheld and if such consent shall be
given, the Tenant shall assign or sublet, as the case may be, only upon the
terms set out in the offer submitted to the Landlord as aforesaid and not
otherwise. As a condition of the Landlord's consent, the assignee or subtenant,
as the case may be, must undertake to observe the obligations of the Tenant
under this Lease by entering into an assumption agreement with the Landlord and
the Tenant, in the Landlord's then standard form, and pay the Landlord's then
current processing charge therefor. The Tenant further agrees that if the
Landlord consents to any such assignment or subletting, the Tenant shall be
responsible for and shall hold the Landlord harmless from any and all capital
costs for Leasehold Improvements and all other expenses, costs and charges in
respect to or arising out of any such assignment or subletting. Notwithstanding
any such consent being given by the Landlord and such assignment or subletting
being effected, the Tenant hereunder shall remain bound to the Landlord for the
fulfillment of all the terms, covenants, conditions and agreements herein
contained.
10.03 CHANGE IN CONTROL OF TENANT.
(a) If the tenant is a corporation but none of its shares are
traded on any public stock exchange or in any public stock
market, and if by the sale or other disposition, bequest or
operation of law of its shares or securities the control or
the beneficial ownership of such corporation is changed at any
time during the Term of this Lease, such change shall be
deemed to be an assignment of this Lease within the meaning of
Section 10.02. If such control or beneficial ownership is
changed without the prior written consent of the Landlord not
to be unreasonably withheld, the Landlord
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may, at its option, cancel the Lease and the Term hereby
granted upon the giving of sixty (60) days' notice to the
Tenant of its intention to cancel and this Lease and the Term
shall thereupon be cancelled.
(b) If the Tenant is a partnership and, if at any time during the
Term of this Lease any person who at the time of the execution
of this Lease owns a partner's interest ceases (other than
through death) to own such partner's interest or there is a
material change in the ownership, in the opinion of the
Landlord, of such partner's interest, such cessation or change
of ownership shall constitute an assignment of this Lease for
all purposes of this Article.
(c) Upon request of the Landlord from time to time, a Tenant that
is a corporation or partnership shall make available to the
Landlord for inspection or copying or both, all books and
records of the Tenant which, alone or with other data, in the
case of a Tenant that is a corporation, identify the ownership
of all of the shares and securities of the Tenant, and in the
case of a Tenant that is a partnership, identify the partners
of the Tenant and their respective interests in the
partnership, all from the Commencement Date or the date of
earlier execution of this Lease up to the date such books and
records are made available to the Landlord.
10.04 ADVERTISING FOR SUBLEASE. For purposes of ensuring confidentiality of this
Lease, the Tenant shall not print, publish, post, mail, display, broadcast or
otherwise advertise or offer the whole or any part of the Premises for the
purposes of assignment, encumbrance, sublease or transfer, and shall not permit
any broker or other party to do any of the foregoing, unless the complete text
and format of any such notice, advertisement or offer shall first have received
the Landlord's written consent, which shall not be unreasonably withheld. In no
event shall any such notice or advertisement contain any reference to the Rent
payable in respect of the Premises.
ARTICLE II
FIXTURES AND IMPROVEMENTS
11.01 INSTALLATION OF FIXTURES AND IMPROVEMENTS. The Tenant will not make,
erect, install or alter any Leasehold Improvements or trade fixtures in the
Premises, any safe or special lock in the Premises, or any apparatus for
illumination, air-conditioning, cooling, heating, refrigerating or ventilating
the Premises, in any case without having requested and obtained the Landlord's
prior written approval, which the Landlord shall not unreasonably withhold. In
making, erecting, installing or altering any Leasehold Improvements or trade
fixtures, the Tenant shall comply with the tenant construction guidelines as
established by the Landlord from time to time, shall obtain all required
building and occupancy permits, shall not alter or interfere with any
installations which have been made by the Landlord without the prior written
approval of the Landlord, and, in no event shall alter or interfere with window
coverings installed by the Landlord on exterior windows. The Tenant's request
for any approval hereunder shall be in writing thirty (30) days prior to the
Landlord's need to approve same, and be accompanied by a reasonably detailed
description of the contemplated work and, where appropriate, plans, working
drawings and specifications thereof. Any out-of-pocket expense incurred by the
Landlord in connection with any such approval shall be deemed incurred by way of
Additional Service. All work to be performed in the Premises shall be performed
by
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competent contractors and subcontractors of whom the Landlord shall have
approved (such approval not to be unreasonably withheld, but provided that the
Landlord may require that the Landlord's contractors and subcontractors be
engaged for any mechanical or electrical work) and by workmen whose labour union
affiliations are compatible with those of workmen employed by the Landlord and
its contractors and subcontractors. All such work shall be subject to inspection
by and the reasonable supervision of the Landlord as an Additional Service and
shall be performed in accordance with any reasonable conditions or regulations
imposed by the Landlord and completed in good and workmanlike manner in
accordance with the description of the work approved by the Landlord.
11.02 LIENS AND ENCUMBRANCES ON FIXTURES AND IMPROVEMENTS. In connection with
the making, erection, installation or alteration of Leasehold Improvements and
trade fixtures and all other work or installations made by or for the Tenant in
the Premises, the Tenant shall comply with all the provisions of the Builders'
Lien Act and other statutes from time to time applicable thereto (including any
provision requiring or enabling the retention of portions of any sums payable
by way of hold-backs), shall permit the Landlord to take all steps to enable
the Landlord to obtain the benefit of the provisions of the Builders' Lien Act
and except as to any lawful hold-back, shall promptly pay all accounts relating
thereto. The Tenant shall not create any mortgage, conditional sale agreement
or other encumbrance in respect of its Leasehold Improvements or trade fixtures
or permit any such mortgage, conditional sale agreement or other encumbrance to
attach to the Premises. If and when any builders' or other lien for work,
labour, services or materials supplied to or for the Tenant or for the cost of
which the Tenant may be in any way liable or claims therefor shall arise or be
filed or any such mortgage, conditional sale agreement or other encumbrance
shall attach, the Tenant shall, within ten (10) days after receipt of notice
thereof, procure the discharge thereof, including any certificate of action
registered in respect of any lien, by payment or giving security or in such
other manner as may be required or permitted by law, and failing which the
Landlord may in addition to all other remedies hereunder avail itself of its
remedy under Section 15.01 and may make any payments required to procure the
discharge of any such liens or encumbrances, shall be entitled to be reimbursed
by the Tenant as provided in Section 15.01, and its right to reimbursement
shall not be affected or impaired if the Tenant shall then or subsequently
establish or claim that any lien or encumbrance so discharged was without merit
or excessive or subject to any abatement, setoff or defence.
11.03 REMOVAL OF FIXTURES AND IMPROVEMENTS. All Leasehold Improvements in or
upon the Premises shall immediately at the expiry or earlier termination of the
initial Term of this Lease be and become the Landlord's property without
compensation therefor to the Tenant. Except to the extent otherwise expressly
agreed by the Landlord in writing, no Leasehold Improvements, trade fixtures,
furniture or equipment shall be removed by the Tenant from the Premises either
during or at the expiration or sooner termination of the Term except that (1)
the Tenant may at the end of the Term remove its trade fixtures, (2) the Tenant
shall at the end of the Term remove such of the Leasehold Improvements and trade
fixtures as the Landlord shall require to be removed, and (3) the Tenant shall
remove its furniture and equipment at the end of the Term, and also during the
Term in the usual and normal course of its business where such furniture or
equipment has become excess for the Tenant's purposes or the Tenant is
substituting therefor new furniture and equipment. The Tenant shall, in the case
of every removal either during or at the end of the Term, immediately make good
any damage caused to the Premises by the installation and removal, and comply
with Schedule "E" hereto.
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11.04 ALTERATIONS BY LANDLORD. The Landlord reserves the right from time to
time to:
(a) make any deletions, changes and additions to the equipment,
appliances, pipes, plumbing, wiring conduits, ducts, shafts,
structures and facilities of every kind throughout the
Building, including the Premises;
(B) alter the location and nature of common areas of the
Building, including Service Areas, make reductions therein,
erect additions thereto and extend any part thereof; and
(c) make alterations and additions to the Building;
and in exercising any of such rights, the Landlord will take reasonable steps to
minimize any interference caused to the Tenant's operations in the Premises, but
by exercising any of such rights, the Landlord shall not be deemed to have
constructively evicted the Tenant or otherwise to be in breach of this Lease,
nor shall the Tenant be entitled to any abatement of rent or other compensation
from the Landlord.
ARTICLE 12
INSURANCE AND LIABILITY
12.01 LANDLORD'S INSURANCE. The Landlord shall be deemed to have insured (for
which purpose it shall be a co-insurer, if and to the extent that it shall not
have insured) the Building and all improvements and installations made by the
Landlord in the Premises, except to the extent hereinafter specified, in respect
of perils and to amounts and on terms and conditions which from time to time are
insurable at a reasonable premium and which are normally insured by reasonably
prudent owners of properties similar to the Building. Upon the request of the
Tenant from time to time, the Landlord will furnish a statement as to the perils
in respect of which and the amounts to which it has insured the Building. The
Landlord may maintain such other insurance in such amounts and upon such terms
as would normally be carried by a prudent owner.
12.02 TENANT'S INSURANCE. The Tenant shall take out and keep in force during
the Term and, such other time which the Tenant occupies the Premises:
(a) (i) comprehensive general liability insurance against claims
for personal injury, bodily injury, including death, and
property damage or loss arising out of the use and/or
occupation of the Premises or the Tenant's business on or
about the Premises; such insurance shall be in the joint name
of the tenant and Landlord so as to indemnify and protect both
the Tenant and Landlord and shall contain a "cross liability"
and "severability of interests" clause so that the Landlord
and the Tenant may be insured in the same manner and to the
same extent as if individual policies had been issued to each,
and shall be for the amount of not less than $3,000,000.00
combined single limit or such other amount as may be
reasonably required by the Landlord from time to time; such
comprehensive general liability insurance shall, for the
Tenant's benefit only, include Tenant's legal liability and
contractual liability insurance in a form and of a nature
broad enough to insure the
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obligations imposed upon the Tenant under the terms
of this Lease;
(ii) all risks replacement cost insurance upon its
merchandise, stock-in-trade, furniture, fixtures and
improvements and upon all other property in the
Premises, such insurance to include business
interruption insurance to cover any loss of income
which may be sustained by the Tenant and insurance on
all leasehold or tenant improvements to the Premises
whether paid for or installed by the Landlord;
(iii) insurance upon all glass and plate glass in the
Premises, including the exterior glass, against
breakage and damage from any cause, all in an amount
equal to the full replacement value thereof, which
amount in the event of a dispute shall be determined
by the decision of the Landlord;
(iv) boiler and machinery insurance to include all such
boilers and pressure vessels and mechanical or
electrical machinery as may be installed by, or under
the exclusive control of, the Tenant in the Premises,
such insurance to include business interruption
insurance to cover any loss of income which may be
sustained by the Tenant;
(v) owned automobile insurance with respect to all motor
vehicles owned by the Tenant and operated in its
business; and
(vi) any other form of insurance that the Landlord or any
mortgagee or other encumbrance holder of the
Landlord's interest in the Building and Land may
reasonably require from time to time in forms,
amounts and for insurance risks acceptable to the
Landlord and any such mortgagee or other encumbrance
holder.
(b) The policies of insurance referred to above shall be in the
form, on terms and with insurers acceptable to the Landlord
and shall contain the following:
(i) provisions such that the Landlord is protected
notwithstanding any act, neglect, or
misrepresentation of the Tenant which might otherwise
result in the avoidance of a claim under such
policies and such that such policies shall not be
affected or invalidated by any act, omission or
negligence of any third party which is not within
the knowledge or control of the insured(s);
(ii) provisions that such policies and the coverage
evidenced thereby shall be primary and
non-contributing with respect to any policies carried
by the Landlord and that any coverage carried by the
Landlord shall be excess coverage;
(iii) all insurance referred to above shall provide for
waiver of the insurer's rights of subrogation as
against the Landlord;
(iv) provisions that such policies of insurance shall not
be cancelled or materially changed without the
insurer providing the Landlord thirty (30)
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days' written notice in advance of such cancellation
or material change.
(c) The Tenant shall provide to the Landlord evidence of all such
policies of insurance in force from time to time and their
renewal or continuance in force either by means of a certified
copy of each policy with all amendments and endorsements or a
certificate from the Tenant's insurer, in the form required by
the Landlord, which, in the case of comprehensive general
liability insurance, shall provide the information set out on
Schedule D.
12.03 LIMITATION OF LANDLORD'S LIABILITY. The Tenant agrees that:
(a) the Landlord shall not be liable for any bodily injury to or
death of, or loss or damage to any property belonging to, the
Tenant or its employees, invitees, or licensees or any other
person in, on or about the Building or the Land, or for any
interruption of any business carried on in the Premises, and,
without limiting the generality of the foregoing, in no event
shall the Landlord be liable:
(i) for any damage or for bodily injury or death of
anyone which results from fire, explosion,
earthquake, flood, falling plaster, steam, gas,
electricity, water, rain, snow, dampness or leaks
from any part of the Premises or from the pipes,
windows, appliances, electrical system, plumbing
works, roof, subsurface or other part or parts of the
Building or Land or from the streets, lanes and other
properties adjacent thereto;
(ii) for any damage, injury or death caused by anything
done or omitted by the Tenant or any of its servants
or agents or by any other tenant or person in the
Building;
(iii) for the non-observance or the violation of any
provision of any of the rules and regulations of the
Landlord in effect from time to time or of any
lease by another tenant of premises in the Building
or any concessionaire, employee, licensee, agent,
customer, officer, contractor or other invitee of any
of them, or by anyone else;
(iv) for any act or omission (including theft, malfeasance
or negligence) on the part of any agent, contractor
or person from time to time employed by it to perform
janitorial services, security services, supervision
or any other work, in or about the Premises or the
Building; or
(v) for loss or damage, however caused, to money,
securities, negotiable instruments, papers or other
valuables of the Tenant or any of its servants or
agents;
(vi) for the failure to supply interior climate control or
elevator service when prevented from doing so by
strikes, the necessity of repairs, any order or
regulation of any body having jurisdiction, the
failure of the supply of any utility required for the
operation thereof or any other cause beyond the
Landlord's reasonable control; or
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(vii) for any bodily injury, death or damage to property
arising from the use of, or any happening in or
about, any elevator; and
(b) the tenant releases and discharges the landlord from any and
all actions, causes of action, claims, damages, demands,
expenses and liabilities which the Tenant now or hereafter may
have, suffer or incur which arise from any matter for which
the Landlord is not liable pursuant to Section 12.03(a),
notwithstanding that negligence or other conduct of the
Landlord or anyone for whose conduct the Landlord is
responsible may have caused or contributed to such matter.
12.04 LIMITATION OF TENANT'S LIABILITY. The Landlord releases the Tenant from
all claims or liabilities in respect of any damage which is Insured Damage, to
the extent of the cost of repairing such damage, but not from injury, loss or
damage which is consequential thereto or which arises therefrom where the Tenant
is negligent or otherwise at fault.
12.05 INDEMNITY OF LANDLORD. Except as provided in Section 12.04, the Tenant
agrees to indemnify and save harmless the Landlord in respect of all claims for
bodily injury or death, property damage or other loss or damage arising from the
conduct of any work by or any act or omission of the Tenant or any assignee,
subtenant, agent, employee, contractor, invitee or licensee of the Tenant, and
in respect of all costs, expenses and liabilities incurred by the Landlord in
connection with or arising out of all such claims, including the expenses of any
action or proceeding pertaining thereto, and in respect of any loss, costs,
expense or damage suffered or incurred by the Landlord arising from any breach
by the Tenant of any of its covenants and obligations under this Lease.
12.06 INCREASES IN RATES. The Tenant shall not do or omit or permit to be done
or omitted upon the Premises anything which shall cause any rate of insurance
upon the Building or any part thereof to be increased or cause such insurance to
be cancelled. If any such rate of insurance shall be increased as aforesaid, the
Tenant shall pay to the Landlord the amount of the increase as Additional Rent.
If any insurance policy upon the Building or any part thereof is cancelled or
threatened to be cancelled by reason of the use or occupancy by the Tenant or
any act or omission as aforesaid, the Tenant shall forthwith remedy or rectify
such use, occupation, act or omission as aforesaid upon being requested to do so
in writing by the Landlord, and if the Tenant shall fail to so remedy or
rectify, the Landlord may at its option terminate this Lease forthwith.
ARTICLE 13
SUBORDINATION, ATTORNMENT, REGISTRATION AND CERTIFICATES
13.01 SALE OF FINANCING OF BUILDING. The rights of the Landlord under this Lease
may be mortgaged, charged, transferred or assigned to a purchaser or purchasers
or to a mortgagee, or trustee for bond holders and in the event of a sale or of
default by the Landlord under any mortgage, trust deed or trust indenture and
the purchaser, mortgagee or trustee, as the case may be, duly entering into
possession of the Building or the Premises, the Tenant agrees to attorn to and
become the tenant of such purchaser or purchasers, mortgagee or trustee under
the terms of this Lease.
13.02 SUBORDINATION AND ATTORNMENT. If required by any mortgagee or the holder
of any trust deed or trust indenture, this Lease and all rights of the Tenant
hereunder shall be subject and
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subordinate to all mortgages, trust deeds or trust indentures now or hereafter
existing which may now or hereafter affect the Building and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided
that the Tenant whenever required by any mortgagee (including any trustee under
a trust deed or trust indenture) shall attorn to such mortgagee as the tenant
upon all of the terms of this Lease. The Tenant agrees to execute and deliver
promptly whenever requested by the Landlord or by such mortgagee an instrument
of subordination or attornment, as the case may be, as may be required of it,
and if the Tenant fails to do so within seven (7) days after receiving the
instrument, the Tenant hereby irrevocably and conclusively authorizes the
Landlord to complete, execute and deliver the instrument for, on behalf of, in
the name of and as agent of, the Tenant.
13.03 REGISTRATION. The Tenant agrees that the Landlord shall not be obliged to
deliver this Lease in a form registerable under the Land Title Act and covenants
and agrees with the Landlord not to register this Lease.
13.04 CERTIFICATES. The Tenant agrees with the Landlord that the Tenant shall
promptly whenever requested by the Landlord from time to time execute and
deliver to the Landlord and if required by the Landlord, to any mortgagee
(including any trustee under a trust deed or trust indenture) or prospective
purchaser (as designated by the Landlord) a certificate in writing as to the
status of this Lease at that time, including as to whether it is in full force
and effect, is modified or unmodified, confirming the Rent payable hereunder and
the state of the accounts between the Landlord and Tenant, the existence or
non-existence of defaults, and any other matters pertaining to this Lease as to
which the Landlord shall request a certificate. If the Tenant fails to do so
within seven (7) days after the Tenant receives the form of certificate, the
Tenant hereby irrevocably and conclusively authorizes the Landlord to complete,
execute and deliver the certificate for, on behalf of, in the name of and as
agent of, the Tenant.
13.05 ASSIGNMENT BY LANDLORD. In the event of the sale by the Landlord of the
Building or a portion thereof containing the Premises or the assignment by the
Landlord of this Lease or any interest of the Landlord hereunder, and to the
extent that such purchaser or assignee has assumed the covenants and obligations
of the Landlord hereunder, the Landlord shall, without further written
agreement, be freed and relieved of liability upon such covenants and
obligations.
ARTICLE 14
OCCURRENCE OF DEFAULT
14.01 UNAVOIDABLE DELAY. Except as herein otherwise expressly provided, if and
whenever and to the extent that either the Landlord or the Tenant shall be
prevented, delayed or restricted in the fulfillment of any obligations hereunder
in respect of the supply or provision of any service or utility, the making of
any repair, the doing of any work or any other thing (other than the payment of
Rent) by reason of civil commotion, war-like operation, invasion, rebellion,
hostilities, sabotage, strike or work stoppage, or being unable to obtain any
material, service, utility or labour required to fulfill such obligation or by
reason of any statute, law or regulation of or inability to obtain any
permission from any governmental authority having lawful jurisdiction
preventing, delaying or restricting such fulfillment, or by reason of other
unavoidable occurrence other than lack of funds, the time for fulfillment of
such obligation shall be extended during the period in which such circumstance
operates to prevent, delay or
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restrict the fulfillment thereof, and the other party to this Lease shall not be
entitled to compensation for any inconvenience, nuisance or discomfort thereby
occasioned nor shall Rent abate; but nevertheless the Landlord will use
reasonable efforts to maintain services essential to the use and enjoyment of
the Premises.
14.02 NO ADMISSION. The acceptance of any Rent from or the performance of any
obligation hereunder by a person other than the Tenant shall not be construed as
an admission by the Landlord of any right, title or interest of such person as a
subtenant, assignee, transferee or otherwise in the place and stead of the
Tenant.
14.03 PART PAYMENT. The acceptance by the landlord of a part payment of any sums
required to be paid hereunder shall not constitute waiver or release of the
right of the Landlord to payment in full of such sums.
14.04 EVENTS OF DEFAULT. Any of the following constitutes an Event of Default
under this Lease:
(a) the Tenant shall be in default in the payment of any money,
whether hereby expressly reserved or deemed as Rent, beyond
the specific due date on which the Tenant is to make such
payment or, in the absence of such specific due date, for the
five (5) days following written notice by the Landlord
requiring the Tenant to pay the same; or
(b) the Tenant's leasehold interest hereunder, or any goods,
chattels or equipment of the Tenant located in the Premises,
shall be taken or seized in execution or attachment, or if any
writ of execution shall issue against the Tenant, or the
Tenant shall become insolvent or commit an act of bankruptcy
or become bankrupt or take the benefit of any Act that may be
in force for bankrupt or insolvent debtors or become
involved in voluntary or involuntary winding up, dissolution
or liquidation proceedings, or if a trustee, receiver,
receiver-manager or any other person acting in a similar
capacity shall be, appointed with respect to the affairs,
business, assets or revenues of the Tenant; or
(c) the Tenant shall fail to commence, diligently pursue and
complete the Tenant's work to be performed pursuant to any
agreement to lease pertaining to the Premises or other
agreement signed by the parties, or vacate or abandon the
Premises for or a period of one (1) day or longer, or fail or
cease to operate as required by this Lease or otherwise cease
to conduct business from the Premises, or use or permit or
suffer the use of the Premises for any purpose other than as
set forth in Section 1.01(g), or fail to remedy or rectify an
act or omission pursuant to Section 12.06, or if the Tenant
shall assign or sublet other than as permitted by Article 10,
or make a bulk sale of its goods and assets which has not been
consented to by the Landlord, or move or commence, attempt or
threaten to move its goods, chattels and equipment out of the
Premises other than in the routine course of its business or
if the effective control of the Tenant shall change other than
with the consent of the Landlord pursuant to Article 10; or
(d) the Tenant shall not observe, perform and keep each and every
of the covenants, agreements, stipulations, obligations,
conditions and other provisions of this Lease to be observed,
performed and kept by the Tenant and shall persist in such
default, in the case of monetary payments which are due on a
specific date,
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beyond that specific date or, in the case of monetary payments which
are not due on a specific date, beyond the five (5) day period
stipulated in paragraph (a) aforesaid, or, in the case of any other
default, after fourteen (14) days following written notice from the
Landlord requiring that the Tenant remedy, correct or comply or, in the
case of any such default which would reasonably require more than
fourteen (14) days to rectify, unless the Tenant shall commence
rectification within the said fourteen (14) day notice period and
thereafter promptly and diligently and continuously proceed with the
rectification of any such default; or
and in each of such cases, and at the option of the Landlord, this Lease may be
terminated and the Term shall then immediately become forfeited and void, and
the Landlord may without notice or any form of legal process whatever forthwith
re-enter the Premises or any part thereof and in the name of the whole repossess
and enjoy the same as of its former estate, anything contained herein or in any
statute or law to the contrary notwithstanding.
ARTICLE 15
TENANT'S DEFAULT, REMEDIES OF LANDLORD AND SURRENDER
15.01 REMEDYING BY LANDLORD, NON-PAYMENT AND INTEREST. In addition to all the
rights and remedies of the Landlord available to it in the Event of Default
hereunder by the Tenant either by any other provision of this Lease or by
statute or the general law, the Landlord:
(a) shall have the right at all times to remedy or attempt to
remedy any Event of Default of the Tenant, and in so doing
may make any payments due or alleged to be due by the Tenant
to third parties and may enter upon the Premises to do any
work or other things therein and in such event all expenses of
the Landlord in remedying or attempting to remedy such Event
of Default together with an administrative charge equal to
fifteen percent (15%) of the total of such expenses shall be
payable by the Tenant to the Landlord forthwith upon demand;
(b) shall have the same rights and remedies in the event of any
non-payment by the Tenant of any amounts payable by the Tenant
under any provision of this Lease as in the case of
non-payment of Rent;
(c) if the Tenant shall fail to pay any Rent promptly when due,
shall be entitled, if it shall demand it, to interest thereon
at a rate of three percent (3%) per annum in excess of the
rate of interest charged and published from time to time by
the main branch in the City in which the Building is located,
of the Landlord's bank, as its most favourable rate of
interest to its most creditworthy and substantial commercial
customers commonly known as its prime rate, from the date
upon which the same was due until actual payment thereof; and
(d) shall be entitled to be reimbursed by the Tenant, and the
Tenant shall forthwith pay the Landlord, the amount of all
costs and expenses (including, without limitation, legal costs
on a solicitor and own client basis) incurred by the Landlord
in connection with the Event of Default or in efforts to
enforce any of the rights, or to seek any of the remedies, to
which the Landlord is or may be entitled hereunder.
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15.02 REMEDIES CUMULATIVE. The Landlord may from time to time resort to any or
all of the rights and remedies available to it in the Event of Default hereunder
by the Tenant, either by any provision of this Lease or by statute or the
general law, all of which rights and remedies are intended to be cumulative and
not alternative, as the express provisions hereunder as to certain rights and
remedies are not to be interpreted as excluding any other or additional rights
and remedies available to the Landlord by statute or the general law.
15.03 RIGHT OF RE-ENTRY ON EVENT OF DEFAULT. Provided and it is expressly agreed
that if and whenever the Rent hereby reserved or other monies payable by the
Tenant or any part thereof, whether lawfully demanded or not, are unpaid and the
Tenant shall have failed to pay such Rent or other monies within two (2) days
after the Landlord shall have given to the Tenant notice requiring such payment,
or if the Tenant shall breach or fail to observe and perform any of the
covenants, agreements, provisos, conditions, rules or regulations and other
obligations on the part of the Tenant to be kept, observed or performed
hereunder, or if the Landlord shall have become entitled to terminate this Lease
or to re-enter the Premises pursuant to any provision hereof, then and in every
such case it shall be lawful for the Landlord thereafter to enter into and upon
the Premises or any part thereof in the name of the whole and the same to have
again, repossess and enjoy as of its former estate, anything in this Lease
contained to the contrary notwithstanding. The Landlord may use such force as it
may deem necessary for the purpose of gaining admittance to and re-taking
possession of the Premises and the Tenant hereby releases the Landlord from all
actions, proceedings, claims and demands whatsoever for and in respect of any
such forcible entry or any loss or damage in connection therewith.
15.04 TERMINATION AND RE-ENTRY. If and whenever the Landlord becomes entitled to
re-enter upon the Premises under any provision of this Lease, the Landlord, in
addition to all other rights and remedies, shall have the right to terminate
this Lease forthwith by leaving upon the Premises notice in writing of such
termination. Upon the giving by the Landlord of a notice in writing terminating
this Lease, this Lease and the Term shall terminate, and the Tenant shall
immediately deliver up possession of the Premises to the Landlord in accordance
with Section 15.08, and the Landlord may re-enter and take possession of them.
15.05 CERTAIN CONSEQUENCES OF TERMINATION AND RE-ENTRY. If the Landlord
re-enters the Premises or if this Lease is terminated other than by affluxion of
time, then:
(a) notwithstanding any termination or the Term thereby becoming
forfeited and void, the provisions of this Lease which relate
to the consequences of termination, and the provisions of this
Lease as they apply with respect to acts, events and
omission's which occurred prior to the termination, shall all
survive such termination; and
(b) at the Landlord's option, but without prejudice to the
Landlord's other rights and remedies with respect to recovery
of costs, damages and expenses which relate to any Event of
Default by the Tenant, the Tenant shall pay to the Landlord on
demand:
(i) Rent and all other amounts payable under this Lease
up to the time of re-entry or the date of
termination, whichever is later, including any
accelerated rent payable pursuant to Section 16.02;
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(ii) such reasonable expenses as the Landlord has
incurred, and a reasonable estimate of the Landlord
of expenses the Landlord expects to incur, in
connection with the re-entering, terminating,
re-letting, collecting sums due or payable by the
Tenant and storing and realizing upon assets seized,
including without limitation, brokerage fees, legal
fees and disbursements, the expenses of cleaning and
making and keeping the Premises in good order, and
the expenses of repairing the Premises and preparing
them for re-letting; and
(iii) in the case of termination, as liquidated damages for
the loss of rental and other income of the Landlord
expected to be derived from the Lease during the
period which would have constituted the unexpired
portion of the Term had it not been terminated, the
amount determined by reducing to present value at an
assumed rate of six percent (6%) per annum all
Annual Base Rent and Additional Rent which would have
become payable by the Tenant under this Lease during
such period, such determination to be made by the
Landlord and for such purpose the Landlord may make
reasonable estimates of time or times when any
amounts would have become payable and such other
assumptions of fact as may be reasonable in the
circumstances.
15.06 WAIVER OF DISTRESS. The Tenant waives and renounces the benefit of any
present or future statute taking away or limiting the Landlord's right of
distress and covenants and agrees that notwithstanding any such statute none of
the goods and chattels of the Tenant on the Premises at any time during the
Term shall be exempt from levy by distress for rent in arrears. The Tenant will
not sell, dispose of or remove any of the fixtures, goods or chattels of the
Tenant from or out of the Premises during the Term without the consent of the
Landlord, unless the Tenant is substituting new fixtures, goods or chattels of
equal value or is bona fide disposing of individual items which have become
excess for the Tenant's purposes; and the Tenant will be the owner of its
fixtures, goods and chattels and will not permit them to become subject to any
lien, mortgage, charge or encumbrance.
15.07 RE-LETTING AND SALE OF PERSONALTY. Whenever the Landlord becomes entitled
to re-enter upon the Premises under any provision of this Lease the Landlord in
addition to all other rights it may have shall have the right as agent of the
Tenant to enter the Premises and re-let them (for a term or terms shorter or
longer than the balance of the Term, granting reasonable concessions in
connection therewith) and to receive the rent therefor and as the agent of the
Tenant to take possession of any furniture or other property thereon and to
sell the same at public or private sale without notice and to apply the proceeds
thereof and any rent derived from re-letting the Premises upon account of the
rent due and to become due under this Lease and the Tenant shall be liable to
the Landlord for the deficiency, if any.
15.08 SURRENDER ON TERMINATION. Forthwith upon the termination of this Lease,
whether by affluxion of time or otherwise, the Tenant shall vacate and deliver
up possession of the Premises in a neat and tidy state and in good and
substantial repair in accordance with the Tenant's obligation under this Lease
to repair the Premises and Schedule "E" hereto, but subject to the Tenant's
rights and obligations in respect of removal in accordance with Section 11.03.
At the same time the Tenant shall surrender to the Landlord at the place then
fixed for the payment of Rent all keys
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<PAGE> 33
and other devices which provide access to the Premises, the Building or any part
thereof and shall inform the Landlord of all combinations to locks, safes and
vaults, if any, in the Premises.
ARTICLE 16
EVENTS TERMINATING LEASE
16.01 CANCELLATION OF INSURANCE. If any policy of insurance upon the Building
from time to time effected by the Landlord shall be cancelled or about to be
cancelled by the insurer by reason of the use or occupation of the Premises by
the Tenant or any assignee, subtenant or licensee of the Tenant or anyone
permitted by the Tenant to be upon the Premises and the Tenant after receipt of
notice in writing from the Landlord shall have failed to take such immediate
steps in respect of such use or occupation as shall enable the Landlord to
reinstate or avoid cancellation of (as the case may be), such policy of
insurance, the Landlord may at its option terminate the Lease by leaving upon
the Premises notice in writing of such termination.
16.02 PROHIBITED OCCUPANCY, BANKRUPTCY AND OTHER EVENTS. If without the written
consent of the Landlord the Premises shall be used by any other persons than the
Tenant or its permitted assigns or permitted subtenants or for any purpose other
than that for which the Premises were leased, or occupied by any persons whose
occupancy is prohibited by this Lease, or if the Premises shall be vacated or
abandoned or remain unoccupied for fifteen (15) days or more while capable of
being occupied, or if the Term or any of the goods and chattels of the Tenant
shall at any time be seized in execution or attachment, or if a receiver or
receiver-manager is appointed of the business or property of the Tenant, or if
the Tenant shall make any assignment for the benefit of creditors or any bulk
sale, become bankrupt or insolvent or take the benefit of any statute now or
hereafter in force for bankrupt or insolvent debtors or (if a corporation) shall
take any steps or suffer any order to be made for its winding-up or other
termination of its corporate existence, then in any such case the Landlord may
at its option terminate this Lease by leaving upon the Premises notice in
writing of such termination and thereupon, in addition to the payment by the
Tenant of Rent and other payments for which the Tenant is liable under this
Lease, Rent for the current month and the next ensuing three (3) months' Rent
shall immediately become due and be paid by the Tenant, or party then
controlling the Tenant's affairs.
ARTICLE 17
MISCELLANEOUS
17.01 NOTICES. Any notice required or contemplated by any provision of this
Lease shall be given in writing, and if to the Landlord, either delivered to an
executive officer of the Landlord or delivered or mailed (by prepaid registered
mail addressed) to the Landlord at the address set out in Section 1.01(a)(ii),
or if the Landlord has given the Tenant notice of another address in Canada to
which notices to the Landlord under this Lease are to be given, then to the last
such address of which the Tenant has been given notice; and if to the Tenant,
either delivered to the Tenant personally (or to a partner or officer of the
Tenant if the Tenant is a firm or corporation) or delivered or mailed (by
prepaid registered mail addressed) to the Tenant at the Premises. Every such
notice shall be deemed to have been given when delivered or, if mailed as
aforesaid, upon the third business day after the day of mailing thereof in
Canada, provided that if mailed, should there be a mail strike, slowdown or
other labour dispute which might
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<PAGE> 34
affect delivery of such notice between the time of mailing and the actual
receipt of notice, then such notice shall only be effective if actually
delivered.
17.02 EXTRANEOUS AGREEMENTS. The Tenant acknowledges that there are no
covenants, representations, warranties, agreements or conditions expressed or
implied relating to this Lease of the Premises save as expressly set out in this
Lease and in any agreement to lease in writing between the Landlord and the
Tenant pursuant to which this Lease has been executed. This Lease may not be
modified except by an agreement in writing executed by the Landlord and the
Tenant.
17.03 TIME OF ESSENCE. Time shall be of the essence of this Lease.
17.04 CERTIFICATE OF ARCHITECT AND AUDITOR. The following certificates shall be
conclusive and binding upon the Landlord and the Tenant in respect of any
question of fact or opinion arising under this Lease with respect to the matters
stipulated:
(1) A certificate procured by the Landlord from the Architect, as
to any question of fact concerning the completion of any
construction or other work either by the Landlord or the
Tenant, whether any such work complies with the requirements
of this Lease, whether the Building or the Premises or any
part thereof is being kept in good order and repair as
required by the provisions of this Lease, the cause of any
destruction or damage, the estimated cost of repairing any
damage or destruction, the extent to which the destruction or
damage has occurred pursuant to Article 7, or the time
necessary to complete any repairs; and
(2) A certificate procured by the Landlord from an accountant (but
who may be the Landlord's accountant) as to any question of
fact or opinion concerning the amount or computation of Annual
Base Rent or Additional Rent.
17.05 SUCCESSORS AND ASSIGNS. This Lease and everything herein contained shall
enure to the benefit of and be binding upon the successors and assigns of the
Landlord and its heirs, executors and administrators and the permitted
successors and permitted assigns of the Tenant. References to the Tenant shall
be read with such changes in gender as may be appropriate, depending upon
whether the Tenant is a male or female person or a firm or corporation. If the
Tenant is comprised of more than one person or entity, then each such person and
entity is joint and severally bound by the representations, warranties,
agreements and covenants of the Tenant herein and any notice given or deemed to
have been given at any time to any such person or entity shall be deemed to have
been given at the same time to each other such person and entity.
17.06 FRUSTRATION. The Landlord and the Tenant agree that notwithstanding the
occurrence or existence of any event or circumstance or the non-occurrence of
any event or circumstance and so often and for so long as the same may occur or
continue which, but for this Section, would frustrate or void this Lease, and
notwithstanding any statutory provision to the contrary, the obligations and
liabilities of the Tenant hereunder shall continue in full force and effect as
if such event or circumstance had not occurred or existed.
17.07 WAIVER. No condoning, excusing or overlooking by the Landlord or Tenant
of any default, breach or non-observance by the Tenant or the Landlord at any
time or times in respect of any covenant, proviso or condition herein contained
shall operate as a waiver of the Landlord's or the Tenant's rights hereunder in
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<PAGE> 35
respect of any continuing or subsequent default, breach or non-observance or so
as to defeat or affect in any way the rights of the Landlord or the Tenant
herein in respect of any such continuing or subsequent default or breach, no
acceptance of rent by the Landlord subsequent to a default by the Tenant
(whether or not the Landlord knows of the default) shall operate as a waiver by
the Landlord, and no waiver shall be inferred from or implied by anything done
or omitted by the Landlord or the Tenant save only express waiver in writing.
17.08 GOVERNING LAW AND SEVERABILITY. This Lease shall be governed by and
construed in accordance with the laws in force in the Province of British
Columbia. The venue of any proceedings taken in respect of or under this Lease
shall be Vancouver, British Columbia as long as such venue is permitted by law,
and the Tenant will consent to any application by the Landlord to change the
venue to Vancouver, British Columbia of any proceedings taken elsewhere. The
Landlord and the Tenant agree that all of the provisions of this Lease are to be
construed as covenants and agreements as though the words importing such
covenants and agreements were used in each separate Section hereof. Should any
provision or provisions of this Lease be illegal or not enforceable, it or they
shall be considered separate and severable from the Lease and its remaining
provisions shall remain in force and be binding upon the parties hereto as
though the said provision or provisions had never been included.
17.09 CAPTIONS. The captions appearing in this Lease have been inserted as a
matter of convenience and for reference only and in no way define, limit or
enlarge the scope or meaning of this Lease or of any provision thereof.
17.10 ACCEPTANCE. The Tenant accepts this Lease of the Premises, to be held by
it as tenant, and subject to the conditions, restrictions and covenants above
set forth. The acceptance of possession of the Premises shall be conclusive
evidence as against the Tenant that at the Commencement Date the Landlord had
duly completed all work required to be completed by the Landlord prior to the
Commencement Date and the Premises were in good order and satisfactory condition
for the commencement of the work and business of the Tenant.
17.11 DEPOSIT. If the Landlord is holding any deposit or security deposit in
connection with this Lease as set out in Section 1.01(i)(i), then unless the
Landlord agreed in writing to different arrangements at the time the Landlord
received the deposit or security deposit, the deposit and security deposit shall
be held by the Landlord on a non-interest bearing basis. The deposit referred to
in Section 1.01(i)(i) shall, unless otherwise stated in that Section, be applied
to the Annual Base Rent for that month of the term during which Annual Base Rent
is first payable hereunder.
17.12 SECURITY DEPOSIT.
(a) The Tenant has deposited with the Landlord, the sum specified
in Section 1.01(i)(ii) receipt of which is hereby acknowledged
by the Landlord. The Security Deposit shall be held by the
Landlord, without liability for interest or obligation to keep
separate from its other funds as the Security Deposit, as
security for the faithful performance by the Tenant of all of
the terms, covenants and conditions of this Lease by the
Tenant to be kept, observed and performed.
(b) If at any time during the Term the Rent or other sums payable
by the Tenant to the Landlord hereunder are overdue and
unpaid, or if the Tenant fails to keep or
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<PAGE> 36
perform any of the terms, covenants and conditions of this
Lease to be kept, observed and performed by the Tenant, then
the Landlord at its option may, in addition to any and all
other rights and remedies provided for in this Lease or by
law, appropriate and apply the entire Security Deposit, or so
much thereof as is necessary to compensate the Landlord for
loss or damage sustained or suffered by the Landlord due to
such breach on the part of the Tenant. If the entire Security
Deposit, or any portion thereof is appropriated and applied by
the Landlord for the payment of overdue rent or other sums due
and payable to the Landlord by the Tenant hereunder, then the
Tenant shall, upon written demand of the Landlord, forthwith
remit to the Landlord a sufficient amount in cash to restore
the Security Deposit to the original sum deposited, and the
Tenant's failure to do so within the five (5) days after
receipt of such demand constitutes a breach of this Lease. If
the Tenant complies with all of the terms, covenants and
conditions and promptly pays all of the rent and other sums
herein provided and payable by the Tenant to the Landlord, the
Security Deposit shall be returned in full to the Tenant
without interest within sixty (60) days after the end of the
Term, or within sixty (60) days after the earlier termination
of the Term, as the case may be.
(c) The Landlord may deliver the Security Deposit to any purchaser
of the Landlord's interest in the Premises of the Building, if
such interest is sold and thereupon the Landlord is discharged
from any further liability with respect to the Security
Deposit.
17.13 MODIFICATIONS. Except as herein otherwise provided, no subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
the parties unless reduced to writing and signed by the parties. At the request
of the Landlord, the Tenant shall execute and deliver a modification agreement
reflecting the changes in this Lease resulting from an adjustment in Floor Area
or reflecting any other alteration, amendment, change or addition agreed to
between the parties, provided that, notwithstanding the failure of the Tenant to
do so, the Tenant shall be bound thereby.
17.14 NO BROKERAGE COMMISSION. As part of the consideration for the granting of
this Lease, the Tenant represents and warrants to the Landlord that no broker or
agent (other than any broker or agent authorized in writing by the Landlord)
negotiated or was instrumental in negotiating or consummating this Lease.
Notwithstanding the foregoing, any broker or agent of the Tenant shall be paid
by the Tenant to the exoneration of the Landlord.
IN WITNESS WHEREOF the parties have executed this Lease as of the date
first above written.
BY THE LANDLORD:
GRANVILLE SOUTH BUSINESS )
CENTRE HOLDINGS LTD. )
)
Per: /s/ [ILLEGIBLE] )
----------------------------- )
Title: )
--------------------------- )
(Authorized Signatory) )
) c/s
Per: )
----------------------------- )
Title: )
--------------------------- )
(Authorized Signatory) )
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<PAGE> 37
BY THE TENANT:
(If the Tenant is a corporation:)
GLOBAL ELECTION SYSTEMS INC. )
)
Per: /s/ L.D. GARBER )
------------------------- )
)
Title: Secretary Treasurer )
----------------------- )
(Authorized Signatory) )
) c/s
Per: /s/ ILLEGIBLE )
------------------------- )
)
Title: V.P. R&D )
----------------------- )
(Authorized Signatory) )
INITIAL
----------
/s/ L.D.G.
----------
/s/ TM
----------
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<PAGE> 38
SCHEDULE "A"
LEGAL DESCRIPTION OF LAND AND
FLOOR PLAN(S) OF THE PREMISES
Civic Address: 1562 Rand Avenue, Vancouver, B.C.
Legal Description: Lots 9 and 10, Block 2, District Lot 5967 and Parts of
District Lots 307, 317 and 318, GP 1 of New Westminster
District, Plan 7682, City of Vancouver
Plan of Premises: Outlined in red.
[SECOND FLOOR AND SITE PLAN]
INITIAL
LDP
-------
TRI
-------
<PAGE> 39
SCHEDULE "B"
DEFINITIONS
DEFINITIONS
In this Lease the following expressions shall have the
following meanings:
(a) "ADDITIONAL RENT" means all sums of money to be paid by the
Tenant whether to the Landlord or otherwise pursuant to this
Lease except for Annual Base Rent;
(b) "ADDITIONAL SERVICES" means the services and supervision
supplied by the Landlord and referred to in Section 9.02 or in
any other provision hereof as Additional Services; any other
services which from time to time the Landlord supplies to the
Tenant and which are additional to other services that the
Landlord has agreed to supply pursuant to the provisions of
this Lease and to like provisions of other leases of the
Building or that the Landlord may elect to supply as included
within the standard level of services available to tenants
generally and in addition to those normally supplied; the
provision of labour and supervision in connection with the
moving of any furniture or equipment of the Tenant; the making
of any repairs or alterations for the Tenant; and the
provision to the Tenant or the Leased Premised of maintenance
or other services not normally furnished to tenants or other
leasable premises generally;
(c) "ANNUAL BASE RENT" means the annual rent set out in Section
1.01(f) and payable by the Tenant as set forth in Section
4.01(a);
(d) "ARCHITECT" means the firm of professional architects or
engineers engaged by the Landlord from time to time to prepare
the construction drawings for the Building or to supervise the
architectural or engineering aspects thereof and includes any
surveyors or consultants engaged by the Landlord or such
architects or engineers from time to time (all of whom may be
ones generally employed by the Landlord).
(e) "BASIC TERMS" means those terms set out in Section 1.01, some
of which are more particularly defined in this Schedule "B";
(f) "BUILDING" means that certain building and those certain areas
and improvements and amenities located on the Land;
(g) "CAPITAL TAX" means any tax or excise imposed upon the
Landlord which is measured by or based in whole or in part
upon the capital employed by the Landlord at and after the
date of the substantial completion of construction of the
Building, computed as if the amount of such tax or excise were
that amount due if the Building were the only real property of
the Landlord and includes the amount of any capital or place
of business tax levied by any applicable taxing authority
against the Landlord with respect to the Building;
(h) "COMMENCEMENT DATE" means the date that the Term commences as
set forth in or determined pursuant to section 1.01(e)(ii);
(i) "COST OF ADDITIONAL SERVICES" shall mean in the case of
Additional Services provided by the Landlord a reasonable
charge made therefor by the Landlord which shall not exceed
the cost of obtaining such services from independent
contractors and in the case of Additional Services provided by
independent contractors the
B - 1
<PAGE> 40
Landlord's total cost of providing Additional Services to the
Tenant, including the cost of all labour (including salaries,
wages and fringe benefits) and materials and other direct
expenses incurred, the cost of supervision and other indirect
expenses capable of being allocated thereto (such allocation
to be made upon a reasonable basis) and all other
out-of-pocket expenses made in connection therewith including
amounts paid to independent contractors, plus an
administration fee equal to fifteen percent (15%) of each
component thereof;
(j) "CURRENT MARKET RENT" means that rent that would be paid for
improved space in buildings of similar age and class in a
comparable location in British Columbia, as between persons
dealing in good faith and at arms' length, without reduction
for any cash payment, leasehold improvement allowance,
rent-free period or other inducement;
(k) "EVENT OF DEFAULT" means those events set out as such in
Section 14.04 hereof;
(1) "FLOOR AREA" whether in the case of a whole floor of the
Building or in the case of premises comprising part of a floor
of the Building shall be determined by the Landlord's
architect or land surveyor according to the American National
Standard for measuring floor area in buildings, as established
by the Building Owners and Managers Association International
and in effect as at the Commencement Date;
(m) "GOODS AND SERVICES TAXES" means and includes any and all
goods and services taxes, sales taxes, value added taxes,
business transfer taxes, or any other taxes imposed on the
Landlord or the Tenant from time to time in respect of the
Rent payable by the Tenant to the Landlord under this Lease or
the rental of the Premises or the provision of any goods,
services or utilities, whatsoever by the Landlord to the.
Tenant under this Lease, whether characterized as a goods and
services tax, sales tax, value added tax, business transfer
tax, or otherwise;
(n) "INSURED DAMAGE" means that part of any damage occurring to
any portion of the Premises for which the Landlord is
responsible of which the entire cost of repair is actually
recoverable by the Landlord under a policy of insurance in
respect of fire and other perils from time to time effected by
the Landlord or, if and to the extent that the Landlord has
not insured and is deemed to be a co-insurer or self-insurer
pursuant to Section 12.01, would have been recoverable had the
Landlord effected insurance in respect of perils, to amounts
and on terms for which it is deemed to be insured;
(o) "LAND" means all and singular those certain parcels or tracts
of land, situate, lying and being in the Province of British
Columbia, more particularly described on Schedule "A"
(p) "PREMISES" means that portion of the Building having the
municipal address and located as set out in Section 1.01(c),
containing the aggregate number of square feet, more or less,
of Floor Area which is set out in Section 1.01(d) and having
the appropriate location and configuration shown outlined in
red on the attached as Schedule "A" hereto;
(q) "LEASEHOLD IMPROVEMENTS" means all fixtures, improvements,
installations, alterations and additions now or from time to
time hereafter made, erected or installed, whether by the
Tenant, the Landlord or anyone else, in the Premises or in
other premises in the Building with the exception of trade
fixtures and
B - 2
<PAGE> 41
furniture and equipment not of the nature of fixtures, but
includes all partitions however fixed (including movable
partitions) and includes all wall-to-wall carpeting with the
exception of such carpeting where laid over vinyl tile or
other finished floor and affixed so as to be readily removable
without damage;
(r) "OPERATING COST" means the total of all expenses, without
duplication, incurred in the complete maintenance and
operation of the Land, the Building and the services, systems
and other improvements and amenities thereon and therein,
calculated as if the Building was fully occupied and fully
operational at all times during the Term, whether such
expenses are incurred by or on behalf of any owner or owners
of parts of or interests in the Building and the Land with
whom the Landlord may from time to time have agreements for
the pooling or sharing of costs or by or on behalf of tenants
of space in the Building with whom the Landlord may from time
to time have agreements whereby in respect of their premises
such tenants perform any cleaning, maintenance or other work
or services usually performed by the Landlord, and which
expenses if directly incurred by the Landlord would have been
included in the cost of maintenance and operation of the Land
and the Building. Without limiting the generality of the
foregoing, "Operating Cost":
(i) shall include (but subject to certain deductions as
hereinafter provided) the cost of providing
supervisory and all maintenance services, the cost of
operating, servicing and maintaining elevators, the
cost of heating, cooling and ventilating all space
including both rentable and non-rentable areas, the
cost of providing hot and cold water, electricity
(including lighting), telephone and other utilities
and services to both rentable and non-rentable areas
(unless separately metered and paid by Tenant or
other tenants of the Building), the cost of cleaning,
maintaining and servicing in all respects all
electric lighting fixtures in the non-rentable areas
in the Building and the cost of replacement of
electric light bulbs, tubes, starters and ballasts
(such cleaning, maintaining, servicing and
replacement to be within the exclusive right of the
Landlord), the cost of all repairs (whether or not
the Landlord is obliged to carry them out), the cost
of window cleaning and garbage removal, the cost of
snow removal, repairing and restriping parking areas
and roadways, landscaping and maintaining landscaped
areas on the Lands, the cost of providing security
and supervision, the cost of all insurance for
liability or fire or other events and casualties, and
any appraisals required or undertaken for insurance
purposes (and if the Landlord shall elect in whole or
in part to self-insure, the amount of reasonable
contingency reserves not exceeding the amount of
premiums which would otherwise have been incurred in
respect of the risk undertaken), the amount of
deductibles, self-retention amounts and reimbursement
requirements incurred or absorbed by the Landlord in
respect of any insurance claim, Capital Tax,
accounting costs incurred in connection with
maintenance and operation including computations
required for the imposition of charges to tenants and
audit charges required to be incurred for the
conclusive determination of any costs hereunder, the
reasonable rental value of and costs associated with
(having regard to the rentals prevailing from time to
time for similar space)
B - 3
<PAGE> 42
space utilized by the Landlord in connection with the
management, operation or maintenance of the Land and
the Building, the cost of maintaining a directory
board for the Building (if any), the amount of all
salaries, wages, fringe benefits and other employment
costs or payments made paid to employees engaged in
the maintenance or operation of the Land and the
Building, amounts paid to independent contractors for
or in relation to any services in connection with
such maintenance or operation, the cost of direct
supervision and of management and other indirect
expenses to the extent allocable to the maintenance
and operation of the Land and the Building, the cost
(whether of a capital nature or not), amortized over
such period of time as the Landlord reasonably
determines, of complying with or upgrading to comply
with any existing or municipal law, bylaw or
regulation which applies to the Land or the Building
or any part thereof or with a requirement of any
insurer of the Building, the cost of making a capital
improvement resulting in the reduction of the
"Operating Cost", depreciation of costs incurred for
repairing and replacing fixtures, equipment and
facilities servicing or comprising the Building
(including, but not limited to the roofing and the
heating, ventilating, air conditioning and climate
control systems servicing the Building) which by
their nature require periodic repair or replacement
and are not charged fully in the year in which they
are incurred at rates determined from time to time by
the Landlord in accordance with sound accounting
principles, a fee for the administration and
management of the Building equal to either five
percent (5%) of the gross revenue in any twelve (12)
month period from, or in relation to, the Building,
Lands and any tenants, or fifteen percent (15%) of
the Operating Cost and Taxes in the same twelve (12)
month period, whichever is greater, and all other
expenses of every nature incurred in connection with
the maintenance and operation of the Land and the
Building; but
(ii) shall exclude Taxes (other than Capital Tax), debt
service, depreciation, (except depreciation permitted
by clause (i) immediately preceding), expenses
properly chargeable to capital account (except
capital expenditures that are made by the Landlord to
reduce "Operating Cost"), costs determined by the
Landlord from time to time to be fairly allocable to
the correction of construction faults and all
management costs not allocable to the actual
maintenance and operation of the Building (such as
in connection with leasing and rental advertising).
In computing Operating Cost there shall be credited as a
deduction the amounts of proceeds of insurance relating to
Insured Damage and other damage actually recovered by the
Landlord (or if the Landlord is deemed to self-insure, a
corresponding application of reserves) applicable to such
damage, recovery of electricity and light bulb and tube and
ballast replacement, in each case to the extent that the cost
thereof was included therein. Any report of the
accountant appointed by the Landlord for the purpose shall
be conclusive as to the amount of Operating Cost for any
period to which such report relates.
B - 4
<PAGE> 43
Operating Cost in relation to any period means an amount equal
to the aggregate of all Operating Cost for such period;
(t) "RENT" means and includes the Annual Base Rent, Additional
Rent and all other sums payable by the Tenant to the Landlord
under this Lease;
(u) "SERVICE AREAS" shall mean the area of corridors, elevator
lobbies, service elevator lobbies, refuse areas, washrooms,
air-cooling rooms, fan rooms, janitor's closets, telephone,
meter, mechanical and electrical closets and other closets
serving the Premises and other premises on such floor should
the floor be a multiple tenancy floor;
(v) "TAXES" means all taxes, rates, duties, levies and assessments
whatsoever, whether municipal, parliamentary or otherwise,
which are levied, imposed or assessed against or in respect
of the Building, the Land or upon the Landlord in respect
thereof or which are from time to time levied, imposed or
assessed in the future in lieu thereof, including those
levied, imposed or assessed for education, schools and local
improvements, and including all costs and expenses (including
legal and other professional fees and interest and penalties
on deferred payments) incurred by the Landlord in good faith
in contesting, resisting or appealing any taxes, rates,
duties, levies or assessments, but excluding taxes and license
fees in respect of any business carried on by tenants and
occupants of the Building (including the Landlord) and income
or profits taxes upon the income of the Landlord to the extent
such taxes are not levied in lieu of taxes, rates, duties,
levies and assessments against the Building or the Land or
upon the Landlord in respect thereof and shall also include
any and all taxes which may in future be levied in lieu of
"Taxes" as hereinbefore defined;
(w) "TAX COST" for any calendar year means an amount equal to the
aggregate, without duplication, of all Taxes in respect of
such calendar year;
(x) "TENANTES SHARE" means the fraction, the numerator of which is
the Floor Area of the Premises and the denominator of which is
the Total Floor Area;
(y) "TERM" means the term of this Lease set forth in Section
1.01(e)(i) and any extension thereof and any period of
permitted overholding; and
(z) "TOTAL FLOOR AREA" shall mean the total Floor Area of the
Building, whether rented or not, determined by the Landlords
architect or land surveyor from time to time according to the
American National Standard for measuring rentable area in
buildings, as established by the Building Owners and Managers
Association International and in effect as at the Commencement
Date.
B - 5
<PAGE> 44
SCHEDULE "C"
RULES AND REGULATIONS
The Tenant shall observe the following Rules and Regulations (as
amended, modified or supplemented from time to time by the Landlord as provided
in the Lease):
1. The Tenant shall not use or permit the use of the Premises in such manner as
to create any objectionable noises, odours or other nuisance or hazard, or
breach any applicable provisions of municipal by-law or other lawful
requirements applicable thereto or any requirements of the Landlord's insurers,
shall not permit the Premises to be used for cooking (except with the Landlord's
prior written consent) or for sleeping, shall keep the Premises tidy and free
from rubbish, shall deposit rubbish in receptacles which are either designated
or clearly intended for waste and shall leave the Premises at the end of each
business day in a condition such as to facilitate the performance of the
Landlord's janitorial services in the Premises.
2. The Tenant shall not abuse, misuse or damage the Premises or any of the
improvements or facilities therein, and in particular shall not deposit rubbish
in any plumbing apparatus or use it for other than purposes for which it is
intended, and shall not deface or mark any walls or other parts of the Premises.
3. The Tenant shall not perform, patronize or (to the extent under its control)
permit any canvassing, soliciting or peddling in the Building, shall not install
in the Premises any machines vending or dispensing refreshments or merchandise
and shall not permit food or beverages to be brought to the Premises except by
- -such means, at such times and by such persons as have been authorized by the
Landlord.
4. The entrances, lobbies, elevators, staircases and other facilities of the
Building are for use only for access to the Premises and other parts of the
Building and the Tenant shall not obstruct or misuse such facilities or permit
them to be obstructed or misused by its agents, employees, invitees or others
under its control.
5. No safe or heavy office equipment shall be moved into or about the Building
by or for the Tenant unless the consent of the Landlord is first obtained and
unless all due care is taken. Such equipment shall be moved upon the appropriate
steelbearing plates, skids or platforms and subject to the Landlord's direction,
and at such times, by such means and by such persons as the Landlord shall have
approved. No furniture, freight or bulky matter of any description shall be
moved in or out of the Premises or carried in the elevators except during such
hours as the Landlord shall have approved. Hand trucks and similar appliances
shall be equipped with rubber tires and other safeguards approved by the
Landlord, and shall be used only by prior arrangement with the Landlord.
6. The Tenant shall permit and facilitate the entry of the Landlord, or those
designated by it, into the Premises for the purpose of inspection, repair,
window cleaning and the performance of other janitorial services, and shall not
permit access to main header ducts, janitorial and electrical closets and other
necessary means of access to mechanical, electrical and other facilities to be
obstructed by the placement of furniture or otherwise. The Tenant shall not
place any additional locks or other security devices upon the doors of the
Premises without the prior written approval of the Landlord and subject to any
conditions imposed by the Landlord for the maintenance of necessary access
7. The Landlord may require that all or any persons entering and leaving the
Building at any time other than the Normal Business Hours satisfactorily
identify themselves and register in books kept for the purpose and may prevent
any person from entering the Premises unless provided with a key thereto and a
pass or other authorization from the Tenant in a form satisfactory to the
C - 1
<PAGE> 45
Landlord and may prevent any person removing any goods therefrom without written
authorization.
8. The Tenant shall refer to the Building only by the name from time to time
designated by the Landlord for it and shall use such name only for the business
address of the Premises and not for any promotion or other purpose.
9. The Tenant shall not interfere with window coverings installed upon exterior
windows, and shall close or (if such window coverings are remotely controlled)
permit to be closed such window coverings during such hours as the Landlord may
require, and shall not install or operate any interior drapes installed by the
Tenant so as to interfere with the exterior appearance of the Building.
10. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by the Tenant on any part of the outside or inside
of the Premises or Building without the prior written consent of the Landlord,
which consent may be arbitrarily withheld. In the event of any violation of the
foregoing by the Tenant, the Landlord may remove same without any liability and
may charge the expense incurred by such removal to the Tenant violating this
rule as Additional Services. Signs on doors, windows, walls and the directory
shall be inscribed, painted or affixed for the Tenant by the Landlord at the
expense of the Tenant as Additional Services and shall be of a size, colour and
style acceptable to the Landlord.
11. The Tenant shall not permit its agents, employees, contractors or invitees
to park or stop motor vehicles or trucks for purposes of loading or unloading,
or any other purpose, while such motor vehicles or trucks are idling or have
left their motors running, except in areas designated by the Landlord.
The foregoing Rules and Regulations, as from time to time amended, are
not necessarily of uniform application, but may be waived in whole or in part in
respect of other tenants without affecting their enforceability with respect to
the Tenant and the Premises, and may be waived in whole or in part with respect
to the Premises without waiving them as to future application to the Premises,
and the imposition of Rules and Regulations shall not create or imply an
obligation of the Landlord to enforce them or create any liability of the
Landlord for their non-enforcement.
C - 2
<PAGE> 46
SCHEDULE "D"
COMPREHENSIVE GENERAL LIABILITY INSURANCE
Where a document is issued certifying the existence of a comprehensive general
liability policy it will contain the following information:
(1) Name and address of insuring company:_____________________________________
__________________________________________________________________________
__________________________________________________________________________
(2) Name and signature of authorized representative:__________________________
__________________________________________________________________________
(3) Date of inception and termination of policy:______________________________
__________________________________________________________________________
(4) Limit of liability:
__________________________________________________________________________
(5) Confirmation that defence costs are in excess of limit of liability or are
included within limit of liability of the policy:
__________________________________________________________________________
(6) Confirmation or information with respect to any aggregate limit:
__________________________________________________________________________
(7) Confirmation that the policy contain both "cross liability" and
"severability of interests" clauses:
__________________________________________________________________________
(8) Confirmation that the Landlord is a named insured:
__________________________________________________________________________
(9) Confirmation that the Landlord will be given notice of cancellation and
any material change in accordance with the Lease:
__________________________________________________________________________
(10) Information as to sub limits of liability if not a single limit:
__________________________________________________________________________
(11) Information outlining any exclusion not normal to a standard policy:
__________________________________________________________________________
__________________________________________________________________________
Where the document certifies the existence of a "claims made" policy, the
following additional information will be supplied.
(1) Retroactive date of policy:_______________________________________________
D - 1
<PAGE> 47
(2) Extended reporting period conditions and any limitation affecting
reporting period extension:
__________________________________________________________________________
__________________________________________________________________________
(3) Information on any claim or claims affecting aggregate limit:
__________________________________________________________________________
__________________________________________________________________________
(4) Definition of reported claim:_____________________________________________
__________________________________________________________________________
D - 2
<PAGE> 48
SCHEDULE "E"
FINAL INSPECTION REPAIR STANDARDS
The Tenant shall ensure that the following is completed prior to vacating the
Premises:
1. Clean out Premises
o remove all refuse.
2. Floors
o sweep out warehouse;
o steam clean carpets;
o strip and wash linoleum and tile floors.
3. Walls and Ceilings
o repair any gyproc wall damage - patch, fill, sand
and prime;
o remove all tacks, nails, hooks, etc., from walls;
o wash walls;
o replace any damaged ceiling tiles and light fixture
lenses.
4. Windows
o replace any cracked window panes;
o scrape off any stickers on windows and wash both
sides.
5. Doors
o ensure entrance, overhead and man doors are in good
working order. Repair or replace any damaged panels
and hardware.
6. Lights
o retube and/or replace ballasts as necessary for any
light fixtures burnt out, flickering or with
blackened ends.
7. Heaters
o ensure overhead heaters, baseboard heaters and their
thermostats are in working order.
8. Plumbing
o ensure all plumbing fixtures, including hot water
tanks, are in working order;
o wash bathroom fixtures.
9. Air Conditioning
o if space is air conditioned, ensure unit(s) are in
full working condition;
o provide most recent service inspection reports;
o clean all diffusers and grills;
o ensure bathroom vent fans are clean and in working
condition.
10. Upon completion of the noted clean-up and repairs, all keys to
the Premises shall be returned to the Landlord.
E - 1
<PAGE> 49
SCHEDULE "F"
SPECIAL PROVISIONS
1. LEASE CANCELLATION
Upon the Lease for this premises being executed the existing Lease,
dated for reference July 31, 1992 for 1562 Rand Avenue will be
cancelled and rendered null and void.
2. LETTER OF CREDIT
The Tenant shall deliver to the Landlord an irrevocable Letter of
Credit in the amounts shown in item (d) below in favour of the Landlord
issued by a Schedule "A" Canadian Chartered Bank in a form acceptable
to the Landlord but in any event providing that the sum shown in item
(d) below or portion thereof shall be payable to the Landlord at any
time on the Landlord's written instruction to the issuer without
further conditions. Letter of Credit shall be provided to the
Landlord sixty (60) days prior to the commencement of each year of the
said term, except in the first year where the sum of $30,000.00 must be
provided before May 1, 1993. The Landlord and Tenant agree that:
(a) the Landlord may draw on the Letter of Credit and shall only
draw on the Letter of Credit at any time that the Tenant is in
default under this Offer or the Lease;
(b) if the Landlord draws on the Letter of Credit because of
default by the Tenant other than or in addition to the failure
to pay rent or other sums due to the Landlord, the Landlord
may elect to accept the sum shown in item (d) below as
liquidated damages and treat the Lease and Offer as at an end
(in which case the Landlord and the Tenant shall have no
further rights or claims against each other with respect to
the Lease or the Offer and the Tenant shall surrender the
Premises) or the Landlord may apply the sum shown in item (d)
below towards amounts due to the Landlord by the Tenant or
towards remedying the Tenant's default or towards payment on
account of damages for the Tenant's default, in any which
event the Lease and Offer shall remain in full force and
effect, together with all of the Landlord's rights and
remedies against the Tenant thereunder;
(c) the Tenant shall cause a Letter of Credit on such terms to
remain in effect for five (5) years and if the Landlord does
not receive satisfactory notice of renewal or a replacement
for an expiring Letter of Credit by sixty (60) days before the
expiry of any such Letter of Credit, this shall constitute a
breach of the Lease entitling the Landlord to draw on the
existing Letter of Credit;
(d) the Letter of Credit is to be provided in the following
amounts:
Year 1 $30,000.00
Year 2 $24,000.00
Year 3 $18,000.00
Year 4 $12,000.00
Year 5 $ 6,000.00; and
(e) the Landlord will agree to cancel the Tenant's obligation to
provide a Letter of Credit if it can prove to the Landlord, by
audited financial statements prepared under generally accepted
accounting principles, that the Tenant's accumulated Net
Income, from January 1, 1993 onward, excluding non-operational
items (eg. foreign exchange gains/loss of subsidiaries and
investment income) exceeds $1,000,000.00.
F - 1
<PAGE> 50
LEASE RENEWAL
THIS LEASE RENEWAL made as of the 17th day of February, 1998.
BETWEEN:
GRANVILLE SOUTH BUSINESS CENTRE
HOLDINGS LTD., a corporation with an office at
Third Floor, 100 Park Royal, West Vancouver,
British Columbia, V7T 1A2
(the "Landlord")
OF THE FIRST PART
AND:
GLOBAL ELECTION SYSTEMS INC., a
corporation with an office at 1611 Wilmeth Road,
McKinney, Texas 75069-8250
(the "Tenant")
OF THE SECOND PART
WHEREAS:
A. Granville South Business Centre Holdings Ltd., as Landlord, and
Global Election Systems Inc., as Tenant, entered into a lease (the "Lease")
for a term of five (5) years commencing May 1, 1993 of certain premises (the
"Leased Premises") located at 1562 Rand Avenue, Vancouver, B.C. all as more
particularly described in the Lease.
NOW THEREFORE THIS AGREEMENT WITNESSES that for and in consideration
of the respective agreements herein and for other good and valuable
consideration, the receipt and sufficiency of which is acknowledged by the
parties hereto, the parties hereby agree as follows:
1. The Landlord hereby leases to the Tenant the Leased Premises for a
renewal term of eight (8) months commencing on the 1st day of May, 1998 and
terminating on the 31st day of December, 1998, on the same terms and conditions
as contained in the Lease, as amended hereby.
2. This Agreement shall, from the Effective Date, be read and construed
along with the Lease, and the Lease, as amended hereby, shall continue in full
force and effect for the
<PAGE> 51
-2-
remainder of the term of the Lease, as extended and renewed hereby, in
accordance with the terms thereof and hereof.
4. This Agreement shall enure to the benefit of and be binding upon the
Landlord, its successors and assigns and the Tenant, its successors and
permitted assigns under the Lease.
IN WITNESS WHEREOF the parties hereto have caused these presents to
be executed as of the day and year first above written.
The Corporate Seal of GRANVILLE )
SOUTH BUSINESS CENTRE )
HOLDINGS LTD. was hereunto )
affixed in the presence of: )
)
/s/ ILLEGIBLE ) c/s
- ------------------------------- )
Authorized Signatory )
)
)
- ------------------------------- )
Authorized Signatory )
The Corporate Seal of GLOBAL )
ELECTION SYSTEMS INC. was )
hereunto affixed in the presence of: )
)
/s/ ILLEGIBLE ) c/s
- ------------------------------- )
Authorized Signatory )
)
/s/ ILLEGIBLE )
- ------------------------------- )
Authorized Signatory )
<PAGE> 1
EXHIBIT (6)(3)(ii)
RE/MAX NORTH CENTRAL
[REALTOR LOGO] [EQUAL HOUSING
OPPORTUNITY LOGO]
[RE/MAX LOGO]
MODIFICATION OF LEASE AGREEMENT
WHEREAS, JERSEY INVESTMENTS, INC., ROYCE & MIKE SMITH, as Landlord, and GLOBAL
ELECTION SYSTEMS, INC, HOWARD T. VAN PELT-PRESIDENT Tenants, entered into that
certain Lease dated MARCH 4, 1997, of the following described property:
1611 WILMETH ROAD, MCKINNEY, TEXAS 75068
COLLIN COUNTY
13,050 SQUARE FOOT BUILDING
WHEREAS, the parties to said Lease mutually desire to modify said Lease as set
forth hereinafter.
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
contained herein, each of the undersigned parties for himself, his respective
heirs, successors, legal representatives, and assigns agree as follows:
THE FINISH OUT FOR 1611 WILMETH ROAD, MCKINNEY, TEXAS, HAS BEEN INCREASED FROM
$150,000.00 TO $189,708.00. THIS INCREASE WILL RESULT IN THE RENT CHANGING FROM
$8.00 PER SQUARE FOOT TO $8.45 PER SQUARE FOOT. THE MONTHLY RENT WILL BE
$9,189.37. THE TOTAL BASE RENT WILL BE $551,362.00 FOR THE FIVE YEAR TERM OF
THE LEASE. JERSEY INVESTMENTS HAS AGREED TO SERVICE THE HVAC FOR THIS FIVE YEAR
LEASE PERIOD AT NO EXPENSE TO GLOBAL ELECTION SYSTEMS INC.
Except as expressly modified by this Modification Agreement, all of the other
terms, provisions, conditions, and covenants set forth in the said original
Lease shall remain in full force and effect and this Modification Agreement
shall not be construed as a novation of said Lease.
LANDLORD: TENANT:
/s/ [ILLEGIBLE] /s/ HOWARD T. VAN PELT
- --------------------------------- -----------------------------
JERSEY INVESTMENTS, INC. GLOBAL ELECTION SYSTEMS, INC
/s/ MIKE SMITH PRESIDENT
- --------------------------------- -----------------------------
ROYCE & MIKE SMITH HOWARD T. VAN PELT-PRESIDENT
Date of Execution: May 20, 1997 Date of Execution: May 13, 1997
-------------- --------------
<PAGE> 2
RE/MAX NORTH CENTRAL
[REALTOR LOGO] [EQUAL HOUSING
OPPORTUNITY LOGO]
COMMERCIAL LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
------- ----
<S> <C>
1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Lease and Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Rent and Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Insurance and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
6. Use of Demised Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. Property Condition: Maintenance, Repairs and Alterations . . . . . . . . . . . . . . . . . . 4
8. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
9. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. Default and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
12. Landlord's Contractual Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13. Protection of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
14. Professional Service Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
15. Environmental Representations and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 7
16. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
17. Additional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
An Exhibit or Exhibits may be attached to this Lease which shall be made a part
of this Lease for all purposes [check all boxes which apply]:
EXHIBITS TO LEASE
<TABLE>
<S> <C>
[X] EXHIBIT A Floor Plan/Site Plan [X] EXHIBIT E Guarantee
[X] EXHIBIT B Legal Description of Property [X] EXHIBIT F Expense Reimbursement
[X] EXHIBIT C Renewal Options [ ] EXHIBIT G Percentage Rental/Gross Sales Reports
[ ] Exhibit D Right of First Refusal for [X] EXHIBIT H Construction of Improvements
Additional Space [ ] EXHIBIT I N/A
--------------------------------------
</TABLE>
ARTICLE ONE: DEFINED TERMS
As used in this Lease, the following terms set forth in this Article One shall
have the respective meanings set forth hereinbelow:
<TABLE>
<S> <C>
1.01. DATE OF LEASE: MARCH 4, , 1997
----------------------------------------------------------------------------- ---------
1.02. LANDLORD: JERSEY INVESTMENTS, INC. ROYCE & MIKE SMITH
-----------------------------------------------------------------------------------------------
Address of Landlord: 555 REPUBLIC DR. SUITE 200 PLANO, TEXAS 75074
-----------------------------------------------------------------------------------
Telephone: 972-516-4257 OR 972-620-2949
---------------------------------------------------------------------------------------------
1.03. TENANT: GLOBAL ELECTION SYSTEMS INC.
-----------------------------------------------------------------------------------------------
Address of Tenant: 1776 MONTANO RD. ALBUQUERQUE, NEW MEXICO 87107
-------------------------------------------------------------------------------------
Telephone: 1-505-344-9100
---------------------------------------------------------------------------------------------
1.04. PREMISES:
A. Street address (including county): 1611 WILMETH RD. MCKINNEY, TEXAS 75069 COLLIN COUNTY
----------------------------------------------------------------
B. Floor or site plan: Being a floor area of approximately 13,050 square feet and being approximately
90 by 145 feet (measured to the exterior of outside walls and to the center of the interior walls,
and being more particularly shown in outline on the floor/site plan attached hereto as Exhibit A.
(The aforementioned street address and the floor or site plan shall be collectively referred to
herein as the "Demised Premises".)
C. Legal description: The legal description of the property on which the floor/site plan is situated
is more particularly described in Exhibit B attached hereto (the "Property").
1.05. LEASE TERM: FIVE(5) years and N/A months beginning on the 1 day of JUNE, 1997, and ending on the 31
day of MAY, 2002.
1.06. BASE RENT: $522,000.00 total Base Rent for the Lease Term payable in monthly installments of $8,700.00
per month in advance.
1.07. SECURITY DEPOSIT: $8,700.00
-------------------
1.08. PERMITTED USE: [See Section 6.01] GENERAL OFFICE, WAREHOUSE, ASSEMBLY WORK
-----------------------------------------------------------------------
N/A
---------------------------------------------------------------------------------------------------------
1.09. PRINCIPAL BROKER: [If none, so state] RE/MAX NORTH CENTRAL
------------------------------------------------------------------
Address: 321 North Central Expwy. 101
-----------------------------------------------------------------------------------------------
1.10. COOPERATING BROKER: [If none, so state] KEN BOUTTE
-----------------------------------------------------------------
Address: 900 E. PARK BLVD. SUITE 155 PLANO, TEXAS 75074 2
-----------------------------------------------------------------------------------------------
1.11. PROFESSIONAL SERVICE FEES: [See Article 14]
A. Payments due to the Principal Broker shall be calculated and paid in accordance with paragraph [ ] A
or [X] B of Section 14.01. [Check applicable paragraph]
B. The percentage applicable for leases in Sections 14.01 and 14.02 shall be SIX AND THREE FOURTHS
percent (6.75%) and the percentage applicable in Section 14.02 in the event of a sale shall be FIVE
percent (5.00%).
1.12 HOLDOVER RENT: [See Section 2.04] $8,700 per month in advance.
1.13 DAILY LATE CHARGE: [See Section 3.03] THIRTY Dollars ($30.00) per day.
Rent not paid by the 10th of the month shall be subject to late charge of $30/day from the 1st of the month
until paid.
1.14 ACCEPTANCE: [See Section 16.13] The number of days for acceptance of this offer to lease shall be TEN days.
</TABLE>
Page 1
<PAGE> 3
ARTICLE TWO: LEASE AND LEASE TERM
2.01. LEASE OF DEMISED PREMISES FOR LEASE TERM. Landlord leases the
Demised Premises to Tenant and Tenant leases the Demised Premises from the
Landlord for the Lease Term stated in Section 1.05. As used herein, the
"Commencement Date" shall be the date specified in Section 1.05 for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant if
Landlord does not deliver possession of the Demised Premises to Tenant on the
first date specified in Section 1.05 above. Landlord's nondelivery of possession
of the Demised Premises to Tenant on that date shall not affect this Lease or
the obligations of Tenant under this Lease. However, the Commencement Date shall
be delayed until possession of the Demised Premises is delivered to Tenant. The
Lease Term shall be extended for a period equal to the delay in delivery of
possession of the Demised Premises to Tenant, plus the number of days necessary
for the Lease Term to expire on the last day of a month. If Landlord does not
deliver possession of the Demised Premises to Tenant within sixty (60) days
after the first date specified in Section 1.05 above, Tenant may elect to cancel
this Lease by giving written notice to Landlord within ten (10) days after the
60-day period ends. If Tenant gives such notice, the Lease shall be cancelled
effective as of the date of its execution, and no party hereto shall have any
obligations, one to the other. If Tenant does not give such notice within the
time specified, Tenant shall have no right to cancel the Lease, and the Lease
Term shall commence upon the delivery of possession of the Demised Premises to
Tenant. If delivery of possession of the Demised Premises to Tenant is delayed,
Landlord and Tenant shall, upon such delivery, execute an amendment to this
Lease setting forth the Commencement Date and expiration date of the Lease Term.
2.03. EARLY OCCUPANCY. If Tenant occupies the Demised Premises prior to
the Commencement Date, Tenant's occupancy of the Demised Premises shall be
subject to all of the provisions of this Lease. Early occupancy of the Demised
Premises shall not advance the expiration date of the Lease Term. Unless
provided otherwise herein, Tenant shall pay Base Rent and all other charges
specified in this Lease for the period of occupancy.
2.04. HOLDING OVER. Tenant shall vacate the Demised Premises upon the
expiration of the Lease Term or earlier termination of this Lease. Tenant shall
reimburse Landlord for and indemnify Landlord against all damages incurred by
Landlord as a result of any delay by Tenant in vacating the Demised Premises.
If Tenant does not vacate the Demised Premises upon the expiration of the Lease
Term or earlier termination of the Lease, Tenant's occupancy of the Demised
Premises shall be a "month to month" tenancy, subject to all of the terms of
this Lease applicable to a month to month tenancy, except that the Base Rent per
month then in effect shall be the amount designated in Section 1.12.
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01. MANNER OF PAYMENT. All sums payable hereunder by Tenant (the "Rent")
shall be made to the Landlord at the address designated in Section 1.02 or to
such other party, or address as Landlord may designate. Any and all payments
made to a designated third party for the account of the Landlord shall be deemed
made to Landlord when received by said designated third party. All sums payable
by Tenant hereunder, whether or not expressly denominated as rent, shall
constitute rent for the purposes of Section 502(b)(6) of the Bankruptcy Code and
for all other purposes. The Base Rent is the minimum rent for the Demised
Premises and is subject to the terms and conditions contained in this Lease
together with the Exhibits attached hereto, if any.
3.02. TIME OF PAYMENT. Upon execution hereof, Tenant shall pay the
installment of rent for the first month of the Lease Term. On or before the
first day of the second month of the Lease Term and of each month thereafter,
the installment of rent and other sums due hereunder shall be due and payable,
in advance, without off-set, deduction or prior demand. If the Lease Term
commences or ends on a day other than the first or last day of a calendar month,
the rent for any fractional calendar month following the Commencement Date or
preceding the end of the Lease Term shall be prorated by days.
3.03. LATE CHARGES. Tenant's failure to pay sums due hereunder promptly
may cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which may
be imposed on Landlord by any ground lease, deed of trust or mortgage
encumbering the Demised Premises. Therefore, if any sum due hereunder is not
received when due, Tenant shall pay the Landlord a late charge equal to the
Daily Late Charge for each day after the due date until such delinquent sum is
received. If any check tendered in payment of any sum due from Tenant hereunder
is dishonored for any reason, Tenant shall pay a late charge for each day after
said due date until good funds are received by the Landlord. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment or such dishonored check.
3.04. SECURITY DEPOSIT. Upon execution hereof, Tenant shall deposit with
Landlord a cash Security Deposit in the sum stated in Section 1.07. Landlord may
apply all or part of the Security Deposit to any unpaid rent or other charges
due from Tenant or to cure any other defaults of Tenant. If Landlord uses any
part of the Security Deposit, Tenant shall restore the Security Deposit to its
full amount within ten (10) days after Landlord's written demand. Tenant's
failure to restore the full amount of the Security Deposit within the time
specified shall be a default under this Lease. No interest shall be paid on the
Security Deposit. Landlord shall not be required to keep the Security Deposit
separate from its other accounts and no trust relationship is created with
respect to the Security Deposit. Upon any termination of this Lease not
resulting from Tenant's default, and after Tenant has vacated the Demised
Premises in the manner required by this Lease, Landlord shall refund the unused
portion of the Security Deposit to Tenant.
3.05. GOOD FUNDS PAYMENTS. If, for any reason whatsoever, any two or more
payments by check from Tenant to Landlord for Rent are dishonored and returned
unpaid, thereafter, Landlord may, at Landlord's sole option, upon written notice
to Tenant, require that all future payments of Rent for the remaining term of
the Lease shall be made by cash, cashier's check, or money order and that the
delivery of Tenant's personal or corporate check will no longer constitute
payment of Rent as provided in this Lease. Any acceptance by Landlord of a
payment for Rent by Tenant's personal or corporate check thereafter shall not be
construed as a waiver of Landlord's right to insist upon payment by good funds
as set forth in this Section 3.05.
ARTICLE FOUR: TAXES
4.01. PAYMENT BY LANDLORD. Landlord shall pay the real estate taxes on the
Demised Premises during the Lease Term, pursuant to the terms and conditions
contained in Exhibit F attached hereto.
4.02. IMPROVEMENTS BY TENANT. In the event the real estate taxes levied
against the Demised Premises for the real estate tax year in which the Lease
Term commences are increased in the current tax year or subsequent tax years as
a result of any alterations, additions or improvements made by Tenant or by
Landlord at the request of Tenant, Tenant shall pay to Landlord upon demand the
amount of such increase and continue to pay such increase during the term of
this Lease. Landlord shall use reasonable efforts to obtain from the tax
assessor or assessors a written statement of the total amount of such increase.
4.03. JOINT ASSESSMENT. If the real estate taxes are assessed against the
Demised Premises jointly with other property not constituting a part of the
Demised Premises, the real estate taxes for such years shall be equal to the
amount bearing the same proportion to the aggregate assessment that the total
square feet of building area in the Demised Premises bears to the total square
feet of building area included in the joint assessment.
4.04. PERSONAL PROPERTY TAXES. Tenant shall pay all taxes assessed against
trade fixtures, furnishings, equipment, or any other personal property belonging
to Tenant. Tenant shall use reasonable efforts to have its personal property
taxed separately from the Demised Premises, but if any of Tenant's personal
property is taxed with the Demised Premises, Tenant shall pay the taxes for the
personal property within fifteen (15) days after Tenant receives a written
statement for such personal property taxes.
ARTICLE FIVE: INSURANCE AND INDEMNITY
5.01. CASUALTY INSURANCE. During the Lease Term, Landlord shall maintain
policies of insurance covering loss of or damage to the Demised Premises in such
amount or percentage of replacement value as Landlord deems reasonable in
relation to the age, location, type of construction and physical condition of
the Demised Premises and the availability of such insurance at reasonable rates.
Such policies shall provide protection against all perils included within the
classification of fire and extended coverage and any other perils which Landlord
deems necessary. Landlord may obtain insurance coverage for Tenant's fixtures,
equipment or building improvements installed by Tenant in or on the Demised
Premises. Tenant shall, at Tenant's expense, maintain such primary or additional
insurance on its fixtures, equipment and building improvements as Tenant deems
necessary to protect its interest. Tenant shall not do or permit to be done
anything which invalidates any such insurance policies.
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Any casualty insurance which may be carried by Landlord or Tenant shall be for
the sole benefit of the party carrying such insurance and under its sole
control.
5.02. INCREASE IN PREMIUMS. Tenant shall not permit any operation or
activity to be conducted or storage or use of any volatile or any other
materials on or about the Demised Premises that would cause suspension or
cancellation of any fire and extended coverage insurance policy carried by
Landlord, or increase the premiums therefor, without the prior written consent
of Landlord. If Tenant's use and occupancy of the Demised Premises causes an
increase in the premiums for any fire and extended coverage insurance policy
carried by Landlord as of the day immediately prior to Tenant's possession of
the Demised Premises under this Lease, Tenant shall pay, as additional rental,
the amount of such increase to Landlord upon demand and presentation of written
evidence of the increase by Landlord.
5.03. LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use,
occupancy, or maintenance of the Demised Premises. The initial amount of such
insurance shall be at least $1,000,000 combined single-limit bodily injury and
property damage, for each occurrence, and shall be subject to periodic increases
based upon such economic factors as Landlord shall determine, in Landlord's
discretion, exercised in good faith. However, the amount of such insurance shall
not limit Tenant's liability nor relieve Tenant of any obligation hereunder.
The policy shall contain cross-liability endorsements, if applicable, and shall
insure Tenant's performance of the indemnity provisions of Section 5.04. Such
policy shall contain a provision which prohibits cancellation or modification of
the policy except upon thirty (30) days' prior written notice to Landlord.
Tenant may discharge its obligations under this Section by naming Landlord as an
additional insured under a policy of comprehensive liability insurance
maintained by Tenant and containing the coverage and provisions described in
this Section. Tenant shall deliver a copy of such policy or certificate (or a
renewal thereof) to Landlord prior to the Commencement Date and prior to the
expiration of any such policy during the Lease Term. If Tenant fails to maintain
such policy, Landlord may elect to maintain such insurance at Tenant's expense.
Tenant shall, at Tenant's expense, maintain such other liability insurance as
Tenant deems necessary to protect Tenant.
5.04. INDEMNITY. Landlord shall not be liable to Tenant or to Tenant's
employees, agents, invitees or visitors, or to any other person whomsoever, for
any injury to persons or damage to property on or about the Demised Premises or
any adjacent area owned by Landlord caused by the negligence or misconduct of
Tenant, its employees, subtenants, licensees or concessionaires or any other
person entering the Demised Premises under express or implied invitation of
Tenant, or arising out of the use of the Demised Premises by Tenant and the
conduct of its business therein, or arising out of any breach or default by
Tenant in the performance of its obligations hereunder; and Tenant hereby agrees
to indemnify and hold Landlord harmless from any loss, expense or claims arising
out of such damage or injury. Tenant shall not be liable for any injury or
damage caused by the negligence or misconduct of Landlord, or its employees or
agents, and Landlord agrees to indemnify and hold Tenant harmless from any loss,
expense or damage arising out of such damage or injury.
5.05. COMPARATIVE NEGLIGENCE. Tenant hereby unconditionally and
irrevocably agrees to indemnify, defend and hold Landlord and Landlord's
officers, agents, directors, subsidiaries, partners, employees, licensees and
counsel harmless, to the extent of Tenant's comparative negligence, if any, from
and against any and all loss, liability, demand, damage, judgement, suit, claim,
deficiency, interest, fee, charge, cost or expense (including, without
limitation, interest, court costs and penalties, attorney's fees and
disbursements and amounts paid in settlement, or liabilities resulting from any
change in federal, state or local law or regulation or interpretation hereof) of
whatever nature, on a comparative negligence basis. This provision shall survive
the termination of this Lease.
5.06. WAIVER OF SUBROGATION. Each party hereto waives any and every claim
which arises or may arise in its favor against the other party hereto during the
term of this Lease or any renewal or extension thereof for any and all loss of,
or damage to, any of its property located within or upon, or constituting a part
of, the Demised Premises, which loss or damage is covered by valid and
collectible fire and extended coverage insurance policies, to the extent that
such loss or damage is recoverable under such insurance policies. Such mutual
waivers shall be in addition to, and not in limitation or derogation of, any
other waiver or release contained in this Lease with respect to any loss of, or
damage to, property of the parties hereto. Inasmuch as such mutual waivers will
preclude the assignment of any aforesaid claim by way of subrogation or
otherwise to an insurance company (or any other person), each party hereby
agrees immediately to give to each insurance company which has issued to such
party policies of fire and extended coverage insurance, written notice of the
terms of such mutual waivers, and to cause such insurance policies to be
properly endorsed, if necessary, to prevent the invalidation of such insurance
coverages by reason of such waivers.
ARTICLE SIX: USE OF DEMISED PREMISES
6.01. PERMITTED USE. Tenant may use the Demised Premises only for the
permitted use stated in Section 1.08.
6.02. COMPLIANCE WITH LAW. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Demised Premises, and
shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances and other activities in or
upon, or connected with the Demised Premises, all at Tenant's sole expense,
including any expense or cost resulting from the compliance with improvements
for handicapped or disabled persons mandated by governmental regulations.
Landlord warrants that, as of the making of this Lease, the building is in
conformance in all respects.
6.03. See Exhibit H attached hereto.
6.04. SIGNS. Without the prior written consent, which consent shall not
be unreasonably withheld, of Landlord, Tenant shall not place or affix any signs
or other object upon or to the Demised Premises, including but not limited to
the roof or exterior walls of the building or other improvements thereon, or
paint or otherwise deface said exterior walls. Any signs installed by Tenant
shall conform with applicable laws and deed and other restrictions. Tenant shall
remove all signs at the termination of this Lease and shall repair any damage
and close any holes caused or revealed by such removal.
6.05. UTILITY SERVICES. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water, sewerage, storm water disposal, communications and electricity used on
the Demised Premises, and for all electric lights, lamps and tubes.
6.06. LANDLORD'S ACCESS. Landlord and its authorized agents shall have the
right, during normal business hours, to enter the Demised Premises (a) to
inspect the general condition and state of repair thereof, (b) to make repairs
required or permitted under this Lease, (c) to show the Demised Premises or the
Property to any prospective tenant or purchaser, or (d) for any other reasonable
purpose. During the final one hundred fifty (150) days of the Lease Term,
Landlord and its authorized agents shall have the right to erect and maintain on
or about the Demised Premises customary signs advertising the Demised Premises
for lease or for sale. Such access shall not be inconsistent with tenants' right
to quiet enjoyment.
6.07. QUIET POSSESSION. If Tenant pays the rent and complies with all
other terms of this Lease, Tenant may occupy and enjoy the Demised Premises for
the full Lease Term, subject to the provisions of this Lease.
6.08. EXEMPTIONS FROM LIABILITY. Landlord shall not be liable for any
damage or injury to the person, business (or any loss of income therefrom),
goods, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers or any other person in or about the
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Demised Premises, whether such damage or injury is caused by or results from:
(a) fire, steam, electricity, water, gas or rain; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or any other cause; (c) conditions arising
on or about the Demised Premises or upon other portions of any building of which
the Demised Premises is a part, or from other sources or places; or (d) any act
or omission of any other tenant of any building of which the Demised Premises is
a part. Landlord shall not be liable for any such damage or injury even though
the cause of or the means of repairing such damage or injury are not accessible
to Tenant. The provisions of this Section 6.08 shall not, however, exempt
Landlord from liability for Landlord's gross negligence or willful misconduct.
ARTICLE SEVEN: PROPERTY CONDITION, MAINTENANCE, REPAIRS AND ALTERATIONS
7.01 [OMITTED]
7.02 [OMITTED]
7.03. OBLIGATION TO REPAIR. Except as otherwise provided herein, Landlord
shall be under no obligation to perform any repair maintenance or management
service in the Demised Premises or adjacent common areas. Tenant shall be fully
responsible, at its expense, for all repair, maintenance and management services
other than those which are expressly assumed by Landlord. Landlord shall be
responsible for all repairs or replacement of leasehold improvements for the
first 12 months of the lease term if the repair or replacement is subject to
contractor, subcontractor or manufacturer's warranty.
A. LANDLORD'S OBLIGATION TO REPAIR.
(1) Subject to the provisions of Article Eight (Damage or
Destruction) and Article Nine (Condemnation) and except for damage
caused by any act or omission of Tenant, Landlord shall keep the
foundation, roof and the structural portions of exterior walls of the
improvements of the Demised Premises in good order, condition and
repair. Landlord shall not be obligated to maintain or repair windows,
doors, plate glass or the surfaces of walls. In addition, Landlord
shall not be obligated to make any repairs under this Section until a
reasonable time after receipt of written notice from Tenant of the
need of such repairs. If any repairs are required to be made by
Landlord, Tenant shall, at Tenant's sole cost and expense, promptly
remove Tenant's fixtures, inventory, equipment and other property, to
the extent required to enable Landlord to make such repairs.
Landlord's liability hereunder shall be limited to the cost of such
repairs or corrections.
(2) Landlord and Tenant expressly agree that all repair,
maintenance management and other services to he performed by Landlord
or Landlord's agents exclusively consist of the exercise of
professional judgement by such service providers.
B. TENANT'S OBLIGATION TO REPAIR. Subject to the provisions of the
last sentence of Section 7.01, the preceding Section 7.03.A, Article Eight
(Damage or Destruction) and Article Nine (Condemnation), Tenant shall, at
all times, keep all other portions of the Demised Premises in good order,
condition and repair, including but not limited to repairs (including all
necessary replacements) of the windows, plate glass, doors, heating system,
air conditioning equipment, electrical and lighting system, fire protection
sprinkler system, dock levelers, elevators, interior and exterior plumbing
and the interior of the building in general. In addition, Tenant shall, at
Tenant's expense, repair any damage to any portion of the Property,
including the roof, foundation, or structural portions of exterior walls of
the Demised Premises, caused by Tenant's acts or omissions. If Tenant fails
to maintain and repair the Property as required by this Section, Landlord
may, on ten (10) days' prior written notice, enter the Demised Premises and
perform such maintenance or repair on behalf of Tenant, except that no
notice shall be required in case of emergency, and Tenant shall reimburse
Landlord for all costs incurred in performing such maintenance or repair
immediately on demand.
7.04. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. Tenant shall not create any
openings in the roof or exterior walls, or make any alterations, additions or
improvements to the Demised Premises without the prior written consent of
Landlord. Consent for nonstructural alterations, additions or improvements shall
not be unreasonably withheld by Landlord. Tenant shall have the right to erect
or install shelves, bins, machinery, air conditioning or heating equipment and
trade fixtures, provided that Tenant complies with all applicable governmental
laws, ordinances, codes, and regulations. At the expiration or termination of
this Lease, Tenant shall, subject to the restrictions of Section 7.05 below,
have the right to remove such items so installed by it, provided Tenant is not
in default at the time of such removal and provided further that Tenant shall,
at the time of removal of such items, repair in a good and workmanlike manner
any damage caused by installation or removal thereof. Tenant shall pay for all
costs incurred or arising out of alterations, additions or improvements in or to
the Demised Premises and shall not permit a mechanic's or materialman's lien to
be filed against the Demised Premises. Upon request by Landlord, Tenant shall
deliver to Landlord proof of payment reasonably satisfactory to Landlord of all
costs incurred or arising out of any such alterations, additions or
improvements.
7.05. CONDITION UPON TERMINATION. Upon the termination of this Lease,
Tenant shall surrender the Demised Premises to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of the Lease. Tenant shall
not be obligated to repair any damage which Landlord is required to repair under
Article Eight (Damage or Destruction). In addition, Landlord may require Tenant
to remove any alterations, additions or improvements (whether or not made with
Landlord's consent) prior to the termination of the Lease and to restore the
Demised Premises to its prior condition, all at Tenant's expense. All
alterations, additions and improvements which Landlord has not required Tenant
to remove shall become Landlord's property and shall be surrendered to Landlord
upon the termination of the Lease. In no event, however, shall Tenant remove any
of the following materials or equipment without Landlord's prior written
consent: any power wiring or power panels; lighting or lighting fixtures; wall
coverings; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioning or any other heating or air conditioning
equipment; fencing or security gates; or other similar building operating
equipment and decorations.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01. NOTICE. If the building or other improvements situated on the
Demised Premises should be damaged or destroyed by fire, tornado or other
casualty, Tenant shall immediately give written notice thereof to Landlord.
8.02. PARTIAL DAMAGE. If the building or other improvements situated on
the Demised Premises are damaged by fire, tornado, or other casualty but not to
such an extent that rebuilding or repairs cannot reasonably be completed within
one hundred twenty (120) days from the date Landlord receives written
notification by Tenant of the happening of the damage, this Lease shall not
terminate, but Landlord shall, at its sole cost and risk, proceed forthwith and
use reasonable diligence to rebuild or repair such building and other
improvements on the Demised Premises (other than leasehold improvements made by
Tenant or any assignee, subtenant or other occupant of the Demised Premises) to
substantially the condition in which they existed prior to such damage;
provided, however, if the casualty occurs during the final eighteen (18) months
of the Lease Term, Landlord shall not be required to rebuild or repair such
damage unless Tenant shall exercise its renewal option (if any is contained
herein) within fifteen (15) days after the date of receipt by Landlord of the
notification of the occurrence of the damage. If Tenant does not elect to
exercise its renewal option or if there is no renewal option contained herein or
previously unexercised at such time, this Lease shall terminate at the option of
Landlord and the Rent shall be abated for the unexpired portion of this Lease,
effective from the date of actual receipt by Landlord of the written
notification of the damage. If the building and other improvements are to be
rebuilt or repaired and are untenantable in whole or in part following such
damage, the monthly installments of Rent payable hereunder during the period in
which they are untenantable shall be adjusted equitably.
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8.03. SUBSTANTIAL OR TOTAL DESTRUCTION. If the building or other
improvements situated on the Demised Premises are substantially or totally
destroyed by fire, tornado, or other casualty, or so damaged that rebuilding or
repairs cannot reasonably be completed within one hundred twenty (120) days from
the date Landlord receives written notification by Tenant of the happening of
the damage, this Lease shall terminate at the option of either Landlord or
Tenant and monthly installments of Rent shall be abated for the unexpired
portion of this Lease, effective from the date of receipt by Landlord or Tenant
of such written notification. If this Lease is not terminated, the building and
the improvements shall be rebuilt or repaired and monthly installments of Rent
abated to the extent provided under Section 8.02.
ARTICLE NINE: CONDEMNATION
[Omitted]
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord, assign
this Lease or sublet the Demised Premises or any portion thereof. Any assignment
or subletting shall be expressly subject to all terms and provisions of this
Lease, including the provisions of Section 6.01 pertaining to the use of the
Demised Premises. In the event of any assignment or subletting, Tenant shall
remain fully liable for the full performance of all Tenant's obligations under
this Lease. Tenant shall not assign its rights hereunder or sublet the Demised
Premises without first obtaining a written agreement from the assignee or
sublessee whereby the assignee or sublessee agrees to assume the obligations of
Tenant hereunder and to be bound by the terms of this Lease. No such assignment
or subletting shall constitute a novation. In the event of an occurrence of an
event of default while the Demised Premises is assigned or sublet, Landlord, in
addition to any other remedies provided herein or by law, may at Landlord's
option, collect directly from such assignee or subtenant all rents becoming due
under such assignment or subletting and apply such rent against any sums due to
Landlord hereunder. No direct collection by Landlord from any such assignee or
subtenant shall release Tenant from the performance of its obligations
hereunder. All such consent of the Landlord shall not be unreasonably withheld.
ARTICLE ELEVEN: DEFAULT AND REMEDIES
11.01. DEFAULT. Each of the following events shall be an event of default
under this Lease:
A. Failure of Tenant to pay any installment of the Rent or other sum
payable to Landlord hereunder on the date that same is due and such
failure shall continue for a period of ten (10) days;
B. Failure of Tenant to comply with any term, condition or covenant of
this Lease, other than the payment of Base Rent or other sum of money, and
such failure shall not be cured within thirty (30) days after written
notice thereof to Tenant;
C . Tenant shall generally fail to pay its debts as they become due or
shall admit in writing its inability to pay its debts, or shall make a
general assignment for the benefit of creditors;
D. Tenant shall commence any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment of
a receiver, trustee, custodian or other similar official for it or for all
or any substantial part of its property;
E. Any case, proceeding or other action against Tenant shall be
commenced seeking to have an order for relief entered against it as
debtor, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and Tenant (i)
fails to obtain a dismissal of such case, proceeding, or other action
within sixty (60) days of its commencement; or (ii) converts the case from
one chapter of the Federal Bankruptcy Code to another chapter; or (iii) is
the subject of an order of relief which is not fully stayed within seven
(7) business days after the entry thereof; and
F. Abandonment by Tenant of any substantial portion of the Demised
Premises or cessation of the use of the Demised Premises for the purpose
leased.
11.02 REMEDIES. Upon the occurrence of any of the events of default listed
in Section 11.01, Landlord shall have the option to pursue any one or more of
the following remedies without any prior notice or demand whatsoever:
A. Terminate this Lease, in which event Tenant shall immediately
surrender the Demised Premises to Landlord. If Tenant fails to so
surrender the Demised Premises, Landlord may, without prejudice to any
other remedy which it may have for possession of the Demised Premises or
arrearages in Rent, enter upon and take possession of the Demised Premises
and expel or remove Tenant and any other person who may be occupying the
Demised Premises or any part thereof, by force if necessary, without being
liable for prosecution or any claim for damages therefor. Tenant shall pay
to Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of such termination, whether through inability to relet
the Demised Premises on satisfactory terms or otherwise.
B. Enter upon and take possession of the Demised Premises, by force if
necessary, without terminating this Lease and without being liable for
prosecution or for any claim for damages therefor, and expel or remove
Tenant and any other person who may be occupying the Demised Premises or
any part thereof. Landlord may relet the Demised Premises and receive the
rent therefor. Tenant agrees to pay to Landlord monthly or on demand from
time to time any deficiency that may arise by reason of any such
reletting. In determining the amount of such deficiency, the professional
service fees, attorneys' fees, remodeling expenses and other costs of
reletting shall be subtracted from the amount of rent received under such
reletting.
C. Enter upon the Demised Premises, by force if necessary, without
terminating this Lease and without being liable for prosecution or for any
claim for damages therefor, and do whatever Tenant is obligated to do
under the terms of this Lease. Tenant agrees to pay Landlord on demand for
expenses which Landlord may incur in thus effecting compliance with
Tenant's obligations under this Lease, together with interest thereon at
the rate of twelve percent (12%) per annum from the date expended until
paid. Landlord shall not be liable for any damages resulting to Tenant
from such action.
D. In addition to the foregoing remedies, Landlord shall have the right
to change or modify the locks on the Demised Premises in the event Tenant
fails to pay the monthly installment of Rent when due. Landlord shall not
be obligated to provide another key to Tenant or allow Tenant to regain
entry to the Demised Premises unless and until Tenant pays Landlord all
Rent which is delinquent. Tenant agrees that Landlord shall not be liable
for any damages resulting to the Tenant from the lockout. At such time
that Landlord changes or modified the lock, Landlord shall post a "Notice
of Change of Locks" on the front of the Demised Premises. Such Notice
shall state the following:
(1) That Tenant's monthly installment of Rent is delinquent, and
therefore, under authority of Section 11.02D of Tenant's Lease, the
Landlord has exercised its contractual right to change or modify
Tenant's door locks;
(2) That the Notice has been posted on the Tenant's front door by a
representative of Landlord and that Tenant should make arrangements to
pay the delinquent installment of Rent when Tenant picks up the key;
and
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(3) That the failure of the Tenant to Comply with the provisions
of the Lease and the Notice and/or tampering with or changing the door
lock(s) by Tenant may subject the Tenant to legal liability.
E. No re-entry or taking possession of the Demised Premises by
Landlord shall be construed as an election to terminate this Lease, unless
a written notice of such intention is given to Tenant. Notwithstanding any
such reletting or re-entry or taking possession, Landlord may, at any time
thereafter, elect to terminate this Lease for a previous default. Pursuit
of any of the foregoing remedies shall not preclude pursuit of any of the
other remedies provided by law, nor shall pursuit of any remedy herein
provided constitute a forfeiture or waiver of any monthly installment of
Rent due to Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants
herein contained. Forbearance by Landlord to enforce one or more of the
remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of any other violation or default. The
loss or damage that Landlord may suffer by reason of termination of this
Lease or the deficiency from any reletting as provided for above shall
include the expense of repossession and any repairs or remodeling
undertaken by Landlord following possession. Should Landlord terminate
this Lease at any time for any default, in addition to any other remedy
Landlord may have, Landlord may recover from Tenant all damages Landlord
may incur by reason of such default, including the cost of recovering the
Demised Premises and the cost of the rental then remaining unpaid.
11.03. NOTICE OF DEFAULT. Tenant shall give written notice of any failure
by Landlord to perform any of its obligations under this Lease to Landlord and
to any ground lessor, mortgagee or beneficiary under any deed of trust
encumbering the Demised Premises whose name and address have been furnished to
Tenant in writing. Landlord shall not be in default under this Lease unless
Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such
nonperformance within thirty (30) days after receipt of Tenant's notice.
However, if such nonperformance reasonably requires more than thirty (30) days
to cure, Landlord shall not be in default if such cure is commenced within such
30-day period and thereafter diligently pursued to completion.
11.04. LIMITATION OF LANDLORD'S LIABILITY. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Demised Premises or the leasehold estate under a ground lease of the Demised
Premises at the time in question. Each Landlord is obligated to perform the
obligations of Landlord under this Lease only during the time such Landlord owns
such interest or title. Any Landlord who transfers its title or interest is
relieved of all liability with respect to the obligations of Landlord under this
Lease accruing on or after the date of transfer. However, each Landlord shall
deliver to its transferee the Security Deposit held by Landlord if such Security
Deposit has not then been applied under the terms if this Lease.
ARTICLE TWELVE: LANDLORD'S CONTRACTUAL LIEN
In addition to the statutory Landlord's lien, Tenant hereby grants to
Landlord a security interest to secure payment of all Rent and other sums of
money becoming due hereunder from Tenant, upon all goods, wares, equipment,
fixtures, furniture and other personal property of Tenant situated in or upon
the Demised Premises, together with the proceeds from the sale or lease thereof.
Such property shall not be removed without the consent of Landlord until all
arrearages in Rent and other sums of money then due to Landlord hereunder shall
first have been paid and discharged. Upon the occurrence of an event of default,
Landlord may, in addition to any other remedies provided herein or by law, enter
upon the Demised Premises and take possession of any and all goods, wares,
equipment, fixtures, furniture and other personal property of Tenant situated on
the Demised Premises without liability for trespass or conversion, and sell the
same at public or private sale, with or without having such property at the
sale, after giving Tenant reasonable notice of the time and place of any such
sale. Unless otherwise required by law, notice to Tenant of any such sale shall
be deemed sufficient if given in the manner prescribed in this Lease at least
ten (10) days before the time of the sale. Any public sale made under this
Article shall be deemed to have been conducted in a commercially reasonable
manner if held on the Demised Premises or where the property is located, after
the time, place and method of sale and a general description of the types of
property to be sold have been advertised in a daily newspaper published in the
county where the Demised Premises is located for five (5) consecutive days
before the date of the sale. Landlord or its assigns may purchase at a public
sale and, unless prohibited by law, at a private sale. The proceeds from any
disposition dealt with in this Article, less any and all expenses connected
with the taking of possession, holding and selling of the property (including
reasonable attorney's fees and legal expenses), shall be applied as a credit
against the indebtedness secured by the security interest granted herein. Any
surplus shall be paid to Tenant or as otherwise required by law; Tenant shall
pay any deficiencies forthwith. Upon request by Landlord, Tenant agrees to
execute and deliver to Landlord a financing statement in form sufficient to
perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Business and Commerce Code in
force in the State of Texas. The statutory lien for rent is expressly reserved;
the security interest herein granted is in addition and supplementary thereto.
Notwithstanding anything to the contrary, provided Tenant is not in default
under any of the terms of this Lease, Tenant may request Landlord to
subordinate its statutory and contractual landlord's lien to any institutional
third party financing of Tenant incurred for the purpose of securing inventory,
fixtures or equipment used in the Demised Premises. Approval by Landlord of
Tenant's request for this subordination will not be unreasonably withheld by
Landlord.
ARTICLE THIRTEEN: PROTECTION OF LENDERS
13.01. SUBORDINATION. Landlord shall have the right to subordinate this
Lease to any future ground Lease, deed of trust or mortgage encumbering the
Demised Premises, and advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Landlord's right to obtain such a future subordination is subject
to Landlord's providing Tenant with a written Subordination, Nondisturbance and
Attornment Agreement from any such ground lessor, beneficiary or mortgagee
wherein Tenant's right to peacable possession of the Demised Premises during the
Lease Term shall not be disturbed if Tenant pays the Rent and performs all of
Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary, or mortgagee elects to have this Lease superior to
the lien of its ground lease, deed of trust or mortgage and gives written notice
thereof to Tenant, this Lease shall be deemed superior to such ground lease,
deed of trust or mortgage whether this Lease is dated prior or subsequent to the
date of said ground lease, deed of trust or mortgage or the date of recording
thereof. Tenant's rights under this Lease, unless specifically modified at the
time this Lease is executed, are subordinated to any existing ground lease, deed
of trust or mortgage encumbering the Demised Premises.
13.02. ATTORNMENT. If Landlord's interest in the Demised Premises is
transferred voluntarily or involuntarily to any ground lessor, beneficiary under
a deed of trust, mortgagee or purchaser at a foreclosure sale, Tenant shall
attorn to the transferee of or successor to Landlord's interest in the Demised
Premises and recognize such transferee or successor as Landlord under this
Lease.
13.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instruments
or documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
13.04. ESTOPPEL CERTIFICATES.
A. Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of
the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has
not been canceled or terminated; (iii) the last date of payment of the Base
Rent and other charges and the time period covered by such payment; and
(iv) that Landlord is not in default under this Lease (or, if Landlord is
claimed to be in default, stating why). Tenant shall deliver such statement
to Landlord within ten (10) days after Landlord's request. Any such
statement by Tenant may be furnished by Landlord to any prospective
purchaser or lender of the Demised Premises. Such purchaser or lender may
rely exclusively upon such statement as true and correct.
B. If Tenant does not deliver such statement to Landlord within
such 10-day period, Landlord, and any prospective purchaser or lender, may
conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been canceled or
terminated except as otherwise represented by Landlord; (iii) that not more
than one monthly installment of Base Rent or other charges have been paid
in advance; and (iv) that Landlord is not in default under the Lease. In
such event, Tenant shall be estopped from denying the truth of such facts.
13.05. [OMITTED]
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ARTICLE FOURTEEN: PROFESSIONAL SERVICE FEES
14.01. AMOUNT AND MANNER OF PAYMENT OF SERVICE FEES. Fees due to the
Principal Broker shall be calculated and paid in accordance with Article 1.11 as
follows:
A. Landlord agrees to pay to the Principal Broker a fee for negotiating
this Lease equal to the percentage stated in Section 1.11B of each monthly
Rent payment at the time such payment is due.
B. Landlord agrees to pay to the Principal Broker a fee for negotiating
this Lease equal to the percentage stated in Section 1.11B of the total Rent
to become due to Landlord during the term of this Lease. Said fees shall be
payable to the Principal Broker on the date of the execution of this Lease.
14.02. PAYMENTS ON RENEWAL, EXPANSION OR PURCHASE. If during the term of
this Lease (as the same may be renewed or extended) or within ten (10) years
from the date hereof, whichever shall be the greater period of time, Tenant, its
successors or assigns, shall (a) exercise any right or option to renew or extend
the term of this Lease (whether contained in this Lease or in any amendment,
supplement or other agreement pertaining hereto) or enter into a new lease or
rental agreement with Landlord covering the Demised Premises, or (b) enter into
any lease, extension, renewal, expansion or other rental agreement with Landlord
demising to Tenant any premises located on or constituting all or part of any
tract or parcel of real property adjoining, adjacent to or contiguous to the
Demised Premises and owned by Landlord on the date of this Lease, Landlord
shall pay to the Principal Broker an additional fee covering the full period of
such renewal, extension, lease, expansion or other rental agreement which shall
be due on the date of exercise, in the case of the exercise of an option, or the
execution, in the case of a lease or other agreement. Such fees shall be
computed under Section 14.01A or 14.01B above (whichever has been made
applicable under Section 1.11A), as if a new lease had been made for such a
period of time. In the event Tenant, its successors or assigns, purchases the
Demised Premises at any time, pursuant to a purchase option contained in this
Lease (or any lease, extension, renewal, expansion or other rental agreement
upon which an additional fee would be due under the above provisions) or, in the
absence of any purchase option or exercise thereof, purchases the Demised
Premises within ten (10) years from the date hereof, Landlord shall pay to the
Principal Broker a sales fee in cash equal to the percentage stated in Section
1.11B of the purchase price, payable at closing. Upon closing of the sale, all
lease fees shall terminate if the lease fees are payable monthly.
14.03. LANDLORD'S LIABILITY. If this Lease is negotiated by Principal
Broker in cooperation with another Broker, Landlord shall be liable for payment
of all Professional Service Fees to Principal Broker only, whereupon Landlord
shall be protected from any claims from the Cooperating Broker.
14.04. JOINT LIABILITY OF TENANT. If Tenant enters into any new lease,
extension, renewal, expansion, or other agreement to rent, occupy, or purchase
any property described in the preceding Section 14.02 within the time specified
in such preceding Section, such agreement must be handled by and through the
Principal Broker, otherwise Tenant shall be jointly and severally liable with
Landlord for any payments due or to become due to the Principal Broker.
14.05. SALE. In the event of a sale of the Demised Premises or the
assignment of this Lease by Landlord, Landlord shall obtain from the purchaser
or assignee an Assumption Agreement in recordable form whereby such purchaser or
assignee agrees to pay the Principal Broker all professional service fees
payable under this Lease and shall deliver a fully executed counterpart thereof
to Principal Broker on the date of closing of the sale of the Demised Premises
or assignment of this Lease. Landlord shall be released from personal liability
for subsequent payments only upon the delivery of such counterpart of said
Assumption Agreement. Landlord shall not transfer, convey, or sell the Demised
Premises or assign this Lease without first obtaining from the purchaser or
assignee such Assumption Agreement. The form of such Assumption Agreement shall
be furnished to the Principal Broker at the time Landlord enters into any
contract for the sale of the Demised Premises or assignment of this Lease.
14.06. TERMINATION. The termination of this Lease by the mutual agreement
of Landlord and Tenant, Tenant not being in default hereunder shall not affect
the right of the Principal Broker to continue to receive the monthly
Professional Service Fees agreed to be paid by Landlord under Section 14.01A
above, just as if Tenant had continued to occupy the Demised Premises and had
paid the monthly installments of Base Rent during the remaining term of this
Lease. Termination of this Lease under Article Eight or Article Nine shall not
terminate the right to such monthly Professional Service Fees.
14.07. LIEN. The Principal Broker is hereby granted a lien against the
Demised Premises to secure payment of all Professional Services Fees (including
not only the Professional Service Fees originally payable hereunder but also any
additional Professional Service Fees which may hereafter become payable by
reason of renewals, new leases, rental agreements, sales or otherwise). This
lien is subject to the rights of Tenant under this Lease, but prior and
superior to any liens hereafter created against the Demised Premises, excepting
only liens in favor of institutional lenders and similar regulated financial
institutions securing indebtedness incurred for the purposes of acquiring the
Demised Premises or constructing, repairing, rebuilding or remodeling buildings
and other improvements thereon, to all of which liens the lien hereby created
shall be subordinate and inferior.
ARTICLE FIFTEEN: ENVIRONMENTAL REPRESENTATIONS AND INDEMNITY
15.01. TENANT'S COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant, at Tenant's
expense, shall comply with all laws, rules, orders, ordinances, directions,
regulations and requirements of federal, state, county and municipal authorities
pertaining to Tenant's use of the Property and with the recorded covenants,
conditions and restrictions, regardless of when they become effective,
including, without limitation, all applicable federal, state and local laws,
regulations or ordinances pertaining to air and water quality, Hazardous
Material (as defined hereinafter), waste disposal, air emissions and other
environmental matters, all zoning and other land use matters, and with any
direction of any public officer or officers, pursuant to law, which shall impose
any duty upon Landlord or Tenant with respect to the use or occupation of the
Property.
15.02. TENANT'S INDEMNIFICATION. Tenant shall not cause or permit any
hazardous material to be brought upon, kept or used in or about the Property by
Tenant, its agents, employees, contractors or invitees without the prior written
consent of Landlord. If Tenant breaches the obligation stated in the preceding
Section or sentence, or if the presence of Hazardous Material on the Property
caused or permitted by Tenant results in contamination of the Property or any
other property, or if contamination of the Property or any other property by
Hazardous Material otherwise occurs for which Tenant is legally liable to
Landlord for damage resulting therefrom, then Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims, judgements, damages, penalties,
fines, costs, liabilities or losses (including, without limitation, diminution
in value of the Property, damages for the loss or restriction on use of rentable
or unusable space or of any amenity or appurtenance of the Property, damages
arising from any adverse impact on marketing of building space or land area,
and sums paid in settlement of claims, attorney's, fees, consultant fees and
expert fees) which arise during or after the Lease Term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial work, removal or restoration work required
by any federal, state or local government agency or political subdivision
because of Hazardous Material present in the soil or ground water on or under
the Property. Without limiting the foregoing, if the presence of any Hazardous
Material on the Property or any other property caused or permitted by Tenant
results in any contamination of the Property, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Property to the
condition existing prior to the introduction of any such Hazardous Material to
the Property, provided that Landlord's approval of such actions shall first be
obtained. The foregoing indemnity shall survive the expiration or earlier
termination of this Lease.
15.03. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents
and warrants to the best of Landlord's actual knowledge that any handling,
transportation, storage, treatment or usage of Hazardous Material that has
occurred on the Property to date has been in compliance with all applicable
federal, state, and local laws, regulations and ordinances. Landlord further
represents and warrants that no leak, spill, release, discharge, emission or
disposal of Hazardous Material has occurred on the Property to date and that the
soil or groundwater on or under the Property is free of Hazardous Material as of
the date that the term of this Lease commences unless expressly disclosed by
Landlord to Tenant in writing.
15.04. LANDLORD'S INDEMNIFICATION. Landlord hereby indemnifies, defends and
holds Tenant harmless from any claims, judgements, damages, penalties, fines,
costs, liabilities, (including sums paid in settlements of claims) or loss,
including, without limitation, attorney's fees, consultant fees, and expert
fees, which arise during or after the term of this Lease from or in connection
with the presence or suspected presence of Hazardous Material in the soil or
groundwater on or under the Property, unless Hazardous Material is released by
Tenant or is present solely as a result of the negligence or willful conduct of
Tenant, its officers, employees or agents. Without limiting the generality of
the foregoing, the
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indemnification provided by this Article 15.04 shall specifically cover costs
incurred in connection with any investigation of site conditions or any
clean-up, remedial work, removal or restoration work required by any federal,
state or local governmental agency or political subdivision because of the
presence or suspected presence of Hazardous Material in the soil or groundwater
on or under the Property, unless the Hazardous Material is released by Tenant or
is present solely as a result of the negligence or willful conduct of Tenant,
its officers, employees, or agents.
15.05. DEFINITIONS. For purposes of this Article 15, the term "Hazardous
Material" shall mean any pollutant, toxic substance, hazardous waste, hazardous
material, hazardous substance, or oil as defined in or pursuant to the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, the Federal Clean Water
Act, as amended, or any other federal, state or local environmental law,
regulation, ordinance, rule, or bylaw, whether existing as of the date hereof,
previously enforced or subsequently enacted.
15.06. SURVIVAL. The indemnities contained in this Article 15 shall survive
the expiration or earlier termination of this Lease.
15.07. BROKER'S ENVIRONMENTAL DISCLOSURE. Tenant and Landlord further
acknowledge that the Brokers involved in the negotiation of this transaction
have no expertise with respect to any such Hazardous Materials, although said
Brokers will disclose any actual knowledge possessed by them. Tenant and
Landlord shall look solely to experts and professionals, if any, selected by
Tenant or Landlord to advise Tenant or Landlord with respect to the condition of
the Property and shall not hold the Brokers responsible for any Hazardous
Material condition or problem relating to the Property. Both the Landlord and
Tenant hereby agree to indemnify, defend, and hold the Brokers participating in
this transaction harmless of and from any and all liability, claim, debt,
damage, cost, or expense, including reasonable attorneys' fees, related to or
arising out of or in any way connected to Hazardous Materials and/or toxic
wastes and/or any other undesirable substances affecting the Property.
ARTICLE SIXTEEN: MISCELLANEOUS
16.01. FORCES MAJEURE. In the event performance by Landlord of any term,
condition or covenant in this Lease is delayed or prevented by any Act of God,
strike, lockout, shortage of material or labor, restriction by any government
authority, civil riot, flood, or any other cause not within the control of
Landlord, the period for performance of such term, condition or covenant shall
be extended for a period equal to the period Landlord is so delayed or hindered.
16.02. INTERPRETATION. The captions of the Articles or Sections of this
Lease are to assist the parties in reading this Lease and are not a part of the
terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. For convenience, each party hereto is referred to in the neuter
gender, but the masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Demised Premises with Tenant's
expressed or implied permission.
16.03. WAIVERS. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provisions of this Lease or its
acceptance of late installments of Rent shall not be a waiver and shall not
estop Landlord from enforcing that provision or any other provision of this
Lease in the future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord. Landlord may, with or
without notice to Tenant, negotiate, cash, or endorse such check without being
bound to the conditions of such statement.
16.04. SEVERABILITY. A determination by a court of competent jurisdiction
that any provision of this Lease or any part thereof is invalid or unenforceable
shall not cancel or invalidate the remainder of such provision or this Lease,
which shall remain in full force and effect.
16.05. JOINT AND SEVERAL LIABILITY. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant.
16.06. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. Thin I-canc is the
only agreement between the parties pertaining to the lease of the Demised
Premises and no other agreements are effective. All amendments to thin Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
16.07. NOTICES. All notices required or permitted under this Lease shall be
in writing and shall be personally delivered or shall be deemed to be delivered,
whether actually received or not, when deposited in the United States mail,
postage pre-paid, registered or certified mail, return receipt requested,
addressed as stated herein. Notices to Tenant shall be delivered to the address
specified in Section 1.03 above, except that, upon Tenant's taking possession
of the Demised Premises, the Demised Premises shall be Tenant's address for
notice purposes. Notices to any other party hereto shall be delivered to the
address specified in Article One as the address for such party. Any party
hereto may change its notice address upon written notice to the other parties.
16.08. ATTORNEYS' FEES. If on account of any breach or default by any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal Broker), it shall become necessary for the nondefaulting party
to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the nondefaulting party its
reasonable attorneys' fees, whether or not suit is instituted in connection
therewith.
16.09. VENUE. All obligations hereunder, including but not limited to the
payment of fees to the Principal Broker, shall be performable and payable in the
county in which the Property is located.
16.10. GOVERNING LAW. The laws of the State of Texas shall govern this
Lease.
16.11. SURVIVAL. All obligations of any party hereto not fulfilled at the
expiration or the earlier termination of this Lease shall survive such
expiration or earlier termination as continuing obligations of such party.
16.12. BINDING EFFECT. This Lease shall inure to the benefit of and be
binding upon each of the parties hereto and their respective heirs,
representatives, successors and assigns; provided, however, Landlord shall have
no obligation to Tenant's successors or assigns unless the rights or interests
of such successors or assigns are acquired in accordance with the terms of this
Lease.
16.13. EXECUTION AS OFFER. The execution of this Lease by the first party
to do so constitutes an offer to lease the Demised Premises. Unless within the
number of days stated in Section 1.14 above after the date of its execution by
the first party to do so, this Lease is signed by the other party and a fully
executed copy is delivered to the first party, such offer shall be automatically
withdrawn and terminated.
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ARTICLE SEVENTEEN: ADDITIONAL PROVISIONS
Additional provisions may be set forth in the blank space below, and/or an
Exhibit or Exhibits may be attached hereto which shall be made a part of this
Lease for all purposes.
Landlord has agreed to provide Tenant with up to $150,000.00 for Tenant
Improvements on the space. Out of this T.I. allowance, $100,000.00 is
considered as extra allowance and is figured into the rental rate at $1.67/sf
per year. Tenant can "buy down" the rental rate by either using less than the
$100,000.00 or by paying Tenant Improvement dollars. Landlord will get at
least three bids on the improvements.
EFFECTIVE as of the date stated in Section 1.01 above.
BROKERS: LANDLORD:
RE/MAX NORTH CENTRAL JERSEY INVESTMENTS, INC. ROYCE & MIKE SMITH
- ----------------------------------- -------------------------------------------
PRINCIPAL BROKER, Member of the
Greater Dallas Association of
REALTORS(R), INC.
By: By:
-------------------------------- ----------------------------------------
Name: JIM L. HARVEY Name:
------------------------------ --------------------------------------
Address:321 North Central Expwy.101 Title:
--------------------------- -------------------------------------
Mckinney/Texas/75070 Date of Execution by Landlord:
- ----------------------------------- -------------
- -----------------------------------
Telephone: 972-529-5555
-------------------------
License No.:
-----------------------
TENANT:
/S/ KEN BOUTTE GLOBAL ELECTION SYSTEMS INC.
- ----------------------------------- ------------------------------------------
COOPERATING BROKER
By: By: /s/ HOWARD T. VAN PELT
-------------------------------- -------------------------------------------
Name: Name:
------------------------------ --------------------------------------
Address: 900 E.PARK BLVD. SUITE 155 Title: President
--------------------------- -------------------------------------
PLANO, TEXAS 75074 2 Date of Execution by Tenant: 3/13/97
- ----------------------------------- -------------
- -----------------------------------
Telephone:
-------------------------
License No.:
-----------------------
*******************************************************************************
[For voluntary use only by members of the Greater Dallas Association of
REALTORS(R), Inc.]
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RE/MAX NORTH CENTRAL
EXHIBIT C
RENEWAL OPTIONS
PROPERTY ADDRESS OR DESCRIPTION: 1611 WILMETH RD. MCKINNEY, TEXAS 75069
---------------------------------------------
DATE OF LEASE: MARCH 4, 1997
---------------------------------
1. OPTION(S) TO EXTEND TERM
Landlord hereby grants to Tenant TWO option(s) [the "Option(s)"] to extend
the Lease Term for additional term(s) of 5 years each [the "Extension(s)"], on
the same terms, conditions and covenants set forth in the Lease Agreement,
except as provided below. Each Option shall be exercised only by written
notice delivered to the Landlord at least NINETY (90) days before the
expiration of the Lease Term or the preceding Extension of the Lease Term. If
Tenant fails to deliver Landlord written notice of the exercise of an Option
within the prescribed time period, such Option and any succeeding Options shall
lapse, and there shall be no further right to extend the Lease Term. Each
Option shall be exercisable by Tenant on the express condition that at the time
of the exercise, and at all times prior to the commencement of such
Extension(s), Tenant shall not be in default under any of the provisions of
this Lease. The foregoing Option(s) are personal to Tenant and may not be
exercised by any assignee or subtenant.
2. CALCULATION OF RENT
The Base Rent during the Extension(s) shall be determined by one of the
following methods: whichever is lower, [INDICATED BY CHECKING THE APPROPRIATE
BOX UPON THE EXECUTION OF THE LEASE AGREEMENT]
[X] (a) Consumer Price Index Adjustment
[X] (b) Fair Rental Value Adjustment
[ ] (c) Fixed Rental Adjustment
A. CONSUMER PRICE INDEX ADJUSTMENT
The monthly rent during the particular Extension shall be determined
by multiplying the monthly installment of Base Rent during the Lease Term
by a fraction determined as follows:
(1) The numerator shall be the latest Index.
(2) The denominator shall be the initial Index.
If such computation would reduce the rent for the particular
Extension, it shall be disregarded, and the rent during the immediately
preceding period shall apply instead.
The Index, as defined herein, shall mean the Consumer Price Index for
Urban Consumers (all items), Dallas/Fort Worth, Texas, area (1984 = 100)
published by the United States Department of Labor, Bureau of Labor
Statistics.
The initial Index shall mean the Index published for the nearest
calendar month preceding the commencement date of the Lease Term. The
latest Index shall mean the Index published for the nearest calendar month
preceding the first day of the Extension.
If a base year other than 1984 is adopted, the Index shall be
converted in accordance with the appropriate conversion factor. If the
Index is discontinued or revised, such other Index or computation with
which it is replaced shall be used in order to obtain substantially the
same result as would have been obtained if it had not been discontinued or
revised.
B. FAIR RENTAL VALUE ADJUSTMENT
The Base Rent shall be increased on the first day of the particular
Extension to the "Fair Rental Value" of the Demised Premises, determined in
the following manner:
(1) If the Landlord and Tenant have not been able to agree on
the Fair Rental Value Adjustment prior to the date the option is
required to be exercised, the rent for the Extension shall be
determined as follows: Within fifteen (15) days following the
exercise of the option, Landlord and Tenant shall endeavor in good
faith to agree upon a single appraiser. If Landlord and Tenant are
unable to agree upon a single appraiser within said fifteen (15) day
period, each shall then, by written notice to the other, given within
ten (10) days after said fifteen (15) day period, appoint one
appraiser. Within ten (10) days after the two appraisers are
appointed, they shall appoint a third appraiser. If either Landlord or
Tenant fails to appoint its appraiser within the prescribed time
period the single appraiser appointed shall determine the Fair Rental
Value of the Demised Premises. Each party shall hear the cost of the
appraiser appointed by it and the parties shall share equally the cost
of the third appraiser.
(2) The "Fair Rental Value" of the Demised Premises shall mean
the price that a ready and willing tenant would pay as of the
commencement of the Extension as monthly rent to a ready and willing
landlord of demised premises comparable to the Demised Premises if
such property were exposed for lease on the open market for a
reasonable period of time and taking into account all of the purposes
for which such property may be used and not just the use proposed to
be made of the Demised Premises by Tenant. The Fair Rental Value of
the Demised Premises shall be the average of the two of the three
appraisals which are the closest in amount, and the third appraisal
shall be disregarded. In no event shall the rent be reduced by reason
of such computation. If the Fair Rental Value is not determined prior
to the commencement of the Extension, then Tenant shall continue to
pay to Landlord the rent applicable to the Demised Premises
immediately prior to such Extension until the Fair Rental Value is
determined, and when it is determined, Tenant shall pay to Landlord
within ten (10) days after receipt of such notice the difference
between the rent actually paid by tenant to Landlord and the new rent
determined hereunder.
C. FIXED ADJUSTMENTS
The Base Rent shall be increased to the following amounts on the
following dates:
Date Amount
N/A N/A
- ------------------------------------ ------------------------------------
N/A N/A
- ------------------------------------ ------------------------------------
N/A N/A
- ------------------------------------ ------------------------------------
N/A N/A
- ------------------------------------ ------------------------------------
N/A N/A
- ------------------------------------ ------------------------------------
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
-------- --------
<PAGE> 12
RE/MAX NORTH CENTRAL
EXHIBIT F
EXPENSE REIMBURSEMENT
PROPERTY ADDRESS OR DESCRIPTION: 1611 WILMETH RD. MCKINNEY, TEXAS 75069
-------------------------------------------
DATE OF LEASE: MARCH 4, 1997
----------------------
1. EXPENSE REIMBURSEMENT
Tenant shall pay the Landlord, as additional rental hereunder, a portion
of the following expenses, as defined hereafter, incurred, levied or assessed
for or against the Demised Premises: [Check those that are to apply. Boxes not
checked do not apply.]
[X] Ad Valorem Taxes
[X] Insurance Premiums
[ ] Common Area Maintenance Charges (CAM)
[ ] Operating Expenses
(herein collectively called "Reimbursements")
2. EXPENSE REIMBURSEMENT LIMITATIONS
The amount of Tenant's Reimbursement obligation shall be determined by one
of the following methods. [Check only the one applicable box]
[ ] Base Year/Expense Stop Adjustment
[X] Pro Rata Adjustment
[ ] Fixed Amount Adjustment
The calculation for each of said methods is set forth under Section 4 below.
3. EXPENSE REIMBURSEMENT PAYMENTS
Tenant agrees to pay the applicable Reimbursement within thirty (30) days
after receiving an invoice therefor from Landlord. If at any time during the
Lease Term or any renewals or extensions Landlord has reason to believe that
at some time within the immediately succeeding 12-month period Tenant will owe
Landlord a payment pursuant to this provision, Landlord may direct Tenant to
pay monthly an estimated portion of the projected future amount. Tenant agrees
that any such payment directed by Landlord shall be due and payable monthly on
the same day that the Base Rent is due. Any Reimbursement relating to partial
calendar years shall be prorated accordingly.
4. DEFINITIONS
A. AD VALOREM TAXES: All general real estate taxes, general and
special assessments, parking surcharges, rent taxes, and other similar
governmental charges levied against the Property for each calendar year.
B. INSURANCE PREMIUMS: All insurance premiums attributable to the
Property, including, but not limited to, premiums for fire, casualty, and
extended coverage, liability coverage, and loss of rents coverage.
C. COMMON AREA MAINTENANCE CHARGES: All costs of the ownership,
operation, and maintenance of the common area, including, but not limited to,
those costs for security, lighting, painting, cleaning, leasing, inspecting,
and repairing which may be incurred by Landlord, in its discretion, including a
reasonable allowance for Landlord's overhead and management. The term "common
area" is defined as that part of the Property intended for the common use of
all tenants, including, but not limited to, the parking areas, landscaping,
loading areas, sidewalks, malls, promenades (enclosed or otherwise), public
rest rooms, meeting rooms, corridors, and curbs. Common area maintenance shall
not include depreciation on Landlord's original investment, cost of tenant
improvements, real estate broker's fees, and interest or depreciation on capital
investments.
D. OPERATING EXPENSES: All costs of management, operation, and
maintenance of the Property, including, but not limited to, wages, salaries,
janitorial services, maintenance, repairs, and cost of utilities. Operating
expenses shall not include depreciation on Landlord's original investment, cost
of tenant improvements, real estate broker's fees, and interest or depreciation
on capital investments.
E. BASE YEAR/EXPENSE STOP ADJUSTMENT: If the Landlord's ad valorem
taxes, insurance premiums, common area maintenance charges and/or operating
expenses for the Property for any calendar year during the term hereof or during
any extension of this lease increase over (1) such amounts paid by Landlord for
the Base Year N/A, or (2) $N/A per square foot per year [choose one], Tenant
agrees to pay its share of such increase based on the square footage contained
in the Demised Premises in proportion to the square footage of leasable area of
the Property.
F. PRO RATA ADJUSTMENT: Tenant shall pay to Landlord its pro rata
share of the total amount of Landlord's insurance premiums, ad valorem taxes,
for any calendar year during the term hereof and during any extension of this
lease. Tenant's pro rata share of such amount shall be based on the square
footage contained in the Demised Premises in proportion to the square footage of
the leasable area of the Property.
G. FIXED AMOUNT ADJUSTMENT: Tenant shall pay as additional rent the
following monthly amounts as Tenant's Reimbursement to Landlord for the ad
valorem taxes, insurance premiums, common area maintenance charges, and/or
operating expenses assessed or levied against the Property:
Ad Valorem Taxes $N/A per month
------
Insurance Premiums $N/A per month
------
Common Area Maintenance Charges $N/A per month
------
Operating Expenses $N/A per month
------
INITIALS: LANDLORD: INITIALS: TENANT: HVP
------ -----
------ -----
<PAGE> 13
RE/MAX North Central
EXHIBIT H
CONSTRUCTION OF IMPROVEMENTS
PROPERTY ADDRESS OR DESCRIPTION: 1611 WILMETH RD. MCKINNEY, TEXAS 75069
------------------------------------------
DATE OP LEASE: MARCH 4,1997
-------------------------
1. CONSTRUCTION OF IMPROVEMENTS:
A. Landlord agrees to construct (or complete) a building and other
improvements upon the Demised Premises in accordance with detailed Plans
and Specifications to be prepared forthwith by Landlord and delivered to
Tenant. Upon approval by Tenant, two or more sets of said Plans and
Specifications shall be signed by both parties, with one signed set
retained by Tenant. Changes to said Plans and Specifications thereafter
shall be made only by written addenda signed by both parties.
B. Upon approval of said Plans and Specifications, Landlord shall
forthwith begin construction and pursue same to completion with reasonable
diligence in a good and workmanlike manner.
2. COMPLETION DATE:
A. It is estimated by Landlord that the building and other improvements
shall be completed by June 1, 1997.
B. Landlord shall notify Tenant in writing when construction has been
completed. Tenant shall thereupon inspect the building and other
improvements, and if same have in fact been completed in accordance with
the Plans and Specifications, the Lease Term shall begin upon the date of
completion with Base Rent due and payable as provided in Article Three of
the Lease.
C. If the building and other improvements have not in fact been
completed in accordance with the Plans and Specifications, written
notification of the items deemed incomplete shall be given by Tenant to
Landlord immediately following inspection. Landlord shall forthwith proceed
to finish the incomplete items, and the lease term shall begin upon the
date that such items are in fact complete.
D. Completion, as used herein, shall mean substantial completion.
Substantial completion shall mean at such time as the Landlord obtains a
Certificate of Occupancy issued by the local municipal authorities whose
jurisdiction includes the Demised Premises, and is the stage when the
construction is sufficiently complete in accordance with the Plans and
Specifications that the Tenant can occupy or utilize the Demised Premises
for its intended use, except for minor "punch list" items remaining to be
completed.
3. LETTER OF ACCEPTANCE: Tenant agrees to execute and deliver to Landlord,
with a copy to the Principal Broker, a Letter of Acceptance, addressed to
Landlord and signed by Tenant (or its authorized representative) acknowledging
that construction has been completed in accordance with the Plans and
Specifications and acknowledging the Commencement Date of the Lease Term.
4. TAKING OF POSSESSION: The taking of possession of the Demised Premises
by Tenant shall be deemed conclusively to be acknowledgment by Tenant that
construction has been completed in accordance with Plans and Specifications
(except for latent defects) and that the Lease Term has begun as of the date (of
completion.
5. FAILURE TO COMPLETE: In the event that the building and other
improvements have not been completed in accordance with the Plans and
Specifications by July 1, 1997, or by such date as extended by application of
Section 16.01, Tenant shall have the right and option to terminate this Lease by
giving written notice of Tenant's intention to terminate as of a certain date
not less than fifteen (15) days prior to said certain date. If the building and
other improvements have not been completed by said certain date, the lease
shall, at the option of Tenant, terminate with no further liability of one party
to the other.
INITIALS: LANDLORD: INITIALS: TENANT: HVP
----- ------
----- ------
<PAGE> 1
EXHIBIT (6)(4)
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT is made this 31st day of July, 1997, between
GLOBAL ELECTION SYSTEMS, INC., a British Columbia corporation ("Purchaser") and
I-MARK SYSTEMS, INC., a Nebraska corporation, d/b/a I-MARK ("Seller").
WHEREAS, Seller has created software programs for use in the election
processing industry (the "Program"), has sourced and assembled certain third
party hardware which together with the Program is known as the Election Precinct
System, and is engaged in the business of licensing the Election Precinct System
for use in connection with governmental elections (the "Business"); and
WHEREAS, Purchaser desires to purchase substantially all of the assets of
Seller and Seller desires to retain the right and license to use the Program as
provided herein.
NOW, THEREFORE, the parties agree as follows:
1. Sale. Seller shall sell the assets of Seller described in this Section
1 (the "Purchased Assets") to Purchaser free and clear of any and all liens,
encumbrances and liabilities, and Purchaser shall purchase the Purchased Assets
from Seller, at Closing. The Purchased Assets are as follows:
(a) The Program, subject to Seller's retained right and license to use
the Program as described in Section 20 of this Agreement.
(b) The equipment and supplies, which are described in Schedule 1,
attached hereto;
(c) All business files, customer lists, customer records and all other
books, files and records, including computer files, relating to the Business and
good will pertaining to or arising out of the Business;
(d) The inventory, if any, associated with the Business ("Inventory")
on the close of business on the day immediately preceding the Closing Date.
Seller shall not be required to have any inventory on hand at the Closing Date
except as required in Schedule 2 attached hereto;
(e) The contracts, licenses, leases, arrangements, and agreements
relating to the Business which are described in Schedule 3 attached hereto
(collectively, the "Contracts"); and
(f) The names "I-Mark Systems, Inc." and "I-Mark".
Seller retains all right, title and interest in and to all assets of
Seller other than the Purchased Assets.
2. Consideration. Purchaser agrees to pay to Seller, and Seller agrees to
accept from Purchaser, as the entire purchase price for the Purchased Assets and
the noncompetition,
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<PAGE> 2
nonsolicitation, and confidentiality agreements of Seller contained in this
Agreement the following amounts:
(a) One million dollars ($1,000,000.00) cash or its equivalent; and
(b) One million shares of common voting stock of Global Election
Systems, Inc.
3. Payment of Purchase Price. The purchase price for the Purchased Assets
in Section 2 above shall be paid in its entirety at Closing.
4. Allocation of Purchase Price. Purchaser and Seller shall agree on an
allocation of the purchase price among the Purchased Assets within ten (10) days
after the date of Closing.
5. Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall occur as soon as possible after Purchaser receives
Regulatory Approval (as such term is hereinafter defined in this Section 5), but
in no event later than September 1, 1997. Purchaser is, prior to closing,
required to obtain the acceptance of the Toronto Stock Exchange with regard to
notice of this Agreement under Bylaw 19.09 ("Regulatory Approval"). Purchaser
agrees to file with the Toronto Stock Exchange on or before August 5, 1997, all
notices and materials required to obtain the Regulatory Approval, and Purchaser
shall endeavor to obtain the Regulatory Approval as soon thereafter as is
possible. In the event that Regulatory Approval is not obtained by September 1,
1997, this Agreement will terminate and be of no further force and effect.
6. Representations and Warranties of Seller. Seller represents and
warrants to Purchaser, as of the date of this Agreement and as of the Closing
Date, as follows:
(a) Seller is the owner of and has good and marketable title to the
Purchased Assets, free and clear of all debts, liens, security interests, and
encumbrances, except as specifically referred to in Schedule 4, attached, which
encumbrances shall be removed at or prior to Closing;
(b) Seller has not entered into any written vendor or client contracts
relating to the Business which individually have a remaining term of greater
than 90 days or $10,000.00 in obligations, except as specifically referred to in
Schedule 5, attached;
(c) Except as specifically referred to in Schedule 6, attached there
are no (i) actions, suits, claims, investigations or legal administrative or
arbitration proceedings pending or threatened against Seller before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality or (ii) judgments, decrees, injunctions or
orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against Seller or the Purchased Assets;
(d) Seller has timely filed all federal and applicable state and local
tax assessment reports and tax returns of every kind required to be filed by
Seller and has duly paid all taxes and other charges due or claimed to be due by
federal, state or local taxing authorities;
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<PAGE> 3
(e) Seller is a Nebraska corporation, duly organized, validly existing
and in good standing under the laws of its state of incorporation and is duly
qualified to transact business in the State of Nebraska;
(f) Seller has all requisite power and authority to own and operate the
Business as it is currently conducted;
(g) To Seller's knowledge, the Business is not, and has not been,
conducted in violation of any law, ordinance or regulation of any governmental
entity or agency;
(h) To Seller's knowledge, there are no threatened actions,
proceedings, claims, occurrences or developments which could materially
adversely affect the condition (financial or otherwise), assets, liabilities,
business operations, affairs or prospects of the Business;
(i) This Agreement has been duly executed and delivered on behalf of
Seller and constitutes a valid and legally binding agreement enforceable against
Seller in accordance with its terms. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been duly approved by the directors and shareholders of Seller
who are entitled to vote thereon;
(j) Proper and accurate amounts have been withheld by Seller from the
compensation of Seller's employees for all periods in full compliance with the
tax withholding provisions of applicable federal, state and local laws. Proper
and accurate federal, state and local tax returns have been timely filed by
Seller for all periods for which returns were due with respect to employee
income tax and social security withholding and FICA and unemployment taxes, and
the amounts shown thereon to be due and payable have been paid in full. All
payments due from Seller on account of employee health and welfare insurance
have been paid by Seller. Seller will comply with all such withholding and
filing requirements for the period from the date of this Agreement to the
Closing;
(k) Except for Seller's 401(k) Plan, Seller does not maintain or
contribute to any Pension Plan (as defined in Section 3(2) of ERISA or its
successor provisions) or to any Welfare Plan (as defined in Section 3(l) of
ERISA or its successor provisions), nor is Seller presently, nor has it been
within the last six years, a participating employer in any Multiemployer Plan
(as defined in ERISA Section 3(37) or Section 414(f) of the Internal Revenue
Code), affecting, in any case, employees of Seller;
(l) All financial statements which are attached as Schedule 7 delivered
by Seller to Purchaser were prepared on an accrual method of accounting, but
based on historic costs, consistent with past practice, and accurately reflect,
in all material respects, the assets and liabilities, financial condition, and
results of operations of Seller for the periods covered thereby, however, the
book value of the Purchased Assets may be substantially higher than the net
realizable value of the Purchased Assets;
(m) To the best of Seller's knowledge, (i) Seller has all permits,
licenses, franchises and other authorizations necessary to, and has
substantially complied with all laws applicable to, the
3
<PAGE> 4
conduct of the Business in the manner in which the Business is currently being
conducted, and all those permits, licenses, franchises and authorizations are
valid and in full force and effect, (ii) Seller has not engaged in any activity
which would cause revocation or suspension of any such permit, license,
franchise or authorization which would result in a material adverse effect on
Seller or operation of the Business, and (iii) Seller has no knowledge of any
action, threat or proceeding looking to or contemplating the revocation or
suspension of any thereof;
(n) To the best of Seller's knowledge, no third party has claimed that
any person employed or affiliated with Seller has violated or may be violating
any conditions of that person's employment, non-competition or non-disclosure
agreement with that third party, or disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of that third party, or interfered or may be interfering in the employment
relationship between that third party and any of its present or former
employees. Seller has no knowledge that any key employees of Seller intend to
leave or are leaving Seller's employ in order to take part, as an employee or
otherwise, in any business in direct competition with Purchaser;
(o) To the best of Seller's knowledge, the execution and delivery of
this Agreement by Seller does not, and the consummation by Seller of the
transactions contemplated by this Agreement will not: (i) violate any provision
of the Articles of Incorporation or Bylaws of the Seller; (ii) result in any
material breach or acceleration of any material obligation under any instrument,
indenture, note, lien, bond, agreement, contract, mortgage, lease, license or
commitment under which Seller is bound; provided, however, Seller is required to
obtain the consent of Mytec Technologies, Inc. to the assignment of the
Non-Exclusive Reseller Agreement between Seller and Mytec Technologies, Inc. and
Seller shall use its best efforts to obtain such consent prior to Closing; (iii)
require any consent, approval or authorization of any governmental or regulatory
authority; (iv) violate any order, writ, injunction, judgment, decree, statute,
rule or regulation applicable to the Business or any of the Purchased Assets; or
(v) result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature upon the Purchased Assets or the Business;
(p) Environmental, Health and Safety. To the best of Seller's
knowledge, (i) Seller has complied with all environmental, health and safety
laws, and no action, suit, proceeding, hearing, investigation, charge, complaint
claim, demand or notice has been filed or commenced against it alleging any
failure so to comply; (ii) without limiting the generality of the preceding,
each of Seller and its predecessors and affiliates has obtained and been in
material compliance with all of the terms and conditions of all permits,
licenses and other authorizations which are required under, and has complied
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained in, all
environmental, health and safety laws; and (iii) none of Seller, its
predecessors and affiliates has any liability for damage to any site, location,
or body of water (surface or subsurface), for any illness of or personal injury
to any employee or other individual or for any reason under any environmental,
health or safety law. To the best of Seller's knowledge, all properties and
equipment used in the Business have been free of asbestos, PCB's, methylene
chloride, 1, 2-trans-dichloroethylene, dioxins, dibenzofurans, and extremely
hazardous substances;
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<PAGE> 5
(q) Product Liability. To the best of Seller's knowledge, Seller has
no material liability arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by Seller;
(r) Liabilities in the Ordinary Course of Business. The liabilities of
Seller assumed by Purchaser and the liabilities to which the Purchased Assets
are subject were incurred by Seller in the ordinary course of business; and
(s) To the best of Seller's knowledge, Seller's development, use, sale
or marketing of the Program does not violate any rights of any other person or
entity and Seller has not received any communication alleging such a violation.
Purchaser acknowledges receipt from Seller of the following patents which were
provided to Seller in connection with a patent search conducted on behalf of the
Seller in June of 1996: Drexler - 5,412,727; Miyagawa - 5,377,099; Graft III -
5,278,753; Griffin - 4,764,120; Boram - 4,641,240; Hice - 4,578,572; Grace -
4,373,134; Chisholm - 5,400,248; Sarner - 5,379,212; Webb - 4,774,665; Grace -
4,373,134; Wise - 5,218,528; Anno - 5,189,288; Moldovan, Jr. - 4,010,353; Kirby
- - 3,779,453; and Aronoff - 3,772,793. Seller makes no representation or warranty
regarding the accuracy or completeness of such patent search or that the Program
does not violate any of such patents.
EXCEPT AS PROVIDED IN THIS SECTION 6, SELLER SPECIFICALLY DISCLAIMS ALL
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. SELLER FURTHER MAKES NO
WARRANTIES, REPRESENTATIONS, CONDITIONS OR GUARANTIES, EXCEPT AS SET FORTH IN
THIS AGREEMENT.
7. Covenants of Seller. Seller covenants and agrees with Purchaser as
follows:
(a) Subject to the terms of the Confidentiality Agreement between
Purchaser and Seller dated December 9, 1996, which Confidentiality Agreement is
hereby incorporated herein by this reference and shall remain in full force and
effect until Closing, Purchaser's counsel, accountants and other representatives
shall have full access during normal business hours from the date of this
Agreement to the Closing to all of the properties, books, contracts, commitments
and records of Seller relating to the Business, and Seller will furnish to
Purchaser during such period all such documents, copies of documents (certified
if required) and information concerning the Business as Purchaser reasonably may
request;
(b) Purchaser's representatives shall during normal business hours from
the date of this Agreement until Closing be entitled to interview any employees
of Seller to discuss potential terms of employment with Purchaser and about the
Business; and
(c) Seller will use its best efforts, until the Closing, to conduct the
Business in a good and prudent manner and only in the ordinary course of
business for purposes of maintaining Seller's Business organization, including
the preservation of the good will of customers and others having business
relations with the Business; provided that Seller shall not be responsible for
any of the acts or omissions of any of the employees of Seller who are hired by
Purchaser prior to the Closing
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<PAGE> 6
pursuant to Section 32 of this Agreement or for any changes in the Business
which result from any of such acts or omissions.
8. Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as of the date of this Agreement and as of the Closing Date
as follows:
(a) Purchaser is a British Columbia corporation, duly organized,
validly existing in good standing under the laws of its province of
incorporation;
(b) This Agreement has been duly executed and delivered on behalf of
Purchaser and constitutes a valid and legally binding agreement enforceable
against Purchaser in accordance with its terms. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly approved by its Board of
Directors, and no further corporate action is necessary on the part of Purchaser
to make this Agreement valid and binding on Purchaser in accordance with its
terms;
(c) To the best of Purchaser's knowledge, the execution of this
Agreement does not violate any federal, state, local, or provincial laws or
regulations or violate any provision of or result in the breach of any Agreement
to which Purchaser is a party or by which Purchaser may be bound, or any order,
judgment or decree applicable to Purchaser;
(d) Purchaser acknowledges that (i) the purchase of the Purchased
Assets is based solely upon Purchaser's own inspection and determination as to
the uniqueness and proprietary rights that exist in the Program; (ii) except as
to the express representations and warranties made by Seller in this Agreement,
Purchaser has not relied upon any representations or warranties, express or
implied, that Seller, its employees, agents or representatives may have made;
and (iii) Purchaser is purchasing the Purchased Assets AS IS, WHERE IS, AND WITH
ALL FAULTS;
(e) Purchaser has furnished to Seller copies of the financial
statements of Purchaser included on Schedule 9, attached, (the "Purchaser's
Financial Statements"). The Purchaser's Financial Statements are complete and
correct, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the respective periods and
fairly present the financial condition of Purchaser as of the respective dates
thereof and the results of operations of Purchaser for the respective periods
covered by the statements of income contained therein;
(f) The shares of Purchaser's common stock to be delivered to Seller by
Purchaser at Closing will be duly authorized, validly issued and outstanding,
fully paid, nonassessable and free and clear of all pledges, liens, encumbrances
and restrictions, except as provided under applicable securities laws, if any.
The certificates representing such shares to be delivered by Purchaser hereunder
will be genuine, and Purchaser has no knowledge of any fact which would impair
the validity thereof;
(g) Except as set forth on Schedule 10, attached, no consent,
authorization, approval, permit or order of or filing with any governmental or
regulatory authority is required under current laws and regulations in
connection with (i) the execution and delivery of this Agreement, or (ii) the
issuance or delivery by Purchaser to Seller of the shares of Purchaser's
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<PAGE> 7
common stock to be delivered pursuant to this Agreement at Closing. The offer,
sale, and issuance to Seller by Purchaser of the Purchaser's common stock to be
delivered pursuant to this Agreement constitute, and will at the Closing
constitute, transactions exempt from the registration and prospectus delivery
requirements of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act") and, subject to the filing of the required notice on Form 20,
the issuance of the shares by Purchaser to Seller will be exempt from the
prospectus requirement of the Securities Act (B.C.) and Purchaser shall have
obtained (or is exempt from the requirement to obtain) all qualifications,
permits, approvals, and other consents required by all applicable state and
provincial laws in Canada governing the offer, sale and issuance of Purchaser's
common stock;
(h) The authorized capital stock of Purchaser consists of 20,000,000
shares of Convertible Voting Preferred Stock, none of which is outstanding, '
and 100,000,000 voting shares of common stock, 14,689,440 shares of which are
issued and outstanding and are duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Schedule 11, attached, (i) there are no
outstanding subscriptions, options, warrants, calls, contracts, demands,
commitments, convertible securities, or other agreements or arrangements of any
character or nature whatever under which Purchaser is or may be obligated to
issue capital stock or other securities of any kind representing an ownership
interest or contingent ownership interest in Purchaser; (ii) there exist no
voting agreements, registration rights, proxies or repurchase obligations with
respect to the capital stock of Purchaser; (iii) neither the offer nor the
issuance or sale of the Purchaser's common stock to Seller pursuant to this
Agreement does or will constitute an event, under any anti-dilution provisions
of any securities issued or issuable by Purchaser or any agreements with respect
to the issuance of securities by Purchaser, which will either increase the
number of shares issuable pursuant to such provisions or decrease the
consideration per share to be received by Purchaser pursuant to such provisions;
and (iv) no holder of any security of Purchaser is entitled to any preemptive or
similar rights to purchase securities from Purchaser. All outstanding securities
of Purchaser have been issued: (1) in full compliance with the registration and
prospectus delivery requirements of the applicable federal securities statutes
and regulations in the United States and the applicable provincial securities
statutes and regulations in Canada and from the registration and qualification
requirements of all applicable state and provincial securities laws; and (2) in
full compliance with applicable exemptions to such federal, state and provincial
securities laws. Purchaser has filed, or will timely file, all necessary
disclosure documents and reports in connection with its securities and all such
documents and reports contain no untrue statement of material fact or omit to
state a material fact and there has been no material adverse change in the
condition of Purchaser's business since the date its last continuous disclosure
documents were filed; and
(i) The shares of Purchaser's common stock which will be issued to
Seller pursuant to this Agreement shall, at the time of issuance to Seller, be
listed on the Toronto Stock Exchange and, subject to a maximum twelve (12) month
holding period, shall be freely tradeable by Seller on the Toronto Stock
Exchange without any other resale restrictions. Purchaser states that there is
no United States market for the shares and none may develop and Purchaser is
under no obligation to cause a U.S. market to develop. Purchaser covenants that
during such twelve (12) month holding period it shall continue in a timely
fashion to file with the appropriate securities regulatory authorities in
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<PAGE> 8
the Provinces of Canada where Purchaser is a reporting issuer, all continuous
disclosure documents required to be filed.
9. Absence of Brokers. Purchaser and Seller represent to each other that
neither of them have retained or incurred any liability to any other person,
firm or organization for a broker's, finder's or agents fee for services
rendered in connection with the transaction contemplated by this Agreement.
Purchaser agrees to indemnify Seller against and to hold Seller harmless from
any claim made by any person, firm or organization claiming to have been
employed by Purchaser as a broker, finder or agent in connection with the
transaction contemplated by this Agreement. Seller agrees to indemnify Purchaser
against and to hold Purchaser harmless from any claim made by any person, firm
or organization claiming to have been employed by Seller as a broker, finder or
agent in connection with the transaction contemplated by this Agreement.
10. Conditions to Closing.
(a) The obligations of Purchaser under this Agreement are, at the
option of Purchaser, subject to the satisfaction, at or prior to the Closing, of
the following conditions:
(i) All necessary documents and instruments to be delivered to
Purchaser in accordance with the provisions of this Agreement shall have been
delivered to Purchaser;
(ii) The representations and warranties of Seller made in this
Agreement, the Schedules and Exhibits hereto, or in any document or certificate
delivered to Purchaser pursuant to this Agreement, shall be true and correct in
all material respects at the time of the Closing with the same force and effect
as though such representations and warranties were made at the time of the
Closing;
(iii) Seller shall have performed and complied with all agreements,
covenants and conditions on its part required to be performed or complied with
under this Agreement at or prior to the Closing, including, without limitation,
Section 7(c);
(iv) Seller shall have delivered to Purchaser (i) certified copies
of resolutions of the Board of Directors and Shareholders of Seller entitled to
vote thereon approving the transaction contemplated by this Agreement; and (ii)
a certificate from the Nebraska Secretary of State confirming that Seller is in
good standing in the State of Nebraska.
(v) Purchaser shall have entered into an employment agreement
generally on the terms set forth on Exhibit A, attached, with Robert Urosevich.
(b) The obligations of Seller under this Agreement are, at the option
of Seller, subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(i) All necessary documents and instruments to be delivered to
Seller in accordance with the provisions of this Agreement shall have been
delivered to Seller;
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<PAGE> 9
(ii) The representations and warranties of Purchaser made in this
Agreement, the Schedules and Exhibits hereto, or in any document or certificate
delivered to Seller pursuant to this Agreement, shall be true and correct in all
material respects at the time of the Closing with the same force and effect as
though such representations and warranties were made at the time of the Closing.
(iii) Purchaser shall have performed and complied with all
agreements, covenants and conditions on its part required to be performed or
complied with under this Agreement at or prior to the Closing;
(iv) There shall have been no changes, other than changes in the
ordinary course of business, which in the aggregate have had or may have a
materially adverse effect on the operations of Purchaser's business; and
(v) Purchaser shall have delivered to Seller (i) certified copies
of resolutions of the board of Directors of Purchaser approving the transaction
contemplated by this Agreement; and (ii) a certificate from the appropriate
authority confirming that Purchaser is in good standing in the Province of
British Columbia, Canada.
11. Closing Requirements. At the Closing, in addition to any other
documents specifically required to be delivered to Purchaser by Seller pursuant
to this Agreement, Seller also shall deliver to Purchaser a bill of sale in a
form reasonably acceptable to Purchaser and Seller, with warranties of
unencumbered title, conveying and transferring to Purchaser the Purchased
Assets.
12. Additional Actions. After the Closing, Seller agrees from time to time
to take such actions and to execute and deliver such documents as may be
reasonably necessary or advisable to confirm the title of Purchaser to any of
the Purchased Assets being acquired by Purchaser from Seller pursuant to this
Agreement. After the Closing, Purchaser agrees from time to time to take such
actions and to execute and deliver such documents as may be reasonably necessary
or advisable to confirm the title of Seller to Purchaser's common stock being
acquired by Seller from Purchaser pursuant to this Agreement and to confirm the
retained rights of Seller in the Program as described in Section 20 of this
Agreement.
13. Indemnification.
(a) Seller agrees to indemnify and hold harmless Purchaser against any
loss, damage or expense (including but not limited to reasonable attorneys'
fees) ("Losses") incurred or sustained by Purchaser as a result of (i) any and
all claims of whatever nature relating to or arising out of Seller's operation
of the Business prior to the Closing, including but not limited to any unpaid
obligations of Seller for such period, but excluding any claims relating to or
arising out of any acts or omissions of the employees of Seller who are hired by
Purchaser pursuant to Section 32 of this Agreement which occur on or after
August 1, 1997; (ii) any breach of this Agreement by Seller; (iii) any material
inaccuracy in or breach of any of the representations or warranties made by
Seller in this Agreement; and (iv) any material inaccuracy or misrepresentation
in any certificate or other document or material instrument delivered by Seller
in accordance with any provision of this Agreement.
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<PAGE> 10
(b) Purchaser agrees to indemnify and hold harmless Seller against
any Losses incurred or sustained by Seller as a result of (i) any and all claims
of whatever nature relating to or arising out of (1) Purchaser's operation of
the Business after the Closing or (2) any acts or omissions of Seller's
employees who are hired by Purchaser pursuant to Section 32 of this Agreement
which occur after August 1, 1997; (ii) any breach of this Agreement by
Purchaser; (iii) any material inaccuracy in or breach of any of the
representations or warranties made by Purchaser in this Agreement; and (iv) any
material inaccuracy or misrepresentation in any certificate or other document or
material instrument delivered by Purchaser in accordance with any provision of
this Agreement.
(c) Notwithstanding any other provision of this Agreement to the
contrary: (i) in no event shall Losses include a party's incidental, punitive or
consequential damages; (ii) no claim for indemnification shall be made against
Seller for any breach of any representation, warranty, covenant or agreement
made by Seller in this Agreement other than the covenant of Seller made in
Section 17 of this Agreement, unless and until the aggregate Losses exceed
$25,000 (the "Deductible"), in which event Purchaser may claim indemnification
for the amount of such Losses in excess of the Deductible; and (iii) the maximum
aggregate amount recoverable from Seller for indemnification pursuant to this
Section 13 is $250,000; provided, however, the foregoing maximum amount shall
not apply with respect to claims arising out of a breach by Seller of the
covenant of Seller made in Section 17 of this Agreement.
(d) If any warranty or representation in this Agreement is found within
twelve months of Closing to be untrue or inaccurate, the party desiring to make
a claim for damages resulting from such breach may do so by delivering to the
breaching party express written notice of the details of such breach and the
intent to make a claim, such notice to be received by the breaching party no
later than twelve months following the date of the Closing. Time is of the
essence for the purpose of this paragraph. The party to whom such a
representation has been made shall request an arbitration conducted under the
rules of the American Arbitration Association (each party to select one
arbitrator and the third arbitrator to be selected by the other two). The
results of the arbitration shall be binding upon all parties. The prevailing
party in such arbitration shall be entitled to recover its costs, including
reasonable attorneys' fees, incurred in the arbitration proceeding from the
non-prevailing party, and an award of such costs and expenses shall be included
in the final judgment entered in the arbitration.
(e) The indemnification obligations set forth in this Section 13 shall
be the sole and exclusive remedy of any party against the other for recovery of
any Losses arising out of, resulting from, or relating to any breach of any
representation, warranty, covenant or agreement contained in this Agreement with
the exception of the covenant of Seller contained in Section 17 of this
Agreement.
14. Risk of Loss. Seller assumes all risk of loss due to fire or other
casualty up to the time of Closing.
15. Liabilities.
(a) Purchaser, as of the date of Closing, expressly assumes and
unconditionally agrees to pay, perform or otherwise discharge as the same shall
become due in accordance with their
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<PAGE> 11
respective terms, any and all liabilities, obligations and commitments of Seller
arising out of the Contracts, but not including any liability, obligation or
commitment of Seller for any breach thereof by Seller occurring prior to the
date of Closing (the "Assumed Liabilities"). Purchaser further agrees to
reimburse Seller for the prepaid expenses of Seller relating to the Business
which are listed on the attached Schedule 12.
(b) Purchaser, except for the Assumed Liabilities, is not assuming and
shall have no responsibility for any debts, obligations or liabilities of
Seller, the responsibility of which shall remain and be discharged by Seller as
they become due. Seller, agrees to indemnify and to hold Purchaser harmless from
any cost or expense arising by reason of Seller's nonpayment of any such debts,
obligations or liabilities. Unless included in the Assumed Liabilities, such
debts, obligations and liabilities shall include, without limitation, the
following:
(i) Any liabilities of Seller relating to current or former
employees of Seller, including but not limited to liability for salary,
severance pay, incentive compensation, stock options or other employee benefits;
(ii) All tax liabilities of any kind which accrued prior to
Closing;
(iii) Any liabilities for claims or adjustments relating to
customer billings, customer warranties or guarantees or payments, which accrued
prior to Closing; and
(iv) Any liabilities arising out of any litigation,
administrative proceeding, arbitration, or other actions for damages which the
basis for such action arose prior to Closing.
16. Taxes. Personal property taxes, if any, with respect to the Business
assets being sold by Seller to Purchaser shall be paid by Purchaser. All sales,
transfer or other taxes, if any, on this transaction are the responsibility of
Purchaser and Seller equally.
17. Covenant Not to Compete. Seller acknowledges that Seller has operated
the Business throughout the Western Hemisphere and that the trade area of the
Business has been the entire Western Hemisphere. Seller agrees that for a period
of sixty (60) months after the Closing Date, within the entire Western
Hemisphere, Seller will not, directly, perform any service for or own any
interest in any election business (whether freestanding or a part of another
business) or manage, work for or consult with any election business nor sell nor
license any election software programs to any election business in competition
with Purchaser during the period of restriction. Purchaser acknowledges that
Seller may create certain software programs which have universal applications,
including the adaptation of the software to the election business. Seller is not
prohibited from licensing such software to governmental institutions who may use
the software in connection with electronic voting systems, provided Seller does
not obtain the certification of the software for such purposes. In the event
Seller breaches any of the covenants contained in this Section, Purchaser shall
be authorized and entitled to seek from any court of competent jurisdiction (1)
a temporary restraining order, (2) preliminary and permanent injunctive relief
(3) an equitable accounting of all profits or benefits arising out of such
breach, and (4) direct, incidental and consequential damages arising from such
breach. Such rights and remedies shall be cumulative and in addition to any
other rights or remedies to which
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Purchaser may be entitled. Any monetary damages shall not be limited to the
amount of consideration paid by Purchaser for the covenant not to compete.
Purchaser's rights under this Section and Sections 18 and 19 of this Agreement
shall not be exclusive, but shall be in addition to any other rights to which
Purchaser may be entitled. If any provisions of this Section relating to the
time period, activity and/or area of restriction shall be declared by a court of
competent jurisdiction to exceed the maximum time periods, activities or areas
which such court deems reasonable and enforceable, then such time period,
activity and/or area of restriction shall be deemed to become and thereafter be
the maximum time period, activity and/or area which such court deems reasonable
and enforceable.
18. Confidential Information. Seller agrees that all of the Business
files, customer lists and records and all other books, files and records are
confidential information and Seller shall treat all such confidential
information as confidential and secret and shall use their best efforts to
protect the secrecy of such confidential information. It is acknowledged by
Purchaser that Seller has informed Purchaser that it has disclosed much of its
confidential information regarding the election business to Computing Devices
Canada, Ltd., under a confidentiality agreement in the form attached hereto as
Exhibit B, and to American Information Systems, Inc., under a confidentiality
agreement in the form attached hereto as Exhibit C. Seller will not, directly or
indirectly, from date hereof disclose any confidential information to others
without the prior written consent of Purchaser. Seller further agrees not to
use, directly or indirectly any confidential information for the benefit of
Seller or any other party. The provisions of this Section shall not be
applicable to (i) information which is a matter of public knowledge, (ii)
information which, after disclosure, becomes public knowledge other than through
a breach of this Agreement or of any other confidentiality or trade secret
agreement or through a violation of any confidential relationship between
Purchaser and any third party, and (iii) information which Seller can prove was
subsequently lawfully obtained by a third party or parties or was independently
developed by a third party or parties.
19. Solicitation of Seller's Employees. For a period of thirty-six (36)
months after the Closing, Seller agrees that Seller will not, directly or
indirectly, employ, solicit for employment, or advise or recommend to any other
person or entity that such other person or entity employ or solicit for
employment, any person employed by Purchaser who within ninety (90) days prior
to the closing Date had been employed by Seller.
20. Reservation of Rights in Program. Seller hereby reserves and retains
the perpetual, irrevocable, indefeasible, non-terminable, non-exclusive,
worldwide, assignable, royalty-free right and license to (i) use, execute,
reproduce, display, perform, sublicense, distribute copies of and prepare
derivative works based upon the Program, and (ii) authorize others to do any or
all of the forgoing; provided, however, Seller agrees that Seller will not, at
any time while Seller is subject to the non-competition agreement of Seller set
forth in Section 17 of this Agreement, use or directly market, license or
sublicense the Program for use in connection with (a) the election industry,
including election administration, ballot design, communication interfaces,
report functions, petitioning, tabulation, and internet voting and other remote
voter tabulation, including home computer, television and military voting or (b)
applications which utilize smart card technology to store any of the following:
voter registration information, standard driver's license information, driving
records, registration or welfare information. Purchaser agrees that Seller shall
own all derivative works, modifications, and enhancements to the Program which
are
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<PAGE> 13
generated, produced or developed by Seller or Seller's employees, agents or
consultants and Seller shall be entitled to obtain and hold in its own name all
copyrights and other intellectual property rights in respect of such derivative
works, modifications, and enhancements including without limitation, all rights
under patent, trade secret and trademark laws.
21. Piggyback Registration. If Purchaser files a registration statement
(other than on Form S-4, Form S-8 or other form not permitting "piggyback" of
shares, and any successor forms) with the SEC while any Registerable Securities
are held by Holders under this Agreement, Purchaser will give all of the then
Holders of Registerable Securities ("Eligible Holders") at least 20 days' prior
written notice of the filing of the registration statement. If requested in
writing by Eligible Holders holding not less than a majority of the Registerable
Securities within 15 days after the mailing of such notice by first-class mail,
postage pre-paid, to the record address of such Eligible Holder, Purchaser will,
one time only, at Purchaser's sole expense (other than the fees of legal counsel
to the Eligible Holders and underwriting discounts applicable to any
Registerable Securities sold), register or qualify all or, at each Eligible
Holder's option, any portion of the Registerable Securities requested by an
Eligible Holder with the registration of the other Purchaser securities being
registered and use its best efforts to cause all such Registerable Securities to
be listed on each securities exchange or over-the-counter market on which
similar securities issued by the Purchaser are then listed and file all required
listing applications and pay all required fees in connection with such listing.
However, if the underwriter of such an offering reasonably determines that
inclusion of the Registerable Securities or any part of them in the proposed
offering is detrimental to the offering, and so advises the Eligible Holders,
the Registerable Securities will not be registered and the Eligible Holders will
be deemed not to have been given notice under this paragraph. To the extent that
the underwriter agrees to include only part of the Registerable Securities,
those Registerable Securities must be allocated on a pro rata basis among the
Eligible Holders on the basis of the number of shares of Registerable Securities
requested to be included in such offering by the Eligible Holders, and the
balance of the Registerable Securities not registered because of the
underwriters' decision will be eligible for one additional piggyback right. The
rights granted to a Holder under this Section 21 to cause Purchaser to register
shares may be transferred or assigned by such Holder to a transferee or assignee
in connection with any transfer or assignment of Registerable Securities,
provided that such transfer or assignment may otherwise be effected in
accordance with applicable securities laws, and prompt written notice of such
transfer or assignment is given to Purchaser. For purposes of this Section 21,
the following terms shall have the following respective meanings:
(a) "Holder" means Seller and any person beneficially owning
Registerable Securities through permitted assignment thereof in
accordance with this Section 21.
(b) "Registerable Securities" means the shares of Purchaser's common
stock which are issued to Seller pursuant to this Agreement and
any shares of Purchaser's common stock issued as a dividend or
other distribution with respect to, or in exchange for or in
replacement of such shares; provided that shares which would
otherwise constitute Registerable Securities shall cease to do so
once they have been sold to the public.
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<PAGE> 14
(c) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as
amended, and the declaration or ordering of effectiveness of such
registration statement.
22. Binding Effect. Subject to the terms, provisions, and conditions
hereof, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
23. Notices. Any notice, request, instruction or other document to be
given hereunder to any party shall be in writing, delivered personally, or sent
by registered, certified, overnight or express mail, postage prepaid, as
follows:
Seller: Purchaser:
I-Mark Systems, Inc. Global Election Systems, Inc.
9290 W. Dodge Road 6605 Uptown Blvd NE
Suite 203 Suite 330
Omaha NE 68114 Albuquerque NM 87110
Attn: Gerald R. Ladd Attn: Howard T. Van Pelt, Pres.
Either party may change its address for purposes of this Section by giving
notice to the other in the manner provided herein.
24. Survival. All representations, warranties and covenants made by either
party hereto shall survive the Closing for a period of twelve (12) months after
the Closing except for those set forth in Section 17, which shall survive for a
period of sixty (60) months after the Closing, Sections 18 and 19 which shall
survive for a period of thirty-six (36) months after the Closing, and Section 21
which shall survive until the obligations thereof have been fully satisfied.
25. Entire Agreement. This instrument contains the entire agreement
between the parties with respect to the transactions contemplated hereby and
shall not be changed or terminated except by a written instrument signed by the
parties hereto.
26. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, then the remaining provisions of this
Agreement shall continue in full force and effect and shall be enforceable to
the fullest extend permitted by law.
27. Multiple Counterparts. This Agreement may be executed in any number of
counterparts and all of these counterparts together shall constitute one and the
same Agreement.
28. Additional Provisions. The additional provisions contained in the
Schedules and Exhibits which are attached hereto are by this reference
incorporated herein.
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29. Governing Law. This Agreement shall be governed by the substantive
laws of the State of New Mexico.
30. Expenses of Transaction. Each party to this Agreement shall be
responsible for all legal and accounting expenses incurred by such party in
connection with the transaction set forth in this Agreement.
31. Resale. The Seller understands and acknowledges that the shares
issuable pursuant to Paragraph 2(b) of this Agreement will be subject to certain
resale restrictions under applicable securities legislation and that the
certificates representing such shares will bear the following legends:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO
AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE) AND (B) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. DELIVERY OF THIS CERTIFICATE MAY
NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA. NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH
WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM MONTREAL TRUST
COMPANY OR CANADA UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO MONTREAL TRUST COMPANY OF CANADA,
TO THE EFFECT THAT THE SALE OF THIS SECURITY IS BEING MADE IN COMPLIANCE
WITH RULE 904 OF REGULATION S."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE TORONTO
STOCK EXCHANGE; HOWEVER, THE SAID SECURITIES CANNOT BE TRADED THROUGH THE
FACILITIES OF SUCH EXCHANGE SINCE THEY ARE NOT FREELY TRANSFERABLE, AND
CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS NOT "GOOD
DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD
PERIOD WHICH EXPIRES AT MIDNIGHT ON THE ____ DAY OF ____, 1998 AND MAY NOT
BE TRADED IN BRITISH COLUMBIA AND ONTARIO UNTIL THE EXPIRY OF THE HOLD
PERIOD EXCEPT AS
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<PAGE> 16
PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA), THE SECURITIES ACT
(ONTARIO) AND THE RULES AND REGULATIONS MADE THEREUNDER."
The Seller also acknowledges that It has been advised to consult its own legal
advisors with respect to applicable resale restrictions. The Seller further
understand and acknowledges that there is no United States market for the shares
of the Purchaser and none may develop and the Purchaser is under no obligation
to cause a United States market to develop. Purchaser acknowledges that Seller
intends to distribute the shares of Purchaser's common stock received by Seller
pursuant to this Agreement to its shareholders and Purchaser agrees to cooperate
with Seller in accomplishing such transfer provided that such transfer is
accomplished in compliance with applicable securities laws.
32. Seller's Employees. Effective at 12:01 a.m. on August 1, 1997, the
employees of Seller listed on Schedule 8 attached shall become employees of
Purchaser and will be terminated as employees of Seller. Purchaser, however,
shall, until the Closing, cause such employees to perform for Seller's benefit,
but at no cost to Seller, all of the duties ordinarily performed by such
employees while they were employed by Seller so that the Business can continue
to be operated in the ordinary course. Purchaser acknowledges even though
Purchaser is hiring the employees of Seller prior to the Closing, title to the
Purchased Assets does not transfer to Purchaser pursuant to this Agreement until
the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SELLER: PURCHASER:
I-MARK SYSTEMS, INC., GLOBAL ELECTION SYSTEMS, INC.,
a Nebraska corporation a British Columbia corporation
By: By: /s/ HOWARD T. VAN PELT
-------------------------- --------------------------------
Title: Title: PRESIDENT
----------------------- -----------------------------
16
<PAGE> 1
EXHIBIT (6)(5)
PROMISSORY NOTE
March 31, 1998 CDN$500,000
FOR VALUE RECEIVED, GLOBAL ELECTION SYSTEMS INC. CANADA (the "Debtor"), of 1611
Wilmeth, McKinney, Texas, U.S.A., 75069, hereby promises to pay to the order of
DAVID ROSS (the "Creditor") on or before March 31, 1999, the principal sum of
CDN$500,000 together with interest thereon at the rate of 8% per annum
calculated and payable monthly on the last day of each month. This Promissory
Note may be prepaid in whole or in part at any time without notice or bonus.
If this Promissory Note is not repaid, in full, within 2 months from the date
hereof, in addition to the monthly payments of interest, the Debtor shall pay to
the Creditor CDN$3,000 on the last day of May, 1998 and payments thereafter
increasing in $500 increments on each of the last day in each month from June,
1998 to and including March, 1999.
The Debtor hereby waives presentment, protest, notice of protest and notice of
dishonour.
This Promissory Note is not assignable.
GLOBAL ELECTION SYSTEMS INC.
Per:
/s/ HOWARD VAN PELT
- ---------------------------
Howard Van Pelt
Authorized Signatory
<PAGE> 2
83,333 Common Shares Void after
Without Par Value March 31, 2001
SHARE PURCHASE WARRANT
GLOBAL ELECTION SYSTEMS, INC.
(the "Company")
This is to certify that, for value received, David Ross (the "Warrant Holder")
c/o 600-110 Yonge Street, Toronto, Ontario, M5C 1T6 has the right to purchase
from the Company, upon and subject to the terms and conditions hereinafter
referred to, 83,333 common shares without par value (the "Shares") in the
capital of the Company. The Shares may be purchased at a price of $1.88
(Canadian) per Share at any time up to 4:00 p.m. local time in Vancouver, B.C.
on March 31, 2001. The right to purchase the Shares may be exercised in whole
or in part, by the Warrant Holder only, at the price set forth above (the
"Exercise Price") within the times set forth above by:
(a) completing and executing the Subscription Form attached hereto for
the number of Shares which the Warrant Holder wishes to purchase, in
the manner therein indicated;
(b) surrendering this Warrant Certificate, together with the complete
Subscription Form, to Montreal Trust Company of Canada, (the
"Transfer Agent") at 510 Burrard Street, Vancouver, British Columbia;
and
(c) paying the appropriate Exercise Price, in Canadian funds, for the
number of the Shares of the Company subscribed for, either by
certified cheque or bank draft (drawn on a Canadian Chartered Bank)
or money order payable to the Company in Vancouver, British Columbia.
Upon surrender and payment, the Company shall issue to the Warrant Holder or to
such other person or persons as the Warrant Holder may direct, the number of the
Shares subscribed for and will deliver to the Warrant Holder, at the address
set forth on the subscription form, a certificate or certificates evidencing
the number of the Shares subscribed for. If the Warrant Holder subscribes for a
number of Shares which is less than the number of Shares permitted by this
warrant, the Company shall forthwith cause to be delivered to the Warrant
Holder a further Warrant Certificate in respect of the balance of Shares
referred to in this Warrant Certificate not then being subscribed for.
In the event of any subdivision of the common shares of the Company (as such
common shares are constituted on the date hereof) into a greater number of
common shares while this warrant is outstanding, the number of Shares
represented by this warrant shall thereafter be deemed to be subdivided in like
manner and the Exercise Price adjusted accordingly, and any subscription by the
Warrant Holder for Shares hereunder shall be deemed to be a subscription for
common shares of the Company as subdivided.
<PAGE> 3
In the event of any consolidation of the common shares of the Company (as such
common shares are constituted on the date hereof) into a lesser number of
common shares while this warrant is outstanding, the number of Shares
represented by this warrant shall thereafter be deemed to be consolidated in
like manner and the Exercise Price adjusted accordingly, and any subscription
by the Warrant Holder for Shares hereunder shall be deemed to be a subscription
for common shares of the Company as consolidated.
In the event of any capital reorganization or reclassification of the common
shares of the Company or the merger or amalgamation of the Company with another
corporation at any time while this warrant is outstanding, the Company shall
thereafter deliver at the time of purchase of the Shares hereunder the number
of common shares the Warrant Holder would have been entitled to receive in
respect of the number of the Shares so purchased had the right to purchase been
exercised before such capital reorganization or reclassification of the common
shares of the Company or the merger or amalgamation of the Company with another
corporation.
If at any time while this, or any replacement, warrant is outstanding:
(a) the Company proposes to pay any dividend of any kind upon its common
shares or make any distribution to the holders of its common shares;
(b) the Company proposes to offer for subscription pro rata to the holders of
its common shares any additional shares of stock of any class or other
rights;
(c) the Company proposes any capital reorganization or classification of its
common shares or the merger or amalgamation of the Company with another
corporation; or
(d) there is a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
The Company shall give to the Warrant Holder at least seven days prior written
notice (the "Notice") of the date on which the books of the Company are to
close or a record is to be taken for such dividend, distribution or
subscription rights, or for determining rights to vote with respect to such
reorganization, reclassification, consolidation, merger, amalgamation,
dissolution, liquidation or winding-up. The Notice shall specify, in the case
of any such dividend, distribution or subscription rights, the date on which
holders of common shares of the Company will be entitled to exchange their
common shares for securities or other property deliverable upon any
reorganization, reclassification, consolidation, merger, amalgamation, sale,
dissolution, liquidation or winding-up, as the case may be. Each Notice shall
be delivered by hand, addressed to the Warrant Holder at the address of the
Warrant Holder set forth above or at such other address as the Warrant Holder
may from time to time specify to the Company in writing.
The holding of this Warrant Certificate or the Warrants represented hereby does
not constitute the Warrant Holder a member of the Company.
Nothing contained herein confers any right upon the Warrant Holder or any
other person to subscribe for or purchase any Shares of the Company at any time
subsequent to 4:00 p.m. local
- 2 -
<PAGE> 4
time in Vancouver, B.C. on March 31, 2001 and from and after such time, this
Warrant and all rights hereunder will be void.
The Warrants represented by this Warrant Certificate are non-transferable. Any
common shares issued pursuant to this Warrant will bear the following legend:
"The shares represented by this certificate are subject to a hold period
expiring at midnight on March 31, 1999 and may not be traded in Ontario
until the expiry of the hold period except as permitted by the Securities
Act (Ontario) and regulations made under the Act.
The securities represented by this certificate are listed on The Toronto
Stock Exchange; however, the said securities can not be traded through the
facilities of such Exchange since they are not freely transferable, and
consequently any certificate representing such securities is not "good
delivery" in settlement of transactions on The Toronto Stock Exchange."
Time will be of the essence hereof.
This Warrant Certificate is not valid for any purpose until it has been
signed by the Company.
IN WITNESS WHEREOF, the Company has caused its common seal to be hereto affixed
and this warrant certificate to be signed by one of its directors as of March
31, 1998.
GLOBAL ELECTION SYSTEMS INC.
Per:
/s/ HOWARD VAN PELT
- -----------------------------
Howard Van Pelt
- 3 -
<PAGE> 5
SUBSCRIPTION FORM
To: GLOBAL ELECTION SYSTEMS INC. (the "Company")
And to: the directors thereof.
Pursuant to the Share Purchase Warrant made March 31, 1998, the undersigned
hereby subscribes for and agrees to take up ________ common shares without par
value (the "Shares") in the capital of the Company, at a price of $1.88
(Canadian) per Share for the aggregate sum of $__________ (the "Subscription
Funds"), and encloses herewith a certified cheque, bank draft or money order
payable to the Company in full payment of the Shares.
The undersigned hereby requests that:
(e) the Shares be allotted to the undersigned;
(f) the name and address of the undersigned as shown below be entered in the
registers of members and allotments of the Company;
(g) the Shares be issued to the undersigned as fully paid and non-assessable
common shares of the Company; and
(h) a share certificate representing the Shares be issued in the name of the
undersigned.
Dated this __________ day of ______________________, _______.
DIRECTION AS TO REGISTRATION:
(NAME AND ADDRESS EXACTLY AS YOU WISH THEM TO APPEAR ON YOUR SHARE CERTIFICATE
AND IN THE REGISTER OF MEMBERS.)
Full Name(1):
----------------------------------------------------------------
Full Address:
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Signature of Subscriber(1):
--------------------------------------------------
If the name above differs from the name of the Subscriber, then please complete
the following guarantee:
Signature of Subscriber(1) guaranteed by:
- ----------------------------------------------
Authorized Signature Number
NOTE: The signature to this subscription form must correspond with the name as
recorded on the warrant certificate in every particular without alteration or
enlargement or any change whatever. The signature of the person executing this
power must be guaranteed by a Bank or Trust Company or by a Member of the
Vancouver, Toronto, Montreal or New York Stock Exchange.
<PAGE> 6
ACCOUNTS SECURITY AGREEMENT
BETWEEN:
GLOBAL ELECTION SYSTEMS INC.,
1611 Wilmeth, McKinney, Texas 75069
(the "Debtor")
AND:
DAVID ROSS
c/o 600-110 Yonge Street, Toronto, Ontario, M5C 1T6
(the "Secured Party")
1. SECURITY INTEREST
1.1 For consideration the Debtor hereby mortgages, charges, assigns and
transfers to the Secured Party, and grants to the Secured Party a security
interest in, all the Debtor's right, title and interest in and to all debts,
accounts, claims, demands, monies and choses in action which now are, or which
may at any time hereafter be, due or owing to or owned by the Debtor and
all books, records, documents, papers and electronically recorded data
recording, evidencing or relating to the said debts, accounts, claims, demands,
monies and choses in action or any part thereof, and all proceeds thereof and
therefrom (all of which is hereinafter collectively called the "Collateral").
2. ATTACHMENT
The Debtor acknowledges that the Security Interests hereby created
attach upon the execution of this Security Agreement (or in the case of any
after acquired property, upon the date of acquisition thereof), that value has
been given, and that the Debtor has (or in the case of after acquired property,
will have upon the date of acquisition) rights in the Collateral.
3. PROHIBITIONS
3.1 If the aggregate value of all accounts due to the Debtor at any time
falls below 125% of the amount outstanding, from time to time, under that
certain promissory note, of even date, made by the Debtor, without the prior
written consent of the Secured Party the Debtor shall not have power to:
(a) create or permit to exist any security interest in, charge,
encumbrance or lien over, or claim against any of the Collateral which
ranks or could in any event rank in priority to or pari passu with any
Security Interest created by this Security Agreement; or
(b) grant, sell, or otherwise assign its chattel paper.
3.2 The Chief Executive Officer of the Debtor shall, at the end of each
and every month during the term of this Security Agreement, report in writing
to the Secured Party the aggregate value of all accounts due to the Debtor.
<PAGE> 7
4. OBLIGATIONS SECURED
This Security Agreement and the Security Interests hereby created are
in addition to and not in substitution for any other security interest now or
hereafter held by the Secured Party from the Debtor or from any other person
whomsoever and shall be general and continuing security for the payment of all
indebtedness and liability of the Debtor to the Secured Party (including
interest thereon), present and future, absolute or contingent, joint or
several, direct or indirect, matured or not, extended or renewed, wheresoever
and howsoever incurred, and any ultimate balance thereof, including all
advances on current or running account, future advances and re-advances, and
for the performance of all obligations of the Debtor to the Secured Party,
whether or not contained in this Security Agreement (all of which indebtedness,
liability, and obligations are hereinafter collectively called the
"Obligations").
5. REPRESENTATIONS AND WARRANTIES
5.1 The Debtor represents and warrants that this Security Agreement is
granted in accordance with resolutions of the directors (and of the
shareholders as applicable) of the Debtor and all other matters and things have
been done and performed so as to authorize and make the execution and delivery
of this Security Agreement, and the performance of the Debtor's obligations
hereunder, legal, valid and binding.
5.2 The Debtor represents and warrants that the Debtor lawfully owns and
possesses all presently held Collateral and has good title thereto, free from
all security interests, charges, encumbrances, liens and claims, save only the
charges or security interests, if any, consented to in writing by the Secured
Party, and the Debtor has good right and lawful authority to grant a security
interest in the Collateral as provided by this Security Agreement.
6. COVENANTS OF THE DEBTOR
6.1 The Debtor covenants that at all times while this Security Agreement
remains in effect the Debtor will:
(a) defend the title to the Collateral for the benefit of the Secured
Party against the claims and demands of all persons;
(b) fully and effectually maintain and keep maintained the Security
Interests hereby created valid and effective;
(c) forthwith pay:
(i) all taxes, assessments, rates, duties, levies, government fees,
claims and dues lawfully levied, assessed or imposed upon it or
the Collateral when due, unless the Debtor shall in good faith
contest its obligations so to pay and shall furnish such security
as the Secured Party may require; and
(ii) all security interest, charges, encumbrances, liens and claims
which rank or could in any event rank in priority to any Security
Interest created by the Security Agreement;
(d) forthwith pay all costs, charges, expenses and legal fees and
disbursements (on a solicitor and his own client basis) which may be
incurred by the Secured Party in inspecting the Collateral,
negotiating, preparing, perfecting and registering this Security
Agreement and other documents, whether or not relating to this
Security Agreement, investigating title to the Collateral, taking,
recovering and keeping possession of the Collateral and all other
actions and proceedings taken in connection with the preservation of
the Collateral, protecting the Secured Party's rights under this
- 2 -
<PAGE> 8
Security Agreement, and the enforcement of this Security Agreement
and of any other security interest held by the Secured Party as
security for the Obligations;
(e) at the Secured Party's request at any time and from time to time
execute and deliver such further and other documents and instruments
and do all acts and things as the Secured Party in its absolute
discretion requires in order to confirm and perfect, and maintain
perfection of, the Security Interests hereby created in favour of
the Secured Party upon any of the Collateral;
(f) notify the Secured Party promptly of:
(i) any change in the information contained herein relating to
the Debtor, its business or the Collateral, including
without limitation any change of name or address of the
Debtor and any change in the present location of any
Collateral;
(ii) any material default by any account debtor in payment or
other performance of his obligations to the Debtor with
respect to any Accounts; and
(g) carry on and conduct its business in a proper and businesslike
manner, including maintenance of proper books of account and
records; and
(h) deliver to the Secured Party from time to time promptly upon request:
(i) any documents of title, instruments, securities, and
chattel paper constituting, representing or relating to
Collateral;
(ii) all books of account and all records, ledgers, reports,
correspondence, schedules, documents, statements, lists and
other writings relating to Collateral for the purpose of
inspecting, auditing or copying the same; and
(iii) such information concerning Collateral, the Debtor and the
Debtor's business and affairs as the Secured Party may
require.
7. PERFORMANCE OF OBLIGATIONS
If the Debtor fails to perform its obligations hereunder, the Secured
Party may, but shall not be obliged to, perform any or all of such obligations
without prejudice to any other rights and remedies of the Secured Party
hereunder, and any payments made and any costs, charges, expenses, and legal
fees and disbursements (on a solicitor and his own client basis) incurred in
connection therewith shall be payable by the Debtor to the Secured Party
forthwith with interest until paid at the highest rate borne by any of the
Obligations.
8. DEFAULT
The Debtor shall be in default under this Security Agreement, unless
waived by the Secured Party, in any of the following events:
(a) the Debtor makes default in payment when due of any indebtedness or
liability of the Debtor to the Secured Party; or
(b) the Debtor is in breach of any term, condition, obligation or
covenant to the Secured Party, or any representation or warranty to
the Secured Party is untrue, whether or not contained in this
Security Agreement; or
- 3 -
<PAGE> 9
(c) the Debtor declares itself to be insolvent or admits in writing its
inability to pay its debts generally as they become due, or makes an
assignment for the benefit of its creditors, is declared bankrupt,
makes a proposal or otherwise takes advantage of provisions for relief
under the Bankruptcy and Insolvency Act, the Companies' Creditors
Arrangement Act or similar legislation in any jurisdiction, or makes
an authorized assignment; or
(d) a receiver, receiver and manager or receiver manager of all or any
part of the Collateral is appointed; or
(e) the Debtor ceases or threatens to cease to carry on all or a
substantial part of its business; or
(f) an order of execution against the Collateral or any part thereof
remains unsatisfied for a period of 10 days; or
(g) without the prior written consent of the Secured Party, the Debtor
creates or permits to exist any security interest in, charge,
encumbrance, lien on or claim against any of the Collateral which
ranks or could in any event rank in priority to or pari passu with any
Security Interest created by this Security Agreement; or
(h) the holder of any other security interest, charge, encumbrance or
lien on or claim against any of the Collateral does anything to
enforce or realize on such security interest, charge, encumbrance,
lien or claim; or
(i) if an order is made or an effective resolution is passed for winding
up the Debtor; or
(j) if the Debtor enters into an amalgamation, a merger or other similar
arrangement with any other person; or
(k) the Secured Party in good faith believes and has commercially
reasonable grounds to believe that the prospect of payment or
performance of any of the Obligations is impaired or that any of the
Collateral is or is about to be placed in jeopardy.
9. ENFORCEMENT
9.1 Upon any default under this Security Agreement the Secured Party may
declare any or all of the Obligations to become immediately due and payable and
the security hereby constituted will immediately become enforceable. To enforce
and realize on the Security Interests created by this Security Agreement the
Secured Party may take any action permitted by law or in equity, as it may deem
expedient, and in particular without limiting the generality of the foregoing,
the Secured Party may do any of the following:
(a) appoint by instrument a receiver, receiver and manager or receiver
manager (the person so appointed is hereinafter called the "Receiver")
of the Collateral, with or without bond as the Secured Party may
determine, and from time to time in its absolute discretion remove
such Receiver and appoint another in its stead;
(b) enter upon any premises of the Debtor and take possession of the
Collateral with power to exclude the Debtor, its agents and its
servants therefrom, without becoming liable as a mortgagee in
possession;
(c) preserve, protect and maintain the Collateral and make such
replacements thereof and repairs and additions thereto as the Secured
Party may deem advisable;
- 4 -
<PAGE> 10
(d) sell, lease or otherwise dispose of all or any part of the
Collateral, whether by public or private sale or lease or otherwise,
in such manner, at such price as can be reasonably obtained therefor
and on such terms as to credit and with such conditions of sale and
stipulations as to title or conveyance or evidence of title or
otherwise as to the Secured Party may seem reasonable, provided that
if any sale, lease or other disposition is on credit the Debtor will
not be entitled to be credited with the proceeds of such sale, lease
or other disposition until the monies therefor are actually received;
and
(e) exercise all of the rights and remedies of a secured party under the
Act.
9.2 A Receiver appointed pursuant to this Security Agreement shall be the
agent of the Debtor and not of the Secured Party and, to the extent permitted
by law or to such lesser extent permitted by its appointment, shall have all the
powers of the Secured Party hereunder, and in addition shall have power to carry
on the business of the Debtor and for such purpose from time to time to borrow
money either secured or unsecured, and if secured by a security interest on any
Collateral such security interest may rank before or pari passu with or behind
any Security Interest created by this Security Agreement, and if it does not so
specify such security interest shall rank before the Security Interests created
by this Security Agreement.
9.3 Subject to the claims, if any, of the creditors of the Debtor ranking
in priority to this Security Agreement, all amounts realized from the
disposition of Collateral pursuant to this Security Agreement will be applied
as the Secured Party, in its absolute discretion, may direct as follows:
(a) in payment of all costs, charges and expenses (including legal fees
and disbursements on a solicitor and his own client basis) incurred by
the Secured Party in connection with or incidental to:
(i) the exercise by the Secured Party of all or any of the
powers granted to it pursuant to this Security Agreement;
and
(ii) the appointment of the Receiver and the exercise by the
Receiver of all or any of the powers granted to it pursuant
to this Security Agreement, including the Receiver's
reasonable remuneration and all outgoings properly payable
by the Receiver;
(b) in or toward payment to the Secured Party of all principal and other
monies (except interest) due in respect of the Obligations;
(c) in or toward payment to the Secured Party of all interest remaining
unpaid in respect of the Obligations.
Subject to applicable law and the claim, if any, of other creditors
of the Debtor, any surplus will be paid to the Debtor.
10. DEFICIENCY
If the amounts realized from the disposition of the Collateral are
not sufficient to pay the Obligations in full the Debtor will immediately pay
to the Secured Party the amount of such deficiency.
11. LIABILITY OF SECURED PARTY
The Secured Party shall not be responsible or liable for any debts
contracted by it, for damages to persons or property or for salaries or
non-fulfillment of contracts during any period when the Secured Party shall
manage the Collateral upon entry, as herein provided, nor shall the Secured
Party be liable to account as a
- 5 -
<PAGE> 11
mortgagee in possession or for anything except actual receipts or be liable for
any loss on realization or for any default or omission for which a mortgagee in
possession may be liable. The Secured Party shall not be bound to do, observe
or perform or to see to the observance or performance by the Debtor of any
obligations or covenants imposed upon the Debtor nor shall the Secured Party,
in the case of securities, instruments or chattel paper, be obliged to preserve
rights against other persons, nor shall the Secured Party be obliged to keep
any of the Collateral identifiable. The Debtor hereby waives any applicable
provision of law permitted to be waived by it which imposes higher or greater
obligations upon the Secured Party than aforesaid.
12. APPOINTMENT OF ATTORNEY
The Debtor hereby irrevocably appoints the Secured Party or
the Receiver, as the case may be, with full power of substitution, to be the
attorney of the Debtor for and in the name of the Debtor to sign, endorse or
execute under seal or otherwise any deeds, documents, transfers, cheques,
instruments, demands, assignments, assurances or consents that the Debtor is
obliged to sign, endorse or execute and generally to use the name of the Debtor
and to do all things as may be necessary or incidental to the exercise of all
or any of the powers conferred on the Secured Party or the Receiver, as the
case may be, pursuant to this Security Agreement.
13. APPROPRIATION OF PAYMENTS
Any and all payments made in respect of the Obligations from time to
time and monies realized from any security interests held therefor (including
monies collected in accordance with or realized on any enforcement of this
Security Agreement) may be applied to such part or parts of the Obligations as
the Secured Party may see fit, and the Secured Party may at all times and from
time to time change any appropriation as the Secured Party may see fit.
14. LIABILITY TO ADVANCE
None of the preparation, execution, perfection and registration of
this Security Agreement or the advance of any monies shall bind the Secured
Party to make any advance or loan or further advance or loan, or renew any note
or extend any time for payment of any indebtedness or liability of the Debtor to
the Secured Party.
15. WAIVER
The Secured Party may from time to time and at any time waive in whole
or in part any right, benefit or default under any clause of this Security
Agreement but any such waiver of any right, benefit or default on any occasion
shall be deemed not to be a waiver of any right, benefit or default thereafter,
or of any other right, benefit or default, as the case may be. No waiver shall
be effective unless it is in writing.
16. NOTICE
Notice may be given to either party by sending it through the post in
prepaid mail or delivered to the party for whom it is intended, at the
principal address of such party provided herein or at such other address as may
be given in writing by such party to the other, and any notice if posted shall
be deemed to have been given at the expiration of three business days after
posting and if delivered, on delivery.
- 6 -
<PAGE> 12
17. EXTENSIONS
The Secured Party may grant extensions of time and other indulgences,
take and give up security, accept compositions, compound, compromise, settle,
grant releases and discharges, refrain from perfecting or maintaining
perfection of security interests, and otherwise deal with the Debtor, account
debtors of the Debtor, sureties and others and with Collateral and other
security interests as the Secured Party may see fit without prejudice to the
liability of the Debtor or the Secured Party's right to hold and realize on the
Security Interests created by this Security Agreement.
18. NO MERGER
This Security Agreement shall not operate so as to create any merger
or discharge of any of the Obligations, or of any assignment, transfer,
guarantee, lien, contract, promissory note, bill of exchange or security
interest of any form held or which may hereafter be held by the Secured Party
from the Debtor or from any other person whomsoever. The taking of a judgment
with respect to any of the Obligations will not operate as a merger of any of
the covenants contained in this Security Agreement.
19. RIGHTS CUMULATIVE
All rights and remedies of the Secured Party set out in this Security
Agreement, and in any other security agreement held by the Secured Party from
the Debtor or any other person whomsoever to secure payment and performance of
the Obligations, are cumulative and no right or remedy contained herein or
therein is intended to be exclusive but each is in addition to every other
right or remedy contained herein or therein or in any existing or future
security agreement, or now or hereafter existing at law, in equity or by
statute, or pursuant to any other agreement between the Debtor and the Secured
Party that may be in effect from time to time.
20. NO ASSIGNMENT
The Secured Party may not assign, transfer or grant a security
interest in this Security Agreement or the Security Interests created hereby.
21. SATISFACTION AND DISCHARGE
Any partial payment or satisfaction of the Obligations, or any
ceasing by the Debtor to be indebted to the Secured Party shall be deemed not
to be a redemption or discharge of this Security Agreement. The Debtor shall be
entitled to a release and discharge of this Security Agreement upon full
payment and satisfaction of all Obligations, and upon written request by the
Debtor and payment to the Secured Party of a discharge fee to be fixed by the
Secured Party and payment of all costs, charges, expenses and legal fees and
disbursements (on a solicitor and his own client basis) incurred by the Secured
Party in connection with the Obligations and such release and discharge.
22. ENUREMENT
This Security Agreement shall enure to the benefit of the Secured
Party and its successors and assigns, and shall be binding upon the respective
heirs, executors, personal representatives, successors and permitted assigns of
the Debtor.
- 7 -
<PAGE> 13
23. INTERPRETATION
In this Security Agreement "the Act" means the Personal Property
Security Act (British Columbia) and all regulations thereunder, as amended from
time to time.
23.1 Words and expressions used herein that have been defined in the Act
shall be interpreted in accordance with their respective meanings given in the
Act unless otherwise defined herein or unless the context otherwise requires.
23.2 The invalidity or unenforceability of the whole or any part of any
clause of this Security Agreement shall not affect the validity or
enforceability of any other clause or the remainder of such clause.
23.3 The headings of the clauses of this Security Agreement have been
inserted for reference only and do not define, limit, alter or enlarge the
meaning of any provision of this Security Agreement.
23.4 This Security Agreement shall be governed by the laws of British
Columbia.
24. COPY OF AGREEMENT AND FINANCING STATEMENT
The Debtor hereby:
(a) acknowledges receiving a copy of this Security Agreement;
and
(b) waives all rights to receive from the Secured Party a copy
of any financing statement or financing change statement
filed, or any verification statement received, at any time
in respect of this Security Agreement.
IN WITNESS WHEREOF the Debtor has executed this Security
Agreement this __ day of March, 1998.
GLOBAL ELECTION SYSTEMS INC.
Per:
/s/ HOWARD T. VAN PELT
- -------------------------------
Howard Van Pelt
-8-
<PAGE> 14
PROMISSORY NOTE
March 31, 1998 CDN$500,000
FOR VALUE RECEIVED, GLOBAL ELECTION SYSTEMS INC. (the "Debtor"), of 1611
Wilmeth, McKinney, Texas, U.S.A., 75069, hereby promises to pay to the order of
VICTORIA ROSS (the "Creditor") on or before March 31, 1999, the principal sum
of CDN$500,000 together with interest thereon at the rate of 8% per annum
calculated and payable monthly on the last day of each month. This Promissory
Note may be repaid in whole or in part at any time without notice or bonus.
If this Promissory Note is not repaid, in full, within 2 months from the date
hereof, in addition to the monthly payments of interest, the Debtor shall pay
to the Creditor CDN$3,000 on the last day of May, 1998 and payments thereafter
increasing in $500 increments on each of the last day in each month from June,
1998 to and including March, 1999.
The Debtor hereby waives presentment, protest, notice of protest and notice of
dishonour.
This Promissory Note is not assignable.
GLOBAL ELECTION SYSTEMS INC.
Per:
/s/ HOWARD VAN PELT
- ------------------------------
Howard Van Pelt
Authorized Signatory
<PAGE> 15
83,334 Common Shares Void after
Without Par Value March 31, 2001
SHARE PURCHASE WARRANT
GLOBAL ELECTION SYSTEMS INC.
(the "Company")
This is to certify that, for value received, Victoria Ross (the "Warrant
Holder") c/o 600-110 Yonge Street, Toronto, Ontario, M5C 1T6 has the right to
purchase from the Company, upon and subject to the terms and conditions
hereinafter referred to, 83,334 common shares without par value (the "Shares")
in the capital of the Company. The Shares may be purchased at a price of
$1.88(Canadian) per Share at any time up to 4:00 p.m. local time in Vancouver,
B.C. on March 31, 2001. The right to purchase the Shares may be exercised in
whole or in part, by the Warrant Holder only, at the price set forth above (the
"Exercise Price") within the times set forth above by:
(d) completing and executing the Subscription Form attached hereto
for the number of the Shares which the Warrant Holder wishes to
purchase, in the manner therein indicated;
(e) surrendering this Warrant Certificate, together with the
complete Subscription Form, to Montreal Trust Company of
Canada, (the "Transfer Agent") at 510 Burrard Street,
Vancouver, British Columbia; and
(f) paying the appropriate Exercise Price, in Canadian funds, for
the number of the Shares of the Company subscribed for, either
by certified cheque or bank draft (drawn on a Canadian
Chartered Bank) or money order payable to the Company in
Vancouver, British Columbia.
Upon surrender and payment, the Company shall issue to the Warrant Holder or
such other person or persons as the Warrant Holder may direct, the number of the
Shares subscribed for and will deliver to the Warrant Holder, at the address set
forth on the subscription form, a certificate or certificates evidencing the
number of Shares subscribed for. If the Warrant Holder subscribes for a number
of Shares which is less than the number of Shares permitted by this warrant, the
Company shall forthwith cause to be delivered to the Warrant Holder a further
Warrant Certificate in respect of the balance of Shares referred to in this
Warrant Certificate not then being subscribed for.
In the event of any subdivision of the common shares of the Company (as such
common shares are constituted on the date hereof) into a greater number of
common shares while this warrant is outstanding, the number of Shares
represented by this warrant shall thereafter be deemed to be subdivided in like
manner and the Exercise Price adjusted accordingly, and any subscription by the
Warrant Holder for Shares hereunder shall be deemed to be a subscription for
common shares of the Company as subdivided.
<PAGE> 16
In the event of any consolidation of the common shares of the Company (as such
common shares are constituted on the date hereof) into a lesser number of
common shares while this warrant is outstanding, the number of Shares
represented by this warrant shall thereafter be deemed to be consolidated in
like manner and the Exercise Price adjusted accordingly, and any subscription
by the Warrant Holder for Shares hereunder shall be deemed to be a subscription
for common shares of the Company as consolidated.
In the event of any capital reorganization or reclassification of the common
shares of the Company or the merger or amalgamation of the Company with another
corporation at any time while this warrant is outstanding, the Company shall
thereafter deliver at the time of purchase of the Shares hereunder the number
of common shares the Warrant Holder would have been entitled to receive in
respect of the number of the Shares so purchased had the right to purchase been
exercised before such capital reorganization or reclassification of the common
shares of the Company or the merger or amalgamation of the Company with another
corporation.
If at any time while this, or any replacement, warrant is outstanding:
(a) the Company proposes to pay any dividend of any kind upon its common shares
or make any distribution to the holders of its common shares;
(b) the Company proposes to offer for subscription pro rata to the holders of
its common shares any additional shares of stock of any class or other
rights;
(c) the Company proposes any capital reorganization or classification of its
common shares or the merger or amalgamation of the Company with another
corporation; or
(d) there is a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;
The Company shall give to the Warrant Holder at least seven days prior written
notice (the "Notice") of the date on which the books of the Company are to close
or a record is to be taken for such dividend, distribution or subscription
rights, or for determining rights to vote with respect to such reorganization,
reclassification, consolidation, merger, amalgamation, dissolution, liquidation
or winding-up. The Notice shall specify, in the case of any such dividend,
distribution or subscription rights, the date on which holders of common shares
of the Company will be entitled to exchange their common shares for securities
or other property deliverable upon any reorganization, reclassification,
consolidation, merger, amalgamation, sale, dissolution, liquidation or
winding-up, as the case may be. Each Notice shall be delivered by hand,
addressed to the Warrant Holder at the address of the Warrant Holders set forth
above or at such other address as the Warrant Holder may from time to time
specify to the Company in writing.
The holding of this Warrant Certificate or the Warrants represented hereby does
not constitute the Warrant Holder a member of the Company.
Nothing contained herein confers any right upon the Warrant Holder or any other
person to subscribe for or purchase any Shares of the Company at any time
subsequent to 4:00 p.m. local
- 2 -
<PAGE> 17
time in Vancouver, B.C. on March 31, 2001 and from and after such time, this
Warrant and all rights hereunder will be void.
The Warrants represented by this Warrant Certificate are non-transferable. Any
common shares issued pursuant to this Warrant will bear the following legend:
"The shares represented by this certificate are subject to a hold period
expiring at midnight on March 31, 1999 and may not be traded in Ontario
until the expiry of the hold period except as permitted by the Securities
Act (Ontario) and regulations made under the Act.
The securities represented by this certificate are listed on The Toronto
Stock Exchange; however, the said securities can not be traded through the
facilities of such Exchange since they are not freely transferable, and
consequently any certificate representing such securities is not "good
delivery" in settlement of transactions on The Toronto Stock Exchange."
Time will be of the essence hereof.
This Warrant Certificate is not valid for any purpose until it has been signed
by the Company.
IN WITNESS WHEREOF, the Company has caused its common seal to be hereto affixed
and this warrant certificate to be signed by one of its directors as of March
31, 1998.
GLOBAL ELECTION SYSTEMS, INC.
Per:
/s/ HOWARD VAN PELT
- -------------------------------
Howard Van Pelt
- 3 -
<PAGE> 18
SUBSCRIPTION FORM
To: GLOBAL ELECTION SYSTEMS, INC. (the "Company")
And to: the directors thereof.
Pursuant to the Share Purchase Warrant made March 31, 1998, the undersigned
hereby subscribes for and agrees to take up ________ common shares without par
value (the "Shares") in the capital of the Company, at a price of $1.88
(Canadian) per Share for the aggregate sum of $_________ (the "Subscription
Funds"), and encloses herewith a certified cheque, bank draft or money order
payable to the Company in full payment of the Shares.
The undersigned hereby requests that:
(a) the Shares be allotted to the undersigned;
(b) the name and address of the undersigned as shown below be entered in the
registers of members and allotments of the Company;
(c) the Shares be issued to the undersigned as fully paid and non-assessable
common shares of the Company; and
(d) a share certificate representing the Shares be issued in the name of the
undersigned.
Dated this ______ day of _______________________, ________.
DIRECTION AS TO REGISTRATION:
(NAME AND ADDRESS EXACTLY AS YOU WISH THEM TO APPEAR ON YOUR SHARE CERTIFICATE
AND IN THE REGISTER OF MEMBERS.)
Full Name(1):
-----------------------------------------------------------------
Full Address:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Signature of Subscriber(1):
---------------------------------------------------
- --------------------------------------------------------------------------------
Signature of Subscriber(1) Guaranteed by:
If the name above differs from the
name of the Subscriber, then please
complete the following guarantee:
--------------------------------------------
Authorized Signature Number
- --------------------------------------------------------------------------------
NOTE: The signature to this subscription form must correspond with the name as
recorded on the warrant certificate in every particular without alteration or
enlargement or any change whatever. The signature of the person executing this
power must be guaranteed by a Bank or Trust Company or by a Member of the
Vancouver, Toronto, Montreal or New York Stock Exchange.
<PAGE> 19
ACCOUNTS SECURITY AGREEMENT
BETWEEN:
GLOBAL ELECTION SYSTEMS INC.
1611 Wilmeth, McKinney, Texas 75069
(the "Debtor")
AND:
VICTORIA ROSS
c/o 600-110 Yonge Street, Toronto, Ontario, M5C 1T6
(the "Secured Party")
1. SECURITY INTEREST
1.1 For consideration the Debtor hereby mortgages, charges, assigns and
transfers to the Secured Party, and grants to the Secured Party a security
interest in, all the Debtor's right, title and interest in and to all debts,
accounts, claims, demands, monies and chooses in action which now are, or which
may at any time hereafter be, due or owing to or owned by the Debtor and all
books, records, documents, papers and electronically recorded data recording,
evidencing or relating to the said debts, accounts, claims, demands, monies and
chooses in action or any part thereof, and all proceeds thereof and therefrom
(all of which is hereinafter collectively called the "Collateral").
2. ATTACHMENT
The Debtor acknowledges that the Security Interests hereby created
attach upon the execution of this Security Agreement (or in the case of any
after acquired property, upon the date of acquisition thereof), that value has
been given, and that the Debtor has (or in the case of after acquired property,
will have upon the date of acquisition) rights in the Collateral.
3. PROHIBITIONS
3.1 If the aggregate value of all accounts due to the Debtor at any time
falls below 125% of the amount outstanding, from time to time, under that
certain promissory note, of even date, made by the Debtor, without the prior
written consent of the Secured Party the Debtor shall not have power to:
(a) create or permit to exist any security interest in, charge,
encumbrance or lien over, or claim against any of the Collateral
which ranks or could in any event rank in priority to or pari passu
with any Security Interest created by this Security Agreement; or
(b) grant, sell, or otherwise assign its chattel paper.
3.2 The Chief Executive Officer of the Debtor shall, at the end of each
and every month during the term of this Security Agreement, report in writing
to the Secured Party the aggregate value of all accounts due to the Debtor.
<PAGE> 20
4. OBLIGATIONS SECURED
This Security Agreement and the Security Interests hereby created
are in addition to and not in substitution for any other security interest now
or hereafter held by the Secured Party from the Debtor or from any other person
whomsoever and shall be general and continuing security for the payment of all
indebtedness and liability of the Debtor to the Secured Party (including
interest thereon), present and future, absolute or contingent, joint or
several, direct or indirect, matured or not, extended or renewed, wheresoever
and howsoever incurred, and any ultimate balance thereof, including all
advances on current or running account, future advances and re-advances, and
for the performance of all obligations of the Debtor to the Secured Party,
whether or not contained in this Security Agreement (all of which indebtedness,
liability, and obligations are hereinafter collectively called the
"Obligations").
5. REPRESENTATIONS AND WARRANTIES
5.1 The Debtor represents and warrants that this Security Agreement
is granted in accordance with resolutions of the directors (and of the
shareholders as applicable) of the Debtor and all other matters and things have
been done and performed so as to authorize and make the execution and delivery
of this Security Agreement, and the performance of the Debtor's obligations
hereunder, legal, valid and binding.
5.2 The Debtor represents and warrants that the Debtor lawfully owns
and possesses all presently held Collateral and has good title thereto, free
from all security interests, charges, encumbrances, liens and claims, save only
the charges or security interests, if any, consented to in writing by the
Secured Party, and the Debtor has good right and lawful authority to grant a
security interest in the Collateral as provided by this Security Agreement.
6. COVENANTS OF THE DEBTOR
6.1 The Debtor covenants that at all times while this Security
Agreement remains in effect the Debtor will:
(a) defend the title to the Collateral for the benefit of the
Secured Party against the claims and demands of all persons;
(b) fully and effectually maintain and keep maintained the
Security interests hereby created valid and effective;
(c) forthwith pay:
(i) all taxes, assessments, rates, duties, levies,
government fees, claims and dues lawfully levied,
assessed or imposed upon it or the Collateral when due,
unless the Debtor shall in good faith contest its
obligations so to pay and shall furnish such security as
the Secured Party may require; and
(ii) all security interests, charges, encumbrances,
liens and claims which rank or could in any event rank in
priority to any Security Interest created by this
Security Agreement;
(d) forthwith pay all costs, charges, expenses, legal fees and
disbursements (on a solicitor and his own client basis) which may
be incurred by the Secured Party in inspecting the Collateral,
negotiating, preparing, perfecting and registering this Security
Agreement and other documents, whether or not relating to this
Security Agreement, investigating title to the Collateral, taking,
recovering and keeping possession of the Collateral and all other
actions and proceedings taken in connection with the preservation
of the Collateral, protecting the Secured Party's rights under
this
- 2 -
<PAGE> 21
Security Agreement, and the enforcement of this Security Agreement and
of any other security interest held by the Secured Party as security
for the Obligations;
(e) at the Secured Party's request at any time and from time to time
execute and deliver such further and other documents and instruments
and do all acts and things as the Secured Party in its absolute
discretion requires in order to confirm and perfect, and maintain
perfection of, the Security Interests hereby created in favour of the
Secured Party upon any of the Collateral;
(f) notify the Secured Party promptly of:
(i) any change in the information contained herein relating to
the Debtor, its business or the Collateral, including without
limitation any change of name or address of the Debtor and any
change in the present location of any Collateral;
(ii) any material default by any account debtor in payment or
other performance of his obligations to the Debtor with respect
to any Accounts; and
(g) carry on and conduct its business in a proper and businesslike
manner, including maintenance of proper books of account and records;
and
(h) deliver to the Secured party from time to time promptly upon
request:
(i) any documents of title, instruments, securities and chattel
paper constituting, representing or relating to Collateral;
(ii) all books of account and all records, ledgers, reports,
correspondence, schedules, documents, statements, lists and other
writings relating to Collateral for the purpose of inspecting,
auditing or copying the same; and
(iii) such information concerning Collateral, the Debtor and the
Debtor's business and affairs as the Secured Party may require.
7. PERFORMANCE OF OBLIGATIONS
If the Debtor fails to perform its obligations hereunder, the Secured
Party may, but shall not be obliged to, perform any or all of such obligations
without prejudice to any other rights and remedies of the Secured Party
hereunder, and any payments made and any costs, charges, expenses and legal
fees and disbursements (on a solicitor and his own client basis) incurred in
connection therewith shall be payable by the Debtor to the Secured Party
forthwith with interest until paid at the highest rate borne by any of the
Obligations.
8. DEFAULT
The Debtor shall be in default under this Security Agreement, unless
waived by the Secured Party, in any of the following events:
(a) the Debtor makes default in payment when due of any indebtedness
or liability of the Debtor to the Secured Party; or
(b) the Debtor is in breach of any term, condition, obligation or
covenant to the Secured Party, or any representation or warranty to
the Secured Party is untrue, whether or not contained in this Security
Agreement; or
- 3 -
<PAGE> 22
(c) the Debtor declares itself to be insolvent or admits in writing
its inability to pay its debts generally as they become due, or makes
an assignment for the benefit of its creditors, is declared bankrupt,
makes a proposal or otherwise takes advantage of provisions for relief
under the Bankruptcy and Insolvency Act, the Companies' Creditors
Arrangement Act or similar legislation in any jurisdiction, or makes
an authorized assignment; or
(d) a receiver, receiver and manager or receiver manager of all or
any part of the Collateral is appointed; or
(e) the Debtor ceases or threatens to cease to carry on all or a
substantial part of its business; or
(f) an order of execution against the Collateral or any part thereof
remains unsatisfied for a period for 10 days; or
(g) without the prior written consent of the Secured Party, the
Debtor creates or permits to exist any security interest in, charge,
encumbrance, lien on or claim against any of the Collateral which
ranks or could in any event rank in priority to or pari passu with any
Security Interest created by this Security Agreement; or
(h) the holder of any other security interest, charge, encumbrance or
lien on or claim against any of the Collateral does anything to
enforce or realize on such security interest, charge, encumbrance,
lien or claim; or
(i) if an order is made or an effective resolution is passed for
winding up the Debtor; or
(j) if the Debtor enters into an amalgamation, a merger or other
similar arrangement with any other person; or
(k) the Secured Party in good faith believes and has commercially
reasonable grounds to believe that the prospect of payment or
performance of any of the Obligations is impaired or that any of the
Collateral is or is about to be placed in jeopardy.
9. ENFORCEMENT
9.1 Upon any default under this Security Agreement the Secured Party may
declare any or all of the Obligations to become immediately due and payable and
the security hereby constituted will immediately become enforceable. To enforce
and realize on the Security Interests created by this Security Agreement the
Secured Party may take any action permitted by law or in equity, as it may
deem expedient, and in particular without limiting the generality of the
foregoing, the Secured Party may do any of the following:
(a) appoint by instrument a receiver, receiver and manager or
receiver manager (the person so appointed is hereinafter called the
"Receiver") of the Collateral, with or without bond as the Secured
Party may determine, and from time to time in its absolute discretion
remove such Receiver and appoint another in its stead;
(b) enter upon any premises of the Debtor and take possession of the
Collateral with power to exclude the Debtor, its agents and its
servants therefrom, without becoming liable as a mortgagee in
possession;
(c) preserve, protect and maintain the Collateral and make such
replacements thereof and repairs and additions thereto as the Secured
Party may deem advisable;
- 4 -
<PAGE> 23
(d) sell, lease or otherwise dispose of all or any part of the
Collateral, whether by public or private sale or lease or otherwise,
in such manner, at such price as can be reasonably obtained therefor
and on such terms as to credit and with such conditions of sale and
stipulations as to title or conveyance or evidence of title or
otherwise as to the Secured Party may seem reasonable, provided that
if any sale, lease or other disposition is on credit the Debtor will
not be entitled to be credited with the proceeds of such sale, lease
or other disposition until the monies therefor are actually received;
and
(e) exercise all rights and remedies of a secured party under the
Act.
9.2 A Receiver appointed pursuant to this Security Agreement shall be the
agent of the Debtor and not of the Secured Party and, to the extent permitted
by law or to such lesser extent permitted by its appointment, shall have all
the powers of the Secured Party hereunder, and in addition shall have power to
carry on the business of the Debtor and for such purpose from time to time to
borrow money either secured or unsecured, and if secured by a security interest
on any Collateral such security interest may rank before or pari passu with or
behind any Security Interest created by this Security Agreement, and if it does
not so specify such security interest shall rank before the Security Interests
created by this Security Agreement.
9.3 Subject to the claims, if any, of the creditors of the Debtor ranking
in priority to this Security Agreement, all amounts realized from the
disposition of Collateral pursuant to this Security Agreement will be applied
as the Secured Party, in its absolute discretion, may direct as follows:
(a) in payment of all costs, charges and expenses (including legal
fees and disbursements on a solicitor and his own client basis)
incurred by the Secured Party in connection with or incidental to:
(i) the exercise by the Secured Party of all or any of the
powers granted to it pursuant to this Security Agreement; and
(ii) the appointment of the Receiver and the exercise by the
Receiver of all or any of the powers granted to it pursuant to
this Security Agreement, including the Receiver's reasonable
remuneration and all outgoings properly payable by the Receiver;
(b) in or toward payment to the Secured Party of all principal and
other monies (except interest) due in respect of the Obligations;
(c) in or toward payment to the Secured Party of all interest
remaining unpaid in respect of the Obligations.
Subject to applicable law and the claims, if any, of other creditors
of the Debtor, any surplus will be paid to the Debtor.
10. DEFICIENCY
If the amounts realized from the disposition of the Collateral are
not sufficient to pay the Obligations in full the Debtor will immediately pay
to the Secured Party the amount of such deficiency.
11. LIABILITY OF SECURED PARTY
The Secured Party shall not be responsible or liable for any debts
contracted by it for damages to persons or property or for salaries or
non-fulfillment of contracts during any period when the Secured Party shall
manage the Collateral upon entry, as herein provided, nor shall the Secured
Party be liable to account as a
- 5 -
<PAGE> 24
mortgagee in possession or for anything except actual receipts or be liable for
any loss on realization or for any default or omission for which a mortgagee in
possession may be liable. The Secured Party shall not be bound to do, observe
or perform or to see to the observance or performance by the Debtor of any
obligations or covenants imposed upon the Debtor nor shall the Secured Party,
in the case of securities, instruments or chattel paper, be obliged to preserve
rights against other persons, nor shall the Secured Party be obliged to keep
any of the Collateral indentifiable. The Debtor hereby waives any applicable
provision of law permitted to be waived by it which imposes higher or greater
obligations upon the Secured Party than aforesaid.
12. APPOINTMENT OF ATTORNEY
The Debtor hereby irrevocably appoints the Secured Party or the
Receiver, as the case may be, with full power of substitution, to be the
attorney of the Debtor for and in the name of the Debtor to sign, endorse or
execute under seal or otherwise any deeds, documents, transfers, cheques,
instruments, demands, assignments, assurances or consents that the Debtor is
obliged to sign, endorse or execute and generally to use the name of the Debtor
and to do all things as may be necessary or incidental to the exercise of all or
any of the powers conferred on the Secured Party or the Receiver, as the case
may be, pursuant to this Security Agreement.
13. APPROPRIATION OF PAYMENTS
Any and all payments made in respect of the Obligations from time to
time and monies realized from any security interests held therefor (including
monies collected in accordance with or realized on any enforcement of this
Security Agreement) may be applied to such part or parts of the Obligations as
the Secured Party may see fit, and the Secured Party may at all times and from
time to time change any appropriation as the Secured Party may see fit.
14. LIABILITY TO ADVANCE
None of the preparation, execution, perfection and registration of
this Security Agreement or the advance of any monies shall bind the Secured
Party to make any advance or loan or further advance or loan, or renew any
note or extend any time for payment of any indebtedness or liability of the
Debtor to the Secured Party.
15. WAIVER
The Secured Party may from time to time and at any time waive in
whole or in part any right, benefit or default under any clause of this
Security Agreement but any such waiver of any right, benefit or default on any
occasion shall be deemed not to be a waiver of any such right, benefit or
default thereafter, or of any other right, benefit or default, as the case may
be. No waiver shall be effective unless it is in writing.
16. NOTICE
Notice may be given to either party by sending it through the post in
prepaid mail or delivered to the party for whom it is intended, at the
principal address of such party provided herein or at such other address as may
be given in writing by such party to the other, and any notice if posted shall
be deemed to have been given at the expiration of three business days after
posting and if delivered, on delivery.
- 6 -
<PAGE> 25
17. EXTENSIONS
The Secured Party may grant extensions of time and other indulgences,
take and give up security, accept compositions, compound, compromise, settle,
grant releases and discharges, refrain from perfecting or maintaining
perfection of security interests, and otherwise deal with the Debtor, account
debtors of the Debtor, sureties and others and with Collateral and other
security interests as the Secured Party may see fit without prejudice to the
liability of the Debtor or the Secured Party's right to hold and realize on the
Security Interests created by this Security Agreement.
18. NO MERGER
This Security Agreement shall not operate so as to create any merger
or discharge of any of the Obligations, or of any assignment, transfer,
guarantee, lien, contract, promissory note, bill of exchange or security
interest of any form held or which may hereafter be held by the Secured Party
from the Debtor or from any other person whomsoever. The taking of a judgment
with respect to any of the Obligations will not operate as a merger of any of
the covenants contained in this Security Agreement.
19. RIGHTS CUMULATIVE
All rights and remedies of the Secured Party set out in this Security
Agreement, and in any other security agreement held by the Secured Party from
the Debtor or any other person whomsoever to secure payment and performance of
the Obligations, are cumulative and no right or remedy contained herein or
therein is intended to be exclusive but each is in addition to every other
right or remedy contained herein or therein or in any existing or future
security agreement, or now or hereafter existing at law, in equity or by
statute, or pursuant to any other agreement between the Debtor and the Secured
Party that may be in effect from time to time.
20. NO ASSIGNMENT
The Secured Party may not assign, transfer or grant a security
interest in this Security Agreement or the Security Interests created hereby.
21. SATISFACTION AND DISCHARGE
Any partial payment or satisfaction of the Obligations, or any
ceasing by the Debtor to be indebted to the Secured Party shall be deemed not
to be a redemption or discharge of this Security Agreement. The Debtor shall be
entitled to a release and discharge of this Security Agreement upon full
payment and satisfaction of all Obligations, and upon written request by the
Debtor and payment to the Secured Party of a discharge fee to be fixed by the
Secured Party and payment of all costs, charges, expenses and legal fees and
disbursements (on a solicitor and his own client basis) incurred by the Secured
Party in connection with the Obligations and such release and discharge.
22. ENUREMENT
This Security Agreement shall enure to the benefit of the Secured
Party and its successors and assigns, and shall be binding upon the respective
heirs, executors, personal representatives, successors and permitted assigns of
the Debtor.
- 7 -
<PAGE> 26
23 INTERPRETATION
In this Security Agreement "the Act" means the Personal Property
Security Act (British Columbia) and all regulations thereunder, as amended from
time to time.
23.1 Words and expressions used herein that have been defined in the Act
shall be interpreted in accordance with their respective meanings given in the
Act unless otherwise defined herein or unless the context otherwise requires.
23.2 The invalidity or unenforceability of the whole or any part of any
clause of this Security Agreement shall not affect the validity or
enforceability of any other clause or the remainder of such clause.
23.3 The headings of the clauses of this Security Agreement have been
inserted for reference only and do not define, limit, alter or enlarge the
meaning of any provision of this Security Agreement.
23.4 This Security Agreement shall be governed by the laws of British
Columbia.
24. COPY OF AGREEMENT AND FINANCING STATEMENT
The Debtor hereby:
(a) acknowledges receiving a copy of this Security Agreement; and
(b) waives all rights to receive from the Secured Party a copy of any
financing statement or financing change statement filed, or any
verification statement received, at any time in respect of this
Security Agreement.
IN WITNESS WHEREOF the Debtor has executed this Security Agreement
this 31st day of March, 1998.
GLOBAL ELECTION SYSTEMS INC.
Per:
/s/ HOWARD VAN PELT
- ------------------------------
Howard Van Pelt
- 8 -
<PAGE> 1
EXHIBIT (6)(6)(i)
EMPLOYEE'S OPTION AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 22ND DAY OF AUGUST, 1997 (THE "AGREEMENT
DATE").
BETWEEN:
GLOBAL ELECTION SYSTEMS INC. a company duly incorporated under the
laws of the Province of British Columbia, having a place of business
at 1562 Rand Avenue, Vancouver, British Columbia, V6P 3G2;
(the "Company")
AND:
CATHLEEN COLGAN of 15605 Shamrock Crescent, Omaha, Nebraska, 68118;
(the "Employee")
WHEREAS the Company would like to grant to the Employee an option to purchase
common shares of the Company on the terms and conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and of the covenants and agreements herein contained the parties hereto
covenant and agree (the "Agreement") as follows:
1. From and including the Agreement Date through to and including August
22, 2002 (the "Termination Date"), the Employee shall have and be entitled to
and the Company hereby grants to the Employee an option (the "Option") to
purchase all or any portion of 40,000 common shares without par value in the
capital stock of the Company from treasury at the price of $1.25 per share.
2. Subject to the terms of this Agreement, the right to take up shares
pursuant to the Option is exercisable by the Employee giving notice in writing
to the Company accompanied by a cheque, certified if so required by the
Company, in favour of the Company for the full amount of the purchase price of
the shares then being purchased. Provided such written notice and payment are
received by the Company prior to 5:00 p.m. local time on the Termination Date
at its address first above written, the Company covenants and agrees to issue
and deliver to the Employee, forthwith thereafter, a share certificate for the
number of shares so purchased registered in the Employee's name.
<PAGE> 2
3. This is an Option only and does not impose upon the Employee any
obligation to take up and pay for any of the shares under Option.
4. The Option shall not be assignable or transferable by the Employee
otherwise than by Will or the law of intestacy and the Option may be exercised
during the lifetime of the Employee only by the Employee himself or herself, as
the case may be.
5. This Option shall terminate 30 days after the Employee ceases to be
an employee of the Company save and except where the Employee ceases to be an
employee of the Company as a result of:
(a) termination for cause; or
(b) by order of either of the Executive Directors for British Columbia or
Ontario, B.C. Securities Commission, Ontario Securities Commission,
Toronto Stock Exchange or any securities regulatory body having
jurisdiction to so order,
in which case the Option shall terminate on the date the Employee ceases to be
an employee of the Company.
6. If the Employee should die while still an employee of the Company,
the Option may then be exercised by the Employee's legal heirs or personal
representatives to the same extent as if the Employee were alive and an
employee of the Company for a period of one year after the Employee's death but
only for such shares as the Employee was entitled to purchase pursuant to the
Option at the date of the Employee's death.
7. This Agreement and any amendments hereto are subject to the
acceptance of the Toronto Stock Exchange and, if the Employee is an insider (as
that term is defined in the Ontario Securities Act) of the Company, to the
approval of the members of the Company. In the event acceptance by the Toronto
Stock Exchange of this Agreement is not obtained within 60 days of the Agreement
Date, this Agreement shall be null and void and of no further force and effect.
8. In the event of any subdivision, consolidation or other change in the
share capital of the Company while any portion of the Option is outstanding,
the number of shares under option to the Employee and the exercise price
thereof shall be adjusted in accordance with such subdivision, consolidation or
other change in the share capital of the Company.
9. In the event that the Company undertakes an amalgamation, merger,
reorganization or other arrangement while any portion of the Option is
outstanding, the number of shares under option to the Employee and the exercise
price thereof shall be adjusted in accordance with such amalgamation, merger,
reorganization or other arrangement.
10. The Company hereby covenants and agrees to and with the Employee
that it will reserve in its treasury sufficient shares to permit the issuance
and allotment of shares to the Employee in the event the Employee exercises the
Option.
-2-
<PAGE> 3
11. The Company hereby represents that as of the Agreement Date the
Employee is a bona fide employee of either the Company, a subsidiary of the
Company or a management company providing services to the Company (other than
investor relations).
IN WITNESS WHEREOF the parties have hereunto caused these presents to be
executed effective as of the day and year first above written.
THE CORPORATE SEAL of GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
)
/s/ HOWARD T. VAN PELT ) c/s
- --------------------------------------- )
President
- ---------------------------------------
SIGNED, SEALED & DELIVERED )
by CATHLEEN COLGAN in the presence of: )
)
/s/ ROBERT SCOTT SHERROD ) /s/ CATHLEEN COLGAN
- --------------------------------------- ) ------------------------------
Signature of Witness ) CATHLEEN COLGAN
)
Name: /s/ ROBERT SCOTT SHERROD )
---------------------------------- )
Address: 1504 B W UNIVERSITY )
------------------------------- )
MCKINNEY, TX 7569 )
- --------------------------------------- )
Occupation: )
---------------------------- )
[SEAL]
-3-
<PAGE> 1
EXHIBIT (6)(6)(ii)
DIRECTOR'S OPTION AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 22ND DAY OF AUGUST, 1997 (THE "AGREEMENT
DATE").
BETWEEN:
GLOBAL ELECTION SYSTEMS INC. a company duly incorporated under the
laws of the Province of British Columbia, having a place of business
at 1562 Rand Avenue, Vancouver, British Columbia, V6P 3G2;
(the "Company")
AND:
HOWARD VAN PELT of 1611 Wilmeth, McKinney, Texas, 75069-8250;
(the "Director")
WHEREAS the Director is a director of the Company and the Company would like to
grant to the Director an option to purchase common shares of the Company on the
terms and conditions contained herein;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and of the covenants and agreements herein contained the parties hereto
covenant and agree (the "Agreement") as follows:
1. From and including the Agreement Date through to and including August
22, 2002 (the "Termination Date"), the Director shall have and be entitled to
and the Company hereby grants to the Director an option (the "Option") to
purchase all or any portion of 50,000 common shares without par value in the
capital stock of the Company from treasury at the price of $1.25 per share.
2. Subject to the terms of this Agreement, the right to take up shares
pursuant to the Option is exercisable by the Director giving notice in writing
to the Company accompanied by a cheque, certified if so required by the Company,
for the full amount of the purchase price of the shares then being purchased.
Provided such written notice and payment are received by the Company prior to
5:00 p.m. local time on the Termination Date at its address first above written,
the Company covenants and agrees to issue and deliver to the Director, forthwith
thereafter, a share certificate for the number of shares so purchased registered
in the Director's name.
3. This is an Option and does not impose upon the Director any
obligation to take up and pay for any of the shares under Option.
<PAGE> 2
4. The Option shall not be assignable or transferable by the Director
otherwise than by Will or the law of intestacy and the Option may be exercised
during the lifetime of the Director only by the Director him or herself, as the
case may be.
5. This Option shall terminate 30 days after the Director ceases to be
a director of the Company save and except where the Director ceases to be a
director of the Company as a result of:
(a) ceasing to meet the qualifications set forth in section 114 of the
Company Act (British Columbia) ("Company Act");
(b) a special resolution passed by the members of the Company pursuant to
subsection 130(3) of the Company Act; or
(c) by order of either of the Executive Director for British Columbia or
Ontario, B.C. Securities Commission, Ontario Securities Commission,
Toronto Stock Exchange or any securities regulatory body having
jurisdiction to so order,
in which case the Option shall terminate on the date the Director ceases to be
a director of the Company.
6. If the Director should die while still a director of the Company, the
Option may then be exercised by the Director's legal heirs or personal
representatives to the same extent as if the Director were alive and a director
of the Company for a period of one year after the Director's death but only for
such shares as the Director would have been entitled to purchase pursuant to the
Option at the date of the Director's death.
7. This Agreement and any amendments hereto are subject to the acceptance
of the Toronto Stock Exchange and to the approval of the members of the Company.
In the event acceptance by the Toronto Stock Exchange of this Agreement is not
obtained within 60 days of the Agreement Date, this Agreement shall be null and
void and of no further force and effect.
8. In the event of any subdivision, consolidation or other change in the
share capital of the Company while any portion of the Option is outstanding,
the number of shares under option to the Director and the exercise price
thereof shall be adjusted in accordance with such subdivision, consolidation or
other change in the share capital of the Company.
9. In the event that the Company undertakes an amalgamation, merger,
reorganization or other arrangement while any portion of the Option is
outstanding, the number of shares under option to the Director and the exercise
price thereof shall be adjusted in accordance with such amalgamation, merger,
reorganization or other arrangement.
- 2 -
<PAGE> 3
10. The Company hereby covenants and agrees to and with the Director
that it will reserve in its treasury sufficient shares to permit the issuance
and allotment of shares to the Director in the event the Director exercises the
Option.
IN WITNESS WHEREOF the parties have hereunto caused these presents to be
executed effective as of the day and year first above written.
THE CORPORATE SEAL of GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
)
/s/ HOWARD T. VAN PELT ) c/s
- --------------------------------------- )
President
- ---------------------------------------
SIGNED, SEALED & DELIVERED )
by HOWARD VAN PELT )
in the presence of: )
) /s/ HOWARD T. VAN PELT
- --------------------------------------- ) ------------------------------
Signature of Witness ) HOWARD VAN PELT
)
Name: /s/ CYNTHIA MARSHALL )
---------------------------------- )
Address: 841 B Dublin Dr. )
------------------------------- )
Richardson, TX 75080 )
- --------------------------------------- )
Occupation: Bookkeeper )
---------------------------- )
-3-
<PAGE> 1
EXHIBIT (6)(6)(iii)
DIRECTOR'S OPTION AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 22ND DAY OF AUGUST, 1997 (THE "AGREEMENT
DATE").
BETWEEN:
GLOBAL ELECTION SYSTEMS INC., a company duly incorporated under the
laws of the Province of British Columbia, having a place of business
at 1562 Rand Avenue, Vancouver, British Columbia, V6P 3G2;
(the "Company")
AND:
CLINTON RICKARDS of 13961 - 33rd Avenue, Surrey, British Columbia, V4P
2B3;
(the "Director")
WHEREAS the Director is a director of the Company and the Company would like to
grant to the Director an option to purchase common shares of the Company on the
terms and conditions contained herein;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and of the covenants and agreements herein contained the parties hereto
covenant and agree (the "Agreement") as follows:
1. From and including the Agreement Date through to and including
August 22, 2002 (the "Termination Date"), the Director shall have and be
entitled to and the Company hereby grants to the Director an option (the
"Option") to purchase all or any portion of 50,000 common shares without par
value in the capital stock of the Company from treasury at the price of $1.25
per share.
2. Subject to the terms of this Agreement, the right to take up shares
pursuant to the Option is exercisable by the Director giving notice in writing
to the Company accompanied by a cheque, certified if so required by the
Company, for the full amount of the purchase price of the shares then being
purchased. Provided such written notice and payment are received by the Company
prior to 5:00 p.m. local time on the Termination Date at its address first
above written, the Company covenants and agrees to issue and deliver to the
Director, forthwith thereafter, a share certificate for the number of shares so
purchased registered in the Director's name.
3. This is an Option only and does not impose upon the Director
any obligation to take up and pay for any of the shares under Option.
<PAGE> 2
4. The Option shall not be assignable or transferable by the Director
otherwise than by Will or the law of intestacy and the Option may be exercised
during the lifetime of the Director only by the Director him or herself, as the
case may be.
5. This Option shall terminate 30 days after the Director ceases to be a
director of the Company save and except where the Director ceases to be a
director of the Company as a result of:
(a) ceasing to meet the qualifications set forth in section 114 of the
Company Act (British Columbia) ("Company Act");
(b) a special resolution passed by the members of the Company pursuant to
subsection 130(3) of the Company Act; or
(c) by order of either of the Executive Director for British Columbia or
Ontario, B.C. Securities Commission, Ontario Securities Commission,
Toronto Stock Exchange or any securities regulatory body having
jurisdiction to so order,
in which case the Option shall terminate on the date the Director ceases to be
a director of the Company.
6. If the Director should die while still a director of the Company, the
Option may then be exercised by the Director's legal heirs or personal
representatives to the same extent as if the Director were alive and a director
of the Company for a period of one year after the Director's death but only for
such shares as the Director would have been entitled to purchase pursuant to
the Option at the date of the Director's death.
7. This Agreement and any amendments hereto are subject to the
acceptance of the Toronto Stock Exchange and to the approval of the members of
the Company. In the event acceptance by the Toronto Stock Exchange of this
Agreement is not obtained within 60 days of the Agreement Date, this Agreement
shall be null and void and of no further force and effect.
8. In the event of any subdivision, consolidation or other change in the
share capital of the Company while any portion of the Option is outstanding,
the number of shares under option to the Director and the exercise price thereof
shall be adjusted in accordance with such subdivision, consolidation or other
change in the share capital of the Company.
9. In the event that the Company undertakes an amalgamation, merger,
reorganization or other arrangement while any portion of the Option is
outstanding, the number of shares under option to the Director and the exercise
price thereof shall be adjusted in accordance with such amalgamation, merger,
reorganization or other arrangement.
- 2 -
<PAGE> 3
10. The Company hereby covenants and agrees to and with the Director that
it will reserve in its treasury sufficient shares to permit the issuance and
allotment of shares to the Director in the event the Director exercises the
Option.
IN WITNESS WHEREOF the parties have hereunto caused these presents to be
executed effective as of the day and year first above written.
THE CORPORATE SEAL of GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
) c/s
/s/ CLINTON RICKARDS )
- ------------------------------------- )
)
- -------------------------------------
SIGNED, SEALED & DELIVERED
by CLINTON RICKARDS in the presence of: )
)
/s/ ERIC LAU )
- ------------------------------------- )
Signature of Witness ) /s/ CLINTON RICKARDS
) ---------------------------------
Name: Eric Lau ) CLINTON RICKARDS
-------------------------------- )
)
Address: 1138 East 18th Avenue )
----------------------------- )
)
Vancouver BC V5V 1H2 )
- ------------------------------------- )
)
Occupation: Accountant )
-------------------------- )
)
- 3 -
<PAGE> 1
EXHIBIT (6)(6)(iv)
EMPLOYEE'S OPTION AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 22ND DAY OF AUGUST, 1997 (THE "AGREEMENT
DATE").
BETWEEN:
GLOBAL ELECTION SYSTEMS INC. a company duly incorporated under the
laws of the Province of British Columbia, having a place of business
at 1562 Rand Avenue, Vancouver, British Columbia, V6P 3G2;
(the "Company")
AND:
LARRY ENSMINGER of 2404 Club Oaks Court, McKinney, Texas, 75070;
(the "Employee")
WHEREAS the Company would like to grant to the Employee an option to purchase
common shares of the Company on the terms and conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
of the covenants and agreements herein contained the parties hereto covenant and
agree (the "Agreement") as follows:
1. From and including the Agreement Date through to and including August
22, 2002 (the "Termination Date"), the Employee shall have and be entitled to
and the Company hereby grants to the Employee an option (the "Option") to
purchase all or any portion of 50,000 common shares without par value in the
capital stock of the Company from treasury at the price of $1.25 per share.
2. Subject to the terms of this Agreement, the right to take up shares
pursuant to the Option is exercisable by the Employee giving notice in writing
to the Company accompanied by a cheque, certified if so required by the Company,
in favour of the Company for the full amount of the purchase price of the shares
then being purchased. Provided such written notice and payment are received by
the Company prior to 5:00 p.m. local time on the Termination Date at its address
first above written, the Company covenants and agrees to issue and deliver to
the Employee, forthwith thereafter, a share certificate for the number of shares
so purchased registered in the Employee's name.
<PAGE> 2
3. This is an Option only and does not impose upon the Employee any
obligation to take up and pay for any of the shares under Option.
4. The Option shall not be assignable or transferable by the Employee
otherwise than by Will or the law of intestacy and the Option may be exercised
during the lifetime of the Employee only by the Employee himself or herself, as
the case may be.
5. This Option shall terminate 30 days after the Employee ceases to be
an employee of the Company save and except where the Employee ceases to be an
employee of the Company as a result of:
(a) termination for cause; or
(b) by order of either of the Executive Directors for British Columbia or
Ontario, B.C. Securities Commission, Ontario Securities Commission,
Toronto Stock Exchange or any securities regulatory body having
jurisdiction to so order.
in which case the Option shall terminate on the date the Employee ceases to be
an employee of the Company.
6. If the Employee should die while still an employee of the Company,
the Option may then be exercised by the Employee's legal heirs or personal
representatives to the same extent as if the Employee were alive and an
employee of the Company for a period of one year after the Employee's death but
only for such shares as the Employee was entitled to purchase pursuant to the
Option at the date of the Employee's death.
7. This Agreement and any amendments hereto are subject to the
acceptance of the Toronto Stock Exchange and, if the Employee is an insider (as
that term is defined in the Ontario Securities Act) of the Company, to the
approval of the members of the Company. In the event acceptance by the Toronto
Stock Exchange of this Agreement is not obtained within 60 days of the
Agreement Date, this Agreement shall be null and void and of no further force
and effect.
8. In the event of any subdivision, consolidation or other change in the
share capital of the Company while any portion of the Option is outstanding,
the number of shares under option to the Employee and the exercise price
thereof shall be adjusted in accordance with such subdivision, consolidation or
other change in the share capital of the Company.
9. In the event that the Company undertakes amalgamation, merger,
reorganization or other arrangement while any portion of the Option is
outstanding, the number of shares under option to the Employee and the exercise
price thereof shall be adjusted in accordance with such amalgamation, merger,
reorganization or other arrangement.
10. The Company hereby covenants and agrees to and with the Employee that
it will reserve in its treasury sufficient shares to permit the issuance and
allotment of shares to the Employee in the event the Employee exercises the
Option.
- 2 -
<PAGE> 3
11. The Company hereby represents that as of the Agreement Date the Employee
is a bona fide employee of either the Company, a subsidiary of the Company or a
management company providing services to the Company (other than investor
relations).
IN WITNESS WHEREOF the parties have hereunto caused these presents to be
executed effective as of the day and year first above written.
THE CORPORATE SEAL of GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
)
/s/ HOWARD J. VAN PELT )
- ------------------------------------ )
) c/s
PRESIDENT )
- ------------------------------------ )
SIGNED, SEALED AND DELIVERED )
BY LARRY ENSMINGER in the presence of: )
)
/s/ LINDA K. LATTELLE ) /s/ LARRY ENSMINGER
- ------------------------------------ ) ----------------------------------
Signature of Witness ) LARRY ENSMINGER
)
Name: Linda K. Lattelle )
------------------------------- )
)
Address: 2726 Stonepointe )
---------------------------- )
McKinney, TX 75070 )
- ------------------------------------ )
)
Occupation: Administrative Assistant )
------------------------- )
- 3 -
<PAGE> 4
EQUITIES QUOTES RESULTS
****************************************************
Instrument Symbol: GSM
Instrument Name: GLOBAL ELECTION SYSTEMS INC.
Company Name: GLOBAL ELECTION SYSTEMS INC.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------
Last Updated: 23 Jun 1998 15:57 EDT
- ----------------------------------------------------
Last Traded 2.70(up) Net Change -0.20
- ----------------------------------------------------
Last Bid Size 34 Volume 67,940
- ----------------------------------------------------
Last Bid Price 2.66 Open 2.85
- ----------------------------------------------------
Last Ask Price 2.70 High 2.85
- ----------------------------------------------------
Last Ask Size 65 Low 2.66
- ----------------------------------------------------
- ----------------------------------------------------
End of Day Data Last Updated: 22 Jun 1998
- ----------------------------------------------------
Rolling 52 3.650 Dividend
Week High Yield 0.000
- ----------------------------------------------------
Rolling 52 0.450 Dividend N/A
Week Low Timing
Indicator
- ----------------------------------------------------
Quoted Market 53,526,576 P/E Ratio 9.900
Value
- ----------------------------------------------------
# of Shares 18,457,440 Earnings Per 0.293
Outstanding Share
- ----------------------------------------------------
Chart provided by Canada Stockwatch.
</TABLE>
<PAGE> 1
EXHIBIT (6)(6)(v)
AMENDED AND RESTATED OPTION AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 22ND DAY OF AUGUST, 1997 (THE "AGREEMENT
DATE") AND AMENDED FEBRUARY 9, 1998.
BETWEEN:
GLOBAL ELECTION SYSTEMS INC., a company duly incorporated
under the laws of the Province of British Columbia, having
a place of business at 1562 Rand Avenue, Vancouver, British
Columbia, V6P 3G2;
(the "Company")
AND:
MAURICE SOKULSKI of 1611 Wilmeth, McKinney, Texas,
75069-8250, USA
(the "Employee")
WHEREAS the Company would like to grant to the Employee an option to purchase
common shares of the Company on the terms and conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and of the covenants and agreements herein contained the parties hereto
covenant and agree (the "Agreement") as follows:
1. From and including the Agreement Date through to and including the
day August 22, 2002 (the "Termination Date"), the Employee shall have and be
entitled to and the Company hereby grants to the Employee an option (the
"Option") to purchase all or any portion of 100,000 common shares without par
value in the capital stock of the Company from treasury at the price of $$1.25
per share.
2. Subject to the terms of this Agreement, the right to take up shares
pursuant to the Option is exercisable by the Employee giving notice in writing
to the Company accompanied by a cheque, certified if so required by the
Company, in favour of the Company for the full amount of the purchase price of
the shares then being purchased. Provided such written notice and payment are
received by the Company prior to 5:00 p.m. local time on the Termination Date
at its address first above written, the Company covenants and agrees to issue
and deliver to the Employee, forthwith thereafter, a share certificate for the
number of shares so purchased registered in the Employee's name.
<PAGE> 2
3. This is an Option only and does not impose upon the Employee any
obligation to take up and pay for any of the shares under option.
4. The Option shall not be assignable or transferable by the Employee
otherwise than by Will or the law of intestacy and the Option may be exercised
during the lifetime of the Employee only by the Employee himself.
5. This Option shall terminate 30 days after the Employee ceases to be
an employee of the Company save and except where the Employee ceases to be an
employee of the Company as a result of:
(a) termination for cause; or
(b) by order of the Executive Director for B.C. or Ontario, B.C.
Securities Commission, Ontario Securities Commission, The Toronto
Stock Exchange or any securities regulatory body having jurisdiction
to so order,
in which case the Option shall terminate on the date the Employee ceases to be
an employee of the Company.
6. If the Employee should die while still an employee of the Company,
the Option may then be exercised by the Employee's legal heirs or personal
representatives to the same extent as if the Employee were alive and an
employee of the Company for a period of one year after the Employee's death but
only for such shares as the Employee was entitled to purchase pursuant to the
Option at the date of the Employee's death.
7. This Agreement and any amendments hereto are subject to the approval
of The Toronto Stock Exchange and, if the Employee is an insider (as that term
is defined in the Securities Act, R.S.B.C. 1996, c.418) of the Company, by the
members of the Company. In the event acceptance by The Toronto Stock Exchange
is not obtained within 60 days of the Agreement Date, this Agreement shall be
null and void and of no further force and affect.
8. In the event of any subdivision, consolidation or other change in the
share capital of the Company while any portion of the Option is outstanding,
the number of shares under option to the Employee and the exercise price
thereof shall be adjusted in accordance with such subdivision, consolidation
or other change in the share capital of the Company.
9. In the event that the Company undertakes an amalgamation, merger,
reorganization or other arrangement while any portion of this Option is
outstanding, the number of shares under option to the Employee and the exercise
price thereof shall be adjusted in accordance with such amalgamation, merger,
reorganization or other arrangement.
10. The Company hereby covenants and agrees to and with the Employee that
it will reserve in its treasury sufficient shares to permit the issuance and
allotment of shares to the Employee in the event the Employee exercises the
Option.
- 2 -
<PAGE> 3
11. The Company hereby represents that as of the Agreement Date the
Employee is a bona fide employee of either the Company, a subsidiary of the
Company or a management company providing services to the Company (other than
investor relations).
IN WITNESS WHEREOF the parties have hereunto caused these presents to be
executed effective as of the day and year first above written.
THE CORPORATE SEAL OF GLOBAL )
ELECTION SYSTEMS INC. was hereunto )
affixed in the presence of: )
) c/s
- ---------------------------------- )
)
- ---------------------------------- )
SIGNED, SEALED & DELIVERED )
BY MAURICE SOKULSKI )
in the presence of: )
)
/s/ HOWARD T. VAN PELT ) /s/ MAURICE SOKULSKI
- ---------------------------------- ) --------------------------------
Signature of Witness ) MAURICE SOKULSKI
)
Name: HOWARD T. VAN PELT )
---------------------------- )
Address: 1611 WILMETH )
------------------------- )
McKinney, TX )
- ---------------------------------- )
Occupation: BUSINESS )
---------------------- )
- 3 -
<PAGE> 1
EXHIBIT (6)(6)(vi)
EMPLOYEE'S OPTION AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 22ND DAY OF AUGUST, 1997 (THE "AGREEMENT
DATE").
BETWEEN:
GLOBAL ELECTION SYSTEMS INC. a company duly incorporated under the
laws of the Province of British Columbia, having a place of business
at 1562 Rand Avenue, Vancouver, British Columbia, V6P 3G2;
(the "Company")
AND:
ROBERT UROSEVICH of 1611 Wilmeth, McKinney, Texas 75069-8250;
(the "Employee")
WHEREAS the Company would like to grant to the Employee an option to purchase
common shares of the Company on the terms and conditions hereinafter set forth;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and of the covenants and agreements herein contained the parties hereto
covenant and agree (the "Agreement") as follows:
1. From and including the Agreement Date through to and including August
22, 2002 (the "Termination Date"), the Employee shall have and be entitled to
and the Company hereby grants to the Employee an option (the "Option") to
purchase all or any portion of 120,000 common shares without par value in the
capital stock of the Company from treasury at the price of $1.25 per share.
2. Subject to the terms of this Agreement, the right to take up shares
pursuant to the Option is exercisable by the Employee giving notice in writing
to the Company accompanied by a cheque, certified if so required by the
Company, in favour of the Company for the full amount of the purchase price of
the shares then being purchased. Provided such written notice and payment are
received by the Company prior to 5:00 p.m. local time on the Termination Date
at its address first above written, the Company covenants and agrees to issue
and deliver to the Employee, forthwith thereafter, a share certificate for the
number of shares so purchased in the registered Employee's name.
<PAGE> 2
3. This is an Option only and does not impose upon the Employee any
obligation to take up and pay for any of the shares under Option.
4. The Option shall not be assignable or transferable by the Employee
otherwise than by Will or the law of intestacy and the Option may be exercised
during the lifetime of the Employee only by the Employee himself or herself, as
the case may be.
5. This Option shall terminate 30 days after the Employee ceases to be
an employee of the Company save and except where the Employee ceases to be an
employee of the Company as a result of:
(a) termination for cause; or
(b) by order of either of the Executive Directors for British Columbia or
Ontario, B.C. Securities Commission, Ontario Securities Commission,
Toronto Stock Exchange or any securities regulatory body having
jurisdiction to so order,
in which case the Option shall terminate on the date the Employee ceases to be
an employee of the Company.
6. If the Employee should die while still an employee of the Company,
the Option may then be exercised by the Employee's legal heirs or personal
representatives to the same extent as if the Employee were alive and an employee
of the Company for a period of one year after the Employee's death but only for
such shares as the Employee was entitled to purchase pursuant to the Option at
the date of the Employee's death.
7. This Agreement and any amendments hereto are subject to the
acceptance of the Toronto Stock Exchange and, if the Employee is an insider (as
that term is defined in the Ontario Securities Act) of the Company, to the
approval of the members of the Company. In the event acceptance by the Toronto
Stock Exchange of this Agreement is not obtained within 60 days of the Agreement
Date, this Agreement shall be null and void and of no further force and effect.
8. In the event of any subdivision, consolidation or other change in the
share capital of the Company while any portion of the Option is outstanding, the
number of shares under option to the Employee and the exercise price thereof
shall be adjusted in accordance with such subdivision, consolidation or other
change in the share capital of the Company.
9. In the event that the Company undertakes an amalgamation, merger,
reorganization or other arrangement while any portion of the Option is
outstanding, the number of shares under option to the Employee and the exercise
price thereof shall be adjusted in accordance with such amalgamation, merger,
reorganization or other arrangement.
10. The Company hereby covenants and agrees to and with the Employee that
it will reserve in its treasury sufficient shares to permit the issuance and
allotment of shares to the Employee in the event the Employee exercises the
Option.
- 2 -
<PAGE> 3
11. The Company hereby represents that as of the Agreement Date the
Employee is a bona fide employee of either the Company, a subsidiary of the
Company or a management company providing services to the Company (other than
investor relations).
IN WITNESS WHEREOF the parties have hereunto caused these presents to be
executed effective as of the day and year first above written.
THE CORPORATE SEAL of GLOBAL )
ELECTION SYSTEMS, INC. was hereunto )
affixed in the presence of: )
)
/s/ HOWARD [ILLEGIBLE] )
- --------------------------------------- ) c/s
)
PRESIDENT )
- ---------------------------------------
SIGNED, SEALED & DELIVERED )
by ROBERT UROSEVICH in the presence of: )
)
/s/ SUSAN MARTIN )
- -------------------------------------- )
Signature of Witness )
) /s/ ROBERT UROSEVICH
Name: Susan Martin ) -------------------------
-------------------------------- ) ROBERT UROSEVICH
Address: PO Box 139 )
------------------------------ )
Farmersville, TX 75442 )
- -------------------------------------- )
Occupation: Adm Asst )
--------------------------- )
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<PAGE> 1
EXHIBIT 6(7)(i)
<TABLE>
<S> <C> <C>
360 CIF44580
WTF/mw Global Election Systems, Inc. Loan Number 5904700/DT#22822
WESTERN BANK ALBUQUERQUE -------------------------------------- -------------------
P.O. Box 26144 1611 Wilmeth Rd. Date March 12, 1998
Albuquerque, New Mexico 87125 -------------------------------------- -------------------
LENDER'S NAME AND ADDRESS McKinney, TX 75069 Maturity Date Nov. 15, 1998
"You" means the Lender, its BORROWER'S NAME AND ADDRESS -------------------
successors and assigns. Loan Amount $ 770,000.00
"I" includes each Borrower above, -------------------
jointly and severally. Renewal Of NEW
-------------------
</TABLE>
TERMS FOLLOWING A [ ] APPLY ONLY IF CHECKED
NOTE - for value received, I promise to pay to you, or your order, at your
address above, the principal sum of: Seven Hundred Seventy Thousand Dollars
and 00/100 Dollars $ 770,000.00, plus interest from March 12, 1998 at the
rate of WBP + 1% per year until November 15, 1998.
[X] ADDITIONAL FINANCE CHARGE - I also agree to pay a nonrefundable fee of
$________________, and it will be [ ] paid in cash. [ ] paid pro rata over
the loan term. [ ] withheld from the proceeds. (If this fee is withheld from
the proceeds, the amount is included in the principal sum.)
[X] VARIABLE RATE - The rate above may then change so as always to be 1% above
the following index rate: Western Bank Albuquerque Prime Rate. The interest
rate may not change more than n/a% each n/a. The annual interest rate in
effect on this note will not at any time be more than n/a% or less than 10%.
The interest rate in effect on this note may change (as often as) the first
day of each calendar month (assuming there is a change in the base rate) and
an increase in the interest rate will cause an increase in [ ] the amount
of each scheduled payment. [XX] the amount due at maturity. [ ] the number
of payments.
PAYMENT - I will pay this note as follows:
(a) [X] $632,100.00 + Int. due June 11, 1998
$137,900.00 +/- Int. due Nov. 15, 1998
(b) [ ] This note has _______ payments. The first payment will be in the
amount of $_______________ and will be due ______________________. A
payment of $_________ will be due on the __ day of each _________
thereafter. The final payment of the entire unpaid balance of
principal and interest will be due _____________________.
INTEREST - Interest accrues on a 360 basis.
[X] MINIMUM INTEREST CHARGE - I agree to pay a minimum interest charge of
$25.00 if I pay this loan off before you have earned that much in interest.
[X] LATE CHARGE - I agree to pay a late charge on the portion of any payment
made more than 10 days after it is due equal to 5% of the unpaid amount or
$na, whichever is na.
POST-MATURITY INTEREST - Interest will accrue after maturity on the unpaid
balance of this note on the same basis as interest accrues before maturity,
unless a specific post-maturity interest rate is agreed to in the next sentence.
[X] Interest will accrue at the rate of 18.00% per year on the balance of this
note not paid at maturity, including maturity by acceleration.
[ ] This loan is made under the New Mexico Bank Installment Loan Act of 1959.
THE PURPOSE OF THIS LOAN IS - Short Term Working Capital
- --------------------------------------------------------------------------------
SECURITY - You have certain rights that may affect my property as explained on
page 2. This loan [X] is [ ] is not further secured.
(a) [X] This loan is secured by a financing statement dated March 12, 1998.
(b) [ ] Security Agreement - I give you a security interest in the Property
described below. The rights I am giving you in this Property and the
obligations this agreement secures are defined on page 2 of this
agreement.
Assignment of Contract Proceeds-Contract No. 06-26G124074-1097 in the
amount of $2,100,000.00
<PAGE> 2
This Property will be used for BUSINESS purposes.
<TABLE>
<CAPTION>
TOTAL OF PAYMENTS I have the right to receive
ANNUAL PERCENTAGE RATE FINANCE CHARGE AMOUNT FINANCED The amount I will have paid at this time an itemization
The cost of my credit The dollar amount the The amount of credit when I have made all of the
as a yearly rate. credit will cost me. provided to me on my behalf. scheduled payments. Amount Financed
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<S> <C> <C> <C> <C>
% $ $ $ YES - I want
- --------------------------------------------------------------------------------------------------------- ---------- an itemization.
My Payment Schedule will be: NO - I do not
- --------------------------------------------------------------------------------------------------------- ---------- want an
Number of Payments Amount of Payments When Payments Are Due itemization.
- ------------------------------------------------------------------------------------------------------------------------------------
$ "e" means an estimate
- ------------------------------------------------------------------------------------------------------------------------------------
$ $ Filing Fees
- --------------------------------------------------------------------------------------------------------- -----
$ $ Nonfiling Insurance
- --------------------------------------------------------------------------------------------------------- -----
$
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] This note has a demand feature. [ ] This note is payable on demand and all disclosures are based on an assumed
maturity of one year
[ ] VARIABLE RATE [ ] My loan contains a variable rate feature. Disclosures about the variable rate feature have been
(check one) provided to me earlier.
[ ] The annual percentage rate may increase during the term of this transaction if
--------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Any increase will take the form of __________________________________________________________________. If the rate increases by
_________________________% in __________________________, the ______________________________ will increase to
________________________________. The rate may not increase more often than once ______, and may not increase more than
_______________________________% each _______________________________________________. The rate will not go above ___________%.
SECURITY - I am giving a security interest in: [ ] (brief description of other property)
[ ] the goods or property being purchased.
[ ] collateral securing other loans with you may also secure this loan.
[ ] my deposit accounts and other rights to the payment of money from you.
[ ] LATE CHARGE - I will be charged a late charge on the portion of any payment made more than __ days after it is due equal to __%
of the unpaid amount or $_______, whichever is ______________.
[ ] REQUIRED DEPOSIT - The annual percentage rate does not take into account my required deposit.
PREPAYMENT - If I pay off this note early, I [ ] may [ ] will not have to pay a penalty.
[ ] If I pay off this note early, I will not be entitled to a refund of part of the additional finance charge.
[ ] ASSUMPTION - Someone buying the property securing this obligation cannot assume the remainder of the obligation on the
original terms.
I can see my contract documents for any additional information about nonpayment, default, any required repayment before the
scheduled date, and prepayment refunds and penalties.
- ------------------------------------------------------------------------------------------------------------------------------------
CREDIT INSURANCE - Credit life insurance and credit disability insurance are not ITEMIZATION OF AMOUNT FINANCED
required to obtain credit, and will not be provided unless I sign and agree to pay AMOUNT GIVEN TO ME DIRECTLY $ 770,000.00
the additional costs. ------------
AMOUNT PAID ON MY (LOAN) ACCOUNT $
- ----------------------------------------------------------------------------------- ------------
Type Premium Term $
- ----------------------------------------------------------------------------------- ------------------------------- ------------
Credit Life AMOUNTS PAID TO OTHERS ON MY BEHALF:
- ----------------------------------------------------------------------------------- to Insurance Companies $
Credit Disability ------------
- ----------------------------------------------------------------------------------- to Public Officials $
Joint Credit Life ------------
- ----------------------------------------------------------------------------------- $
------------------------------- ------------
[ ] do [X] do not want credit life insurance $
[ ] do [X] do not want credit disability insurance. ------------------------------- ------------
[ ] do [X] do not want joint credit life insurance $
[ ] do [X] do not want _____________________ insurance. ------------------------------ ------------
NOT DESIRED DOB (less) PREPAID FINANCE CHARGE(S)$
- ----------------------------------------------------------------------------------- ------------
DOB AMOUNT FINANCED $ 770,000.00
- ----------------------------------------------------------------------------------- ------------
PROPERTY INSURANCE - I may obtain property insurance from anyone I want that is accept- (Add all items financed and subtract prepaid
able to you. If I get the insurance from or through you I will pay $ n/a finance charges.)
or n/a of coverage. --------------------------------------------
SIGNATURES - I AGREE TO THE TERMS SET OUT ON
PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I HAVE
- -------------------------------------------------------------------------------------- RECEIVED A COPY OF THIS DOCUMENT ON
TODAY'S DATE.
COSIGNERS - SEE NOTICE ON PAGE 2
BEFORE SIGNING.
(OPTIONAL) GLOBAL ELECTION SYSTEMS, INC.
Signed For Lender Signature /s/ HOWARD VAN PELT
--------------------------------------------------------------------- ----------------------------------
Title Howard Van Pelt, President
--------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
VARIABLE/SIMPLE INTEREST NOTE, DISCLOSURE, AND SECURITY AGREEMENT CONSUMER LOAN - NOT FOR OPEN-END CREDIT
1981, 1988 Bankers Systems, Inc., St. Cloud, MN (1-800-397-2341) Form NDaS-VSI-NM 2/9/93 (page 1 of 2)
</TABLE>
<PAGE> 1
EXHIBIT 6(7)(ii)
<TABLE>
<S> <C> <C>
Global Election Systems Inc. WESTERN BANK This agreement relates to
1611 Wilmeth Rd. 505 MARQUETTE, P.O. BOX 26144 LOAN NUMBER 2000300/DT#20655
McKinney, TX 75069 ALBUQUERQUE, NEW MEXICO 87125 ORIGINALLY DATED NOVEMBER 14, 1995.
85-0394190 WTF/nw
"I" means the BORROWER(S) named above. "You" means the LENDER named above. THIS AGREEMENT DATED JAN. 6, 1998.
Definitions: As used in this agreement, the term "I" means the Borrower(s) named above; "You" means the Lender named above;
"Original Obligation" means my previous agreement to pay you money (referred to above by Loan Number and original date), and
any released agreements such as a security agreement.
Extension Agreement: You and I have entered into an original obligation which is a commercial note.
By entering into this agreement, we are extending the due date(s) of the payments of the original obligation.
The original due date defer(s) and the amount(s) of the The extended due date(s) and the amount(s) then due (including
payment(s) extended by this agreement are as follows: any fees or interest due on the new maturity dates are as follows:
(a) $ 600,000.00 originally due November 13, 1996 (a) January 6, 1999 $ 371,450.00
(b) $ originally due 19 (b) Interest Quarterly / Balance @ Maturity
(c) $ originally due 19 (c) 19 $
(d) $ originally due 19 (d) 19 $
Cost: For this extension, I agree to pay you the fees and/or additional interest as indicated below.
[X] A total fee of a 120.00 Doc Fee [X] Simple interest on the unpaid balance of principal
remaining from time to time at the rate of NPR*% per
Upon prepayment of the entire outstanding balance of year from January 6, 1998 until January 6, 1999
this obligation: (12 months). This interest rate is lower than the
rate previously in effect on this obligation.
[ ] a portion of this fee may be refunded as provided by law
[X] this fee will not be refunded
- -------------------------------------------------------------------------------------------------------------------------
ADDITIONAL TERMS
Interest paid to date of $10,457.28
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
This agreement does not in any way satisfy or cancel the original obligation.
Except as specifically amended by this agreement, all other terms of the
original obligation remain in effect. This means and includes, but is not
limited to:
(1) Property which secures the original obligation will continue to secure
my total responsibility to pay you as amended by this agreement. (2) All
parties who have a responsibility to pay you in any way the original obligation
(including any co-members, endorsers and guarantors) remain responsible for the
total amount I owe you as amended by this agreement. If you require the consent
to this extension by any additional party. I agree to obtain such consent and
this extension agreement will not be effective if the consent is not obtained.
(3) Any past-maturity interest rate provided for in the original obligation
(except as specifically contracted for here) shall now begin to apply after the
first scheduled payment of the original obligation as amended by this
agreement. (4) You will not be responsible to further extend the payments
effected by this agreement or any other scheduled payments. All other
scheduled payments not effected by this agreement shall remain due as
previously scheduled. (5) All provisions for default, remedies, attorneys' fees
(if any) etc. remain in effect. (6) My responsibility (if any) to provide
insurance on the property which secures the original obligation (if any) shall
remain in effect. However, the term of such insurance policy will not be
extended to cover any additional term resulting from this agreement unless
contracted for and any additional premium is paid. (7) The term of any Credit
Life and/or Disability Insurance coverages purchased in connection with the
original obligation will not be extended for the additional term provided for
in this agreement unless contracted for and any additional premium is paid.
SIGNATURE OF AUTHORIZED GLOBAL ELECTION SYSTEMS INC.
REPRESENTATIVE OF LENDER SIGNATURE(S) FOR BORROWER.
BY SIGNING BELOW, I AGREE TO
THE EXTENSION. I HAVE
RECEIVED A COPY OF THIS
AGREEMENT ON TODAY'S DATE
X /s/ WILLIAM T. FIETZ X /s/ HOWARD T. VAN PELT
---------------------------------- ----------------------------
WILLIAM T. FIETZ, HOWARD T. VAN PELT, PRESIDENT
CHAIRMAN & CEO X
----------------------------
<PAGE> 1
Exhibit 13
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM F-X
APPOINTMENT OF AGENT FOR SERVICE OF PROCESS AND
UNDERTAKING
General Instructions
I. Form F-X shall be filed with the Commission:
(a) by any issuer registering securities on Form F-8, F-9,
F-10 or F-80 under the Securities Act of 1933;
(b) by any issuer registering securities on Form 40-Under the
Securities Exchange Act of 1934 (the "Exchange Act");
(c) any issuer filing a periodic report on Form 40-F, if it
has not previously filed a Form F-X in connection with the class of securities
in relation to which the obligation to file a report on Form 40-F arises;
(d) by any issuer or other non-U.S. person filing tender offer
documents on Schedule 13E-4F, 14D-1F or 14D-9F;
(e) by any non-U.S. person acting as trustee with respect to
securities registered on Form F-7, F-8, F-9, F-10, F-80 or SB-2; and
(f) by a Canadian issuer qualifying an offering statement
pursuant to the provisions of Regulation A, or registering securities on Form
SB-2.
A Form F-X filed in connection with any other Commission form should not be
bound together with or included only as an exhibit to, such other form.
II. Six copies of the Form F-X, one of which must be manually signed,
shall be filed with the Commission at its principal office.
A. Name of issuer or person filing ("Filer"):
Global Election Systems Inc.
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B. This is (check one):
[X] an original filing for the Filer
[ ] an amendment filing for the Filer
C. Identify the filing in conjunction with which this Form is
being filed.
Name of registrant Global Election Systems Inc.
--------------------------------------------
Form type Form 10SB
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File Number (if known)
----------------------------------------
Filed by Schuler, Messersmith & McNeill, Attorneys at Law
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<PAGE> 2
Date filed (if filed concurrently, so indicate) Concurrently
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D. The Filer is incorporated or organized under the laws of (name
of the jurisdiction under whose laws the issuer is organized or incorporated)
and has its principal place of business at
-------------------------------------
(Address in full and telephone number)
British Columbia, Canada
Principal Place of business: 1611 Wilmeth Road, McKinney, Texas 75069
Phone: (972) 542-6000
E. The Filer designates and appoints (Name of United States
person serving as agent) ("Agent"). Located at (Address in full in the United
States and telephone number)
Mr. Larry Ensminger
2404 Club Oak Court
McKinney, Texas 75070 (972)562-1685
as the Agent of the Filer upon whom may be served any process, pleadings, or
other papers in
(a) any investigation or administrative proceeding conducted
by the Commission; and
(b) any civil suit or action against the Filer or to which the
Filer has been joined as defendant or respondent, in any appropriate court in
any place subject to the jurisdiction of any state of the United States or of
any of its territories or possessions or of the District of Columbia, where the
investigation, proceeding or cause of action arises out of or relates to or
concerns (i) any filing to be made or purported to be made in connection with
the securities registered or qualified by the Filer on Form 10SB (Name of Form)
----
on (Date) ___________ or any purchases or sales of any security in connection
therewith; (ii) the securities in relation to which the obligation to file an
annual report on Form 40-F arises, or any purchases or sales of such securities;
(iii) any tender offer for the securities of a Canadian issuer with respect to
which filings are made by the Filer with the Commission on Schedule 13E-4F,
14D-1F or 14D-9F, or (iv) the securities in relation to which the Filer acts as
trustee pursuant to an exemption under Rule 10a-5 under the Trust Indenture Act
of 1939. The Filer stipulates and agrees that any such civil suit or action or
administrative proceeding may be commenced by the service of process upon, and
that service of an administrative subpoena shall be effected by service upon
such agent for service of process, and that service as aforesaid shall be taken
and held in all courts and administrative tribunals to be valid and binding as
if personal service thereof had been made.
F. Each person filing this Form in connection with:
(a) the use of Form F-9, F-10, 40-F or SB-2 or Schedule 13K-4F,
14D-1F or 14D-9F stipulates and agrees to appoint a successor agent for service
of process and file an amended Form F-X if the Filer discharges the Agent or the
Agent is unwilling or unable to accept service on behalf of the Filer at any
time until six years have elapsed from the date the issuer of the securities to
which such forms and Schedules relate has ceased reporting under the Exchange
Act;
<PAGE> 3
(b) the use of Form F-8 or Form F-80 stipulates and
agrees to appoint a successor agent for service of process and file an amended
Form F-X if the Filer discharges the Agent or the Agent is unwilling or unable
to accept service on behalf of the Filer at any time until six years have
elapsed following the effective date of the latest amendment to such Form F-8
or Form F-80;
(c) its status as trustee with respect to securities
registered on Form F-7, F-8, F-9, F-10, F-80, or SB-2 stipulates and agrees to
appoint a successor agent for service of process and file an amended Form F-X
if the Filer discharges the Agent or the Agent is unwilling or unable to accept
service on behalf of the Filer at any time during which any of the securities
subject to the indenture remain outstanding; and
(d) the use of Form 1-A or other Commission form for
an offering pursuant to Regulation A stipulates and agrees to appoint a
successor agent for service of process and file an amended Form F-X if the
Filer discharges the Agent or the Agent is unwilling or unable to accept
service on behalf of the Filer at any time until six years have elapsed from
the date of the last sale of securities in reliance upon the Regulation A
exemption.
Each filer further undertakes to advise the Commission promptly of any change
to the Agent's name and address during the applicable period by amendment of
this Form, referencing the file number of the relevant form in conjunction with
which the amendment is being filed.
G. Each person filing this Form, other than a trustee filing in
accordance with General Instruction I. (e) of this Form, undertakes to make
available, in person or by telephone, representatives to respond to inquiries
made by the Commission staff, and to furnish promptly, when requested to do so
by the Commission staff, information relating to: the Forms, Schedules and
offering statements described in General Instructions I.(a), I.(b), I.(c),
I.(d) and I.(f) of this Form, as applicable; the securities to which such
Forms, Schedules and offering statements relate; and the transactions in such
securities.
The Filer certifies that it has duly caused this power of attorney,
consent, stipulation and agreement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of McKinney
-----------------
County of , this day of
----------------------------- -----------------------
July , 1998.
- --------------
Global Election Systems Inc. /s/ HOWARD T. VAN PELT
- -------------------------------------------------------------------------------
Filer: By: (Signature and Title)
This statement has been signed by the following persons in the
capacities and on the dates indicated.
(Signature)/s/ HOWARD T. VAN PELT
--------------------------------------------------------------------
(Title) President
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(Date) 7/31/98
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Instructions
<PAGE> 4
1. The power of attorney, consent, stipulation and agreement
shall be signed by the Filer and its authorized Agent in the United States.
2. The name of each person who signs Form F-X shall be typed or
printed beneath such person's signature. Any person who occupies more than one
of the specified positions shall indicate each capacity in which such person
signs Form F-X. If any name is signed pursuant to a board resolution, a copy
of the resolution shall be filed with each copy of Form F-X. A certified copy
of such resolution shall be filed with the manually signed copy of Form F-X.
If any name is signed pursuant to a power of attorney, a copy of the power of
attorney shall be filed with each copy of Form F-X. A manually signed copy of
such power of attorney shall be filed with the manually signed copy of Form
F-X.
