<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended December 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____ to _____
SEC File Number 0-24725
GLOBAL ELECTION SYSTEMS INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
British Columbia, Canada 85-0394190
(State or Province of Incorporation) (IRS Employer Identification No.)
1611 Wilmeth Road, McKinney, TX, 75069
(Address of Principal Executive Offices)
972-542-6000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes[x] No [ ] (issuer not subject to filing requirements for past 90 days)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of February 12, 1999, the
issuer had 18,483,672 shares of its common stock outstanding. Transitional Small
Business Disclosure Form (check one): Yes [ ] No [x]
<PAGE> 2
TABLE OF CONTENTS
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis.
Part 2. OTHER INFORMATION
Item 1. Legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Summary of Significant Accounting Policies:
The accounting policies as set forth in Global Election Systems Inc.'s
Form 10-SB/A, filed on September 18, 1998 have been adhered to in preparing the
accompanying interim consolidated financial statements. These statements are
unaudited, but include all adjustments, consisting of normal recurring
adjustments, that the Company considers necessary for a fair presentation of the
results for the interim period. Results for an interim period are not
necessarily indicative of results for a full year.
a) Foreign Currency Transactions
The accounts of the Company are prepared in U.S. funds and the
Company's Canadian operations are translated into U.S. dollars as follows:
Monetary assets and liabilities at quarter-end rates
All other assets and liabilities at historical rates
Revenue and expense items at the average rate of exchange prevailing
during the quarter.
Exchange gains and losses arising from these transactions are
reflected in income or expense in the period.
b) 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> 4
Global Election Systems, Inc. Statement 1
Interim Consolidated Balance Sheet
As at 31 December
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current
Cash and short term deposits $ 503,282 $ 130,338
Accounts receivable 2,505,009 2,520,260
Contracts receivable 5,073,102 4,040,833
Deposits and prepaid expenses 228,505 124,418
Inventory 6,861,627 2,116,176
Current portion of agreements receivable 291,794 461,070
------------ ------------
15,463,319 9,393,095
Agreements Receivable 351,900 544,139
Capital Assets 415,526 492,860
Other Assets 889,516 1,231,891
------------ ------------
$ 17,120,261 $ 11,661,985
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------
Current
Accounts payable and accrued liabilities $ 2,401,388 $ 2,227,625
Deferred revenue 25,427 172,219
Current portion of loans payable 4,588,578 1,135,944
------------ ------------
7,015,393 3,535,788
Loans Payable 36,757 57,937
------------ ------------
7,052,150 3,593,725
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Share Capital
Authorized:
100,000,000 common voting shares, without par value
200,000,000 convertible voting preferred shares, without par value
Issued and fully paid:
18,483,672 common shares (1997 - 15,689,440) 10,126,865 9,910,235
Deficit - Statement 2 (58,754) (1,841,975)
------------ ------------
10,068,111 8,068,260
------------ ------------
$ 17,120,261 $ 11,661,985
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ON BEHALF OF THE BOARD
/s/ HOWARD T. VAN PELT Director
- --------------------------------,
/s/ CLINTON H. RICKARDS Director
- --------------------------------,
<PAGE> 5
Global Election Systems Inc. Statement 2
Interim Consolidated Statement of Changes in Shareholders' Equity
For the Period Ended 31 December
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
Common Amount Retained Total
Shares Earnings
(Deficit)
- ---------------------------------------------------------------------------------------------------------------------------
<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 48,694 -- 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 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) 1,000,000 536,038 -- 536,038
Net loss for the period -- -- 1,555,878 1,555,878
--------------------------------------------------------
Balance - 31 December 1997 15,689,440 9,910,235 (1,841,975) 8,068,260
Issuance of performance shares from escrow ($0.06 per share) 2,738,000 167,672 -- 167,672
Issuance of shares on exercise of options ($0.89 per share) 30,000 28,632 -- 26,632
Issuance of shares on exercise of options ($0.85 per share) 25,000 21,328 -- 21,328
Net income for the period -- -- 2,481,668 2,481,668
--------------------------------------------------------
Balance - 30 June 1998 18,482,440 10,125,867 639,693 10,765,560
Issuance of shares on exercise of options ($0.81 per share) 1,232 998 -- 998
Net loss for the period -- -- (698,447) (698,447)
--------------------------------------------------------
Balance - 31 December 1998 18,483,672 $ 10,126,865 $ (58,754) $ 10,068,111
--------------------------------------------------------
</TABLE>
<PAGE> 6
Global Election Systems Inc. Statement 3
Interim Consolidated Statement of Income (Loss)
For the Six Months Ended 31 December
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
31 December 31 December
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Sales and operating income $ 2,373,729 $ 4,490,922 $ 6,646,192 $ 8,163,160
Other income 76,006 63,043 85,031 72,784
----------------------------------------------------------
2,449,735 4,553,965 6,731,223 8,235,944
----------------------------------------------------------
Costs and Expenses
Cost of sales and operating expenses 1,369,130 2,264,149 3,204,569 4,001,665
Selling, administrative and general expenses 1,514,702 1,221,339 3,037,037 2,248,821
Research and development expenses 234,299 112,390 609,270 219,353
Amortization 80,714 110,724 206,245 160,997
Interest 74,068 48,468 110,199 49,230
----------------------------------------------------------
3,272,913 3,757,070 7,167,320 6,680,066
----------------------------------------------------------
Income (Loss) Before the Undernoted (823,178) 796,895 (436,097) 1,555,878
Revaluation of used equipment 131,175 -- 262,350 --
----------------------------------------------------------
Net Income (Loss) for the period (954,353) 796,895 (698,447) 1,555,878
----------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share - U.S. Funds
Basic $ (0.05) $ 0.05 $ (0.04) $ 0.10
Fully Diluted $ N/A $ 0.04 $ N/A $ 0.09
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of
Common Shares Outstanding 18,483,264 15,519,577
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
Global Election Systems Inc.
Interim Consolidated Statement of Cash Flow
For the Six Months Ended 31 December Statement 4
Prepared without audit in U.S. Funds
<TABLE>
<CAPTION>
For the Quarter Ended For the Six Months Ended
31 December 31 December
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period $ (954,353) $ 796,895 $ (698,447) $ 1,555,878
Item not affecting cash
Amortization 80,714 110,724 206,245 160,997
----------------------------------------------------------
(873,639) 907,619 (492,202) 1,716,875
Changes in non-cash working capital (1,865,167) (2,008,799) (2,946,997) (1,476,847)
----------------------------------------------------------
(2,738,806) (1,101,180) (3,439,199) 240,028
----------------------------------------------------------
INVESTING ACTIVITIES
Capital assets acquired 171 (14,656) (51,576) (1,029,231)
Loans receivable 266,481 279,075 310,071 306,220
----------------------------------------------------------
266,652 264,419 258,495 (723,011)
----------------------------------------------------------
FINANCING ACTIVITIES
Loans payable 2,912,998 503,828 3,344,361 535,491
-----------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 440,844 (332,933) 163,657 52,508
Cash position - Beginning of period 62,438 463,271 339,625 77,830
----------------------------------------------------------
CASH POSITION - END OF PERIOD $ 503,282 $ 130,338 $ 503,282 $ 130,338
----------------------------------------------------------
</TABLE>
<PAGE> 8
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 Company's Interim Financial Statements and the notes to them. See
"Interim Consolidated Financial Statements". The financial statements
have been prepared in United States dollars in accordance with
Canadian GAAP. Certain of the information discussed in this report
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 those 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 world-wide which purchase the Company's products;
the unknown and unforeseen effects of potential "Year 2000" problems
encountered by the Company, its suppliers, customers and others; and
other risk factors listed from time to time in documents filed by the
Company with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1998 COMPARED TO QUARTER ENDED DECEMBER 31, 1997.
SALES AND OPERATING INCOME.
Sales and other income decreased 46.2%, or $2,104,000, to $2,450,000 in
the second quarter ended December 31, 1998 from $4,554,000 in the second quarter
ended December 31, 1997. The sales decrease was largely attributable to delay in
receipt of an order expected in the later quarter (which the Company has not
received as of the date of this report but still anticipates) and to the
cyclical effect of elections, in which primary and general election quarters
typically have fewer sales than comparable quarters of other years in which
fewer elections are held and during which preparatory purchases are being made.
COST OF SALES AND OPERATING EXPENSES.
Cost of sales and operating expenses decreased 39.5%, or $895,000, to
$1,369,000 in the Second quarter of fiscal 1999 from $2,264,000 in the second
quarter of fiscal 1998. This decrease resulted in part from the decrease in
sales and in part from the Company's continued efforts to efficiently utilize
labor and reduce cost of parts.
<PAGE> 9
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES.
In the second quarter ended December 31, 1998 selling, administrative
and general expenses increased 24.0%, or $294,000, to $1,515,000, from
$1,221,000, due to election support provided during the November, 1998 primary
and general elections and an increase in manpower and associated costs in the
sales, field support and administrative areas.
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses increased 108.5%, or $122,000, to
$234,000 in the second quarter of fiscal 1999 from $112,000 in fiscal 1998.
The increase was due to providing enhancements to software for the AccuTouch
system. The Company continues to fund research and development in order to offer
leading edge products to the market place.
AMORTIZATION.
Amortization decreased 27.1%, or $30,000, to $81,000 in the second
quarter of fiscal 1999 from $111,000 in fiscal 1998 because some fixed assets
were not purchased as anticipated.
INTEREST.
Interest expense increased 52.8% or $25,000, to $74,000 in the
second quarter of fiscal 1999 from $49,000 in the second quarter of fiscal
1998. The increase was within the Company's operating plan and resulted from
interest on increased U.S. bank loans.
REVALUATION OF USED EQUIPMENT.
During fiscal 1999 the Company instituted a conservative policy of
writing down trade-in inventory. The trade-in inventory write off amounted to
$131,000 in the second quarter of fiscal 1999. The trade-in inventory write
down will continue for the next six consecutive quarters, at the end of which
value of the trade-in inventory is anticipated to be $0.
<PAGE> 10
EARNINGS (LOSS) PER SHARE.
The Company's loss for the second quarter ended December 31, 1998 was
$823,000 or $(0.04) per share before a write down of $131,000 for trade-in
inventory. The loss for the second quarter ended December 31, 1998 after the
trade-in inventory write down was $954,000 or $(0.05) per share compared to a
profit of $797,000 or $0.05 per share for the same period for fiscal 1998. The
decrease in earnings per share for the 1999 fiscal period as compared to the
1998 fiscal period was due to a decrease in sales, and increases in selling,
administrative and general expense, research and development expense, and
interest expense, along with the write down of the trade-in inventory.
YEAR TO DATE DECEMBER 31, 1998 COMPARED TO YEAR TO DATE DECEMBER 31, 1997.
SALES AND OPERATING INCOME.
Year to date sales and other income for the six months ended December
31, 1998 decreased 18.3% or $1,505,000, to $6,731,000 from $8,236,000 for the
six months ended December 31, 1997. The sales decrease was largely attributable
to delay in receipt of an order expected in the second quarter of fiscal 1999
(which the Company has not received as of the date of this report, but still
anticipates) and to the cyclical effect of elections, in which primary and
general election periods like the second quarter of fiscal 1999 typically have
fewer sales than comparable periods of other years in which fewer elections are
held and during which preparatory purchases are being made.
COST OF SALES AND OPERATING EXPENSES.
Year to date cost of sales and operating expenses for fiscal period
1999 decreased 19.9% or $797,000, to $3,205,000 from $4,002,000 for fiscal
1998. In fiscal 1999, year to date cost of sales and operating expense as a
percentage of gross revenues decreased to 47.6% from 48.6% in fiscal 1998.
This decrease resulted in part from the decrease in sales and in part from the
Company's continued efforts to efficiently utilize labor and reduce cost of
parts.
SELLING, ADMINISTRATIVE AND GENERAL EXPENSES.
Year to date selling, administrative and general expenses for fiscal
1999 increased 35.1% or $788,000, to $3,037,000 from $2,249,000 for fiscal 1998.
The increase was due largely to election support provided during the November,
1998 primary and general elections and an increase in manpower and associated
costs in the sales, field support and administrative areas. In addition,
expenses relating to the I-Mark asset acquisition were incurred for the whole
1999 fiscal period, whereas in the 1998 fiscal period expenses were incurred for
only five months.
<PAGE> 11
RESEARCH AND DEVELOPMENT EXPENSES.
Year to date research and development expenses for fiscal 1999
increased by 177.8%, or $390,000, to $609,000 from $219,000 for fiscal 1998.
The increase was due to providing enhancements to software for the AccuTouch
system. The Company continues to fund research and development in order to offer
leading edge products to the market place.
AMORTIZATION.
Year to date amortization for fiscal 1999 increased 28.1%, or
$45,000, to $206,000 from $161,000 in fiscal 1998. This increase was due
primarily to amortization of I-Mark goodwill.
INTEREST.
Year to date interest expense for fiscal 1999 increased 123.8% or
$61,000, to $110,000 from $49,000 in fiscal 1998. The increase was within the
Company's operating plan and resulted from interest on U.S. increased bank
loans.
REVALUATION OF USED EQUIPMENT.
Year to date trade-in inventory write off for fiscal 1999 increased to
$262,000 from $ nil in fiscal 1999. The trade-in inventory write down will
continue for the next six consecutive quarters at the end of which value of the
trade-in inventory is anticipated to be $0.
EARNINGS (LOSS) PER SHARE.
The Company's year to date loss for fiscal 1999 was $436,000 or
$(0.02) per share before a write down of $262,000 for trade-in inventory. The
year to date loss for fiscal 1999 after the trade-in inventory write down was
$698,000 or $(0.04) per share compared to a profit of $1,556,000 or $0.10
per share for the same period for fiscal 1998. The decrease in earnings per
share for the 1999 fiscal period as compared to the 1998 fiscal period was due
to a decrease in sales, and increases in selling, administrative and general
expense, research and development expense, amortization and interest expense,
along with the write down of the trade-in inventory.
<PAGE> 12
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 period ended December 31, 1998, the Company generated most
of its funding through cash flow.
At December 31, 1998, the Company's cash totaled $503,282, an increase
of $441,000 from September 30, 1998. Accounts and contracts receivable
decreased to $7,578,000 at December 31, 1998 from $8,621,000 at September 30,
1998. Due to 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, other liquid funds, accounts receivable and contracts
receivable. Inventory figures may vary significantly, depending upon delivery
dates for voting systems. At December 31, 1998, inventory amounted to
$6,861,000, an increase of $1,139,000 from September 30, 1998. Inventory has
increased due to the addition of the AccuTouch system, a new product introduced
in fiscal 1999.
The Company has contractual arrangements with customers whereby credit
terms may be extended for the amounts due for voting systems. At December 31,
1998, agreements receivable less current portion amounted to $352,000, a
decrease of $15,000 from September 30, 1998. These agreements are repaid at
varying terms and with varying interest rates determined on a case by case
basis. Historically, the Company has not experienced any default in connection
with agreements due from customers.
The Company currently has four loans outstanding, three with Western
Bank, Albuquerque, New Mexico, and one loan with Hibernia National Bank of
Texas, McKinney, Texas. One loan in the amount of $361,700 is secured by a loan
receivable amounting to $401,442. This loan bears an interest rate of Western
Bank of Albuquerque Prime Rate and was due January 6, 1999 which has been
extended until January 2000. Two other loans in the amounts of $55,135 maturing
in increments due July 1, 1999, July 1, 2000, and July 1, 2001 and $1,508,500
payable by June, 1999, respectively, are secured by specific Global USA
contracts in the amounts of $66,940 and $2,155,312 and bear interest at bank
prime and 10.5% respectively. The final loan with Hibernia National Bank of
Texas in the amount of $2,700,000, is secured by a blanket assignment of
accounts receivable, bears interest at The Wall Street Journal Prime Rate and
matures on October 12, 1999. The loans are used for working capital.
During the Company's current and two most recently ended fiscal years,
the Company has not experienced any material impact from inflation or changing
prices on its net sales and revenues or on income from continuing operations.
Management anticipates that financial resources, including internally
generated funds and available bank line of credit and borrowings will be
sufficient to finance the Company's current operations and capital expenditures,
excluding acquisitions, for the next twelve months.
<PAGE> 13
SUBSEQUENT EVENT.
On January 7, 1999, the Company entered into a letter of intent with
BRELSH Holdings Ltd. pursuant to which they have agreed to negotiate the terms
of a formal agreement providing for the merger of the company into BRELSH, or a
subsidiary of BRELSH created for the purpose of consummating the merger. Under
the merger, which would be undertaken by way of a plan of arrangement, BRELSH
would acquire all the outstanding common shares of the Company by paying its
shareholders $50,000,000 (US), or approximately $2.71 (US) per share, and by
BRELSH issuing a right to Company's shareholders enabling them to acquire, for
no further consideration, .05 of a share of BRELSH for each outstanding common
share of the Company. To the extent that certain presently outstanding options
or warrants are exercised, a further 1,640,435 common shares of the Company may
be issued before the closing of the merger. If these common shares are issued,
the per share cash purchase price to be paid under the merger would decrease.
The rights to acquire BRELSH shares will only become exercisable if the public
market capitalization of BRELSH exceeds $200,000,000 (US). They would be
exercisable for a two year period, following the date they become exercisable.
If the rights do not become exercisable within seven years of the completion of
the merger, they will expire.
The plan of arrangement between the two companies would be required to
be approved by 75% of the total number of votes of the Company's common
shareholders represented at an extraordinary general meeting of the Company.
Under the letter of intent, this meeting would be required to be held on or
before May 4, 1999. The closing of the merger will be contingent on the receipt
of all necessary securities regulatory approvals, compliance by the parties with
the Hart-Scott-Rodino Antitrust Improvements Act (if necessary), the absence of
any pending or threatened litigation regarding the merger, the satisfactory
completion of each parties' due diligence, and on Howard Van Pelt, the Company's
President, entering into a satisfactory employment agreement with BRELSH. If the
merger is approved, it is contemplated that Howard Van Pelt would become a
director of BRELSH.
The Company and BRELSH have agreed to consider alternative procedures
to consummate the transaction, including a takeover bid, if an alternative
procedure is determined to be more efficient and economical.
The parties have agreed that transactions contemplated by the letter of
intent must be closed on or before the later of June 1, 1999 or 40 days after
the filing of any required notification under the Hart-Scott-Rodino Act. The
Company has the right to terminate the obligations specified in the letter of
intent by paying BRELSH the sum of $750,000 (US).
Mr. David Brown, the Company's Chairman of the Board, Mr. Howard Van
Pelt, and Mr. Clinton Rickards, a director of the Company, have each agreed with
BRELSH to vote their shares in favor of the merger at the Company's
extraordinary general meeting.
<PAGE> 14
Kalamazoo, based BRELSH Holdings, Inc. owns Business Forms Group, Inc.,
doing business as Doubleday Bros. & Co., a 100 year old supplier of electoral,
governmental, educational and business printing products that services
communities throughout the United States. Additionally, BRELSH owns Vista
Business Forms, Inc., Oshtemo, Michigan, a 33 year old company that manufactures
business forms and services its 500 distributors nationally. The addition of the
Company will enhance BRELSH's printing and packaging of election equipment
products throughout the world.
The directors feel that the merger offers a favorable price to
shareholders, a strong ongoing company that permits the continued participation
of the Company's employees with a complementary product line and continuity of
excellent service to customers for which the Company is noted.
COMMITMENTS
Under the terms of a lease agreement dated December 8, 1998, the
Company is committed to minimum annual lease payments of $18,165 plus its share
of common area costs. The lease is for a five year term to December 31, 2003,
with a 5 year renewal option at an annual lease amount to be negotiated. The
lease commitment is $9,083 for the year ending June 30, 1999.
YEAR 2000 ISSUE.
DESCRIPTION OF THE ISSUE:
The Y2K issue refers to the ability of certain date-sensitive computer
chips, software, and systems to recognize a two-digit data field as belonging to
the 21st century. This is a significant issue for most, if not all companies,
with far reaching implications, some of which cannot be anticipated or predicted
with any degree of certainty. The Y2K issue may create unforeseen risks to the
Company from its internal computer systems as well as from computer systems of
third parties with which it deals. Failures of the Company's and/or third
parties' computer systems could have a material adverse impact on the Company's
ability to conduct its business.
YEAR 2000 ASSESSMENT:
Management of the Company has been assessing the magnitude of the Y2K
issue with respect to the Company's products, business, suppliers and customers.
In conjunction with the Company's assessment of Y2K issues which might affect
it, the Company has been formulating plans to address the Y2K issue, including
contingencies to address unforeseen problems.
INTERNAL BUSINESS:
Management is currently reviewing all internal business computer
systems to ensure that these systems either will be Y2K ready, or will be
modified or replaced by Y2K systems.
<PAGE> 15
SUPPLIERS:
The major suppliers to the Company are component parts distributors.
Often the Company sources its products and manufacturing services from multiple,
competing vendors. The Company is currently conducting reviews of all suppliers
to ensure Y2K readiness of as many vendors as possible. There can be no
assurance that the systems of other companies on which the Company relies will
be Y2K ready on a timely basis and will not have an adverse effect on the
operations of the Company. In the instances where the Company is unable to
determine that its vendors have taken appropriate steps to minimize disruption
due to non - Y2K readiness, the Company will consider contingency plans,
including moving to currently identified alternate sources, or developing new
alternative sources of supply.
PRODUCTS:
The Company has conducted a reality-based review of its election
equipment product line for the purpose of determining the impact of Y2K. The
Company's perspective on Y2K issues derives from real-world, practical
experience in meeting the needs of our customers who operate in an event-driven
environment. As such the Company's election tabulation hardware has been
determined to be functional in the Year 2000 and beyond. The Company's recent
development effort in application software has also ensured functionality in the
election processing environment for the Year 2000 and beyond.
COSTS:
The Company does not expect the cost of its Y2K assessment, including
both incremental spending and reallocated resources, to be material. The current
assessment does not include potential costs related to any customer or other
claims or the cost of internal software and hardware being replaced in the
normal course of business. This assessment is subject to change because there is
no uniform definition of "readiness for Y2K". All customer situations cannot be
anticipated, particularly those involving third party products; therefore, the
Company may see claims as a result of the Y2K transition. These claims, if
successful, could have a material adverse impact on future results.
CUSTOMERS:
The Company has not yet assessed the extent to which its governmental
unit customers are Y2K compliant, although it believes that, particularly in the
United States, governmental units are aware of and are addressing the issues.
The Company cannot predict the effect of a lack of Y2K compliance by its
customers on the Company. The inability of a governmental unit to generate data
needed in order to conduct elections or to interface with the Company's voting
systems, or other problems, could prevent the customer from using the Company's
systems or could result in disruption of the election process. The Company is
unable to predict the impact this could have on its business and revenues or the
extent of any liability to third parties the Company might incur, although the
impact or liability could be materially adverse to the Company and its business.
<PAGE> 16
COST ESTIMATES:
The Company has not been required to incur costs for Y2K remedial work
and 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 from numerous assumptions about future events,
including third-party modification plans and other factors. However, the Company
cannot 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 21, 1998, Election Systems and Software, Inc. ("ES&S")
filed a suit against the Registrant's wholly-owned subsidiary, Global
Election Systems, Inc., a Delaware corporation, (Global USA") in the
United States District Court for the District of Nebraska. Information
about this suit, which the Company is vigorously defending, may be
found in the Company's Form 10-qsb for the quarter ended September 30,
1998.
Except for the ES&S lawsuit, 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 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
<PAGE> 17
Item 4. Submission of Matters to a Vote of Security Holders
The following items were submitted to a vote and approved at the
Annual General Meeting held on October 28, 1998. 4,935,286 shares
of the Company's common stock were represented in person and by
proxy. In keeping with Canadian law, matters are voted upon by
show of hands rather than by ballot.
Minutes of last meeting.
Financial Statements and Auditor's Report for the Company's
fiscal year ended June 30, 1998.
Determine the number of the Board of Directors of the
Company at five.
Election of Directors
David H. Brown
George H. Cobbe
P. Nicholas M. Glass
Clinton H. Rickards
Howard T. Van Pelt
Appointment of Auditor
Staley, Okada, Chandler & Scott, Chartered Accountants
Incentive Stock Options
The grant of options exercisable into an aggregate of
350,000 common shares in the capital of the Company.
Item 5. Other Information
None
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
03.1 Memorandum and Articles of Incorporation, as amended.*
04.1 Parts 7, 10 , 12, and 27 of the Memorandum and Articles
of Incorporation, as amended, set forth in Exhibit 3.1**
10.1 Lease agreement between Akira Industries Co. Ltd. and
Global Election Systems Inc., dated December 8, 1998.
11.1 Computation of per-share income Treasury Stock Method of
Global Election Systems Inc.
27 Financial Data Schedule
* Incorporated by reference to Exhibit 2(1) to the Company's Form 10-SB
filed July 31, 1998.
** Incorporated by reference to Exhibit 3(1) to the Company's Form 10-SB
filed July 31, 1998.
B. Reports on Form 8-K
The Company filed no reports on Form 8-K during the second quarter of
Fiscal 1999.
<PAGE> 19
Signature
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on behalf by the undersigned, hereunto duly authorized.
Dated: February 16, 1999
Global Election Systems Inc.
By: /s/ Howard T. Van Pelt
----------------------
Howard T. Van Pelt, President and
Chief Financial Officer
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<S> <C>
03.1 Memorandum and Articles of Incorporation, as amended.*
04.1 Parts 7, 10 , 12, and 27 of the Memorandum and Articles
of Incorporation, as amended, set forth in Exhibit 3.1**
10.1 Lease agreement between Akira Industries Co. Ltd. and
Global Election Systems Inc., dated December 8, 1998.
Filed Electronically Herewith.
11.1 Computation of per-share income Treasury Stock Method of
Global Election Systems Inc. Filed Electronically
Herewith.
27 Financial Data Schedule. Filed Electronically Herewith.
</TABLE>
* Incorporated by reference to Exhibit 2(1) to the Company's Form 10-SB
filed July 31, 1998.
** Incorporated by reference to Exhibit 3(1) to the Company's Form 10-SB
filed July 31, 1998.
<PAGE> 1
EXHIBIT 10.1
LEASE
BETWEEN
AKIRA INDUSTRIES CO. LTD.
AND
GLOBAL ELECTION SYSTEMS INC.
AIRPORT SQUARE
SUITE 350, 1200 WEST 73RD AVENUE
VANCOUVER, BRITISH COLUMBIA
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE 1
LEASED PREMISES
1.1 Leased Premises .................................................. 1
ARTICLE 2
TERM
2.1 Term ............................................................. 2
2.2 Delay in Occupancy ............................................... 2
2.3 Overholding ...................................................... 2
ARTICLE 3
RENT
3.1 Basic Rent ....................................................... 2
3.2 Additional Rent .................................................. 3
3.3 Payment of Additional Rent ....................................... 3
3.4 Accrual of Rent .................................................. 4
3.5 Recovery of Rent ................................................. 4
3.6 Limitations ...................................................... 4
3.7 Payments ......................................................... 4
3.8 Prime Rate ....................................................... 5
3.9 Area Determination ............................................... 5
3.10 Post-Dated Cheques ............................................... 5
3.11 Waiver of Offset ................................................. 5
3.12 Application of Payments .......................................... 5
ARTICLE 4
SECURITY DEPOSIT
4.1 Security Deposit ................................................. 5
ARTICLE 5
GENERAL COVENANTS
5.1 Landlord's Covenants ............................................. 6
5.2 Tenant's Covenants ............................................... 6
ARTICLE 6
USE AND OCCUPANCY
6.1 Use .............................................................. 6
6.2 Waste, Nuisance, Etc ............................................. 6
6.3 Insurance Risks .................................................. 6
6.4 Compliance with Law .............................................. 6
6.5 Rules and Regulations ............................................ 7
6.6 Environmental Matters ............................................ 7
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 7
LICENSES, ASSIGNMENTS AND SUBLETTINGS
7.1 Licenses, Franchises and Concessions .............................. 7
7.2 No Assignment and Subletting ...................................... 7
7.3 Assignment or Subletting Procedures ............................... 7
7.4 Landlord Not to Unreasonably Withhold Consent ..................... 8
7.5 Terms of Consent .................................................. 9
7.6 Change in Control of Tenant .......................................10
7.7 Tenant's Continuing Obligations ...................................10
ARTICLE 8
REPAIR AND DAMAGE
8.1 Landlord's Repairs to Building and Property ...................... 11
8.2 Landlord's Repairs to the Leased Premises ........................ 11
8.3 Tenant's Repair .................................................. 11
8.4 Indemnification .................................................. 11
8.5 Damage and Destruction ........................................... 11
ARTICLE 9
INSURANCE AND LIABILITY
9.1 Landlord's Insurance ............................................. 12
9.2 Tenant's Insurance ............................................... 13
9.3 Limitation of Landlord's Liability ............................... 14
9.4 Indemnity of Landlord ............................................ 14
9.5 Definition of "Insured Damage" ................................... 14
ARTICLE 10
EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default and Remedies ................................... 15
10.2 Payment of Rent, Etc., on Termination ............................ 16
ARTICLE 11
SUBORDINATION AND ATTORNMENT
11.1 Subordination and Attornment ..................................... 17
ARTICLE 12
CERTIFICATES
12.1 Certificates ..................................................... 17
ARTICLE 13
INSPECTION OF AND ACCESS TO THE LEASED PREMISES
13.1 Inspection of and Access to the Leased Premises .................. 17
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 14
DELAY
14.1 Delay ...........................................................17
ARTICLE 15
WAIVER
15.1 Waiver ..........................................................18
ARTICLE 16
TRANSFER BY LANDLORD
16.1 Transfer by Landlord ............................................18
ARTICLE 17
RELOCATION OF LEASED PREMISES
17.1 Relocation of Leased Premises ...................................18
ARTICLE 18
PUBLIC TAKING
18.1 Public Taking ...................................................19
ARTICLE 19
REGISTRATION OF LEASE
19.1 Registration of Lease ...........................................20
ARTICLE 20
LEASE ENTIRE AGREEMENT
20.1 Lease Entire Agreement ..........................................20
ARTICLE 21
NOTICES
21.1 Notices .........................................................20
ARTICLE 22
INTERPRETATION
22.2 Interpretation ..................................................20
ARTICLE 23
EXTENT OF LEASE OBLIGATIONS
23.1 Extent of Lease Obligations .....................................21
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE 24
USE AND OCCUPANCY PRIOR TO TERM
24.1 Use and Occupancy Prior to Term............................... 21
ARTICLE 25
SCHEDULES
25.1 Schedules..................................................... 21
ARTICLE 26
DISTRESS
26.1 Distress...................................................... 21
ARTICLE 27
LANDLORD'S ABILITY TO REMEDY DEFAULTS
27.1 Landlord's Ability to Remedy Defaults......................... 22
ARTICLE 28
INTENT - NET LEASE
28.1 Intent - Net Lease............................................ 22
ARTICLE 29
TIME OF ESSENCE
SCHEDULES
SCHEDULE "A" - LEGAL DESCRIPTION
SCHEDULE "B" - FLOOR PLAN
SCHEDULE "C" - TAXES
SCHEDULE "D" - SERVICES & COSTS
SCHEDULE "E" - RULES AND REGULATIONS
SCHEDULE "F" - LEASEHOLD IMPROVEMENTS
SCHEDULE "G" - RENTABLE AREA CALCULATION
SCHEDULE "H" - OPTION TO RENEW
SCHEDULE "I" - SPECIAL PROVISIONS
SCHEDULE "IA" - FLOOR PLAN
</TABLE>
(iv)
<PAGE> 6
THIS AGREEMENT is dated for reference the 8th day of December, 1998;
UNDER THE LAND TRANSFER FORM ACT, PART 2
BETWEEN:
AKIRA INDUSTRIES CO. LTD., a body corporate registered as an
extraprovincial company incorporated under the laws of the Province of
British Columbia and having its registered office at Suite 1600, 928 West
George Street, Vancouver, British Columbia, Canada
(hereinafter called the "Landlord")
OF THE FIRST PART
AND:
GLOBAL ELECTION SYSTEMS INC., body corporate duly incorporated under the
laws of the Province of British Columbia and doing business at Suite 350,
1200 West 73rd Avenue, Vancouver, British Columbia, Canada
(hereinafter called the "Tenant")
OF THE SECOND PART
In consideration of the rents, covenants and agreements hereinafter contained,
the Landlord and Tenant hereby agree as follows:
ARTICLE
LEASED PREMISES
1.1 Leased Premises. The Landlord hereby demises and leases to the Tenant which
takes on lease from the Landlord the premises (the "Leased Premises") located in
a building (the "Building") having a municipal address of 1200 West 73rd Avenue,
in the City of Vancouver, British Columbia and known as AIRPORT SQUARE (the
Leased Premises, the Building, together with the lands described in Schedule "A"
attached hereto and present and future improvements, additions and changes
thereto being called the "Property"). The parties acknowledge and agree that the
Leased Premises consist of approximately 2,785 square feet of Rentable Area on
the third (3rd) floor of the Building, having the approximate location and
configuration as shown outlined in red on the plan or plans marked as
Schedule(s) "B", attached hereto and designated as Suite 350.
The exterior face of the Building; any space in the Leased Premises used for
stairways or passageways to other premises; stacks; shafts; pipes, conduits;
ducts; heating; electrical; plumbing; air conditioning and other Building
facilities and systems supplied by the landlord for use in common with other
tenants are expressly excluded from the Leased Premises.
- 1 -
<PAGE> 7
ARTICLE 2
TERM
2.1 Term. To have and to hold the Leased Premises for and during the term of
five (5) years and Zero (0) days/months (the "Term) to be computed from the 1st
day of May, 1999 and to be fully completed and ended on the 30th day of April,
2004, unless otherwise terminated.
2.2 Delay in Occupancy. If the Leased premises or any part thereof are not
ready for occupancy on the date of commencement of the Term, no part of the
"Rent" (as hereinafter defined) or only a proportionate part thereof, in the
event that the Tenant shall occupy a part of the Leased Premises, shall be
payable for the period prior to the date when the entire Leased Premises are
ready for occupancy and the full Rent shall accrue only after such last
mentioned date. The Tenant agrees to accept any such abatement of Rent in full
settlement of all claims which the Tenant might otherwise have by reason of the
Leased Premises not being ready for occupancy on the date of commencement of the
Term, provided that when the Landlord has completed construction of such part of
the Leased Premises as it is obliged hereunder to construct, the Tenant shall
not be entitled to any abatement of Rent for any delay in occupancy due to the
Tenant's failure or delay to provide plans or to complete any special
installations or other work required for its purposes or due to any other
reason, nor shall the Tenant be entitled to any abatement of Rent for any delay
in or delay by the Tenant. A certificate of an independent architect or interior
designer appointed by the landlord as to the date the Leased Premises were ready
for occupancy and such construction as the Landlord is obliged to complete is
substantially completed, or as to the date upon which the same would have been
ready for occupancy and completed respectively but for the failure or delay of
the Tenant, shall be conclusive and binding on the Tenant and Rent in full shall
accrue and become payable for the date set out in the said certificate.
Notwithstanding any delay in occupancy, the expiry date of this Lease shall
remain unchanged.
2.3 Overholding. If at the expiration of the Term or sooner termination hereof,
the Tenant shall remain in possession without any further written agreement or
in circumstances where a tenancy would thereby be created by implication of low
or otherwise, a tenancy from year to year shall not be created by implication of
law or otherwise, but the Tenant shall be deemed to be a monthly tenant only, at
double "Basic Rent" (as hereinafter defined) payable monthly in advance plus
"Additional Rent" (as hereinafter defined) and otherwise upon and subject to the
same terms and conditions as herein contained, as are applicable to a month to
month tenancy and excepting provisions for renewal (if any), and leasehold
improvement allowance (if any), contained herein, and nothing, including the
acceptance of any Rent by the landlord, for periods other than monthly periods,
shall extend this Lease to the contrary except an agreement in writing between
the Landlord and the Tenant and the Tenant hereby authorizes the Landlord to
apply any moneys received from the Tenant in payment of such Monthly Rent.
ARTICLE 3
RENT
3.1 Basic Rent. The Tenant shall without deduction or right of offset pay to
the Landlord yearly and every year during the Term as rental (herein called
"Basic Rent") when due and payable the following:
(a) For Year One of the term, the annual rent shall be Twenty-Seven
Thousand Eight Hundred and Fifty Dollars ($27,850.00) per annum based
on a rate of $10.00 per square foot of Rentable Area per annum,
payable in twelve equal monthly installments of Two Thousand Three
Hundred and Twenty Dollars and Eighty-Three Cents ($2,320.83) each in
advance on the first day of each and every month commencing May 1,
1999; and
- 2 -
<PAGE> 8
(b) For Year Two of the term, the annual rent shall be Thirty Thousand Six
Hundred and Thirty-Five Dollars ($30,635.00) per annum based on a rate
of $11.00 per square foot of Rentable Area per annum, payable in
twelve equal monthly installments of Two Thousand Five Hundred and
Fifty-Two Dollars and Ninety-Two Cents ($2,552.92 each in advance on
the first day of each and every month commencing May 1, 2000.
(c) For Year Three (3) of the term, the annual rent shall be Thirty-Three
Thousand Four Hundred and Twenty Dollars ($33,420.00) per annum based
on a rate of $12.00 per square foot of Rentable Area per annum,
payable in twelve equal monthly installments of Two Thousand Seven
Hundred and Eighty-Five Dollars ($2,785.00) each in advance on the
first day of each and every month commencing May 1, 2001.
(d) For Year Four (4) of the term, the annual rent shall be Thirty-Six
Thousand Two Hundred and Five Dollars ($36,205.00) per annum based on
a rate of $13.00 per square foot of Rentable Area per annum, payable
in twelve equal monthly installments of Three Thousand and Seventeen
Dollars and Eight Cents ($3,017.08) each in advance on the first day
of each and every month commencing May 1, 2002.
(e) For Year Five (5) of the term, the annual rent shall be Thirty-eight
Thousand Nine Hundred and Ninety Dollars ($38,990.00) per annum based
on a rate of $14.00 per square foot of Rentable Area per annum,
payable in twelve equal monthly installments of Three Thousand Two
Hundred and Forty-Nine Dollars and Seventeen Cents ($3,249.17) each in
advance on the first day of each and every month commencing May 1,
2003.
3.2 Additional Rent. The Tenant shall, without deduction or right of offset,
pay to the Landlord yearly and every year during the Term as additional rental
(herein called "Additional Rent") when due and payable:
(a) the amounts of any Taxes payable by the Tenant to the Landlord
pursuant to the provisions of Schedule "C" attached hereto; and
(b) the amounts required to be paid to the Landlord pursuant to the
provisions of Schedule "D" attached hereto.
3.3 Payment of Additional Rent. Additional Rent shall be paid and adjusted with
reference to a fiscal period of twelve (12) calendar months ("Fiscal Period"),
which shall be a calendar year unless the Landlord shall from time to time have
selected a Fiscal Period which is not a calendar year by written notice to the
Tenant.
The Landlord shall advise the Tenant in writing of its estimate of the
Additional Rent to be payable by the Tenant during the Fiscal Period (or broken
portion of the Fiscal Period, as the case may be, if applicable at the
commencement or end of the Term or because of a change in Fiscal Period) which
commenced upon the commencement date of the Term and for each succeeding Fiscal
Period or broken portion thereof which commences during the Term. Such estimate
shall in every case be reasonable estimate and, if requested by the Tenant,
shall be accompanied by reasonable particulars or the manner which it was
calculated. The Landlord may make its estimate so that the Additional Rent
payable by the Tenant 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 Additional Rent payable by the Tenant shall be paid in equal
monthly installments in advance on the first day of each month during the Term
based on the Landlord's estimate as aforesaid. From time to time, the Landlord
may re-estimate, on a reasonable basis, the amount of Additional Rent for any
Fiscal Period or broken portion thereof, in which case the Landlord shall advise
the Tenant in writing of such re-estimate and fix new equal monthly installments
for the remaining balance of such Fiscal Period or broken portion thereof. After
the end of each Fiscal Period or broken portion thereof the Landlord shall
submit to the Tenant a statement of the amounts of Taxes and
- 3 -
<PAGE> 9
Operating Costs (both as hereinafter defined for the Building as a whole and the
actual Additional Rent payable in respect of such Fiscal Period or broken
portion thereof and a calculation of the amounts by which the Additional Rent
payable by the Tenant exceeds or is less than (as the case may be) the aggregate
installments paid by the Tenant on account of Additional Rent for such Fiscal
period. An opinion from time to time issued by an independent chartered
accountant appointed by the Landlord as to the amount of any calculation of
Additional Rent shall be conclusive and binding upon the Landlord and the
Tenant.
Within thirty (30) days after the submission of such statement either the
Tenant shall pay to the Landlord any amount by which the amount found payable by
the Tenant with respect to such Fiscal Period or broken portion thereof exceeds
the aggregate of the monthly payments made by it on account thereof during such
Fiscal period or broken portion thereof, or the Landlord shall pay to the Tenant
any amount by which the amount found payable as aforesaid is less than the
aggregate of such monthly payments.
Notwithstanding anything to the contrary, whenever in the landlord's
reasonable opinion, any item of Additional Rent properly relates to a particular
tenant or tenants within the Building, the landlord May allocate such item of
Additional Rent to such tenant or tenants. Any amounts allocated by the landlord
to the Tenant pursuant to this clause 3.3 shall be payable by the Tenant
forthwith, upon demand.
3.4 Accrual of Rent. Basic Rent and Additional Rent (herein collectively called
"Rent") shall be considered as accruing from day to day, and Rent for an
irregular period of less tan one year or less than one calendar month shall be
apportioned and adjusted by the landlord for the Fiscal Periods of the Landlord
in which the tenancy created hereby commences and expires. Where the calculation
of Additional Rent for a period cannot be made until after the termination of
this Lease, the obligation of the Tenant to pay Additional Rent shall survive
the termination hereof and Additional Rent for such period shall be payable by
the Tenant upon demand by the landlord. If the Term commences or expires on any
day other than the first of the last day of a month, Rent for such fraction of a
month shall be apportioned and adjusted as aforesaid and paid by the Tenant on
the commencement date of the term.
3.5 Recover of Rent. Rent and other amounts required to be paid by the Tenant
to the Landlord under this Lease shall be deemed to be and be treated as rent
and payable and recoverable as rent, and the Landlord shall have all rights
against the Tenant for default in any payment of rent and other amounts as in
the case of arrears in Rent.
3.6 Limitations. The information set out in statements, documents or other
writings setting out the amount of Additional Rent submitted to the Tenant under
or pursuant to this Lease shall be binding on the Tenant and deemed to be
accepted by it and shall not be subject to amendment for any reasons unless the
Tenant gives written notice to the Landlord within sixty (60) days of the
Landlord's submission of such statement, document or writing identifying the
statement, document or writing and setting out in reasonable detail the reason
why such statement, document or writing should not be binding on the Tenant. An
opinion of a chartered account referred to in clause 3.3 hereof shall be binding
and may not be so challenged.
3.7 Payments. All payments of Rent and any other amounts accruing due and
payable by the Tenant hereunder from time to time shall be paid in lawful
currency of Canada to the Landlord at its address set forth in clause 21.1
hereof or to such other address or party as may from time to time be advised by
the landlord in writing. All payments made by way of cheque shall be made
payable to Brookfield Management Services Western Ltd. in trust for Akira
Industries Co. Ltd. or to such other party as the Landlord may advise in
writing.
- 4 -
<PAGE> 10
3.8 Prime Rate. For the purposes of this Lease, "Prime Rate" shall mean the
prime commercial loan rate charged from time to time to borrowers having the
highest credit rate from time to time by the main branch in Vancouver, British
Columbia, of the landlord's principal bank. PROVIDED ALWAYS that if at any time
the aforesaid bank fails to declare its prime rate for any period the interest
rate hereunder for that period until the next date of declaration shall be
fifteen percent (15%) per annum. Interest as aforesaid shall run from the due
date of any required payment hereunder by the Tenant without the necessity of a
demand until payment and shall be compounded semi-annually.
3.9 Area Determination. In the event that any calculation or determination by
the Landlord of the Rentable Area of any premises (including the Leased
Premises) or the Building is disputed or called into question, or if the
Rentable Area of the Leased Premises was estimated by or on behalf of the
Landlord for the purposes of this Lease because the Rentable Area thereof could
not be accurately calculated prior to the execution of this Lease, or if the
Rentable Area of the Leased Premises or of the Building changes at any time
during the Term, then it shall be calculated or determined by the landlord's
architect or surveyor from time to time appointed for the purpose, whose
certificate shall be conclusive. If the estimate previously made was not correct
or has changed, the Rentable Area of the Leased Premises and the Rentable Area
of the Building shall then be calculated and the appropriate adjustments made
with respect to Basic Rent and Additional Rent payable under this Lease and to
the Tenant's Proportionate Share.
3.10 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.
3.11 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.
3.12 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.
ARTICLE 4
SECURITY DEPOSIT
4.1 Security Deposit. The Tenant has paid to the Landlord's agent, Brookfield
management Services Western Ltd., the sum of Five Thousand Nine Hundred and
Fifty Nine Dollars and Ninety Cents ($5,959.90) including G.S.T. to be applied
as follows: Two Thousand Nine Hundred and Seventy-Nine Dollars and Ninety-Five
Cents ($2,979.95) shall be applied as a deposit to the Landlord for the 1st
month's rent and Two Thousand Nine Hundred and Seventy-Nine Dollars ($2,979.95)
as a further deposit to the Landlord to stand as security for the payment by the
Tenant of any and all present and future debts and liabilities of the Tenant to
the Landlord in connection with its obligations arising under this lease (the
"Debts, Liabilities and Obligations"). The agent of the landlord is hereby
authorized by the Tenant to deliver such deposit to the Landlord and need not
hold it in trust as stakeholder. The Landlord shall not be required to keep the
deposit separate from its general funds. In the event the Landlord shall from
time to time apply any or all of such deposit towards payment of the Debts,
Liabilities and Obligations, the Tenant shall, from time to time at the request
of the Landlord, forthwith pay to the Landlord such sum to bring the amount of
the said deposit up to its original amount. In the event of the Landlord
disposing of its interest in this Lease, the Landlord shall credit the deposit
to its successor and thereupon shall have no liability to the Tenant to repay
the security deposit to the Tenant. If the Tenant shall from time to time fail
to observe, perform or pay its Debts, Liabilities and Obligations in accordance
with the terms of this Lease, the Tenant hereby authorizes the Landlord to apply
all or part, as the case may be, of such security
- 5 -
<PAGE> 11
deposit to rectify such failure, without prejudice to any other rights or
remedies of the Landlord. Subject to the foregoing and to the Tenant not being
in default under this Lease, the Landlord shall apply the security deposit to
the Tenant's last month's rent without interest at the end of the Term or sooner
termination of the Lease provided that all Debts, Liabilities and Obligations of
the Tenant to the Landlord are paid and performed in full, failing which the
Landlord may, on notice to the Tenant, elect to retain the security deposit and
to apply it in reduction of the Debts, Liabilities and Obligations and the
Tenant shall remain fully liable to the Landlord for payment and performance of
the remaining Debts, Liabilities and Obligations.
ARTICLE 5
GENERAL COVENANTS
5.1 Landlord's Covenants. The Landlord covenants with the Tenant:
(a) for quiet enjoyment; and
(b) to observe and perform all the covenants and obligations of
the Landlord herein.
5.2 Tenant's Covenants. The Tenant covenants with the Landlord:
(a) to pay Rent; and
(b) to observe and perform all the covenants and obligations of
the Tenant herein.
ARTICLE 6
USE AND OCCUPANCY
The Tenant covenants with the Landlord:
6.1 Use. Not to use the Leased Premises for any purpose other than an office
for the conduct of the Tenant's business which is a General Business Office.
6.2 Waste Nuisance, Etc. Not to commit, or permit, any waste, injury or damage
to the Property including the Leasehold Improvements and any trade fixtures
therein, any loading of the floors thereof in excess of the maximum degree of
loading as determined by the Landlord, acting reasonably, any nuisance therein
or any use or manner of use causing annoyance to other tenants and occupants or
the Property or to the Landlord, or which, in the reasonable opinion of the
Landlord, may have an adverse impact on the stature and reputation of the
Property.
6.3 Insurance Risks. Not to do, omit or permit to be done or omitted to be done
upon the Property anything which would cause to be increased the Landlord's cost
of insurance or the costs of insurance of another tenant of the Property against
perils as to which the landlord or such other tenant has insured (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 on the Property to be subject to cancellation.
6.4 Compliance with Law. To comply at its own risk and expense with all fire
and safety, sanitary and governmental laws, regulations and requirements
pertaining to the operation, occupation and use of the Leased Premises, the
condition of the Leasehold Improvements, trade fixtures, furniture and equipment
installed therein and the making of any repairs, changes or improvements
therein.
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6.5 Rules and Regulations. To observe and perform, and to cause its employees,
invitees and others over whom the Tenant can reasonably be expected to exercise
control to observe and perform, the Rules and Regulations contained in Schedule
"E" hereto, and such further and other reasonable rules and regulations and
amendments and additions therein as may hereafter be made by the Landlord and
notified in writing to the Tenant. The imposition of such Rules and Regulations
shall not create or imply any obligation of the Landlord to enforce them or
create any liability of the Landlord for their non-enforcement or otherwise.
6.6 Environmental Matters. The Tenant covenants with the Landlord that it will
not bring upon, permit or use any substance, defined or designated as a
hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or
radioactive substance or other similar term, by any applicable federal,
provincial, municipal or local statute, regulation, by-law or ordinance now or
hereafter in effect, or any substance or materials, the use or disposition of
which is regulated by any such statute, regulation, by-law or ordinance
(hereinafter called "Toxic Materials") in, on or under the Property and the
Tenant will promptly comply with all statutes, regulations, by-laws and
governmental authorities or courts having jurisdiction, relating to the use,
collection, storage, treatment, control, removal or cleanup of Toxic Materials
in, on, or under the Property if the Property becomes contaminated with Toxic
Materials as a result of operations or activities of the Tenant on the Property,
or incorporated in any Tenant's improvements thereon. The Landlord may, but
shall not be obliged to, enter upon the Leased Premises or elsewhere on the
Property and take such actions and incur such costs and expenses to effect such
compliance as it deems advisable and the Tenant shall reimburse the landlord on
demand for the full amount of all costs and expenses incurred by the Landlord in
connection with such compliance activities. The Tenant will indemnify and hold
the Landlord by reason of a breach of any of the covenants aforesaid which
indemnity shall survive any surrender or termination of this Lease.
ARTICLE 7
LICENSES, ASSIGNMENTS AND SUBLETTING
7.1 Licenses, Franchises and Concessions. The Tenant shall not suffer or permit
any part of the Leased Premises to be used or occupied by any persons other than
the Tenant, any permitted subtenants and the employees of the Tenant and any
such permitted subtenant, or suffer or permit any part of the Leased Premises to
be used or occupied by any licensee, franchisee or concessionaire, or suffer or
permit any persons to be upon the Leased Premises other than the Tenant, such
permitted subtenants and their respective employees, customers and others having
lawful business with them.
7.2 No Assignment and Subletting. The Tenant covenants that it will not assign
this Lease or sublet the Leased Premises in whole or in part without the prior
written consent of the Landlord. The Landlord may withhold such consent
arbitrarily if it elects to exercise its right of termination hereinafter set
forth or if the Tenant contemplates an assignment of this Lease for a part of
the Leased Premises. If such termination right is not exercised the Landlord
covenants not to withhold its consent unreasonably (I) as to any assignee or
sub-lessee who is in a satisfactory financial condition, agrees to use the
Leased Premises for those purposes permitted hereunder, and is otherwise
satisfactory to the landlord, and (ii) as to any portion of the Leased Premises
which, in the Landlord's sole judgement, is a proper and rational division of
the Leased Premises. Without limitation, the Tenant shall for the purpose of
this Lease be considered to assign or sublet in any case where it permits the
Leased Premises or any portion thereof to be, or the Leased Premises or any
portion thereof are, occupied by persons other than the Tenant, its employees
and others engaged in carrying on the business of the Tenant, whether pursuant
to assignment, subletting, parting with or sharing possession, licence or other
right, or where any of the foregoing occurs by operation of law.
7.3 Assignment or Subletting Procedures. The Tenant shall not assign this Lease
or sublet the whole or any part of the Leased Premises unless:
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(a) it shall have received or procured a bona fide written offer to take
an assignment or sublease which is not inconsistent with this Lease,
and the acceptance of which would not breach any provisions of this
Lease if this Article is complied with and which the Tenant has
determined to accept subject to this Article being complied with;
(b) it shall have first requested and obtained the consent in writing of
the Landlord thereto; and
(c) the rent payable pursuant to the assignment or sublease at least
equals the aggregate of the Rent payable under this Lease.
Any request for consent shall be in writing and accompanied by a copy
of the offer certified by the Tenant to be true and complete, and the Tenant
shall furnish to the Landlord all information available to the Tenant and
requested by the Landlord as to the responsibility, financial standing and
business of the proposed assignee or sub-tenant.
Notwithstanding anything to the contrary, within twenty (20) 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 of
termination submitted to the Tenant, if the request is to assign this Lease or
sublet the whole of the Leased Premises, to cancel and terminate this Lease, or
if the request is to sublet a part of the Leased premises only, to cancel and
terminate this Lease with respect to such part, in each case as of a termination
date to be stipulated in the notice of termination which shall be not less than
sixty (60) days or more than ninety (90) days following the giving of such
notice. In such event the Tenant shall surrender the whole or part, as the case
may be, of the Leased Premises in accordance with such notice of termination and
Basic Rent and Additional Rent shall be apportioned and paid to the date of
surrender and, if a part only of the Leased Premises is surrendered, Basic Rent
and Additional Rent shall after the date of surrender abate proportionately. As
a condition of the Landlord's consent, the assignee or subtenant, as the case
may be, shall agree (and will be deemed to have agreed) with the Landlord to
observe the obligations of the Tenant under this Lease as the same relate to the
space assigned or sublet (except in the case of a sublease, the Tenant's
covenant to pay Rent) by entering into an assumption agreement with the Landlord
and the Tenant in the Landlord's then standard form and shall pay the Landlord's
then current processing charge and solicitors' fees and disbursements for
preparing such agreement. The Tenant further agrees that if the Landlord
consents to any such assignment or subletting the Tenant shall be responsible
for and shall and does hereby indemnify and 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.
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. Any consent by the Landlord to any assignment or
subletting shall not constitute a waiver of the requirement for consent by the
Landlord to any subsequent assignment or subletting by either the Tenant or any
assignee or subtenant.
7.4 Landlord Not to Unreasonably Withhold Consent. If the Tenant complies with
clause 7.3 above and the Landlord does not exercise its right of cancellation,
then the Landlord's consent to a proposed assignment or sublet shall not be
unreasonably withheld. Without limiting the other instances in which it may be
reasonable for the landlord to withhold its consent to an assignment or
subletting, it shall be reasonable for the landlord to withhold its consent in
the following instances:
(a) the proposed assignee or sublessee is a governmental department or
agency;
(b) in the Landlord's reasonable judgement, the use of the Leased Premises
by the proposed assignee or sublessee would involve occupancy by other
than primarily general office personnel or otherwise in violation of
clause 6.1 of this Lease, would involve any
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alterations which would lessen the value of the Leasehold Improvements
in the Leased Premises, would require increased services including
increased load on elevator services, by the Landlord or later the
reputation or character of the Building;
(c) in the Landlord's reasonable judgement, the proposed assignee or
subtenant is not creditworthy;
(d) in the Landlord's reasonable judgement, the proposed assignee or
subtenant does not have a good reputation in the community as a tenant
of property;
(e) the Landlord has experienced previous defaults by or is in litigation
with the proposed assignee or subtenant;
(f) in the Landlord's reasonable judgement, the Leased Premises, or the
relevant part thereof, will be used in a manner that will violate any
covenant contained in any other lease of space in or agreement
affecting the Property;
(g) the use of the Premises by the proposed assignee or subtenant will
violate any applicable law, by-law or regulation;
(h) the proposed assignment or sublease will create a vacancy elsewhere in
the Building or the Property;
(i) the proposed assignee or subtenant is a person with whom the Landlord
is negotiating to lease space in the Building or the Property;
(j) the proposed assignment or sublease fails to include or provide for
all of the terms and provisions required pursuant to this Article 7;
(k) the Tenant is in default of any obligation of the Tenant under this
Lease or has been in default under this Lease on two or more occasions
during the twelve (12) months preceding the date that the Tenant
requests consent;
(l) in the case of a subletting of less than the entire Leased Premises,
the subletting would result in the division of the Leased Premises
into more than two subparcels or would require access to be provided
through space leased or held for lease to another tenant or
improvements to be made outside of the Leased Premises; or
(m) the Landlord does not receive sufficient information from the Tenant
respecting the proposed assignee or subtenant to enable it to make a
determination concerning the matters herein set out.
The Tenant acknowledges that the Landlord shall not be liable to the Tenant in
damages where, in giving good faith consideration to any request of the Tenant
hereunder, it withholds its consent to a proposed assignment or sublease.
7.5 Terms of Consent. If the Landlord consents in writing to an assignment or
sublease as contemplated herein, the Tenant may complete such assignment or
sublease subject to the following covenants and conditions:
(a) no assignment or sublease shall be valid and no assignee or subtenant
shall take possession of the Leased Premises or any part thereof until
an executed duplicate original of such assignment or sublease has been
delivered to the Landlord; and
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(b) all "Excess Rent", as hereinafter defined, derived from such
assignment or sublease shall be payable to the Landlord. The Excess
Rent shall be deemed to be and shall be paid by the Tenant to the
Landlord as Rent. The Tenant shall pay the Excess Rent to the landlord
immediately as and when such Excess Rent is receivable by the Tenant.
As used herein, "Excess Rent" means the amount by which the total money and
other economic consideration to be paid by the assignee or subtenant as a result
of an assignment or sublease, whether denominated as rent or otherwise, exceeds,
in the aggregate, the total amount of annual Basic Rent and Additional Rent
which the Tenant is obligated to pay to the landlord under this Lease, pro rated
for the portion of the Leased Premises being assigned or sublet and the amount
of annual Basic Rent and Additional Rent the Tenant is obligated to pay the
Landlord under this Lease, pro rated for the portion of the Leased Premises
being assigned or sublet that is not occupied or used by the Tenant, until the
date of such assignment or sublease.
7.6 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 this Article 7. If such control or beneficial ownership is
changed without the prior written consent of the Landlord, the
Landlord 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 7.
(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 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 of the Term or the date of earlier execution of this
Lease up to the date such books and records are made available to the
Landlord.
7.7 Tenant's Continuing Obligations.
(a) Notwithstanding any such consent being given by the landlord to an
assignment or subletting, as the case may be, 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 contained in this Lease.
(b) The Tenant agrees that acceptance of Basic Rent or Additional Rent by
the Landlord from a third party shall not be deemed a consent by the
Landlord to any assignment of this Lease or subletting of the Leased
Premises.
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ARTICLE 8
REPAIR AND DAMAGE
8.1 Landlord's Repairs to Building and Property. The landlord covenants with
the Tenant to keep in a reasonable state of repair and decoration, subject to
the obligations of the Tenant hereunder:
(a) those portions of the Property consisting of the entrance, lobbies,
stairways, corridors, landscaped areas, parking areas, and other
facilities to the extent from time to time provided for use in common
by the Tenant and other tenants of the Building or Property, and the
exterior portions (including foundations and roofs) of all buildings
and structures from time to time forming part of the Property and
affecting its general appearance;
(b) the building (other than the Leased Premises and premises of other
tenants) including the systems for interior climate control, the
elevators and escalators (if any), entrances, lobbies, stairways,
corridors and washrooms from time to time provided for use in common
by the Tenant and the other tenants of the Building or Property and
the systems provided for use in common by the Tenant and other tenants
of the Building or Property and the systems provided for bringing
utilities to the Leased Premises.
8.2 Landlord's Repairs to the Leased Premises. The Landlord covenants with the
Tenant to repair, so far as reasonably feasible, and as expeditiously as
reasonably feasible, defects in standard demising walls, structural elements,
exterior walls of the Building, suspended ceiling (except to the extent of any
damage thereto is caused by the activities of the Tenant), electrical and
mechanical installations standard to the Building installed by the Landlord in
the Leased Premises (if and to the extent that such defects are sufficient to
impair the Tenant's use of the Leased Premises while using them in a manner
consistent with this Lease) and "Insured Damage" (as herein defined). The
Landlord shall in no event be required to make repairs to Leasehold Improvements
made by the Tenant, or by the Landlord on behalf of the Tenant or another tenant
or to make repairs to wear and tear within the Leased Premises.
8.3 Tenant's Repairs. The Tenant covenants with the Landlord to repair,
maintain and keep at the Tenant's own cost, except insofar as the obligation to
repair rests upon the Landlord pursuant to this paragraph, the Leased Premises,
including without limitation, Leasehold Improvements, glass and plate glass, and
the suspended ceiling and grid, in good and substantial repair, reasonable wear
and tear excepted. The Landlord may enter the Leased Premises at all reasonable
times and view the condition thereof and the Tenant covenants with the Landlord
to repair, maintain and keep the Leased Premises in good and substantial repair
according to notice in writing, reasonable wear and tear excepted. If the Tenant
shall fail to repair as aforesaid after reasonable notice to do so, the Landlord
may effect the repairs and the Tenant shall pay the reasonable cost thereof to
the Landlord on demand. The Tenant covenants with the landlord that the Tenant
will at the expiration of the Term or sooner termination thereof peaceably
surrender the Leased Premises and appurtenances in good and substantial repair
and condition, reasonable wear and tear excepted.
8.4 Indemnification. If any part of the Leased Premises which the Landlord is
obligated to repair becomes out of repair, damaged or destroyed through the
negligence of, or misuse by, the Tenant or its employees, agents, invitees or
others under its control, the Tenant shall pay the Landlord on demand the
expense of repairs or replacements, including the Landlord's reasonable
administration charge thereof, necessitated by such negligence or misuse, except
to the extent that such disrepair, damage or destruction constitutes "Insured
Damage" as set forth in clause 9.5 hereof.
8.5 Damage and Destruction.
(a) It is agreed between the Landlord and the Tenant that in the event the
Leased Premises are at any time destroyed or damaged as a result of
fire, the elements accident or other casualty insured against by the
Landlord then:
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(i) unless the damage was caused by the fault or negligence of the
Tenant or its employees, agents, invitees or others under its
control, from the date of occurrence of the damage and until the
Leased Premises are reasonably capable for use and occupancy as
aforesaid, the Basic Rent payable pursuant to this Lease shall
abate from time to time in proportion to the part or parts of the
Leased Premises not reasonably capable of such use and occupancy,
and
(ii) unless this Lease is terminated as hereinafter provided, the
landlord or the Tenant, as the case may be (according to the
nature of the damage and their respective obligations to repair
as provided in clauses 8.1, 8.2, 8.3 and 8.4 of this Article)
shall repair such damage with all reasonable diligence, but to
the extent that any part of the Leased Premises is not reasonably
capable of such use and occupancy by reason of damage which the
Tenant is obligated to repair hereunder, any abatement of Basic
Rent to which the Tenant would otherwise be entitled hereunder
shall not extend later than the time by which, in the reasonable
opinion of the Landlord, repairs by the Tenant ought to have been
completed with reasonable diligence;
(b) If the Leased Premises are substantially damaged or destroyed by any
cause and if in the reasonable opinion on the Landlord given in
writing within thirty (30) days of the occurrence the Leased Premises
cannot reasonably be repaired within one hundred and eighty (180) days
after the occurrence thereof, then at the option of the Landlord, the
Lease shall terminate, in which event neither the Landlord nor the
Tenant shall be bound to repair as above provided, and the Tenant
shall instead deliver up possession of the Leased Premises to the
Landlord with reasonable expedition and Rent shall be apportioned and
paid to the date of the occurrence;
(c) If
(i) premises, whether of the Tenant or other tenants of the Property,
comprising in the aggregate half or more of the total number of
square feet of rentable office area in the Property or half or
more of the total number of square feet of rentable office area
in the Building (as determined by the Landlord), or
(ii) portions of the Property which affect access or services
essential thereto,
are substantially damaged or destroyed by any cause and if in the
reasonable opinion of the Landlord the damage cannot reasonably be
repaired within one hundred and eighty (180) days after the occupance
thereof, then the Landlord may, by written notice to the Tenant given
within thirty (30) days after the occurrence of such damage or
destruction, terminate this Lease, in which event neither the Landlord
nor the Tenant shall be bound to repair as above provided, and the
Tenant shall instead deliver up possession of the Leased Premises to
the Landlord with reasonable expedition, but in any event within sixty
(60) days after delivery of such notice of termination, and Rent shall
be apportioned and paid to the date upon which possession is so
delivered up.
ARTICLE 9
INSURANCE AND LIABILITY
9.1 Landlord's Insurance. The Landlord shall take out and keep in force during
the Term insurance with respect to the Property except for the "Leasehold
Improvements" (as hereinafter defined) in the Leased Premises. The insurance to
be maintained by the Landlord shall be in respect of perils and to amounts and
on terms and conditions which from time to time are insurable at a reasonable
premium
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and which are normally insured by reasonably prudent owners of properties
similar to the Property, all as from time to time determined at reasonable
intervals by insurance advisors selected by the Landlord, and whose opinion
shall be conclusive. Unless and until such insurance advisors shall state that
any such perils are not customarily insured against by owners of properties
similar to the Property, the perils to be insurance against by the Landlord
shall include, without limitation, public liability, boilers and machinery, and
"all risks" coverages and may include at the option of the Landlord losses
suffered by the Landlord in its capacity as landlord through business
interruption. The insurance to be maintained by the Landlord shall contain a
waiver by the insurer of any rights of subrogation or indemnity or any other
claim over to which the insurer might otherwise be entitled against the Tenant
or the agents or employees of the Tenant, if such is obtainable at reasonable
cost.
9.2 Tenant's Insurance. The Tenant shall take out and keep in force during the
Term:
(a) comprehensive general public liability insurance with respect to
the Leased Premises and the coverage for any one occurrence or
claim of not less than One Million Dollars ($1,000,000) or such
other amount as the Landlord may reasonably require upon not less
than one (1) month's notice at any time during the Term; and
(b) insurance shall include the landlord as an additional named
insured and shall protect the Landlord in respect of claims on
property of every description and kind owned by the Tenant or for
which the Tenant is legally liable, or installed by or on behalf
of the Tenant and in any such case located within the Leased
Premises as if the Landlord were separately insured in respect of
fire and such other perils as are from time to time in the usual
extended coverage endorsement including the Leasehold
Improvements, trade fixtures, and the furniture and equipment
(and if the Leased Premises are located on the first floor of the
Building, the Tenant will take out and maintain insurance
coverage on plate glass on the Leased Premises) in the Leased
Premises in each case for not less than the full replacement cost
thereof;
(c) tenant's legal liability insurance for the full replacement cost
of the Leased Premises; and
(d) insurance against such other perils and in such amounts as the
Landlord may from time to time reasonably require upon not less
than ninety (90) days' written notice, such requirement to be
made on the basis that the required insurance is customary at the
time for prudent tenants of properties similar to the Property.
All insurance required to be maintained by the Tenant shall be on
terms and with insurers satisfactory to the Landlord. Each policy under
subparagraph 9.2(b) shall contain a waiver by the insurer of any rights of
subrogation or any other claim over to which the insurer might otherwise be
entitled against the Landlord or the agents, employees or contractors of the
Landlord and the Tenant hereby releases the Landlord and the agents, employees
and contractors of the landlord from all actions, claims and proceedings in
respect of any damage to or loss in respect of the Leasehold Improvements, trade
fixtures, furniture and equipment from time to time found in the Leased
Premises. Each policy shall contain an undertaking by the insurer that no
material change will be made, and the policy will not lapse or be cancelled,
except after not less than thirty (30) days' written notice to the Landlord of
the intended change, lapse or cancellation. The Tenant shall furnish to the
Landlord, if and whenever requested by it, certificates or other evidences
acceptable to the landlord as to the insurance from time to time effected by the
Tenant and its renewal or continuation in force, together with evidence as to
the method of determination of full replacement cost of the Tenant's Leasehold
Improvements, trade fixtures, furniture and equipment, and if the Landlord
reasonably concludes that the full replacement cost has been underestimated, the
Tenant shall forthwith arrange for any consequent increase in coverage required
under sub-paragraph 9.2(b). If the Tenant shall fail to take out, renew and keep
in force such insurance, or if the evidences submitted to the landlord are
unacceptable to the Landlord (or no such evidences are submitted within a
reasonable period after request therefore by the Landlord), then the Landlord
may give
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to the Tenant written notice requiring compliance with this section. If the
Tenant does not within forty-eight (48) hours provide appropriate evidence of
compliance with this section, the landlord may (but shall not be obligated to)
obtain some or all of the additional coverage or other insurance which the
Tenant shall have failed to obtain, without prejudice to any other rights of the
landlord under this lease or otherwise, and the Tenant shall pay all premiums
and other reasonable expenses incurred by the landlord to the Landlord on
demand.
9.3 Limitation on Landlord's Liability. The Tenant hereby releases the landlord
and its employees, agents and contractors from any liability for any bodily
injury 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 o about the
Property unless resulting from the actual willful misconduct or negligence of
the Landlord or its employees and in no event shall the Landlord be liable:
(a) for any damage which is caused by steam, water, rain or snow or
other thing which may leak into, issue or flow from any part of
the Property or from the pipes or plumbing works, including the
sprinkler system (if any) therein or from any other place or for
any damage caused by or attributable to the condition or
arrangement of any electric or other wiring or of sprinkler heads
(if any) or for any damage caused by anything done or omitted by
any other tenant;
(b) for any act or omission on the part of any contractor or its
employees from time to time engaged to perform janitor services,
security services, or any other work in or about the Leased
Premises on the Property;
(c) for loss or damage, however caused, to money securities,
negotiable instruments, papers or other valuables of the Tenant;
(d) for any damages for personal discomfort or illness resulting from
the operating or non-operation of the Building ventilating system
or of any other equipment or machinery in the Building or in or
on the Property;
(e) for any business interruption or loss; or
(f) for indirect or consequential damages.
9.4 Indemnity of Landlord. Except with respect to claims or liabilities in
respect of any damage which is Insured Damage to the extent of the insurance
proceeds received in respect of such Insured Damage, the Tenant agrees to
indemnify and save harmless the Landlord and its employees, agents and
contractors in respect of:
(a) all claims for bodily injury or death, property damage or other
loss or damage arising from the conduct of any work or any act or
omission of the Tenant or any assignee, sub-tenant, 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
(b) any loss, cost (including, without limitation, lawyers' fees and
disbursements on a solicitor and own client basis), expense or
damage suffered by the Landlord arising from any breach by the
Tenant of any of its covenants and obligations under this Lease.
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9.5 Definition of "Insured Damage". For purposes of this Lease, "Insured
Damaged" means that part of any damage occurring to the Property of which the
entire cost of repair (or the entire cost of repair other than a deductible
amount properly collectable by the Landlord as part of the Additional Rent) is
actually recovered by the Landlord under a policy or policies of insurance from
time to time effected by the Landlord pursuant to clause 9.1. Where an
applicable policy of insurance contains an exclusion for damaged recoverable
from a third party, claims as to which the exclusion applies shall be considered
to constitute Insured Damage only if the Landlord successfully recovers from the
third party.
ARTICLE 10
EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default and Remedies. In the event of the happening of any one
of the following events:
(a) the Tenant shall have failed to pay an installment of Basic Rent
or of Additional Rent or any other amount payable hereunder when
due;
(b) there shall be a default of or with any condition, covenant,
agreement or other obligation on the part of the Tenant to be
kept, observed or performed hereunder (other than a condition,
covenant, agreement or other obligation to pay Basic Rent,
Additional Rent or any other amount of money) and such default
shall be continuing for a period of more than fifteen (15) days
after written notice by the Landlord to the Tenant specifying the
default and requiring that it discontinue or such longer period
as may be reasonably necessary in view of the nature of the
default, provided that the Tenant proceeds with due diligence to
continue to rectify the default after the expiration of such
fifteen (15) days;
(c) if any policy of insurance upon the Property or any part thereof
from time to time effected by the Landlord shall be cancelled or
be about to be cancelled by the insurer by reason of the use or
occupation of the Leased Premises by the Tenant or any assignee,
sub-tenant or licensee of the Tenant or anyone permitted by the
Tenant to be upon the Leased 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
(as the case may be) of such policy of insurance;
(d) the Leased Premises shall, without the prior written consent of
the Landlord, be used by any other persons than the Tenant or its
permitted assigns or sub-tenants or for any purpose other than
that for which they were leased or occupied or by any persons
whose occupancy is prohibited by this Lease;
(e) the Lease Premises shall be vacated or abandoned, or remain
unoccupied without the prior written consent of the Landlord for
fifteen (15) consecutive days or more while capable of being
occupied;
(f) the balance of the Term of this Lease or any of the goods and
chattels of the Tenant located in the Leased Premises shall at
any time be seized in execution or attachment; or
(g) the Tenant shall make any assignment for the benefit of creditors
or become bankrupt or insolvent or take the benefit of any
statute 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; or a
trustee, receiver or receiver-manager or agent or other like
person shall be appointed of any of the assets of the Tenant;
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the Landlord shall have the following rights and remedies all of
which are cumulative and not alternative and not to the exclusion
of any other or additional rights and remedies in law or equity
available to the Landlord by statute or otherwise:
(h) to remedy or attempt to remedy any default of the Tenant, and in
so doing to make any payments due or alleged to be due by the
Tenant to third parties and to enter upon the Leased Premises to
do any work or other things therein, and in such event all
reasonable expenses of the landlord in remedying or attempting to
remedy such default shall be payable by the Tenant to the
Landlord on demand;
(i) with respect to unpaid overdue Rent, to the payment by the Tenant
of the Rent and of interest (which said interest shall be deemed
included herein in the term ("Rent") thereon at a rate per annum
equal to the lesser of five percent (5%) above the Prime Rate
from the date upon which the same was first due until actual
payment thereof, and the maximum amount allowed under the laws of
the jurisdiction in which the Building is located;
(j) to terminate this Lease forthwith by leaving upon the Leased
Premises or by affixing to an entrance door to the Leased
Premises notice terminating the Lease and to immediately
thereafter cease to furnish any services hereunder and enter into
and upon the Leased 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. Should the landlord at any time
terminate this Lease for any breath, in addition to any other
remedies it may have, it may recover from the Tenant all damages
it may incur by reason of such breath, including the cost of
re-letting the Leased Premises, reasonable solicitors' fees on a
solicitor and own client basis, and including the worth at the
time of such termination of the excess, if any, of the amount of
rent charges equivalent to the rent reserved in this Lease for
the remainder of the Term over the then reasonable rental value
of the Leased Premises for the remainder of the Term, all of
which amounts shall be due and payable on demand; and
(k) to enter the Leased Premises as agent of the Tenant and as such
agent to re-let them and to receive the rent therefor and as the
agent of the Tenant to take possession of any furniture or other
property thereon and upon giving ten (10) days' written notice to
the Tenant to store the same at the expense and risk of the
Tenant or to sell or otherwise dispose of the same at public or
private sale without further notice and to apply the proceeds
thereof and any rent derived from re-letting the Leased Premises
first to the payment of any indebtedness other then Rent, second,
to the payment of any costs and expenses of such re-letting
including, without limitation, brokerage fees and solicitor's
fees, third, upon the 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, and the residue, if any, shall be held
by the Landlord and applied to future Rent as the same becomes
due and payable hereunder.
10.2 Payment of Rent, Etc., on Termination.
(a) Upon the giving by the Landlord of a notice in writing
terminating this Lease under sub-paragraph 10.1(j) of this
section, this Lease and the Term shall terminate, Rent and any
other payments for which the Tenant is liable under this Lease
shall be computed, apportioned and paid in full to the date of
such termination forthwith, and there shall immediately become
due and payable forthwith, in one lump sum, three (3) months
rent. Upon termination of this Lease and the Term, the Tenant
shall immediately deliver up possession of the Leased Premises to
the Landlord, and the Landlord may forthwith re-enter and take
possession of them.
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<PAGE> 22
(b) The Tenant shall pay to the Landlord on demand all costs and
expenses, including lawyers' fees and disbursements incurred by
the Landlord in enforcing any of the obligations of the Tenant
under this Lease.
(c) The Tenant shall pay to the Landlord, on all sums of money due to
the Landlord, whether or not Basic Rent or Additional Rent,
interest at a rate per annum equal to five percent (5%) above the
prime rate.
ARTICLE 11
SUBORDINATION AND ATTORNMENT
11.1 Subordination and Attornment. This Lease and all rights of the Tenant
hereunder are subject and subordinate to all underlying leases and charges or
mortgages now or hereafter existing (including charges and mortgages by way of
debenture, note, bond, deeds of trust and mortgage and all instruments
supplemental thereto) which may now or hereafter affect the Property or any part
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof provided the lessor, chargee, mortgagee or trustee agrees to
accept this Lease if not in default; and in recognition of the foregoing the
Tenant agrees that it will, whenever requested, attorn to such lessor, chargee
or mortgagee as a tenant upon all the terms of this Lease. The Tenant agrees to
execute promptly whenever requested by the Landlord or by the holder of any such
lease, charge or mortgage, an instrument of subordination or attornment, as the
case may be, as may be required of it.
ARTICLE 12
CERTIFICATES
12.1 Certificates. The Tenant agrees that it 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 lessor, chargee or mortgagee (including any
trustee) or other person designated by the Landlord, an acknowledgement in
writing as to the then status of the Lease, including as to whether it is in
full force and effect, is modified or unmodified, confirming the Basic Rent and
Additional Rent payable hereunder and the state of the accounts between 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 an
acknowledgement.
ARTICLE 13
INSPECTION OF AND ACCESS TO THE LEASED PREMISES
13.1 Inspection of and Access to the Leased Premises. The landlord shall be
permitted at any time and from time to time to enter and to have its authorized
agents, employees and contractors enter the Leased Premises for the purposes of
inspection, window cleaning, security, maintenance, providing janitor service,
making repairs and services (including all ducts and access panels, if any,
which the Tenant agrees not to obstruct) and the said Tenant shall provide free
and unhampered access for the purpose, and shall not be entitled to compensation
for any inconvenience, nuisance or discomfort caused thereby. The Landlord and
its authorized agents and employees shall be permitted entry to the Leased
Premises for the purpose of exhibiting them to prospective tenants. The Landlord
in exercising its rights under this Article shall do so to the extent reasonably
necessary so as to minimize interference with the Tenant's use and enjoyment of
the Leased Premises provided that in an emergency the Landlord or persons
authorized by it may enter the Leased Premises without regard to minimizing
interference.
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<PAGE> 23
ARTICLE 14
DELAY
14.1 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 obligation 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 moneys required
to be paid by the Tenant to the Landlord hereunder) by reason of:
(a) strikes or work stoppages;
(b) being unable to obtain any material, service, utility or labor
required to fulfill such obligation;
(c) any statute, law or regulation of, or inability to obtain any
permission from any government authority having lawful
jurisdiction preventing, delaying or restricting such
fulfillment; or
(d) other occurrence, beyond the party's reasonable control,
the time for fulfillment of such obligation shall be extended during the period
in which such circumstance operates to prevent, delay, or 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;
provided that nevertheless the Landlord will use reasonable efforts to maintain
services essential to the use and enjoyment of the Leased Premises and provided
further that if the Landlord shall be prevented, delayed or restricted in the
fulfillment of any such obligation hereunder by reason of any of the
circumstances set out in sub-paragraph 14.1(c) and to fulfill such obligation
could not, in the reasonable opinion of the Landlord, be completed without
substantial additions or renovations of the Property, the Landlord may on sixty
(60) days written notice to the Tenant terminate this Lease. Provided always
that financial incapacity shall not constitute an event excusing performance of
any obligation hereunder.
ARTICLE 15
WAIVER
15.1 Waiver. If either the landlord or the Tenant shall overlook, excuse,
condone or suffer any default, breach, non-observance, improper compliance or
non-compliance by the other of any obligation hereunder, this shall not operate
as a waiver of such obligation in respect of any continuing or subsequent
default, breath, or non-observance, and no such waiver shall be implied but
shall only be effective if expressed in writing.
ARTICLE 16
TRANSFER BY LANDLORD
16.1 Transfer by Landlord. The term "Landlord" as used in this Lease means only
the owner for the time being of the Property, so that in the event of any sale
or sales or transfer or transfers of the Property, or the making of any lease or
leases thereof, or the sale or sales or the transfer or transfers of the
assignments or assignments of any such lease or leases, previous landlords shall
be and hereby are relieved of all covenants and obligations of landlord
hereunder. It shall be deemed and construed without further agreement between
the parties, or their successors in interest, or between the parties and the
transferee or acquirer, at any such sale, transfer or assignment, or lessee on
the making of any such lease, that the transferee, acquirer or lessee has
assumed and agreed to carry out any and all of the covenants and obligations of
Landlord hereunder to Landlord's exoneration, and Tenant shall thereafter be
bound to and shall attorn to such transferee, acquirer or lessee, as the case
may be, as Landlord under this Lease.
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<PAGE> 24
ARTICLE 17
RELOCATION OF LEASED PREMISES
17.1 Relocation of Leased Premises. If the Leased Premises comprise less than a
whole floor of the Building, then at any time and from time to time prior to the
expiry of this Lease, the Landlord shall have the right, upon giving the Tenant
written notice at least thirty (30) days in advance, to provide the Tenant with
other space in the Building (whether or not any part of the Leased Premises
forms part thereof) of approximately the same size as the Leased Premises (but
not more than ten (10%) percent smaller than the size of the Leased Premises
originally demised to the Tenant hereunder improved to a standard and using
materials of approximately the same quality as the improvements which exist in
the Leased Premises or if the change of space occurs prior to the Tenant taking
occupancy, as are to be provided by the Landlord in the Leased Premises pursuant
to the Tenant's agreement to lease the Leased Premises), and to move the Tenant
to such other space. The Tenant agrees to move to such new space. The Landlord
shall arrange for moving the Tenant and shall pay the cost of physically moving
the Tenant to the new space and effective at the end of the date (the "Closing
Date") the business of the Tenant in the Leased Premises is required by one
Landlord to close to facilitate the move:
(a) the Tenant will surrender the Leased Premises to the Landlord in
the conditions required pursuant to this Lease, together with all
keys therefor;
(b) this Lease will be deemed to be amended by the substitution for
the current Schedule "B" of another plan prepared by the Landlord
and marked Schedule "B" which shows the new space cross-hatched
and if the Rentable Area of such new space is different that the
Rentable area of the Leased Premises as they existed immediately
prior to the Closing Date, by the substitution in clause 1.1 of
the Rentable Area of such new space and by the calculation of
revised annual and monthly amounts of Rent calculated using the
Rentable Area of such new space and the rate set out in clause
3.1 (provided that the Tenant shall not be required to pay rent
for more than one hundred and ten (110%) percent of the number of
square feet originally demised to the Tenant hereunder), and the
parties agree to execute an agreement prepared by the Landlord
which formally provides for such amendments to this Lease;
(c) all references in this Lease to the Leased Premises shall
thenceforth be deemed to refer to the new space as shown on the
new Schedule "B", and
(d) this Lease, amended as aforesaid, will continue in full force ad
effect as a lease of the new space, for the balance of the Term.
ARTICLE 18
PUBLIC TAKING
18.1 Public Taking. The Landlord and Tenant shall cooperate, each with the
other, in respect of any Public Taking of the Leased Premises or any part
thereof so that the Tenant may receive the maximum award to which it is entitled
in law for relocation costs ad business interruption and so that the Landlord
may receive the maximum award for all other compensation arising from or
relating to such Public Taking (including all compensation for the value of the
Tenant's leasehold interest subject to the Public Taking) which shall be the
property of the Landlord and the Tenant's rights to such compensation are hereby
assigned to the Landlord. If the whole or any part of the Leased Premises is
Publicly Taken, as between the parties hereto, their respective rights and
obligations under this Lease shall continue until the day on which the Public
Taking authority takes possession thereof. If the whole or any part of the
Leased Premises is Publicly Taken, the Landlord shall have the option, to be
exercised by written notice to the Tenant, to terminate this Lease and such
termination shall be effective on the day the Public Taking authority takes
possession of the whole or the portion of the Property Publicly Taken. Rent and
all other
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<PAGE> 25
payments shall be adjusted as of the date of such termination and the Tenant
shall, on the date of such Public Taking, vacate the Leased Premises and
surrender the same to the Landlord, with the Landlord having the right to
re-enter and re-possess the Leased Premises discharged on this Lease and to
remove al persons therefrom. In this Article, the words "Public Taking" shall
include expropriation and condemnation and shall include a sale by the Landlord
to an authority with powers of expropriation and condemnation and shall include
a sale by the Landlord to an authority with powers of expropriation,
condemnation or taking, in lieu of or under threat of expropriation or taken and
"Publicly Taken" shall have a corresponding meaning.
ARTICLE 19
REGISTRATION OF LEASE
19.1 Registration of Lease. The Tenant will not register this Lease. The Tenant
agrees that the Landlord is not obliged to deliver this Lease in registerable
form.
ARTICLE 20
LEASE ENTIRE AGREEMENT
20.1 Lease Entire Agreement. The Tenant acknowledges that there are no
covenants, representations, warranties, agreements or conditions express or
implied, collateral or otherwise forming part of or in any way affecting or
relating to this Lease save as expressly set out in this Lease and Schedules
attached hereto and that this Lease and such Schedules constitute the entire
agreement between the Landlord and the Tenant and may not be modified except as
herein explicitly provided or except by agreement in writing executed by the
Landlord and the Tenant.
ARTICLE 21
NOTICES
21.1 Notices. Any notice, advise, document or writing required or contemplated
by any provision hereof shall be given in writing and if to the Landlord, either
delivered personally to an officer of the Landlord, or mailed by prepaid mail
addressed to the Landlord at the following address:
AKIRA INDUSTRIES CO. LTD.
c/o Brookfield Management Services Western Ltd.
Suite 1000 - 1050 West Pender Street
Vancouver, B.C.
V6E 3S7
and if to the Tenant, either delivered personally to the Tenant (or to an
officer of the Tenant, if a corporation) or mailed by prepaid mail addressed to
the Tenant at the Leased Premises or if an address of the Tenant is shown in the
description of the Tenant above to such address provided such address is in
Canada. Every such notice, advice, document or writing shall be deemed to have
been given when delivered personally, or if mailed as aforesaid, upon the fifth
day after being mailed save and except in the event of a labor dispute or other
disruption affecting postal service occurring with five (5) days of the date of
mailing in which event notice will not be deemed to have been received unless
personally delivered. The Landlord may from time to time by notice in writing to
the Tenant designate another address as the address to which notices are to be
mailed to it, or specify with greater particularity the address and persons to
which such notices are to be mailed and may require that copies of notices be
sent to an agent designated by it. The Tenant may, if an address of the Tenant
is shown in the description of the Tenant above, from time to time by notice in
writing to the Landlord, designate another address as the address to which
notices are to be mailed to it or specify with greater particularity the address
to which such notices are to be mailed provided such address is in Canada.
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<PAGE> 26
ARTICLE 22
INTERPRETATION
22.1 Interpretation. In this Agreement "herein", "hereof", "hereby",
"hereunder", "hereto", "hereinafter" and similar expressions refer to this Lease
and not to any particular Article, paragraph, clause or other portion thereof,
unless there is something in the subject matter or context inconsistent
therewith; and the parties agree that all of the provisions of this Lease are to
be construed as covenants and agreements as though words importing such
covenants and agreements were used in each separate clause hereof, and that
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, and
further that the captions appearing from the provisions of 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 hereof.
This Lease shall be interpreted and governed by the laws of the Province of
British Columbia.
ARTICLE 23
EXTENT OF LEASE OBLIGATIONS
23.1 Extent of Lease Obligations. This Agreement and everything herein contained
shall enure to the benefit of and be binding upon the respective heirs,
executors, administrators, successors, assigns and other legal representatives
as the case may be, of each of the parties hereto, subject to the granting of
consent by the Landlord to any assignment or sublease, and every reference
herein to any party hereto shall include the heirs, executors, administrators,
successors, assigns and other legal representatives of such party, and where
there is more than one tenant or there is a male or female party the provisions
hereof shall be read with al grammatical changes thereby rendered necessary and
all covenants shall be deemed joint and several.
ARTICLE 24
USE AND OCCUPANCY PRIOR TO TERM
24.1 Use and Occupancy Prior to Term. If the Tenant shall for any reason use or
occupy the Leased Premises in any way prior to the commencement of the Term
without there being an existing Lease between the landlord and Tenant under
which the Tenant has occupied the Leased Premises, then during such prior use or
occupancy the Tenant shall be a Tenant of the Landlord and shall be subject to
the same covenants and agreements in this Lease mutatis mutandis.
ARTICLE 25
SCHEDULES
25.1 Schedules. The provisions of the schedules attached hereto and being
designated as Schedules A to I, inclusive, shall form part of this Lease as if
the same were embodied herein.
ARTICLE 26
DISTRESS
26.1 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 Leased 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
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<PAGE> 27
remove any of the fixtures, goods or chattels of the Tenant from or out of the
Leased 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 extras for the Tenants
purposes; and the Tenant will not permit its fixtures, goods or chattels on the
Leased Premises to become subject to any lien, mortgage or charge of
encumbrance.
ARTICLE 27
LANDLORD'S ABILITY TO REMEDY DEFAULTS
27.1 Landlord's Ability to Remedy Defaults. In addition to all its other rights
herein, in the event Tenant shall default in any of its obligations, Landlord
shall be entitled to perform the same, at its option, and if it does so its
costs of so doing shall be forthwith payable by Tenant, as Rent. Landlord shall
be entitled to perform any such obligations even though Tenant is itself unable
to perform the same by reason of the provisions of Article 14.
ARTICLE 28
INTENT - NET LEASE
28.1 Intent - Net Lease. The Tenant acknowledges and agrees that it is intended
that this Lease shall be a completely carefree net lease for the Landlord except
as expressly herein set out, and that the Landlord shall not be responsible
during the Term for any costs, charges, expenses and outlays of any nature
whatsoever arising or relating to the Leased Premises, or the contents thereof,
and the Tenant shall pay all charges, impositions, costs and expenses of every
nature and kind relating to the Leased Premises and a proportionate share of all
charges, impositions, costs and expenses of every nature and kind relating to
those parts of the Property not intended for leasing whether or not referred to
in this Lease and whether or not within the contemplation of the Landlord or the
Tenant and the Tenant covenants with the Landlord accordingly.
ARTICLE 29
TIME OF ESSENCE
29.1 Time shall be of the essence of this Lease.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement.
THE CORPORATE SEAL OF
AKIRA INDUSTRIES CO. LTD. )
was hereunto affixed in the presence of: )
)
)
- --------------------------------------------
Authorized Signatory ) C/S
)
Title: )
--------------------------------------
)
)
)
- --------------------------------------------
Authorized Signatory )
)
Title: )
--------------------------------------
)
)
)
)
THE CORPORATE SEAL OF )
GLOBAL ELECTION SYSTEMS INC. )
was hereunto affixed in the presence of: )
)
)
) C/S
- --------------------------------------------
Authorized Signatory )
)
Title: )
--------------------------------------
)
)
)
- --------------------------------------------
Authorized Signatory )
)
Title: )
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<PAGE> 29
SCHEDULE "A"
Forming part of lease dated 8th day of December, 1998
FROM: AKIRA INDUSTRIES CO. LTD.
TO: GLOBAL ELECTION SYSTEMS INC.
THE "PROPERTY"
ALL AND SINGULAR those lands and premises in the City of Vancouver, in the
province of British Columbia more particularly described as:
Lot C
Block A
District Lots 318 and 319
Plan 15365
and known as Airport Square, 1200 West 73rd Avenue, Vancouver, British Columbia
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<PAGE> 30
SCHEDULE "B"
SUITE 350
[GRAPHIC OMITTED]
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<PAGE> 31
SCHEDULE "C"
TAXES
1. Taxes Payable by Landlord and Tenant:
(a) Tenant's Taxes. The Tenant covenants to pay all Tenant's Taxes, as and
when the same become due and payable. Where any Tenant's taxes are
payable by the Landlord to the relevant taxing authorities, the Tenant
covenants to pay on demand the amount thereof to the Landlord.
The Tenant covenants to pay to the Landlord the Tenant's Proportionate
Share of the amount of the Landlord's Taxes in each Fiscal Period.
After the commencement of the Term of this Lease and prior to the
commencement of each Fiscal Period determined by the Landlord
thereafter which commences during the Term, the Landlord may estimate
the amount of the Landlord's Taxes or any installment on account
thereof to become due on any date during the ensuing Fiscal Period or
(if applicable) a portion thereof, as the case may be, and the amount
thereof which will be payable by the Tenant and notify the Tenant in
writing of such estimate. If the Tenant has overpaid the amount
payable by the Tenant, the landlord shall refund any excess paid. If
any balance remains unpaid, the Landlord shall 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 the entire Tenant's Proportionate Share of the amount of
the landlord's Taxes in such Fiscal Period will be fully payable prior
to the time the landlord is obliged to pay the Landlord's Taxes in
respect of which the Tenant's Proportionate Share is payable. If, for
any reason, the Landlord's Taxes are not finally determined within
such Fiscal Period or portion thereof, the parties shall make the
appropriate readjustment when the Landlord's Taxes are finally
determined. The Landlord and the Tenant acknowledge that the Taxes may
be payable during the course of a year as prepayment for the
Landlord's Taxes accruing due in respect of such year and if the Term
ends during a year, then the appropriate adjustment will be made by
the Landlord. Any report of the Landlord's accountant as to the
Landlord's Taxes shall be conclusive as to the amount thereof for any
period to which such report relates.
The Landlord may postpone payment of any Taxes payable by it to the
maximum extent permitted by law, if prosecuting in good faith any
appeal against any assessment or any imposition of Taxes.
(b) Landlord's Taxes. The Landlord covenants to pay all Landlord's Taxes
subject to the payments on account on Landlord's Taxes required to be
made by the Tenant elsewhere in this Lease. The Landlord may appeal
any official assessment or the amount of any Taxes or other taxes
based on such assessment and relating to the Property or the Building.
In connection with any such appeal, the Landlord may defer payment of
any Taxes or other taxes, as the case may be, payable by it to the
extent permitted by law, and the Tenant shall cooperate with the
Landlord and provide the Landlord with all relevant information
reasonably required by the Landlord in connection with any such
appeal.
(c) Separate Allocation. In the event that the Landlord is unable to
obtain from the taxing authorities any separate allocation of
Landlord" Taxes, Tenant" Taxes or assessment as required by the
Landlord to make calculations of Additional Rent under this Lease,
such allocation shall be made by the Landlord, acting reasonably, an
shall be conclusive.
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<PAGE> 32
(d) Cost of Appeal. The Tenant covenants to pay on demand to the Landlord
the Tenant's Proportionate share of the costs and expenses (including
legal and other professional fees and disbursements and interest and
penalties on deferred payments) incurred in good faith by the Landlord
in contesting, resisting or appealing any of the Taxes.
(e) Information. Whenever requested by the Landlord, the Tenant shall
deliver to it receipts for payment of all the Tenant's Taxes and
furnish such other information in connection therewith as the Landlord
may reasonably require.
2. Definition. In this Lease:
(a) "Landlord's Taxes" shall mean the aggregate of all Taxes charged
against the Property or he Building or the Landlord in respect thereof
including, without limitation, any amounts imposed, assessed, levied
or charged in substitution for or in lieu of any such Taxes, but
excluding such taxes as capital gains taxes, corporate, income, profit
or excess profit taxes of the landlord to the extent such taxes are
not levied in lieu of any of the foregoing against the Property or the
Landlord in respect thereof.
(b) "Taxes" shall mean all taxes, rates, duties, levies, fees, charges,
local improvement rates, and assessments whatsoever, imposed,
assessed, levied or charged by any school, municipal, regional, state,
provincial, federal, parliamentary or other body, corporation,
authority, agency or commission.
(c) "Tenant Taxes" shall mean all Taxes (whether imposed upon the Landlord
or the Tenant) attributable to the personal property, trade fixtures,
business, income, occupancy or sales of the Tenant or any other
occupant of the Leased Premises, and to any Leasehold Improvements or
fixtures installed by or on behalf of the Tenant within the Leased
Premises, and to the use by the Tenant of any of the Property or the
Building.
(d) "Tenant's Proportionate Share" shall mean that fraction, expressed as
a percentage, which has as its numerator the total Rentable Area of
the Leased Premises and as its denominator the total Rentable Area of
the Building, which area may change from time to time.
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SCHEDULE "D"
SERVICES
1. The Landlord covenants with the Tenant as follows:
(a) Heating, Ventilating and Air Conditioning. To provide heating,
ventilating and air conditioning ("HVAC") to the Leased Premises to an
extent sufficient to maintain therein at all times during Normal
Business Hours, except during the making of repairs, a reasonable
temperature; but should the Landlord make default in so doing, it
shall not be liable for indirect or consequential damages or damages
for personal discomfort or illness. The Landlord has installed in the
Building a system for the purpose of ventilating and air conditioning
the Leased Premises in summer and ventilating and heating the Leased
Premises in winter, which is designed for normal occupancy of the
Leased Premises for office purposes on the basis of one person to
every one hundred (100) square feet (nine and three-tenths (9.3)
square metres) of space on an open floor basis and based on the window
shading being fully closed in those offices having exterior windows
exposed to the sun and subject to the average amount of electric power
supplied for illumination, business machines, office use and all
purposes not being in excess of five and one-half (5-1/2) watts per
square foot (fifty-nine (59) watts per square metre) of Rentable Area
nor shall the electric power consumed in the Leased Premises release
heat energy within the occupied space or spaces in excess of 12
British Thermal Units (B.T.U.) per square foot per hour (129 B.T.U.
per square metre per hour) of Rentable Area. Any use of the Leased
Premises not in accordance with the aforementioned design standards,
or arrangement of partitioning which interferes with the normal
operation of said system, may require changes or alterations in the
system or the ducts through which the same operates. Any changes or
alterations so occasioned, if such changes can be accommodated by the
Landlord's equipment, shall be made by the Tenant at his cost and
expense, but only with the written consent of the Landlord first had
and obtained, and in accordance with drawings and specifications, and
by a contractor first approved in writing by the Landlord. The
Landlord reserves the right to stop the service of said HVAC
equipment, when necessary, by reason of accident or repairs,
alterations or improvements, in the judgement of the Landlord
desirable or necessary to be made, until said repairs, alterations or
improvements shall have been completed (and which the Landlord shall
complete diligently), and the Landlord shall further have no
responsibility or liability for failure to supply HVAC service when
stopped as aforesaid or when prevented from so doing by strikes or by
any cause beyond the Landlord's reasonable control, or by orders or
regulations of any federal, provincial or municipal authority or
failure of electric current, steam, or water or other suitable power
supply or inability upon the exercise of reasonable diligence to
obtain such electric current, steam, or water or other suitable power
supply for the operation of said HVAC equipment. The Tenant
acknowledges that one year may be required after all the tenants have
fully occupied the building in order to adjust and balance the HVAC
systems.
(b) Elevators. To Furnish, except when repairs are being made, passenger
elevator service during Normal Business Hours; operator-less automatic
elevator service, if used, shall be deemed "elevator service" within
the meaning of this paragraph; and to permit the Tenant and the
employees of the Tenant to have the free use of such elevator service
in common with others, but the Tenant and such employees and all other
persons using the same shall do so at their sole risk and under no
circumstances shall the Landlord be held responsible for any damage or
injury happening to any person while using the same or occasioned to
any person by any elevator or any of its appurtenances except for such
damage or injury resulting from the willful negligence of the
Landlord, its servants or employees. All deliveries to the Leased
Premises shall be made by a freight elevator designated by the
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Landlord, and the Landlord may prescribe the hours during which and
the procedures under which freight elevator services shall be
available. The Landlord may limit the number of elevators providing
service outside of Normal Business Hours.
(c) Access. To permit the Tenant and the employees of the Tenant and all
persons lawfully requiring communication with them, to have the use
during Normal Business Hours in common with others of the main
entrance and the stairways and corridors leading to the Leased
Premises. At times other than during Normal Business Hours the Tenant
and the employees of the Tenant and persons lawfully requiring
communication with the Tenant shall have access to the Building and to
the Leased remises and use of the elevators in accordance with the
Rules and Regulations.
(d) Washrooms. To permit the Tenant and the employees of the Tenant in
common with others entitled thereto to use those washrooms in the
Building in common with others, which are designated for use by the
Tenant.
(e) Janitor Service. To cause when reasonably necessary from time to time
the floors and windows of the Leased Premises to be cleaned and the
desks, tables and other furniture of the Tenant to be dusted, all in
keeping with a first class office building, but with the exception of
the obligation to cause such work to be done, the Landlord shall not
be responsible for any act of omission or commission on the part of
the person or persons employed to perform such work; such work shall
be done at the landlord's direction without interference by the
Tenant, his servants or employees and landlord shall have the sole
right to arrange for such work. Tenant shall, at the end of each day,
leave the Leased Premises neat and tidy.
2. Electricity. The Tenant covenants with the Landlord:
(a) To pay the amounts from time to time apportioned by the Landlord to
the Leased Premises for additional usage of hydro and utilities caused
as a result of extended hours of operation on the Leased Premises
beyond Normal Business Hours or by special equipment or machinery
installed thereon having a power consumption in excess of that
normally found in the Building. The Landlord may adopt separate
metering if desired by it at the cost of the Tenant. Such cost may be
estimated by the Landlord, acting reasonably; and
(b) The Landlord shall have the exclusive right to attend to the
replacement of electric light bulbs, tubes and ballasts in the Leased
Premises and the balance of the Building to replace those installed at
the commencement of the Term. The Landlord may adopt a system of
re-lamping and re-ballasting periodically on a group basis in
accordance with good practice in this regard and accordingly replace
periodically whether or not bulbs, tubes and ballasts are worn out.
3. Additional Services.
(a) The Landlord may (but shall not be obliged to) on request of the
Tenant supply services or materials to the Leased Premises and the
Property which are not provided for under this Lease and which are
used by the Tenant (the "Additional Services") including, without
limitation,
(i) locksmithing;
(ii) removal of bulk garbage;
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(iii) picture hanging;
(iv) special security arrangement; and
(v) special janitorial services.
(b) When Additional Services are supplied or furnished by the Landlord,
accounts therefore shall be rendered by the Landlord and shall be
payable by the Tenant to the Landlord on demand. In the event the
landlord shall elect not to supply or furnish Additional Services,
only persons with prior written approval by the Landlord (which
approval shall not be unreasonably withheld) shall be permitted by the
landlord or the Tenant to supply or furnish Additional Services to the
Tenant and the supplying and furnishing shall be subject to the
reasonable rules fixed by the landlord with which the Tenant
undertakes to cause compliance and comply.
4. Operating Charges Payable.
(a) The Tenant covenants to pay to the Landlord the Tenant's Proportionate
Share of the amount of the Operating Costs in each Fiscal Period.
(b) In this Lease "Operating Costs" shall mean the total, without
duplication, of the costs, expenses, fees, rentals, disbursements and
outlays of every kind paid, payable, attributable or incurred by the
Landlord or by others on behalf of the Landlord for the complete
maintenance, repair, replacement, operation, management and
administration of the Building and Property, such as are in keeping
with maintaining the standard of a first class office building so as
to give it high character and distinction, including without
limitation:
(i) cost of heating, ventilating and air conditioning;
(ii) cost of providing hot and cold water;
(iii) cost of sewer charges;
(iv) cost of fire, casualty, liability and other insurance which the
Landlord carries and the cost of any deductible amount paid by
the Landlord in connection with a claim made by the Landlord
under such insurance;
(v) costs of building office expenses, including telephone,
stationery and supplies;
(vi) cost of fuel, steam or other energy source as the case may be;
(vii) cost of providing electricity and other utilities not otherwise
chargeable to tenants;
(viii) costs of al elevator and escalator (if installed in the
Building) maintenance and operation;
(ix) cost of porters, reception staff, maintenance and engineering
staff and other non-administrative personnel, including
salaries, wages and fringe benefits;
(x) cost of providing security;
(xi) cost of providing janitorial services, window cleaning and
garbage removal;
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(xii) cost of supplies and materials including lamps and ballasts for
the lighting system;
(xiii) cost of landscaping, gardening and snow and ice removal;
(xiv) cost of decoration and maintenance of common areas including
all costs incurred to comply with clause 8.1(a) and 8.1(b)
hereof;
(xv) cost of all service contracts, legal and consulting services;
(xvi) cost of business taxes and audit fees for determining the
amounts payable under leases;
(xvii) cost of each "major expenditure" (as hereinafter defined) as
amortized over the period of the Landlord's reasonable estimate
of the economic life of the items acquired, but no to exceed
fifteen (15) years, using equal monthly installments of
principal and interest at the Prime rate, where "major
expenditure" shall mean any single expenditure incurred during
or subsequent to the Fiscal Period in which the lease
commences, for replacement of machinery, equipment, building
elements, repairs, systems or facilities in connection with the
Property or Building, which expenditure is more than ten
percent (10%) of the total Operating Costs for the previous
Fiscal Period, or fore modifications or additions to the
Property if one of the principal purposes of such modification
or addition was to reduce energy consumption or Operating Costs
or was required by government regulation;
(xviii) management fees in the amount of four percent (4%) of total
gross monthly collections from the property including rent,
electricity, light maintenance, tax and operating payments and
miscellaneous income;
(xix) the cost of drapery and carpet cleaning and shampooing if not
included in janitorial charges;
(xx) Capital Tax; and
(xxi) the reasonable rental value of space utilized by the Landlord
in connection with the management of the Property.
(c) In this Lease there shall be excluded from Operating Costs the
following:
(i) interest on Landlord's debt and capital retirement of debt;
(ii) depreciation;
(iii) such Operating Costs as are recovered from proceeds of
insurance paid to the Landlord;
(iv) costs as determined by the Landlord of repairing structural
defects in the Building; and
(v) costs as determined by the Landlord of acquiring new tenants
to the Property and any amounts directly charged by the
Landlord to any tenant or tenants.
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5. In calculating Operating Costs for any Fiscal Period, if there are any
vacancies in the Building and because of such vacancies the Operating Cost is
less than it would have been if the Building had been fully occupied, then for
the purpose of determining the amount payable by the Tenant under this Clause,
the Operating Cost for the relevant accounting period shall be increased by the
amount of any savings in the Operating Cost for such period attributable to such
vacancies (as determined by the landlord acting reasonably) and any reference to
the Operating Cost in this Lease shall be deemed to refer to the Operating Cost
as so increased.
6. In this Lease:
(a) "Tenant's Proportionate Share" shall have the meaning as defined in
sub-paragraph 2(d) of Schedule "C" of this Lease.
(b) "Normal Business Hours" means the hours from 8 a.m. to 6 p.m. on
Business Days. Business Days means Monday to Friday inclusive.
Notwithstanding the foregoing, Normal Business Hours shall not include
any part of a holiday.
(c) "Capital Tax" means the 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 the Provincial Government or other applicable
taxing authority against the landlord with respect to the Building.
7. To the extent that any component of Operating Costs should be allocated, in
the reasonable opinion of the Landlord, to one group of tenants (for example,
retail tenants), the Landlord may, but shall not be obligated, to allocate the
costs of such component(s) of Operating Costs to those tenants alone.
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SCHEDULE "E"
RULES AND REGULATIONS
1. The Tenant shall not permit any cooking or the heating of food in the Leased
Premises without the written consent of Landlord, nor the use of any electrical
apparatus likely to cause an overloading of electrical circuits.
2. The sidewalks, entries, passages, elevators and staircases shall not be
obstructed or used by the Tenant, his agents, servants, contractors, invitees or
employees for any purpose other than ingress to and egress from the offices. The
Landlord reserves entire control of all parts of the Building employed for the
common benefit of the tenants and without restricting the generality of the
foregoing the sidewalks, entries, corridors and passages not within the Leased
Premises, washrooms, lavatories, air-conditioning closets, fan rooms, janitor's
closets, electrical closets and other closets, stairs, elevator shafts, flues,
stacks, pipe shafts and ducts and shall have the right to place such signs and
appliances therein as it may deem advisable, provided that ingress to and egress
from the Leased Premises is not unduly impaired thereby.
3. The Tenant, his agents, servants, contractors, invitees or employees shall
not bring in or take out, position, construct, install or move any safe,
business machine or other heavy office equipment without first obtaining the
consent in writing of the Landlord. In giving such consent, the Landlord shall
have the right, in its sole discretion, to prescribe the weight permitted and
the position thereof, and the use and design of planks, skids or platforms to
distribute the weight thereof. All damage done to the Building by moving or
using any such heavy equipment or other office equipment or furniture shall be
repaired at the expense of the Tenant. The moving of all heavy equipment or
other office equipment or furniture shall occur only between 6:00 p.m. and the
following 8:00 a.m. or any other time consented to by the Landlord and the
persons employed to move the same in and out of the Building must be acceptable
to the Landlord. Safes and other heavy office equipment will be moved through
the halls and corridors only upon steel bearing plates. No freight or bulky
matter of any description will be received into the Building or carried in the
elevators, except during hours approved by the Landlord.
4. The Landlord may require that all or any persons entering and leaving the
Building at any time other than during Normal Business Hours shall
satisfactorily identify themselves and register in books kept for the purpose
and may prevent any person from entering the Leased Premises unless provided
with a key thereto and a pass or other authorization from the Tenant in a form
satisfactory to the Landlord and may prevent any person removing any goods
therefrom without written authorization.
5. The Tenant shall not place or cause to be placed any additional locks upon
any doors of the Leased Premises without the approval of the Landlord and
subject to any conditions imposed by the Landlord. Additional keys may be
obtained from the Landlord at the cost of the Tenant.
6. No one shall use the Leased Premises for sleeping apartments or residential
purposes or for the storage of personal effects or articles other than those
required for business purposes.
7. The Tenant shall permit window cleaners to clean the windows of the Leased
Premises during normal business hours.
8. Canvassing, soliciting and peddling in the Building are prohibited.
9. Any hand trucks, carryalls, or similar appliances used in the Building shall
be equipped with rubber tires, side guards and such other safeguards as the
Landlord shall require.
10. No animals or birds shall be brought into the Building.
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11. Tenant shall not install or permit the installation or use of any machine
dispensing goods for sale in the Leased Premises or the Building or permit the
delivery of any food or beverage to the Leased Premises without the approval of
the Landlord or in contravention of any regulations fixed or to be fixed by the
Landlord. Only persons authorized by the Landlord shall be permitted to deliver
or to use the elevators in the Building for the purpose of delivering food or
beverages to the Leased Premises.
12. No noise caused by any instrument or other device, or otherwise, which in
the opinion of the Landlord may be calculated to disturb the other tenants of
the Building shall be permitted.
13. The Landlord will have the care of all heating and air conditioning
apparatus and give all information for the regulation of same.
14. The Tenant, when closing the Leased Premises day or evening, shall see that
all doors, windows and skylights are closed, thus avoiding possible damage from
fire, storm, rain or freezing, and shall assist in the security of the premises
and Building.
15. No Tenant shall do or permit anything to be done in or upon the Leased
Premises or bring or keep anything therein which will in any way conflict with
the laws relating to fire or with the regulations of the Fire Department or the
Health Department, or with any of the rules of the city in which the Leased
Premises are located.
16. Each Tenant shall keep the Leased Premises in a good state of preservation
and cleanliness and shall not suffer any accumulation of useless property or
rubbish therein.
17. The windows, glass doors and the lights that reflect or admit light into the
halls or other places, in the Building shall not be covered or obstructed, nor
shall anything, whether books, packages, flower pots or any other articles
whatsoever be placed upon or hung from the window sills and the induction units.
The washrooms, lavatories or toilets shall not be used for any other purpose
than the purposes for which they were respectively constructed, and the expense
of any breakage, stoppage or damage resulting from a violation of this rule by
the Tenant and its agents or servants shall be borne by the Tenant. The Tenant
shall not mark, drill into or in any way deface the walls, ceilings, partitions,
floors, wood, stone or iron work, or any other appurtenance to the premises.
18. The Tenant shall give the Landlord prompt notice of any accident to or any
defect in the plumbing, heating, air conditioning, ventilating, mechanical or
electrical apparatus or any other part of the Building.
19. The parking of automobiles shall be subject to the charges and the
reasonable regulations of the Landlord. The Landlord shall not be responsible
for damage to or theft of any car its accessories or contents whether the same
be the result of negligence or otherwise.
20. If the Tenant desires any electrical or communications wiring, the Landlord
reserves the right to direct qualified persons as to where and how the wires are
to be introduced, and without such directions no borings or cutting for wires
shall take place. No other wires or pipes of any kind shall be introduced
without the prior written consent of the Landlord.
21. The Tenant shall be entitled to have its name shown upon the directory board
of the Building and at one of the entrance doors to the Leased Premises, all at
the Tenant's expense, but the Landlord shall in its sole discretion design the
style of such identification and allocate the space on the directory board for
the Tenant.
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22. The Tenant shall not interfere with window coverings installed upon exterior
Windows and shall close or permit to be closed such window coverings from such
hours from dusk to dawn 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.
23. The Tenant shall take care of the rugs and drapes (if any) which it installs
(or were installed on its behalf) in the Building and shall arrange for the
carrying out of regular spot cleaning and shampooing of the said carpets and dry
cleaning of the said drapes in a manner acceptable to the Landlord.
24. The Tenant shall permit the periodic closing of lanes, driveways and
passages for the purpose of preserving the Landlord's right over such lanes,
driveways and passages.
25. The Tenant shall not place or permit to be placed any sign, advertisement,
notice or other display on any part of the exterior of the Leased Premises or
elsewhere if such sign, advertisement, notice or other display is visible from
outside the Leased Premises without prior written consent of the Landlord which
may be arbitrarily withheld. The Tenant, upon request of the Landlord, shall
immediately remove any sign, advertisement, notice or display which the Tenant
has placed or permitted to be placed which, in the opinion of the Landlord, is
objectionable, and if the Tenant shall fail to do so, the Landlord may remove
the same at the expense of the Tenant.
26. The Landlord shall have the right to make such other and further reasonable
rules and regulations and to alter the same as in its judgement may from time to
time be needful for the safety, care, cleanliness and appearance of the Leased
Premises and the Building and for the preservation of good order therein, and
the same shall be kept and observed by the Tenant, its employees and servants.
The Landlord also has the right to suspend or cancel any or all of these rules
and regulations herein set out.
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SCHEDULE "F"
LEASEHOLD IMPROVEMENTS
1. Definition of Leasehold Improvements. For purposes of this Lease, the term
"Leasehold Improvements" includes, without limitation, all fixtures,
improvements, installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant, or any previous occupant of
the Leased Premises, in the Leased Premises and by or on behalf of other tenants
in other premises in the Building (including the Landlord if an occupant of the
Building), including all partitions however fixed (including movable
partitions), doors and hardware however affixed, and whether or not movable, all
mechanical, electrical and utility installations and all carpeting and drapes
with the exception only of furniture and equipment not of the nature of
fixtures.
2. Installation of Improvements and Fixtures. The Landlord shall include in the
Leased Premises the "Landlord's Work" (as hereinafter defined). The Tenant shall
not make, erect, install or alter any Leasehold Improvements in the Leased
Premises without having requested and obtained the Landlord's prior written
approval. The Landlord's approval shall not, if given, under any circumstances
be construed as a consent to the landlord having its estate charged with the
cost of work. The Landlord shall not unreasonably withhold its approval of any
such request, but failure to comply with the Landlord's reasonable requirements
from time to time for the Building shall be considered sufficient reason for
refusal. In making, erecting, installing or altering any Leasehold Improvements
the Tenant shall not, without the prior written approval of the Landlord, alter
or interfere with any installations which have been made by the Landlord or
others and in no event shall alter or interfere with window coverings (if any)
or other light control devices (if any) installed in the Building. The Tenant's
request for any approval hereunder shall be in writing and accompanied by an
adequate description of the work and, where appropriate, working drawings and
specifications thereof. If the Tenant requires from the Landlord drawings or
specifications of the Building in connection with Leasehold Improvements, the
Tenant shall pay the cost thereof to the Landlord on demand. Any reasonable
costs and expenses incurred by the Landlord in connection with the Tenant's
Leasehold Improvements shall be paid by the Tenant to the Landlord on demand.
All work to be performed in the Leased Premises shall be performed by competent
contractors and sub-contractors of whom the Landlord shall have approved in
writing prior to commencement of any work, such approval not to be unreasonably
withheld (except that the Landlord may require that the Landlord's contractors
and sub-contractors be engaged for any mechanical or electrical work) and by
workmen who have labor union affiliations that are compatible with those
affiliations (if any) or workmen employed by the landlord and its contractors
and sub-contractors. All such work including delivery, storage and removal of
materials shall be subject to the reasonable supervision of the Landlord, shall
be performed in accordance with any reasonable conditions or regulations imposed
by the landlord including, without limitation, comply with the provisions in
both the Landlord's "Tenant Guideline Manual" and the "CAD Creation Guidelines"
(copies of which the Tenant acknowledges having received), payment on demand of
a reasonable fee of the Landlord for such supervision, and shall be completed in
good and workmanlike manner in accordance with the description of the work
approved by the Landlord and in accordance with all laws, regulations and
by-laws of all regulatory authorities. Copies of required building and occupancy
permits or authorizations shall be obtained by the Tenant at its risk and
expense and copies thereof shall be provided to the Landlord. No locks shall be
installed on the entrance doors in the Leased Premises that are not keyed to the
Building master key system.
3. Liens and Encumbrances on Improvements and Fixtures. In connection with the
making, erection, installation or alteration of Leasehold Improvements and all
other work or installations made by or for the Tenant in the Leased Premises the
Tenant shall comply with al the provisions of the mechanics' lien and other
similar statutes from time to time applicable thereto (including any proviso
requiring or enabling the retention by way of holdback of portions of any sums
payable) and, except as to any such holdback, shall promptly pay all accounts
relating thereto. The Tenant will not create any mortgage, conditional sale
agreement or other encumbrances in respect of its Leasehold Improvements or,
without
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the written consent of the Landlord, with respect to its trade fixtures, nor
shall the Tenant take any action as a consequence of which any such mortgage
conditional sale agreement or other encumbrances would attach to the Property or
any part thereof. If and whenever any mechanic's or other lien for work, labor,
services or materials supplied to or for the Tenant or for the cost of which the
Tenant may be in any way liable or clams therefor shall arise or be filed or any
such mortgage conditional sale agreement or other encumbrance shall attach, the
Tenant shall within twenty (20) days after submission by the Landlord or 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 avail itself of any of its remedies hereunder for default of the
Tenant and may make any payments or take any steps or proceedings required to
procure the discharge of any such liens or encumbrances, and shall be entitled
to be repaid by the Tenant on demand for any such payments and to be paid on
demand by the Tenant for all costs and expenses in connection with steps or
proceedings taken by the Landlord and the Landlord's right to reimbursement and
to payment 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, set-off or defence. The
Tenant agrees to indemnify the Landlord from all claims costs and expenses which
may be incurred by the Landlord in any proceedings brought by any person against
the Landlord alone or with another or others for or in respect of work, labor,
services or materials supplied to or for the Tenant.
4. Removal of Improvement and Fixtures. All Leasehold Improvements in or upon
the Leased Premises shall immediately upon their placement 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, furniture or equipment shall be removed by the Tenant from the
Leased Premises either during or at the expiration or sooner termination of the
Term except that:
(a) the Tenant shall, prior to the end of the Term, remove such of the
Leasehold Improvements and trade fixtures in the Leased Premise as the
Landlord shall require to be removed; and
(b) the Tenant may, at the times appointed by the Landlord and subject to
availability of elevators (if installed in the Building), 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, make good at the expense of the
Tenant any damage caused to the Property by the installation and removal. In the
event of the non-removal by the end of the Term, or sooner termination of this
Lease, of such trade fixtures or Leasehold Improvements required by the Landlord
of the Tenant to be removed, the Landlord shall have the option, in addition to
its other remedies under this Lease to declare to the Tenant that such trade
fixtures are the property of the Landlord and the Landlord upon such declaration
may dispose of such trade fixtures and retain any proceeds of disposition as
security for the Debts, Liabilities and obligations and the Tenant shall be
liable to the Landlord for any expenses incurred by the Landlord.
5. For the purpose of this Lease:
(a) the term "Tenant's Work" shall mean all work required to be done to
complete the Leased Premises for occupancy by the Tenant excluding the
"Landlord's Work" (as hereinafter defined);
(b) the term "Landlord's Work" shall mean finishing the premises in a
manner and in colors standard to the Building which, without limiting
the generality of the foregoing, will include the following:
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(i) Dividing partitions between the subject premises and the
remainder of the floor area, together with an entrance door and
such other door or doors from the public corridor to the
premises as are required by the appropriate municipal or
governmental authority or authorities. It is understood that the
location of the demising partitions dividing the Leased Premises
from the balance of the floor is subject to approval of the
appropriate municipal or governmental authority or authorities.
Additional doors required by the Tenant shall, subject to the
approval aforesaid, be at the expense of the Tenant.
(ii) Finish ceilings (suspended T-bar with acoustic fibre panel),
finished concrete floors, finished inside surface of exterior
walls, and building standard window coverings.
(iii) Recessed fluorescent lighting fixtures (average effective light
level of 70 foot candles maintained at desk level) together with
original tubes for same.
(iv) Provision at Tenant's cost of a single name of Tenant on ground
floor directory, on individual floor directory (if any) and a
single corporate or firm name on door; additional names are
subject to Landlord's approval and at Tenant's cost.
- 38 -
<PAGE> 44
SCHEDULE "G"
RENTABLE AREA CALCULATION
1. "Rentable Area" in this Lease in the case of a whole floor of the Building
shall be computed by measuring in accordance with the "Standard Method for
Measuring Floor Area in Office Buildings", BOMI ANSI STANDARDS (as amended from
time to time).
2. "Rentable Area" in this Lease in the case of a part of a floor of the
Building shall include all areas occupied and shall be computed by measuring in
accordance with the "Standard Method for Measuring Floor Area in Office
Buildings", BOMI ANSI STANDARDS (as amended from time to time).
3. Rentable Area of the Building shall be calculated as if the Building were
entirely occupied by tenants renting whole floors. The lobbies and main
entrances on the ground floors and subsurface floors used in common by tenants
and mechanical equipment area, not otherwise included, shall be excluded from
the foregoing calculations. The calculation of the Rentable Area of the Building
whether rented or not shall be determined upon completion of the Building by the
Landlord and shall be adjusted from time to time to give effect to any
structural or functional change affecting same or to exclude from the Rentable
Area of the Building any area(s) which is deemed to have no value by the
competent assessment authority, whether or not the Landlord receives income from
such area(s).
4. In any of the aforementioned area calculations contained in this Schedule
"G", any calculations by the Landlord's architect shall be conclusive and
binding upon all parties.
- 39 -
<PAGE> 45
SCHEDULE "H"
OPTION TO RENEW
RENEWAL OPTION
The Landlord covenants with the Tenant that if:
(a) the Tenant gives notice to the Landlord that the Tenant wishes to
obtain a renewal of this Lease, such notice to be given not
earlier than twelve (12) months, and not later than nine (9)
months, if the Leased Premises comprise one full floor or more of
the Building, or, if the Leased Premises comprise less than one
full floor of the Building, not later than six (6) months, before
the expiry of the initial term herein granted;
(b) at the time of giving such notice the Tenant shall not be in
breach of any covenant or condition herein contained; and
(c) the Tenant has duly and regularly throughout the initial term
observed and performed the covenants and conditions herein
contained;
then the Landlord shall grant to the Tenant at the Tenant's expense a renewal
lease of the Leased Premises for a further term of five (5) years upon the same
terms and conditions as are herein contained, save and except this covenant to
renew and save and except the annual Basic Rent which shall be the greater of
the Current Market Rent for the Leased Premises with its Leasehold Improvements
(having regard to the duration of the renewal term) and the sum of the annual
Basic Rent payable for the last year of the initial term, and save and except
that there shall not be any Rent-free periods, payment of any tenant allowances
or other inducements or provision or Leasehold Improvements and that all
provisions of this Lease relevant to the initial term shall be deemed deleted.
If the Landlord and the Tenant are unable at least ninety (90) days before the
expiry of the initial term to agree upon such Current Market Rent, the
determination of such Current Market Rent shall be referred to a single
arbitrator if the parties hereto agree upon one, otherwise to a board of three
(3) arbitrators, one to be appointed by each of the Landlord and the Tenant and
a third arbitrator to be appointed in writing by the first two-named
arbitrators; if the Landlord or the Tenant shall refuse or neglect to appoint an
arbitrator within seven (7) clear days after the other shall have served a
written notice upon the party so refusing or neglecting to make such
appointment, the arbitrator first appointed shall, at the request of the party
appointing him, proceed to determine such rent as if he were a single arbitrator
appointed by both the Landlord and Tenant for the purpose. If two (2)
arbitrators are so appointed within the time prescribed and they do not agree
upon the appointment of the third arbitrator within a period of seven (7) days
from the date of appointment of the second arbitrator, then upon the application
of either the Landlord for the Tenant, the third arbitrator shall be appointed
by a Judge of the Supreme Court in accordance with the procedure set out in the
Commercial Arbitration Act, R.S.B.C., as amended from time to time, or such
similar statute then in force in the province in which the Building is located.
The third arbitrator shall chair the arbitration. The determination made by the
arbitrators or the majority of them, or by the single arbitrator, as the case
may be, shall be final and binding upon the Landlord and the Tenant, and their
respective successors and assigns. The Tenant shall pay the costs of the
arbitration and the arbitrator(s). The provisions of this section shall be
deemed to be a submission to arbitration within the provisions of the said
Commercial Arbitration Act provided that any limitation on the remuneration of
the arbitrators imposed by such legislation shall not be applicable.
Notwithstanding anything to the contrary, in no event shall the annual Basic
Rent payable by the Tenant during the renewal term be less than the annual Basic
Rent payable during the last year of the initial term of this Lease. Until the
annual Basic Rent payable during the renewal term has been determined as
provided for herein, the Tenant shall pay the monthly installments of Basic Rent
payable before the commencement of the renewal term in accordance with this
Lease and, upon such determination, the Tenant shall make the appropriate
adjustment payment (if any) to the landlord together with interest thereon from
the commencement of the renewal term until the date of payment at the rate of
interest specified in this Lease payable on Rent in arrears.
The term "Current Market Rent" shall mean rent that would be paid for improved
office space in office buildings of similar age and location in Greater
Vancouver, 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.
- 40 -
<PAGE> 46
SCHEDULE "I"
SPECIAL PROVISIONS
1. EARLY OCCUPANCY
The Landlord agrees that, providing the Lease has been fully
executed by both parties, the Tenant shall have possession of the Leased
Premises, no later than December 15, 1988 for the purpose of first constructing
their tenant improvements and then to carry on business. The Landlord and Tenant
agree that there will be no Basic Rent or Additional Rent payable during this
period, however all other terms and conditions of the Lease shall be in full
force and effect.
2. LANDLORD'S WORK
The Premises to be provided by the Landlord shall be on an "as
is, where is" basis, except for the following Leasehold Improvements to be
completed by the Landlord at its expense using its best efforts prior to January
1st, 1999:
(a) Create a separate room in the location marked on Schedule "IA".
The Landlord can either build a floor to ceiling demising wall
with double doors or install a floor to ceiling "accordion" style
door to create this room.
(b) Install and make functional a sink with hold and cold water taps
within the Leased Premises. The sink is to be installed on the
existing counter within the designated office marked on Schedule
"IA".
It is the Landlord's responsibility to secure al necessary
building permits and government approvals for the Landlord's improvement work.
3. FREE BASIC RENT
The Landlord covenants with the Tenant that if the Tenant is not
in default under the Lease and has not frequently or persistently been in
default under the Lease, the Landlord agrees to abate the Basic Rent due for the
last month of each year of the Lease Term for a total of 5 months of free basic
rent. During these periods the Tenant will be responsible for payment of its
proportionate share of Operating Costs and Taxes.
4. PARKING
The Landlord shall provide to the Tenant six (6) random parking
stalls in the Building. The stalls shall be provided at the prevailing market
rates established by the Landlord from time to time.
- 41 -
<PAGE> 1
EXHIBIT 11.1
GLOBAL ELECTION SYSTEMS INC.
Computation of Per-Share Income
Treasury Stock Method
<TABLE>
<CAPTION>
Period Ended Period Ended
December 31, 1998 December 31, 1997
Six Months Six Months
<S> <C> <C>
Weighted average number of share outstanding 18,483,264 15,519,577
Total common and common equivalent shares 20,123,699 16,864,440
Net Income (Loss) for the period $ (954,353) $ 1,555.878
Weighted average number of share outstanding 18,482,440 15,519,577
Earnings per share - basic $ (0.05) $ 0.10
Net Income (Loss) for the period $ (954,353) $ 1,555,878
Total common and common equivalent shares 20,124,107 17,969,577
Earnings per share - fully diluted $ N/A $ 0.09
Earnings per share:
</TABLE>
Basic earnings per share is computed by dividing the net income for the period
by the weighted average number of common shares outstanding for the period.
Fully diluted earnings per share is computed by dividing the net income for the
period by the common and common equivalent shares outstanding for the period.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 503,282
<SECURITIES> 0
<RECEIVABLES> 7,578,111
<ALLOWANCES> 0
<INVENTORY> 6,882,827
<CURRENT-ASSETS> 15,484,519
<PP&E> 888,994
<DEPRECIATION> 494,668
<TOTAL-ASSETS> 17,120,261
<CURRENT-LIABILITIES> 7,015,393
<BONDS> 0
0
0
<COMMON> 10,126,865
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,120,261
<SALES> 6,646,192
<TOTAL-REVENUES> 6,731,223
<CGS> 3,204,569
<TOTAL-COSTS> 7,035,320
<OTHER-EXPENSES> 3,646,307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,199
<INCOME-PRETAX> 698,447
<INCOME-TAX> 0
<INCOME-CONTINUING> 698,447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 698,447
<EPS-PRIMARY> .04
<EPS-DILUTED> .00
</TABLE>
