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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period
Commission file number
SIDEWARE SYSTEMS INC.
(Exact name of Registrant as specified in its charter)
SIDEWARE SYSTEMS INC.
(Translation of Registrant's name into English)
BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)
930 WEST 1ST STREET, SUITE 102,
NORTH VANCOUVER, BRITISH COLUMBIA, CANADA V7P 3N4
(Address of principal executive offices)
Securities registered or to be registered pursuant to section 12(b) of the Act:
NONE
Securities registered or to be registered pursuant to section 12(g) of the Act:
COMMON SHARES WITHOUT PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
NONE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the Transition
Report
51,769,328 COMMON SHARES AS AT DECEMBER 31, 1999
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No ________
State the aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the closing price for trading of the registrant's stock
on the Canadian Venture Exchange as at March 30, 1999: Approximately
$482 million.
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 ________ Item 18 /X/
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ________ No ________ NOT APPLICABLE ________
Index to Exhibits on Page 76
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SIDEWARE SYSTEMS INC.
FORM 20-F
TABLE OF CONTENTS
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PART I
Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 16
Item 3. Legal Proceedings........................................... 18
Item 4. Control of Registrant....................................... 21
Item 5. Nature of Trading Market.................................... 22
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders................................................... 24
Item 7. Taxation.................................................... 25
Item 8. Selected Financial Data..................................... 27
Item 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Item 9a. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 35
Item 10. Directors and Officers of the Registrant.................... 36
Item 11. Compensation of Directors and Officers...................... 37
Item 12. Options to Purchase Securities from the Registrant or
Subsidiaries.............................................. 38
Item 13. Interest in Management in Certain Transactions.............. 41
PART II
Item 14. Description of Securities Registered........................ 44
PART III
Item 15. Defaults upon Senior Securities............................. 75
Item 16. Changes in Securities and Changes in Security for Registered
Security.................................................. 75
PART IV
Item 17. Financial Statements........................................ 76
Item 18. Financial Statements........................................ 76
Item 19. Financial Statements and Exhibits........................... 76
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This annual report contains forward-looking statements which involve risks
and uncertainties. When used in this annual report the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
these differences include, but are not limited to, those discussed in "ITEM 1.
DESCRIPTION OF BUSINESS -- Risk Factors." Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date of
this annual report. We undertake no obligation to publicly release the results
of any revisions to the forward-looking statements which may be made to reflect
events or circumstances after the date of this annual report, or to reflect the
occurrence of unanticipated events.
An investment in our shares is highly speculative and involves a high degree
of risk. Prospective investors should consider the risk factors involved in an
investment in our shares, including the following: (a) that we are a development
stage company that has not at any time generated substantial sales revenue,
(b) our history of losses, (c) the intense competition in the industry in which
we operate, (d) the volatility of our stock price and (e) the uncertainty of
future funding. Prospective investors should carefully read each section of this
annual report which describes these and other risk factors.
FINANCIAL INFORMATION IN THIS ANNUAL REPORT IS EXPRESSED IN CANADIAN DOLLARS
("$" OR "CDN$"), UNLESS STATED TO BE IN UNITED STATES DOLLARS ("US$"). The
exchange rate for one Canadian dollar on March 30, 2000, based on the noon
buying rate in New York City for cable transfers payable in Canadian dollars, as
certified for customs purposes by the Federal Reserve Bank of New York, was
Cdn$1.00 = US$0.687. Except as noted, our financial statements are presented in
accordance with generally accepted accounting principles as applied in Canada
("Canadian GAAP"). The following table shows, for each period presented, the
high and low exchange rates, the average of the exchange rates on the last day
of each month during the period indicated, and the exchange rates at the end of
the period indicated, for one Canadian dollar, expressed in United States
dollars.
U.S. DOLLARS PER CANADIAN DOLLAR
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PERIOD ENDED DECEMBER 31,
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1994 1995 1996 1997 1998 1999
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Average........................................... $.730 $.730 $.732 $.722 $.673 $.675
High.............................................. $.763 $.754 $.751 $.749 $.705 $.692
Low............................................... $.710 $.702 $.724 $.694 $.635 $.662
Period end........................................ $.713 $.732 $.730 $.700 $.665 $.692
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
SIDEWARE SYSTEMS INC. was incorporated under the laws of the Province of
British Columbia on April 11, 1983 under the name "Heart Minerals Ltd.".
Initially, we were engaged in the business of mineral exploration.
On June 27, 1984 we changed our name to "SRO Entertainment
International Ltd.". This change of name accompanied a change in our business to
the development of theatrical productions.
On January 30, 1990 we changed our name to "Pacrim Entertainment
Group Inc.". This change of name accompanied a capital reorganisation, in which
our shares were consolidated on a 2.5:1 basis.
On January 9, 1991 we changed our name to "Evergreen International
Technology Inc.". This change of name accompanied a change in our business to
software development, and the acquisition of the assets of a private company
named "Evergreen Technology Corp.".
On January 31, 1997 we changed our name to "JOT-IT! SOFTWARE CORP.". This
change of name was made to enhance our corporate image, following a change in
management.
On February 18, 1998 we changed our name to "Sideware Systems Inc.", our
present name. This change of name was made to comply with a settlement agreement
which we made with 3M Corporation, following trademark infringement litigation
in which 3M Corporation alleged that our name infringed their "Post-It"
trademark.
Our head office is located at West 1(st) Street, Suite 102, North Vancouver,
British Columbia, V7P 3N4. Our registered and records offices and address for
service of process in Canada are Suite 1910, 777 Hornby Street, Vancouver,
British Columbia, V6Z 1S4. Our registered agent for service of process in the
United States is National Registered Agent, 1090 Vermont Avenue, Suite 910,
Washington, D.C. 20005. Our outstanding common shares are listed and posted for
trading on the Canadian Venture Exchange and through the OTC Bulletin Board
quotation service.
OUR SUBSIDIARIES
Sideware Systems Inc. has seven wholly owned subsidiaries: Sideware Corp.,
3032650 Nova Scotia Company, Sideware International SRL,
9050 Investments Ltd., Evergreen International Technology Inc.,
9123 Investments Ltd., and Doorchester 52613 Investments Ltd.
Sideware Corp. was incorporated as a wholly owned subsidiary on January 21,
1997 under the laws of the State of Washington, under the name "Collaborative
Groupware Inc.". On August 13, 1998, Collaborative Groupware Inc. changed its
name to "Sideware Corp.". Sideware Corp. markets our products in the United
States.
Sideware International SRL was organised as a society with restricted
liability under the laws of Barbados on August 27, 1999. Sideware Systems Inc.
owns 99% of the quotas of Sideware International SRL, with the remaining 1%
being owned by 3032650 Nova Scotia Company. 3032650 Nova Scotia Company is
another wholly owned subsidiary of Sideware Systems Inc., having been
incorporated under the laws of the Province of Nova Scotia on August 25, 1999.
Sideware Systems Inc. has entered into a Software License Agreement with
Sideware International SRL effective August 27, 1999, under which Sideware
International SRL received a license to use our Dr. Bean software to develop,
market, and sell new or enhanced products. The new or enhanced products may
include all or part of the Dr. Bean software. Under the Software License
Agreement, Sideware International SRL will pay Sideware Systems Inc. a royalty
based on the revenues realized by Sideware
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International SRL from the commercial exploitation of the new or enhanced
products. The royalty rate has been initially set at 10% of gross revenues.
Either party may from time to time invoke a review and adjustment of the royalty
rate in accordance with the terms of the agreement.
Sideware Systems Inc. and Sideware International SRL have also entered into
a Software Development Cost Sharing Agreement effective August 27, 1999, under
which the two companies agreed to pool their resources to conduct research and
development of new software technology. The parties meet annually to agree upon
a research program for the year. The parties jointly own the software and
intellectual property developed pursuant to the research program, with Sideware
International SRL having the right to exploit the software and intellectual
property worldwide except in Canada, and Sideware Systems Inc. having the right
to exploit the software and intellectual property in Canada. The costs borne by
each party are based upon the reasonably anticipated benefits to be derived by
each party as a result of the commercial exploitation of the technology
developed. Based on the parties' expectations of those benefits, Sideware
Systems Inc. will bear 10% of the research and development costs and Sideware
International SRL will bear the remaining 90%. Dr. Bean 3.0 and subsequent
versions have been developed under the Software Development Cost Sharing
Agreement.
Sideware Corp., our United States subsidiary, has entered into:
(a) a Distribution and Sales Agreement with Sideware Systems Inc. effective
January 1, 1999, under which Sideware Corp. was granted the non-exclusive
right to market and sell copies of Dr. Bean 2.0 in the United
States; and
(b) a Distribution and Sales Agreement with Sideware International SRL
effective November 1, 1999, under which Sideware Corp. was granted the
non-exclusive right to market and sell copies of Dr. Bean 3.x in the
United States.
Under each agreement, Sideware Corp. purchases copies of the software in
question at its current list price, less a discount. The suggested list prices
and discounts are subject to change at the discretion of the vendor. Sideware
Corp. may appoint sub-distributors for the marketing and sale of the software
within its authorized area. Sideware Corp. has also agreed to provide
maintenance and support to end users and resellers of the software.
Additionally, Sideware Corp. (or its resellers) will be responsible for
installation and integration of the software and training of end users. Sideware
Corp. may in its discretion establish fees for the maintenance, support,
installation, integration, and training services that it provides.
9050 Investments Ltd. was incorporated under the laws of the Province of
British Columbia on March 28, 1990 and became a subsidiary of Sideware
Systems Inc. through a series of transactions taking place between June 30, 1990
and May 31, 1991. 9050 Investments Ltd. does not carry on business.
Evergreen International Technology Inc. was incorporated on January 6, 1997
under the laws of the Province of British Columbia under the name of 9107
Investments Ltd. 9107 Investments Ltd. changed its name to Evergreen
International Technology Inc. on April 18, 1997. Evergreen International
Technology Inc. does not carry on business.
9123 Investments Ltd. was incorporated on December 5, 1997 under the laws of
the Province of British Columbia. 9123 Investments Ltd. has acquired the rights
of Canadian Western Bank in a British Columbia Supreme Court judgment pronounced
against The Plant Software Inc. and other parties, as well as security granted
by The Plant Software Inc. to secure its indebtedness. See "ITEM 3. LEGAL
PROCEEDINGS." Otherwise, 9123 Investments Ltd. does not carry on business.
Doorchester 52613 Investments Ltd. was incorporated under the laws of the
Province of British Columbia on October 22, 1997 and became a subsidiary of
Sideware Systems Inc. on March 30, 2000. Doorchester 52613 Investments Ltd. does
not carry on business.
The description of our business contained in this annual report includes the
undertakings of Sideware Systems Inc., Sideware Corp., and Sideware
International SRL.
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Prior to December 1998 we operated with an April 30 fiscal year end. In
December 1998, we changed our fiscal year end from April 30 to December 31.
Financial results for periods up to April 30, 1998 are reported with an
April 30 year end. Financial results for periods subsequent to April 30, 1998
are reported with a December 31 year end.
GENERAL DEVELOPMENT
Our business is developing and marketing computer software solutions. Our
principal focus is the emerging market for e-commerce software.
We entered the field of software development in 1991 by acquiring the assets
of a private company named Evergreen Technology Corp. Evergreen Technology Corp.
was the owner of a patent covering an Interactive Software Training System (US
Patent #4622013), a Concurrent Authoring System ("CAS"), and a Concurrent
Referencer System ("Ref") which permitted the creation of context and content
sensitive help or reference interfaces for MS-DOS-TM- based applications.
In the first quarter of 1994 we released a program named "Evergreen Notes",
which permitted the user to create electronic "notes" in a Windows-TM-
environment. Essentially an electronic "sticky" note, Evergreen Notes allowed a
user to "stick" notes directly onto documents, applications, drop down menus,
text entry fields, and other locations, allowing notes to appear when the user
required them.
In November 1994, our former President resigned after a dissident director
identified irregularities in his transactions with the company. On November 29,
1994, our shares were suspended from trading and a Cease Trade Order was issued
by the British Columbia Securities Commission on March 7, 1995.
On May 3, 1995, a new board of directors was elected at a court-ordered
annual general meeting.
Subsequent to the May 3, 1995 annual general meeting, we modified the
"Evergreen Notes" program and renamed the program "JOT-IT!". JOT-IT! 2.01, a
single-user product, was released in November 1995. In September 1996, we
obtained a revocation of the Cease Trade Order and our shares returned to
trading.
In July 1997, 3M Corporation commenced legal proceedings against us alleging
that the name "JOT-IT!" infringed trademarks owned by 3M Corporation. In
October 1997, we entered into a settlement agreement with 3M Corporation,
pursuant to which we agreed to change our corporate and product names. The
single user product was renamed "Tagalongs".
In November 1997, we released our first groupware product, "Net Notions",
and the final version of our single user product, "Tagalongs 3.0". Neither
Tagalongs nor Net Notions generated material revenue, and both products have
been discontinued.
In the fall of 1997, we also commenced development of "Dr. Bean", now our
principal product. Dr. Bean creates direct real time communication between
customers and producers marketing their products through Internet e-commerce
sites. An alpha version of the Dr. Bean "client" software was demonstrated at
the fall Comdex exhibit in November 1997, and a beta version was demonstrated at
the Internet World trade show in November 1998.
In April 1999, at the Spring Internet World trade show in Los Angeles, we
released the initial version of Dr. Bean for commercial distribution. In
June 1999, at the JavaOne trade show in San Francisco, we released
Dr. Bean 2.0.
In November 1999 we released Dr. Bean 3.0. Dr. Bean 3.0 included a major
upgrade in the features available to Dr. Bean users. In January 2000 we released
Dr. Bean 3.1, which included further enhancements. Dr. Bean 3.1 is the current
version of Dr. Bean, and is in commercial distribution.
In July 1999, we implemented the Sideware Partner Program, through which we
are enlisting value added resellers for Dr. Bean. As at the date of this annual
report, we have 20 value added resellers for Dr. Bean. We expect that value
added resellers will be an important distribution channel for Dr. Bean.
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With the development of Dr. Bean, the principal focus of our business has
become the emerging market for e-commerce software solutions. With the features
included in version 3.1, we believe that Dr. Bean offers a broad and valuable
range of eCRM (Electronic Customer Relations Management) functions. We believe
that through Dr. Bean 3.1, and through enhancements now under development, our
products can become prominent leaders in the e-commerce software field.
PLAN OF OPERATION
Our principal objectives for the balance of the fiscal year ending
December 31, 2000 are to:
(a) develop and implement sales and distribution channels for
Dr. Bean; and
(b) continue development of enhanced versions of Dr. Bean.
We have not generated significant revenue from the sales of our products.
Accordingly, we have been dependent on the proceeds of equity financings to pay
our ongoing operating expenses.
During the first quarter of 2000, we have substantially expanded our work
force, particularly in the United States, where our sales and marketing efforts
are centered. Accordingly, we expect that for the balance of our present fiscal
year, our rate of expenditure will be substantially higher than we have
experienced in the past.
As at March 30, 2000 we have 59 employees working in our offices in
Vancouver and North Vancouver, British Columbia, as well a regional sales
representative in Toronto, Ontario. Of our Canadian employees:
(a) approximately half work in the development of our products or in running
our internal systems;
(b) approximately one third work in sales, customer support, and related
areas; and
(c) the remainder work in executive or administrative positions.
We expect to hire at least five additional employees to work in our Canadian
offices within the next 30 days. By the end of April 2000, we expect that
monthly salary costs in our Canadian offices will total at least $400,000 per
month.
We currently operate from 8 different locations in the United States. Our
head office in the United States is in Reston, Virginia, where we have
29 employees. We also have 5 employees stationed in Atlanta, two employees
stationed in San Jose, and one employee stationed in each of Los Angeles,
Phoenix, Dallas, Boston, and Chicago. Over 30 of our United States employees
have been hired subsequent to December 31, 1999. The large majority of our
United States employees work in sales, customer service, and related areas. We
expect that by the end of April 2000, will hire an additional 20 employees in
the United States, and that we will have employees stationed in an additional
7 cities in the United States. Including the new employees expected to start in
April 2000, we believe that by the end of April 2000 our monthly salary costs in
the United States will total at least $550,000 per month.
As a result of the increase in our work force, we have added to our office
facilities. We are in the process of occupying new, larger premises for our
Virginia head office, and we have leased premises in Atlanta, San Jose, and
Chicago. Our sales representatives in other cities currently operate from
private premises. Monthly rental costs for our existing premises, in both Canada
and the United States, total approximately $125,000 per month. We will likely
open up to six additional offices during the balance of 2000, with the result
that rental costs are likely to increase over present levels.
We have attended numerous industry trade shows to gain exposure for our
products, and trade shows have historically been a substantial cost item for us,
in relation to our total corporate expenses. Apart from trade shows, we have not
previously incurred large advertising expenditures. During the year ended
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December 31, 1999 we spent approximately $108,000 on advertising and
approximately $328,000 on trade shows.
During the first quarter of 2000 we attended 5 trade shows, and we are
scheduled to attend five additional trade shows up to July 31, 2000. The Spring
Internet World trade show in Los Angeles (April 2000) will involve a substantial
display, and will cost approximately $250,000-$300,000. The other four shows
which we have scheduled will be substantially less expensive, costing
approximately $5,000-$7,000 each. In the result, we plan to spend approximately
$300,000-$350,000 on trade shows during the next four months. We will likely
attend additional trade shows during the balance of 2000, but we have not yet
set a specific schedule of shows. We may also embark on a substantial
advertising campaign for Dr. Bean, depending on our financial resources and on
customer response to Dr. Bean. We do not have specific plans for an advertising
campaign, and are not presently in a position to estimate how much we will spend
on an advertising campaign.
In addition to the foregoing, we also expect that our general overhead and
administrative expenses will be substantially higher during 2000 than we have
experienced in the past. In total, we expect that our average monthly expenses
during the balance of 2000 will be at least $2,250,000 per month.
As at March 30, 2000 our cash balance is approximately $29 million.
Accordingly, at our projected minimum expenditure rate of $2,250,000 per month,
our present cash balance will be sufficient to pay ongoing cash expenses for the
balance of 2000 and part of the first half of 2001. Our rate of expenditure may
become substantially higher than $2,250,000 per month if we continue to expand
our work force, or if we incur substantial advertising costs. Any decisions we
make to continue expanding our work force, or to undertake substantial
advertising, will be based on our financial resources and on customer response
to Dr. Bean.
Investors are cautioned that that we cannot at present make accurate
estimates of our future operating costs. Our rate of expenditure has increased
substantially in the last few months, so that we have no historical data from
which we can predict future expenses. In addition, we may continue to increase
our expenditures, depending on our available resources and on customer response
to Dr. Bean.
We plan to continue seeking additional capital financing during the balance
of 2000. We will attempt to complete a substantial public offering, or to raise
additional capital through private placements.
However, as at the date of this annual report, we do not have specific plans
for raising additional capital.
RISK FACTORS
INVESTMENT IN OUR COMMON SHARES INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO
OTHER INFORMATION IN THIS ANNUAL REPORT BEFORE PURCHASING OUR COMMON SHARES.
BECAUSE WE DO NOT YET EARN SUBSTANTIAL REVENUE, WE FACE A RISK THAT OUR BUSINESS
WILL FAIL.
We have never earned substantial operating revenue. We have been dependent
on equity financing to pay operating costs and to cover operating losses.
We have sufficient cash to pay ongoing operating expenses, at their current
level, for the balance of 2000, and for part of the first half of 2001. To
continue operation beyond that we will have to generate operating revenue or
raise additional capital. If we are unable to do so, we face a risk that our
business will fail, and that we may be unable to continue in operation.
Our audited financial statements include disclosure stating that there is
substantial doubt about our ability to continue as a going concern.
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BECAUSE WE HAVE A LIMITED OPERATING AND SALES HISTORY, WE DO NOT HAVE A RELIABLE
BASIS FOR PREDICTING THAT WE WILL EARN REVENUE IN THE FUTURE.
We commenced operations under new management in May 1995. The first version
of our principal product, Dr. Bean, was released in April 1999. Dr. Bean is a
relatively new product, without an established user base. In addition, Dr. Bean
is being offered in a new and rapidly changing market. The prospects for
Dr. Bean are difficult to predict and may change rapidly and without warning. We
have not at any time generated substantial sales revenue from any of our
products, including Dr. Bean, and we have incurred losses consistently since
entering the field of software development.
As a result of our limited operating and sales history, we have no assurance
that we will earn substantial revenue in the future, nor any basis for
predicting the level of any future revenues.
BECAUSE OF OUR LIMITED OPERATING AND SALES HISTORY, WE CANNOT MAKE RELIABLE
PROJECTIONS OF OUR FUTURE OPERATING COSTS.
We have recently increased our work force and operating costs substantially.
In order to generate substantial sales revenue, we may have to continue hiring
additional personnel or incur substantial advertising costs. As a result of our
lack of historical sales, we cannot make reliable projections of the number of
additional personnel we will require, the cost of employing those personnel, or
the level of marketing and overhead expenses we will incur. We thus have no
assurance that any revenue we earn will be sufficient to cover the cost of
earning that revenue, or to generate operating profits.
BECAUSE WE LACK PROVEN DISTRIBUTION CHANNELS, WE MAY BE UNABLE TO REACH
POTENTIAL CUSTOMERS FOR DR. BEAN.
We presently plan to market Dr. Bean through two principal distribution
channels, our direct sales force and value added resellers. To date, we have not
generated substantial sales through either channel. Accordingly, we have no
assurance that these methods of sale will be effective in reaching potential
customers for Dr. Bean.
If we do not achieve substantial revenue through our direct sales force, we
may be dependent on value added resellers to sell our products. Failure to
recruit a sufficient number of value added resellers, or failure of our value
added resellers to market our products effectively, could prevent us from
achieving substantial sales revenue.
BECAUSE OUR PRODUCTS ARE OFFERED IN AN EMERGING MARKET, THE POTENTIAL MARKET FOR
OUR PRODUCTS IS UNCERTAIN.
Our products address a new and emerging market for Web-based, interactive
electronic business solutions. Therefore, our future success depends
substantially upon the widespread adoption of the Web as a primary medium for
commerce and business applications. The failure of this market to develop, or a
delay in the development of this market, will have a material adverse effect on
our business, financial condition and operating results.
The Web has experienced, and is expected to continue to experience,
significant user and traffic growth. This, at times, has caused user frustration
with slow access and download times. The Web infrastructure may not be able to
support the demands placed on it by the continued growth upon which our success
depends.
Moreover, important issues concerning the commercial use of the Web, such as
security, reliability, cost, accessibility, and quality of service, remain
unsolved and may negatively affect the growth of Web use or the attractiveness
of business communication over the Web. There is also substantial uncertainty
about how governments may attempt to regulate use of the Web in the future, or
tax Web-based transactions.
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The imposition of new government regulations or taxes may impede use of the Web
for business purposes, and impair the market for our products.
BECAUSE WE ARE NOT A LARGE COMPANY, WE MAY BE UNABLE TO COMPETE.
The market for interactive Web-based electronic business solutions is highly
competitive and rapidly changing. Many of our current and potential competitors
have longer operating histories, greater name recognition, and substantially
greater financial, technical, marketing, and other resources than we have. Our
competitors may be able to expand and develop their technologies more quickly,
to devote greater resources to the development and marketing of their products,
or to respond more quickly to changing opportunities or technologies.
In addition, we expect that new competitors will enter the market with
competing products as the size and visibility of the market increases. We
believe that barriers to entry in our market are relatively small. We also
expect that competition will increase through software industry consolidations
and formations of alliances among industry participants. Increased competition
could result in pricing pressure, reduced margins, or the failure of our
products to achieve or maintain market share.
The market for computer software is also dominated by large corporations
which have assets much greater than ours, and which might be able to develop
software duplicating the features of our products at modest cost. We face a
continual risk that market opportunities or product features which we intend to
exploit can, within a short period of time, become dominated by much larger and
wealthier corporations, rendering our products obsolete or non-competitive.
BECAUSE WE HAVE NOT ACHIEVED SUBSTANTIAL SALES IN THE PAST, WE MAY NOT HAVE
ADEQUATE PERSONNEL OR SYSTEMS TO COPE WITH A RAPID INCREASE IN SALES.
We could experience rapid growth in orders, sales, and revenue. We cannot
assure that we will be able to manage the strains that future growth may place
on our administrative infrastructure, systems, and controls.
Qualified technical personnel are in great demand throughout the software
industry. Increased sales of our products may require us to hire additional
personnel to install and support our products. We may also be required to hire
additional technical personnel to continue development of our products. Our
success will depend, to a substantial degree, on our ability to attract, train,
motivate, and retain qualified personnel. We have no assurance that we will be
able to compete successfully in the job market, to attract or keep the qualified
employees we need.
BECAUSE MUCH OF OUR WORK FORCE HAS BEEN HIRED RECENTLY, WE ARE VULNERABLE TO
LOSS OF KEY EMPLOYEES.
We have increased our work force substantially during the last six months.
As a result, a substantial number of our employees are relatively new, and have
worked together for only a short period of time.
The success of our marketing efforts is substantially dependent on our
President, the President of Sideware Corp., and our Executive Vice
President/General Manager of US Operations. Continued development of our
products and our technical work are substantially dependent on our President,
our General Manager of e-business solutions, and our programmers.
The departure of a single employee or a small number of employees could hurt
our business. We cannot assure that we will be able to attract and retain
qualified personnel on acceptable terms. We do not have key man insurance on any
of our employees.
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BECAUSE OUR BUSINESS IS DEPENDENT ON PROPRIETARY TECHNOLOGY, WE ARE VULNERABLE
TO MISAPPROPRIATION OF OUR TECHNOLOGY.
We rely heavily on our proprietary software technology. To protect our
proprietary technology we rely on confidentiality agreements with key employees
and third parties and on trade secret, trademark, and copyright laws. Although
we attempt to maintain confidentiality of our software technology, we cannot
assure that we have adequately protected our technology from misappropriation.
In addition, others may attempt to "reverse engineer" our products in order to
determine their method of operation and introduce competing products.
BECAUSE WE OPERATE IN A HIGH TECHNOLOGY FIELD, WE FACE A RISK OF INFRINGEMENT
CLAIMS FROM OTHER COMPANIES.
If any of our products violate third party proprietary rights we may be
required to re-engineer our products or seek licenses from third parties. We
have no reason to believe that any of our products infringe the proprietary
rights of third parties. However, we do not conduct comprehensive patent
searches to determine whether the technology used in our products infringes any
third party patents.
High tech markets are sometimes characterised by the existence of a large
number of patents with broad, and questionable, application. As the market for
our products develops, and the functionality of those products grows and
overlaps with products offered by competitors, our products may become
increasingly subject to infringement claims. Although we have no reason to
believe that any of our products infringe the proprietary rights of third
parties, there can be no assurance that infringement claims will not be asserted
against us, or that such claims will not require us to enter into royalty
arrangements or result in costly litigation.
BECAUSE OUR PRODUCTS INCORPORATE THIRD PARTY TECHNOLOGIES, WE MAY LOSE ACCESS TO
REQUIRED TECHNOLOGY.
Our Dr. Bean product incorporates software licensed from third parties. We
have no reason to believe that our license rights in respect of that software
will be terminated. However, we cannot assure that those license rights will
continue to be available to us. Loss of those license rights would require us to
license software performing similar functions from other parties, to develop
software performing those functions independently, or to re-engineer our
products to operate without the licensed software. This could result in
interruptions or delays in our ability to sell or continue development of our
products, or in loss of important features of our products.
BECAUSE OUR PRODUCTS ARE COMPLEX, THEY MAY CONTAIN UNKNOWN DEFECTS.
Software products are complex. Our products may contain undetected errors,
or bugs, which result in product failures. Our products may also be incompatible
with other software or hardware used by a substantial number of our potential
customers. Product performance failures could result in loss of revenues, loss
of market share, failure to achieve market acceptance, or injury to our
reputation.
During the week of April 26, 1999, we implemented the initial version of
Dr. Bean on IBM platforms, including principally the S390, AS400 and RS6000
platforms, and also the Windows NT, Linux and Sun Solaris operating systems, at
IBM facilities. During the implementation and testing, the initial version of
Dr. Bean operated successfully on the platforms and operating systems tested.
However, neither the original version of Dr. Bean, nor modifications which have
been added subsequently, have yet been in significant use under actual operating
conditions. Accordingly, we have no assurance that Dr. Bean will operate free of
material errors or defects.
To the best of our knowledge, all of our products and internal systems are
Year 2000 compliant. However, we are subject to the possibility of unknown
Year 2000 problems affecting our products, our customers' systems, or our
internal systems.
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BECAUSE OUR PRODUCTS ARE COMPLEX, WE COULD INCUR SUBSTANTIAL COSTS AS A RESULT
OF PRODUCT LIABILITY CLAIMS.
If any of our products fail, a customer may assert a claim for substantial
damages against us, regardless of whether we are responsible for the failure.
Product liability claims could require us to spend significant time and money in
litigation or to pay significant damages.
We currently carry limited insurance, which may not cover claims against us
for financial losses, and which will not be sufficient in amount to cover large
claims. In addition, there can be no assurance that any insurance coverage will
be available in the future on reasonable terms, that insurance we purchase will
be sufficient to cover any claims against us, or that insurers will not deny
coverage with respect to any future claim.
BECAUSE OUR BUSINESS HAS NOT BEEN PROFITABLE, AND BECAUSE OUR SHARE PRICE HAS
BEEN VOLATILE, WE MAY NOT BE ABLE TO RAISE ADDITIONAL CAPITAL WE NEED.
We may require additional capital to continue the development of our
services and products, to pay the costs of marketing those products, or to cover
operating losses until we are able to become profitable. As we have never earned
operating profits, and as our share price has been volatile, we may not be able
to raise the amount of capital we require.
To raise additional capital, we may have to issue additional shares, which
may dilute the interests of existing shareholders substantially. Alternatively,
we may have to borrow large sums, and assume obligations to make substantial
interest and capital payments. We may also have to sell significant interests in
some or all of our products. If we are able to raise additional capital, we
cannot assure that it will be on terms that enhance the value of our common
shares.
BECAUSE WE HAVE NON-ARM'S LENGTH AGREEMENTS WITH RELATED COMPANIES, GOVERNMENTS
MAY CHALLENGE OUR TAX RETURNS.
We are party to agreements with non-arm's length parties, including Sideware
Corp. and Sideware International SRL, in jurisdictions outside Canada. We
believe that these agreements have been implemented in accordance with taxation
laws, regulations, treaties, and assessment practices prevailing in Canada, the
United States, and the other jurisdictions involved. However, Canadian or U.S.
taxation authorities may challenge the terms or tax effect of these agreements,
and issue taxation assessments requiring us to pay additional income taxes
beyond the amounts we consider to be owing. Such assessments could lead to tax
liabilities substantially greater than we expect, or to duplicate tax
liabilities in different jurisdictions on the same income.
BECAUSE WE SHARE CERTAIN COSTS WITH ANOTHER DEVELOPMENT STAGE COMPANY, OUR
OPERATING COSTS COULD INCREASE IN THE FUTURE.
We share some of our premises and personnel with BrainTech, Inc.
BrainTech, Inc. is a public company whose shares trade on the OTC Bulletin
Board. Grant Sutherland, Owen Jones, and James Speros, members of our board of
directors, are also the directors of BrainTech, Inc. BrainTech, Inc. is a
development stage company which has not achieved profitable operation.
We currently share the cost of the common premises and personnel with
BrainTech, Inc. However, there is no assurance that BrainTech, Inc. will be able
to pay the portion of the costs for which it is responsible, with the result
that our cash requirements to continue operation may increase substantially.
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BECAUSE OF EXISTING LEGAL CLAIMS, WE FACE A RISK OF MATERIAL ADVERSE JUDGMENTS.
We are presently involved in several court proceedings with former
management. The principal court proceedings are described under "ITEM 3. LEGAL
PROCEEDINGS." In those proceedings, claims totalling approximately $1.8 million
have been advanced against us.
We are prosecuting our claims and defending our position in all of the
litigation proceedings. While we believe that our positions will be sustained,
there is a risk of losing some of the court actions. The results could include
substantial pecuniary judgments against us and the appointment of a receiver of
our assets.
BECAUSE THE MARKET PRICE OF OUR COMMON SHARES HAS BEEN PARTICULARLY VOLATILE,
INVESTORS IN OUR COMMON SHARES FACE A HIGH DEGREE OF MARKET RISK.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Web-related companies, have been extremely volatile, and
have experienced price fluctuations that have often been unrelated or
disproportionate to the operating performance of these companies.
The price of our common shares has also experienced substantial
fluctuations. Between January 1, 2000 and March 30, 2000 our share price has
fluctuated between a high of US$25.50 and a low of US$7.05. The susceptibility
of our stock price to fluctuation exposes purchasers of our stock to a high
degree of risk.
As we have not at any time announced material earnings, we believe that the
fluctuations in our stock price have resulted primarily from market perceptions
of the speculative value of our business opportunities. The price of our common
shares could fall substantially if we do not generate future earnings that meet
the expectations of investors.
PRODUCTS -- DR. BEAN
(I) DESCRIPTION OF DR. BEAN
Dr. Bean is intended for use on Internet e-commerce sites, and facilitates
direct communication over the Internet between customers and customer service
representatives ("CSR").
Dr. Bean is written in the Java programming language, and is based on a
"client/server" model. A customer graphical user interface ("GUI") is
incorporated into the producer company's Internet "storefront", and is
downloaded to the machine of a customer browsing the storefront. Two versions of
the GUI are available, one written as a Java applet and one written in HTML
("Hypertext Markup Language"). Server software is incorporated into the producer
company's website server, and monitors the actions of the customer.
On clicking the Dr. Bean icon, Dr. Bean opens an interactive peer-to-peer
link between the customer and a CSR. The customer and CSR can communicate
through "real time" chat -- messages typed by either party show up immediately
on the other's display screen. Dr. Bean thus supports direct interaction between
CSR's and customers.
Dr. Bean has been designed for integration into e-commerce internet sites
offering a comprehensive range of e-commerce services and middleware, such as
database creation and management, transaction servers (processing purchase
orders, credit card sales and other transactions), system security programs, and
financial management and accounting systems.
Dr. Bean 1.0, the initial version, was released at the Spring Internet World
trade show in April 1999. During the week of April 26, 1999, we implemented
Dr. Bean 1.0 on IBM platforms, including principally the S390, AS400 and RS6000
platforms, and also the Windows NT, Linux and Sun Solaris operating
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systems, at IBM facilities. During the implementation and testing Dr. Bean 1.0
operated successfully on the platforms and operating systems tested.
Enhanced versions of Dr. Bean were released in June 14 (version 2.0) and
November 1999 (version 3.0).
In January 2000 we released Dr. Bean 3.1, the current version.
Dr. Bean 3.1 incorporates the following components and features.
QUEUE MANAGEMENT
When all CSR's are busy, Dr. Bean can establish a queue of customers waiting
for service. When they come available, CSR's can choose a new customer from the
queue.
CUSTOMER INTERFACE/TOOLKIT
The customer interface is the GUI shown to customers when they first open
Dr. Bean. Our toolkit permits a company using Dr. Bean to adjust the size and
colour of the Dr. Bean window that its customers see, and to include corporate
logos and other "look and feel" components that the company wants.
FIREWALL ROUTER
Dr. Bean operates compatibly with system firewalls, by establishing a secure
communications channel between the secure and non-secure portions of a system
firewall.
DATA BASE APPLICATION PROGRAMMERS INTERFACE ("API")
The Data base API permits Dr. Bean to write data to, and read data from,
data bases stored in other components of a user's system. Dr. Bean is compatible
with a wide range of database software, including IBM's db2 and Oracle's 8i and
11i.
SUPERVISOR MODULE
The supervisor module enables a supervisor to monitor various aspects of CSR
performance. The supervisor can view the chat messages being exchanged by a CSR.
The supervisor can also view, in graphical form, data analyzing CSR performance.
The type of data available can include such items as the average response time
for a particular CSR or group of CSR's, or average session length.
KEY WORD SEARCH
Using the key word search, a CSR can search the company's website for
specific words. This will enable the CSR to find a web page containing
information to answer a customer's question.
BROWSER SYNC
The browser sync feature enables a CSR to browse the same web page as a
customer. The CSR can use browser sync feature to follow a customer, so that the
CSR knows what the customer is viewing, and when the customer moves from one web
page to another. Alternatively, the CSR can push web pages to the customer.
WHITE BOARDING
Using the white boarding feature, a CSR can draw graphics on the web page
display seen by a customer. For example, the CSR can circle a section of the web
page, in much the same way that telestrators are used in television broadcasts.
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Dr. Bean 3.1 also offers additional features, which can be purchased at
additional cost.
REMOTE CSR CONNECTION
Dr. Bean permits CSR's to operate from remote locations, such as the CSR's
residence.
KNOWLEDGE BASED ROUTER
Dr. Bean can direct a customer to the most appropriate CSR (or CSR group)
through a variety of methods:
(a) icons in different locations will direct a customer to different CSR's;
(b) for repeat customers, historical data identifies the CSR;
(c) new customers can be routed based on IP address/geographical location.
The criteria used by the intelligent routing can be customized to meet the
sales protocols and priorities of individual companies. For example, Dr. Bean
permits the company to designate groups of CSR's who will specialize in a common
area. Dr. Bean users can designate the criteria used for routing customers to a
particular CSR or group of CSR's and can give priority to regular or valued
customers.
COLLABORATIVE SERVICES
The collaborative services feature permits CSR's to communicate among
themselves, or with other company personnel, while a customer chat session is
under way. For example, if the customer asks a question which the CSR is unable
to answer, the CSR can contact other CSR's to find the answer. The CSR can
communicate with a specific individual, or can send messages to a group.
ENTERPRISE REPORTING SERVICES
The enterprise reporting feature permits Dr. Bean users to assemble a broad
range of information and reports relating to system performance. Examples could
include statistics concerning the activities of individual CSR's or a specific
group of CSR's, or the frequency of calls during specified periods of the day.
The enterprise reporting feature allows the user to specify the contents and
format of any report.
DATA SOURCE MANAGER
The data source manager enhances the ability of Dr. Bean to use other data
bases of the Dr. Bean user. The data source manager allows Dr. Bean users to
develop customized applications which read, use, and add to, data stored in
those data bases.
AUTOSERVICE/WIZMASTER
The AutoService feature displays automated questions for customer response.
Based on the response, the AutoService feature can:
(a) provide an automated response to the customer's inquiry;
(b) display additional automated questions to elicit further information
from the customer; or
(c) turn the customer over to the intelligent routing feature, to route the
customer to the most appropriate CSR.
Wizmaster is used in conjunction with the Autoservice feature. Wizmaster
permits Dr. Bean users to create customized knowledge trees which specify the
questions and possible responses to be used by the AutoService feature. New
questions or answers can be added, and can be linked to other questions and
answers, through a simple drop and drag procedure.
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(II) DR. BEAN -- FUTURE DEVELOPMENTS
Our principal development activities are the enhancement of Dr. Bean and the
development of related products.
During the first half of 2000, we plan to release enhancements to Dr. Bean
that include the following additional features.
MULTI-CHANNEL INTEGRATION
The multi-channel integration feature is designed to permit companies to
integrate all of the principal channels for customer service, including Internet
chat, telephone, e-mail, and fax into a single system. The multi-channel
integration feature will support audio "voice over Internet" communication.
Through multi-channel integration, all incoming customer communications,
regardless of source, can be put into a single queue, and then routed to
individual CSR's according to priorities set by the Dr. Bean user. The multi-
channel integration feature can thus be used to ensure that all forms of
customer inquiry are dealt with in a similar manner, and that any CSR can
respond to any inquiry, regardless of its source.
The multi-channel integration feature will incorporate a "telephony bridge",
which is being developed for us under contract by Science Applications
International Corp. ("SAIC"). The telephony bridge will create a digitised
version of audio telephone calls, to support "voice over Internet" communication
and to ensure that telephone calls can be processed and distributed in the same
manner as other incoming data.
The multi-channel integration feature will also include a persistent channel
session manager, which will help ensure that contact with a customer is not lost
through accidental disconnection. For example, if an Internet or telephone
connection with a customer is disconnected, Dr. Bean will keep track of the
source of the connection, and will re-connect automatically.
E-MAIL RESPONSE
Dr. Bean will allow CSR's to respond to customers by sending pre-packaged
e-mail messages. This feature can be used, for example, to e-mail forms or
brochures requested by a customer.
PROFILING ENGINE
The profiling engine will include enhancements to the intelligent routing
feature, enabling Dr. Bean to assemble and utilize more detailed information on
individual customers.
In addition to the enhancements to Dr. Bean 3.x, we are developing a product
named Dr. Bean NG. Dr. Bean NG will permit us (or other companies we license
Dr. Bean NG to) to sell Dr. Bean as a service as opposed to a product. Through
Dr. Bean NG, companies will be able to receive customer communications through a
central server system which we (or a licensee) will establish. Dr. Bean NG will
thus enable users to enjoy the features and functions offered by Dr. Bean
without having to purchase Dr. Bean as a product, and without incurring the
resulting system administration and maintenance costs.
We do not yet have specific plans to implement Dr. Bean NG. Implementation
of Dr. Bean NG may include both:
(a) establishment of our own call centre for Dr. Bean NG, offering users as
service, based on a monthly service fee; or
(b) licensing Dr. Bean NG to other companies who wish to establish call
centres of their own, paying us either a one time license fee or on a
royalty basis, or both.
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(III) DR. BEAN -- MARKETING
Dr. Bean is intended to service the rapidly growing market for software
which facilitates business over the Internet. International Data Corporation has
projected that the number of customers buying goods and services over the
Internet will grow from approximately 30 million in 1998 to 133 million in 2002.
The total value of goods and services purchased over the Internet was projected
to grow from approximately $50 billion in 1998 to over $734 billion by 2002.
A corresponding demand is predicted for software that facilitates Internet
commerce. International Data Corporation has projected that the market for eCRM
software will increase from approximately $42 million in 1998 to approximately
$1.6 billion in 2002. We have not taken independent steps to verify these
projections, or to create our own projections. However, based on these
projections and the rapid growth of the Internet as a medium for business, we
expect a large market for eCRM software to develop. Our objective is to capture,
through Dr. Bean, a significant share of that market.
We plan to market Dr. Bean through two principal channels, our direct sales
personnel and value added resellers.
In the United States, we employ approximately 30 employees in sales,
integration, customer support, and related areas. Our head office in the United
States is in Reston, Virginia. In addition, we employ regional sales personnel
in Atlanta, San Jose, Los Angeles, Phoenix, Dallas, Boston, and Chicago. By the
end of April 2000, we expect to hire approximately 20 additional employees in
the United States, and to employ regional sales personnel approximately seven
additional cities in the United States. In Canada, we employ approximately 18
employees in sales, integration, customer support, and related areas. We have
one regional sales representative in Toronto, Ontario, with the rest of our
Canadian sales personnel stationed in Vancouver and North Vancouver, British
Columbia.
In July 1999 we commenced the Sideware Partner Program through which we
offer Dr. Bean to value added resellers. As at the date of this annual report,
we have signed reseller agreements with 20 companies. We are continuing in our
efforts to enlist additional value added resellers for Dr. Bean, and expect to
sign additional reseller agreements during the remainder of 2000. Value added
resellers are entitled to purchase Dr. Bean at a 30% discount from our list
price. In addition, value added resellers receive 10% of any annual maintenance
fees paid by end users.
We have also entered into IBM marketing programs which we believe will
provide market exposure for Dr. Bean and help us establish distribution
channels. Those programs include the following:
(a) In December 1999 we were accepted into the IBM Software Investment
Initiative program. The Software Investment Initiative program offers
opportunities to participate in joint marketing programs with IBM on a
worldwide basis, and access and introductions to both IBM customers and
IBM resellers. We have signed an Independent Software Vendor Agreement,
pursuant to which IBM has agreed to contribute approximately US$45,000
towards a joint marketing program. The agreement also specifies revenue
targets totaling approximately US$250,000 for sales of IBM software
influenced by the sale of Dr. Bean. Failure to achieve the revenue
targets entitles IBM to terminate the agreement.
(b) Dr. Bean has been accepted into the IBM BesTeam Software Program.
Participation in the BesTeam Software Program gives rise to the following
marketing opportunities:
-- authorized resale of IBM hardware and software, and authorized use of
IBM logos and marketing material;
-- introductions (through BesTeam personnel) to IBM VAR's and customers;
-- attendance at meetings and conferences of IBM small business and
e-business account managers.
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(IV) DR. BEAN -- COMPETITIVE POSITION
Software to facilitate Internet commerce is an emerging field. Several
companies have already developed products which are competitive with at least
some of the features offered by Dr. Bean. Additional entrants into the field can
be expected as the market for e-business software matures.
We consider the following products to be most directly competitive with
Dr. Bean. Each of these products supports customer-CSR chat over the Internet
and some or all of the additional functions supported by Dr. Bean.
NetAgent (eShare Technologies, Inc.)
WebCenter (Quintus Corporation)
Interaction Web (Interactive Intelligence Inc.)
Same Time (Lotus Development Corp.)
eService (Silknet Inc.)
Callsite (NetDive Inc.)
Cisco Customer Interaction Suite (Cisco Systems, Inc.)
FaceTime Instant Customer (FaceTime Communications Inc.)
Apropos (Apropos Technology).
In addition, other companies such as LivePerson Inc. offer Internet chat
products which can be purchased as a service. These services are similar in
nature to the services which we will be able to offer through Dr. Bean NG, but
the offering of these services is also competitive with Dr. Bean 3.1.
We believe that the following features of Dr. Bean can give Dr. Bean a
competitive advantage over many competitors in the field.
(a) Dr. Bean is a 100% Java product, and can thus be made compatible with a
wide variety of operating systems and platforms. We believe that this
will enhance our ability to negotiate beneficial strategic alliances with
leaders in the market for e-commerce software.
(b) Dr. Bean incorporates highly flexible features, permitting a high degree
of customisation in its interfaces and functions. For example, Dr. Bean
can be connected to all major database software, to utilise customer
information generated by other programs.
Investors are cautioned that:
(a) The market for e-commerce software is, and is expected to remain,
intensely competitive.
(b) The list of competitors set out above is not exhaustive. We are aware of
over 30 companies providing products or services which are competitive to
some degree with Dr. Bean.
RESEARCH AND DEVELOPMENT
During the year ended December 31, 1999, the eight month period ended
December 31, 1998, and the year ended April 30, 1998, we incurred research and
development expenses of $953,842, $353,238, and $301,258 respectively. Our own
personnel do substantially all of our research and development work.
INTELLECTUAL PROPERTY
Dr. Bean is protected by copyright. Under the COPYRIGHT ACT (Canada),
copyright protection lasts for a minimum of 50 years. We have not yet taken
steps to register Dr. Bean under any copyright legislation.
We have registered the trademark "Sideware" with the United States Patent
and Trademark office, and we have submitted pending applications to register
"Dr. Bean" and related graphic trademarks under the TRADEMARK ACT of Canada, and
also to the United States Patent and Trademark office. We do not know of any
specific facts or circumstances which would prevent registration of our
trademarks in Canada or the
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United States, but there can be no assurance that registration of any of our
pending trademark applications will be accepted.
Dr. Bean includes the following software which we have licensed from third
parties for use as part of Dr. Bean.
(a) Pursuant to a reseller agreement with Enterprise Soft of Cupertino,
California, we have licensed the "Enterprise Reports" software. Dr. Bean
uses the Enterprise Reports software to generate data and reports.
(b) Pursuant to a software license with ICEsoft AS of Bergen, Norway, we
have licensed the ICE Browser Lite software. The Browser Lite software
provides the browser used by the CSR component of Dr. Bean.
In addition, Dr. Bean incorporates "Wizmaster", which we are entitled to use
under license from BrainTech, Inc. See "ITEM 13. INTEREST IN MANAGEMENT IN
CERTAIN TRANSACTIONS".
ITEM 2. DESCRIPTION OF PROPERTY
We currently operate from 6 office locations.
HEAD OFFICE -- NORTH VANCOUVER, BRITISH COLUMBIA
Our head office premises are located in North Vancouver, British Columbia,
Canada. Our North Vancouver premises occupy 14,867 square feet. We share the
North Vancouver premises with BrainTech, Inc., a software development company.
The term of the lease expires August 31, 2003.
The North Vancouver lease provides for annual minimum rent of approximately
$197,271.00 (equal to $13.00 per square foot) for the first year of the lease
from September 1, 1998 to August 31, 1999. Annual minimum rent increases to
$13.25 per square foot in the second year, $13.50 per square foot in the third
year, $13.75 per square foot in the fourth year, and $14.00 per square foot in
the fifth year. In addition, the lease requires payment of additional costs
relating to property taxes and common area maintenance costs. Those costs are
presently approximately $4.10 per square foot.
We operate our head office premises under a Cost Sharing and Allocation
Agreement with BrainTech, Inc. Prior to October 1999 we shared the cost of the
premises with BrainTech, Inc. equally. In October 1999 we agreed with BrainTech
to re-allocate the premises costs 80% to us and 20% to BrainTech, Inc. effective
from January 1, 1999, as we employ substantially more personnel, and thus make
greater use of the premises, than BrainTech, Inc.
The landlord under the lease is HOOPP Realty Inc., an arm's length company.
The tenant under the lease is Techwest Management Inc., a company of which Owen
Jones and Grant Sutherland are each directors, and in which Owen Jones and Grant
Sutherland are each one third shareholders. We are a co-covenantor under the
lease, along with BrainTech, Inc. The costs of Techwest Management Inc. under
the lease are passed through to us and BrainTech, Inc. without any additional
charges or mark-up.
VANCOUVER, BRITISH COLUMBIA
Effective July 1, 1999, we have occupied leasehold premises in Vancouver,
B.C. We have entered into:
(a) a lease covering the premises at Suite 1620, 777 Dunsmuir Street (the
"Original Premises") for the period July 1, 1999 to June 30, 2002, and
covering the premises at Suite 1600, 777 Dunsmuir Street (the "Extended
Premises") for the period December 1, 2000 to June 30, 2002; and
(b) an Assignment of Lease covering the Extended Premises for the period
July 1, 1999 to November 30, 2000.
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The total space included in the Original and Extended Premises is 8,325
square feet. The landlord of the Original and Extended Premises is Pacific
Center Leaseholds Limited, an arm's length company.
The tenant under the lease described in (a) is Techwest Management Inc. We
are an indemnifier under the lease, along with BrainTech, Inc. As an
indemnifier, we are liable to perform all of the obligations of the tenant under
the lease, including the payment of rent.
The assignor under the assignment described in (b) is SJM Management Ltd., a
private management company which holds a lease of the Extended Premises running
from July 1, 1999 to November 30, 2000. Grant Sutherland holds a one third
beneficial interest in SJM Management Ltd. Prior to July 1, 1999 the Extended
Premises were occupied by the law firm Sutherland Johnston MacLean, in which
Mr. Sutherland was a partner. Under the assignment, SJM Management Ltd. assigned
its interest in respect of the Extended Premises to Techwest Management Inc.,
which agreed to perform all of the obligations of the tenant under the lease. We
are an indemnifier under the assignment, along with BrainTech, Inc. As an
indemnifier, we are liable to perform all of the obligations of the assignee,
including the payment of rent.
Under the lease described in (a), the rent payable for the Original Premises
for the period July 1, 1999 to June 30, 2002 is $64,498.50 per annum ($16.50 per
square foot) payable in equal monthly installments of $5,374.88. The rent
payable for the Extended Premises for the period December 1, 2000 to June 30,
2002 is $72,864.00 per annum ($16.50 per square foot) payable in equal monthly
installments of $6,072.00. In addition to rent, monthly charges are payable for
maintenance fees, utilities and taxes. We anticipate that the additional monthly
charges will be approximately $5,000, based on initial invoices submitted by
Pacific Centre Leaseholds Limited.
Under the assignment described in (b), the rent payable for the Extended
Premises for the period July 1, 1999 to November 30, 2000 is $64,032 per annum
($14.50 per square foot) payable in equal monthly installments of $5,336.00. In
addition, monthly charges of approximately $5,000 per month are payable for
maintenance fees, utilities, and taxes.
Sutherland Johnston, a law firm in which Grant Sutherland is a partner, will
continue to occupy a portion of the Extended Premises. BrainTech, Inc. and
Sutherland Johnston will be responsible for a portion of the costs relating to
the Original and Extended Premises depending on the relative use of those
premises by those parties. We expect that for the foreseeable future, we will
use the Original Premises exclusively, and will bear all of the costs relating
to the Original Premises. We also expect that for the foreseeable future, we
will bear approximately 45% of the costs relating to the Extended Premises.
RESTON, VIRGINIA
Our head office in the United States is in Reston, Virginia.
Our Virginia office is presently located at 208 Elden Street, Suite 200,
Herndon VA 20170, in leasehold premises which we occupied effective February 1,
1999. The lease of the Elden Street office runs for a term of five years, to
January 31, 2004. We received a two-month rent abatement, so that rent payments
for the Virginia office commenced April 1, 1999. The rent commenced at US$11,652
per month, and the lease provided that it would escalate by 3% each year.
As a result of the increase in our Virginia workforce, we are in the process
of moving our Virginia office to larger premises at 1810 Samuel Morse Drive,
Reston, Virginia. The new premises consist of an office building with a rentable
area of approximately 16,000 square feet. The term of the lease is 7.5 years,
commencing April 14, 2000 and ending October 14, 2007. The rent commences at
US$38,666.66 per month (US$464,00.00 per annum) and escalates by approximately
3% per year to US$47,555 per month (equivalent to US$570,661.42 per annum)
during the final half year. We are also liable to pay the cost of all utilities
delivered to the premises, and to pay the amount of any increase, over the 2000
base year, in the operating costs incurred by the landlord in respect of the
premises. We have an option to renew the lease
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for an additional three years at rental rates which continue to escalate at
approximately 3% per year. The landlord of the Reston premises is Reston L.L.C.,
an arm's length company.
ATLANTA, GEORGIA
Our Atlanta regional office occupies approximately 2,700 square feet. The
term of the lease is three years, from May 1, 2000 to April 30, 2003. The annual
rent is US$68,023 for the first year, escalating by approximately 3% per year.
We are also responsible for a proportionate share of annual increases in the
landlord's building operating costs. The landlord is Sanctuary Park Realty
Holding Company, an arm's length company.
SAN JOSE, CALIFORNIA
Our San Jose regional office consists of four office spaces. We pay rent of
US$1,435 per month on a month-to-month basis. The landlord is W9/PHC Real Estate
Limited Partnership, an arm's length company.
CHICAGO, ILLINOIS
Our Chicago regional office consists of one office, which we occupy under a
one year lease, running from April 1, 2000 to March 31, 2001. The rent is
US$11,100 for the year. The landlord is CEO Suites Inc., an arm's length
company.
ITEM 3. LEGAL PROCEEDINGS
We are party to several court proceedings.
1. PROCEEDINGS INVOLVING FORMER MANAGEMENT
(I) EVERGREEN V. KOSTIUK ET AL; ACTION NO. C952721 IN THE BRITISH COLUMBIA
SUPREME COURT
On May 11, 1995 we commenced action against Lawrence Kostiuk, certain other
former directors of the company, and the former auditors and solicitors of the
company. The principal relief which we are claiming includes:
(a) damages for negligence and breach of fiduciary duty, and an accounting
of profits in respect of various stock transactions;
(b) an injunction restraining sale of a computer program known as "E-Glue"
by The Plant Software Inc., a company controlled by the family of
Mr. Kostiuk; and
(c) an order setting aside a general security agreement executed by us in
favor of Mr. Kostiuk in July 1994.
A counterclaim has been filed by 484117 B.C. Ltd. (as assignee of
Mr. Kostiuk) seeking judgment against us in the approximate amount of
$1.5 million, and seeking to enforce the general security agreement. Another
counterclaim has been filed by Wolrige Mahon, our former auditors, claiming
approximately $58,000 for accounting and audit services.
On May 7, 1997 a receiving order was made against Lawrence Kostiuk pursuant
to the BANKRUPTCY AND INSOLVENCY ACT. In November 1997 we were granted leave to
continue with Action C952721 against Lawrence Kostiuk. By agreement dated
September 8, 1998, we purchased all of the right, title and interest of Lawrence
Kostiuk and the Trustee in Bankruptcy of Lawrence Kostiuk in shares of 484117
B.C. Ltd. On August 31, 1999 we filed an application to recover title to 100% of
the issued and outstanding shares of 484117 B.C. Ltd. pursuant to the
September 8, 1998 assignment. On November 15, 1999 we received a favorable
decision on the application. On December 15, 1999 an appeal was commenced from
that
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decision. We believe that unless the appeal is successful, this decision will
likely result in the effective elimination of the counterclaim of 484117
B.C. Ltd. against us.
We have set a trial date of April 2, 2001 for this action. We are of the
view that we have a strong case against Mr. Kostiuk, and against the other
defendants we have sued. We are also of the view that we will be successful in
resisting the counterclaims filed against us.
(II) KOWALEWICH ET AL V. EVERGREEN ET AL; ACTION NO. C963748 IN THE BRITISH
COLUMBIA SUPREME COURT
On June 27, 1996 Len Kowalewich, Donald Mavinic, Klaus Nicolaus and Dale
Harvey commenced action against us and certain of our present directors and
employees claiming damages for libel. We have filed a counterclaim against the
plaintiffs and Lawrence Kostiuk, Scott Kostiuk and John Kostiuk as defendants by
counterclaim. We believe that there is no material risk of a judgment against
us. The outcome of our counterclaim is uncertain.
(III) KOWALEWICH V. EVERGREEN; ACTION NO. C963717 IN THE BRITISH COLUMBIA
SUPREME COURT
On June 26, 1996 Len Kowalewich commenced action against us to recover
$276,000 alleged to be owing by us for unpaid consulting fees (approximately
$96,000) and funds loaned to or advanced on our behalf (approximately $180,000).
We have filed a defense and counterclaim against the plaintiff and Lawrence
Kostiuk, Scott Kostiuk, John Kostiuk, Carolyn Kostiuk, Donald Mavinic, Dale
Harvey, Len Kowalewich, Klaus Nicolaus, The Plant Software Inc. and certain
shareholders and affiliates of The Plant Software Inc. as defendants by
counterclaim. We believe that we will be successful in defending the claim of
Mr. Kowalewich. The outcome of our counterclaim is uncertain.
(IV) KOWALEWICH ET AL V. EVERGREEN; ACTION NO. A963030 IN THE BRITISH
COLUMBIA SUPREME COURT
On September 13, 1996 Len Kowalewich and 6 other petitioners filed an
application for leave to commence derivative proceedings against our present
directors. We believe the petition is without merit. By the nature of the
petition it cannot result in any form of pecuniary judgment against us.
(V) 9123 INVESTMENTS LTD. V. THE PLANT SOFTWARE INC. ET AL; B.C.S.C. ACTION
NO. C983489 IN THE BRITISH COLUMBIA SUPREME COURT
By Agreement dated November 18, 1998, 9123 Investments Ltd. purchased the
rights of Canadian Western Bank in a judgment pronounced October 15, 1997
against The Plant Software Inc. and three of its shareholders, all members of
the family of Lawrence Kostiuk. We have calculated the amount owing under the
judgment by The Plant Software Inc. as $311,848.69 as at December 30, 1998. We
do not have precise calculations of the amounts owing by the other judgment
debtors, who are liable for portions only of the amount owing by The Plant
Software Inc. In addition, we have purchased the rights under a general security
agreement held by Canadian Western Bank securing the indebtedness of The Plant
Software Inc. The general security agreement covers all of the assets and
undertaking of The Plant Software Inc.
By decision dated March 9, 1999, the British Columbia Supreme Court upheld
the validity of the assignment, and ordered that 9123 Investments Ltd. be
substituted as Petitioner in Action No. C983489 in place of Canadian Western
Bank.
In consideration for the assignment, 9123 Investments Ltd. paid $20,000 to
Canadian Western Bank. In addition, we agreed to dismiss court proceedings in
which we had sought approximately $200,000 in damages from Canadian Western
Bank.
The amount of any recovery under the judgment, and the value of any assets
of The Plant Software Inc. which may secure its indebtedness, are uncertain.
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(VI) BANKRUPTCY OF LAWRENCE KOSTIUK; BRITISH COLUMBIA SUPREME COURT ACTION
NO. 173352 VA 97
Pursuant to Agreements dated September 8, 1998, we have purchased from the
trustee in bankruptcy of Lawrence Kostiuk all of the right, title, and interest
of Lawrence Kostiuk and the trustee in The Plant Software Inc. and 484117
B.C. Ltd. No shares in either company are registered in the name of Lawrence
Kostiuk, with the result that any recovery of those assets requires legal
proceedings.
On October 15, 1998 we filed an application with the British Columbia
Supreme Court to recover title to 6,000,000 shares in The Plant Software Inc.
presently registered in the name of a company called "La Tache-DRC Inc.". That
application has not yet come on for hearing.
On January 11, 1999 Lawrence Kostiuk filed an application with the British
Columbia Supreme Court seeking to set aside our transactions with the trustee in
bankruptcy. That application was dismissed on March 9, 1999.
On August 31, 1999 we filed an application to recover 100% of the issued and
outstanding shares in 484117 B.C. Ltd. On November 15, 1999 we received a
favorable ruling on the application. See item (i), above.
In consideration for the assignments, we paid $20,000 to the Trustee in
Bankruptcy of the estate of Lawrence S. Kostiuk.
(VII) THE PLANT SOFTWARE INC. V. 9123 INVESTMENTS LTD.; BRITISH COLUMBIA
SUPREME COURT ACTION A990400
On January 11, 1999 The Plant Software Inc. filed an application for an
injunction to restrain 9123 Investments Ltd. from enforcing the general security
agreement referred to in (v), above. On March 9, 1999, the Petition of The Plant
Software Inc. was dismissed.
(VIII) THE PLANT SOFTWARE INC. ET AL V. SIDEWARE SYSTEMS INC. ET AL; BRITISH
COLUMBIA SUPREME COURT ACTION NO. C990136
On January 11, 1999 The Plant Software Inc., Carolyn Kostiuk, John Kostiuk,
Scott Kostiuk, and Lawrence Kostiuk commenced legal proceedings claiming damages
for abuse of process in the purchase of the rights and interests described in
(v) and (vi), above. We believe that the action is without merit and that there
is no material risk of an adverse judgment.
2. CLAIMS INVOLVING THIRD PARTIES
We are also party to the following court actions not involving former
management.
(I) BARRIGAR & MOSS V. EVERGREEN; BRITISH COLUMBIA SUPREME COURT ACTION
NO. C961984
On April 1, 1996 a Vancouver law firm sued us for $12,000 in legal fees. We
are defending on the grounds, INTER ALIA, that the account is excessive.
(II) NIKIFORUK V. EVERGREEN; BRITISH COLUMBIA SUPREME COURT ACTION
NO. C943435
In July 1994 Michael Nikiforuk commenced action against both us and Lawrence
Kostiuk. As against us, the Plaintiff seeks damages for breach of a stock option
agreement. No steps have been taken in the proceedings in over a year.
(III) RBS MANAGEMENT V. EVERGREEN; BRITISH COLUMBIA SUPREME COURT ACTION NO.
J950168
In March 1995 our former solicitors commenced proceedings to recover
approximately $37,000 alleged to be owing in legal fees. A taxation hearing set
in May of 1995 was adjourned generally by consent. No steps have been taken in
the proceeding in over a year.
(IV) Q-MEDIA SERVICES LTD. V. SIDEWARE SYSTEMS INC.; BRITISH COLUMBIA
SUPREME COURT ACTION NO. S000892
In February 2000 Q-Media Services Ltd. commenced action against us to
recover approximately $42,000 alleged to be owing for services rendered in the
reproduction of copies of Tagalongs for sale. We are defending the claim on the
grounds that the reproductions were defective.
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ITEM 4. CONTROL OF REGISTRANT
To the best of our knowledge, we are not controlled directly or indirectly
by any other corporation or by any foreign government.
The following table sets forth certain information regarding the beneficial
ownership of our outstanding common shares as of February 29, 2000 by (i) our
directors and executive officers, (ii) each other person whom we know to own
beneficially more than 5% of the common shares; and (iii) all of our directors
and executive officers as a group.
<TABLE>
<CAPTION>
TITLE OF AMOUNT PERCENT
CLASS IDENTITY OF PERSON OR GROUP OWNED OWNED(1)
- --------------------- --------------------------- ---------- --------
<S> <C> <C> <C>
Common Owen Jones............................................. 4,341,000(2) 7.1%
Common Grant Sutherland....................................... 2,355,000(3) 4.0%
Common Peter Kozicki.......................................... 906,700(4) 1.6%
Common Edward White........................................... 315,780(5) 0.5%
Common James Speros........................................... 2,519,500(6) 4.2%
Common Jay Nussbaum........................................... 200,000(7) 0.3%
Common John Wedel............................................. 25,000(8) 0.2%
Common Scott Friedlander...................................... 302,400(9) .5%
Common All Directors and Executive Officers................... 11,065,380(10) 15.8%
</TABLE>
- ------------------------
(1) Percentage ownership figures are calculated using data as at February 29,
2000. As at February 29, 2000 we had 57,609,202 shares issued and
outstanding. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days, are deemed outstanding for computing the
percentage of the person or group of persons holding such option or warrant
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) Includes shares issuable under the following securities:
- 678,000 shares issuable under incentive stock options exercisable within
60 days; and
- 1,060,000 shares issuable under outstanding share purchase warrants
exercisable within 60 days. Subsequent to February 29, 2000 Mr. Jones has
given notice of his intention to exercise 1,000,000 share purchase
warrants. As at the date of this annual report, shares have not yet been
issued in respect of these warrants.
(3) Includes shares issuable under the following securities:
-- 478,000 shares issuable under incentive stock options exercisable within
60 days; and
-- 760,000 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(4) Includes shares issuable under the following securities:
-- 100,000 shares issuable under incentive stock options exercisable within
60 days.
(5) Includes shares issuable under the following securities:
-- 150,000 shares issuable under incentive stock options exercisable within
60 days.
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(6) Includes shares issuable under the following securities:
-- 375,000 shares issuable under incentive stock options exercisable within
60 days; and
-- 1,060,000 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(7) Includes shares issuable under the following securities:
-- 200,000 shares issuable under incentive stock options exercisable within
60 days.
(8) Includes shares issuable under the following securities:
-- 25,000 shares issuable under incentive stock options exercisable within
60 days. Figures stated for Mr. Wedel do not include additional options to
purchase 400,000 shares (of which 100,000 will be exercisable within 60 days)
which we have agreed to grant to Mr. Wedel, but which we have not yet granted.
(9) Includes shares issuable under the following securities:
-- 300,000 shares issuable under incentive stock options exercisable within
60 days.
(10) Includes shares issuable under the following securities:
-- 2,406,000 shares issuable under incentive stock options exercisable
within 60 days; and
-- 2,935,000 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
The figures stated in notes (2), (3), and (10) above do not include share
purchase warrants which expired November 27, 1998, and in respect of which we
have sought regulatory approval of an extension. The figures stated include
securities owned by directors or officers through wholly owned holding
corporations. The figures stated above do not include securities owned by our
corporate Secretary, who does not exercise corporate policy making functions.
We are unaware of any person who owns 10% or more of our voting securities.
We are unaware of any arrangements, the operation of which may at a subsequent
date result in a change of corporate control.
ITEM 5. NATURE OF TRADING MARKET
Our common shares are currently trading on the Canadian Venture Exchange
(the "CVE") under the symbol "SYD.U", and through the OTC Bulletin Board under
the symbol "SDWSF". Trading over the OTC Bulletin Board was authorized to
commence October 29, 1999.
Prior to November 4, 1999 our shares traded on the CVE in Canadian dollars.
On November 4, 1999, at our request, the CVE changed the trading currency for
our shares to United States dollars.
The following table sets forth the high and low sale prices for our common
shares for the quarters indicated. Figures quoted for the third quarter of 1999
and all previous periods are in Canadian dollars,
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and based on data from the CVE. Figures quoted for the final quarter of 1999 are
in United States dollars and are based on data from the CVE and the OTC Bulletin
Board.
<TABLE>
<CAPTION>
CVE CVE OTC-BB OTC-BB
HIGH LOW HIGH LOW
--------- -------- --------- --------
(US$) (US$) (US$) (US$)
<S> <C> <C> <C> <C>
1999
Fourth Quarter..................... US$10.15 US$1.48 US$10.19 US$1.69
Third Quarter...................... $ 3.38 $2.20
Second Quarter..................... $ 3.47 $0.94
First Quarter...................... $ 0.85 $0.45
1998
Fourth Quarter..................... $ 0.51 $0.33
Third Quarter...................... $ 0.51 $0.30
Second Quarter..................... $ 0.54 $0.26
First Quarter...................... $ 0.81 $0.36
1997
Fourth Quarter..................... $ 1.30 $0.60
Third Quarter...................... $ 1.35 $0.76
Second Quarter..................... $ 1.94 $0.58
First Quarter...................... $ 1.05 $0.19
</TABLE>
On March 30, 2000 the closing price for our shares on the CVE was US$9.30.
Our common shares were first listed on the CVE on November 7, 1983. Trading
was suspended by the CVE on November 28, 1994 as a result of concerns of the CVE
over irregularities in transactions of the former President of Sideware
Systems Inc., Lawrence Kostiuk. Irregularities identified by the CVE included:
(a) the granting of a purported general security agreement to Mr. Kostiuk
without public disclosure or CVE approval;
(b) misrepresentations made to the CVE by former management in respect of
private placements completed in August 1991, January 1993 and
July 1993; and
(c) potential breaches of our listing agreement with the CVE, including the
failure to file a management agreement between the Company and Riva
Yachts of Canada Ltd. (a company controlled by the family of
Mr. Kostiuk), the issuance of shares to Mr. Kostiuk without CVE approval,
and the improper issuance of shares pursuant to incentive stock options.
Certain of the above transactions are the subject matter of legal disputes
between us and our former management. See "ITEM 3. LEGAL PROCEEDINGS."
A cease trade order was issued by the British Columbia Securities Commission
on March 7, 1995 when former management failed to file required financial
statements. New management took control on May 3, 1995. On September 10, 1996,
the cease trade order and trading suspension were lifted and our shares resumed
trading. The principal steps that we were required to complete in order to
return our shares to trading status were the preparation and filing of
delinquent financial statements and the raising of approximately $1.6 million in
private placement financing, to permit us to resume operations.
As at March 30, 2000 we have 57,923,965 common shares issued and
outstanding. Approximately 232 record holders of common shares (including
CEDE & Co., a US depository) are within the United States, holding approximately
20 million shares (approximately 34% of the total shares issued and
outstanding). Approximately 37 million shares are registered in the name of
CDS & Co., a Canadian depository. Approximately 9 million shares are registered
in the name of CEDE & Co., a United States
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depository. Owing to the large percentage of our shares registered in the names
of depositories, we do not have reliable information as to the extent of
beneficial ownership of our shares by US residents. We believe that in excess of
50% of our shares are owned beneficially by United States residents.
Trading in our shares over the OTC Bulletin Board commenced pursuant to a
Form 15c-211 filed by National Securities Corp. of Chicago Illinois. We have
entered into a Financial Advisory and Consulting Agreement with National
Securities Corp. of Chicago Illinois, pursuant to which we have issued 250,000
shares of restricted stock to National Securities Corp.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
We are unaware of any governmental laws, decrees or regulations in force in
Canada which restrict the export or import of capital, or the remittance of
dividends, interest or other payments to non-resident holders of our securities.
There are no limitations imposed by the laws of British Columbia or by our
charter or other governing documents on the right of a non-resident to hold or
vote our common shares, other than as provided in the Investment Canada Act (the
"Investment Act"). The following summarizes the principal features of the
Investment Act for a non-resident who proposes to acquire common shares. The
summary is of a general nature only and is not intended to be more; nor is it a
substitute of independent advice from an investor's own advisor. The summary
does not anticipate statutory or regulatory amendments.
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless after review, the minister responsible
for the Investment Act (the "Minister") is satisfied that the investment is
likely to be of a net benefit to Canada. Under the Investment Act, a United
States citizen qualifies as a "World Trade Organization Investor." Subject to
the restrictions noted below, an investment in a Canadian business by a World
Trade Organization Investor would be reviewable under the Investment Act only if
it is an investment to acquire control of such Canadian business and the value
of the assets of the Canadian business as shown on its financial statements is
not less than a specified amount, which for 1999 was $184 million. An investment
in the shares of a Canadian business by a non-Canadian other than a "World Trade
Organization Investor", when the Company is not controlled by a World Trade
Organization Investor, would be reviewable under the Investment Act if it is an
investment to acquire control of the Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is
$5 million or more, or if an order for review is made by the federal cabinet on
the grounds that the investment relates to Canada's cultural heritage or
national identity.
A non-Canadian would acquire control of our company for purposes of the
Investment Act if the non-Canadian acquired a majority of the common shares. The
acquisition of less than a majority but one-third or more of the common shares
would be presumed to be an acquisition of control unless it could be established
that, on acquisition, the company was not controlled in fact by the acquirer
through the ownership of common shares. Notwithstanding the review provisions,
any transaction involving the acquisition of control of a Canadian business or
the establishment of a new business in Canada by a non-Canadian is a notifiable
transaction and must be reported to Industry Canada by the non-Canadian making
the investment either before or within thirty (30) days after the investment.
Certain transactions relating to common shares are exempt from the
Investment Act, including:
(i) an acquisition of common shares by a person in the ordinary course of
that person's business as a trader or dealer in securities;
(ii) an acquisition of control of the company in connection with the
realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions of the
Investment Act; and
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<PAGE>
(iii) an acquisition of control of the company by reason of an amalgamation,
merger, consolidation or corporate reorganization, following which the
ultimate direct or indirect control in fact of the company, through the
ownership of common shares, remains unchanged.
COMPETITION ACT REVIEW
Investments giving rise to the acquisition or establishment, directly or
indirectly, by one or more persons of control over, or a significant interest in
the whole or part of a business of a competitor, supplier, customer or other
person are subject to substantive review by Canada's Competition Law Authority,
the Director of Investigation and Research (the "Director"). If or when the
Director concludes that a merger, whether by purchase or lease of shares or
assets, by amalgamation or by combination, or otherwise, prevents or lessens, or
is likely to prevent or lessen competition substantially, he may apply as may be
necessary to eliminate the substantial lessening or prevention of competition.
Such substantive merger review power applies to all mergers, whether or not they
meet limits for pre- notification under the Competition Act.
In addition to substantive merger review, the Competition Act provides for a
pre-notification regime respecting mergers of certain size. The regime applies
in respect of share acquisitions, asset acquisitions, amalgamations and
combinations, for ease of reference. This filing refers specifically to share
acquisition, although the pre-notification regime applies, with the appropriate
modification, to other types of acquisition of control as well.
In order for a share acquisition transaction to be pre-notifiable, the
parties to the transaction (being the person or persons who proposed to acquire
shares, and the corporation the shares of which are to be acquired), together
with their affiliates (being all firms with a 50% or more voting shares linkage
up and down the chain), must have:
(i) aggregate gross assets in Canada that exceed $400,000,000 in value, as
shown on their audited financial statements for the most recently
completed fiscal year (which must be within the last fifteen
(15) months); or
(ii) aggregate gross revenue from sales in, from or into Canada that exceed
$400,000,000 for the most recently completed fiscal year shown on the
said financial statements; and
(iii) the party being acquired or corporations controlled by that party must
have gross assets in Canada, or gross revenues from sales in or from
Canada, exceeding $35,000,000 as shown on the said financial
statements. Acquisition of shares carrying up to 20% of the votes of a
publicly traded corporation, or 35% of the votes in a private
corporation will not be subject to pre-notification, regardless of the
above thresholds. However, exceeding the 20% or the 35% threshold, and
again exceeding the 50% threshold, gives rise to an obligation of
notification if the size threshold is met.
If a transaction is pre-notifiable, a filing must be made with the Director
containing the prescribed information with respect to the parties, and a waiting
period, (either seven or twenty-one days, depending on whether a long or short
form filing is chosen) must expire prior to closing.
As an alternative to pre-notification, the Director may grant an Advance
Ruling Certificate which exempts the transaction from pre-notification. Advance
Ruling Certificates are granted where the Director concludes, based on the
information provided to him, that he would not have sufficient grounds on which
to apply to the Competition Tribunal to challenge the Merger.
ITEM 7. TAXATION
The following summarizes the principal Canadian federal income tax
considerations applicable to the holding and disposition of common shares in the
capital of our company by a holder of our common shares
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<PAGE>
who is resident in the United States of America, who has never been a resident
of Canada, and who holds common shares solely as capital property (a
"U.S. Holder"). This summary is based on the current provisions of the Income
Tax Act (Canada) (the "ITA"), the regulations thereunder, all amendments thereto
publicly proposed by the government of Canada to the date hereof, the published
administrative practices of Revenue Canada, Taxation, and on current provisions
of the Canada-United States Income Tax Convention, 1980, as amended (the
"Treaty"). Except as otherwise expressly provided, this summary does not take
account of any provincial, territorial or foreign tax law or treaty. It has been
assumed that all currently proposed amendments will be enacted substantially as
proposed and that there is no other relevant change in any governing law or
practice, although no assurance can be given in these respects.
THIS SUMMARY IS NOT INTENDED TO INCLUDE ALL CIRCUMSTANCES IN WHICH A
DISPOSITION OF COMMON SHARES MIGHT OCCUR. THIS SUMMARY DOES NOT CONSTITUTE, AND
SHOULD NOT BE CONSTRUED TO CONSTITUTE, TAX ADVICE TO ANY PARTICULAR READER.
READERS ARE, THEREFORE, ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THEIR INDIVIDUAL CIRCUMSTANCES.
THIS SUMMARY CONTAINS INFORMATION RELATING ONLY TO PROVISIONS OF CANADIAN
FEDERAL INCOME TAX LAW, AS SET OUT ABOVE. THIS SUMMARY DOES NOT INCLUDE
INFORMATION RELATING TO THE PROVISIONS OF ANY TAXATION LEGISLATION OF THE UNITED
STATES OF AMERICA OR ANY STATE THEREOF. READERS WHO ARE OR MAY BE SUBJECT TO
LIABILITY TO TAX UNDER ANY LEGISLATION OF THE UNITED STATES OF AMERICA, OR ANY
STATE THEREOF, ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT
TO SUCH LIABILITY.
DIVIDENDS ON COMMON SHARES
Under the ITA, amounts paid or credited or deemed paid or credited on
account of dividends to holders of common shares that are resident in a country
other than Canada will be subject to withholding tax of 25% of the amount of the
dividend. The rate of withholding tax may be reduced pursuant to the terms of a
bilateral income tax treaty between Canada and the country in which a holder of
common shares is resident. In certain circumstances, the purchase by us of our
common shares may result in a deemed dividend.
Under the Treaty, if the recipient of a dividend on the common shares is the
beneficial owner of such dividends and is considered to be a resident of the
United States for purposes of the Treaty, the rate of Canadian withholding tax
on such dividends will generally be reduced to 15% of the amount of such
dividends or, if the recipient is a corporation which owns at least 10% of our
voting stock, to 5% of the amount of such dividends.
DISPOSITION OF COMMON SHARES
A holder of common shares who is not resident in Canada will not be subject
to tax under the ITA in respect of any capital gain, or be entitled to deduct
any capital loss, realized on a disposition of the common shares unless at the
time of such disposition such common shares constitute "Taxable Canadian
Property" of the holder for purposes of the ITA and the holder is not entitled
to relief under a bilateral income tax treaty between Canada and the country in
which the holder of the common shares is resident. If the holder is not entitled
to relief under a tax treaty, three-quarters of the gain arising on a
disposition of Taxable Canadian Property will be taxable at the rates that
approximate the rates applicable to residents of Canada.
Our common shares will not generally constitute "Taxable Canadian Property"
at a particular time if they are listed on a prescribed stock exchange (which
includes the Canadian Venture Exchange) at that time. However, a holder's common
shares and rights to acquire common shares or interests in common shares will be
considered "Taxable Canadian Property" if the holder uses or holds, or is deemed
to use or hold, such shares in, or in the course of carrying on, a business in
Canada, or if at any time during the five year period immediately preceding the
disposition of such common shares, the non-resident holder and
26
<PAGE>
persons with whom the non-resident holder did not deal at arm's length owned,
had rights to acquire, or had interests in 25% or more of the issued shares of
any class.
Under the Treaty, any gain from a disposition of common shares by a person
who is considered a resident of the United States for purposes of the Treaty may
be exempt from Canadian tax even if the shares constitute Taxable Canadian
Property. This exemption will apply if, at the time of disposition, the value of
the common shares did not derive principally from Canadian real property and
such shares do not form part of the business property of a permanent
establishment of the holder in Canada or pertain to a fixed base available to
the holder in Canada for the purpose of performing independent personal
services.
ITEM 8. SELECTED FINANCIAL DATA
The following table sets out selected financial information for each of the
periods indicated.
The selected consolidated financial data shown below were derived from our
audited consolidated financial statements. The financial data should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and our consolidated financial statements and the
notes thereto.
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED YEARS ENDED APRIL 30
DECEMBER 31, DEC. 31, ----------------------------------------------------
1999 1998 1998 1997 1996 1995(1) 1994(1)
------------- --------- -------- -------- -------- -------- --------
AUDITED AUDITED RESTATED RESTATED RESTATED
(000'S) (000'S) (000'S) (000'S) (000'S) (000'S) (000'S)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Revenue.................... $ 50 $ 159 $ 27 $ 70 $ 28 $ 371 $ 22
Profit (Loss) for the period
(Cdn. GAAP).................... (7,992) (1,892) (2,409) (4,588) (850) (528) (1,250)
Profit (Loss) for the period
(US GAAP)...................... (8,397) (1,937) (2,409) (2,003) (898) (678) (1,735)
Profit (Loss) per share
(Cdn. GAAP).................... (0.21) (0.07) (0.11) (0.29) (0.07) (0.04) (0.11)
Profit (Loss) per share
(US GAAP)...................... (0.22) (0.07) (0.12) (0.14) (0.15) (0.12) (0.37)
Total assets (Cdn. GAAP)......... 10,879 1,725 2,584 1,402 3,350 3,266 3,368
Total assets (US GAAP)........... 10,879 1,725 2,584 1,402 746 709 961
Total S/H Equity (Cdn. GAAP)..... 9,922 1,446 2,362 1,012 2,018 2,869 3,337
Total S/H Equity (US GAAP)....... 9,922 1,446 2,362 1,012 (585) 312 930
Total R&D expend. (Cdn. GAAP).... 954 353 301 130 Nil Nil Nil
</TABLE>
- ------------------------
(1) The circumstances surrounding the restatement of the financial data for the
fiscal years ended April 30, 1994 and April 30, 1995 are as follows:
(a) In our audited financial statements for the fiscal year ended April 30,
1995, we reversed, as at April 30, 1995, the following previously accrued
amounts payable to Lawrence Kostiuk, the company's former President:
<TABLE>
<S> <C>
Professional Services........................... $ 391,000
Development Costs............................... 392,000
Interest Expenses............................... 26,983
Consulting...................................... 128,007
Advertising..................................... 30,000
Travel and promotion............................ 51,730
----------
Total....................................... $1,019,720
==========
</TABLE>
27
<PAGE>
The reversals were made in respect of transactions under former
management, which present management considers to have been improper. See
"ITEM 3. LEGAL PROCEEDINGS".
Of the $1,019,720 reversed, $64,983 had been accrued during the fiscal
year ended April 30, 1995, $522,000 had been accrued during the fiscal
year ended April 30, 1994, and $432,737 had been accrued in earlier
periods.
(b) For purposes of this annual report, we have restated our selected
financial data for the fiscal years ended April 30, 1995 and 1994 by
reversing, as at April 30, 1995, only those amounts accrued during the
fiscal year ended April 30, 1995 (totaling $64,983) and by reversing, as
at April 30, 1994, those amounts accrued during the fiscal year ended
April 30, 1994 (totaling $522,000). Accordingly, the accruals reversed
for the fiscal years ending April 30, 1994 and April 30, 1995 were:
<TABLE>
<S> <C>
1994
Professional Services............................. $ 36,000
Development Costs................................. 2,000
Interest Expenses................................. 26,983
--------
Total......................................... $ 64,983
========
1995
Professional Services............................. $132,000
Development Costs................................. 390,000
--------
Total......................................... $522,000
========
</TABLE>
We have no long-term debt and have not paid any dividends. Claims totaling
approximately $1.8 million have been advanced against us in legal proceedings.
See "ITEM 3. LEGAL PROCEEDINGS".
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the notes thereto. The discussion below is with respect to our consolidated
financial statements which are prepared in accordance with generally accepted
accounting principles in Canada. Material differences from United States
accounting principles are explained and quantified in note 15 to the
consolidated financial statements.
OVERVIEW
Following a change in management in May 1995, new management commenced
rebuilding our business. The initial efforts of new management were focused on
raising sufficient financing to recommence business operations and to permit our
shares to resume trading. Our shares resumed trading on September 10, 1996. Our
current focus is on the development and marketing of Dr. Bean. As yet, we have
not been able to generate significant sales revenue from our products.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE EIGHT MONTH PERIOD ENDED
DECEMBER 31, 1998
During the year ended December 31, 1999 we received sales revenue of
$49,609, compared with $158,533 for the eight month period ended December 31,
1998. The principal reasons for the decrease were as follows:
(a) Software sales decreased from $29,383 to nil. During the eight month
period ended December 31, 1998 we received revenue from the sale of
Tagalongs, our single user notation utility which has
28
<PAGE>
now been discontinued. We did not realize revenue from the sale of
Dr. Bean during either 1998 or 1999.
(b) Hardware sales decreased from $129,150 to $49,609. During 1998, all of
our hardware sales were made to BrainTech, Inc. and Techwest
Management Inc., related parties. During 1999, we sold $3,763 worth of
hardware to an arm's length party. The remainder of our hardware sales
during 1999 were to BrainTech, Inc. and Techwest Management Inc.
Commencing in the summer of 1998, equipment for both BrainTech, Inc. and
Techwest Management Inc. has been purchased through us, owing to favourable
prices available to us under the IBM Business Partner Reseller Program. In our
initial equipment sales to BrainTech, Inc. and Techwest Management Inc., we
charged a mark-up over our cost. The mark-up was eliminated on subsequent
transactions. Our current policy is to sell equipment to BrainTech, Inc. and
Techwest Management Inc. at cost.
Interest revenue earned on cash balances increased from $41,734 for the
eight month period ended December 31, 1998 to $146,341 for the year ended
December 31, 1999. The increase resulted from higher cash balances during the
period ended December 31, 1999.
Cost of sales decreased from $140,418 for the eight month period ended
December 31, 1998 to $48,883 for the year ended December 31, 1999. Cost of
hardware sold (including equipment sold to BrainTech, Inc. and Techwest
Management Inc.) decreased from $120,068 to $48,883. Cost of software sold
decreased from $20,350 to nil, as we did not have any software sales during
1999.
With respect to our operating expenses, the general level of activity within
our company increased substantially during 1999. We opened a new office in the
United States, and began to hire employees in the United States. We also hired
new employees in Canada, and acquired additional office premises in Vancouver,
British Columbia. In addition, our results of operations for the period ended
December 31, 1999 cover a full year, whereas the comparative period ended
December 31, 1998 covers only eight months. As a result of these two factors,
expenditures in virtually all categories were much higher during the period
ended December 31, 1999. Due to our stage of development, seasonal variations
were not a material factor between the comparative periods.
Employee wages and benefits increased from $401,843 for the eight month
period ended December 31, 1998 to $2,590,482 for the year ended December 31,
1999. This increase reflects the increase in our work force. Facilities costs
increased from $94,705 to $509,314. This increase reflects our additional
leasehold premises in both Vancouver and Virginia. Filing and transfer fees
increased from $12,241 to $80,752. The principal reason for the increase was
additional fees paid to our transfer agent as a result of our financing activity
and transactions in our common shares.
Marketing expenses increased from $581,764 for the eight month period ended
December 31, 1998 to $1,569,086 for the year ended December 31, 1999. Several
factors contributed to this increase. During 1999 we paid $182,749 to Big House
Communications, an advertising firm, for work in designing our Internet
storefront. There was no corresponding expense during the eight month period
ended December 31, 1998. Trade show costs during 1999 were $382,724, compared
with $244,217 for the eight month period ended December 31, 1998. This increase
resulted principally from the longer reporting period covered in the year ended
December 31, 1999. Travel costs increased from $125,796 to $283,700, due
principally to costs associated with opening and operating our Virginia office.
As well, marketing expenses for 1999 included approximately $158,747 paid to
contract workers. There were no material similar expenses during the eight month
period ended December 31, 1998.
Office, printing and sundry expenses were $392,159 for the year ended
December 31, 1999, compared with $124,375 for eight month period ended
December 31, 1998. The increase resulted from the increase in our work force and
the longer period of time covered by the fiscal reporting period ended
December 31, 1999.
29
<PAGE>
During the year ended December 31, 1999 we incurred a foreign exchange loss
of $273,652. By comparison, during the eight month period ended December 31,
1998 we recorded a foreign exchange gain of $141,047. Our foreign exchange gains
and losses result from two factors:
(a) adjusting entries made in respect of transactions recorded in Canadian
dollars, but actually carried out in United States dollars; and
(b) adjusting entries made at year end (reflecting year end exchange rates)
in respect of monetary assets and liabilities held in United States
dollars, but reported in Canadian dollars.
Professional fees increased from $356,820 for the eight month period ended
December 31, 1998 to $1,125,201 for the year ended December 31, 1999. Accounting
and auditing costs increased from $80,566 to $252,756. During 1999 we required
substantial accounting and auditing work in connection with the establishment of
an offshore subsidiary, compliance taxation matters, the installation of a new
accounting system, and the filing of public disclosure documents. Legal costs
increased from $220,826 for the eight month period ended December 31, 1998 to
$658,771 for the year ended December 31, 1999. During 1999 we required
substantial legal work in connection with private placement financings we
completed, registration of our shares under United States securities laws, the
establishment of an offshore subsidiary, taxation issues relating to
cross-border transactions, the hiring of additional employees both in Canada and
the United States, and our outstanding court actions.
Research and development expenses (net of government grants) increased from
$353,238 for the eight month period ended December 31, 1998 to $953,842 for the
year ended December 31, 1999. The increase was due principally to additional
research and development personnel. In addition, research and development
expenses for the eight month period ended December 31, 1998 were reduced by
government grants in the amount of $25,730. There were no similar receipts
during 1999.
During 1999 we recorded an expense of $160,000 for investment advisory
services. This expense represented the value of 250,000 shares issued to
National Securities Corp. of Chicago, Illinois for fiscal advisory and
consulting services in connection with the listing of our shares on the OTC
Bulletin Board. There was no corresponding expense during the eight month period
ended December 31, 1998.
For US GAAP purposes, we incurred a compensation expense in the amount of
$404,400 for the year ended December 31, 1999 in respect of the issuance of
incentive stock options. The corresponding expense for the eight month period
ended December 31, 1998 was $44,400.
EIGHT MONTH PERIOD ENDED DECEMBER 31, 1998 COMPARED WITH THE FISCAL YEAR
ENDED APRIL 30, 1998
During the eight month period ended December 31, 1998 we received $200,267
in revenue compared with $54,679 during the twelve-month period ended April 30,
1998. The principal reasons for the increase were as follows:
(a) Software sales increased from $26,782 to $29,383.
(b) Hardware sales increased from nil to $129,150. The hardware sales in
question were made to BrainTech, Inc. and Techwest Management Inc.
(c) Interest revenue earned on cash balances increased from $27,897 to
$41,734, as a result of higher cash balances during the period ended
December 31, 1998.
Cost of sales increased from $18,178 for the fiscal year ended April 30,
1998 to $140,418 for the eight month period ended December 31, 1998. Cost of
hardware sold (including equipment sold to BrainTech, Inc. and Techwest
Management Inc.) increased from nil to $120,068. Cost of software sold increased
from $18,178 to $20,350.
During the eight month period ended December 31, 1998 we also incurred a bad
debt expense of $30,801, writing off the balance of an account receivable from
Intermark Corporation. Intermark
30
<PAGE>
Corporation acted previously as our marketing agent for Tagalongs in the United
States. As at April 30, 1998, our financial records showed $67,142 owing by
Intermark Corporation. In our April 30, 1998 financial statements, we made a
provision of $36,349 in respect of the receivable from Intermark Corporation.
The circumstances of that provision are explained more fully below, under the
heading "YEAR ENDED APRIL 30, 1998 COMPARED WITH YEAR ENDED APRIL 30, 1997".
During the eight month period ended December 31, 1998, we determined to write
off the remaining balance owing by Intermark Corporation, as it appeared that
Intermark Corporation might be in financial difficulty, such that legal
proceedings against Intermark Corporation to collect the amount owing might not
be worthwhile.
Employee wages and benefits increased to $401,843 for the eight month period
ended December 31, 1998 from $360,143 for the fiscal year ended April 30, 1998.
The increase was due principally to additional personnel being hired. Facilities
costs increased to $94,705 from $76,707. The principal reason for the increase
was the cost of additional lease space which we occupied in North Vancouver
effective September 1, 1998. Filing and transfer fees decreased to $12,241 from
$21,907. The principal reason for the decrease was the shorter period of time
covered by the fiscal reporting period ended December 31, 1998, owing to the
change in our year end. Marketing expenses decreased to $581,764 from $635,498,
but were higher on a monthly average basis (averaging approximately $72,500 per
month during the eight month period ended December 31, 1998, compared with
approximately $53,000 per month during the fiscal year ended April 30, 1998).
Average monthly marketing expenses increased principally as a result of higher
travel and trade show expenses, which were approximately $218,835 for the fiscal
year ended April 30, 1998, compared with approximately $382,909 for the eight
month period ended December 31, 1998. Increased travel and trade show expenses
were offset in part by a reduction in fees paid to marketing agents. During the
fiscal year ended April 30, 1998, we paid approximately $156,000 to marketing
agents. There were no such payments during the eight month period ended
December 31, 1998.
Office, printing and sundry expenses were $124,375 for the eight month
period ended December 31, 1998 compared with $167,228 for the fiscal year ended
April 30, 1998. The principal reason for the decrease was the shorter period of
time covered by the fiscal reporting period ended December 31, 1998, owing to
the change in our year end. We also incurred a $141,047 foreign exchange gain
during the eight month period ended December 31, 1998, compared with $33,479 for
the fiscal year ended April 30, 1998. The principal reason for the increase was
the substantial appreciation in the US dollar during the eight month period
ended December 31, 1998.
Professional fees decreased to $356,820 from $620,845. A principal reason
for the decrease was a reduction in our legal and accounting costs. The
reduction in legal and accounting costs was offset in part by the cost of a
business plan (approximately $20,000) prepared during the eight month period
ended December 31, 1998. Research and development expenses (net of government
grants) increased to $353,238 from $301,258. The increase was due principally to
additional research and development personnel.
For US GAAP purposes, we also incurred a compensation expense in the amount
of $44,400 during the eight month period ended December 31, 1998 in respect of
the issuance of incentive stock options. There was no such expense incurred
during the fiscal year ended April 30, 1998.
31
<PAGE>
FISCAL YEAR ENDED APRIL 30, 1998 COMPARED WITH THE FISCAL YEAR ENDED
APRIL 30, 1997
During the fiscal year ended April 30, 1998, we received revenue of $54,679,
compared with $70,613 for the fiscal year ended April 30, 1997. The principal
reason for the decrease was a reduction in software sales, which decreased from
$69,748 to $26,782. The principal reason for the decrease in software sales was
an interruption of our marketing efforts while our single user product was being
re-named from "JOT-IT!" to "Tagalongs" to comply with our settlement agreement
with 3M Corporation. In addition, sales were reduced by a charge in the amount
of $21,431 in respect of the disposal of obsolete inventory in the possession of
Intermark Corporation. Cost of software sold increased from $9,094 to $18,178.
Reduced sales were not accompanied by a reduction in cost of software sold owing
to the charge in respect of unsold inventory, described above. The reduction in
software sales was offset in part by an increase in interest revenue, which
increased from $865 to $27,897 as a result of higher cash balances.
During the fiscal year ended April 30, 1998 we also incurred a bad debt
expense of $36,349. The bad debt expense arose from the failure of Intermark
Corporation, who were marketing our Tagalongs product, to remit funds which they
had received in respect of sales of Tagalongs, and which they were obliged to
remit to us. We recorded sales revenue of $69,748 and $16,827 for software sold
through Intermark Corporation for the fiscal years ended April 30, 1997 and
April 30, 1998, respectively. We considered recognition of this revenue
appropriate as the transactions in question represented software shipped by us
through Intermark Corporation, for which Intermark Corporation received payment,
and for which Intermark Corporation was liable to pay us. We did not make any
allowance for a bad debt expense in our April 30, 1997 financial statements, as
we believed we would ultimately recover all amounts payable by Intermark
Corporation.
As at April 30, 1998, our records showed $67,142 owing by Intermark
Corporation. Intermark Corporation signed an audit confirmation acknowledging
indebtedness to us in the amount of US$41,173.20. However, Intermark Corporation
did not remit the amounts owing. Intermark Corporation also made an offer, which
we accepted, to settle the account for approximately $30,000. Accordingly, as at
our April 30, 1998 fiscal year end, we made a bad debt allowance of $36,349,
reducing the amount receivable from Intermark Corporation to approximately
$30,000. As stated above, the remaining balance owing from Intermark Corporation
has been written off as at December 31, 1998.
Employee wages and benefits increased to $360,143 during the fiscal year
ended April 30, 1998 from $176,361 during the fiscal year ended April 30, 1997.
The increase was due to additional personnel being hired during the fiscal year
ended April 30, 1998, and to a payment of $100,000 made to our President in
April 1998 as a performance bonus. Filing and transfer fees decreased to $21,907
from $49,360. Filing and transfer fees were higher during 1997 due to costs
incurred in issuing securities, costs incurred in connection with the resumption
in trading of our securities, and costs incurred in resolving disputes
concerning share ownership arising from the conduct of prior management. Office,
printing and sundry expenses increased to $167,228 from $107,575. The reason for
the increase was a generally increased level of business activity.
During the fiscal year ended April 30, 1998, we recorded an expense in the
amount of $75,000 for Investment Advisory Services. The $75,000 represented the
deemed value of Special Warrants issued to Golden Capital Securities Ltd. in
consideration for services rendered during the fiscal year ended April 30, 1998
in connection with an intended prospectus filing.
Professional fees decreased to $620,845 for the fiscal year ended April 30,
1998 from $961,245 for the fiscal year ended April 30, 1997. Several factors
contributed to this reduction. During the fiscal year ended April 30, 1997 we
incurred extraordinary accounting costs resulting from the resumption in trading
of our shares and the preparation of required historical financial data.
Accounting and auditing costs decreased from $286,806 for the fiscal year ended
April 30, 1997 to approximately $152,407 for the fiscal year ended April 30,
1998. In addition, certain expenditures including payments to our public
relations firm and marketing agent, as well as the salary costs of our Manager
of Investor Relations and Vice President
32
<PAGE>
Business Development, were allocated to "Professional fees" for the year ended
April 30, 1997, but were reallocated to other categories for the fiscal year
ended April 30, 1998.
Marketing expenses increased to $635,498 for the fiscal year ended
April 30, 1998 from $418,764 for the fiscal year ended April 30, 1997. The
principal reasons for the increase were increased trade show costs, which
increased from approximately $109,652 to approximately $183,026, and the
reallocation of certain expenses from the category "Professional fees". Research
and development expenses increased to $301,258 from $129,877. This increase was
due principally to increased salaries and performance bonuses paid to
programming personnel.
For US GAAP purposes, we also incurred a compensation expense in the amount
of $19,350 during the fiscal year ended April 30, 1997 in respect of the
issuance of incentive stock options. There was no such expense incurred during
the fiscal year ended April 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
From the time new management took control of our company in May 1995 up to
December 31, 1999, we have raised approximately $24.8 million in equity
financing through private placements (including the exercise of warrants issued
pursuant thereto) and the exercise of stock options.
As at December 31, 1999 our cash balance was approximately $8.6 million.
Subsequent to December 31, 1999, we have received the following additional
funds.
(a) We have received approximately $3.3 million from the exercise of share
purchase warrants.
(b) We have received approximately $1.8 million from the exercise of stock
options.
(c) In January 2000 we closed a private placement of 2,500,000 units at a
price of US$1.64 per unit, yielding net proceeds of approximately
$5.8 million.
(d) We are in the process of completing an additional private placement of
1,104,000 units at a price of US$10.00. Each unit will consist of one
share and one share purchase warrant. Each share purchase warrant will
entitle the holder to purchase one additional share for a period of
two years, at a price of US$10.00 in the first year or US$11.50 in the
second year. As at March 30, 2000 we have received substantially all of
the proceeds from this private placement.
Inclusive of the funds described above, our cash balance as at March 30,
2000 is approximately $29 million.
As at March 30, 2000, we have 59 employees working in our offices in
Vancouver and North Vancouver, British Columbia, as well a regional sales
representative in Toronto. Of our Canadian employees:
(a) approximately half work in the development of our products or in running
our internal systems;
(b) approximately one third work in sales, customer support, and related
areas; and
(c) the remainder work in executive or administrative positions.
We expect to hire at least five additional employees to work in our Canadian
offices within the next 30 days. By the end of April 2000, we expect that
monthly salary costs in our Canadian offices will total at least $400,000 per
month.
We currently operate from 8 different locations in the United States. Our
head office in the United States is in Reston, Virginia, where we have
29 employees. We also have 5 employees stationed in Atlanta, two employees
stationed in San Jose, and one employee stationed in each of Los Angeles,
Phoenix, Dallas, Boston, and Chicago. Over 30 of our United States employees
have been hired subsequent to December 31, 1999. The large majority of our
United States employees work in sales, customer service,
33
<PAGE>
and related areas. We expect that by the end of April 2000, will hire an
additional 20 employees in the United States, and that we will have employees
stationed in an additional 7 cities in the United States. Including new
employees expected to start in April 2000, we believe that by the end of
April 2000 our monthly salary costs in the United States will total at least
$550,000 per month.
As a result of the increase in our work force, we have added to our office
facilities. We are in the process of occupying new, larger premises for our
Virginia head office, and we have leased premises in Atlanta, San Jose, and
Chicago. Our sales representatives in other cities currently operate from
private premises. Monthly rental costs for our existing premises, in both Canada
and the United States, total approximately $125,000 per month. We will likely
open up to six additional offices during the balance of 2000, with the result
that rental costs are likely to increase over present levels.
We have attended numerous industry trade shows to gain exposure for our
products, and trade shows have historically been a substantial cost item for us,
in relation to our total corporate expenses. Apart from trade shows, we have not
previously incurred large advertising expenditures. During the year ended
December 31, 1999 we spent approximately $108,000 on advertising and
approximately $328,000 on trade shows.
During the first quarter of 2000 we attended 5 trade shows, and we are
scheduled to attend five additional trade shows up to July 31, 2000. The Spring
Internet World trade show in Los Angeles (April 2000) will involve a substantial
display, and will cost approximately $250,000-$300,000. The other four shows
which we have scheduled will be substantially less expensive, costing
approximately $5,000-$7,000 each. In the result, we plan to spend approximately
$300,000-$350,000 on trade shows during the next four months. We will likely
attend additional trade shows during the balance of 2000, but we have not yet
set a specific schedule of shows. We may also embark on a substantial
advertising campaign for Dr. Bean, depending on our financial resources and on
customer response to Dr. Bean. We do not have specific plans for an advertising
campaign, and are not presently in a position to estimate how much we will spend
on any advertising campaign.
In addition to the foregoing, we also expect that our general overhead and
administrative expenses will be substantially higher during 2000 than we have
experienced in the past. In total, we expect that our average monthly expenses
during the balance of 2000 will be at least $2,250,000 per month. At our
projected minimum expenditure rate of $2,250,000 per month, our present cash
balance of $29 million will be sufficient to pay ongoing cash expenses for the
balance of 2000 and part of the first half of 2001. Our rate of expenditure may
become substantially higher than $2,250,000 per month if we continue to expand
our work force, or if we incur substantial advertising costs. Any decisions we
make to continue expanding our work force, or to undertake substantial
advertising, will be based on our financial resources and on customer response
to Dr. Bean.
Investors are cautioned that that we cannot at present make accurate
estimates of our future operating costs. Our rate of expenditure has increased
substantially in the last few months, so that we have no historical data from
which we can predict future expenses. In addition, we may continue to increase
our expenditures, depending on our available resources and on customer response
to Dr. Bean.
We plan to continue seeking additional capital financing during the balance
of 2000. We will attempt to complete a substantial public offering, or to raise
additional capital through private placements. However, as at the date of this
annual report, we do not have specific plans for raising additional capital.
With the expansion of our United States work force, we have commenced our
first substantial sales thrust for Dr. Bean. We expect that the generation of
substantial sales revenue from Dr. Bean will mark our transition from a
development stage company to an operating company. Historically, we have not had
significant revenue. It is essential for us to generate substantial revenue from
Dr. Bean in order to survive.
34
<PAGE>
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Our Year 2000 compliance program was conducted under the direction of our
systems administrator. Beginning in the middle of 1998, our systems
administrator commenced analyzing individual components of our computer systems
to identify any components which were not Year 2000 compliant.
Our systems administrator confirmed that all of the individual computers in
our system are Year 2000 compliant. The only software component that was
identified as potentially non-compliant was our accounting system. In May 1999
we replaced our accounting system with a Year 2000 compliant system. The cost of
the system was approximately $60,000, which was shared with BrainTech, Inc.
As at the date of this annual report, we have not encountered any material
Year 2000 problems. All of our products are Year 2000 compliant and we believe
that all of our internal systems are Year 2000 compliant. As a result, we have
not developed any contingency plan.
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES AND INFLATION
A substantial portion of our expenses are incurred in currencies other than
the Canadian dollar, principally the United States dollar. If we are able to
generate substantial revenue from the sale of Dr. Bean, we expect that a
substantial portion of our revenue will also be earned in the United States
dollar.
During the year ended December 31, 1999 we incurred a foreign exchange loss
of $273,652. During the eight month period ended December 31, 1998, we realized
a foreign exchange gain of $141,047. Our foreign exchange gains and losses
result from two factors:
(a) adjusting entries made in respect of transactions recorded in Canadian
dollars, but actually carried out in United States dollars; and
(b) adjusting entries made at year end (reflecting year end exchange rates)
in respect of monetary assets and liabilities held in United States
dollars, but reported in Canadian dollars.
Otherwise, for the fiscal years ending April 30, 1996, 1997, and 1998, the
effects of fluctuations in currency exchange rates have not been material.
Fluctuations in exchange rates between the United States dollar and other
foreign currencies and the Canadian dollar could materially affect our results
of operations in the future. As at March 30, 2000 we have not engaged in
exchange rate hedging activities. To the extent we implement such hedging
activities in the future, there can be no assurance that we will be successful.
While we believe that inflation has not had a material adverse affect on our
results of operations, there can be no assurance that inflation will not have a
material adverse effect on our results of operations in the future.
ITEM 9A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
As at December 31, 1999 we have not entered into or acquired financial
instruments that have a material market risk. We have no financial instruments
for trading or other purposes or derivative or other financial instruments with
off balance sheet risk. All financial assets and liabilities are due within the
next twelve months and are classified as current assets or liabilities in the
consolidated balance sheet provided with this prospectus. The fair value of all
financial instruments at December 31, 1999 is not materially different from
their carrying value.
35
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The following table states information with respect to our directors and
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Owen L.J. Jones...... 48 President, Chief Executive Officer and Director
W. Grant Sutherland.. 53 Chairman of the Board of Directors
James L. Speros...... 40 Director and President of Sideware Corp
Jay H. Nussbaum...... 55 Director
Peter Kozicki........ 66 Director
Edward A. White...... 54 Director
Scott Friedlander.... 40 Executive Vice President -- General Manager of US Operations
John Wedel........... 38 General Manager of e-business Solutions
</TABLE>
OWEN L.J. JONES. Director, President, and Chief Executive Officer.
Mr. Jones been a director since May 3, 1995 and has been our President and Chief
Executive Officer since July 1995. Since December 1993, Mr. Jones has also been
a director and the President and Chief Executive Officer of BrainTech, Inc., a
software development company whose shares trade on the OTC-Bulletin Board. Prior
to becoming a director of BrainTech, Inc., Mr. Jones was employed as the
V.P. Sales, Marketing and Technology of the Company.
W. GRANT SUTHERLAND. Director and Chairman of the Board. Mr. Sutherland has
been a director since May 1993. Since May 3, 1995 Mr. Sutherland has held the
position of Chairman of the Board. Since December 1995 Mr. Sutherland has also
been a director and the Chairman of the Board of BrainTech, Inc. Mr. Sutherland
is a licensed lawyer in the Province of British Columbia, and has been engaged
in the private practice of law for 26 years, currently as a partner in a
Vancouver law firm.
JAMES L. SPEROS. Director and President of Sideware Corp. Mr. Speros was
appointed a director and the President and Chief Operating Officer of Sideware
Corp. on August 5, 1998. From June 1993 to January 1997 Mr. Speros was the
President and owner of two professional sports franchises, the Baltimore
Stallions and Montreal Alouettes of the Canadian Football League. From
January 1997 to February 1999 Mr. Speros was the President of Exploration
Mirandor, a mining exploration company. Mr. Speros is also a director of
Consolidated Maymac Petroleum Corp., a public company trading on the Canadian
Venture Exchange. Mr. Speros is also a director of BrainTech, Inc., and sits on
the advisory board of eIncubator Inc., a company whose shares trade on the
Canadian Venture Exchange.
JAY H. NUSSBAUM. Director. Mr. Nussbaum was appointed a director on
June 14, 1999. Mr. Nussbaum is the Executive Vice President of Oracle Service
Industries and a member of the Executive Committee of Oracle. Mr. Nussbaum
joined Oracle after a 24-year career with Xerox Corp. that culminated with his
position as President, Integrated Systems Operations. While at Xerox,
Mr. Nussbaum was responsible for integration and consulting services in
commercial and federal government markets. Mr. Nussbaum joined Oracle in 1992 as
the Senior Vice President and General Manager of what was then Oracle Federal.
Mr. Nussbaum received a bachelor's degree in business from the University of
Maryland. He is a member of the University's Chancellor's Advisory Board and
also serves on the advisory board of James Madison University. Mr. Nussbaum is
on the board of directors of the Armed Forces Communications and Electronics
Association and is active in several other business and charitable organizations
in the Washington area.
PETER KOZICKI. Director. Mr. Kozicki was elected a director on May 3, 1995.
Mr. Kozicki is a consulting engineer, who has been engaged in private practice
in that field for over 12 years. He obtained his B.Sc. degree in Civil
Engineering from the University of Saskatchewan and a M.Sc. degree in Soil
Mechanics from the University of Alberta. Mr. Kozicki is President of PKM
Consultants Ltd., a private company providing consulting engineering services in
North America and overseas. PKM Consultants Ltd.
36
<PAGE>
specializes in the installation of deep foundations and vertical barriers for
containment of hazardous wastes.
EDWARD A. WHITE. Director. Mr. White was appointed a director on
October 14, 1995. Mr. White is a member of the British Columbia Institute of
Chartered Accountants, and has practiced as a self-employed chartered accountant
for over 20 years. Mr. White has been a director and officer of Oro Bravo
Resources Ltd. since February 1987, and a director of Liquid Gold
Resources Inc. since March 1993. Mr. White also served as a director of American
Woolastonite Mining Corp. from January 1989 to May 1995.
JOHN WEDEL. General Manager of e-business Solutions. Mr. Wedel joined us in
December 1997. From December 1992 to December 1995, Mr. Wedel worked for Exan
Research and Development as a senior developer. From December 1995 to
December 1997, Mr. Wedel worked for TransAct Systems Inc. as a Senior
Technologist. Mr. Wedel holds a Bachelor's Degree in Computer Science from Simon
Fraser University.
SCOTT W. FRIEDLANDER. Executive Vice President and General Manager of US
Operations. Mr. Friedlander joined us in February 2000, after a successful
18 year career with Xerox Corp. At Xerox, Mr. Friedlander held the position of
Vice President of Public Sector Operations (North American Solutions Group), and
oversaw a division earning $165 million in revenue.
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Apart from incentive stock options, disclosed under ITEM 12, below, we do
not presently compensate our directors for services provided as directors. We
provide compensation to our directors who are also officers or employees, for
services rendered as officers or employees. We provide the following
compensation to our directors and executive officers.
OWEN JONES. Effective January 1, 2000, we pay Mr. Jones an annual salary of
US$250,000 per year. Between June 1, 1998, and December 31, 1999, Mr. Jones'
salary was $10,000 per month, which we shared with BrainTech, Inc. (paying 80%
during 1999 and 50% during 1998). Prior to June 1, 1998, Mr. Jones' monthly
payments (then shared equally between us and BrainTech, Inc.) were $5,000 per
month. In April 1998 and April 1999, we paid Mr. Jones bonus payments of
$100,000. In March 2000 we paid Mr. Jones a bonus of $178,000. These payments
were made to bring Mr. Jones' annual compensation in line with amounts which our
directors considered to be appropriate for a chief executive officer of the
Company. Mr. Jones also holds incentive stock options to acquire 678,000 shares.
Mr. Jones receives no other compensation from us or any of our subsidiaries.
GRANT SUTHERLAND. Effective January 1, 2000 we pay Mr. Sutherland
US$200,000 per year. Between June 1, 1998, and December 31, 1999,
Mr. Sutherland's salary was $10,000 per month, which we shared with
BrainTech, Inc. (paying 80% during 1999 and 50% during 1998). Prior to June 1,
1998, we paid Mr. Sutherland $5,000 per month. Mr. Sutherland exercised
incentive stock options to acquire 250,000 shares in September 1999 and options
to acquire 70,000 shares in February 2000. Mr. Sutherland holds additional
incentive stock options to acquire 478,000 shares. Mr. Sutherland receives no
other compensation from us or any of our subsidiaries.
JAMES L. SPEROS. Effective January 1, 2000 we pay Mr. Speros US$225,000 per
year. During November and December 1999, Mr. Speros' salary was US$15,000 per
month. Between April 1999 and November 1999, Mr. Speros' salary was US$11,500
per month. Between August 1998 and April 1999, Mr. Speros' salary was US$8,000
per month. In October and November 1999, Mr. Speros received bonus payments
totaling US$50,000. In addition, Mr. Speros holds incentive stock options to
acquire 375,000 shares. Mr. Speros receives no other compensation from us or any
of our subsidiaries.
37
<PAGE>
JOHN WEDEL. Effective March 1, 2000 Mr. Wedel receives a salary of $250,000
per year. Prior to March 1, 2000, Mr. Wedel's salary was $150,000 per year. In
February 2000 we paid Mr. Wedel a bonus of $152,000. Mr. Wedel holds incentive
stock options to acquire 25,000 shares, and we have agreed to grant Mr. Wedel
options to purchase an additional 400,000 shares. Mr. Wedel receives no other
compensation from us or any of our subsidiaries.
SCOTT FRIEDLANDER. Mr. Friedlander currently receives a salary of
US$175,000 per year. Mr. Friedlander will also be entitled to receive bonuses
equal to:
(a) 50% of his base salary if our revenue exceeds $10 million during 2000;
(b) 100% of his base salary if our revenue exceeds $20 million during 2000;
(c) 75% of his base salary if our revenue exceeds $30 million during
2001; and
(d) 200% of his base salary if our revenue exceeds $40 million during 2002.
Mr. Friedlander holds options to purchase 1,000,000 shares. 300,000 of those
options are exercisable at any time. The remaining 700,000 options are
exercisable according to the following schedule:
(a) 200,000 options become exercisable if our revenue exceeds $10 million
during 2000;
(b) 500,000 options become exercisable if our revenue exceeds $20 million
during 2000;
(c) 200,000 options become exercisable if our revenue does not reach
$20 million during 2000, but exceeds $10 million in 2001; and
(d) all remaining option become exercisable in 2001, if our revenue does not
reach $20 million during 2000, but exceeds $20 million in 2001.
The aggregate amount of cash remuneration which we paid to our present
directors and executive officers as a group was approximately $595,000 during
the year ended December 31, 1999.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
As at March 30, 2000, we have 57,923,965 shares issued and outstanding.
INCENTIVE STOCK OPTIONS
From time to time we grant incentive stock options to directors, officers
and employees. As at March 30, 2000, we have 5,159,700 incentive stock options
outstanding as follows:
(a) options to acquire 653,000 shares at $0.50 per share expiring May 1,
2001;
(b) options to acquire 123,000 shares at $0.36 per share expiring
February 12, 2002;
(c) options to acquire 420,000 shares at $0.70 per share expiring
December 16, 2002;
(d) options to acquire 285,000 shares at $0.36 per share expiring July 6,
2003;
(e) options to acquire 272,800 shares at $1.14 per share expiring April 14,
2004;
(f) options to acquire 93,500 shares at $1.35 per share expiring April 29,
2004;
(g) options to acquire 870,000 shares at $2.33 per share expiring June 17,
2004;
(h) options to acquire 352,500 shares at $2.66 per share expiring
October 4, 2004;
(i) options to acquire 80,900 shares at $2.78 per share expiring
October 20, 2004;
(j) options to acquire 1,000,000 shares at US$8.69 per share expiring
January 14, 2005; and
(k) options to acquire 1,000,000 shares at US$11.08 per share expiring
January 21, 2005.
38
<PAGE>
Of the options listed above, our directors and executive officers hold the
following:
<TABLE>
<CAPTION>
NAME OF OPTIONEE NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
- ---------------- ---------------- -------------- -----------
<S> <C> <C> <C>
Owen L.J. Jones................................... 300,000 $ 0.50 05/01/01
123,000 $ 0.36 02/12/02
75,000 $ 0.70 12/16/02
55,000 $ 0.36 07/06/03
125,000 $ 2.33 06/17/04
Grant Sutherland.................................. 198,000 $ 0.50 05/01/01
75,000 $ 0.70 12/16/02
180,000 $ 2.66 10/10/04
Peter Kozicki..................................... 50,000 $ 0.50 05/01/01
25,000 $ 0.70 12/16/02
25,000 $ 2.33 06/17/04
Edward White...................................... 100,000 $ 0.50 05/01/01
25,000 $ 0.70 12/16/02
25,000 $ 2.33 06/17/04
Jay Nussbaum...................................... 200,000 US$11.08 01/21/05
James Speros...................................... 250,000 $ 0.36 07/06/03
125,000 $ 2.33 06/17/04
Scott Friedlander................................. 1,000,000 US$ 8.69 01/14/05
John Wedel........................................ 25,000 $ 1.14 04/14/04
</TABLE>
The total number of incentive stock options held by our directors and
executive officers is 2,981,000 as at March 30, 2000. Of the 1,000,000 stock
options held by Mr. Friedlander, only 300,000 are exerciseable within 60 days of
the date of this annual report. For purposes of this calculation, our Secretary
has not been classified as an executive officer, as he does not exercise policy
making functions. The options listed above do not include options to purchase
400,000 shares which we have agreed to grant to John Wedel, but which have not
been granted as at the date of this annual report.
During the year ended December 31, 1999, the following stock options were
exercised by our directors and executive officers:
(a) Grant Sutherland exercised options to purchase 102,000 shares at $0.50
per share and options to purchase 148,000 shares at $0.36 per share.
(b) John Wedel exercised options to purchase 20,000 shares at $0.36 per
share, options to purchase 40,000 shares at $0.70 per share, options to
purchase 50,000 shares at $1.14 per share, and options to purchase 50,000
shares at $1.33 per share.
Between December 31, 1999 and March 30, 2000 the following stock options
have been exercised:
(a) options to acquire 100,000 shares at $0.50 per share;
(b) options to acquire 95,000 shares at $0.70 per share;
(c) options to acquire 20,000 shares at $0.36 per share;
(d) options to acquire 10,000 shares at $0.82 per share;
(e) options to acquire 197,200 shares at $1.14 per share;
(f) options to acquire 67,500 shares at $1.35 per share;
(g) options to acquire 97,000 shares at $2.33 per share;
39
<PAGE>
(h) options to acquire 376,000 shares at $2.66 per share; and
(i) options to acquire 58,100 shares at $2.78 per share.
Grant Sutherland exercised 70,000 of the options referred to in (h) and John
Wedel exercised 37,200 of the options referred to in (e). None of the remaining
options were exercised by any of our current directors or executive officers.
On February 11, 2000 our board of directors adopted our 2000 Stock Option
Plan, which reserved a further 5,700,000 shares for issuance pursuant to
incentive stock options. Our 2000 Stock Option Plan has been approved by the
CVE, but is still subject to shareholder approval at our next annual general
meeting of shareholders. By press releases dated February 10, 2000 and
February 28, 2000 we announced the granting of 4,700,000 options pursuant to the
2000 Stock Option Plan at a price of US$10.25 per share. As at the date of this
annual report, we have not received approval of the CVE for issuance of these
additional options. Accordingly, the options have not yet been granted.
SHARE PURCHASE WARRANTS
As at March 30, 2000 we have 10,613,064 outstanding share purchase warrants
as follows:
(a) 176,000 share purchase warrants permit the holder to purchase one
additional share at a price of $0.40 per share up to December 23, 2000.
(b) 469,650 share purchase warrants permit the holder to purchase one
additional share at a price of US$0.383 per share up to March 26, 2001.
(c) 2,500,000 share purchase warrants permit the holder to purchase one
additional share at a price of $0.55 per share up to April 7, 2000 or a
price of $0.63 per share up to April 7, 2001.
(d) 1,460,763 share purchase warrants permit the holder to purchase one
additional share at a price of US$1.64 per share up to September 14, 2000
or a price of US$1.89 per share up to September 14, 2001.
(e) 2,500,000 share purchase warrants permit the holder to purchase one
additional share at a price of US$1.64 per share up to December 14, 2000
or a price of US$1.89 per share up to December 14, 2001.
Of the share purchase warrants listed above, the following are held by our
directors and executive officers.
(a) Owen Jones holds 1,000,000 of the warrants described in (c) and 60,000
of the warrants described in (e);
(b) James Speros holds 1,000,000 of the warrants described in (c) and 60,000
of the warrants described in (e); and
(c) Grant Sutherland holds 500,000 of the warrants described in (c) and
60,000 of the warrants described in (e).
Mr. Jones has given notice of his intention to exercise 1,000,000 share
purchase warrants. As at the date of this annual report, shares have not yet
been issued in respect of these warrants.
The total number of common shares called for by all outstanding share
purchase warrants held by our directors and executive officers as at March 30,
2000 is 2,680,000.
As at the date of this annual report, we are in the process of completing a
private placement of 1,104,000 units at a price of US$10.00 per unit. Upon
completion of the private placement financing, we will issue 1,104,000 units,
with each unit consisting of one share and one share purchase warrants. Each
share purchase warrant will permit the holder to acquire one additional share
for a period of two years at a
40
<PAGE>
price of US$10.00 in the first year or US$11.50 per share in the second year. As
at the date of this annual report, we have not completed the private placement,
and the warrants have not been issued.
Between December 31, 1999 and March 30, 2000 the following share purchase
warrants have been exercised:
(a) warrants to purchase 110,000 shares at $0.40 per share;
(b) warrants to purchase 200,000 shares at $0.55 per share
(c) warrants to purchase 600,000 share at $0.32 per share;
(d) warrants to purchase 581,394 shares at US$.333 per share; and
(e) warrants to purchase 1,132,533 shares at US$1.64 per share.
Of these, the following share purchase warrants were exercised by directors
and executive officers:
(a) Grant Sutherland exercised 200,000 warrants at $0.55 per share; and
(b) James Speros exercised 600,000 warrants at $0.32 per share.
3,075,400 share purchase warrants which we issued on November 8, 1996,
entitling the holders to purchase shares at a price of $0.575 per share, were
due to expire November 8, 1998. We have entered into agreements dated
November 23, 1998, April 14, 1999, and October 28, 1999 with the warrant
holders to:
(a) extend the term of the warrants to November 27, 1998 (pursuant to the
November 23, 1998 agreement);
(b) further extend the term of the warrants to April 16, 1999 (pursuant to
the November 23, 1998 agreement), with an increased exercise price of
$0.67 per share;
(c) further extend the term of the warrants to October 31, 1999 (pursuant to
the April 14, 1999 agreement) with an exercise price of $0.67 per
share; and
(d) further extend the term of the warrants to April 30, 2000 (pursuant to
the Agreement dated October 28, 1999) with an exercise price of $.77 per
share.
The agreements are subject to obtaining required regulatory approvals. The
CVE has approved an extension to November 27, 1998 but no further extension.
Accordingly, the further extension will only come into effect upon obtaining the
required approval, or upon our regulatory status changing such that we do not
require CVE approval.
The beneficial holders of these share purchase warrants include the
following directors and officers:
<TABLE>
<S> <C>
Owen Jones.............................................. 440,000 warrants
Grant Sutherland........................................ 372,000 warrants
Peter Kozicki........................................... 44,000 warrants
</TABLE>
In addition, Paul Hildebrand (our corporate Secretary) and Alder
Enterprises Ltd. (a private company in which Mr. Hildebrand holds a 45%
interest) own, respectively, 110,000 and 220,000 of the warrants.
ITEM 13. INTEREST IN MANAGEMENT IN CERTAIN TRANSACTIONS
Within the last three fiscal years, we have entered into the transactions
set out below in which our current directors or officers were interested.
41
<PAGE>
In October 1996 we entered into an agreement with BrainTech, Inc. effective
November 1, 1995 pursuant to which certain costs associated with our premises
and operations were shared with BrainTech, Inc. The costs subject to the
cost-sharing agreement included:
-- costs of the North Vancouver premises which we share with
BrainTech, Inc.;
-- personnel costs (billed through Techwest Management Inc. -- see below)
including, INTER ALIA, the salary costs of our accounting personnel; and
-- miscellaneous office charges, such as office supplies and telephone and
fax charges.
Prior to October 1999 we shared the common costs equally with
BrainTech, Inc. By a Cost Sharing and Allocation Agreement executed in
October 1999, we agreed with BrainTech, Inc. to re-allocate the common costs 80%
to us and 20% to BrainTech, Inc. effective from January 1, 1999. The reason for
the reallocation of costs was the substantially greater level of our business,
and our corresponding greater use of, the common premises and personnel.
BrainTech, Inc. is a software development company whose shares trade on the
OTC Bulletin Board. The directors of BrainTech, Inc. are Owen Jones, Grant
Sutherland and James Speros.
Shared costs under the Cost Sharing and Allocation Agreement are
administered by Techwest Management Inc., a private management company. In
addition, services of certain of our personnel are provided to us through
Techwest Management Inc. Techwest Management Inc. is a private management
company in which Owen Jones and Grant Sutherland each hold a one third interest.
The personnel whose services are provided through Techwest Management Inc.
include, INTER ALIA, our accounting personnel.
From time to time, either our payments or those of BrainTech, Inc. exceed
the proportionate share required under the cost sharing agreement, giving rise
to indebtedness as between us, BrainTech, Inc. and Techwest Management Inc.
Accordingly, the payments are reconciled and adjusted from time to time as
required. Through much of 1999, BrainTech, Inc. was indebted to us (either
directly or indirectly through Techwest Management Inc.) as a result of
BrainTech, Inc. not paying its proportionate share of the common operating
costs, during time periods when BrainTech Inc. did not have cash available to do
so. As at the date of this annual report, that indebtedness has been retired.
Techwest Management Inc. passes shared costs (including personnel costs)
through to us and BrainTech, Inc. at cost, without any markup. Computer
equipment for all three companies is generally purchased by us, owing to
favorable equipment pricing available to us, and is currently being passed on at
cost to BrainTech, Inc. or Techwest Management Inc.
We have entered into a Software Development and License Agreement dated
September 20, 1999 with BrainTech, Inc. Under the Software Development and
License Agreement BrainTech, Inc. developed a program named "Wizmaster", which
enables the user, through a user friendly drop-and-drag procedure, to construct
customized knowledge trees. We have incorporated Wizmaster into Dr. Bean as one
of the "AutoService" features of Dr. Bean 3.1. Under the Software Development
and License Agreement, we paid for the cost of developing Wizmaster on a cost
plus 10% basis. We acquired, at no further charge, a perpetual worldwide license
to use Wizmaster as part of Dr. Bean. BrainTech, Inc. is prohibited from
licensing Wizmaster to any other software developer (but not to systems
integrators) for a period of one year starting from the date Wizmaster becomes
generally available to purchasers of Dr. Bean. The total amount which we paid to
BrainTech, Inc. pursuant to the Software Development and License Agreement
was $16,500.
We have acquired accounting services from Edward White, a member of our
board of directors who practices as a chartered accountant. Prior to
November 1996, Mr. White rendered invoices to us totaling $41,195. In
September 1996 we issued 164,780 shares to Mr. White in satisfaction of those
invoices. For the period commencing November 1, 1996 and ending November 30,
1997, we paid Mr. White $1,000 per month for accounting and financial services.
42
<PAGE>
In September 1996 we issued 463,600 shares to Grant Sutherland, a member of
our board of directors, to reimburse Mr. Sutherland for $115,900.00 in out of
pocket expenses incurred on our behalf.
In September 1996 we issued 300,000 shares to Owen Jones, a member of our
board of directors and our President, to settle claims of Mr. Jones for
outstanding severance pay and for breach of a stock option agreement. The claims
related to Mr. Jones' previous employment with the Company (under previous
management) which terminated in January 1994.
We have acquired legal services from Dale W. Wilcox, a Law Corporation, a
law firm with which Paul Hildebrand, our corporate Secretary and general
counsel, is associated. Since May 3, 1995 Dale W. Wilcox, a Law Corporation has
received payments totaling $572,122 in fees (exclusive of taxes and
disbursements) for legal services.
We have granted the following incentive stock options to Mr. Hildebrand:
(a) options to purchase 100,000 shares at $0.50 per share expiring May 1,
2001;
(b) options to purchase 75,000 shares at $0.70 per share expiring
December 16, 2002; and
(c) options to purchase 55,000 shares at $1.35 per share expiring April 29,
2004;
(d) options to purchase 100,000 shares at $2.33 per share expiring June 17,
2004; and
(e) options to purchase 300,000 shares at US$11.08 per share expiring Januay
21, 2005.
In addition, Mr. Hildebrand and Alder Enterprises Ltd., a private company in
which Mr. Hildebrand owns a 45% interest, have acquired shares, special
warrants, and share purchase warrants pursuant to private placements we have
completed. For further information see "ITEM 14. DESCRIPTION OF SECURITIES
REGISTERED -- Recent Sales of Unregistered Securities".
We have acquired legal services from the law firm Sutherland Johnston, of
which Grant Sutherland is a partner. The amount of such legal services prior to
December 31, 1998 was not material. Subsequent to December 31, 1998, we have
paid Sutherland Johnston $208,200 in legal fees (exclusive of taxes and
disbursements).
Effective October 31, 1998 we purchased an interest in the proceeds of a
judgment in favor of BrainTech, Inc. in the amount of $406,390 pronounced
April 2, 1998 in British Columbia Supreme Court Action No. C972736. We paid
$200,000 on account of the purchase price, which was subject to adjustment
depending on the benefit ultimately received by us pursuant to the judgment. On
March 18, 1999 the British Columbia Court of Appeal allowed an appeal from the
judgment. As a result, BrainTech, Inc. repaid to us the $200,000 in issue.
In November 1995 we entered into a License Agreement with NetMedia
Systems Inc., a private company in which Owen Jones and Grant Sutherland hold
interests, and a Joint Venture Agreement with NetMedia Systems Inc. and
BrainTech, Inc. None of the business contemplated by the agreements proceeded,
with the result that the agreements were terminated in October 1999.
Our directors and executive officers also hold incentive stock options and
have acquired shares, special warrants, and share purchase warrants pursuant to
private placements we have completed.
43
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES REGISTERED.
Our authorized capital of the Company consists of 200,000,000 common shares
without par value. As of March 30, 2000 there are 57,923,965 common shares
issued and outstanding. The holders of the common shares are entitled to receive
notice of, attend and vote at all shareholders' meetings. The common shares
carry one vote per share and have no par value. The holders of the common shares
are entitled to receive dividends if, as and when declared by our board of
directors. The common shares carry no preemptive rights, conversion rights,
redemption provisions, sinking fund provisions or liability to further calls or
to assessment. There are no restrictions on our ability to repurchase or redeem
the common shares except under applicable securities laws and to the extent that
any such repurchase or redemption would render our company insolvent.
750,000 of our issued and outstanding shares are performance shares, issued
in September 1996 at $0.01 per share, and held by the following individuals:
<TABLE>
<CAPTION>
NAME NO. OF SHARES
- ---- -------------
<S> <C>
Owen Jones.................................................. 275,000
Grant Sutherland............................................ 275,000
Paco Nathan................................................. 50,000
Edward White................................................ 25,000
Paul Hildebrand............................................. 125,000
</TABLE>
The performance shares will be held in escrow to be released, pro rata to
the holders of performance shares, on the basis of one share for each $0.18 in
cumulative cash flow, based on audited financial statements.
"Cumulative cash flow" for this purpose means, at any time, the aggregate
cash flow up to that time, net of any negative cash flow.
"Cash flow" means net income or loss before tax, adjusted to add back the
following expenses:
a. depreciation;
b. amortization of goodwill and deferred research and development costs,
excluding general and administrative costs;
c. expensed research and development costs, excluding general and
administrative costs; and
d. any other amounts permitted or required by the CVE.
As at the date of the annual report we have not had any Cumulative cash flow
for purposes of the escrow agreement, and none of the 750,000 performance shares
have been released from escrow. Any performance shares not released by
September 10, 2001 will be subject to cancellation.
4,931,532 shares (the "Safekeeping Shares") were previously held subject to
a "Safekeeping Agreement" dated January 11, 1991, to be released on the basis of
one share for each $0.35 in aggregate cash flow, net of any negative cash flow,
as determined by our auditors, provided however that no Safekeeping Shares could
be released until we earned at least $3,000,000 in net profit before tax. In
February 1997, with the approval of the CVE, we offered to release a portion of
the Safekeeping Shares on the basis that for each 6.4 Safekeeping Shares, one
share would become free trading and the other 5.4 shares would be cancelled. The
offer was accepted by the majority of the holders of Safekeeping Shares, with
the result that 4,651,154 Safekeeping Shares were cancelled, and 726,758 free
trading shares were issued in their place. 280,378 shares remain subject to the
Safekeeping Agreement. As at the date of
44
<PAGE>
this annual report we have had no positive cash flow for purposes of the
Safekeeping Agreement, and none of the Safekeeping Shares (except those
exchanged as explained above) have been released.
RECENT SALES OF UNREGISTERED SECURITIES
(i) Effective September 10, 1996, we issued 6,750,000 Special Warrants at a
price of $0.25 per Special Warrant. Each Special Warrant was exercisable
by its holder at any time within one year, without additional
consideration, into 1.1 units, with each unit comprised of one share and
one non-transferable share purchase warrant. Each share purchase warrant
would entitle the holder thereof to purchase one additional share for a
period of two years at a price of $0.50 per share for the first year and
$0.575 per share in the second year. The Special Warrants were exercised
on November 8, 1996. The purchasers of Special Warrants included the
following executive officers and directors:
<TABLE>
<S> <C>
Owen Jones..................................... 400,000 Special Warrants
Grant Sutherland............................... 1,318,000 Special Warrants
Peter Kozicki.................................. 40,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 100,000 and 200,000 Special Warrants. 100,000 of the
Special Warrants were issued to Gold Capital Securities Ltd. as
consideration for acting as our sponsor in respect of its return to
trading on the Canadian Venture Exchange.
(ii) Effective September 10, 1996, we issued 1,489,446 shares to settle
certain debts. The persons receiving the shares included the following
directors and executive officers:
<TABLE>
<S> <C>
Owen Jones................................................ 300,000 shares
Grant Sutherland.......................................... 463,600 shares
Edward White.............................................. 164,780 shares
</TABLE>
(iii) Effective September 10, 1996, we issued 750,000 performance shares at a
price of $0.01 per share. The persons receiving the shares included the
following directors and executive officers:
<TABLE>
<S> <C>
Owen Jones................................................ 275,000 shares
Grant Sutherland.......................................... 275,000 shares
Edward White.............................................. 25,000 shares
</TABLE>
In addition, Paul Hildebrand received 125,000 of the performance shares.
(iv) Effective October 30, 1996, we issued 268,000 Special Warrants at a
price of $0.25 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without
additional consideration, into one unit comprised of one share and one
non-transferable share purchase warrant. Each share purchase warrant
would entitle the holder thereof to purchase one additional share for a
period of two years at a price of $0.50 per share in the first year or
$0.575 in the second year. The Special Warrants were exercised on
November 8, 1996.
(v) Effective April 14, 1997, we issued 450,000 Special Warrants at a price
of $0.375 per Special Warrant. Each Special Warrant was exercisable by
its holder at any time within one year, without additional
consideration, into one unit comprised of one share and one
non-transferable share purchase warrant. Each share purchase warrant
would entitle the holder thereof to purchase one additional share for a
period of two years at a price of $0.465 per share. The Special Warrants
45
<PAGE>
were exercised on various dates on or before April 14, 1998. The
purchasers of the Special Warrants included the following directors and
executive officers:
<TABLE>
<S> <C>
Grant Sutherland................................ 340,000 Special Warrants
</TABLE>
(vi) Effective April 14, 1997, we issued 3,000,000 Special Warrants at a
price of $0.375 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without
additional consideration, into one unit comprised of one share and one
non-transferable share purchase warrant. Each share purchase warrant
would entitle the holder thereof to purchase one additional share for a
period of two years at a price of $0.375 per share for the first year
and $0.43 per share in the second year. The Special Warrants were
exercised on various dates on or before April 14, 1998. The purchasers
of the Special Warrants included the following directors and executive
officers:
<TABLE>
<S> <C>
Owen Jones..................................... 1,000,000 Special Warrants
Grant Sutherland............................... 300,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 35,000 and 70,000 Special Warrants.
(vii) Effective August 7, 1997, we issued 100,000 shares to Ian Lovejoy, then
one of our directors, in consideration of the surrender of certain
royalty rights held by Mr. Lovejoy.
(viii) Effective October 24, 1997, we issued 1,500,000 Special Warrants at a
price of $0.80 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without
additional consideration, into one unit comprised of one share and one
non-transferable share purchase warrant. Each share purchase warrant
would entitle the holder thereof to purchase one additional share for a
period of two years at a price of $0.80 per share for the first year
and $0.92 per share in the second year. The Special Warrants were
exercised on various dates on or before October 24, 1998. The
purchasers of the Special Warrants included the following directors and
executive officers:
<TABLE>
<S> <C>
Owen Jones...................................... 200,000 Special Warrants
Grant Sutherland................................ 500,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 50,000 and 100,000 Special Warrants.
(ix) Effective December 28, 1998,, we issued 500,000 Special Warrants at a
price of $0.35 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within a period of one year,
without additional consideration, into 1.1 units, with each unit
comprised of one share and one non-transferable share purchase warrant.
Each share purchase warrant would entitle the holder thereof to
purchase one additional share for a period of two years at a price of
$0.35 per share for the first year and $0.40 per share in the second
year. The Special Warrants were sold through Bolder Capital Corp. as
broker. In consideration for acting as broker, Bolder Capital Corp.
received a cash commission of $13,125, as well as 125,000 share
purchase warrants.
(x) Effective January 5, 1999, we issued 125,000 Special Warrants to Golden
Capital Securities Ltd. in consideration for services provided by Golden
Capital Securities Ltd. in connection with a proposed prospectus filing
during 1997. Each Special Warrant was exercisable, without further
consideration into one unit consisting of one share and one share
purchase warrant. Each share purchase warrant will entitle the holder
thereof to purchase one additional share for a period of
46
<PAGE>
two years at a price of $0.60 in the first year and $0.75 in the second
year. The Special Warrants were exercised on June 4, 1999.
(xi) Effective January 14, 1999, we issued to James Speros, one of our
directors, 600,000 Special Warrants at a price of $0.28 per Special
Warrant. Each Special Warrant was exercisable by its holder at any time
within one year, without additional consideration, into one unit
comprised of one share and one non-transferable share purchase warrant.
Each share purchase warrant would entitle the holder thereof to
purchase one additional share for a period of two years at a price of
$0.28 per share for the first year and $0.32 per share in the second
year. The Special Warrants were exercised on June 4, 1999.
(xii) Effective January 7, 1999, we issued 1,432,805 Special Warrants at a
price of US$0.265 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without
additional consideration, into 1.1 units, with each comprised of one
share and one non-transferable share purchase warrant. Each share
purchase warrant would entitle the holder thereof to purchase one
additional share for a period of two years at a price of US$0.265 per
share for the first year and US$0.305 per share in the second year. The
Special Warrants were exercised on June 4, 1999.
(xiii) Effective November 19, 1998, (but with delivery in January 1999), we
issued to Paul Hildebrand, our Secretary, 90,000 Special Warrants at a
price of $0.32 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within a period of one year,
without additional consideration, into one unit comprised of one share
and one non-transferable share purchase warrant. Each share purchase
warrant would entitle the holder thereof to purchase one additional
share for a period of two years from the date of issuance of the
Special Warrants at a price of $0.32 per share for the first year and
$0.37 per share in the second year. The Special Warrants were exercised
on June 4, 1999.
(xiv) Effective January 7, 1999, we issued 2,050,000 Special Warrants at a
price of $0.35 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within a period of one year,
without additional consideration, into 1.1 units, with each unit
comprised of one share and one non-transferable share purchase warrant.
Each share purchase warrant would entitle the holder thereof to
purchase one additional share for a period of two years at a price of
$0.35 per share for the first year and $0.40 per share in the second
year. The Special Warrants were exercised on June 4, 1999. The
purchasers of the Special Warrants included the following directors and
executive officers:
<TABLE>
<S> <C>
Owen Jones...................................... 250,000 Special Warrants
Grant Sutherland................................ 297,500 Special Warrants
Peter Kozicki................................... 50,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 30,000 and 277,500 Special Warrants.
(xv) Effective April 7, 1999, we issued 1,528,527 Special Warrants at a price
of $US0.333 per Special Warrant. Each Special Warrant was exercisable by
its holder at any time within a period of one year the Special Warrants,
without additional consideration, into one unit comprised of one share
and one non-transferable share purchase warrant. Each share purchase
warrant would entitle the holder thereof to purchase one additional
share for a period of two years at a price of US$0.333 per share for the
first year and US$0.383 per share in the second year. The Special
Warrants were exercised on June 4, 1999.
(xvi) Effective April 14, 1999, we issued 3,000,000 Special Warrants at a
price of $0.55 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within a period of one
47
<PAGE>
year, without additional consideration, into one unit comprised of one
share and one non-transferable share purchase warrant. Each share
purchase warrant would entitle the holder thereof to purchase one
additional share for a period of two years at a price of $0.55 per
share for the first year and $0.63 per share in the second year. The
Special Warrants were exercised on June 4, 1999. The purchasers of the
Special Warrants included the following directors and executive
officers:
<TABLE>
<S> <C>
Owen Jones..................................... 1,000,000 Special Warrants
Grant Sutherland............................... 1,000,000 Special Warrants
Jim Speros..................................... 1,000,000 Special Warrants
</TABLE>
(xvii) Effective July 5, 1999, we issued 250,000 shares to National Securities
Corp. of Chicago, Illinois pursuant to a Financial Advisory and
Consulting Agreement.
(xviii) Effective September 14, 1999, we issued 2,746,833 units at a price of
US$1.64 per unit. Each unit consisted of one share and one share
purchase warrant. Each share purchase warrant entitles the holder
thereof to purchase one additional share for a period of two years at
a price of US$1.64 in the first year or US$1.89 in the second year. We
paid commissions of US$133,000 to Heideman Law Group, P.C. and Venture
Consultants, LLC and US$13,120 to Bolder Investment Partners Ltd. in
connection with the private placement.
(xix) Effective January 21, 2000, we issued 2,500,000 units at a price of
US$1.64 per unit. Each unit consisted of one share and one share
purchase warrant. Each share purchase warrant entitles the holder
thereof to purchase one additional share for a period of two years at a
price of US$1.64 in the first year or US$1.89 in the second year. We
paid a commission of $397,782 to BC Financial Services Inc. in
connection with the private placement. The purchasers of the units
included the following directors and executive officers:
<TABLE>
<S> <C>
Owen Jones.................................................. 60,000 units
Grant Sutherland............................................ 60,000 units
Jim Speros.................................................. 60,000 units
</TABLE>
(xx) In addition to the foregoing, we have issue shares pursuant to stock
options and share purchase warrants. The number of shares issued is set
out in our financial statements and elsewhere in the annual report.
48
<PAGE>
Consolidated Financial Statements of
SIDEWARE SYSTEMS INC.
(Expressed in Canadian dollars)
Year ended December 31, 1999
Eight months ended December 31, 1998
Years ended April 30, 1998 and 1997
49
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Sideware Systems Inc. as
at December 31, 1999 and 1998 and the consolidated statements of operations and
deficit and cash flows for the year ended December 31, 1999, the eight months
ended December 31, 1998 and the years ended April 30, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the year
ended December 31, 1999 and the eight months ended December 31, 1998 and the
years ended April 30, 1998 and 1997 in accordance with generally accepted
accounting principles in Canada. As required by the Company Act (British
Columbia) we report that, in our opinion, these principles have been applied on
a consistent basis.
Canadian generally accepted accounting principles vary in certain
significant respects from accounting principles generally accepted in the United
States. Application of accounting principles generally accepted in the United
States would have affected results of operations and cash flows for each of the
periods presented to the extent summarized in Note 15 to the consolidated
financial statements.
KPMG LLP
Chartered Accountants
Vancouver, Canada
February 21, 2000
50
<PAGE>
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cause substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 2 to the financial statements. Our report to the shareholders dated
February 21, 2000, is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditors'
report when these are adequately disclosed in the financial statements.
KPMG LLP
Chartered Accountants
Vancouver, Canada
February 21, 2000
51
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,558,482 $ 317,344
Accounts receivable:
Trade................................................... -- 35,181
Other (note 4).......................................... 177,955 200,000
Due from related parties (note 5(b))...................... -- 375,315
Inventory................................................. 106,651 44,105
Prepaid expenses.......................................... 350,786 98,408
Current portion of long-term receivables (note 6)......... 20,266 --
------------ ------------
9,214,140 1,070,353
Deposit on lease............................................ 29,172 8,213
Long-term receivables (note 6).............................. 156,822 --
Deferred charges (note 6)................................... 145,431 --
Fixed assets (note 7)....................................... 1,332,939 646,529
------------ ------------
$ 10,878,504 $ 1,725,095
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities.................. $ 583,093 $ 204,868
Due to related parties (note 5(b))........................ 56,780 --
Due to officers (note 5(c))............................... 317,000 73,870
------------ ------------
956,873 278,738
Shareholders' equity:
Share capital (note 8).................................... 30,236,799 12,716,774
Special warrants.......................................... -- 977,082
Commitment related to investment advisory services
(note 8(e)(ii))......................................... -- 75,000
Deficit accumulated during the development stage.......... (20,315,168) (12,322,499)
------------ ------------
9,921,631 1,446,357
Future operations (note 2)
Litigation (note 10)
Commitments (note 12)
Year 2000 Issue (note 13)
Subsequent events (note 14)
------------ ------------
$ 10,878,504 $ 1,725,095
============ ============
</TABLE>
On behalf of the Board:
<TABLE>
<S> <C>
Director Director
</TABLE>
See accompanying notes to consolidated financial statements.
52
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
EIGHT
MONTHS
YEAR ENDED ENDED YEARS ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, ------------------------
1999 1998 1998 1997
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Sales to unrelated parties....................... $ 3,763 $ 29,383 $ 26,782 $ 69,748
Equipment sales to related parties
(note 5(a)).................................... 45,846 129,150 -- --
----------- ----------- ----------- ----------
49,609 158,533 26,782 69,748
Cost of sales (exclusive of amortization and other
costs disclosed separately below):
Sales to unrelated parties....................... 3,037 20,350 18,178 9,094
Equipment sales to related parties
(note 5(a)).................................... 45,846 120,068 -- --
----------- ----------- ----------- ----------
48,883 140,418 18,178 9,094
----------- ----------- ----------- ----------
Gross margin....................................... 726 18,115 8,604 60,654
Interest income.................................... 146,341 41,734 27,897 865
----------- ----------- ----------- ----------
Operating income before operating expenses......... 147,067 59,849 36,501 61,519
Operating expenses:
Amortization..................................... 422,669 137,392 152,335 122,674
Bad debts........................................ 9,131 30,801 36,349 --
Capital taxes.................................... -- -- 7,100 --
Employee wages and benefits...................... 2,590,482 401,843 360,143 176,731
Facilities....................................... 509,314 94,705 76,707 72,667
Filing and transfer fees......................... 80,752 12,241 21,907 49,360
Foreign exchange loss (gain)..................... 273,652 (141,047) (33,479) 6,139
Financial advisory and consulting services
(note 8(e)).................................... 160,000 -- 75,000 --
Marketing........................................ 1,569,086 581,764 635,498 418,764
Office, printing and sundry...................... 392,159 124,375 167,228 107,575
Professional fees................................ 1,125,201 356,820 620,845 961,245
Research and development, net of government
grants of $nil (December 31, 1998 -- $25,730;
April 30, 1998 and 1997 -- $nil)............... 953,842 353,238 301,258 129,877
----------- ----------- ----------- ----------
8,086,288 1,952,132 2,420,891 2,045,032
----------- ----------- ----------- ----------
Loss before non-operating items.................... 7,939,221 1,892,283 2,384,390 1,983,513
Value assigned to shares issued to a director in
satisfaction of a royalty claim.................. -- -- 25,000 --
Write-down of deferred development costs and
software......................................... -- -- -- 2,604,115
Write-off of capital assets........................ 53,448 -- -- --
----------- ----------- ----------- ----------
53,448 -- 25,000 2,604,115
----------- ----------- ----------- ----------
Loss for the period, carried forward............... $ 7,992,669 $ 1,892,283 $ 2,409,390 $4,587,628
Deficit accumulated during the development stage,
beginning of period.............................. 12,322,499 10,430,216 8,020,826 3,433,198
----------- ----------- ----------- ----------
Deficit accumulated during the development stage,
end of period.................................... $20,315,168 $12,322,499 $10,430,216 $8,020,826
=========== =========== =========== ==========
Loss per share information:
Basic and diluted................................ $ 0.21 $ 0.07 $ 0.11 $ 0.29
=========== =========== =========== ==========
Weighted average number of common shares
outstanding...................................... 38,421,589 26,908,735 21,430,724 15,705,723
=========== =========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
53
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED YEARS ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operations:
Loss for the period.............................. $(7,992,669) $(1,892,283) $(2,409,390) $(4,587,628)
Items not involving cash:
Amortization................................... 422,669 137,392 152,335 122,674
Write-down of deferred development costs and
software..................................... -- -- -- 2,604,115
Investment advisory services to be settled by
equity instruments (note 8(e)(II))........... -- -- 75,000 --
Write-off of capital assets.................... 53,448 -- -- --
Value assigned to shares issued in satisfaction
of a royalty claim........................... -- -- 25,000 --
Value assigned to shares issued for financial
advisory services (note 8(e)(I))............. 160,000 -- -- --
Changes in non-cash operating working capital:
Accounts receivable............................ 57,226 (183,841) 81,475 (86,445)
Due (to) from related parties.................. 432,095 (373,078) 173,633 (81,370)
Inventory...................................... (62,546) (44,105) 7,651 (7,651)
Prepaid expenses............................... (252,378) 34,696 (91,841) 37,684
Accounts payable and accrued liabilities....... 378,225 (17,643) 75,931 (81,941)
----------- ----------- ----------- -----------
(6,803,930) (2,338,862) (1,910,206) (2,080,562)
Financing:
Due to directors and officers.................... 243,130 73,870 (243,233) 312,219
Special warrants issued for cash................. 3,097,761 977,082 1,200,000 1,293,750
Shares issued for cash........................... 12,620,886 -- 2,458,600 1,915,093
Share subscriptions receivable................... 589,296 -- -- (776,104)
----------- ----------- ----------- -----------
16,551,073 1,050,952 3,415,367 2,744,958
Investments:
Long-term receivables and deferred charges....... (322,519) -- -- --
Purchase of capital assets....................... (1,162,527) (232,525) (336,803) (3,498)
Deposit on lease, net............................ (20,959) -- -- 8,212
----------- ----------- ----------- -----------
(1,506,005) (232,525) (336,803) 4,714
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents... 8,241,138 (1,520,435) 1,168,358 669,110
Cash and cash equivalents, beginning of period..... 317,344 1,837,779 669,421 311
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period........... $ 8,558,482 $ 317,344 $ 1,837,779 $ 669,421
=========== =========== =========== ===========
Supplemental information:
Cash paid for interest........................... $ -- $ -- $ -- $ --
Cash paid for taxes.............................. $ -- $ -- $ -- $ --
Non-cash financing activities:
Shares issued on settlement of debt.............. $ -- $ -- $ -- $ 372,362
Shares issued for services rendered.............. $ 160,000 $ -- $ 25,000 $ --
Shares issued on exercise of special warrants.... $ 977,082 $ -- $ -- $ --
Shares issued for investment advisory services
(note 8(e)(II))................................ $ -- $ -- $ 75,000 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
54
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
1. GENERAL:
The Company was incorporated in 1983 under the Company Act (British
Columbia). Its principal business activity is developing and marketing of
software technology solutions with a principal focus on the e-commerce market.
2. FUTURE OPERATIONS:
For financial reporting purposes, the Company is considered to be in the
development stage and the accompanying financial statements are those of a
development stage enterprise.
The Company has not generated significant revenues from these operations. As
at December 31, 1999, the Company has an accumulated deficit of $20,315,168 and
incurred a loss of $7,992,669 during the year ended December 31, 1999. In
addition, the Company is the defendant in a number of legal proceedings and
claims, for which the maximum potential losses are material (note 10). The
Company has filed counterclaims on certain of these claims. These financial
statements have been prepared in accordance with Canadian generally accepted
accounting principles applicable to a going concern. Accordingly, they do not
give effect to adjustments that would be necessary should the Company be unable
to continue as a going concern. The Company's continuance as a going concern is
dependent upon its ability to obtain adequate equity financing, to reach
profitable levels of operation and its success in defending existing legal
claims all of which are consistent with management's intentions. There is no
certainty that such conditions can be achieved. In the next twelve months,
management of the Company also intends on applying financing received to the
continued development of products in process and to pursue sales or strategic
alliance opportunities with respect to such products. At the date of these
consolidated financial statements significant additional financing sources have
not been identified.
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada which, except as set out
in note 15, also comply in all material respects with generally accepted
accounting principles in the United States. The consolidated financial
statements include the accounts of the company, and its subsidiaries, Sideware
International SRL, 3032650 Nova Scotia Company, 9050 Investments Ltd.
(inactive), Sideware Corp. (formerly Collaborative Groupware Inc.), Evergreen
International Technology Inc. (inactive) and 9123 Investments Ltd. (inactive),
all of which are wholly-owned. In addition, the Company accounts by the equity
method for its one-third interest in Concurrent Adoptive Recognition Corp.,
which is inactive. All material intercompany balances and transactions have been
eliminated.
55
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(b) Cash and cash equivalents:
Cash equivalents are highly liquid financial instruments having terms to
maturity at the date of acquisition of not more than three months.
(c) Inventory:
Inventory is valued at the lower of cost and net realizable value with cost
being determined on a first-in-first-out basis. Cost includes laid-down cost.
(d) Fixed assets:
Fixed assets are carried at cost less accumulated amortization. Amortization
is calculated annually as follows:
<TABLE>
<CAPTION>
ASSET BASIS RATE
- ----- ----------------- ----------
<S> <C> <C>
Furniture and fixtures....................... declining-balance 20%
Computer equipment........................... declining-balance 30%
Trade show assets............................ declining-balance 20%
Computer software............................ straight-line 50%
Leasehold improvements....................... straight-line lease term
</TABLE>
(e) Deferred charges:
Deferred charges represent the discount on notes receivable and will be
recognized by the yield method over the term of the note.
(f) Income taxes:
The Company follows the tax allocation method of accounting. Under this
method, deferred income taxes are provided on timing differences between income
reported for tax purposes and accounting income. In addition, the Company
records those investment tax credits, for which it has reasonable assurance of
realization, as a reduction of the expenses or the cost of capital assets to
which they relate.
(g) Research and development costs:
Research costs are expensed as incurred. Development costs are deferred if
they meet certain specified criteria which relate to the identification of
costs, future benefits and funding requirements. Where development costs do not
meet such criteria, they are expensed as incurred. Government grants, which are
not refundable, are disclosed as a reduction of the related cost. Management
periodically
56
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assesses the underlying value of deferred development costs by reference to
business plans and estimated future cash flows and records write-downs where
appropriate.
(h) Revenue recognition:
The Company recognizes revenue when title has passed to the customer, the
collectability of the consideration is measurable and the Company has no
significant remaining performance obligations. This includes revenues from sales
to resellers, which are recorded in accordance with their terms, when the
resellers have no right of return and the Company has no other remaining
performance obligations. The Company recognizes sales of equipment, to related
parties, in revenues and related costs in cost of sales as the Company takes
title to and holds the equipment, bearing all of the risks and rewards of
ownership, prior to sale, and bears the same risks as for sales to unrelated
parties after sale, including the risks related to collection of receivables.
(i) Foreign currency translation:
Monetary assets and liabilities denominated in a foreign currency have been
translated into Canadian dollars at rates of exchange in effect at the balance
sheet date. Non-monetary assets and liabilities, and revenue and expense items
are translated at rates prevailing when they were acquired or incurred. Exchange
gains and losses arising on translation of assets and liabilities denominated in
foreign currencies are included in operations.
The Company's subsidiaries are treated as integrated operations and the
related accounts are translated into Canadian dollars using the temporal method
as follows:
(1) Revenue and expenses at average exchange rates for the year;
(2) Monetary items at the rates of exchange prevailing at the balance sheet
dates;
(3) Non-monetary items at historical exchange rates; and
(4) Exchange gains and losses arising from translation are included in the
determination of net earnings for the year.
(j) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the
57
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
use of management estimates relate to the useful lives of assets for
amortization. Actual amounts may differ from these estimates.
(k) Loss per share:
Loss per share is calculated based on the weighted average number of shares
outstanding.
As the effect of outstanding options, warrants and special warrants is
anti-dilutive, fully diluted loss per share does not differ from basic loss per
share.
(l) Adoption of new accounting standard:
During the year ended December 31, 1999, the Company adopted the new
accounting standard of the Canadian Institute of Chartered Accountants relating
to cash flows. The new standard has been retroactively applied and the prior
periods' comparative amounts have been restated to conform to the new standard.
4. ACCOUNTS RECEIVABLE OTHER:
Accounts receivable, at December 31, 1999, is comprised of $162,187 of Goods
and Services Tax credits receivable with the balance made up of miscellaneous
recoverable amounts.
The balance in 1998 of $200,000 represents the cost of an interest in a
court judgment purchased from a company related through certain common
shareholders and directors. Subsequent to December 31, 1998, the judgment was
reversed on appeal and the $200,000 purchase price was returned to the Company.
5. RELATED PARTY TRANSACTIONS:
(a) Transactions with related parties:
The following table summarizes the Company's related party transactions with
certain directors of the Company:
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED YEARS ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -----------------------
1999 1998 1998 1997
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Services rendered............................... $661,621 $120,222 $214,596 $440,514
Salaries........................................ 748,572 106,880 178,000 42,000
Settlement of claims............................ -- -- 25,000 --
</TABLE>
58
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
5. RELATED PARTY TRANSACTIONS: (CONTINUED)
Included in revenues and cost of sales are revenues and related costs
associated with equipment sales to BrainTech, Inc. and Techwest
Management Inc., companies with certain common shareholders and directors to the
Company.
(b) Due (to) from related parties:
At December 31, 1999, the Company owed $56,780 with respect to costs
incurred by TechWest Management Inc., a company with directors in common, on
behalf of the Company.
At December 31, 1998, the Company was owed $375,315 with respect to costs
incurred by the Company on behalf of BrainTech Inc. and TechWest
Management Inc., companies with directors in common.
These amounts are unsecured, payable on demand and bear no interest.
(c) Due to officers:
The amount due to officers represents advances from and amounts owing for
services provided by officers of the Company. These amounts are unsecured,
payable on demand and bear no interest.
6. LONG-TERM RECEIVABLES:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Employee loan, maturing September 30, 2024, bearing interest
at 1% per annum, repayable in bi-monthly blended
instalments of $565, except if employment is terminated in
which case it is repayable immediately, real estate has
been pledged as security, net of unamortized discount of
$145,431.................................................. $150,264 $ --
Employee loans, maturing September 30, 2002, bearing
interest at prime plus 1% per annum....................... 26,824 --
-------- --------
177,088 --
Less current portion........................................ (20,266) --
-------- --------
$156,822 $ --
======== ========
</TABLE>
The employee loan secured by real estate has been discounted to fair market
value calculated at prime plus 1%, which is the prevailing rate of similar
financial instruments, over 25 years.
59
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
7. FIXED ASSETS:
<TABLE>
<CAPTION>
ACCUMULATED NET
DECEMBER 31, 1999 COST AMORTIZATION BOOK VALUE
- ----------------- ---------- ------------ -----------
<S> <C> <C> <C>
Furniture and fixtures................................... $ 485,287 $ 129,265 $ 356,022
Computer equipment....................................... 1,004,818 413,060 591,758
Trade show assets........................................ 124,020 29,532 94,488
Computer software........................................ 135,081 73,290 61,791
Leasehold improvements................................... 903,965 675,085 228,880
---------- ---------- ----------
$2,653,171 $1,320,232 $1,332,939
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET
DECEMBER 31, 1998 COST AMORTIZATION BOOK VALUE
- ----------------- ---------- ------------ -----------
<S> <C> <C> <C>
Furniture and fixtures................................... $ 146,602 $ 83,378 $ 63,224
Computer equipment....................................... 517,674 277,913 239,761
Trade show assets........................................ 111,721 7,448 104,273
Computer software........................................ 99,352 51,194 48,158
Leasehold improvements................................... 707,509 516,396 191,113
---------- ---------- ----------
$1,582,858 $ 936,329 $ 646,529
========== ========== ==========
</TABLE>
60
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
8. SHARE CAPITAL:
Authorized:
200,000,000 common shares without nominal or par value.
Issued:
<TABLE>
<CAPTION>
NUMBER OF SHARES AMOUNT
---------------- -----------
<S> <C> <C>
Balance, April 30, 1996..................................... 10,792,309 $ 5,451,969
Shares issued on exercise of special warrants............... 7,683,000 1,754,500
Shares issued on exercise of non-transferable warrants...... 404,500 202,250
Cancellation of shares (a).................................. (3,924,396) --
Shares issued for settlement of debt........................ 1,489,446 372,362
Performance shares issued for cash.......................... 750,000 7,500
Shares issued on exercise of options........................ 123,000 44,280
Less share issue costs...................................... -- (93,437)
---------- -----------
Balance, April 30, 1997..................................... 17,317,859 7,739,424
Shares issued on exercise of special warrants............... 4,450,000 1,293,750
Shares issued on exercise of non-transferable warrants...... 4,203,100 2,106,500
Shares issued on exercise of options........................ 699,000 352,100
Shares issued to a director in satisfaction of a royalty
claim..................................................... 100,000 25,000
---------- -----------
Balance, April 30, 1998..................................... 26,769,959 11,516,774
Shares issued on exercise of special warrants............... 500,000 1,200,000
---------- -----------
Balance, December 31, 1998.................................. 27,269,959 12,716,774
Shares issued on exercise of special warrants............... 9,724,611 4,149,843
Shares issued on exercise of non-transferable warrants...... 10,434,335 5,078,666
Shares issued on exercise of options........................ 1,343,500 1,198,310
Shares issued for cash...................................... 2,746,833 6,712,155
Shares issued for services rendered......................... 250,000 160,000
Share subscriptions (243,900 common shares)................. -- 589,296
Less share issue costs...................................... -- (368,245)
---------- -----------
Balance, December 31, 1999.................................. 51,769,238 $30,236,799
========== ===========
</TABLE>
Unless otherwise indicated, common shares issued for non-cash consideration
are valued at their market value at date of issuance.
61
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
8. SHARE CAPITAL: (CONTINUED)
(a) Escrow shares:
Included in issued shares at December 31, 1999 are 1,030,378 shares
(December 31, 1998 -- 1,030,378; April 30, 1998 and 1997 -- 1,030,378) held in
escrow to be released based on achievement of a cash flow formula.
(b) Stock options:
(i) Activity during the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
EXERCISE OUTSTANDING OUTSTANDING VESTED
PRICE PER DECEMBER 31, EXPIRED/ DECEMBER 31, DECEMBER 31,
EXPIRY DATE SHARE 1998 GRANTED EXERCISED CANCELLED 1999 1999
- ----------- --------- ------------- --------- ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
May 1, 2001............... $0.50 895,000 -- (142,000) -- 753,000 753,000
February 12, 2002......... 0.36 267,000 -- (124,000) (20,000) 123,000 123,000
February 12, 2002......... 0.50 40,000 -- (40,000) -- -- --
March 26, 2002............ 0.82 93,000 -- (83,000) -- 10,000 10,000
December 16, 2002......... 0.70 740,000 -- (280,000) (80,000) 380,000 380,000
July 6, 2003.............. 0.36 555,000 -- (190,000) -- 365,000 365,000
April 14, 2004............ 1.14 -- 760,000 (290,000) -- 470,000 270,000
April 29, 2004............ 1.35 -- 220,000 (59,000) -- 161,000 161,000
June 17, 2004............. 2.33 -- 1,090,000 (123,000) -- 967,000 812,000
October 4, 2004........... 2.66 -- 740,000 (11,500) -- 728,500 683,500
October 20, 2004.......... 2.78 -- 150,000 (1,000) -- 149,000 64,000
--------- --------- ---------- -------- --------- ---------
2,590,000 2,960,000 (1,343,500) (100,000) 4,106,500 3,621,500
========= ========= ========== ======== ========= =========
</TABLE>
Stock options vest over periods of up to two years. Exercise price per share
is equal to weighted average exercise per share.
(ii) Activity during the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
EXERCISE OUTSTANDING OUTSTANDING
PRICE PER DECEMBER 31, EXPIRED/ DECEMBER 31,
EXPIRY DATE SHARE 1997 GRANTED EXERCISED CANCELLED 1998
- ----------- --------- ------------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 2001.............................. $0.50 941,000 -- -- (46,000) 895,000
February 12, 2002........................ 0.36 267,000 -- -- -- 267,000
February 12, 2002........................ 0.50 60,000 -- -- (20,000) 40,000
March 26, 2002........................... 0.82 93,000 -- -- -- 93,000
December 16, 2002........................ 0.70 760,000 -- -- (20,000) 740,000
October 6, 2003.......................... 0.36 -- 555,000 -- -- 555,000
--------- ------- --------- ------- ---------
2,121,000 555,000 -- (86,000) 2,590,000
========= ======= ========= ======= =========
</TABLE>
62
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
8. SHARE CAPITAL: (CONTINUED)
(b) Stock options: (Continued)
(iii) A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Balances at April 30, 1996................................ -- --
Options granted......................................... 2,308,000 0.49
Options exercised....................................... (123,000) 0.36
Options canceled........................................ (120,000) 0.50
---------- ----
Balances at April 30, 1997................................ 2,065,000 0.50
Options granted......................................... 800,000 0.70
Options exercised....................................... (699,000) 0.50
Options canceled........................................ (45,000) 0.68
---------- ----
Balances at April 30, 1998................................ 2,121,000 0.57
Options granted......................................... 555,000 0.36
Options exercised....................................... -- --
Options canceled........................................ (86,000) 0.55
---------- ----
Balances at December 31, 1998............................. 2,590,000 0.52
Options granted......................................... 2,960,000 2.06
Options exercised....................................... (1,343,500) 0.89
Options canceled........................................ (100,000) 0.63
---------- ----
Balances at December 31, 1999............................. 4,106,500 1.51
========== ====
</TABLE>
63
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
8. SHARE CAPITAL: (CONTINUED)
(c) Share purchase warrants:
(i) The following non-transferable share purchase warrants were outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF SHARES PER SHARE EXPIRY DATE
- ---------------- -------------- -----------------------
<S> <C> <C>
600,000.............................. $0.32 July 22, 2000
286,000.............................. $0.40 December 23, 2000
779,276.............................. $0.333 U.S. To March 26, 2000
$0.383 U.S. From March 27, 2000
To March 26, 2001
2,700,000............................ $0.55 To April 7, 2000
$0.63 From April 8, 2000
To April 7, 2001
2,746,833............................ $1.64 U.S. To September 14, 2000
$1.89 U.S. From September 15, 2000
To September 14, 2001
</TABLE>
(ii) The following non-transferable share purchase warrants were outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF SHARES PER SHARE EXPIRY DATE
- ---------------- -------------- ----------------
<S> <C> <C>
450,000....................................... $0.465 April 16, 1999
3,000,000..................................... $0.43 April 16, 1999
1,500,000..................................... $0.92 October 23, 1999
</TABLE>
Share purchase warrants generally expire two years subsequent to their
issuance date.
(d) Special warrants:
(i) As at December 31, 1999, no special warrants were outstanding.
(ii) At December 31, 1998, 90,000 special warrants were outstanding which
could be exercised in exchange for one common share and one
non-transferable share purchase warrant by November 19, 2000. The
non-transferable share purchase warrants have the following terms:
<TABLE>
<CAPTION>
EXERCISE PRICE
NUMBER OF SHARES PER SHARE EXPIRY DATE
- ---------------- --------------- -----------------------
<S> <C> <C>
90,000................................. $0.32 To November 19, 1999
$0.37 From November 20, 1999
To November 19, 2000
</TABLE>
64
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
8. SHARE CAPITAL: (CONTINUED)
(e) Shares issued for financial advisory and consulting services:
(i) During the year ended December 31, 1999, 250,000 common shares were
issued for services pursuant to a financial advisory and consulting
agreement. The market value of the Company's common shares at the date
of the agreement was $0.64 per share.
(ii) Pursuant to an agreement entered into during the fiscal year ended
April 30, 1998, 125,000 share purchase warrants were issued for
financial advisory services. During the year ended December 31, 1999,
these warrants were converted into 125,000 common shares at $0.60 per
share for total proceeds of $75,000 which had been recorded as a
commitment in the prior year. The value assigned to these equity
instruments of $75,000 has been expensed during the fiscal year ending
April 30, 1998.
9. INCOME TAXES:
The Company has non-capital loss carry forwards for income tax purposes of
approximately $17,785,000 which are available to reduce taxable income of future
years, the benefit of which has not been recorded in the accounts and which
expire as follows:
<TABLE>
<S> <C>
2000................................................... $ 1,285,000
2001................................................... --
2002................................................... 650,000
2003................................................... 3,600,000
2004................................................... 2,200,000
2005................................................... 1,650,000
2006................................................... 8,400,000
-----------
$17,785,000
===========
</TABLE>
10. LITIGATION:
The Company is engaged in the following litigation:
(a) During the year ended April 30, 1997, a former director of the Company
commenced legal proceedings against the Company for $276,000 alleged to
be owing to him for unpaid consulting fees and funds loaned or advanced
on behalf of the Company. The Company has filed a defense and
counterclaim.
(b) During the year ended April 30, 1997, four former directors commenced
legal proceedings against the Company and certain of its present
directors claiming unspecified damages for libel. The Company has filed a
defense and counterclaim.
65
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
10. LITIGATION: (CONTINUED)
(c) During the year ended April 30, 1996, the Company commenced legal
proceedings against former directors and officers of the Company,
companies related to a former director, and the Company's former
solicitors and auditors. The relief claimed included damages for breach
of fiduciary duty and negligence, an injunction preventing the sale of a
computer program named "E-Glue", and an order setting aside a disputed
general security agreement against the Company's assets. 484117
B.C. Ltd., a company controlled by a former director, filed a
counterclaim alleging that the Company was indebted to it in the amount
of $1,495,594 as at November 4, 1994, and seeking to enforce the disputed
general security agreement. The Company's former auditors filed a
counterclaim for approximately $50,000 alleged to be owing for
professional services.
(d) On January 11, 1999, parties related to a former director commenced
proceedings against the Company claiming damages for abuse of process.
The Company has filed a defense and counterclaim.
(e) On February 17, 2000, a company commenced legal proceedings against the
Company for $40,000 alleged to be owing to them for unpaid services. The
Company is in the course of preparing a defense to the claim.
While the ultimate outcomes of these claims are uncertain, management of the
Company believes it will be successful in defending these actions and
accordingly no amounts have been provided in these financial statements.
11. FINANCIAL INSTRUMENTS:
(a) Fair values of financial instruments:
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts receivable, due to/from related parties, due to officers,
accounts payable and accrued liabilities. The fair value of these financial
instruments approximate their carrying values due to their short term maturity.
The fair value of the long-term receivables have been calculated using the
current market rate for such instruments of the same remaining maturity term and
credit risk and approximate carrying value.
(b) Foreign currency risk:
Foreign currency risk reflects the risk that the Company's net assets or
operations will be negatively impacted due to fluctuations in exchange rates.
Revenues billed in United States dollars by the Company come due in the
short-term and accordingly, management of the Company believes there is no
significant exposure to foreign currency fluctuations. The Company does not have
foreign currency hedges in place.
66
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
11. FINANCIAL INSTRUMENTS: (CONTINUED)
(c) Credit risk:
Credit risk reflects the risk that the Company may be unable to recover
contractual receivables. No one contract represents a concentration of credit
risk. The Company employs established credit approval practices to further
mitigate this risk.
12. COMMITMENTS:
The Company has obligations under operating lease arrangements which require
the following minimum annual payments:
<TABLE>
<S> <C>
2000.................................................... $ 719,000
2001.................................................... 712,500
2002.................................................... 647,500
2003.................................................... 407,000
2004.................................................... 19,000
----------
$2,505,000
==========
</TABLE>
Pursuant to agreements with companies with certain common shareholders and
directors of the Company, and a director of the Company, approximately $115,000
of these amounts are recoverable from these related parties for the fiscal years
2000 and 2001, approximately $89,000 for the fiscal year 2002, and approximately
$36,000 for the fiscal year ending 2003.
13. YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems, which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers, or other third parties, have been fully
resolved.
14. SUBSEQUENT EVENTS:
(a) Stock options:
Subsequent to December 31, 1999, 657,500 stock options were exercised and
converted to common shares for total cash proceeds of $1,071,785.
67
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
14. SUBSEQUENT EVENTS: (CONTINUED)
On January 14 and 21, 2000, the Company granted and received regulatory
approval on 2,000,000 stock options (1,000,000 each grant date), exercisable at
prices of U.S.$8.69 and U.S.$11.08 per share until January, 2005.
(b) Share purchase warrants:
Subsequent to December 31, 1999, 2,607,464 share purchase warrants were
exercised and converted to common shares for total cash proceeds of $3,271,834.
(c) Private placement:
Subsequent to December 31, 1999, the Company issued, through private
placements, 2,500,000 units of the Company at a price of U.S.$1.64 per unit.
Each unit consists of one common share and one non-transferable share purchase
warrant, entitling the holder to purchase one additional common share without
par value, exercisable for a period of two years at a price of U.S.$$1.64 per
share for the first year and at a price of U.S.$1.89 per share the second year.
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in Canada, the
measurement principles of which conform, in all material respects, with those in
the United States except as described below:
(a) Income taxes:
Under the asset and liability method of United States Statement of Financial
Accounting Standards No. 109 ("FAS 109"), deferred income tax assets and
liabilities are measured using enacted tax rates for the future income tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. The application of the provisions of FAS 109 on the Company's balance
sheet would result in no net difference in deferred taxes from that reported
under Canadian GAAP. At December 31, 1999, the gross deferred tax asset amount
relating to a non-capital loss carry forward was $7,400,000 which is reduced by
a valuation allowance of $7,400,000 as management does not consider that it is
more likely than not that such assets will be realized in the carry forward
period. There was no deferred tax liability.
68
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(b) Stock-based compensation:
For United States GAAP purposes, the Company has elected to follow the
disclosure-only provisions under Statement of Financial Accounting Standards
No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation", and applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its
stock-based compensation to employees. Accordingly, the Company's stock-based
compensation expense is measured based on the intrinsic value of the option on
the date of grant. FAS 123 requires companies that continue to follow APB 25 to
disclose the impact of applying the fair value method of FAS 123.
Under the intrinsic value method of APB 25, the stock option compensation is
the excess, if any, of the quoted market value of the stock at the measurement
date of the grant over the amount an optionee must pay to acquire the stock.
Accordingly, stock-based compensation for the year ended December 31, 1999, the
eight months ended December 31, 1998 and the years ended April 30, 1998 and
1997, for United States GAAP purposes, would be $404,000; $44,400, $nil, and
$120,250, respectively.
Had stock compensation expense for the Company's stock option plan been
determined based on the fair value methodology under FAS 123, the Company's net
loss would have increased for the year ended December 31, 1999, the eight months
ended December 31, 1998, and the years ended April 30, 1998 and 1997 by
$4,073,061, $117,616, $315,452 and $374,908, respectively. In addition, the
Company's loss per share under United States GAAP for the year ended
December 31, 1999, the eight months ended December 31, 1998 and the years ended
April 30, 1998 and 1997 would have been $0.33, $0.08, $0.13 and $0.16,
respectively.
The fair value for the options was estimated using the Black-Scholes option
pricing model with the following assumptions: Expected volatility of 80% for the
year ended December 31, 1999 and 70% for all other periods, risk-free interest
rate ranging from 5.3% to 6.3%, expected life of five years, and a 0% dividend
yield.
The weighted-average fair value of stock options granted for the year ended
December 31, 1999, the eight months ended December 31, 1998 and the years ended
April 30, 1998 and 1997, are $1.51, $0.29, $0.39 and $0.21, respectively.
69
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(c) Development stage enterprises:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 7, "Development Stage Enterprises", the Company would be defined to be a
development stage enterprise which would require the following additional
disclosures:
(i) The amounts in the consolidated statement of operations and deficit
accumulated during the development stage would be presented on a
cumulative basis from the Company's inception which is summarized as
follows:
<TABLE>
<S> <C>
Revenues.................................................... $ 1,263,036
Cost of sales (exclusive of amortization and other costs
disclosed separately below)............................... 284,930
-----------
978,106
Operating expenses:
Amortization.............................................. 1,364,868
Bad debts................................................. 270,998
Employee wages and benefits............................... 4,486,537
Filing and transfer fees.................................. 246,224
Investment advisory services.............................. 235,000
Marketing................................................. 4,148,048
Office, printing and sundry............................... 2,617,665
Professional fees......................................... 4,900,072
Research and development.................................. 4,341,863
-----------
22,611,275
-----------
Loss before undernoted...................................... 21,633,169
Other income................................................ (468,248)
-----------
Loss accumulated during the development stage under
U.S. GAAP................................................. $21,164,921
===========
</TABLE>
70
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(ii) The amounts in the consolidated statement of cash flows would also be
presented on a cumulative basis from the Company's inception which is
summarized as follows:
<TABLE>
<S> <C>
Operations:
Loss accumulated during the development stage under
U.S. GAAP............................................... $(21,164,921)
Items not involving the use of cash:
Amortization............................................ 1,364,868
Other................................................... 1,205,146
Changes in non-cash operating working capital items....... 20,733
------------
(18,574,174)
Financing................................................... 29,388,157
Investments................................................. (2,255,444)
------------
Increase in cash and cash equivalents during the development
stage..................................................... 8,558,539
Cash at inception of development stage...................... (57)
------------
Cash and cash equivalents, December 31, 1999................ $ 8,558,482
============
</TABLE>
(iii) A cumulative statement of stockholders' equity would be presented as
follows:
<TABLE>
<CAPTION>
SHARE CAPITAL
------------------------ RETAINED EARNINGS
NUMBER ASSIGNED SPECIAL WARRANTS (DEFICIT)
---------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance, inception of development stage.............. 1,044,719 $ 526,961 $ -- $ 382,003
Shares issued for cash............................... 400,000 100,000 -- --
Loss for the year.................................... -- -- -- (90,976)
---------- ----------- ----------- ------------
Balance, April 30, 1990.............................. 1,444,719 626,961 -- 291,027
Shares issued for acquisition of subsidiary.......... 6,660,452 1,105,231 -- --
Shares issued as settlement for debt................. 900,000 225,000 -- --
Loss for the year.................................... -- -- -- (2,237,102)
---------- ----------- ----------- ------------
Balance, April 30, 1991.............................. 9,005,171 1,957,192 -- (1,946,075)
Shares issued for cash............................... 500,000 200,000 -- --
Shares issued for cash............................... 220,000 198,000 -- --
Loss for the year.................................... -- -- -- (431,506)
---------- ----------- ----------- ------------
Balance, April 30, 1992.............................. 9,725,171 2,355,192 -- (2,377,581)
Shares issued for cash............................... 783,000 567,250 -- (781,817)
Loss for the year.................................... -- -- -- --
---------- ----------- ----------- ------------
Balance, April 30, 1993.............................. 10,508,171 2,922,442 -- (3,159,398)
Shares issued as a finders fee....................... 53,881 92,675 -- --
Shares issued for cash............................... 1,588,550 1,671,710 -- --
Shares issued as settlement for debt................. 406,450 705,141 -- --
Loss for the year.................................... -- -- -- (2,256,961)
---------- ----------- ----------- ------------
</TABLE>
71
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
<TABLE>
<CAPTION>
SHARE CAPITAL
------------------------ RETAINED EARNINGS
NUMBER ASSIGNED SPECIAL WARRANTS (DEFICIT)
---------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance, April 30, 1994.............................. 12,557,052 5,391,968 -- (5,416,359)
Shares issued as settlement for debt................. 162,165 60,001 -- --
Earnings for the year................................ -- -- -- 277,200
---------- ----------- ----------- ------------
Balance, April 30, 1995.............................. 12,719,217 5,451,969 -- (5,139,159)
Cancellation of escrow shares........................ (1,926,908) -- -- --
Loss for the year.................................... -- -- -- (898,154)
---------- ----------- ----------- ------------
Balance, April 30, 1996.............................. 10,792,309 5,451,969 -- (6,037,313)
Special warrants issued.............................. -- -- 3,250,500 --
Shares issued on exercise of special warrants........ 7,683,000 1,754,500 (1,754,500) --
Shares issued on exercise of non-transferable
warrants........................................... 404,500 202,250 (202,250) --
Cancellation of shares............................... (3,924,396) -- -- --
Shares issued as settlement for debt................. 1,489,446 372,362 -- --
Performance shares issued for cash................... 750,000 7,500 -- --
Shares issued on exercise of options................. 123,000 44,280 -- --
Share issue costs.................................... -- (93,437) -- --
Loss for the year.................................... -- -- -- (2,002,863)
---------- ----------- ----------- ------------
Balance, April 30, 1997.............................. 17,317,859 7,739,424 1,293,750 (8,040,176)
Shares issued on exercise of non-transferable
warrants........................................... 4,203,100 2,106,500 -- --
Shares issued on exercise of options................. 699,000 352,100 -- --
Shares issued in satisfaction of a royalty claim..... 100,000 25,000 -- --
Shares issued on exercise of special warrants........ 4,450,000 1,293,750 (1,293,750) --
Special warrants issued.............................. -- -- 1,200,000 --
Loss for the year.................................... -- -- -- (2,409,390)
---------- ----------- ----------- ------------
Balance, April 30, 1998.............................. 26,769,959 11,516,774 1,200,000 (10,449,566)
Shares issued on exercise of special warrants........ 500,000 1,200,000 (1,200,000) --
Special warrant subscriptions........................ -- -- 977,082 --
Loss for the period.................................. -- -- -- (1,936,683)
---------- ----------- ----------- ------------
Balance, December 31, 1998........................... 27,269,959 12,716,774 977,082 (12,386,249)
Shares issued on exercise of non-transferable
warrants........................................... 10,434,335 5,078,666 -- --
Shares issued on exercise of options................. 1,343,500 1,198,310 -- --
Shares issued on exercise of special warrants........ 9,724,611 4,149,843 (977,082) --
Shares issued for cash............................... 2,746,833 6,712,155 -- --
Shares issued for services rendered.................. 250,000 160,000 -- --
Share subscriptions receivable (243,900 common
shares)............................................ -- 589,296 -- --
Share issue costs.................................... -- (368,245) -- --
Loss for the year.................................... -- -- -- (8,396,669)
---------- ----------- ----------- ------------
Balance, December 31, 1999........................... 51,769,238 $30,236,799 $ -- $(20,782,918)
========== =========== =========== ============
</TABLE>
72
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
Identification as a development stage enterprise would not impact the
measurement principles applied.
(d) Research and development:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 2, "Research and Development Expenditures", requires development costs to be
expensed as incurred. Under Canadian GAAP, such expenses are deferred if they
meet specified criteria. Deferred development costs of $2,604,115 which were
capitalized as at April 30, 1996 would have been expensed as incurred under
United States GAAP. As such, these costs were written off during the year ended
April 30, 1997. Since April 30, 1996, no costs have been deferred under Canadian
GAAP and, accordingly, no difference has arisen to the amounts that could be
reported under United States GAAP.
(e) Loss per share:
For United States GAAP purposes, 1,030,378 shares held in escrow as at
December 31, 1999 (December 31, 1998 -- 1,030,378; April 30, 1998 and
1997 -- 1,030,378) are considered contingently issuable. Accordingly, these
shares are excluded from the weighted average number of shares outstanding for
the purposes of calculating loss per share amounts. To the extent that common
shares held in escrow are released based on the achievement of performance
measures, compensation expense will be recognized under United States GAAP at
the date the shares became releasable for the difference between the market
value of the shares at that date and the nominal consideration originally paid.
(f) Summary of United States GAAP adjustments:
The following table sets forth the effect on the loss for the period and
loss per share:
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED YEARS ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Loss determined under Canadian GAAP....................... $ 7,992,669 $ 1,892,283 $ 2,409,390 $ 4,587,628
Expenses relating to stock-based compensation (b)......... 404,000 44,400 -- 19,350
Difference in accounting for deferred development costs
and software, including reversal in 1997 of write-down
recorded under Canadian GAAP for costs that would have
been expensed in a prior year under United States
GAAP (d)................................................ -- -- -- (2,604,115)
----------- ----------- ----------- -----------
Loss determined under United States GAAP.................. $ 8,396,669 $ 1,936,683 $ 2,409,390 $ 2,002,863
=========== =========== =========== ===========
Weighted average number of common shares outstanding under
United States GAAP...................................... 37,391,211 25,878,357 20,400,346 14,675,347
=========== =========== =========== ===========
Loss per share under United States GAAP................... $ 0.22 $ 0.07 $ 0.12 $ 0.14
=========== =========== =========== ===========
</TABLE>
73
<PAGE>
SIDEWARE SYSTEMS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED DECEMBER 31, 1999
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998 AND 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
There would be no impact from the above adjustments on total assets or
shareholders' equity reported under Canadian GAAP at December 31, 1999 and
December 31, 1998.
(g) Statement of cash flows:
Cash flows from operations, financing and investment activities under United
States GAAP would be presented as follows:
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED ENDED YEARS ENDED APRIL 30,
DECEMBER 31, DECEMBER 31, -------------------------
1999 1998 1998 1997
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from:
Operations.............................................. $(6,803,930) $(2,338,862) $(1,910,207) $(1,708,200)
Financing............................................... 16,551,073 1,050,952 3,415,367 2,372,596
Investments............................................. (1,506,005) (232,525) (336,802) 4,714
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.......... $ 8,241,138 $(1,520,435) $ 1,168,358 $ 669,110
=========== =========== =========== ===========
</TABLE>
16. COMPARATIVE FIGURES:
Certain comparative figures have been reclassified to conform to the
financial statement presentation adopted in the current year.
74
<PAGE>
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITY.
Not Applicable.
75
<PAGE>
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Consolidated Balance Sheet of the Company as of December 31, 1999 and 1998,
the Consolidated Statements of Operations and Deficit and the Consolidated
Statements of Cash Flows for the fiscal year ended December 31, 1999, the eight
month period ended December 31, 1998, and the fiscal years ended April 30, 1998
and April 30, 1997, including the auditors' report of KPMG LLP thereon.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
Index to Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- --------------------- -------
<C> <S>
3.1(1) Memorandum of Incorporation dated March 30, 1983
3.2(1) Articles of Incorporation dated March 30, 1983
3.3(1) Special Resolution dated January 12, 1984
3.4(1) Special Resolution dated June 15, 1989
3.5(1) Special Resolution dated September 27, 1990
3.6(1) Special Resolution dated December 18, 1996
3.7(1) Articles of Incorporation
3.8(1) Special Resolution dated January 29, 1998
4.1(1) Escrow Agreement dated June, 1996
4.2(1) Agreement dated November 23, 1998 between the Company and
certain warrant holders of the Company
4.3(1) Agreement dated April 14, 1999 between the Company and
certain warrant holders of the Company
4.4(1) Agreement dated October 28, 1999 between the Company and
certain warrant holders of the Company
10.1(1) Operating Agreement between the Company and
BrainTech, Inc., dated October 18, 1996
10.2(1) Software Development and License Agreement dated
September 20, 1999 between the Company and
BrainTech, Inc.
10.3(1) Software Development License between the Company and
Sideware International SRL effective August 27, 1999
10.4(1) Research and Development Cost Sharing Agreement between the
Company and Sideware International SRL effective
August 27, 1999
10.5(1) Distribution and Sales Agreement between the Company and
Sideware Corp. effective January 1, 1999
10.6(1) Assignment of Lease and Modification of Lease Agreement
dated August 17, 1998 between HOOPP Realty Inc., Techwest
Management Inc., Sideware Systems Inc., and
BrainTech, Inc.
10.7(1) Lease Agreement dated January 25, 1999 between Sideware
Corp. and Elden Investments, LLC with Addendum dated
February 8, 1999
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- --------------------- -------
<C> <S>
10.8(1) Agreement between the Company and IBM for participation in
the Enterprise Growth Opportunity program
10.9(1) Reseller agreement between the Company and Enterprise Soft
10.10(1) Software license agreement between the Company and
ICEsoft AS
10.11(1) Lease effective as of July 1, 1999 between the Company,
Techwest Management Ltd., BrainTech, Inc. and Pacific
Centre Leaseholds Ltd.
10.12(1) Assignment Agreement effective as of July 1, 1999 between
the Company, Techwest Management Ltd., BrainTech, Inc.,
and SJM Management Ltd.
10.13(1) Cost Sharing and Allocation Agreement dated October 29, 1999
between the Company and BrainTech, Inc.
10.14(1) Agreement between the Company and Advanced Contact
Solutions Inc.
10.15(1) Contract Agreement No. SDW001 between the Company and
Science Applications International Corp.
10.16(1) IBM International Independent Software Vendor Agreement
10.17(1) Distribution and Sales Agreement between Sideware Corp. and
Sideware International SRL
10.18 Lease Agreement dated March 6, 2000 between Sideware Corp.
and Reston L.L.C.
10.19 Lease Agreement between Sideware Corp. and Sanctuary Park
Realty Holding Company
10.20 Sub-Lease Agreement dated January 15, 2000 among San Jose
State University Foundation and Sideware Systems Inc.
10.21 Lease Agreement dated February 24, 2000 between CEO
Suites, Inc. and Sideware Corp.
21.1 List of Subsidiaries
</TABLE>
- ------------------------
(1) Exhibit already on file.
77
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
Dated: March 31, 2000
SIDEWARE SYSTEMS INC.
By: /s/ W. GRANT SUTHERLAND
------------------------------------------
W. Grant Sutherland
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
78
<PAGE>
VIA EDGAR
March 31, 2000
United States Securities and Exchange Commission
Judiciary Plaza
450 5th Street N.W.
Washington, D.C. 20549
USA
Ladies and Gentlemen:
Re: Annual Report
We enclose for filing our Annual Report for the year ended December 31, 1999.
Yours truly,
SIDEWARE SYSTEMS INC.
/s/ GRANT SUTHERLAND
- ------------------------------------
Grant Sutherland
CHAIRMAN
<PAGE>
EXHIBIT 10.18--LEASE AGREEMENT DATED MARCH 6, 2000
BETWEEN SIDEWARE CORP. AND RESTON L.L.C.
<PAGE>
LEASE AGREEMENT
THIS LEASE is made and entered into this 6(TH) day of MARCH, 2000, by and
between RESTON L.L.C., a Virginia limited liability company (the "Landlord"),
and SIDEWARE CORPORATION. (the "Tenant").
W I T N E S S E T H :
That, in consideration of the rents, covenants and conditions herein set
forth, Landlord and Tenant do hereby covenant, promise and agree as follows:
1. SUMMARY OF TERMS.
The following is a summary of the terms of this Lease. The terms used herein
shall have the meanings as set forth in greater detail in the Sections of the
Lease that follow:
1.1. LEASED PREMISES: Commercial Office Building (the "Office Building")
located at 1810 Samuel Morse Drive, Reston, Virginia, Tax Parcel is 18-3-6-7A,
Legal Description: Reston Section 911, Block 7A, Fairfax County. Total Leased
premise gross rentable square feet area is 16,000 not including the roof and the
exterior surfaces of exterior walls, which are reserved for Landlord's exclusive
use. The gross rentable square foot area is calculated for the purposes of this
lease using the construction gross method. The gross floor area is calculated
for the purposes of this lease using the construction gross method. Landlord
shall provide tenant with an accurate architectural drawing for the purpose of
validating the gross square footage. If said measurement is overstated by more
than 2.5.%, said square footage number shall be amended to reflect the actual
number and all other calculations associated with the square footage number will
be corrected.
1.2. BASIC RENT: shall mean:
<TABLE>
<CAPTION>
ANNUAL MONTH
----------- ----------
<S> <C> <C>
April 15, 2000--April 14, 2001...................... $464,000.00 $38,666.66
April 15, 2001--April 14, 2002...................... $477,920.00 $39,826.66
April 15, 2002--April 14, 2003...................... $492,257.60 $41,021.47
April 15, 2003--April 14, 2004...................... $507,025.32 $42,252.11
April 15, 2004--April 14, 2005...................... $522,236.07 $43,519.67
April 15, 2005--April 14, 2006...................... $537,903.14 $44,825.26
April 15, 2006--April 14, 2007...................... $554,040.23 $46,170.19
April 15, 2007--October 14, 2007.................... $285,330.71 $47,555.12
</TABLE>
OPTION TO RENEW.
A. Provided that this Lease is in full force and effect and Tenant is not in
default under this Lease, Tenant shall have an option to extend this Lease for
one (1) additional period of three (3) year (the "Renewal Period"). This renewal
option shall be exercisable upon notice from Tenant to Landlord at least one
hundred eighty (180) days prior to the expiration of the Term. In the event that
Tenant exercises the option to renew this Lease, the Term shall be extended
accordingly upon the same terms, covenants and conditions as set forth in this
Lease, except that Minimum Rent during the Renewal Period shall be
<TABLE>
<CAPTION>
ANNUAL MONTH
----------- ----------
<S> <C> <C>
October 14, 2007--October 13, 2008.................. $587,781.27 $48,981.77
October 14, 2008--October 13, 2009.................. $605,414.70 $50,451.23
October 14, 2009--October 13, 2010.................. $623,577.14 $51,964.76
</TABLE>
1.3. SECURITY DEPOSIT: shall mean $31,333.33.
1.4. TERM: shall mean 7 years and 6 months, subject to Section 3.1. of
this lease.
<PAGE>
1.5. TERMINATION DATE: shall mean October 14, 2007 or 90 months from date
of tender which ever is later, subject to Section 3.1 of this Lease.
1.6. NOTICE ADDRESSES:
(i) to Landlord: RESTON L. L.C.
6130 OXON HILL RD.
SUITE 301
OXON HILL, MD 20745
(ii) to Tenant: SIDEWARE CORP.
208 ELDEN STREET, SUITE 200
HERNDON, VA 20170
2. LEASED PREMISES.
2.1. DEMISE. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord the Leased Premises, together with the right to use, in common
with others, the Common Areas (as hereinafter defined).
2.2. QUIET ENJOYMENT. Landlord warrants that it and no other party has the
right to lease the Leased Premises and so long as Tenant is not in default
hereunder, Tenant shall have peaceful and quiet use and possession of the Leased
Premises without interference from Landlord or anyone claiming through Landlord,
subject to any Mortgages and all matters of record or other agreements to which
this Lease is or may hereafter be subordinated.
3. TERM AND COMMENCEMENT OF TERM.
3.1. TERM. The Term (rent and occupancy) of this Lease shall commence on
(May 1, 2000 or the date that Landlord tenders possession of suite to tenant
which ever is later) (the "Lease Commencement Date"). The Term of this Lease
shall end at midnight on the Termination Date, unless earlier terminated
pursuant of any other provision of this Lease or pursuant to law.
4. ACCEPTANCE OF THE LEASED PREMISES.
4.1. ACCEPTANCE OF LEASED PREMISES. Tenant's occupancy of the Leased
Premises shall be deemed to constitute acceptance of same and acknowledgment by
Tenant that Landlord has fully complied with its obligations hereunder to
construct and deliver to Tenant the Leased Premises.
4.2. SIGNAGE. Tenant will provide signage (its company name) on the
exterior of the building (and/or a ground sign at entry of property) to include
electrical line and connection at its' sole cost and expense. Landlord reserves
the right to install one project management sign on behalf of Management Company
at landlord's sole cost and expense. Tenant, at its expense, shall install on or
below the canopy at the front of the Premises signage ("Tenant's Exterior Sign")
which complies with all applicable building codes, regulations and laws. In
addition, Tenant's sign contractor shall install Tenant's Exterior Sign with
Landlord's representative present, who will supervise the installation. Landlord
whose approval will not be unreasonably withheld shall approve the location of
Tenant's Exterior Sign. Tenant shall not display any other signs, lights, or
advertisements on the exterior of the Premises. Upon termination of the Lease,
Tenant, at Landlord's request, shall remove Tenant's Exterior Sign at Tenant's
expense. Tenant shall maintain Tenant's Exterior Sign in good repair, and shall
replace it when needed so that Tenant's Exterior Sign is in good condition at
all times. If Tenant fails to promptly perform such obligations, Landlord may
make the repairs and replacements upon giving written 30 (thirty) days notice to
tenant, at Tenant's expense, and Tenant shall reimburse Landlord for the cost
thereof promptly upon demand.
2
<PAGE>
4.3. ALTERATIONS BY LANDLORD. Landlords will fit-up demised premise per
construction document plans approved by tenant. Landlord will build one large
conference room at entry with entry with one glass wall and one double glass
doors. Landlord will construct one additional room at entry with one glass wall
and one double glass doors. Landlord will construct one additional room in
drywall with a coat closet. Landlord will construct one handicapped bathroom at
entry. Entry foyer to be in blue pearl granite. Landlord will construct one
President's office with upgraded carpeting plus nine additional offices.
Landlord will install electrical conduit in floor for future systems furniture
on second floor and first floor. Landlord will construct on first floor one
handicapped bathroom, renovate all existing bathrooms and build break
room/kitchenette area, one employee training room with entry glass door only and
one additional room beside training room. Landlord will replace entry doors to
building in all glass. Landlord will make windows on entry side of building
inoperable. Landlord will repair resurface concrete at entryway of building
only. Landlord will paint all corridors and open space, and conference rooms.
Landlord will paint all interior offices in flat latex paint. Landlord will
paint mansard and stair rails in black. Landlord will paint wooden stair rail in
a metal color or a lighter color. Landlord will install hanging lighting in
center triangle of space. Landlord will carpet space in Stonehaven 3669 indigo
mix. All construction specifications will be at Landlord's discretion subject to
the understanding that any changes to specifications, which effect the
architectural look, color, size shall require tenant's approval.
5. RENT.
5.1. BASIC RENT. Tenant shall pay to Landlord during the Term of this
Lease the Basic Rent as shown on page 1, Summary of Terms. The monthly
installments of Basic Rent shall be due without notice, demand, abatement,
deduction or set-off, on the first day of each and every calendar month during
the Term of this Lease; provided, however, that if the Term of this Lease shall
commence on a day other than the first day of a month, the first payment shall
include any prorated Basic Rent for the period from the Lease Commencement Date
to the first day of the first full calendar month of the Term of this Lease.
Failure to pay rent by the fifth day of the month three times in a twelve month
period gives the Landlord the right to terminate this Lease with 10 business
days notice. The term "Rental Year," as it appears in this Lease, is defined as
each twelve (12) calendar month period occurring during the Term of this Lease,
with the first Rental Year commencing as of the Lease Commencement Date and
ending on the last day of the twelfth full calendar month thereafter.
5. UTILITIES.
Tenant shall pay directly to the supplier all charges for water, sewer, gas,
electricity, telephone and other utilities used upon the Premises commencing
with the Date of Tender. Within seven (7) days after the Date of Tender, Tenant
shall cause all utilities used upon the Premises to be placed in Tenant's name.
If Tenant fails to do so, Landlord, in addition to its other remedies under this
Lease, may instruct the utility companies to terminate all utility services for
the Premises, and Landlord shall not be liable to Tenant for any damages
resulting from this termination of utility services. Tenant shall be liable for
any damages to the Premises or Building caused by the termination of said
services. Expenses for maintenance of utility meters shall be borne by Landlord.
Landlord shall not be liable for any failure to furnish or for any interruption
of utility services.
5.2 OPERATING COST ESCALATION.
DEFINITIONS. For purposes of this Lease, the following definitions shall
apply:
(a) "Base Operating Costs" shall be the actual operating costs for calendar
year 2000.
(b) The "Operating Cost Allocation Factor" for the Premises shall be
100.00%.
(c) "Operating Year: shall mean each respective calendar year or part of it
during the Term of this Lease or any renewal of it.
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(d) "Property" shall mean the Office Building, the Common Facilities, and
all fixtures and other improvements in or on the land described in the Title
Deed.
(e) "Operating Costs" shall mean all expenses and costs (but not specific
costs which are allocated or separately billed and payable by specific tenants)
of every kind and nature which Landlord shall pay or become obligated to pay
because of or in connection with owning, operating, managing, painting,
repairing, insuring, and cleaning the Property, including, but not limited to,
the following. Landlord agrees to provide Tenant prior to lease execution, a
detailed breakdown of the expense categories and estimated costs per category
which make up said "operating expenses."
(i) cost of all supplies and materials used, and labor charges incurred,
in the operation, maintenance, decoration, repairing, and cleaning of the
Property, including janitorial service for all floor area leased to tenants;
(ii) cost of all equipment purchased or rented which is utilized in the
performance of Landlord's obligations under this Lease and the cost of
maintenance and operation of any such equipment;
(iii) cost of all management, maintenance and service agreements for the
Property and the equipment in it, including, without limitation, alarm
service, security service, window cleaning;
(iv) accounting costs (excluding costs specific to "Partnership" or
other entity which owns the subject property), including the cost of audits
by certified public accounts, legal (specific to the rental operation of the
subject property) and engineering fees, and expenses incurred in connection
with the operation and management of the Property;
(v) wages, salaries, and related expenses of all on-site and off-site
agents or employees engaged in the operation, maintenance, security, and
management of the Property;
(vi) cost of all insurance coverage for the Property from time to time
maintained by Landlord, including but not limited to the costs of premiums
for insurance with respect to personal injury, death, property damage,
business interruption, rental income, and workmen's compensation insurance
covering personnel;
(vii) cost of repairs, replacements and general maintenance to the
Property, structural or non-structural, including without limitation the
mechanical, electrical and heating, ventilating and air-conditioning
equipment and systems (excluding repairs and general maintenance paid by
proceeds of insurance or by tenants or other third parties, and alterations
attributable solely to tenants);
(viii) all Common Facilities maintenance, repair or redecoration
(including repainting), and exterior and interior landscaping, sidewalks,
and streetscaping;
(ix) cost of removal of trash, rubbish, garbage, and other refuse from
the Property as well as removal of ice and snow from the sidewalks on or
adjacent to the Property;
(xi) amortization of capital improvements made to the Office Building,
which improvements result in more efficient operation of the Office Building
or are made to the Office Building by Landlord after the Lease Commencement
Date pursuant to any governmental law, regulation or action; provided that
the cost of each such capital improvements, together with any financing
charges incurred in connection therewith, shall be amortized over its useful
life and only that portion attributable to each Operating Year shall be
included for such Operating Year;
(xii) real estate taxes, assessments (special or otherwise), levies, ad
valorem charges, benefit charges, water and sewer rents, rates and charges,
privilege permits and any other governmental liens, impositions or charges
of a similar or dissimilar nature, and any such items shall be extra
ordinary or ordinary, general or special, foreseen or unforeseen, levied,
assessed, or imposed on or with respect to all or any part of the Property
or upon the rent due and payable under this Lease, by Fairfax County, State
of Virginia, or any other taxing authority; provided, however, that if at
any time during the Term
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or any extension thereof the method of taxation prevailing at the
commencement of the Term shall be altered or eliminated so as to cause the
whole or any part of the foregoing items which would otherwise be included
in Operating Expenses to be replaced by a levy, assessment or imposition,
which is (i) a tax assessment, levy, imposition or charge based on the rents
received from the Property whether or not wholly or partially a capital levy
or otherwise, or (ii) a tax, assessment, levy, imposition, or charge
measured by or based in whole or in part upon all or any portion of the
Property and imposed on Landlord, or (iii) a license fee measured by the
rent payable by Tenant to Landlord, or (iv) any other tax, levy, imposition
charge or license fee, however described or imposed, then only such levy,
assessment or imposition shall be included in Operation Expense; provided,
however, in no event shall Tenant be required to pay any inheritance, state,
succession, income, profits, or franchisee taxes unless they are in lieu of
or in substitution for any of the foregoing items which are imposed upon the
Property and which would otherwise be included in Operating Expenses;
(xiii) any management fee paid in connection with the operation and
management of the Property, which fee shall not exceed the prevailing rate
for similar class office buildings in Fairfax County, exclusive of costs
associated with leasing activities. The management fee will be capped at a
3% annual increase;
(xiv) unless otherwise specifically limited herein, every other cost and
expense which would be considered as an expense of maintaining, operating,
leasing, insuring, managing, or repairing the Property;
Operating Costs shall not include (i) payments of principal and interest
on any mortgages, deeds of trust or other financing instruments relating to
the financing of the Property, (ii) leasing commissions or brokerage fees,
(iii) costs associated with preparing, improving or altering space for any
leasing or releasing of any space within the Office Building, and
(iv) costs related to the provision of additional services provided by
Landlord to other tenants. Additionally, no expense or cost, which is
allocated to Operating Costs, shall be counted more than once in computing
Operating Costs;
(xv) Expenses or costs interpreted by "General Accepted Accounting
Principals" (GAAP) as Capital Improvements shall not be passed through to
Tenant;
(xvi) Landlord agrees to competitively bid "contractor" an/or "service"
providers every two years to two service providers at tenant's request.
Should the Tenant request such a competitive bid, Landlord shall provide
copies of each competitive bid as evidence of such action;
(xvii) Landlord agrees to "prorate" all equipment, personal services, etc.
based on its/their use to the "Premises". Landlord further agrees to
maintain accurate records of said "proration", which upon request shall be
available to Tenant or its representative. If said documentation is
insufficient in the interpretation of two different independent accountants,
mutually agreed upon by Tenant and Landlord, familiar with the operation of
similar real estate to support such claims, Landlord will provide all source
documentation as evidence of such expenses, otherwise Tenant shall not be
required to pay said expense/pass-through;
(xviii) Landlord agrees to appeal any real estate tax increase, which in
the opinion of a qualified expert could result in a reduction in said taxes
of at least 10% of the tax increase. Also, any reduction in tax shall be
promptly credited back to tenant on the operating cost statement after
paying the firm hired by Tenant and Landlord by mutual agreement their fee
for the reduction from the proceeds of the reduction.
All charges for electricity gas, water, sewerage service, heating,
ventilation and air-conditioning, and other utilities furnished to the Property
are specifically paid for by tenant directly to supplier and not included in
operating costs.
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5.3 PAYMENT OF OPERATING COST ESCALATION. For each Operating Year, Tenant
shall pay to Landlord, in the manner provided, "Tenant's Share of Increased
Operating Costs" which shall be computed by multiplying the Operating costs for
the Operating Year by the Operating Cost Allocation Factor and subtracting the
Base Operating Costs from the result obtained, provided, however, that for the
Operating Years during which the Term begins and ends, Tenant's Share of
Increased Operating Costs shall be prorated based upon the actual number of days
Tenant occupied, or could have occupied, the Premises during each such Operating
Year.
Tenant's Share of Increased Operating Costs shall be paid, in advance,
without notice, demand, abatement, deduction or set-off, on the first day of
each calendar month during the Term, the monthly amounts to be determined on the
basis of estimates prepared by Landlord on an annual basis and delivered to
Tenant prior to the commencement of each Operating Year. If, however, Landlord
shall furnish any such estimates for an Operating Year after its commencement,
the (i) until the first day of the month following the month in which such
estimate is furnished to Tenant, Tenant shall pay to Landlord on the first day
of each month an amount equal to the monthly sum payable by Tenant to Landlord
under this Section 5.3 with respect to the first month of the preceding
Operating Year; (ii) promptly after such estimate is furnished to Tenant,
Landlord shall give notice to Tenant whether the installments of Tenant's Share
of Increased Operating Costs paid by Tenant for the current Operating Year have
resulted in a deficiency or overpayment compared to payments which would have
been paid under such estimate, and Tenant, within ten (10) days after receipt of
such estimate, shall pay any deficiency to Landlord any overpayment shall be
credited against future payments required by Tenant under such estimate; and
(iii) on the first day of the month following the month in which such estimate
is furnished to Tenant and monthly thereafter throughout the remainder of the
Operating Year, Tenant shall pay to Landlord the monthly payment shown on such
estimate Landlord may at any time or from time to time furnish to Tenant a
revised estimate of Tenant's Share of Increased Operating Costs for such
Operating Year, and in such case, Tenant's monthly payments shall be adjusted
and paid or credited, as the case may be, substantially in the same manner as
provided in the preceding sentence.
After the end of each Operating Year, Landlord shall determine actual
Operating Costs for such Operating Year and shall provide to Tenant a detailed
by category "Operating Costs Statement" setting forth the actual Tenant's Share
of Increased Operating Costs for such Operating Year. The Operating costs
Statement shall be in comparative line item form comparing the current Operating
Year to the prior Operating Year and shall be certified by an officer of
Landlord's agent. Within thirty (30) days after delivery of the Operating Costs
Statement, Tenant shall pay Landlord any deficiency between the amount shown as
Tenant's Share of Increased Operating Costs in the Operating Costs Statement and
the total of the estimated payments made by Tenant during the Operating Year. In
the event of overpayment, such amount shall be credited against the future
payments of Basic ante. If the Lease has been terminated the Landlord shall, at
its option, refund such amounts to Tenant or credit Tenant with such amounts
against amounts owed by Tenant to Landlord.
Each Operating Costs statement provided by Landlord shall be conclusive and
binding upon Tenant unless Tenant notifies Landlord, in writing, that it
disputes the correctness of it, specifying those respects in which it claims the
Operating Costs Statement to be incorrect. Tenant or its representatives, for a
period of one hundred twenty (120) days after delivery of the Operating Costs
Statement in each Operating Year shall have the right to dispute the Operating
Costs Statement and Tenant's Share of Increased Operating Costs and, upon at
least ten (10) days written notice to Landlord, shall have reasonable access
during normal business hours to all the books and records of Landlord relating
to Operating Expenses for the purpose of verifying the Operating Costs Statement
and Tenant's Share of Increased Operating Costs, Tenant to bear the cost of any
such inspection unless such error by Landlord exceeds $2,000.00 in which case
the Landlord shall bear all reasonable and customary accounting costs associated
with the tenant's review. Unless resolved by the parties, such dispute shall be
determined by arbitration in Richmond, Virginia, in accordance with the then
prevailing rules of the American Arbitration Association. Unless the
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arbitration proceedings result in a determination that Tenant's Share of
Increased Operating Costs have been overstated by more that two thousand dollars
($3,000.00) in Landlord's favor, Tenant shall bear all costs in connection with
such arbitration. Pending determination of the dispute, Tenant shall pay any
amounts due for Tenant in accordance with the Operating Costs Statement, but
such payment shall be without prejudice to Tenant's claims.
5.4. SECURITY DEPOSIT. Tenant, contemporaneously with the execution of
this Lease, has deposited with Landlord the Security Deposit, the receipt of
which is acknowledged by Landlord. Landlord shall have the right, but not the
obligation, at any time subject to thirty days notice to tenant apply the
Security Deposit to cure any breach by Tenant under this Lease, and in the
event, Tenant shall immediately pay Landlord any amount necessary to restore the
Security Deposit to its original amount. To the extent permitted by law,
Landlord shall be entitled to the full use of the Security Deposit and shall not
be required to either keep the Security Deposit in a separate account or pay
interest on it. Tenant hereby agrees that the Security Deposit shall NOT BE USED
towards the payment of the last month's rent. Landlord will return the Tenant's
Security Deposit, less any adjustments, within thirty (30) days after the
Landlord and Tenant perform a joint walk-through of the Premises and determine
what, if any, damage has occurred to the Premises.
5.5. LATE CHARGE. If Tenant fails to make any payment of Basic Rent, or
other sums required to be paid on or before seven (7) days after the date
payment is due, Tenant shall pay to Landlord, as Additional Rent, a late charge
to cover extra administrative costs and loss of use of funds equal to
(i) Four percent (4%) of the amount due for the first month or portion thereof
that such amount is past-due plus (ii) ten percent (10%) per annum of such
amount thereafter until such amount is paid; provided, however, that should such
late charge violate applicable law, then the late charge shall be reduced to the
highest rate permitted by the laws of the Commonwealth of Virginia. Landlord's
acceptance of any rent after it has become due and payable shall not excuse any
delays with respect to future rental payments or constitute a waiver of any
Landlord's rights under this Lease. Landlord is not responsible to give notice
that any rental payments are due or late.
All monetary sums payable by Tenant to Landlord under this Lease shall be
collectable as rent whether or not characterized as rent.
6. USE, CARE, AND REPAIR OF PREMISES BY TENANT.
6.1 PERMITTED USES. Tenant shall use and occupy the Leased Premises solely
for use in the transaction of Tenant's business, which is administrative, and
office space. Landlord will provide heating and air conditioning for general and
administrative use. It is the sole responsibility of tenant to install
supplemental cooling systems for any special computer rooms in the leased
premise. Tenant shall not do, or permit anything to be done in or on the Leased
Premises, or bring or keep anything therein which is unlawful or which will, in
any way, obstruct, injure, annoy, or interfere with the rights of Landlord or
other tenants, or subject Landlord to any liability for injury to persons or
damage to property, or interfere with the good order of the Office Building.
Tenant shall promptly comply with all federal, state and local laws, statutes,
ordinances, and regulations, which are applicable to Tenant or Landlord. Tenant
shall cause any permitted subleases of the Leased Premises or assignments of the
this Lease to contain the preceding restrictions.
6.2. CARE OF PREMISES. Tenant shall, at its sole cost and expense, keep
the interior of the Leased Premises and the improvements and appurtenances clean
and consistent with the operation of an office building of similar class and at
the expiration of the Term of this Lease, or at the sooner termination of this
Lease, surrender it broom clean and in as good order and condition as at the
beginning of the Term of this Lease, ordinary wear and tear excepted. Tenant, at
its sole cost and expense, shall promptly replace scratched, damaged, or broken
doors and glass in and about the interior of the Leased Premises and shall be
responsible for the repair and maintenance of all improvements installed and
placed within the Leased
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Premises if caused by Tenant's negligence. Tenant is responsible for the repairs
and maintenance of the sink system installed in premise to include the sink,
waste piping from sink,the ejection pump and all parts, and piping related to
this improvement if caused by a stopped up sink or Tenant's negligence. Tenant
shall pay for all damage to the Leased Premises and any fixtures and
appurtenances related to it, as well as for all damage sustained by other
tenants or occupants of the Office Building, due to any waste, misuse, or
neglect of the Leased Premises by Tenant, its employees, agents,
representatives, and any fixtures and appurtenances related to it or due to any
breach of this Lease by Tenant, its employees, agents, representatives. Tenant
will provide its own cleaning service for its leased premise.
Recommended maintenance, and repairs of any building improvements and
systems not caused by tenant's negligence shall be the responsibility of
Landlord and included in the operating costs.
B. Tenant shall keep the interior of the Premises clean. Landlord shall
provide it's own contractors for exterior parking lot sweeping and shall keep
the sidewalks in front of the Premises, parking lot entrance and exits free of
ice and snow. Tenant shall remove all refuse from the Premises and adjacent
areas, and shall deposit its refuse in the compactor or other trash receptacle
supplied by Landlord for Tenant's use. Landlord shall provide one dumpster for
trash collection service, the cost of which shall be included among the
Operating Costs, or, at Landlord's option, Landlord may charge Tenant directly
for the cost of any such dumpster or trash collection service based upon
Tenant's percentage use of it, which percentage will be 100% for the purposes of
this lease. Tenant shall not use the dumpsters or trash collection service
provided by Landlord for discarding "Hazardous Waste" (as such term is defined
below). Tenant, at its expense, shall dispose of its Hazardous Waste in
accordance with applicable federal, state and local laws and regulations.
"Hazardous Waste" means all substances declared to be hazardous, toxic or
infectious under any applicable law or regulation.
6.3. ENVIRONMENTAL COMPLIANCE. Tenant shall not cause any hazardous waste,
toxic substances or other related materials that may present an imminent or
substantial endangerment to health or the environment or are subject to or
create liability under applicable federal, state or local laws, ordinances or
regulations (including, without limitation, the Resource Conservation and
Recovery Act of 1976 [RCRA] and the Comprehensive Environmental Response
Compensation and Liability Act of 1980 [CERCLA or Superfund] and any amendments
or supplements to them) to be used, generated, stored, or disposed of on, under
or about, or transported to or from the Leased Premises; and Tenant shall
indemnify, defend, and hold Landlord harmless from and against any claims,
damages, costs, and liabilities arising out of Tenant's breach of this
Section 6.3.
7. RULES AND REGULATIONS.
Tenant shall observe and abide by all reasonable and customary Landlord's
Rules and Regulations for similar type properties. Tenant, its employees,
agents, and visitors, shall observe and abide by the Rules and Regulations and
by such other and further reasonable rules and regulations as Landlord may
prescribe which, in Landlord's judgment, are necessary for the reputation,
safety, care, and cleanliness of the Office Building or Leased Premises, or the
operations and maintenance of them and the equipment in them or for the comfort
of Tenant and the other tenants of the Office Building. Landlord, however, shall
have the right to change such Rules and Regulations and waive in writing any or
all of the Rules and Regulations in the case of any one or more tenants. All
such Rules and Regulations are of the essence without which this Lease would not
have been entered into by the Landlord, and any breach of any provision of these
Rules and Regulations by the Tenant shall constitute a default under the this
Lease. Any changes to the rules and regulations must be provided to Tenant
sixty (60) days prior to implementation.
8. COMMON AREAS.
8.1. DEFINITION OF COMMON AREAS. As used herein, "Common Areas" shall mean
those areas of the Office Building as designated by Landlord from time to time,
intended for the general common use and
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benefit of all tenants of the Office Building and their agents, representative,
licensees, employees, and visitors, including, without limitation, all stairs,
corridors, elevators, lobbies, lavatories and other public areas of the Office
Building.
8.2. USE OF COMMON AREAS. Tenant shall have the non-exclusive right to use
the Common Areas in common with Landlord, subject to such reasonable rules and
regulations governing the use of the Common Areas as Landlord may from time to
time prescribe and subject to such easements as Landlord may from time to time
grant to others. Tenant shall not obstruct in any way any portion of the Common
Areas or in any way interfere with the rights of other persons entitled to use
the Common Areas and shall not, without the prior written consent of Landlord,
use the Common Areas in any manner, directly or indirectly, for the location or
display of any merchandise or property belonging to Tenant or for the location
of signs relating to Tenant's operations in the Leased Premises. The Common
Areas shall at all times be subject to the exclusive control and management of
Landlord.
8.3. ALTERATIONS TO COMMON AREAS. Landlord shall not have the right to
change or alter the location, layout, nature, or arrangement of the Common Areas
or any portion of them, including but not limited to the arrangement and
location of entrances, passageways, doors, corridors, stairs, elevators, and
other public areas of the Office Building; provided, however, that no such
change or alteration shall deprive Tenant of access to its Leased Premises or
reduce the size of the Leased Premises, unless such reduction is required by
Federal, state, or local laws, or regulations, in which event, a reduction in
the Leased Premises shall be permitted with a commensurate reduction in Basic
Rent. Landlord shall have the right to close temporarily all or any portion of
the Common Areas to such extent as may, in the reasonable opinion of Landlord,
be necessary to prevent a dedication to the public, provided that Tenant shall
not render Landlord liable in any respect for damages to either person or
property, nor be construed as an eviction of Tenant, nor cause an abatement of
rents, nor relieve Tenant from any of its obligations to Landlord. If any public
utility or governmental body shall require Landlord or Tenant to restrict the
consumption of any utility or reduce any service for the Leased Premises or the
Office Building, Landlord and Tenant shall comply with such requirements,
whether or not the utilities and services referred to in this Section 8.3 are
reduced or otherwise affected, without any liability on the part of Landlord to
Tenant or any other person or any reduction or adjustment in rents payable under
this Lease. Landlord and its agents shall be permitted reasonable access to the
Leased Premises for the purpose of installing and servicing systems within the
Leased Premises deemed necessary by Landlord to provide the services and
utilities referred to in this Section 8.3 to Tenant and other tenants in the
Office Building. Tenant will be verbally notified by management of any
alterations to the Common Area prior to commencement of such alterations.
9. UTILITIES.
Tenant shall pay directly to the supplier all charges for water, sewer, gas,
electricity, telephone and other utilities used upon the Premises commencing
with the Date of Tender. Within seven (7) days after the Date of Tender, Tenant
shall cause all utilities used upon the Premises to be placed in Tenant's name.
If Tenant fails to do so, Landlord, in addition to its other remedies under this
Lease, may instruct the utility companies to terminate all utility services for
the Premises, upon giving tenant 30 days advanced notice, and Landlord shall not
be liable to Tenant for any damages resulting from this termination of utility
services. Tenant shall be liable for any damages to the Premises or Building
caused by the termination of said services. Expenses for maintenance of utility
meters shall be borne by Landlord; Landlord shall not be liable for any failure
to furnish or for any interruption of utility services.
10. CHAR SERVICE.
Tenant will provide at its sole cost and expense char (cleaning) service for
the interior leased premise to include the common area. At tenant's request
Landlord agrees to recommend to tenant Landlord's service provider and to assist
tenant in competitively bidding their char service.
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11. LOSS, DAMAGE, AND INJURY.
All property of Tenant, its agents or visitors, or of any other person,
located in or on the Leased Premises or the Office Building, shall be and remain
at the sole risk of Tenant or such agent, invitee, or person. Tenant expressly
agrees that Landlord and its agents, servants, and employees shall not be liable
or responsible for any damage or injury to the person or property of Tenant, or
its agents, servants, employees, licensees, visitors, or contractors, directly
or indirectly caused by (i) dampness or water in any part of the Leased Premises
or the Office Building; (ii) bursting, leaking or overflowing of water, sewer,
steam, or sprinkler pipes and heating or plumbing fixtures; (iii) air
conditioning or heating failures; (iv) interference with light, air, or other
incorporeal hereditaments; (v) operations in the construction of any public or
quasi-public work; (vi) theft or other crime, whether violent or non-violent in
nature; (vii) fire, accident, natural disorder, or other casualty;
(viii) latent or apparent defect or change of condition in the Leased Premises
or the Office Building and (ix) any other source, circumstance, or cause
whatsoever, except where such damage or injury is caused by or directly
attributable to the sole negligence or willful misconduct of Landlord or its
agents, servants, and employees, and then only to the extent that Tenant, its
agents, servants, employees, licensees, or contractors are not compensated by
insurance. No representation, guaranty, assurance, or warranty is made or given
by Landlord that the communications or security systems, devices or procedures
used, if any, will be effective to prevent injury to Tenant or any other person
or damage to, or loss (by theft or otherwise) of any of Tenant's property or of
the property of any other person, and Landlord reserves the right to discontinue
or modify at any time such communications or security systems, devices, or
procedures without liability to Tenant and with prior notice to Tenant.
12. REPAIRS BY LANDLORD.
Landlord shall keep the Office Building and all machinery, equipment,
fixtures, and systems of every kind attached to, or used in connection with the
operation of, the Office Building, including all electrical, heating,
mechanical, sanitary, sprinkler, utility, power, plumbing, cleaning,
refrigeration, ventilating, air conditioning, and equipment (excluding, however,
lines, improvements, systems, and machinery for water, gas, steam, and
electricity owned and maintained by any public utility company or governmental
agency or body) in good order and repair. Landlord, at its cost and expense,
shall make all repairs and replacements necessary to comply with its obligations
set forth in the immediately preceding sentence, except for (i) repairs required
to be made by Tenant specified within this document, and (ii) repairs caused by
the negligence or willful misconduct of Tenant, its agents, employees, and
guests, which repairs shall be made by Landlord at the cost of Tenant, and for
which Tenant shall pay promptly upon receipt of an invoice setting froth the
cost of such repairs. There shall be no abatement in rents due and payable and
no liability on the part of Landlord by reason of any inconvenience, annoyance,
or injury arising from Landlord's making reasonable repairs, additions, or
improvements to the Office Building in accordance with its obligations under
this Lease.
13. ALTERATIONS BY TENANT.
13.1. ALTERATIONS. Tenant shall not make or permit to be made any
alteration, modification, substitution or other change of any nature to the
mechanical, electrical, plumbing, HVAC, and sprinkler systems within or serving
the Leased Premises without the prior written consent of Landlord which shall
not be unreasonably withheld. Tenant shall not make or permit any other
improvements, alterations, fixed decorations, substitutions, or modifications,
structural or otherwise, to the Leased Premises or the Office Building
("Alterations") without the prior written consent of Landlord, any such consent
to also include the conditions under which the Alterations may be made.
Alterations shall include, but not be limited to, the installation or
modification of carpeting, walls, partitions, counters, doors, shelves, lighting
fixtures, hardware, locks, ceiling, window, and wall covering. All such
Alterations shall be made at Tenant's sole expense, by contractors or
subcontractors approved by Landlord, and only after (i) Landlord (or Tenant)
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has obtained, on behalf of Tenant, any necessary permits from governmental
authorities and (ii) Tenant has submitted complete plans and specifications to
Landlord with respect to the Alterations and Landlord has approved them.
Landlord shall, at 3% of the improvement's cost expense, supervise the making of
any Alterations by Tenant. If any mechanic's lien is filed against the Leased
Premises of the Office Building for work or materials furnished to Tenant, the
lien shall be discharged by Tenant within ten (10) days thereafter, solely at
Tenant's expense, by either paying off or bonding the lien. Should Tenant fail
to discharge any lien with ten (10) days of its filing, Landlord shall have the
right, but not the obligation, to discharge the lien at Tenant's expense. Tenant
shall indemnify and hold Landlord harmless from all expenses (including
attorneys' fees), liens, claims, or damage to persons, property, or the Office
Building, which may arise from the making of any Alterations. Any Alterations
made without the prior consent of Landlord may be corrected or removed by
Landlord subject to Landlord providing tenant 30 days prior written notice of
such planned action, and Tenant shall, on demand, pay the cost of the removal as
Additional Rent. The work relating to any Alterations shall not interfere with,
or cause annoyance to, any other tenants of the Office Building or disrupt any
access to, or use of the Common Areas.
13.2. TITLE. Any Alterations or any equipment, machinery, furniture,
furnishings, and other property or improvements installed or located in the
Leased Premises by or on behalf of Landlord or Tenant (i) shall, except for
"Tenant's Personal Property" (as defined below) immediately become the property
of Landlord and (ii) shall remain upon and be surrendered to Landlord with the
Leased Premises as a part of them at the end of the Term of this Lease;
provided, however, that if Tenant is not in default under this Lease, Tenant
shall have the right to remove, prior to the end of the Term of this Lease,
Tenant's Personal Property. Notwithstanding the foregoing, Landlord may, upon
notice to Tenant, elect that any Alterations be removed at the end of the Term
of this Lease, and Tenant shall cause such Alterations to be removed at Tenant's
expense and shall restore the Lease Premises to their condition prior to the
making of such Alterations, reasonable wear and tear excepted. Upon Tenant's
failure to do so, Landlord may remove such Alterations and restore the Leased
Premises and Tenant shall promptly reimburse Landlord for the cost of such work.
13.3. TENANT'S PERSONAL PROPERTY. "Tenant's Personal Property" shall mean
all equipment, machinery, furniture, furnishings, and other property now or
later installed or placed in or on the Leased Premises by and at the sole
expense of Tenant with respect to which Tenant has not been granted any credit
or allowance by Landlord and which (i) is not used, or was not procured for use,
in connection with the operation, maintenance or protection of the Leased
Premises or the Office Building; (ii) is removable without damage to the Leased
Premises or the Office Building, and (iii) is not a replacement of any property
of Landlord, whether such replacement is made at Tenant's expense or otherwise.
Tenant shall promptly pay all personal property taxes imposed on Tenant's
Personal Property. Notwithstanding any provision to the contrary contained in
this Lease, if the assessed value of the Office Building is increased by
inclusion of Tenant's Personal Property and Alterations, Tenant shall pay
Landlord, upon demand, that portion of the real estate taxes payable by Landlord
and attributable to such increase. Tenant shall remove all Tenant's Personal
Property from the Leased Premises at the termination of this Lease. Any property
belonging to Tenant or any other person, which is left in the Leased Premises
after the date the Lease is terminated, for any reason, shall be deemed to have
been abandoned. In such event, Landlord shall have the right to claim from
Tenant all expenses and damages caused by Tenant's failure to remove such
property, and Tenant shall not have any right to compensation or claim against
Landlord as a result.
14. INSURANCE.
14.1 TENANT'S INSURANCE. Tenant, at its expense, shall obtain and maintain
in effect as long as this Lease remains in effect and during such other time as
Tenant occupies the Leased Premises or any part thereof insurance policies
providing at least the following coverage:
A. Public liability insurance, including insurance against assumed or
contractual liability under this lease, with respect to the Leased Premises, to
afford protection with limits of not less that five hundred
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thousand dollars ($500,000) per occurrence and one million dollars ($1,000,000)
annual aggregate, combined single limit, with respect to personal injury and
death and property damage, such insurance to provide for no deductible;
B. All-risk property and casualty insurance, including theft, written at
replacement cost value and with replacement cost endorsement, covering all of
Tenant's Personal Property in the Leased Premises and all of the Alterations,
and all other things installed in the Leased Premises by or on behalf of Tenant,
and covering loss of income resulting from casualty; and
C. If, and to the extent, required by law, worker's compensation or similar
insurance offering statutory coverage and containing statutory limits.
Such policies will be maintained in form reasonably acceptable to Landlord
and will be written as primary policy coverage and not contributing with, or in
excess of, any coverage, which Landlord shall carry. Tenant will deposit the
policy or policies of such required insurance or certificates thereof with
Landlord prior to Move-in, which policies shall name Landlord or its designee as
an additional named insured, as a loss-payee and shall also contain a provision
stating that such policy or policies shall not be canceled or materially altered
except after thirty (30) days written notice to Landlord. All such policies of
insurance shall be effective as of the date Tenant occupies the Leased Premises
and shall be maintained in force at all times during the Term of this Lease and
all other times during which Tenant shall occupy the Leased Premises. In
addition to the foregoing insurance coverage, Tenant shall require any
contractor maintain, at no expense to Landlord, during such times as the
contractor is working in the Leased Premises, a non-deductible
(i) comprehensive general liability insurance policy, including, but not limited
to, contractor liability coverage, contractual liability coverage, completed
operations coverage, broad form property damage endorsement and contractor's
protective liability coverage, to afford protection with limits per person and
for each occurrence, of not less than five hundred thousand dollars ($500,000),
combined single limit, with respect to personal injury and death and property
damage, such insurance to provide for no deductible, and (ii) worker's
compensation insurance or similar insurance in form and amounts as required by
law. In the event of damage to or destruction of the Leased Premises and the
termination of this Lease by Landlord pursuant to Section 15 herein, Tenant
agrees that it will pay Landlord all of its insurance proceeds relating to
Tenant's Improvements made in the Leased Premises by or on behalf of Tenant.
14.2. TENANT'S FAILURE TO INSURE. If Tenant shall fail to obtain insurance
as required under this Section 14, Landlord may, but shall not be obligated to,
obtain such insurance, and in such event, Tenant agrees to pay, as Additional
Rent, the premium for such insurance upon demand by Landlord.
14.3. COMPLIANCE WITH POLICIES. Tenant will not do or suffer to be done,
or keep, or suffer to be kept, anything in, upon or about the Leased Premises
which will contravene Landlord's policies insuring against loss or damage by
fire, other casualty, or any other cause, including without limitation, public
liability, or which will prevent Landlord from procuring such policies in
companies acceptable to Landlord. If any act or failure to act by Tenant in and
about this Office Building and the Leased Premises shall cause the rates with
respected insurance policies required to be maintained by Landlord under this
Section 14 or under the provisions of leases with respect to any other tenants
in the Office Building, to be increased beyond those rates that would normally
applicable for such coverage, Tenant will pay, as Additional Rent, the amount of
any such increases upon demand by Landlord.
14.4. WAIVER OF SUBROGATION. Tenant will cause each insurance policy
carried by it insuring against liability or insuring the Leased Premises
(including the contents located in them) against loss by fire or any of the
casualties covered by the all-risk insurance required under this Lease to be
written in such a manner as to provide that in insurer waives all right of
recovery by way of subrogation or otherwise against Landlord in connection with
any loss or damage covered by such policies. Neither Landlord nor Tenant shall
be liable and both waive and release the other from any loss or damage covered
by any of the insurance policies required to be carried by both parties. If, by
reason of the preceding waiver, either party
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shall be unable to obtain any such insurance, such waiver shall be deemed not to
have been made by such party and if either party shall be unable to obtain any
such insurance without the payment of an additional premium, then it shall so
notify the other party and, unless such party for the costs of the additional
premium within thirty (30) days after notice setting forth such requirement and
the amount of the additional premium, such waiver shall be of effect between
such party and such claiming party.
15. DAMAGE AND DESTRUCTION.
15.1. LANDLORD'S OBLIGATION TO REPAIR AND RECONSTRUCT. If the Leased
Premises shall be damaged by fire, the elements, accident, or other casualty
(any of such causes being referred to as a "Casualty"), but the leased Premises
shall not be rendered wholly or partially untenantable, Landlord shall promptly
cause such damage to be repaired and there shall be no abatement of Basic Rent.
If, as the result of Casualty, the leased Premises shall be rendered wholly or
partially untenantable, then, subject to the provisions of Section 15.2,
Landlord shall cause such damage to be repaired and Basic Rent shall be abated
proportionately as to the portion of the Leased Premises rendered untenantable
during the period of such untenantability. All such repairs shall be made at the
expense of Landlord, subject to Tenant's responsibility set forth in this Lease.
Landlord shall not be liable for interruption to Tenant's business or for damage
to or replacement or repair of Tenant's Personal Property, all of which damage,
replacement or repair shall be undertaken and completed by Tenant promptly.
15.2. LANDLORD'S OPTION TO TERMINATE LEASE. If (i) the Leased Premises are
rendered wholly untenantable, or (ii) the lease Premises are damaged as a result
of any cause which is not covered by Landlord's insurance (Landlord agrees to
maintain, at all times, full comprehensive property insurance sufficient to
cover the leased premise customary within the industry) or (iii) the Office
Building is damaged to the extent of fifty percent (50%) or more of its gross
leasable area, or (iv) for reasons beyond Landlord's control, Landlord and
tenant must mutually consent to terminate this Lease by giving the Tenant or
Landlord notice of such election within ninety (90) days after the occurrence of
such event. If such notice is given, the rights and obligations of the parties
shall cease as of the date of such notice, and the Basic Rent and Additional
Rent (other than any Additional Rent due Landlord by reason of Tenant's failure
to perform any of its obligations under this Lease) shall be adjusted as of the
date of such termination.
15.3 DEMOLITION OF THE BUILDING. If the Building shall be so substantially
damaged that it is reasonably necessary, in Landlord's judgment, to demolish the
Office Building for the purpose of reconstruction, Landlord may demolish it, in
which event the Basic and Additional Rent shall be abated to the same extent as
if the Leased Premises were rendered untenantable by a casualty.
15.4 INSURANCE PROCEEDS. If Landlord does not elect to terminate this
lease pursuant to this Section 15, Landlord shall, subject to the terms of any
Mortgages, disburse and apply any insurance proceeds received by Landlord to the
restoration and rebuilding of the Office Building in accordance with
Section 15.1 of this Lease. All insurance proceeds payable with respect to the
Leased Premises and the Office Building shall belong and shall be payable to
Landlord.
16. CONDEMNATION.
16.1. TERMINATION. If either the entire Leased Premises or the Office
Building shall be acquired or condemned by any governmental authority under its
power of eminent domain for any public or quasi-public use or purpose, this
Lease shall terminate as of the date of vesting or acquisition of title in the
condemning authority and the rents shall be abated on that date. If less than
the whole but more than fifty percent (50%) of the Leased Premises or more than
fifty percent (50%) of the total area of the Office Building (even if the Leased
Premises are unaffected) or such portion of the Common Areas as shall render the
Leased Premises or the Office Building untenantable should be so acquired or
condemned, Landlord and Tenant shall each have the option to terminate this
Lease by notice given to the other within ninety (90) days after such taking. In
the event that such a notice of termination is given, this lease shall
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terminate as of the date of vesting or acquisition of title in the condemning
authority and the rents shall be abated on that date.
If (i) neither Landlord nor Tenant shall exercise their respective options
to terminate this lease, as set forth above, or (ii) some lesser portion of the
leased Premises or the Office Building, which does not give rise to a right to
terminate pursuant to this Section 16.1, is taken by the condemning authority,
this lease shall continue in effect, but from and after the date of the vesting
of title in the condemning authority, the Basic Rent payable during the
unexpired portion of the Term of this Lease shall be reduced in proportion to
the reduction in the Leased Premises, and any Additional Rent (other than
Additional Rent due Landlord by reason of Tenant's failure to perform its
obligations) shall be adjusted to reflect the diminution of the Leased Premises
or the Office Building, as the case may be.
16.2 RIGHT TO AWARD. Tenant shall have no claim against Landlord arising
out of the taking or condemnation, or arising out of the cancellation of this
Lease, or for any portion or the amount that may be awarded as damages as a
result of any taking or condemnation, or for the value of any unexpired portion
of the Term of this Lease, or for any property lost through condemnation, and
Tenant assigns to Landlord all its right, title, and interest in and to any such
award; provided, however, that, in the event of a total taking, Tenant may
assert any claim it may have against the condemning authority for compensation
for Tenant's Personal Property lost thereby and for any relocation expenses
compensable by statute and receive such awards as may be allowed in the
Condemnation proceedings provided that such awards shall be made in addition to,
and stated separately from, the award made to Landlord for the Office Building,
the underlying land, and the Leased Premises. Landlord shall have no obligation
to contest any taking or condemnation.
17. BANKRUPTCY OF TENANT.
Not withstanding any of the other provisions of this Lease, if Tenant shall
voluntarily or involuntarily come under the jurisdiction of the Federal
Bankruptcy Code and thereafter Tenant or its trustee in bankruptcy, under the
authority of and pursuant to applicable provisions of the Bankruptcy Code, shall
determine to assign this Lease, Tenant agrees that (i) Tenant or its trustee
will provide to Landlord sufficient information enabling it to independently
determine whether Landlord will incur actual and substantial detriment by reason
of such assignment and (ii) "adequate assurance of future performance" under
this lease, as that term is generally defined under the Federal Bankruptcy Code,
will be provided to Landlord by Tenant and its assignee as a condition of the
assignment.
18. DEFAULT PROVISIONS AND REMEDIES.
18.1. EVENTS OF DEFAULT. Each of the following shall be deemed default by
Tenant under this Lease:
A. Failure of Tenant to pay Basic Rent, any Additional Rent, or any other
sum required to be paid under the terms of this Lease, including late charges,
within 10 business days after formal notification.
B. Failure by Tenant to perform any other term, covenant, agreement or
condition of this Lease, on the part of Tenant to be performed, for a period of
thirty (30) days after notice from the Landlord, unless such performance shall
reasonably require a longer period, in which case Tenant shall not be deemed in
default if Tenant commences the required performance promptly and the pursues
and completes such action diligently and expeditiously and in any event within
not more than thirty (30) days;
C. The filing of a tax lien against any property of Tenant which is not
bonded or discharged within thirty (30) days of the date such lien is filed;
D. Abandonment of the Leased Premises by Tenant;
E. The commencement of any action or proceeding for the dissolution or
liquidation of Tenant or for the appointment of a receiver or trustee or the
property of Tenant, whether instituted by or against
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Tenant, if not bonded or discharged within sixty (60) days of the date of the
commencement of such proceeding or action, and for purposes of this
subsection 18.1.e. the word "Tenant" shall also include any guarantor of
Tenant's obligations under this Lease;
F. The making by Tenant of any assignment for the benefit of creditors; and
G. The sale of Tenant's interest in the Leased Premises under attachment,
execution, or similar legal process.
18.2. REMEDIES. If a default occurs under the terms of this Lease,
Landlord may, at any time thereafter, at its election, with written notice to
Tenant, terminate this Lease and Tenant's right to possession of the leased
Premises and, with or without legal process, take possession of the Leased
Premises and remove Tenant, any occupant, and any property, without being guilty
of or liable for trespass and without relinquishing any right of Landlord
against Tenant.
If this Lease is terminated in accordance with the immediately preceding
paragraph, Tenant shall be obligated to, and shall, pay to Landlord as damages,
upon demand, all expenses (including attorneys' fees) or any proceedings
instituted by Landlord to recover possession of the Leased Premises, and the
expenses of releasing the Leased Premises including, but not limited to, any
leasing commissions and alterations paid in connection with them plus at the
election of Landlord either:
A. Liquidated damages determined as of the date of termination of the Lease,
in an amount equal to the excess, if any, of the sum of the aggregate Basic Rent
and the aggregate Additional Rent which would have been paid over the remaining
Term of this Lease had this Lease not been terminated, discounted to present
worth, over the then-current rental value of the Leased Premises, for such
remaining Term as determined by an independent real estate appraiser selected by
Landlord, discounted to present worth, and in determining such liquidated
damages, the Additional Rent for each Rental Year of such remaining Term shall
be assumed to equal the Additional Rent payable for the operating year
immediately preceding the operating year in which the default occurs, annualized
in the event that such preceding operating year is less than
twelve (12) months, and in determining present worth, a discount rate equal to
one percentage point above the discount rate then in effect at the Federal
Reserve Bank in Washington, D.C. shall be used; or
B. Damages (payable in monthly installments, in advance, on the first day
of each calendar month following such termination and continuing until the date
originally fixed for the expiration of the Term of this Lease) in amounts equal
to the sum of (i) an amount equal to the Installment of Basic Rent which would
have been payable by Tenant for such calendar month had this Lease not been
terminated and (ii) an amount equal to one twelfth ( 1/12) of the total
Additional Rent payable for the operating year immediately preceding the
operating year in which the default occurred, annualized to the extent that such
preceding operating year is less than twelve (12) months, less the rents, if any
collected by Landlord with respect to such calendar month pursuant to either
releasing the Leased Premises or portion of them or from any existing subleases
permitted under the terms of this Lease, it being agreed that (a) Landlord shall
be entitle to immediately bring a separate suit, action or proceeding to collect
any amount due from Tenant under this Section 18.2 for any calendar month and
any such suit, action, or proceeding shall not prejudice in any way the right of
Landlord to collect such amount due on account of any subsequent calendar month
by similarly proceeding and (b) in no event shall Landlord be required to
exercise any efforts whatsoever to release the Leased Premises.
18.3 NO WAIVER. No act or omission by Landlord shall be deemed to be an
acceptance of a surrender of the leased Premises or a termination of Tenant's
liabilities under this Lease, unless Landlord shall execute a written release to
Tenant. Tenant's liability shall not be terminated by the execution by Landlord
of any new lease for all or any portion of the leased Premises or the acceptance
of rent from any assignee or subtenant.
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18.4 REMEDIES NOT EXCLUSIVE. All rights and remedies of Landlord set forth
in this lease shall be cumulative, and none shall exclude any other right or
remedy, now or later allowed by or available under any statute, ordinance, rule
or court, or the common law, either at law or in equity, or both. For the
purposes of any suit, this Lease shall be construed to be a divisible contract,
to the end that successive actions may be maintained on this Lease as successive
periodic sums shall mature under it. The failure of Landlord to insist, in any
one or more instance, upon a strict performance of any of the covenants, terms
and conditions of this Lease or to exercise any right or option contained in
this Lease shall not be construed as a waiver or a relinquishment for the
future, of such covenant, term, condition, right, or option, but they shall
continue and remain in full effect unless the contrary is expressed by Landlord
in writing. The receipt by Landlord or rents, with knowledge of the breach of
any covenant or the receipt by Landlord of less than the full rent due, shall
not be deemed a waiver of such breach or of the Landlord's right to receive the
full rents, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Landlord.
18.5. PERSISTENT FAILURE TO PAY RENT. In addition to any other remedies
available to Landlord pursuant to this Lease or by law, Landlord may, at any
time throughout the Term of this Lease, terminate this Lease upon Tenant's
default on three (3) separate occasions during any consecutive
twelve (12) month period of the Term of this Lease, regardless of whether or not
such subsequent defaults have been cured. Termination, pursuant to this
Section 18.5, shall effective upon Landlord's delivery to Tenant of a notice of
termination.
19. LANDLORD'S RIGHT TO CURE.
If Tenant shall default in the performance of any term of this Lease on
Tenant's part to be performed, Landlord, without waiving such default, may, but
shall not be obligated to, cure such default for the account and at the expense
of Tenant, without notice in case of emergency and upon ten (10) days' prior
notice in all other cases. Landlord may enter the Leased Premises at any time to
cure any default without incurring any liability to Tenant, or anyone claiming
through or under Tenant, and any costs and expenses incurred by Landlord in so
carrying out Tenant's obligations shall be paid immediately by Tenant as
Additional Rent upon demand by Landlord.
20. INDEMNITY BY TENANT.
To the maximum extent permitted by law, Tenant will indemnify, hold
harmless, and (at Landlord's option) defend Landlord, its agents, servants, and
employees from and against all claims, actions, losses, costs, and expenses
(including attorneys' fees), judgments, settlement payments, and, whether or not
reduced to final judgment, all liabilities, damages, or fines paid, incurred, or
suffered by Landlord in connection with or arising from (a) any default by
Tenant under the terms of this Lease, (b) the use or occupancy of the Leased
Premises and at the Common Areas by Tenant or any person claiming through or
under Tenant, or (c) any acts or omissions of Tenant or any contractor, agent,
employee, invitee, or licensee of Tenant in or about the Leased Premises or the
Office Building.
21. LIMITATION OF LANDLORD LIABILITY.
The term "Landlord" as used in this Lease shall mean only the owner or the
Mortgagee or its trustees, as the case may be, then in possession of the Office
Building so that in the event of any transfer by Landlord of its interest in the
Office Building, the Landlord in possession immediately prior to such transfer
shall be, and is, entirely released and discharged from all covenants,
obligations, and liabilities of Landlord under this Lease. If Tenant obtains a
money judgement against Landlord, any of its partners, or its successors or
assignees under any provisions of, or with respect this Lease, or on account of
any matter, condition or circumstance arising out of the relationship of the
parties under this Lease, Tenant's occupancy of the Office Building or
Landlord's ownership of the Office Building, Tenant shall be entitled to execute
upon such judgment only upon Landlord's interest in the Leased Premises
(whichever is applicable) and not out of any other assets of Landlord, any of
its partners, or its successors or assignees; and Landlord shall be entitled to
have any such judgment so qualified so as to constitute a lien only on such
estate of Landlord, subject to any liens antedating such judgment; provided,
however, that this sentence shall be inapplicable to the extent that the
judgment against Landlord is covered by insurance.
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22. INTENTIONALLY LEFT BLANK.
23. ASSIGNMENT AND SUBLETTING.
Tenant agrees for itself and its permitted successors and assigns in
interest that it will not (i) assign or otherwise transfer, mortgage, or
otherwise encumber this lease or any of its rights under this Lease;
(ii) sublet the Leased Premises or any part of them or permit the occupancy or
use of the Leased Premises or any part of them by any person other than Tenant;
or (iii) permit the assignment or other transfer of this Lease or any of
Tenant's rights under it by operation of law (each of the events referred to in
the preceding clauses (i), (ii) and (iii) being referred to as a "Transfer"),
without the prior written consent of Landlord in each instance first obtained,
which consent shall not be reasonably withheld by the Landlord, and any consent
given shall not constitute a consent to any later Transfer. Any attempted
Transfer without Landlord's consent shall be void and shall not confer any
rights upon any purported transferee, assignee, mortgagee, sublessee, or
occupant. No Transfer, regardless of whether Landlord's consent has been granted
or withheld, shall be deemed to release Tenant from any of its obligations or to
alter, impair, or release the obligations of any person guaranteeing the
obligations of Tenant.
If Tenant is a corporation, the stock of which is not publicly traded, any
transfer of Tenant's issued and outstanding capital stock or any issuance of
additional capital stock, as a result of which the majority of the issued and
outstanding capital stock of Tenant is held by a corporation, firm, or person or
persons who do not hold a majority of the outstanding capital stock as of the
date of this Lease, shall be deemed a prohibited Transfer under this
Section 23. Further, if Tenant is a partnership, any Transfer of any interest in
the partnership or any other change in the composition of the partnership, which
results in a change in management of Tenant from the person or persons managing
the partnership as of the date of this Lease, shall be deemed a prohibited
Transfer under this Section 23.
If Landlord consents to a Transfer of this Lease and at the amount of the
rents (or other compensation) to be paid to the Tenant on a per square foot
basis by any such transferee is greater than the rents required to be paid on a
per square foot basis by the Tenant to the Landlord pursuant to this Lease or a
premium is to be paid on a per square foot basis to Tenant for an assignment of
this Lease, Tenant shall pay to Landlord any such excess or any such premium on
a per square foot basis, as the case may be, upon receipt by Tenant from such
transferees. Thus, if tenant is being charged by Landlord for example $20 per
foot and the tenant is charging their subleasee $21 per foot then the tenant
must pay landlord $1 per square foot extra per square foot. Thus, the tenant
above and beyond their current rental payment would pay one dollar per square
foot extra to the landlord.
Notwithstanding anything contained in this Section 23, in the event that, at
any time and from time to time before to or during the Term of this Lease,
Tenant desires to Transfer this Lease in whole or in part, Tenant shall submit
to Landlord (i) in writing, the name and address of the proposed subtenant or
assignee, a reasonably detailed statement of the proposed subtenant's or
assignee's business and reasonably detailed financial references and information
concerning the financial condition of the proposed subtenant or assignee; and
(ii) a fully-executed copy of the final proposed sublease or assignment, the
effective date of which shall be at least thirty (30) days after the date on
which Tenant shall have furnished Landlord with all of the information required
pursuant to (i) above and which shall be conditioned on Landlord's consent to it
and (iii) an agreement in form and substance satisfactory to Landlord by Tenant
to indemnify Landlord against liability resulting from any claim made against
Landlord by the proposed assignee or subtenant or by any broker claiming a
commission in connection with the proposed Transfer. Tenant agrees to pay
Landlord all costs reasonable and customary incurred by Landlord in connection
with any actual or proposed Transfer, including, without limitation, the costs
of making investigations as to the acceptability of a proposed subtenant or
assignee and legal costs incurred in connection with any requested consent.
Landlord agrees to respond to Tenant's written request by certified mail within
30 days of tenant's written request and receipt of all documentation.
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No transfer consented to by Landlord shall be valid unless Tenant shall
deliver to Landlord, with ten (10) days after Landlord's written consent has
been received, a duplicate original sublease, duly executed by Tenant, as the
case may be, in form and substance satisfactory to Landlord, and in case of an
assignment, an instrument in form and substance satisfactory to Landlord, duly
executed by the assignee and the Tenant, in which such assignee shall agree to
assume, observe, perform, and to be personally bound by, all of Tenant's
obligations under this Lease and the Tenant shall agree to remain primarily
liable for such obligations.
Any levy or sale in execution of a judgment or any assignment of sale in
bankruptcy, or insolvency, or the appointment of a receiver or Trustee by a
state or federal court shall be deemed a Transfer within the meaning and terms
of this Section 23 shall apply to the extent permitted by applicable law.
24. HOLDING OVER.
Tenant agrees to vacate the Leased Premises at the end of the Term of this
Lease, and Landlord shall be entitled to the benefit of all summary proceedings
to recover possession of the Leased Premises at the end of the Term of this
Lease, as if statutory notice had been given. If Tenant remains in possession of
the Leased Premises after the expiration of the Term of this Lease, such action
shall not renew this Lease by operation of law and nothing in this Lease shall
be deemed as consent by Landlord to Tenant's remaining in the Leased Premises.
If Tenant fails to vacate the Leased Premises as required, Landlord may consider
Tenant either: (i) a "Tenant-at-Will" liable for the payment rent at the ten
market rate as determined by Landlord or (ii) as a "Tenant-Holding Over" liable
for an amount equal to the actual damages incurred by Landlord as a result of
Tenant's holding over, including, without limitation, all incidental prospective
and consequential damages and attorney's fees, but in no event shall such amount
be less than 200% of Basic Rent then payable and all other Additional Rent
reserved applicable to the period of the holdover. In either event, all other
covenants of this Lease shall remain in effect.
25. SUBORDINATION AND ATTORNMENT.
This Lease is subject and subordinate to the liens of all Mortgages, deeds
of trust, and other security instruments placed upon the Office Building or the
land on which the Office Building sits or any portion of them and all ground and
other underlying leases from which Landlord's interest is derived (said
Mortgages, deeds of trust, other security instruments, and ground leases being
referred to as "Mortgage" or "Mortgages" and the mortgagees, beneficiaries,
secured parties, and ground lessors, from time to time being call the
"Mortgagee" or "Mortgagees"), and to all renewals, extensions, modifications, or
refinancing. Tenant agrees that, if any proceedings are brought for the
foreclosure of any of the Mortgages, Tenant, if requested to do so by the
purchaser at the foreclosure sale, shall attorn to the purchaser, recognize the
purchaser as the Landlord under this Lease, and make all payments required under
this Lease to such new Landlord without any deduction or set-off of any kind
whatsoever. Tenant waives the provisions of any law or regulation, now or
hereafter in effect, which may give, or purport to give, Tenant any right to
terminate this Lease or to alter the obligations of Tenant hereunder in the
event that any such foreclosure or termination or other proceeding is prosecuted
or completed. If requested by Landlord or any Mortgagee, Tenant shall promptly
execute any certificate or document in such form and substance as may be
determined by Landlord or such Mortgagee confirming the subordination and
attornment provisions contained in this Section 25 and such other matters
required by such Mortgagee. Notwithstanding anything contained in this
Section 25 to the contrary, any mortgagee may at any time subordinate the lien
of its Mortgage to the operation and effect of this Lease without obtaining the
Tenant's consent, by giving the Tenant written notice, in which event this Lease
shall be deemed to be senior to such Mortgage without regard to the respective
dates of execution or recordation of such Mortgage and this Lease and such
Mortgagee shall have the same rights as to this Lease as it would have had were
this Lease executed and delivered before the execution of such Mortgage.
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<PAGE>
26. ESTOPPEL CERTIFICATES.
Tenant shall, without charge, at any time and from time to time, within ten
(10) days after receipt of request by Landlord, execute, acknowledge, and
deliver to Landlord a written estoppel certificate, in form and substance as may
be determined by Landlord, certifying to Landlord, its Mortgagees, any purchaser
of Landlord's interest in the Building, or any other person designated by
Landlord, as of the date of such estoppel certificate, the following:
(i) whether Tenant is in possession of the Leased Premises; (ii) whether this
Lease is in full effect; (iii) whether there have been any amendments to this
Lease, and if so, specifying such amendments; (iv) whether there are then
existing any set-off or defenses against the enforcement of any rights under
this Lease, and if so, specifying such matters in detail; (v) the dates, if any,
to which any rent or other charges have been paid in advance and the amount of
any Security Deposit held by Landlord; (vi) that Tenant has no knowledge of any
then existing defaults of Landlord under this Lease, or if there are such
defaults, specifying them in detail; (vii) that Tenant has now knowledge of any
event having occurred that authorizes that authorizes the termination of the
Lease by Tenant, or if such event has occurred, specifying it in detail;
(viii) the address to which notices to Tenant under this Lease should be sent;
and (ix) such other items and matters as may be required by Landlord or
Landlord's Mortgagees. Any such certificate may be relied upon by the person or
entity to whom it is directed or by any other person or entity who could
reasonably be expected to rely on it in the normal course of business. The
failure of Tenant to execute, acknowledge, and deliver such a certificate in
accordance with this Section 26 within ten (10) days after a request by Landlord
shall constitute an acknowledgment by Tenant, which may be relied on by any
person who would be entitled to rely upon any such certificates, that such
certificate as submitted by Landlord to Tenant is correct.
27. FORCE MAJEURE.
Landlord shall not be deemed in default with respect to any of the terms
covenants, and conditions of this Lease on Landlord's part to be performed, if
Landlord fails to timely perform them and such failure is due in whole or in
part to any strike, lockout, labor trouble (whether legal or illegal), civil
disorder, inability to procure materials, weather, flood, failure of power,
restrictive governmental laws and regulations, failure of governmental bodies to
issue necessary certificates and permits, riots, insurrections, war, fuel
shortages, accidents, casualties, Acts of Nature, acts caused directly or
indirectly by Tenant (of Tenant's agents, employees or transferee), or any other
cause beyond the commercially reasonable control of Landlord.
28. LANDLORD'S ACCESS TO PREMISES.
Landlord and its agent may at any time and without incurring any liability
to Tenant, other than liability for personal injuries and damages resulting
directly from the negligence of Landlord or its agents, enter the Leased
Premises to inspect them or to make alterations or repairs or for any purpose
which Landlord considers necessary for the repair, operation, or maintenance of
the Office Building; provided, however, that in the case of an emergency,
Landlord may enter the Leased Premises at any time. Tenant shall allow the
Leased Premises to be exhibited by Landlord (i) at any time to any
representative of a lending institution or to any prospective purchaser of the
Office Building or Landlord's interest in it or (ii) within six (6) months of
the end of Term of this Lease to any persons who may be interested in leasing
the Leased Premises.
29. INTENTIONALLY LEFT BLANK.
30. INTENTIONALLY LEFT BLANK.
31. RECORDATION.
Neither Landlord nor Tenant shall record this Lease, any amendment to this
Lease, or any other memorandum of this Lease without the prior written consent
of the other party, and, in the event such
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<PAGE>
consent is given, the party requesting such consent and recording shall pay all
transfer taxes, recording fees, and other charges in connection with such
recording. Notwithstanding the above, Tenant covenants that if at any time any
Mortgagee shall require the recordation of this Lease, or if the recordation of
this Lease shall be required by any valid governmental order, or if any
governmental authority having jurisdiction in the matter shall assess and be
entitled to collect transfer taxes, documentary stamp taxes, or both, on this
Lease, Tenant, upon the request of Landlord, will execute such instruments,
including a Memorandum of this Lease, as may be necessary to record this Lease,
and pay all recording fees, transfer taxes, and documentary stamp taxes, payable
on, or in connection with this Lease or such recordation.
32. MISCELLANEOUS.
32.1. SEPARABILITY. In the event any provision of this Lease is held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
the validity or enforceability of any other provision hereof.
32.2. APPLICABLE LAW. This Lease shall be given effect and construed by
application of the Commonwealth of Virginia, and any action or proceeding
arising hereunder shall be brought in the courts of the Commonwealth of
Virginia.
32.3. AUTHORITY. Tenant represents and warrants that Tenant is duly
organized and validly existing; and that this Lease has been authorized by all
necessary parties, is validly executed by an authorized officer or agent of
Tenant, and is binding upon and enforceable against Tenant in accordance with
its terms.
32.4. INTEGRATION OF AGREEMENTS. This writing is intended by the Landlord
and Tenant as a final expression of their agreement and is a complete and
exclusive statement of its terms, and all negotiations, considerations, and
representations between the parties are incorporated in this Lease. No course of
prior dealings between the Landlord and Tenant or their agents shall be relevant
or admissible to supplement, explain, or vary any of the terms of this Lease.
Acceptance of, or acquiescence to, a course of performance rendered under this
Lease or any prior agreement between the parties or their agents shall not be
relevant or admissible to determine the meaning of any of the terms or covenants
of this Lease. Other than as specifically set forth in this Lease, no
representations, understandings, or agreements have been made or relied upon in
the making of this Lease. This Lease can only be modified by in writing signed
by each of the parties to it.
32.5. THIRD PARTY BENEFICIARY. Nothing contained in this Lease shall be
construed so as to confer upon any other party the rights of a third party
beneficiary.
32.6. CAPTIONS; GENDER. The captions used in this Lease are for
convenience only and do not in any way limit or amplify its terms and
provisions. As used in this Lease and where the content so requires, the
singular shall be deemed to include the plural and the masculine shall be deemed
to include the feminine and neuter, and vice-versa.
32.7. SUCCESSORS AND ASSIGNEES. The terms, provisions, and covenants
contained in this Lease shall apply to, inure to the benefit of, and be binding
upon the parties and their respective heirs, personal representatives,
successors and permitted assignees.
32.8. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EXPRESSLY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST
THE OTHER PARTY ON EVERY MATTER, DIRECTLY OR INDIRECTLY ARISING OUT OF OR WITH
RESPECT TO THIS LEASE, INCLUDING, WITHOUT LIMITATION, THE RELATIONSHIP OF
LANDLORD AND TENANT, THE USE AND OCCUPANCY BY TENANT OF THE LEASED PREMISES, AND
STATUTORY REMEDY, OR CLAIM OF INJURY OR DAMAGE.
32.9. COUNTERPARTS. This Lease may be executed in a number of counterpart,
all of which shall for all purposed be deemed an original and bind the Landlord
and Tenant.
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32.10. NOTICES. All notices, demands, and requests required under this
Lease shall be in writing. All such notices, demands and requests shall be
deemed to have been properly given if delivered by hand with evidence of receipt
or if sent by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to Landlord or to Tenant, at the addresses
listed in Section 1.6 of this Lease. Either party may designate a change of
address by written notice to the other party, in the manner set forth above.
Notices, demands, and requests which shall be served by registered or certified
mail in the above manner shall be deemed to have been given at the time of
mailing.
32.11. EFFECTIVE DATE OF THIS LEASE. Unless otherwise expressly provided,
all terms, conditions, and covenants by Tenant contained in this lease shall be
effective as of the date of this Lease in accordance with the terms of this
Lease.
32.12. MORTGAGEE'S PERFORMANCE. Tenant shall accept performance of any of
Landlord's obligations under this Lease by any Mortgagee.
32.13. MORTGAGEE'S LIABILITY. No Mortgagee not in possession of the Office
Building shall have any liability whatsoever under this Lease.
32.14. WAIVER OF REDEMPTION. The parties stipulate that the leased
Premises hereby leased are leased exclusively for commercial purposes within the
meaning of Virginia law, and that the provisions of any existing or future
statue pertaining to redemption of reversionary interests under leases shall be,
to the extent enforceable, inapplicable to this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed under seal the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
LANDLORD:
RESTON L.L.C.
"signed"
--------------------------------------------
By: Iradj Sadeghian M.D.
Title: Manager
TENANT:
SIDEWARE CORPORATION
"signed"
--------------------------------------------
By: Mr. James L. Speros
Title: President & C.O.O.
</TABLE>
STATE OF
COUNTY OF ____________, to-wit:
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<PAGE>
Personally appeared before me, the undersign authority, a Notary Public in
and for the State and County aforesaid, the within named bargain or Dr. Iradj
Sadeghian with who I am personally acquainted and who acknowledged that he is
the Manager of Reston L.L.C., and that he executed the within instrument on
behalf of RESTON L.L.C. for the purposes therein contained.
witness my had and official seal this ______ day of ____________, 2000
(SEAL)
NOTARY PUBLIC
My Commission expires: ____________.
COMMONWEALTH OF VIRGINIA,
COUNTY OF ____________, to-wit:
Personally appeared before me, the undersign authority, a Notary Public in
and for the State and County aforesaid, the within named bargain or
Mr. James L. Speros with who I am personally acquainted and who acknowledged
that he is the President and C.O.O. of Sideware Corp. and that he executed the
within instrument on behalf of Sideware Corp. for the purposes therein
contained.
witness my had and official seal this ______ day of ____________, 2000
(SEAL)
NOTARY PUBLIC
My Commission expires: ____________.
22
<PAGE>
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed affixed on or to any part of the outside or
inside of the Building without the reasonable written consent of Landlord first
had and obtained and Landlord shall have the right to remove any such unapproved
sign, placard, name or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises, provided, however, that Landlord may furnish and install a
Building standard window covering at all exterior windows. Tenant shall without
prior written consent of Landlord cause or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock or install any new or additional locks
or any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Tenant who, or whose employees or transferee shall have
caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. Intentionally left blank.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building, by reason of noise, odors and/or vibrations or
interfere in nay way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
8. No cooking requiring a "hooded oven" shall be done or permitted by any
Tenant or subtenant on the Premises, nor shall the Premises be used for the
storage of merchandise, for washing clothes, for lodging, or for any improper,
objectionable or immoral purposes. Tenant shall be permitted to occasionally
perform outdoor grilling provided said grilling is in conjunction with all
state, city, and fire code ordinances.
9. Tenant shall not use or keep in the Premises or the Building kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
hearing or air conditioning other than supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, cal
boxes, and other office equipment affixed to the Premises shall be subject to
the approval of Landlord.
11. Intentionally left blank.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
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<PAGE>
13. Intentionally left blank.
14. Landlord shall, upon receiving notification by the United States Postal
Service of their (USPS) desire, have the right, exercisable without notice and
without liability to Tenant, to change the name and street address of the
Building of which the Premises are a part.
15. Intentionally left blank.
16. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address.
17. Intentionally left blank.
18. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
19. The Building is a non-smoking and Tenant, its invitees, clients and
personnel shall refrain from smoking in or around the Premises or the Building,
including the loading dock, for up to a minimum distance of twenty-five
(25) feet. Landlord will designate the smoking area, if any, where Tenant will
be permitted to smoke.
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<PAGE>
EXHIBIT 10.19--LEASE AGREEMENT BETWEEN SIDEWARE CORP.
AND SANCTUARY PARK REALTY HOLDING COMPANY
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (THIS "LEASE"), MADE AND ENTERED INTO BY AND BETWEEN
SANCTUARY PARK REALTY HOLDING COMPANY, A DELAWARE CORPORATION (HEREINAFTER
REFERRED TO AS "LANDLORD"), AND SIDEWARE CORPORATION, A WASHINGTON CORPORATION
(HEREINAFTER REFERRED TO AS "TENANT").
W I T N E S S E T H :
1. BASIC LEASE INFORMATION. Each use of the terms capitalized and defined
in this Paragraph 1 shall be deemed to refer to, and shall have the respective
meanings set forth in, this Paragraph 1.
(a) BUILDING. The multi-story, precast concrete and glass
four (4) story office building located on the Land and being commonly known
as "Lake View I."
(b) LAND. Those certain parcels of land more particularly described on
Exhibit "A" attached hereto and by this reference made a part hereof.
(c) PREMISES. That portion of the first floor of the Building,
presently known as Suite Number 150 thereof, substantially as shown on Floor
Plan(s) attached hereto as Exhibit "B" and by this reference made a part
hereof.
(d) COMMON AREAS. Those certain areas and facilities of the Building
that are from time to time provided by Landlord, in its discretion, for the
use of tenants of the Building and their employees, clients, customers,
licensees and invitees or for use by the public, which facilities and
improvements might include any and all corridors, elevator foyers, vending
areas, bathrooms, electrical and telephone rooms, mechanical rooms,
janitorial areas and other similar facilities of the Building, and any and
all grounds, parks, landscaped areas, outside sitting areas, sidewalks,
walkways, pedestrian ways, loading docks, and generally all other
improvements located on the Land and designed for use in common by tenants,
their employees, clients, customers, licensees and invitees. Common Area
also includes those portions of the Office Park lying outside the Building
which are designated as "common areas" for the use, enjoyment and benefit of
all owners or tenants of property located within the Office Park and their
lessees, sublessees and invitees.
(e) TENANT'S PERMITTED USES. Executive and administrative offices
reasonable and customary for a first-class office building, but specifically
excluding medical and dental offices, governmental offices, travel agencies
and airline ticket sales. Tenant further agrees to comply with the
provisions of Paragraph 46 hereof.
(f) COMMENCEMENT DATE. May 1, 2000, subject to Paragraph 2(b) hereof.
(g) LEASE EXPIRATION DATE. The last day of the calendar month in which
the day immediately preceding the third (3rd) annual anniversary of the
Commencement Date occurs.
(h) TERM. Approximately three (3) years, beginning on the Commencement
Date and ending at 11:59 p.m. on the Lease Expiration Date, unless this
Lease is sooner terminated as provided herein.
(i) NET RENTABLE AREA OF THE PREMISES. Approximately 3,099 rentable
square feet based upon the actual number of square feet of usable area in
the Premises, plus an add-on factor of thirteen and one-half percent (13.5%)
which has been mutually agreed to by Landlord and Tenant to reflect the
Common Areas of the Building, and subject to recalculation by Landlord
pursuant to the provisions of Paragraph 2(a) hereof. No such recalculation
shall occur during the initial Term of the Lease.
(j) NET RENTABLE AREA OF THE BUILDING. 180,741 square feet, subject to
recalculation by Landlord.
(k) TENANT'S SHARE. 1.7146 percent (1.7146%) representing a fraction,
the numerator of which is the Net Rentable Area of the Premises and the
denominator of which is the Net Rentable Area of the Building, subject to
future adjustments pursuant to the provisions of Paragraph 2 (a) hereof, and
in the case of any expansion of the Premises.
(l) RENT. The Monthly Rental, the Additional Rent [as defined in
Paragraph 3(a)] and all other sums due from Tenant to Landlord hereunder.
<PAGE>
(m) ANNUAL RENTAL PER SQUARE FOOT. Annual Rental Per Square Foot means
the annual rental rate per square foot of Net Rentable Area determined as
set forth in Paragraph 3 (b) below. The initial Annual Rental Per Square
Foot is $21.95.
(n) MONTHLY RENTAL. Tenant shall pay to Landlord, commencing on the
Commencement Date and continuing throughout the Term, monthly rental
("Monthly Rental") calculated by multiplying the Net Rentable Area of the
Premises by the Annual Rental Per Square Foot, and then dividing the
resulting product thereof by twelve (12). The initial Monthly Rental is
$5,668.59 per month, subject to increase as set forth herein.
(o) OFFICE PARK. The business park composed of the areas designated by
Landlord from time to time as a part of the Office Park, which is located
along Rock Mill Road in Land Lots 592, 605, 606 and 639 of the
1st District, 2nd Section, Alpharetta, Fulton County, Georgia.
(p) SECURITY DEPOSIT. $5,668.59, to be held by Landlord in accordance
with the provisions of Paragraph 3. Tenant is also required to submit a
"Letter of Credit" (as hereinafter defined) to Landlord. The Letter of
Credit shall be in the form attached hereto as Exhibit "G," and by this
reference made a part hereof, to be deposited with Landlord and held by
Landlord in accordance with the provisions of Paragraph 45 of this Lease.
(q) LEASE YEAR. A Lease Year shall be each twelve (12) month period
beginning on the Commencement Date; provided, however, if the Commencement
Date is not the first day of the month, the first Lease Year shall commence
on the Commencement Date and end on the last day of the
twelfth (12th) month thereafter and the second and each succeeding Lease
Year shall commence on the first day of the next calendar month.
2. PREMISES AND TERM.
(a) In consideration of the obligation of Tenant to pay Rent as herein
provided, and in consideration of the other terms, provisions and covenants
hereof, Landlord hereby demises and leases the Premises to Tenant, and Tenant
hereby accepts and leases the Premises from Landlord for the Term. During the
Term, Tenant shall have the right to use the Common Areas in common with others
and in accordance with the Rules and Regulations. The number of square feet of
Net Rentable Area of the Premises stated in Paragraph 1 above shall be used in
the computation of Monthly Rental, Additional Rent, and all other charges due
hereunder, for the initial Term of the Lease.
(b) The "Commencement Date" shall be: (i) the date set forth in Paragraph 1
above; or (ii) such later date upon which the improvements in the Premises have
been substantially completed in accordance with the plans and specifications
therefor (other than minor punch list items and any work which cannot be
completed on such date provided such incompletion will not substantially
interfere with Tenant's use of the Premises) and a temporary certificate of
occupancy has been issued by the City of Alpharetta, Georgia; provided, however,
the Commencement Date and the payment of Rent hereunder shall be accelerated by
the number of days of any "Tenant Delay" (as defined in the Work Letter attached
hereto as Exhibit "C"), which causes Landlord to be delayed in delivering the
Premises beyond May 1, 2000. See Paragraph 40 below.
(c) Landlord agrees to perform the "Landlord's Work," and, subject to
reimbursement by Tenant for all costs in excess of the "Tenant Improvement
Allowance," the "Tenant's Work," all as more particularly defined and described
in the Work Letter attached hereto as Exhibit "C," with diligence, subject to
events and delays due to causes beyond its reasonable control. The Premises
shall be deemed substantially completed and possession delivered when Landlord
has substantially completed the work to be constructed or installed pursuant to
the provisions of said Work Letter, subject only to the completion of items on
Landlord's Punch List (and exclusive of the installation of all telephone and
other communications facilities and equipment and other finish work to be
performed by or for Tenant).
2
<PAGE>
(d) Taking of possession by Tenant shall be deemed conclusively to establish
that said "Leasehold Improvements" (as defined in the Work Letter) have been
completed in accordance with the plans and specifications and that the Premises
are in good and satisfactory condition, subject to items set forth in the
"Landlord's Punch List" (as defined in the Work Letter attached hereto as
Exhibit "C"), as of the date possession was so taken. After the Commencement
Date, Tenant shall, upon demand, execute and deliver to Landlord a Commencement
Notice in the form attached hereto as Exhibit "D" and by this reference made a
part hereof. In the event of any dispute as to Substantial Completion of work
performed or required to be performed by Landlord, the certificate of Landlord's
architect or general contractor shall be conclusive. Landlord shall have a
reasonable amount of time after the preparation of the Landlord's Punch List to
correct the matters set forth on the Landlord's Punch List. Tenant may occupy
the Premises prior to the Commencement Date in accordance with Paragraph 40 of
this Lease.
3. MONTHLY RENTAL, ADDITIONAL RENT AND SECURITY DEPOSIT.
(a) Tenant shall pay to Landlord, without notice, demand, offset or
deduction, in lawful money of the United States of America, at Landlord's
Address for Payments as set forth in Paragraph 26 hereof, or at such other place
as Landlord shall designate in writing from time to time: (i) the Monthly
Rental, in equal monthly installments in advance on the first day of each
calendar month during the Term; (ii) the Additional Rent ("Additional Rent")
consisting of those sums of money due and payable, if any, by Tenant under
Paragraph 3 hereof; and (iii) all other sums of money due and payable by Tenant
hereunder, at the respective times required hereunder. The first monthly
installment of Monthly Rental shall be paid in advance on the date of Tenant's
execution of this Lease and shall be applied to the first installment of Monthly
Rental due under this Lease. Payment of the Rent shall otherwise begin on the
Commencement Date; provided, however, that if either the Commencement Date or
the Lease Expiration Date falls on a date other than the first day of a calendar
month, the Rent due for such fractional month shall be prorated on a per diem
basis between Landlord and Tenant so as to charge Tenant only for the portion of
such fractional month falling within the Term.
(b) Commencing on the first (1st) day of the second (2nd) Lease Year and
continuing on the first day of each Lease Year thereafter during the Term, the
Annual Rental Per Square Foot shall be increased by an amount calculated as
follows:
(i) Divide the Operating Expense Base [as defined in Paragraph 3(d)] by
the number of square feet of Net Rentable Area in the Building (180,741).
The result is hereinafter referred to as the "Per Square Foot Operating
Expense Base."
(ii) Subtract the Per Square Foot Operating Expense Base from the
initial Annual Rental Per Square Foot. The remainder is hereinafter referred
to as the "Initial Base Rent."
(iii) Increase the Initial Base Rent (or the Escalated Base Rent for the
previous Lease Year, as the case may be) by an amount equal to
three percent (3%). The Initial Base Rent, as so escalated and increased
each Lease Year, on a cumulative and compounded basis, is hereinafter
referred to as the "Escalated Base Rent." Thereafter, on the first (1st) day
of each Lease Year during the remainder of the Term, beginning on the first
(1st) day of the third (3rd) Lease Year, the Escalated Base Rent determined
for the previous Lease Year shall again be increased as set forth herein,
and, as so increased, shall constitute the Escalated Base Rent for that
Lease Year.
(iv) To determine the Annual Rental Per Square Foot for a particular
Lease Year, add the Escalated Base Rent for such Lease Year to the Per
Square Foot Operating Expense Base.
By way of illustration only, if the Per Square Foot Operating Expense Base
for calendar year 2000 is determined to be Six and 30/100ths Dollars ($6.30),
then the Initial Base Rent per Square Foot would be $15.40 per square foot of
Net Rentable Area ($21.70-$6.30). Escalated Base Rent applicable for the second
(2nd) Lease Year would be $15.86 (1.03 X $15.40). This would result in the
Annual Rental Per
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Square Foot for the second (2nd) Lease Year being $22.16 ($15.86 + $6.30). All
future escalations would be applied to the Escalated Base Rent, as it increases
from time to time throughout the Term on a cumulative and compounded basis, on
the first (1st) day of each Lease Year during the Term. If the per Square Foot
Operating Expense Base cannot be calculated on the first (1st) day of the second
(2nd) Lease Year because the Operating Expense Base has not been finally
determined as of that date, Landlord shall provide Tenant with an estimate of
the Escalated Base Rent and resulting estimated Monthly Rental for such Lease
Year, and Tenant shall pay such estimated amount of Monthly Rental until the
actual Operating Expense Base is determined, at which time Landlord shall
provide Tenant with a statement showing the calculation of the Escalated Base
Rent and the resulting, actual Monthly Rental for such Lease Year. Within
ten (10) days following receipt of Landlord's statement, Tenant shall pay to
Landlord any amounts due from Tenant because of such adjustments to the Monthly
Rental for the months for which Tenant would have paid a greater Monthly Rental
had such figure been calculated earlier. If Tenant's payments have been in
excess of the increased Monthly Rental due, Tenant shall receive a credit for
such excess amount which shall be applied to the next installment of Monthly
Rental due from Tenant; provided that in no event shall Monthly Rental ever be
less than the initial Monthly Rental set forth herein.
(c) Intentionally Omitted.
(d) Beginning January 1, 2001, and continuing on the first day of each month
thereafter during the Term, and any extension thereof, Tenant shall pay to
Landlord, as Additional Rent, at the same time as the monthly installment of
Monthly Rental is paid, an amount equal to one-twelfth ( 1/12th) of Landlord's
estimate (as determined by Landlord in its sole discretion) of Tenant's Share of
any projected increase in Operating Expenses for the particular calendar year in
excess of the Operating Expense Base (the "Estimated Escalation Increase"). The
Operating Expense Base shall be the actual Operating Expenses experienced during
calendar year 2000. If the Building is not fully occupied during any calendar
year, Landlord shall adjust those Operating Expenses which are affected by
Building occupancy for such calendar year, or portion thereof, as the case may
be, to reflect an occupancy of not less than ninety-five percent (95%) of the
total Net Rentable Area of the Building. In computing the Estimated Escalation
Increase for any particular calendar year, Landlord shall take into account any
prior increases in Tenant's Share of Operating Expenses. If during any calendar
year the Estimated Escalation Increase is less than the Estimated Escalation
Increase for the previous year, such Additional Rent payments attributable to
the Estimated Escalation Increase to be paid by Tenant for the new calendar year
shall be decreased accordingly; provided, however, in no event will the Rent
paid by Tenant hereunder ever be less than the Monthly Rental. If, for any
reason, Landlord has not provided Tenant with the Estimated Escalation Increase
on or before the first day of any year during the Term, then, (i) until the
first day of the calendar month following the month in which Tenant is given the
Estimated Escalation Increase, Tenant shall continue to pay to Landlord on the
first day of each calendar month the sum, if any, payable by Tenant under this
Paragraph for the month of December of the preceding year, and (ii) on the first
day of the month following Tenant's receipt of Landlord's determination of the
Estimated Escalation Increase, Tenant shall pay to Landlord an amount equal to
one-twelfth ( 1/12) of the Estimated Escalation Increase as shown on the
estimate provided by Landlord, plus an amount equal to the remainder obtained by
subtracting the amount theretofore paid by Tenant pursuant to subparagraph (i)
from that amount obtained by multiplying the number of months (exclusive of the
month then at hand) occurring since the first day of such year by Tenant's
then-correct monthly share of the Estimated Escalation Increase. If such
calculation proves that Tenant has overpaid, Landlord shall apply such
overpayment as a credit against Tenant's future payment obligations for
Additional Rent until such credit is depleted. The foregoing notwithstanding,
Landlord shall have the right from time to time during any year to notify Tenant
in writing of any change in Landlord's estimate of the Estimated Escalation
Increase, in which event Tenant's payment of the Estimated Escalation Increase,
as previously estimated, shall be adjusted to reflect the amount shown in such
notice and shall be effective and due from Tenant on the first day of the month
following Landlord's giving of such notice.
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(e) For the purposes of this Lease, the term "Operating Expenses" shall mean
all expenses and disbursements of every kind (subject to the limitations set
forth below) which Landlord incurs, pays or becomes obligated to pay in
connection with the ownership, operation and maintenance of the Building,
determined in accordance with generally accepted accounting principles
consistently applied, including but not limited to the following:
(i) Wages and salaries (including management fees) of all employees
engaged in the operation, repair, replacement, maintenance and security of
the Building, including taxes, insurance and benefits relating thereto;
(ii) All supplies and materials used in the operation, maintenance,
repair, replacement and security of the Building;
(iii) The annual cost of all capital improvements made to the Building
which, although capital in nature, can reasonably be expected to reduce the
normal operating costs of the Building, as well as all capital improvements
made in order to comply with any law promulgated by any governmental
authority or which are designed to protect or enhance the health, safety or
welfare of the tenants in the Building or their invitees, as amortized over
the useful economic life of such improvements as determined by Landlord in
its reasonable discretion (without regard to the period over which such
improvements may be depreciated or amortized for federal income tax
purposes);
(iv) The cost of all electricity, water and other utilities, other than
the cost of utilities directly reimbursed to Landlord (i.e., through
submeters or comparable devices) by the Building's tenants (including
Tenant);
(v) The cost of any insurance or insurance related expense applicable to
the Building and Landlord's personal property used in connection therewith;
(vi) All taxes and assessments and governmental charges whether federal,
state, county or municipal, and whether they be by taxing or management
districts or authorities presently taxing or by others, subsequently created
or otherwise, and any other taxes and assessments attributable to the
Building (or its operation), excluding, however, federal and state taxes on
income (collectively, "Taxes"); if the present method of taxation changes so
that in lieu of the whole or any part of any Taxes levied on the Building,
there is levied on Landlord a capital tax directly on the rents received
therefrom or a franchise tax, assessment, or charge based, in whole or in
part, upon such rents for the Building, then all such taxes, assessments or
charges, or the part thereof so based, shall be deemed to be included within
the term "Taxes" for the purposes hereof;
(vii) Cost of security, repairs, replacements and general maintenance of
the interior and exterior of the Building (including, but not limited to,
the roof, the foundation and the exterior walls; light bulbs and glass
breakage; the redecorating, repainting, recarpeting and other such work of
any Common Areas; heating, ventilation and air conditioning equipment;
plumbing and electrical equipment; elevators; trash removal; security
services; janitorial service; HVAC maintenance; grounds maintenance; alarm
services; window cleaning; parking areas and landscaping), whether performed
by Landlord or pursuant to service or maintenance contracts with independent
contractors;
(viii) Cost of service or maintenance contracts with independent
contractors for the operation, maintenance, repair, replacement or security
of the Building (including, without limitation, trash removal, security
services, janitorial service, HVAC maintenance, grounds maintenance, alarm
services, window cleaning and elevator maintenance);
(ix) The amount of basic rent payable under and pursuant to any ground
lease pertaining to the Land;
(x) A management fee and other expenses incurred for the general
operation and management of the Building;
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(xi) Legal and accounting fees and expenses; and
(xii) Anything which could be classified as an operating expense under
generally accepted accounting principles, consistently applied, but not
specified or expressly set forth hereunder.
There are specifically excluded from the definition of the term "Operating
Expenses" expenses: (1) for capital improvements made to the Building, other
than (A) capital improvements described in subparagraph 3(e)(iii) above and
(B) items which, though capital for accounting purposes, are properly considered
maintenance and repair items, such as painting of Common Areas, replacement of
carpet in elevator lobbies, and the like [expenses for capital improvements of
the type referenced in (A) and (B) of this section (1) may be included in
Operating Expenses]; (2) for repair, replacement and general maintenance paid by
proceeds of insurance or by Tenant or other third parties, and alterations
attributable solely to tenants of the Building other than Tenant; (3) for
interest, amortization or other payments on loans to Landlord; (4) for
depreciation of the Building; (5) for leasing commissions; (6) for legal
expenses with respect to disputes with individual tenants and negotiation of
tenant leases; (7) for renovating or otherwise improving space for occupants of
the Building or vacant space in the Building; and (8) for federal income taxes
imposed on or measured by the income of Landlord from the operation of the
Building.
(f) Within six (6) months after January 1 of each year during the Term, or
as soon thereafter as is practicable, Landlord shall furnish Tenant with a
statement of the actual Operating Expenses for the preceding year and the
resulting, actual amount of Tenant's Share of any increase in Operating Expenses
in excess of the Operating Expense Base. Thereafter, Landlord shall be entitled,
if circumstances warrant, to issue one or more revised, corrected or
supplemental statements at any time and from time to time following the issuance
of the initial statement. Within ten (10) Business Days after Landlord's
delivery of such statement, Tenant shall make a lump sum payment to Landlord in
the amount, if any, by which Tenant's Share of the increase in the Operating
Expenses for the preceding calendar year in excess of the Operating Expense
Base, as shown on such Landlord's statement, exceeds the aggregate of the
monthly installments of Tenant's payments of the Estimated Escalation Increase
paid during such preceding year. If Tenant's share of the actual increase in
Operating Expenses, as shown on such Landlord's statement, is less than the
aggregate of the monthly installments of the Estimated Escalation Increase
actually paid by Tenant during such preceding year, then Landlord shall apply
such amount to the next accruing installments of Additional Rent due from Tenant
under this Paragraph 3, until fully credited to Tenant.
(g) Tenant agrees to deposit the Security Deposit with Landlord on the date
of execution of this Lease by Tenant, which sum shall be held by Landlord,
without obligation for interest, as security for the performance of Tenant's
covenants and obligations under this Lease, it being expressly understood and
agreed that such Security Deposit is not an advance rental deposit or a measure
of Landlord's damages in case of Tenant's default. Upon the occurrence of any
"Event of Default" (as hereinafter defined) by Tenant, Landlord may, from time
to time, without prejudice to any other remedy provided herein or provided by
law, use such Security Deposit to the extent necessary to make good any arrears
of Rent or other payments due Landlord hereunder, and any other damages, injury,
expense or liability caused by such Event of Default; and Tenant shall pay to
Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. Although the Security Deposit shall be deemed
the property of Landlord, any remaining balance of such Security Deposit shall
be returned by Landlord to Tenant at such time after termination of this Lease
as all of Tenant's obligations under this Lease have been fulfilled. If, during
the Term, Landlord, in Landlord's sole opinion, judgment and discretion, deems
itself insecure as to the performance or prospect of performance by Tenant as to
any of Tenant's obligations pursuant to this Lease, Tenant shall be required to
provide Landlord with an additional Security Deposit, in an amount and form
acceptable to Landlord.
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4. USE.
(a) The Premises shall be used only for executive and administrative offices
for the conduct of Tenant's business, limited to the uses specifically set forth
in the Basic Lease Information and for no other purposes whatsoever. The
statement as to the particular nature of the business to be conducted by Tenant
in the Premises and uses to be made thereof by Tenant as set forth in the Basic
Lease Information shall not constitute a representation or warranty by Landlord
that such business or uses are lawful or permissible under any certificate of
occupancy for the Premises or the Building or are otherwise permitted by law.
Landlord does, however, represent that any certificate of occupancy issued with
respect to the Premises shall allow use for executive and administrative
offices. Tenant shall at its own cost and expense obtain any and all licenses
and permits necessary for any such use. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises, and shall promptly comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the Premises, all at Tenant's sole expense. Tenant shall not
permit any objectionable or unpleasant odors, smoke, dust, gas, noise or
vibrations to emanate from the Premises, nor take any other action which would
constitute a nuisance or would disturb or endanger any other tenants of the
Building or unreasonably interfere with their use of their respective premises.
Without Landlord's prior written consent, Tenant shall not receive, store or
otherwise handle any product, material or merchandise which is explosive or
highly flammable. Tenant will not permit the Premises to be used for any purpose
or in any manner (including without limitation any method of storage) which
would render the insurance thereon void or the insurance risk more hazardous or
cause the Insurance Commissioner or other insurance authority to disallow any
sprinkler credits. If any increase in the fire and extended coverage insurance
premiums paid by Landlord or other tenants for the Building is caused by
Tenant's use and occupancy of the Premises, or if Tenant vacates the Premises
and causes an increase in such premiums, then Tenant shall pay the amount of
such increase to Landlord as Additional Rent.
(b) Tenant agrees that the floor load resulting from Tenant's furniture,
inventory and equipment pertaining to Tenant's use of the Premises shall not
exceed allowable design floor loading for the Building. Tenant shall distribute
floor loading in accordance with design loads for the Building. Tenant shall
hold harmless Landlord from any loss, liability and expenses, both real and
alleged, arising out of or caused by Tenant's negligence or failure to comply
with this Paragraph.
5. SERVICES AND UTILITIES.
(a) Landlord shall maintain the Common Areas, including lobbies, stairs,
elevators, corridors and rest rooms, the windows in the Building, the
mechanical, plumbing and electrical equipment serving the Building, and the
structure itself, in reasonably good order and condition, except for damage
occasioned by the act of Tenant, its agents, servants, employees or invitees,
which damage shall be repaired by Landlord at Tenant's expense.
(b) Provided Tenant is not in default hereunder, and subject to the
provisions contained elsewhere herein and in the Rules and Regulations, Landlord
agrees to furnish to the Premises during ordinary business hours of generally
recognized business days, to be determined by Landlord (but exclusive in any
event of Sundays and legal holidays), heat and air conditioning required in
Landlord's judgment (in accordance with the specifications in Paragraph 1.01(l)
of the Work Letter attached hereto as Exhibit "C") for the comfortable use and
occupancy of the Premises from 8:00 a.m. to 7:00 p.m. on weekdays and from
8:00 a.m. to 2:00 p.m. on Saturdays; janitorial services during the times and in
the manner set forth in Landlord's Cleaning Specifications attached hereto as
Exhibit "E," and elevator service. Landlord shall be under no obligation to
provide additional or after-hours heating or air conditioning, but if Landlord
elects to provide such services at Tenant's request, Tenant shall pay to
Landlord a reasonable charge for such services as determined from time to time
by Landlord. Tenant agrees to keep and cause to be kept closed all window
coverings, if any, when necessary because of the sun's position, and Tenant also
agrees at all times to cooperate fully with Landlord and to abide by all the
regulations and requirements which
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Landlord may prescribe for the proper functioning and protection of said
heating, ventilating, and air conditioning system and to comply with all laws,
ordinances and regulations respecting the conservation of energy. Whenever
heat-generating machines, excess lighting or equipment are used in the Premises
which affect the temperature otherwise maintained by the air conditioning
system, Landlord reserves the right to install supplementary air conditioning
units and metering devices for such units in the Premises, and the cost thereof,
including the cost of electricity and/or water therefor, shall be paid by Tenant
to Landlord upon demand by Landlord. Landlord agrees to furnish to the Premises
electricity for general office purposes and water for lavatory and drinking
purposes, subject to the provisions of subparagraph 5(c) below. Landlord shall
in no event be liable for any interruption or failure of utility services to the
Premises or for any result thereof. However, Landlord will use commercially
reasonable efforts to remedy any interruption or failure of utility services to
the Premises which interruption or failure is within its control.
(c) Tenant will not without the prior written consent of Landlord use any
apparatus or device in the Premises which will in any way increase the amount of
electricity or water usually furnished or supplied for use of the Premises as
general office space; nor connect with electric current, except through existing
electrical outlets in the Premises, or water pipes, any apparatus or device for
the purposes of using electric current or water. If Tenant, in Landlord's
judgment, shall require water or electric current or any other resource in
excess of that usually furnished or supplied for use of the Premises as general
office space (it being understood that such an excess may result from the number
of fixtures, apparatus and devices in use, the nature of such fixtures,
apparatus and devices, the hours of use, or any combination of such factors),
Tenant shall first procure the prior written consent of Landlord, to the use
thereof, which Landlord may refuse, and Landlord may cause a special meter to be
installed in the Premises so as to measure the amount of water, electric current
or other resource consumed for any such other use. The cost of any such meters
and installation, maintenance and repair thereof shall be paid for by Tenant,
and Tenant agrees to pay Landlord promptly upon demand by Landlord for all such
water, electric current or other resource consumed, as shown by said meters, at
the rates charged by the local public utility furnishing the same, plus any
additional expense incurred in keeping account of the water, electric current or
other resource so consumed. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the
rental herein reserved be abated by reason of: (i) the installation, use or
interruption of use of any equipment in connection with the furnishing of any of
the foregoing utilities and services; (ii) failure to furnish or delay in
furnishing any such utilities or services when such failure or delay is caused
by Acts of God or the elements, labor disturbances of any character, any other
accidents or other conditions beyond the reasonable control of Landlord, or by
the making of repairs or improvements to the Premises or to the Building; or
(iii) the limitation, curtailment, rationing or restriction on use of water or
electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises or the Building. Furthermore, Landlord shall be
entitled to cooperate voluntarily in a reasonable manner with the efforts of
national, state or local governmental agencies or utilities suppliers in
reducing consumption of energy, water or any other resources.
(d) Any sums payable under this Paragraph 5 shall be considered Additional
Rent and may be added to any installment of Rent thereafter becoming due and
shall accrue late charges as Rent as set forth in subparagraph 19(g) of this
Lease, and Landlord shall have the same remedies for a default in payment of
such sums as for a default in the payment of Rent.
(e) Tenant shall not provide any janitorial services without Landlord's
prior written consent and then only subject to supervision of Landlord and by a
janitorial contractor or employees at all times satisfactory to Landlord. Any
such services provided by Tenant shall be at Tenant's sole risk, cost and
responsibility.
6. TENANT REPAIRS. Tenant shall, at all times during the Term, at Tenant's
sole cost and expense, keep the Premises and every part thereof in good order,
condition and repair, excepting ordinary wear and tear, damage thereto by fire,
earthquake, Act of God or the elements. Tenant shall, on or before the Lease
Expiration Date or any sooner date of termination of this Lease, unless Landlord
demands otherwise as in Paragraph 7 hereof provided, surrender to Landlord the
Premises and all repairs, changes, alterations,
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additions and improvements thereto in the same condition as when received, or
when first installed, ordinary wear and tear, damage by fire, earthquake, Act of
God or the elements excepted. It is hereby understood and agreed that, except as
expressly set forth herein, Landlord has no obligation to alter, remodel,
improve, repair, decorate, or paint the Premises or any part thereof. However,
if Tenant fails to make required repairs to the Premises promptly, Landlord, at
Landlord's election, shall have the right to make such repairs, and Tenant shall
pay Landlord on demand Landlord's actual costs of such repair, plus a fee equal
to fifteen percent (15%) of such actual costs to cover Landlord's overhead in
making such repairs.
7. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises (including but not limited to roof, floor and wall
penetrations) without the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed. In the event Landlord consents to the
making of any such alterations, additions or improvements by Tenant, the same
shall be made by Tenant, at Tenant's sole cost and expense, in accordance with
all applicable laws, ordinances and regulations, and all requirements of
Landlord's and Tenant's insurance policies and only in accordance with plans and
specifications approved by Landlord; and any contractor or person selected by
Tenant to make the same and all subcontractors must first be approved in writing
by Landlord, or, at Landlord's sole option and discretion, the alterations,
additions or improvements shall be made by Landlord for Tenant's account and
Tenant shall fully reimburse Landlord for the entire cost thereof, including a
fee of five percent (5%) of such cost to cover Landlord's overhead, within
twenty (20) days after written notification of Tenant by Landlord providing
Tenant with an invoice or other request (or statement). Promptly after
completion of any alterations, additions, or improvements to the Premises made
by Tenant, Tenant shall supply Landlord with a set of scaled and dimensioned,
reproducible mylars of "as-built" plans for such alterations, additions or
improvements, certified by Tenant's architect or space planner. Tenant may,
without the consent of Landlord, but at its own cost and expense and in a good
and workmanlike manner erect such shelves, bins, machinery and trade fixtures as
it may deem advisable, without altering the basic character of the Building or
improvements and without overloading or damaging the Building or improvements,
and in each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. All alterations, additions, improvements and
partitions erected by Tenant shall be and remain the property of Tenant during
the Term and Tenant shall, unless Landlord otherwise elects as herein provided,
remove all alterations, additions, improvements and partitions erected by Tenant
and restore the Premises to their original condition on or before the Lease
Expiration Date or any sooner date of termination of this Lease; provided,
however, that if Landlord so elects prior to termination or expiration of this
Lease, such alterations, additions, improvements and partitions shall become the
property of Landlord as of the Lease Expiration Date or any sooner date of
termination of this Lease and shall be delivered up to the Landlord with the
Premises. All shelves, bins, machinery and trade fixtures installed by Tenant
may be removed by Tenant prior to the termination of this Lease if Tenant so
elects, and shall be removed on or before the Lease Expiration Date or any
sooner date of termination of this Lease if required by Landlord; upon any such
removal Tenant shall restore the Premises to their original condition. All such
removals and restoration shall be accomplished in a good and workmanlike manner
so as not to damage the primary structure or structural qualities of the
Building and improvements situated in the Premises. Tenant shall not be required
to remove any of the Leasehold Improvements constructed pursuant to the Work
Letter attached hereto as Exhibit "C." In addition, Tenant shall not be required
to remove any subsequent alteration or improvement made by Tenant, provided
Tenant obtains Landlord's written consent to surrender such alteration or
improvement with the Premises, at the time Landlord consents to the making of
such alteration or improvement.
8. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
the Rules and Regulations attached to this Lease as Exhibit "F" and by this
reference made a part hereof and all modifications thereof and additions thereto
from time to time put into effect by Landlord. Landlord shall not be responsible
for the non-performance by any other tenant or occupant of the Building of any
of said Rules and Regulations. Notwithstanding any provision of this Paragraph
or any other provision of the Rules and
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Regulations to the contrary, Landlord hereby agrees that all such Rules and
Regulations shall be non-discriminatory in substance and in application to the
tenants of the Building and shall not be binding upon Tenant if the same
materially, adversely affect Tenant's business or its use and occupancy of the
Premises. In the case of any conflict between the Rules and Regulations
established by Landlord and this Lease, the provisions of this Lease shall
control.
9. INSPECTION AND RIGHT OF ENTRY. Landlord reserves and shall at all times
have the right to enter the Premises to inspect the same, to supply janitorial
service and any other service to be provided by Landlord to Tenant hereunder, to
show said Premises to prospective purchasers, mortgagees or tenants, to post and
maintain all notices, including notices of non-responsibility, and to alter,
improve, or repair the Premises and any portion of the Building to which access
is conveniently made through the Premises, without abatement of Rent, and may
for that purpose erect, use and maintain scaffolding, pipes, conduits, and other
necessary structures in and through the Premises where reasonably required by
the character of the work to be performed, provided that entrance to the
Premises shall not be blocked thereby, and further provided that the business of
Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim
for damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises and any other
loss occasioned thereby. For each of the aforesaid purposes, Landlord shall at
all times have and retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults and safes, or special security
areas (designated in writing in advance and made known to Landlord), and
Landlord shall have the right to use any and all means which Landlord may deem
necessary or proper to open said doors in an emergency, in order to obtain entry
to any portion of the Premises, and any entry to the Premises, or portions
thereof obtained by Landlord by any of said means, or otherwise, shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry into
the Premises, or an eviction, actual or constructive, of Tenant from the
Premises or any portions thereof. Landlord shall also have the right at any
time, without the same constituting an actual or constructive eviction and
without incurring any liability to Tenant therefor, to change the arrangement
and/or location of entrances or passageways, doors and doorways and corridors,
elevators, stairs, toilets or other public parts of the Building.
10. INTENTIONALLY OMITTED.
11. ASSIGNMENT AND SUBLETTING.
(a) Neither Tenant nor its legal representatives or successors in interest
shall, by operation of law or otherwise, assign or otherwise transfer this Lease
or any part hereof, or the interest of Tenant under this Lease, and the Premises
or any part thereof shall never be sublet, occupied or used for any purpose by
anyone other than Tenant, without Tenant's obtaining in each instance the prior
written consent of Landlord in the manner hereinafter provided. Tenant shall not
modify, extend, or amend a sublease previously consented to by Landlord without
obtaining Landlord's prior written consent thereto. Tenant shall not mortgage,
pledge or otherwise encumber its interest under this Lease without the prior
written consent of Landlord, which consent may be withheld for any reason or no
reason, in the sole and absolute discretion of Landlord. All renewal or
extension rights, expansion rights, termination rights, exclusive rights,
opportunity rights and other such rights and options contained in this Lease
shall be personal to the original Tenant executing this Lease and shall
terminate upon any assignment or sublease affecting all or any portion of the
Premises.
(b) An assignment of this Lease shall be deemed to have occurred: (i) if in
a single transaction or in a series of transactions more than a fifty percent
(50%) interest in Tenant, any guarantor of this Lease, or any subtenant (whether
stock, partnership interest, interest in a limited liability company or
otherwise) is transferred, diluted, reduced, or otherwise affected with the
result that the present holder or owners of Tenant, such guarantor, or such
subtenant have less than a fifty percent (50%) interest in Tenant, such
guarantor or such subtenant; or (ii) if Tenant's obligations under this Lease
are taken over or assumed in consideration of Tenant leasing space in another
office building. The transfer of the outstanding capital
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stock of any corporate Tenant, guarantor or subtenant through the
"over-the-counter" market or any recognized national securities exchange [other
than by persons owning five percent (5%) or more of the voting stock of such
corporation] shall not be included in the calculation of such
fifty percent (50%) interest in (i) above.
(c) If Tenant should desire to assign this Lease or sublet the Premises (or
any part thereof) and, Tenant is not then in default under this Lease, Tenant
shall give Landlord written notice no later than thirty (30) days in advance of
the proposed effective date of any proposed assignment or sublease, specifying
(i) the name and business of the proposed assignee or sublessee, (ii) the amount
and location of the space within the Premises proposed to be so subleased,
(iii) the proposed effective date and duration of the assignment or subletting,
(iv) the proposed rent or consideration to be paid to Tenant by such assignee or
sublessee, (v) the proposed use of the proposed assignee or sublessee,
(vi) complete, audited financial statements and a business plan for the proposed
sublessee or assignee, and (vii) a true and correct copy of the proposed
instrument of assignment or proposed sublease. In the event that Landlord agrees
to consent to any assignment or sublease, such consent shall be evidenced by the
execution of Landlord's standard form of consent to assignment or consent to
sublease by Tenant, the assignee or sublessee and Landlord. Landlord shall not
execute such consent until it has received a true and correct copy of the
fully-executed instrument of assignment or sublease and an original consent
executed by Tenant and the assignee or sublessee. Tenant shall promptly supply
Landlord with such other information as Landlord may request to evaluate the
proposed assignment or sublease. Landlord shall have a period of
twenty (20) days following receipt of such notice and other information
requested by Landlord within which to notify Tenant in writing that Landlord
elects: (A) to terminate this Lease as to the space so affected as of the
proposed effective date set forth in Tenant's notice, in which event Tenant
shall be relieved of all further obligations hereunder as to such space, except
for provisions of this Lease which expressly survive the termination hereof; or
(B) to permit Tenant to assign or sublet such space; provided, however, that, if
the rent rate agreed upon between Tenant and its proposed subtenant is greater
than the rent rate that Tenant must pay Landlord hereunder for that portion of
the Premises, or if any consideration shall be promised to or received by Tenant
in connection with such proposed assignment or sublease (in addition to rent),
then all of such excess rent and other consideration shall be considered
Additional Rent owed by Tenant to Landlord (less brokerage commissions,
attorneys' fees and other disbursements reasonably incurred by Tenant for such
assignment and subletting if acceptable evidence of such disbursements is
delivered to Landlord), and shall be paid by Tenant to Landlord, in the case of
excess rent, in the same manner that Tenant pays Monthly Rental and, in the case
of any other consideration, within ten (10) business days after receipt thereof
by Tenant; or (C) to refuse, in Landlord's sole and absolute discretion, to
consent to Tenant's assignment or subleasing of such space and to continue this
Lease in full force and effect as to the entire Premises. If Landlord should
fail to notify Tenant in writing of such election within the aforesaid twenty
(20) day period, Landlord shall be deemed to have elected option (C) above.
Whether or not Landlord grants its consent, Tenant shall reimburse Landlord,
within thirty (30) days after written request therefor, for all reasonable
legal, architectural and engineering fees and any other reasonable and actual
costs incurred by Landlord in connection with any request by Tenant for approval
of an assignment or subletting and such payment shall not be deducted from the
Additional Rent owed to Landlord pursuant to subsection (B) above. Tenant shall
deliver to Landlord copies of all documents executed in connection with any
permitted assignment or subletting, which documents shall be in form and
substance reasonably satisfactory to Landlord and which shall require any
assignee to assume performance of all terms of this Lease on Tenant's part to be
performed. No acceptance by Landlord of any Rent or any other sum of money from
any assignee, sublessee or other category of transferee shall be deemed to
constitute Landlord's consent to any assignment, sublease, or transfer.
(d) Any attempted assignment or sublease by Tenant in violation of the terms
and provisions of this Paragraph 11 shall be void and such act shall constitute
a material breach of this Lease. In no event shall any assignment, subletting or
transfer, whether or not with Landlord's consent, relieve Tenant of its primary
liability under this Lease for the entire Term, and Tenant shall in no way be
released from the full
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and complete performance of all the terms hereof. If Landlord takes possession
of the Premises before the expiration of the Term of this Lease, Landlord shall
have the right, at its option, to terminate all subleases, or to take over any
sublease of the Premises or any portion thereof and such subtenant shall attorn
to Landlord, as its landlord, under all the terms and obligations of such
sublease occurring from and after such date, but excluding previous acts,
omissions, negligence or defaults of Tenant and any repair or obligation in
excess of available net insurance proceeds or condemnation award.
(e) Landlord shall have the right to sell, transfer, assign, pledge, and
convey all or any part of the Building and any and all of Landlord's rights
under this Lease. In the event Landlord assigns or otherwise conveys its rights
under this Lease, Landlord shall be entirely freed and released from any
obligations accruing thereafter under the Lease, and Tenant agrees to look
solely to Landlord's successor in interest for performance of such obligations.
12. INSURANCE.
(a) Landlord shall maintain Special Form Insurance on the Building and the
Premises, such policy(ies) to cover Landlord's interest in the Building and
Premises for not less than the full replacement cost thereof. Such insurance
shall be maintained at the expense of Landlord (as a part of Operating
Expenses), and payments for losses thereunder shall be made solely to Landlord
or the holder or holders of any mortgage or deed to secure debt encumbering the
Land, Building or Office Park (collectively, "Mortgagees"; each, a "Mortgagee")
as their respective interests shall appear.
(b) Tenant shall maintain, at its expense, in an amount equal to the full
replacement cost thereof, Special Form Insurance on all of its personal
property, including furniture, equipment, fittings, installations, supplies,
phone systems, computer systems and removable trade fixtures, located in the
Premises. Such policy shall include Business Interruption/Additional Expense
coverage on a loss sustained basis.
(c) Tenant shall also maintain Worker's Compensation and Employer's
Liability Insurance in form and amount satisfactory to Landlord and as required
by law.
(d) Tenant and Landlord shall, each at its own expense, maintain a policy or
policies of Commercial General Liability Insurance (written on an occurrence
basis) with respect to the respective activities of each on the Land and in the
Building with the premiums thereon fully paid on or before the date due, issued
by and binding upon an insurance company authorized to conduct such business in
the State of Georgia. Such Commercial General Liability Insurance to be
maintained by Tenant and Landlord under this Paragraph shall afford minimum
protection of not less than $2,000,000.00 combined single limit coverage of
bodily injury, property damage, or combination thereof; and such Commercial
General Liability Insurance to be maintained by Tenant shall name Landlord, its
managing agent, and any other party reasonably required by Landlord, as
additional insureds. Such insurance coverage maintained by Tenant shall also
include, without limitation, personal injury and contractual liability coverage
for the performance by Tenant of the indemnity agreements set forth in this
Lease. Landlord shall not be required to maintain insurance against thefts
within the Premises, the Building, or on the Land.
(e) Tenant shall also maintain and provide such other form or forms of
insurance, changes in amounts of coverage, or endorsements as Landlord, or any
Mortgagee of Landlord, may reasonably require from time to time.
(f) All Commercial General Liability Insurance and Special Form Insurance
maintained by Tenant shall be written as primary policies and shall not call for
contribution from any other insurance available to Landlord.
(g) Tenant shall, prior to the Commencement Date, provide Landlord with
current Certificates of Insurance, certified copies of such policies and
receipts for payment of premiums therefor, evidencing Tenant's compliance with
the terms and requirements of this Paragraph 12. All policies required to be
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maintained by Tenant under this Paragraph 12 shall contain a provision whereby
the insurer is not allowed to cancel, fail to renew or change materially the
coverage, without first giving thirty (30) days' prior written notice to
Landlord. Tenant shall also obtain the agreement of Tenant's insurers to notify
Landlord that a policy is due to expire at least thirty (30) days prior to such
expiration. Not less than fifteen (15) days prior to the expiration date of any
such policies, certified copies of the renewals thereof (bearing notations
evidencing the payment of renewal premiums) shall be delivered to Landlord.
(h) All insurance policies carried with respect to this Paragraph 12 shall
be issued by insurance companies licensed to do business in the State of Georgia
with a general policyholder's rating of at least A and a financial rating of at
least VIII in the most current Best's Insurance Reports.
(i) All insurance policies required to be carried by Tenant with respect to
this Paragraph 12 shall be procured and maintained in full force and effect by
Tenant at its sole cost and expense and continue in full force and effect during
the Term of the Lease, any renewals or extensions thereof, any holdover period
under the Lease, any tenancy by whatsoever name called and any period of
occupancy by Tenant of the Premises prior to the Commencement Date of the Lease
or subsequent to the expiration or earlier termination of the Lease.
(j) Anything in this Lease to the contrary notwithstanding (including,
without limitation, Paragraph 14 hereof), Landlord and Tenant each hereby waive
any and all rights of recovery, claim, action, or cause of action, against the
other, its agents, officers, or employees, for any loss or damage that may occur
to the Premises or a part thereof, or any improvements thereto, or any personal
property of such party therein, by reason of fire, the elements, or any other
cause(s), regardless of cause or origin, including negligence of the other party
hereto, its agents, officers or employees, where such loss or damage would
either be covered by insurance required to be maintained under this
Paragraph 12 (whether or not such insurance is in effect) or to the extent such
loss or damage is actually covered by any other insurance carried by each of
them. All insurance policies carried with respect to this Paragraph 12, if
permitted under applicable law, shall contain a provision whereby the insurer
waives, prior to loss, all rights of subrogation against Landlord and Tenant.
Landlord and Tenant acknowledge that the waivers and releases set forth in this
subparagraph are intended to result in any loss or damage which is covered by
insurance being borne by the insurance carrier of Landlord or Tenant, as the
case may be, or by the party having the insurable interest if such loss is not
covered by insurance and this Lease requires such party to maintain insurance to
cover such loss. Landlord and Tenant agree that such waivers and releases were
freely bargained for and willingly and voluntarily agreed to by Landlord and
Tenant and do not constitute a violation of public policy.
13. FIRE AND CASUALTY DAMAGE.
(a) If the Building should be totally destroyed by fire, tornado or other
casualty or if it should be damaged, to the extent that, in Landlord's
reasonable judgment, repair would not be economically feasible; or that
rebuilding or repairs cannot, in Landlord's estimation, be completed within
one hundred and sixty (160) days after the date of such damage; or if the
insurance proceeds remaining after any required payments to Mortgagees are
insufficient to repair such damage or destruction, Landlord shall have the
right, at Landlord's option, to terminate this Lease by giving Tenant written
notice of such termination within sixty (60) days after the date of such
casualty, and the Rent shall be apportioned and paid to the date on which
possession is relinquished or the date of such damage, whichever last occurs,
and Tenant shall immediately vacate the Premises according to such notice of
termination.
(b) If the Building should be damaged by any peril covered by the insurance
to be provided by Landlord under Paragraph 12(a) above, but only to such extent
that rebuilding or repairs are, in Landlord's estimation, economically feasible
and can be completed within one hundred and sixty (160) days after the date of
such damage and the proceeds of such insurance, after deducting any required
payments to Mortgagees, are sufficient for such rebuilding or repairs, this
Lease shall not terminate, and Landlord shall
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at its sole cost and expense thereupon proceed with reasonable diligence to
rebuild and repair the Building to substantially the condition in which it
existed prior to such damage, except that: (i) Landlord shall not be required to
rebuild, repair or replace any part of the partitions, fixtures, additions and
other improvements which may have been placed in, on or about the Premises by
Tenant; and (ii) Landlord may elect not to rebuild if such damage occurs during
the last year of the Term, exclusive of any option to extend the Term which is
unexercised at the time of such damage. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which the Premises are untenantable shall be reduced to such extent as
may be fair and reasonable under all of the circumstances. In the event that
Landlord should fail to complete such repairs and rebuilding within one hundred
and sixty (160) days after the date of such damage, Tenant may, at its option,
terminate this Lease by delivering written notice of termination to Landlord
within thirty (30) days after the expiration of such one hundred and sixty
(160) day period. Such termination shall be Tenant's exclusive remedy. If Tenant
fails to terminate this Lease within such 30-day period, Tenant shall be deemed
to have waived its rights to terminate by reason of the failure of Landlord to
complete such repairs and rebuilding within one hundred and sixty (160) days
after the date of such damage.
(c) Notwithstanding anything herein to the contrary, in the event any
Mortgagee requires that the insurance proceeds be applied to the indebtedness
due such Mortgagee, then Landlord shall have the right to terminate this Lease
by delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made by any such Mortgagee, whereupon all rights and
obligations hereunder shall cease and terminate. In no event shall Landlord be
required under this Lease to incur any expenses in excess of available insurance
proceeds for the purpose of repairing or restoring the Building or the Premises
after a fire or other casualty.
14. WAIVER OF CLAIMS; LANDLORD'S LIABILITY AND INDEMNIFICATION.
(a) Tenant waives and releases all claims against Landlord, its agents,
employees, representatives and contractors for damage to any property or injury
to, or death of, any person in, upon, or about the Premises arising at any time
and from any cause other than by reason of the sole negligence of Landlord, its
agents, employees, representatives, or contractors.
(b) Without limiting the generality of Paragraph 14(a), Tenant agrees that
Landlord, its agents, employees, representatives and contractors will not be
liable for any loss, injury, death, or damage (including consequential damages)
to persons, property, or Tenant's business occasioned by theft, act of God,
public enemy, injunction, riot, strike, insurrection, war, vermin, court order,
requisition, order of governmental body or authority, electricity, computer or
electronic equipment or systems malfunction, fire, explosion, falling objects,
steam, water, rain or snow, leak or flow of water (including water from the
elevator system), rain or snow from the Premises or into the Premises or from
the roof, street, subsurface or from any other place or by dampness or from the
breakage, leakage, obstruction, or other defects of the pipes, sprinklers,
wires, appliances, plumbing, air conditioning, or lighting fixtures of the
Building, or from construction, repair, alteration of the Premises or from any
acts or omissions of any other tenant, occupant, or visitor of the Premises, or
from any other cause whatsoever, except if such loss, injury, death, or damage
to persons, property, or Tenant's business is occasioned by the sole negligence
of the Landlord, its agents, employees, representatives or contractors.
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(c) Subject to the provisions of Paragraph 12(j) of this Lease, Tenant shall
indemnify and hold Landlord harmless from and against any and all claims arising
out of (i) the use of the Premises or any part thereof by Tenant, (ii) any
activity, work or other things done, permitted or suffered by Tenant in or about
the Premises, or any part thereof, (iii) any breach or default by Tenant in the
performance of any of its obligations under this Lease; and in each case from
and against any and all damages, losses, liabilities, lawsuits, cost and
expenses (including attorney's fees at all tribunal levels) arising in
connection with any such claim or claims as described in (i) through (iii)
above, or any action brought thereon. Subject to the provisions of
Paragraph 12(j) of this Lease, Landlord shall indemnify and hold Tenant harmless
from and against any and all claims arising out of (i) the use of the Common
Areas of the Building or any part thereof, (ii) any activity, work or other
things done, permitted or suffered by Landlord in or about the Common Areas, or
any part thereof, (iii) any breach or default by Landlord in the performance of
any of its obligations under this Lease; and in each case from and against any
and all damages, losses, liabilities, lawsuits, cost and expenses (including
attorney's fees at all tribunal levels) arising in connection with any such
claim or claims as described in (i) through (iii) above, or any action brought
thereon.
(d) The provisions of this Paragraph 14 shall survive the expiration or
termination of this Lease with respect to any damage, injury, or death occurring
before such expiration or termination.
15. CONDEMNATION.
(a) If the whole or any substantial part of the Premises should be taken for
any public or quasi-public use under governmental law, ordinance or regulation,
or by right of eminent domain, or by private purchase in lieu thereof, and the
taking would prevent or materially interfere with the use of the Premises for
the purpose for which they are being used, this Lease shall terminate and the
Rent shall be apportioned and paid to the date on which the physical taking of
the Premises shall occur.
(b) If part of the Premises shall be taken for any public or quasi-public
use under any governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and this Lease is not terminated
as provided in subparagraph 15(a) above, this Lease shall not terminate but the
Rent payable hereunder during the unexpired portion of this Lease shall be
reduced to such extent as may be fair and reasonable under all of the
circumstances.
(c) All compensation awarded for any taking (or the proceeds of private sale
in lieu thereof) of the Premises, the Building or other improvements, or any
part thereof, shall be the property of Landlord and Tenant hereby assigns its
interest in any such award to Landlord; provided, however Landlord shall have no
interest in any award made to Tenant for loss of business or for the taking of
Tenant's fixtures if a separate award for such items is made to Tenant.
(d) In no event shall Landlord be required under this Lease to incur any
expenses in excess of available proceeds from any taking contemplated hereby for
the purposes of restoring the Building or the Premises after any such taking.
16. HOLDING OVER. Tenant will, at the termination of this Lease by lapse
of time or otherwise, yield up immediate possession to Landlord with all repairs
and maintenance required herein to be performed by Tenant completed. Should
Tenant continue to hold the Premises after the expiration or earlier termination
of this Lease, or after reentry by Landlord without terminating this Lease, such
holding over, unless otherwise agreed to by Landlord in writing, shall
constitute and be construed as a tenancy at sufferance and not a tenancy at
will, at monthly installments of Rent equal to one hundred fifty percent (150%)
of the monthly portion of Rent in effect as of the date of expiration or earlier
termination, and subject to all of the other terms, charges and expenses set
forth herein except any right to renew this Lease or to expand the Premises or
any right to additional services. Tenant shall have no right to notice under
OFFICIAL CODE OF GEORGIA ANNOTATED Section44-7-7 of the termination of its
tenancy. Tenant shall also be liable to Landlord for all damage which Landlord
suffers because of any holding over by Tenant, and Tenant shall indemnify
Landlord against all claims made by any other tenant or prospective tenant
against Landlord resulting
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from delay by Landlord in delivering possession of the Premises to such other
tenant or prospective tenant. No holding over by Tenant, whether with or without
consent of Landlord, shall operate to extend the Term except as otherwise
expressly provided in a written agreement executed by both Landlord and Tenant.
The provisions of this Paragraph 16 shall survive the expiration or earlier
termination of this Lease.
17. QUIET ENJOYMENT. Landlord represents and warrants that it has full
right and authority to enter into this Lease and that Tenant, upon paying the
Rent herein set forth and performing its other covenants and agreements herein
set forth, shall peaceably and quietly have, hold and enjoy the Premises for the
Term without hindrance or molestation from Landlord, subject to the terms and
provisions of this Lease.
18. EVENTS OF DEFAULT. The following events shall be deemed to be "Events
of Default" by Tenant under this Lease:
(a) Tenant shall fail to pay any installment of the Rent herein reserved
when due, or any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of five (5) days after
Landlord gives Tenant written notice of such past due Rent or other payment; or
Tenant shall fail to pay Rent or any other payment required herein within
five (5) days after the date due, at any time during a calendar year in which
Tenant has already received two (2) previous notices of its failure to pay Rent
or other payments by the due date.
(b) Tenant or any guarantor of Tenant's obligations hereunder shall
generally not pay its debts as they become due or shall admit in writing its
inability to pay its debts or shall make a general assignment for the benefit of
creditors; or Tenant or any such guarantor shall commence any case, proceeding
or other action seeking to have an order for relief entered on its behalf as a
debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution, or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all, or any substantial part of, its property; or
Tenant or any such guarantor shall take any action to authorize or in
contemplation of any of the actions set forth above in this Paragraph.
(c) Any case, proceeding or other action against Tenant or any guarantor of
Tenant's obligations hereunder shall be commenced seeking to have an order for
relief entered against it as debtor or to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property.
(d) A receiver or trustee shall be appointed for all or substantially all of
the assets of the Tenant.
(e) Tenant shall desert or vacate any substantial portion of the Premises
for more than fifteen (15) consecutive Business Days. Notwithstanding the
preceding sentence, Tenant shall not be deemed to have deserted or vacated the
Premises if it is conducting normal business operations within the Premises
during Business Hours and on Business Days with at least a skeleton crew. In
addition, Tenant may vacate the Premises for up to forty-five (45) consecutive
days in connection with preparing the Premises for occupancy by an approved
subtenant or assignee.
(f) Tenant shall fail to discharge any lien placed upon the Premises in
violation of Paragraph 23 hereof within twenty (20) days after any such lien or
encumbrance is filed against the Premises.
(g) Tenant shall fail to continuously operate its business at the Premises
for the permitted use set forth in Paragraph 1, whether or not Tenant is in
default of the payments of Rent due under this Lease.
(h) Tenant shall fail to comply with any term, provision or covenant of this
Lease (other than the foregoing in this Paragraph 18), and shall not cure such
failure within twenty (20) days after written notice thereof to Tenant.
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19. REMEDIES.
(a) Upon the occurrence of any one or more of the aforesaid Events of
Default, or upon the occurrence of any other default or defaults by Tenant under
this Lease, Landlord may, at Landlord's option, without any demand or notice
whatsoever (except as expressly required in this Paragraph 19):
(i) Terminate this Lease, and Tenant shall remain liable for all Rent
and all other obligations under this Lease arising up to the date of such
termination; or
(ii) Terminate this Lease, and Tenant shall remain liable for all
damages Landlord may incur by reason of Tenant's default, including, without
limitation, a sum which, at the date of such termination, represents the
then value of the excess, if any, of (1) the total Rent, and all other
obligations which would have been payable hereunder by Tenant for the period
commencing with the day following the date of such termination and ending
with the expiration date of the Term, over (2) the aggregate reasonable
rental value of the Premises for the same period, plus (3) the costs of
recovering the Premises and all other expenses incurred by Landlord due to
Tenant's default, including, without limitation, reasonable attorney's fees,
plus (4) the unpaid Rent earned as of the date of termination plus interest
at the "Interest Rate" (as hereinafter defined), plus other sums of money
and damages owing on the date of termination by Tenant to Landlord under
this Lease or in connection with the Premises, all of which excess sum shall
be deemed immediately due and payable; or
(iii) Landlord may at its option, declare the difference, if any, between
(A) the entire amount of Monthly Rental and Additional Rent which would
become due and payable during the remainder of the Term, discounted to
present value using a discount rate equal to the "Prime Rate" (as
hereinafter defined) in effect as of the date of such declaration, and
(B) the fair rental value of the Premises during the remainder of the Term
(taking into account, among other factors, the anticipated duration of the
period the Premises will be unoccupied prior to reletting and the
anticipated cost of reletting the Premises), also discounted to present
value using a discount rate equal to the Prime Rate in effect as of the date
of such declaration, to be due and payable immediately and Tenant agrees to
pay the same at once, together with all Monthly Rental, Additional Rent and
other sums theretofore due; it being understood and agreed that such payment
shall be and constitute Landlord's liquidated damages, Landlord and Tenant
acknowledging and agreeing that it is difficult or impossible to determine
the actual damages Landlord would suffer from Tenant's breach hereof and
that the agreed upon liquidated damages are not punitive or penalties and
are just, fair and reasonable, all in accordance with OFFICIAL CODE OF
GEORGIA ANNOTATED Section 13-6-7. If Landlord exercises the election set out
in this subparagraph, Landlord hereby waives any right to assert that
Landlord's actual damages are greater than the amount calculated hereunder.
"Prime Rate" means the Prime Rate published in the WALL STREET JOURNAL from
time to time (adjusted daily) as being the base rate on corporate loans at
large U.S. money center commercial banks. If the WALL STREET JOURNAL ceases
to publish such a Prime Rate, the Prime Rate shall be the per annum interest
rate which is publicly announced (whether or not actually charged in each
instance) from time to time (adjusted daily) by Wachovia Bank of Georgia,
N.A., Atlanta, Georgia as its "prime rate" or similar corporate borrowing
reference rate; or
(iv) Without terminating this Lease, Landlord may in its own name but as
agent for Tenant enter into and upon and take possession of the Premises or
any part thereof, and, at Landlord's option, remove persons and property
therefrom and such property, if any, may be removed and stored in a
warehouse or elsewhere at the cost of, and for the account of Tenant, all
without being deemed guilty of trespass or becoming liable for any loss or
damage which may be occasioned thereby, and Landlord may rent the Premises
or any portion thereof as the agent of Tenant, with or without
advertisement, and by private negotiations and for any term upon such terms
and conditions as Landlord may deem necessary or desirable in order to relet
the Premises. Upon each such reletting, all rentals received by Landlord
from such reletting shall be applied: first, to the payment of any
indebtedness (other than any Rent due hereunder) from Tenant to Landlord;
second, to the payment of any costs and expenses
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of such reletting, including, without limitation, brokerage fees and
attorney's fees and costs of alterations and repairs; third, to the payment
of Rent and other charges then due and unpaid hereunder; and the residue, if
any, shall be held by Landlord to the extent of and for application in
payment of future Rent, if any becomes owing, as the same may become due and
payable hereunder. In reletting the Premises as aforesaid, Landlord may
grant rent concessions and Tenant shall not be credited therefor. If such
rentals received from such reletting shall at any time or from time to time
be less than sufficient to pay to Landlord the entire sums then due from
Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such
deficiency shall, at Landlord's option, be calculated and paid monthly.
Notwithstanding any such reletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for any such previous default
provided same has not been cured; or
(v) Without terminating this Lease, and with or without notice to
Tenant, Landlord may enter into and upon the Premises and without being
liable for prosecution or any claim for damages therefor, maintain the
Premises and repair or replace any damage thereto or do anything for which
Tenant is responsible hereunder. Tenant shall reimburse Landlord immediately
upon demand for any expenses which Landlord incurs in thus effecting
Tenant's compliance under this Lease, and Landlord shall not be liable to
Tenant for any damages with respect thereto; or
(vi) Without liability to Tenant or any other party and without
constituting a constructive or actual eviction, suspend or discontinue
furnishing or rendering to Tenant any property, material, labor or other
service, wherever Landlord is obligated to furnish or render the same so
long as Tenant is in default under this Lease; or
(vii) Allow the Premises to remain unoccupied, and Tenant shall remain
liable for the Rent and all other obligations accruing over the balance of
the Term; or
(viii) Terminate the Tenant's right to possession of the Premises, without
terminating the Lease, and Tenant shall remain liable for the Rent and all
other obligations accruing over the balance of the Term; or
(ix) Terminate the Lease and Tenant's right to possession of the
Premises; or
(x) Enforce the performance of Tenant's obligations hereunder by
injunction or other equitable relief, which remedy may be exercised upon any
actual or threatened Event of Default by Tenant, without regard to whether
Landlord may have an adequate remedy at law; or
(xi) Foreclose any security interest in the property of Tenant which
Landlord may have under the laws of the State of Georgia or under this
Lease, including the immediate taking of possession of all property on or in
the Premises; and
(xii) Pursue any combination of the foregoing remedies permitted by law
and such other remedies as are available at law or equity.
(b) Whenever Landlord terminates this Lease, it shall do so by giving Tenant
written notice of termination, in which event this Lease shall expire and
terminate on the date specified in such notice with the same force and effect as
though the date specified were the date herein originally fixed as the Lease
Expiration Date, and all rights of Tenant under this Lease and in and to the
Premises shall expire and terminate and Tenant shall surrender the Premises to
Landlord on the date specified in such notice, and if Tenant fails to so
surrender, Landlord shall have the right, without notice, and with or without
resort to summary dispossessory proceedings, to enter upon and take possession
of the Premises and to expel or remove Tenant and its effects without being
liable for prosecution or any claim for damages therefor.
(c) Whenever Landlord terminates Tenant's right to possession of the
Premises without terminating this Lease, it shall do so by giving Tenant written
notice of termination of its right of possession, in which event Tenant shall
surrender the Premises to Landlord on the date specified in such notice; and if
Tenant
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fails to so surrender, Landlord shall have the right, without notice, and with
or without resort to summary dispossessory proceedings, to enter upon and take
possession of the Premises and to expel or remove Tenant and its effects without
being liable for prosecution or any claim for damages therefor.
(d) If this Lease shall terminate as a result of or while there exists a
default hereunder, any funds of Tenant held by Landlord may be applied by
Landlord to unpaid Rent and any damages payable by Tenant (whether provided for
herein or by law) as a result of such termination or default, in Landlord's sole
discretion.
(e) Tenant covenants and agrees that Tenant will not interpose any
counterclaim, offset, or deduction in any summary proceeding brought by Landlord
to recover possession of the Premises. Landlord shall in no way be responsible
or liable to Tenant for any failure to rent the Premises or any part thereof, or
for any failure to collect any rent due upon such reletting. Tenant shall remain
liable for all Rent and all other obligations as they accrue over the Term, even
after any writ of possession as to the Premises is applied for or issued to
Landlord in dispossessory proceedings, after an eviction is completed, and after
Landlord terminates Tenant's right of possession unless Landlord terminates the
Lease.
(f) If any statute or rule of law shall limit any of Landlord's remedies as
hereinabove set forth, Landlord shall nonetheless be entitled to any and all
other remedies hereinabove set forth.
(g) All installments of Rent, and all other amounts of money payable by
Tenant to Landlord under this Lease, if not received by Landlord within
five (5) days of the date due, shall: (a) be subject to a late fee equal to the
greater of (i) five percent (5%) of the amount past due, or (ii) $50.00, which
late fee represents an agreed upon charge for the administrative expense
suffered by Landlord as a result of such late payment and not payment for the
use of money or a penalty; and (b) the amount past due (excluding late fees),
shall bear simple interest from the date due until paid at
twelve percent (12%) per annum (the "Interest Rate"); and Tenant agrees to pay
said late fee and interest immediately and without demand. However, if at the
time such interest is sought to be imposed, the Interest Rate exceeds the
maximum rate permitted under federal law or under the laws of the State of
Georgia, the Interest Rate shall be the maximum rate of interest then permitted
by applicable law. Should Tenant make a partial payment of past due amounts, the
amount of such partial payment shall be applied first to late fees, second to
accrued but unpaid interest at the Interest Rate, and third to past due amounts
in the order of their due dates. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner.
(h) In the event Tenant's check, given to Landlord in payment, is returned
by the bank for non-payment, Tenant agrees to pay a service charge not to exceed
$20.00 or five percent (5%) of the face amount of the check, whichever is
greater.
(i) The foregoing provisions of this Paragraph 19 shall survive the
expiration or earlier termination of this Lease and shall apply to any renewal
or extension of this Lease.
20. BANKRUPTCY.
(a) Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord under this Lease, whether or not
expressly denominated as Rent, shall constitute Rent for the purposes of the
Bankruptcy Code. 11 U.S.C. Section502(b)(7).
(b) This is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person or entity
other than Tenant within the meaning of the Bankruptcy Code. 11 U.S.C.
Section365(c), 365(e)(2).
(c) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other consideration
payable or otherwise to be delivered in connection with
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such assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or
the estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust for
the benefit of Landlord and be promptly paid or delivered to Landlord.
(d) Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or deed,
to have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall upon demand execute and deliver
to Landlord an instrument confirming such assumption.
21. LANDLORD'S LIEN. In addition to any statutory lien for Rent in
Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a
continuing security interest for all Rent and other sums of money becoming due
hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture,
inventory, accounts, contract rights, chattel paper and other personal property
of Tenant situated on the Premises, and such property shall not be removed
therefrom without the consent of Landlord until all arrearages in Rent as well
as any and all other sums of money then due to Landlord hereunder shall first
have been paid and discharged. Products of collateral are also covered. In the
event of a default under this Lease, Landlord shall have, in addition to any
other remedies provided herein or by law, all rights and remedies under the
Uniform Commercial Code, including without limitation the right to sell the
property described in this paragraph at public or private sale upon
five (5) days notice to Tenant. Tenant hereby agrees to execute such financing
statements and other instruments necessary or desirable in Landlord's discretion
to perfect the security interest hereby created. Any statutory lien for Rent is
not hereby waived, the express contractual lien herein granted being in addition
and supplementary thereto. Landlord and Tenant agree that this Lease and
security agreement serves as a financing statement and that a copy or
photographic or other reproduction of this portion of this Lease may be filed of
record by Landlord and have the same force and effect as the original. This
security agreement and financing statement also covers fixtures located at the
Premises, and may be filed for record in the real estate records. The record
owner of this property is the Tenant unless otherwise designated in writing to
Landlord. Tenant warrants that the collateral subject to the security interest
granted herein is not purchased or used by Tenant for personal, family or
household purposes.
22. SUBORDINATION; ESTOPPEL CERTIFICATES.
(a) Tenant accepts this Lease subject and subordinate to the lien or
security title of any recorded mortgage, deed to secure debt or ground lease
presently existing or hereafter created upon the Premises, and to all existing
recorded restrictions, covenants, easements and agreements with respect to the
Office Park, or any part thereof, and all amendments, modifications and
restatements thereof, and all replacements and substitutions therefor. The
subordination created hereby is intended to be self-operative and no further
instrument shall be required to effect such subordination of this Lease.
Nevertheless, Tenant agrees to execute such documents as Landlord may request to
evidence and memorialize such subordination. If Tenant fails to execute any such
requested documentation within ten (10) days after Landlord's request therefor,
Landlord is hereby irrevocably vested with full power and authority to
subordinate Tenant's interest under this Lease in Tenant's name and on Tenant's
behalf to the lien or security title of any mortgage, deed to secure debt or
ground lease hereafter placed on the Premises, and to any future instrument
amending, modifying, restating, replacing or substituting for any such existing
recorded restrictions, covenants, easements and agreements. Tenant hereby
irrevocably appoints Landlord as Tenant's agent and attorney-in-fact for the
purpose of executing, acknowledging and delivering any such instruments and
certificates. Such power of attorney is coupled with an interest and shall be
irrevocable. If the interest of Landlord under this Lease shall be transferred
by reason of exercise of a power of sale, foreclosure or other proceeding for
enforcement of any mortgage or deed to secure debt on the Premises, Tenant shall
be bound to the transferee (sometimes hereinafter referred to as the
"Purchaser"), at the
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option of the Purchaser, under the terms, covenants and conditions of this Lease
for the balance of the Term remaining, and any extensions or renewals, with the
same force and effect as if the Purchaser were Landlord hereunder, and, if
requested by the Purchaser, Tenant agrees to be bound and obligated hereunder to
the Purchaser (including the mortgagee or grantee under any such mortgage or
deed to secure debt), as its landlord.
(b) Tenant shall, from time to time, within ten (10) days after request from
Landlord, or from any mortgagee or lessor of Landlord, execute, acknowledge and
deliver in recordable form a certificate certifying, to the extent true, that
this Lease is in full force and effect and unmodified (or, if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications); that the Term has commenced and the full amount of the Rent
then accruing hereunder; the dates to which Rent has been paid; that Tenant has
accepted possession of the Premises and that any improvements required by the
terms of this Lease to be made by Landlord have been completed to the
satisfaction of Tenant; the amount, if any, that Tenant has paid to Landlord as
a Security Deposit; that no Rent under this Lease has been paid more than
thirty (30) days in advance of its due date; that the address for notices to be
sent to Tenant is as set forth in this Lease (or has been changed by notice duly
given and is as set forth in the certificate); that Tenant, as of the date of
such certificate, has no charge, lien, or claim of offset under this Lease or
otherwise against Rent or other charges due or to become due hereunder; that, to
the knowledge of Tenant, Landlord is not then in default under this Lease; and
such other matters as may be reasonably requested by Landlord or any mortgagee
or lessor of Landlord. If Tenant fails to so execute, acknowledge and deliver
such certificate within ten (10) days after request from Landlord, or any
mortgagee or lessor of Landlord, Landlord is hereby empowered to do so in
Tenant's name and on Tenant's behalf. Tenant hereby appoints Landlord as
Tenant's agent and attorney-in-fact for the purpose of executing, acknowledging
and delivering such certificate. Such power of attorney is coupled with an
interest and shall be irrevocable. Any such certificate may be relied upon by
Landlord, any mortgagee or lessor of Landlord, any beneficiary, purchaser or
prospective purchaser of the Building or any interest therein, or by anyone to
whom Landlord may provide said certificate.
23. MECHANICS LIENS; OTHER TAXES.
(a) Tenant shall have no authority, express or implied to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind the interests of Landlord in the Premises or to charge the Rent payable
hereunder for any claim in favor of any person dealing with Tenant, including
those who may furnish materials or perform labor for any construction or
repairs, and each such claim shall affect and each such lien shall attach to, if
at all, only the leasehold interest granted to Tenant by this instrument. Tenant
covenants and agrees that it will pay or cause to be paid all sums legally due
and payable by it on account of any labor performed or materials furnished in
connection with any work performed on the Premises on which any lien is or can
be validly and legally asserted against its leasehold interest in the Premises
or the improvements thereon and that it will save and hold Landlord harmless
from any and all loss, cost or expense based on or arising out of asserted
claims or liens against the leasehold estate or against the right, title and
interest of the Landlord in the Premises or under the terms of this Lease.
Tenant agrees to give Landlord immediate written notice if any lien or
encumbrance is placed on the Premises. In the event that Tenant shall not,
within twenty (20) days following the imposition of any such lien, cause the
same to be released of record by payment or posting of a proper bond, Landlord
shall have, in addition to all other remedies provided herein and by law, the
right, but not the obligation, to cause the same to be released by such means as
it shall deem proper, including payment of the claim giving rise to such lien.
All such sums paid by Landlord and all expenses incurred by it in connection
therewith shall be considered Additional Rent and shall be payable to Landlord
by Tenant on demand and with interest at the Interest Rate.
(b) Tenant shall be liable for all taxes levied or assessed against personal
property, furniture or fixtures placed by Tenant in the Premises. If any such
taxes for which Tenant is liable are levied or assessed
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against Landlord or Landlord's property and if Landlord elects to pay the same
or if the assessed value of Landlord's property is increased by inclusion of
personal property, furniture or fixtures placed by Tenant in the Premises, and
Landlord elects to pay the taxes based on such increase, Tenant shall pay to
Landlord upon demand that part of such taxes.
24. SUBSTITUTION OF PREMISES. At any time after the date of execution of
this Lease, Landlord may substitute for the Premises, other premises in the
Office Park (the "new premises"), in which event the new premises shall be
deemed to be the Premises for all purposes under this Lease, provided: (a) the
new premises shall be similar to the Premises in area and appropriateness for
the use of Tenant's purposes; (b) if Tenant is then occupying the Premises,
Landlord shall pay the expenses of moving Tenant, its property and equipment to
the new Premises, including the cost of a reasonable quantity of business
stationery and business cards with the new address, and such moving shall be
done at a time and in such manner so as to minimize, to the extent reasonably
possible, the inconvenience to Tenant; (c) Landlord shall give to Tenant not
less than sixty (60) days' prior written notice of such substitution; and
(d) Landlord shall, at its sole cost, improve the new premises with improvements
substantially similar to those in the Premises.
25. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves and may
exercise the following rights without affecting Tenant's obligations hereunder:
(a) to change the name, street address, or suite numbers of the Building;
(b) to change the name of the Office Park;
(c) to install or maintain a sign or signs on the exterior of the Building;
(d) to designate all sources furnishing sign painting and lettering, ice,
drinking water, towels, coffee cart service and toilet supplies, lamps and bulbs
used on the Premises;
(e) to retain at all times pass keys to the Premises;
(f) to close the Building after regular working hours and on legal holidays
subject, however to Tenant's right to admittance, under such reasonable
regulations as Landlord may prescribe from time to time, which may include by
way of example but not of limitation, that persons entering or leaving the
Building identify themselves to a watchman by registration or otherwise and that
said persons establish their right to enter or leave the Building;
(g) to grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building; and
(h) to take any and all measures, including inspections, repairs,
alterations, decorations, additions and improvements to the Premises or the
Building, and identifications and admittance procedures for access to the
Building as may be necessary or desirable for the safety, protection,
preservation or security of the Premises or the Building or the Landlord's
interests or as may be necessary or desirable in the operation of the Building.
The Landlord may enter upon the Premises and may exercise any or all of the
foregoing rights hereby reserved without the same being construed as an unlawful
entry into the Premises and without being deemed guilty of an eviction, actual
or constructive, or without being deemed guilty of trespass or disturbance of
the Tenant's use or possession and without being liable in any manner to Tenant
and without abatement of Rent or affecting any of Tenant's obligations
hereunder.
25. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing or delivery of
any
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notice or the making of any payment by Tenant to Landlord shall be deemed to be
complied with when and if the following steps are taken:
(a) All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address hereinbelow set forth or
at such other address as Landlord may specify from time to time by written
notice delivered in accordance herewith. Tenant's obligations to pay Rent and
any other amounts to Landlord under the terms of this Lease shall not be deemed
satisfied until such Rent and other amounts have been actually received by
Landlord.
(b) All payments required to be made by Landlord to Tenant hereunder shall
be payable to Tenant at the address hereinbelow set forth, or at such other
address within the continental United States as Tenant may specify from time to
time by written notice delivered in accordance herewith.
(c) Except for legal process, which may also be served as by law provided,
any notice or communication required or permitted hereunder shall be in writing
and shall be sent either by: (i) personal delivery service with charges therefor
billed to shipper; (ii) nationally recognized overnight delivery service (such
as Federal Express, United Parcel Service, Airborne, etc.) with charges therefor
billed to shipper; or (iii) United States Mail, postage prepaid, registered or
certified mail, return receipt requested. All such notices and communications
shall be addressed to Landlord or Tenant, as the case may be, at the addresses
set forth below, or at such other addresses as Landlord or Tenant may have
designated by notice to the other given as provided above. Any notice or
communication sent as above provided shall be deemed given or delivered:
(A) upon receipt, if personally delivered (provided delivery is confirmed by the
courier delivery service); (B) on the date of delivery by any nationally
recognized overnight delivery service; or (C) if sent by United States Mail, on
the date appearing on the return receipt therefor, or if there is no date on
such return receipt, the receipt date shall be presumed to be the postmark date
appearing on such return receipt. Notice shall be considered given and received
on the latest original delivery or attempted delivery date to all persons and
addresses to which notice is to be given, as indicated on the return receipt(s)
of the United States Mail or delivery receipts of the personal delivery service
or nationally recognized overnight delivery service. Any notice or communication
which cannot be delivered because of failure to provide notice of a change of
address as herein provided or for which delivery is refused shall be deemed to
have been given and received on the date of attempted delivery. Any notice or
communication required or permitted hereunder shall be addressed as follows:
Landlord: Landlord's Address for Payments:
Sanctuary Park Realty Holding Company
c/o Jones Lang LaSalle
33320 Treasury Center
Chicago, Illinois 60695-3300
Landlord's Address for Notices:
Sanctuary Park Realty Holding Company
c/o Jones Lang LaSalle Americas, Inc.
1105 Sanctuary Parkway, Suite 150
Alpharetta, Georgia 30004
Attention: Leasing Director
With a copy to:
Sanctuary Park Realty Holding Company
c/o J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Attention: Mr. Joel Moody
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With a copy to:
Scoggins & Goodman, P.C.
2800 Marquis One Tower
245 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303-1227
Attention: Randall B. Scoggins, Esq.
Tenant:
Before Commencement Date:
Sideware Systems, Inc.
Suite 102
930 West First Street
North Vancouver, British Columbia V7P 3N4
Attention: Controller
After Commencement Date:
Sideware Corporation
1105 Sanctuary Parkway, Suite 150
Alpharetta, Georgia 30004
Attention: Mr. Bill Stride or Office Manager
If and when included within the term "Tenant," as used in this instrument,
there are more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address within the continental United States for the
receipt of notices and payments to Tenant. All parties included within the term
"Tenant" shall be bound by notices given in accordance with the provisions of
this paragraph to the same effect as if each had received such notice.
27. HAZARDOUS SUBSTANCES.
(a) Tenant covenants that, without first obtaining Landlord's written
consent, neither Tenant nor any of its agents, employees, contractors or
invitees shall cause or permit any Hazardous Materials (as hereinafter defined)
to be stored, handled, treated, released or brought upon or disposed of on the
Premises or the Building or the Office Park, except for Hazardous Materials
customarily used in general business offices in first-class office buildings,
and then only in accordance with any and all applicable laws, ordinances, rules,
regulations and requirements respecting the storage, handling, treatment,
release, disposal, presence or use of such Hazardous Materials. Tenant shall
indemnify, defend and hold Landlord harmless from and against any and all
claims, judgments, damages, penalties, fines, costs (including without
limitation, consultants' fees, experts' fees, attorneys' fees and court costs),
liabilities or losses resulting from the storage, handling, treatment, release,
disposal, presence or use of Hazardous Materials in, on or about the Premises or
the Building or the Office Park by Tenant, its agents, employees, contractors or
invitees from and after the date of this Lease. Tenant agrees to take such steps
as are necessary to remediate any Hazardous Materials governed by the terms of
this Paragraph 27(a) in the manner required by law.
(b) Definition of Hazardous Materials. As used herein, the term "Hazardous
Materials" means asbestos, polychlorinated biphenyls, oil, gasoline or other
petroleum based liquids, any and all materials or substances deemed hazardous or
toxic or regulated by applicable laws, including, but not limited to, substances
defined as hazardous under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Section9601 ET SEQ., the
Resource Conservation and Response Act, as amended, 42 U.S.C. Section6901
ET SEQ. (or any state counterpart to the foregoing statutes) or determined to
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present the unreasonable risk of injury to health or the environment under the
Toxic Substances Control Act, as amended, 15 U.S.C. Section2601 ET SEQ.
(c) The provisions of this Paragraph 27 shall survive the expiration or
earlier termination of this Lease.
28. BROKERAGE.
(a) Tenant represents and warrants to Landlord that it has not entered into
any agreement with, or otherwise had any dealings with, any broker or agent
other than Richard Bowers & Co. ("Tenant's Agent") in connection with the
negotiation, procurement or execution of this Lease which could form the basis
of any claim by any such broker or agent for a brokerage fee or commission,
finder's fee, or any other compensation of any kind or nature in connection
herewith, and Tenant shall, and hereby agrees to, indemnify, defend and hold
Landlord harmless from all costs (including, but not limited to, court costs,
investigation costs, and attorneys' fees), expenses, or liability for
commissions or other compensation claimed by any broker or agent with respect to
this Lease which arise out of any agreement or dealings, or alleged agreement or
dealings, between Tenant and any such agent or broker other than Tenant's Agent.
(b) Landlord represents and warrants to Tenant that it has not entered into
any agreement with, or otherwise had any dealings with, any broker or agent
other than Jones Lang LaSalle Americas, Inc. ("Landlord's Agent") in connection
with the negotiation, procurement or execution of this Lease which could form
the basis of any claim by any such broker or agent for a brokerage fee or
commission, finder's fee, or any other compensation of any kind or nature in
connection herewith, and Landlord shall, and hereby agrees to, indemnify, defend
and hold Tenant harmless from all costs (including, but not limited to, court
costs, investigation costs, and attorneys' fees), expenses, or liability for
commissions or other compensation claimed by any broker or agent with respect to
this Lease which arise out of any agreement or dealings, or alleged agreement or
dealings, between Landlord and any such agent or broker other than Landlord's
Agent.
(c) Landlord shall pay a commission to Landlord's Agent pursuant to a
separate agreement between Landlord and Landlord's Agent. Landlord shall pay a
commission to Tenant's Agent pursuant to a separate agreement between Landlord
and Tenant's Agent. The fact that Landlord is paying a commission to Tenant's
Agent does not constitute Tenant's Agent as the agent of Landlord or as a dual
agent for Landlord and Tenant. Tenant's Agent has acted solely as Tenant's agent
in connection with this transaction.
(d) The provisions of this Paragraph 28 shall survive the expiration or
earlier termination of this Lease.
29. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
(b) The terms, provisions, covenants and conditions contained in this Lease
shall apply to, inure to the benefit of, and be binding upon the parties hereto
and upon their respective heirs, legal representatives, successors and permitted
assigns, except as otherwise herein expressly provided. Landlord shall have the
right to assign any of its rights and obligations under this Lease. Each party
agrees to furnish to the other, promptly upon demand, a corporate resolution,
proof of due authorization by partners, or other appropriate documentation
evidencing the due authorization of such party to enter into this Lease.
(c) The captions inserted in this Lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this Lease, or
any provision hereof, or in any way affect the interpretation of this Lease.
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(d) This Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
(e) All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the Term shall survive the expiration or
earlier termination of the Term, including without limitation all payment
obligations with respect to Rent and all obligations concerning the condition of
the Premises. Upon the expiration or earlier termination of the Term, and prior
to Tenant vacating the Premises, Tenant shall pay to Landlord any amount
reasonably estimated by Landlord as necessary to put the Premises, including
without limitation all heating and air conditioning systems and equipment
therein, in good condition and repair. All such amounts shall be used and held
by Landlord for payment of such obligations of Tenant hereunder, with Tenant
being liable for any additional costs therefor upon demand by Landlord, or with
any excess to be returned to Tenant after all such obligations have been
determined and satisfied, as the case may be. Any Security Deposit held by
Landlord shall be credited against the amount payable by Tenant under this
subparagraph 29(e).
(f) If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term, then and
in that event it is the intention of the parties hereto that the remainder of
this Lease shall not be affected thereby, and it is also the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease contract a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and that is
legal, valid and enforceable.
(g) All references in this Lease to "the date hereof" or similar references
shall be deemed to refer to the last date, in point of time, on which all
parties hereto have executed this Lease.
(h) Time is of the essence of this Lease and all of its provisions.
(i) No animals (except service animals) shall be brought into or kept in or
about the Building.
(j) Tenant agrees to comply with subdivision regulations, protective
covenants, or other restrictions of record that are applicable to the Building
or Office Park.
(k) The duties and obligations of Tenant herein shall be binding upon all or
any of them. The duties and obligations of Tenant shall run and extend not only
to the benefit of the Landlord, as named herein, but to the following, at the
option of the following or any of them: (i) any person, by, through or under
which Landlord derives the right to Lease the Premises; (ii) the owner of the
Premises; and (iii) holders of mortgage, deed to secure debt or rent assignment
interests in the Premises, as their respective interests may appear; provided,
however, nothing contained herein shall be construed to obligate Tenant to pay
Rent to any person other than Landlord until such time as Tenant has been given
written notice of either an exercise of a rent assignment or the succession of
some other party to the interests of Landlord.
(l) This Lease shall create the relationship of landlord and tenant between
the parties hereto; no estate shall pass out of Landlord. Tenant has only a
usufruct, not subject to levy and sale, and not assignable by Tenant except by
Landlord's consent as specifically provided in Paragraph 11 of this Lease.
(m) Notwithstanding anything contained elsewhere in this Lease, Tenant shall
have no claim, and hereby waives the right to any claim, against Landlord for
money damages by reason of any refusal, withholding or delaying by Landlord of
any consent, approval or statement of satisfaction required of Landlord by this
Lease or applicable law. In such event, Tenant's only remedy for any refusal,
withholding or delay which is determined to be unreasonable or in contravention
of this Lease or applicable law shall be an action for specific performance or
an injunction to enforce any such requirement.
(n) Anything contained in this Lease to the contrary notwithstanding, Tenant
shall look solely to the estate and property of Landlord in the Building for the
collection of any judgment or other judicial process requiring the payment of
money by Landlord for any default or breach by Landlord under this Lease,
subject, however, to the prior rights of any mortgagee, the holder of any deed
to secure debt or lessor of
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the Building. No other assets of Landlord or any partners, shareholders, or
other principals of Landlord shall be subject to levy, execution or other
judicial process for the satisfaction of Tenant's claim.
(o) This Lease and the Exhibits and Riders attached hereto set forth the
entire agreement between the parties and cancel all prior negotiations,
arrangements, brochures, agreements, and understandings, if any, between
Landlord and Tenant regarding the subject matter of this Lease. Neither this
Lease, nor any memorandum hereof, shall be recorded by Tenant without Landlord's
prior written consent to such recording.
(p) This Lease shall be governed by and construed under the internal laws of
the State of Georgia, without regard to the conflicts of laws rules of such
state. Any action brought to enforce or interpret this Lease shall be brought in
the court of appropriate jurisdiction in Fulton County, Georgia. Should any
provision of this Lease require judicial interpretation, Landlord and Tenant
hereby agree and stipulate that the court interpreting or considering same shall
not apply the presumption that the terms hereof shall be more strictly construed
against a party by reason of any rule or conclusion that a document should be
construed more strictly against the party who itself or through its agent
prepared the same, it being agreed that all parties hereto have participated in
the preparation of this Lease and that each party had full opportunity to
consult legal counsel of its choice before the execution of this Lease.
(q) No Event of Default or provision of this Lease shall be deemed to have
been waived by Landlord unless such waiver is in writing and signed by Landlord.
Landlord's acceptance of Rent following an Event of Default hereunder, or
acceptance of less than the full amount due (even if Tenant writes the words
"accord and satisfaction" or words of similar import on its check) shall not be
construed as a waiver of such Event of Default, nor excuse any delay or partial
payment upon subsequent occasions. No custom or practice which may develop
between the parties in connection with the terms of this Lease shall be
construed to waive or lessen Landlord's right to insist upon strict performance
of the terms of this Lease, without a written notice thereof to Tenant.
(r) In any action or proceeding between Landlord and Tenant, the prevailing
party shall be entitled to recover reasonable attorneys' fees and expenses which
the prevailing party actually incurs in enforcing the Lease terms.
(s) Landlord shall not be liable to Tenant for failure to give possession of
any portion of the Premises to Tenant if Landlord is delayed in commencing
construction on such portion of the Premises by reason of the unlawful holding
over or retention of possession of any previous tenant, tenants or occupants of
such portion of the Premises, nor shall such failure impair the validity of this
Lease. However, Landlord does agree to use reasonable diligence to obtain
possession of each portion of the Premises in a timely manner so that
construction within such portion of the Premises shall not be delayed.
(t) Notwithstanding any other term or provision of this Lease, in the event
Landlord has made any Rent concession of any type or character or has waived or
deferred the payment of any Rent installment, should Tenant fail to take
possession of the Premises on the Commencement Date or should any Event of
Default occur, all such Rent concessions and waivers or deferrals of Rent
installments shall be canceled and the amount of such concessions, waivers and
deferrals, together with interest at the Interest Rate, shall become immediately
due and payable.
(u) Whenever a period of time is herein prescribed for action to be taken by
Landlord, Landlord shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time, any delays due to
force majeure, which term shall include strikes, riots, acts of God, war, or
governmental laws, regulations and restrictions, or any other cause of any kind
whatsoever which is beyond the reasonable control of Landlord.
(v) Neither Landlord nor Landlord's agents or brokers have made any
representations or promises with respect to the Premises, the Building, the
Land, or any other portions of the Office Park except as herein expressly set
forth and all reliance with respect to any representations or promises is based
solely on
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those contained herein. No rights, easements, or licenses are acquired by Tenant
under this Lease by implication or otherwise except as, and unless, expressly
set forth in this Lease.
(w) The submission of this Lease to Tenant shall not be construed as an
offer and Tenant shall not have any rights with respect thereto unless said
Lease is consented to by any mortgagee, and any lessor of Landlord, to the
extent such consent is required, and Landlord executes a copy of this Lease and
delivers the same to Tenant. When this Lease has been executed by Tenant and
delivered to Landlord, this Lease shall constitute an offer to Landlord to lease
the Premises on the terms and conditions herein described.
(x) Any elimination or shutting off of light, air, or view by any structure
which may be erected on lands adjacent to the Building shall in no way affect
this Lease and Landlord shall have no liability to Tenant with respect thereto.
(y) Landlord has adopted rules and regulations governing parking in the
Office Park (including the designation of fire lanes and "no parking" zones)
(the "Parking Rules") and has allocated a certain number of unassigned parking
spaces to Tenant in this Lease ("Tenant's Allocated Parking Spaces"). Tenant
shall not violate the Parking Rules or regularly use parking spaces in excess of
Tenant's Allocated Parking Spaces, and shall use its best efforts to assure that
its employees, agents, contractors, guests and invitees do not do so. Tenant
hereby agrees to indemnify, defend and hold Landlord harmless from and against
any and all liabilities, costs, damages and expenses incurred or suffered by
Landlord as a result of the failure of Tenant or its employees, agents,
contractors, guests and invitees to comply with the foregoing provisions of this
paragraph.
30. ADDITIONAL PROVISIONS. See Additional Provisions Paragraphs 31 through
48 attached hereto and made a part hereof as if fully incorporated herein and
when in conflict with the body of this Lease, said Additional Provisions shall
prevail.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed in their names on their behalf and their seals affixed hereto by duly
authorized officials, the day and year respectively set forth below.
EXECUTED BY LANDLORD, this day of , 2000.
<TABLE>
<CAPTION>
<S> <C>
Witness SANCTUARY PARK REALTY HOLDING
COMPANY, a Delaware corporation
By: "signed"
Name:
Title:
EXECUTED BY TENANT, as of the 28th of February, 2000.
Witness SIDEWARE CORPORATION,
a Washington corporation
By: "signed"
Name:
Title:
(Corporate Seal)
</TABLE>
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<PAGE>
ADDITIONAL PROVISIONS
ATTACHED TO AND INCORPORATED IN LEASE AGREEMENT BETWEEN SANCTUARY PARK
REALTY HOLDING COMPANY, A DELAWARE CORPORATION ("LANDLORD") AND SIDEWARE
CORPORATION, A WASHINGTON CORPORATION ("TENANT")
31. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide Tenant a Tenant
Improvement Allowance of up to $3.50 per square foot of Net Rentable Area of the
Premises, to be computed, expended and applied in accordance with the Work
Letter attached hereto as Exhibit "C." All improvements from concrete slab to
concrete deck shall be deducted from such Tenant Improvement Allowance. Any
unused portion of the Tenant Improvement Allowance shall be paid to Tenant as
reimbursement for actual, out-of-pocket expenses incurred by Tenant in moving to
the Premises and for costs of installation of data and telephone cabling.
Landlord shall, to the extent of any unused portion of the Tenant Improvement
Allowance, reimburse Tenant for such actual out-of-pocket expenses promptly upon
receipt of invoices from Tenant evidencing expenditure of such sums by Tenant.
Landlord shall have no obligation to reimburse Tenant for any such invoices
submitted after September 1, 2000. Any portion of the Tenant Improvement
Allowance remaining undisbursed after such date shall belong to Landlord.
32. SPACE PLANNING ALLOWANCE. Landlord shall provide Tenant with a Space
Planning Allowance not to exceed $1.40 per square foot of Net Rentable Area of
the Premises for preparation of Working Drawings and Specifications (which shall
include mechanical and engineering plans by Landlord's Engineer, HESM&A, Inc.
Consulting Engineers) to be computed, expended and applied in accordance with
the Work Letter attached hereto as Exhibit "C." Tenant shall be responsible for
the costs of any changes in the Working Drawings and Specifications requested by
Tenant after Tenant has approved such Working Drawings and Specifications. Any
unused portion of the Space Planning Allowance shall be added to the Tenant
Improvement Allowance.
33. PRELIMINARY PLANNING ALLOWANCE. Landlord shall contribute $0.10 per
square foot of Net Rentable Area of the Premises toward costs of a preliminary
space plan to be prepared by the Building's interior architect. Any such costs
in excess of such amount shall be paid by Tenant.
34. PARKING. Landlord shall make available to Tenant throughout the
initial Term of the Lease, four (4) parking spaces per 1,000 square feet of Net
Rentable Area of the Premises in the parking area serving the Building. Such
parking spaces shall be free of charge and unassigned. Landlord reserves the
right to designate parking spaces at a future date.
35. JANITORIAL SERVICES. Janitorial services shall be provided by Landlord
for the Premises on Mondays through Fridays, excluding holidays, pursuant to the
Cleaning Specifications attached hereto as Exhibit "E."
36. SIGNAGE. Tenant identification will be available on the Building's
lobby directory and at the primary entrance to the Premises. All such signage at
the primary entrance to the Premises shall be Building standard plaque signage.
Landlord shall pay the cost of the initial listing in the Building's lobby
directory and Tenant shall pay the cost of the signage at the primary entrance
to the Premises.
37. ACCESS. Except in the case of an emergency, Tenant shall have access
to the Premises, the Building and the related parking facilities twenty-four
(24) hours per day, seven (7) days per week, fifty-two (52) weeks per year.
38. BUSINESS DAYS. The term "Business Day" means Mondays through Fridays,
exclusive of any holidays observed by the Building.
39. AFTER HOURS HVAC. If Tenant requires air-conditioning or heating for
hours or days in addition to the hours and days specified in Paragraph 5 of this
Lease, Landlord shall make reasonable efforts to provide such additional service
after reasonable, prior written request therefor from Tenant, and Tenant shall
reimburse Landlord for the cost of such additional service, at the hourly rates
established from time
29
<PAGE>
to time by Landlord for such services. Such hourly rates shall be based upon
Landlord's cost of providing such services, and shall include a component for
Landlord's overhead, depreciation, maintenance and labor costs in providing such
services. If any of Landlord's other tenants served by the equipment providing
such additional service to the Premises request that Landlord simultaneously
provide such service to such other tenants, the cost of Landlord providing such
additional and concurrent service shall be prorated among all of Landlord's
tenants requesting such service, on a reasonable basis, as determined by
Landlord. As of the date of this Lease, Landlord's hourly charge for providing
after-hours heating or air-conditioning service is $35.00 per hour (or part
thereof), per air-handling unit, but such rate is subject to change from time to
time based upon Landlord's actual costs (which may include the components set
forth above) in providing such after-hours service.
40. EARLY OCCUPANCY. If the Leasehold Improvements are completed prior to
the Commencement Date, Landlord will allow Tenant to occupy the Premises prior
to Commencement Date. In such event, Tenant shall be entitled to occupy the
Premises without payment of Rent until the Commencement Date. Notwithstanding
the fact that the Commencement Date may occur after Tenant occupies the Premises
as set forth in this Paragraph 40, Tenant's occupancy of the Premises during
such period prior to the Commencement Date shall be subject to all of the terms
and conditions of this Lease other than the payment of Rent. Tenant is aware of
the fact that the Premises are currently utilized by Landlord as the Management
Office for the Office Park. Landlord will relocate the Management Office to a
new building under construction in the Office Park as soon as practical after
the date of execution of this Lease by Landlord and Tenant. Landlord will
endeavor to relocate the Management Office on a schedule which will permit
Tenant to occupy the Premises on or about March 15, 2000. However, Landlord
makes no guarantee that the Management Office will be relocated or that the
Leasehold Improvements will be completed by such date so as to permit such early
occupancy by Tenant. Landlord shall have no liability to Tenant for any delay in
occupancy. Landlord and Tenant agree that they will use commercially reasonable
efforts to substantially complete the Leasehold Improvements to the extent
necessary so that Tenant can occupy Premises on or about April 1, 2000.
41. INTERRUPTION OF SERVICES. In the event of any failure to furnish, or
any stoppage of, the following specified services for a period in excess of five
(5) consecutive Business Days, and if: (a) such interruption is restricted to
the Building and is not a neighborhood blackout; (b) such failure to furnish or
stoppage is caused by the negligence or willful misconduct of Landlord or by the
failure of Landlord to commence and diligently pursue repairs for which Landlord
is responsible under this Lease; (c) results in the Premises becoming
untenantable; and (d) Tenant actually ceases to occupy the Premises as a result
thereof, Tenant shall be entitled to an abatement of Rent which shall commence
on the sixth (6th) Business Day (and shall not be retroactive) and shall
continue the remainder of the period of such failure to furnish or stoppage of
such specified services. As used in this Paragraph 41, the specified services
are: electricity, heating, ventilating and air conditioning, and water service.
42. RULES AND REGULATIONS. Notwithstanding anything to the contrary set
forth in the Lease, all Rules and Regulations shall be subject to the following
conditions: (a) all Rules and Regulations must be communicated in writing to
Tenant within a reasonable period of time prior to their effectiveness; (b) all
Rules and Regulations must generally apply to and be enforced in a uniform
manner against all tenants of the Building; (c) no Rule or Regulation shall
conflict with or be inconsistent with any of the provisions of the Lease; and
(d) no Rule or Regulation shall unreasonably diminish or restrict Tenant's
rights or unreasonably increase Tenant's obligations under the Lease.
43. ASSIGNMENT OR SUBLEASE TO AFFILIATES. Notwithstanding the provisions
of Paragraph 11, Tenant shall have the right, upon ten (10) days' prior written
notice to Landlord, to: (a) sublet all or part of the Premises to any related
corporation or entity which controls Tenant, is controlled by Tenant, or is
under common control with Tenant; or (b) to assign this Lease to a successor
corporation into which or with which Tenant is merged or consolidated or which
acquired substantially all of Tenant's assets and property; provided that:
(x) any such assignee or sublessee must be of a character and reputation, be
engaged in a
30
<PAGE>
business, and propose to use the Premises in a manner in keeping with Landlord's
then-current standards in such respect for tenancies in the Building; and
(y) with respect to an assignment under Subparagraph (b), such successor
corporation shall assume all of the obligations and liabilities of Tenant and
shall have assets, capitalization and net worth at least equal to the assets,
capitalization and net worth of Tenant as of the date of this Lease, as
determined by generally accepted accounting principles. Tenant shall provide in
its notice to Landlord the information reasonably required by Landlord to assess
compliance with these terms. For the purpose hereof, "control" shall mean
ownership of not less than fifty percent (50%) of all of the voting stock or
legal and equitable interest in such corporation or entity.
44. CONSENT TO ASSIGNMENT OR SUBLEASING. Notwithstanding the provisions of
Paragraph 11 of the Lease, Landlord shall not unreasonably withhold its consent
to an assignment of this Lease in its entirety or to any subletting of the
Premises, provided that:
(a) No Event of Default shall have occurred and be continuing;
(b) A proposed assignee shall have a financial standing, be of a character,
be engaged in a business, and propose to use the Premises in a manner in keeping
with Landlord's then-current standards in such respects of tenancies in the
Building; and a proposed subtenant shall have a financial standing adequate in
Landlord's reasonable judgment to meet such proposed subtenant's economic
obligations under the sublease and shall be of a character, be engaged in a
business, and propose to use the Premises in a manner in keeping with Landlord's
then-current standards in such respects of tenancies in the Building;
(c) The character of the business to be conducted or the proposed use of the
Premises by the proposed subtenant or assignee shall not: (i) be likely to
increase Landlord's operating expenses beyond those which would be incurred for
use by Tenant or for use in accordance with the standards of use of other
tenancies in the Building; (ii) increase the burden on existing cleaning
services or elevators over the burden prior to such proposed subletting or
assignment; or (iii) violate any provision or restrictions herein or in any
other leases in the Office Park relating to the use or occupancy of the
Premises;
(d) The subletting shall be expressly subject to all of the terms,
covenants, conditions and obligations on Tenant's part to be observed and
performed under this Lease and the further condition and restriction that the
sublease or this Lease shall not be assigned, encumbered or otherwise
transferred or the subleased premises further sublet by the subtenant in whole
or in part, or any part thereof suffered or permitted by the subtenant to be
used or occupied by others, without the prior written consent of Landlord in
each instance, which consent may be granted or denied by Landlord in its sole
discretion;
(e) There shall be no more than two (2) subleases during the Term;
(f) At no time shall there be more than two (2) occupants, including Tenant,
in the Premises (other than on-site contractors, consultants and contract
partners of Tenant who are working with Tenant in its business conducted from
the Premises);
(g) Any assignee shall agree to assume all of the obligations of Tenant
under this Lease;
(h) The proposed subtenant or assignee shall not be a federal, state or
local government, or an agency or instrumentality thereof, nor shall it be
entitled, directly or indirectly, to diplomatic or sovereign immunity;
(i) The proposed subtenant or assignee shall be subject to service of
process in, and the jurisdiction of the courts of, the State of Georgia;
(j) Landlord does not have comparable and similarly sized lobby space
available elsewhere in the Office Park which can accommodate the needs of the
proposed assignee or sublessee; and
(k) The proposed assignee or sublessee is not a prospect to whom Landlord
has made a proposal for the lease of space within the Office Park within the
prior four (4) months, which Landlord believes, in its reasonable discretion, to
remain an active prospect.
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<PAGE>
The foregoing shall in no way limit Landlord's ability: (A) to withhold or
delay its consent for any other reason which is reasonable under the
circumstances; or (B) to terminate this Lease as to the portion of the Premises
affected by such proposed sublease or assignment, as permitted by
Paragraph 11(c) of this Lease.
45. LETTER OF CREDIT. In consideration of Landlord entering into this
Lease and in consideration of financial investments and concessions made by
Landlord pursuant to this Lease, Tenant hereby agrees as follows:
(a) Simultaneously with the execution of this Lease by Tenant, Tenant shall
deliver to Landlord, as additional security for the obligations of Tenant under
the Lease, a clean, unconditional, irrevocable, transferable letter of credit
issued by a bank acceptable to Landlord, in its sole discretion ("Issuer"), in
favor of Landlord, in the amount of THIRTY FOUR THOUSAND AND NO/100 DOLLARS
($34,000.00) (the "Letter of Credit"). The Letter of Credit shall be in the form
attached hereto as Exhibit "G" and by this reference made a part hereof. Tenant
shall maintain the Letter of Credit in favor of Landlord throughout the Term of
the Lease, and for a period of ninety (90) days after the expiration of the Term
of the Lease.
(b) The term of the original Letter of Credit required under this
Paragraph 45 shall commence as of or prior to the date of delivery thereof to
Landlord and shall expire no earlier than August 1, 2001. The expiration date of
the Letter of Credit shall be clearly stated on its face by month, day and year.
The Letter of Credit shall be payable in immediately available funds in U.S.
Dollars upon presentation by Landlord to Issuer of the original of the Letter of
Credit and by sight draft drawn on the Issuer, or any of Issuer's correspondent
banks, wherever located.
(c) The Letter of Credit shall be irrevocable for the term thereof and shall
provide that it will be automatically renewed for successive periods of one
(1) year each without any other action by Landlord or the Issuer through the
period ending not less than ninety (90) days after the Lease Expiration Date.
The Issuer shall have the right not to renew such Letter of Credit by giving
written notice to Landlord not less than ninety (90) days prior to the
expiration thereof. The privilege of the Issuer not to renew such Letter of
Credit shall not relieve Tenant of the obligation to maintain the Letter of
Credit with Landlord through the date which is ninety (90) days after the Lease
Expiration Date. If the Issuer notifies Landlord that the Letter of Credit will
not be automatically renewed at the end of the then current term thereof, Tenant
shall, at least sixty (60) days prior to the expiration of the Letter of Credit,
deliver to Landlord a new Letter of Credit or an endorsement to the existing
Letter of Credit, and any other evidence required by Landlord evidencing that
the Letter of Credit has been renewed or replaced for a period of at least one
(1) year (a "Replacement Letter of Credit"). Notwithstanding the preceding
sentence, any Replacement Letter of Credit is not required to have an effective
date sooner than the Expiry Date of the then existing Letter of Credit, it being
the intent hereof that Tenant not be required to have two outstanding Letters of
Credit at any one time. Each Replacement Letter of Credit shall also be deemed a
"Letter of Credit" for purposes of this Paragraph 45. Except for the term
thereof, each Replacement Letter of Credit shall be identical in form and
content to the original Letter of Credit.
(d) If: (i) an Event of Default has occurred and remains uncured with
respect to Tenant; or (ii) Tenant has filed a petition in Bankruptcy, or an
involuntary petition in Bankruptcy has been filed against Tenant [and such
involuntary petition has not been dismissed within sixty (60) days after filing]
and Tenant is not making or has not made any one or more payments of Monthly
Rental, Additional Rent or any other monetary obligation of Tenant to Landlord
under the Lease; Landlord may draw upon any Letter of Credit on one or more
occasions. Thereafter, Landlord shall be entitled to use, apply and retain the
proceeds of such draw or draws on a Letter of Credit for the payment of any one
or more of the following: (A) any Monthly Rental, Additional Rent or other sums
of money that Tenant may not have paid when due; and (B) reimbursement to
Landlord of any sum which Landlord may expend or be required to expend by reason
of such Event of Default, including, without limitation, any damage or
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<PAGE>
deficiency incurred by Landlord as a result of the reletting of the Premises (as
provided in this Lease). If any of the proceeds of the Letter of Credit are not
applied immediately to cure any default of Tenant, Landlord shall hold such
unapplied proceeds as cash security in accordance with Paragraph 3(g) of the
Lease. If the Issuer gives notice that the Letter of Credit will not
automatically renew, and Tenant shall fail to renew or replace the Letter of
Credit with a Replacement Letter of Credit on or before the deadline for such
delivery, Landlord may present the Letter of Credit for payment and retain the
proceeds thereof as a part of the Security Deposit in lieu of the Letter of
Credit.
(e) The use, application or retention of the proceeds of such draw or draws
on the Letter of Credit, or any portion thereof by Landlord shall not prevent
Landlord from making any further draws upon any Letter of Credit or from
exercising any other right or remedy available to Landlord under the Lease or
applicable law (it being intended that Landlord shall not first be required to
proceed to draw upon any Letter of Credit) and shall not operate as a limitation
on any recovery to which Landlord may otherwise be entitled.
(f) Tenant waives any right to require that resort be had to any Security
Deposit or any credit on the books of Landlord in favor of Tenant or any other
person, or that Landlord pursue any other remedy or remedies, prior to or after
Landlord's pursuing any draw under any Letter of Credit. In the event of an
Event of Default under this Lease, Landlord shall have the right to enforce its
rights, powers and remedies hereunder or under any other instrument now or
hereafter evidencing, securing or otherwise relating to the transactions
contemplated by the Lease, or with respect to the Letter of Credit, in any order
and on one or more occasions, all as Landlord shall determine, in its sole and
absolute discretion, and all rights, powers and remedies available to Landlord
in such event shall be non-exclusive and cumulative of all other rights, powers
and remedies provided thereunder or hereunder or by law or in equity, and no
exercise by Landlord of any such rights, powers or remedies shall constitute an
election of remedies by Landlord or shall preclude the subsequent exercise by
Landlord of any of the other rights, powers and remedies available to Landlord.
(g) If Landlord makes any draw upon any Letter of Credit, Tenant shall
restore the Letter of Credit to the original amount thereof within ten
(10) days after Tenant receives notice of such draw. Any failure by Tenant to do
so by such deadline shall constitute an Event of Default by Tenant under this
Lease, without the necessity of any notice from Landlord and without any grace
period or cure rights.
(h) Tenant acknowledges that Landlord has the right to transfer or mortgage
its interest in the Premises and in this Lease, and Tenant agrees that in the
event of any such transfer or mortgage, Landlord shall have the right to
transfer or assign its rights with respect to the Letter of Credit, subject to
Landlord's obligations with respect to the same. Upon written acknowledgment of
such transferee's or mortgagee's acceptance of such rights and assumption of
Landlord's obligations with respect to any Letter of Credit, Tenant shall look
solely to such transferee or mortgagee with respect to any Letter of Credit, and
Landlord shall thereby be released by Tenant from all liability or obligation
with respect to any Letter of Credit, or the proceeds thereof. If Landlord
desires to transfer the Letter of Credit to such new transferee or mortgagee,
Tenant shall cooperate in effecting such transfer; provided that Landlord shall
pay the Issuer's usual and customary fee for transferring such Letter of Credit.
(i) If Landlord at any time, or from time to time, requests any reasonable
change in the terms, conditions or provisions of the Letter of Credit, Tenant
shall promptly cause such Letter of Credit to be so modified. In addition,
Tenant shall cause the Letter of Credit to be amended from time to time upon
written request of Landlord to change the address to which notices to Landlord
are to be sent and/or to change the identity of persons or addresses to whom or
which courtesy copies of notices to Landlord are to be sent. If the Letter of
Credit is lost, mutilated, stolen, or destroyed, Tenant shall cooperate with
Landlord's efforts to cause the Issuer to cancel the lost, mutilated, stolen or
destroyed Letter of Credit and to replace such Letter of Credit.
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<PAGE>
(j) Tenant shall have the right to substitute one letter of credit for
another if the substitute letter of credit meets the requirements of this
Paragraph 45 and is in form satisfactory to Landlord. In addition, Tenant shall
substitute another letter of credit meeting the requirements of this
Paragraph 45 for the Letter of Credit held by Landlord if the Issuer of the
Letter of Credit becomes insolvent or if the Letter of Credit is void,
unenforceable, or uncollectable. If the Issuer of the Letter of Credit becomes
unacceptable to Landlord for good reason, Tenant shall, within fifteen
(15) days after notice is given Tenant by Landlord, deliver to Landlord either a
substitute Letter of Credit meeting the requirements of this Paragraph 45, or
cash security in the amount of the Letter of Credit.
(k) Tenant shall not assign or encumber the Letter of Credit, and any such
purported assignment or encumbrance shall be void and of no effect.
(l) Provided Landlord has not notified the Issuer in writing that there then
exists an Event of Default by Tenant under this Lease, or a state of facts
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default by Tenant, the amount of the Letter of Credit
required shall be automatically reduced to the amount set forth in the table
below as of the date specified:
<TABLE>
<CAPTION>
REDUCED AMOUNT OF
DATES OF REDUCTION LETTER OF CREDIT
- ------------------ -----------------
<S> <C>
August 1, 2001............................................. $23,883.00
August 1, 2002............................................. $12,594.00
</TABLE>
After Landlord has notified the Issuer that an Event of Default has occurred
under the Lease there shall be no further reduction in the amount of the Letter
of Credit.
(m) If Tenant fully and faithfully complies with all the terms, covenants,
conditions and provisions of this Lease, the Letter of Credit shall be returned
to Tenant within ninety (90) days after the Lease Expiration Date and delivery
of possession of the Premises to Landlord in accordance with the provisions of
the Lease.
(n) If Landlord makes any draw under the Letter of Credit, which draw is not
applied as permitted in this Paragraph 45 but is to be held as a Security
Deposit, such Security Deposit shall be held by Landlord without liability for
interest except to the extent required by law and as security for the
performance of Tenant's covenants and obligations under this Lease.
46. USE OF THE PREMISES. enant acknowledges that, because of the lobby
exposure of the Premises, the appearance of the Premises is of critical
importance to Landlord. Tenant hereby agrees that the reception area and
conference room area located within the Premises will be designed, decorated,
furnished and maintained by Tenant in a manner reasonably satisfactory to
Landlord, at a level comparable with the standards maintained elsewhere in the
Office Park.
47. GUARANTY OF LEASE. In order to induce Landlord to enter into this
Lease, Tenant's obligations hereunder shall be guaranteed by Sideware
Systems, Inc., a Canadian corporation ("Guarantor"). Simultaneously with
Tenant's execution of this Lease, Tenant shall have the Guaranty attached hereto
as Exhibit "H" and by this reference made a part hereof (the "Guaranty")
executed by Guarantor and shall deliver such executed Guaranty to Landlord
contemporaneously with Tenant's delivery of the executed Lease to Landlord.
Whenever Tenant exercises any extension option, expansion option, right of first
offer, right of first opportunity or otherwise takes any action which requires
an amendment to this Lease, it shall be a condition to Tenant's right to
exercise such right or take such action that Tenant cause Guarantor to execute a
consent and reaffirmation of the Guaranty in form and substance satisfactory to
Landlord.
48. CAP ON CONTROLLABLE OPERATING EXPENSES. "Controllable Operating
Expenses" (as hereinafter defined) for calendar year 2001, and each year
thereafter, shall not increase by more than five percent (5%) per annum, on a
compounded and cumulative basis over the actual amount of such "Controllable
Operating Expenses" for calendar year 2000. As used herein, the term
"Controllable Operating Expenses"
34
<PAGE>
means all Operating Expenses other than taxes, insurance and utilities, costs
subject to government regulation, such as minimum wages, and all costs incurred
to comply with new or revised federal or state laws, municipal or county
ordinances or codes or regulations promulgated under any of the same. By way of
illustration of the foregoing, in calendar year 2002, the Controllable Operating
Expenses shall not exceed the amount determined by the following formula, when
"X" equals the actual amount of the Controllable Operating Expenses for calendar
year 2000:
X times 1.05 times 1.05 = maximum amount of Controllable Operating Expenses
for calendar year 2002.
Thus, if Controllable Operating Expenses for 2000 are $4.00 per square foot
of Net Rentable Area, the maximum amount of Controllable Operating Expenses for
calendar year 2002 would be $4.00 X 1.05 X 1.05 = $4.41 per square foot of Net
Rentable Area.
35
<PAGE>
EXHIBIT 10.20--SUB-LEASE AGREEMENT DATED JANUARY 15, 2000
AMONG SAN JOSE STATE UNIVERSITY FOUNDATION AND SIDEWARE SYSTEMS INC.
<PAGE>
INTERNATIONAL BUSINESS INCUBATOR SUBLEASE
This Sublease is made and entered into as of this January 15, 2000 between
the San Jose State University Foundation, the non-profit corporation operating
the International Business Incubator, as Sublessor and Sideware Systems Inc., as
SubLessee. The San Jose State University Foundation hereinafter referred to as
SJSUF, will operate this site under the project name "International Business
Incubator" (IBI) pursuant to an operating agreement with the Redevelopment
Agency of the City of San Jose (SJRDA), executed October 24, 1996.
RECITALS
A. W9/PHC Real Estate Limited Partnership as Landlord, and the Redevelopment
Agency of the City of San Jose, as tenant, and the San Jose State University
Foundation (SJSUF), as Subtenant, entered into a Lease Agreement dated
December 1, 1996, for the lease of certain premises more particularly described
in the Lease, consisting of approximately 14,478 square feet of space in the
building located at 111 N. Market Street, City of San Jose, County of Santa
Clara, State of California (the "Building").
B. Subject to the Master Lease, SJSUF desires to sublease a portion of the
premises it operates under the Master Lease, for the term described below, and
Sublessee desires to sublease such Premises from SJSUF on the terms and
conditions stated below. For purposes hereof, the portion of the Building not
being subleased to Sublessee hereunder is hereinafter referred to as the
"Remaining Space."
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. AGREEMENT: PROVISIONS CONSTITUTING SUBLEASE; SUBORDINATION; DEFAULTS
1.1 AGREEMENT. This Sublease is subject to and subordinate to the
terms and conditions of the Master Lease, to the extent that said terms are
applicable to the Premises subleased. SJSUF reserves the right to grant to
this Sublessee and all other Sublessees of the Remaining Space and to
agents, employees, servants, invitees, contractors, guests, customers and
representatives of Sublessees or to any other user authorized by SJSUF, the
non-exclusive right to use the Common Area for pedestrian ingress and
egress. SubLessee shall have access to the Building by means of security
access jointly established by the Landlord, SJSUF. SubLessee shall comply
with such reasonable directives or rules or regulations as Landlord and
SJSUF may establish for SubLessee's access to the Premises through the
Remaining Space.
1.2. SUBORDINATION; DEFAULT UNDER MASTER LEASE AND
SUBLEASE. Notwithstanding anything in the Sublease to the contrary,
SubLessee agrees that neither the Redevelopment Authority of the City of San
Jose (SJRDA) nor SJSUF shall have any liability of any nature whatsoever to
SubLessee as a consequence of Landlord's or SJSUF's failure or delay in
performing its obligations under the Master Lease or Sublease. SubLessee's
obligations hereunder shall not be impaired nor shall the performance
thereof be excused because of any failure or delay by SJSUF in performing
its obligations under the Master Lease and Sublease unless (i) such failure
or delay results from Landlord's default under the Master Lease or Sublease
and said default is not due to a default of SubLessee under this Sublease,
or (2) such failure or delay results from Landlord's or SJSUF's willful
misconduct. Under no circumstances shall SubLessee have the right to require
performance by SJRDA or SJSUF of Landlord's obligations under the Lease.
2. SUBLEASE TERM. The term of this Sublease shall commence on January 15,
2000 (the "Commencement Date") and shall run month-to-month. SJSUF shall not be
liable for any damage or loss incurred by SubLessee for SJSUF's failure for
whatever cause to deliver possession of the Premises by any particular date.
3. RENT.
3.1 MONTHLY INSTALLMENT OF BASE RENT. Lessee shall pay
$1,435.00 monthly, as full service rent for the sublease of the Premises as
described in Exhibit "A". The location of the office is
<PAGE>
111 N. Market St., Suite 646, San Jose, CA 95113. Full service rent shall
include cost of furniture supplied by SJSUF as well as HVAC, electricity,
gas, water, sewage, security system, janitorial, pest control, real estate
taxes and maintenance of building and grounds as supplied by SJSUF. Rent
shall be payable on the 1st day of each month without deduction, offset,
prior notice or demand to the International Business Incubator staff, as
agents for SJSUF at 111 N. Market St., San Jose, California. Checks shall be
made payable to SJSUF. Any monthly installments of rent not paid within
ten (10) days of the due date shall be subject to a late charge of
ten percent (10%).
3.2 SECURITY DEPOSIT. SubLessee shall pay equivalent of two months'
rent $2,870.00, as a non-interest bearing security deposit. In the event
SubLessee has performed all of the terms and conditions of this Sublease
throughout the term, upon vacating the premises, the amount paid as a
security deposit shall be returned to SubLessee after first deducting any
sums owing SJSUF and fees for repainting offices.
3.3 RECEIPT. Receipt from SubLessee of $2,870.00, as non-interest
bearing security for performance under this Sublease
4. USE. SubLessee shall use the Premises exclusively for general office
use or prototype development only and for no other purpose without the prior
written consent of SJSUF. SubLessee shall not engage in any noisy, illegal or
dangerous trade on the premises. SubLessee shall not make any alterations,
improvements or additions to the Premises without prior written approval from
SJSUF.
5. NOTICES. Any notice required or desired to be given under this Sublease
shall be in writing and all notices shall be given by personal delivery or
mailing (mailed notices to SJSUF shall be made to 111 N. Market St., San Jose,
CA). Either SJSUF or SubLessee may terminate this lease by giving
thirty (30) days written notice.
6. DAMAGE AND DESTRUCTION. Neither SJSUF, nor Landlord shall have any
obligation to rebuild, restore or repair all or any portion of the Premises,
building in which the Premises are situated, or common areas in the event of any
damage or destruction thereto. Neither SJSUF nor Landlord shall have any
obligation for loss or damage of personal property of Lessee.
7. ASSIGNMENT AND SUBLETTING. SubLessee shall not assign SubLessee's
interest in the Sublease or in the Premises or further sublease all or any part
of the Premises during the Sublease Term without the written consent of SJSUF.
8. INDEMNIFICATION. SubLessee shall indemnify, hold harmless, and defend
SJSUF, and its agents and partners from and against all claims for damage, loss,
liability or expense, including without limitation, attorney's fees and legal
costs suffered directly or by reason or claim, suit or judgment brought by or in
favor of any person(s) for damage loss or expense due to, but not limited to
bodily injury, death or property damage arising out of, or occasioned by, or in
any way attributable to the use or occupancy of the Premises or any part thereof
or adjacent by the Sublessee, the acts and omissions of the Sublessee, its
agents, employees, assigns, invitees, or any contractors brought onto the
Premises by the Sublessee, except to the extent that such damage, or loss is
caused by the active or passive negligence or willful misconduct of SJSUF or
their agents. Sublessee agrees that the obligations assumed herein shall survive
this Sublease.
In the event of a misunderstanding or a dispute on any section of this
agreement such dispute will be sent first to mediation (voluntary and mutual
settlement negotiation). And failing resolution will go to binding arbitration
under modified UNCITRAL rules.
9. ENTIRE AGREEMENT. This Sublease, together with all exhibits attached
hereto, is the entire agreement between the parties, and there are no binding
agreements or representations between the parties except as expressed herein.
All exhibits referred to or attached to this Sublease shall be deemed to be
incorporated herein by the individual reference to each such exhibit, and all
such exhibits shall be deemed a part of this Sublease as though set forth in
full in the body of the Sublease.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease effective as of
the date herein above set forth.
SUBLESSEE
Name: ________________________________
Signature: __________"signed"_________
Company: _____________________________
Title: _______________________________
Date: ________________________________
SUBLESSOR
Name: ___________Mary Worth___________
Signature: __________"signed"_________
Company: _San Jose State University
Foundation_
Title: ____Chief Operating Officer____
Date: ________________________________
EXHIBIT to Sublease:
A. Floor Plan of Premises with Cross-hatched space to be Leased by the
SubLessee.
3
<PAGE>
EXHIBIT 10.21--LEASE AGREEMENT DATED FEBRUARY 24, 2000
BETWEEN CEO SUITES, INC. AND SIDEWARE CORP.
<PAGE>
OFFICE LEASE AGREEMENT
This lease dated February 24, 2000, between CEO Suites, Inc. having offices
at 2300 North Barrington Road, Suite 400, Hoffman Estates, Illinois 60195,
hereinafter called "Lessor", and Sideware Corporation, hereinafter called
"Lessee", for the term and subject to the conditions hereinafter set forth.
Lessor hereby grants the Lessee the privilege to use in such premises the common
areas within the Lessor's suite of offices which will be shared with other
tenants as the Lessor may designate. The facilities are more particularly
described in Schedule "A" annexed hereto.
L. USE
Lessee shall use and occupy Office Number 469, with maximum occupancy of
one (1) person(s) only for the following purpose: General offices.
Additionally, Lessee shall not offer at the premises any of the services
which Lessor provides to its other Lessees, including, but not limited to, those
services described in Schedules "A" and "B" attached hereto.
The Lessee will not make or permit to be made any use of the premises or any
part thereof which would violate any of the covenants, agreements, terms,
provisions and conditions of this lease or which directly or indirectly is
forbidden by public law, ordinance or government regulations or which may be
dangerous to the life, limb, or property, or which may invalidate or increase
the premium of any policy of insurance carried on the property or covering its
operation, or which will suffer or permit the premises or any part thereof to be
used in any manner or anything to be brought into or kept therein which, in the
judgment of Lessor, shall in any way impair or tend to impair the character,
reputation or appearance of the property as a high quality office building, or
which will impair or interfere with or tend to impair or interfere with any of
the services performed by the Lessor for the property.
2. TERM
The term of this lease shall be for a period of twelve (12) months
commencing on or about the 1st day of April, 2000 and ending on the 31st day of
March, 2001. At expiration, lease shall be renewed for the same period of time
and upon the same terms and conditions as contained herein unless either party
notifies the other in writing in accordance with Paragraph 15 of the lease
agreement. In the event that Lessee elects not to renew this lease at
expiration, Lessee shall give sixty (60) days prior written notice to Lessor.
3. BASE RENT
During the term of this lease, Lessee shall pay Lessor a total base rental
of $11,100.00, payable in equal monthly installments of $925.00 each in advance
on the first day of each calendar month after commencement of this lease. The
base rent shall be prorated for any fractional period. The base rent shall
include all items listed in Schedule "A" attached. The first such payment or
rental as well as the security deposit shall be due and payable prior to the
physical occupancy of the premises by the Lessee.
4. SECURITY DEPOSIT
Lessee hereby deposits with Lessor the sum of $1,500.00, as security for
full performance by Lessee of the terms and conditions of this lease. The
security deposit or any balance thereof shall be returned sixty (60) days after
Lessee has vacated and left the premises in an acceptable condition, following a
personal inspection by Lessor, and surrendered all keys. It is agreed that the
security deposit is not to be considered rental payment under this lease.
5. POSSESSION
If Lessor for any reason cannot deliver possession of the leased premises to
Lessee at the commencement of the lease term, Lessor shall not be liable to
Lessee for any loss or damage resulting
<PAGE>
therefrom, but there shall be a rent abatement for the period between
commencement of the lease term and the time when Lessor does deliver possession.
6. SERVICES INCLUDED
Provided Lessee is not in default hereunder, during the term of this lease
the services listed in Schedule "A" attached will be provided by Lessor to the
Lessee during Lessor's normal business hours without additional charge. Lessor
agrees to furnish such services from 8:00 a.m. to 5:00 p.m., Monday through
Friday, except holidays designated by Lessor and excluding any days when an Act
of God or governmental decree prevents Lessor's employees from reporting to
work.
7. ADDITIONAL SERVICES
In addition, provided Lessee is not in default hereunder and provided the
cost thereof does not exceed one-half of Lessee's security deposit, services
will be provided by Lessor as shown in Schedule "B" attached are available to
Lessee at the charges listed in Lessor's price schedule dated February 28, 2000.
Lessor guarantees this schedule of costs to remain for sixty (60) days. Any
changes in rates will have thirty (30) days prior written notice and commence
only after thirty (30) days. All charges for additional services used by Lessee
will be billed (not less frequently) monthly and shall be due and payable, on
the fifth (5th) day of each calendar month. These office lease charges will be
paid to CEO Suites, Inc., 2300 North Barrington Road, Suite 400, Hoffman
Estates, Illinois 60195.
Lessee shall pay for Schedule "B" services in excess of one-half (l/2) of
Lessee's security deposit in advance or, at Lessor's option, within
twenty-(24) hours of the date on which such services are provided. In the event
that Lessee fails to make payment for Schedule "B" services as herein provided,
Lessor shall, in addition to the remedies available to Lessor pursuant to
Paragraph 8 hereof, be entitled to apply Lessee's security deposit toward the
cost of such services and shall in addition be entitled to suspend services
pursuant to either Schedule "A" or Schedule "B" until such time as the security
deposit is restored in full and Lessee has paid all sums due for such services.
8. LATE PAYMENT
In the event that Lessee is more than fifteen (15) days delinquent in paying
for the rentals due, as stated in Paragraph 3, or for the additional services
rendered and invoiced in accordance with Paragraph 7, a late payment charge of
l.5% per month of the amounts invoiced will be assessed, but in no event less
than $15.00. A charge of $40.00 will be assessed for any returned checks.
9. DEFAULTS AND REMEDIES
Any of the following events shall constitute default on the part of the
Lessee:
a. Failure to pay rental or service charges, including any late payment
assessments, by the fifteenth (15th) day of the month when due;
b. Any breach or failure of the Lessee to observe or perform any of its
other obligations thereunder;
c. The Lessee dies, abandons the premises, commits an act of bankruptcy,
becomes insolvent, makes an assignment for the benefit of creditors, or
offers a composition or extension of any of its indebtedness.
Upon the occurrence of any such default, Lessor or its agents shall have
the right to exercise any one or more of the following remedies:
d. To apply Lessee's security deposit to the indebtedness;
2
<PAGE>
e. To re-enter and take possession of the said premises and remove all
persons and property therefrom, as well as disconnect any telephone lines
installed for the benefit of Lessee, without being deemed to have
committed any manner of trespass, and re-let the premises or any part
thereof, for all or any part of the remainder of said term at a rental
that Lessor may, with reasonable diligence, be able to obtain;
f. To demand and sue to recover damages for Lessee's default.
Should Lessor be unable to re-let the premises after reasonable effort, or
should the rental be less than that which Lessee was obligated to pay under this
agreement, Lessee shall pay the amount of such deficiency to Lessor plus
re-letting expenses. Lessee hereby waives any and all damages occasioned by such
taking of possession by Lessor. Any such taking of possession shall not
constitute a termination of this agreement and shall not relieve Lessee of its
obligations hereunder.
10. TITLE
Lessee shall have possession of the office being leased hereunder and the
leased furniture and fixtures within that office only during the terms of this
agreement, and title thereto shall be and remain in the Lessor at all times.
Lessee shall not lend, grant a security interest in, sublet, or part with
possession of the office or furniture and fixtures, or attempt in any manner to
dispose of or remove the furniture from the premises, or suffer any liens or
legal process to be incurred.
11. INSPECTION AND SURRENDER
Lessor may, at any reasonable hour and upon reasonable notice, enter
Lessee's office for the purpose of inspecting same and in the manner which it is
being used. On expiration or termination of this lease, including any extended
term, Lessee agrees to promptly surrender and deliver the leased premises to
Lessor without demand therefore and in good condition, ordinary wear and tear
excepted. Lessor shall have the right to show Lessee's office during the
sixty (60) day period after notice to vacate is received.
In the event that Lessee fails to surrender the premises as provided above,
Lessee agrees to pay Lessor, as liquidated damages, a sum equal to twice the
monthly rent and additional charges to be paid by Lessee to the Lessor for all
the time Lessee shall so retain possession of the premises or any part thereof;
provided, however, that the exercise of Lessor's rights under this clause shall
not be interpreted as a grant of permission to Lessee to continue in possession.
12. LESSOR'S LIABILITY
The Lessor shall not be liable or responsible to Lessee for any injury or
damage resulting from the acts or omissions of Lessor's employees, persons
leasing office space or services from the Lessor, or other persons occupying any
part of the building of which the leased property is a part, or for any failure
of services provided such as electricity, water and heat, or for any injury or
damage to persons or property caused by any person (except for such loss or
damage resulting from willful or grossly negligent misconduct of the Lessor, its
agents or employees) or from Lessor's failure to make repairs which it is
obligated to make hereunder.
The Lessor shall not be liable, as a result of any breach or action arising
out of or resulting from this agreement, including, but not limited to, errors
or omissions in providing services hereunder, for any damages in excess of the
amount actually paid to Lessor for providing such services, nor shall Lessor be
liable for any item of damage measured by lost profit resulting to Lessee.
Lessee agrees to pay, and to protect, indemnify and save harmless Lessor and
all beneficiaries, agents and employees of Lessor from and against any and all
liabilities, losses, damages, costs, expenses (including all attorneys' fees and
expenses of Lessor), causes of action, suits, claims, demands or judgments of
any nature whatsoever (except those arising solely from the acts of Lessor, its
agents or employees) arising
3
<PAGE>
from (a) any injury to, or death of, any person or any damage to property on the
premises or Lessor's suite of offices, or in any manner growing out of or
connected with the use, non-use, condition or occupation of the premises or
Lessor's suite of offices or resulting from the condition thereof,
(b) violation of any agreement or condition of this lease, and (c) violation by
Lessee of any contract or agreement to which Lessee is a party or any
restriction, statute, law, ordinance or regulation, in each case affecting the
premises or any part thereof or the occupants' use thereof.
13. WAIVER OF BREACH
No failure by the Lessor to insist upon the strict performance of any term
or condition of this lease or to exercise any right or remedy available on a
breach thereof, and no acceptance of full or partial payment during the
continuance of any such breach shall constitute a waiver of such breach or any
such term or condition. No term or condition of this lease required to be
performed by the Lessee, and no breach thereof, shall be waived, altered or
modified, except by a written instrument executed by the Lessor. No waiver of
any breach shall affect or alter any term or condition in this lease, and each
such term or condition shall continue in full force and effect with respect to
any other then-existing or subsequent breach thereof.
14. STAFF
Lessee agrees not to offer employment to, employ, any employees of the
Lessor, or any persons who have been employees of Lessor within the preceding
months following termination of the agreement. An amount equal to three
(3) months' salary paid by Lessor to the employees shall be levied by Lessor to
the Lessee as liquidated damages for each such breach.
15. NOTICES
All notices to be given by one party to the other under this agreement shall
be in writing, delivered personally within the premises or sent by United States
Certified or Registered Mail, postage prepaid. Such notices properly addressed
and mailed as herein stated shall be deemed notice for all purposes even if
undelivered. Lessor's address for such purposes is as stated on page one of this
lease. Lessee hereby designates its address as 208 Eldin, Suite 200, Herndon, VA
20170. From time to time either party may, by written notice to the other,
designate other addresses to which notices thereafter shall be addressed. Upon
ending date set forth herein, the lease herein shall be extended for the same
period of time as the initial term 5% over the Lessee's current rental rate.
16. RULES AND REGULATIONS
Lessee will conduct themselves in a business-like manner at a noise level
which will not be a nuisance to others on the Office premises, wear proper
attire and abide by the landlord's directives regarding security, keys, parking
and other such matters common to all occupants. If the Lessee requires any
special work or services such as electrical or telephone wiring, or heat or air
conditioning outside of normal business hours, such work or services shall be
arranged by Lessor at the request and expense of the Lessee.
Lessee will not use or store any flammable materials on the premises, affix
anything on the windows, walls or any part of the premises without the prior
written approval of the Lessor; bring animals or vending machines into the
premises; cook or permit any offensive gases, odors or liquids on the premises;
CIGARETTE, CIGAR AND PIPE TOBACCO IS PROHIBITED ANYWHERE IN THE BUILDING
INCLUDING YOUR PRIVATE OFFICE; obstruct corridors, elevators and stairways or
use them for any purpose other than ingress and egress; store or operate any
large business machines, photocopiers, radios, stereos or other amplification
equipment without Lessor's prior written consent. If such consent is granted,
Lessee shall be responsible for payment to Lessor for those utility costs.
4
<PAGE>
Lessee using public areas can only do so with the consent of the Lessor, and
those areas must be kept neat and attractive at all times.
No advertisement or identifying signs or other notices shall be inscribed,
painted or affixed on any part of the corridors, doors or public areas.
The Lessor and its agents shall have the right to enter the premises at all
reasonable hours for the purpose of making any repairs, alterations or additions
which it shall be deemed necessary for the preservation, safety or improvements
of said office without in any way being deemed or held to have committed an
eviction of the Lessee therein.
The Lessee shall give the Lessor immediate access to the premises to show
said premises on Lessee giving notice of intent to vacate in accordance with the
provisions of the lease agreement. The Lessee shall in no way hinder the Lessor
from showing said premises.
Lessor reserves the right to make any other reasonable rules and regulations
as in its judgment may be needed for the safety, cleanliness, care and
attractiveness of the offices, provided such additions or changes do not
discriminate against Lessee.
This agreement shall at all times be subject and subordinate to the main
lease under which licensor holds or shall hold possession of the facilities, and
shall terminate upon termination of the main lease, without any liability on the
part of the licensor whatsoever.
17. MODIFICATIONS OR AMENDMENTS
All of the representations and obligations of Lessor and Lessee are
contained herein, and no modification, waiver or amendment of this agreement, or
any of its conditions or provisions, shall be binding upon either party unless
in writing and signed by both parties.
18. HOLDING OVER
If the Lessee retains possession of the premises or any part thereof after
the termination of the term by lapse of time or otherwise, the Lessee shall pay
the Lessor rent at double the rate SPECIFIED IN SECTION 15 for the time the
Lessee thus remains in possession, and in addition thereto, shall pay the Lessor
all damages sustained by reason of the Lessee's retention of possession. If the
Lessee remains in possession of the premises or any part thereof, after the
termination of the term by lapse of time or otherwise, such holding over shall,
at the election of the Lessor expressed in a written notice to the Lessee and
not otherwise, constitute a renewal of this lease for one year at 10% over the
specified rate in Section 15. The provisions of this Section do not waive the
Lessor's rights of reentry or any other right hereunder.
19. RELOCATION OF TENANT
Notwithstanding anything stated to the contrary herein, at any time after
the date of this lease, Landlord may substitute for the Premises, other premises
on the floor (the new "Premises"), in which event the New Premises shall be
deemed to be the Premises for all purposes under this Lease, provided; the New
Premises shall be substantially similar to the Premises in area and
configuration; the substitution shall be made in order to lease the Premises to
a prospective or another tenant on the floor; if Tenant is then occupying the
Premises, Landlord shall pay the actual and reasonable expenses of physically
moving Tenant, its property and equipment to the new Premises; Landlord shall
give Tenant not less than fifteen (15) days prior written notice of such
substitution.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this lease on the date
first written above.
<TABLE>
<S> <C>
CEO SUITES, INC. SIDEWARE CORPORATION
By: By:
Lessor Lessee (Signature)
Title:
(Print name)
Date: Title:
Date:
Social Security Number:
Driver's License and State:
</TABLE>
- --------------------------------------------------------------------------------
GUARANTY
In consideration of the making of the above lease by the Lessor with the
Lessee at the request of the undersigned and in reliance on this guaranty, the
undersigned hereby guarantees the payment of the rent to be paid by the Lessee
and the performance by the Lessee of all the terms, conditions covenants and
agreements of the Lease, and the undersigned promises to pay all the Lessor's
expenses, including reasonable attorney's fees, incurred by the Lessor in
enforcing all obligations of the Lessee under the lease or incurred by the
Lessor in enforcing this guaranty. If this guaranty shall be executed by more
than one party their respective liability pursuant to said guaranty shall be
joint and several.
WITNESS the hand and seal of the undersigned at the date of the above lease.
Lessee (Signature): __________________
Lessee (Print Name): _________________
Social Security Number: ______________
Driver's License and State: __________
6
<PAGE>
ADDENDUM #1
It is hereby agreed between both parties that the rental payments shall
conform to the following schedule:
April 1, 2000 through March 31, 2001
<TABLE>
<S> <C>
Base Rent: $ 925.00**
Monthly Phone Package: $ 50.00
TOTAL MONTHLY FIXED CHARGES: $ 975.00
ONE TIME FEES:
Building Directory and Access Card: $ 75.00
Telephone Installation: $ 125.00
Fax Line Installation: $ 175.00
Security Deposit: $1,500.00
Total--One Time Fees: $1,875.00
</TABLE>
* This amount reflects free rent amortized over the term of the lease.
<TABLE>
<CAPTION>
<S> <C>
CEO SUITES, INC. SIDEWARE CORPORATION
By: "signed" By: "signed"
(Signature)
(Print Name)
Title: Title:
Dated: Dated:
</TABLE>
7
<PAGE>
SCHEDULE "A"
Private Furnished Suite
Telephone answering in your company name with 24 hour access to voice mail
(unlimited messages)
Elegant Reception Area
24-Hour, 7 Day a Week Access to Building
Your Company Name on Building Directory
Receptionist to Greet and Announce Visitors
Utilities and Maintenance
Daily Mail Service
Building Security
Janitorial Service Monday through Friday
Full-Time Management on Premise
Prestigious Corporate Address
Strategic Business Location
Lounge
Conference Rooms
Use of Audio-Visual Equipment on Premises
Free Parking
Background Music
Use of FAX number
8
<PAGE>
SCHEDULE "B"
<TABLE>
<S> <C>
Secretarial Service: $26.00 an hour--billed at 15 minute
increments
Word Processing: $26.00 an hour--billed at 15 minute
increments
Facsimile Transmission--Send/Receive: $1.00/Page
Photocopies: 15 for 1-1000--13 for over 1000--10 over 2000
Office Supplies: 10% under catalog price
Coffee Service: $15.00 per month/per person
Metered Mail: Postage plus 15%
Federal Express, etc.: Standard carrier rates plus 15% handling fee
UPS: Standard Carrier rates plus $2.00
Electricity: $5.00 per month for each electrical piece of
office equipment (ie: computer, fax machine,
printer)
Spiral Binding: Small--$3.00
Medium--$3.50
Large--$4.00
Notary Service: $5.00 per document
</TABLE>
(on premise)
9
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Sideware Corp.
3032650 Nova Scotia Corp.
Sideware International SRL
9050 Investments Ltd.
Evergreen International Technology Inc.
9123 Investments Ltd.
Doorchester 52613 Investments Ltd.
