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As filed July 15, 1999 File No. 333-_____
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALYA INTERNATIONAL, INC.
(Exact name of small business issuer in its charter)
DELAWARE 7373 94-3252633
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
16 FAWCETT ROAD, SUITE 101, COQUITLAM (VANCOUVER), BRITISH COLUMBIA V3K 6X9,
CANADA
(604) 528-9982
(Address and telephone number of principal executive offices)
16 FAWCETT ROAD, SUITE 101, COQUITLAM (VANCOUVER), BRITISH COLUMBIA V3K 6X9,
Canada
(Address of principal place of business or intended principal place of business)
DOUGLAS H. CORBETT
ALYA INTERNATIONAL, INC.
16 FAWCETT ROAD, SUITE 101
COQUITLAM (VANCOUVER), BRITISH COLUMBIA V3K 6X9, CANADA
(604) 528-9982
(Name, address and telephone number of agent for service)
Copies of all communications to:
Fay M. Matsukage, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, Colorado 80203
(303) 777-3737; (303) 777-3823 fax
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. /X/ _____
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock 5,000,000 shares $1.00 $5,000,000 $1,390
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED JULY 15, 1999
ALYA INTERNATIONAL, INC.
5,000,000 SHARES OF COMMON STOCK
We are offering 5,000,000 shares of common stock for sale to the public on
a "best efforts" basis. This offering of shares will terminate on the earlier
of the date all of the shares offered are subscribed for or
_____________________ [90 days from the date of this Prospectus]. Please note
that we may extend this date for up to an additional 90 days.
There is no minimum offering and no escrow. Therefore any funds received
from a purchaser will be available to us as received and need not be refunded to
the purchaser.
Our common stock is traded on the local over-the-counter markets and the
NASD Bulletin Board under the symbol "ALYA." On July 6, 1999, the closing price
for our Common Stock was $0.66 per share.
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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 4
OF THIS PROSPECTUS.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------
The information in this prospectus is not complete and may be changed. The
Company may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not an offer to buy these
securities in any state where the offer or sale is not permitted.
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SHARES OFFERED BY UNDERWRITING PROCEEDS TO
THE COMPANY PRICE TO PUBLIC DISCOUNTS AND THE COMPANY
COMMISSIONS
<S> <C> <C> <C>
Per Share $1.00 $0.10 $0.90
Total Offering $5,000,000 $500,000 $4,500,000
</TABLE>
Underwriting commissions and discounts: We are acting as the general
selling agent. If broker-dealers are used to sell the shares, we will pay them
a 10% commission.
Proceeds to the Company: These amounts do not reflect the deduction of
expenses of this offering, estimated at $60,000.
16 FAWCETT ROAD, SUITE 101
COQUITLAM, BRITISH COLUMBIA V3K 6X9 CANADA
(604) 528-9982; FAX (604) 528-9983
WWW.ALYA.COM.
The date of this prospectus is _____________, 1999
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TABLE OF CONTENTS
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Page
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Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Special Note Regarding Forward-Looking Statements. . . . . . . . . . . . . . .4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Market for Common Equity and Related Stockholder Matters . . . . . . . . . . 12
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and Analysis Of. . . . . . . . . . . . . . . . . . . 14
Financial Condition and Results Of Operations. . . . . . . . . . . . . . . . 14
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Security Ownership of Certain Beneficial Owners and Management . . . . . . . 33
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SEC Position on Indemnification. . . . . . . . . . . . . . . . . . . . . . . 37
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Reports to Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . .F-1
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PROSPECTUS SUMMARY
ALYA INTERNATIONAL, INC.
Alya International, Inc. ("Alya"/the "Company"/"We"/"Our") develops,
markets, and sells advanced security management systems for use in facilities
such as corporate and government campuses, commercial buildings, and airports.
Our products consist of software, hardware, and firmware. The main
technological advancement is the creation of a system based on "open
architecture" which leads to savings in building energy costs, operating
efficiencies, installation costs, etc. Our central operations are in Coquitlam
(Vancouver), British Columbia, Canada, and we have offices located in the United
States, Belgium, Slovak Republic, and China.
Alya was incorporated on September 23, 1996, in Delaware. We have one
wholly owned subsidiary, Alya Systems Inc., a British Columbia corporation
incorporated on September 12, 1995.
THE OFFERING
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Securities offered...........5,000,000 shares of Common Stock
Securities outstanding.......15,102,444 shares of Common Stock (as at June 11, 1999)
Use of Proceeds..............Estimated at $4,440,000 net of offering
expenses. To be used for marketing,
product development, furniture and
equipment, strategic alliances and
acquisitions, and working capital.
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RISK FACTORS
Investing in our securities involves a high degree of risk. You should
consider carefully the information under the caption "Risk Factors" in deciding
whether to purchase the securities offered under this prospectus.
SUMMARY FINANCIAL INFORMATION
The following summary financial data is derived from our unaudited and
audited consolidated financial statements for the 6 month period ended March 31,
1999 and the years ended September 30, 1998 and 1997 respectively, included
elsewhere in this prospectus. We have prepared our consolidated financial
statements in accordance with generally accepted accounting principles in the
United States. Our results of operations for any interim period do not
necessarily indicate our results of operations for the full year. You should
read this summary financial data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business," and
our consolidated financial statements.
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BALANCE SHEET DATA: MARCH 31, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<C> <C> <C> <C>
Current Assets $ 159,925 $224,974 $139,213
Total Assets $ 208,714 $280,997 $251,995
Current Liabilities $ 655,241 $400,379 $723,857
Advances on sale of software rights $1,326,700 $688,692 -
Stockholders' Deficiency $1,773,227 $808,074 $472,946
Working Capital Deficiency $ 495,316 $175,405 $584,644
STATEMENT OF LOSS DATA: 6 MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
Revenues $ 386,795 $ 323,734 $ 110,878
Net Loss $1,442,804 $2,223,461 $2,557,840
Net Loss per Share $ 0.11 $ 0.19 $ 0.32
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus are not historical facts but are
forward-looking statements. These forward-looking statements may be identified
by the use of terminology such as "anticipate," "believe," "estimate," "expect,"
"intend," "may," "plans," "project," and similar expressions. These statements
may involve risks and uncertainties relating to the development stage in which
we are operating; the lack of revenues; the ability of the Company to continue
as a going concern; the need for additional financing; Year 2000 compliance;
uncertainty of market acceptance of our products once introduced; competition;
technological obsolescence; ability to not violate others' rights; dependence on
key personnel; and other factors detailed in "Risk Factors" below and elsewhere
in this prospectus. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual outcomes
may vary materially from those indicated.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should be
able to bear a complete loss of your investment. You should carefully consider
the following risk factors and other information in this prospectus before
deciding to invest in shares of common stock.
NEED FOR ADDITIONAL CAPITAL
We do not have sufficient funds to complete the commercial development of
any of our products, including O.P.E.N.centrix-TM-, which is currently our only
marketable product, or commence the production and sales of our systems. Our
ability to complete our product development, market our products, and commence
sales will depend upon the continued availability of investment capital, funding
made by one or more strategic partners, or licensing revenues. Our dependence
upon these sources of funding will continue at least until we obtain sufficient
revenues from the sale of products, related installation, and support services,
and complete the installation of enough O.P.E.N.centrix-TM- systems to maintain
our operations.
RELIANCE ON EXTERNAL FINANCING
Assuming that we sell all of the shares we are offering, we believe we are
likely to remain unprofitable until at least the end of the second quarter
following the close of this offering. Because of our inability to generate an
operating profit in the near future, it will be necessary for us to rely upon
external sources of financing. We can give you no assurance that we will be
able to obtain any such financing, or if we are able to obtain such financing,
we cannot give any assurance that it will be on favorable terms. Any additional
financing will result in dilution to our shareholders, including those people
who purchase shares in this offering. If we cannot obtain such funding when
needed, we may be forced to cease operations and abandon our business. In such
event, you may lose your entire investment.
NO HISTORY OF PROFITABLE OPERATIONS
We generated a net loss of $2,223,461 for the fiscal year ended September
30, 1998, and a net loss of $1,442,804 (unaudited) for the six months ended
March 31, 1999. We have a limited operating history and our proposed operations
are subject to all of the risks inherent in a new business enterprise, including
commercial development of our products, lack of marketing experience, and lack
of production history. The likelihood of our success must be considered in
light of the expenses, difficulties and delays frequently encountered in
connection with the start-up of new businesses, those historically encountered
by us, and the competitive environment in which we intend to operate. To date,
we have not had any significant revenues. As of March 31, 1999, we had an
accumulated deficit of $7.1 million.
GOING CONCERN UNCERTAINTY
The report of the independent auditors on the Company's financial
statements for the year ended September 30, 1998, includes an explanatory
paragraph relating to the uncertainty of the Company's ability to continue as a
going concern. We have suffered losses from operations, require additional
financing and we need to continue the
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development of our products. Ultimately we need to generate revenues and
successfully attain profitable operations. These factors raise substantial
doubt about our ability to continue as a going concern. There can be no
assurance that we will be able to develop a commercially viable product or
marketing system. Even if we are able to develop a commercially viable
product, there is no assurance that we will be able to attain profitable
operations.
LACK OF SALES HISTORY
O.P.E.N.centrix-TM- has been on the market for less than six months as a
near-production stage product and we are in the process of building our
distribution network. While we have been encouraged by the initial market
acceptance of the test versions of O.P.E.N.centrix-TM-, we have no historical
pattern of sales or earnings, and we cannot provide investors with any assurance
that market acceptance of the final version of O.P.E.N.centrix-TM- will be
sufficient for us to operate profitably.
NO ASSURANCE OF SUCCESSFUL AND TIMELY DEVELOPMENT OF OUR PRODUCTS
Our O.P.E.N.centrix-TM- system requires development of additional
functionalities and testing to prove additional performance capability and
commercial viability. Although we are capable of performing these tests at
present, additional equipment and/or funding is required to complete these
tests. Additionally, the final costing and selling prices of our installation,
support, and maintenance cannot be determined precisely until system completion.
Our success, if any, will depend on our ability to timely complete our system
within estimated cost parameters and efficiently deploy the system in a cost
effective manner. We may experience technical hurdles, such as the ability to
maintain compatibility with new releases of third-party products (i.e.,
LONWorks-Registered Trademark-, Echelon LNS) in a timely fashion. We could
encounter these technical problems at any time in the future. Any technical
problems that we encounter could hinder or delay our completion of
O.P.E.N.centrix-TM- and/or the development of other products. Any delays and
hindrances would impair our ability to market our systems and bring in revenues.
NEWLY-FORMED ENTITY
We were incorporated on September 23, 1996. There can be no assurance that
we will ever become profitable. In addition, we can provide only a limited
amount of historical information and financial data about our operations upon
which you can make an informed judgment as to our future prospects. Therefore,
you should consider the purchase of our stock as being risky since we may be
subject to unforeseen costs, expenses, problems, and difficulties commonly
encountered by new ventures.
SIGNIFICANT WORKING CAPITAL DEFICIENCY
As of March 31, 1999, we had outstanding current liabilities of $655,241
(unaudited), as compared to current assets $159,925 (unaudited). Our lack of
working capital could make us more vulnerable to the effects of delays in
producing our products, industry downturns, and competitive pressures. Our
ability to pay our debts as they become due will be dependent upon our future
performance, which will be subject to financial, business, and other factors
affecting the our operations, many of which are beyond our control. We will
require substantial amounts of cash to fund the scheduled payments of principal
and interest on such indebtedness, future capital expenditures, and any
increased working capital requirements. We can give no assurances that we will
be able to obtain alternative financing if we are unable to meet our cash
requirements out of cash flow from our operations. In the absence of such
financing, our ability to respond to changing business and economic conditions,
to acquire and develop our software and hardware, to absorb adverse operating
results, or to fund capital expenditures or increased working capital
requirements may be adversely affected.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the shares does not necessarily bear
any relationship to assets, book value or net worth of the Company. We
established the price for the common stock with a view to the current market
price for the stock. If you purchase in this offering, you will suffer
immediate and substantial dilution in your investment, which can range from
$1.05 per share or approximately 105% of the offering price of the shares to
$0.86 per share or 86% of the offering price.
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COMPETITION
We face competition in the overall building automation market as well as
the access control market. Due to our small size, it can be assumed that most
if not all of our competitors has significantly greater financial, technical,
marketing and other resources. These competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements
than we can. In addition, our current and potential competitors may bundle
their products and/or services with other software, hardware or services in a
manner that may discourage users from purchasing our products and/or services.
Also, our competitors and potential competitors, have greater name recognition
and more extensive customer bases that could be leveraged, for example, to
position themselves as being more experienced and knowledgeable than us. To
compete, we may be forced to reduce our prices and narrow our marketing focus,
resulting in reduced profit margins and market share.
While we are not aware of any products being developed which directly
compete with our interoperable products (O.P.E.N.centrix-TM- and Neutron-TM-),
and we are using our best efforts to attempt to maintain a lead over any
competing products should they be developed, there are no guarantees that a
competitor will not introduce a product or service that is perceived to be
superior to our products and services.
UNCERTAINTY OF MARKET ACCEPTANCE
The commercial success of the O.P.E.N.centrix-TM- system will depend upon
its acceptance by the market as a valuable and useful product. Market
acceptance will depend upon several factors, including the establishment of
performance indicators and endorsement by industry leaders. The market for
O.P.E.N.centrix-TM- and its associated products is in its infancy, and we are
not certain that our target customers will widely adopt such a system. Even if
they do so, they may not choose the O.P.E.N.centrix-TM- system because, among
other things, it is expensive, complicated and requires a significant amount of
technical support. Although we intend to test O.P.E.N.centrix-TM- prior to
making it available to new customers, we cannot be certain that we will have
identified and repaired all of the significant performance errors or included
all expected features. If our target customers do not widely adopt and purchase
our product, our business, financial condition and operations will be adversely
affected.
SUCCESS DEPENDENT UPON SUFFICIENT GROWTH OF ACCOUNT BASE
Despite our best efforts, we may never be able to establish a sufficient
account base or our account base may not grow as quickly as is necessary for us
to operate profitably. Our account base may not grow sufficiently due to
miscalculation of the size of the current market, miscalculation of the market
interest in integrated systems, unforeseen marketing obstacles, interference
from other companies, lack of cooperation from key companies, restricted supply
of key products, general customer dissatisfaction with one or more aspects of
our products and/or services, and a perceived discrepancy between the cost and
the value of our products. If we fail to establish a sufficient account base,
or if it takes too long to establish an account base, we may not be profitable.
LIMITED MARKETING EXPERIENCE
We have had limited experience in marketing the O.P.E.N.centrix-TM- system.
We intend to market O.P.E.N.centrix-TM- through strategic partners, Internet
advertising campaigns, and traditional media advertising campaigns. Our
marketing will be focused in North America and Europe. No assurance can be
given that our marketing techniques will be successful, especially given our
limited experience with marketing our products. If our marketing techniques are
not successful we may not have sufficient sales to sustain operations.
MARKETING MISCALCULATIONS COULD BE POSSIBLE
Our marketing plan may require significantly more funds to implement than
anticipated. New developments in technology, or in the marketplace, might
require us to expend significantly more money to gain or maintain market share.
Negative perception of us or our products, for any reason, might develop in some
portion or all of the marketplace which would require increased spending for
public relations, promotions, and other corrective action.
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DEPENDENCE ON SINGLE TECHNOLOGY BASIS
Our O.P.E.N.centrix-TM- system, which is based upon a single set of core
technologies, is currently our only product near completion and is expected to
account for substantially all of our revenues, if any, for the foreseeable
future.
SUSCEPTIBILITY TO TECHNOLOGICAL OBSOLESCENCE
Rapid technological changes, frequent new product introductions, changes in
customer requirements, and evolving industry standards characterize the market
in which we compete. The introduction of products embodying new technologies
and the emergence of new industry standards could render our existing products
obsolete. Our future success will depend upon our ability to develop and
introduce a variety of new products and product enhancements to address the
increasingly sophisticated needs of our customers. We have experienced delays
in releasing new products and product enhancements and may experience similar
delays in the future. Material delays in introducing new products and
enhancements may cause customers to forego purchases of our products and
purchase those of our competitors.
While we are not aware of any developments in the security industry which
would render our current or planned products less competitive or obsolete, there
can be no assurance that future technological changes or the development of new
or competitive products by others will not cause our products to become
obsolete. To remain competitive, we must continually make substantial
expenditures for development of additional services and advances in our core
technology. Since all of our products are based upon an integrated system, lack
of market acceptance or obsolescence of our integrated system would have a
material and adverse effect on our business, financial condition and operations.
Our products are based on what management believes to be industry standard
products and protocols, including LonWorks-Registered Trademark-, Microsoft
Windows-Registered Trademark- 95/98/NT, and TCP/IP. Because of their widespread
adoption, we believe these products and protocols are likely to remain standards
in the building automation and security industry for the foreseeable future, but
new standards may be adopted which may make our products obsolete or may require
significant upgrades to our products. While we will try to accommodate any
changes in these standards, we cannot give any assurances that we will be able
to create new products, or modify our existing products, to comply with any new
standards. If new standards are adopted, or the existing industry standards are
modified, and we are unable to create new systems or modify our existing systems
to accommodate the new or modified standards, our business, financial conditions
and operations would be materially and adversely affected.
PROBLEMATIC UPDATING AND FUTURE DEVELOPMENT
We believe we are prepared to provide upgrades and follow-up products for
our systems. However, during our development of upgrades and follow-up products
we may encounter technical difficulties or delays that may cause such products
to become unnecessary or unusable for all or a portion or our customers.
Compatibility with any of our currently existing products, or any new product
released by us in the future, might prove necessary to ensure our continued
operation. If we are unable to maintain compatibility among our present and
future products, our operations may be materially and adversely affected.
LACK OF MULTIPLE STRATEGIC RELATIONSHIPS
We believe that our success in penetrating our target markets depends in
part on our ability to develop and maintain strategic relationships with key
access control and security system vendors, automation distribution partners,
and customers. We believe these relationships are important in order to validate
our technology, facilitate broad market acceptance of our products, and enhance
our sales, marketing and distribution capabilities. We have only a few such
relationships at this time. If we are unable to develop more key relationships
or maintain and enhance existing relationships, we may have difficulty selling
our products and services. Our existing dependence on a few strategic
relationships can make us vulnerable to changes in the operations of those
partners.
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NEED TO MANAGE CHANGING OPERATIONS
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. As we continue to increase the scope of our operations, we
anticipate that we will need to increase our personnel levels substantially.
This growth will place a significant strain on our management systems and
resources. We expect that we will need to continue to improve our financial and
managerial controls and reporting systems and procedures, and will need to
continue to expand, train and manage our work force worldwide. Furthermore, we
expect that we will be required to manage multiple relationships with various
customers and other third parties. If we fail to manage our growth properly,
this could be result in insufficient or excessive infrastructure,
disproportionate fixed expenses, and inability to adequately serve customers.
ADEQUATE INTELLECTUAL AND PROPRIETARY PROPERTY NECESSARY
Our success and ability to compete are substantially dependent upon our
internally developed technology. We are currently in the process of planning a
strategy to protect our technology through a combination of patent, copyright,
trade secret and trademark laws. We generally enter into confidentiality or
license agreements with our employees, consultants and corporate partners, and
generally control access to and distribution of our software, documentation and
other proprietary information. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Policing unauthorized use of our products is difficult,
and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
A significant portion of our income will be dependent upon licensing
intellectual property to others. We will try to implement reasonable
precautionary measures to ensure the security of our intellectual and
proprietary property, but there can be no assurance that the loss or theft of
our intellectual property will not materially and adversely affect us. We may
experience such loss from many possible causes that include widespread
unauthorized use of our software; theft of properties by our employees or
executives; computer "hackers" obtaining access to our network; litigation in
which we fail to enforce copyrights, proprietary rights, patents, or other
property rights; or litigation against us which limits or cancels our right to
any disputed intellectual or proprietary property.
In order to have a technology patented, the technology must be disclosed.
Competitors could then gain access to our technology. In order to protect our
proprietary software technology, we intend to embedded it within our software
products without patent protection. However, without patent protection it will
be difficult for us to enforce any rights we may have to our technology.
Widespread, illegal use of our technology could undermine our operations. It is
possible that we could fail to enforce any and all claims that we may have, or
that proprietary rights to any or all of our technology could be jeopardized or
lost entirely. Failure to enforce proprietary claims could have a material
affect upon our operations and could cause us to cease operations entirely.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different industry segments
overlaps. A successful claim of product infringement against us and our failure
or inability to license the infringed or similar technology could adversely
affect our business.
BUSINESS DEPENDENT ON PERSONNEL
Our success depends largely upon the efforts, abilities, and
decision-making of our executive officers and managers. Although we believe
we maintain a core group sufficient for us to effectively conduct our
operations, the loss any of our key personnel could, to varying degrees, have
an adverse effect on our operations and system development. The loss of any
one of them would have a material adverse affect on us.
We do not currently maintain "key-man" life insurance on any of our
executives or managers or employees, and there is no contract in place assuring
their services for any length of time. Within a reasonable period of time after
sufficient funds from this offering are available, it is our intention to
develop a plan to 1) purchase key-man life
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insurance for one or more key staff with us designated as the beneficiary; 2)
attempt to structure Alya so that no single person possesses a position,
skill, or exclusive knowledge such that our operations are dependent upon him
or her; and 3) enter into employment contacts with our key executives.
However, there can be no assurance that the services of any member of our
management will remain available to us for any period of time, that we will
be able to enter into employment contracts with any of our management, or
that any of our plans to reduce dependency upon key personnel will be
successfully implemented. We have industry standard non-compete agreements
with all of our employees.
The knowledge and expertise of our employees is critical to our operations.
The skills possessed by these employees are highly sought after. There is no
guarantee that we will be able to retain our current employees, or be able to
hire suitable replacements in the event that some or all of our current
employees leave Alya. In the event that we should lose key members of our
staff, lose a significant number of employees, or if we unable to find suitable
replacements for those employees, me may not be able to maintain our business
and might have to cease operations, in which case you might lose all of your
investment.
LIMITED LIQUIDITY FOR INVESTORS
Our common stock is traded in the over-the-counter market. The price for
the stock and the volume of shares traded fluctuate widely. Consequently, if
you invest in the common stock you may not be able to use your shares as
collateral for loans and may not be able to liquidate at a suitable price in the
event of an emergency
OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES CAN RESULTIN POTENTIAL DILUTION
AND ADVERSELY IMPACT ANY ADDITIONAL FINANCING
As of June 11, 1999, there were outstanding options, warrants, and
convertible securities to acquire an aggregate of 2,945,500 shares of our common
stock. If any of the outstanding options, warrants, and convertible securities
are exercised or converted, your percentage ownership in Alya will be reduced.
So long as these options, warrants, and convertible securities are exercisable,
the holders will have the opportunity to profit from a rise in the price of the
common stock. The existence of such options, warrants, and convertible
securities may adversely affect the terms on which we can obtain additional
financing. The holders of such options, warrants, and convertible securities
can be expected to exercise them at a time when we would probably be able to
obtain additional capital by an offering of our stock at a price higher than the
exercise price of these outstanding options, warrants, and convertible
securities.
ISSUANCE OF PREFERRED STOCK COULD BE DETRIMENTAL TO HOLDERS OF COMMON STOCK
We are authorized to issue up to 10,000,000 shares of preferred stock, in
one or more series, with such rights, preferences, qualifications, limitations,
and restrictions as shall be fixed and determined by our board of directors from
time to time. Any of these preferences may operate to the detriment of the
rights of the holders of the common stock. As of June 11, 1999, 400,000 shares
of $0.0001 preferred stock were issued and outstanding
LIMITATION ON PERSONAL LIABILITY OF DIRECTORS
Our articles of incorporation, bylaws and the Delaware corporate statutes
provide that a director shall not be personally liable to us or our stockholders
for monetary damages for any action taken or any failure to take any action as a
director, except liability for any of the following:
(i) acts or omissions not in good faith;
(ii) acts which are not reasonably believed to be in our best interests or
are opposed to our interests;
(iii) acts which involve intentional misconduct or knowing violation of
law; or
(iv) unlawful payments of dividends or unlawful stock purchases or
redemptions under the Delaware General Corporation Law.
9
<PAGE>
As a result of these provisions and Delaware law, stockholders may have
limited rights to recover against directors for breach of fiduciary duty.
"PENNY STOCK" RULES COULD AFFECT SECONDARY MARKET FOR COMMON STOCK
Our common stock is subject to rules promulgated by the SEC relating to
"penny stocks," which apply to non-NASDAQ companies whose stock trades at less
than $5.00 per share or whose tangible net worth is less than $2,000,000. These
rules require brokers who sell "penny stocks" to persons other than established
customers and "accredited investors" to complete certain documentation, make
suitability inquiries of investors, and provide investors with certain
information concerning the risks of trading in the security. These rules may
discourage or restrict the ability of brokers to sell the our common stock and
may affect the secondary market for the common stock.
PROBLEMS PRESENTED BY YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. Others do not correctly
process "leap year" dates. As a result, such systems and applications could
fail or create erroneous results unless corrected so that they can correctly
process data related to the year 2000 and beyond, but there can be no assurance
that such upgrades will be completed on a timely basis or without incurring
substantial costs. While we have evaluated our products for year 2000 compliance
and believe that each product is substantially year 2000 compliant, there can be
no assurance that our products are or will ultimately be year 2000 compliant.
In addition, we believe that it is not possible to determine whether all of
our customers' products into which our products are incorporated will be year
2000 compliant because we have little or no control over the design production
and testing of our customers' products.
We rely on our systems, applications and devices in operating and
monitoring all major aspects of our business, including financial systems (such
as general ledger, accounts payable and payroll modules), customer services,
infrastructure, embedded computer chips, networks and telecommunications
equipment and end products. Although we are in the process of upgrading our
software to address the year 2000 issue, there can be no assurance that these
upgrades will be completed on a timely basis at reasonable costs, or that such
upgrades will be able to anticipate all of the problems triggered by the actual
impact of the year 2000.
We also rely, directly and indirectly, on external systems for the testing
of substantially all of our products and business enterprises such as customer,
suppliers, creditors, financial organizations, and of governmental entities,
both domestic and international, for accurate exchange of data. We could be
affected through disruptions in the operation of the enterprises with which we
interact or from general widespread problems or an economic crisis resulting
from non-compliant year 2000 systems. Despite our efforts to address the year
2000 impact on our internal systems and business operations, there can be no
assurance that such impact will not result in a material disruption of our
business or have a material adverse effect on our business, financial condition
or results of operations.
10
<PAGE>
DILUTION
The following table illustrates the anticipated dilution of a new
investor's equity in a share of common stock at different amounts of success
with this offering, based on our net tangible book value at March 31, 1999:
<TABLE>
<CAPTION>
25% SOLD 50% SOLD 100% SOLD
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Offering price per share of common stock $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------
Net tangible book value per common share before offering $(0.12) $(0.12) $ (0.12)
- ----------------------------------------------------------------------------------------------------------
Increase per share attributable to new investors $ 0.07 $ 0.14 $ 0.26
- ----------------------------------------------------------------------------------------------------------
Pro forma net tangible book value per common share after offering $(0.05) $ 0.02 $ 0.14
- ----------------------------------------------------------------------------------------------------------
Dilution per common share to new investors $ 1.05 $ 0.98 $ 0.86
- ----------------------------------------------------------------------------------------------------------
Percentage dilution 105% 98% 86%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth, as of March 31, 1999, after giving effect
to the sale of 25%, 50%, and 100% of the offering, a comparison of the
respective investment and equity of the current shareholders and investors
purchasing shares in this offering.
<TABLE>
<CAPTION>
25% OF OFFERING SOLD
- ---------------------------------------------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
- ---------------------------------------------------------------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 14,601,094 92.1% $5,238,851 80.7% $ 0.35
- ---------------------------------------------------------------------------------------------------
New investors 1,250,000 7.9% $1,250,000 19.3% $ 1.00
- ---------------------------------------------------------------------------------------------------
Total 15,851,094 100.0% $6,488,851 100.0%
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
50% OF OFFERING SOLD
- ---------------------------------------------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
- ---------------------------------------------------------------------------------- PER SHARE
NUMBER PERCENT AMOUNT PERCENT SHARE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 14,601,094 85.4% $5,238,851 67.7% $ 0.35
- ---------------------------------------------------------------------------------------------------
New investors 2,500,000 14.6% $2,500,000 32.3% $ 1.00
- ---------------------------------------------------------------------------------------------------
Total 17,101,094 100.0% $7,738,851 100.0%
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
100% OF OFFERING SOLD
- ---------------------------------------------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
- ---------------------------------------------------------------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 14,601,094 74.5% $5,238,851 51.2% $ 0.35
- ---------------------------------------------------------------------------------------------------
New investors 5,000,000 25.5% $5,000,000 48.8% $ 1.00
- ---------------------------------------------------------------------------------------------------
Total 19,601,094 100.0% $10,238,851 100.0%
- ---------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded over-the-counter since July 1997 on the
OTC Bulletin Board. The following table sets forth the range of high and low
bid quotations for each fiscal quarter since the stock began trading. These
quotations reflect inter-dealer prices without retail mark-up, markdown, or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID PRICES
----------
HIGH LOW
---- ---
<S> <C> <C>
1997 FISCAL YEAR
Quarter ending 09/30/97 $ 1.125 $0.40
1998 FISCAL YEAR
Quarter ending 12/31/97....... $ 1.125 $0.43
Quarter ending 03/31/98 $ 0.78 $0.22
Quarter ending 06/30/98 $ 1.65 $0.42
Quarter ending 09/30/98 $ 1.05 $0.60
1999 FISCAL YEAR
Quarter ending 12/31/98....... $ 0.80 $0.30
Quarter ending 03/31/99 $ 0.75 $0.30
</TABLE>
On July 6, 1999, the closing price for the common stock was $0.66. The
number of record holders of our common stock as of June 11, 1999, were 106
according to our transfer agent. Holders of shares of common stock are entitled
to dividends when, and if, declared by the board of directors out of funds
legally available therefor.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and intends to
retain future earnings, if any, to finance the development and expansion of its
business. Our future dividend policy is subject to the discretion of the board
of directors and will depend upon a number of factors, including our future
earnings, capital requirements, and financial condition
12
<PAGE>
USE OF PROCEEDS
If we sell all of the shares being offered, our net proceeds are estimated
to be $4,440,000 after deducting legal, accounting, and other offering expenses
estimated at $60,000 and a 10% selling commission on all of the shares. To the
extent that we sell more shares without using the services of a placement agent,
the net proceeds will be increased. We intend to use the net proceeds, along
with any other financing sources that may become available to us, to support our
anticipated growth over the next twelve months. We expect to experience
negative cash flow from operations for at least the next six to nine months.
We expect that our cash requirements will exist principally in the
following areas and, based upon the level of success we achieve in this
offering, we anticipate using the proceeds from this offering as follows:
<TABLE>
<CAPTION>
Level of Success in this Offering:
25% 50% 100%
---------- ---------- ----------
<S> <C> <C> <C>
Marketing and Sales $400,000 $1,010,000 $2,500,000
1. Launch O.P.E.N.centrix-TM-, O.P.E.N.cortex-TM-, and
Neutron-TM- in North America.
2. Undertake an extensive promotional campaign.
3. Add distribution channels and regional marketing and
sales offices.
4. Hire, assemble, and train sophisticated sales forces
and consultants for the Americas, Europe, and Asia.
Product development 270,000 650,000 1,200,000
1. Finalize the development ("productize") the high-end
version of O.P.E.N.centrix-TM- and develop
Neutron-TM-, the entry-level version.
2. Complete the development of O.P.E.N.cortex-TM-
3. Research and development to create follow-on (i.e.,
derivative or enhanced) products as well as maintain
and or improve our competitive position.
4. Expansion of our internal research and development
program.
Furniture & fixtures, computer, testing, and miscellaneous 75,000 150,000 200,000
equipment
Strategic alliances and possible acquisitions 80,000 90,000 100,000
1. Identify targets and perform due diligence on those
targets.
Working Capital: 240,000 290,000 440,000
----------
1. Increase production and inventory to meet customer
demands.
2. Fund accounts receivable.
3. Establish global customer support services and a
global operating network.
4. Recruit staff to support prolonged growth under the
new marketing plan.
5. Equip and furnish new office facilities in Vancouver,
Beijing, and San Francisco.
6. Develop an investor relations program.
7. Develop a strong management reporting and forecasting
system using meaningful performance indicators or
"metrics".
8. Payment of bank account garnishment. See "Business -
Legal Proceedings"
9. Other uses not now expressly contemplated, such as
legal costs relating to patents and trademarks and
funding unanticipated negative cash flow from
operations.
---------- ---------- ----------
Total - $1,065,000 $2,190,000 $4,440,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The amount and timing of any of the above expenses will depend on various
factors, including rates of business growth, specific technology, capital
equipment and other requirements imposed by our customers and opportunities
presented to us. While we have prepared internal forecasts to assist management
in planning, we believe that these forecasts, as they apply to periods extending
beyond the next few months, are inherently unreliable and that our actual cash
requirements will differ materially from those we presently forecast.
13
<PAGE>
Our current business plan has identified total capital requirements over
the next several years that are substantially more than the anticipated offering
proceeds. However, we believe the net proceeds of this offering will be
sufficient to fund our operations for at least the next twelve months. Any
changes in proposed expenditures will be made at the discretion of the Board of
Directors of the Company.
Pending such uses, we intend to invest the proceeds from this offering in
short term, investment-grade, and interest bearing securities.
SELECTED FINANCIAL DATA
Our selected financial data for the six-month period ended March 31,
1999 shown below is derived from the unaudited financial statements prepared
by us. In our opinion, we have included all adjustments necessary for a fair
statement of results for this interim period and all such adjustments are of
a normal recurring nature. Interim results may not be indicative of the
results of operations to be expected for a full fiscal year.
PricewaterhouseCoopers, LLP, independent auditors have audited our
financial statements for the fiscal years 1998 and 1997. The financial data
derived therefrom and shown below should be read in conjunction with our
financial statements and the notes thereto included elsewhere in this prospectus
and to "Management's Discussion and Analysis of Results of Operations and
Financial Condition" which follows.
<TABLE>
<CAPTION>
BALANCE SHEET DATA: MARCH 31, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<S> <C> <C> <C>
Current Assets $ 159,925 $224,974 $139,213
Total Assets $ 208,714 $280,997 $251,995
Current Liabilities $ 655,241 $400,379 $723,857
Advances on sale of software rights $1,326,700 $688,692 -
Stockholders' Deficiency $1,773,227 $808,074 $472,946
Working Capital Deficiency $ 495,316 $175,405 $584,644
<CAPTION>
STATEMENT OF LOSS DATA: 6 MONTHS ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
Revenues $ 386,795 $ 323,734 $ 110,878
Net Loss $1,442,804 $2,223,461 $2,557,840
Net Loss per Share $ 0.11 $ 0.19 $ 0.32
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HISTORY AND OVERVIEW
In 1995, the building control systems industry began a fundamental shift
away from being manufacturer driven to being end-user (building owners and
managers) driven. Our founders saw that the key to this transition would be the
availability of subsystems that would "interoperate." For example, the swiping
of an access card to gain entry to the parking lot, also calls the elevator,
turns on the air conditioning, lights, etc. represents interoperability. Our
products are designed to perform these functions.
Our first milestone was achieved in early 1997, when Motorola's
Worldwide Smartcard Systems Division signed a joint development agreement
with us to create smart card readers. In mid-1997 we were awarded a contract
to install our O.P.E.N.centrix-TM- system at the headquarters of the
Insurance Corporation of British Columbia and its main satellite claims
center. This was a significant achievement for us because it was the first
major installation won in a competitive bid. Since then, we have completed
more sites that can be used as references for potential customers: an office
building in Richmond, British Columbia, Vancouver Community College, a
multi-campus
14
<PAGE>
higher education establishment; the Federal Court House in Chicago; the Bank
of Norway; Motorola facilities in Switzerland and Schaumburg, Illinois.
By the end of March 31, 1999, we had invested over $6 million in our
technology and had grown to over 45 employees.
As stated in our audited financial statements, we incurred a net loss of
$2,223,461 for the 1998 fiscal year, and at September 30, 1998, our current
liabilities exceeded current assets by $175,405. These factors, among others,
raise substantial doubt about our ability to continue as a going concern. See
the Note entitled "Basis of presentation and reorganization" in the Notes to
Consolidated Financial Statements.
Our current marketing plans will require significant additional funding.
It is expected that additional private and public sales our common stock and
potential sales of licensing agreements will be required to finance our
operations until sales of our products are sufficient to finance our operations.
In addition, we are illiquid and in a negative working capital position
($495,316) at March 31, 1999. Our continuation as a going concern is dependent
upon our ability to generate sufficient cash flow to meet our obligations on a
timely basis, to obtain additional financing or refinancing as may be required,
and ultimately to attain profitability. There are no assurances that we will be
able to obtain such financing or, if we are able to obtain additional financing,
that such financing will be on terms favorable to us.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 1998
RESULTS FROM OPERATIONS
SALES REVENUES. Sales revenues for the six months ended March 31, 1999,
were $386,795, as compared to $157,749 for the same period during 1998. The
increase is generally attributable to an increase the number of customers and a
major installation in Slovakia, which accounted for $191,000 (49%) of the sales
revenue. Approximately 95% of our sales is from our hardware; the remainder is
software.
Gross profit increased from $47,502 for the six months ended March 31,
1998, to $159,561 for the same period during 1999. The increase was due to
higher sales during 1999 and, thus, higher recovery of overhead costs during
that period.
We expect that the funds expended on marketing activities will continue to
grow significantly with the addition of key sales and marketing personnel in the
United States. We also recently opened a sales office in Beijing, China.
OPERATING EXPENSES. General and administrative expenses for the period
were $771,916 as compared to $521,279 for the same period during 1998. The
increase is generally attributable to the hiring of additional staff for
technical support, accounting and administration, and product management. In
addition, we experienced an increase in rent due to the expansion of our staff.
Research and development expenses for the period were $434,008 compared to
$246,934 for the same period during 1998. The increase was the result of the
hiring of six new staff near the end of the fiscal year ended September 30,
1998, and the hiring of five additional people for our software development team
during the period.
Marketing and sales expenses were $395,128 and $183,616 for the six months
ended March 31, 1999 and 1998, respectively. The increase was the direct result
of increases in our marketing activities. Specifically, we opened a sales
office in Austin, Texas in April of 1998, a sales office in Belgium in November
1998, and a sales office in Beijing, China at the beginning of March 1999. Our
marketing and sales team attended more trade shows during the six-month period
ended March 31, 1999, and increased travel to new and potential customers. In
addition, we added four new staff members during the six-month period ended
March 31, 1999, and two new sales executives in May of 1999.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended March 31, 1999, we financed our operations from
private sales of our stock ($493,765) and the sale of our European
O.P.E.N.centrix-TM- software rights (net $638,008). Overall, there was a
$69,441 decrease in cash on hand for the six months ended March 31, 1999,
compared to a decrease of only $5,708 for the same period in 1998.
At March 31, 1999, we had a working capital deficiency of $495,316, which
was an increase of $319,911 from a working capital deficiency at September 30,
1998 of $175,405. This increase was the result having insufficient funds to
finance our operations through the first two quarters of the current fiscal
year.
We invested nominally in capital assets during the period ($22,000 for
computer equipment). In addition to purchasing computers, another 16 computers
were acquired through the use of operating leases. Presently we do not have any
significant capital commitments, other than operating leases for computer
equipment and premises. However, we have begun negotiations for a long-term
lease for new premises, which are expected to be ready for occupancy in
mid-2000.
We have initiated a review of our operations and software for the Year 2000
issue. A preliminary result of testing indicates that our software products
will be unaffected by the date change. We will continue to review the other
computer systems within the organization and the Year 2000 progress of our major
suppliers and customers. We anticipate that this issue will not have any
material impact on our results of operations, liquidity or capital resources.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
RESULTS FROM OPERATIONS
SALES AND GROSS MARGINS. Sales revenue for the 1998 fiscal year was
$323,734, compared to 110,878 for the 1997 fiscal year. During fiscal 1998,
we increased marketing activities, and had one major installation in
Slovakia, which accounted for $121,000 (36%) of our 1998 sales revenue.
The gross margin on the our sales decreased to 42% of sales from 45% of
sales in 1997. This decrease is attributable to the outsourcing of the hardware
product manufacturing and a higher overhead attributed to sales.
OPERATING EXPENSES. General and administrative expenses for the 1998
fiscal year were $1,341,853, compared to $1,588,760 for the 1997 fiscal year. A
portion of the difference is attributable to financing fees of approximately
$470,000, incurred during the 1997 fiscal year. During fiscal 1998, we leased
additional space and hired additional employees, which led to an increase in
general and administrative expenses.
Research and development expenses decreased from $583,872 in fiscal 1997 to
$545,502 in fiscal 1998. The decrease was result of reallocating resources from
research and development to marketing and administration. We hired an additional
six employees in the software development group during fiscal 1998, but not
until near the end of the fiscal year. Therefore, their hiring had only a minor
impact on our financial statements for fiscal 1998.
Marketing and sales expenses increased significantly from fiscal 1997 to
fiscal 1998. For 1998, marketing and sales expenses were $471,380, compared to
$200,323 for 1997. The increase was the direct result of our increased spending
on marketing activities. We opened a sales office in Austin, Texas in April of
1998, attended more trade shows during the year, and increased travel to new and
potential customers. We also added two new staff members to our marketing and
sales department during the 1998 fiscal year.
Interest expense decreased from $234,870 for 1997, to $1,031 for 1998, due
to elimination of our operating line of credit and the conversion of debentures
into common shares.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, we had no long-term debt. Current liabilities at
September 30, 1998, were $400,379, compared to $723,857 at September 30, 1997.
The decrease in current liabilities was the direct result of the conversion of
outstanding debentures into shares of our common stock.
During the 1998 fiscal year, we financed our operations through private
sales of our stock ($1,398,000) and by sales of certain software rights, which
yielded net cash of $724,000. Overall, our cash on hand increased by $58,904
from September 30, 1997.
At September 30, 1998, we had a working capital deficiency of $175,405,
compared to a working capital deficiency of $584,644 for at September 30, 1997.
This improvement was primarily the result of reductions in outstanding
liabilities, the conversion of outstanding debentures into common shares, an
increase in cash, and an increase in prepaid expenses.
We invested nominally in capital assets during the year. Computers were
acquired for new staff members through the use of operating leases.
GEOGRAPHIC INFORMATION
Customers located in the following geographic regions generated sales
revenues:
<TABLE>
<CAPTION>
6 Months Ended Year Ended Year Ended
March 31, 1999 September 30, 1998 September 30, 1997
(000's) (000's) (000's)
------ ------ ------
<S> <C> <C> <C>
Canada $ 20 $ 144 $ 107
Slovakia 206 124 2
Norway 21 36 -
United States 123 13 2
Other foreign countries 17 7 -
------ ------ ------
Total $ 387 $ 324 $ 111
------ ------ ------
------ ------ ------
</TABLE>
During the six months ended March 31, 1999, revenues to one customer
located in Slovakia represented 49% (1998 - 36% and 1997 - nil) of total sales;
revenues to one customer in the United States accounted for 27% (1998 - nil and
1997 - 1%) of total sales; and revenues to one customer in Canada accounted for
2% (1998 - 20% and 1997 - nil) of total sales. See the Notes to Consolidated
Financial Statements.
SALE OF SOFTWARE
By Application Software Purchase Agreements dated September 30, 1997 (two
agreements), December 22, 1997, and December 30, 1998, we completed a series of
transactions, each of which was unrelated, with non-affiliated parties pursuant
to which we sold our right to market and sell the O.P.E.N.centrix-TM- software
and related technology in certain territories of North America and Europe. In
exchange for the rights to the O.P.E.N.centrix-TM- software, we received cash
payments of CDN$2,820,000 (approximately US$2,023,000). We also received three
promissory notes and an installment payment contract in principal amounts
totaling CDN$58,017,500 (approximately US$39,738,000). Subject to extension of
the Management and Marketing Agreements discussed below, the notes are due
according to the following schedule and bear interest at 6% per annum:
<TABLE>
<S> <C>
September 30, 2007 (2 notes) CDN$12,700,000
December 22, 2007 (2 notes) CDN$2,430,000
----------
CDN$15,130,000
</TABLE>
Each note and the installment contract is collateralized by the transferred
software rights. The installment contract calls for an initial payment of
US$1,875,000 to Alya by December 31, 1999, with subsequent payments of
US$2,500,000 by December 31 of each year from 2000 through 2010 for a grand
total of US$29,375,000 (CDN$42,887,500).
17
<PAGE>
Concurrently with the execution of the Application Software Purchase
Agreements, we entered into Management and Marketing Agreements with each buyer.
The Management and Marketing Agreements expire on September 30, 2007 (two
agreements), December 22, 2007, and December 30, 2008. Each agreement may be
extended for two additional two-year terms. The extension of the term will be
automatic and Alya or the purchaser can terminate the agreement during any
extension with 90 days notice to the other party. The significant terms of the
Management and Marketing Agreements are as follows:
We are reimbursed for the direct costs of marketing, distributing
and selling the software in each territory, the purchasers' pro-rata
share of the costs of any enhancements to the software, overhead and
administrative costs, the costs of goods sold relating to the
software. In addition, we received an exclusive worldwide right to
use, modify and sublicense the source code for the technology,
including application software, intellectual property and
documentation.
We have the first right of refusal in the event the buyer desires
to transfer all or part of the application software. Upon termination
of the contract, except for termination due to Alya's default, Alya is
granted the exclusive, paid-up, right to use, market, promote,
distribute and sell the software in products or services which do not
compete with security systems which may be sold by the purchaser.
The purchasers are entitled to the "net revenues" as defined in
the agreement, related to the software sold, which are to be applied
i) towards the payment of outstanding and accrued interest on the
notes and ii) to the payment of an "owner's return." The owner's
returns vary from CDN$50,000 to CDN$500,000 each year. Under all but
one contract, the remaining net revenues, if any, are to be applied as
follows: a) 45% of the net revenue applied to the note balance, and b)
55% of the net revenue paid in cash to the purchaser. On the other
contract, the remaining net revenues are paid to the purchaser.
We are entitled to a "management fee" under each contract using
one of the formulas below:
Management Fee Formula 1 = (Net revenues - outstanding
principal and interest amount on
the notes) / .55) - owner's return)
X .45
Management Fee Formula 2 = (Net revenues - annual payment and
outstanding annual payments -
owner's return) X .55
Under the agreements for the Eastern United States, Western United States,
Eastern Canada, and Western Canada, Alya's management fee is based upon Formula
1. Under the agreement for Europe, Alya's management fee is based upon Formula
2. However, as long as interest and/or principal payments (either principal
payments on the notes, or installment payments on the installment contract)
remain outstanding, it is unlikely that Alya will receive a management fee.
We accounted for the cash we received under the provisions of the "Emerging
Issues Task Force, 88-18: Sales of Future Revenues." We do not expect that the
owner's return and net revenue allocated to the purchasers will be sufficient to
service the note receivable principal and interest payments due to us.
Therefore, we did not record the notes on our financial statements, as they are
expected to have no financial statement impact.
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BUSINESS
OVERVIEW
We develop, market, and sell advanced security management systems for use
in facilities such as corporate and government campuses, commercial buildings,
and airports. Our systems are based on "open architecture" which is an
established component of personal computer products and communications on a
local area network, LAN, or wide area network, WAN. This means many products
share similar communication media and/or similarities in the software. For
example, many software applications operate on the Windows-Registered Trademark-
95/98 operating system and many databases share information because they are
Open Data Base Compliant (ODBC). The impact in the industry has been
significant. Software developers focus on the application not the operating
system making the products more reliable and less costly than in pre-open
architecture days.
Companies that design building automation products, until recently, had to
develop the communication systems to gather information sent from data gathering
panels. Although systems could be developed around the concepts of open
architecture on the LAN, WAN and database levels, the obstacle on the device
communication level left many organizations with strictly proprietary systems
not sharing commonality on any level. Open architecture allows the possibility
for independent building systems to communicate with each other.
The need to deal with year 2000 software compliance issues has served to
increase customer awareness of these and related issues. End-users now expect
independent companies to offer specialized interoperable products, thereby
increasing competition and subsequently creating buildings that are more
efficient. End-users of advanced security management systems are looking for
solutions that solve present day problems. The most important of these problems
is that present systems are being replaced every 3 to 10 years. The cost to
corporations is enormous. Facility managers need a system that they can build
upon rather than replace.
Our security management products are designed to integrate with other
building automation systems such as lighting, heating, ventilation and air
conditioning, commonly referred to as HVAC systems, providing one master
interoperable system. We believe that at present we are the only supplier of
high-end security management systems based upon control network interoperability
standards. We believe that as the digital revolution continues to unfold and
mature, access security systems will become fused with other building control
functions into one master integrated system, controlled by PC-based hardware and
software and LonWorks-Registered Trademark- technology, the de facto
communication standard in the building automation industry.
We develop our hardware and software components in a manner intended to be
used as building blocks for rapid development of applications in other process
control industries. Accordingly, our long-term goal is to develop and market
our systems for application beyond the security management industry. We believe
that our systems can be adapted for uses such as industrial control and factory
automation.
PRODUCTS
Our business plan is currently based around three products:
O.P.E.N.centrix-TM-, O.P.E.N.cortex-TM- and Neutron-TM-. O.P.E.N. stands for
open platform for essential network.
O.P.E.N.CENTRIX-TM-
O.P.E.N.centrix-TM- is for suppliers of building automation or security
systems that must provide high-end solutions demanded by (a) corporate customers
to save money in capital and manpower costs and (b) building owners to save
energy and operating costs. It is an advanced, high-end, security management
system based on an open architecture system that does not use proprietary
protocols. It can communicate with intelligent building automation systems and
takes advantage of a multitude of third-party products available to enhance the
performance of the system. Intelligent building automation systems control
lighting, heating and air conditioning depending on where someone is going in
the building, based on information contained in that person's access card.
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O.P.E.N.centrix-TM- provides for security coverage over a large
geographical area and the ability within each building to provide identification
information to other building control systems by utilizing the
LonWorks-Registered Trademark- networking system. Our system provides access
control, alarm monitoring, output controls, and elevator security.
The O.P.E.N.centrix-TM- system is comprised of software (loaded on a CD
that is then transferred to computers and chips on circuit boards) and three
basic circuit boards that house the Motorola Neuron-Registered Trademark- chips.
The number of circuit boards required by any one installation is dependent on
the size of the installation. The sale of these circuit boards has historically
represented approximately 95% of the dollar value of a system. These boards are
the: Access Point Manager, Access Point Controller, Input/Output Manager, and
Elevator Access Manager.
O.P.E.N.centrix-TM- is designed to meet the following criteria:
- Interoperable - the system integrates with other building control
systems.
- Compatible with existing systems - to help end-users reduce costs
O.P.E.N.centrix-TM- utilizes portions of the existing system (wiring,
card readers, motion sensors, etc.) when upgrading.
- Allow for a simplified retrofit - integrators can install our systems
in existing buildings without having to rewire or remove and replace a
significant number of components.
- Scalable - our system provides cost-effective solutions for a building
requiring security for 3 doors to a multiple building system requiring
coverage of thousands of doors.
- Plug & Play - our system allows the end user to select a device for a
given functionality from different vendors or manufacturers
O.P.E.N.CORTEX-TM-
O.P.E.N.cortex-TM- is intended for developers which wish to reduce the time
necessary to develop applications which must be integrated with third-party
applications and may require card, tag or biometric identification information
or other control applications for a variety of industries. It is intended to be
a rapid development platform that enhances developers' sales through a seamless
integration of these systems. Unlike products offered by our competitors, our
product allows for reduced application development time and therefor shorter
time to market. This product is presently in its raw code form and requires
some changes and market packaging before it is ready for commercialization.
NEUTRON-TM-
Neutron-TM- is similar to O.P.E.N.centrix-TM- in concept and savings
abilities but is a low-cost access control system intended to seamlessly
upgrade to a high-end security management system. Management estimates that
the first release of this product will be during the fourth quarter of 1999.
As an entry-level system, it can reduce the need for costly tenders in the
bidding process when a customer wishes to install or expand a system. Unlike
our competitors systems, it is scalable and does not use a proprietary
technology. Neutron-TM-can communicate with building automation systems and
can be easily expanded to our high-end system, O.P.E.N.centrix-TM-.
CURRENT PRODUCT DEVELOPMENT STATUS AND PLANS
Presently, our research and development efforts are focused on the
O.P.E.N.centrix-TM- and Neutron-TM- product lines, which consist of hardware
modules, firmware and system software. We have installed O.P.E.N.centrix-TM- at
a number of customer sites, but consider this to be a pre-release or beta
product. While the hardware modules and firmware have generally proven to be
stable, the system software is undergoing some enhancements to improve ease of
installation, system stability, and to add features to make it more competitive
with equivalent proprietary systems. A new version of the O.P.E.N.centrix-TM-
system software (Release 2.4), with a combination of new features, and
improvements to existing ones, is expected to be released at the end of Summer
1999. Additional releases, with enhancements focused on the requirements of
major installations, are expected to be introduced during the last half of
calendar 1999. We anticipate introducing one of these releases at the American
Society for Industrial Security convention during the week of September 27,
1999. A final commercial or non-beta version is expected to be released by late
calendar 1999.
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Neutron-TM- is intended to use the O.P.E.N.centrix-TM- hardware modules and
firmware. Currently, its system software consists only of rough prototypes that
are utilized for sales demonstrations. As of yet it has not been developed as a
releasable product. Current plans are to have a first release available in
early calendar 2000. Subject to final agreements, we will also be introducing a
number of OEM-labeled versions of the O.P.E.N.centrix-TM- and Neutron-TM-
products for some of our major customers.
At this time, O.P.E.N.cortex-TM- is only a prototype with no specific
release date planned yet.
OTHER SYSTEMS APPLICATIONS
On a select basis, we plan to define, develop and introduce application
specific products where we believe we can enjoy a competitive advantage by
applying our core competencies.
In addition to internal development, we will explore acquisitions of firms
with market access, industry specific expertise and/or technologies, in addition
to further strategic alliances and joint ventures.
JOINT DEVELOPMENT AGREEMENT
A Joint Development Agreement was signed with Indala Corp. on the May 21,
1997. Indala was subsequently acquired by Motorola's Worldwide Smartcard
Systems Division. The agreement was for an initial term of one year and was
subsequently renewed for an additional year. We are negotiating with Motorola
to extend the agreement for an additional year.
The agreement calls for the parties to develop three new, combined
proximity/door controllers, two of which have been developed. The products
integrate Motorola's proximity card reader technology and our access point
controller hardware. Both Motorola and we will own resulting products and will
be marketed under Motorola's and our respective branding schemes. The agreement
also calls for the parties to independently bring these new products to market;
all of our related costs have been expensed.
We are also entitled to the use of a 64-bit open architecture message
format developed by Motorola to be which is referred to as the "Alya format."
This newly introduced format provides a secure format for proximity control
cards. This implementation ultimately enables each person worldwide to have a
unique identification code on his or her personal card. We plan to release this
new standard for use by all equipment manufacturers in the security and process
control industry. Motorola has assigned ownership of this format to us.
OTHER
Other natural allies for the Company are manufacturers of motion sensors
and burglar alarms. We are presently exploring joint development opportunities
with one of the world's leading manufacturers of these technologies. In
addition, we intend to develop strategic alliances with larger, more established
business.
MANUFACTURING
We out-source all major printed circuit board manufacturing. Some smaller
low-volume circuit boards are still assembled in our Vancouver facility.
Currently, vendors located within British Columbia carry out this work. As
volume increases, we will review our manufacturing strategy with a view towards
reducing costs, either through efficiency enhancements at current suppliers, or
through use of higher-volume or off-shore suppliers. We also conduct regular
reviews of our hardware and system architecture designs for cost-saving
opportunities.
We do not see any difficulties in obtaining components or manufacturing
capacity as there are a large number of suppliers in both sectors.
The addition of small quantities of components and firmware, final testing,
and order fulfillment is conducted at our Vancouver facility. As sales volume
increases, we will re-assess these functions with a view to eventual outsourcing
when, and if, it makes economic and operational sense.
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<PAGE>
SUPPLIERS
Motorola, Cypress Semiconductor Corporation, and Toshiba are currently the
only manufacturers for Echelon's Neuron-Registered Trademark- chips, which
handle the LON interface and applications for each Alya hardware module.
Motorola has indicated, as part of its new strategic plan, it will not supply
the Neuron-Registered Trademark- chip family of processors after January 31,
2001. Toshiba, however, remains committed to supplying these products, and on
May 5, 1999, Echelon announced an agreement under which Cypress will develop,
market and sell Neuron-Registered Trademark- Chips.
In addition to being dependent upon Motorola, Cypress and Toshiba as
alternate suppliers for Neuron-Registered Trademark- chips, we are dependent
upon Echelon-Registered Trademark- for transceivers, components that transmit
and receive data over the LON. We have no written supply contracts with any of
the above-mentioned suppliers; however, we benefit from GOLD level pricing,
which is Motorola's best-published rates, on components purchased from Motorola.
We have entered strategic relationships with a number of essential
suppliers. Software licensing agreements have been signed with Echelon for
LonWorks-Registered Trademark- and Microsoft for Windows-Registered Trademark-
95, Windows-Registered Trademark- 98, Windows-Registered Trademark- NT and SQL
server technologies. In addition to the Joint Development Agreement with
Motorola, we have a formal dealer agreement with Motorola securing long-term
low-cost access to Motorola's family of card readers. We will seek similar
distribution agreements with other suppliers of applications specific terminal
equipment in order to allow our dealers and OEMs to offer complete turnkey,
building security systems.
MARKETING AND SALES
The current North American market for electronic security management
systems is already substantial and is projected to grow. This growth is
fueled by the demand for improved security from theft, violence and terrorism.
The requirement for security systems, providing protection of people and
property, is growing globally. The security industry is presently worth
billions worldwide. Electronic systems have been widely accepted in the
industry as they are usually less expensive than using guards and they
provide a more dependable means for recording undesirable events. Even in
countries where labor is inexpensive, guards are being replaced by electronic
systems, especially in large corporations and government facilities. Along
with other minor systems and subsystems, the industry has been traditionally
broken into three categories as follows:
- Access Control (Card Access Control Systems)
- Alarm Monitoring (Intrusion Detection Systems)
- Camera Surveillance (CCTV)
Alya has focussed it efforts to supply both access control and alarm monitoring.
The systems will be designed to interface seamlessly with present CCTV systems.
This ensures that Security Integrators, which require all three in their
portfolio to satisfy the end user, will be able to implement a total solution.
TARGET MARKET ANALYSIS
BUILDING AUTOMATION COMPANIES. Building automation companies presently
have a 15% share of the security system market and represent what we believe to
be an exceptional growth area. Of all sectors that supply such products, this
group is expected to grow the most. We plan to target these building automation
companies to capitalize on their strong distribution channels and technical
skills. We believe our ability to offer a security management system based upon
LonWorks-Registered Trademark- gives us an edge in this market segment. In
addition, we believe that technologies such as Windows-Registered Trademark- NT,
ODBC software, and WAN technology provide strong incentives to this industry
sector to chose us as its supplier of choice.
ACCESS CONTROL MANUFACTURERS. Access control manufacturers presently
control about 30% of the market. Access control manufacturers are presently
offering systems that use proprietary communication technology, which may or
may not be compatible with LonWorks-Registered Trademark- based systems. We
intend to offer our systems to this segment to provide them with the
opportunity to retain market share. Many access control manufacturers have
well established distribution channels.
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FIRE ALARM MANUFACTURERS. Fire alarm manufacturers presently control about
5% of the security system market. As with building automation companies they
are expected to increase their market share in the security products industry.
This sector has also defined LonWorks-Registered Trademark- as the de-facto
standard for interoperability. We intend to solicit fire alarm manufacturers to
capitalize on their strong distribution channels.
MARKETING PLAN
Alya markets O.P.E.N.centrix-TM- to existing security and building
automation systems integrators and manufacturers and installers because their
products can be used in conjunction with O.P.E.N.centrix-TM-. Our products are
positioned as a vehicle enabling them to immediately offer open architecture and
interoperability to their end-user customers without having to incur the
considerable costs associated with the development of the required software and
hardware. O.P.E.N.centrix-TM- enables large industry dealers to maintain their
lucrative maintenance contracts and satisfy their client base with a
comprehensive state of the art system. Another benefit is the ability to
retrofit systems that require upgrading.
While the associations with Motorola and Echelon are certainly helpful to
us in meeting our marketing challenge, our ultimate success will result from the
development of dealer and OEM relationships built on our product efficacy and
our commitment to customer technical service. Since September 1998, we have
entered into dealer agreements with approximately one dozen LonWorks-Registered
Trademark- based integrators of building control systems.
Our marketing plan is threefold:
- First, penetrate the automation security market with
the O.P.E.N.centrix-TM- product line by setting up a
global network of value-added resellers and/or dealers.
We intend to establish OEM agreements with building
automation companies seeking to enter the security
market or who are actively looking to upgrade from
their current suppliers to obtain LonWorks-Registered
Trademark- compatibility.
We are currently in negotiations with several OEMs to bundle
our software with their products/systems. The general method
of approaching these resellers will be by direct contact from
our sales force.
- The second focus is based on developing associations
with industry leading firms. We have collaborated with
Motorola to jointly develop an access point controller
and card reader. We are also working with the
LonMark-Registered Trademark- association in an attempt
to establish ourselves among the Lonworks-Registered
Trademark- industry leaders for standardization.
- Our third focus is to broaden the market application
for our products. We are in the process of identifying
potential users of the O.P.E.N.cortex-TM- development
tools/platform.
DISTRIBUTION
We have identified five distribution channels to end-users:
1. Building Controls Suppliers and Integrators
2. Security System Suppliers and Integrators
3. Telecommunications Companies
4. Electrical Utility Companies
5. Total Solution Providers (companies which provide a full range of
products and services, including those listed above and time and
attendance, registration, and/or point-of-sale systems)
Initially, we focused our distribution efforts on building control
suppliers and integrators because of their familiarity with LonWorks-Registered
Trademark-. These efforts lead to the development of our dealer network. We
are now focusing on OEM relationships with security system suppliers and
integrators.
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In addition, we have pursued total solution providers at both the dealer
level and at the OEM level. In the future we intend to solicit
telecommunications companies and the electrical utilities as distributors and/or
resellers of our products.
We believe that our dealer network provides a relatively quick entry into
the market for our products. In addition, we believe the dealer network
provides a good distribution base with a strong technical background.
Relationships with OEMs, on the other hand, take longer to implement, but we
believe they will provide revenue stability due to the OEMs wide coverage of
territory and customers.
Presently, we have dealer agreements with the following companies:
<TABLE>
<CAPTION>
DEALER LOCATION
------ --------
<S> <C>
Sontay Open Systems Ltd. United Kingdom
Corinex Group a.s. Bratislava, Slovakia
TecLon San Francisco, CA
Omni Security Systems Ltd. Vancouver, BC Canada
North American Basic, LLC Lewiston, NY
Millennium Control Charlotte, NC
Solutions, LLC
Bogot Service, Inc. Park Ridge, IL
Athena Engineering San Dimas, CA
Yamas Controls Group Inc. Sacramento, CA & 5 branches
Trimek Security Systems Istanbul, Turkey
CSI Carrollton, TX
</TABLE>
SALES CYCLE
Once a dealer agreement has been established and product is developed
sufficiently for release, we believe it will take four to six months before that
dealer begins to generate sales for Alya. The end-user sales will vary
dramatically based on the complexity of the system being sold and the size and
type of end-user. We expect the average sales cycle to be approximately 90 days
with a range of 1 month to 12 months. The former will be for smaller systems
while the latter is for larger systems such as government agencies and major
multinational corporations.
Industry practice is for the supplier, Alya, to undertake the preparation
of the end-user software release, manufacture the hardware and ship them both to
the dealer. Payment is generally due within 30 days from shipment. Payment to
Alya is not contingent upon receipt of payment to the dealer from the end-user.
SALES AND SALES SUPPORT ACTIVITIES
We plan to advertise in major trade magazines and to implement a public
relations and advertising program. We will endeavor to have a presence at the
major security and building automation system trade shows and we are developing
print media advertising campaigns targeted at end-users with an appropriate
(i.e., favorable) editorial emphasis as well as catalogs designed to support our
network of dealers and resellers.
We intend to seek extensive coverage and placement of news through news
releases and our contacts in the media. In addition, if members of our
management team are interviewed for articles, we expect there will be references
to Alya in those articles discussing our relevant products and markets.
We have established an Internet World Wide Web site that describes Alya and
our products and services. We intend to develop direct mail campaigns targeted
at specific circulation or subscription lists or user bases with targeted
messages.
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COMPETITION
We face competition mainly from companies producing or developing security
management products. Management does not believe that any of our competitors
offer non-proprietary, interoperable systems, even though they compete with us
for the same end-user market.
We believe our products offer the following advantages over our
competitors' products:
- Long-term system viability and expansion capabilities through
implementation of LonWorks-Registered Trademark- standards, Wide Area
Network and Wide Operating Network connectivity; high performance
software (e.g. Windows-Registered Trademark- NT/95/98 and SQL) and an
extensive system feature set;
- Lower ongoing operating costs achieved through ease of operation and
features. These should reduce the skills required to operate the
system and training cost, along with an overall improvement in
operator efficiency;
- Lower maintenance cost though the use of standardized state-of-the-art
hardware (based on personal computer architecture rather than that of
a minicomputer) and software interoperability with existing and future
building automation systems and terminal devices;
- Low implementation cost through reuse of existing communications
infrastructure (e.g., wiring) and interoperability with existing
terminal equipment; and
- Year 2000 computer system compliance.
Our primary competitors are the established access control and security
control companies, such as Cardkey Systems Inc., Simi Valley, California,
Casi-Rusco, Boca Raton, Florida, Lenel Systems International, a
privately-held company based in Rochester, New York, and WSE (formerly
Westinghouse Security), Fremont, California.
We believe we have established a technological lead over our
competitors, which have been slow to adopt full interoperability. Competition
in the markets in which we compete is intense and involves rapidly changing
technologies, evolving industry standards, frequent new product introductions
and rapid changes in customer requirements. To maintain and improve our
competitive position, we must continue to develop and introduce, on a timely
and cost-effective basis, new products, features and services that keep pace
with the evolving needs of our customers.
The principal competitive factors affecting the markets for our products
are customer service and support, product reputation, quality, performance and
price, and product features such as adaptability, scalability, and ability to
integrate with other products, functionality and ease of use. We believe that
in the past we have generally competed favorably with our competitors' products
on the basis of these factors. However, there can be no assurance that we will
continue to be able to compete effectively based on these or any other
competitive factors in the future.
In addition, those competitors that manufacture and promote closed,
centralized proprietary systems may enjoy a captive customer base dependent on
such competitors for service, maintenance, upgrades and enhancements.
Accordingly, there can be no assurance that we will be able to compete
successfully with existing or new competitors, or that such competition will not
have a material adverse effect on the business, operating results or financial
condition of the Company. Many of our current and prospective competitors are
dedicated to promoting closed or proprietary systems, technologies, software and
network protocols or product standards that differ from, or are incompatible
with, the systems that we produce. In some cases, companies have established
associations or cooperative relationships to enhance the competitiveness and
popularity of their products, or to promote such different or incompatible
technologies, protocols and standards. For example, in the building automation
market, we face widespread reluctance by vendors of traditional closed or
proprietary control systems (who enjoy a captive market for servicing and
replacing equipment) to utilize our interoperable technologies. In addition, we
face strong competition from large trade associations that promote alternative
technologies and standards in their native countries, such as the BatiBus Club
International in France and the European Installation Bus Association in Germany
(each of which has over 100 members and licensees).
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<PAGE>
We work with standards-setting organizations to establish open markets for
LonWorks-Registered Trademark- products in our targeted markets. There can be
no assurance that our technologies, protocols or standards will be successful in
any of the markets in which we compete, or that we will be able to compete with
new or enhanced products or standards introduced by existing or future
competitors. Any increase in competition or failure by us to effectively
compete with new or enhanced products or standards could result in fewer
customer orders, price reductions, reduced order size, reduced operating margins
and loss of market share, any of which could have a material adverse effect on
our business, operating results or financial condition.
LonWorks-Registered Trademark- based systems are "open", meaning that our
customers are capable of developing products that compete with our products.
Since some of our customers are OEMs that develop and market their own control
systems, these customers in particular could develop competing products based on
our open technology. This could decrease the market for the Company's products,
increase competition, and have a material adverse effect on the Company's
business, operating results and financial condition.
COMPETITION FOR O.P.E.N.CENTRIX-TM-
The major competition to O.P.E.N.centrix-TM- is the security management
system produced by Lenel. Lenel describes itself on its Internet World Wide Web
page (www.lenel.com) as "the global leader in the development and support of
seamlessly integrated security management systems software, designed from the
ground up to operate with, and optimize, Microsoft's Windows NT-TM-, SQL Server
and Back Office Technologies." Management believes Lenel has sales of
approximately $10 - 15 million annually.
Ademco Security Group is a wholly owned subsidiary of Pittway Corporation,
a conglomerate listed on the New York Stock Exchange. Although Pittway has
experienced substantial growth in the past two years, it is difficult to
ascertain the contribution to that growth made by Ademco. Ademco is known,
specifically, as a leader in electronic security devices and, to the best of
management's knowledge, does not carry a reputation for open platform
interoperability designs or technology. Ademco recently purchased Northern
Computers which is focused entirely on providing access control systems. It is
not yet clear how the recent purchase by Ademco will affect the business plan of
Northern and subsequent competition to Alya.
Other security technology companies include Card Key and Cassi Rusco, which
are both considered to be in this category, but to the best of our knowledge,
their systems do not provide the interoperability available in our systems.
The integration of security systems (especially access control) with
building control systems is only just beginning. According to our research
there is no directly comparable competition for O.P.E.N.centrix-TM-. We also
estimate that we have a lead-time of at least a year and a half over any
potential competitors. We have forged strategic alliances with major OEMs, such
as Control Systems International, in an effort to strengthen our competitive
position. In addition, we have high-level strategic alliances with companies
such as Motorola and Raytheon.
We believe we are the only company offering a high-end and scaleable
LonWorks-Registered Trademark- based building access control and alarm
monitoring system. We believe that from the perspective of the end-user (i.e.,
building owners, tenants and building managers) the ability to have an
integrated system is compelling. However, there are a number of vendors of
security systems and other building control systems that regard
LonWorks-Registered Trademark- as a threat. These companies have a large
installed base of proprietary, "last generation" systems. They derive revenue
from a captive customer universe pursuant to service and maintenance contracts
and from the sale of product upgrades and enhancements. It is not in their
interest, at least over the intermediate term, for interoperability to succeed.
It is unlikely that they will spend the millions of dollars required to develop
LonWorks-Registered Trademark- compatibility. We believe this creates an
opportunity for us to turn competitors into customers. These traditional
participants who control a significant installed base could become licensees of
our technology or they could become private label customers.
Another motivating factor for entrenched OEM vendors to enter into a
relationship with us is the Y2K issue. We believe that many security management
systems currently in place are not year 2000 compliant. Our O.P.E.N.centrix-TM-
system has been tested to be Year 2000 compliant.
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<PAGE>
COMPETITIVE ASSESSMENT PRICING STRATEGY
Our pricing strategy is intended to provide the "state of the art"
functionality of O.P.E.N.centrix-TM- at a price comparable to present systems.
The typical industry method for recovering costs is to charge a high amount for
the new software and its associated benefits, which leads to a limited
installation base. We believe the cost of manufacturing our O.P.E.N.centrix-TM-
hardware is equal to or less than present systems. Therefore, we believe we can
maintain a sales margin of over 60% for our O.P.E.N.centrix-TM- hardware.
Approximately 95% of the revenue from a typical O.P.E.N.centrix-TM- system sale
comes from the sale of hardware. Therefore, in the event we are not able to
maintain our projected sales margins, our profitability and operations would be
materially and adversely affected. Because software has very minimal hard
costs, software pricing will based upon market conditions.
STRATEGIC ALLIANCES
We are a licensed developer of the Echelon LonWorks-Registered Trademark-
technology and Microsoft's Windows-Registered Trademark- NT/95/98 operating
systems. LonWorks-Registered Trademark- is now the de facto standard for
interoperable control systems. Over 100 leading control system companies
worldwide have formed the LonMark Association including: Microsoft, Honeywell,
Toshiba, Phillips and Hewlett Packard. Alya is a member of the security task
group which is focused on developing LonMark standard functional profiles for
intrusion, access control, and CCTV devices and systems.
GOVERNMENT REGULATION
Our circuit board products are subject to the following government
regulations:
FCC U.S. emissions standard for electronic equipment. Our hardware
components comply with FCC Class A requirements. This permits our
systems to be used in installations where other emissions-sensitive
equipment is present.
CE European emissions standard for electronic equipment. Our hardware
components comply with CE Class A.
UL Underwriter's Laboratory; U.S. electrical safety standard. Our
hardware components are UL certified.
Although no other regulatory approval is required for our products, we are
pursuing other certifications for our current products, such as CE Class B, in
order to broaden the range of applicable market applications for our products.
QUALITY CERTIFICATION PROGRAM
We are working on mid- to long-term plans to improve development processes
with a view to SEI CMM level 2 and ISO 9001 compliance. SEI CMM refers to the
Software Engineering Institute's Capability Maturity Model - a methodology for
rating an organization's software development and quality practices. Achieving
level 2 would put us among the upper quartile of North American software
developers. In addition, the LonMark association, which was created by
Echelon-Registered Trademark- and its industrial sponsors, such as Motorola,
Toshiba, and Microsoft, has already provided international recognition for
O.P.E.N.centrix-TM- products as being LonWorks-Registered Trademark- compliant.
ENVIRONMENTAL LIABILITIES
We are not aware of any environmental liabilities associated with the use
of our products. Any environmental liabilities associated with the manufacture
of the hardware components of our products are the responsibility of the
manufacturers contracted to product the circuit boards.
27
<PAGE>
RESEARCH AND DEVELOPMENT
Our development team currently consists of the following persons:
- 1 Chief Technology Officer
- 1 Engineering Manager
- 1 Project Manager
- 13 Software Engineers
- 1 Hardware Engineer
- 2 Test Engineers
Our products are developed with Microsoft Visual Studio, including
Microsoft Visual Basic and Microsoft Visual C++ languages. We are also an OEM
licensee of Echelon's LonWorks-Registered Trademark-. These development tools
plus ones from Echelon were purchased for approximately $50,000 and we incur an
annual support cost of approximately $5,000. The purchasers of our products pay
a nominal fee for the use of the technology.
We spent approximately $434,000, $545,000 and $583,000 in the six months
ended March 31, 1999, fiscal 1998 and fiscal 1997, respectively, on research
and development, none of which was for customer sponsored or paid-for
research. In total, approximately $6 million has been spent on marketing,
administration, research and development from inception to March 31, 1999.
R & D FACILITY AND CAPABILITY IMPROVEMENT PLANS
Our research and development group is currently designing, and preparing to
equip an expanded acceptance-testing and staging lab. This facility will enable
us to more accurately simulate the larger and more complex campus-type or
remote-building system installations typical of large, multi-building
installations. We will also be able to use it as a resource to test new
trouble-shooting procedures.
EMPLOYEES
As of June 11, 1999, we employed 45 people, of which 43 were full-time
employees. We engage consultants and independent contractors to provide
services related to the development of the system and marketing. We expect to
hire other personnel as necessary for product development, quality assurance,
sales and marketing, and administration.
FACILITIES
Our headquarters facility is currently located in Coquitlam, a suburb of
Vancouver, British Columbia, Canada. These offices total approximately 13,000
square feet and are the site of Alya product developments, manufacturing and
marketing. In addition, a global network of sales and service locations is to
be established as market requirements dictate to support this main location.
The details of the terms of leases for each office are as follows:
<TABLE>
<CAPTION>
MONTHLY
UNIT LEASED EXPIRATION PAYMENT ($) RENEWAL TERMS
----------- ---------- ----------- -------------
<S> <C> <C> <C>
#111-17 Fawcett June 30, 2000 1,990 None
#112-17 Fawcett June 30, 2000 663 Up to one year
#114-17 Fawcett March 31, 2000 555 To June 30, 2000
#101-16 Fawcett June 30, 2000 1,996 None stated
#102-16 Fawcett June 30, 2000 1,015 Up to three years
</TABLE>
28
<PAGE>
We have the following annual commitments under the terms of office and
equipment leases:
<TABLE>
<S> <C>
1999 $ 132,400
2000 89,100
2001 31,700
2002 6,900
2003 1,200
---------
$ 261,300
---------
---------
</TABLE>
Office lease payments were $39,000 for the 6 months ended March 31,
1999, $30,000 for the 1998 fiscal year, and $20,000 for the 1997 fiscal year.
Equipment lease payments were $23,000 for the 6 months ended March 31, 1999,
$25,000 for the 1998 fiscal year, and $8,000 for the 1997 fiscal year.
Office lease and equipment lease payments were included in general and
administrative costs.
We employ sales persons in Austin, Texas; San Francisco, California;
Beijing, China; Antwerp, Belgium; and the Slovak Republic. As part of their
employment with us, these representatives provide office space in their homes
or offices to us at no cost.
We do not own any property other than general office furniture,
computers, one automobile, and leasehold improvements. All of our capital
assets are located in Canada.
LEGAL PROCEEDINGS
We are the subject of a British Columbia Supreme Court approved
garnishee order issued in April 1999 against Alya Systems Inc.'s bank account
in the amount of approximately $20,000. The garnishment arose from a
delinquent account with West Point Integrated Technologies Inc/Forbes & Gunn
Consulting Ltd. of Vancouver, British Columbia, which supplied personnel to
us. We are disputing approximately one-half of the claim, although it has
been provided as a payable in the full amount in our financial statements.
Any payment to the suppliers will be made from the proceeds of this offering.
29
<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Milan Carnogursky 63 Chief Executive Officer and Chairman of the
Board of Directors since inception.
Peter Sobotka 38 Director since December 1998.
Douglas Corbett 45 President and Director since January 1998.
Jaro Bucko 45 Chief Technology Officer, Secretary, Treasurer
and Director since April 1997.
Robert W. Hamilton 53 Vice President - Operations since January 1999.
David R. Lewis 54 Chief Financial Officer since March 1999.
</TABLE>
The term of office of each director ends at the next annual meeting of
Alya's stockholders or when such director's successor is elected and
qualifies. The term of office of each officer ends at the next annual meeting
of the Alya's board of directors, expected to take place immediately after
the next annual meeting of stockholders, or when such officer's successor is
elected and qualifies.
The last annual meeting was held on May 7, 1999, in Coquitlam, British
Columbia.
MILAN CARNOGURSKY, Chairman and Director since inception. From 1991 to
1995, Mr. Carnogursky formed and was the Chairman, CEO and majority owner of
Nafto Project International Inc., an engineering company with approximately
300 employees. He sold his interest in Nafto to its management in 1995. In
1987, Mr. Carnogursky led a successful unaided dog team expedition to the
magnetic north pole. He has a Bachelor of Arts degree in Physical Education
(1964 ) from University of Bratislava, Slovakia.
PETER SOBOTKA, Director since December 1998. Mr. Sobotka holds a Ph.D
and Master of Science degree from the Slovak Technical University, and has
had research stays at Texas A & M University and Tohoku University (Japan).
In 1989, he co-founded the Corinex group of companies and has been CEO,
President and a Director of Corinex since 1991. Corinex is a major customer
of Alya and focuses on the marketing and operation of fiber optics for Slovak
utility companies, system integration and production of telecommunications
software.
DOUGLAS CORBETT, President and Director since January 1998. Mr. Corbett
has over 25 years experience in the building and security industry,
including twelve years of experience as sales manager for Computrol Security
Systems Ltd, Burnaby, British Columbia. From 1984 to 1986, Mr. Corbett was a
Sales Manager for Computrol where he was responsible for sales to
institutional and government accounts, including cities and airports. From
1977 to 1984, Mr. Corbett was employed as a service manager for Datatech
Systems, a national technical service company. He has an Electronics
Technology degree (1976) from the British Columbia Institute of Technology.
JARO BUCKO, Chief Technology Officer and Director since inception. From
1989 to 1995, Mr. Bucko was a Chief Design Engineer with Computrol Security
Systems, Burnaby, British Columbia. Mr. Bucko was responsible for managing a
ten person software and hardware engineering team and acted as a liaison and
technical advisor between Computrol and potential customers. He has a
Master's degree in Electrical Engineering (1977) from the Slovak Technical
University, Bratislava, Slovakia.
ROBERT HAMILTON, Vice President - Operations since January 1999. Before
joining Alya, Mr. Hamilton worked for WSSD in various positions. From 1997
to 1998, Mr. Hamilton was a program manager in the Packet data inter-working
unit at WSSD. His work focused on developing a compact wireless database
station and
30
<PAGE>
implementing a divisional Year 2000 readiness program. From 1993 to 1997,
Mr. Hamilton was the Manager of Business and Technical Communications for
WSSD, and was responsible for supervising a staff of 12 persons, including
contractors. Mr. Hamilton received a Bachelor of Science with Honors from the
Art Center College of Design (Los Angeles, California) in 1969.
ART CUNNINGTON, Vice President - Sales and Marketing since May 1999.
From 1995 to 1999, Mr. Cunnington was the Western Regional Manager for WSSD.
His responsibilities with included the development of direct and indirect
distribution channels for WSSD's products. Mr. Cunnington also conducted new
product evaluations with OEM customers and WSSD's engineering department.
Mr. Cunnington has a Bachelor of Business Administration (1978) from Ohio
University.
DAVID R. LEWIS, Chief Financial Officer since March 1999. From July
1994 through December 1998, Mr. Lewis was employed by various companies a
Chief Financial Officer, Secretary and/or Director. These companies included
Net Nanny Software International Inc., Vancouver, British Columbia, Big
Server Software Inc., Vancouver, British Columbia, and Weir-Jones Automotive
Inc., Vancouver, British Columbia. As the Chief Financial Officer, Mr. Lewis
was responsible financial compliance and reporting, surplus cash management,
budgeting, and systems reporting. Mr. Lewis became a chartered accountant in
1974 while employed with Coopers & Lybrand in Toronto, Canada. He received a
bachelors degree in metallurgical engineering from Nova Scotia Technical
College (Dalhousie University) in 1969.
No other directorships are held by each director in any company with a
class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or any company registered as an investment company,
under the Investment Company Act of 1940.
Messrs. Carnogursky, Corbett, and Bucko may be deemed to be "promoters"
and "control persons" of the Company, as that term in defined in the
Securities Act of 1933.
KEY EMPLOYEES
JOZEF STAROSTA, Software Engineering Manager. Mr. Starosta joined Alya
in 1995. From 1998 to 1995, Mr. Starosa was a Software Engineer at Softouch
Scheduling Services, Vancouver, British Columbia. At Softouch Mr. Starosta
designed, programmed and maintained interface programs and an Oracle
database. He also prototyped crew scheduling algorithms. Mr. Starosta
received a masters degree in electrical engineering from Slovak Technical
University, Bratislava, Slovakia, in 1968.
FRED THOMPSON, Chief Hardware Design Engineer. Mr. Thompson has 30
years experience in the design of computer hardware and development of analog
and digital systems, including 16 years specifically related to security and
building control systems. From 1998 to 1995, Mr. Thompson was a
self-employed systems designer. During that time he held contracts with
International Telepresence Corporation, Bridgenorth Signal Processing, and
Computrol Systems Limited. Mr. Thompson received a diploma of
telecommunications and electronics from Vancouver City College in 1967.
EXECUTIVE COMPENSATION
The following table sets forth the remuneration for the fiscal year
ended September 30, 1998 of the three highest paid officers and directors of
Alya:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME OF INDIVIDUAL CAPACITIES IN WHICH AGGREGATE UNDERLYING
OR IDENTITY OF GROUP REMUNERATION WAS RECEIVED REMUNERATION OPTIONS GRANTED
-------------------- ------------------------- ------------ ---------------
<S> <C> <C> <C>
Milan Carnogursky Chairman $82,758 135,000
Jaro Bucko Chief Technology Officer $67,332 135,000
Douglas Corbett President $67,195 129,000
</TABLE>
31
<PAGE>
The following table sets forth all individual grants of stock options
and freestanding Stock Appreciation Rights (SARs) made during the last
completed fiscal year to each of three highest paid officers and directors:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
% of Total Options
Number of Granted to
Securities Employees in Fiscal Exercise or Base
Name Underlying Options (#) Year Price ($/Sh) Expiration Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Milan Carnogursky 60,000 14.9 .55 April 14, 2003
75,000 .69 September 11, 2003
- -----------------------------------------------------------------------------------------------------------------------
Jaro Bucko 60,000 14.9 .50 April 14, 2003
75,000 .63 September 11, 2003
- -----------------------------------------------------------------------------------------------------------------------
Douglas Corbett 54,000 14.2 .50 April 14, 2003
75,000 .63 September 11, 2003
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
We have no long-term incentive plans.
We do not pay directors for their services as such nor do we pay any
director's fees for attendance at meetings. We reimburse directors for any
expenses incurred by them in their performance as directors.
There are no employment agreements with any of our executive officers.
STOCK OPTION PLAN
On March 18, 1997, our directors and shareholders adopted a 1997 Stock
Option Plan under which a total of 1,377,048 shares are currently available
for grant to provide incentive compensation to our officers and key employees.
The board of directors administers the Stock Option Plan. Options may
be granted for up to 10 years at not less than the fair market value at the
time of grant, except that the term may not exceed five years and the price
must be 110% of fair market value for any person who at the time of grant
owns more than 10% of the total voting power of the Company. Unless
otherwise specified in an optionee's agreement, options granted under the
Plan to officers, officer/directors, and employees will become vested with
the optionee under the following schedule: 50% upon the first anniversary of
the option grant and 12.5% upon each of the four three-month periods
following the first anniversary. The Plan will remain in effect until the
board of directors terminates it, except that no incentive stock option, as
defined in Section 422 of the Internal Revenue Code, may be granted after
March 18, 2007.
Options may be exercised by payment of the option price (i) in cash,
(ii) by tender of shares of Company common stock which have a fair market
value equal to the option price, or (iii) by such other consideration as the
board of directors may approve at the time the option is granted.
In order to attract and retain key employees, management is developing a
proposal, for ratification by the shareholders, to change certain terms of
the Plan. This would include an increase in the number of shares available
under this plan to 20% of the issued and outstanding shares at any one
month-end and/or a change in the vesting provisions.
The following table provides certain option, warrant and rights
information (whether vested or not) as to the officers and directors
individually and as a group, and the holders of more than 5% of the Company's
common stock, as of June 11, 1999:
<TABLE>
<CAPTION>
TITLE OF NUMBER OF
NAME OF HOLDER SECURITIES SECURITIES EXERCISE PRICE EXPIRATION DATE
-------------- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Milan Carnogursky Options 50,000 $0.55 June 3, 2002
Chairman 60,000(2) $0.55 April 14, 2003
75,000 $0.69 Sept. 11, 2003
150,000(1) $0.45 May 8, 2004
32
<PAGE>
<CAPTION>
TITLE OF NUMBER OF
NAME OF HOLDER SECURITIES SECURITIES EXERCISE PRICE EXPIRATION DATE
-------------- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Douglas Corbett Options 7,500 $0.50 June 3, 2002
President 54,000 (2) $0.50 April 14, 2003
75,000 $0.63 Sept. 11, 2003
150,000(1) $0.45 May 8, 2004
Jaro Bucko Options 30,000 $0.50 June 3, 2002
Chief Technology Officer 60,000 (2) $0.50 April 14, 2003
75,000 $0.63 Sept. 11, 2003
150,000(1) $0.45 May 8, 2004
Art Cunnington, Options 175,000(3) $0.45 May 8, 2004
Vice President - Sales & Marketing
Robert Hamilton Options 150,000(3) $0.45 May 8, 2004
Vice President - Operations
David R. Lewis Options 150,000(3) $0.45 May 8, 2004
Chief Financial Officer
Officers, directors & 5% shareholders as 1,411,500 -
a group (6 persons)
</TABLE>
(1) Subject to shareholder approval. One-half are exercisable after May 8,
2000, and the remaining are exercisable after May 8, 2001.
(2) One half of these options are not exercisable until April 14, 2001.
(3) One-half are exercisable after May 8, 2000, and the remaining are
exercisable after May 8, 2001.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information as to the officers and
directors individually and as a group, and the holders of more than 5% of the
Company's common stock, as of June 11, 1999. Except as otherwise indicated,
the persons named in the table have sole voting and investing power with
respect to all shares of common stock owned by them.
<TABLE>
<CAPTION>
NUMBER OF SHARES
HELD PRIOR OPTIONS PERCENT OF
NAME AND ADDRESS OF OWNER TO OFFERING(1) EXERCISABLE (2) TOTAL CLASS (3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Milan Carnogursky, Chairman 4,355,100 155,000 4,510,100 29.8
West Vancouver, British Columbia
Peter Sobotka, Director (4) 416,617 -0- 416,617 2.8
Bratislava, Slovak Republic
Douglas Corbett, President 201,000 109,500 310,500 2.0
North Vancouver, British Columbia
Jaro Bucko, Chief Technology Officer 603,000 135,000 738,000 4.8
Port Coquitlam, British Columbia
33
<PAGE>
<CAPTION>
NUMBER OF SHARES
HELD PRIOR OPTIONS PERCENT OF
NAME AND ADDRESS OF OWNER TO OFFERING(1) EXERCISABLE (2) TOTAL CLASS (3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert Hamilton, Vice President - 21,000 0 21,000 0.1
Operations
White Rock, British Columbia
David R. Lewis, Chief Financial Officer 0 0 0 0
Vancouver, British Columbia
Tital Enterprises Ltd. (5) 761,943 0 761,943 5.0
8th Floor, Nicosia Tower
Center 36, Byron Ave.
P.O. Box 1341, 1506
Nicosia, Cyprus
Selepia Trading Company Ltd. (6) 238,059 0 238,059 1.6
1 Protagoras Ave.
Nicosia, Cyprus
Officers and directors, as a group (6 5,596,717 399,500 5,996,217 38.7
persons)
</TABLE>
(1) Management does not anticipate that any of the persons listed will
subscribe for shares in the offering.
(2) Includes options of shares of common stock exercisable within 60 days from
June 11, 1999. These additional shares are deemed to be outstanding for
the purpose of computing the percentage of class owned by such persons, but
are not deemed to be outstanding for the purpose of computing the
percentage of any other person.
(3) Based on 15,102,444 shares of common stock outstanding on June 11, 1999.
Where the persons listed on this table have the right to obtain additional
shares of common stock within 60 days from June 11, 1999, these additional
shares are deemed to be outstanding for the purpose of computing the
percentage of class owned by such persons, but are not deemed to be
outstanding for the purpose of computing the percentage of any other
person.
(4) Includes 416,617 shares of common stock owned by a company that is
controlled by this director.
(5) Does not include 238,059 shares owned by Selepia Trading Company Ltd.
Eleini Kyriacou is the secretary and a director of Selepia Trading Company
Ltd. Ms. Kyriacou is also the president, a shareholder and a director of
Tital Enterprises Ltd.
(6) Does not include 761,943 shares owned by Tital Enterprises Ltd. Eleini
Kyriacou is the secretary and a director of Selepia Trading Company Ltd.
Ms. Kyriacou is also the president, a shareholder and a director of Tital
Enterprises Ltd.
The following table provides information as to the holders of more than 10%
of the shares of our preferred stock, as of June 11, 1999:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF OWNER NUMBER OF SHARES(1) OPTIONS EXERCISABLE (2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Dale Paruk 400,000 (100% of class) 50,000
Vancouver, BC CANADA
</TABLE>
(1) We do not anticipate that Mr. Paruk will subscribe for shares in the
offering.
34
<PAGE>
(2) Includes options of shares of common stock exercisable within 60 days from
June 11, 1999. These additional shares are deemed to be outstanding for
the purpose of computing the percentage of class owned by such persons, but
are not deemed to be outstanding for the purpose of computing the
percentage of any other person
CHANGES IN CONTROL
We are not aware of any arrangements that may result in a change in control
of Alya.
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue of up to 50,000,000 common shares, $.0001 par
value per share, and 10,000,000 preferred shares, $.0001 par value per share.
The following summary does not purport to be complete. You may wish to refer
to the our articles of incorporation and bylaws, copies of which are
available for inspection. None of the holders of any class or series of our
capital stock has preemptive rights or a right to cumulative voting. As of
June 11, 1999, there were issued and outstanding 15,102,444 shares of common
stock and 400,000 shares of Series A Preferred Stock.
SERIES A PREFERRED STOCK
Our board of directors may determine the designations, rights,
preferences or other variations of each class or series of the preferred
stock. The board of directors has established a Series A Preferred Stock
consisting of 1,000,000 shares, of which 400,000 shares are outstanding as of
June 11, 1999.
CONVERSION. Shares of Series A Preferred Stock are not convertible into
any other shares of capital stock.
LIQUIDATION PREFERENCE. In the event of liquidation, dissolution, or
the winding up of Alya, any holder of the Series A Preferred Stock shall, for
each share of Series A Preferred Stock, be entitled to receive a distribution
of $0.05 out of Alya's assets prior to any distribution of assets with
respect to any other shares of capital stock.
OPTIONAL REDEMPTION. We have the right and option to redeem in whole or
in part, by lot or pro rata, the shares of Series A Preferred Stock at a
price equal to $0.0001 per share, at any time, or from time to time, on or
after one year from the date of issuance.
DIVIDENDS. The annual rate of dividends payable on shares of the Series
A Preferred Stock is $0.05 per share. Dividends are payable annually as set
by the board of directors. If we fail to pay a dividend in any year, the
dividends do not accumulate to the next year.
VOTING AND PREEMPTIVE RIGHTS. The holders of the Series A Preferred
Stock shall have no voting rights except to the extent required by the
Delaware corporate statutes and the Series A Preferred Stock is not entitled
to preemptive rights.
COMMON STOCK
As of June 11, 1999, there were 15,102,444 shares of common stock issued
and outstanding. The board of directors may issue additional shares of common
stock without the consent of the common stockholders.
VOTING RIGHTS. Each outstanding share of common stock is entitled to
one vote. The common stockholders do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares
voting for the election of directors can elect all of the directors to be
elected, if they so choose.
NO PREEMPTIVE RIGHTS. Holders of common stock are not entitled to any
preemptive rights.
35
<PAGE>
DIVIDENDS AND DISTRIBUTIONS. Holders of common stock are entitled to
receive such dividends as may be declared by the directors out of funds
legally available for dividends and to share pro rata in any distributions to
holders of common stock upon liquidation or otherwise. However, we have
never paid cash dividends on our common stock, and do not expect to pay such
dividends in the foreseeable future.
TRANSFER AGENT
The registrar and transfer agent for the common stock is American
Securities Transfer & Trust, Inc., 12039 West Alameda Parkway, Suite Z-2,
Lakewood, Colorado 80228.
PLAN OF DISTRIBUTION
GENERAL
We are acting as the general selling agent with respect to the common
stock being offered at a price of $____ per share. We intend to enter into
agreements with securities broker-dealers, who are members of the NASD, so
that broker-dealers who will be involved in the sale of the shares will be
paid a commission of ten percent by us. No broker-dealer has agreed to
participate in this offering as of the date of this prospectus. The NASD
must first approve the arrangements with any broker-dealers that will
participate in the distribution of this offering. In addition, our officers
and directors may also be involved in the sale of the shares but will not
receive any sales commission or other remuneration. This distribution will
not involve any reallocations between NASD members and non-members.
We may provide any sales agent or broker-dealer with a list of persons
whom we believe may be interested in purchasing shares in this offering. The
sales agent or broker-dealer may sell a portion of the shares to any such
person if he resides in a state where the shares can be sold and where the
sales agent or broker-dealer can sell the shares. No sales agent or
broker-dealer is obligated to sell any shares to any such person and will do
so only to the extent that such sales would not be inconsistent with the
public distribution of the shares. We are unaware of any person, including
any affiliate, who intends to finance any portion of the purchase price of
the shares to be acquired in this offering. It is not intended that the
proceeds from this offering will be used, directly or indirectly, to enable
anyone to purchase shares.
METHOD OF SUBSCRIBING
You may subscribe by completing and delivering our form of subscription
agreement to us. The subscription price of $_____ per share must be paid by
check, bank draft, or postal or express money order payable in United States
dollars to the order of Alya International, Inc. Certificates for shares of
common stock subscribed for will be issued as soon as practicable after
termination of the offering.
EXPIRATION DATE
The subscription offer will expire ___________________________
[90 days from the date of this Prospectus] which period may be extended for
an additional 90 days, or on such earlier date as we shall determine in our
discretion (the "Expiration Date").
RIGHT TO REJECT
We reserve the right to reject any subscription in our sole discretion
and to withdraw this offer at any time prior to our acceptance of the
subscriptions received, if acceptance of a subscription would result in the
violation of any laws to which we are subject.
36
<PAGE>
NO ESCROW
We have not established an escrow account and we are employing the funds
as they are being raised. THIS OFFERING IS NOT SUBJECT TO ANY MINIMUM
SUBSCRIPTION LEVEL, AND THEREFORE ANY FUNDS RECEIVED FROM A PURCHASER ARE
AVAILABLE TO US AND NEED NOT BE REFUNDED TO THE PURCHASER.
SEC POSITION ON INDEMNIFICATION
As permitted by Delaware law, the Company's Certificate of Incorporation
includes a provision which provides that a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for a breach of fiduciary duty as a director, except (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of the law, or (iii) under Section 174 of the General
Corporation Law of the State of Delaware, which prohibits the unlawful
payment of dividends or the unlawful repurchase or redemption of stock. This
provision is intended to afford directors protection against, and to limit
their potential liability for monetary damages resulting from, suits alleging
a breach of the duty of care by a director.
The provisions diminish the potential rights of action which might
otherwise be available to shareholders by limiting the liability of officers
and directors to the maximum extent allowable under Delaware law and by
affording indemnification against most damages and settlement amounts paid by
a director of the Company in connection with any shareholders derivative
action. However, the provisions do not have the effect of limiting the right
of a shareholder to enjoin a director from taking actions in breach of his
fiduciary duty, or to cause the Company to rescind actions already taken,
although as a practical matter courts may be unwilling to grant such
equitable remedies in circumstances in which such actions have already been
taken. Also, because the Company does not presently have directors liability
insurance and because there is no assurance that the Company will procure
such insurance or that if such insurance is procured it will provide coverage
to the extent directors would be indemnified under the provisions, the
Company may be forced to bear a portion or all of the cost of the director's
claims for indemnification under such provisions. If the Company is forced to
bear the costs for indemnification, the value of the Company stock may be
adversely affected. In the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act of 1933 is
contrary to public policy and, therefore, is unenforceable.
LEGAL MATTERS
Dill Dill Carr Stonbraker & Hutchings, P.C., Denver, Colorado will pass
upon the validity of the Shares offered hereby for Alya.
EXPERTS
The financial statements of Alya International, Inc. as of September 30,
1998 included in this prospectus have been audited by PricewaterhouseCoopers
LLP, independent chartered accountants, as set forth in their report on such
financial statements, and are included in this prospectus in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting
requirements of the SEC. We have filed with the SEC a registration statement
on Form SB-1 (including amendments thereto, the "Registration Statement")
under the Securities Act with respect to the Securities offered hereby. This
prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the us and our securities, you should review the
registration statement and the exhibits and schedules thereto. Statements
made in this prospectus regarding the contents of any contract or document
filed as an exhibit to
37
<PAGE>
the registration statement are not necessarily complete. You should review
the copy of such contract or document so filed.
You can inspect the registration statement and the exhibits and the
schedules thereto filed with the commission, without charge, at the office of
the SEC at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549.
You can also obtain copies of these materials from the public reference
Section of the commission at 450 Fifth Street, NW, Washington, D.C. 20549, at
prescribed rates. You can obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The Commission
maintains a web site on the Internet that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission at HTTP://WWW.SEC.GOV.
The Company has a web site on the Internet at HTTP://WWW.ALYA.COM.
REPORTS TO STOCKHOLDERS
As a result of filing the Registration Statement, the Company will
become subject to the reporting requirements of the Exchange Act, and will be
required to file periodic reports, proxy statements, and other information
with the Commission. The Company will furnish its shareholders with annual
reports containing audited financial statements certified by independent
public accountants following the end of each fiscal year, proxy statements,
and quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year following the end of such fiscal
quarter.
38
<PAGE>
ALYA INTERNATIONAL INC.
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
[LOGO]
<PAGE>
JANUARY 12, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF ALYA INTERNATIONAL INC.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' deficiency
and of cash flows present fairly, in all material respects, the financial
position of ALYA INTERNATIONAL INC. and its subsidiary at September 30, 1998
and 1997, and the results of their operations and cash flows for the years
then ended, in conformity with generally accepted accounting principles in
the United States of America. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations and has a shareholders' deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
"PricewaterhouseCoopers LLP"
CHARTERED ACCOUNTANTS
<PAGE>
ALYA INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
-----------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 74,768 $ 6,802
Accounts receivable 71,822 97,015
Inventories 16,735 12,250
Prepaid expenses and other assets (NOTE 3) 61,649 23,146
-----------------------------------
224,974 139,213
CAPITAL ASSETS (NOTE 4) 56,023 112,782
-----------------------------------
$ 280,997 $ 251,995
-----------------------------------
-----------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable (NOTE 5) $ 304,176 $ 514,261
Operating line of credit (NOTE 6) - 21,600
Other short term debt (NOTE 6) 55,270 44,305
Convertible debt (NOTE 7) - 72,000
Due to related parties (NOTE 14) 40,933 71,691
-----------------------------------
400,379 723,857
ADVANCES ON SALE OF SOFTWARE RIGHTS (NOTE 11) 688,692 -
SHAREHOLDERS' DEFICIENCY
COMMON SHARES (NOTE 8) 1,378 1,084
PREFERRED SHARES (NOTE 8) 40 -
ADDITIONAL PAID-IN CAPITAL (NOTE 8) 4,799,403 2,715,875
STOCK OPTIONS (NOTE 8) 51,425 317,500
SHARE SUBSCRIPTION RECEIVABLE (NOTE 8) (65,700) (90,000)
WARRANTS (NOTE 8) 18,854 25,000
ACCUMULATED DEFICIT (5,674,327) (3,450,866)
CUMULATIVE TRANSLATION ADJUSTMENT 60,853 9,545
-----------------------------------
(808,074) (472,946)
-----------------------------------
$ 280,997 $ 251,995
-----------------------------------
-----------------------------------
GOING CONCERN (NOTE 1)
COMMITMENTS (NOTE 10)
SUBSEQUENT EVENTS (NOTE 12)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
APPROVED BY THE BOARD "MILAN CARNOGURSKY" DIRECTOR "DOUGLAS CORBETT" DIRECTOR
------------------- -----------------
<PAGE>
ALYA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR Year
ENDED ended
SEPTEMBER 30 September 30
1998 1997
------------------------------------
<S> <C> <C>
SALES REVENUE (NOTE 9) $ 323,734 $ 110,878
COST OF GOODS SOLD 187,429 60,893
------------------------------------
GROSS PROFIT 136,305 49,985
OPERATING EXPENSES
General and administrative
(NOTE 8 (b) AND (c)) 1,341,853 1,588,760
Research and development 545,502 583,872
Marketing and sales 471,380 200,323
------------------------------------
2,358,735 2,372,955
------------------------------------
LOSS FROM OPERATIONS (2,222,430) (2,322,970)
INTEREST EXPENSE (NOTE 8(d)(e)) 1,031 234,870
------------------------------------
LOSS FOR THE YEAR $ (2,223,461) $ (2,557,840)
------------------------------------
------------------------------------
LOSS PER COMMON SHARE - BASIC AND FULLY
DILUTED $ (0.19) $ (0.32)
------------------------------------
------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES (NOTE 2) 11,733,903 8,009,178
------------------------------------
------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON SHARES WARRANTS OPTIONS
-----------------------------------------------------------------------------------------
ADDITIONAL
PAID-IN
NUMBER AMOUNT CAPITAL NUMBER AMOUNT NUMBER AMOUNT
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 300 $ 3 $ 192,957 - $ - 1,483,400 $ 148,192
Alya Systems Inc. shares
exchanged for Company's 5,427,300 540 3 - - - -
shares (NOTE 8(a))
Rights/options granted - - - - - 1,328,000 317,500
(NOTE 8(b))
Rights/options exercised 2,131,400 213 381,407 - - (2,131,400) (148,192)
(NOTE 8(b))
Shares issued for cash or
services (NOTE 8(c)) 1,675,915 168 1,015,168 - - - -
Debentures converted and 1,600,002 160 1,126,340 - - - -
issued (NOTE 8(d))
Warrants issued and
beneficial conversion
feature granted - - - 200,000 25,000 - -
(NOTE 8(e))
Translation adjustment - - - - - - -
Net loss for period - - - - - - -
-----------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 10,834,917 $ 1084 $ 2,715,875 200,000 $ 25,000 680,000 317,500
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
<CAPTION>
RECEIVABLE FOR
SALE OF STOCK TRANSLATION ACCUMULATED
(NOTE 8(d)) ADJUSTMENTS DEFICIT TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 - - $ (893,026) $ (551,874)
Alya Systems Inc. shares
exchanged for Company's - - - 543
shares (NOTE 8(a))
Rights/options granted - - - 317,500
(NOTE 8(b))
Rights/options exercised - - - 233,428
(NOTE 8(b))
Shares issued for cash or
services (NOTE 8(c)) - - - 1,015,336
Debentures converted and (90,000) - - 1,036,500
issued (NOTE 8(d))
Warrants issued and
beneficial conversion
feature granted - - - 25,000
(NOTE 8(e))
Translation adjustment - 9,545 - 9,545
Net loss for period - - (2,557,840) (2,557,840)
--------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1997 $ (90,000) $ 9,545 $(3,450,866) $ (471,862)
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
<PAGE>
ALYA INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
For the year ended September 30, 1998 and 1997
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON SHARES PREFERRED SHARES
----------------------------------------------------------
ADDITIONAL
PAID-IN
NUMBER AMOUNT NUMBER AMOUNT CAPITAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 30, 1997 10,834,917 $ 1,084 - $ - $ 2,715,875
Sale of shares with attached warrants
(NOTE 8(E))
145,032 15 - - 89,905
Expiry of warrants (NOTE 8(E)) - - - - 25,000
Conversion of debenture to
shares (NOTE 7) 133,333 13 - - 69,988
Sale of Units (NOTE 8(C)) 400,000 40 400,000 40 299,920
Sale of shares (NOTE 8(C)) 2,249,695 225 - - 1,315,591
Collection of share subscription
receivable (NOTE 8(D)) - - - - -
Forfeiture of Options - - - - 277,500
(NOTE 8(B))
Granting of Options - - - - -
(NOTE 8(B))
Exercising of Options 7,500 1 - - 5,624
(NOTE 8(B))
Translation Adjustment - - - - -
Net loss for the year - - - - -
--------------------------------------------------------------------------
BALANCE,
SEPTEMBER 30, 1998 13,770,477 $ 1,378 400,000 $ 40 $ 4,799,403
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
WARRANTS OPTIONS
------------------------------------------------------------
SHARE
SUBSCRIPTION
NUMBER AMOUNT NUMBER AMOUNT RECEIVABLE
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 30, 1997 200,000 $ 25,000 680,000 $ 317,500 $ (90,000)
Sale of shares with attached warrants
(NOTE 8(E))
145,032 18,854 - - -
Expiry of warrants (NOTE 8(E)) (100,000) (25,000) - - -
Conversion of debenture to
shares (NOTE 7) - - - - -
Sale of Units (NOTE 8(C)) - - - - -
Sale of shares (NOTE 8(C)) - - - - (65,700)
Collection of share subscription
receivable (NOTE 8(D)) - - - - 90,000
Forfeiture of Options - - (570,000) (292,500) -
(NOTE 8(B))
Granting of Options - - 906,000 28,300 -
(NOTE 8(B))
Exercising of Options - - (7,500) (1,875) -
(NOTE 8(B))
Translation Adjustment - - - - -
Net loss for the year - - - - -
--------------------------------------------------------------------------------------
BALANCE,
SEPTEMBER 30, 1998 245,032 $ 18,854 1,008,500 $ 51,425 $ (65,700)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TRANSLATION ACCUMULATED
ADJUSTMENT DEFICIT TOTAL
--------------------------------------------
<S> <C> <C> <C>
BALANCE,
SEPTEMBER 30, 1997 $ 9,545 $(3,450,866) $ (471,862)
Sale of shares with attached warrants
(NOTE 8(E))
- - 108,774
Expiry of warrants (NOTE 8(E)) - - -
Conversion of debenture to
shares (NOTE 7) - - 70,001
Sale of Units (NOTE 8(C)) - - 300,000
Sale of shares (NOTE 8(C)) - - 1,250,116
Collection of share subscription
receivable (NOTE 8(D)) - - 90,000
Forfeiture of Options - - (15,000)
(NOTE 8(B))
Granting of Options - - 28,300
(NOTE 8(B))
Exercising of Options - - 3,750
(NOTE 8(B))
Translation Adjustment 51,308 - 51,308
Net loss for the year - (2,223,461) (2,223,461)
------------------------------------------------
BALANCE,
SEPTEMBER 30, 1998 $ 60,853 $(5,674,327) $ (808,074)
------------------------------------------------
------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
ALYA INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED Year ended
SEPTEMBER 30 September 30
1998 1997
---------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATIONS
Loss for year $(2,223,461) $(2,557,840)
Adjustments to reconcile net loss to net cash used
in operating activities
- Amortization of capital assets 67,658 77,037
- Options and stock issued for services 364,400 931,500
Changes in non-cash working capital
Accounts receivable 25,193 (94,823)
Inventories (4,485) (12,250)
Prepaid expenses and other assets (38,503) 16,973
Accounts payable (210,085) 449,290
---------------------------------
Net cash used in operating activities (2,019,283) (1,190,113)
FINANCING ACTIVITIES
Issuance of common stock 1,397,686 1,047,807
Advances on sales of software rights 1,289,655
Commissions on sale of software rights (565,517) -
Warrants 18,854 -
Change in operating line of credit (21,600) 21,600
Convertible debt - 72,000
Due to related parties (30,758) 48,418
Other short term debt 10,965 44,305
---------------------------------
Net cash provided by financing activities 2,099,285 1,234,130
INVESTING ACTIVITIES
Purchase of capital assets (21,098) (73,822)
---------------------------------
INCREASE (DECREASE) IN CASH ON HAND 58,904 (29,805)
EXCHANGE EFFECT ON CASH 9,062 12,991
CASH ON HAND, BEGINNING OF PERIOD 6,802 23,616
---------------------------------
CASH ON HAND, END OF PERIOD $ 74,768 $ 6,802
---------------------------------
---------------------------------
Supplemental cash flow disclosures:
Interest paid $ 1,031 $ 1,870
Supplemental schedule of non-cash financing activities:
Debt converted to common stock $ 70,001 $ 649,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ALYA INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(EXPRESSED IN U.S. DOLLARS)
1 BASIS OF PRESENTATION AND REORGANIZATION
Alya International Inc. (the "Company") is a Delaware Corporation
incorporated on September 23, 1996. The Company develops and markets a
platform for building and industrial process control applications. The
platform's preliminary applications are Security Management Systems. The
Company sells its software and hardware products and provides
installation, consulting and maintenance services.
On March 18, 1997, the Company acquired all 300 common shares of the
issued share capital of Alya Systems Inc. The founding shareholders of
Alya Systems Inc. then subscribed for 5,427,300 shares of the Company
(Note 8). This transaction was accounted for as a recapitalization and
change of incorporation of Alya Systems Inc. Accordingly, the shares
issued to the shareholders were effectively treated as a share split of
the original shares issued to the founding shareholders of Alya Systems
Inc.
The consolidated financial statements have been prepared on a going
concern basis, which assumes the realization of assets and settlement of
liabilities in the normal course of business. As shown in the
consolidated financial statements, the Company incurred losses of
$2,223,461 for the year ended September 30, 1998 (1997 - $2,557,040). As
at September 30, 1998, the Company also has a working capital deficiency
of $175,405 and a shareholders' deficiency of $808,074.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that may be necessary
should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing or refinancing as may be required,
and ultimately to attain profitability. The Company has arranged for
additional financing through the sales of its software rights subsequent
to year end as described in Note 12. The Company is also seeking
additional financing, but has no firm commitments.
During the year, the Company ceased being a development stage company
and commenced active marketing and sales of security management systems.
2 SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America.
BASIS OF CONSOLIDATION
These consolidated financial statements of the Company include the
accounts of its wholly-owned subsidiary, Alya Systems Inc.
INVENTORY
Inventory, comprising component parts, is valued at the lower of cost
and net realizable value with cost being determined on a first-in,
first-out basis.
<PAGE>
CAPITAL ASSETS
Capital assets are stated at net book value and are amortized over their
estimated useful lives at the following rates:
<TABLE>
<S> <C>
Automobile straight line over 3 years
Furniture and fixtures straight line over 5 years
Computer equipment straight line over 2 years
Leasehold improvements straight line over 5 years
</TABLE>
One half the normal rate of amortization is taken in the year of
acquisition.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as they are incurred.
REVENUE RECOGNITION
Revenues from installations and services are recognized as performed
using the percentage-of-completion method based on costs incurred to
date compared to total estimated costs at completion. Revenue from
security systems is recognized upon transfer of risks and rewards of
ownership.
FOREIGN CURRENCY TRANSLATION
The Canadian dollar is the Company's functional currency, however, the
Company reports in US dollars. The Company's financial statements have
been translated as follows:
- assets and liabilities at year end rates;
- revenue and expense items at the average rates for the period;
- equity at historical rates.
The net effect of the foreign currency translation is included in
cumulative translation adjustments in shareholders' deficiency.
LOSS PER COMMON SHARE
Loss per common share is calculated on the basis of the weighted average
number of shares outstanding after giving effect to the recapitalization
on a retroactive basis during the year. The effect of potential issues
of shares under warrant arrangements and share option agreements has not
been disclosed because they are antidilutive.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of trade
accounts receivable. As at September 30, 1998, one customer accounted
for 72% of accounts receivable. The Company performs credit evaluations
of its customers' financial condition and generally does not require
collateral on accounts receivable. The Company has determined that an
allowance for doubtful accounts on its receivables is not currently
required.
INCOME TAXES
Deferred income taxes have been recorded for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts using enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
reduce deferred tax assets to the amount expected to be realized.
<PAGE>
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement
Number 131 on Disclosures About Segments of an Enterprise and Related
Information which is effective for fiscal years commencing after
December 15, 1997. The Company has only one operating segment and other
segmented information is disclosed in Note 9.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses for the period
reported. Actual results could differ from those estimates.
3 PREPAID EXPENSES AND OTHER ASSETS
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Employee advances $ 14,998 $ 9,500
Goods and services tax receivable 27,265 12,121
Prepaid expenses 19,386 1,525
------------------------------
$ 61,649 $ 23,146
------------------------------
------------------------------
</TABLE>
4 CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
ACCUMULATED
COST AMORTIZATION NET
------------------------------------------------
<S> <C> <C> <C>
Automobile $ 9,147 4,573 $ 4,574
Furniture and fixtures 23,449 8,836 14,613
Computer equipment 156,330 135,765 20,565
Leasehold improvements 28,656 12,385 16,271
------------------------------------------------
$ 217,582 161,559 $ 56,023
------------------------------------------------
------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
ACCUMULATED
COST AMORTIZATION NET
------------------------------------------------
<S> <C> <C> <C>
Automobile $ 10,124 2,386 $ 7,738
Furniture and fixtures 19,332 5,290 14,042
Computer equipment 163,596 92,550 71,046
Leasehold improvements 27,773 7,817 19,956
------------------------------------------------
$ 220,825 108,043 $ 112,782
------------------------------------------------
------------------------------------------------
</TABLE>
<PAGE>
5 ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
Employee and payroll taxes $ 41,041 $ 126,889
Trade accounts payable 93,257 90,124
Consulting services 24,527 161,859
Other accrued items 10,862 17,400
Vacation accrual 40,716 24,600
Deposit by customer 65,327 -
Legal and accounting 28,446 93,389
--------------------------------
$ 304,176 $ 514,261
--------------------------------
--------------------------------
</TABLE>
6 SHORT TERM DEBT
OPERATING LINE OF CREDIT
During the year ended September 30, 1998, the Company's subsidiary had a
$21,600 revolving demand line of credit, bearing interest at a rate of
Canadian prime plus 1.5%. The line of credit was secured by a general
security agreement covering all assets of the Company's subsidiary, and
by a guarantee from the majority shareholder. The loan was fully repaid
during the year and the line of credit was cancelled. The effective rate
of interest for 1998 was 7.4% (1997 - 6.25%).
OTHER SHORT TERM DEBT
At September 30, 1998, the Company had other short term debt of $55,270,
due on demand, with interest at prime plus 1%. The effective rate of
interest for 1998 was 8.25%.
At September 30,1997, the Company owed $44,305 to three parties. Two of
the loans totalling $21,265 were non-interest bearing and due on demand.
The other loan, which was guaranteed by the majority shareholder, was
repayable on demand, with interest at 15% per annum. All of the loans
were paid during the year ended September 30, 1998.
7 CONVERTIBLE DEBT
<TABLE>
<CAPTION>
1998 1997
-----------------------------
<S> <C> <C>
Convertible subordinated debentures due May 1, 1998 $ - $ 72,000
</TABLE>
During the year, the non-interest bearing convertible subordinated
debentures were converted to 133,333 common shares at $0.542 per share.
As the fair value of the shares on the date the debenture was issued was
$0.75 per share, the excess of fair value over cash consideration of
$27,500 was recorded as interest expense in the year ended September 30,
1997 (Note 8 (d)).
<PAGE>
8 SHARE CAPITAL
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
AUTHORIZED
50,000,000 common shares with a par
value of $0.0001 per share
10,000,000 preferred shares with a par
value of $0.0001 per share
ISSUED
13,770,477 common shares (1997 - 10,834,517) $ 1,378 $ 1,084
400,000 preferred shares (1997 - nil) 40 -
---------------------------------
$ 1,418 $ 1,084
---------------------------------
---------------------------------
</TABLE>
(a) REORGANIZATION
In September 1995, Alya Systems Inc., a British Columbia company,
was incorporated by the issuance of 300 shares for an aggregate
consideration of $3. On September 23, 1996, the Company was
incorporated for the purpose of acquiring the shares of Alya
Systems Inc. On March 18, 1997, the Company acquired the shares of
Alya Systems Inc. at their stated value of $3 and issued to the
shareholders of Alya Systems 5,427,300 shares at the par value of
$0.0001 per share. This transaction was accounted for as a
recapitalization and change of incorporation of Alya Systems Inc.
Accordingly, the shares issued to the shareholders were
effectively treated as a share split of the original shares issued
to the founding shareholders of Alya Systems Inc.
(b) OPTIONS AND RIGHTS
Under the Company's current stock option plan, the Board of
Directors may grant incentive stock options to purchase shares of
the Company's common stock, to a maximum of 10% of the common
shares outstanding as at the previous fiscal year end. These
options may only be granted to employees, officers, consultants
and directors of the Company or its subsidiaries, at prices not
less than fair market value at the date of grant.
The Board of Directors also has the authority to set exercise
dates, payment terms and other provisions for each grant. In
addition, incentive options may be granted to persons owning more
than 10% of the voting power of all classes of stock, at a price
no lower than 110% of the fair market value at the date of grant,
as determined by the Board of Directors.
The Stock Option Plan Committee (comprised of two board members)
will determine vesting provisions for each option. Options
provided to employees, officers and directors are accounted for in
accordance with the provisions of Accounting Principals Board
Opinon No. 25. Options issued to consultants and other business
contacts are accounted for in accordance with Financial Accounting
Standards Board Statement No. 123.
The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants during the
years ended September 30, 1998 and 1997: a risk-free interest rate
of 5.5% and an expected life of 5 years.
<PAGE>
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE FAIR VALUE
NUMBER EXERCISE OF OPTION ACCRUED
OF OPTIONS PRICE PER AT GRANT COMPENSATION
GRANTED SHARE DATE EXPENSE
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - September 30, 1996 1,483,400 0.0001
Granted in 1997 1,328,000 0.45 0.35 317,500
Exercised in 1997 (2,131,400) 0.11
Compensation expense recorded (317,500)
------------------------------------------------------------
Balance - September 30, 1997 680,000 0.54 -
Granted at market value 671,000 0.56 0.42 28,300
Granted at above market value 135,000 0.63 0.43 -
Granted at below market value 100,000 0.62 0.47 subsequently
cancelled
Exercised in 1998 (7,500) 0.50
Forfeited in 1998 (570,000) 0.54 (15,000)
Compensation expense recorded 13,300
------------------------------------------------------------
Balance - September 30, 1998 1,008,500 0.57 -
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
At September 30, 1998, the options outstanding relating to the prior
year end have exercise prices ranging from $0.50 - $0.55, a weighted
average exercise price of $0.54 and a weighted average remaining
contractual life of 3.75 years.
The weighted average exercise price of grants for 1998 was $0.58.
<PAGE>
PRO FORMA STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its employee stock-based
compensation. Had compensation cost for the Company's employee
stock-based compensation been determined based on the fair value at the
grant dates consistent with the method of Financial Accounting Standards
Board Statement No. 123, the Company's net loss would have been as
follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
Net loss
As reported $ 2,223,461 $ 2,557,840
Pro forma 2,533,281 2,701,060
Net loss per share
As reported $ (0.19) $ (0.32)
Pro forma (0.22) (0.33)
--------------------------------
--------------------------------
</TABLE>
(C) SHARES ISSUED FOR CASH OR SERVICES
<TABLE>
<CAPTION>
NUMBER PRICE INVESTOR
OF SHARES PER SHARE AGGREGATE RELATIONS CONSIDERATION
FEES
--------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
March 21, 1997 750,000 $ 0.542 $ 406,500 $ 381,500 Cash and services
March 28, 1997 411,049 0.542 222,686 - Cash
April to September 1997 414,866 0.750 311,150 - Cash
August 12, 1997 100,000 0.750 75,000 - Cash
------------- ---------------- ---------------
At September 30, 1997 1,675,915 $ 1,015,336 $ 381,500
------------- ---------------- ---------------
October 7, 1997 145,032 0.62 $ 89,920 $ - Cash
January 1, 1998 400,000 0.75 300,000 - Cash
April 13, 1998 250,000 0.40 115,000 15,000 Cash
April 14, 1998 920,000 0.50 460,000 - Cash and services
July 9, 1998 100,000 0.30 89,000 59,000 Cash
July 23, 1998 350,000 0.40 231,000 91,000 Cash
July 24, 1998 90,000 0.36 63,000 30,600 Cash and services
August 27, 1998 200,000 0.40 154,000 74,000 Cash
September 29, 1998 339,695 0.60 203,816 - Cash
------------- ---------------- ---------------
At September 30, 1998 2,794,727 $ 1,705,736 $ 269,600
------------- ---------------- ---------------
------------- ---------------- ---------------
</TABLE>
<PAGE>
On March 21, 1997, the Company issued 750,000 shares to a third party
for investor relations services performed. The shares were issued for
cash consideration of $0.033 per share totalling $25,000. The shares
were attributed a fair value of $0.542 per share and $406,500 in
aggregate. The excess of fair value over cash consideration received,
amounting to $381,500, was recorded in the 1997 consolidated statement
of operations as an investor relations fee, included in general and
administrative expenses.
The excess of fair value over the cash consideration received for
certain share issuances in 1998 totalled $269,600 and has been recorded
in the consolidated statement of operations as an investor relations
fee, included in general and administrative expenses. As of September
30, 1998, the Company was owed $65,700 relating to share issuances
during the year. Subsequent to the year end, the Company received cash
and other consideration to settle the outstanding receivable.
In January 1998, the Company issued 400,000 units to a third party for
$0.75. Each unit consisted of one common share with an assigned value of
$0.75 and one preferred share with an assigned value of $0.0001. The
market value of the common shares on the issue date was $0.44. The cash
consideration received in excess of the amount for common shares and $40
for preferred shares has been recorded in the consolidated statement of
operations as additional paid-in capital.
(d) DEBENTURES CONVERTED
<TABLE>
<CAPTION>
NUMBER PRICE
DATE OF SHARES PER SHARE AGGREGATE CONSIDERATION
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1997 1,000,002 $ 0.65 $ 649,000 Repayment of convertible advances
July 21, 1997 300,000 0.75 225,000 Repayment of debt of $125,000,
interest expense of $100,000
July 30, 1997 300,000 0.75 225,000 Repayment of loan of $30,000,
receivable of $90,000, interest
expense of $105,000
----------- ---------------
September 30, 1997 1,600,002 $ 1,099,000
----------- ---------------
Converted to common shares
September 30, 1998 133,333 $ 0.542 $ 70,001 (NOTE 7)
</TABLE>
<PAGE>
On July 30, 1997, the Company issued 300,000 shares to two individuals
at $0.40 per share, payable in two instalments. The first instalment of
$0.10 per share was payable upon acceptance of subscription and was
applied against a loan received from the individual. The second
instalment of $0.30 per share was payable upon the sale of the shares at
any time within a year of being issued. In the event that the shares
were not sold within the first year, the agreement could be extended by
all parties upon acceptable terms. The subscription receivable of $0.30
per share was non-interest bearing and unsecured and was paid in full in
1998. The fair value of the Company's shares as at July 30, 1997 was
determined to be $0.75 per share. Accordingly, interest expense of $0.35
per share, amounting to $105,000 was charged in the 1997 consolidated
statement of operations.
(e) WARRANTS
The Company issued the following warrants:
<TABLE>
<CAPTION>
NUMBER OF EXPIRY
WARRANTS EXERCISE PRICE DATE
------------------------------------------------------------
<S> <C> <C> <C>
June 2, 1997 100,000 $ 0.50 December 31, 1997
August 11, 1997 100,000 2.00 August 12, 2002
-------------------------------------
At September 30, 1997 200,000 $ 1.25
-------------------------------------
October 7, 1997 145,032 $ 2.00 October 7, 1999
Expired - December 1997 (100,000) 0.50
-------------------------------------
At September 30, 1998 245,032 $ 2.00
-------------------------------------
-------------------------------------
</TABLE>
In June 1997 the Company issued $150,000 of debentures convertible into
common shares at $0.50 per share when the fair value of the common
shares was $0.75. The issue also included 100,000 detachable warrants
with an exercise price of $0.50 per share and an expiry date of December
31, 1997. The warrants were attributed a fair value of $0.25 each and
$25,000 in aggregate. The warrants were not exercised and have expired.
The 1997 consolidated statement of operations included interest expense
of $100,000 representing the excess of fair value over conversion price
(excluding the fair value of the warrants) at the date of issue of the
debentures. The fair value of the remaining warrants at issue date was
nominal.
On October 7, 1997, 145,032 shares with detachable warrants were issued
for $0.75 per share. The fair value of the shares on that date was
$0.62.
<PAGE>
9 GEOGRAPHIC INFORMATION
Sales revenues were generated by customers located in the following
geographic regions:
<TABLE>
<CAPTION>
1998 1997
(000's) (000's)
--------------------------------
<S> <C> <C>
Canada $ 144 $ 107
Slovakia 124 2
Norway 36 -
United States 13 2
Other foreign countries 7 -
--------------------------------
$ 324 $ 111
--------------------------------
--------------------------------
</TABLE>
During the year ended September 30, 1998, revenues to one customer
located in Slovakia represented 36% (1997 - nil) of total sales (Note 12)
and revenues to one customer in Canada accounted for 20% (1997 nil) of
total sales.
Capital assets of the Company are located in Canada.
10 COMMITMENTS
The Company has the following annual commitments under the terms of
office and equipment leases:
<TABLE>
<S> <C>
1999 $ 98,946
2000 39,287
2001 15,340
---------------
$ 153,573
---------------
---------------
</TABLE>
Office lease payments for the year ended September 30, 1998 of $30,930
(1997 - $20,440) and equipment lease payments of $25,098 (1997 - $8,723)
were included in general and administrative costs.
11 SOFTWARE RIGHTS
During the year, the Company completed a series of transactions with
third parties (the owners) by which the Company sold the U.S. and
Canadian rights, title and interest in its O.P.E.N. Centrix security
management application software for net cash consideration of
CDN$1,050,000 (after finders fees of CDN $820,000) and notes receivable
of CDN$15,130,000. The notes are due in 2007 and bear interest at 6% per
annum. The notes are collateralized by the technology and future payment
of the notes and non-compounded interest thereon is wholly dependent
upon future sales of the software.
<PAGE>
The Company and the owners also entered into "Management and Marketing
Agreements". The agreements expire in 2007 and may be extended for two
additional two year terms. The extension will be automatic and the
Company or the owners can terminate the agreements during any extension
with 90 days' notice to the other party.
Under the terms of the Management and Marketing Agreements, the Company
is appointed the sole and exclusive agent responsible for marketing and
selling the software, delivering and installing the software, providing
customer support including training and consulting, and providing
necessary maintenance and enhancements. The Company is required to
maintain adequate insurance related to these activities. The Company is
entitled to a management fee on an annual basis equal to 55% of net
revenues (net sales of the software less costs of selling, marketing,
general and administrative expenses, costs of enhancements, and the
management fee) for U.S. sales and 45% of net revenues for Canadian
sales.
The amount of net revenues is to be distributed annually in the
following order of priority: to pay the accrued and unpaid interest on
the notes to the Company; and to pay to the owners of the software
annual Owner's Returns of CDN$500,000 including any cumulative unpaid
annual return from prior years. Any remainder will be distributed
annually in the following order: 45% to the owners to be used to pay the
principal on the notes; and 55% as a return to the owners.
The Company has the right to use, modify, market, distribute and sell
the rights to use the software with products or services that are not
competitive with the software. The owners will have the exclusive rights
to any modifications that constitute an enhancement. The Company may
obtain all rights to the software at the end of the initial term of the
agreements or extensions of such agreements. Upon any early termination
due to certain limited circumstances, the Company has the right to
acquire the software for an amount being CDN$4,800,000 less the
cumulative amount of Owner's Returns paid to the owners during the
period to termination plus the outstanding principal value of the notes.
In the event the owners wish to sell the software rights, the Company
has the right of first refusal to acquire the rights at the same
purchase price and terms as the owners are prepared to sell the assets.
The net cash received by the Company has been accounted for under the
provisions of the "Emerging Issues Task Force, 88-18. Sales of Future
Revenues" (EITF 88-18) and been recorded as "Advances on Sale of
Software rights" in these financial statements. These advances will be
recorded in income over a 10 year period based on the percentage of
revenue received in each year to total estimated revenue over the 10
year period for each agreement. No amounts have been recorded as revenue
in the year ended September 30, 1998. There is no reasonable assurance
that the owners fees and net revenue allocated to the owners will be
sufficient to service the notes receivable principal and interest
payments due to the Company and as such the notes have not been
recorded.
<PAGE>
12 SUBSEQUENT EVENTS
CAPITAL STOCK
Subsequent to the end of the year, the Company issued a total of 490,617
shares at prices ranging from $0.45 to $0.60 each, for total cash
consideration of $283,300.
RELATED PARTY TRANSACTIONS
Subsequent to the year end, the Company advanced a total of $23,000 to
its majority shareholder. The advances were interest free with no stated
terms of repayment. The advance was fully repaid.
In December 1998, the Company elected a new director, who is the owner
of a major customer of the Company. During the year ended September 30,
1998, total sales to this customer totalled $120,000 of which $51,382
was receivable by the Company at year end.
SOFTWARE RIGHTS
Subsequent to the year end, the Company entered into a series of
agreements with a third party (the owner) by which the Company sold the
European rights, title and interest in its O.P.E.N. Centrix security
management application software to the owner for CDN $500,000 and future
payments totalling CDN $29,875,000. The future payments are wholly
dependent upon future sales of the software. The technology and the
shares of the owner's company collateralize the payments.
The Company and the owner entered into a "Management and Marketing
Agreement" dated December 30, 1998. The agreement expires December 30,
2008 and may be extended for two additional two year terms. The
extension of the term will be automatic and the Company or the owner can
terminate the agreement during any extension with 90 days notice to the
other party.
Under the terms of the Management and Marketing Agreement, the Company
is appointed the sole and exclusive agent responsible for marketing and
selling the software, delivering and installing the software, providing
customer support including training and consulting, and providing
necessary maintenance and enhancements. The Company is required to
maintain adequate insurance related to these activities. The Company is
entitled to a management fee on an annual basis equal to 55% of net
revenues (net sales of the software less costs of selling, marketing,
general and administrative expenses, and costs of enhancements).
The amount of net revenues is to be distributed annually in the
following order of priority: to pay the accrued and unpaid annual fee
due to the Company; and to pay the owners of the software an annual
Owner's Return of CDN $500,000, including any cumulative unpaid annual
return from prior years. Any remainder will be distributed annually to
the owners.
The Company has a right to use, modify, market, distribute and sell the
rights to use the software with products or services that are not
competitive with the software. The owner will have the exclusive rights
to any modifications that constitute an enhancement. The Company may
obtain all rights to the software at the end of the initial term of the
agreement or extensions of such agreement. Upon any early termination
due to certain limited circumstances, the Company has the right to
acquire the software for an amount being CDN $5,000,000 less the
cumulative amount of Owner's Return paid to the owner during the period
to termination. In the event that the owner wishes to sell the software
rights, the Company has the right of first refusal to acquire the rights
at the same purchase price and terms as the owner is prepared to sell
the assets.
<PAGE>
13 INCOME TAXES
Alya and its subsidiary have estimated net-operating loss carry-forwards
as follows:
United States $2,066,000 (expiring 2017 and 2018)
Temporary differences and carryforwards which give rise to significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 2,066,000 $ 1,378,000
Software rights 740,000 740,000
Less valuation allowance (2,806,000) (2,118,000)
----------------------------------
$ - $ -
----------------------------------
----------------------------------
</TABLE>
These operating loss carry-forwards are available for offset against
future taxable income. Considering the Company's cumulative losses, the
Company has provided an allowance of 100% against its deferred tax
assets.
The Company has non-deductible items for tax purposes primarily related
to stock based compensation and interest expense for the year ended
September 30, 1998 of approximately $400,000 (1997 - $1,000,000). In
addition, the Company has included $1,100,000 received on advances on
sale of software rights in taxable income for the year.
14 RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
1998 1997
------------------------------------
<S> <C> <C>
Due to shareholders and directors, interest free $ 40,933 $ 71,691
------------------------------------
------------------------------------
</TABLE>
Included in fixed assets is $4,574 (cost of $9,147) in respect of an
automobile sold in the year ended September 30, 1997 to the Company by
the majority shareholder and director.
During the year, the majority shareholder loaned the Company $69,000
(1997 - $72,000) without interest and without stated terms of repayment
of which $13,721 was included as due to shareholders and directors at
September 30, 1998 (1997 - $33,941). The Company also loaned the
majority shareholder up to $137,574 without interest or stated terms of
repayment, all of which was repaid within the year.
The Company paid $114,134 during the year ended September 30, 1998 (1997
- $84,300) for consulting services to companies controlled by directors
of the Company of which $27,212 was outstanding at September 30, 1998.
<PAGE>
15 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table sets out the fair value and carrying values of the
Company's financial instruments:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 74,768 $ 74,768 $ 6,802 $ 6,802
Accounts receivable 71,822 71,822 97,015 97,015
Accounts payable 304,176 304,176 514,261 514,261
Operating line of credit - - 21,600 21,600
Convertible debt - - 72,000 99,500
Due to related parties 40,933 40,933 71,691 71,691
Other short term debt 55,270 55,270 44,305 44,305
---------------------------------------------------------------------------
$ 546,969 $ 546,969 $ 827,674 $ 855,174
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
16 COMPARATIVE FIGURES
Comparative figures have been reclassified where necessary in order to
conform with changes in presentation adopted in the current year.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,009 $ 1,094
Accounts receivable 81,745 90,183
Inventories 13,675 11,910
Prepaid expenses and other assets (NOTE 3) 63,496 24,391
-------------- --------------
159,925 127,578
CAPITAL ASSETS (NOTE 4) 48,789 72,930
-------------- --------------
$ 208,714 $ 200,508
-------------- --------------
-------------- --------------
LIABILITIES
CURRENT LIABILITES
Accounts payable (NOTE 5) $ 636,999 $ 385,247
Operating Line of Credit (NOTE 6) - 21,000
Due to related parties (NOTE 14) 18,242 11,633
-------------- --------------
655,241 417,880
-------------- --------------
Advances on sale of software rights (NOTE 11) 1,326,700 746,693
SHAREHOLDERS' DEFICIENCY
Common Shares (NOTE 8) 1,461 1,152
Preferred Shares (NOTE 8) 40 40
Additional paid-in capital (NOTE 8) 5,237,390 3,629,188
Stock options (NOTE 8) 51,425 25,000
Share subscription receivable (NOTE 8) (10,005) (292,038)
Warrants (NOTE 8) 18,854 18,854
Accumulated deficit (7,117,131) (4,355,806)
Accumulated other comprehensive income 44,739 9,545
-------------- --------------
(1,773,227) (964,065)
-------------- --------------
$ 208,714 $ 200,508
-------------- --------------
-------------- --------------
Going concern (NOTE 1)
Commitments (NOTE 10)
Subsequent events (NOTE 12)
</TABLE>
Approved by the Directors ____________________ _____________________
Director Director
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31
1999 1998
------------ ------------
<S> <C> <C>
SALES (NOTE 9) $ 386,795 $ 157,749
COST OF SALES 227,234 110,247
------------ ------------
GROSS PROFIT 159,561 47,502
OPERATING EXPENSES
General and administrative 771,916 521,279
Research and development 434,008 246,934
Marketing and sales 395,128 183,616
------------ ------------
1,601,052 951,829
------------ ------------
LOSS FROM OPERATIONS (1,441,491) (904,327)
INTEREST EXPENSE 1,313 613
------------ ------------
LOSS FOR THE PERIOD $ (1,442,804) $ (904,940)
------------ ------------
------------ ------------
OTHER COMPREHENSIVE INCOME (EXPENSE):
Foreign currency translation adjustment (16,114) --
------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (1,458,918) $ (904,940)
------------ ------------
------------ ------------
LOSS PER COMMON SHARE - BASIC AND FULLY DILUTED $ (0.11) $ (0.09)
------------ ------------
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARE EQUIVALENTS (NOTE 2) 13,443,010 10,622,463
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
FOR THE SIX MONTHS ENDED MARCH 31, 1999
(EXPRESSED IN U.S. DOLLARS)(UNAUDITED)
<TABLE>
<CAPTION>
COMMON SHARES PREFERRED SHARES ADDITIONAL WARRANTS OPTIONS
---------------------- ------------------- PAID - IN ------------------ --------------------
NUMBER AMOUNT NUMBER AMOUNT CAPITAL NUMBER AMOUNT NUMBER AMOUNT
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 13,770,477 $1,378 $400,000 $40 4,799,403 245,032 $18,854 1,008,500 $51,425
Sale of shares 830,617 83 - - 437,987 - - - -
(NOTE 8(c))
Collection of Share
subscription receivable - - - - - - - - -
Forfeiture of Options - - - - - - - (100,000) -
(NOTE 8(b))
Translation Adjustment - - - - - - - - -
Net loss for the year - - - - - - - - -
----------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 14,601,094 $1,461 400,000 $40 5,237,390 245,032 $18,854 908,500 $51,425
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<CAPTION>
ACCUMULATED
SHARE OTHER
SUBSCRIPTION COMPREHENSIVE ACCUMULATED
RECEIVABLE INCOME DEFICIT TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 $(65,700) $ 60,853 $(5,674,327) $(808,074)
Sale of shares (10,005) - - 428,065
(NOTE 8(c))
Collection of Share
subscription receivable 65,700 - - 65,700
Forfeiture of Options - - - -
(NOTE 8(b))
Translation Adjustment - (16,114) - (16,114)
Net loss for the year - - (1,442,804) (1,442,804)
--------------------------------------------------------------
BALANCE, MARCH 31, 1999 $(10,005) $ 44,739 $(7,117,131) $(1,773,227)
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31
1999 1998
----------- ---------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Income (loss) for period $(1,442,804) $(904,940)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of capital assets 14,601 48,177
Gain on disposal of capital assets (3,870) -
Options and stock issued for services 47,642 -
Changes in non-cash working capital
Accounts receivable (9,923) 6,832
Inventories 3,060 340
Prepaid expenses and other receivables (1,847) (1,245)
Accounts payable 332,823 (129,014)
----------- ---------
Net cash used in operating activities (1,060,318) (979,850)
FINANCING ACTIVITIES
Issuance of common and preferred stock, net 446,123 393,883
Advances on sales of software rights, net 638,008 746,693
Warrants - 18,854
Change in operating line of credit - (600)
Convertible debt - (72,000)
Due to related parties (22,691) (60,058)
Other short term debt (55,270) (44,305)
----------- ---------
Net cash provided by financing activities 1,006,170 982,467
INVESTING ACTIVITIES
Proceeds on disposal of capital assets 6,902 -
Purchase of capital assets (22,195) (8,325)
----------- ---------
Net cash provided by investing activities (15,293) (8,325)
----------- ---------
DECREASE IN CASH ON HAND (69,441) (5,708)
EXCHANGE EFFECT ON CASH (4,318) -
CASH ON HAND, BEGINNING OF PERIOD 74,768 6,802
----------- ---------
CASH ON HAND, END OF PERIOD $ 1,009 $ 1,094
----------- ---------
----------- ---------
Supplemental cash flow disclosures:
Interest paid $ 1,313 $ 613
Supplemental schedule of non-cash financing activities:
Debt converted to common stock - 72,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
1. BASIS OF PRESENTATION
Alya International, Inc. (the "Company") is a Delaware Corporation
incorporated on September 23, 1996. The Company develops and markets a
platform for building and industrial process control applications. The
platform's primary applications are Security Management Systems. The
Company sells its software and hardware products and provides
installation, consulting and maintenance services.
The interim consolidated financial statements have been prepared on a
going concern basis, which assumes the realization of assets and
settlement of liabilities in the normal course of business. As shown in
the interim consolidated financial statements, the Company incurred
losses of $1,442,804 for the six months ended March 31, 1999 (1998 -
$904,940). As at March 31, 1999, the Company also had a working capital
deficiency of $495,316 and shareholders' deficiency of $1,773,227.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that may be necessary
should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing or refinancing as may be required,
and ultimately to attain profitability. The Company has arranged for
additional financing through the sales of its shares subsequent to
quarter-end as described in Note 12. The Company is also seeking
additional financing, but has no firm commitments.
2. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING POLICIES These consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States.
BASIS OF CONSOLIDATION
These consolidated financial statements of the Company include the
accounts of its wholly owned subsidiary, Alya Systems Inc.
INVENTORY
Inventory, comprising component parts, is valued at the lower of cost
and net realizable value with cost being determined on a first in,
first-out basis.
CAPITAL ASSETS
Capital assets are stated at net book value and are amortized over their
useful lives at the following rates:
Automobile straight line over 3 years
Furniture and fixtures straight line over 5 years
Computer equipment straight line over 2 years
Leasehold improvements straight line over 5 years
One half the normal rate of amortization is taken in the year of
acquisition.
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as they are incurred.
REVENUE RECOGNITION
Revenues from installations and services are recognized as performed
using the percentage-of-completion method based on costs incurred to
date compared to total estimated costs at completion. Revenue from
security systems is recognized upon transfer of the risks and rewards of
ownership.
FOREIGN CURRENCY TRANSLATION
The Canadian dollar is the Company's functional currency, however, the
Company reports in US dollars. The Company's financial statements have
been translated as follows:
- assets and liabilities at year end rates;
- revenue and expense items at the average rates for the period;
- equity at historical rates.
The net effect of the foreign currency translation is included in
cumulative translation adjustments in shareholders' deficiency.
LOSS PER COMMON SHARE
Loss per common share is calculated on the basis of the weighted average
number of shares outstanding after giving effect to the recapitalization
on a retroactive basis during the year. The effect of potential issues
of shares under warrant arrangements and share option agreements has not
been disclosed because they are antidilutive.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of trade
accounts receivable. As at March 31, 1999, one customer accounted for
37% of accounts receivable. The Company performs credit evaluations of
its customers' financial condition and generally does not require
collateral on accounts receivable. The Company has determined that an
allowance for doubtful accounts on its receivables is not currently
required.
INCOME TAXES
Deferred income taxes have been recorded for the tax consequences in
future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts using enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
reduce deferred tax assets to the amount expected to be realized.
COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted the provisions of
Financial Accounting Standards Board ("FAS") No. 130, "Reporting
Comprehensive Income." FAS No. 130 establishes standards for
reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from nonowner sources. Through to
March 31, 1999, the Company has determined that the only transaction
to be reported as comprehensive income is the cumulative translation
adjustment, which is already disclosed separately from retained
earnings and other components of Shareholders' Equity.
- 2 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued Statement
Number 133, "Accounting for Derivative Instruments and Hedging
Activities." Under this new standard, companies will be required to
record derivatives on the balance sheet as assets or liabilities
measured at fair value. This pronouncement is effective for fiscal
years beginning after June 15, 2000. The Company intends to
incorporate this new pronouncement in its fiscal year ending
September 30, 2001. The Company is currently reviewing the standard
but has not yet fully determined the impact, if any, it will have on
its reported US GAAP financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions which affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses for the period reported.
Actual results could differ from those estimates.
3. PREPAID EXPENSES AND OTHER ASSETS
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Employee advances $ 6,968 $ 12,159
Goods and services tax receivable 41,588 7,739
Prepaid expenses 14,940 4,493
--------------------------------------------
$ 63,496 $ 24,391
--------------------------------------------
</TABLE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
COST ACCUMULATED NET NET
AMORTIZATION 1999 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Automobile $ 9,287 $ 6,191 $ 3,096 $ 6,051
Furniture and Fixtures 23,808 9,225 14,583 13,384
Computer equipment 156,325 138,827 17,498 35,552
Leasehold improvements 29,096 15,484 13,612 17,943
--------------------------------------------------
$218,516 $169,727 $ 48,789 $ 72,930
--------------------------------------------------
</TABLE>
5. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
March 31,1999 March 31, 1998
-------------------------------
<S> <C> <C>
Employee and payroll taxes $202,118 $ 90,380
Trade accounts payable 104,366 169,166
Consulting services 110,613 34,227
Other accrued items 54,549 7,500
Vacation accrual 69,437 41,229
Deposit by customers 45,075 -
Legal and accounting 50,841 42,745
--------------------------
$636,999 $385,247
--------------------------
</TABLE>
- 3 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
6. SHORT TERM DEBT
OPERATING LINE OF CREDIT
During fiscal 1998, the Company's subsidiary had a $21,000 revolving line
of credit. It was on demand, bearing interest at a rate of Canadian prime
plus 1.5%. The line of credit was secured by a general security agreement
covering all assets of the Company's subsidiary, and by a guarantee from
the majority shareholder. The loan was fully repaid and cancelled. The
effective rate of interest for 1998 was 6.25%.
OTHER SHORT TERM DEBT
At September 30, 1998, the Company had other short term debt of $55,270;
this loan was due on demand with interest at prime plus 1%. It was repaid
in the quarter ended March 31, 1999. The effective rate of interest was
7.8%.
7. CONVERTIBLE DEBT
In February of 1998, non-interest bearing convertible subordinated
debentures were converted into 133,333 common shares at $0.542 per share.
8. SHARE CAPITAL
<TABLE>
<CAPTION>
1999 1998
--------------------
<S> <C> <C>
AUTHORIZED
50,000,000 common shares with a par value
of $0.0001 per share
10,000,000 preferred shares with a par value
of $0.0001 per share
ISSUED
14,601,094 common shares (1998:11,513,282) $1,461 $1,152
400,000 preferred shares (1998: 400,000) 40 40
----------------------
$1,501 $1,192
----------------------
</TABLE>
a) REORGANIZATION
In September 1995, Alya Systems Inc., a British Columbia company, was
incorporated by the issuance of 300 shares for an aggregate
consideration of $3. On September 23, 1996, the Company was incorporated
for the purpose of acquiring the shares of Alya Systems Inc. On March
18, 1997, the Company acquired the shares of Alya Systems Inc. at their
stated value of $3 and issued to the shareholders of Alya Systems
5,427,300 shares at the par value of $0.0001 per share. This transaction
was accounted for as a recapitalization and change of incorporation of
Alya Systems Inc. Accordingly, the shares issued to the shareholders
were effectively treated as a share split of the original shares issued
to the founding shareholders of Alya Systems Inc.
- 4 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
b) OPTIONS AND RIGHTS
Under the Company's current stock option plan, the Board of Directors
may grant incentive stock options to purchase shares of the Company's
common stock, to a maximum of 10% of the common shares outstanding as at
the previous fiscal year-end. These options may only be granted to
employees, officers, consultants and directors of the Company or its
subsidiaries, at prices not less than fair market value at the date of
grant.
The Board of Directors also has the authority to set exercise dates,
payment terms and other provisions for each grant. In addition,
incentive options may be granted to persons owning more than 10% of the
voting power of all classes of stock, at a price no lower than 110% of
the fair market value at the date of grant, as determined by the Board
of Directors.
The Stock Option Plan Committee (comprised of two board members) will
determine vesting provisions for each option. Options provided to
employees, officers and directors are accounted for in accordance with
the provisions of Accounting Principals Board Opinion No. 25. Options
issued to consultants and other business contacts are accounted for in
accordance with Financial Accounting Standards Board Statement No. 123.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants during the periods reported: a
risk-free interest rate of 5.5% and an expected life of 5 years.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED WEIGHTED ACCRUED
OPTIONS AVERAGE AVERAGE COMPENSATION
GRANTED EXERCISE FAIR EXPENSE
PRICE PER VALUE OF
SHARE OPTION AT
GRANT DATE
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - Sept. 30, 1997 680,000 $ 0.54 -
Options forfeited (570,000) 0.54 (15,000)
--------------------------------------------------------
Balance - March 31, 1998 110,000 (15,000)
Granted - market value 671,000 0.56 $0.42 28,300
- above market value 135,000 0.63 0.43 -
- below market value 100,000 0.62 0.47 -
Exercised in 1998 (7,500) 0.50
Compensation exp. recorded (13,300)
--------------------------------------------------------
Balance - Sept. 30, 1998 1,008,500 0.57 -
Options forfeited (100,000) 0.62 -
--------------------------------------------------------
Balance - March 31, 1999 908,500 $ 0.57 -
--------------------------------------------------------
</TABLE>
As at March 31, 1999, the options outstanding have exercise prices ranging
from $0.50 to $0.69, a weighted average exercise price of $0.57 (1998 -
$0.52), and a weighted average remaining contractual life of 4.35 years
(1998 - 3.17 years).
- 5 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
C) SHARES ISSUED FOR CASH AND SERVICES
<TABLE>
<CAPTION>
Number of Price per General &
Shares Share Aggregate Admin. Exp. Consideration
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
October 7, 1997 145,032 $0.62 $ 89,920 $ - Cash
January 1, 1998 400,000 $0.75 300,000 - Cash
----------------------------------------------------------------------------
At March 31, 1998 545,032 $ 389,920 $ -
----------------------------------------------------------------------------
April 13, 1998 250,000 $0.40 $ 115,000 $ 15,000 Cash
April 14, 1998 920,000 $0.50 460,000 - Cash/Services
July 9, 1998 100,000 $0.30 89,000 59,000 Cash
July 23, 1998 350,000 $0.40 231,000 91,000 Cash
July 24, 1998 90,000 $0.36 63,000 30,600 Cash/Services
August 27, 1998 200,000 $0.40 154,000 74,000 Cash
September 29,1998 339,695 $0.60 203,816 - Cash
----------------------------------------------------------------------------
At Sept. 30, 1998 2,249,695 $1,315,816 $ 269,600
----------------------------------------------------------------------------
October 30, 1998 74,000 $0.45 $ 40,700 $ 7,400 Cash
November 12, 1998 416,617 $0.60 249,970 - Cash
January 30, 1999 200,000 $0.45 90,000 - Cash/Services
March 17, 1999 140,000 $0.41 57,400 - Cash/Services
----------------------------------------------------------------------------
At March 31, 1999 830,617 $ 438,070 $ 7,400
----------------------------------------------------------------------------
</TABLE>
The excess of fair value over the cash consideration received for
certain share issuances in the six months ended, March 31, 1999 totalled
$7,400 and has been recorded in the interim consolidated statement of
operations as an investor relations fee, included in general and
administrative expenses.
In January 1998, the Company issued 400,000 units to a third party for
$0.75. Each unit consisted of one common share with an assigned value of
$0.75 and one preferred share with an assigned value of $0.0001. The
market value of the common shares on the issue date was $0.44. The cash
consideration received in excess of the amount for common shares and
$40 for preferred shares has been recorded in the consolidated statement
of operations as additional paid-in capital.
d) DEBENTURES CONVERTED
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
SHARES SHARE AGGREGATE CONSIDERATION
----------------------------------------------------------------
<S> <C> <C> <C> <C>
February 28, 1998 133,333 $ 0.542 $70,001 Converted to
common shares (NOTE 7)
----------------------------------------------------------------
</TABLE>
e) WARRANTS
The Company has issued the following warrants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS PRICE EXPIRY DATE
-------------------------------------------------
<S> <C> <C> <C>
August 11, 1997 100,000 $2.00 August 12, 2002
October 7, 1997 145,032 $2.00 October 7, 1999
----------
March 31, 1999 & 1998 245,032
----------
</TABLE>
On October 7, 1997, 145,032 shares with detachable warrants were issued
for $0.75 per share. Fair value of the shares on that date was $0.62.
- 6 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
9. GEOGRAPHIC INFORMATION
Sales revenues generated by customers located in the following
geographic regions:
<TABLE>
<CAPTION>
1999 1998
--------------------------
<S> <C> <C>
United States $122,947 $ 4,103
Canada 20,409 99,490
Slovakia 205,800 54,156
Norway 20,700 -
Other Foreign countries 16,939 -
--------------------------
$386,795 $157,749
--------------------------
</TABLE>
During the six months ended March 31, 1999, revenues to one customer
located in Slovakia represented 49% of total sales (1998 - 28%), and a
customer in the US accounted for 27% (1998 - nil).
Capital assets of the company are all located in Canada.
10. COMMITMENTS
The Company has the following annual commitments under the terms of
office and equipment leases (for fiscal years ending September):
<TABLE>
<S> <C>
1999 $ 132,367
2000 89,132
2001 31,660
2002 6,878
2003 1,259
---------
$ 261,296
---------
</TABLE>
Office lease payments for the six months ended March 31, 1999 of $39,463
(1998 - $20,152), and equipment lease payments of $23,302 (1998 -
8,835), were included in general and administrative costs.
11. SOFTWARE RIGHTS
During the year ended September 30, 1998, the Company completed a series
of transactions with third parties (the owners) by which the Company
sold the U.S. and Canadian rights, title and interest in its O.P.E.N.
Centrix security management application software for net cash
consideration of CDN$1,050,000 (after finders' fees of CDN$820,000) and
notes receivable of CDN$15,130,000. The notes are due in 2007 and bear
interest at 6% per annum. The notes are collateralized by the technology
and future payment of the notes and non-compounded interest thereon
wholly dependent upon future sales of the software.
The Company and the owners entered into "Management and Marketing
Agreements". The agreements expire in 2007 and may be extended for two
additional two year terms. The extension of the term will be automatic
and the Company or the owners can terminate the agreements during any
extension with 90 days' notice to the other party.
- 7 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
Under the terms of the Management and Marketing Agreements, the Company
is appointed the sole and exclusive agent responsible for marketing and
selling the software, delivering and installing the software, providing
customer support including training and consulting, and providing
necessary maintenance and enhancements. The Company is required to
maintain adequate insurance related to these activities. The Company is
entitled to a management fee on an annual basis equal to 55% of net
revenues (net sales of the software less costs of selling, marketing,
general and administrative expenses, costs of enhancement, and the
management fee) for U.S. sales and 45% of net revenues for Canadian
sales.
The amount of net revenues is to be distributed annually in the
following order of priority: to pay the accrued and unpaid interest on
the notes to the Company; and to pay to the owners of the software an
annual Owner's Return of CDN $500,000 including any cumulative unpaid
annual return from prior years. Any remainder will be distributed
annually in the following order: 45% to the owners to be used to pay the
principal on the notes; and 55% as a return to the owners.
The Company has the right to use, modify, market, distribute and sell
the rights to use the software with products or services that are not
competitive with the software. The owners will have the exclusive rights
to any modifications that constitute an enhancement. The Company may
obtain all rights to the software at the end of the initial term of the
agreements or extensions of such agreements. Upon any early termination
due to certain limited circumstances, the Company has the right to
acquire the software for an amount being CDN $4,800,000 less the
cumulative amount of Owner's Returns paid to the owners during the
period to termination plus the outstanding principal value of the notes.
In the event the Owners wish to sell the software rights, the Company
has the right of first refusal to acquire the rights at the same
purchase price and terms as the Owners are prepared to sell the assets.
During the six months ended March 31, 1999, the Company entered into a
series of agreements with a third party (the owner) by which the Company
sold the European rights, title and interest in its O.P.E.N. Centrix
security management application software to the owner for a deposit of
CDN $950,000 and future payments totalling US $29,375,000. The
future payments are wholly dependent upon future sales of the
software. The technology and the shares of the owner's company
collateralize the payments.
The Company and the owner entered into a "Management and Marketing
Agreement" dated December 30, 1998. The agreement expires December 30,
2008 and may be extended for two additional two year terms. The
extension of the term will be automatic and the Company or the owner can
terminate the agreement during any extension with 90 days notice to the
other party.
Under the terms of the Management and Marketing Agreement, the Company
is appointed the sole and exclusive agent responsible for marketing and
selling the software, delivering and installing the software, providing
customer support including training and consulting, and providing
necessary maintenance and enhancements. The Company is required to
maintain adequate insurance related to these activities. The Company is
entitled to a management fee on an annual basis equal to 55% of net
revenues (net sales of the software less costs of selling, marketing,
general and administrative expenses, and costs of enhancements).
The amount of net revenues is to be distributed annually in the
following order of priority: to pay the accrued and unpaid annual fee
due to the Company; and to pay to the owners of the software an annual
Owner's Return of CDN $500,000, including any cumulative unpaid annual
return from prior years. Any remainder will be distributed annually to
the owners.
- 8 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
The Company has the right to use, modify, market, distribute and sell
the rights to use the software with products or services that are not
competitive with the software. The owner will have the exclusive rights
to any modifications that constitute an enhancement. The Company may
obtain all rights to the software at the end of the initial term of the
agreement or extensions of such agreement. Upon any early termination
due to certain limited circumstances, the Company has the right to
acquire the software for an amount being CDN $5,000,000 less the
cumulative amount of Owner's Return paid to the owner during the period
to termination. In the event that the owner wishes to sell the software
rights, the Company has the right of first refusal to acquire the rights
at the same purchase price and terms as the owner is prepared to sell
the assets.
The net cash received by the Company has been accounted for under the
provisions of the "Emerging Issues Task Force, 88-18. Sales of Future
Revenues" (EITF 88-18) and has been recorded as "Advances on sale of
software rights" in these financial statements. These advances will be
recorded in income over a 10 year period based on the percentage of
revenue received in each year to total estimated revenue over the 10
year period for each agreement. No amounts have been recorded as revenue
in the six months ended March 31, 1999. There is no reasonable assurance
that the owners fees and net revenue allocated to the owners will be
sufficient to service the notes receivable principal and interest
payments due to the Company and as such the notes have not been
recorded.
12. SUBSEQUENT EVENTS
CAPITAL STOCK
Subsequent to the end of the period, the Company issued a total of
501,350 shares at prices ranging from $0.40 to $0.50 each, for total
cash consideration of $240,740.
The Board of Directors of the Company resolved to change the incentive
stock option plan to allow for a maximum of 20% of the common shares
outstanding, subject to shareholder approval. In May, the Board of
Directors granted, subject to shareholder approval, incentive
stock options to employees and consultants for the purchase of shares
up to the total available in the option pool. The exercise prices
ranged from $0.42 to $0.47.
RELATED PARTY TRANSACTIONS
Subsequent to the end of the period, the majority shareholder and a
company controlled by the majority shareholder, loaned the Company up to
$212,000 without interest and without stated terms of repayment.
13. INCOME TAXES
The Company and its subsidiary have estimated net-operating loss
carry-forwards as follows:
United States $ 2,066,000 (expiring 2017 and 2018)
- 9 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
Temporary differences and carryforwards, which give rise to significant
portions of deferred tax assets and liabilities, are as follows:
<TABLE>
<CAPTION>
SEPT 30/98 SEPT 30/97
-----------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 2,066,000 $ 1,378,000
Software rights 740,000 740,000
Less valuation allowance (2,806,000) (2,118,000)
-----------------------------
$ - $ -
</TABLE>
These operating loss carry-forwards are available for offset against
future taxable income. Considering the Company's cumulative losses, the
Company has provided an allowance of 100% against its deferred tax
assets.
The Company has non-deductible items for tax purposes primarily related
to stock based compensation and interest expense for the six months
ended March 31, 1998 of approximately $ 7,400 (1998 - $136,000). In
addition, the Company will include $450,000 received on advances on sale
of software rights in taxable income for the period.
No additional computations have been made regarding the tax effects of
the Company's performance in the current period.
14. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
1999 1998
---------------------
<S> <C> <C>
Due to shareholders and directors, interest free $ 18,242 $11,633
</TABLE>
Included in fixed assets is $ 3,096 (cost of $9,287) in respect of an
automobile sold in the year ended September 30, 1997 to the Company by
the majority shareholder and director.
During the six months ended March 31, 1998, the majority shareholder
loaned the Company $69,000 without interest and without stated terms of
repayment of which $13,930 was included as due to shareholders and
directors at March 31, 1999 (1998 - $11,633). During the six months
ended March 31, 1999, the Company loaned the same shareholder/director
up to $23,000 without interest or stated terms of repayment, all of
which was repaid within the period.
The Company incurred $39,474 during the six months ended March 31, 1999
(1998 - $61,910) for consulting services to companies controlled by
directors of the Company ($4,312 was outstanding at March 31, 1999).
-10-
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(expressed in U.S. Dollars)
- -------------------------------------------------------------------------------
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table sets out the fair value and carrying values of the
Company's financial instruments:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------
Fair Carrying Fair Carrying
Value Amount Value Amount
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 1,009 $ 1,009 $ 1,094 $ 1,094
Accounts receivable 81,745 81,745 90,183 90,183
Accounts payable 636,999 636,999 385,247 385,247
Operating line of credit - - 21,000 21,000
Due to related parties 18,242 18,242 11,633 11,633
--------------------------------------------------------------------
$737,995 $737,995 $509,157 $509,157
--------------------------------------------------------------------
</TABLE>
16. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified where
necessary in order to conform with changes in presentation adopted in
the current period.
-11-
<PAGE>
[BACK COVER OF PROSPECTUS]
DEALER PROSPECTUS DELIVERY OBLIGATION
Until ________, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware and Article VIII
of the Registrant's Articles of Incorporation permit the Registrant to indemnify
its officers and directors and certain other persons against expenses in defense
of a suit to which they are parties by reason of such office, so long as the
persons conducted themselves in good faith and the persons reasonably believed
that their conduct was in the corporation's best interests, not opposed to the
corporation's best interests, or unlawful. Indemnification is not permitted in
connection with a proceeding by or in the right of the corporation in which the
officer or director was adjudged liable to the corporation or in connection.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the registrant in connection with the
securities being registered are as follows:
Securities and Exchange Commission filing fee . . . . . . . . . $ 1,390
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . 1,000
Accounting fees and expenses. . . . . . . . . . . . . . . . . . 10,000
Blue sky fees and expenses. . . . . . . . . . . . . . . . . . . 5,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . 20,000
Transfer agent fees and expenses. . . . . . . . . . . . . . . . 2,000
Printing expenses . . . . . . . . . . . . . . . . . . . . . . . 10,000
Miscellaneous expenses. . . . . . . . . . . . . . . . . . . . . 10,610
------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000
========
All amounts are estimates except the SEC filing fee and NASD filing fee
ITEM 3. UNDERTAKINGS
(A) The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ) if, in
the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on
the plan of distribution.
II-1
<PAGE>
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(B) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions,
or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred
or paid by a director, officer or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the small business issuer will, unless in
the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR
Since June 1998, the Company has sold shares of its Common Stock,
which sales were not registered under the Securities Act of 1933, as amended,
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Dollar Registration
Purchaser Number of Shares Amount ($) Date Exemption
- --------- ---------------- --------- ------- -------------
<S> <C> <C> <C> <C>
Vladimir Slavka 100,000 30,000 July 9, 1998 (2)
Jozef Starosta (upon exercise of options) 7,500 2,525 July 9, 1998 (2)
Dale Paruk 350,000 140,000 July 23, 1998 (2)
North American Corporate Consultants, Inc. 90,000 32,400 July 24, 1998 (2)
Vladimir Slavka 200,000 80,000 August 27, 1998 (2)
34 persons 339,695 203,817 September 29, 1998 (2)
Cameron Moriarty 74,000 33,300 October 30, 1998 (1)
Corinex Group AS 416,617 249,970 November 12, 1998 (1)
Tital Enterprises Ltd. 200,000 90,000 January 20, 1999 (2)
Dale Paruk 140,000 57,400 March 17, 1999 (2)
510402 BC Ltd. 50,675 20,270 April 15, 1999 (1)
Petar Kokan 50,675 20,270 April 16, 1999 (1)
Kamtek Management Corp. 400,000 200,000 May 6, 1999 (1)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Section 4(2) of the Securities Act of 1933, as amended. These shares bear
a restrictive legend.
(2) Rule 504 of Regulation D promulgated under the Securities Act of
1933, as amended.
With respect to the sales of securities above, no underwriting commissions or
discounts were paid on these sales.
II-2
<PAGE>
ITEM 5. INDEX TO EXHIBITS
Exhibit Sequential
No. Exhibit Page Number
-------- ------------------------------------------------- -----------
1.1 Form of Selling Agent Agreement
2.1 Articles of Incorporation
2.2 Bylaws
4.1 Form of Subscription Agreement
6.1 Joint Development Agreement between the Company and
WSSD dated May 21, 1997
6.2 Documents Relating to Sale of O.P.E.N.centrix-TM-
Software Rights to Purchaser #1
6.3 Documents Relating to Sale of O.P.E.N.centrix-TM-
Software Rights to Purchaser #2
6.4 Documents Relating to Sale of O.P.E.N.centrix-TM-
Software Rights to Purchaser #3 and Purchaser #4
6.5 Documents Relating to Sale of O.P.E.N.centrix-TM-
Software Rights to Purchaser #5
6.6 1997 Stock Option Plan
10.1 Consent of PricewaterhouseCoopers LLP.
10.2 Consent of Dill Dill Carr Stonbraker & Hutchings,
P.C. (incorporated by reference to exhibit 11.1)
11.1 Opinion re legality
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-1 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Coquitlam, Province of British Columbia, on July 14, 1999.
Alya International, Inc.
(Registrant)
By:/S/DAVID R. LEWIS
David R. Lewis, Chief Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Milan Carnogursky Chairman and
- ------------------------- Director July 14, 1999
Milan Carnogursky
Director July __, 1999
- -------------------------
Peter Sobotka
/s/ Douglas Corbett President (Principal
- ------------------------- Executive and Director July 14, 1999
Douglas Corbett
/s/ Jaro Bucko Chief Technology Officer
- ------------------------- and Director July 14, 1999
Jaro Bucko
Vice President - Operations July __, 1999
- -------------------------
Robert Hamilton
/s/ David R. Lewis Chief Financial Officer July 14, 1999
- -------------------------
David R. Lewis
</TABLE>
II-4
<PAGE>
Alya International, Inc.
#101 - 16 Fawcett Road
Coquitlam, British Columbia V3K 6X9
(604)528-9982
SELLING AGENT AGREEMENT
_______________, 1999
- ----------------------
- ----------------------
- ----------------------
Gentlemen:
We are offering for sale 5,000,000 Shares of common stock of Alya
International, Inc., a Delaware corporation (the "Company"), on a "best
efforts, all or none" basis. The Shares and the terms upon which they are to
be offered for sale are more particularly described in the enclosed
Prospectus. We invite your participation, as Selling Agent, on the terms and
conditions stated herein.
1. OFFERING PRICE. The Shares are to be offered to the public at the
price of $1.00 per Share (hereinafter called the "Public Offering Price") and
shall not be directly or indirectly offered or sold to the public by Selling
Agents at any other price during the period this Agreement is in effect.
2. SELLING AGENTS. Members of the National Association of Securities
Dealers, Inc. (the "NASD") who shall agree to offer Shares hereunder (herein
referred to as "Selling Agents") will be allowed a commission of ten percent
(10%) of the total sales price (i.e., $0.10 per Share) and payable as
hereinafter provided. No commission shall be earned or paid unless the
Shares are sold on or before _______________________ [90 days from the date of
the Prospectus], which date may be extended for up to an additional 90 by the
Company.
3. SUBSCRIPTIONS. We reserve the right to reject all subscriptions,
in whole or in part, to make allotments, and to close the subscription books
at any time without notice. The Shares allotted to you will be confirmed,
subject to the terms and conditions of this Agreement. Payments for Shares
sold by you are to be made by check or money order only and shall be made
payable to Alya International, Inc. In respect to all Shares sold by you
pursuant hereto, you will promptly transmit (by noon of the next business day
following receipt) to us all checks and money orders received in payment in
the full amount of the Public Offering Price for the number of Shares
purchased, without deduction for any commission, in compliance with Rule
15c2-4 under the Securities Exchange Act of 1934 (the "1934 Act"). YOUR
TRANSMITTAL LETTER ACCOMPANYING CHECKS OR MONEY ORDERS TO US SHALL SET FORTH
THE NAMES AND ADDRESSES, TOGETHER WITH SOCIAL SECURITY OR APPROPRIATE TAX
I.D. NUMBERS, OF THE PURCHASERS WITH THE NUMBER OF SHARES PURCHASED.
NO COMMISSIONS SHALL BE PAYABLE, AND ALL SUBSCRIPTIONS ARE SUBJECT TO
REJECTION, UNLESS AND UNTIL THE SELLING AGENT HAS COMPLIED WITH THE ABOVE
UNDERLINED PROVISION.
Each sale shall be contingent upon the sale of the Shares being sold on
or before _________________ [90 days from the date of the Prospectus] (which
date may be extended for up to an additional 90 days by the Company), and
upon the acceptance of such sale by the undersigned. In the event any order
submitted by you is not accepted, we will return all funds paid by the
subscriber. Payment of the selling commissions in respect of each such sale
will be made to the Selling Agent by us when and only upon the acceptance of
such sale by us. The offering is made subject to the issuance and
<PAGE>
delivery of the Shares, to the approval of legal matters by counsel, and to
the terms and conditions herein set forth.
If an order is rejected or if a payment is received which proves
insufficient or worthless, any compensation paid to the Selling Agent shall be
returned by the Selling Agent's remittances in cash.
4. OFFERING TO PUBLIC. Shares sold to the public by dealers shall be
sold by the Selling Agents as agents for the Company. Neither you nor any other
person is, or has been, authorized to give any information or to make any
representations in connection with the sale of the Shares other than as
contained in the Prospectus. The Selling Agent will not sell the Shares
pursuant to this Agreement unless the Prospectus is furnished to the purchaser
at least forty-eight (48) hours prior to the mailing of the confirmation of
sale, or is sent to such person under such circumstances that it would be
received by him forty-eight (48) hours prior to his receipt of a confirmation of
the sale. The Selling Agent understands that during the ninety (90)-day period
after the first date upon which the Shares of the Company are bona fide offered
to the public, all Selling Agents effecting transactions in the Company's
securities shall be required to deliver the Company's current Prospectus to any
purchasers thereof prior to or concurrent with the receipt of the confirmation
of sale. Additional copies of the then current Prospectus will be supplied by
the Company in reasonable quantities upon request. No Selling Agent is
authorized to act as an agent for the Company except in offering the Shares to
the public pursuant to this Agreement.
5. COMPLIANCE WITH SECURITIES LAWS. Upon becoming a Selling Agent, and
in offering and selling the Shares, you agree to comply with all applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), the
1934 Act, any applicable state securities or "Blue Sky" laws, and the Conduct
Rules of the NASD, including, but not limited to, IM-2110-1 "Free-Riding and
Withholding". Upon application, you will be informed as to the states in which
we have been advised by counsel to the Company that the Shares have been
qualified for sale under the respective securities or Blue Sky laws of such
states, but we assume no obligation or responsibility as to the right of any
Selling Agent to sell the Shares in any state, or as to any sale therein.
By acceptance of this Agreement, you represent that you are a member in
good standing of the NASD.
By acceptance of this Agreement, each Selling Agent has assumed full
responsibility for thorough and prior training of its representatives concerning
the selling methods to be used in connection with the offer and sale of the
Shares, giving special emphasis to the NASD's principles of full and fair
disclosure to prospective investors, suitability standards, and the prohibitions
against "Free-Riding and Withholding."
Each Selling Agent agrees to indemnify and hold harmless the Company and
the other Selling Agents against and from any liability, loss, damage, or
expense arising out of any failure by the Selling Agent to comply with the 1933
Act, the 1934 Act, applicable securities laws of any state, the rules and
regulations of the Securities and Exchange Commission, or the Rules of Fair
Practice of the NASD, due to any act or omission by the Selling Agent.
6. PROSPECTUS AND OFFERING. The Registration Statement on Form SB-1
(File No. 333-_______) with respect to the subject Shares was declared effective
on __________, 1999. By signing this Agreement, each Selling Agent acknowledges
receipt of a copy of the Prospectus included in said Registration Statement.
Additional copies of the Prospectus will be supplied to you in reasonable
quantities upon request.
7. LIABILITY. Nothing will constitute the Selling Agent an association
or other separate entity or partners with us or with each other, but you will be
responsible for your share of any liability or expense
2
<PAGE>
based on any claim to the contrary. We will not be under any liability for
or in respect of any matter connected with this Agreement, except for lack of
good faith obligations expressly assumed by us in this Agreement, and any
liability due to our act or omission arising under the 1933 Act.
8. TERMINATION. This Agreement shall terminate ___________________
(which date may be extended for ____________ by the Company), or by either party
giving notice of termination to the other at any time, but such termination
shall not affect your obligation to comply with the requirements of this
Agreement or your right to commissions on orders confirmed by us prior thereto.
9. NUMBER OF SHARES PURCHASED. You agree, upon our request, at any time
prior to the termination of this Agreement, to report to us the number of Shares
purchased by your customers. Your Share allocation is subject to reduction at
any time prior to sale confirmations and funds therefor being received by us.
10. NOTICES. Notice to us should be addressed to us at our office:
#101 - 16 Fawcett Road Coquitlam, British Columbia V3K 6X9, with a copy to Fay
M. Matsukage, Esq., Dill Dill Carr Stonbraker & Hutchings, P.C., 455 Sherman
Street, Suite 300, Denver, Colorado 80203. Notices to you shall be deemed to
have been duly given if telegraphed, mailed, or delivered to you at the
address set forth by you in this Agreement, or if given verbally and
confirmed in writing.
11. CONFIRMATION. If you desire to participate in the offering of the
Shares as hereinbefore set forth, please sign the acceptance below and provide
the pertinent information requested.
Very truly yours,
ALYA INTERNATIONAL, INC.
By:
------------------------------------------
Douglas Corbet, President
3
<PAGE>
Accepted on:
-------------------------------------------------
Firm Name:
-------------------------------------------------
By:
-------------------------------------------------
Position:
-------------------------------------------------
Address:
-------------------------------------------------
-------------------------------------------------
Telephone Number:
-------------------------------------------------
IRS I.D. Number:
-------------------------------------------------
Share Allocation:
-------------------------------------------------
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ALYA INTERNATIONAL, INC.
I, Milan Carnogursky, being the president of ALYA International, Inc.
(the "Corporation"), a corporation duly organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation for the above-named
Corporation be amended in its entirety to read and is
incorporated by reference herein as Exhibit A.
SECOND: That the amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, I have signed this certificate this 26th day of March,
1997.
/s/ Milan Carnogursky
-------------------------------------------
Milan Carnogursky, President
<PAGE>
Exhibit A
AMENDED CERTIFICATE OF INCORPORATION
OF
ALYA INTERNATIONAL, INC.
The undersigned, desiring to amend the Certificate of Incorporation of ALYA
International, Inc. (the "Corporation"), and the Corporation having received
payment for 100 shares of its Common Stock, hereby adopts the following Amended
Certificate of Incorporation:
ARTICLE I
NAME
The name of the Corporation is ALYA International, Inc.
ARTICLE II
PURPOSE
The Corporation shall be organized to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
AUTHORIZED CAPITAL
The amount of total authorized capital stock which the Corporation shall
have authority to issue is 60,000,000 shares, 50,000,000 shares of which shall
be Common Stock, each with $0.0001 par value, and 10,000,000 shares of which
shall be Preferred Stock, each with $0.0001 par value. To the fullest extent
permitted by the General Corporation Law of Delaware, as the same now exists or
may hereafter be amended or supplemented, the Board of Directors may fix and
determine the designations, rights, preferences or other variations of each
class or series within each class of capital stock of the Corporation.
ARTICLE V
REGISTERED OFFICE
The address of the registered office of the Corporation is 686 North Dupont
Boulevard #302, Milford, Kent County, Delaware 19963, and the name of the
registered agent at that address is Corporate Creations Enterprises, Inc.
<PAGE>
ARTICLE VI
DIRECTORS
The number of the directors of the Corporation shall be fixed by, or in the
manner provided in, the Bylaws.
The name and address of the sole director is Milan Carnogursky, #111-17
Fawcett Road, Coquitlam, British Columbia, V3K 6V2 Canada.
The directors of the Corporation shall be authorized to make, alter, or
repeal the Bylaws of the Corporation.
ARTICLE VII
LIMITATION OF LIABILITY
To the fullest extent from time to time permitted by law, no director or
officer of the Corporation shall be personally liable to the Corporation or its
stockholders for damages for breach of any duty owed to the Corporation or its
stockholders. Neither the amendment nor repeal of this Article, nor the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article, shall eliminate or reduce the protection afforded by this Article
to a director or officer of the Corporation with respect to any matter which
occurred, or any cause of action, suit, or claim which, but for this Article,
would have accrued or arisen, prior to such amendment, repeal, or adoption.
ARTICLE VIII
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by
applicable law in effect from time to time, any person, and the estate and
personal representative of any such person, against all liability and expense
(including attorneys' fees) incurred by reason of the fact that he is or was a
director or officer of the Corporation or, while serving as a director or
officer of the Corporation, he is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of, or in any similar managerial or fiduciary position of, another
domestic or foreign corporation or other individual or entity or of an employee
benefit plan. The Corporation shall also indemnify any person who is serving or
has served the Corporation as director, officer, employee, fiduciary, or agent,
and that person's estate and personal representative, to the extent and in the
manner provided in any bylaw, resolution of the stockholders or directors,
contract, or otherwise, so long as such provision is legally permissible.
In witness whereof, the undersigned incorporator has executed this
Certificate of Incorporation this 26th day of March, 1997.
/s/ Milan Carnogursky
------------------------------------------
Milan Carnogursky
<PAGE>
BYLAWS
of
ALYA International, Inc.
SECTION 1. FUNCTION . All corporate powers shall be exercised by or under the
authority of the Board of Directors. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
Directors must be natural persons who are at least 18 years of age but need not
be shareholders of the Corporation. Residents of any state may be directors.
SECTION 2. COMPENSATION . The shareholders shall have authority to fix the
compensation of directors. Unless specifically authorized by a resolution of
the shareholders, the directors shall serve in such capacity without
compensation.
SECTION 3 . PRESUMPTION OF ASSENT . A director who is present at a meeting
of the Board of Directors or a committee of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless he objects at the beginning of the meeting (or
promptly upon arriving) to the holding of the meeting or transacting the
specified business at the meeting, or if the director votes against the
action taken or abstains from voting because of an asserted conflict of
interest.
SECTION 4 . NUMBER . The Corporation shall have at least the minimum number
of directors required by law. The number of directors may be increased or
decreased from time to time by the Board of Directors.
SECTION 5 . ELECTION AND TERM . At each annual meeting of shareholders, the
shareholders shall elect directors to hold office until the next annual
meeting or until their earlier resignation, removal from office or death.
Directors shall be elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
SECTION 6 . VACANCIES . Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by the shareholders or by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall hold office only until the next
election of directors by the shareholders. If there are no remaining
directors, the vacancy shall be filled by the shareholders.
SECTION 7 . REMOVAL OF DIRECTORS . At a meeting of shareholders, any
director of the entire Board of Directors may be removed, with or without
cause, provided the notice of the meeting states that one of the purposes of
the meeting is the removal of the director. A director may be removed only
if the number of votes cast to remove him exceeds the number of votes cast
against removal.
<PAGE>
SECTION 8 . QUORUM AND VOTING . A majority of the number of directors fixed
by these Bylaws shall constitute a quorum for the transaction of business.
The act of a majority of directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
SECTION 9 . EXECUTIVE AND OTHER COMMITTEES . The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may
designate from among its members one or more committees each of which must
have at least two members. Each committee shall have the authority set forth
in the resolution designating the committee.
SECTION 10 . PLACE OF MEETING . Regular and special meetings of the Board
of Directors shall be held at the principal place of business of the
Corporation or at another place designated by the person or persons giving
notice or otherwise calling the meeting.
SECTION 11 . TIME, NOTICE AND CALL OF MEETINGS . Regular meetings of the
Board of Directors shall be held without notice at the time and on the date
designated by resolution of the Board of Directors. Written notice of the
time, date and place of special meetings of the Board of Directors shall be
given to each director by mail delivery at least two days before the meeting.
Notice of a meeting of the Board of Directors need not be given to a
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting constitutes a waiver of notice of that
meeting and waiver of all objections to the place of the meeting, the time of
the meeting, and the manner in which it has been called or convened, unless a
director objects to the transaction of business (promptly upon arrival at the
meeting) because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors must be specified in the notice or waiver
of notice of the meeting.
A majority of the directors present, whether or not a quorum exists, may
adjourn any meeting of the Board of Directors to another time and place.
Notice of an adjourned meeting shall be given to the directors who were not
present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors. Meetings of the Board of Directors may be called by the President
or the Chairman of the Board of Directors. Members of the Board of Directors
and any committee of the Board may participate in a meeting by telephone
conference or similar communications equipment if all persons participating
in the meeting can hear each other at the same time. Participation by these
means constitutes presence in person at a meeting.
SECTION 12 . ACTION BY WRITTEN CONSENT . Any action required or permitted
to be taken at a meeting of directors may be taken without a meeting if a
consent in writing setting forth the action to be taken and signed by all of
the directors is filed in the minutes of the proceedings of the Board. The
action taken shall be deemed effective when the last director signs the
consent, unless the consent specifies otherwise.
2
<PAGE>
ARTICLE 11 . MEETINGS OF SHAREHOLDERS
SECTION 1 . ANNUAL MEETING . The annual meeting of the shareholders of the
corporation for the election of officers and for such other business as may
properly come before the meeting shall be held at such time and place as
designated by the Board of Directors.
SECTION 2 . SPECIAL MEETING . Special meetings of the shareholders shall be
held when directed by the President or when requested in writing by
shareholders holding at least 10% of the Corporation's stock having the right
and entitled to vote at such meeting. A meeting requested by shareholders
shall be called by the President for a date not less than 10 nor more than 60
days after the request is made. Only business within the purposes described
in the meeting notice may be conducted at a special shareholders' meeting.
SECTION 3 . PLACE . Meetings of the shareholders will be held at the
principal place of business of the Corporation or at such other place as is
designated by the Board of Directors.
SECTION 4 . NOTICE . A written notice of each meeting of shareholders shall
be mailed to each shareholder having the right and entitled to vote at the
meeting at the address as it appears on the records of the Corporation. The
meeting notice shall be mailed not less than 10 nor more than 60 days before
the date set for the meeting. The record date for determining shareholders
entitled to vote at the meeting will be the close of business on the day
before the notice is sent. The notice shall state the time and place the
meeting is to be held. A notice of a special meeting shall also state the
purpose of the meeting. A notice of meeting shall be sufficient for that
meeting and any adjournment of it. If a shareholder transfers any shares
after the notice is sent, it shall not be necessary to notify the
transferee. All shareholders may waive notice of a meeting at any time.
SECTION 5 . SHAREHOLDER QUORUM . A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. Any number of shareholders, even if less than a quorum, may
adjourn the meeting without further notice until a quorum is obtained.
SECTION 6 . SHAREHOLDER VOTING . If a quorum is present, the affirmative
vote of a majority of the shares represented at the meeting and entitled to
vote on the subject matter shall be the act of the shareholders. Each
outstanding share shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders. An alphabetical list of all shareholders
who are entitled to notice of a shareholders' meeting along with their
addresses and the number of shares held by each shall be produced at a
shareholders' meeting upon the request of any shareholder.
SECTION 7 . PROXIES . A shareholder entitled to vote at any meeting of
shareholders or any adjournment thereof may vote in person or by proxy
executed in writing and signed by the shareholder or his attorney-in-fact.
The appointment of proxy will be effective when received by the Corporation's
officer or agent authorized to tabulate votes. No
3
<PAGE>
proxy shall be valid more than 11 months after the date of its execution
unless a longer term is expressly stated in the proxy.
SECTION 8 . VALIDATION . If shareholders who hold a majority of the voting
stock entitled to vote at a meeting are present at the meeting, and sign a
written consent to the meeting on the record, the acts of the meeting shall
be valid even if the meeting was not legally called and noticed.
SECTION 9 . CONDUCT OF BUSINESS BY WRITTEN CONSENT . Any action of the
shareholders may be taken without a meeting if written consents, setting
forth the action taken, are signed by at least a majority of shares entitled
to vote and are delivered to the officer or agent of the Corporation having
custody of the Corporation's records within 60 days after the date that the
earliest written consent was delivered. Within 10 days after obtaining an
authorization of an action by written consent, notice shall be given to those
shareholders who have not consented in writing or who are not entitled to
vote on the action. The notice shall fairly summarize the material features
of the authorized action. If the action creates dissenters' rights, the
notice shall contain a clear statement of the right of dissenting
shareholders to be paid the fair value of their share upon compliance with
and as provided for by the state law governing corporations.
ARTICLE III . OFFICERS
SECTION 1 . OFFICERS; ELECTION; RESIGNATION; VACANCIES . The Corporation
shall have the officers and assistant officers that the Board of Directors
appoint from time to time. Except as otherwise provided in an employment
agreement which the Corporation has with an officer, each officer shall serve
until a successor is chosen by the directors at a regular or special meeting
of the directors or until removed. Officers and agents shall be chosen,
serve for the terms, and have the duties determined by the directors. A
person may hold two or more offices.
Any officer may resign at any time upon written notice to the Corporation.
The resignation shall be effective upon receipt, unless the notice specifies
a later date. If the resignation is effective at a later date and the
Corporation accepts the future effective date, the Board of Directors may
fill the pending vacancy before the effective date provided the successor
officer does not take office until the future effective date. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
SECTION 2 . POWERS AND DUTIES OF OFFICERS . The officers of the Corporation
shall have such powers and duties in the management of the Corporation as may
be prescribed by the Board of Directors and, to the extent not so provided,
as generally pertain to their respective offices, subject to the control of
the Board of Directors.
SECTION 3 . REMOVAL OF OFFERS . An officer or agent or member of a
committee elected or appointed by the Boar of Directors may be removed by the
Board with or without
4
<PAGE>
cause whenever in its judgement the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an
officer, agent or member of a committee shall not of itself create contract
rights. Any officer, if appointed by another officer, may be removed by that
officer.
SECTION 4 . SALARIES . The Board of Directors may cause the Corporation to
enter into employment agreements with any officer of the Corporation. Unless
provided for in an employment agreement between the Corporation and an
officer, all officers of the Corporation serve in their capacities without
compensation.
SECTION 5. BANK ACCOUNTS . The Corporation shall have accounts with
financial institutions as determined by the Board of Directors.
ARTICLE IV . DISTRIBUTIONS
The Board of Directors may, from time to time, declare distributions to
its shareholders in cash, property, or its own shares, unless the
distribution would cause (i) the Corporation to be unable to pay its debts as
they become due in the usual course of business, or (ii) the Corporation's
assets to be less than its liabilities plus the amount necessary, if the
Corporation were dissolved at the time of the distribution, to satisfy the
preferential rights of shareholders whose rights are superior to those
receiving the distribution. The shareholders and the Corporation may enter
into an agreement requiring the distribution of corporate profits, subject to
the provisions of law.
ARTICLE V . CORPORATE RECORDS
SECTION 1 . CORPORATE RECORDS . The Corporation shall maintain its records
in written form or in another form capable of conversion into written form
within a reasonable time. The Corporation shall keep as permanent records
minutes of all meetings of its shareholders and Board of Directors, a record
of all actions taken by the shareholders or Board of Directors without a
meeting, and a record of all actions taken by a committee of the Board of
Directors on behalf of the Corporation. The Corporation shall maintain
accurate accounting records and a record of its shareholders in a form that
permits preparation of a list of the names and addresses of all shareholders
in alphabetical order by class of shares showing the number and series of
shares held by each.
The corporation shall keep a copy of its articles or restated articles
of incorporation and all amendments to them currently in effect; these
Bylaws or restated Bylaws and all amendments currently in effect;
resolutions adopted by the Board of Directors creating one or more classes or
series of shares and fixing their relative rights, preferences, and
limitations, if shares issued pursuant to those resolutions are outstanding;
the minutes of all shareholders' meetings and records of all actions taken by
shareholders without a meeting for the past three years; written
communications to all shareholders generally or all shareholders of a class
of series within the past three years, including the financial statements
furnished for the last three years; a list of names and
5
<PAGE>
business street addresses of its current directors and officers; and its
most recent annual report delivered to the Department of State.
SECTION 2 . SHAREHOLDER' INSPECTION RIGHTS . A shareholder is entitled to
inspect and copy, during regular business hours at a reasonable location
specified by the Corporation, any books and records of the Corporation. The
shareholder must give the Corporation written notice of this demand at least
five business days before the date on which he wishes to inspect and copy the
record (s). The demand must be made in good faith and for a proper purpose.
The shareholder must describe with reasonable particularity the purpose and
the records he desires to inspect, and the records must be directly connected
with this purpose. This section does not affect the right of a shareholder
to inspect and copy the shareholders' list described in this Article if the
shareholder is in litigation with the Corporation. In such a case, the
shareholder shall have the same rights as any other litigant to compel the
production of corporate records for examination.
The Corporation may deny any demand for inspection if the demand was
made for an improper purpose, or if the demanding shareholder has within the
two years preceding his demand, sold or offered for sale any list of
shareholders of the Corporation or of any other corporation, has aided or
abetted any person in procuring any list of shareholders for that purpose, or
has improperly used any information secured through any prior examination of
the records of this Corporation or any other corporation.
SECTION 3 . FINANCIAL STATEMENTS FOR SHAREHOLDERS . Unless modified by
resolution of the shareholders within 120 days after the close of each fiscal
year, the Corporation shall furnish its shareholders with annual financial
statements which may be consolidated or combined statements of the
Corporation and one or more of its subsidiaries, as appropriate, that include
a balance sheet as of the end of the fiscal year, an income statement for
that year, and a statement of cash flows for that year. If financial
statements are prepared for the Corporation on the basis of generally
accepted accounting principles, the annual financial statements must also be
prepared on that basis.
If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the President or the person responsible for the
Corporation' s accounting records stating his reasonable belief whether the
statements were prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation and describing
any respects in which the statements were not prepared on a basis of
accounting consistent with the statements prepared for the preceding year.
The Corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within
such additional time thereafter as is reasonably necessary to enable the
Corporation to prepare its financial statements. Thereafter, on written
request from a shareholder who was not mailed the statements, the Corporation
shall mail him the latest annual financial statements.
SECTION 4 . OTHER REPORTS TO SHAREHOLDERS . If the Corporation indemnifies
or advances expenses to any director, officer, employee or agent otherwise
than by court order or
6
<PAGE>
action by the shareholders or by an insurance carrier pursuant to insurance
maintained by the Corporation, the Corporation shall report the
indemnification or advance in writing to the shareholders with or before the
notice of the next annual shareholders' meeting, or prior to the meeting if
the indemnification or advance occurs after the giving of the notice but
prior to the time the annual meeting is held. This report shall include a
statement specifying the persons paid, the amounts paid, and the nature and
status at the time of such payment of the litigation or threatened litigation.
If the Corporation issues or authorizes the issuance of shares for
promises to render services in the future, the Corporation shall report in
writing to the shareholders the number of shares authorized or issued, and
the consideration received by the corporation, with or before the notice of
the next shareholders' meeting.
ARTICLE VI . STOCK CERTIFICATES
SECTION 1 . ISSUANCE . The Board of Directors may authorize the issuance of
some or all of the shares of any or all of its classes or series without
certificates. Each certificate issued shall be signed by the President and
the Secretary (or the Treasurer). The rights and obligations of shareholders
are identical whether or not their shares are represented by certificates.
SECTION 2 . REGISTERED SHAREHOLDERS . No certificate shall be issued for
any share until the share is fully paid. The Corporation shall be entitled
to treat the holder of record of shares as the holder in fact and, except as
otherwise provided by law, shall not be bound to recognize any equitable or
other claim to or interest in the shares.
SECTION 3 . TRANSFER OF SHARES . Shares of the Corporation shall be
transferred on its books only after the surrender to the Corporation of the
share certificates duly endorsed by the holder of record or attorney-in-fact.
If the surrendered certificates are canceled, new certificates shall be
issued to the person entitled to them, and the transaction recorded on the
books of the Corporation.
SECTION 4 . LOST, STOLEN OR DESTROYED CERTIFICATES . If a shareholder claims
to have lost or destroyed a certificate of shares issued by the Corporation,
a new certificate shall be issued upon the delivery to the Corporation of an
affidavit of the fact by the person claiming the certificate of stock to be
lost, stolen or destroyed, and, at the discretion of the Board of Directors,
upon the deposit of a bond or other indemnity as the Board reasonably
requires.
ARTICLE VII . INDEMNIFICATION
SECTION 1 . RIGHT TO INDEMNIFICATION . The Corporation hereby indemnifies
each person (including the heirs, executors, administrators, or estate of
such person) who is or was a director or officer of the Corporation to the
fullest extent permitted or authorized by current or future legislation or
judicial or administrative decision against all fines, liabilities, costs and
expenses, including attorneys' fees, arising out of his or her status as a
director, officer, agent, employee or representative. The foregoing right of
7
<PAGE>
indemnification shall not be exclusive of other rights to which those seeking
an indemnification may be entitled. The Corporation and all officers and
directors against fines, liabilities, costs and expenses, whether or not the
Corporation would have the legal power to indemnify them directly against
such liability.
SECTION 2 . ADVANCES . Costs, charges and expenses (including attorneys'
fees) incurred by a person referred to in Section 1 of this Article in
defending a civil or criminal proceeding shall be paid by the Corporation in
advance of the final disposition thereof upon receipt of an undertaking to
repay all amounts advanced if it is ultimately determined that the person is
not entitled to be indemnified by the Corporation as authorized by this
Article, and upon satisfaction of other conditions required by current or
future legislation.
SECTION 3 . SAVINGS CLAUSE . If this Article or any portion of it is
invalidated on any ground by a court of competent jurisdiction, the
Corporation nevertheless indemnifies each person described in Section 1 of
this Article to the fullest extent permitted by all portions of this Article
that have not been invalidated and to the fullest extent permitted by law.
ARTICLE VIII . AMENDMENT
These Bylaws may be altered, amended or repealed, and new Bylaws adopted,
by a majority vote of the directors or by a vote of the shareholders holding a
majority of the shares.
I certify that these are the Bylaws adopted by the Board of Directors of
the Corporation.
----------------------------
Secretary
Date signed:
------------------
8
<PAGE>
SUBSCRIPTION FORM
To: ALYA INTERNATIONAL, INC.
The undersigned hereby acknowledges receipt of the Prospectus, dated
___________, 1999, of Alya International, Inc. (the "Company") and subscribes
for the following number of Shares of the Company upon the terms and
conditions set forth therein:
Number of Shares: ___________ All subscriptions are subject to
Price Per Share: $__________ acceptance by the Company, to
Payment Enclosed: $__________ availability, and to certain other
conditions, and any subscription may
(Make checks payable to "Alya be declined in whole or in part by
International, Inc." return of the subscription monies
without interest.
Date:_________________, 1999
Accepted by Company:
_________________________________ ___________________________________
Authorized officer
_________________________________
(Signature(s) of Subcriber(s) for _________________ Shares
_________________________________
Social Security or Tax I.D.
The certificates for such stock are
Check one if more than one owner:
to be issued as follows:
/ / Joint tenants WRS
_________________________________ / / Tenants in Common
Name(s)
/ / Custodian under UGMA
_________________________________
_________________________________
Address
Other:_____________________
_________________________________
_________________________________
<PAGE>
JOINT DEVELOPMENT AGREEMENT
This agreement (the "Agreement") is effective the 21st day of May
1997, between INDALA Corp., a California corporation having a principal place
of business at 3041 Orchard Parkway, San Jose, California, 95134, USA
(hereafter "INDALA"), and Alya Systems, Inc. a corporation having a principal
place of business at 111-17 Fawcett Road, Coquitlam, B.C. V3K 6V2, Canada
(hereafter '"ALYA"). INDALA and ALYA are herein sometimes referred to
individually as "party", or collectively as "parties."
RECITALS
ALYA has considerable expertise and experience in the development, manufacturing
and marketing of LONWorks products;
INDALA has considerable expertise and experience in the development,
manufacturing and marketing of radio frequency identification ("RFID") proximity
products;
It is the intent of the parties to develop new, combined proximity/door control
capabilities not yet available in the marketplace, and any products resulting
from work performed hereunder will be marketed under ALYA's and INDALA's
respective branding scheme, as defined herein.
ALYA and INDALA desire to integrate and promote LON COMPLIANT devices, as
defined below, and RFID-based technologies into a new family of applications,
made available for resale by their respective channel partners;
The parties hereby agree as follows:
1. DEFINITIONS:
1.1 ENTRY POINT CONTROLLER (EPC): door control module that communicates between
a proximity reader and LON COMPLIANT access control modules, which support
Weigand, LonWorks and magnetic stripe formats, manages standard door inputs and
outputs, and generates electric lock/unlock commands.
1.2 ONE PIECE READER: standalone, integrated unit comprising a proximity reader
and an Entry Point Controller (EPC) that interface using internal connections
and are co- located in one physical device.
1.3 TWO PIECE READER: separate proximity reader and EPC units that interface
through external connections and are contained in two physical devices.
1.4 INTEGRATED TECHNOLOGIES: those products developed using ALYA and INDALA
technologies, where (i) INDALA has defined a 64-bit open architecture message
format, referred to as the "ALYA Format;" (ii) ALYA's EPC module will be
utilized in the Two Piece Reader; (iii) ALYA's EPC module design will be
utilized to develop a new INDALA EPC module for use in the One Piece Reader.
1.5 LON COMPLIANT: characteristic of products that are compliant with
specifications governing LonMark, LonWorks and LonTalk device interoperability
standards developed by Echelon Corporation of Palo Alto, California.
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<PAGE>
2. TERM, TERMINATION & DISCLOSURE:
2.1 This agreement will be effective for one (1) year from the date herein
above, and is renewable upon mutual written consent of the parties.
2.2. This Agreement will be terminable at will by ALYA or INDALA upon three (3)
months written notice, with or without cause.
2.3 Neither ALYA, INDALA, nor affiliates of either party, shall disclose the
terms, provisions or subject matter of this Agreement without prior written
consent of the other party.
3. OBLIGATIONS OF ALYA
3.1 ALYA will provide INDALA with versions of the LONWorks specification, which
will be used as basis for the joint development of INTEGRATED TECHNOLOGIES as
defined herein.
3.2 ALYA will provide INDALA with the technical assistance necessary to
integrate LONWorks capabilities into a first TWO PIECE READER, whereby the door
control portion thereof comprises ALYA's Entry Point Controller ("EPC"). The
first TWO PIECE READER will be developed on or before September 30, 1997.
3.3 ALYA will work jointly with INDALA to bring a second TWO PIECE READER to the
market, which will have a higher level of system functionality and capability
than the first TWO PIECE READER. The second TWO PIECE READER will include
system-level installation tools and diagnostics and will be developed on or
before December 30, 1997.
3.4 ALYA will work jointly with INDALA to bring a ONE PIECE READER to the
market, which will have, at a minimum, the functionality of the unit described
in paragraph 3.3. The ONE PIECE READER will be developed on or before March 31,
1998.
3.5 ALYA will meet at INDALA's facility, as mutually agreeable to both parties,
to discuss project activities, including, but not limited to, development
progress, milepost attainment, delivery schedules and product launch plans.
3.6 ALYA will provide INDALA with system-level interface documentation, software
development tools and technical support, sufficient for INDALA to create a suite
of demonstration and test applications in Microsoft Windows NT or Windows 95.
4. OBLIGATIONS OF INDALA
4.1 INDALA will provide ALYA with a new card bit structure, defining format and
length, and will further help ALYA to specify an "open system" architecture for
use as ALYA's bit structure.
4.2 INDALA will provide the technical assistance necessary to integrate LONWorks
-2-
<PAGE>
capabilities into a first TWO PIECE READER, whereby the door control portion
thereof comprises ALYA's Entry Point Controller ("EPC"). The first TWO PIECE
READER will be developed on or before September 30, 1997.
4.3 INDALA will work jointly with ALYA to bring a second TWO PIECE READER to the
market, which will have a higher level of system functionality and capability
than the first TWO PIECE READER. The second TWO PIECE READER will be developed
on or before December 30, 1997.
4.4 INDALA will work jointly with ALYA to bring a ONE PIECE READER to the
market, which unit will have, at a minimum, the functionality of the unit
described in paragraph 4.3. The ONE PIECE READER will be developed on or before
March 31, 1998.
4.5 INDALA will meet at ALYA's facility, as mutually agreeable to both parties,
to discuss project activities, including, but not limited to, development
progress, milepost attainment, delivery schedules and product launch plans.
5. LICENSE GRANT:
5.1 ALYA grants and agrees to grant INDALA a royalty-free, perpetual, worldwide,
non-exclusive, non-assignable, paid-up right and license, under ALYA's
inventions, copyrights and trade secrets embodied in the ONE PIECE READER and
TWO PIECE READER developed hereunder, to market, use, reproduce and distribute,
as well as to manufacture, have manufactured, sell, import, offer for sale, or
otherwise dispose of systems using such ONE PIECE READER or TWO PIECE READER.
5.2 INDALA grants and agrees to grant ALYA a royalty-free, perpetual, worldwide,
non-exclusive, non-assignable, paid-up right and license, without the right to
grant sublicenses, under INDALA's inventions, copyrights and trade secrets
embodied in the ONE PIECE READER and TWO PIECE READER developed hereunder, to
market, use, reproduce and distribute, as well as to manufacture, have
manufactured, sell, import, offer for sale, or otherwise dispose of systems
using such ONE PIECE READER or TWO PIECE READER.
6. PRODUCT OFFERINGS:
6.1 Products offered for resale by ALYA under this Agreement will be sold as
ALYA brand name, private label or OEM version products.
6.2 Products offered for resale by INDALA under this Agreement will be sold as
INDALA brand name, private label or OEM version products.
7. INTELLECTUAL PROPERTY:
7.1 Each party is subject to the terms and conditions of the mutual Non-
Disclosure Agreement ("NDA"), executed by the parties and made effective 15
January 1997. Any technical information disclosed by either party hereunder and
any intellectual property rights based on such information shall remain the
exclusive property of the disclosing party.
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<PAGE>
7.2 ALYA reserves and retains all rights, title and interest in and to all of
its' intellectual property in existence at the time this agreement is executed,
including, but not limited to inventions, copyrights, trade secrets and
know-how.
7.3 INDALA reserves and retains all rights, title and interest in and to all of
its' intellectual property in existence at the time this agreement is executed,
including, but not limited to inventions, copyrights, trade secrets and
know-how.
7.4 If an invention is made solely by the employees of either party in
connection with this agreement, the entire right, title and interest to any
intellectual property rights for such invention shall belong solely to the party
whose employees made such invention.
7.5 JOINT INVENTIONS:
7.5.1 If an invention or copyrightable work is jointly made by the
employees of both INDALA and ALYA, INDALA and ALYA shall have an equal,
undivided, one-half interest in and to all intellectual property (IP) right(s)
in all countries stemming from such invention or work of authorship. In
perfecting these IP rights, both parties shall fully cooperate with the other,
particularly by way of executing any and all documents, as required by
applicable law to effect joint ownership in the perfected right(s)
7.5.2 Either party may make application to perfect any or all IP rights
relating to joint inventions or works of authorship provided, unless the parties
agree otherwise, the party seeking to perfect such rights shall have complete
control in all filing and maintenance decisions and shall bear all costs in
relation thereto, including filing, maintenance and other required fees. Such
registrations shall indicate both INDALA and ALYA as joint inventors or joint
authors as the case may be.
8. WARRANTIES AND REPRESENTATIONS. Both parties represent and warrant that
entering into this Agreement and performance hereunder by their respective
personnel does not contravene the terms of any other agreement with a third
party. The parties each further warrant that their respective personnel will not
use or infringe knowingly any intellectual property or other proprietary right
of a third party and that the products developed hereunder will be original
works by their own personnel. The parties further warrant that they have not
granted and will not grant any right in the products developed hereunder to a
third party that would be inconsistent with the rights granted under this
Agreement. ALYA specifically warrants that they, as of the execution date
hereof, have any and all rights to, and/or licenses for, the LonWorks scheme
conveyed from Echelon Corp., Palo Alto, California necessary for complete
performance hereunder.
9. INDEPENDENT CONTRACTOR. INDALA warrants that it qualifies under applicable
tax laws and regulations as an independent contractor. INDALA and its personnel
are not agents, employees, lessees, partners, or joint venturers of ALYA and may
not bind or obligate ALYA without prior consent. Similarly, ALYA warrants that
it qualifies under applicable tax laws and regulations as an independent
contractor. ALYA and its personnel are not agents, employees, lessees, partners,
or joint venturers of INDALA and may not bind or obligate INDALA without prior
consent.
10. LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL,
INCIDENTAL, INDIRECT OR SPECIAL DAMAGES, HOWEVER CAUSED, WHETHER UNDER THEORY OF
CONTRACT, TORT
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<PAGE>
(INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF THE OTHER PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
11. NOTICE. All notices required under this Agreement shall be in writing to the
addresses shown above. Notice shall be deemed given when delivered personally to
an authorized representative or one (1) day after deposit for overnight delivery
upon written verification of receipt.
12. GOVERNING LAW. This Agreement shall be construed and interpreted under the
internal laws of the State of California, without giving effect to its
principles of conflict of law.
13. ENTIRE AGREEMENT. This Agreement, together with the non-disclosure agreement
referred to in $7.1 above, constitutes the entire agreement and understanding
between ALYA and INDALA on the subject matter. No modifications or waiver of
this Agreement shall be binding unless it is in writing and signed by both
parties. If a court of competent jurisdiction finds any provision of this
Agreement invalid, illegal or unenforceable, the parties shall omit it from the
Agreement to the extent required, and the remaining terms shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
("INDALA") ("ALYA" )
/s/ Fernando Reyes /s/ Milan Carnogursky
- -------------------------------- ----------------------------------
Fernando Reyes Milan Carnogursky
President & General Manager Chairman
- -------------------------------- ----------------------------------
Title Title
5/22/97 May 22, 1997
- -------------------------------- ---------------------------------
Date Date
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<PAGE>
May 11, 1998
Indala Corp.
3041 Orchard Parkway
San Jose, CA
95134
Attn: Mr. F. Reyes
President & General Manager
Dear Mr. Reyes,
Re: JOINT DEVELOPMENT AGREEMENT
We would request that the Joint Development Agreement dated May 21, 1997 between
Indala Corp. and ALYA Systems, Inc. be renewed for a period of one (1) year.
The effective period of this agreement will then be May 21, 1998 to May 21,
1999.
As per section 2.1 of the above agreement; written mutual consent is required to
effect this renewal.
Please indicate Indala Corp.'s consent to the one year renewal of this agreement
by signing below where indicated and returning 1 original copy of this letter to
my attention.
If you have any questions or comments regarding this matter, please contact me
at (604) 528-9982 or (604) 817-7380.
Sincerely,
/s/ Douglas H. Corbett
Douglas H. Corbett
Vice President - Marketing & Sales
<PAGE>
Mr. F. Reyes
Indala Corp.
MARCH 11, 1998 Page 2
We hereby consent to renew the Joint Development Agreement dated May 21, 1997
for one (1) year effective May 21, 1998. The new agreement will be effective
from May 21, 1998 to May 21, 1999.
ALYA SYSTEMS, INC. INDALA CORP.
/s/ Milan Carnogursky /s/ Fernando Reyes
- ------------------------ -----------------------------
Milan Carnogursky Fernando Reyes
President & CEO President & General Manager
Date: May 12/98 Date: May 13, 1998
<PAGE>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT MADE AS OF THE 30TH DAY OF SEPTEMBER 1997 (THE "EFFECTIVE
DATE").
BETWEEN:
[PURCHASER], an individual, having a business address at [ADDRESS], FAX:
[FAX]("Purchaser")
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a Delaware corporation, having a business address
at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303 (hereinafter referred
to as "Alya")
OF THE SECOND PART
WHEREAS:
1. Alya is the legal and beneficial owner of the Purchased Assets; and
2. Alya has agreed to sell and assign the Purchased Assets to Purchaser for
use in the Territory, and Purchaser has agreed to purchase the Purchased
Assets on the terms and conditions hereinafter set forth and contained.
NOW THEREFORE in consideration of the premises and mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions shall have the following meanings:
a. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in Schedule A to this Agreement together with
Enhancements;
b. "Asset Valuation Report" means the software valuation dated as of September
15, 1997, prepared for Purchaser by [APPRAISER];
<PAGE>
c. "Closing" has the meaning set out in Section 7.1;
d. "Closing Date" means September 30, 1997, or such other date as the parties
may agree;
e. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Management
Agreement, including the Application Software and the Purchased Assets, are
deemed to be confidential without the need for written notice and shall at
all times remain confidential, notwithstanding the exception to
confidentiality noted in the next sentence. "Confidential Information" of
the Disclosing Party shall not include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without breach of this Agreement
by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party, independently of the Disclosing Party and
without breach of an obligation of confidentiality to the
Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
obligation of confidentiality to the Disclosing Party;
D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
<PAGE>
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
f. "Customers" means any person using or distributing the Security System in
the Territory;
g. "Documentation" has the meaning specified in Subsection v. of the
definition of Purchased Assets;
h. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Application Software by Alya or any other
person, to be utilized in connection with providing the Security System,
including, without limitation, any improvement, revision or other
modification which is necessary:
i. to provide Customers with then current Application Software; or
ii. to maintain the Application Software as a state of the art or industry
leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A to the extent that Purchaser's manager pursuant to the
Management Agreement continues to believe that they are commercially
reasonable in light of then current market conditions and technical
developments;
i. "Infringement Claims" has the meaning specified in Subsection 5.1.b.;
j. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of Purchased Assets";
k. "Letter of Representation" means a letter from Alya to [APPRAISER] in
substantially the form attached as Schedule B;
l. "Management Agreement" means the Management and Marketing Agreement to be
entered into by Purchaser and Alya on Closing for the management and
marketing of the Purchased Assets;
<PAGE>
m. "Note" means the 6.0% Secured Term Note, secured by the Purchased Assets,
in substantially the form attached as Schedule D;
n. "Originality Certificate" means the Officer's Certificate in the form
attached as Schedule C;
o. "Purchase Price" has the meaning specified in Section 2.1;
p. "Purchased Assets" means the right to exclusively utilize, modify and
develop the Application Software within the Territory and to exclusively
distribute, market and sell the Application Software as incorporated in the
Security System, within the Territory, and to utilize all of Alya's
property and rights necessary for the operation of, or the realization of
benefits from, the Application Software within the Territory, including,
without limitation:
i. all products associated with or derivatives of the Application
Software;
ii. the benefit of all agreements necessary for the operation of, or the
realization of the benefit from, the Application Software within the
Territory, including, without limitation, a perpetual, non-exclusive,
royalty free right to use, modify, develop and distribute within the
Territory the OPEN cortex platform software, as described in Schedule
G hereto, and any modification or revision thereto, solely in
connection with the Application Software and the Security Systems, all
service agreements and third party license agreements and all
marketing and product business plans;
iii. all inventions necessary for the operation of, or realization of the
benefit from, the Application Software within the Territory,
including, without limitation, ideas, research, discoveries, designs,
systems, patterns, specifications, technology, know-how, formulae,
confidential information, data, computer software development tools,
operating systems, source code, object code, subroutines, algorithms,
methods and processes;
iv. all intellectual property rights necessary for the operation of, or
realization of the benefit from, the Application Software within the
Territory, including, without limitation, patents, trademarks,
copyrights and trade secrets and applications for and the right to
apply for any intellectual property (the items listed in
<PAGE>
paragraph (iii) and (iv) are hereinafter collectively referred to as
the "Intellectual Property"); and
v. copies of all records, documents (including, without limitation, user
documentation and source code listings), correspondence, notes and
rights related to the foregoing ("Documentation");
q. "Purchase Price" has the meaning set out in Section 2.1;
r. "Section" means any section, subsection, article, clause, subclause,
paragraph or subparagraph of this Agreement;
s. "Security Agent Agreement" means the Security Agent Agreement to be entered
into by Alya, Purchaser and [SECURITY AGENT], as security agent, on the
Closing, for the purpose of holding the Purchased Assets pursuant to the
terms thereof;
t. "Security System" means the building access control system developed by
Alya and known as the O.P.E.N.centrix-Open Platform for Essential Network,
which includes, without limitation, the Application Software, the firmware
containing the Application Software, the O.P.E.N.cortex platform software
and all hardware related thereto; and
u. "Territory" means the geographical region of the United States as described
in Schedule F.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplementing this Agreement. Unless something in the subject matter or
context is inconsistent therewith, reference herein to Sections and
Subsections are to Sections and Subsections of this Agreement.
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars.
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires.
<PAGE>
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
Schedule A - Application Software Specifications
Schedule B - Letter of Representation
Schedule C - Originality Certificate
Schedule D - Form of Note
Schedule E - Exceptions to the representations and warranties set out in
Article 4, if any.
Schedule F - Territory
Schedule G - Description of O.P.E.N.cortex platform
ARTICLE 2
AGREEMENT TO SELL, ASSIGN AND PURCHASE
2.1 Alya hereby sells, assigns and transfers all its right, title and interest
in the Purchased Assets to Purchaser and Purchaser hereby purchases the
entire right, title and interest of Alya therein, as of the Effective Date,
at and for Five Million Six Hundred Thousand Canadian Dollars
(Cdn.$5,600,000)(the "Purchase Price") payable in accordance with Article 3
hereof.
2.2 The parties agree that the fair market value of the Purchased Assets is
equal to the Purchase Price and agree that this determination is final and
conclusive between them.
ARTICLE 3
PURCHASE PRICE AND PAYMENT
3.1 The Purchase Price will be payable partly in cash and partly by execution
and delivery of the Note for the balance of the Purchase Price as follows:
a. Cdn.$20,000 as a refundable deposit to be held in trust by Purchaser's
solicitors and credited against the Purchase Price on the Closing Date; and
b. Cdn.$500,000 on Closing, by wire transfer; and
c. Cdn.$5,080,000 by execution and delivery of the Note.
<PAGE>
3.2 Purchaser will deduct and remit any withholding tax required to be deducted
and remitted in connection with any payment made under Section 3.1.
3.3 Purchaser will not be responsible for any taxes, levies or other similar
assessments including, without limitation, sales or use taxes payable in
connection with the purchase and sale contemplated by this Agreement, if
any.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF ALYA
Alya hereby, undertakes, represents and warrants to Purchaser at the date
hereof and at the Closing Date, and acknowledges that Purchaser is relying on
such undertakings, representations and warranties that:
a. Alya is a corporation (i) duly incorporated and organized, validly
subsisting and in good standing under the laws of the jurisdiction of its
incorporation; (ii) duly authorized, with necessary and sufficient permits
and licenses to enable it to own its properties and to carry on its
business as presently owned and carried on by it; and (iii) having the
power and authority and right to enter into this Agreement and each and
every agreement and document to be executed and delivered by it pursuant
hereto and to perform each of its obligations as therein and herein
contained;
b. Alya has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the other documents
contemplated hereby;
c. this Agreement constitutes the legal, valid and binding obligation of Alya,
enforceable against it in accordance with its terms;
d. neither execution nor delivery of this Agreement and each and every other
agreement executed and delivered by Alya pursuant hereto nor the
fulfillment or compliance with any of the terms hereof or thereof will
conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, the articles and by-laws, as amended, of
Alya or any material agreement or instrument to which Alya is subject or
will require any consent or other action by any person or administrative or
governmental body;
<PAGE>
e. Alya now has and on the Closing Date will have good and marketable title,
free and clear of any and all claims, liens, encumbrances, mortgages,
security interests and charges, licenses or rights of other persons
whatsoever to all of the Purchased Assets except as set out in Subsection
4.1 e. of Schedule E;
f. there are no agreements or contracts or other documents pertaining to the
acquisition or development of the Purchased Assets except as set out in
Subsection 4.1 f. of Schedule E, copies of which have been delivered to
Purchaser and its counsel;
g. the individuals involved in the development of the Application Software,
the Purchased Assets or any element thereof, are or were:
i. employees of Alya Systems, Inc. ("Alya Systems") who worked within the
scope of their employment to develop the Application Software, the
Purchased Assets, or any element thereof, and who executed a written
waiver of their moral rights in the copyright to the foregoing in
favor of Alya Systems; or
ii. independent contractors or employees of independent contractors.
Except as set forth in subsection 4.1g of Schedule E, each contractor
was subject to agreements assigning their interest, if any, in the
Application Software, Purchased Assets, or any element thereof to Alya
Systems and executed a written waiver of their moral rights in the
copyright to the foregoing in favor of Alya. Copies of ALYA System's
standard Employee Invention Assignment and Confidentiality Agreement
and Consultant Invention Assignment and Confidentiality Agreement are
attached to Schedule E;
h. the Application Software does not contain any third party software.
However, certain third party software is required to operate the
Application Software and Alya has licenses for such third party software
which allow Alya to market such software, directly or indirectly through
sublicensees, as part of the Application Software and Alya will maintain
such licenses in good standing for the benefit of Purchaser. None of the
third party software is custom software developed specifically for use with
the Application Software. All of the third party software is readily
available in the open market and capable of being obtained by the Purchaser
in the event a license terminates, or if the particular software is not
<PAGE>
capable of being obtained at such time, other software suitable for
substitution therefor is readily available in the open market and Alya will
modify, at its own cost and expense, the source code of the Application
Software, if necessary, to be compatible;
i. the Application Software was not derived from any third party's
pre-existing material except as set out in Subsection 4.1 i. of Schedule E;
j. Alya has not used or enforced or failed to use or enforce any Intellectual
Property rights or other rights associated with the Application Software or
Purchased Assets in any manner which could adversely affect the validity or
enforceability of the Intellectual Property;
k. there is not, and has not been, any infringement or violation of Alya's
rights in and to the Intellectual Property;
l. Alya has not received notice of any claim of adverse ownership, invalidity
or other opposition to or conflict with the Purchased Assets;
m. there are now no and at the Closing Date will be no action, claim or demand
or other proceedings pending or, to the best of its knowledge, threatened
against Alya before any court or administrative agency which could
materially adversely affect the financial condition or overall operations
of Alya or the Purchased Assets, nor any judgment, order or decree
enforceable against Alya which involves or may require the expenditure of
money as a condition to or a necessity for the right or ability of
Purchaser to conduct its business involving the Purchased Assets;
n. it has not entered into any agreement which would entitle any person to any
valid claim against Purchaser for a broker's commission, finder's fee or
any like payment in respect of the purchase and sale of the Purchased
Assets or any other matters contemplated by this Agreement;
o. the Application Software has been developed in accordance with good
professional standards applicable in the computer software industry
including, without limitation, using modern flexible programming languages
and development tools;
p. the Application Software operates in accordance with the applicable
associated user Documentation;
<PAGE>
q. none of the Purchased Assets has been disclosed to any third party except
under obligations of confidentiality, the benefit of which obligations are
hereby assigned to Purchaser;
r. there are no licenses, agreements, approvals or consents required or
advisable to enable Alya to lawfully and properly market the Application
Software in the Territory and no such licenses, agreements, approvals or
consents will be required by Purchaser;
s. it has not done anything so as to preclude Purchaser from having full
enjoyment and quiet possession of the Purchased Assets, subject to the
terms and conditions herein;
t. there are no outstanding options, agreements of purchase and sale or other
agreements or commitments obligating Alya to sell the Purchased Assets or
any of them, except pursuant to this Agreement;
u. there are no taxes, levies or other similar assessments including, without
limitation, sales, use or other taxes payable by Alya in connection with
the purchase and sale contemplated by this Agreement;
v. the Application Software is available for use;
w. the assumptions, referred to in the Asset Valuation Report, are true and
correct;
x. the Application Software is application software and is not system software
as the terms "application software" and "system software" are generally
used and understood in the computer industry; and
y. all copyright, patent or trademark registrations or applications for
registration of the Application Software in any jurisdiction have been
disclosed to the Purchaser, including complete and accurate documentation
relating thereto.
All of the representations, warranties and covenants contained in this
Agreement made and to be made by Alya will survive the Closing Date and continue
in full force and effect for the benefit of Purchaser until full payment of all
amounts owing under the Note.
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser undertakes, represents and warrants to Alya at the date hereof
and at the Closing Date and acknowledges that Alya is relying on such
undertakings, representations and warranties that Purchaser is now and on the
Closing Date will be an individual who has the power, authority and right
<PAGE>
to enter into this Agreement and each and every agreement to be executed and
delivered by Purchaser pursuant hereto and to perform each of his obligations as
therein and herein contained to purchase the Purchased Assets in accordance with
the terms of this Agreement.
The representations, warranties and covenants contained in this Agreement
and made and to be made by Purchaser will survive the Closing Date and continue
in full force and effect for the benefit of Alya while any money due on the Note
is outstanding.
ARTICLE 5
COVENANTS
5.1 ALYA'S ASSUMPTION OF LIABILITY AND INDEMNITY
Alya hereby covenants and agrees to be liable to Purchaser for and to
indemnify and save harmless Purchaser from and against, effective as and from
the Closing Date, any claims, demands, actions, causes of action, damages,
losses, costs (including legal costs of a solicitor on a full indemnity basis),
liabilities or expenses which may be made or brought against Purchaser and which
it may suffer or incur as a result of, in respect of, or arising out of:
a. any non-fulfillment of or breach of any covenant, undertaking,
representation or warranty on the part of Alya, under this Agreement or any
document or instrument contemplated by this Agreement; and
b. subject to Section 5.2, infringement of any third party rights to the
Intellectual Property as a result of the use of the Intellectual Property
by Purchaser in accordance herewith on or after the Closing Date
("Infringement Claims").
5.2 INDEMNIFICATION PROCEDURE
Upon the occurrence of an event giving rise to indemnification hereunder,
Purchaser shall (i) give prompt notice to Alya of such events, (ii) permit
Alya's attorneys to handle and control the defense of such claims, at Alya's
expense, and (iii) shall cooperate in the defense thereof. Purchaser may, at
its own expense, participate in such defense, provided however, that, if Alya
has agreed in writing to assume the defense of such claims, such participation
expenses shall not become part of the indemnification claim. There shall be no
settlements, whether agreed to in court or out of court, without the prior
written consent of Alya and Purchaser, except that Alya may settle a claim
without the consent of Purchaser if (i) the settlement is purely monetary, (ii)
Alya hereunder
<PAGE>
admits in writing its liability to Purchaser hereunder, and (iii)
concurrently with such settlement, Alya pays the full amount owed thereunder.
Notwithstanding the foregoing, in the event Alya does not assume the defense
of any such claim or litigation in accordance with the terms hereof within
the earlier of (i) thirty (30) days following written notice from Purchaser
or (ii) the due date for response to any complaint filed, then Purchaser may
defend against such claim or litigation in such manner as it may deem
appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to Alya, on such terms as
Purchaser may deem appropriate. In any action by Purchaser seeking
indemnification from Alya in accordance with the provisions hereof, Alya
shall not be entitled to object to the manner in which Purchaser defended
such claim or the amount of or nature of any such settlement.
5.3 COVENANT NOT TO COMPETE
Purchaser acknowledges that the Purchased Assets have a territorial limitation,
and Purchaser covenants that it will only market, distribute and sell the
Application Software within the Territory. Alya covenants and agrees that it
shall not market, distribute and/or sell the Application Software within the
Territory or to any person that may use it in the Territory, except as agent for
Purchaser, as contemplated in the Management Agreement. Alya retains the
exclusive rights to use, modify, market, distribute and sell the Application
Software, the Enhancements and the Intellectual Property in all regions of the
world, other than the Territory. Nothing herein precludes Alya from selling the
O.P.E.N.cortex platform and associated hardware as a stand-alone development
platform.
5.4 OTHER COVENANTS
Alya (and with respect to Section 5.4 d. only, Purchaser) covenants and
agrees as follows:
a. until the Closing Date, Alya will not sell, license or otherwise dispose of
any of the Purchased Assets or any part thereof or interest therein, or
agree to do so, or enter into any negotiations with a view to any of the
foregoing, without the prior approval of Purchaser;
b. Alya will make available to Purchaser for due diligence investigations, all
information, documents and agreements pertaining to the development,
acquisition and marketing of the Application Software, including, without
limitation, computer code and related documentation, marketing and product
business plans and the full cooperation of Alya management;
<PAGE>
c. Alya will complete the Originality Certificate and deliver it to Purchaser
and Purchaser's counsel on or before Closing;
d. each Receiving Party that receives Confidential Information from the
Disclosing Party shall maintain such Confidential Information in
confidence, shall not reveal the same to any third party (other than its
employees on a need to know basis in connection with the Receiving Party's
performance under this Agreement or the Management Agreement) and shall not
use such Confidential Information, directly or indirectly, for any purpose
other than as required in the performance of this Agreement or the
Management Agreement; and
e. Alya will acquire, at its expense and in Purchaser's name, licenses for any
third party software comprising part of the Purchased Assets not assignable
or assigned by Alya to Purchaser.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser hereunder will be subject to the satisfaction
or compliance with, at or before Closing, of each of the following conditions
precedent (each of which is hereby acknowledged to be included for the exclusive
benefit of Purchaser and may be waived in writing in whole or in part):
a. the execution and delivery of all of the closing deliveries identified in
Section 7.3;
b. all legal and regulatory approvals and consents, whether from shareholders,
governmental authorities or other third parties necessary to the completion
of the transactions contemplated by the terms of this Agreement have been
obtained;
c. there will have been no material adverse change, financial or otherwise, in
Alya or the Purchased Assets;
d. Alya will have performed or complied with, in all respects, all of its
undertakings, covenants and agreements hereunder to be performed or
complied with; and
e. the representations and warranties of Alya contained in Section 4.1 will be
true and correct on Closing.
<PAGE>
6.2 CONDITIONS TO ALYA'S OBLIGATIONS
The obligations of Alya hereunder will be subject to the satisfaction or
compliance with, at or before Closing, of each of the following conditions
precedent (each of which is hereby acknowledged to be included for the exclusive
benefit of Alya and may be waived in writing in whole or in part):
a. delivery of the Purchase Price, and the execution and delivery of all
closing deliveries identified in Section 7.4;
b. Purchaser will have performed or complied with, in all respects, all of its
undertakings, covenants and agreements hereunder to be performed or
complied with; and
c. the representations and warranties of Purchaser contained in Section 4.2
will be true and correct on Closing.
ARTICLE 7
CLOSING
7.1 CLOSING DATE
The transaction of purchase and sale contemplated by this Agreement will be
completed at or about 3:00 P.M. on the Closing Date at the offices of
Purchaser's Solicitors ("Closing").
7.2 SURVIVAL
This Agreement and its component parts will not merge upon Closing or on
execution, delivery or registration of any documents executed, delivered or
registered pursuant to this Agreement or otherwise, but will survive Closing.
7.3 ALYA'S CLOSING DELIVERIES
At the Closing, Alya will duly execute and deliver or cause to be executed
and delivered to Purchaser the following:
a. a bill of sale assigning the Purchased Assets to Purchaser;
b. the Management Agreement;
c. the Originality Certificate;
d. the Letter of Representation;
<PAGE>
e. the Security Agent Agreement;
f. an electronic copy of the Application Software, including, without
limitation, a copy of all Documentation, each of which shall be delivered
to Purchaser or his designee by electronic transfer;
g. a certified copy of the resolutions of the directors of Alya authorizing
the transactions;
h. such other agreements and documents as Purchaser may reasonably request to
give effect to the terms and conditions of this Agreement;
i. a copy of all authors' assignments of copyright, patent and trademark and
waivers of moral rights in the Application Software; and
j. a copy of all patent, trademark and copyright registrations in respect of
the Application Software.
7.4 PURCHASER'S CLOSING DELIVERIES
At Closing, Purchaser will execute and deliver or cause to be executed and
delivered the following:
a. wire transfer, bank draft or solicitor's trust cheque for the cash amount
of the Purchase Price payable on Closing pursuant to Section 3.1, subject
to any withholding tax payable in connection with such payment;
b. the Note;
c. the Management Agreement;
d. the Security Agent Agreement; and
e. such other agreements and documents as Alya may reasonably request to give
effect to the terms and conditions of this Agreement.
7.5 DELIVERY TO SECURITY AGENT
At Closing and as security for its obligations under the Note, Purchaser
will electronically deliver to the Security Agent, under the Security Agent
Agreement, the source code for the Application Software delivered to Purchaser
by Alya.
ARTICLE 8
GENERAL
<PAGE>
8.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, such provision shall be construed so as to most closely
reflect the original intent of the parties, but still be enforceable, and the
validity, legality or enforceability of such remaining provisions or parts
thereof will not in any way be affected or impaired thereby. The invalidity,
illegality or unenforceability of any provision or part thereof contained in
this Agreement in any jurisdiction will not affect or impair such provision or
part thereof or any other provisions of this Agreement in any other
jurisdiction.
8.2 FURTHER ASSURANCES
Each of the parties will, at any time and from time to time at the request
of the other, execute and deliver any and all such further instruments or
assurances as may be necessary or desirable to give effect to the terms and
conditions of this Agreement.
8.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties as
if they had originally signed one copy of this Agreement.
8.4 ASSIGNMENT
Purchaser may assign any part of its interest in this Agreement or the
Purchased Assets, except that any assignment to a competitor of Alya requires
the prior written consent of Alya. Such assignment shall be effected by:
a. giving written notice of the name and address of the assignee; and
b. by delivering to Alya a written undertaking of the assignee, acknowledging
receipt of a copy of this Agreement and agreeing to be bound by the terms
and conditions of this Agreement.
Alya may not assign this Agreement, without the prior written consent of
Purchaser, except that Alya may assign this Agreement in whole, but not in part,
and only with an assignment of all of its rights and obligations under the
<PAGE>
Note and the Security Agent Agreement, to (i) any corporation, partnership or
other entity which is controlled by, controlling or under common control
with, Alya; or (ii) a purchaser of all or substantially all the assets of
Alya, or any person or entity into which Alya is merged or consolidated by:
a. giving written notice of the name and address of the assignee; and
b. by delivering to Purchaser a written undertaking of the assignee,
acknowledging receipt of a copy of this Agreement and agreeing to be bound
by the terms and conditions of this Agreement.
8.5 BINDING EFFECT
This Agreement and all of its provisions will enure to the benefit of the
parties and their respective successors and permitted assigns, and will be
binding upon the parties and their respective successors and permitted assigns.
The expressions "Alya" and "Purchaser", as used herein will include Alya's and
Purchaser's permitted assigns whether immediate or derivative, respectively.
8.6 ARBITRATION OF DISPUTES
Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the parties
for resolution and, in the event that senior management cannot resolve the
dispute within 30 days of escalation of the dispute to such level, then the
parties agree that such dispute shall be settled by final and binding
arbitration in Vancouver, British Columbia, before a single arbitrator mutually
acceptable to Owner and Manager, in accordance with the Commercial Arbitration
Act, S.B.C. 1979c.3 then existing, except as otherwise specifically provided
herein. The arbitrator shall apply the laws of British Columbia for the
purposes of construing and enforcing this Agreement and any dispute arising
hereunder. The arbitration award shall be specifically enforceable; judgment
upon any arbitration award may be entered in any court with personal
jurisdiction over the parties and subject matter of the disputes. Unless
otherwise determined by the arbitrator, all expenses in connection with such
arbitration will be divided equally between the parties, with the exception of
expenses of counsel, witnesses and employees of the parties which will be borne
by the parties incurring them. Notwithstanding anything to the contrary herein,
either party will always be entitled to seek preliminary or provisional remedies
or release (including attachments and preliminary injunctions) from any court of
competent jurisdiction.
<PAGE>
8.7 AMENDMENT
This Agreement may be altered or amended in any of its provisions when any
such changes are reduced to writing and signed by the parties hereto but not
otherwise. Time will be of the essence of this Agreement.
8.8 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in this transaction.
8.9 CONFIDENTIALITY
Each of the parties will treat this Agreement and all information relating
to this Agreement and the transactions contemplated by this Agreement
confidentially and no public disclosure by any party will be made without the
prior approval of the other, not to be unreasonably withheld, except as legally
required by a party to satisfy disclosure obligations to shareholders and
regulators, in which case simultaneous notice of such disclosure will be given
to the other party.
8.10 ENTIRE AGREEMENT
This Agreement, the Management Agreement, the Security Agent Agreement, the
Note and the exhibits and schedules referenced in each of the foregoing
constitute the entire Agreement among the parties and supersedes all proposals,
letters of intent, representations or agreements, oral or written, among them
relating to the subject matter hereof.
8.11 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of British Columbia and Canada (regardless of either
jurisdiction's or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated in
Vancouver, British Columbia, Canada, and each party hereby waives any right it
may have to assert the doctrine of Forum Non Conveniens or to object to venue.
The parties each hereby stipulate that the courts located in Vancouver, British
Columbia, shall have personal jurisdiction and venue over each party for the
purpose of litigating any such dispute, controversy or proceeding arising out of
or related to this Agreement.
8.12 NOTICES
<PAGE>
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given by
personal delivery, international overnight courier service, or by facsimile
(subject to confirmation of receipt), addressed to the respective party at the
applicable address set forth above, or to any party at such other addresses as
shall be specified in writing by such party to the other parties in accordance
with the terms and conditions of this Section. All notices, requests or
communications shall be deemed effective upon personal delivery, or two (2)
business days following deposit with any international overnight courier
service, or upon confirmation of receipt if sent by facsimile transmission.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day first above written.
ALYA: ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
----------------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
PURCHASER:
/s/ [PURCHASER]
---------------------------------
[PURCHASER]
<PAGE>
MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of September 30, 1997.
BETWEEN:
[PURCHASER], an individual, having a business address at [ADDRESS], [FAX]
hereinafter referred to as "Owner")
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a California corporation, having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303, FAX: (650)
361-8286 (hereinafter referred to as "Manager")
OF THE SECOND PART
WHEREAS:
A. Owner has acquired or developed and owns all of the right, title and
interest to use, distribute and sell the Assets in the Territory; and
B. Owner wishes to appoint Manager, as Owner's agent, to manage, market,
distribute and sell the Security System in the Territory on the terms and
conditions set out in this Agreement.
NOW THEREFORE in consideration of the entitlements to receive certain cash
distributions under this Agreement, and the covenants, agreements and premises
herein contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions will have the following meanings:
a. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in
<PAGE>
Schedule A to this Application Software Purchase Agreement together with
Enhancements;
b. "Application Software Purchase Agreement" means the application software
purchase agreement made as of September 30, 1997, between Owner and
Manager;
c. "Assets" means "Purchased Assets" as that term is defined in the
Application Software Purchase Agreement;
d. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Application
Software Purchase Agreement, including the Application Software, the
Security System and the Purchased Assets, are deemed to be confidential
without the need for written notice and shall at all times remain
confidential, notwithstanding the exception to confidentiality noted in the
next sentence. "Confidential Information" of the Disclosing Party shall not
include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without breach of this Agreement
by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party, independently of the Disclosing Party and
without breach of an obligation of confidentiality to the
Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
<PAGE>
obligation of confidentiality to the Disclosing Party;
D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
e. "Customer" means any person using or distributing the Security System in
the Territory;
f. "Documentation" has the meaning set out in Subsection v. of the definition
of "Purchased Assets" as defined in the Application Software Purchase
Agreement;
g. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Application Software by Manager, or any employee
or subcontractor of Alya, to be utilized in connection with providing the
Security System, including, without limitation, any improvement, revision
or other modification which is necessary:
i. to provide Customers with the then current Security System; or
ii. to maintain the Application Software as a state of the art or industry
leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A of the Application Software Purchase Agreement, to the extent
that Manager continues to believe they are commercially reasonable in light
of then current market conditions and technical developments;
h. "Expenses" has the meaning specified in Subsection 3.1 c.;
<PAGE>
i. "Gross Sales" has the meaning specified in Subsection 3.1 c.;
j. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of "Purchased Assets" as defined in the Application Software
Purchase Agreement;
k. "Interest Amount" means an amount equal to the annual interest payable
under the Note;
l. "Management Fee" has the meaning specified in Subsection 3.1.c;
m. "Manager" means Alya International, Inc. and its permitted assigns in its
capacity as the agent for Owner and manager of the Assets appointed by
Owner under this Agreement;
n. "Net Revenue" has the meaning specified in Subsection 3.1 c.;
o. "Net Sales" has the meaning specified in Subsection 3.1 c.;
p. "Note" means the 6.0% Secured Term Note dated as of the date hereof issued
by Owner to Manager in connection with the purchase of the Assets;
q. "Overhead and Administrative Costs" has the meaning specified in Subsection
3.1 c.;
r. "Owner's Return" has the meaning specified in Subsection 3.1 c.;
s. "Security Agent" means [SECURITY AGENT], the security agent under the
Security Agent Agreement;
t. "Security Agent Agreement" means the security agent agreement made as of
September 30, 1997, among Owner, Manager and Security Agent;
u. "Security System" means the building access control system developed by
Manager and known as the O.P.E.N.centrix - Open Platform for Essential
Networks, which includes, without limitation, the Application Software, the
firmware containing the Application Software, the O.P.E.N.cortex platform
software and all hardware related thereto;
<PAGE>
v. "Territory" means the geographic region of the United States as described
in Schedule B; and
x. "year" means fiscal year ending September 30.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplemental to this Agreement. Unless something in the subject matter or
context is inconsistent therewith,
<PAGE>
reference herein to Sections and Subsections are to Sections and
Subsections of this Agreement;
b. Except as specifically stated in this Agreement, all references to currency
are to United States of America dollars. Any currency conversion required
or contemplated by this Agreement with respect to Canadian and United
States of America currency will be based on the rate published by the Bank
of Canada as the noon spot rate of exchange applicable for such currencies
on the business day immediately before the date of conversion;
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires and the provisions hereof.
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
a. Schedule A - Specifications of Application Software; and
b. Schedule B - Territory.
ARTICLE 2
MANAGEMENT SERVICES
2.1 APPOINTMENT OF AGENT/MANAGER
Owner hereby appoints Manager as its sole and exclusive agent for the
purpose of managing the marketing, distribution, sale, Enhancement and support
of the Security System within the Territory, subject to the terms and conditions
of this Agreement, and Manager hereby accepts such appointment.
2.2 MANAGEMENT DUTIES
a. Manager will, in good faith, observe and perform the following obligations
in respect of the marketing,
<PAGE>
distribution, sale, Enhancement and support, within the Territory, of the
Security System in a good and workmanlike manner, utilizing its capable
management and technical expertise:
i. MARKETING, DISTRIBUTION AND SALE. Manager will be responsible for the
marketing and selling of the Security System, within the Territory,
including, without limitation, developing marketing materials,
organizing product demonstrations, establishing distribution channels,
pricing, promotion and sale of the Security System. Manager will use
commercially reasonable efforts to maximize sales of the Security
System within the Territory. Manager will be responsible for
developing and negotiating the contracts required to sell the Security
System to Customers within the Territory. Owner will be entitled to
receive copies of and to comment on standard form sales and support
service contracts and Manager shall address all such comments with
Owner and take into account all of Owner's directions and instructions
forming a part of such comments. All such contracts will contain
provisions of confidentiality acceptable to Owner. In addition,
Manager will have responsibility for the billing and collection of
fees and payments from Customers and for the payment of fees to Owner.
Manager shall comply with all applicable laws and regulations and
obtain all appropriate government approvals pertaining to the sale,
distribution and advertising of good and services utilizing the
trademark "O.P.E.N.centrix";
Owner will be entitled to conduct an inspection of the management of
the marketing, distribution, sale, Enhancement and support of the
Security System at any time during regular business hours upon
reasonable notice to Manager. Notwithstanding any other provision in
this Agreement, Manager will take into account any and all
commercially reasonable directions and/or specifications given by
Owner pertaining to the marketing, distribution, sale, Enhancement and
support of the Security System which Manager may receive from Owner
from time to time in writing;
ii. SUPPORT, TRAINING AND CONSULTING. Manager will have complete
responsibility for delivery and installation of the Security System
within the
<PAGE>
Territory. Manager will provide all support services for Customers
including telephone and on-site support. Manager will also provide
all required training and consulting support;
iii. MAINTENANCE AND ENHANCEMENTS. All maintenance necessary to correct
any errors in the Assets found by any Customer will be provided by
Manager pursuant to the terms of its support services agreements.
Manager will prepare and provide all Enhancements to Owner; and
iv. With respect to any third party software required to operate the
Security System, Alya has licenses for such third party software which
allow Alya to market such software, directly or indirectly through
sublicensees, in conjunction with the Security System and will
maintain such licenses in good standing for the benefit of Owner.
b. In addition to the duties referred to in Subsection 2.2 a., Manager will,
in good faith and in satisfaction of its fiduciary duty to Owner do the
following:
i. REVIEWS. Manager will review and report to Owner or its duly appointed
agent on Manager's performance under this Agreement on a quarterly
basis. Such reviews will be scheduled by mutual agreement of all
parties;
ii. COMPUTER CODE. Upon request, Manager will deliver computer code (in
object code and source code form) together with all related
documentation and development tools necessary or desirable to enable
the Application Software and all Enhancements to operate properly to
Owner or its duly appointed agent quarterly, within thirty (30) days
of the end of each calendar quarter. Manager will assist Owner or its
agent in verifying that the computer code delivered to Owner is fully
functional Application Software and Enhancements; and
iii. CONFLICT OF INTEREST. Manager acknowledges and agrees that it is
acting in a fiduciary capacity as agent of Owner, it will act in good
faith and in the best interest of Owner, and will conduct itself as
such in all dealings on behalf of Owner and in connection with the
performance of its obligations under this Agreement. In particular,
Manager will avoid conflicts of interest between
<PAGE>
itself and Owner in connection with the business of marketing,
distribution, sale and support of the Security System in the
Territory.
2.3 INSURANCE
a. Without in any way limiting the liability of Manager under this Agreement,
Manager will be responsible to maintain and keep in force during the term
of this Agreement the following insurance coverage:
i. automobile liability insurance on all vehicles used in connection with
this Agreement. In respect of such vehicles not owned by Manager, it
will maintain and keep in force as aforesaid non-owned automobile
liability insurance protecting its liability including that assumed
under this Agreement. The limits of such insurance will be at least;
for bodily injury (including passenger hazard) and property damages,
one million dollars ($1,000,000.00) inclusive for any one accident;
ii. comprehensive general liability insurance (including liability under
this Agreement) with inclusive limits of not less than two million
dollars ($2,000,000.00) for bodily injury and property damage;
iii. employer's liability insurance with limits of not less than one
million dollars ($1,000,000.00) for each employee where Workers'
Compensation does not exist; and
iv. unless otherwise directed by Owner, in writing, insurance covering
loss of or damage to all machinery, tools, equipment, supplies and
structures owned by Manager and/or rented or leased from a third party
or parties and used by Manager or its sub-contractors in performing
its obligations under this Agreement.
b. The above insurance policies will not be changed in any manner which could
affect the interests of the Owner without thirty (30) days' prior written
notice by registered mail to the Owner.
c. For greater certainty, the parties agree and understand that the
obligations of Manager, as set forth in this Section 2.3, may be fulfilled
if Manager's existing
<PAGE>
insurance policy satisfies the requirements of this Section.
d. Upon request Manager will supply Owner with certificates evidencing the
above insurance. Any insurance carried by Manager will name Manager as an
additional insured and loss payee, and will contain a waiver of subrogation
in favor of Owner.
ARTICLE 3
ALLOCATION AND DISTRIBUTION OF FEES
3.1 DISTRIBUTION OF FEES
a. Manager will distribute, annually, the Net Revenues for the preceding year
in the following order of priority:
i. to pay the Interest Amount, plus any other accrued and unpaid interest
on the Note; and
ii. to pay the Owner's Return, including any cumulative amount of the
Owner's Return not paid in prior years.
b. Thereafter, Manager will distribute, annually, the Net Revenue less the
amounts set forth in Section 3.1.a., payable in the year in the following
order of priority:
i. 45% to Owner, for payment against the principal sum outstanding from
time to time under the Note and in accordance with the Note; and
ii. 55% to Owner for retention by Owner; and
c. For the purposes of this Agreement the following terms have the following
meanings:
i. "Management Fee" means an annual marketing and management fee payable
to Manager by Owner and calculated at the end of each year pursuant to
the following formula:
Formula:
Management Fee=(N - I - U/.55 -Cdn.$160,000) X .45,
[but not less than zero]
Where,
N = Net Revenues less the Management Fee;
<PAGE>
I = the Interest Amount in such year, plus any other accrued and
unpaid interest on the Note;
U = the outstanding principal on the Note at the end of such year;
ii. "Expenses" means the following cumulative costs and fees to the extent
not previously recouped by Manager in accordance herewith:
A. the cost of goods sold relating to the Application Software,
including without limitation, costs of material, manufacturing,
quality assurance and testing, costs of third party licenses, but
excluding any costs of goods sold relating to the hardware
incorporated in the Security System;
B. direct costs of marketing, distributing and selling the Security
System in the Territory;
C. the pro rata share of the cost of Enhancements in a year,
determined by multiplying the cost of Enhancements in such year
by a fraction, the numerator of which is the Net Sales in such
year and the denominator of which is the gross amount paid to
Alya in such year for the purchase, installation and support of
the Security System in the United States and Canada, less normal
course of business selling credits for discounts and rebates in
such year and less return adjustments for which a refund has been
paid or credited to the customer to the extent of the payment or
credit in such year;
D. Overhead and Administrative Costs; and
E. Management Fee.
iii. "Gross Sales" means gross amounts paid by Customers in the Territory,
in a year, to purchase, install, and receive support for the Security
System less the price of the hardware incorporated therein, applying
Manager's standard prices charged to similar customers, as in effect
from time to time;
<PAGE>
iv. "Net Revenue" means Net Sales less Expenses;
v. "Net Sales" means Gross Sales less:
A. normal course of business selling credits for discounts or
rebates to Customers for the year; and
B. returns or adjustments for the Security System for which a refund
has been paid or credited to the Customer, or any distributor or
other reseller, to the extent of the payment or credit in the
year;
vi. "Overhead and Administrative Costs" means the overhead and
administrative costs of Manager to manage and market the Security
System in the Territory, for a year, determined by multiplying
Manager's total overhead and administrative costs for marketing and
managing the Security System in the United States and Canada in such
year by a fraction, the numerator of which is the Net Sales for such
year and the denominator of which is the aggregate gross amount paid
to Alya in such year, for the purchase, installation and support of
the Security System in the United States and Canada, less normal
course of business selling credits for discounts and rebates in such
year and less return adjustments for which a refund has been paid or
credited to the customer, to the extent of the payment or credit in
such year; and
vii. "Owner's Return" means an annual cumulative preferential return to
Owner of One Hundred Sixty Thousand Canadian Dollars (Cdn.$160,000)
(prorated for any partial year);
d. Notwithstanding anything else contained in this Agreement, in no event,
without the prior written consent of Owner, will fees or other amounts for
the Security System:
i. be set below competitive prices prevailing in the market for similar
products or services as determined by Manager acting in the best
interests of Owner; or
ii. be discounted for any other consideration granted to Manager, its
affiliates or associates that is not provided to Owner; and
<PAGE>
e. All amounts to be determined for the purposes of the calculations required
pursuant to this Article 3 will be determined in accordance with United
States generally accepted accounting principles consistently applied from
year to year and consistently applied between the Security System sold by
Manager hereunder and the other services sold by Manager outside the scope
of this Agreement.
3.2 TIMING AND PAYMENT OF DISTRIBUTIONS
Amounts payable to Owner for a year pursuant to Section 3.1 will be paid
within 60 days following the year end.
3.3 SET OFF
Manager will have the right to set off amounts payable by Manager to Owner
under this Agreement against amounts payable to Manager by Owner under the Note
except that Manager will have no right of set off and will pay the following
amounts to Owner without regard to the equities between Manager or its
affiliates and Owner:
i. amounts payable to Owner pursuant to Subsections 3.1 a.ii. and 3.1 b.
ii. for his retention; and
ii. amounts payable by Owner as sales taxes or goods and services taxes,
which amounts will be remitted forthwith upon their being due, by
Manager to the appropriate authorities on behalf of Owner.
3.4 REPORTS
a. Manager will give Owner, on a confidential basis, annual reports within 90
days following the end of each fiscal year, setting forth the details in
respect of all sales and support of the Security System in the Territory
during such year, including the name and address of all Customers, the
amount and type of all fees and other amounts payable to date, potential
Customers and projected revenues in the Territory. Manager will give
Owner, on a confidential basis, quarterly reports within forty-five (45)
days following the end of each fiscal quarter, which quarterly reports
shall set forth Gross Sales and Net Sales received by Manager from
Customers in the Territory for the immediately preceding quarter.
Additionally, Manager will give Owner, on a confidential basis, the Gross
Sales, Net Sales, Net Revenues, Expenses, and Overhead
<PAGE>
and Administrative Costs for the quarter ending December 31st on or before
the following February 28th.
b. In addition, Manager will give Owner, on a confidential basis, the detailed
calculations necessary to establish Gross Sales, Net Sales, Expenses,
Overhead and Administrative Costs and Net Revenues including, without
limitation, the component parts thereof annually, within 90 days following
the end of each fiscal year.
3.5 FINANCIAL STATEMENTS
Manager will provide the following financial statements, for the business
pertaining to the Security System, to Owner, annually, within 90 days following
the end of each fiscal year of Manager:
i. the annual reports referred to in Section 3.4;
ii. an audited income statement; and
iii. an audited balance sheet.
3.6 BOOKS AND RECORDS
Manager will keep and maintain complete and accurate books and records
related to the business of selling the Security System in the Territory,
separate and apart from the books and records maintained for its own sales or
other business. These will include records of all sales and support of the
Security System in the Territory, all costs of providing the Security System and
the appropriate fees accruing and collected. These books and records will be
maintained according to U.S. generally accepted accounting principles and
practices respecting all matters pertinent to this Agreement. Owner will have
the right, at his own expense, to audit the books and records of Manager
pertaining to marketing the Security System in the Territory, and the
performance of its other obligations hereunder, once each year. For this
purpose, Owner or its nominee will have, during normal business hours, access to
and the right to copy and remove copies of all books and accounting records
relating to the calculation of fees accrued and collected from the sale of the
Security System in the Territory. All information obtained by Owner or its
nominee will be subject to the confidentiality obligations of this Agreement.
3.7 TAXES
<PAGE>
a. Manager will charge and collect from Customers any and all taxes of any
type that are imposed on the use, sale or support of the Security System in
the Territory by Manager by any federal, state, local or any other taxing
authority in which the Security System is sold and Manager will pay and
duly remit on a timely basis to the appropriate taxation authority the tax
so charged and collected;
b. Manager is responsible to withhold and remit on a timely basis the amount
of any income, sales or any other tax imposed on the Management Fee or any
other amount paid or credited to the Manager hereunder by any federal,
provincial, state, local or any other taxation authority in any country
regardless of whether the obligation to withhold and remit such amount is
on the Owner;
c. Subject to subsections 3.7(b) hereof, the Owner and Manager are required to
pay their respective taxes of any type imposed on them for fees paid or
credited to the Owner or Manager hereunder; and
d. Manager will prepare or provide the Owner with any and all information or
other documentation on a timely basis required by the Owner to enable the
Owner to prepare any return required to be filed by it with any taxing
authority in connection with an amount withheld or payable in accordance
with this Agreement or alternately, the Manager shall prepare and file such
a return on the Owner's behalf in the name of the Owner within the time
required to file such return and shall provide a copy thereof to the Owner.
<PAGE>
ARTICLE 4
GRANT OF RIGHTS
4.1 In consideration of the Owner's Return and other good and valuable
consideration (the receipt and sufficiency of which is acknowledged by Owner),
Owner hereby grants Manager, during the term of this Agreement and subject to
the restrictions imposed in this Agreement, an exclusive Territory-wide right to
use, modify, market, distribute and sell the right to use the Application
Software, the Intellectual Property and the Documentation in the Territory, but
only with products or services that are not competitive with the Security
System.
4.2 Owner shall own the exclusive rights to use, market, distribute and
sell the right to use within the Territory any modification to the Application
Software made by Manager which constitutes an Enhancement. Manager shall retain
the exclusive right to use, market, distribute and sell the right to use, in all
regions of the world other than the Territory, any Enhancement. Any
modification to the Application Software which does not constitute an
Enhancement will be owned by Manager. Any modification to the Intellectual
Property or the Documentation that does not relate to an Enhancement will be
owned by Manager.
4.3 During the term of this Agreement, neither Manager nor any of its
affiliates or associates will, directly or indirectly, market, distribute or
sell any product or service within the Territory, which product or service
directly or indirectly competes with the Security System. Nothing precludes
Manager from selling the O.P.E.N.cortex platform and associated hardware as a
stand-alone development platform.
4.4 Manager will have, upon termination of this Agreement, an exclusive,
Territory-wide, paid up right to use, market, promote, distribute and sell the
right to use the Application Software in accordance with Section 4.1:
a. upon termination of this Agreement by Owner pursuant to Subsection 5.4, if
Manager is not then in default of this Agreement; or
b. upon termination of this Agreement by Owner, pursuant to Section 5.3, if
Manager pays Owner, an amount calculated as the difference between One
Million Six Hundred Thousand Canadian Dollars (Cdn. $1.600,000) and
<PAGE>
the amount of Owner's Return credited to Owner to the date of termination.
4.5 PROTECTION OF PROPRIETARY RIGHTS
Each party hereto shall promptly notify the other party in writing of any
infringement by a third party of a patent, copyright or trademark or
misappropriation of any trade secret relating to the Security System or the
Assets within the Territory. In the case of an infringement, misappropriation
or other action described herein, Manager is hereby authorized to, but shall not
be required to, institute an action against the infringer, misappropriator or
other third party, and to defend or prosecute such action in whatever manner
deemed appropriate by Manager, in its sole discretion. The reasonable costs and
expenses relating thereto shall be deemed to be included within the definition
of "Expenses". If Manager elects not to commence such an action, then Owner
may, but shall not be required to, institute such an action, and the reasonable
costs and expenses relating thereto shall be deemed to be included within the
definition of Expenses. Any recoveries obtained as a result of instituting such
an action shall be deemed to be Net Revenues for the purposes of distributing
such funds. Owner shall cooperate with and generally assist Manager in taking
any action authorized hereunder. This provision shall survive any termination
or expiration of this Agreement, to the extent Manager retains any license to
the Application Software.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM
This Agreement will be for an initial term expiring September 30, 2007,
(the "initial term") and may be extended, for two additional two year terms,
each term expiring on the respective second anniversary date of the beginning of
such term.
5.2 AUTOMATIC EXTENSION
The initial term or any-extension term of this Agreement will be
automatically extended to the next extension term without notice or election by
Manager. Manager may, during any extension term, terminate this Agreement on 90
days notice given to Owner.
5.3 TERMINATION
<PAGE>
Owner may, during the initial term or any extension term, terminate this
Agreement as follows:
a. upon 10 days written notice by Owner to Manager of a breach of any of
Manager's obligations to pay Owner under this Agreement, subject to Section
3.4, if such breach has not been remedied;
b. upon 30 days written notice by Owner to Manager of a material breach by
Manager (other than a failure to pay referred to in Subsection 5.3 a.) of
this Agreement if such breach is not remedied within the 30 day notice
period, or if steps are not being taken by Manager within the 30 days
notice period which can reasonably be expected to remedy such breach within
60 days of the date of the notice; or
c. forthwith upon written notice to Manager, in the case of the petitioning
into bankruptcy of Manager, the appointment of a receiver or the
liquidation of the business and affairs of Manager or the commencement of
or ordering of the winding-up of the business and affairs of Manager.
5.4 TERMINATION BY NON-RENEWAL
Owner may, at the end of the initial term or during any extension term,
terminate this Agreement upon 90 days notice given to Manager and upon payment
of all outstanding principal and accrued and unpaid interest under the Note.
5.5 RIGHTS AND DUTIES ON TERMINATION
Should the Agreement terminate pursuant to this Article 5, Manager will:
a. provide the Owner with copies of any additional Enhancements not yet
deposited into escrow;
b. forthwith give the Security Agent under the Security Agent Agreement notice
to release all deposited source code and other materials to Owner and
refrain from objecting to the release of the source code and other
materials by the Security Agent;
c. cease marketing the Security System in the Territory and the rights of the
Manager under Section 4.1 shall also terminate;
<PAGE>
d. pay all accrued fees to Owner (subject to Manager's right to set-off
amounts owed to Manager by Owner in accordance with Section 3.4) and
provide a full accounting to Owner for fees payable to Owner under this
Agreement; and
e. within 90 days of the termination date, provide to Owner, a final report
setting forth the details in respect of all sales and support of the
Security System in the Territory during the period from the end of the last
year to the termination date including the amount and type of all fees and
other amounts payable to date, potential Customer and projected revenues,
and all other information necessary and relevant to marketing and
supporting the Security System.
5.6 SURVIVING OBLIGATIONS
Section 5.5 and Articles 6, 7, 8, 9, 10 and 11 will survive the termination
of this Agreement.
ARTICLE 6
OWNERSHIP OF TECHNOLOGY
6.1 OWNERSHIP OF ASSETS
Manager acknowledges that Owner owns all right, title and interest to
utilize the Assets and the Enhancements in the Territory.
ARTICLE 7
LIABILITY
7.1 INDEMNIFICATION BY MANAGER
Manager will be liable to Owner for and indemnify and hold Owner harmless
from any and all claims, losses, liabilities, costs, taxes (including penalties
and interest thereon), expenses (including reasonable legal costs of a
solicitor) and damages which may arise pursuant to this Agreement including
misrepresentations made by Manager, improper installation of, improper support
of, improper use of or infringement of any third party right by, the Assets
(whether in negligence or otherwise), failure to comply with Section 3.8 herein
or any other material breach of this Agreement.
7.2 INDEMNIFICATION PROCEDURE
<PAGE>
Upon the occurrence of an event giving rise to indemnification hereunder,
Owner shall (i) give prompt notice to Manager of such events, (ii) permit
Manager's attorneys to handle and control the defense of such claims, at
Manager's expense, and (iii) shall cooperate in the defense thereof. Owner
may, at its own expense, participate in such defense, provided however, that, if
Manager has agreed in writing to assume the defense of such claims, such
participation expenses shall not become part of the indemnification claim. There
shall be no settlements, whether agreed to in court or out of court, without the
prior written consent of Manager and Owner, except that Manager may settle a
claim without the consent of Owner if (i) the settlement is purely monetary,
(ii) Manager hereunder admits in writing its liability to Owner hereunder, and
(iii) concurrently with such settlement, Manager pays the full amount owed
thereunder. Notwithstanding the foregoing, in the event Manager does not assume
the defense of any such claim or litigation in accordance with the terms hereof
within the earlier of (i) thirty (30) days following written notice from Owner
or (ii) the due date for response to any complaint filed, then Owner may defend
against such claim or litigation in such manner as it may deem appropriate,
including, but not limited to, settling such claim or litigation, after giving
notice of the same to Manager, on such terms as Owner may deem appropriate. In
any action by Owner seeking indemnification from Manager in accordance with the
provisions hereof, Manager shall not be entitled to object to the manner in
which Owner defended such claim or the amount of or nature of any such
settlement.
7.3 LIMITATION OF LIABILITY
Except with respect to Manager's indemnification obligations relating to
third party claims as set forth in Section 7.1 hereof, neither party shall be
liable for any indirect, incidental, special or consequential damages including,
without limitation, damages for loss of data, loss of business or failure to
realize expected profits or savings or other economic or commercial loss of any
kind or loss of use of the Application Software or the Assets or costs of
substituted technology or services, whether under any theory of contract (even
in the nature of a breach of a condition or a fundamental term or a fundamental
breach), tort (including negligence or misrepresentation), strict liability or
any other legal or equitable theory, even if such party has been advised of the
possibility thereof, all of which liability is hereby expressly waived by each
party.
<PAGE>
ARTICLE 8
CONFIDENTIALITY AND NON-DISCLOSURE
8.1 Each party that receives Confidential Information shall maintain such
Confidential Information in confidence, shall not reveal the same to any third
party (other than its employees on a need to know basis in connection with the
receiving party's performance under this Agreement or the Agreement) and shall
not use such Confidential Information, directly or indirectly, for any purpose
other than as required in the performance of this Agreement or the Application
Software Purchase Agreement.
8.2 All memoranda, notes, records, reports, papers and any other documents
and all copies thereof about any party's business in any way obtained by any
other party pursuant to this Agreement will be the disclosing party's property
and will be returned promptly to the disclosing party upon termination of this
Agreement or at any time upon request.
8.3 The contents of this Agreement and any agreements entered into
pursuant to this Agreement are hereby declared proprietary and confidential to
the parties hereto.
8.4 Each of the parties (the "Indemnifying Party") agrees to indemnify the
other (the "Indemnified Party") for all damages, costs, and expenses (including
court costs and reasonable legal fees) incurred by the Indemnified Party as a
result of a failure of the Indemnifying Party to comply with its obligations
under this Article 8.
ARTICLE 9
RIGHT OF FIRST REFUSAL
In the event that Owner desires to transfer all or any part of the Assets
(or is required by operation of law or other involuntary transfer to do so),
Owner shall first offer such Assets to Manager in accordance with the following
provisions:
a. Owner shall deliver a written notice (the "Notice") to Manager, stating i.
Owner's bona fide intention to transfer the Assets; ii. the purchase price
and terms of payment for which Owner proposes to transfer the Assets; and
iii. the name and address of the proposed transferee;
b. Within thirty (30) days after receipt of the Notice, Manager shall have the
right, but not the obligation,
<PAGE>
to elect to purchase the Assets upon the price and terms of payment
designated in the Notice, by delivering written notice to Owner of such
election (the "Election Notice"). If the Notice provides for the payment
of non-cash consideration, Manager may elect to pay the consideration in
cash equal to the good faith estimate of the present fair market value of
the non-cash consideration offered;
c. If Manager elects to purchase or obtain the Assets designated in the
Notice, then the closing of such purchase shall occur within thirty (30)
days after delivery of the Election Notice, and each of Owner and Manager
shall execute such documents and instruments and make such deliveries as
may be reasonably required to consummate such purchase and sale; and
d. If Manager elects not to purchase or acquire the Assets, then Owner may
transfer the Assets to the transferee proposed in the Notice, provided that
such transfer: i. is completed within thirty (30) days after the expiration
of Manager's right to elect to purchase the Assets, ii. is made on terms no
less favorable to Owner than as designated in the Notice, and iii. complies
with all of the terms and conditions of this Agreement, the Application
Software Purchase Agreement and the Note. If the Assets are not so
transferred, Owner must give notice in accordance with this Section prior
to any other or subsequent transfer of the Assets.
ARTICLE 10
ARBITRATION
10.1 ARBITRATION OF DISPUTES
Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the parties
for resolution and, in the event that senior management cannot resolve the
dispute within 30 days of escalation of the dispute to such level, then the
parties agree that such dispute shall be settled by final and binding
arbitration in Vancouver, British Columbia, before a single arbitrator mutually
acceptable to Owner and Manager, in accordance with the Commercial Arbitration
Act, S.B.C. 1979c.3 then existing, except as otherwise specifically provided
herein. The arbitrator shall apply California law for the purposes of
construing and enforcing this Agreement and any dispute arising hereunder. The
arbitration award shall be
<PAGE>
specifically enforceable; judgment upon any arbitration award may be entered
in any court with personal jurisdiction over the parties and subject matter
of the disputes. Unless otherwise determined by the arbitrator, all expenses
in connection with such arbitration will be divided equally between the
parties, with the exception of expenses of counsel, witnesses and employees
of the parties which will be borne by the parties incurring them.
Notwithstanding anything to the contrary herein, either party will always be
entitled to seek preliminary or provisional remedies or release (including
attachments and preliminary injunctions) from any court of confident
jurisdiction.
ARTICLE 11
GENERAL
11.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair
such provision or part thereof or any other provisions of this Agreement in
any other jurisdiction.
11.2 FURTHER ASSURANCES
The parties will, at any time and from time to time at the request of
the other, execute and deliver any and all such further instruments or
assurances as may be necessary or desirable to give effect to the terms and
conditions of this Agreement.
11.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties
as if they had originally signed one copy of this Agreement.
<PAGE>
11.4 ASSIGNMENT
a. Owner may assign all or any part of its interest in this Agreement or the
Assets, provided however, that any assignment to a competitor of Manager,
shall require the prior written consent of Manager. Any assignment shall
be effected by:
i. giving written notice of the name and address of the assignee; and
ii. by delivering to Manager a written undertaking of the assignee,
acknowledging receipt of a copy of this Agreement and agreeing to be
bound by the terms and conditions of this Agreement; and
b. Manager may not assign this Agreement, without the prior written consent of
Owner, except that Manager may assign this Agreement in whole, but not in
part, and only with an assignment of all of its rights and obligations
under the Note and the Security Agent Agreement, to (i) any corporation,
partnership or other entity which is controlled by, controlling or under
common control with, Manager; or (ii) a purchaser of all or substantially
all the assets of Manager, or any person or entity into which Manager is
merged or consolidated by:
i. by giving written notice of the name and address of the assignee; and
ii. by delivering to Owner a written undertaking of the assignee
acknowledging receipt of a copy of this Agreement and agreeing to be
bound by the terms and conditions of this Agreement.
11.5 BINDING EFFECT
This Agreement and all of its provisions will enure to the benefit of the
parties and their respective successors and permitted assigns, and will be
binding upon the parties and their respective successors and permitted assigns.
The expressions the "Manager" and the "Owner" as used herein will include
Manager's and Owner's permitted assigns whether immediate or derivative,
respectively.
11.6 RELATIONSHIP OF THE PARTIES
This Agreement is not a joint venture or other such business arrangement
and any agreement between the parties
<PAGE>
as to joint business activities will be set forth in subsequent written
agreements. Each party is acting independently and not as partner, or joint
venturer with the other parties for any purpose. Except as provided in this
Agreement none of the parties will have any right, power, or authority to act
or to create any obligations, express or implied, on behalf of the other
parties hereto.
11.7 TIME OF THE ESSENCE
Time will be of the essence of this Agreement.
11.8 AMENDMENT
This Agreement may be altered or amended in any of its provisions when any
such changes are reduced to writing and signed by the parties hereto but not
otherwise.
11.9 COSTS
Each party hereto will bear its-own legal, accounting and other costs
relating to all matters involved in this transaction.
11.10 CONFIDENTIALITY
The parties will treat this Agreement and all information relating to this
Agreement and the transactions contemplated by this Agreement confidentially and
no public disclosure by either party will be made without the prior approval of
the other, not to be unreasonably withheld, except as legally required by a
party to satisfy disclosure obligations to shareholders and regulators, in which
case simultaneous notice of such disclosure will be given to the other party.
11.11 ENTIRE AGREEMENT
This Agreement, the Application Software Purchase Agreement, the Note, the
Security Agent Agreement and the exhibits and schedules referred to in each of
the foregoing, constitute the entire Agreement among the parties and SUPERSEDE
all proposals, letters of intent, oral or written, and all other communications
among them relating to the subject matter hereof.
11.12 EQUITABLE REMEDIES
<PAGE>
The parties acknowledge that money damages would not be a sufficient remedy
for certain violations of the terms of this Agreement and, accordingly, either
party will be entitled to specific performance and injunctive relief as remedies
for such violations of the Agreement by the other party. These remedies will
not be exclusive remedies but will, in addition to all other remedies, be
available to such party, at law or equity.
11.13 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of British Columbia and of Canada (regardless of either
jurisdiction's or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated in
Vancouver, British Columbia, Canada, and each party hereby waives any right it
may have to assert the doctrine of Forum Non Conveniens or to object to venue.
The parties each hereby stipulate that the courts located in Vancouver, British
Columbia, Canada, shall have personal jurisdiction and venue over each party for
the purpose of litigating any such dispute, controversy or proceeding arising
out of or related to this Agreement.
11.14 NOTICES
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at the
applicable address set forth above, or to any party at such other addresses as
shall be specified in writing by such party to the other parties in accordance
with the terms and conditions of this Section. All notices, requests or
communications shall be deemed effective upon personal delivery, or two (2)
business days following deposit with any international overnight courier
service, or upon confirmation of receipt if sent by facsimile transmission.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this agreement to be executed
by their duly authorized representatives as of the date first above written.
ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
----------------------------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
/s/ [PURCHASER]
---------------------------------------------
[PURCHASER]
<PAGE>
6% SECURED TERM NOTE
IN FAVOR OF
ALYA INTERNATIONAL INC.
<PAGE>
6% SECURED TERM NOTE MADE AS OF SEPTEMBER 30, 1997.
PRINCIPAL SUM: CDN.$5,080,000
----------------------
DUE DATE: SEPTEMBER 30, 2007,
SUBJECT TO SECTION 1.1.C.
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Note, unless the context otherwise requires:
a. "Application Software Purchase Agreement" means the application software
purchase agreement made as of September 30, 1997, among [PURCHASER 1] and
the Holder;
b. "[PURCHASER 1]" means [PURCHASER 1] and his permitted assignees;
c. "Due Date" shall be September 30, 2007, provided that any renewal or
extension of the managing and Marketing Agreement shall automatically
extend the Due Date for the same period, and subject to acceleration
pursuant to Section 5.4 of the Management and Marketing Agreement;
d. "Default" means any event which after notice or lapse of time or both,
would constitute an Event of Default;
e. "Event of Default" means any of the events specified in Section 8.1;
f. "Holder" means Alya International, Inc. or its permitted assignees;
g. "Interest Amount" means the amount equal to the annual interest payable
under this Note;
h. "Management and Marketing Agreement" means the management and marketing
agreement dated September 30, 1997, between [PURCHASER 1] and Alya
International Inc.;
i. "Note" means this 6% Secured Term Note as originally executed, or as
amended or supplemented as herein provided;
<PAGE>
j. "Person" includes any individual, firm, corporation, company, joint
venture, partnership, association, trust or unincorporated body of
persons;
k. "Principal Sum" has the meaning specified above;
l. "Sale Proceeds" has the meaning specified in Section 8.4(b);
m. "Product Proceeds" means the amounts paid or credited to [PURCHASER 1]
under the Management and Marketing Agreement which are allocated to pay the
principal sum outstanding under the Note.
n. "Security Agent Agreement" means the Security Agent Agreement entered into
by [PURCHASER 1], the Holder and [SECURITY AGENT], as security agent, on
the date hereof for the purpose of holding the Purchased Assets pursuant to
the terms hereof; and
o. "Purchased Assets" means the Purchased Assets, as defined in the
Application Software Purchase Agreement;
p. "year" means fiscal year ending September 30.
1.2 INTERPRETATION
a. The terms "this Note, "hereof" thereunder" and similar expressions refer to
this Note and not to any particular Section, Subsection or other portion of
this Note and include any agreement amending or supplementing this Note.
Unless something in the subject matter or context is inconsistent
therewith, reference herein to Sections and Subsections are to Sections and
Subsections of this Note;
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars. Any currency conversion required or contemplated
by this Agreement with respect to Canadian and United States of America
currency will be based on the rate published by the Bank of Canada as the
noon spot rate of exchange applicable for such currencies on the business
day immediately before the date of conversion;
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Note the same will be construed as meaning the singular,
plural, masculine, feminine, neuter, body politic or body corporate where
the fact or context so requires and the provisions hereof; and
<PAGE>
d. Headings are inserted in the Note for convenience of reference only and are
not intended to affect the Note's interpretation.
ARTICLE 2
PROMISE TO PAY
2.1 [PURCHASER 1], for value received, and in consideration of these
premises hereby acknowledges himself indebted to the Holder and promises and
covenants with the Holder, subject to Section 8.3, to pay to the Holder:
a. the Principal Sum outstanding from time to time;
b. interest on the Principal Sum outstanding from time to time, such interest
to be calculated, payable and paid as set forth in Section 3.2; and
c. all other moneys which may be owing by [PURCHASER 1] to the Holder pursuant
to this Note, subject to the terms and conditions of this Note.
ARTICLE 3
PAYMENT OF PRINCIPAL AND INTEREST
3.1 PRINCIPAL
a. The Principal Sum outstanding will be paid in full on the Due Date; and
b. Prepayment of the Principal Sum outstanding, from time to time for each
year will be made annually, within sixty (60) days of receipt of Product
Proceeds for the year, if the amount of Product Proceeds received for such
year exceeds the amount of accrued and unpaid interest as at the end of
such year. The amount of the annual prepayment, if any, against the
Principal Sum outstanding from time to time will be equal to the difference
between the Product Proceeds received for the year and the amount of
accrued and unpaid interest as at the end of such year.
3.2 INTEREST
a. Interest on the Principal Sum outstanding from time to time pursuant to
this Note will accrue from the date hereof up to and including the date of
payment at the rate of 6% per annum calculated, but not compounded, yearly,
and not in advance;
<PAGE>
b. Interest accrued and unpaid at the Due Date will be paid on the Due Date;
c. Interest accrued and unpaid at the end of each year, will be paid annually
within thirty (30) days of receipt by [PURCHASER 1] of Product Proceeds for
the year, to the extent of the Product Proceeds, if any;
d. Accrued interest, if any, that is not paid in any year will continue to
accrue and be outstanding until paid but will not be added to the Principal
Sum payable under this Note and will not bear interest; and
e. The covenant of [PURCHASER 1] to pay interest at the rate provided herein
will not merge in any judgment in respect of any obligation of [PURCHASER
1] hereunder and such judgment will bear interest as aforesaid and be
payable in the same manner.
3.3 PRINCIPAL AND INTEREST ACCELERATION
Notwithstanding Section 3.2 c., but subject to the limitation of liability
set forth in sections 8.3 and 8.4 upon the occurrence of a Management Agreement
Termination Event, outstanding Principal Sum and accrued and unpaid interest at
the Management Agreement Termination Date will be repaid within 30 days of the
Management Agreement Termination Date.
For the purposes of Section 3.3, the following terms have the meanings set
out below:
"Management Agreement Termination Date" means the date of the occurrence of
a Management Agreement Termination Event; and
"Management Agreement Termination Event" means the termination of the
Management and Marketing Agreement by [PURCHASER 1], pursuant to Article
5 (except a termination pursuant to Section 5.3), of the Management and
Marketing Agreement.
ARTICLE 4
ASSIGNMENT
4.1 ASSIGNMENT OF PRODUCT PROCEEDS
[PURCHASER 1] hereby assigns the Product Proceeds to the Holder as security
for payment of [PURCHASER 1]'s obligations to the Holder under this Note.
<PAGE>
The provisions of this Section 4.1 and the rights of the Holder hereunder
will, notwithstanding any other provisions of this Note, wholly terminate on the
earlier of the date upon which this Note is retired or the indebtedness
hereunder is extinguished.
ARTICLE 5
SECURITY
5.1 SECURITY FOR THE NOTE
In consideration for the premises and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
[PURCHASER 1], and the due payment of all principal and interest on this Note
from time to time outstanding and on all other monies from time to time owing
on the security hereof and to secure the due performance by [PURCHASER 1] of
obligations herein contained, [PURCHASER 1] does hereby grant, assign,
mortgage, pledge, charge, hypothecate and create a security interest in, to
and in favor of the Holder in the Purchased Assets provided that the charge
hereby created will in no way hinder or prevent [PURCHASER 1] at any time and
from time to time (until an Event of Default occurs pursuant to Article 8
hereof and the Holder will have determined to enforce the same) from
managing, developing, utilizing or dealing with all or any part of the
subject matter of the said charge in the ordinary course of his business and
for the purpose of carrying on or extending the same or from entering into
the Management and Marketing Agreement; provided further that during any
period in which there is any outstanding principal or any accrued and unpaid
interest on this Note, [PURCHASER 1] will not, and [PURCHASER 1] hereby
covenants that he will not, without the prior written consent of the Holder,
sell or transfer all or any part of the Purchased Assets, or make, give,
create, assume or allow to subsist any mortgage, pledge, hypothecation, lien,
charge, encumbrance, assignment or other security, whether fixed or floating,
upon the Purchased Assets or any part thereof.
TO HAVE AND TO HOLD such assets and interests and all rights hereby
conferred unto the Holder, its successors and assigns forever, but in trust
nevertheless, for the uses and purposes and with the powers and authorities
subject to the terms and conditions mentioned and set forth in this Note.
5.2 FURTHER ASSURANCES
[PURCHASER 1] will forthwith, and from time to time at his sole cost and
expense, execute and do or cause to be
<PAGE>
executed and done all deeds, documents and things which, in the reasonable
opinion of the Holder, are necessary or advisable for giving the Holder (so
far as may be possible under the local laws of the places where the Purchased
Assets are situated) a valid mortgage, pledge, charge and hypothecation of
the nature herein specified upon the Purchased Assets to secure payment of
monies intended to be secured by this Note, and for better assuring,
mortgaging, pledging, charging, assigning, hypothecating and confirming unto
the Holder the Purchased Assets, and for conferring upon the Holder such
power of sale and other powers over the Purchased Assets as are hereby
expressed to be conferred.
5.3 DEFEASANCE
The Holder will at the written request and sole cost and expense of
[PURCHASER 1] cancel and discharge the lien of this Note and execute and
deliver to [PURCHASER 1] such deeds or other instruments as will be requisite
to discharge the lien hereof and to reconvey to [PURCHASER 1] any part of the
Purchased Assets subject to the lien of this Note and to release [PURCHASER 1]
from the covenants herein contained and upon delivery of such written request
to the Holder, rights hereby granted will cease, terminate and be void,
provided that [PURCHASER 1] will have satisfied the payment of all principal
monies, and interests due or to become due on this Note.
5.4 POSSESSION AND USE OF PURCHASED ASSETS
Until an Event of Default occurs pursuant to Article 8 hereof and the
Holder will have determined to enforce the same pursuant to the provisions of
this Note, [PURCHASER 1] will, subject however to the express terms hereof,
be suffered and permitted to possess, manage, develop, operate and enjoy the
Purchased Assets, and freely to control the conduct of its business and to
take and use any income, rents, issues and profits thereof in the same
manner, to the same extent and with the same effect, except as provided
herein, as if this Note had not been made.
5.5 ESCROW
Notwithstanding Section 5.4 hereof the source code version of the
Application Software, as defined in the Application Software Purchase
Agreement, will be held by the Security Agent pursuant to the terms and
conditions of the Security Agent Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
<PAGE>
6.1 [PURCHASER 1]'S REPRESENTATIONS AND WARRANTIES
[PURCHASER 1] hereby represents and warrants to the Holder for the benefit
of the Holder as follows:
a. [PURCHASER 1] has the requisite power and authority to execute and deliver
this Note, to consummate the transactions contemplated hereby and to duly
observe and perform all his covenants and obligations herein set forth;
b. the execution and delivery of this Note does not and will not conflict with
or result in a breach of or violate any of the terms, conditions or
provisions of any terms, conditions or provisions of any law, judgment,
order, injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which [PURCHASER 1] is
subject or constitute or result in a default under any agreement, contract
or commitment to which [PURCHASER 1] is a party;
c. the execution and delivery of this Note will not constitute an event of
default or an event which, with the giving of notice or lapse of time or
both, would constitute an event of default, under any agreement, contract,
indenture or other instrument relating to any indebtedness (whether for
borrowed money or otherwise) of [PURCHASER 1] which would give any party to
any such agreement, contract, indenture or other instrument the right to
accelerate maturity for the payment of any monies under any such agreement,
contract, indenture or other instrument; and
d. no authorization, approval, order, license, permit or consent of any
governmental authority, regulatory body or court, and no registration,
declaration or filing by [PURCHASER 1] with any such governmental
authority, regulatory body or court is required in order for [PURCHASER 1]:
i. to incur the obligations expressed to be incurred by [PURCHASER 1] in
or pursuant to this Note;
ii. to execute and deliver all documents and instruments to be delivered
by [PURCHASER 1] pursuant to this Note;
iii. to duly perform and observe the terms and provisions of this Note; and
<PAGE>
iv. to render this Note legal, valid, binding and enforceable against
[PURCHASER 1] in accordance with its terms.
ARTICLE 7
COVENANTS OF [PURCHASER 1]
[PURCHASER 1] hereby covenants and agrees with the Holder for the benefit
of the Holder as follows:
7.1 TO PAY PRINCIPAL AND INTEREST
[PURCHASER 1] will duly and punctually pay or cause to be paid to the
Holder the Principal Sum and accrued interest thereon and all other moneys from
time to time owing hereunder, on the dates, at the places, in the moneys and in
the manner mentioned herein.
7.2 TO CARRY ON BUSINESS
[PURCHASER 1] will carry on and conduct his business involving the
Purchased Assets in a proper and efficient manner; and at all reasonable times
he will furnish or cause to be furnished to the Holder or its duly authorized
agent or attorney such information relating to the business of [PURCHASER 1]
involving the Purchased Assets as the Holder may reasonably require.
ARTICLE 8
DEFAULT
8.1 EVENTS OF DEFAULT
If any one or more of the following events has occurred and is continuing:
a. the non-payment when due of the Principal Sum, accrued interest thereon and
any other amounts due under this Note, except as a result of the Holder's
breach of the Managing and Marketing Agreement;
b. the breach by [PURCHASER 1] of any material provision of this Note;
c. any representation or warranty made by [PURCHASER 1] herein or in any
financial statements, reports or other documents supplied to the Holder by
[PURCHASER 1] hereunder is false, incorrect or inaccurate in any materially
adverse respect; or
<PAGE>
d. If proceedings for bankruptcy or receivership are commenced, unless such
proceedings are being actively and diligently contested by [PURCHASER 1] in
good faith;
provided that [PURCHASER 1] will not have remedied such default within thirty
(30) days (ten (10) days in the case of a monetary default) following receipt by
[PURCHASER 1] from the Holder of notice of the default, the Holder may, by
written notice declare the Principal Sum and accrued interest thereon and any
other amounts payable to it under this Note to be immediately due and payable
without further presentation, notice or demand and [PURCHASER 1] will
immediately pay to the Holder all indebtedness of [PURCHASER 1] owing to it
pursuant to this Note.
8.2 REMEDIES
If an Event of Default has occurred and is continuing and [PURCHASER 1] has
failed forthwith to pay the amounts owing hereunder, or remedy any breach of any
of his obligations secured by this Note as herein outlined, the Holder shall
have all of the rights and remedies of a secured party under the California
Uniform Commercial Code or other applicable California law then in effect.
Without limiting the generality of the foregoing, the Holder, in addition to any
other rights and remedies it may have, in its own name will be entitled and
empowered to sell the Purchased Assets as provided in Section 8.4 below, as well
as institute action or proceeding at law or in equity for the collection of the
sums so due and unpaid and may prosecute any such action or proceedings to
judgment or final decree, and may enforce any such judgment or final decree
against [PURCHASER 1] or other obligor upon this Note and collect in the manner
provided by law out of the Purchased Assets, as provided for in this Note
wherever situated the monies adjudged or decreed to be payable.
8.3 LIMITED RECOURSE
Notwithstanding anything else contained in this Note, the Holder covenants
and agrees with [PURCHASER 1] that all of its recourse rights, powers and
remedies for payment of any obligations of [PURCHASER 1] to the Holder under
this Note is limited to the Product Proceeds and the Sale Proceeds which will be
applied in the following order of priority:
a. to pay interest due and payable under this Note;
b. to pay the Principal Sum outstanding from time to time; and
<PAGE>
c. to pay any other amounts owing by [PURCHASER 1] to the Holder under this
Note.
8.4 SALE OF PURCHASED ASSETS
a. If an Event of Default has occurred and is continuing as provided in
Section 8.2 hereof or the indebtedness created hereby either with respect
to principal or interest remains in whole or in part unpaid as of the Due
Date, the Holder will be entitled and empowered to dispose of the Purchased
Assets or any part thereof: i. at public sale, which public sale may be
conducted at the location designated by the Holder for cash or on credit
and on such terms as the Holder may in its sole discretion, elect after
giving at least five days notice of the time and place of sale in the
manner provided by law, or ii. at private sale upon like notice for cash or
on credit and on such other terms as the Holder may in its sole discretion
elect;
b. The proceeds of the sale ("Sale Proceeds") of the Purchased Assets will be
allocated as follows:
i. to reimburse the Holder (to a maximum of 20% of the gross proceeds of
sale), for all costs and expenses incurred as the result of an Event
of Default and in connection with re-possession, storing, advertising,
marketing and selling the Purchased Assets including, without
limitation, reasonable attorneys' fees and costs;
ii. to the Holder as a reduction of amounts owing by [PURCHASER 1] under
this Note allocated firstly as to interest and the remainder as to
principal; and
iii. the balance to [PURCHASER 1];
c. Any balance owing by [PURCHASER 1] under this Note after the allocation of
the Sale Proceeds will be forgiven by the Holder and [PURCHASER 1] will
have no further liability under this Note; and
d. This Note is non-negotiable. The Holder will have no right or recourse
against any legal person in respect of the covenants contained in this Note
other than, subject to Section 8.3, [PURCHASER 1], and his assigns but only
severally and not jointly and only to the extent of each person's interest
in the Purchased Assets.
8.5 LIMITATION OF LIABILITY
<PAGE>
Notwithstanding anything contained in this Note, [PURCHASER 1] will not
have any obligation to pay the Principal Sum outstanding from time to time under
the Note if there occurs a default under Section 5.3 of the Management and
Marketing Agreement or the Management and Marketing Agreement is terminated as a
result of the occurrence of an event described in Section 5.3 thereof.
ARTICLE 9
WAIVER
9.1 Either the Holder or [PURCHASER 1] may waive any breach of any of the
provisions contained in this Note or any default by the other person in the
observance or performance of any covenant, condition or obligation required to
be observed or performed by such person under the terms of this Note, provided
any such waiver shall only be effective upon the delivery of written notice by
the waiving party. No waiver, consent, act or omission by the Holder or
[PURCHASER 1] will extend to or be taken in any manner whatsoever to affect any
subsequent breach or default or the rights resulting therefrom and no waiver or
consent by the Holder or [PURCHASER 1] will be binding unless it is in writing.
The inspection or approval by the Holder or [PURCHASER 1] of any document or
matter or thing done by the other will not be deemed to be a warranty or holding
out of the adequacy, effectiveness, validity, or binding effect of such
document, matter or thing or a waiver of the obligations of the other.
ARTICLE 10
TIME OF THE ESSENCE
10.1 Time will be of the essence of this Note.
ARTICLE 11
NOTICES
11.1 Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at the
applicable address set forth above, or to any party at such other addresses as
shall be specified in writing by such party to the other parties in accordance
with the terms and conditions of this Section. All notices, requests or
communications shall be deemed effective upon personal delivery, or two (2)
business days following deposit with any international overnight courier
<PAGE>
service, or upon confirmation of receipt if sent by facsimile transmission.
ARTICLE 12
GENERAL
12.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, such provision shall be construed so as to most closely
reflect the original intent of the parties, but still be enforceable, and the
validity, legality or enforceability of such remaining provisions or parts
thereof will not in any way be affected or impaired thereby. The invalidity,
illegality or unenforceability of any provision or part thereof contained in
this Agreement in any jurisdiction will not affect or impair such provision or
part thereof or any other provisions of this Agreement in any other
jurisdiction.
12.2 FURTHER ASSURANCES
[PURCHASER 1] and the Holder will, at any time and from time to time at the
request of the other, execute and deliver any and all such further instruments
or assurances as may be necessary or desirable to give effect to the terms and
conditions of this Note.
12.3 COUNTERPART EXECUTION
This Note, and any and all ancillary documents contemplated herein, may be
executed in one or more counterparts and may be executed by facsimile signatures
and all such counterparts and facsimile signatures taken together will
constitute one and the same Note and will be binding on [PURCHASER 1] and the
Holder as if they had originally signed one copy of this Note.
12.4 ASSIGNMENT
[PURCHASER 1] may assign all or any part of its interest in Purchased
Assets, except that any assignment to a competitor of Alya requires the prior
written consent of the Holder. An assignment shall be effected by:
a. by giving written notice of the names and addresses of the assignees; and
b. by delivering to the Holder a written undertaking of the assignees
acknowledging receipt of a copy of the Note
<PAGE>
and agreeing to be bound by the terms and conditions of the Note.
The Holder may assign this Note in whole, but not in part, and only with an
assignment of all of its rights and obligations under, and as permitted by the
Management and Marketing Agreement by giving [PURCHASER 1] written notice of the
name and address of the assignee.
12.5 BINDING EFFECT
This Note and all of its provisions will enure to the benefit of the Holder
and [PURCHASER 1] and will be binding upon the Holder and [PURCHASER 1]. The
expressions the "Holder" and the "[PURCHASER 1]" as used herein will include the
Holder's and [PURCHASER 1]'s assigns, whether immediate or derivative,
respectively.
12.6 AMENDMENT
This Note may be altered or amended in any of its provisions when any such
changes are reduced to writing and signed by the parties hereto but not
otherwise.
12.7 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in the preparation, delivery and enforcement of
this Note.
12.8 REMEDIES NOT EXCLUSIVE
No right or remedy herein is exclusive of any other right or remedy. Each
and every right and remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity,
and may be exercised from time to time as often as deemed expedient, separately
or concurrently.
12.9 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of California (regardless of that
jurisdiction or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated in
the state and federal courts located in the State of California, and each party
hereby waives any right it may have to assert the doctrine of Forum Non
Conveniens or to object to venue. The parties each hereby stipulate that the
state and federal courts located in the County of Santa Clara, State of
California, shall
<PAGE>
have personal jurisdiction and venue over each party for the purpose of
litigating any such dispute, controversy or proceeding arising out of or
related to this Agreement.
IN WITNESS WHEREOF [PURCHASER 1] and the Holder have duly executed these
presents under the hands of their proper officers in that behalf.
[PURCHASER 1]: /s/ [PURCHASER 1]
----------------------
[PURCHASER 1]
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
--------------------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
<PAGE>
SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of the 30th day of September, 1997, is by and
AMONG:
[SECURITY AGENT], Barristers and Solicitors, having a business address
at [ADDRESS] ("Security Agent");
OF THE FIRST PART
AND
[PURCHASER], an individual, having a business address at [PURCHASER'S
ADDRESS]("[PURCHASER]")
OF THE SECOND PART
ALYA INTERNATIONAL INC., a corporation incorporated pursuant to the
laws of Delaware, having a business address at 2465 East Bayshore
Road, No. 348, Palo Alto, CA 94303 ("Alya")
OF THE THIRD PART
WHEREAS:
A. Pursuant to that certain Application Software Purchase Agreement dated
as of September 30, 1997, by and between [PURCHASER] and Alya (the APurchase
Agreement"), [PURCHASER] purchased the Purchased Assets, as more particularly
described in Schedule A to the Purchase Agreement;
B. The Purchase Agreement provided that [PURCHASER] would purchase and
acquire the Purchased Assets for cash and a Note deliverable at Closing;
C. Pursuant to the terms of the Note, [PURCHASER] granted a security
interest in the Purchased Assets to Alya as a means of securing performance of
[PURCHASER]'s obligations under the Note. In connection therewith, the parties
hereto have agreed to establish and maintain this Security Agent Agreement; and
<PAGE>
D. This Security Agent Agreement provides, INTER ALIA, that [PURCHASER]
shall deliver, or cause to be delivered, to the Security Agent the source code
version of the Application Software, and that the Security Agent shall hold the
source code version of the Application Software subject to the terms and
conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing , recitals and the
terms, conditions and covenants contained herein, [PURCHASER], the Security
Agent and Alya hereby agree as follows:
ARTICLE 1
Definitions
Except as otherwise set forth herein, capitalized terms shall have the
meanings ascribed to them in the Purchase Agreement:
1. "Management Agreement" means the management and marketing agreement made as
of September 30, 1997 between [PURCHASER] and Alya;
2. "Note" means the 6.0% Secured Term Note dated as of September 30 1997
issued by [PURCHASER] to Alya in connection with the purchase of the
Purchased Assets;
3. "Release Notice" means a notice to the Security Agent in the form attached
as Schedule A to this Agreement; and
4. "Software" means the source code for the Application Software.
Interpretation
5. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplemental to this Agreement. Unless something in the subject matter or
context is inconsistent therewith, reference herein to Sections and
Subsections are to Sections and Subsections of this Agreement;
6. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars. Any currency conversion required or contemplated
by this
<PAGE>
Agreement with respect to Canadian and United States of America currency
will be based on the rate published by the Bank of Canada as the noon spot
rate of exchange applicable for such currencies on the business day
immediately before the date of conversion; and
7. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires.
ARTICLE 2
DEPOSIT OF SECURITY
Original Deposit
Concurrently with the Closing, [PURCHASER] shall deliver, or cause to
be delivered, to the Security Agent, the Software as security for [PURCHASER]'s
obligations to Alya under the Note. Alya shall examine the Software as
delivered, and certify the completeness and accuracy of the Software in a
letter, the form and content of which is acceptable to [PURCHASER], forwarding
the same to the Security Agent with a copy to [PURCHASER].
Subsequent Deposits
Alya shall deliver or cause to be delivered to the Security Agent the
source code for any Enhancements to the Software quarterly in accordance with
the Management Agreement as security for [PURCHASER]'s obligations to Alya under
the Note. Alya, at the time of delivering source code for Enhancements to the
Security Agent, shall certify the completeness and accuracy of the Software in a
letter, the form and content of which is acceptable to [PURCHASER], forwarding
same to the Security Agent with a copy to [PURCHASER].
Retention of Security
The Security Agent shall hold the Software and shall release the same
upon the terms and conditions provided in this Agreement.
ARTICLE 3
RELEASE OR RETURN OF SOFTWARE BY SECURITY AGENT
<PAGE>
Delivery to [PURCHASER]
The Security Agent shall deliver all Software which has been deposited
with the Security Agent to [PURCHASER] upon the occurrence of either of the
following events:
8. Alya and [PURCHASER] deliver a Release Notice, executed by each of Alya and
[PURCHASER], to the Security Agent; or
9. Subject to compliance with Section 3.2 hereof, the Security Agent has
received from [PURCHASER] each of the following items:
1. notice that (x) the Management Agreement has been terminated or (y)
that all outstanding principal and accrued interest under the Note has
been paid;
2. written demand that all Software deposited with the Security Agent be
delivered to [PURCHASER]; and
3. specific instructions from [PURCHASER] for delivery of the Software.
Procedure for Delivery to [PURCHASER]
10. If the provisions of Section 3.1 b. are met, the Security Agent shall,
within five days following receipt of all of the items specified in
Section 3.1 b., send by overnight courier to Alya a copy of all such
documents received by the Security Agent pursuant to Section 3.1 b. Alya
shall have twenty (20) days from the date that the Security Agent shall
have delivered the documents to Alya to send to the Security Agent written
notice of its objection to the release of all the Software and to request
that the issue of [PURCHASER]'s entitlement to the Software be submitted to
arbitration in accordance with the provisions of this Agreement;
11. If Alya shall request arbitration, the matter shall be submitted to and
settled by arbitration in accordance with Article 7 hereof; and
<PAGE>
12. If within twenty (20) days following delivery of the items specified in
Section 3.1 b. to Alya, the Security Agent has not received written notice
of Alya's objection to the release of the Software and its request for
arbitration, then the Security Agent shall release the Software to
[PURCHASER] in accordance with the instructions specified in Section 3.1 b.
iii.
Delivery to Alya
The Security Agent shall deliver all Software which has been deposited
with the Security Agent to Alya upon the occurrence of either of the following
events:
13. [PURCHASER] and Alya deliver a Release Notice executed by each of
[PURCHASER] and Alya to the Security Agent; or
14. Subject to compliance with Section 3.4 hereof, the Security Agent has
received from Alya each of the following items:
1. written notification that [PURCHASER] is in breach of the Note;
2. a written demand that all Software deposited with the Security Agent
be delivered to Alya; and
3. specific instructions from Alya for delivery of the Software.
Procedure for Delivery to Alya
15. If the provisions of Section 3.3 b. are met, the Security Agent shall,
within five days following receipt of all of the items specified in Section
3.3 b., send by overnight courier to [PURCHASER] a copy of all such
documents received by the Security Agent pursuant to Section 3.3 b.
[PURCHASER] shall have twenty (20) days from the date the Security Agent
shall have delivered the documents to [PURCHASER] to send to the Security
Agent written notice of its objection to the release of all the Software
and to request that the issue of Alya's entitlement to the
<PAGE>
Software be submitted to arbitration in accordance with the provisions of
this Agreement;
16. If [PURCHASER] shall request arbitration, the matter shall be submitted to
and settled by arbitration in accordance with Article 7 hereof; and
17. If within twenty (20) days following delivery of the items specified in
Section 3.3 b. to [PURCHASER], the Security Agent has not received written
notice of [PURCHASER]'s objection to the release of the Software and its
request for arbitration, then the Security Agent shall release the Software
to Alya in accordance with the instructions specified in
Section 3.3 b. iii.
ARTICLE 4
OWNERSHIP OF PURCHASED ASSETS
Acknowledgement
Alya and [PURCHASER] each hereby recognize and acknowledge that
[PURCHASER] owns all right, title and interest in and to the Purchased Assets,
subject only to the security interest created pursuant to the Note in favor of
Alya and the rights of Alya under the Management Agreement.
ARTICLE 5
DUTIES AND RESPONSIBILITIES OF THE SECURITY AGENT
Duties
The Security Agent shall not be bound in any way by an agreement or
contract between [PURCHASER] and Alya (whether or not the Security Agent has
knowledge thereof), and the Security Agent's only duties and responsibilities
shall be to hold the Software it receives and to deliver same in accordance with
the terms of this Agreement. The Security Agent shall have no duties except
those which are expressly set forth herein and it shall not be bound by any
waiver, modification, amendment, termination or rescission of this Agreement,
unless received by it in writing and signed by Alya and [PURCHASER] and, if its
duties are affected, unless it shall have given its prior written consent
thereto.
Authority to Act
<PAGE>
The Security Agent has the absolute authority to accept or act upon
each executed Release Notice and any other document received pursuant to this
Agreement, without any obligation of inquiry as to the validity, authenticity or
accuracy thereof. Should it be necessary for the Security Agent to accept or act
upon any instructions, directions, documents or instruments signed or issued by
or on behalf of any corporation, partnership, fiduciary or individual, it shall
not be necessary for the Security Agent to inquire into the authority of the
signer(s). The Security Agent shall be protected in acting upon any notice,
request, waiver, consent, receipt, statutory declaration or other paper or
document furnished to it, signed by any of the parties hereto, not only as to
its due execution and validity and effectiveness of its provisions but also as
to the truth and accuracy of any information therein contained. Unless
otherwise directed in a writing mutually executed by Alya and [PURCHASER], the
Security Agent is hereby authorized to make deliveries pursuant hereto by the
commercial courier, which the Security Agent, in its sole discretion, selects.
The Security Agent shall not be liable in any manner for the acts, omissions,
delays or failures to deliver by any such selected commercial couriers.
Amendment, Resignation and/or Termination
This Agreement may be altered or amended only with the consent of each
of Alya, [PURCHASER] and Security Agent. The Security Agent may resign as
Security Agent at any time upon 30 days' prior written notice to [PURCHASER] and
Alya. [PURCHASER] and Alya may remove the Security Agent as security agent at
any time upon 30 days' prior written notice to the Security Agent. In the event
of resignation or removal of the Security Agent, Alya and [PURCHASER] shall
attempt to mutually agree upon the selection of a new security agent. In the
event that they are unable to agree, the new security agent shall be another
firm of barristers and solicitors authorized to practice law in Canada or an
independent, qualified trust or escrow company or organization selected by
[PURCHASER]. From the date the Security Agent receives notice of termination or
gives notice of resignation and until a successor Security Agent shall have been
appointed and shall have accepted such appointment, the Security Agent's only
duty shall be to hold any deposited Software then in the Security Agent's
possession in accordance with the provisions of this Agreement (but without
regard to any notices, requests, instructions or demands received by the
Security Agent from any party hereto after the Security Agent's notice of
resignation shall have been given or notice of termination shall be received).
Upon the appointment of, and acceptance by, a successor security agent, the
former Security Agent shall deliver
<PAGE>
to the successor security agent any Software and other documents or
instruments relating thereto then in its possession.
No Action Required
In the event that any of the notices and/or Software or other
documents or instruments to be delivered pursuant to the terms hereof are not
delivered to the Security Agent, Security Agent shall have no duty whatsoever to
take any action with respect to procurement of the same. The Security Agent
shall have no obligation or responsibility to verify that any Software or other
documents or instruments delivered hereunder are the Enhancements or other
documents required to be delivered by Alya pursuant to the Purchase Agreement or
the Management Agreement. The Security Agent may, however, allow such
verification to be obtained at, or within a reasonable time of, such delivery by
a qualified employee or agent of [PURCHASER] and may permit such employee or
agent reasonable access to such Software, document or other instrument for the
purposes of making such verification. For the purpose of this paragraph, the
parties agree that such Software documents or other instrument may be initially
delivered to such employee or agent for the sole purpose of making such
verification followed by immediate delivery to the Security Agent.
Expense Reimbursement
In addition to the indemnification obligations set forth herein, Alya
hereby agrees to reimburse Security Agent for all expenses incurred in
connection with performing and carrying out its responsibilities hereunder,
including without limitation, legal and professional fees and expenses.
Disclaimer of Liability
Except for fraud or intentional misconduct, neither the Security Agent
nor its partners, employees or agents shall be liable to Alya, [PURCHASER] or
any other party claiming beneficiary status under this Agreement for any act, or
failure to act, by the Security Agent in connection with this Agreement. The
Security Agent will not be liable for special, indirect, incidental or
consequential damages hereunder.
Indemnity and Liability
[PURCHASER], Alya and any party claiming beneficiary status under this
Agreement hereby, jointly and severally, agree to indemnify and hold harmless
and be liable to Security Agent and each of its partners, employees and agents,
<PAGE>
absolutely and forever, from and against any and all claims, actions,
damages, suits, liabilities, obligations, costs, fees, charges, and any other
expenses whatsoever, including legal and professional fees and expenses, that
may be asserted against or incurred by Security Agent or any of its partners,
employees or agents, with respect to the performance of its duties under this
Agreement. This indemnity shall survive the termination of this Agreement and
the resignation or removal of the Security Agent.
Disputes and Interpleader
In the event of any dispute between [PURCHASER] and Alya or any
third party claiming beneficiary status under this Agreement, Security Agent
may submit this matter to any court of competent jurisdiction in an
interpleader or similar action. Any and all costs incurred by Security Agent
in connection therewith shall be borne by the party seeking a copy of the
Software deposited with Security Agent. Without limiting the generality of
the foregoing, if Security Agent shall be uncertain as to its duties or
rights hereunder, shall receive any notice, advice, schedule, report,
certificate, direction or other document from any person or entity with
respect to the Software, that in the opinion of the Security Agent, in its
sole discretion, is in conflict with any provisions of this Agreement, or
shall be advised that a dispute has arisen with respect to the ownership or
right of possession of the Software or any part thereof, Security Agent shall
be entitled, without liability to anyone, to refrain from taking any action
other than to exercise best efforts to keep safely the Software until
Security Agent shall be directed otherwise in writing by an order, decree, or
judgment of a court of competent jurisdiction that is then finally affirmed
on appeal or that by the lapse of time or otherwise is no longer subject to
appeal; but Security Agent shall be under no duty to institute or defend any
such proceeding.
No Conflict
Alya and [PURCHASER] acknowledge that (a) the Security Agent or its
partners, employees, agents or associates have provided counsel to [PURCHASER]
in connection with the transactions contemplated by the Purchase Agreement;
(b) the duties of the Security Agent hereunder are purely mechanical; and (c)
the Security Agent is acting hereunder for the convenience of Alya and
[PURCHASER]and shall not be impeachable or accountable because of any
conflicting or potentially conflicting duty to [PURCHASER] or any advice
provided to him.
Legal Counsel
<PAGE>
If the Security Agent believes it to be reasonably necessary to
consult with counsel concerning any of its duties hereunder, or if the
Security Agent becomes involved in litigation relating to this Agreement,
Alya and [PURCHASER] shall be jointly and severally responsible for the
costs, expenses and legal fees incurred by the Security Agent, and the
Security Agent is authorized to act on the instructions of such counsel
without being liable.
ARTICLE 6
NOTICES
All notices and other communications hereunder or in connection herewith shall
be in writing and shall be given by personal delivery, international overnight
courier service or facsimile, to the respective party at the address set forth
below, or to any party at such other addresses as shall be specified in writing
by such party to the other parties in accordance with the terms and conditions
of this Section. All notices, requests or communications shall be deemed
effective upon personal delivery, or upon the next business day after sending by
facsimile or two (2) business days following deposit with any international
overnight courier service.
If to Alya to:
Alya International, Inc.
2465 East Bayshore Road
No. 348
Palo Alto, CA 95125
Attention: Chief Executive Officer
Fax No.: (650) 361-8286
If to [PURCHASER] to:
[PURCHASER]
[PURCHASER'S ADDRESS]
Fax No.: [PURCHASER'S FAX]
If to Security Agent to:
[SECURITY AGENT]
[ADDRESS]
Attention: [SECURITY AGENT EMPLOYEE]
Fax No.: [FAX]
ARTICLE 7
<PAGE>
ARBITRATION
In the event that either party disputes the release of the Software in
accordance with Article 3 hereof, and such dispute cannot be resolved
informally, such dispute shall be settled by final and binding arbitration in
Calgary, Alberta, before a single arbitrator, in accordance with the Arbitration
Act (Alberta), except as otherwise specifically provided herein. The arbitrator
shall apply Alberta law for the purposes of construing and enforcing this
Agreement and any dispute arising hereunder. The arbitration award shall be
specifically enforceable; judgment upon any arbitration award may be entered in
any court with personal jurisdiction over the parties and subject matter of the
disputes.
ARTICLE 8
NO WAIVER OF RIGHTS
The delay or failure of either party to enforce at any time any provision of
this Agreement shall in no way be considered a waiver of any such provision, or
any other provision, of this Agreement. No waiver of, or delay or failure to
enforce any provision of this Agreement shall in any way be considered a
continuing waiver or be construed as a subsequent waiver of any such provision,
or any other provision of this Agreement. No waiver or modification of this
Agreement shall be binding unless it is in writing signed by the parties hereto.
ARTICLE 9
BINDING EFFECT; ASSIGNMENT
This Agreement shall be binding upon, and enure to the benefit of, all the
parties hereto and their respective successors, legal representatives and
assigns permitted under the Purchase Agreement. Each of the parties hereto
acknowledges and accepts that any assignee permitted under the Purchase
Agreement, which assignee has agreed to abide by and be bound by all the
applicable conditions set forth in each of the Purchase Agreement, the
Management Agreement and the Note, shall constitute an intended third party
beneficiary under this Agreement, and be entitled to all the rights of an
intended third party beneficiary. The parties will amend this agreement to
include such persons, if requested to do so by [PURCHASER] or Alya, and in any
event [PURCHASER] and Alya will notify the Security Agent of the name of any
assignee.
<PAGE>
ARTICLE 10
AUDIT RIGHTS
During the term of this Agreement, [PURCHASER] shall have the right, upon not
less than ten days prior written notice to Alya, to examine all of the items
which have been deposited with, and are being held by, the Security Agent,
pursuant to the terms and conditions of this Agreement, for the purpose of
ascertaining the completeness and accuracy of the deposited items.
ARTICLE 11
GENERAL
Validity
If any one or more of the provisions or parts thereof contained in
this Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair such
provision or part thereof or any other provisions of this Agreement in any other
jurisdiction.
Further Assurances
The parties will, at any time and from time to time at the request of
the other, execute and deliver any and all such further instruments or
assurances as may be necessary or desirable to give effect to the terms and
conditions of this Agreement.
Counterpart and Facsimile Execution
This Agreement, and any and all ancillary documents contemplated
herein, may be executed in one or more counterparts and may be executed by
facsimile signatures and all such counterparts and facsimile signatures taken
together will constitute one and the same Agreement and will be binding on the
parties as if they had originally signed one copy of this Agreement.
Time of the Essence
<PAGE>
Time will be of the essence of this Agreement.
Costs
Except as specifically provided in this Agreement, each party hereto
will bear its own legal, accounting and other costs relating to all matters
involved in this transaction.
Confidentiality
The parties will treat this Agreement and all information relating to
this Agreement and the transactions contemplated by this Agreement
confidentially and no public disclosure by either party will be made without the
prior approval of the other, not to be unreasonably withheld, except as legally
required by a party to satisfy disclosure obligations to shareholders and
regulators, in which case simultaneous notice of such disclosure will be given
to the other party.
Entire Agreement
This agreement, constitutes the entire Agreement among the parties and
supersede all proposals, oral or written, and all other communications among
them relating to the subject matter hereof.
Jurisdiction, Venue and Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Province of Alberta (regardless of that
jurisdiction or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated in
the courts located in the Province of Alberta, and each party hereby waives any
right it may have to assert the doctrine of Forum Non Conveniens or to object to
venue. The parties each hereby stipulate
<PAGE>
that the provincial and federal courts located in the Province of Alberta,
shall have personal jurisdiction and venue over each party for the purpose of
litigating any such dispute, controversy or proceeding arising out of or
related to this Agreement.
IN WITNESS WHEREOF the undersigned have executed this Security
Agent Agreement as of the date first set forth above.
ALYA INTERNATIONAL INC.
By: /s/ Dirk Schillebeeckx
---------------------------------------
Name: Dirk Schillebeeckx
Title: President and Chief Executive
Officer
/s/ [PURCHASER]
--------------------------------------------
[PURCHASER]
[SECURITY AGENT]
By: /s/ [SECURITY AGENT'S OFFICER]
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
<PAGE>
SCHEDULE "A" to the Security Agent Agreement dated September 30, 1997
RELEASE NOTICE
[SECURITY AGENT]
[ADDRESS]
Dear Sirs:
RE: SECURITY AGENT AGREEMENT
This Release Notice is being delivered pursuant to the Security Agreement dated
as of September 30, 1997 ("Security Agent Agreement"), among [PURCHASER]
("[PURCHASER]"), Alya International Inc. ("Alya") and [SECURITY AGENT]
("Security Agent"). Except as otherwise set forth herein, capitalized terms
shall have the meanings ascribed to them in the Security Agent Agreement.
Security Agent is hereby authorized and directed to deliver all the Software and
all documents, instruments and other items delivered to it by [PURCHASER] or
Alya in its capacity as Security Agent to [______________].
Dated: ALYA INTERNATIONAL INC.
---------------------
By:
---------------------------
Dated:
--------------------- ------------------------------
[PURCHASER]
<PAGE>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 30th day of September 1997 (the "Effective
Date").
BETWEEN:
[PURCHASER 2], an individual, having a business address at [ADDRESS],
FAX: [FAX] ("Purchaser")
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a Delaware corporation, having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303 (hereinafter
referred to as "Alya")
OF THE SECOND PART
WHEREAS:
1. Alya is the legal and beneficial owner of the Purchased Assets; and
2. Alya has agreed to sell and assign the Purchased Assets to Purchaser for
use in the Territory, and Purchaser has agreed to purchase the Purchased
Assets on the terms and conditions hereinafter set forth and contained.
NOW THEREFORE in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions shall have the following meanings:
a. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in Schedule A to this Agreement together with
Enhancements;
b. "Asset Valuation Report" means the software valuation dated as of September
15, 1997, prepared for Purchaser by [APPRAISER];
<PAGE>
c. "Closing" has the meaning set out in Section 7.1;
d. "Closing Date" means September 30, 1997, or such other date as the parties
may agree;
e. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Management
Agreement, including the Application Software and the Purchased Assets, are
deemed to be confidential without the need for written notice and shall at
all times remain confidential, notwithstanding the exception to
confidentiality noted in the next sentence. "Confidential Information" of
the Disclosing Party shall not include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without breach of this Agreement
by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party, independently of the Disclosing Party and
without breach of an obligation of confidentiality to the
Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
obligation of confidentiality to the Disclosing Party;
D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
<PAGE>
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
f. "Customers" means any person using or distributing the Security System in
the Territory;
g. "Documentation" has the meaning specified in Subsection v. of the
definition of Purchased Assets;
h. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Application Software by Alya or any other
person, to be utilized in connection with providing the Security System,
including, without limitation, any improvement, revision or other
modification which is necessary:
i. to provide Customers with then current Application Software; or
ii. to maintain the Application Software as a state of the art or industry
leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A to the extent that Purchaser's manager pursuant to the
Management Agreement continues to believe that they are commercially
reasonable in light of then current market conditions and technical
developments;
i. "Infringement Claims" has the meaning specified in Subsection 5.1.b.;
j. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of Purchased Assets";
k. "Letter of Representation" means a letter from Alya to [APPRAISER] in
substantially the form attached as Schedule B;
l. "Management Agreement" means the Management and Marketing Agreement to be
entered into by Purchaser and Alya on Closing for the management and
marketing of the Purchased Assets;
<PAGE>
m. "Note" means the 6.0% Secured Term Note, secured by the Purchased Assets,
in substantially the form attached as Schedule D;
n. "Originality Certificate" means the Officer's Certificate in the form
attached as Schedule C;
o. "Purchase Price" has the meaning specified in Section 2.1;
p. "Purchased Assets" means the right to exclusively utilize, modify and
develop the Application Software within the Territory and to exclusively
distribute, market and sell the Application Software as incorporated in the
Security System, within the Territory, and to utilize all of Alya's
property and rights necessary for the operation of, or the realization of
benefits from, the Application Software within the Territory, including,
without limitation:
i. all products associated with or derivatives of the Application
Software;
ii. the benefit of all agreements necessary for the operation of, or the
realization of the benefit from, the Application Software within the
Territory, including, without limitation, a perpetual, non-exclusive,
royalty free right to use, modify, develop and distribute within the
Territory the OPEN cortex platform software, as described in Schedule
G hereto, and any modification or revision thereto, solely in
connection with the Application Software and the Security Systems, all
service agreements and third party license agreements and all
marketing and product business plans;
iii. all inventions necessary for the operation of, or realization of the
benefit from, the Application Software within the Territory,
including, without limitation, ideas, research, discoveries, designs,
systems, patterns, specifications, technology, know-how, formulae,
confidential information, data, computer software development tools,
operating systems, source code, object code, subroutines, algorithms,
methods and processes;
iv. all intellectual property rights necessary for the operation of, or
realization of the benefit from, the Application Software within the
Territory, including, without limitation, patents, trademarks,
copyrights and trade secrets and applications for and the right to
apply for any intellectual property (the items listed in
<PAGE>
paragraph (iii) and (iv) are hereinafter collectively referred to
as the "Intellectual Property"); and
v. copies of all records, documents (including, without limitation, user
documentation and source code listings), correspondence, notes and
rights related to the foregoing ("Documentation");
q. "Purchase Price" has the meaning set out in Section 2.1;
r. "Section" means any section, subsection, article, clause, subclause,
paragraph or subparagraph of this Agreement;
s. "Security Agent Agreement" means the Security Agent Agreement to be entered
into by Alya, Purchaser and [SECURITY AGENT], as security agent, on the
Closing, for the purpose of holding the Purchased Assets pursuant to the
terms thereof;
t. "Security System" means the building access control system developed by
Alya and known as the O.P.E.N.centrix-Open Platform for Essential Network,
which includes, without limitation, the Application Software, the firmware
containing the Application Software, the O.P.E.N.cortex platform software
and all hardware related thereto; and
u. "Territory" means the geographical region of the United States as described
in Schedule F.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplementing this Agreement. Unless something in the subject matter or
context is inconsistent therewith, reference herein to Sections and
Subsections are to Sections and Subsections of this Agreement.
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars.
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires.
<PAGE>
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
Schedule A - Application Software Specifications
Schedule B - Letter of Representation
Schedule C - Originality Certificate
Schedule D - Form of Note
Schedule E - Exceptions to the representations and warranties set out in
Article 4, if any.
Schedule F - Territory
Schedule G - Description of O.P.E.N.cortex platform
ARTICLE 2
AGREEMENT TO SELL, ASSIGN AND PURCHASE
2.1 Alya hereby sells, assigns and transfers all its right, title and interest
in the Purchased Assets to Purchaser and Purchaser hereby purchases the
entire right, title and interest of Alya therein, as of the Effective Date,
at and for Eight Million Four Hundred Thousand Canadian Dollars
(Cdn.$8,400,000)(the "Purchase Price") payable in accordance with Article 3
hereof.
2.2 The parties agree that the fair market value of the Purchased Assets is
equal to the Purchase Price and agree that this determination is final and
conclusive between them.
ARTICLE 3
PURCHASE PRICE AND PAYMENT
3.1 The Purchase Price will be payable partly in cash and partly by execution
and delivery of the Note for the balance of the Purchase Price as follows:
a. Cdn.$30,000 as a refundable deposit to be held in trust by Purchaser's
solicitors and credited against the Purchase Price on the Closing Date;
and
b. Cdn.$750,000 on Closing, by wire transfer; and
c. Cdn.$7,620,000 by execution and delivery of the Note.
<PAGE>
3.2 Purchaser will deduct and remit any withholding tax required to be deducted
and remitted in connection with any payment made under Section 3.1.
3.3 Purchaser will not be responsible for any taxes, levies or other similar
assessments including, without limitation, sales or use taxes payable in
connection with the purchase and sale contemplated by this Agreement, if
any.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF ALYA
Alya hereby, undertakes, represents and warrants to Purchaser at the date
hereof and at the Closing Date, and acknowledges that Purchaser is relying on
such undertakings, representations and warranties that:
a. Alya is a corporation (i) duly incorporated and organized, validly
subsisting and in good standing under the laws of the jurisdiction of its
incorporation; (ii) duly authorized, with necessary and sufficient permits
and licenses to enable it to own its properties and to carry on its
business as presently owned and carried on by it; and (iii) having the
power and authority and right to enter into this Agreement and each and
every agreement and document to be executed and delivered by it pursuant
hereto and to perform each of its obligations as therein and herein
contained;
b. Alya has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the other documents
contemplated hereby;
c. this Agreement constitutes the legal, valid and binding obligation of Alya,
enforceable against it in accordance with its terms;
d. neither execution nor delivery of this Agreement and each and every other
agreement executed and delivered by Alya pursuant hereto nor the
fulfillment or compliance with any of the terms hereof or thereof will
conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, the articles and by-laws, as amended, of
Alya or any material agreement or instrument to which Alya is subject or
will require any consent or other action by any person or administrative or
governmental body;
<PAGE>
e. Alya now has and on the Closing Date will have good and marketable title,
free and clear of any and all claims, liens, encumbrances, mortgages,
security interests and charges, licenses or rights of other persons
whatsoever to all of the Purchased Assets except as set out in Subsection
4.1 e. of Schedule E;
f. there are no agreements or contracts or other documents pertaining to the
acquisition or development of the Purchased Assets except as set out in
Subsection 4.1 f. of Schedule E, copies of which have been delivered to
Purchaser and its counsel;
g. the individuals involved in the development of the Application Software,
the Purchased Assets or any element thereof, are or were:
i. employees of Alya Systems, Inc. ("Alya Systems") who worked within the
scope of their employment to develop the Application Software, the
Purchased Assets, or any element thereof, and who executed a written
waiver of their moral rights in the copyright to the foregoing in
favor of Alya Systems; or
ii. independent contractors or employees of independent contractors.
Except as set forth in subsection 4.1g of Schedule E, each contractor
was subject to agreements assigning their interest, if any, in the
Application Software, Purchased Assets, or any element thereof to Alya
Systems and executed a written waiver of their moral rights in the
copyright to the foregoing in favor of Alya. Copies of ALYA System's
standard Employee Invention Assignment and Confidentiality Agreement
and Consultant Invention Assignment and Confidentiality Agreement are
attached to Schedule E;
h. the Application Software does not contain any third party software.
However, certain third party software is required to operate the
Application Software and Alya has licenses for such third party software
which allow Alya to market such software, directly or indirectly through
sublicensees, as part of the Application Software and Alya will maintain
such licenses in good standing for the benefit of Purchaser. None of the
third party software is custom software developed specifically for use with
the Application Software. All of the third party software is readily
available in the open market and capable of being obtained by the Purchaser
in the event a license terminates, or if the particular software is not
<PAGE>
capable of being obtained at such time, other software suitable for
substitution therefor is readily available in the open market and Alya will
modify, at its own cost and expense, the source code of the Application
Software, if necessary, to be compatible;
i. the Application Software was not derived from any third party's
pre-existing material except as set out in Subsection 4.1 i. of Schedule E;
j. Alya has not used or enforced or failed to use or enforce any Intellectual
Property rights or other rights associated with the Application Software or
Purchased Assets in any manner which could adversely affect the validity or
enforceability of the Intellectual Property;
k. there is not, and has not been, any infringement or violation of Alya's
rights in and to the Intellectual Property;
l. Alya has not received notice of any claim of adverse ownership, invalidity
or other opposition to or conflict with the Purchased Assets;
m. there are now no and at the Closing Date will be no action, claim or demand
or other proceedings pending or, to the best of its knowledge, threatened
against Alya before any court or administrative agency which could
materially adversely affect the financial condition or overall operations
of Alya or the Purchased Assets, nor any judgment, order or decree
enforceable against Alya which involves or may require the expenditure of
money as a condition to or a necessity for the right or ability of
Purchaser to conduct its business involving the Purchased Assets;
n. it has not entered into any agreement which would entitle any person to any
valid claim against Purchaser for a broker's commission, finder's fee or
any like payment in respect of the purchase and sale of the Purchased
Assets or any other matters contemplated by this Agreement;
o. the Application Software has been developed in accordance with good
professional standards applicable in the computer software industry
including, without limitation, using modern flexible programming languages
and development tools;
p. the Application Software operates in accordance with the applicable
associated user Documentation;
<PAGE>
q. none of the Purchased Assets has been disclosed to any third party except
under obligations of confidentiality, the benefit of which obligations are
hereby assigned to Purchaser;
r. there are no licenses, agreements, approvals or consents required or
advisable to enable Alya to lawfully and properly market the Application
Software in the Territory and no such licenses, agreements, approvals or
consents will be required by Purchaser;
s. it has not done anything so as to preclude Purchaser from having full
enjoyment and quiet possession of the Purchased Assets, subject to the
terms and conditions herein;
t. there are no outstanding options, agreements of purchase and sale or other
agreements or commitments obligating Alya to sell the Purchased Assets or
any of them, except pursuant to this Agreement;
u. there are no taxes, levies or other similar assessments including, without
limitation, sales, use or other taxes payable by Alya in connection with
the purchase and sale contemplated by this Agreement;
v. the Application Software is available for use;
w. the assumptions, referred to in the Asset Valuation Report, are true and
correct;
x. the Application Software is application software and is not system software
as the terms "application software" and "system software" are generally
used and understood in the computer industry; and
y. all copyright, patent or trademark registrations or applications for
registration of the Application Software in any jurisdiction have been
disclosed to the Purchaser, including complete and accurate documentation
relating thereto.
All of the representations, warranties and covenants contained in this
Agreement made and to be made by Alya will survive the Closing Date and continue
in full force and effect for the benefit of Purchaser until full payment of all
amounts owing under the Note.
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser undertakes, represents and warrants to Alya at the date hereof
and at the Closing Date and acknowledges that Alya is relying on such
undertakings, representations and warranties that Purchaser is now and on the
Closing Date
<PAGE>
will be an individual who has the power, authority and right to enter into
this Agreement and each and every agreement to be executed and delivered by
Purchaser pursuant hereto and to perform each of his obligations as therein
and herein contained to purchase the Purchased Assets in accordance with the
terms of this Agreement.
The representations, warranties and covenants contained in this
Agreement and made and to be made by Purchaser will survive the Closing Date
and continue in full force and effect for the benefit of Alya while any money
due on the Note is outstanding.
ARTICLE 5
COVENANTS
5.1 ALYA'S ASSUMPTION OF LIABILITY AND INDEMNITY
Alya hereby covenants and agrees to be liable to Purchaser for and to
indemnify and save harmless Purchaser from and against, effective as and from
the Closing Date, any claims, demands, actions, causes of action, damages,
losses, costs (including legal costs of a solicitor on a full indemnity
basis), liabilities or expenses which may be made or brought against
Purchaser and which it may suffer or incur as a result of, in respect of, or
arising out of:
a. any non-fulfillment of or breach of any covenant, undertaking,
representation or warranty on the part of Alya, under this Agreement or any
document or instrument contemplated by this Agreement; and
b. subject to Section 5.2, infringement of any third party rights to the
Intellectual Property as a result of the use of the Intellectual Property
by Purchaser in accordance herewith on or after the Closing Date
("Infringement Claims").
5.2 INDEMNIFICATION PROCEDURE
Upon the occurrence of an event giving rise to indemnification
hereunder, Purchaser shall (i) give prompt notice to Alya of such events,
(ii) permit Alya's attorneys to handle and control the defense of such
claims, at Alya's expense, and (iii) shall cooperate in the defense thereof.
Purchaser may, at its own expense, participate in such defense, provided
however, that, if Alya has agreed in writing to assume the defense of such
claims, such participation expenses shall not become part of the
indemnification claim. There shall be no settlements, whether agreed to in
court or out of court, without the prior written consent of Alya and
Purchaser, except that Alya may settle a claim without the consent of
Purchaser if
<PAGE>
(i) the settlement is purely monetary, (ii) Alya hereunder admits in writing
its liability to Purchaser hereunder, and (iii) concurrently with such
settlement, Alya pays the full amount owed thereunder. Notwithstanding the
foregoing, in the event Alya does not assume the defense of any such claim or
litigation in accordance with the terms hereof within the earlier of (i)
thirty (30) days following written notice from Purchaser or (ii) the due date
for response to any complaint filed, then Purchaser may defend against such
claim or litigation in such manner as it may deem appropriate, including, but
not limited to, settling such claim or litigation, after giving notice of the
same to Alya, on such terms as Purchaser may deem appropriate. In any action
by Purchaser seeking indemnification from Alya in accordance with the
provisions hereof, Alya shall not be entitled to object to the manner in
which Purchaser defended such claim or the amount of or nature of any such
settlement.
5.3 COVENANT NOT TO COMPETE
Purchaser acknowledges that the Purchased Assets have a territorial
limitation, and Purchaser covenants that it will only market, distribute and
sell the Application Software within the Territory. Alya covenants and
agrees that it shall not market, distribute and/or sell the Application
Software within the Territory or to any person that may use it in the
Territory, except as agent for Purchaser, as contemplated in the Management
Agreement. Alya retains the exclusive rights to use, modify, market,
distribute and sell the Application Software, the Enhancements and the
Intellectual Property in all regions of the world, other than the Territory.
Nothing herein precludes Alya from selling the O.P.E.N.cortex platform and
associated hardware as a stand-alone development platform.
5.4 OTHER COVENANTS
Alya (and with respect to Section 5.4 d. only, Purchaser) covenants and
agrees as follows:
a. until the Closing Date, Alya will not sell, license or otherwise dispose of
any of the Purchased Assets or any part thereof or interest therein, or
agree to do so, or enter into any negotiations with a view to any of the
foregoing, without the prior approval of Purchaser;
b. Alya will make available to Purchaser for due diligence investigations, all
information, documents and agreements pertaining to the development,
acquisition and marketing of the Application Software, including, without
limitation, computer code and related documentation, marketing and product
business plans and the full cooperation of Alya management;
<PAGE>
c. Alya will complete the Originality Certificate and deliver it to Purchaser
and Purchaser's counsel on or before Closing;
d. each Receiving Party that receives Confidential Information from the
Disclosing Party shall maintain such Confidential Information in
confidence, shall not reveal the same to any third party (other than its
employees on a need to know basis in connection with the Receiving Party's
performance under this Agreement or the Management Agreement) and shall not
use such Confidential Information, directly or indirectly, for any purpose
other than as required in the performance of this Agreement or the
Management Agreement; and
e. Alya will acquire, at its expense and in Purchaser's name, licenses for any
third party software comprising part of the Purchased Assets not assignable
or assigned by Alya to Purchaser.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser hereunder will be subject to the satisfaction
or compliance with, at or before Closing, of each of the following conditions
precedent (each of which is hereby acknowledged to be included for the exclusive
benefit of Purchaser and may be waived in writing in whole or in part):
a. the execution and delivery of all of the closing deliveries identified in
Section 7.3;
b. all legal and regulatory approvals and consents, whether from shareholders,
governmental authorities or other third parties necessary to the completion
of the transactions contemplated by the terms of this Agreement have been
obtained;
c. there will have been no material adverse change, financial or otherwise, in
Alya or the Purchased Assets;
d. Alya will have performed or complied with, in all respects, all of its
undertakings, covenants and agreements hereunder to be performed or
complied with; and
e. the representations and warranties of Alya contained in Section 4.1 will be
true and correct on Closing.
<PAGE>
6.2 CONDITIONS TO ALYA'S OBLIGATIONS
The obligations of Alya hereunder will be subject to the satisfaction or
compliance with, at or before Closing, of each of the following conditions
precedent (each of which is hereby acknowledged to be included for the exclusive
benefit of Alya and may be waived in writing in whole or in part):
a. delivery of the Purchase Price, and the execution and delivery of all
closing deliveries identified in Section 7.4;
b. Purchaser will have performed or complied with, in all respects, all of its
undertakings, covenants and agreements hereunder to be performed or
complied with; and
c. the representations and warranties of Purchaser contained in Section 4.2
will be true and correct on Closing.
ARTICLE 7
CLOSING
7.1 CLOSING DATE
The transaction of purchase and sale contemplated by this Agreement will be
completed at or about 3:00 P.M. on the Closing Date at the offices of
Purchaser's Solicitors ("Closing").
7.2 SURVIVAL
This Agreement and its component parts will not merge upon Closing or on
execution, delivery or registration of any documents executed, delivered or
registered pursuant to this Agreement or otherwise, but will survive Closing.
7.3 ALYA'S CLOSING DELIVERIES
At the Closing, Alya will duly execute and deliver or cause to be executed
and delivered to Purchaser the following:
a. a bill of sale assigning the Purchased Assets to Purchaser;
b. the Management Agreement;
c. the Originality Certificate;
<PAGE>
d. the Letter of Representation;
e. the Security Agent Agreement;
f. an electronic copy of the Application Software, including, without
limitation, a copy of all Documentation, each of which shall be delivered
to Purchaser or his designee by electronic transfer;
g. a certified copy of the resolutions of the directors of Alya authorizing
the transactions;
h. such other agreements and documents as Purchaser may reasonably request to
give effect to the terms and conditions of this Agreement;
i. a copy of all authors' assignments of copyright, patent and trademark and
waivers of moral rights in the Application Software; and
j. a copy of all patent, trademark and copyright registrations in respect of
the Application Software.
7.4 PURCHASER'S CLOSING DELIVERIES
At Closing, Purchaser will execute and deliver or cause to be executed and
delivered the following:
a. wire transfer, bank draft or solicitor's trust cheque for the cash amount
of the Purchase Price payable on Closing pursuant to Section 3.1, subject
to any withholding tax payable in connection with such payment;
b. the Note;
c. the Management Agreement;
d. the Security Agent Agreement; and
e. such other agreements and documents as Alya may reasonably request to give
effect to the terms and conditions of this Agreement.
7.5 DELIVERY TO SECURITY AGENT
At Closing and as security for its obligations under the Note, Purchaser
will electronically deliver to the Security Agent, under the Security Agent
Agreement, the source code for the Application Software delivered to Purchaser
by Alya.
ARTICLE 8
GENERAL
<PAGE>
8.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair
such provision or part thereof or any other provisions of this Agreement in
any other jurisdiction.
8.2 FURTHER ASSURANCES
Each of the parties will, at any time and from time to time at the
request of the other, execute and deliver any and all such further
instruments or assurances as may be necessary or desirable to give effect to
the terms and conditions of this Agreement.
8.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties
as if they had originally signed one copy of this Agreement.
8.4 ASSIGNMENT
Purchaser may assign any part of its interest in this Agreement or the
Purchased Assets, except that any assignment to a competitor of Alya requires
the prior written consent of Alya. Such assignment shall be effected by:
a. giving written notice of the name and address of the assignee; and
b. by delivering to Alya a written undertaking of the assignee, acknowledging
receipt of a copy of this Agreement and agreeing to be bound by the terms
and conditions of this Agreement.
Alya may not assign this Agreement, without the prior written consent of
Purchaser, except that Alya may assign this Agreement in whole, but not in
part, and only with an
<PAGE>
assignment of all of its rights and obligations under the Note and the
Security Agent Agreement, to (i) any corporation, partnership or other entity
which is controlled by, controlling or under common control with, Alya; or
(ii) a purchaser of all or substantially all the assets of Alya, or any
person or entity into which Alya is merged or consolidated by:
a. giving written notice of the name and address of the assignee; and
b. by delivering to Purchaser a written undertaking of the assignee,
acknowledging receipt of a copy of this Agreement and agreeing to be bound
by the terms and conditions of this Agreement.
8.5 BINDING EFFECT
This Agreement and all of its provisions will enure to the benefit of
the parties and their respective successors and permitted assigns, and will
be binding upon the parties and their respective successors and permitted
assigns. The expressions "Alya" and "Purchaser", as used herein will include
Alya's and Purchaser's permitted assigns whether immediate or derivative,
respectively.
8.6 ARBITRATION OF DISPUTES
Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the
parties for resolution and, in the event that senior management cannot
resolve the dispute within 30 days of escalation of the dispute to such
level, then the parties agree that such dispute shall be settled by final
and binding arbitration in Vancouver, British Columbia, before a single
arbitrator mutually acceptable to Owner and Manager, in accordance with the
Commercial Arbitration Act, S.B.C. 1979c.3 then existing, except as otherwise
specifically provided herein. The arbitrator shall apply the laws of British
Columbia for the purposes of construing and enforcing this Agreement and any
dispute arising hereunder. The arbitration award shall be specifically
enforceable; judgment upon any arbitration award may be entered in any court
with personal jurisdiction over the parties and subject matter of the
disputes. Unless otherwise determined by the arbitrator, all expenses in
connection with such arbitration will be divided equally between the parties,
with the exception of expenses of counsel, witnesses and employees of the
parties which will be borne by the parties incurring them. Notwithstanding
anything to the contrary herein, either party will always be entitled to seek
preliminary or provisional remedies or release (including attachments and
preliminary injunctions) from any court of competent jurisdiction.
<PAGE>
8.7 AMENDMENT
This Agreement may be altered or amended in any of its provisions when
any such changes are reduced to writing and signed by the parties hereto but
not otherwise. Time will be of the essence of this Agreement.
8.8 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in this transaction.
8.9 CONFIDENTIALITY
Each of the parties will treat this Agreement and all information
relating to this Agreement and the transactions contemplated by this
Agreement confidentially and no public disclosure by any party will be made
without the prior approval of the other, not to be unreasonably withheld,
except as legally required by a party to satisfy disclosure obligations to
shareholders and regulators, in which case simultaneous notice of such
disclosure will be given to the other party.
8.10 ENTIRE AGREEMENT
This Agreement, the Management Agreement, the Security Agent Agreement,
the Note and the exhibits and schedules referenced in each of the foregoing
constitute the entire Agreement among the parties and supersedes all
proposals, letters of intent, representations or agreements, oral or written,
among them relating to the subject matter hereof.
8.11 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of British Columbia and Canada (regardless of either
jurisdiction's or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated
in Vancouver, British Columbia, Canada, and each party hereby waives any
right it may have to assert the doctrine of Forum Non Conveniens or to object
to venue. The parties each hereby stipulate that the courts located in
Vancouver, British Columbia, shall have personal jurisdiction and venue over
each party for the purpose of litigating any such dispute, controversy or
proceeding arising out of or related to this Agreement.
8.12 NOTICES
<PAGE>
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given by
personal delivery, international overnight courier service, or by facsimile
(subject to confirmation of receipt), addressed to the respective party at
the applicable address set forth above, or to any party at such other
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this Section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or two (2) business days following deposit with any international overnight
courier service, or upon confirmation of receipt if sent by facsimile
transmission.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day first above written.
ALYA: ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
--------------------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
PURCHASER:
/s/ [PURCHASER 2]
-----------------------------------
[PURCHASER 2]
<PAGE>
MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of September 30, 1997.
BETWEEN:
[PURCHASER2], an individual, having a business address at
[PURCHASER'S ADDRESS], FAX [PURCHASER'S FAX] (hereinafter referred to as
"Owner")
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a California corporation, having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303, FAX: (650)
361-8286 (hereinafter referred to as "Manager")
OF THE SECOND PART
WHEREAS:
A. Owner has acquired or developed and owns all of the right, title and
interest to use, distribute and sell the Assets in the Territory; and
B. Owner wishes to appoint Manager, as Owner's agent, to manage, market,
distribute and sell the Security System in the Territory on the terms and
conditions set out in this Agreement.
NOW THEREFORE in consideration of the entitlements to receive certain
cash distributions under this Agreement, and the covenants, agreements and
premises herein contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions will have the following meanings:
a. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in Schedule A to this Application Software Purchase
Agreement together with Enhancements;
<PAGE>
b. "Application Software Purchase Agreement" means the application software
purchase agreement made as of September 30, 1997, between Owner and
Manager;
c. "Assets" means "Purchased Assets" as that term is defined in the
Application Software Purchase Agreement;
d. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Application
Software Purchase Agreement, including the Application Software, the
Security System and the Purchased Assets, are deemed to be confidential
without the need for written notice and shall at all times remain
confidential, notwithstanding the exception to confidentiality noted in the
next sentence. "Confidential Information" of the Disclosing Party shall not
include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without breach of this Agreement
by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party, independently of the Disclosing Party and
without breach of an obligation of confidentiality to the
Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
obligation of confidentiality to the Disclosing Party;
D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
<PAGE>
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
e. "Customer" means any person using or distributing the Security System in
the Territory;
f. "Documentation" has the meaning set out in Subsection v. of the definition
of "Purchased Assets" as defined in the Application Software Purchase
Agreement;
g. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Application Software by Manager, or any employee
or subcontractor of Alya, to be utilized in connection with providing the
Security System, including, without limitation, any improvement, revision
or other modification which is necessary:
i. to provide Customers with the then current Security System; or
ii. to maintain the Application Software as a state of the art or industry
leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A of the Application Software Purchase Agreement, to the extent
that Manager continues to believe they are commercially reasonable in light
of then current market conditions and technical developments;
h. "Expenses" has the meaning specified in Subsection
3.1 c.;
i. "Gross Sales" has the meaning specified in Subsection 3.1 c.;
j. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of "Purchased Assets" as defined in the Application Software
Purchase Agreement;
k. "Interest Amount" means an amount equal to the annual interest payable
under the Note;
<PAGE>
l. "Management Fee" has the meaning specified in Subsection 3.1.c;
m. "Manager" means Alya International, Inc. and its permitted assigns in its
capacity as the agent for Owner and manager of the Assets appointed by
Owner under this Agreement;
n. "Net Revenue" has the meaning specified in Subsection 3.1 c.;
o. "Net Sales" has the meaning specified in Subsection 3.1 c.;
p. "Note" means the 6.0% Secured Term Note dated as of the date hereof issued
by Owner to Manager in connection with the purchase of the Assets;
q. "Overhead and Administrative Costs" has the meaning specified in Subsection
3.1 c.;
r. "Owner's Return" has the meaning specified in Subsection 3.1 c.;
s. "Security Agent" means [SECURITY AGENT], the security agent under the
Security Agent Agreement;
t. "Security Agent Agreement" means the security agent agreement made as of
September 30, 1997, among Owner, Manager and Security Agent;
u. "Security System" means the building access control system developed by
Manager and known as the O.P.E.N.centrix - Open Platform for Essential
Networks, which includes, without limitation, the Application Software, the
firmware containing the Application Software, the O.P.E.N.cortex platform
software and all hardware related thereto;
v. "Territory" means the geographic region of the United States as described
in Schedule B; and
x. "year" means fiscal year ending September 30.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplemental to this Agreement. Unless something in the subject matter or
context is inconsistent therewith,
<PAGE>
reference herein to Sections and Subsections are to Sections and
Subsections of this Agreement;
b. Except as specifically stated in this Agreement, all references to currency
are to United States of America dollars. Any currency conversion required
or contemplated by this Agreement with respect to Canadian and United
States of America currency will be based on the rate published by the Bank
of Canada as the noon spot rate of exchange applicable for such currencies
on the business day immediately before the date of conversion;
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires and the provisions hereof.
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
a. Schedule A - Specifications of Application Software; and
b. Schedule B - Territory.
ARTICLE 2
MANAGEMENT SERVICES
2.1 APPOINTMENT OF AGENT/MANAGER
Owner hereby appoints Manager as its sole and exclusive agent for the
purpose of managing the marketing, distribution, sale, Enhancement and
support of the Security System within the Territory, subject to the terms and
conditions of this Agreement, and Manager hereby accepts such appointment.
2.2 MANAGEMENT DUTIES
a. Manager will, in good faith, observe and perform the following obligations
in respect of the marketing, distribution, sale, Enhancement and support,
within the Territory, of the Security System in a good and workmanlike
manner, utilizing its capable management and technical expertise:
<PAGE>
i. MARKETING, DISTRIBUTION AND SALE. Manager will be responsible for the
marketing and selling of the Security System, within the Territory,
including, without limitation, developing marketing materials,
organizing product demonstrations, establishing distribution channels,
pricing, promotion and sale of the Security System. Manager will use
commercially reasonable efforts to maximize sales of the Security
System within the Territory. Manager will be responsible for
developing and negotiating the contracts required to sell the Security
System to Customers within the Territory. Owner will be entitled to
receive copies of and to comment on standard form sales and support
service contracts and Manager shall address all such comments with
Owner and take into account all of Owner's directions and instructions
forming a part of such comments. All such contracts will contain
provisions of confidentiality acceptable to Owner. In addition,
Manager will have responsibility for the billing and collection of
fees and payments from Customers and for the payment of fees to Owner.
Manager shall comply with all applicable laws and regulations and
obtain all appropriate government approvals pertaining to the sale,
distribution and advertising of good and services utilizing the
trademark "O.P.E.N.centrix";
Owner will be entitled to conduct an inspection of the management of
the marketing, distribution, sale, Enhancement and support of the
Security System at any time during regular business hours upon
reasonable notice to Manager. Notwithstanding any other provision in
this Agreement, Manager will take into account any and all
commercially reasonable directions and/or specifications given by
Owner pertaining to the marketing, distribution, sale, Enhancement and
support of the Security System which Manager may receive from Owner
from time to time in writing;
ii. SUPPORT, TRAINING AND CONSULTING. Manager will have complete
responsibility for delivery and installation of the Security System
within the Territory. Manager will provide all support services for
Customers including telephone and on-site support. Manager will also
provide all required training and consulting support;
iii. MAINTENANCE AND ENHANCEMENTS. All maintenance necessary to correct
any errors in the Assets
<PAGE>
found by any Customer will be provided by Manager pursuant to the
terms of its support services agreements. Manager will prepare and
provide all Enhancements to Owner; and
iv. With respect to any third party software required to operate the
Security System, Alya has licenses for such third party software which
allow Alya to market such software, directly or indirectly through
sublicensees, in conjunction with the Security System and will
maintain such licenses in good standing for the benefit of Owner.
b. In addition to the duties referred to in Subsection 2.2 a., Manager will,
in good faith and in satisfaction of its fiduciary duty to Owner do the
following:
i. REVIEWS. Manager will review and report to Owner or its duly appointed
agent on Manager's performance under this Agreement on a quarterly
basis. Such reviews will be scheduled by mutual agreement of all
parties;
ii. COMPUTER CODE. Upon request, Manager will deliver computer code (in
object code and source code form) together with all related
documentation and development tools necessary or desirable to enable
the Application Software and all Enhancements to operate properly to
Owner or its duly appointed agent quarterly, within thirty (30) days
of the end of each calendar quarter. Manager will assist Owner or its
agent in verifying that the computer code delivered to Owner is fully
functional Application Software and Enhancements; and
iii. CONFLICT OF INTEREST. Manager acknowledges and agrees that it is
acting in a fiduciary capacity as agent of Owner, it will act in good
faith and in the best interest of Owner, and will conduct itself as
such in all dealings on behalf of Owner and in connection with the
performance of its obligations under this Agreement. In particular,
Manager will avoid conflicts of interest between itself and Owner in
connection with the business of marketing, distribution, sale and
support of the Security System in the Territory.
2.3 INSURANCE
a. Without in any way limiting the liability of Manager under this Agreement,
Manager will be responsible to maintain and keep in force during the term
of this Agreement the following insurance coverage:
<PAGE>
i. automobile liability insurance on all vehicles used in connection with
this Agreement. In respect of such vehicles not owned by Manager, it
will maintain and keep in force as aforesaid non-owned automobile
liability insurance protecting its liability including that assumed
under this Agreement. The limits of such insurance will be at least;
for bodily injury (including passenger hazard) and property damages,
one million dollars ($1,000,000.00) inclusive for any one accident;
ii. comprehensive general liability insurance (including liability under
this Agreement) with inclusive limits of not less than two million
dollars ($2,000,000.00) for bodily injury and property damage;
iii. employer's liability insurance with limits of not less than one
million dollars ($1,000,000.00) for each employee where Workers'
Compensation does not exist; and
iv. unless otherwise directed by Owner, in writing, insurance covering
loss of or damage to all machinery, tools, equipment, supplies and
structures owned by Manager and/or rented or leased from a third party
or parties and used by Manager or its sub-contractors in performing
its obligations under this Agreement.
b. The above insurance policies will not be changed in any manner which could
affect the interests of the Owner without thirty (30) days' prior written
notice by registered mail to the Owner.
c. For greater certainty, the parties agree and understand that the
obligations of Manager, as set forth in this Section 2.3, may be fulfilled
if Manager's existing insurance policy satisfies the requirements of this
Section.
d. Upon request Manager will supply Owner with certificates evidencing the
above insurance. Any insurance carried by Manager will name Manager as an
additional insured and loss payee, and will contain a waiver of subrogation
in favor of Owner.
ARTICLE 3
ALLOCATION AND DISTRIBUTION OF FEES
3.1 DISTRIBUTION OF FEES
<PAGE>
a. Manager will distribute, annually, the Net Revenues for the preceding year
in the following order of priority:
i. to pay the Interest Amount, plus any other accrued and unpaid interest
on the Note; and
ii. to pay the Owner's Return, including any cumulative amount of the
Owner's Return not paid in prior years.
b. Thereafter, Manager will distribute, annually, the Net Revenue less the
amounts set forth in Section 3.1.a., payable in the year in the following
order of priority:
i. 45% to Owner, for payment against the principal sum outstanding from
time to time under the Note and in accordance with the Note; and
ii. 55% to Owner for retention by Owner; and
c. For the purposes of this Agreement the following terms have the following
meanings:
i. "Management Fee" means an annual marketing and management fee payable
to Manager by Owner and calculated at the end of each year pursuant to
the following formula:
Formula:
Management Fee=(N - I - U/.55 -Cdn.$240,000) X .45,
[but not less than zero]
Where,
N = Net Revenues less the Management Fee;
I = the Interest Amount in such year, plus any other accrued and
unpaid interest on the Note;
U = the outstanding principal on the Note at the end of such year;
ii. "Expenses" means the following cumulative costs and fees to the extent
not previously recouped by Manager in accordance herewith:
A. the cost of goods sold relating to the Application Software,
including without limitation, costs of material, manufacturing,
quality assurance and testing, costs of third party licenses, but
excluding any costs of
<PAGE>
goods sold relating to the hardware incorporated in the
Security System;
B. direct costs of marketing, distributing and selling the Security
System in the Territory;
C. the pro rata share of the cost of Enhancements in a year,
determined by multiplying the cost of Enhancements in such year
by a fraction, the numerator of which is the Net Sales in such
year and the denominator of which is the gross amount paid to
Alya in such year for the purchase, installation and support of
the Security System in the United States and Canada, less normal
course of business selling credits for discounts and rebates in
such year and less return adjustments for which a refund has been
paid or credited to the customer to the extent of the payment or
credit in such year;
D. Overhead and Administrative Costs; and
E. Management Fee.
iii. "Gross Sales" means gross amounts paid by Customers in the Territory,
in a year, to purchase, install, and receive support for the Security
System less the price of the hardware incorporated therein, applying
Manager's standard prices charged to similar customers, as in effect
from time to time;
iv. "Net Revenue" means Net Sales less Expenses;
v. "Net Sales" means Gross Sales less:
A. normal course of business selling credits for discounts or
rebates to Customers for the year; and
B. returns or adjustments for the Security System for which a refund
has been paid or credited to the Customer, or any distributor or
other reseller, to the extent of the payment or credit in the
year;
vi. "Overhead and Administrative Costs" means the overhead and
administrative costs of Manager to manage and market the Security
System in the Territory, for a year, determined by multiplying
Manager's total overhead and administrative costs for marketing and
managing the Security System in the United States and Canada in such
year by a
<PAGE>
fraction, the numerator of which is the Net Sales for such year and
the denominator of which is the aggregate gross amount paid to Alya in
such year, for the purchase, installation and support of the Security
System in the United States and Canada, less normal course of business
selling credits for discounts and rebates in such year and less return
adjustments for which a refund has been paid or credited to the
customer, to the extent of the payment or credit in such year; and
vii. "Owner's Return" means an annual cumulative preferential return to
Owner of Two Hundred Forty Thousand Canadian Dollars (Cdn.$240,000)
(prorated for any partial year);
d. Notwithstanding anything else contained in this Agreement, in no event,
without the prior written consent of Owner, will fees or other amounts for
the Security System:
i. be set below competitive prices prevailing in the market for similar
products or services as determined by Manager acting in the best
interests of Owner; or
ii. be discounted for any other consideration granted to Manager, its
affiliates or associates that is not provided to Owner; and
e. All amounts to be determined for the purposes of the calculations required
pursuant to this Article 3 will be determined in accordance with United
States generally accepted accounting principles consistently applied from
year to year and consistently applied between the Security System sold by
Manager hereunder and the other services sold by Manager outside the scope
of this Agreement.
3.2 TIMING AND PAYMENT OF DISTRIBUTIONS
Amounts payable to Owner for a year pursuant to Section 3.1 will be paid
within 60 days following the year end.
3.3 SET OFF
Manager will have the right to set off amounts payable by Manager to
Owner under this Agreement against amounts payable to Manager by Owner under
the Note except that Manager will have no right of set off and will pay the
following amounts to Owner without regard to the equities between Manager or
its affiliates and Owner:
<PAGE>
i. amounts payable to Owner pursuant to Subsections 3.1 a.ii. and 3.1 b.
ii. for his retention; and
ii. amounts payable by Owner as sales taxes or goods and services taxes,
which amounts will be remitted forthwith upon their being due, by
Manager to the appropriate authorities on behalf of Owner.
3.4 REPORTS
a. Manager will give Owner, on a confidential basis, annual reports within 90
days following the end of each fiscal year, setting forth the details in
respect of all sales and support of the Security System in the Territory
during such year, including the name and address of all Customers, the
amount and type of all fees and other amounts payable to date, potential
Customers and projected revenues in the Territory. Manager will give
Owner, on a confidential basis, quarterly reports within forty-five (45)
days following the end of each fiscal quarter, which quarterly reports
shall set forth Gross Sales and Net Sales received by Manager from
Customers in the Territory for the immediately preceding quarter.
Additionally, Manager will give Owner, on a confidential basis, the Gross
Sales, Net Sales, Net Revenues, Expenses, and Overhead and Administrative
Costs for the quarter ending December 31st on or before the following
February 28th.
b. In addition, Manager will give Owner, on a confidential basis, the detailed
calculations necessary to establish Gross Sales, Net Sales, Expenses,
Overhead and Administrative Costs and Net Revenues including, without
limitation, the component parts thereof annually, within 90 days following
the end of each fiscal year.
3.5 FINANCIAL STATEMENTS
Manager will provide the following financial statements, for the business
pertaining to the Security System, to Owner, annually, within 90 days following
the end of each fiscal year of Manager:
i. the annual reports referred to in Section 3.4;
ii. an audited income statement; and
iii. an audited balance sheet.
3.6 BOOKS AND RECORDS
Manager will keep and maintain complete and accurate books and records
related to the business of selling the
<PAGE>
Security System in the Territory, separate and apart from the books and
records maintained for its own sales or other business. These will include
records of all sales and support of the Security System in the Territory, all
costs of providing the Security System and the appropriate fees accruing and
collected. These books and records will be maintained according to U.S.
generally accepted accounting principles and practices respecting all matters
pertinent to this Agreement. Owner will have the right, at his own expense,
to audit the books and records of Manager pertaining to marketing the
Security System in the Territory, and the performance of its other
obligations hereunder, once each year. For this purpose, Owner or its
nominee will have, during normal business hours, access to and the right to
copy and remove copies of all books and accounting records relating to the
calculation of fees accrued and collected from the sale of the Security
System in the Territory. All information obtained by Owner or its nominee
will be subject to the confidentiality obligations of this Agreement.
3.7 TAXES
a. Manager will charge and collect from Customers any and all taxes of any
type that are imposed on the use, sale or support of the Security System in
the Territory by Manager by any federal, state, local or any other taxing
authority in which the Security System is sold and Manager will pay and
duly remit on a timely basis to the appropriate taxation authority the tax
so charged and collected;
b. Manager is responsible to withhold and remit on a timely basis the amount
of any income, sales or any other tax imposed on the Management Fee or any
other amount paid or credited to the Manager hereunder by any federal,
provincial, state, local or any other taxation authority in any country
regardless of whether the obligation to withhold and remit such amount is
on the Owner;
c. Subject to subsections 3.7(b) hereof, the Owner and Manager are required to
pay their respective taxes of any type imposed on them for fees paid or
credited to the Owner or Manager hereunder; and
d. Manager will prepare or provide the Owner with any and all information or
other documentation on a timely basis required by the Owner to enable the
Owner to prepare any return required to be filed by it with any taxing
authority in connection with an amount withheld or payable in accordance
with this Agreement or alternately, the Manager shall prepare and file such
a return on the Owner's behalf in the name of the Owner
<PAGE>
within the time required to file such return and shall provide a copy
thereof to the Owner.
ARTICLE 4
GRANT OF RIGHTS
4.1 In consideration of the Owner's Return and other good and valuable
consideration (the receipt and sufficiency of which is acknowledged by
Owner), Owner hereby grants Manager, during the term of this Agreement and
subject to the restrictions imposed in this Agreement, an exclusive
Territory-wide right to use, modify, market, distribute and sell the right to
use the Application Software, the Intellectual Property and the Documentation
in the Territory, but only with products or services that are not competitive
with the Security System.
4.2 Owner shall own the exclusive rights to use, market, distribute and
sell the right to use within the Territory any modification to the
Application Software made by Manager which constitutes an Enhancement.
Manager shall retain the exclusive right to use, market, distribute and sell
the right to use, in all regions of the world other than the Territory, any
Enhancement. Any modification to the Application Software which does not
constitute an Enhancement will be owned by Manager. Any modification to the
Intellectual Property or the Documentation that does not relate to an
Enhancement will be owned by Manager.
4.3 During the term of this Agreement, neither Manager nor any of its
affiliates or associates will, directly or indirectly, market, distribute or
sell any product or service within the Territory, which product or service
directly or indirectly competes with the Security System. Nothing precludes
Manager from selling the O.P.E.N.cortex platform and associated hardware as a
stand-alone development platform.
4.4 Manager will have, upon termination of this Agreement, an
exclusive, Territory-wide, paid up right to use, market, promote, distribute
and sell the right to use the Application Software in accordance with Section
4.1:
a. upon termination of this Agreement by Owner pursuant to Subsection 5.4, if
Manager is not then in default of this Agreement; or
b. upon termination of this Agreement by Owner, pursuant to Section 5.3, if
Manager pays Owner, an amount calculated as the difference between Two
Million Four Hundred Thousand Canadian Dollars (Cdn. $2,400,000) and the
amount of Owner's Return credited to Owner to the date of termination.
<PAGE>
4.5 PROTECTION OF PROPRIETARY RIGHTS
Each party hereto shall promptly notify the other party in writing of
any infringement by a third party of a patent, copyright or trademark or
misappropriation of any trade secret relating to the Security System or the
Assets within the Territory. In the case of an infringement,
misappropriation or other action described herein, Manager is hereby
authorized to, but shall not be required to, institute an action against the
infringer, misappropriator or other third party, and to defend or prosecute
such action in whatever manner deemed appropriate by Manager, in its sole
discretion. The reasonable costs and expenses relating thereto shall be
deemed to be included within the definition of "Expenses". If Manager elects
not to commence such an action, then Owner may, but shall not be required to,
institute such an action, and the reasonable costs and expenses relating
thereto shall be deemed to be included within the definition of Expenses.
Any recoveries obtained as a result of instituting such an action shall be
deemed to be Net Revenues for the purposes of distributing such funds. Owner
shall cooperate with and generally assist Manager in taking any action
authorized hereunder. This provision shall survive any termination or
expiration of this Agreement, to the extent Manager retains any license to
the Application Software.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM
This Agreement will be for an initial term expiring September 30, 2007,
(the "initial term") and may be extended, for two additional two year terms,
each term expiring on the respective second anniversary date of the beginning
of such term.
5.2 AUTOMATIC EXTENSION
The initial term or any-extension term of this Agreement will be
automatically extended to the next extension term without notice or election
by Manager. Manager may, during any extension term, terminate this Agreement
on 90 days notice given to Owner.
5.3 TERMINATION
Owner may, during the initial term or any extension term, terminate this
Agreement as follows:
a. upon 10 days written notice by Owner to Manager of a breach of any of
Manager's obligations to pay Owner
<PAGE>
under this Agreement, subject to Section 3.4, if such breach has not
been remedied;
b. upon 30 days written notice by Owner to Manager of a material breach by
Manager (other than a failure to pay referred to in SubSection a.) of this
Agreement if such breach is not remedied within the 30 day notice period,
or if steps are not being taken by Manager within the 30 days notice period
which can reasonably be expected to remedy such breach within 60 days of
the date of the notice; or
c. forthwith upon written notice to Manager, in the case of the petitioning
into bankruptcy of Manager, the appointment of a receiver or the
liquidation of the business and affairs of Manager or the commencement of
or ordering of the winding-up of the business and affairs of Manager.
5.4 TERMINATION BY NON-RENEWAL
Owner may, at the end of the initial term or during any extension term,
terminate this Agreement upon 90 days notice given to Manager and upon payment
of all outstanding principal and accrued and unpaid interest under the Note.
5.5 RIGHTS AND DUTIES ON TERMINATION
Should the Agreement terminate pursuant to this Article 5, Manager will:
a. provide the Owner with copies of any additional Enhancements not yet
deposited into escrow;
b. forthwith give the Security Agent under the Security Agent Agreement notice
to release all deposited source code and other materials to Owner and
refrain from objecting to the release of the source code and other
materials by the Security Agent;
c. cease marketing the Security System in the Territory and the rights of the
Manager under Section 4.1 shall also terminate;
d. pay all accrued fees to Owner (subject to Manager's right to set-off
amounts owed to Manager by Owner in accordance with Section 3.4) and
provide a full accounting to Owner for fees payable to Owner under this
Agreement; and
e. within 90 days of the termination date, provide to Owner, a final report
setting forth the details in respect of all sales and support of the
Security System in the Territory during the period from the end of the
<PAGE>
last year to the termination date including the amount and type of all fees
and other amounts payable to date, potential Customer and projected
revenues, and all other information necessary and relevant to marketing and
supporting the Security System.
5.6 SURVIVING OBLIGATIONS
Section 5.5 and Articles 6, 7, 8, 9, 10 and 11 will survive the
termination of this Agreement.
ARTICLE 6
OWNERSHIP OF TECHNOLOGY
6.1 OWNERSHIP OF ASSETS
Manager acknowledges that Owner owns all right, title and interest to
utilize the Assets and the Enhancements in the Territory.
ARTICLE 7
LIABILITY
7.1 INDEMNIFICATION BY MANAGER
Manager will be liable to Owner for and indemnify and hold Owner
harmless from any and all claims, losses, liabilities, costs, taxes
(including penalties and interest thereon), expenses (including reasonable
legal costs of a solicitor) and damages which may arise pursuant to this
Agreement including misrepresentations made by Manager, improper installation
of, improper support of, improper use of or infringement of any third party
right by, the Assets (whether in negligence or otherwise), failure to comply
with Section 3.8 herein or any other material breach of this Agreement.
7.2 INDEMNIFICATION PROCEDURE
Upon the occurrence of an event giving rise to indemnification
hereunder, Owner shall (i) give prompt notice to Manager of such events, (ii)
permit Manager's attorneys to handle and control the defense of such claims,
at Manager's expense, and (iii) shall cooperate in the defense thereof.
Owner may, at its own expense, participate in such defense, provided however,
that, if Manager has agreed in writing to assume the defense of such claims,
such participation expenses shall not become part of the indemnification
claim. There shall be no settlements, whether agreed to in court or out of
court, without the prior written consent of Manager and Owner, except that
Manager may settle a claim without the consent of Owner if (i) the settlement
is purely monetary, (ii) Manager hereunder admits in writing its liability to
Owner
<PAGE>
hereunder, and (iii) concurrently with such settlement, Manager pays the full
amount owed thereunder. Notwithstanding the foregoing, in the event Manager
does not assume the defense of any such claim or litigation in accordance
with the terms hereof within the earlier of (i) thirty (30) days following
written notice from Owner or (ii) the due date for response to any complaint
filed, then Owner may defend against such claim or litigation in such manner
as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to Manager, on such
terms as Owner may deem appropriate. In any action by Owner seeking
indemnification from Manager in accordance with the provisions hereof,
Manager shall not be entitled to object to the manner in which Owner defended
such claim or the amount of or nature of any such settlement.
7.3 LIMITATION OF LIABILITY
Except with respect to Manager's indemnification obligations relating to
third party claims as set forth in Section 7.1 hereof, neither party shall be
liable for any indirect, incidental, special or consequential damages
including, without limitation, damages for loss of data, loss of business or
failure to realize expected profits or savings or other economic or
commercial loss of any kind or loss of use of the Application Software or the
Assets or costs of substituted technology or services, whether under any
theory of contract (even in the nature of a breach of a condition or a
fundamental term or a fundamental breach), tort (including negligence or
misrepresentation), strict liability or any other legal or equitable theory,
even if such party has been advised of the possibility thereof, all of which
liability is hereby expressly waived by each party.
ARTICLE 8
CONFIDENTIALITY AND NON-DISCLOSURE
8.1 Each party that receives Confidential Information shall maintain
such Confidential Information in confidence, shall not reveal the same to any
third party (other than its employees on a need to know basis in connection
with the receiving party's performance under this Agreement or the Agreement)
and shall not use such Confidential Information, directly or indirectly, for
any purpose other than as required in the performance of this Agreement or
the Application Software Purchase Agreement.
8.2 All memoranda, notes, records, reports, papers and any other
documents and all copies thereof about any party's business in any way
obtained by any other party pursuant to this Agreement will be the disclosing
party's property and
<PAGE>
will be returned promptly to the disclosing party upon termination of this
Agreement or at any time upon request.
8.3 The contents of this Agreement and any agreements entered into
pursuant to this Agreement are hereby declared proprietary and confidential
to the parties hereto.
8.4 Each of the parties (the "Indemnifying Party") agrees to indemnify
the other (the "Indemnified Party") for all damages, costs, and expenses
(including court costs and reasonable legal fees) incurred by the Indemnified
Party as a result of a failure of the Indemnifying Party to comply with its
obligations under this Article 8.
ARTICLE 9
RIGHT OF FIRST REFUSAL
In the event that Owner desires to transfer all or any part of the
Assets (or is required by operation of law or other involuntary transfer to
do so), Owner shall first offer such Assets to Manager in accordance with the
following provisions:
a. Owner shall deliver a written notice (the "Notice") to Manager, stating i.
Owner's bona fide intention to transfer the Assets; ii. the purchase price
and terms of payment for which Owner proposes to transfer the Assets; and
iii. the name and address of the proposed transferee;
b. Within thirty (30) days after receipt of the Notice, Manager shall have the
right, but not the obligation, to elect to purchase the Assets upon the
price and terms of payment designated in the Notice, by delivering written
notice to Owner of such election (the "Election Notice"). If the Notice
provides for the payment of non-cash consideration, Manager may elect to
pay the consideration in cash equal to the good faith estimate of the
present fair market value of the non-cash consideration offered;
c. If Manager elects to purchase or obtain the Assets designated in the
Notice, then the closing of such purchase shall occur within thirty (30)
days after delivery of the Election Notice, and each of Owner and Manager
shall execute such documents and instruments and make such deliveries as
may be reasonably required to consummate such purchase and sale; and
d. If Manager elects not to purchase or acquire the Assets, then Owner may
transfer the Assets to the transferee proposed in the Notice, provided that
such transfer: i. is completed within thirty (30) days after
<PAGE>
the expiration of Manager's right to elect to purchase the Assets, ii. is
made on terms no less favorable to Owner than as designated in the Notice,
and iii. complies with all of the terms and conditions of this Agreement,
the Application Software Purchase Agreement and the Note. If the Assets
are not so transferred, Owner must give notice in accordance with this
Section prior to any other or subsequent transfer of the Assets.
ARTICLE 10
ARBITRATION
10.1 ARBITRATION OF DISPUTES
Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the
parties for resolution and, in the event that senior management cannot
resolve the dispute within 30 days of escalation of the dispute to such
level, then the parties agree that such dispute shall be settled by final
and binding arbitration in Vancouver, British Columbia, before a single
arbitrator mutually acceptable to Owner and Manager, in accordance with the
Commercial Arbitration Act, S.B.C. 1979c.3 then existing, except as otherwise
specifically provided herein. The arbitrator shall apply California law for
the purposes of construing and enforcing this Agreement and any dispute
arising hereunder. The arbitration award shall be specifically enforceable;
judgment upon any arbitration award may be entered in any court with personal
jurisdiction over the parties and subject matter of the disputes. Unless
otherwise determined by the arbitrator, all expenses in connection with such
arbitration will be divided equally between the parties, with the exception
of expenses of counsel, witnesses and employees of the parties which will be
borne by the parties incurring them. Notwithstanding anything to the
contrary herein, either party will always be entitled to seek preliminary or
provisional remedies or release (including attachments and preliminary
injunctions) from any court of confident jurisdiction.
ARTICLE 11
GENERAL
11.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any
<PAGE>
way be affected or impaired thereby. The invalidity, illegality or
unenforceability of any provision or part thereof contained in this Agreement
in any jurisdiction will not affect or impair such provision or part thereof
or any other provisions of this Agreement in any other jurisdiction.
11.2 FURTHER ASSURANCES
The parties will, at any time and from time to time at the request of
the other, execute and deliver any and all such further instruments or
assurances as may be necessary or desirable to give effect to the terms and
conditions of this Agreement.
11.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties
as if they had originally signed one copy of this Agreement.
11.4 ASSIGNMENT
a. Owner may assign all or any part of its interest in this Agreement or the
Assets, provided however, that any assignment to a competitor of Manager,
shall require the prior written consent of Manager. Any assignment shall
be effected by:
i. giving written notice of the name and address of the assignee; and
ii. by delivering to Manager a written undertaking of the assignee,
acknowledging receipt of a copy of this Agreement and agreeing to be
bound by the terms and conditions of this Agreement; and
b. Manager may not assign this Agreement, without the prior written consent of
Owner, except that Manager may assign this Agreement in whole, but not in
part, and only with an assignment of all of its rights and obligations
under the Note and the Security Agent Agreement, to (i) any corporation,
partnership or other entity which is controlled by, controlling or under
common control with, Manager; or (ii) a purchaser of all or substantially
all the assets of Manager, or any person or entity into which Manager is
merged or consolidated by:
<PAGE>
i. by giving written notice of the name and address of the assignee; and
ii. by delivering to Owner a written undertaking of the assignee
acknowledging receipt of a copy of this Agreement and agreeing to be
bound by the terms and conditions of this Agreement.
11.5 BINDING EFFECT
This Agreement and all of its provisions will enure to the benefit of
the parties and their respective successors and permitted assigns, and will
be binding upon the parties and their respective successors and permitted
assigns. The expressions the "Manager" and the "Owner" as used herein will
include Manager's and Owner's permitted assigns whether immediate or
derivative, respectively.
11.6 RELATIONSHIP OF THE PARTIES
This Agreement is not a joint venture or other such business arrangement
and any agreement between the parties as to joint business activities will be
set forth in subsequent written agreements. Each party is acting
independently and not as partner, or joint venturer with the other parties
for any purpose. Except as provided in this Agreement none of the parties
will have any right, power, or authority to act or to create any obligations,
express or implied, on behalf of the other parties hereto.
11.7 TIME OF THE ESSENCE
Time will be of the essence of this Agreement.
11.8 AMENDMENT
This Agreement may be altered or amended in any of its provisions when
any such changes are reduced to writing and signed by the parties hereto but
not otherwise.
11.9 COSTS
Each party hereto will bear its-own legal, accounting and other costs
relating to all matters involved in this transaction.
11.10 CONFIDENTIALITY
The parties will treat this Agreement and all information relating to
this Agreement and the transactions contemplated by this Agreement
confidentially and no public disclosure by either party will be made without
the prior approval of the other, not to be unreasonably withheld, except as
legally required by a party to satisfy disclosure
<PAGE>
obligations to shareholders and regulators, in which case simultaneous notice
of such disclosure will be given to the other party.
11.11 ENTIRE AGREEMENT
This Agreement, the Application Software Purchase Agreement, the Note,
the Security Agent Agreement and the exhibits and schedules referred to in
each of the foregoing, constitute the entire Agreement among the parties and
SUPERSEDE all proposals, letters of intent, oral or written, and all other
communications among them relating to the subject matter hereof.
11.12 EQUITABLE REMEDIES
The parties acknowledge that money damages would not be a sufficient
remedy for certain violations of the terms of this Agreement and,
accordingly, either party will be entitled to specific performance and
injunctive relief as remedies for such violations of the Agreement by the
other party. These remedies will not be exclusive remedies but will, in
addition to all other remedies, be available to such party, at law or equity.
11.13 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of British Columbia and of Canada (regardless of
either jurisdiction's or any other jurisdiction's choice of law principles).
To the extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated
in Vancouver, British Columbia, Canada, and each party hereby waives any
right it may have to assert the doctrine of Forum Non Conveniens or to object
to venue. The parties each hereby stipulate that the courts located in
Vancouver, British Columbia, Canada, shall have personal jurisdiction and
venue over each party for the purpose of litigating any such dispute,
controversy or proceeding arising out of or related to this Agreement.
11.14 NOTICES
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at
the applicable address set forth above, or to any party at such other
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this Section.
<PAGE>
All notices, requests or communications shall be deemed effective upon
personal delivery, or two (2) business days following deposit with any
international overnight courier service, or upon confirmation of receipt if
sent by facsimile transmission.
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed by their duly authorized representatives as of the date first above
written.
ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
--------------------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
/s/ [PURCHASER 2]
-----------------------------------
[PURCHASER 2]
<PAGE>
6% SECURED TERM NOTE
IN FAVOR OF
ALYA INTERNATIONAL INC.
<PAGE>
6% SECURED TERM NOTE MADE AS OF SEPTEMBER 30, 1997.
PRINCIPAL SUM: CDN.$7,620,000
DUE DATE: SEPTEMBER 30, 2007,
SUBJECT TO SECTION 1.1.C.
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Note, unless the context otherwise requires:
a. "Application Software Purchase Agreement" means the application software
purchase agreement made as of September 30, 1997, among [PURCHASER 2] and
the Holder;
b. "[PURCHASER 2]" means [PURCHASER 2] and his permitted assignees;
c. "Due Date" shall be September 30, 2007, provided that any renewal or
extension of the managing and Marketing Agreement shall automatically
extend the Due Date for the same period, and subject to acceleration
pursuant to Section 5.4 of the Management and Marketing Agreement;
d. "Default" means any event which after notice or lapse of time or both,
would constitute an Event of Default;
e. "Event of Default" means any of the events specified in Section 8.1;
f. "Holder" means Alya International, Inc. or its permitted assignees;
g. "Interest Amount" means the amount equal to the annual interest payable
under this Note;
h. "Management and Marketing Agreement" means the management and marketing
agreement dated September 30, 1997, between [PURCHASER 2] and Alya
International Inc. ;
i. "Note" means this 6% Secured Term Note as originally executed, or as
amended or supplemented as herein provided;
<PAGE>
j. "Person" includes any individual, firm, corporation, company, joint
venture, partnership, association, trust or unincorporated body of persons;
k. "Principal Sum" has the meaning specified above;
l. "Sale Proceeds" has the meaning specified in Section 8.4(b);
m. "Product Proceeds" means the amounts paid or credited to [PURCHASER 2]
under the Management and Marketing Agreement which are allocated to pay the
principal sum outstanding under the Note.
n. "Security Agent Agreement" means the Security Agent Agreement entered into
by [PURCHASER 2], the Holder and [SECURITY AGENT], as security agent, on
the date hereof for the purpose of holding the Purchased Assets pursuant to
the terms hereof; and
o. "Purchased Assets" means the Purchased Assets, as defined in the
Application Software Purchase Agreement;
p. "year" means fiscal year ending September 30.
1.2 INTERPRETATION
a. The terms "this Note, "hereof" thereunder" and similar expressions refer to
this Note and not to any particular Section, Subsection or other portion of
this Note and include any agreement amending or supplementing this Note.
Unless something in the subject matter or context is inconsistent
therewith, reference herein to Sections and Subsections are to Sections and
Subsections of this Note;
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars. Any currency conversion required or contemplated
by this Agreement with respect to Canadian and United States of America
currency will be based on the rate published by the Bank of Canada as the
noon spot rate of exchange applicable for such currencies on the business
day immediately before the date of conversion;
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Note the same will be construed as meaning the singular,
plural, masculine, feminine, neuter, body politic or body corporate where
the fact or context so requires and the provisions hereof; and
<PAGE>
d. Headings are inserted in the Note for convenience of reference only and are
not intended to affect the Note's interpretation.
ARTICLE 2
PROMISE TO PAY
2.1 [PURCHASER 2], for value received, and in consideration of these
premises hereby acknowledges himself indebted to the Holder and promises and
covenants with the Holder, subject to Section 8.3, to pay to the Holder:
a. the Principal Sum outstanding from time to time;
b. interest on the Principal Sum outstanding from time to time, such interest
to be calculated, payable and paid as set forth in Section 3.2; and
c. all other moneys which may be owing by [PURCHASER 2] to the Holder pursuant
to this Note, subject to the terms and conditions of this Note.
ARTICLE 3
PAYMENT OF PRINCIPAL AND INTEREST
3.1 PRINCIPAL
a. The Principal Sum outstanding will be paid in full on the Due Date; and
b. Prepayment of the Principal Sum outstanding, from time to time for each
year will be made annually, within sixty (60) days of receipt of Product
Proceeds for the year, if the amount of Product Proceeds received for such
year exceeds the amount of accrued and unpaid interest as at the end of
such year. The amount of the annual prepayment, if any, against the
Principal Sum outstanding from time to time will be equal to the difference
between the Product Proceeds received for the year and the amount of
accrued and unpaid interest as at the end of such year.
3.2 INTEREST
a. Interest on the Principal Sum outstanding from time to time pursuant to
this Note will accrue from the date hereof up to and including the date of
payment at the rate of 6% per annum calculated, but not compounded, yearly,
and not in advance;
<PAGE>
b. Interest accrued and unpaid at the Due Date will be paid on the Due Date;
c. Interest accrued and unpaid at the end of each year, will be paid annually
within thirty (30) days of receipt by [PURCHASER 2] of Product Proceeds for
the year, to the extent of the Product Proceeds, if any;
d. Accrued interest, if any, that is not paid in any year will continue to
accrue and be outstanding until paid but will not be added to the Principal
Sum payable under this Note and will not bear interest; and
e. The covenant of [PURCHASER 2] to pay interest at the rate provided herein
will not merge in any judgment in respect of any obligation of [PURCHASER
2] hereunder and such judgment will bear interest as aforesaid and be
payable in the same manner.
3.3 PRINCIPAL AND INTEREST ACCELERATION
Notwithstanding Section 3.2 c., but subject to the limitation of
liability set forth in sections 8.3 and 8.4 upon the occurrence of a
Management Agreement Termination Event, outstanding Principal Sum and accrued
and unpaid interest at the Management Agreement Termination Date will be
repaid within 30 days of the Management Agreement Termination Date.
For the purposes of Section 3.3, the following terms have the meanings
set out below:
"Management Agreement Termination Date" means the date of the occurrence of
a Management Agreement Termination Event; and
"Management Agreement Termination Event" means the termination of the
Management and Marketing Agreement by [PURCHASER 2], pursuant to Article 5
(except a termination pursuant to Section 5.3), of the Management and
Marketing Agreement.
ARTICLE 4
ASSIGNMENT
4.1 ASSIGNMENT OF PRODUCT PROCEEDS
[PURCHASER 2] hereby assigns the Product Proceeds to the Holder as
security for payment of [PURCHASER 2]'s obligations to the Holder under this
Note.
<PAGE>
The provisions of this Section 4.1 and the rights of the Holder
hereunder will, notwithstanding any other provisions of this Note, wholly
terminate on the earlier of the date upon which this Note is retired or the
indebtedness hereunder is extinguished.
ARTICLE 5
SECURITY
5.1 SECURITY FOR THE NOTE
In consideration for the premises and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
[PURCHASER 2], and the due payment of all principal and interest on this Note
from time to time outstanding and on all other monies from time to time owing
on the security hereof and to secure the due performance by [PURCHASER 2] of
obligations herein contained, [PURCHASER 2] does hereby grant, assign,
mortgage, pledge, charge, hypothecate and create a security interest in, to
and in favor of the Holder in the Purchased Assets provided that the charge
hereby created will in no way hinder or prevent [PURCHASER 2] at any time and
from time to time (until an Event of Default occurs pursuant to Article 8
hereof and the Holder will have determined to enforce the same) from
managing, developing, utilizing or dealing with all or any part of the
subject matter of the said charge in the ordinary course of his business and
for the purpose of carrying on or extending the same or from entering into
the Management and Marketing Agreement; provided further that during any
period in which there is any outstanding principal or any accrued and unpaid
interest on this Note, [PURCHASER 2] will not, and [PURCHASER 2] hereby
covenants that he will not, without the prior written consent of the Holder,
sell or transfer all or any part of the Purchased Assets, or make, give,
create, assume or allow to subsist any mortgage, pledge, hypothecation, lien,
charge, encumbrance, assignment or other security, whether fixed or floating,
upon the Purchased Assets or any part thereof.
TO HAVE AND TO HOLD such assets and interests and all rights hereby
conferred unto the Holder, its successors and assigns forever, but in trust
nevertheless, for the uses and purposes and with the powers and authorities
subject to the terms and conditions mentioned and set forth in this Note.
5.2 FURTHER ASSURANCES
[PURCHASER 2] will forthwith, and from time to time at his sole cost and
expense, execute and do or cause to be
<PAGE>
executed and done all deeds, documents and things which, in the reasonable
opinion of the Holder, are necessary or advisable for giving the Holder (so
far as may be possible under the local laws of the places where the Purchased
Assets are situated) a valid mortgage, pledge, charge and hypothecation of
the nature herein specified upon the Purchased Assets to secure payment of
monies intended to be secured by this Note, and for better assuring,
mortgaging, pledging, charging, assigning, hypothecating and confirming unto
the Holder the Purchased Assets, and for conferring upon the Holder such
power of sale and other powers over the Purchased Assets as are hereby
expressed to be conferred.
5.3 DEFEASANCE
The Holder will at the written request and sole cost and expense of
[PURCHASER 2] cancel and discharge the lien of this Note and execute and
deliver to [PURCHASER 2] such deeds or other instruments as will be requisite
to discharge the lien hereof and to reconvey to [PURCHASER 2] any part of the
Purchased Assets subject to the lien of this Note and to release [PURCHASER 2]
from the covenants herein contained and upon delivery of such written request
to the Holder, rights hereby granted will cease, terminate and be void,
provided that [PURCHASER 2] will have satisfied the payment of all principal
monies, and interests due or to become due on this Note.
5.4 POSSESSION AND USE OF PURCHASED ASSETS
Until an Event of Default occurs pursuant to Article 8 hereof and the
Holder will have determined to enforce the same pursuant to the provisions of
this Note, [PURCHASER 2] will, subject however to the express terms hereof,
be suffered and permitted to possess, manage, develop, operate and enjoy the
Purchased Assets, and freely to control the conduct of its business and to
take and use any income, rents, issues and profits thereof in the same
manner, to the same extent and with the same effect, except as provided
herein, as if this Note had not been made.
5.5 ESCROW
Notwithstanding Section 5.4 hereof the source code version of the
Application Software, as defined in the Application Software Purchase
Agreement, will be held by the Security Agent pursuant to the terms and
conditions of the Security Agent Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
<PAGE>
6.1 [Purchaser 2]'S REPRESENTATIONS AND WARRANTIES
[PURCHASER 2] hereby represents and warrants to the Holder for the benefit
of the Holder as follows:
a. [PURCHASER 2] has the requisite power and authority to execute and deliver
this Note, to consummate the transactions contemplated hereby and to duly
observe and perform all his covenants and obligations herein set forth;
b. the execution and delivery of this Note does not and will not conflict with
or result in a breach of or violate any of the terms, conditions or
provisions of any terms, conditions or provisions of any law, judgment,
order, injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which [PURCHASER 2] is
subject or constitute or result in a default under any agreement, contract
or commitment to which [PURCHASER 2] is a party;
c. the execution and delivery of this Note will not constitute an event of
default or an event which, with the giving of notice or lapse of time or
both, would constitute an event of default, under any agreement, contract,
indenture or other instrument relating to any indebtedness (whether for
borrowed money or otherwise) of [PURCHASER 2] which would give any party to
any such agreement, contract, indenture or other instrument the right to
accelerate maturity for the payment of any monies under any such agreement,
contract, indenture or other instrument; and
d. no authorization, approval, order, license, permit or consent of any
governmental authority, regulatory body or court, and no registration,
declaration or filing by [PURCHASER 2] with any such governmental
authority, regulatory body or court is required in order for [PURCHASER 2]:
i. to incur the obligations expressed to be incurred by [PURCHASER 2] in
or pursuant to this Note;
ii. to execute and deliver all documents and instruments to be delivered
by [PURCHASER 2] pursuant to this Note;
iii. to duly perform and observe the terms and provisions of this Note; and
<PAGE>
iv. to render this Note legal, valid, binding and enforceable against
[PURCHASER 2] in accordance with its terms.
ARTICLE 7
COVENANTS OF [PURCHASER 2]
[PURCHASER 2] hereby covenants and agrees with the Holder for the
benefit of the Holder as follows:
7.1 TO PAY PRINCIPAL AND INTEREST
[PURCHASER 2] will duly and punctually pay or cause to be paid to the
Holder the Principal Sum and accrued interest thereon and all other moneys
from time to time owing hereunder, on the dates, at the places, in the moneys
and in the manner mentioned herein.
7.2 TO CARRY ON BUSINESS
[PURCHASER 2] will carry on and conduct his business involving the
Purchased Assets in a proper and efficient manner; and at all reasonable
times he will furnish or cause to be furnished to the Holder or its duly
authorized agent or attorney such information relating to the business of
[PURCHASER 2]involving the Purchased Assets as the Holder may reasonably
require.
ARTICLE 8
DEFAULT
8.1 EVENTS OF DEFAULT
If any one or more of the following events has occurred and is
continuing:
a. the non-payment when due of the Principal Sum, accrued interest thereon and
any other amounts due under this Note, except as a result of the Holder's
breach of the Managing and Marketing Agreement;
b. the breach by [PURCHASER 2] of any material provision of this Note;
c. any representation or warranty made by [PURCHASER 2] herein or in any
financial statements, reports or other documents supplied to the Holder by
[PURCHASER 2] hereunder is false, incorrect or inaccurate in any materially
adverse respect; or
<PAGE>
d. If proceedings for bankruptcy or receivership are commenced, unless such
proceedings are being actively and diligently contested by [PURCHASER 2] in
good faith;
provided that [PURCHASER 2] will not have remedied such default within thirty
(30) days (ten (10) days in the case of a monetary default) following receipt
by [PURCHASER 2] from the Holder of notice of the default, the Holder may, by
written notice declare the Principal Sum and accrued interest thereon and any
other amounts payable to it under this Note to be immediately due and payable
without further presentation, notice or demand and [PURCHASER 2] will
immediately pay to the Holder all indebtedness of [PURCHASER 2] owing to it
pursuant to this Note.
8.2 REMEDIES
If an Event of Default has occurred and is continuing and [PURCHASER 2]
has failed forthwith to pay the amounts owing hereunder, or remedy any breach
of any of his obligations secured by this Note as herein outlined, the Holder
shall have all of the rights and remedies of a secured party under the
California Uniform Commercial Code or other applicable California law then in
effect. Without limiting the generality of the foregoing, the Holder, in
addition to any other rights and remedies it may have, in its own name will
be entitled and empowered to sell the Purchased Assets as provided in Section
8.4 below, as well as institute action or proceeding at law or in equity for
the collection of the sums so due and unpaid and may prosecute any such
action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against [PURCHASER 2] or other obligor upon this
Note and collect in the manner provided by law out of the Purchased Assets,
as provided for in this Note wherever situated the monies adjudged or decreed
to be payable.
8.3 LIMITED RECOURSE
Notwithstanding anything else contained in this Note, the Holder
covenants and agrees with [PURCHASER 2] that all of its recourse rights,
powers and remedies for payment of any obligations of [PURCHASER 2] to the
Holder under this Note is limited to the Product Proceeds and the Sale
Proceeds which will be applied in the following order of priority:
a. to pay interest due and payable under this Note;
b. to pay the Principal Sum outstanding from time to time; and
<PAGE>
c. to pay any other amounts owing by [PURCHASER 2] to the Holder under this
Note.
8.4 SALE OF PURCHASED ASSETS
a. If an Event of Default has occurred and is continuing as provided in
Section 8.2 hereof or the indebtedness created hereby either with respect
to principal or interest remains in whole or in part unpaid as of the Due
Date, the Holder will be entitled and empowered to dispose of the Purchased
Assets or any part thereof: i. at public sale, which public sale may be
conducted at the location designated by the Holder for cash or on credit
and on such terms as the Holder may in its sole discretion, elect after
giving at least five days notice of the time and place of sale in the
manner provided by law, or ii. at private sale upon like notice for cash or
on credit and on such other terms as the Holder may in its sole discretion
elect;
b. The proceeds of the sale ("Sale Proceeds") of the Purchased Assets will be
allocated as follows:
i. to reimburse the Holder (to a maximum of 20% of the gross proceeds of
sale), for all costs and expenses incurred as the result of an Event
of Default and in connection with re-possession, storing, advertising,
marketing and selling the Purchased Assets including, without
limitation, reasonable attorneys' fees and costs;
ii. to the Holder as a reduction of amounts owing by [PURCHASER 2] under
this Note allocated firstly as to interest and the remainder as to
principal; and
iii. the balance to [PURCHASER 2];
c. Any balance owing by [PURCHASER 2] under this Note after the allocation of
the Sale Proceeds will be forgiven by the Holder and [PURCHASER 2] will
have no further liability under this Note; and
d. This Note is non-negotiable. The Holder will have no right or recourse
against any legal person in respect of the covenants contained in this Note
other than, subject to Section 8.3, [PURCHASER 2], and his assigns but only
severally and not jointly and only to the extent of each person's interest
in the Purchased Assets.
8.5 LIMITATION OF LIABILITY
<PAGE>
Notwithstanding anything contained in this Note, [PURCHASER 2] will not
have any obligation to pay the Principal Sum outstanding from time to time
under the Note if there occurs a default under Section 5.3 of the Management
and Marketing Agreement or the Management and Marketing Agreement is
terminated as a result of the occurrence of an event described in Section 5.3
thereof.
ARTICLE 9
WAIVER
9.1 Either the Holder or [PURCHASER 2] may waive any breach of any of
the provisions contained in this Note or any default by the other person in
the observance or performance of any covenant, condition or obligation
required to be observed or performed by such person under the terms of this
Note, provided any such waiver shall only be effective upon the delivery of
written notice by the waiving party. No waiver, consent, act or omission by
the Holder or [PURCHASER 2] will extend to or be taken in any manner
whatsoever to affect any subsequent breach or default or the rights resulting
therefrom and no waiver or consent by the Holder or [PURCHASER 2] will be
binding unless it is in writing. The inspection or approval by the Holder or
[PURCHASER 2] of any document or matter or thing done by the other will not
be deemed to be a warranty or holding out of the adequacy, effectiveness,
validity, or binding effect of such document, matter or thing or a waiver of
the obligations of the other.
ARTICLE 10
TIME OF THE ESSENCE
10.1 Time will be of the essence of this Note.
ARTICLE 11
NOTICES
11.1 Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at
the applicable address set forth above, or to any party at such other
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this Section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or two (2) business days
<PAGE>
following deposit with any international overnight courier service, or upon
confirmation of receipt if sent by facsimile transmission.
ARTICLE 12
GENERAL
12.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair
such provision or part thereof or any other provisions of this Agreement in
any other jurisdiction.
12.2 FURTHER ASSURANCES
[PURCHASER 2] and the Holder will, at any time and from time to time at
the request of the other, execute and deliver any and all such further
instruments or assurances as may be necessary or desirable to give effect to
the terms and conditions of this Note.
12.3 COUNTERPART EXECUTION
This Note, and any and all ancillary documents contemplated herein, may
be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Note and will be binding on [PURCHASER 2]
and the Holder as if they had originally signed one copy of this Note.
12.4 ASSIGNMENT
[PURCHASER 2] may assign all or any part of its interest in Purchased
Assets, except that any assignment to a competitor of Alya requires the prior
written consent of the Holder. An assignment shall be effected by:
a. by giving written notice of the names and addresses of the assignees; and
b. by delivering to the Holder a written undertaking of the assignees
acknowledging receipt of a copy of the Note
<PAGE>
and agreeing to be bound by the terms and conditions of the Note.
The Holder may assign this Note in whole, but not in part, and only with
an assignment of all of its rights and obligations under, and as permitted by
the Management and Marketing Agreement by giving [PURCHASER 2] written notice
of the name and address of the assignee.
12.5 BINDING EFFECT
This Note and all of its provisions will enure to the benefit of the
Holder and [PURCHASER 2] and will be binding upon the Holder and [PURCHASER 2]
. The expressions the "Holder" and the "[PURCHASER 2]" as used herein will
include the Holder's and [PURCHASER 2]'s assigns, whether immediate or
derivative, respectively.
12.6 AMENDMENT
This Note may be altered or amended in any of its provisions when any
such changes are reduced to writing and signed by the parties hereto but not
otherwise.
12.7 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in the preparation, delivery and enforcement
of this Note.
12.8 REMEDIES NOT EXCLUSIVE
No right or remedy herein is exclusive of any other right or remedy.
Each and every right and remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or
in equity, and may be exercised from time to time as often as deemed
expedient, separately or concurrently.
12.9 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of California (regardless of that
jurisdiction or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated
in the state and federal courts located in the State of California, and each
party hereby waives any right it may have to assert the doctrine of Forum Non
Conveniens or to object to venue. The parties each hereby stipulate that the
state and federal courts located in the County of Santa Clara, State of
California, shall
<PAGE>
have personal jurisdiction and venue over each party for the purpose of
litigating any such dispute, controversy or proceeding arising out of or
related to this Agreement.
IN WITNESS WHEREOF [PURCHASER 2] and the Holder have duly executed these
presents under the hands of their proper officers in that behalf.
[PURCHASER 2]: /s/ [PURCHASER 2]
-----------------------------------
[PURCHASER 2]
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
--------------------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
<PAGE>
SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of the 30th day of September, 1997, is by and
AMONG:
[SECURITY AGENT], Barristers and Solicitors, having a business address
at [SECURITY AGENT'S ADDRESS] ("Security Agent");
OF THE FIRST PART
AND
[PURCHASER 2], an individual, having a business address at [PURCHASER
2'S ADDRESS] ("[PURCHASER 2]")
OF THE SECOND PART
ALYA INTERNATIONAL INC., a corporation incorporated pursuant to the
laws of Delaware, having a business address at 2465 East Bayshore
Road, No. 348, Palo Alto, CA 94303 ("Alya")
OF THE THIRD PART
WHEREAS:
A. Pursuant to that certain Application Software Purchase Agreement
dated as of September 30, 1997, by and between [PURCHASER 2] and Alya (the
APurchase Agreement"), [PURCHASER 2] purchased the Purchased Assets, as more
particularly described in Schedule A to the Purchase Agreement;
B. The Purchase Agreement provided that [PURCHASER 2] would purchase
and acquire the Purchased Assets for cash and a Note deliverable at Closing;
C. Pursuant to the terms of the Note, [PURCHASER 2] granted a security
interest in the Purchased Assets to Alya as a means of securing performance
of [PURCHASER 2]'s obligations under the Note. In connection therewith, the
parties hereto have agreed to establish and maintain this Security Agent
Agreement; and
<PAGE>
D. This Security Agent Agreement provides, INTER ALIA, that
[PURCHASER 2]shall deliver, or cause to be delivered, to the Security Agent
the source code version of the Application Software, and that the Security
Agent shall hold the source code version of the Application Software subject
to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing , recitals and the
terms, conditions and covenants contained herein, [PURCHASER 2], the Security
Agent and Alya hereby agree as follows:
ARTICLE 1
Definitions
Except as otherwise set forth herein, capitalized terms shall have
the meanings ascribed to them in the Purchase Agreement:
1. "Management Agreement" means the management and marketing agreement made as
of September 30, 1997 between [PURCHASER 2] and Alya;
2. "Note" means the 6.0% Secured Term Note dated as of September 30 1997
issued by [PURCHASER 2] to Alya in connection with the purchase of the
Purchased Assets;
3. "Release Notice" means a notice to the Security Agent in the form attached
as Schedule A to this Agreement; and
4. "Software" means the source code for the Application Software.
Interpretation
5. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplemental to this Agreement. Unless something in the subject matter or
context is inconsistent therewith, reference herein to Sections and
Subsections are to Sections and Subsections of this Agreement;
6. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars. Any
<PAGE>
currency conversion required or contemplated by this Agreement with respect
to Canadian and United States of America currency will be based on the rate
published by the Bank of Canada as the noon spot rate of exchange
applicable for such currencies on the business day immediately before the
date of conversion; and
7. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires.
ARTICLE 2
DEPOSIT OF SECURITY
Original Deposit
Concurrently with the Closing, [PURCHASER 2] shall deliver, or
cause to be delivered, to the Security Agent, the Software as security for
[PURCHASER 2]'s obligations to Alya under the Note. Alya shall examine the
Software as delivered, and certify the completeness and accuracy of the
Software in a letter, the form and content of which is acceptable to
[PURCHASER 2], forwarding the same to the Security Agent with a copy to
[PURCHASER 2]. Subsequent Deposits
Alya shall deliver or cause to be delivered to the Security Agent
the source code for any Enhancements to the Software quarterly in accordance
with the Management Agreement as security for [PURCHASER 2]'s obligations to
Alya under the Note. Alya, at the time of delivering source code for
Enhancements to the Security Agent, shall certify the completeness and
accuracy of the Software in a letter, the form and content of which is
acceptable to [PURCHASER 2], forwarding same to the Security Agent with a
copy to [PURCHASER 2].
Retention of Security
The Security Agent shall hold the Software and shall release the
same upon the terms and conditions provided in this Agreement.
ARTICLE 3
RELEASE OR RETURN OF SOFTWARE BY SECURITY AGENT
<PAGE>
Delivery to [PURCHASER 2]
The Security Agent shall deliver all Software which has been
deposited with the Security Agent to [PURCHASER 2] upon the occurrence of
either of the following events:
8. Alya and [PURCHASER 2] deliver a Release Notice, executed by each of Alya
and [PURCHASER 2], to the Security Agent; or
9. Subject to compliance with Section 3.2 hereof, the Security Agent has
received from [PURCHASER 2] each of the following items:
1. notice that (x) the Management Agreement has been terminated or (y)
that all outstanding principal and accrued interest under the Note has
been paid;
2. written demand that all Software deposited with the Security Agent be
delivered to [PURCHASER 2]; and
3. specific instructions from [PURCHASER 2] for delivery of the Software.
Procedure for Delivery to [PURCHASER 2]
10. If the provisions of Section 3.1 b. are met, the Security Agent shall,
within five days following receipt of all of the items specified in
Section 3.1 b., send by overnight courier to Alya a copy of all such
documents received by the Security Agent pursuant to Section 3.1 b. Alya
shall have twenty (20) days from the date that the Security Agent shall
have delivered the documents to Alya to send to the Security Agent written
notice of its objection to the release of all the Software and to request
that the issue of [PURCHASER 2]'s entitlement to the Software be submitted
to arbitration in accordance with the provisions of this Agreement;
11. If Alya shall request arbitration, the matter shall be submitted to and
settled by arbitration in accordance with Article 7 hereof; and
<PAGE>
12. If within twenty (20) days following delivery of the items specified in
Section 3.1 b. to Alya, the Security Agent has not received written notice
of Alya's objection to the release of the Software and its request for
arbitration, then the Security Agent shall release the Software to
[PURCHASER 2] in accordance with the instructions specified in Section 3.1
b. iii.
Delivery to Alya
The Security Agent shall deliver all Software which has been
deposited with the Security Agent to Alya upon the occurrence of either of
the following events:
13. [PURCHASER 2] and Alya deliver a Release Notice executed by each of
[PURCHASER 2] and Alya to the Security Agent; or
14. Subject to compliance with Section 3.4 hereof, the Security Agent has
received from Alya each of the following items:
1. written notification that [PURCHASER 2] is in breach of the Note;
2. a written demand that all Software deposited with the Security Agent
be delivered to Alya; and
3. specific instructions from Alya for delivery of the Software.
Procedure for Delivery to Alya
15. If the provisions of Section 3.3 b. are met, the Security Agent shall,
within five days following receipt of all of the items specified in Section
3.3 b., send by overnight courier to [PURCHASER 2] a copy of all such
documents received by the Security Agent pursuant to Section 3.3 b.
[PURCHASER 2] shall have twenty (20) days from the date the Security Agent
shall have delivered the documents to [PURCHASER 2] to send to the Security
Agent written notice of its objection to the release of all the Software
and to
<PAGE>
request that the issue of Alya's entitlement to the Software be
submitted to arbitration in accordance with the provisions of this
Agreement;
16. If [PURCHASER 2] shall request arbitration, the matter shall be submitted
to and settled by arbitration in accordance with Article 7 hereof; and
17. If within twenty (20) days following delivery of the items specified in
Section 3.3 b. to [PURCHASER 2], the Security Agent has not received
written notice of [PURCHASER 2]'s objection to the release of the Software
and its request for arbitration, then the Security Agent shall release the
Software to Alya in accordance with the instructions specified in
Section 3.3 b. iii.
ARTICLE 4
OWNERSHIP OF PURCHASED ASSETS
Acknowledgement
Alya and [PURCHASER 2] each hereby recognize and acknowledge that
[PURCHASER 2] owns all right, title and interest in and to the Purchased
Assets, subject only to the security interest created pursuant to the Note in
favor of Alya and the rights of Alya under the Management Agreement.
ARTICLE 5
DUTIES AND RESPONSIBILITIES OF THE SECURITY AGENT
Duties
The Security Agent shall not be bound in any way by an agreement or
contract between [PURCHASER 2] and Alya (whether or not the Security Agent
has knowledge thereof), and the Security Agent's only duties and
responsibilities shall be to hold the Software it receives and to deliver
same in accordance with the terms of this Agreement. The Security Agent
shall have no duties except those which are expressly set forth herein and it
shall not be bound by any waiver, modification, amendment, termination or
rescission of this Agreement, unless received by it in writing and signed by
Alya and [PURCHASER 2] and, if its duties are affected, unless it shall have
given its prior written consent thereto.
<PAGE>
Authority to Act
The Security Agent has the absolute authority to accept or act upon
each executed Release Notice and any other document received pursuant to this
Agreement, without any obligation of inquiry as to the validity, authenticity
or accuracy thereof. Should it be necessary for the Security Agent to accept
or act upon any instructions, directions, documents or instruments signed or
issued by or on behalf of any corporation, partnership, fiduciary or
individual, it shall not be necessary for the Security Agent to inquire into
the authority of the signer(s). The Security Agent shall be protected in
acting upon any notice, request, waiver, consent, receipt, statutory
declaration or other paper or document furnished to it, signed by any of the
parties hereto, not only as to its due execution and validity and
effectiveness of its provisions but also as to the truth and accuracy of any
information therein contained. Unless otherwise directed in a writing
mutually executed by Alya and [PURCHASER 2], the Security Agent is hereby
authorized to make deliveries pursuant hereto by the commercial courier,
which the Security Agent, in its sole discretion, selects. The Security Agent
shall not be liable in any manner for the acts, omissions, delays or failures
to deliver by any such selected commercial couriers.
Amendment, Resignation and/or Termination
This Agreement may be altered or amended only with the consent of
each of Alya, [PURCHASER 2] and Security Agent. The Security Agent may resign
as Security Agent at any time upon 30 days' prior written notice to
[PURCHASER 2]and Alya. [PURCHASER 2] and Alya may remove the Security Agent
as security agent at any time upon 30 days' prior written notice to the
Security Agent. In the event of resignation or removal of the Security
Agent, Alya and [PURCHASER 2] shall attempt to mutually agree upon the
selection of a new security agent. In the event that they are unable to
agree, the new security agent shall be another firm of barristers and
solicitors authorized to practice law in Canada or an independent, qualified
trust or escrow company or organization selected by [PURCHASER 2]. From the
date the Security Agent receives notice of termination or gives notice of
resignation and until a successor Security Agent shall have been appointed
and shall have accepted such appointment, the Security Agent's only duty
shall be to hold any deposited Software then in the Security Agent's
possession in accordance with the provisions of this Agreement (but without
regard to any notices, requests, instructions or demands received by the
Security Agent from any party hereto after the Security Agent's notice of
resignation shall have been given or notice of termination shall be
received). Upon the appointment of, and acceptance by, a successor security
agent, the former Security
<PAGE>
Agent shall deliver to the successor security agent any Software and other
documents or instruments relating thereto then in its possession.
No Action Required
In the event that any of the notices and/or Software or other
documents or instruments to be delivered pursuant to the terms hereof are not
delivered to the Security Agent, Security Agent shall have no duty whatsoever
to take any action with respect to procurement of the same. The Security
Agent shall have no obligation or responsibility to verify that any Software
or other documents or instruments delivered hereunder are the Enhancements or
other documents required to be delivered by Alya pursuant to the Purchase
Agreement or the Management Agreement. The Security Agent may, however,
allow such verification to be obtained at, or within a reasonable time of,
such delivery by a qualified employee or agent of [PURCHASER 2] and may
permit such employee or agent reasonable access to such Software, document or
other instrument for the purposes of making such verification. For the
purpose of this paragraph, the parties agree that such Software documents or
other instrument may be initially delivered to such employee or agent for the
sole purpose of making such verification followed by immediate delivery to
the Security Agent.
Expense Reimbursement
In addition to the indemnification obligations set forth herein,
Alya hereby agrees to reimburse Security Agent for all expenses incurred in
connection with performing and carrying out its responsibilities hereunder,
including without limitation, legal and professional fees and expenses.
Disclaimer of Liability
Except for fraud or intentional misconduct, neither the Security
Agent nor its partners, employees or agents shall be liable to Alya,
[PURCHASER 2] or any other party claiming beneficiary status under this
Agreement for any act, or failure to act, by the Security Agent in connection
with this Agreement. The Security Agent will not be liable for special,
indirect, incidental or consequential damages hereunder.
Indemnity and Liability
[PURCHASER 2], Alya and any party claiming beneficiary status under
this Agreement hereby, jointly and severally, agree to indemnify and hold
harmless and be liable to
<PAGE>
Security Agent and each of its partners, employees and agents, absolutely and
forever, from and against any and all claims, actions, damages, suits,
liabilities, obligations, costs, fees, charges, and any other expenses
whatsoever, including legal and professional fees and expenses, that may be
asserted against or incurred by Security Agent or any of its partners,
employees or agents, with respect to the performance of its duties under this
Agreement. This indemnity shall survive the termination of this Agreement
and the resignation or removal of the Security Agent.
Disputes and Interpleader
In the event of any dispute between [PURCHASER 2] and Alya or any
third party claiming beneficiary status under this Agreement, Security Agent
may submit this matter to any court of competent jurisdiction in an
interpleader or similar action. Any and all costs incurred by Security Agent
in connection therewith shall be borne by the party seeking a copy of the
Software deposited with Security Agent. Without limiting the generality of
the foregoing, if Security Agent shall be uncertain as to its duties or
rights hereunder, shall receive any notice, advice, schedule, report,
certificate, direction or other document from any person or entity with
respect to the Software, that in the opinion of the Security Agent, in its
sole discretion, is in conflict with any provisions of this Agreement, or
shall be advised that a dispute has arisen with respect to the ownership or
right of possession of the Software or any part thereof, Security Agent shall
be entitled, without liability to anyone, to refrain from taking any action
other than to exercise best efforts to keep safely the Software until
Security Agent shall be directed otherwise in writing by an order, decree, or
judgment of a court of competent jurisdiction that is then finally affirmed
on appeal or that by the lapse of time or otherwise is no longer subject to
appeal; but Security Agent shall be under no duty to institute or defend any
such proceeding.
No Conflict
Alya and [PURCHASER 2] acknowledge that (a) the Security Agent or
its partners, employees, agents or associates have provided counsel to
[PURCHASER 2]in connection with the transactions contemplated by the Purchase
Agreement; (b) the duties of the Security Agent hereunder are purely
mechanical; and (c) the Security Agent is acting hereunder for the
convenience of Alya and [PURCHASER 2]and shall not be impeachable or
accountable because of any conflicting or potentially conflicting duty to
[PURCHASER 2] or any advice provided to him.
Legal Counsel
<PAGE>
If the Security Agent believes it to be reasonably necessary to
consult with counsel concerning any of its duties hereunder, or if the
Security Agent becomes involved in litigation relating to this Agreement,
Alya and [PURCHASER 2] shall be jointly and severally responsible for the
costs, expenses and legal fees incurred by the Security Agent, and the
Security Agent is authorized to act on the instructions of such counsel
without being liable.
ARTICLE 6
NOTICES
All notices and other communications hereunder or in connection herewith
shall be in writing and shall be given by personal delivery, international
overnight courier service or facsimile, to the respective party at the
address set forth below, or to any party at such other addresses as shall be
specified in writing by such party to the other parties in accordance with
the terms and conditions of this Section. All notices, requests or
communications shall be deemed effective upon personal delivery, or upon the
next business day after sending by facsimile or two (2) business days
following deposit with any international overnight courier service.
If to Alya to:
Alya International, Inc.
2465 East Bayshore Road
No. 348
Palo Alto, CA 95125
Attention: Chief Executive Officer
Fax No.: (650) 361-8286
If to [PURCHASER 2] to:
[PURCHASER 2]
[PURCHASER 2'S ADDRESS]
Fax No.: [PURCHASER 2'S FAX]
If to Security Agent to:
[SECURITY AGENT]
[SECURITY AGENT'S ADDRESS]
Attention: [SECURITY AGENT EMPLOYEE]
Fax No.: [SECURITY AGENT FAX]
ARTICLE 7
ARBITRATION
<PAGE>
In the event that either party disputes the release of the Software in
accordance with Article 3 hereof, and such dispute cannot be resolved
informally, such dispute shall be settled by final and binding arbitration in
Calgary, Alberta, before a single arbitrator, in accordance with the
Arbitration Act (Alberta), except as otherwise specifically provided herein.
The arbitrator shall apply Alberta law for the purposes of construing and
enforcing this Agreement and any dispute arising hereunder. The arbitration
award shall be specifically enforceable; judgment upon any arbitration award
may be entered in any court with personal jurisdiction over the parties and
subject matter of the disputes.
ARTICLE 8
NO WAIVER OF RIGHTS
The delay or failure of either party to enforce at any time any provision of
this Agreement shall in no way be considered a waiver of any such provision,
or any other provision, of this Agreement. No waiver of, or delay or failure
to enforce any provision of this Agreement shall in any way be considered a
continuing waiver or be construed as a subsequent waiver of any such
provision, or any other provision of this Agreement. No waiver or
modification of this Agreement shall be binding unless it is in writing
signed by the parties hereto.
ARTICLE 9
BINDING EFFECT; ASSIGNMENT
This Agreement shall be binding upon, and enure to the benefit of, all the
parties hereto and their respective successors, legal representatives and
assigns permitted under the Purchase Agreement. Each of the parties hereto
acknowledges and accepts that any assignee permitted under the Purchase
Agreement, which assignee has agreed to abide by and be bound by all the
applicable conditions set forth in each of the Purchase Agreement, the
Management Agreement and the Note, shall constitute an intended third party
beneficiary under this Agreement, and be entitled to all the rights of an
intended third party beneficiary. The parties will amend this agreement to
include such persons, if requested to do so by [PURCHASER 2] or Alya, and in
any event [PURCHASER 2] and Alya will notify the Security Agent of the name
of any assignee.
ARTICLE 10
AUDIT RIGHTS
<PAGE>
During the term of this Agreement, [PURCHASER 2] shall have the right, upon
not less than ten days prior written notice to Alya, to examine all of the
items which have been deposited with, and are being held by, the Security
Agent, pursuant to the terms and conditions of this Agreement, for the
purpose of ascertaining the completeness and accuracy of the deposited items.
ARTICLE 11
GENERAL
Validity
If any one or more of the provisions or parts thereof contained in
this Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair
such provision or part thereof or any other provisions of this Agreement in
any other jurisdiction.
Further Assurances
The parties will, at any time and from time to time at the request
of the other, execute and deliver any and all such further instruments or
assurances as may be necessary or desirable to give effect to the terms and
conditions of this Agreement.
Counterpart and Facsimile Execution
This Agreement, and any and all ancillary documents contemplated
herein, may be executed in one or more counterparts and may be executed by
facsimile signatures and all such counterparts and facsimile signatures taken
together will constitute one and the same Agreement and will be binding on
the parties as if they had originally signed one copy of this Agreement.
Time of the Essence
<PAGE>
Time will be of the essence of this Agreement.
Costs
Except as specifically provided in this Agreement, each party
hereto will bear its own legal, accounting and other costs relating to all
matters involved in this transaction.
Confidentiality
The parties will treat this Agreement and all information relating
to this Agreement and the transactions contemplated by this Agreement
confidentially and no public disclosure by either party will be made without
the prior approval of the other, not to be unreasonably withheld, except as
legally required by a party to satisfy disclosure obligations to shareholders
and regulators, in which case simultaneous notice of such disclosure will be
given to the other party.
Entire Agreement
This agreement, constitutes the entire Agreement among the parties
and supersede all proposals, oral or written, and all other communications
among them relating to the subject matter hereof.
Jurisdiction, Venue and Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Province of Alberta (regardless of that
jurisdiction or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated
in the courts located in the Province of Alberta, and each party hereby
waives any right it may have to assert the doctrine of Forum Non Conveniens
or to object to venue. The parties each hereby stipulate
<PAGE>
that the provincial and federal courts located in the Province of Alberta,
shall have personal jurisdiction and venue over each party for the purpose of
litigating any such dispute, controversy or proceeding arising out of or
related to this Agreement.
IN WITNESS WHEREOF the undersigned have executed this Security
Agent Agreement as of the date first set forth above.
ALYA INTERNATIONAL INC.
By:
--------------------------------
Name:
Title:
-----------------------------------
[PURCHASER 2]
[SECURITY AGENT]
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
<PAGE>
SCHEDULE "A" to the Security Agent Agreement dated September 30, 1997
RELEASE NOTICE
[SECURITY AGENT]
[SECURITY AGENT'S ADDRESS]
Dear Sirs:
RE: SECURITY AGENT AGREEMENT
This Release Notice is being delivered pursuant to the Security Agreement
dated as of September 30, 1997 ("Security Agent Agreement"), among
[PURCHASER 2]("[PURCHASER 2]"), Alya International Inc. ("Alya") and
[SECURITY AGENT]("Security Agent"). Except as otherwise set forth herein,
capitalized terms shall have the meanings ascribed to them in the Security
Agent Agreement.
Security Agent is hereby authorized and directed to deliver all the Software
and all documents, instruments and other items delivered to it by
[PURCHASER 2] or Alya in its capacity as Security Agent to [______________].
Dated: ALYA INTERNATIONAL INC.
-----------------------
By:
--------------------------------
Dated:
----------------------- -----------------------------------
[PURCHASER 2]
<PAGE>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 22 day of December 1997 (the "Effective
Date").
BETWEEN:
[AGENT], an individual having a business address at
[AGENT'S ADDRESS], Fax [AGENT'S FAX] ("Agent"), as agent acting on behalf of
[PURCHASER 3] and [PURCHASER 4] as joint venturers (each with an undivided
50% interest), and with authority delegated to him to enter into this
Agreement;
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a Delaware corporation, having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303, Fax No.
(650) 361-8286 (hereinafter referred to as "Alya")
OF THE SECOND PART
WHEREAS:
1. Alya is the legal and beneficial owner of the Purchased Assets; and
2. The Agent as purchaser herein, is acting as agent on behalf of the Joint
Venturers, with all necessary authority delegated to him to enter into this
Agreement; and
3. Alya has agreed to sell and assign the Purchased Assets to Agent, as agent
on behalf of the Joint Venturers, for use in the Territory, and Agent has
agreed to purchase the Purchased Assets on behalf of the Joint Venturers on
the terms and conditions hereinafter set forth and contained.
NOW THEREFORE in consideration of the premises and mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
<PAGE>
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions shall have the following meanings:
a. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in Schedule A to this Agreement together with
Enhancements;
b. "Asset Valuation Report" means the software valuation dated as of December
22, 1997, prepared for Agent by [APPRAISER];
c. "Assigned Notes" means those promissory notes from [NOTEMAKER] with
outstanding principal balances of Cdn.$190,000 and Cdn.$57,000,
respectively, or an aggregate outstanding balance of approximately
Cdn.$247,000.
d. "Closing" has the meaning set out in Section 7.1;
e. "Closing Date" means December 22, 1997, or such other date as the parties
may agree;
f. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Management
Agreement, including the Application Software and the Purchased Assets, are
deemed to be confidential without the need for written notice and shall at
all times remain confidential, notwithstanding the exception to
confidentiality noted in the next sentence. "Confidential Information" of
the Disclosing Party shall not include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without
<PAGE>
breach of this Agreement by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party, independently of the Disclosing Party and
without breach of an obligation of confidentiality to the
Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
obligation of confidentiality to the Disclosing Party;
D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
g. "Customers" means any person using or distributing the Security System in
the Territory;
h. "Documentation" has the meaning specified in Subsection v. of the
definition of Purchased Assets;
i. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Application Software by Alya or any other
person, to be utilized in connection with providing the Security System,
including, without limitation, any improvement, revision or other
modification which is necessary:
i. to provide Customers with then current Application Software; or
ii. to maintain the Application Software and/or the Security System as a
state of the art or industry leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A to the extent that the
<PAGE>
manager pursuant to the Management Agreement, acting reasonably, continues
to believe that they are commercially reasonable in light of then current
market conditions and technical developments;
j. "Infringement Claims" has the meaning specified in Subsection 5.1.b.;
k. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of Purchased Assets";
l. "Joint Venturers" means [PURCHASER 3]and [PURCHASER 4], as joint venturers,
each with an undivided fifty percent (50%) interest in the Purchased
Assets.
m. "Letter of Representation" means a letter from Alya to [APPRAISER] in
substantially the form attached as Schedule B;
n. "Management Agreement" means the Management and Marketing Agreement to be
entered into by Joint Venturers and Alya on Closing for the management and
marketing of the Purchased Assets;
o. "Note" means the two 6.0% Secured Term Notes (one for each of the Joint
Venturers), each secured by a Joint Venturers' undivided 50% interest in
the Purchased Assets, in substantially the form attached as Schedule D;
p. "Originality Certificate" means the Officer's Certificate in the form
attached as Schedule C;
q. "Purchase Price" has the meaning specified in Section 2.1;
r. "Purchased Assets" means the right to exclusively own, utilize, modify and
develop the Application Software solely within the Territory and to
exclusively distribute, market and sell the Application Software as
incorporated in the Security System, solely within the Territory, and to
own and utilize all of Alya's property and rights necessary for the
operation of, or the realization of benefits from, the Application Software
solely within the Territory, including, without limitation:
i. all products associated with or derivatives of the Application
Software;
ii. the benefit of all agreements necessary for the operation of, or the
realization of the benefit from, the Application Software within the
<PAGE>
Territory, including, without limitation, a perpetual, non-exclusive,
royalty free right to use, modify, develop, license and distribute
within the Territory the OPEN cortex platform software, as described
in Schedule F hereto, and any modification or revision thereto, solely
in connection with the Application Software and the Security Systems,
all service agreements and third party license agreements and all
marketing and product business plans;
iii. all inventions necessary for the ownership of, or realization of the
benefit from, the Application Software solely within the Territory,
including, without limitation, ideas, research, discoveries, designs,
systems, patterns, specifications, technology, know-how, formulae,
confidential information, data, computer software development tools,
operating systems, source code, object code, subroutines, algorithms,
methods and processes;
iv. all intellectual property rights necessary for the ownership of, or
realization of the benefit from, the Application Software solely
within the Territory, including, without limitation, patents,
trademarks, copyrights and trade secrets and applications for and the
right to apply for any intellectual property (the items listed in
paragraph (iii) and (iv) are hereinafter collectively referred to as
the "Intellectual Property"); and
v. copies of all records, documents (including, without limitation, user
documentation and source code listings), correspondence, notes and
rights related to the foregoing ("Documentation");
s. "Purchase Price" has the meaning set out in Section 2.1;
t. "Section" means any section, subsection, article, clause, subclause,
paragraph or subparagraph of this Agreement;
u. "Security Agent Agreement" means the Security Agent Agreement to be entered
into by Alya, Joint Venturers and Burnet, Duckworth & Palmer, as security
agent, on the Closing, for the purpose of holding the Purchased Assets
pursuant to the terms thereof;
v. "Security System" means the building access control system developed by
Alya and known as the O.P.E.N.centrix-Open Platform for Essential Network,
<PAGE>
which includes, without limitation, the Application Software, the firmware
containing the Application Software and the O.P.E.N.cortex platform
software; and
w. "Territory" means Canada.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplementing this Agreement. Unless something in the subject matter or
context is inconsistent therewith, reference herein to Sections and
Subsections are to Sections and Subsections of this Agreement.
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars.
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires.
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
<TABLE>
<S> <C>
Schedule A - Application Software Specifications
Schedule B - Letter of Representation
Schedule C - Originality Certificate
Schedule D - Form of Note
Schedule E - Exceptions to the representations and warranties set out in
Article 4, if any.
Schedule F - Description of O.P.E.N.cortex platform
</TABLE>
ARTICLE 2
AGREEMENT TO SELL, ASSIGN AND PURCHASE
2.1 Alya hereby sells, assigns and transfers all its right, title and interest
in the Purchased Assets to Agent on behalf of the Joint Venturers and Agent
on behalf of the Joint Venturers hereby purchases the entire right, title
and interest of Alya therein, as of the Effective
<PAGE>
Date, at and for Three Million Canadian Dollars (Cdn.$3,000,000)(the
"Purchase Price") payable and allocated in accordance with Article 3
hereof.
2.2 The parties agree that the fair market value of the Purchased Assets is
equal to the Purchase Price and agree that this determination and the
allocation set out in Article 3 hereof is final and conclusive between
them.
ARTICLE 3
PURCHASE PRICE AND PAYMENT
3.1 The Purchase Price will be payable partly in cash and partly by execution
and delivery of the Note for the balance of the Purchase Price as follows:
a. Cdn.$285,000 on Closing, by wire transfer, by Agent on account of
[PURCHASER 4], and Cdn.$38,000 on Closing, by Wire transfer, by Agent on
account of [PURCHASER 3];
b. Cdn.$247,000 on Closing, by delivery of the Assigned Notes, duly endorsed
and payable to Alya or its designee; and
c. Cdn.$2,430,000 on Closing by execution and delivery of the Note.
3.2 Agent will deduct and remit any withholding tax required to be deducted
and remitted in connection with any payment made under Section 3.1.
3.3 Agent will not be responsible for any taxes, levies or other similar
assessments including, without limitation, sales or use taxes payable in
connection with the purchase and sale contemplated by this Agreement, if
any.
3.4 The Purchase Price shall be allocated:
a. As to the Application Software described in Schedule A to this Agreement,
the amount of Two Million Nine Hundred Ninety Nine Thousand Canadian
Dollars (Cdn.$2,999,000); and
b. As to the balance of the Purchased Assets, the amount of One Thousand
Canadian Dollars (Cdn.$1,000).
ARTICLE 4
<PAGE>
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF ALYA
Alya hereby, undertakes, represents and warrants to Agent and each of
the Joint Venturers at the date hereof and at the Closing Date, and
acknowledges that Agent and each of the Joint Venturers is relying on such
undertakings, representations and warranties that:
a. Alya is a corporation (i) duly incorporated and organized, validly
subsisting and in good standing under the laws of the jurisdiction of its
incorporation; (ii) duly authorized, with necessary and sufficient permits
and licenses to enable it to own its properties and to carry on its
business as presently owned and carried on by it; and (iii) having the
power and authority and right to enter into this Agreement and each and
every agreement and document to be executed and delivered by it pursuant
hereto and to perform each of its obligations as therein and herein
contained;
b. Alya has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the other documents
contemplated hereby;
c. this Agreement constitutes the legal, valid and binding obligation of Alya,
enforceable against it in accordance with its terms;
d. neither execution nor delivery of this Agreement and each and every other
agreement executed and delivered by Alya pursuant hereto nor the
fulfillment or compliance with any of the terms hereof or thereof will
conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, the articles and by-laws, as amended, of
Alya or any material agreement or instrument to which Alya is subject or
will require any consent or other action by any person or administrative or
governmental body;
e. Alya now has and on the Closing Date will have good and marketable title,
free and clear of any and all claims, liens, encumbrances, mortgages,
security interests and charges, licenses or rights of other persons
whatsoever to all of the Purchased Assets except as set out in Subsection
4.1 e. of Schedule E;
f. there are no agreements or contracts or other documents pertaining to the
acquisition or development of the
<PAGE>
Purchased Assets except as set out in Subsection 4.1 f. of Schedule E,
copies of which have been delivered to Agent and its counsel;
g. the individuals involved in the development of the Application Software,
the Purchased Assets or any element thereof, are or were:
i. employees of Alya Systems, Inc. ("Alya Systems") who worked within the
scope of their employment to develop the Application Software, the
Purchased Assets, or any element thereof, and who executed a written
waiver of their moral rights in the copyright to the foregoing in
favor of Alya Systems; or
ii. independent contractors or employees of independent contractors.
Except as set forth in subsection 4.1g of Schedule E, each contractor
was subject to agreements assigning their interest, if any, in the
Application Software, Purchased Assets, or any element thereof to Alya
Systems and executed a written waiver of their moral rights in the
copyright to the foregoing in favor of Alya. Copies of ALYA System's
standard Employee Invention Assignment and Confidentiality Agreement
and Consultant Invention Assignment and Confidentiality Agreement are
attached to Schedule E;
h. the Application Software does not contain any third party software.
However, certain third party software is required to operate the
Application Software and Alya has licenses for such third party software
which allow Alya to market such software, directly or indirectly through
sublicensees, as part of the Application Software and Alya will maintain
such licenses in good standing for the benefit of the Joint Venturers.
None of the third party software is custom software developed specifically
for use with the Application Software. All of the third party software is
readily available in the open market and capable of being obtained by the
Agent in the event a license terminates, or if the particular software is
not capable of being obtained at such time, other software suitable for
substitution therefor is readily available in the open market and Alya will
modify, at its own cost and expense, the source code of the Application
Software, if necessary, to be compatible;
i. the Application Software was not derived from any third party's
pre-existing material except as set out in Subsection 4.1 i. of Schedule E;
<PAGE>
j. Alya has not used or enforced or failed to use or enforce any Intellectual
Property rights or other rights associated with the Application Software or
Purchased Assets in any manner which could adversely affect the validity or
enforceability of the Intellectual Property;
k. there is not, and has not been, any infringement or violation of Alya's
rights in and to the Intellectual Property;
l. Alya has not received notice of any claim of adverse ownership, invalidity
or other opposition to or conflict with the Purchased Assets;
m. there are now no and at the Closing Date will be no action, claim or demand
or other proceedings pending or, to the best of its knowledge, threatened
against Alya before any court or administrative agency which could
materially adversely affect the financial condition or overall operations
of Alya or the Purchased Assets, nor any judgment, order or decree
enforceable against Alya which involves or may require the expenditure of
money as a condition to or a necessity for the right or ability of Joint
Venturers to conduct their businesses involving the Purchased Assets;
n. Alya has not entered into any agreement which would entitle any person to
any valid claim against Agent and/or either one or both of the Joint
Venturers for a broker's commission, finder's fee or any like payment in
respect of the purchase and sale of the Purchased Assets or any other
matters contemplated by this Agreement;
o. the Application Software has been developed in accordance with good
professional standards applicable in the computer software industry
including, without limitation, using modern flexible programming languages
and development tools and all computer code has been written to allow the
relevant Application Software to run efficiently and ensure year 2000
compliant operation;
p. the Application Software operates in accordance with the applicable
associated user Documentation;
q. none of the Purchased Assets has been disclosed to any third party except
under obligations of confidentiality, the benefit of which obligations are
hereby assigned to the Joint Venturers;
<PAGE>
r. there are no licenses, agreements, approvals or consents required or
advisable to enable Alya to lawfully and properly market the Application
Software in the Territory and no such licenses, agreements, approvals or
consents will be required by Agent and/or any one or both of the Joint
Venturers;
s. Alya has not done anything so as to preclude Agent and/or any one or both
of the Joint Venturers from having full enjoyment and quiet possession of
the Purchased Assets, subject to the terms and conditions herein;
t. there are no outstanding options, agreements of purchase and sale or other
agreements or commitments obligating Alya to sell the Purchased Assets or
any of them, except pursuant to this Agreement;
u. there are no taxes, levies or other similar assessments including, without
limitation, sales, use or other taxes payable by Alya in connection with
the purchase and sale contemplated by this Agreement;
v. the Application Software is available for use;
w. the assumptions, referred to in the Asset Valuation Report, are true and
correct;
x. the Application Software is application software and is not system software
as the terms "application software" and "system software" are generally
used and understood in the computer industry;
y. all copyright, patent or trademark registrations or applications for
registration of the Application Software in any jurisdiction have been
disclosed to the Agent, including complete and accurate documentation
relating thereto; and if there are no such applications or registrations,
then Alya shall supply to the Agent, on closing, all relevant or necessary
information and documentation which will enable the Joint Venturers to make
such application for registration of patent, copyright or trademark as they
may determine;
z. Alya has not used or delivered and will not use or deliver, and has not
caused and will not cause the use or delivery of, the Purchased Assets, or
any one of them, in or into the Province of Ontario; and
aa. Alya is not a registrant for purposes of Division IX of the EXCISE TAX ACT
(Canada)
<PAGE>
All of the representations, warranties and covenants contained in this
Agreement made and to be made by Alya will survive the Closing Date and
continue in full force and effect for the benefit of the Joint Venturers
until full payment of all amounts owing under the Note.
4.2 REPRESENTATIONS AND WARRANTIES OF AGENT
Agent undertakes, represents and warrants to Alya at the date hereof and
at the Closing Date, and acknowledges that Alya is relying on such
undertakings, representations and warranties, that Agent is acting as agent
on behalf of the Joint Venturers and is now and on the Closing Date will be
an individual who has the power, authority and right to enter into this
Agreement and each and every agreement to be executed and delivered by Agent
pursuant hereto and to perform each of his obligations therein and herein
contained to purchase the Purchased Assets in accordance with the terms of
this Agreement, provided that Alya acknowledges that all obligations of Agent
in this Agreement are made as agent on behalf of the Joint Venturers and not
in Agent's personal capacity and the actual conveyance documents relating to
the conveyance of the Purchased Assets pursuant to this Agreement shall be
entered into directly with the Joint Venturers, c/o the Agent's address, but
the Agent shall receive delivery of the deliverables described in subsection
7.3(b) herein, in the Province of Alberta.
The representations, warranties and covenants contained in this
Agreement and made and to be made by Agent will survive the Closing Date and
continue in full force and effect for the benefit of Alya while any money due
on the Note is outstanding.
ARTICLE 5
COVENANTS
5.1 ALYA'S ASSUMPTION OF LIABILITY AND INDEMNITY
Alya hereby covenants and agrees to be liable to Agent and each of the
Joint Venturers for and to indemnify and save Agent and each of the Joint
Venturers from and against, effective as and from the Closing Date, any
claims, demands, actions, causes of action, damages, losses, costs (including
legal costs of a solicitor on a full indemnity basis), liabilities or
expenses which may be made or brought against Agent and/or any one or both of
the Joint Venturers and which he or they may suffer or incur as a result of,
in respect of, or arising out of:
a. any non-fulfillment of or breach of any covenant, undertaking,
representation or warranty on the part of Alya, under this Agreement or any
document or instrument contemplated by this Agreement; and
<PAGE>
b. subject to Section 5.2, infringement of any third party rights to the
Intellectual Property as a result of the use of the Intellectual Property
in accordance herewith on or after the Closing Date ("Infringement
Claims").
This provision shall survive closing and continue in full force and effect
until the parties mutually agree to the release thereof.
5.2 INDEMNIFICATION PROCEDURE
Upon the occurrence of an event giving rise to indemnification hereunder
as a result of a claim, action or cause of action made or brought against
Agent and/or any one or both of the Joint Venturers, (i) prompt notice shall
be given to Alya of such events, (ii) Alya's attorneys shall be permitted to
handle and control the defense of such claims, at Alya's expense, and (iii)
Alya shall receive reasonable cooperation in the defense thereof. Alya
agrees to assume the defense of such claims, demands, actions or causes of
action. Agent and/or any one or both of the Joint Venturers may, at his own
expense, participate in such defense, provided however, that, as Alya has
agreed herein to assume the defense of such claims, such participation
expenses shall not become part of the indemnification claim. There shall be
no settlements, whether agreed to in court or out of court, without the prior
written consent of Alya and the Joint Venturers, except that Alya may settle
a claim without the consent of the Joint Venturers if (i) the settlement is
purely monetary, (ii) Alya hereunder admits in writing its liability to Agent
and/or any one or both of the Joint Venturers hereunder, and (iii)
concurrently with such settlement, Alya pays the full amount owed thereunder.
Notwithstanding the foregoing, in the event Alya does not assume the defense
of any such claim or litigation in accordance with the terms hereof within
the earlier of (i) thirty (30) days following written notice of such claim or
litigation from Agent and/or any one or both of the Joint Venturers or (ii)
the due date for response to any complaint filed, then Agent and/or any one
or both of the Joint Venturers may defend against such claim or litigation in
such manner as it may deem appropriate, including, but not limited to,
settling such claim or litigation, after giving notice of the same to Alya,
on such terms as Agent and/or any one or both of the Joint Venturers may deem
appropriate. In any action by Agent and/or any one or both of the Joint
Venturers seking indemnification from Alya in accordance with the provisions
hereof, Alya shall not be entitled to object to the manner in which Agent
and/or any one or both of the Joint Venturers has defended such claim or the
amount of or nature of any such settlement.
5.3 COVENANT NOT TO COMPETE
<PAGE>
Agent acknowledges on behalf of the Joint Venturers that the Purchased Assets
have a territorial limitation, and Agent covenants on behalf of the Joint
Venturers that it will only market, distribute and sell the Application
Software within the Territory. Alya covenants and agrees that it shall not
market, distribute and/or sell the Application Software within the Territory,
(or knowingly market, distribute and/or sell the Application software to any
person who intends to use it in the Territory) except as contemplated in the
Management Agreement. Alya retains the exclusive rights to use, modify,
market, distribute and sell the Application Software, the Enhancements and
the Intellectual Property in all regions of the world, other than the
Territory. Nothing herein precludes Alya from selling the O.P.E.N.cortex
platform and associated hardware as a stand-alone development platform
worldwide.
5.4 OTHER COVENANTS
Alya (and with respect to Section 5.4 d. only, Alya and Agent, on behalf
of the Joint Venturers) covenants and agrees as follows:
a. until the Closing Date, Alya will not sell, license or otherwise dispose of
any of the Purchased Assets or any part thereof or interest therein, or
agree to do so, or enter into any negotiations with a view to any of the
foregoing, without the prior approval of Agent;
b. Alya will make available to Agent and the Joint Venturers for due diligence
investigations, all information, documents and agreements pertaining to the
development, acquisition and marketing of the Application Software,
including, without limitation, computer code and related documentation,
marketing and product business plans and the full cooperation of Alya
management;
c. Alya will complete the Originality Certificate and deliver it to the Joint
Venturers and their counsel on or before Closing;
d. each Receiving Party that receives Confidential Information from the
Disclosing Party shall maintain such Confidential Information in
confidence, shall not reveal the same to any third party (other than its
employees, advisors, consultants and agents on a need to know basis in
connection with the Receiving Party's performance under this Agreement or
the Management Agreement) and shall not use such Confidential Information,
directly or indirectly, for any purpose other than as required for due
diligence investigations
<PAGE>
and in the performance of this Agreement or the Management Agreement; and
e. Alya will acquire, at its expense and in the Joint Venturers' names,
licenses for any third party software comprising part of the Purchased
Assets not assignable or assigned by Alya to the Joint Venturers.
<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS TO AGENT'S OBLIGATIONS
The obligations of Agent assumed on behalf of the Joint Venturers
hereunder will be subject to the satisfaction or compliance with, at or
before Closing, of each of the following conditions precedent (each of which
is hereby acknowledged to be included for the exclusive benefit of Agent and
may be waived in writing in whole or in part):
a. the execution and delivery of all of the closing deliveries identified in
Section 7.3;
b. Subject to Agent's and the Joint Venturers' reliance on Alya's
representation and warranty set out in subsection 4.1(r) herein, all legal
and regulatory approvals and consents, whether from shareholders,
governmental authorities or other third parties necessary to the completion
of the transactions contemplated by the terms of this Agreement have been
obtained;
c. there will have been no material adverse change, financial or otherwise, in
Alya or the Purchased Assets;
d. Alya will have performed or complied with, in all respects, all of its
undertakings, covenants and agreements hereunder to be performed or
complied with; and
e. the representations and warranties of Alya contained in Section 4.1 will be
true and correct on Closing.
6.2 CONDITIONS TO ALYA'S OBLIGATIONS
The obligations of Alya hereunder will be subject to the satisfaction or
compliance with, at or before Closing, of each of the following conditions
precedent (each of which is hereby acknowledged to be included for the
exclusive benefit of Alya and may be waived in writing in whole or in part):
a. delivery of the Purchase Price, and the execution and delivery of all
closing deliveries identified in Section 7.4;
b. Agent will have performed or complied with, in all respects, all of its
undertakings, covenants and
<PAGE>
agreements hereunder to be performed or complied with; and
c. the representations and warranties of Agent contained in Section 4.2 will
be true and correct on Closing.
ARTICLE 7
CLOSING
7.1 CLOSING DATE
The transaction of purchase and sale contemplated by this Agreement will
be completed at or about 3:00 P.M. on the Closing Date at the offices of the
Joint Venturers' Solicitors ("Closing").
7.2 SURVIVAL
This Agreement and its component parts will not merge upon Closing or on
execution, delivery or registration of any documents executed, delivered or
registered pursuant to this Agreement or otherwise, but will survive Closing.
7.3 ALYA'S CLOSING DELIVERIES
a. At the Closing, Alya will duly execute and deliver or cause to be
executed and delivered to the Joint Venturers the following:
i. a bill of sale assigning the Purchased Assets to the Joint Venturers;
ii. the Management Agreement;
iii. the Originality Certificate;
iv. the Letter of Representation;
v. the Security Agent Agreement;
vi. a certified copy of the resolutions of the directors of Alya
authorizing the transactions;
vii. such other agreements and documents as Agent may reasonably request
to give effect to the terms and conditions of this Agreement; and
viii. a copy of all patent, trademark and copyright registrations in
respect of the Application Software; and
<PAGE>
ix. a copy of all authors' assignments of copyright, patent and trademark
and waivers of moral rights in the Application Software.
b. At the Closing, Alya will deliver or cause to be delivered into the
Province of Alberta, an electronic copy of the Application Software,
including, without limitation, a copy of all Documentation, each of which
shall be delivered to Agent or his designee by electronic transfer. Alya
covenants and agrees that it will not deliver or cause to be delivered any
copies of the Application Software or the Documentation into the Province
of Ontario.
7.4 AGENT'S CLOSING DELIVERIES
At Closing, Agent will execute and deliver or cause to be executed and
delivered the following:
a. wire transfer, bank draft or solicitor's trust cheque for the cash amount
of the Purchase Price payable on Closing pursuant to Section 3.1, subject
to any withholding tax payable in connection with such payment;
b. the Assigned Notes, each duly endorsed in favor of Alya or Alya's designee;
c. the Note;
d. the Management Agreement;
e. the Security Agent Agreement; and
f. such other agreements and documents as Alya may reasonably request to give
effect to the terms and conditions of this Agreement.
7.5 DELIVERY TO SECURITY AGENT
Agent hereby directs Alya to electronically deliver to the Security
Agent all of the deliverables described in subsection 7.3(b) herein, on
Closing and as security for the obligations under the Note, which the
Security Agent will hold secure in accordance with the terms of the Security
Agent Agreement; provided that to the extent that the Security Agent is
holding anything other than source code for the Application Software, the
Security Agent will release such materials and information, upon request, to
either the Agent or the Joint Venturers.
ARTICLE 8
GENERAL
<PAGE>
8.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair
such provision or part thereof or any other provisions of this Agreement in
any other jurisdiction.
8.2 FURTHER ASSURANCES
Each of the parties will, at any time and from time to time at the
request of the other, execute and deliver any and all such further
instruments or assurances as may be necessary or desirable to give effect to
the terms and conditions of this Agreement.
8.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties
as if they had originally signed one copy of this Agreement.
8.4 ASSIGNMENT
Agent and/or any one or both of the Joint Venturers may assign any part
of its interest in this Agreement or the Purchased Assets, except that any
assignment to any person who is carrying on business immediately prior to
such assignment that is in direct competition with Alya, requires the prior
written consent of Alya. Such assignment shall be effected by:
a. giving written notice of the name and address of the assignee; and
b. by delivering to Alya a written undertaking of the assignee, acknowledging
receipt of a copy of this Agreement and agreeing to be bound by the terms
and conditions of this Agreement.
<PAGE>
Alya may not assign this Agreement, without the prior written consent of
Agent given on behalf of the Joint Venturers, except that Alya may assign
this Agreement in whole, but not in part, and only with an assignment of all
of its rights and obligations under the Note and the Security Agent
Agreement, to (i) any corporation, partnership or other entity which is
controlled by, controlling or under common control with, Alya; or (ii) a
Agent of all or substantially all the assets of Alya, or any person or entity
into which Alya is merged or consolidated by:
a. giving written notice of the name and address of the assignee; and
b. by delivering to Agent a written undertaking of the assignee, acknowledging
receipt of a copy of this Agreement and agreeing to be bound by the terms
and conditions of this Agreement.
8.5 BINDING EFFECT
This Agreement and all of these provisions will adhere to the benefit of
the parties and to the benefit of the Joint Venturers as the principals of
the Agent, and their respective successors and permitted assigns, and will be
binding upon the parties and upon the Joint Venturers, as principles of the
Agent, and their respective successors and permitted assigns. The
expressions "Alya" and "Agent" and "Joint Venturers", as used herein will
include Alya's and Agent's and Joint Venturers' permitted assigns wherever
immediate or derivative, respectively.
Alya herein acknowledges and agrees that all benefits accruing to or
obligations of the Agent are not personal to the Agent, but are made for the
benefit (or obligation) of and on behalf of the Joint Venturers.
8.6 ARBITRATION OF DISPUTES
Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the
parties for resolution and, in the event that senior management cannot
resolve the dispute within 30 days of escalation of the dispute to such
level, then the parties agree that such dispute shall be settled by final
and binding arbitration in Calgary, Alberta, before a single arbitrator
mutually acceptable to Owner and Manager, in accordance with arbitration
legislation of Alberta then existing, except as otherwise specifically
provided herein. The arbitrator shall apply the laws of the Province of
Alberta and the laws of Canada for the purposes of construing and enforcing
this Agreement and any dispute arising hereunder. The arbitration award
<PAGE>
shall be specifically enforceable; judgment upon any arbitration award may be
entered in any court with personal jurisdiction over the parties and subject
matter of the disputes. Unless otherwise determined by the arbitrator, all
expenses in connection with such arbitration will be divided equally between
the parties, with the exception of expenses of counsel, witnesses and
employees of the parties which will be borne by the parties incurring them.
Notwithstanding anything to the contrary herein, either party will always be
entitled to seek preliminary or provisional remedies or release (including
attachments and preliminary injunctions) from any court of competent
jurisdiction.
8.7 AMENDMENT
This Agreement may be altered or amended in any of its provisions when
any such changes are reduced to writing and signed by the parties hereto but
not otherwise.
8.8 TIME OF THE ESSENCE
Time will be of the essence of this Agreement.
8.9 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in this transaction.
8.10 CONFIDENTIALITY
Each of the parties will treat this Agreement and all information
relating to this Agreement and the transactions contemplated by this
Agreement confidentially and no public disclosure by any party will be made
without the prior approval of the other, not to be unreasonably withheld,
except (i) to employees, advisors, consultants and agents on a need to know
basis in connection with performance under this Agreement or the Management
Agreement, or (ii) as legally required by a party to satisfy disclosure
obligations to shareholders and regulators, and in the latter case,
simultaneous notice of such disclosure will be given to the other party.
8.11 ENTIRE AGREEMENT
This Agreement, the Management Agreement, the Security Agent Agreement,
the Note and the exhibits and schedules referenced in each of the foregoing
constitute the entire Agreement among the parties and supersedes all
proposals, letters of intent, representations or agreements, oral or written,
among them relating to the subject matter hereof.
<PAGE>
8.12 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Province of Alberta and the laws of Canada
applicable therein (regardless of either jurisdiction's or any other
jurisdiction's choice of law principles). To the extent permitted by law,
the parties hereto agree that all actions or proceedings arising in
connection herewith, shall be arbitrated or litigated in Calgary, Alberta,
Canada, and each party hereby waives any right it may have to assert the
doctrine of Forum Non Conveniens or to object to venue. The parties each
hereby stipulate that the courts located in Calgary, Alberta, shall have
personal jurisdiction and venue over each party for the purpose of litigating
any such dispute, controversy or proceeding arising out of or related to this
Agreement.
8.13 NOTICES
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given by
personal delivery, international overnight courier service, or by facsimile
(subject to confirmation of receipt), addressed to the respective party at
the applicable address set forth above, or to any party at such other
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this Section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or two (2) business days following deposit with any international overnight
courier service, or upon confirmation of receipt if sent by facsimile
transmission.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day first above written.
ALYA: ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
---------------------------------
Milan Carnogursky, President
------------------------------------
(Print Name and Title)
<PAGE>
AGENT:
/s/ [AGENT]
------------------------------------
[AGENT] as agent for [PURCHASER 3]
and [PURCHASER 4] and not in his
personal capacity.
<PAGE>
MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of December 22, 1997.
BETWEEN:
[PURCHASER 3], with an address at [PURCHASER 3'S ADDRESS], Fax: [PURCHASER
3'S FAX], & [PURCHASER 4], with an address at [PURCHASER 4'S ADDRESS], Fax:
[PURCHASER 4'S FAX], both individuals, as joint venturers (each with an
undivided 50% interest) (hereinafter collectively referred to as "Joint
Venturers" and individually referred to as "Joint Venturer");
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a California corporation, having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303, Fax: (650)
361-8286 (hereinafter referred to as "Manager");
OF THE SECOND PART
WHEREAS:
A. Joint Venturers have acquired or developed and own all of the right, title
and interest to use, distribute and sell the Assets in the Territory; and
B Whereas Joint Venturers have appointed [AGENT], as agent, to act on their
behalf (and with all necessary authority designated to him) to hold the
Assets in the Province of Alberta, including all Documentation and
Enhancements and any other material relating thereto, and Joint Venturers
wish to ensure that the Assets are neither delivered into nor used in the
Province of Ontario at any time;
C. Joint Venturers have agreed to contribute their interests in the Assets for
the purpose of carrying on two separate and distinct businesses for the
management, marketing, distribution and sale of the Assets in the
Territory, one (for the account of [PURCHASER 3]) to be carried on in the
Eastern Territory and the other (for the account of [PURCHASER 4]) to be
carried on in the Western Territory;
D. [PURCHASER 3] wishes to appoint Manager, as his exclusive agent, to manage,
market, distribute and sell
<PAGE>
the Security System in the Eastern Territory on the terms and conditions
set out in this Agreement; and
E. [PURCHASER 4] wishes to appoint Manager, as his exclusive agent, to manage,
market, distribute and sell the Security System in the Western Territory on
the terms and conditions set out in this Agreement.
NOW THEREFORE in consideration of the entitlements to receive certain
cash distributions under this Agreement, and the covenants, agreements and
premises herein contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions will have the following meanings:
a. "Agent" means [AGENT], an individual residing in the Province of Alberta;
b. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in Schedule A to the Application Software Purchase
Agreement together with Enhancements;
c. "Application Software Purchase Agreement" means the application software
purchase agreement made as of December 22, 1997, between Agent and Manager;
d. "Assets" means "Purchased Assets" as that term is defined in the
Application Software Purchase Agreement;
e. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Application
Software Purchase Agreement, including the Application Software, the
Security System and the Purchased Assets, are deemed to be confidential
without the need for written notice and shall at all times remain
confidential, notwithstanding the exception to confidentiality noted in the
next sentence.
<PAGE>
"Confidential Information" of the Disclosing Party shall not include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without breach of this Agreement
by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party, independently of the Disclosing Party and
without breach of an obligation of confidentiality to the
Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
obligation of confidentiality to the Disclosing Party;
D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
f. "Customer" means any person using or distributing the Security System in
the Territory;
g. "Documentation" has the meaning set out in Subsection v. of the definition
of "Purchased Assets" as defined in the Application Software Purchase
Agreement;
<PAGE>
h. "Eastern Expenses" has the meaning specified in Subsection 3.2 c.;
i. "Eastern Gross Sales" has the meaning specified in Subsection 3.2 c.;
j. "Eastern Management Fee" has the meaning specified in Subsection 3.2.c;
k. "Eastern Net Revenue" has the meaning specified in Subsection 3.2 c.;
l. "Eastern Net Sales" has the meaning specified in Subsection 3.2 c.;
m. "Eastern Overhead and Administrative Costs" has the meaning specified in
Subsection 3.2 c.;
n. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Assets by Manager, or any employee or
subcontractor of Manager, to be utilized in connection with providing the
Security System, including, without limitation, any improvement, revision
or other modification which is necessary:
i. to provide Customers with the then current Security System; or
ii. to maintain the Application Software and/or the Security System as a
state of the art or industry leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A of the Application Software Purchase Agreement, to the extent
that Manager continues to believe they are commercially reasonable in light
of then current market conditions and technical developments;
o. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of "Purchased Assets" as defined in the Application Software
Purchase Agreement;
p. "Manager" means Alya International, Inc. and its permitted assigns in its
capacity as the agent for the Joint Venturers and manager of the Assets
appointed by the Joint Venturers under this Agreement;
q. "Note" or "Notes" means the [PURCHASER 3] Note and/or the [PURCHASER 4]
Note, individually or collectively, as applicable.
<PAGE>
r. "[PURCHASER 4]" means [PURCHASER 4], utilizing a business address at
[ADDITIONAL PURCHASER 3 & 4 ADDRESS],
s. "[PURCHASER 4] Interest Amount" means an amount equal to the annual
interest payable under the [PURCHASER 4] Note;
t. "[PURCHASER 4] Note" means the 6.0% Secured Term Note, executed and
delivered by [PURCHASER 4] and secured by [PURCHASER 4]'s interest in the
Assets, in substantially the form as attached to the Application Software
Purchase Agreement dated as of the date hereof and issued in connection
with the purchase of the Assets;
u. "[PURCHASER 4] Return" has the meaning specified in Subsection 3.2.c;
v. "Security Agent" means [SECURITY AGENT], the security agent under the
Security Agent Agreement;
w. "Security Agent Agreement" means the security agent agreement made as of
December 22, 1997, among each of the Joint Venturers, Manager and Security
Agent;
x. "Security System" means the building access control system developed by
Manager and known as the O.P.E.N.centrix - Open Platform for Essential
Networks, which includes, without limitation, the Application Software, the
firmware containing the Application Software, and the O.P.E.N.cortex
platform software;
y. "Territory" means Canada, and "Western Territory" means the geographic
region within the Territory comprised of the provinces as set forth in
SCHEDULE A, and "Eastern Territory" means the geographic region within the
Territory comprised of the provinces as set forth on SCHEDULE A; and
z. "[PURCHASER 3]" means [PURCHASER 3], utilizing a business address at
[ADDITIONAL PURCHASER 3 & 4 ADDRESS],
aa. "[PURCHASER 3] Interest Amount" means an amount equal to the annual
interest payable under the [PURCHASER 3] Note;
<PAGE>
bb. "[PURCHASER 3] Note" means the 6.0% Secured Term Note, executed and
delivered by [PURCHASER 3] and secured by [PURCHASER 3]'s interest in the
Assets, in substantially the form as attached to the Application Software
Purchase Agreement dated as of the date hereof and issued in connection
with the purchase of the Assets;
cc. "[PURCHASER 3] Return" has the meaning specified in Subsection 3.1.c;
dd. "Western Expenses" has the meaning specified in Subsection 3.1 c.;
ee. "Western Gross Sales" has the meaning specified in Subsection 3.1 c.;
ff. "Western Management Fee" has the meaning specified in Subsection 3.1.c;
gg. "Western Net Revenue" has the meaning specified in Subsection 3.1 c.;
hh. "Western Net Sales" has the meaning specified in Subsection 3.1 c.;
ii. "Western Overhead and Administrative Costs" has the meaning specified in
Subsection 3.1 c.;
jj. "year" means a fiscal year ending September 30.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplemental to this Agreement. Unless something in the subject matter or
context is inconsistent therewith, reference herein to Sections and
Subsections are to Sections and Subsections of this Agreement;
b. Except as specifically stated in this Agreement, all references to currency
are to United States of America dollars. Any currency conversion required
or contemplated by this Agreement with respect to Canadian and United
States of America currency will be based on the rate published by the Bank
of Canada as the noon spot rate of exchange applicable for such currencies
on the business day immediately before the date of conversion;
<PAGE>
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires and the provisions hereof.
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
ARTICLE 2
MANAGEMENT SERVICES
2.1 APPOINTMENT OF AGENT/MANAGER
a. [PURCHASER 3] hereby appoints Manager as his sole and exclusive agent for
the purpose of managing the marketing, distribution, sale, Enhancement and
support of the Security System within the Eastern Territory, subject to the
terms and conditions of this Agreement, and Manager hereby accepts such
appointment.
b. [PURCHASER 4] hereby appoints Manager as his sole and exclusive agent for
the purpose of managing the marketing, distribution, sale, Enhancement and
support of the Security System within the Western Territory, subject to the
terms and conditions of this Agreement, and Manager hereby accepts such
appointment.
2.2 MANAGEMENT DUTIES
a. Manager will, in good faith, observe and perform the following obligations
in respect of the marketing, distribution, sale, Enhancement and support,
within each of the Western Territory and the Eastern Territory (hereinafter
sometimes collectively referred to as the "Territory"), of the Security
System in a good and workmanlike manner, utilizing its capable management
and technical expertise:
i. MARKETING, DISTRIBUTION AND SALE. Manager will be responsible for the
marketing, distribution and sale of the Security System, within each
of the Western Territory and the Eastern Territory, including, without
limitation, developing marketing materials, organizing product
demonstrations, establishing distribution channels, pricing, promotion
and sale of the Security System. Manager will use commercially
reasonable efforts to maximize sales of the Security System within
each of the Western Territory and the Eastern Territory. Manager will
<PAGE>
be responsible for developing and negotiating the contracts required
to sell the Security System to Customers within each of the Western
Territory and the Eastern Territory, and Manager will use best efforts
to ensure that such contracts will not give rise to gross revenue that
is rent, royalty or leasing revenue. Each of the Joint Venturers will
be entitled to receive copies of and to comment on standard form sales
and support service contracts and Manager shall address all such
comments with the relevant Joint Venturer and take into account all of
such Joint Venturer's directions and instructions forming a part of
such comments. All such contracts will contain provisions of
confidentiality acceptable to each of the Joint Venturers. In
addition, Manager will have responsibility for the billing and
collection of fees and payments from Customers and for the payment of
fees to each of the Joint Venturers. Manager shall comply with all
applicable laws and regulations and obtain all appropriate government
approvals pertaining to the sale, distribution and advertising of the
Security System and of goods and services utilizing the trademark
"O.P.E.N.centrix";
Each of the Joint Venturers will be entitled to conduct an inspection
of the management of the marketing, distribution, sale, Enhancement
and support of the Security System within his relevant Territory at
any time during regular business hours upon reasonable notice to
Manager. Notwithstanding any other provision in this Agreement,
Manager will take into account any and all commercially reasonable
directions and/or specifications given by a Joint Venturer pertaining
to the marketing, distribution, sale, Enhancement and support of the
Security System within such Joint Venturer's Territory, which Manager
may receive from such Joint Venturer from time to time in writing.
Manager will ensure that the Assets are not, delivered into or used in
the Province of Ontario or any other jurisdiction which may assess
sales or use tax in respect of the Assets, save and except that such
prohibition shall not prevent Manager from selling the Security System
(and any portion of the Assets integrated therein) at retail sale to
Customers;
ii. SUPPORT, TRAINING AND CONSULTING. Manager will have complete
responsibility for delivery and installation of the Security System
within each of the Western Territory and the Eastern Territory.
<PAGE>
Manager will provide all support services for Customers including
telephone and on-site support. Manager will also provide all required
training and consulting support;
iii. MAINTENANCE AND ENHANCEMENTS. All maintenance necessary to correct
any errors in the Assets found by any Customer will be provided by
Manager pursuant to the terms of its support services agreements.
Manager will prepare and provide all Enhancements to Agent in the
Province of Alberta; and
iv. With respect to any third party software required to operate the
Security System, Alya has licenses for such third party software which
allow Alya to market such software, directly or indirectly through
sublicensees, in conjunction with the Security System and will
maintain such licenses in good standing for the benefit of each of the
Joint Venturers.
b. In addition to the duties referred to in Subsection 2.2 a., Manager will,
in good faith and in satisfaction of its fiduciary duty to each Joint
Venturer, do the following:
i. REVIEWS. Manager will review and report to each Joint Venturer or its
duly appointed agent on Manager's performance under this Agreement on
a quarterly basis. Such review and report for [PURCHASER 3] shall
pertain to the Eastern Territory, and such review and report for
[PURCHASER 4] shall pertain to the Western Territory. Such reviews
will be scheduled by mutual agreement of the relevant parties;
ii. COMPUTER CODE. Upon request, Manager will deliver computer code (in
object code and source code form) together with all related
documentation and development tools necessary or desirable to enable
the Application Software and all Enhancements to operate properly to
Agent in the Province of Alberta, on an annual basis, within thirty
(30) days of the end of each calendar year. Manager will assist Agent
in verifying that the computer code delivered to Agent is fully
functional Application Software and Enhancements; and
iii. CONFLICT OF INTEREST. Manager acknowledges and agrees that it is
acting in a fiduciary capacity as agent of each Joint Venturer, it
will act in
<PAGE>
good faith and in the best interests of each Joint Venturer, and will
conduct itself as such in all dealings on behalf of each Joint
Venturer and in connection with the performance of its obligations
under this Agreement. In particular, Manager will avoid conflicts of
interest between itself and [PURCHASER 3] in connection with the
business of marketing, distribution, sale and support of the Security
System in the Eastern Territory, and will avoid conflicts of interest
between itself and [PURCHASER 4] in connection with the business of
marketing, distribution, sale and support of the Security System in
the Western Territory.
2.3 INSURANCE
a. Without in any way limiting the liability of Manager under this Agreement,
Manager will be responsible to maintain and keep in force during the term
of this Agreement the following insurance coverage:
i. automobile liability insurance on all vehicles used in connection with
this Agreement. In respect of such vehicles not owned by Manager, it
will maintain and keep in force as aforesaid non-owned automobile
liability insurance protecting its liability including that assumed
under this Agreement. The limits of such insurance will be at least;
for bodily injury (including passenger hazard) and property damages,
one million dollars ($1,000,000.00) inclusive for any one accident;
ii. comprehensive general liability insurance (including liability under
this Agreement) with inclusive limits of not less than two million
dollars ($2,000,000.00) for bodily injury and property damage;
iii. employer's liability insurance with limits of not less than one
million dollars ($1,000,000.00) for each employee where Workers'
Compensation does not exist; and
iv. unless otherwise directed by a Joint Venturer, in writing, insurance
covering loss of or damage to all machinery, tools, equipment,
supplies and structures owned by Manager and/or rented or leased from
a third party or parties and used by Manager or its sub-contractors in
performing its obligations under this Agreement.
b. The above insurance policies will not be changed in any manner which could
affect the interests of either Joint
<PAGE>
Venturer without thirty (30) days' prior written notice by registered mail
to such Joint Venturer.
c. For greater certainty, the parties agree and understand that the
obligations of Manager, as set forth in this Section 2.3, may be fulfilled
if Manager's existing insurance policy satisfies the requirements of this
Section.
d. Manager will supply each Joint Venturer with certificates evidencing the
above insurance forthwith following execution of this Agreement. Any
insurance carried by Manager will name Joint Venturers as additional
insured and loss payees and will contain a waiver of subrogation in favor
of Joint Venturers.
ARTICLE 3
ALLOCATION AND DISTRIBUTION OF FEES
3.1 DISTRIBUTION OF FEES FROM WESTERN TERRITORY
a. Manager will distribute to [PURCHASER 4], annually, the Western Net
Revenues for the second, third and fourth quarters of the preceding year
and for the first quarter of the current year in the following order of
priority:
i. to pay the [PURCHASER 4] Interest Amount, plus any other accrued and
unpaid interest on the [PURCHASER 4] Note; and
ii. to pay the [PURCHASER 4] Return, including any cumulative amount of
the [PURCHASER 4] Return not paid in prior years.
b. Thereafter, Manager will distribute to [PURCHASER 4], annually, the Western
Net Revenue for the second, third and fourth quarters of the preceding year
and for the first quarter of the current year less the amounts set forth in
Section 3.1.a., payable in the year in the following order of priority:
i. 45% to [PURCHASER 4], for payment against the principal sum
outstanding from time to time under the [PURCHASER 4] Note and in
accordance with the [PURCHASER 4] Note; and
ii. 55% to [PURCHASER 4] for retention by [PURCHASER 4]; and
c. For the purposes of this Agreement the following terms have the following
meanings:
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i. "Western Management Fee" means an annual marketing and management fee
payable to Manager by [PURCHASER 4] and calculated at the end of each
year pursuant to the following formula:
Formula:
Western Management Fee =
(WN - WI - WU/.55 -Cdn.$50,000) X .45,
[but not less than zero]
Where,
WN = Western Net Revenues, calculated without reference to Paragraph E
of the definition for Western Expenses;
WI = the [PURCHASER 4] Interest Amount in such year, plus any other
accrued and unpaid interest on the [PURCHASER 4] Note;
WU = the outstanding principal on the [PURCHASER 4] Note at the end of
such year;
ii. "Western Expenses" means the following cumulative costs and fees to
the extent not previously recouped by Manager in accordance herewith:
A. the cost of goods sold in the Western Territory relating to the
Application Software, including without limitation, costs of
material, manufacturing, quality assurance and testing, costs of
third party licenses, but excluding any costs of goods sold
relating to the hardware incorporated in the Security System;
B. direct costs of marketing, distributing and selling the Security
System in the Western Territory including without limitation, any
costs of acquiring access, assets and/or expertise to channels of
trade to market and distribute the Security System in the Western
Territory;
C. the pro rata share of the cost of Enhancements in a year,
determined by multiplying the cost of Enhancements in such year
by a fraction, the numerator of which is the Western Net Sales in
such year and the denominator of which is the gross amount paid
to Alya in such year for the purchase,
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installation and support of the Security System in the United
States and Canada, less normal course of business selling credits
for discounts and rebates in such year and less return
adjustments for which a refund has been paid or credited to the
customer to the extent of the payment or credit in such year;
D. Western Overhead and Administrative Costs; and
E. Western Management Fee.
iii. "Western Gross Sales" means gross amounts paid by Customers in the
Western Territory, in a year, to purchase, install, and receive
support for the Security System less the price of the hardware
incorporated therein, applying Manager's standard prices charged to
similar customers, as in effect from time to time;
iv. "Western Net Revenue" means Western Net Sales less Western Expenses;
v. "Western Net Sales" means Western Gross Sales less:
A. normal course of business selling credits for discounts or
rebates to Customers in the Western Territory for the year; and
B. returns or adjustments for the Security System for which a refund
has been paid or credited to a Customer in the Western Territory,
or any distributor or other reseller in the Western Territory, to
the extent of the payment or credit in the year;
vi. "Western Overhead and Administrative Costs" means the overhead and
administrative costs of Manager to manage and market the Security
System in the Western Territory, for a year, determined by multiplying
Manager's total overhead and administrative costs for marketing and
managing the Security System in the United States and Canada in such
year by a fraction, the numerator of which is the Western Net Sales
for such year and the denominator of which is the aggregate gross
amount paid to Alya in such year, for the purchase, installation and
support of the Security System in the United States and Canada, less
normal course of business selling credits for discounts and rebates in
such year and less return adjustments for which a refund has been paid
or
<PAGE>
credited to the customer, to the extent of the payment or credit in
such year; and
vii. "[PURCHASER 4]'s Return" means an annual cumulative preferential
return to [PURCHASER 4] of Fifty Thousand Canadian Dollars
(Cdn.$50,000) (prorated for any partial year);
3.2 DISTRIBUTION OF FEES FROM EASTERN TERRITORY
a. Manager will distribute, annually, the Eastern Net Revenues for the second,
third and fourth quarters of the preceding year and for the first quarter
of the current year in the following order of priority:
i. to pay the [PURCHASER 3] Interest Amount, plus any other accrued and
unpaid interest on the [PURCHASER 3] Note; and
ii. to pay the [PURCHASER 3] Return, including any cumulative amount of
the [PURCHASER 3] Return not paid in prior years.
b. Thereafter, Manager will distribute, annually, the Eastern Net Revenue for
the second, third and fourth quarters of the preceding year and for the
first quarter of the current year less the amounts set forth in Section
3.2.a., payable in the year in the following order of priority:
i. 45% to [PURCHASER 3], for payment against the principal sum
outstanding from time to time under the [PURCHASER 3] Note and in
accordance with the [PURCHASER 3] Note; and
ii. 55% to [PURCHASER 3] for retention by [PURCHASER 3]; and
c. For the purposes of this Agreement the following terms have the following
meanings:
i. "Eastern Management Fee" means an annual marketing and management fee
payable to Manager by [PURCHASER 3] and calculated at the end of each
year pursuant to the following formula:
Formula:
Eastern Management Fee =
(EN - EI - EU/.55 -Cdn.$50,000) X .45,
[but not less than zero]
<PAGE>
Where,
EN = Eastern Net Revenues, calculated without reference to Paragraph E
of the definition for Eastern Expenses;
EI = the [PURCHASER 3] Interest Amount in such year, plus any other
accrued and unpaid interest on the [PURCHASER 3] Note;
EU = the outstanding principal on the [PURCHASER 3] Note at the end of
such year;
ii. "Eastern Expenses" means the following cumulative costs and fees to
the extent not previously recouped by Manager in accordance herewith:
A. the cost of goods sold in the Eastern Territory relating to the
Application Software, including without limitation, costs of
material, manufacturing, quality assurance and testing, costs of
third party licenses, but excluding any costs of goods sold
relating to the hardware incorporated in the Security System;
B. direct costs of marketing, distributing and selling the Security
System in the Eastern Territory including without limitation, any
costs of acquiring access, assets and/or expertise to channels of
trade to market and distribute the Security System in the Eastern
Territory;
C. the pro rata share of the cost of Enhancements in a year,
determined by multiplying the cost of Enhancements in such year
by a fraction, the numerator of which is the Eastern Net Sales in
such year and the denominator of which is the gross amount paid
to Alya in such year for the purchase, installation and support
of the Security System in the United States and Canada, less
normal course of business selling credits for discounts and
rebates in such year and less return adjustments for which a
refund has been paid or credited to the customer to the extent of
the payment or credit in such year;
D. Eastern Overhead and Administrative Costs; and
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E. Eastern Management Fee.
iii. "Eastern Gross Sales" means gross amounts paid by Customers in the
Eastern Territory, in a year, to purchase, install, and receive
support for the Security System less the price of the hardware
incorporated therein, applying Manager's standard prices charged to
similar customers, as in effect from time to time;
iv. "Eastern Net Revenue" means Eastern Net Sales less Eastern Expenses;
v. "Eastern Net Sales" means Eastern Gross Sales less:
A. normal course of business selling credits for discounts or
rebates to Customers in the Eastern Territory for the year; and
B. returns or adjustments for the Security System for which a refund
has been paid or credited to a Customer in the Eastern Territory,
or any distributor or other reseller in the Eastern Territory, to
the extent of the payment or credit in the year;
vi. "Eastern Overhead and Administrative Costs" means the overhead and
administrative costs of Manager to manage and market the Security
System in the Eastern Territory, for a year, determined by multiplying
Manager's total overhead and administrative costs for marketing and
managing the Security System in the United States and Canada in such
year by a fraction, the numerator of which is the Eastern Net Sales
for such year and the denominator of which is the aggregate gross
amount paid to Alya in such year, for the purchase, installation and
support of the Security System in the United States and Canada, less
normal course of business selling credits for discounts and rebates in
such year and less return adjustments for which a refund has been paid
or credited to the customer, to the extent of the payment or credit in
such year; and
vii. "[PURCHASER 3]'s Return" means an annual cumulative preferential
return to Owner of Fifty Thousand Canadian Dollars (Cdn.$50,000)
(prorated for any partial year);
3.3 DETERMINATION OF FEES AND CALCULATIONS
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a. Notwithstanding anything else contained in this Agreement, in no event,
without the prior written consent of the applicable Joint Venturer, will
fees or other amounts for the Security System within such Joint Venturer's
Territory:
i. be set below competitive prices prevailing in the market for similar
products or services as determined by Manager acting in the best
interests of such Joint Venturer; or
ii. be discounted for any other consideration granted to Manager, its
affiliates or associates that is not provided to such Joint Venturer;
and
b. All amounts to be determined for the purposes of the calculations required
pursuant to this Article 3 will be determined in accordance with United
States generally accepted accounting principles consistently applied from
year to year and consistently applied between the Security System sold by
Manager hereunder and the other services sold by Manager outside the scope
of this Agreement.
3.4 TIMING AND PAYMENT OF DISTRIBUTIONS
Amounts payable to each Joint Venturer for a year pursuant to Sections 3.1
and 3.2 will be paid within 60 days following each calendar year end.
3.5 SET OFF
Manager will have the right to set off amounts payable by Manager to a
Joint Venturer under this Agreement against amounts payable to Manager by such
Joint Venturer under the Joint Venturer's Note except that Manager will have no
right of set off and will pay the following amounts to such Joint Venturer
without regard to the equities between Manager or its affiliates and such Joint
Venturer:
i. amounts payable to such Joint Venturer pursuant to Subsections 3.1
a.ii. and 3.1 b. ii. or 3.2 a.ii. and 3.2 b. ii., as applicable, for
his retention; and
ii. amounts payable by such Joint Venturer as sales taxes or goods and
services taxes, which amounts will be remitted forthwith upon their
being due, by Manager to the appropriate authorities on behalf of such
Joint Venturer.
3.6 REPORTS
<PAGE>
a. Manager will give each Joint Venturer, on a confidential basis, annual
reports within 90 days following the end of each fiscal year, setting forth
the details in respect of all sales and support of the Security System in
such Joint Venturer's Territory during such year, including the name and
address of all Customers, the amount and type of all fees and other amounts
payable to date, potential Customers and projected revenues in the
Territory. Manager will give each Joint Venturer, on a confidential basis,
quarterly reports within forty-five (45) days following the end of each
fiscal quarter, which quarterly reports shall set forth Gross Sales and Net
Sales received by Manager from Customers in the Territory for the
immediately preceding quarter.
b. In addition, Manager will give each Joint Venturer, on a confidential
basis, within 90 days following the end of each calendar year for the
second, third and fourth quarters of the preceding year and for the first
quarter of the current year, the detailed calculations necessary to
establish Gross Sales, Net Sales, Expenses, Overhead and Administrative
Costs and Net Revenues including, without limitation, the component parts
thereof, annually, with respect to such Joint Venturer's Territory.
3.7 FINANCIAL STATEMENTS
Manager will provide to each Joint Venturer the following financial
statements, for the business pertaining to the Security System within such Joint
Venturer's Territory, annually, within 90 days following the end of each fiscal
year of Manager:
i. the annual reports referred to in Section 3.6;
ii. an audited income statement; and
iii. an audited balance sheet.
3.8 BOOKS AND RECORDS
Manager will keep and maintain complete and accurate books and records
related to the business of selling the Security System in each of the Western
Territory and the Eastern Territory, separate and apart from the books and
records maintained for its own sales or other business. These will include
records of all sales and support of the Security System in each Territory, all
costs of providing the Security System and the appropriate fees accruing and
collected. These books and records will be maintained according to U.S.
generally accepted accounting principles and practices respecting all matters
pertinent to this
<PAGE>
Agreement. Each Joint Venturer will have the right, at his own expense, to
audit the books and records of Manager pertaining to marketing the Security
System in such Joint Venturer's Territory, and the performance of its other
obligations hereunder, once in respect of each year. For this purpose, each
Joint Venturer or its nominee will have, during normal business hours, access
to and the right to copy and remove copies of all books and accounting
records relating to the calculation of fees accrued and collected from the
sale of the Security System in such Joint Venturer's Territory. All
information obtained by such Joint Venturer or its nominee will be subject to
the confidentiality obligations of this Agreement.
3.9 TAXES
a. Manager will charge and collect from Customers any and all taxes of any
type that are imposed on the use, sale or support of the Security System in
the Territory by Manager by any federal, provincial, local or any other
taxing authority in which the Security System is sold and Manager will pay
and duly remit on a timely basis to the appropriate taxation authority the
tax so charged and collected;
b. Manager is responsible to withhold and remit on a timely basis the amount
of any income, sales or any other tax imposed on the Management Fee or any
other amount paid or credited to the Manager hereunder by any federal,
provincial, local or any other taxation authority in any country regardless
of whether the obligation to withhold and remit such amount is on the Joint
Venturers;
c. Subject to subsection 3.9(b) hereof, the Joint Venturers and Manager are
required to pay their respective taxes of any type imposed on them for fees
paid or credited to a Joint Venturer or Manager hereunder; and
d. Manager will prepare or provide each Joint Venturer with any and all
information or other documentation on a timely basis required by each Joint
Venturer to enable such Joint Venturer to prepare any return required to be
filed by it with any taxing authority in connection with an amount withheld
or payable in accordance with this Agreement or alternately, the Manager
shall prepare and file such a return on the Joint Venturer's behalf in the
name of such Joint Venturer within the time required to file such return
and shall provide a copy thereof to such Joint Venturer.
ARTICLE 4
<PAGE>
GRANT OF RIGHTS
4.1 In consideration of the [PURCHASER 3] Return and the [PURCHASER 4]
Return and other good and valuable consideration (the receipt and sufficiency of
which is acknowledged by each of the Joint Venturers), each of the Joint
Venturers hereby grants Manager, during the term of this Agreement and subject
to the restrictions imposed in this Agreement, an exclusive Territory-wide right
to use, modify, market, distribute and sell the Application Software, the
Intellectual Property and the Documentation in the Territory, but only with
products or services that are not competitive with the Security System.
4.2 The Joint Venturers shall own (each as to an undivided 50% interest)
all right, title and interest in and to any Enhancements within the Territory.
Manager shall retain the exclusive right to use, market, distribute and sell, in
all regions of the world other than the Territory, any Enhancement. Any
modification to the Application Software which does not constitute an
Enhancement will be owned by Manager. Any modification to the Intellectual
Property or the Documentation that does not relate to an Enhancement will be
owned by Manager.
4.3 During the term of this Agreement, neither Manager nor any of its
affiliates or associates will, directly or indirectly, market, distribute or
sell any product or service within the Territory, which product or service
directly or indirectly competes with the Security System. Nothing precludes
Manager from selling the O.P.E.N.cortex platform and associated hardware as a
stand-alone development platform.
4.4 Manager will have, upon termination of this Agreement with respect to
[PURCHASER 3] in the circumstances described below, an exclusive, Eastern
Territory-wide paid up right to use market, promote, distribute and sell the
Application Software in accordance with Section 4.1, which right for greater
certainty shall only pertain to products or services that are not competitive
with the Security System:
a. upon termination of this Agreement with respect to [PURCHASER 3] pursuant
to Subsection 5.4, if Manager is not then in default of this Agreement; or
b. upon termination of this Agreement with respect to [PURCHASER 3], pursuant
to Section 5.3, if Manager pays [PURCHASER 3], an amount calculated as the
difference between Four Hundred Thousand Canadian Dollars (Cdn.
<PAGE>
$400,000) and the amount of [PURCHASER 3]'s Return credited to [PURCHASER
3] to the date of termination.
4.5 Manager will have, upon termination of this Agreement with respect
to [PURCHASER 4] in the circumstances described below, an exclusive, Western
Territory-wide, paid up right to use, market, promote, distribute and sell
the Application Software in accordance with Section 4.1, which right for
greater certainty shall only pertain to products or services that are not
competitive with the Security System:
a. upon termination of this Agreement with respect to [PURCHASER 4] pursuant
to Subsection 5.4, if Manager is not then in default of this Agreement; or
b. upon termination of this Agreement with respect to [PURCHASER 4], pursuant
to Section 5.3, if Manager pays [PURCHASER 4], an amount calculated as the
difference between Four Hundred Thousand Canadian Dollars (Cdn. $400,000)
and the amount of [PURCHASER 4]'s Return credited to [PURCHASER 4] to the
date of termination.
4.6 PROTECTION OF PROPRIETARY RIGHTS
Each party hereto shall promptly notify the other party in writing of
any infringement by a third party of a patent, copyright or trademark or
misappropriation of any trade secret relating to the Assets within the
Territory. In the case of an infringement, misappropriation or other action
described herein, Manager is hereby authorized to, but shall not be required
to, institute an action against the infringer, misappropriator or other third
party, and to defend or prosecute such action in whatever manner deemed
appropriate by Manager, in its sole discretion. If Manager elects not to
commence such an action, then either Joint Venturer may, but shall not be
required to, institute such an action, at his own expense. Each Joint
Venturer shall cooperate with and generally assist Manager in taking any
action authorized hereunder. This provision shall survive any termination or
expiration of this Agreement, to the extent Manager retains any license to
the Application Software.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM
This Agreement will be for an initial term expiring December 22, 2007,
(the "initial term") and may be extended, for two additional two year terms,
each term expiring on the
<PAGE>
respective second anniversary date of the beginning of such term.
5.2 AUTOMATIC EXTENSION
The initial term or any extension term of this Agreement will be
automatically extended to the next extension term without notice or election
by Manager. Manager may, during any extension term, terminate this Agreement
as to the Western Territory and/or the Eastern Territory on 90 days notice
given to each affected Joint Venturer.
5.3 TERMINATION
Each Joint Venturer may, during the initial term or any extension term,
terminate this Agreement as to his Territory as follows:
a. upon 10 days written notice by such Joint Venturer to Manager of a breach
of any of Manager's obligations to pay such Joint Venturer under this
Agreement, subject to Section 3.5, if such breach has not been remedied;
b. upon 30 days written notice by such Joint Venturer to Manager of a material
breach by Manager (other than a failure to pay referred to in Subsection
5.3 a.) of this Agreement if such breach is not remedied within the 30 day
notice period, or if steps are not being taken by Manager within the 30
days notice period which can reasonably be expected to remedy such breach
within 60 days of the date of the notice; or
c. forthwith upon written notice to Manager, in the case of the petitioning
into bankruptcy of Manager, the appointment of a receiver or the
liquidation of the business and affairs of Manager or the commencement of
or ordering of the winding-up of the business and affairs of Manager.
5.4 TERMINATION BY NON-RENEWAL
Either Joint Venturer may, at the end of the initial term or during any
extension term, terminate this Agreement with respect to such Joint Venturer
and his Territory upon 90 days notice given to Manager and upon payment of
all outstanding principal and accrued and unpaid interest under the Note.
5.5 RIGHTS AND DUTIES ON TERMINATION
Should the Agreement terminate with respect to any Joint Venturer and his
respective Territory pursuant to this Article 5, Manager will:
<PAGE>
a. provide each Joint Venturer with respect to whom this Agreement has
terminated with copies of any additional Enhancements not yet delivered to
Agent in the Province of Alberta or deposited into escrow;
b. forthwith give the Security Agent under the Security Agent Agreement notice
to release all deposited source code and other materials to Agent in the
Province of Alberta to hold in trust for the Joint Venturer with respect to
whom this Agreement has terminated and refrain from objecting to the
release of the source code and other materials by the Security Agent;
c. cease marketing, distributing and selling the Security System in any
Territory for which this Agreement has terminated and, subject to Section
4.4 and 4.5, the rights of the Manager under Section 4.1 shall also
terminate;
d. pay all accrued fees to each Joint Venturer with respect to whom this
Agreement has terminated (subject to Manager's right to set-off amounts
owed to Manager by such Joint Venturer in accordance with Section 3.5) and
provide a full accounting to such Joint Venturer for fees payable to such
Joint Venturer under this Agreement; and
e. within 90 days of the termination date, provide to each Joint Venturer with
respect to whom this Agreement has terminated, a final report setting forth
the details in respect of all sales and support of the Security System in
the applicable Territory during the period from the end of the last year to
the termination date including the amount and type of all fees and other
amounts payable to date, potential Customer and projected revenues, and all
other information necessary and relevant to marketing and supporting the
Security System, including without limitation, the names and addresses of
Customers of the Security System.
5.6 SURVIVING OBLIGATIONS
Section 5.5 and Articles 6, 7, 8, 9, 10 and 11 will survive the termination
of this Agreement.
ARTICLE 6
OWNERSHIP OF TECHNOLOGY
6.1 OWNERSHIP OF ASSETS
Manager acknowledges that the Joint Venturers collectively own all right,
title and interest in and to the
<PAGE>
Assets and the Enhancements in the Territory, including without limitation
all intellectual property rights therein.
ARTICLE 7
LIABILITY
7.1 INDEMNIFICATION BY MANAGER
Manager will be liable to each Joint Venturer for and indemnify and hold
each Joint Venturer harmless from any and all claims, losses, liabilities,
costs, taxes (including penalties and interest thereon), expenses (including
reasonable legal costs of a solicitor) and damages which may arise pursuant
to this Agreement, including without limitation, misrepresentations made by
Manager, improper installation of, improper support of, improper use of or
infringement of any third party right by, the Assets (whether in negligence
or otherwise), failure to comply with Sections 2.2, 2.3 and 3.9 herein or any
other material breach of this Agreement.
7.2 INDEMNIFICATION PROCEDURE
Upon the occurrence of an event giving rise to indemnification hereunder
as a result of a claim, action or cause of action made or brought against the
Joint Venturers or either of them, the Joint Venturers shall (i) give prompt
notice to Manager of such events, (ii) permit Manager's attorneys to handle
and control the defense of such claims, at Manager's expense, and (iii) shall
reasonably cooperate in the defense thereof. Manager agrees herein to assume
the defense of all such claims, demands, actions or causes of action. Either
Joint Venturer may, at his own expense, participate in such defense, provided
however, that, as Manager has agreed herein to assume the defense of such
claims, such participation expenses shall not become part of the
indemnification claim. There shall be no settlements, whether agreed to in
court or out of court, without the prior written consent of Manager and any
Joint Venturer affected thereby, except that Manager may settle a claim
without the consent of a Joint Venturer affected thereby if (i) the
settlement is purely monetary, (ii) Manager hereunder admits in writing its
liability to such Joint Venturer hereunder, and (iii) concurrently with such
settlement, Manager pays the full amount owed thereunder. Notwithstanding
the foregoing, in the event Manager does not assume the defense of any such
claim or litigation in accordance with the terms hereof within the earlier of
(i) thirty (30) days following written notice from a Joint Venturer or (ii)
the due date for response to any complaint filed, then such Joint Venturer
may defend against such claim or litigation in such manner as it may deem
appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to
<PAGE>
Manager, on such terms as such Joint Venturer may deem appropriate. In any
action by a Joint Venturer seeking indemnification from Manager in accordance
with the provisions hereof, Manager shall not be entitled to object to the
manner in which such Joint Venturer defended such caim or the amount of or
nature of any such settlement.
7.3 LIMITATION OF LIABILITY
Except with respect to Manager's indemnification obligations relating to
third party claims as set forth in Section 7.1 hereof or a breach of the
confidentiality provisions in Section 8 herein, none of the parties shall be
liable for any indirect, incidental, special or consequential damages
including, without limitation, damages for loss of data, loss of business or
failure to realize expected profits or savings or other economic or
commercial loss of any kind or loss of use of the Application Software or the
Assets or costs of substituted technology or services, whether under any
theory of contract (even in the nature of a breach of a condition or a
fundamental term or a fundamental breach), tort (including negligence or
misrepresentation), strict liability or any other legal or equitable theory,
even if such party has been advised of the possibility thereof, all of which
liability is hereby expressly waived by each party.
ARTICLE 8
CONFIDENTIALITY AND NON-DISCLOSURE
8.1 Each party that receives Confidential Information shall maintain
such Confidential Information in confidence, shall not reveal the same to any
third party (other than its employees, advisors, consultants and agents on a
need to know basis in connection with the receiving party's performance under
this Agreement or the Agreement) and shall not use such Confidential
Information, directly or indirectly, for any purpose other than as required
in the performance of this Agreement or the Application Software Purchase
Agreement.
8.2 All memoranda, notes, records, reports, papers and any other
documents and all copies thereof about any party's business in any way
obtained by any other party pursuant to this Agreement will be the disclosing
party's property and will be returned promptly to the disclosing party upon
termination of this Agreement or at any time upon request. Notwithstanding
the foregoing, all memoranda, notes, records, reports, papers and other
documents which constitute the Assets shall be owned by the Joint Venturers.
8.3 Each of the parties (the "Indemnifying Party") agrees to indemnify
the other (the "Indemnified Party") for
<PAGE>
all damages, costs, and expenses (including court costs and reasonable legal
fees) incurred by the Indemnified Party as a result of a failure of the
Indemnifying Party to comply with its obligations under this Article 8.
ARTICLE 9
RIGHT OF FIRST REFUSAL
In the event that either Joint Venturer desires to transfer all or any
part of his interest in the Assets (the "Transferred Interest"), except to
persons acting on his behalf as agents (or as required by operation of law or
other involuntary transfer to do so), such Joint Venturer shall first offer
the Transferred Interest to Manager in accordance with the following
provisions:
a. Such Joint Venturer shall deliver a written notice (the "Notice") to
Manager, stating i. Joint Venturer's bona fide intention to transfer the
Transferred Interest; ii. the purchase price and terms of payment for which
such Joint Venturer proposes to transfer the Transferred Interest; and iii.
the name and address of the proposed transferee;
b. Within sixty (60) days after receipt of the Notice, Manager shall have the
right, but not the obligation, to elect to purchase the Transferred
Interest upon the price and terms of payment designated in the Notice, by
delivering written notice to such Joint Venturer of such election (the
"Election Notice"). If the Notice provides for the payment of non-cash
consideration, Manager may elect to pay the consideration in cash equal to
the good faith estimate of the present fair market value of the non-cash
consideration offered;
c. If Manager elects to purchase or obtain the Transferred Interest designated
in the Notice, then the closing of such purchase shall occur on a date
mutually agreeable or (if the parties cannot agree) on a date within sixty
(60) days after delivery of the Election Notice, and each of the selling
Joint Venturers and Manager shall execute such documents and instruments
and make such deliveries as may be reasonably required to consummate such
purchase and sale; and
d. If Manager elects not to purchase or acquire the Transferred Interest, then
such selling Joint Venturer may transfer the Transferred Interest to the
transferee proposed in the Notice, provided that such transfer: i. is
completed within sixty (60) days after the expiration of Manager's right to
elect to purchase the Transferred Interest, ii. is made on terms no less
favorable to such Joint Venturer than as designated in the Notice, and iii.
complies with all of the terms and
<PAGE>
conditions of this Agreement, the Application Software Purchase Agreement
and the Note. If the Transferred Interest is not so transferred, such Joint
Venturer must give notice in accordance with this Section prior to any
other or subsequent transfer of the Transferred Interest.
ARTICLE 10
ARBITRATION
10.1 ARBITRATION OF DISPUTES
Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the
parties for resolution and, in the event that senior management cannot
resolve the dispute within 30 days of escalation of the dispute to such
level, then the parties agree that such dispute shall be settled by final
and binding arbitration in Calgary, Alberta, before a single arbitrator
mutually acceptable to each participating Joint Venturer and Manager, in
accordance with the arbitration legislation in Alberta then existing, except
as otherwise specifically provided herein. The arbitrator shall apply the
laws of the province of Alberta and the laws of Canada for the purposes of
construing and enforcing this Agreement and any dispute arising hereunder.
The arbitration award shall be specifically enforceable; judgment upon any
arbitration award may be entered in any court with personal jurisdiction over
the parties and subject matter of the disputes. Unless otherwise determined
by the arbitrator, all expenses in connection with such arbitration will be
divided equally between the parties, with the exception of expenses of
counsel, witnesses and employees of the parties which will be borne by the
parties incurring them. Notwithstanding anything to the contrary herein,
either party will always be entitled to seek preliminary or provisional
remedies or release (including attachments and preliminary injunctions) from
any court of competent jurisdiction.
ARTICLE 11
GENERAL
11.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part
<PAGE>
thereof contained in this Agreement in any jurisdiction will not affect or
impair such provision or part thereof or any other provisions of this
Agreement in any other jurisdiction.
11.2 FURTHER ASSURANCES
The parties will, at any time and from time to time at the request of
the other, execute and deliver any and all such further instruments or
assurances as may be necessary or desirable to give effect to the terms and
conditions of this Agreement.
11.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties
as if they had originally signed one copy of this Agreement.
11.4 ASSIGNMENT
a. Subject to Article 9, either Joint Venturer may assign all or any part of
its interest in this Agreement or the Assets, provided however, that any
assignment to any person who is carrying on a business immediately prior to
such assignment that is in direct competition with Manager, shall require
the prior written consent of Manager. Any assignment shall be effected by:
i. giving written notice of the name and address of the assignee; and
ii. by delivering to Manager a written undertaking of the assignee,
acknowledging receipt of a copy of this Agreement and agreeing to be
bound by the terms and conditions of this Agreement; and
b. Manager may not assign this Agreement, without the prior written consent of
each Joint Venturer, except that Manager may assign this Agreement in
whole, but not in part, and only with an assignment of all of its rights
and obligations under the Note and the Security Agent Agreement, to (i) any
corporation, partnership or other entity which is controlled by,
controlling or under common control with, Manager; or (ii) a purchaser of
all or substantially all the assets of Manager, or any person or entity
into which Manager is merged or consolidated by:
<PAGE>
i. by giving written notice of the name and address of the assignee; and
ii. by delivering to each Joint Venturer a written undertaking of the
assignee acknowledging receipt of a copy of this Agreement and
agreeing to be bound by the terms and conditions of this Agreement.
11.5 BINDING EFFECT
This Agreement and all of its provisions will enure to the benefit of
the parties and their respective successors and permitted assigns, and will
be binding upon the parties and their respective successors and permitted
assigns. The expressions the "Manager", "Joint Venturer" and "Joint
Venturers" as used herein will include Manager's and Joint Venturers'
permitted assigns whether immediate or derivative, respectively.
11.6 RELATIONSHIP OF THE PARTIES
This Agreement does not constitute a joint venture between the Joint
Venturers on one hand and the Manager on the other hand, or such other
business arrangement and any agreement between the parties as to joint
business activities will be set forth in subsequent written agreements. The
Joint Venturers are joint venturers of each other, but otherwise each party
is acting immediately and not as partner or joint venturer with the other
parties for any purpose. Except as provided in this Agreement, none of the
parties will have any right, power or authority to act or to create any
obligations, express or implied, on behalf of the other parties hereto.
11.7 TIME OF THE ESSENCE
Time will be of the essence of this Agreement.
11.8 AMENDMENT
This Agreement may be altered or amended in any of its provisions when
any such changes are reduced to writing and signed by the parties hereto but
not otherwise.
11.9 COSTS
Each party hereto will bear its-own legal, accounting and other costs
relating to all matters involved in this transaction.
11.10 CONFIDENTIALITY
<PAGE>
The parties will treat this Agreement and all information relating to
this Agreement and the transactions contemplated by this Agreement
confidentially and no public disclosure by either party will be made without
the prior approval of the other, not to be unreasonably withheld, except (i)
to employees, advisors, consultants and agents on a need to know basis in
connection with performance under this Agreement or the Application Software
Purchase Agreement, or (ii) as legally required by a party to satisfy
disclosure obligations to shareholders and regulators, in which case
simultaneous notice of such disclosure will be given to the other party.
11.11 ENTIRE AGREEMENT
This Agreement, the Application Software Purchase Agreement, the Note,
the Security Agent Agreement and the exhibits and schedules referred to in
each of the foregoing, constitute the entire Agreement among the parties and
SUPERSEDE all proposals, letters of intent, oral or written, and all other
communications among them relating to the subject matter hereof.
11.12 EQUITABLE REMEDIES
The parties acknowledge that money damages would not be a sufficient
remedy for certain violations of the terms of this Agreement and,
accordingly, either party will be entitled to specific performance and
injunctive relief as remedies for such violations of the Agreement by the
other party. These remedies will not be exclusive remedies but will, in
addition to all other remedies, be available to such party, at law or equity.
11.13 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Province of Alberta and the laws of Canada
applicable therein (regardless of either jurisdiction's or any other
jurisdiction's choice of law principles). To the extent permitted by law,
the parties hereto agree that all actions or proceedings arising in
connection herewith, shall be arbitrated or litigated in Calgary, Alberta,
Canada, and each party hereby waives any right it may have to assert the
doctrine of Forum Non Conveniens or to object to venue. The parties each
hereby stipulate that the courts located in Calgary, Alberta, shall have
personal jurisdiction and venue over each party for the purpose of litigating
any such dispute, controversy or proceeding arising out of or related to this
Agreement.
<PAGE>
11.14 NOTICES
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at
the applicable address set forth above, or to any party at such other
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this Section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or two (2) business days following deposit with any international overnight
courier service, or upon confirmation of receipt if sent by facsimile
transmission.
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed by their duly authorized representatives as of the date first above
written.
ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
-----------------------------------
Milan Carnogursky, President
-----------------------------------
(Print Name and Title)
/s/ [PURCHASER 3]
-----------------------------------
[PURCHASER 3]
/s/ [PURCHASER 4]
-----------------------------------
[PURCHASER 4]
<PAGE>
SCHEDULE A TO THE MANAGEMENT AND MARKETING AGREEMENT
WESTERN TERRITORY:
1. British Columbia
2. Manitoba
3. Saskacchewan
4. Quebec
EASTERN TERRITORY:
1. Alberta
2. Ontario
3. New Brunswick
4. Nova Scotia
5. Prine Edward Island
6. Newfoundland
7. Northwest Territories
8. Yukon
<PAGE>
[PURCHASER 4]
6% SECURED TERM NOTE
IN FAVOR OF
ALYA INTERNATIONAL, INC.
<PAGE>
6% SECURED TERM NOTE MADE AS OF DECEMBER 22, 1997.
PRINCIPAL SUM: CDN.$1,215,000
---------------------
Due Date: December 22, 2007,
subject to Section 1.1.c.
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Note, unless the context otherwise requires:
a. "Application Software Purchase Agreement" means the application software
purchase agreement made as of December 22, 1997, between [AGENT] as agent
on behalf of [PURCHASER 3] and [PURCHASER 4] as joint venturers (each with
an undivided 50% interest) and the Holder;
b. "Due Date" shall be December 22, 2007, provided that any renewal or
extension of the Management and Marketing Agreement shall automatically
extend the Due Date for the same period, and subject to acceleration
pursuant to Section 5.4 of the Management and Marketing Agreement;
c. "Default" means any event which after notice or lapse of time or both,
would constitute an Event of Default;
d. "Event of Default" means any of the events specified in Section 8.1;
e. "Holder" means Alya International, Inc. or its permitted assignees;
f. "Interest Amount" means the amount equal to the annual interest payable
under this Note;
g. "Management and Marketing Agreement" means the management and marketing
agreement dated December 22, 1997, among Alya International Inc.,
[PURCHASER 3] and [PURCHASER 4];
h. "Note" means this 6% Secured Term Note as originally executed, or as
amended or supplemented as herein provided;
i. "Person" includes any individual, firm, corporation, company, joint
venture, partnership, association, trust or unincorporated body of persons;
j. "Principal Sum" has the meaning specified above;
k. "Sale Proceeds" has the meaning specified in Section 8.4(b);
l. "Product Proceeds" means the amounts paid or credited to [PURCHASER 4]
under the Management and Marketing Agreement which are allocated to pay the
accrued interest and principal sum outstanding under the Note.
<PAGE>
m. "Security Agent Agreement" means the Security Agent Agreement entered into
by [PURCHASER 4], the Holder and Burnet, Duckworth & Palmer, as security
agent, on the date hereof for the purpose of holding the Purchased Assets
pursuant to the terms hereof; and
n. "Purchased Assets" means the Purchased Assets, as defined in the
Application Software Purchase Agreement;
o. "[PURCHASER 4]" means [PURCHASER 4] and his permitted assignees;
p. "year" means a calendar year, ending December 31.
1.2 INTERPRETATION
a. The terms "this Note", "hereof" "thereunder" and similar expressions refer
to this Note and not to any particular Section, Subsection or other portion
of this Note and include any agreement amending or supplementing this Note.
Unless something in the subject matter or context is inconsistent
therewith, reference herein to Sections and Subsections are to Sections and
Subsections of this Note;
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars. Any currency conversion required or contemplated
by this Agreement with respect to Canadian and United States of America
currency will be based on the rate published by the Bank of Canada as the
noon spot rate of exchange applicable for such currencies on the business
day immediately before the date of conversion;
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Note the same will be construed as meaning the singular,
plural, masculine, feminine, neuter, body politic or body corporate where
the fact or context so requires and the provisions hereof; and
d. Headings are inserted in the Note for convenience of reference only and are
not intended to affect the Note's interpretation.
ARTICLE 2
PROMISE TO PAY
2.1 [PURCHASER 4], for value received, and in consideration of these
premises hereby acknowledges himself indebted to the Holder and promises and
covenants with the Holder, subject to Section 8.3, to pay to the Holder:
a. the Principal Sum outstanding from time to time;
b. interest on the Principal Sum outstanding from time to time, such interest
to be calculated, payable and paid as set forth in Section 3.2; and
c. all other moneys which may be owing by [PURCHASER 4] to the Holder pursuant
to this Note, subject to the terms and conditions of this Note.
<PAGE>
ARTICLE 3
PAYMENT OF PRINCIPAL AND INTEREST
3.1 PRINCIPAL
a. The Principal Sum outstanding will be paid in full on the Due Date; and
b. Prepayment of the Principal Sum outstanding, from time to time for each
year will be made annually, within sixty (60) days of receipt of Product
Proceeds for the year, if the amount of Product Proceeds received for such
year exceeds the amount of accrued and unpaid interest as at the end of
such year. The amount of the annual prepayment, if any, against the
Principal Sum outstanding from time to time will be equal to the difference
between the Product Proceeds received for the year and the amount of
accrued and unpaid interest as at the end of such year.
3.2 INTEREST
a. Interest on the Principal Sum outstanding from time to time pursuant to
this Note will accrue from the date hereof up to and including the date of
payment at the rate of 6% per annum calculated, but not compounded, yearly,
and not in advance;
b. Interest accrued and unpaid at the Due Date will be paid on the Due Date;
c. Interest accrued and unpaid at the end of each year, will be paid annually
within thirty (30) days of receipt by [PURCHASER 4] of Product Proceeds for
the year, to the extent of the Product Proceeds, if any;
d. Accrued interest, if any, that is not paid in any year will continue to
accrue and be outstanding until paid but will not be added to the Principal
Sum payable under this Note and will not bear interest; and
e. The covenant of [PURCHASER 4] to pay interest at the rate provided herein
will not merge in any judgment in respect of any obligation of [PURCHASER
4] hereunder and such judgment will bear interest as aforesaid and be
payable in the same manner.
3.3 PRINCIPAL AND INTEREST ACCELERATION
Notwithstanding Section 3.2 c., but subject to the limitation of liability
set forth in sections 8.3 and 8.4, upon the occurrence of a Management Agreement
Termination Event, the outstanding Principal Sum and accrued and unpaid interest
at the Management Agreement Termination Date will be repaid within 30 days of
the Management Agreement Termination Date.
For the purposes of Section 3.3, the following terms have the meanings set
out below:
"Management Agreement Termination Date" means the date of the occurrence of
a Management Agreement Termination Event; and
<PAGE>
"Management Agreement Termination Event" means the termination of the
Management and Marketing Agreement, with respect to the Eastern Territory,
pursuant to Article 5 of the Management and Marketing Agreement.
ARTICLE 4
ASSIGNMENT
4.1 ASSIGNMENT OF PRODUCT PROCEEDS
[PURCHASER 4] hereby assigns the Product Proceeds to the Holder as security
for payment of [PURCHASER 4]'s obligations to the Holder under this Note.
The provisions of this Section 4.1 and the rights of the Holder hereunder
will, notwithstanding any other provisions of this Note, wholly terminate on the
earlier of the date upon which this Note is retired or the indebtedness
hereunder is extinguished.
ARTICLE 5
SECURITY
5.1 SECURITY FOR THE NOTE
In consideration for the premises and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
[PURCHASER 4], and the due payment of all principal and interest on this Note
from time to time outstanding and on all other monies from time to time owing
on the security hereof and to secure the due performance by [PURCHASER 4] of
obligations herein contained, [PURCHASER 4] does hereby grant, assign,
mortgage, pledge, charge, hypothecate and create a security interest in, to
and in favor of the Holder in an undivided fifty percent (50%) interest in
the Purchased Assets provided that the charge hereby created will in no way
hinder or prevent [PURCHASER 4] at any time and from time to time (until an
Event of Default occurs pursuant to Article 8 hereof and the Holder will have
determined to enforce the same) from managing, developing, utilizing or
dealing with all or any part of the subject matter of the said charge in the
ordinary course of his business and for the purpose of carrying on or
extending the same or from entering into the Management and Marketing
Agreement; provided further that during any period in which there is any
outstanding principal or any accrued and unpaid interest on this Note,
[PURCHASER 4] will not, and [PURCHASER 4] hereby covenants that he will not,
without the prior written consent of the Holder, sell or transfer all or any
part of his undivided fifty percent (50%) interest in the Purchased Assets,
or make, give, create, assume or allow to subsist any mortgage, pledge,
hypothecation, lien, charge, encumbrance, assignment or other security,
whether fixed or floating, upon the Purchased Assets or any part thereof.
TO HAVE AND TO HOLD such assets and interests and all rights hereby
conferred unto the Holder, its successors and assigns forever, but in trust
nevertheless, for the uses and purposes and with the powers and authorities
subject to the terms and conditions mentioned and set forth in this Note.
<PAGE>
5.2 FURTHER ASSURANCES
[PURCHASER 4] will forthwith, and from time to time at his sole cost and
expense, execute and do or cause to be executed and done all deeds, documents
and things which, in the reasonable opinion of the Holder, are necessary or
advisable for giving the Holder (so far as may be possible under the local
laws of the places where the Purchased Assets are situated) a valid mortgage,
pledge, charge and hypothecation of the nature herein specified upon the
Purchased Assets to secure payment of monies intended to be secured by this
Note, and for better assuring, mortgaging, pledging, charging, assigning,
hypothecating and confirming unto the Holder the Purchased Assets, and for
conferring upon the Holder such power of sale and other powers over the
Purchased Assets as are hereby expressed to be conferred.
5.3 DEFEASANCE
The Holder will at the written request and sole cost and expense of
[PURCHASER 4] cancel and discharge the lien of this Note and execute and
deliver to [PURCHASER 4] such deeds or other instruments as will be requisite
to discharge the lien hereof and to reconvey to [PURCHASER 4] any part of the
Purchased Assets subject to the lien of this Note and to release [PURCHASER 4]
from the covenants herein contained and upon delivery of such written request
to the Holder, rights hereby granted will cease, terminate and be void,
provided that [PURCHASER 4] will have satisfied the payment of all principal
monies, and interests due or to become due on this Note.
5.4 POSSESSION AND USE OF PURCHASED ASSETS
Until an Event of Default occurs pursuant to Article 8 hereof and the
Holder will have determined to enforce the same pursuant to the provisions of
this Note, [PURCHASER 4] will, subject however to the express terms hereof,
be suffered and permitted to possess, manage, develop, operate and enjoy the
Purchased Assets, and freely to control the conduct of his business and to
take and use any income, rents, issues and profits thereof in the same
manner, to the same extent and with the same effect, except as provided
herein, as if this Note had not been made.
5.5 ESCROW
Notwithstanding Section 5.4 hereof the source code version of the
Application Software, as defined in the Application Software Purchase
Agreement, will be held by the Security Agent pursuant to the terms and
conditions of the Security Agent Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 [Purchaser 4]'S REPRESENTATIONS AND WARRANTIES
[PURCHASER 4] hereby represents and warrants to the Holder for the benefit
of the Holder as follows:
a. [PURCHASER 4] has the requisite power and authority to execute and deliver
this Note, to consummate the transactions contemplated hereby and to duly
observe and perform all his covenants and obligations herein set forth;
<PAGE>
b. the execution and delivery of this Note does not and will not conflict with
or result in a breach of or violate any of the terms, conditions or
provisions of any terms, conditions or provisions of any law, judgment,
order, injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which [PURCHASER 4] is
subject or constitute or result in a default under any agreement, contract
or commitment to which [PURCHASER 4] is a party;
c. the execution and delivery of this Note will not constitute an event of
default or an event which, with the giving of notice or lapse of time or
both, would constitute an event of default, under any agreement, contract,
indenture or other instrument relating to any indebtedness (whether for
borrowed money or otherwise) of [PURCHASER 4] which would give any party to
any such agreement, contract, indenture or other instrument the right to
accelerate maturity for the payment of any monies under any such agreement,
contract, indenture or other instrument; and
d. no authorization, approval, order, license, permit or consent of any
governmental authority, regulatory body or court, and no registration,
declaration or filing by [PURCHASER 4] with any such governmental
authority, regulatory body or court is required in order for [PURCHASER 4]:
i. to incur the obligations expressed to be incurred by [PURCHASER 4] in
or pursuant to this Note;
ii. to execute and deliver all documents and instruments to be delivered
by [PURCHASER 4] pursuant to this Note;
iii. to duly perform and observe the terms and provisions of this Note; and
iv. to render this Note legal, valid, binding and enforceable against
[PURCHASER 4] in accordance with its terms.
ARTICLE 7
COVENANTS OF [PURCHASER 4]
[PURCHASER 4] hereby covenants and agrees with the Holder for the benefit
of the Holder as follows:
7.1 TO PAY PRINCIPAL AND INTEREST
[PURCHASER 4] will duly and punctually pay or cause to be paid to the
Holder the Principal Sum and accrued interest thereon and all other moneys from
time to time owing hereunder, on the dates, at the places, in the moneys and in
the manner mentioned herein.
7.2 TO CARRY ON BUSINESS
[PURCHASER 4] will carry on and conduct his business involving the
Purchased Assets in a proper and efficient manner; and at all reasonable
times he will furnish or cause to be furnished to the Holder or its duly
authorized agent or attorney such information relating to the business of
[PURCHASER 4]involving the Purchased Assets as the Holder may reasonably
require.
<PAGE>
ARTICLE 8
DEFAULT
8.1 EVENTS OF DEFAULT
If any one or more of the following events has occurred and is continuing:
a. the non-payment when due of the Principal Sum, accrued interest thereon and
any other amounts due under this Note;
b. the breach by [PURCHASER 4] of any material provision of this Note;
c. any representation or warranty made by [PURCHASER 4] herein or in any
financial statements, reports or other documents supplied to the Holder by
[PURCHASER 4] hereunder is false, incorrect or inaccurate in any materially
adverse respect; or
d. If proceedings for bankruptcy or receivership are commenced, unless such
proceedings are being actively and diligently contested by [PURCHASER 4] in
good faith;
provided that [PURCHASER 4] will not have remedied such default within thirty
(30) days (ten (10) days in the case of a monetary default) following receipt by
[PURCHASER 4] from the Holder of notice of the default, the Holder may, by
written notice declare the Principal Sum and accrued interest thereon and any
other amounts payable to it under this Note to be immediately due and payable
without further presentation, notice or demand and [PURCHASER 4] will
immediately pay to the Holder all indebtedness of [PURCHASER 4] owing to it
pursuant to this Note.
8.2 REMEDIES
If an Event of Default has occurred and is continuing and [PURCHASER 4] has
failed forthwith to pay the amounts owing hereunder, or remedy any breach of any
of his obligations secured by this Note as herein outlined, the Holder shall
have all of the rights and remedies of a secured party under the California
Uniform Commercial Code or other applicable California law then in effect.
Without limiting the generality of the foregoing, the Holder, in addition to any
other rights and remedies it may have, in its own name will be entitled and
empowered to sell the Purchased Assets as provided in Section 8.4 below, as well
as institute action or proceeding at law or in equity for the collection of the
sums so due and unpaid and may prosecute any such action or proceedings to
judgment or final decree, and may enforce any such judgment or final decree
against [PURCHASER 4] or other obligor upon this Note and collect in the manner
provided by law out of the Purchased Assets, as provided for in this Note
wherever situated the monies adjudged or decreed to be payable.
8.3 LIMITED RECOURSE
Notwithstanding anything else contained in this Note, the Holder covenants
and agrees with [PURCHASER 4] that all of its recourse rights, powers and
remedies for payment of any obligations of [PURCHASER 4] to the Holder under
this Note is limited to the Product Proceeds and the Sale Proceeds which will be
applied in the following order of priority:
<PAGE>
a. to pay interest due and payable under this Note;
b. to pay the Principal Sum outstanding from time to time; and
c. to pay any other amounts owing by [PURCHASER 4] to the Holder under this
Note.
8.4 SALE OF PURCHASED ASSETS
a. If an Event of Default has occurred and is continuing as provided in
Section 8.2 hereof or the indebtedness created hereby either with respect
to principal or interest remains in whole or in part unpaid as of the Due
Date, the Holder will be entitled and empowered to dispose of the Purchased
Assets or any part thereof: i. at public sale, which public sale may be
conducted at the location designated by the Holder for cash or on credit
and on such terms as the Holder may in its sole discretion, elect after
giving at least five days notice of the time and place of sale in the
manner provided by law, or ii. at private sale upon like notice for cash or
on credit and on such other terms as the Holder may in its sole discretion
elect;
b. The proceeds of the sale ("Sale Proceeds") of the Purchased Assets will be
allocated as follows:
i. to reimburse the Holder (to a maximum of 20% of the gross proceeds of
sale), for all costs and expenses incurred as the result of an Event
of Default and in connection with re-possession, storing, advertising,
marketing and selling the Purchased Assets including, without
limitation, reasonable attorneys' fees and costs;
ii. to the Holder as a reduction of amounts owing by [PURCHASER 4] under
this Note allocated firstly as to interest and the remainder as to
principal; and
iii. the balance to [PURCHASER 4];
c. Any balance owing by [PURCHASER 4] under this Note after the allocation of
the Sale Proceeds will be forgiven by the Holder and [PURCHASER 4] will
have no further liability under this Note; and
d. This Note is non-negotiable. The Holder will have no right or recourse
against any legal person in respect of the covenants contained in this Note
other than, subject to Section 8.3, [PURCHASER 4], and his assigns but only
severally and not jointly and only to the extent of each person's interest
in the Purchased Assets.
8.5 LIMITATION OF LIABILITY
Notwithstanding anything contained in this Note, [PURCHASER 4] will not
have any obligation to pay the Principal Sum outstanding from time to time under
the Note if the Management and Marketing Agreement is terminated as a result of
the occurrence of an event described in Section 5.3 thereof.
ARTICLE 9
WAIVER
<PAGE>
9.1 Either the Holder or [PURCHASER 4] may waive any breach of any of the
provisions contained in this Note or any default by the other person in the
observance or performance of any covenant, condition or obligation required to
be observed or performed by such person under the terms of this Note, provided
any such waiver shall only be effective upon the delivery of written notice by
the waiving party. No waiver, consent, act or omission by the Holder or
[PURCHASER 4] will extend to or be taken in any manner whatsoever to affect any
subsequent breach or default or the rights resulting therefrom and no waiver or
consent by the Holder or [PURCHASER 4] will be binding unless it is in writing.
The inspection or approval by the Holder or [PURCHASER 4] of any document or
matter or thing done by the other will not be deemed to be a warranty or holding
out of the adequacy, effectiveness, validity, or binding effect of such
document, matter or thing or a waiver of the obligations of the other.
ARTICLE 10
TIME OF THE ESSENCE
10.1 Time will be of the essence of this Note.
ARTICLE 11
NOTICES
11.1 Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at the
applicable address set forth above, or to any party at such other addresses as
shall be specified in writing by such party to the other parties in accordance
with the terms and conditions of this Section. All notices, requests or
communications shall be deemed effective upon personal delivery, or two (2)
business days following deposit with any international overnight courier
service, or upon confirmation of receipt if sent by facsimile transmission.
ARTICLE 12
GENERAL
12.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, such provision shall be construed so as to most closely
reflect the original intent of the parties, but still be enforceable, and the
validity, legality or enforceability of such remaining provisions or parts
thereof will not in any way be affected or impaired thereby. The invalidity,
illegality or unenforceability of any provision or part thereof contained in
this Agreement in any jurisdiction will not affect or impair such provision or
part thereof or any other provisions of this Agreement in any other
jurisdiction.
12.2 FURTHER ASSURANCES
[PURCHASER 4] and the Holder will, at any time and from time to time at the
request of the other, execute and deliver any and all such
<PAGE>
further instruments or assurances as may be necessary or desirable to give
effect to the terms and conditions of this Note.
12.3 COUNTERPART EXECUTION
This Note, and any and all ancillary documents contemplated herein, may
be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Note and will be binding on [PURCHASER 4]
and the Holder as if they had originally signed one copy of this Note.
12.4 ASSIGNMENT
[PURCHASER 4] may assign all or any part of its interest in Purchased
Assets, except that any assignment to any person who is carrying on a
business immediately prior to such assignment that is in direct competition
with Holder, shall require the prior written consent of the Holder. An
assignment shall be effected by:
a. by giving written notice of the names and addresses of the assignees; and
b. by delivering to the Holder a written undertaking of the assignees
acknowledging receipt of a copy of the Note and agreeing to be bound by the
terms and conditions of the Note.
The Holder may assign this Note in whole, but not in part, and only with an
assignment of all of its rights and obligations under, and as permitted by, the
Management and Marketing Agreement by giving [PURCHASER 4] written notice of the
name and address of the assignee.
12.5 BINDING EFFECT
This Note and all of its provisions will enure to the benefit of the Holder
and [PURCHASER 4] and will be binding upon the Holder and [PURCHASER 4]. The
expressions the "Holder" and the "[PURCHASER 4]" as used herein will include the
Holder's and [PURCHASER 4]'s assigns, whether immediate or derivative,
respectively.
12.6 AMENDMENT
This Note may be altered or amended in any of its provisions when any such
changes are reduced to writing and signed by the parties hereto but not
otherwise.
12.7 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in the preparation, delivery and enforcement of
this Note.
12.8 REMEDIES NOT EXCLUSIVE
No right or remedy herein is exclusive of any other right or remedy.
Each and every right and remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or
in equity, and may be exercised from time to time as often as deemed
expedient, separately or concurrently.
<PAGE>
12.9 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of California (regardless of that jurisdiction or any
other jurisdiction's choice of law principles). To the extent permitted by law,
the parties hereto agree that all actions or proceedings arising in connection
herewith, shall be arbitrated or litigated in the state and federal courts
located in the State of California, and each party hereby waives any right it
may have to assert the doctrine of Forum Non Conveniens or to object to venue.
The parties each hereby stipulate that the state and federal courts located in
the County of Santa Clara, State of California, shall have personal jurisdiction
and venue over each party for the purpose of litigating any such dispute,
controversy or proceeding arising out of or related to this Agreement.
IN WITNESS WHEREOF [PURCHASER 4] and the Holder have duly executed these
presents under the hands of their proper officers in that behalf.
[PURCHASER 4]: /s/ [PURCHASER 4]
-----------------------------------------
[PURCHASER 4]
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
------------------------------------
Milan Carnogursky
President, Chairman and
Chief Executive Officer
<PAGE>
[PURCHASER 3]
6% SECURED TERM NOTE
IN FAVOR OF
ALYA INTERNATIONAL, INC.
<PAGE>
6% SECURED TERM NOTE MADE AS OF DECEMBER 22, 1997.
PRINCIPAL SUM: CDN.$1,215,000
----------------------
Due Date: December 22, 2007,
subject to Section 1.1.c.
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Note, unless the context otherwise requires:
a. "Application Software Purchase Agreement" means the application software
purchase agreement made as of December 22, 1997, between [AGENT] as agent
on behalf of [PURCHASER 3] and [PURCHASER 4]as joint venturers (each with
an undivided 50% interest) and the Holder;
b. "Due Date" shall be December 22, 2007, provided that any renewal or
extension of the Management and Marketing Agreement shall automatically
extend the Due Date for the same period, and subject to acceleration
pursuant to Section 5.4 of the Management and Marketing Agreement;
c. "Default" means any event which after notice or lapse of time or both,
would constitute an Event of Default;
d. "Event of Default" means any of the events specified in Section 8.1;
e. "Holder" means Alya International, Inc. or its permitted assignees;
f. "Interest Amount" means the amount equal to the annual interest payable
under this Note;
g. "Management and Marketing Agreement" means the management and marketing
agreement dated December 22, 1997, among Alya International Inc.,
[PURCHASER 3] and [PURCHASER 4];
h. "Note" means this 6% Secured Term Note as originally executed, or as
amended or supplemented as herein provided;
i. "Person" includes any individual, firm, corporation, company, joint
venture, partnership, association, trust or unincorporated body of persons;
j. "Principal Sum" has the meaning specified above;
k. "Sale Proceeds" has the meaning specified in Section 8.4(b);
l. "Product Proceeds" means the amounts paid or credited to [PURCHASER 3]
under the Management and Marketing Agreement which are allocated to pay the
accrued interest and principal sum outstanding under the Note.
m. "Security Agent Agreement" means the Security Agent Agreement entered into
by [PURCHASER 3], the Holder and Burnet, Duckworth & Palmer, as security
agent, on the date hereof for the purpose of holding the Purchased Assets
pursuant to the terms hereof; and
n. "Purchased Assets" means the Purchased Assets, as defined in the
Application Software Purchase Agreement;
o. "[PURCHASER 3]" means [PURCHASER 3] and his permitted assignees;
p. "year" means a calendar year, ending December 31.
<PAGE>
1.2 INTERPRETATION
a. The terms "this Note", "hereof" "thereunder" and similar expressions refer
to this Note and not to any particular Section, Subsection or other portion
of this Note and include any agreement amending or supplementing this Note.
Unless something in the subject matter or context is inconsistent
therewith, reference herein to Sections and Subsections are to Sections and
Subsections of this Note;
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars. Any currency conversion required or contemplated
by this Agreement with respect to Canadian and United States of America
currency will be based on the rate published by the Bank of Canada as the
noon spot rate of exchange applicable for such currencies on the business
day immediately before the date of conversion;
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Note the same will be construed as meaning the singular,
plural, masculine, feminine, neuter, body politic or body corporate where
the fact or context so requires and the provisions hereof; and
d. Headings are inserted in the Note for convenience of reference only and are
not intended to affect the Note's interpretation.
ARTICLE 2
PROMISE TO PAY
2.1 [PURCHASER 3], for value received, and in consideration of these
premises hereby acknowledges himself indebted to the Holder and promises and
covenants with the Holder, subject to Section 8.3, to pay to the Holder:
a. the Principal Sum outstanding from time to time;
b. interest on the Principal Sum outstanding from time to time, such interest
to be calculated, payable and paid as set forth in Section 3.2; and
c. all other moneys which may be owing by [PURCHASER 3] to the Holder pursuant
to this Note, subject to the terms and conditions of this Note.
ARTICLE 3
PAYMENT OF PRINCIPAL AND INTEREST
3.1 PRINCIPAL
a. The Principal Sum outstanding will be paid in full on the Due Date; and
b. Prepayment of the Principal Sum outstanding, from time to time for each
year will be made annually, within sixty (60) days of receipt of Product
Proceeds for the year, if the amount of Product Proceeds received for such
year exceeds the amount of accrued and unpaid interest as at the end of
such year. The amount of the annual prepayment, if any, against the
Principal Sum outstanding from time to time will be equal to the difference
between the Product Proceeds received for the year and the amount of
accrued and unpaid interest as at the end of such year.
3.2 INTEREST
a. Interest on the Principal Sum outstanding from time to time pursuant to
this Note will accrue from the date hereof up to and including the date of
payment at the rate of 6% per annum calculated, but not compounded, yearly,
and not in advance;
b. Interest accrued and unpaid at the Due Date will be paid on the Due Date;
<PAGE>
c. Interest accrued and unpaid at the end of each year, will be paid annually
within thirty (30) days of receipt by [PURCHASER 3] of Product Proceeds for
the year, to the extent of the Product Proceeds, if any;
d. Accrued interest, if any, that is not paid in any year will continue to
accrue and be outstanding until paid but will not be added to the Principal
Sum payable under this Note and will not bear interest; and
e. The covenant of [PURCHASER 3] to pay interest at the rate provided herein
will not merge in any judgment in respect of any obligation of [PURCHASER
3] hereunder and such judgment will bear interest as aforesaid and be
payable in the same manner.
3.3 PRINCIPAL AND INTEREST ACCELERATION
Notwithstanding Section 3.2 c., but subject to the limitation of liability
set forth in sections 8.3 and 8.4, upon the occurrence of a Management Agreement
Termination Event, the outstanding Principal Sum and accrued and unpaid interest
at the Management Agreement Termination Date will be repaid within 30 days of
the Management Agreement Termination Date.
For the purposes of Section 3.3, the following terms have the meanings set
out below:
"Management Agreement Termination Date" means the date of the occurrence of
a Management Agreement Termination Event; and
"Management Agreement Termination Event" means the termination of the
Management and Marketing Agreement, with respect to the Eastern Territory,
pursuant to Article 5 of the Management and Marketing Agreement.
ARTICLE 4
ASSIGNMENT
4.1 ASSIGNMENT OF PRODUCT PROCEEDS
[PURCHASER 3] hereby assigns the Product Proceeds to the Holder as security
for payment of [PURCHASER 3]'s obligations to the Holder under this Note.
The provisions of this Section 4.1 and the rights of the Holder hereunder
will, notwithstanding any other provisions of this Note, wholly terminate on the
earlier of the date upon which this Note is retired or the indebtedness
hereunder is extinguished.
ARTICLE 5
SECURITY
5.1 SECURITY FOR THE NOTE
In consideration for the premises and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
[PURCHASER 3], and the due payment of all principal and interest on this Note
from time to time outstanding and on all other monies from time to time owing
on the security hereof and to secure the due performance by [PURCHASER 3] of
obligations herein contained, [PURCHASER 3] does hereby grant, assign,
mortgage, pledge, charge, hypothecate and create a security interest in, to
and in favor of the Holder in an undivided fifty percent (50%) interest in
the Purchased Assets provided that the charge hereby created will in no way
hinder or prevent [PURCHASER 3] at any time and from time to time (until an
Event of Default occurs pursuant to Article 8 hereof and the Holder will have
determined to enforce the same) from managing, developing, utilizing or
dealing with all or any part of the subject matter of the said charge in the
ordinary course of his business and for the purpose of carrying on or
extending the same or from entering into the Management and Marketing
Agreement; provided further that during any period in which there is any
outstanding principal or any accrued and unpaid interest on this Note,
[PURCHASER 3] will not, and [PURCHASER 3] hereby covenants that he will not,
without the prior written consent of the Holder, sell or transfer all or any
part of his undivided fifty percent
<PAGE>
(50%) interest in the Purchased Assets, or make, give, create, assume or
allow to subsist any mortgage, pledge, hypothecation, lien, charge,
encumbrance, assignment or other security, whether fixed or floating, upon
the Purchased Assets or any part thereof.
TO HAVE AND TO HOLD such assets and interests and all rights hereby
conferred unto the Holder, its successors and assigns forever, but in trust
nevertheless, for the uses and purposes and with the powers and authorities
subject to the terms and conditions mentioned and set forth in this Note.
5.2 FURTHER ASSURANCES
[PURCHASER 3] will forthwith, and from time to time at his sole cost and
expense, execute and do or cause to be executed and done all deeds, documents
and things which, in the reasonable opinion of the Holder, are necessary or
advisable for giving the Holder (so far as may be possible under the local
laws of the places where the Purchased Assets are situated) a valid mortgage,
pledge, charge and hypothecation of the nature herein specified upon the
Purchased Assets to secure payment of monies intended to be secured by this
Note, and for better assuring, mortgaging, pledging, charging, assigning,
hypothecating and confirming unto the Holder the Purchased Assets, and for
conferring upon the Holder such power of sale and other powers over the
Purchased Assets as are hereby expressed to be conferred.
5.3 DEFEASANCE
The Holder will at the written request and sole cost and expense of
[PURCHASER 3] cancel and discharge the lien of this Note and execute and
deliver to [PURCHASER 3] such deeds or other instruments as will be requisite
to discharge the lien hereof and to reconvey to [PURCHASER 3] any part of the
Purchased Assets subject to the lien of this Note and to release [PURCHASER 3]
from the covenants herein contained and upon delivery of such written request
to the Holder, rights hereby granted will cease, terminate and be void,
provided that [PURCHASER 3] will have satisfied the payment of all principal
monies, and interests due or to become due on this Note.
5.4 POSSESSION AND USE OF PURCHASED ASSETS
Until an Event of Default occurs pursuant to Article 8 hereof and the
Holder will have determined to enforce the same pursuant to the provisions of
this Note, [PURCHASER 3] will, subject however to the express terms hereof, be
suffered and permitted to possess, manage, develop, operate and enjoy the
Purchased Assets, and freely to control the conduct of his business and to take
and use any income, rents, issues and profits thereof in the same manner, to the
same extent and with the same effect, except as provided herein, as if this Note
had not been made.
5.5 ESCROW
Notwithstanding Section 5.4 hereof the source code version of the
Application Software, as defined in the Application Software Purchase Agreement,
will be held by the Security Agent pursuant to the terms and conditions of the
Security Agent Agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 [Purchaser 3]'S REPRESENTATIONS AND WARRANTIES
[PURCHASER 3] hereby represents and warrants to the Holder for the benefit
of the Holder as follows:
a. [PURCHASER 3] has the requisite power and authority to execute and deliver
this Note, to consummate the transactions contemplated hereby and to duly
observe and perform all his covenants and obligations herein set forth;
b. the execution and delivery of this Note does not and will not conflict with
or result in a breach of or violate any of the terms, conditions or
provisions of any terms, conditions or provisions of any law, judgment,
order, injunction, decree, regulation or ruling of any court or
governmental authority, domestic or foreign, to which [PURCHASER 3] is
subject or constitute or result in a default under any agreement, contract
or commitment to which [PURCHASER 3] is a party;
<PAGE>
c. the execution and delivery of this Note will not constitute an event of
default or an event which, with the giving of notice or lapse of time or
both, would constitute an event of default, under any agreement, contract,
indenture or other instrument relating to any indebtedness (whether for
borrowed money or otherwise) of [PURCHASER 3] which would give any party to
any such agreement, contract, indenture or other instrument the right to
accelerate maturity for the payment of any monies under any such agreement,
contract, indenture or other instrument; and
d. no authorization, approval, order, license, permit or consent of any
governmental authority, regulatory body or court, and no registration,
declaration or filing by [PURCHASER 3] with any such governmental
authority, regulatory body or court is required in order for [PURCHASER 3]:
i. to incur the obligations expressed to be incurred by [PURCHASER 3] in
or pursuant to this Note;
ii. to execute and deliver all documents and instruments to be delivered
by [PURCHASER 3] pursuant to this Note;
iii. to duly perform and observe the terms and provisions of this Note; and
iv. to render this Note legal, valid, binding and enforceable against
[PURCHASER 3] in accordance with its terms.
ARTICLE 7
COVENANTS OF [Purchaser 3]
[PURCHASER 3] hereby covenants and agrees with the Holder for the benefit
of the Holder as follows:
7.1 TO PAY PRINCIPAL AND INTEREST
[PURCHASER 3] will duly and punctually pay or cause to be paid to the
Holder the Principal Sum and accrued interest thereon and all other moneys from
time to time owing hereunder, on the dates, at the places, in the moneys and in
the manner mentioned herein.
7.2 TO CARRY ON BUSINESS
[PURCHASER 3] will carry on and conduct his business involving the
Purchased Assets in a proper and efficient manner; and at all reasonable times
he will furnish or cause to be furnished to the Holder or its duly authorized
agent or attorney such information relating to the business of [PURCHASER 3]
involving the Purchased Assets as the Holder may reasonably require.
ARTICLE 8
DEFAULT
8.1 EVENTS OF DEFAULT
If any one or more of the following events has occurred and is continuing:
a. the non-payment when due of the Principal Sum, accrued interest thereon and
any other amounts due under this Note;
b. the breach by [PURCHASER 3] of any material provision of this Note;
c. any representation or warranty made by [PURCHASER 3] herein or in any
financial statements, reports or other documents supplied to the Holder by
[PURCHASER 3] hereunder is false, incorrect or inaccurate in any materially
adverse respect; or
d. If proceedings for bankruptcy or receivership are commenced, unless such
proceedings are being actively and diligently contested by [PURCHASER 3] in
good faith;
provided that [PURCHASER 3] will not have remedied such default within thirty
(30) days (ten (10) days in the case of a monetary default) following receipt by
[PURCHASER 3] from the Holder of
<PAGE>
notice of the default, the Holder may, by written notice declare the
Principal Sum and accrued interest thereon and any other amounts payable to
it under this Note to be immediately due and payable without further
presentation, notice or demand and [PURCHASER 3] will immediately pay to the
Holder all indebtedness of [PURCHASER 3] owing to it pursuant to this Note.
8.2 REMEDIES
If an Event of Default has occurred and is continuing and [PURCHASER 3]
has failed forthwith to pay the amounts owing hereunder, or remedy any breach
of any of his obligations secured by this Note as herein outlined, the Holder
shall have all of the rights and remedies of a secured party under the
California Uniform Commercial Code or other applicable California law then in
effect. Without limiting the generality of the foregoing, the Holder, in
addition to any other rights and remedies it may have, in its own name will
be entitled and empowered to sell the Purchased Assets as provided in Section
8.4 below, as well as institute action or proceeding at law or in equity for
the collection of the sums so due and unpaid and may prosecute any such
action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against [PURCHASER 3] or other obligor upon this
Note and collect in the manner provided by law out of the Purchased Assets,
as provided for in this Note wherever situated the monies adjudged or decreed
to be payable.
8.3 LIMITED RECOURSE
Notwithstanding anything else contained in this Note, the Holder
covenants and agrees with [PURCHASER 3] that all of its recourse rights,
powers and remedies for payment of any obligations of [PURCHASER 3] to the
Holder under this Note is limited to the Product Proceeds and the Sale
Proceeds which will be applied in the following order of priority:
a. to pay interest due and payable under this Note;
b. to pay the Principal Sum outstanding from time to time; and
c. to pay any other amounts owing by [PURCHASER 3] to the Holder under this
Note.
8.4 SALE OF PURCHASED ASSETS
a. If an Event of Default has occurred and is continuing as provided in
Section 8.2 hereof or the indebtedness created hereby either with respect
to principal or interest remains in whole or in part unpaid as of the Due
Date, the Holder will be entitled and empowered to dispose of the Purchased
Assets or any part thereof: i. at public sale, which public sale may be
conducted at the location designated by the Holder for cash or on credit
and on such terms as the Holder may in its sole discretion, elect after
giving at least five days notice of the time and place of sale in the
manner provided by law, or ii. at private sale upon like notice for cash or
on credit and on such other terms as the Holder may in its sole discretion
elect;
b. The proceeds of the sale ("Sale Proceeds") of the Purchased Assets will be
allocated as follows:
i. to reimburse the Holder (to a maximum of 20% of the gross proceeds of
sale), for all costs and expenses incurred as the result of an Event
of Default and in connection with re-possession, storing, advertising,
marketing and selling the Purchased Assets including, without
limitation, reasonable attorneys' fees and costs;
ii. to the Holder as a reduction of amounts owing by [PURCHASER 3] under
this Note allocated firstly as to interest and the remainder as to
principal; and
iii. the balance to [PURCHASER 3];
c. Any balance owing by [PURCHASER 3] under this Note after the allocation of
the Sale Proceeds will be forgiven by the Holder and [PURCHASER 3] will
have no further liability under this Note; and
d. This Note is non-negotiable. The Holder will have no right or recourse
against any legal person in respect of the covenants contained in this Note
other than, subject to Section
<PAGE>
8.3, [PURCHASER 3], and his assigns but only severally and not jointly and
only to the extent of each person's interest in the Purchased Assets.
8.5 LIMITATION OF LIABILITY
Notwithstanding anything contained in this Note, [PURCHASER 3] will not
have any obligation to pay the Principal Sum outstanding from time to time under
the Note if the Management and Marketing Agreement is terminated as a result of
the occurrence of an event described in Section 5.3 thereof.
ARTICLE 9
WAIVER
9.1 Either the Holder or [PURCHASER 3] may waive any breach of any of the
provisions contained in this Note or any default by the other person in the
observance or performance of any covenant, condition or obligation required to
be observed or performed by such person under the terms of this Note, provided
any such waiver shall only be effective upon the delivery of written notice by
the waiving party. No waiver, consent, act or omission by the Holder or
[PURCHASER 3] will extend to or be taken in any manner whatsoever to affect any
subsequent breach or default or the rights resulting therefrom and no waiver or
consent by the Holder or [PURCHASER 3] will be binding unless it is in writing.
The inspection or approval by the Holder or [PURCHASER 3] of any document or
matter or thing done by the other will not be deemed to be a warranty or holding
out of the adequacy, effectiveness, validity, or binding effect of such
document, matter or thing or a waiver of the obligations of the other.
ARTICLE 10
TIME OF THE ESSENCE
10.1 Time will be of the essence of this Note.
ARTICLE 11
NOTICES
11.1 Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at the
applicable address set forth above, or to any party at such other addresses as
shall be specified in writing by such party to the other parties in accordance
with the terms and conditions of this Section. All notices, requests or
communications shall be deemed effective upon personal delivery, or two (2)
business days following deposit with any international overnight courier
service, or upon confirmation of receipt if sent by facsimile transmission.
ARTICLE 12
GENERAL
12.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any respect
in any jurisdiction, such provision shall be construed so as to most closely
reflect the original intent of the parties, but still be enforceable, and the
validity, legality or enforceability of such remaining provisions or parts
thereof will not in any way be affected or impaired thereby. The invalidity,
illegality or unenforceability of any provision or part thereof contained in
this Agreement in any jurisdiction will not affect or impair such provision or
part thereof or any other provisions of this Agreement in any other
jurisdiction.
12.2 FURTHER ASSURANCES
[PURCHASER 3] and the Holder will, at any time and from time to time at the
request of the other, execute and deliver any and all such further instruments
or assurances as may be necessary or desirable to give effect to the terms and
conditions of this Note.
<PAGE>
12.3 COUNTERPART EXECUTION
This Note, and any and all ancillary documents contemplated herein, may
be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Note and will be binding on [PURCHASER 3]
and the Holder as if they had originally signed one copy of this Note.
12.4 ASSIGNMENT
[PURCHASER 3] may assign all or any part of its interest in Purchased
Assets, except that any assignment to any person who is carrying on a
business immediately prior to such assignment that is in direct competition
with Holder, shall require the prior written consent of the Holder. An
assignment shall be effected by:
a. by giving written notice of the names and addresses of the assignees; and
b. by delivering to the Holder a written undertaking of the assignees
acknowledging receipt of a copy of the Note and agreeing to be bound by the
terms and conditions of the Note.
The Holder may assign this Note in whole, but not in part, and only with an
assignment of all of its rights and obligations under, and as permitted by, the
Management and Marketing Agreement by giving [PURCHASER 3] written notice of the
name and address of the assignee.
12.5 BINDING EFFECT
This Note and all of its provisions will enure to the benefit of the Holder
and [PURCHASER 3] and will be binding upon the Holder and [PURCHASER 3]. The
expressions the "Holder" and the "[PURCHASER 3]" as used herein will include the
Holder's and [PURCHASER 3]'s assigns, whether immediate or derivative,
respectively.
12.6 AMENDMENT
This Note may be altered or amended in any of its provisions when any such
changes are reduced to writing and signed by the parties hereto but not
otherwise.
12.7 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in the preparation, delivery and enforcement of
this Note.
12.8 REMEDIES NOT EXCLUSIVE
No right or remedy herein is exclusive of any other right or remedy. Each
and every right and remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity,
and may be exercised from time to time as often as deemed expedient, separately
or concurrently.
12.9 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of California (regardless of that jurisdiction or any
other jurisdiction's choice of law principles). To the extent permitted by law,
the parties hereto agree that all actions or proceedings arising in connection
herewith, shall be arbitrated or litigated in the state and federal courts
located in the State of California, and each party hereby waives any right it
may have to assert the doctrine of Forum Non Conveniens or to object to venue.
The parties each hereby stipulate that the state and federal courts located in
the County of Santa Clara, State of California, shall have personal jurisdiction
and venue over each party for the purpose of litigating any such dispute,
controversy or proceeding arising out of or related to this Agreement.
IN WITNESS WHEREOF [PURCHASER 3] and the Holder have duly executed these
presents under the hands of their proper officers in that behalf.
[PURCHASER 3]: /s/ [PURCHASER 3]
---------------------------------
[PURCHASER 3]
<PAGE>
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
----------------------------
Milan Carnogursky
President, Chairman and
Chief Executive Officer
<PAGE>
SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of this 22nd day of December, 1997, is by and
AMONG:
[SECURITY AGENT], having a business address at [SECURITY AGENT'S
ADDRESS], Fax: [SECURITY AGENT'S FAX] ("Security Agent")
OF THE FIRST PART;
- and -
[Purchaser 3] ("[PURCHASER 3]") and [PURCHASER 4] ("[PURCHASER
4]"), both individuals, as joint venturers (each with an
undivided 50% interest) utilizing a business address at
[PURCHASER 3'S AND PURCHASER 4'S JOINT ADDRESS], Fax: [PURCHASER
3'S AND PURCHASER 4'S JOINT FAX] (hereinafter collectively
referred to as "Joint Venturers" and individually as "Joint
Venturer")
OF THE SECOND PART;
- and -
ALYA INTERNATIONAL, INC., a corporation incorporated pursuant to
the laws of Delaware having a business address at 2465 East
Bayshore Road, No. 348, Palo Alto, CA 94303, Fax: (650) 361-8286
("Alya")
OF THE THIRD PART.
WHEREAS:
A. Pursuant to that certain Application Software Purchase Agreement, dated
December 22, 1997, by and between Curtis Bartlett, an individual acting as
agent on behalf of the Joint Venturers, (the "Agent") and Alya (the
"Purchase Agreement"), Agent (as agent on behalf of the Joint Venturers)
purchased the Purchased Assets, as more particularly described in the
Purchase Agreement;
B. The Purchase Agreement provided that Agent (as agent on behalf of the Joint
Venturers) would purchase and acquire the Purchased Assets for cash and the
Note (as defined in section 1.1(n) of the Purchase Agreement) (the "Note")
deliverable at closing;
C. The Note, as defined, is comprised of two secured term notes (the
"[PURCHASER 3] Note" and the "[PURCHASER 4] Note"), each secured by an
undivided 50% interest in the Purchased Assets;
<PAGE>
D. Pursuant to the terms of the [PURCHASER 3] Note, [PURCHASER 3] granted a
security interest in his undivided 50% interest in the Purchased Assets to Alya
as a means of securing performance of his obligations under the [PURCHASER 3]
Note; and pursuant to the terms of the [PURCHASER 4] Note, [PURCHASER 4] granted
a security interest in his undivided 50% interest in the Purchased Assets to
Alya as a means of securing performance of his obligations under the [PURCHASER
4] Note;
E. In connection with the [PURCHASER 3] Note and the [PURCHASER 4] Note, the
parties hereto have agreed to establish and maintain this Security Agent
Agreement; and
F. This Security Agent Agreement provides, INTER ALIA, that the Joint
Venturers shall deliver, or cause to be delivered, to the Security Agent
the source code version of the Application Software, and that the Security
Agent shall hold the source code version of the Application Software
subject to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals and the
terms, conditions and covenants contained herein, the Joint Venturers, the
Security Agent and Alya hereby agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
Except as otherwise set forth herein, capitalized terms shall have the
meanings ascribed to them in the Purchase Agreement:
(a) "MANAGEMENT AGREEMENT" means the Management and Marketing Agreement
made as of December 22, 1997, between the Joint Venturers and Alya;
(b) "NOTE" means the two 6.0% Secured Term Notes (one issued by each of
the Joint Venturers), dated December 22, 1997, each secured by a Joint
Venturer's undivided 50% interest in the Purchased Assets; and
"[PURCHASER 3] Note" means such Note issued by [PURCHASER 3], and
"[PURCHASER 4] Note" means such Note issued by [PURCHASER 4];
(c) "PURCHASE AGREEMENT" means the Application Software Purchase Agreement
made as of December 22, 1997, between Agent (as agent on behalf of the
Joint Venturers) and Alya;
(d) "RELEASE NOTICE" means a notice to the Security Agent in the form
attached as Schedule "A" to this Agreement; and
(e) "SOFTWARE" means the source code for the Application Software.
1.2 INTERPRETATION
<PAGE>
(a) The terms "this Agreement", "hereof", "hereunder" and similar
expressions refer to this Agreement and not to any particular Section,
Subsection or other portion of this Agreement and include any
agreement amending or supplemental to this Agreement. Unless
something in the subject matter or context is inconsistent therewith,
reference herein to Sections and Subsections are to Sections and
Subsections of this Agreement;
(b) Except as specifically stated in this Agreement, all references to
currency are to Canadian dollars. Any currency conversion required or
contemplated by this Agreement with respect to Canadian and United
States of America currency will be based on the rate published by the
Bank of Canada as the noon spot rate of exchange applicable for such
currencies on the business day immediately before the date of
conversion; and
(c) Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires and the provisions
hereof and all covenants herein will be construed to be joint and
several when applicable to more than one party.
ARTICLE 2
DEPOSIT OF SECURITY
2.1 ORIGINAL DEPOSIT
Concurrently with the Closing, the Joint Venturers shall deliver, or
cause to be delivered, to the Security Agent, the Software as security for the
Joint Venturers' obligations to Alya under the Note. Alya shall examine the
Software as delivered, and certify the completeness and accuracy of the Software
in a letter, the form and content of which is acceptable to the Joint Venturers,
forwarding the same to the Security Agent with a copy to the Joint Venturers.
2.2 SUBSEQUENT DEPOSITS
Alya shall deliver or cause to be delivered to the Security Agent the
source code for any Enhancements to the Software annually in accordance with the
Management Agreement as security for the Joint Venturers' obligations to Alya
under the Note. Alya, at the time of delivering source code for Enhancements to
the Security Agent, shall certify the completeness and accuracy of the Software
in a letter, the form and content of which is acceptable to the Joint Venturers,
forwarding the same to the Security Agent with a copy to the Joint Venturers.
2.3 RETENTION OF SECURITY
The Security Agent shall hold the Software and shall release the same
upon the terms and conditions provided in this Agreement.
<PAGE>
ARTICLE 3
RELEASE OR RETURN OF SECURITY BY SECURITY AGENT
3.1 DELIVERY TO THE JOINT VENTURERS
The Security Agent shall deliver all Software which has been deposited
with the Security Agent to the Joint Venturers upon the occurrence of either of
the following events:
(a) Alya and the Joint Venturers deliver a Release Note, executed by each
of Alya and the Joint Venturers, to the Security Agent; or
(b) Subject to compliance with Section 3.2 hereof, the Security Agent has
received from the Joint Venturers each of the following items:
(i) notice that (x) the Management Agreement has been terminated
or (y) that all outstanding principal and accrued interest
under the Note has been paid;
(ii) written demand that all Software deposited with the Security
Agent be delivered to the Joint Venturers;
(iii) a certified or cashier's cheque payable to the Security Agent
in an amount equal to any amounts owing to the Security Agent
pursuant to this Agreement; and
(iv) specific instructions from the Joint Venturers for delivery of
the Software.
3.2 PROCEDURE FOR DELIVERY TO THE JOINT VENTURERS
(a) If the provisions of Section 3.1(b) are met, the Security Agent shall,
within five (5) days following receipt of all of the items specified
in Section 3.1(b), send by overnight courier to Alya a copy of all
such documents received by Security Agent pursuant to Section 3.1(b).
Alya shall have twenty (20) days from the date that the Security Agent
shall have delivered the documents to Alya to send to the Security
Agent written notice of its objection to the release of all the
Software and to request that the issue of the Joint Venturers'
entitlement to the Software be submitted to arbitration in accordance
with the provisions of this Agreement;
(b) If Alya shall request arbitration, the matter shall be submitted to
and settled by arbitration in accordance with Section 10 hereof; and
(c) If within twenty (20) days following the delivery of the items
specified in Section 3.1(b) to Alya, the Security Agent has not
received written notice of Alya's objection to the release of the
Software and its request for arbitration, then the Security Agent
shall release the Software to the Joint Venturers in accordance with
the instructions specified in Section 3.1(b)(iv).
3.3 DELIVERY TO ALYA
The Security Agent shall deliver all Software which has been deposited
with the Security Agent to Alya upon the occurrence of either of the following
events:
<PAGE>
(a) The Joint Venturers and Alya deliver a Release Notice executed by each
of the Joint Venturers and Alya to Security Agent; or
(b) Subject to compliance with Section 3.4 hereof, the Security Agent has
received from Alya each of the following items:
(i) written notification that the Joint Venturers are in breach of
the Note;
(ii) a written demand that all Software deposited with the Security
Agent be delivered by Alya;
(iii) a certified or cashier's cheque payable to the Security Agent
in an amount equal to any amounts owning to the Security Agent
pursuant to this Agreement; and
(iv) specific instructions from Alya for delivery of the software.
3.4 PROCEDURE FOR DELIVERY TO ALYA
(a) If the provisions of Section 3.3(b) are met, the Security Agent
shall,within five days following receipt of all of the items specified
in Section 3.3(b), send by overnight courier to the Joint Venturers a
copy of all such documents received by Security Agent pursuant to
Section 3.3(b). The Joint Venturers shall have twenty (20) days from
the date the Security Agent shall have delivered the documents to the
Joint Venturers to send to the Security Agent written notice of its
objection to the release of all the Software and to request that the
issue of Alya's entitlement to the Software be submitted to
arbitration in accordance with the provisions of this Agreement;
(b) If the Joint Venturers shall request arbitration, the matter shall be
submitted to and settled by arbitration in accordance with Section 10
hereof; and
(c) If within twenty (20) days following delivery of the items specified
in Section 3.3(b) to the Joint Venturers, the Security Agent has not
received written notice of the Joint Venturers's objection to the
release of the Software and its request for arbitration, then the
Security Agent shall release the Software to Alya in accordance with
the instructions specified in Section 3.3(b)(iv).
ARTICLE 4
OWNERSHIP OF PURCHASED ASSETS
4.1 ACKNOWLEDGEMENT
The Security Agent, Alya and the Joint Venturers each hereby
recognize and acknowledge that the Joint Venturers own all right, title and
interest in and to the Purchased Assets (each as to an undivided 50%
interest), subject only to the security interests created pursuant to the
Note in favour of
<PAGE>
Alya, and the license granted to Alya pursuant to Section 4 of the Mangement
Agreement, and that the Security Agent holds the Purchased Assets as agent
for the Joint Venturers until delivery in accordance with this Agreement.
ARTICLE 5
DUTIES AND RESPONSIBILITIES OF THE SECURITY AGENT
5.1 DUTIES
The Security Agent shall not be bound in any way by an agreement or
contract between the Joint Venturers and Alya (whether or not the Security
Agent has knowledge thereof), and the Security Agent's only duties and
responsibilities shall be to hold the Software it receives and to deliver
same in accordance with the terms of this Agreement. The Security Agent
shall have no duties except those which are expressly set forth herein and it
shall not be bound by any waiver, modification, amendment, termination or
rescission of this Agreement unless received by it in writing and signed by
Alya and the Joint Venturers and, if its duties are affected, unless it shall
have given its prior written consent thereto.
5.2 AUTHORITY TO ACT
The Security Agent has the absolute authority to accept or act upon
each executed Release Notice received pursuant to this Agreement, without any
obligation of inquiry as to the validity, authenticity or accuracy thereof.
Should it be necessary for the Security Agent to accept or act upon any
instructions, directions, documents or instruments signed or issued by or on
behalf of any corporation, partnership, fiduciary or individual, it shall not
be necessary for the Security Agent to inquire into the authority of the
signer(s). The Security Agent shall be protected in acting upon any notice,
request, waiver, consent, receipt, statutory declaration or other paper or
document furnished to it, signed by any of the parties hereto, not only as to
its due execution and validity and effectiveness of its provisions but also
as to the truth and accuracy of any information therein contained. Unless
otherwise directed in a writing mutually executed by Alya and the Joint
Venturers and delivered to the Security Agent not less than five business
days prior to the applicable scheduled Software delivery, the Security Agent
is hereby authorized to make deliveries pursuant hereto by the commercial
courier, which the Security Agent, in its sole discretion, selects. The
Security Agent shall not be liable in any manner for the acts, omissions,
delays or failures to deliver by any such selected commercial couriers.
5.3 AMENDMENT, RESIGNATION AND/OR TERMINATION
This Agreement may be altered or amended only with the consent of each
of Alya, the Joint Venturers and Security Agent. The Security Agent may resign
as Security Agent at any time upon 30 days' prior written notice to the Joint
Venturers and Alya. The Joint Venturers and Alya may remove the Security Agent
as security agent at any time upon 30 days' prior written notice to the Security
Agent. In the event of resignation or termination of the Security Agent, Alya
and the Joint Venturers shall attempt to mutually agree upon the selection of a
new security agent. In the event that they are unable to agree, the new
security agent shall be another firm of barristers and solicitors authorized to
<PAGE>
practice law in Canada or an independent, qualified trust or escrow company
or organization, located in the Province of Alberta, selected by the Joint
Venturers. From the date the Security Agent receives notice of termination
or gives notice of resignation and until a successor Security Agent shall
have been appointed and shall have accepted such appointment, the Security
Agent's only duty shall be to hold any deposited software then in the
Security Agent's possession in accordance with the provisions of this
Agreement (but without regard to any notices, requests, instructions or
demands received by the Security Agent from any party hereto after the
Security Agent's notice of resignation shall have been given or notice of
termination shall be received). Upon the appointment of, and acceptance by, a
successor Security Agent, the former Security Agent shall deliver to the
successor Security Agent any Software and other documents or instruments
relating thereto then in its possession.
5.4 NO ACTION REQUIRED
In the event that any of the notices and/or Software or other
documents or instruments to be delivered pursuant to the terms hereof are not
delivered to the Security Agent, Security Agent shall have no duty whatsoever
to take any action with respect to procurement of the same. The Security
Agent shall have no obligation or responsibility to verify that any Software
or other documents or instruments delivered hereunder are the Enhancements or
other documents required to be delivered by Alya pursuant to the Purchase
Agreement or the Management Agreement. The Security Agent may, however,
allow such verification to be obtained at, or within a reasonable time of,
such delivery by a qualified employee or agent of any one of the Joint
Venturers and may permit such employee or agent reasonable access to such
Software, document or other instrument for the purposes of making such
verification. For the purpose of this paragraph, the parties agree that such
Software, document or other instrument may be initially delivered to such
employee or agent for the sole purpose of making such verification followed
by immediate delivery of the Security Agent.
5.5 EXPENSE REIMBURSEMENT
In addition to the indemnification obligations set forth herein,
Alya and the Joint Venturers each hereby jointly and severally agrees to
reimburse Security Agent for all expenses incurred in connection with
performing and carrying out its responsibilities hereunder, including without
limitation, legal and professional fees and expenses.
5.6 SECURITY AGENT FEES
The fees and reasonable expenses of the Security Agent shall be
shared equally by the Joint Venturers on the one hand and Alya on the other
hand. Such fees shall include:
(a) for each year, or portion thereof, that the Security Agent
holds the Software, an amount of $100.00 payable at the
beginning of the year; and
(b) any additional amount mutually agreed to by the parties.
ARTICLE 6
<PAGE>
DISCLAIMER OF LIABILITY
6.1 Except for fraud or intentional misconduct, Security Agent shall
not be liable to Alya, the Joint Venturers or any other party claiming
beneficiary status under this Agreement for any act, or failure to act, by
Security Agent in connection with this Agreement. Security Agent will not be
liable for special, indirect, incidental or consequential damages hereunder.
ARTICLE 7
INDEMNITY AND LIABILITY
7.1 The Joint Venturers, Alya and any party claiming beneficiary status
under this Agreement hereby, jointly and severally, agree to indemnify and
hold harmless and be liable to Security Agent and each of its partners,
employees and agents, absolutely and forever, and from and against any and
all claims, actions, damages, suits, liabilities, obligations, costs, fees,
charges, and any other expenses whatsoever, including legal and professional
fees and expenses, that may be asserted against or incurred by Security Agent
or any of its employees or agents, with respect to the performance of its
duties under this Agreement.
ARTICLE 8
DISPUTES AND INTERPLEADER
8.1 In the event of any dispute between the Joint Venturers and Alya or
any third party claiming beneficiary status under this Agreement, Security
Agent may submit this matter to any court of competent jurisdiction in an
interpleader or similar action. Any and all costs incurred by Security Agent
in connection therewith shall be borne by the party seeking a copy of the
Software deposited with Security Agent. Without limiting the generality of
the foregoing, if Security Agent shall be uncertain as to its duties or
rights hereunder, shall receive any notice, advice, schedule, report,
certificate, direction or other document from any person or entity with
respect to the Software, that in the opinion of the Security Agent, in its
sole discretion, is in conflict with any provisions of this Agreement, or
shall be advised that a dispute has arisen with respect to the ownership or
right of possession of the Software or any part thereof, Security Agent shall
be entitled, without liability to anyone, to refrain from taking any action
other than to exercise best efforts to keep safe the Software until Security
Agent shall be directed otherwise in writing by an order, decree, or judgment
of a court of competent jurisdiction that is then finally affirmed on appeal
or that by the lapse of time or otherwise is no longer subject to appeal; but
Security Agent shall be under no duty to institute or defend any such
proceeding.
ARTICLE 9
NOTICES
9.1 All notices and other communications hereunder or in connection
herewith shall be in writing and shall be given by personal delivery,
international overnight courier service, facsimile or by Canadian (or U.S., as
applicable) mail, certified or registered, postage prepaid, return receipt
requested, to the respective party at the address set forth below, or to any
party at such other
<PAGE>
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or five (5) days following deposit in the Canadian (or U.S., as applicable)
mail, or upon the next business day after sending by facsimile or two (2)
business days following deposit with any international overnight courier
service.
If to Alya to: Alya International, Inc.
2465 East Bayshore Road
No. 348
Palo Alto, CA 95125
Attention: Chief Executive Officer
Fax No. (604) 528-9983
If to any one of the Joint Venturers to them at:
[PURCHASER 3'S AND PURCHASER 4'S JOINT ADDRESS]
Fax No. [PURCHASER 3'S AND
PURCHASER 4'S JOINT FAX]
If to Security Agent to: [SECURITY AGENT]
[SECURITY AGENT'S ADDRESS]
Attention: [SECURITY AGENT EMPLOYEE]
Fax No: [SECURITY AGENT FAX]
ARTICLE 10
ARBITRATION
10.1 Any dispute arising among the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the
parties for resolution and, in the event that senior management cannot
resolve the dispute within 30 days of escalation of the dispute to such
level, then the parties agree that such dispute shall be settled by final and
binding arbitration in Calgary, Alberta, before a single arbitrator mutually
acceptable to the parties involved in the dispute, in accordance with
arbitration legislation in the Province of Alberta then existing, except as
otherwise specifically provided herein. The arbitrator shall apply the laws
of the Province of Alberta and the laws of Canada for the purposes of
construing and enforcing this Agreement and any dispute arising hereunder.
The arbitration award shall be specifically enforceable; judgment upon any
arbitration award may be entered in any court with personal jurisdiction over
the parties and subject matter of the disputes. Unless otherwise determined
by the arbitrator, all expenses in connection with such arbitration will be
divided equally between the parties involved in the dispute (provided that if
both of the Joint Venturers are involved in the dispute then they shall be
collectively considered one party for the purposes of the division of
expenses), with the exception of expenses of counsel, witnesses and employees
of the parties which will be borne by the parties incurring them.
Notwithstanding
<PAGE>
anything to the contrary herein, each party will always be entitled to seek
preliminary or provisional remedies or release (including attachments and
preliminary injunctions) from any court of competent jurisdiction.
ARTICLE 11
NO WAIVER OR RIGHTS
11.1 The delay or failure of any party to enforce at any time any
provision of this Agreement shall in no way be considered a waiver of any
such provision, or any other provision, of this Agreement. No waiver of, or
delay or failure to enforce any provision of this Agreement shall in any way
be considered a continuing waiver or be construed as a subsequent waiver or
any such provision, or any other provision of this Agreement. No waiver or
modification of this Agreement shall be binding unless it is in writing
signed by the parties hereto.
ARTICLE 12
BINDING EFFECT; ASSIGNMENT
12.1 This Agreement shall be binding upon, and enure to the benefit of,
all the parties hereto and their respective successors, legal representatives
and assigns permitted under the Purchase Agreement. Each of the parties
hereto acknowledges and accepts that any assignee permitted under the
Purchase Agreement, which assignee has agreed to abide by and be bound by all
the applicable conditions set forth in each of the Purchase Agreement, the
Management Agreement and the Note, shall constitute an intended third party
beneficiary under this Agreement, and be entitled to all the rights of an
intended third party beneficiary. The parties will amend this Agreement to
include such persons, if requested to do so by the Joint Venturers or Alya,
and in any event the Joint Venturers and Alya will notify the Security Agent
of the name of any assignee.
ARTICLE 13
AUDIT RIGHTS
13.1 During the term of this Agreement, the Joint Venturers shall have
the right, upon not less than ten days prior written notice to Alya, to
examine all of the items which have been deposited with, and are being held
by, the Security Agent, pursuant to the terms and conditions of this
Agreement, for the purpose of ascertaining the completeness and accuracy of
the deposited items.
ARTICLE 14
GENERAL
14.1 VALIDITY
<PAGE>
If any one or more of the provisions or parts thereof contained in
this Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair
such provision or part thereof or any other provisions of this Agreement in
any other jurisdiction.
14.2 FURTHER ASSURANCES
Each of the parties will, at any time and from time to time at the
request of the other parties, execute and deliver any and all such further
instruments or assurances as may be necessary or desirable to give effect to
the terms and conditions of this Agreement.
14.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated
herein, may be executed in one or more counterparts and may be executed by
facsimile signatures and all such counterparts and facsimile signatures taken
together will constitute one and the same Agreement and will be binding on
the parties as if they had originally signed one copy of this Agreement.
14.4 TIME OF THE ESSENCE
Time will be of the essence of this Agreement.
14.5 COSTS
Except as specifically provided in this Agreement, each party
hereto will bear its own legal, accounting and other costs relating to all
matters involved in this transaction.
14.6 CONFIDENTIALITY
The parties will treat this Agreement and all information relating
to this Agreement and the transactions contemplated by this Agreement
confidentially and no public disclosure by either party will be made without
the prior approval of the other, not to be unreasonably withheld, except as
legally required by a party to satisfy disclosure obligations to shareholders
and regulators, in which case simultaneous notice of such disclosure will be
given to the other party.
14.7 ENTIRE AGREEMENT
This agreement constitutes the entire Agreement among the parties
and supersedes all proposals, oral or written, and all other communications
among them relating to the subject matter hereof.
14.8 JURISDICTION, VENUE AND GOVERNING LAW
<PAGE>
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Province of Alberta and the laws of Canada
applicable therein (regardless of either jurisdiction's or any other
jurisdiction's choice of law principles). To the extent permitted by law,
the parties hereto agree that all actions or proceedings arising in
connection herewith, shall be arbitrated or litigated in Calgary, Alberta,
Canada, and each party hereby waives any right it may have to assert the
doctrine of Forum Non Conveniens or to object to venue. The parties each
hereby stipulate that the courts located in Calgary, Alberta, shall have
personal jurisdiction and venue over each party for the purpose of litigating
any such dispute, controversy or proceeding arising out of or related to this
Agreement.
14.9 NO CONFLICT
Alya and the Joint Venturers each acknowledge that (a) the Security
Agent or its partners, employees, agents or associates have provided counsel
to the Joint Venturers in connection with the transactions contemplated by
the Purchase Agreement; (b) the duties of the Security Agent hereunder are
purely mechanical; and (c) the Security Agent is acting hereunder for the
convenience of Alya and the Joint Venturers and shall not be impeachable or
accountable
<PAGE>
because of any conflicting or potentially conflicting duty to the Joint
Venturers or any advice provided to them.
IN WITNESS WHEREOF the undersigned have executed this Security
Agreement as of the date first set forth above.
ALYA: ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
---------------------------------------
---------------------------------------
Milan Carnogursky
President, Chairman & CEO
THE JOINT VENTURERS: /s/ [PURCHASER 3]
---------------------------------------
[PURCHASER 3]
/s/ [PURCHASER 4]
---------------------------------------
[PURCHASER 4]
SECURITY AGENT: [SECURITY AGENT]
By: /s/ [SECURITY AGENT'S OFFICER]
---------------------------------------
---------------------------------------
(Print name and Title)
<PAGE>
SCHEDULE A
RELEASE NOTICE
[SECURITY AGENT]
[SECURITY AGENT'S ADDRESS]
Dear Sirs:
RE: SECURITY AGENT AGREEMENT
This Release Notice is being delivered pursuant to the Security Agent
Agreement, dated December 22, 1997 ("Security Agent Agreement"), among
[PURCHASER 3] and [PURCHASER 4] as joint venturers, each with an undivided
50% interest, ("The Joint Venturers"), Alya International, Inc. ("Alya") and
[SECURITY AGENT]("Security Agent'). Except as otherwise set forth herein,
capitalized terms shall have the meanings ascribed to them in the Security
Agent Agreement.
Security Agent is hereby authorized and directed to deliver all the Software
and all documents, instruments and other items delivered to it by the Joint
Venturers or Alya in its capacity as Security Agent to [____________________].
Dated: ALYA INTERNATIONAL, INC.
By:
---------------------------------------
---------------------------------------
Milan Carnogursky
President, Chairman & CEO
Dated:
---------------------------------------
[PURCHASER 3]
Dated:
---------------------------------------
[PURCHASER 4]
<PAGE>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 30th day of December 1998 (the "Effective
Date").
BETWEEN:
[PURCHASER 5], an Arizona corporation, having a business address at
[ADDRESS] ("Purchaser")
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a Delaware corporation, having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303 (hereinafter
referred to as "Alya")
OF THE SECOND PART
WHEREAS:
1. Alya is the legal and beneficial owner of the Purchased Assets; and
2. Alya has agreed to sell and assign the Purchased Assets to Purchaser for
use in the Territory, and Purchaser has agreed to purchase the Purchased
Assets on the terms and conditions hereinafter set forth and contained.
NOW THEREFORE in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions shall have the following meanings:
a. "Annual Payments" means those payments included in the Purchase Price
and described at Section 1.1 p (iii) in the annual amount of Two Million
Five Hundred Thousand Canadian Dollars (Cdn. $2,500,000), pro-rated for
partial years.
b. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in
<PAGE>
Schedule A to this Agreement together with Enhancements;
c. "Asset Valuation Report" means the software valuation prepared for
Purchaser by [APPRAISER];
d. "Closing" has the meaning set out in Section 7.1;
e. "Closing Date" means December 30, 1998, or such other date as the parties
may agree;
f. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Management
Agreement, including the Application Software and the Purchased Assets, are
deemed to be confidential without the need for written notice and shall at
all times remain confidential, notwithstanding the exception to
confidentiality noted in the next sentence. "Confidential Information" of
the Disclosing Party shall not include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without breach of this Agreement
by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party, independently of the Disclosing Party and
without breach of an obligation of confidentiality to the
Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
obligation of confidentiality to the Disclosing Party;
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D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
g. "Customers" means any person using or distributing the Security System in
the Territory;
h. "Documentation" has the meaning specified in Subsection v. of the
definition of Purchased Assets;
i. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Application Software by Alya or any other
person, to be utilized in connection with providing the Security System,
including, without limitation, any improvement, revision or other
modification which is necessary:
i. to provide Customers with then current Application Software; or
ii. to maintain the Application Software as a state of the art or industry
leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A to the extent that Purchaser's manager pursuant to the
Management Agreement continues to believe that they are commercially
reasonable in light of then current market conditions and technical
developments;
j. "Infringement Claims" has the meaning specified in Subsection 5.1.b.;
k. "Initial Installment" means Five Hundred Thousand Canadian Dollars (Cdn.
$500,000) to be paid to Alya by [PURCHASER 5] at the Closing, as part of
the Purchase Price.
l. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of Purchased Assets";
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m. "Letter of Representation" means a letter from Alya to [APPRAISER] in
substantially the form attached as Schedule B;
n. "Management Agreement" means the Management and Marketing Agreement to be
entered into by Purchaser and Alya on Closing for the management and
marketing of the Purchased Assets;
o. "Originality Certificate" means the Officer's Certificate in the form
attached as Schedule C;
p. "Payment Date" means the date for making an Annual Payment, which is
December 31 of the applicable year, commencing December 31, 1999 and
continuing through December 31, 2010.
q. "Prepayment" means that portion of any payment or payments made by
Purchaser to Alya during any year which is in excess of Cdn. $2,500,000,
provided that the cumulative payments made by Purchaser to Alya to date
exceed the product obtained by multiplying Cdn. $2,500,000 by the number of
Payment Dates to date.
r. "Purchase Price" means the sum of (i) Five Hundred Thousand Canadian
Dollars (Cdn. $500,000), payable at the Closing; (ii) Five Hundred Thousand
Canadian Dollars (Cdn. $500,000), payable on or before March 31, 1999; and
(iii) a eleven-year annual accrual of Two Million Five Hundred Thousand
Canadian Dollars (Cdn. $2,500,000), with the first annual payment accruing
on September 30, 1999 (pro-rated to Cdn. $1,875,000 for the partial year),
and due and payable on or before December 31, 1999, and continuing to
accrue on each September 30th thereafter, through September 30, 2010, with
the last annual payment due and payable on or before December 31, 2010.
s. "Purchased Assets" means the right to exclusively utilize, modify and
develop the Application Software within the Territory and to exclusively
distribute, market and sell the Application Software as incorporated in the
Security System, within the Territory, and to utilize all of Alya's
property and rights necessary for the operation of, or the realization of
benefits from, the Application Software within the Territory, including,
without limitation:
i. all products associated with or derivatives of the Application
Software;
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ii. the benefit of all agreements necessary for the operation of, or the
realization of the benefit from, the Application Software within the
Territory, including, without limitation, a perpetual, non-exclusive,
royalty free right to use, modify, develop and distribute within the
Territory the OPEN cortex platform software, as described in Schedule
G hereto, and any modification or revision thereto, solely in
connection with the Application Software and the Security Systems, all
service agreements and third party license agreements and all
marketing and product business plans;
iii. customer and supplier lists, and all inventions necessary for the
operation of, or realization of the benefit from, the Application
Software within the Territory, including, without limitation, ideas,
research, discoveries, designs, systems, patterns, specifications,
technology, know-how, formulae, confidential information, data,
computer software development tools, operating systems, source code,
object code, subroutines, algorithms, methods and processes;
iv. all intellectual property rights necessary for the operation of, or
realization of the benefit from, the Application Software within the
Territory, including, without limitation, patents, trademarks,
copyrights and trade secrets and applications for and the right to
apply for any intellectual property (the items listed in paragraph
(iii) and (iv) are hereinafter collectively referred to as the
"Intellectual Property"); and
v. copies of all records, documents (including, without limitation, user
documentation and source code listings), correspondence, notes and
rights related to the foregoing ("Documentation");
t. "Section" means any section, subsection, article, clause, subclause,
paragraph or subparagraph of this Agreement;
u. "Security Agreement" means the Security Agreement to be entered into by
Alya, Purchaser and [SECURITY AGENT], as security agent, on the Closing,
for the purpose of holding the Shares pursuant to the terms thereof;
v. "Shares" means those 100 shares of Purchaser held in the name of
[SHAREHOLDER] and evidenced by stock certificate number 001.
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w. "Security System" means the building access control system developed by
Alya and known as the O.P.E.N. centrix-Open Platform for Essential Network,
which includes, without limitation, the Application Software, the firmware
containing the Application Software, the O.P.E.N. cortex platform software
and all hardware related thereto; and
x. "Territory" means the geographical regions of Europe, as described in
Schedule F.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplementing this Agreement. Unless something in the subject matter or
context is inconsistent therewith, reference herein to Sections and
Subsections are to Sections and Subsections of this Agreement.
b. Except as specifically stated in this Agreement, all references to currency
are to Canadian dollars.
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires.
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
Schedule A - Application Software Specifications
Schedule B - Letter of Representation
Schedule C - Originality Certificate
Schedule D - Exceptions to the representations and warranties set out in
Article 4, if any.
Schedule E - Territory
Schedule F - Description of O.P.E.N. cortex platform
ARTICLE 2
AGREEMENT TO SELL, ASSIGN AND PURCHASE
2.1 Alya hereby sells, assigns and transfers all its right, title and
interest in the Purchased Assets to Purchaser
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and Purchaser hereby purchases the entire right, title and interest of Alya
therein, as of the Effective Date, at and for the Purchase Price payable in
accordance with Article 3 hereof.
2.2 The parties agree that the fair market value of the Purchased Assets
is equal to the Purchase Price and agree that this determination is
final and conclusive between them.
ARTICLE 3
PURCHASE PRICE, TERMS, CONDITIONS AND PAYMENT
3.1 The Purchase Price will be payable as follows:
a. Cdn. $500,000 on Closing, by wire transfer;
b. Cdn. $500,000 on or before March 31, 1999, by wire transfer;
c. Cdn. $1,875,000 on or before December 31, 1999, by wire transfer; and
d. Cdn. $2,500,000 on or before December 31 of each year, commencing December
31, 2000 and continuing through December 31, 2010.
3.2 Purchaser will deduct and remit any withholding tax required to be
deducted and remitted in connection with any payment made under Section 3.1.
3.3 Purchaser will not be responsible for any taxes, levies or other
similar assessments including, without limitation, sales or use taxes payable
in connection with the purchase and sale contemplated by this Agreement, if
any.
3.4 Purchaser may prepay any Annual Payment at any time without any
penalty. In the event that Purchaser pays a Prepayment to Alya, then
Purchaser shall receive a credit for such amount against the balance of the
Purchase Price, which credit shall be increased, as mutually agreed between
the parties, to reflect the future value of such present Prepayment.
3.5 Notwithstanding that each Annual Payment shall become due and
payable on December 31st of the applicable year, an Annual Payment shall not
become delinquent, and Purchaser shall not be in default hereunder, to the
extent that Net Revenues, as defined in the Management Agreement, are
insufficient to pay an Annual Payment. In such event, any unpaid Annual
Payment(s) shall continue to accrue, but shall not be delinquent, and
Purchaser shall not be in default
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hereunder, unless such Annual Payment(s) are not paid in full on or before
December 31, 2010.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF ALYA
Alya hereby, undertakes, represents and warrants to Purchaser at the
date hereof and at the Closing Date, and acknowledges that Purchaser is
relying on such undertakings, representations and warranties that:
a. Alya is a corporation (i) duly incorporated and organized, validly
subsisting and in good standing under the laws of the jurisdiction of its
incorporation; (ii) duly authorized, with necessary and sufficient permits
and licenses to enable it to own its properties and to carry on its
business as presently owned and carried on by it; and (iii) having the
power and authority and right to enter into this Agreement and each and
every agreement and document to be executed and delivered by it pursuant
hereto and to perform each of its obligations as therein and herein
contained;
b. Alya has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the other documents
contemplated hereby;
c. this Agreement constitutes the legal, valid and binding obligation of Alya,
enforceable against it in accordance with its terms;
d. neither execution nor delivery of this Agreement and each and every other
agreement executed and delivered by Alya pursuant hereto nor the
fulfillment or compliance with any of the terms hereof or thereof will
conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, the articles and by-laws, as amended, of
Alya or any material agreement or instrument to which Alya is subject or
will require any consent or other action by any person or administrative or
governmental body;
e. Alya now has and on the Closing Date will have good and marketable title,
free and clear of any and all claims, liens, encumbrances, mortgages,
security interests and charges, licenses or rights of other persons
whatsoever to all of the Purchased Assets except as set out in Subsection
4.1 e. of Schedule E;
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f. there are no agreements or contracts or other documents pertaining to the
acquisition or development of the Purchased Assets except as set out in
Subsection 4.1 f. of Schedule E, copies of which have been delivered to
Purchaser and its counsel;
g. the individuals involved in the development of the Application Software,
the Purchased Assets or any element thereof, are or were:
i. employees of Alya Systems, Inc. ("Alya Systems") who worked within the
scope of their employment to develop the Application Software, the
Purchased Assets, or any element thereof, and who executed a written
waiver of their moral rights in the copyright to the foregoing in
favor of Alya Systems; or
ii. independent contractors or employees of independent contractors.
Except as set forth in subsection 4.1g of Schedule E, each contractor
was subject to agreements assigning their interest, if any, in the
Application Software, Purchased Assets, or any element thereof to Alya
Systems and executed a written waiver of their moral rights in the
copyright to the foregoing in favor of Alya. Copies of ALYA System's
standard Employee Invention Assignment and Confidentiality Agreement
and Consultant Invention Assignment and Confidentiality Agreement are
attached to Schedule E;
h. the Application Software does not contain any third party software.
However, certain third party software is required to operate the
Application Software and Alya has licenses for such third party software
which allow Alya to market such software, directly or indirectly through
sublicensees, as part of the Application Software and Alya will maintain
such licenses in good standing for the benefit of Purchaser. None of the
third party software is custom software developed specifically for use with
the Application Software. All of the third party software is readily
available in the open market and capable of being obtained by the Purchaser
in the event a license terminates, or if the particular software is not
capable of being obtained at such time, other software suitable for
substitution therefor is readily available in the open market and Alya will
modify, at its own cost and expense, the source code of the Application
Software, if necessary, to be compatible;
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i. the Application Software was not derived from any third party's
pre-existing material except as set out in Subsection 4.1 i. of Schedule E;
j. Alya has not used or enforced or failed to use or enforce any Intellectual
Property rights or other rights associated with the Application Software or
Purchased Assets in any manner which could adversely affect the validity or
enforceability of the Intellectual Property;
k. there is not, and has not been, any infringement or violation of Alya's
rights in and to the Intellectual Property;
l. Alya has not received notice of any claim of adverse ownership, invalidity
or other opposition to or conflict with the Purchased Assets;
m. there are now no and at the Closing Date will be no action, claim or demand
or other proceedings pending or, to the best of its knowledge, threatened
against Alya before any court or administrative agency which could
materially adversely affect the financial condition or overall operations
of Alya or the Purchased Assets, nor any judgment, order or decree
enforceable against Alya which involves or may require the expenditure of
money as a condition to or a necessity for the right or ability of
Purchaser to conduct its business involving the Purchased Assets;
n. it has not entered into any agreement which would entitle any person to any
valid claim against Purchaser for a broker's commission, finder's fee or
any like payment in respect of the purchase and sale of the Purchased
Assets or any other matters contemplated by this Agreement;
o. the Application Software has been developed in accordance with good
professional standards applicable in the computer software industry
including, without limitation, using modern flexible programming languages
and development tools;
p. the Application Software operates in accordance with the applicable
associated user Documentation;
q. none of the Purchased Assets has been disclosed to any third party except
under obligations of confidentiality, the benefit of which obligations are
hereby assigned to Purchaser;
r. there are no licenses, agreements, approvals or consents required or
advisable to enable Alya to
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lawfully and properly market the Application Software in the Territory
and no such licenses, agreements, approvals or consents will be required
by Purchaser;
s. it has not done anything so as to preclude Purchaser from having full
enjoyment and quiet possession of the Purchased Assets, subject to the
terms and conditions herein;
t. there are no outstanding options, agreements of purchase and sale or other
agreements or commitments obligating Alya to sell the Purchased Assets or
any of them, except pursuant to this Agreement;
u. there are no taxes, levies or other similar assessments including, without
limitation, sales, use or other taxes payable by Alya in connection with
the purchase and sale contemplated by this Agreement;
v. the Application Software is available for use;
w. the assumptions, referred to in the Asset Valuation Report, are true and
correct;
x. the Application Software is application software and is not system software
as the terms "application software" and "system software" are generally
used and understood in the computer industry; and
y. all copyright, patent or trademark registrations or applications for
registration of the Application Software in any jurisdiction have been
disclosed to the Purchaser, including complete and accurate documentation
relating thereto.
All of the representations, warranties and covenants contained in this
Agreement made and to be made by Alya will survive the Closing Date and
continue in full force and effect for the benefit of Purchaser until all
Annual Payments have been made in full.
4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser undertakes, represents and warrants to Alya at the date hereof
and at the Closing Date and acknowledges that Alya is relying on such
undertakings, representations and warranties that Purchaser is now and on the
Closing Date will be an individual who has the power, authority and right to
enter into this Agreement and each and every agreement to be executed and
delivered by Purchaser pursuant hereto and to perform each of his obligations
as therein and herein contained to purchase the Purchased Assets in
accordance with the terms of this Agreement.
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The representations, warranties and covenants contained in this
Agreement and made and to be made by Purchaser will survive the Closing Date
and continue in full force and effect for the benefit of Alya while any
Annual Payments are outstanding.
ARTICLE 5
COVENANTS
5.1 ALYA'S ASSUMPTION OF LIABILITY AND INDEMNITY
Alya hereby covenants and agrees to be liable to Purchaser for and to
indemnify and save harmless Purchaser from and against, effective as and from
the Closing Date, any claims, demands, actions, causes of action, damages,
losses, costs (including legal costs of a solicitor on a full indemnity
basis), liabilities or expenses which may be made or brought against
Purchaser and which it may suffer or incur as a result of, in respect of, or
arising out of:
a. any non-fulfillment of or breach of any covenant, undertaking,
representation or warranty on the part of Alya, under this Agreement or any
document or instrument contemplated by this Agreement; and
b. subject to Section 5.2, infringement of any third party rights to the
Intellectual Property as a result of the use of the Intellectual Property
by Purchaser in accordance herewith on or after the Closing Date
("Infringement Claims").
5.2 INDEMNIFICATION PROCEDURE
Upon the occurrence of an event giving rise to indemnification
hereunder, Purchaser shall (i) give prompt notice to Alya of such events,
(ii) permit Alya's attorneys to handle and control the defense of such
claims, at Alya's expense, and (iii) shall cooperate in the defense thereof.
Purchaser may, at its own expense, participate in such defense, provided
however, that, if Alya has agreed in writing to assume the defense of such
claims, such participation expenses shall not become part of the
indemnification claim. There shall be no settlements, whether agreed to in
court or out of court, without the prior written consent of Alya and
Purchaser, except that Alya may settle a claim without the consent of
Purchaser if (i) the settlement is purely monetary, (ii) Alya hereunder
admits in writing its liability to Purchaser hereunder, and (iii)
concurrently with such settlement, Alya pays the full amount owed thereunder.
Notwithstanding the foregoing, in the event Alya does not assume the defense
of any such claim or litigation in accordance with the terms hereof within
the
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earlier of (i) thirty (30) days following written notice from Purchaser or
(ii) the due date for response to any complaint filed, then Purchaser may
defend against such claim or litigation in such manner as it may deem
appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to Alya, on such terms as
Purchaser may deem appropriate. In any action by Purchaser seeking
indemnification from Alya in accordance with the provisions hereof, Alya
shall not be entitled to object to the manner in which Purchaser defended
such claim or the amount of or nature of any such settlement.
5.3 COVENANT NOT TO COMPETE
Purchaser acknowledges that the Purchased Assets have a territorial
limitation, and Purchaser covenants that it will only market, distribute and
sell the Application Software within the Territory. Alya covenants and
agrees that it shall not market, distribute and/or sell the Application
Software within the Territory or to any person that may use it in the
Territory, except as agent for Purchaser, as contemplated in the Management
Agreement. Alya retains the exclusive rights to use, modify, market,
distribute and sell the Application Software, the Enhancements and the
Intellectual Property in all regions of the world, other than the Territory.
Nothing herein precludes Alya from selling the O.P.E.N. cortex platform and
associated hardware as a stand-alone development platform.
5.4 OTHER COVENANTS
Alya (and with respect to Section 5.4 d. only, Purchaser) covenants and
agrees as follows:
a. until the Closing Date, Alya will not sell, license or otherwise dispose of
any of the Purchased Assets or any part thereof or interest therein, or
agree to do so, or enter into any negotiations with a view to any of the
foregoing, without the prior approval of Purchaser;
b. Alya will make available to Purchaser for due diligence investigations, all
information, documents and agreements pertaining to the development,
acquisition and marketing of the Application Software, including, without
limitation, computer code and related documentation, marketing and product
business plans and the full cooperation of Alya management;
c. Alya will complete the Originality Certificate and deliver it to Purchaser
and Purchaser's counsel on or before Closing;
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d. each Receiving Party that receives Confidential Information from the
Disclosing Party shall maintain such Confidential Information in
confidence, shall not reveal the same to any third party (other than its
employees on a need to know basis in connection with the Receiving Party's
performance under this Agreement or the Management Agreement) and shall not
use such Confidential Information, directly or indirectly, for any purpose
other than as required in the performance of this Agreement or the
Management Agreement; and
e. Alya will acquire, at its expense and in Purchaser's name, licenses for any
third party software comprising part of the Purchased Assets not assignable
or assigned by Alya to Purchaser.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser hereunder will be subject to the
satisfaction or compliance with, at or before Closing, of each of the
following conditions precedent (each of which is hereby acknowledged to be
included for the exclusive benefit of Purchaser and may be waived in writing
in whole or in part):
a. the execution and delivery of all of the closing deliveries identified in
Section 7.3;
b. all legal and regulatory approvals and consents, whether from shareholders,
governmental authorities or other third parties necessary to the completion
of the transactions contemplated by the terms of this Agreement have been
obtained;
c. there will have been no material adverse change, financial or otherwise, in
Alya or the Purchased Assets;
d. Alya will have performed or complied with, in all respects, all of its
undertakings, covenants and agreements hereunder to be performed or
complied with; and
e. the representations and warranties of Alya contained in Section 4.1 will be
true and correct on Closing.
6.2 CONDITIONS TO ALYA'S OBLIGATIONS
The obligations of Alya hereunder will be subject to the satisfaction or
compliance with, at or before Closing,
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of each of the following conditions precedent (each of which is hereby
acknowledged to be included for the exclusive benefit of Alya and may be
waived in writing in whole or in part):
a. delivery of the Initial Installment, and the execution and delivery of all
closing deliveries identified in Section 7.4;
b. Purchaser will have performed or complied with, in all respects, all of its
undertakings, covenants and agreements hereunder to be performed or
complied with; and
c. the representations and warranties of Purchaser contained in Section 4.2
will be true and correct on Closing.
ARTICLE 7
CLOSING
7.1 CLOSING DATE
The transaction of purchase and sale contemplated by this Agreement will
be completed at or about 3:00 P.M. on the Closing Date at the offices of
Purchaser's Solicitors ("Closing").
7.2 SURVIVAL
This Agreement and its component parts will not merge upon Closing or on
execution, delivery or registration of any documents executed, delivered or
registered pursuant to this Agreement or otherwise, but will survive Closing.
7.3 ALYA'S CLOSING DELIVERIES
At the Closing, Alya will duly execute and deliver or cause to be
executed and delivered to Purchaser the following:
a. a bill of sale assigning the Purchased Assets to Purchaser;
b. the Management Agreement;
c. the Originality Certificate;
d. the Letter of Representation;
e. the Security Agreement;
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f. an electronic copy of the Application Software, including, without
limitation, a copy of all Documentation, each of which shall be delivered
to Purchaser or his designee by electronic transfer;
g. a certified copy of the resolutions of the directors of Alya authorizing
the transactions;
h. such other agreements and documents as Purchaser may reasonably request to
give effect to the terms and conditions of this Agreement;
i. a copy of all authors' assignments of copyright, patent and trademark and
waivers of moral rights in the Application Software; and
j. a copy of all patent, trademark and copyright registrations in respect of
the Application Software.
7.4 PURCHASER'S CLOSING DELIVERIES
At Closing, Purchaser will execute and deliver or cause to be executed
and delivered the following:
a. wire transfer, bank draft or solicitor's trust cheque for the cash amount
of the Initial Installment payable on Closing pursuant to Section 3.1,
subject to any withholding tax payable in connection with such payment;
b. the Management Agreement;
c. the Security Agreement; and
d. such other agreements and documents as Alya may reasonably request to give
effect to the terms and conditions of this Agreement.
7.5 DELIVERY TO SECURITY AGENT
At Closing and as security for its obligations hereunder, Purchaser will
deliver to the Security Agent, under the Security Agreement, the Shares.
ARTICLE 8
GENERAL
8.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be
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enforceable, and the validity, legality or enforceability of such remaining
provisions or parts thereof will not in any way be affected or impaired
thereby. The invalidity, illegality or unenforceability of any provision or
part thereof contained in this Agreement in any jurisdiction will not affect
or impair such provision or part thereof or any other provisions of this
Agreement in any other jurisdiction.
8.2 FURTHER ASSURANCES
Each of the parties will, at any time and from time to time at the
request of the other, execute and deliver any and all such further
instruments or assurances as may be necessary or desirable to give effect to
the terms and conditions of this Agreement.
8.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties
as if they had originally signed one copy of this Agreement.
8.4 ASSIGNMENT
Purchaser may assign any part of its interest in this Agreement or the
Purchased Assets, except that any assignment to a competitor of Alya requires
the prior written consent of Alya. Such assignment shall be effected by:
a. giving written notice of the name and address of the assignee; and
b. by delivering to Alya a written undertaking of the assignee, acknowledging
receipt of a copy of this Agreement and agreeing to be bound by the terms
and conditions of this Agreement.
Alya may not assign this Agreement, without the prior written consent of
Purchaser.
8.5 BINDING EFFECT
This Agreement and all of its provisions will enure to the benefit of
the parties and their respective successors and permitted assigns, and will
be binding upon the parties and their respective successors and permitted
assigns. The expressions "Alya" and "Purchaser", as used herein will
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include Alya's and Purchaser's permitted assigns whether immediate or
derivative, respectively.
8.6 ARBITRATION OF DISPUTES
Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the
parties for resolution and, in the event that senior management cannot
resolve the dispute within 30 days of escalation of the dispute to such
level, then the parties agree that such dispute shall be settled by final
and binding arbitration in Vancouver, British Columbia, before a single
arbitrator mutually acceptable to Owner and Manager, in accordance with the
Commercial Arbitration Act, S.B.C. 1979c.3 then existing, except as otherwise
specifically provided herein. The arbitrator shall apply the laws of British
Columbia for the purposes of construing and enforcing this Agreement and any
dispute arising hereunder. The arbitration award shall be specifically
enforceable; judgment upon any arbitration award may be entered in any court
with personal jurisdiction over the parties and subject matter of the
disputes. Unless otherwise determined by the arbitrator, all expenses in
connection with such arbitration will be divided equally between the parties,
with the exception of expenses of counsel, witnesses and employees of the
parties which will be borne by the parties incurring them. Notwithstanding
anything to the contrary herein, either party will always be entitled to seek
preliminary or provisional remedies or release (including attachments and
preliminary injunctions) from any court of competent jurisdiction.
8.7 AMENDMENT
This Agreement may be altered or amended in any of its provisions when
any such changes are reduced to writing and signed by the parties hereto but
not otherwise. Time will be of the essence of this Agreement.
8.8 COSTS
Each party hereto will bear its own legal, accounting and other costs
relating to all matters involved in this transaction.
8.9 CONFIDENTIALITY
Each of the parties will treat this Agreement and all information
relating to this Agreement and the transactions contemplated by this
Agreement confidentially and no public disclosure by any party will be made
without the prior approval of the other, not to be unreasonably withheld,
except as legally required by a party to satisfy disclosure obligations to
shareholders and regulators, in which case
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simultaneous notice of such disclosure will be given to the other party.
8.10 ENTIRE AGREEMENT
This Agreement, the Management Agreement, and the exhibits and schedules
referenced in each of the foregoing constitute the entire Agreement among the
parties and supersede all proposals, letters of intent, representations or
agreements, oral or written, among them relating to the subject matter hereof.
8.11 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of British Columbia and Canada (regardless of either
jurisdiction's or any other jurisdiction's choice of law principles). To the
extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be arbitrated or litigated
in Vancouver, British Columbia, Canada, and each party hereby waives any
right it may have to assert the doctrine of Forum Non Conveniens or to object
to venue. The parties each hereby stipulate that the courts located in
Vancouver, British Columbia, shall have personal jurisdiction and venue over
each party for the purpose of litigating any such dispute, controversy or
proceeding arising out of or related to this Agreement.
8.12 NOTICES
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given by
personal delivery, international overnight courier service, or by facsimile
(subject to confirmation of receipt), addressed to the respective party at
the applicable address set forth above, or to any party at such other
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this Section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or two (2) business days following deposit with any international overnight
courier service, or upon confirmation of receipt if sent by facsimile
transmission.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day first above written.
ALYA: ALYA INTERNATIONAL, INC.
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By: /s/ Milan Carnogursky
--------------------------------
Milan Carnogursky
Chairman of the Board
PURCHASER: [PURCHASER 5]
By: /s/
--------------------------------
[VICE-PRESIDENT OF PURCHASER 5]
Vice-President
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MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of December 30, 1998.
BETWEEN:
[PURCHASER 5], an Arizona corporation, having a business address at
[ADDRESS], FAX [FAX]; (hereinafter referred to as "Owner")
OF THE FIRST PART AND
ALYA INTERNATIONAL, INC., a California corporation, having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303, FAX: (650)
361-8286 (hereinafter referred to as "Manager")
OF THE SECOND PART
WHEREAS:
A. Owner has acquired or developed and owns all of the right, title and
interest to use, distribute and sell the Assets in the Territory; and
B. Owner wishes to appoint Manager, as Owner's agent, to manage, market,
distribute and sell the Security System in the Territory on the terms and
conditions set out in this Agreement.
NOW THEREFORE in consideration of the entitlements to receive certain
cash distributions under this Agreement, and the covenants, agreements and
premises herein contained, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement, the recitals and the schedules, if any, the following
words, phrases and expressions will have the following meanings:
a. "Annual Payments" means those payments under the Annuity in the annual
amount of Two Million Five Hundred Thousand Canadian Dollars
(Cdn. $2,500,000), pro-rated for partial years.
b. "Annuity" means Owner's right to an annual accrual of Two Million Five
Hundred Thousand Canadian Dollars (Cdn. $2,500,000), with the first annual
payment accruing on September 30, 1999, and due and payable on
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or before December 31, 1999, and continuing to accrue on each
September 30th thereafter, through September 30, 2010, with the last
annual payment on or before December 31, 2010, subject to pro-ration of
any payment for partial years and further subject to the terms and
conditions set forth in the Application Software Purchase Agreement.
c. "Application Software" means the computer programs consisting of the
modules and having the functional and technical specifications more
particularly described in Schedule A to this Application Software Purchase
Agreement together with Enhancements;
d. "Application Software Purchase Agreement" means the application software
purchase agreement made as of December 30, 1998, between Owner and Manager;
e. "Assets" means "Purchased Assets" as that term is defined in the
Application Software Purchase Agreement;
f. "Confidential Information" of a party (the "Disclosing Party") shall mean
information of a confidential and proprietary nature relative to the
Disclosing Party or its business and other matters deemed confidential and
proprietary by the Disclosing Party, written notice of which is given to
the party receiving such information (the "Receiving Party"); provided
that the terms and subject matter of this Agreement and the Application
Software Purchase Agreement, including the Application Software, the
Security System and the Purchased Assets, are deemed to be confidential
without the need for written notice and shall at all times remain
confidential, notwithstanding the exception to confidentiality noted in the
next sentence. "Confidential Information" of the Disclosing Party shall not
include:
i. written information not clearly marked as confidential or oral
disclosures not subsequently confirmed in writing as confidential;
ii. information which the Receiving Party can demonstrate
A. was published or generally known in the industry at the time of
its disclosure by the Disclosing Party, or became published or
generally known in the industry without breach of this Agreement
by the Receiving Party;
B. was known to the Receiving Party at the time of disclosure by the
Disclosing Party,
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independently of the Disclosing Party and without breach of an
obligation of confidentiality to the Disclosing Party;
C. is disclosed to the Receiving Party by a third party which had a
right to disclose such information and was not in breach of an
obligation of confidentiality to the Disclosing Party;
D. is independently developed by the Receiving Party without use,
directly or indirectly, of any Confidential Information of the
Disclosing Party; or
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or administrative order, lawful subpoena or
enforceable discovery demand, provided the Receiving Party uses
commercially reasonable efforts to obtain confidential treatment
of such information and further provided that the Disclosing
Party receives prior written notice of any pending disclosure,
with sufficient time to protest disclosure or seek an adequate
protective order.
g. "Customer" means any person using or distributing the Security System in
the Territory;
h. "Documentation" has the meaning set out in Subsection v. of the definition
of "Purchased Assets" as defined in the Application Software Purchase
Agreement;
i. "Enhancement" means any improvement, revision or other modification made
to, or replacement of, the Application Software by Manager, or any employee
or subcontractor of Alya, to be utilized in connection with providing the
Security System, including, without limitation, any improvement, revision
or other modification which is necessary:
i. to provide Customers with the then current Security System; or
ii. to maintain the Application Software as a state of the art or industry
leading technology,
including, without limitation, the changes set out in Appendix A.1 to
Schedule A of the Application Software Purchase Agreement, to the extent
that Manager continues to believe they are commercially reasonable in light
of then current market conditions and technical developments;
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j. "Expenses" has the meaning specified in Subsection 3.1 b.;
k. "Gross Sales" has the meaning specified in Subsection 3.1 b.;
l. "Intellectual Property" has the meaning specified in Subsection iv. of the
definition of "Purchased Assets" as defined in the Application Software
Purchase Agreement;
m. "Management Fee" has the meaning specified in Subsection 3.1.b;
n. "Manager" means Alya International, Inc. and its permitted assigns in its
capacity as the agent for Owner and manager of the Assets appointed by
Owner under this Agreement;
o. "Net Revenue" has the meaning specified in Subsection 3.1 b.;
p. "Net Sales" has the meaning specified in Subsection 3.1 b.;
q. "Overhead and Administrative Costs" has the meaning specified in
Subsection 3.1 b.;
r. "Owner's Return" has the meaning specified in Subsection 3.1 b.;
s. "Security System" means the building access control system developed by
Manager and known as the O.P.E.N. centrix - Open Platform for Essential
Networks, which includes, without limitation, the Application Software, the
firmware containing the Application Software, the O.P.E.N. cortex platform
software and all hardware related thereto;
t. "Territory" means the geographic region of Europe, as described in
Schedule B; and
u. "year" means fiscal year ending September 30.
1.2 INTERPRETATION
a. The terms "this Agreement", "hereof", "hereunder" and similar expressions
refer to this Agreement and not to any particular Section, Subsection or
other portion of this Agreement and include any agreement amending or
supplemental to this Agreement. Unless something in the subject matter or
context is inconsistent therewith,
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reference herein to Sections and Subsections are to Sections and
Subsections of this Agreement;
b. Except as specifically stated in this Agreement, all references to currency
are to United States of America dollars. Any currency conversion required
or contemplated by this Agreement with respect to Canadian and United
States of America currency will be based on the rate published by the Bank
of Canada as the noon spot rate of exchange applicable for such currencies
on the business day immediately before the date of conversion;
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires and the provisions hereof.
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
a. Schedule A - Specifications of Application Software; and
b. Schedule B - Territory.
ARTICLE 2
MANAGEMENT SERVICES
2.1 APPOINTMENT OF AGENT/MANAGER
Owner hereby appoints Manager as its sole and exclusive agent for the
purpose of managing the marketing, distribution, sale, Enhancement and
support of the Security System within the Territory, subject to the terms and
conditions of this Agreement, and Manager hereby accepts such appointment.
2.2 MANAGEMENT DUTIES
a. Manager will, in good faith, observe and perform the following obligations
in respect of the marketing, distribution, sale, Enhancement and support,
within the Territory, of the Security System in a good and workmanlike
manner, utilizing its capable management and technical expertise:
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i. MARKETING, DISTRIBUTION AND SALE. Manager will be responsible for the
marketing and selling of the Security System, within the Territory,
including, without limitation, developing marketing materials,
organizing product demonstrations, establishing distribution channels,
pricing, promotion and sale of the Security System. Manager will use
commercially reasonable efforts to maximize sales of the Security
System within the Territory. Manager will be responsible for
developing and negotiating the contracts required to sell the Security
System to Customers within the Territory. Owner will be entitled to
receive copies of and to comment on standard form sales and support
service contracts and Manager shall address all such comments with
Owner and take into account all of Owner's directions and instructions
forming a part of such comments. All such contracts will contain
provisions of confidentiality acceptable to Owner. In addition,
Manager will have responsibility for the billing and collection of
fees and payments from Customers and for the payment of fees to Owner.
Manager shall comply with all applicable laws and regulations and
obtain all appropriate government approvals pertaining to the sale,
distribution and advertising of good and services utilizing the
trademark "O.P.E.N. centrix";
Owner will be entitled to conduct an inspection of the management of
the marketing, distribution, sale, Enhancement and support of the
Security System at any time during regular business hours upon
reasonable notice to Manager. Notwithstanding any other provision in
this Agreement, Manager will take into account any and all
commercially reasonable directions and/or specifications given by
Owner pertaining to the marketing, distribution, sale, Enhancement and
support of the Security System which Manager may receive from Owner
from time to time in writing;
ii. SUPPORT, TRAINING AND CONSULTING. Manager will have complete
responsibility for delivery and installation of the Security System
within the Territory. Manager will provide all support services for
Customers including telephone and on-site support. Manager will also
provide all required training and consulting support;
iii. MAINTENANCE AND ENHANCEMENTS. All maintenance necessary to correct
any errors in the Assets
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found by any Customer will be provided by Manager pursuant to the
terms of its support services agreements. Manager will prepare and
provide all Enhancements to Owner; and
iv. With respect to any third party software required to operate the
Security System, Alya has licenses for such third party software which
allow Alya to market such software, directly or indirectly through
sublicensees, in conjunction with the Security System and will
maintain such licenses in good standing for the benefit of Owner.
b. In addition to the duties referred to in Subsection 2.2 a., Manager will,
in good faith and in satisfaction of its fiduciary duty to Owner do the
following:
i. REVIEWS. Manager will review and report to Owner or its duly appointed
agent on Manager's performance under this Agreement on a quarterly
basis. Such reviews will be scheduled by mutual agreement of all
parties;
ii. COMPUTER CODE. Upon request, Manager will deliver computer code (in
object code and source code form) together with all related
documentation and development tools necessary or desirable to enable
the Application Software and all Enhancements to operate properly to
Owner or its duly appointed agent quarterly, within thirty (30) days
of the end of each calendar quarter. Manager will assist Owner or its
agent in verifying that the computer code delivered to Owner is fully
functional Application Software and Enhancements; and
iii. CONFLICT OF INTEREST. Manager acknowledges and agrees that it is
acting in a fiduciary capacity as agent of Owner, it will act in good
faith and in the best interest of Owner, and will conduct itself as
such in all dealings on behalf of Owner and in connection with the
performance of its obligations under this Agreement. In particular,
Manager will avoid conflicts of interest between itself and Owner in
connection with the business of marketing, distribution, sale and
support of the Security System in the Territory.
2.3 INSURANCE
a. Without in any way limiting the liability of Manager under this Agreement,
Manager will be responsible to maintain and keep in force during the term
of this Agreement the following insurance coverage:
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i. automobile liability insurance on all vehicles used in connection with
this Agreement. In respect of such vehicles not owned by Manager, it
will maintain and keep in force as aforesaid non-owned automobile
liability insurance protecting its liability including that assumed
under this Agreement. The limits of such insurance will be at least;
for bodily injury (including passenger hazard) and property damages,
one million dollars ($1,000,000.00) inclusive for any one accident;
ii. comprehensive general liability insurance (including liability under
this Agreement) with inclusive limits of not less than two million
dollars ($2,000,000.00) for bodily injury and property damage;
iii. employer's liability insurance with limits of not less than one
million dollars ($1,000,000.00) for each employee where Workers'
Compensation does not exist; and
iv. unless otherwise directed by Owner, in writing, insurance covering
loss of or damage to all machinery, tools, equipment, supplies and
structures owned by Manager and/or rented or leased from a third party
or parties and used by Manager or its sub-contractors in performing
its obligations under this Agreement.
b. The above insurance policies will not be changed in any manner which could
affect the interests of the Owner without thirty (30) days' prior written
notice by registered mail to the Owner.
c. For greater certainty, the parties agree and understand that the
obligations of Manager, as set forth in this Section 2.3, may be fulfilled
if Manager's existing insurance policy satisfies the requirements of this
Section.
d. Upon request Manager will supply Owner with certificates evidencing the
above insurance. Any insurance carried by Manager will name Manager as an
additional insured and loss payee, and will contain a waiver of subrogation
in favor of Owner.
ARTICLE 3
ALLOCATION AND DISTRIBUTION OF FEES
3.1 DISTRIBUTION OF FEES
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a. Manager will distribute, annually, the Net Revenues for the preceding year
in the following order of priority:
i. To pay the most recent Annual Payment due, plus any accrued and
unpaid Annual Payment from any previous year;
ii. To pay the Owner's Return, including any cumulative amount of the
Owner's Return not paid in prior years; and
iii. To pay any balance to the Owner.
b. For the purposes of this Agreement the following terms have the following
meanings:
i. "Management Fee" means an annual marketing and management fee payable
to Manager by Owner and calculated at the end of each year pursuant to
the following formula:
Formula:
Management Fee = (N - A + O) X .55,
[but not less than zero]
Where,
A = the current Annual Payment, plus any accrued and unpaid Annual
Payments;
N = Net Revenues, excluding the Management Fee; and
O = Owner's Return
ii. "Expenses" means the following cumulative costs and fees to the extent
not previously recouped by Manager in accordance herewith:
A. the cost of goods sold relating to the Application Software,
including without limitation, costs of material, manufacturing,
quality assurance and testing, costs of third party licenses, but
excluding any costs of goods sold relating to the hardware
incorporated in the Security System;
B. direct costs of marketing, distributing and selling the Security
System in the Territory;
C. the pro rata share of the cost of Enhancements in a year,
determined by multiplying the cost of Enhancements in such year
by a fraction, the numerator of which is
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the Net Sales in such year and the denominator of which is the
gross amount paid to Alya in such year for the purchase,
installation and support of the Security System worldwide, less
normal course of business selling credits for discounts and
rebates in such year and less return adjustments for which a
refund has been paid or credited to the customer to the extent
of the payment or credit in such year;
D. Overhead and Administrative Costs; and
E. Management Fee.
iii. "Gross Sales" means gross amounts paid by Customers in the Territory,
in a year, to purchase, install, and receive support for the Security
System less the price of the hardware incorporated therein, applying
Manager's standard prices charged to similar customers, as in effect
from time to time;
iv. "Net Revenue" means Net Sales less Expenses;
v. "Net Sales" means Gross Sales less:
A. normal course of business selling credits for discounts or
rebates to Customers for the year; and
B. returns or adjustments for the Security System for which a refund
has been paid or credited to the Customer, or any distributor or
other reseller, to the extent of the payment or credit in the
year;
vi. "Overhead and Administrative Costs" means the overhead and
administrative costs of Manager to manage and market the Security
System in the Territory, for a year, determined by multiplying
Manager's total overhead and administrative costs for marketing and
managing the Security System worldwide in such year by a fraction, the
numerator of which is the Net Sales for such year and the denominator
of which is the aggregate gross amount paid to Alya in such year, for
the purchase, installation and support of the Security System
worldwide, less normal course of business selling credits for
discounts and rebates in such year and less return adjustments for
which a refund has been paid or credited to the customer, to the
extent of the payment or credit in such year; and
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vii. "Owner's Return" means an annual cumulative preferential return to
Owner of Five Hundred Thousand Canadian Dollars (Cdn. $500,000)
(prorated for any partial year);
d. Notwithstanding anything else contained in this Agreement, in no event,
without the prior written consent of Owner, will fees or other amounts for
the Security System:
i. be set below competitive prices prevailing in the market for similar
products or services as determined by Manager acting in the best
interests of Owner; or
ii. be discounted for any other consideration granted to Manager, its
affiliates or associates that is not provided to Owner; and
e. All amounts to be determined for the purposes of the calculations required
pursuant to this Article 3 will be determined in accordance with United
States generally accepted accounting principles consistently applied from
year to year and consistently applied between the Security System sold by
Manager hereunder and the other services sold by Manager outside the scope
of this Agreement.
3.2 TIMING AND PAYMENT OF DISTRIBUTIONS
Amounts payable to Owner for a year pursuant to Section 3.1 will be paid
within 60 days following the year end.
3.3 SET OFF
Manager will have the right to set off amounts payable by Manager to
Owner under this Agreement against amounts payable to Manager by Owner
pursuant to the Annuity, except that Manager will have no right of set off
and will pay the following amounts to Owner without regard to the equities
between Manager or its affiliates and Owner:
i. amounts payable to Owner pursuant to Subsection 3.1 a.ii. for his
retention; and
ii. amounts payable by Owner as sales taxes or goods and services taxes,
which amounts will be remitted forthwith upon their being due, by
Manager to the appropriate authorities on behalf of Owner.
3.4 REPORTS
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a. Manager will give Owner, on a confidential basis, annual reports within 90
days following the end of each fiscal year, setting forth the details in
respect of all sales and support of the Security System in the Territory
during such year, including the name and address of all Customers, the
amount and type of all fees and other amounts payable to date, potential
Customers and projected revenues in the Territory. Manager will give
Owner, on a confidential basis, quarterly reports within forty-five (45)
days following the end of each fiscal quarter, which quarterly reports
shall set forth Gross Sales and Net Sales received by Manager from
Customers in the Territory for the immediately preceding quarter.
Additionally, Manager will give Owner, on a confidential basis, the Gross
Sales, Net Sales, Net Revenues, Expenses, and Overhead and Administrative
Costs for the quarter ending December 31st on or before the following
February 28th.
b. In addition, Manager will give Owner, on a confidential basis, the detailed
calculations necessary to establish Gross Sales, Net Sales, Expenses,
Overhead and Administrative Costs and Net Revenues including, without
limitation, the component parts thereof annually, within 90 days following
the end of each fiscal year.
3.5 FINANCIAL STATEMENTS
Manager will provide the following financial statements, for the
business pertaining to the Security System, to Owner, annually, within 90
days following the end of each fiscal year of Manager:
i. the annual reports referred to in Section 3.4;
ii. an audited income statement; and
iii. an audited balance sheet.
3.6 BOOKS AND RECORDS
Manager will keep and maintain complete and accurate books and records
related to the business of selling the Security System in the Territory,
separate and apart from the books and records maintained for its own sales or
other business. These will include records of all sales and support of the
Security System in the Territory, all costs of providing the Security System
and the appropriate fees accruing and collected. These books and records will
be maintained according to U.S. generally accepted accounting principles and
practices respecting all matters pertinent to this Agreement. Owner will
have the right, at his own expense, to audit the books and records of Manager
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pertaining to marketing the Security System in the Territory, and the
performance of its other obligations hereunder, once each year. For this
purpose, Owner or its nominee will have, during normal business hours, access
to and the right to copy and remove copies of all books and accounting
records relating to the calculation of fees accrued and collected from the
sale of the Security System in the Territory. All information obtained by
Owner or its nominee will be subject to the confidentiality obligations of
this Agreement.
3.7 TAXES
a. Manager will charge and collect from Customers any and all taxes of any
type that are imposed on the use, sale or support of the Security System in
the Territory by Manager by any federal, state, local or any other taxing
authority in which the Security System is sold and Manager will pay and
duly remit on a timely basis to the appropriate taxation authority the tax
so charged and collected;
b. Manager is responsible to withhold and remit on a timely basis the amount
of any income, sales or any other tax imposed on the Management Fee or any
other amount paid or credited to the Manager hereunder by any federal,
provincial, state, local or any other taxation authority in any country
regardless of whether the obligation to withhold and remit such amount is
on the Owner;
c. Subject to subsections 3.7(b) hereof, the Owner and Manager are required to
pay their respective taxes of any type imposed on them for fees paid or
credited to the Owner or Manager hereunder; and
d. Manager will prepare or provide the Owner with any and all information or
other documentation on a timely basis required by the Owner to enable the
Owner to prepare any return required to be filed by it with any taxing
authority in connection with an amount withheld or payable in accordance
with this Agreement or alternately, the Manager shall prepare and file such
a return on the Owner's behalf in the name of the Owner within the time
required to file such return and shall provide a copy thereof to the Owner.
ARTICLE 4
GRANT OF RIGHTS
4.1 In consideration of the Owner's Return and other good and valuable
consideration (the receipt and sufficiency of which is acknowledged by
Owner), Owner hereby grants
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Manager, during the term of this Agreement and subject to the restrictions
imposed in this Agreement, an exclusive Territory-wide right to use, modify,
market, distribute and sell the right to use the Application Software, the
Intellectual Property and the Documentation in the Territory, but only with
products or services that are not competitive with the Security System.
4.2 Owner shall own the exclusive rights to use, market, distribute and
sell the right to use within the Territory any modification to the
Application Software made by Manager which constitutes an Enhancement.
Manager shall retain the exclusive right to use, market, distribute and sell
the right to use, in all regions of the world other than the Territory, any
Enhancement. Any modification to the Application Software which does not
constitute an Enhancement will be owned by Manager. Any modification to the
Intellectual Property or the Documentation that does not relate to an
Enhancement will be owned by Manager.
4.3 During the term of this Agreement, neither Manager nor any of its
affiliates or associates will, directly or indirectly, market, distribute or
sell any product or service within the Territory, which product or service
directly or indirectly competes with the Security System. Nothing precludes
Manager from selling the O.P.E.N. cortex platform and associated hardware as
a stand-alone development platform.
4.4 Manager will have, upon termination of this Agreement, an
exclusive, Territory-wide, paid up right to use, market, promote, distribute
and sell the right to use the Application Software in accordance with Section
4.1:
a. upon termination of this Agreement by Owner pursuant to Subsection 5.4, if
Manager is not then in default of this Agreement; or
b. upon termination of this Agreement by Owner, pursuant to Section 5.3, if
Manager pays Owner, an amount calculated as the difference between Five
Million Canadian Dollars (Cdn. $5,000,000) and the amount of Owner's Return
credited to Owner to the date of termination.
4.5 PROTECTION OF PROPRIETARY RIGHTS
Each party hereto shall promptly notify the other party in writing of
any infringement by a third party of a patent, copyright or trademark or
misappropriation of any trade secret relating to the Security System or the
Assets within the Territory. In the case of an infringement,
misappropriation or other action described herein, Manager
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is hereby authorized to, but shall not be required to, institute an action
against the infringer, misappropriator or other third party, and to defend or
prosecute such action in whatever manner deemed appropriate by Manager, in
its sole discretion. The reasonable costs and expenses relating thereto
shall be deemed to be included within the definition of "Expenses". If
Manager elects not to commence such an action, then Owner may, but shall not
be required to, institute such an action, and the reasonable costs and
expenses relating thereto shall be deemed to be included within the
definition of Expenses. Any recoveries obtained as a result of instituting
such an action shall be deemed to be Net Revenues for the purposes of
distributing such funds. Owner shall cooperate with and generally assist
Manager in taking any action authorized hereunder. This provision shall
survive any termination or expiration of this Agreement, to the extent
Manager retains any license to the Application Software.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM
This Agreement will be for an initial term expiring December 30, 2008,
(the "initial term") and may be extended, for two additional two year terms,
each term expiring on the respective second anniversary date of the beginning
of such term.
5.2 AUTOMATIC EXTENSION
The initial term or any-extension term of this Agreement will be
automatically extended to the next extension term without notice or election
by Manager. Manager may, during any extension term, terminate this Agreement
on 90 days notice given to Owner.
5.3 TERMINATION
Owner may, during the initial term or any extension term, terminate this
Agreement as follows:
a. upon 10 days written notice by Owner to Manager of a breach of any of
Manager's obligations to pay Owner under this Agreement, subject to Section
3.4, if such breach has not been remedied;
b. upon 30 days written notice by Owner to Manager of a material breach by
Manager (other than a failure to pay referred to in SubSection a.) of this
Agreement if such breach is not remedied within the 30 day notice period,
or if steps are not being taken by Manager within the 30 days notice period
which can reasonably
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be expected to remedy such breach within 60 days of the date of the
notice; or
c. forthwith upon written notice to Manager, in the case of the petitioning
into bankruptcy of Manager, the appointment of a receiver or the
liquidation of the business and affairs of Manager or the commencement of
or ordering of the winding-up of the business and affairs of Manager.
5.4 TERMINATION BY NON-RENEWAL
Owner may, at the end of the initial term or during any extension term,
terminate this Agreement upon 90 days notice given to Manager and upon payment
of all future unpaid Annual Payments to be made under the Annuity, less a
mutually agreed upon discount for any prepayments of all or any portion of any
Annual Payment.
5.5 RIGHTS AND DUTIES ON TERMINATION
Should the Agreement terminate pursuant to this Article 5, Manager will:
a. provide the Owner with copies of any additional Enhancements not yet
delivered to Owner;
b. cease marketing the Security System in the Territory and the rights of the
Manager under Section 4.1 shall also terminate;
c. pay all accrued fees to Owner (subject to Manager's right to set-off
amounts owed to Manager by Owner in accordance with Section 3.4) and
provide a full accounting to Owner for fees payable to Owner under this
Agreement; and
d. within 90 days of the termination date, provide to Owner, a final report
setting forth the details in respect of all sales and support of the
Security System in the Territory during the period from the end of the last
year to the termination date including the amount and type of all fees and
other amounts payable to date, potential Customer and projected revenues,
and all other information necessary and relevant to marketing and
supporting the Security System.
5.6 SURVIVING OBLIGATIONS
Section 5.5 and Articles 6, 7, 8, 9, 10 and 11 will survive the
termination of this Agreement.
ARTICLE 6
OWNERSHIP OF TECHNOLOGY
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6.1 OWNERSHIP OF ASSETS
Manager acknowledges that Owner owns all right, title and interest to
the Assets and the Enhancements in the Territory.
ARTICLE 7
LIABILITY
7.1 INDEMNIFICATION BY MANAGER
Manager will be liable to Owner for and indemnify and hold Owner
harmless from any and all claims, losses, liabilities, costs, taxes
(including penalties and interest thereon), expenses (including reasonable
legal costs of a solicitor) and damages which may arise pursuant to this
Agreement including misrepresentations made by Manager, improper installation
of, improper support of, improper use of or infringement of any third party
right by, the Assets (whether in negligence or otherwise), failure to comply
with Section 3.7 herein or any other material breach of this Agreement.
7.2 INDEMNIFICATION PROCEDURE
Upon the occurrence of an event giving rise to indemnification
hereunder, Owner shall (i) give prompt notice to Manager of such events, (ii)
permit Manager's attorneys to handle and control the defense of such claims,
at Manager's expense, and (iii) shall cooperate in the defense thereof.
Owner may, at its own expense, participate in such defense, provided however,
that, if Manager has agreed in writing to assume the defense of such claims,
such participation expenses shall not become part of the indemnification
claim. There shall be no settlements, whether agreed to in court or out of
court, without the prior written consent of Manager and Owner, except that
Manager may settle a claim without the consent of Owner if (i) the settlement
is purely monetary, (ii) Manager hereunder admits in writing its liability to
Owner hereunder, and (iii) concurrently with such settlement, Manager pays
the full amount owed thereunder. Notwithstanding the foregoing, in the event
Manager does not assume the defense of any such claim or litigation in
accordance with the terms hereof within the earlier of (i) thirty (30) days
following written notice from Owner or (ii) the due date for response to any
complaint filed, then Owner may defend against such claim or litigation in
such manner as it may deem appropriate, including, but not limited to,
settling such claim or litigation, after giving notice of the same to
Manager, on such terms as Owner may deem appropriate. In any action by Owner
seeking indemnification from Manager in accordance with the provisions
hereof,
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Manager shall not be entitled to object to the manner in which Owner defended
such claim or the amount of or nature of any such settlement.
7.3 LIMITATION OF LIABILITY
Except with respect to Manager's indemnification obligations relating to
third party claims as set forth in Section 7.1 hereof, neither party shall be
liable for any indirect, incidental, special or consequential damages
including, without limitation, damages for loss of data, loss of business or
failure to realize expected profits or savings or other economic or
commercial loss of any kind or loss of use of the Application Software or the
Assets or costs of substituted technology or services, whether under any
theory of contract (even in the nature of a breach of a condition or a
fundamental term or a fundamental breach), tort (including negligence or
misrepresentation), strict liability or any other legal or equitable theory,
even if such party has been advised of the possibility thereof, all of which
liability is hereby expressly waived by each party.
ARTICLE 8
CONFIDENTIALITY AND NON-DISCLOSURE
8.1 Each party that receives Confidential Information shall maintain
such Confidential Information in confidence, shall not reveal the same to any
third party (other than its employees on a need to know basis in connection
with the receiving party's performance under this Agreement or the Agreement)
and shall not use such Confidential Information, directly or indirectly, for
any purpose other than as required in the performance of this Agreement or
the Application Software Purchase Agreement.
8.2 All memoranda, notes, records, reports, papers and any other
documents and all copies thereof about any party's business in any way
obtained by any other party pursuant to this Agreement will be the disclosing
party's property and will be returned promptly to the disclosing party upon
termination of this Agreement or at any time upon request.
8.3 The contents of this Agreement and any agreements entered into
pursuant to this Agreement are hereby declared proprietary and confidential
to the parties hereto.
8.4 Each of the parties (the "Indemnifying Party") agrees to indemnify
the other (the "Indemnified Party") for all damages, costs, and expenses
(including court costs and reasonable legal fees) incurred by the Indemnified
Party as a result of a failure of the Indemnifying Party to comply with its
obligations under this Article 8.
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ARTICLE 9
RIGHT OF FIRST REFUSAL
In the event that Owner desires to transfer all or any part of the
Assets (or is required by operation of law or other involuntary transfer to
do so), Owner shall first offer such Assets to Manager in accordance with the
following provisions:
a. Owner shall deliver a written notice (the "Notice") to Manager, stating i.
Owner's bona fide intention to transfer the Assets; ii. the purchase price
and terms of payment for which Owner proposes to transfer the Assets; and
iii. the name and address of the proposed transferee;
b. Within thirty (30) days after receipt of the Notice, Manager shall have the
right, but not the obligation, to elect to purchase the Assets upon the
price and terms of payment designated in the Notice, by delivering written
notice to Owner of such election (the "Election Notice"). If the Notice
provides for the payment of non-cash consideration, Manager may elect to
pay the consideration in cash equal to the good faith estimate of the
present fair market value of the non-cash consideration offered;
c. If Manager elects to purchase or obtain the Assets designated in the
Notice, then the closing of such purchase shall occur within thirty (30)
days after delivery of the Election Notice, and each of Owner and Manager
shall execute such documents and instruments and make such deliveries as
may be reasonably required to consummate such purchase and sale; and
d. If Manager elects not to purchase or acquire the Assets, then Owner may
transfer the Assets to the transferee proposed in the Notice, provided that
such transfer: i. is completed within thirty (30) days after the expiration
of Manager's right to elect to purchase the Assets, ii. is made on terms no
less favorable to Owner than as designated in the Notice, and iii. complies
with all of the terms and conditions of this Agreement and the Application
Software Purchase Agreement. If the Assets are not so transferred, Owner
must give notice in accordance with this Section prior to any other or
subsequent transfer of the Assets.
ARTICLE 10
ARBITRATION
10.1 ARBITRATION OF DISPUTES
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Any dispute arising between the parties under this Agreement will be
settled by initially escalating the dispute to senior management of the
parties for resolution and, in the event that senior management cannot
resolve the dispute within 30 days of escalation of the dispute to such
level, then the parties agree that such dispute shall be settled by final
and binding arbitration in Vancouver, British Columbia, before a single
arbitrator mutually acceptable to Owner and Manager, in accordance with the
Commercial Arbitration Act, S.B.C. 1979c.3 then existing, except as otherwise
specifically provided herein. The arbitrator shall apply California law for
the purposes of construing and enforcing this Agreement and any dispute
arising hereunder. The arbitration award shall be specifically enforceable;
judgment upon any arbitration award may be entered in any court with personal
jurisdiction over the parties and subject matter of the disputes. Unless
otherwise determined by the arbitrator, all expenses in connection with such
arbitration will be divided equally between the parties, with the exception
of expenses of counsel, witnesses and employees of the parties which will be
borne by the parties incurring them. Notwithstanding anything to the
contrary herein, either party will always be entitled to seek preliminary or
provisional remedies or release (including attachments and preliminary
injunctions) from any court of confident jurisdiction.
ARTICLE 11
GENERAL
11.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid, illegal or unenforceable in any
respect in any jurisdiction, such provision shall be construed so as to most
closely reflect the original intent of the parties, but still be enforceable,
and the validity, legality or enforceability of such remaining provisions or
parts thereof will not in any way be affected or impaired thereby. The
invalidity, illegality or unenforceability of any provision or part thereof
contained in this Agreement in any jurisdiction will not affect or impair
such provision or part thereof or any other provisions of this Agreement in
any other jurisdiction.
11.2 FURTHER ASSURANCES
The parties will, at any time and from time to time at the request of
the other, execute and deliver any and all such further instruments or
assurances as may be necessary or desirable to give effect to the terms and
conditions of this Agreement.
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11.3 COUNTERPART AND FACSIMILE EXECUTION
This Agreement, and any and all ancillary documents contemplated herein,
may be executed in one or more counterparts and may be executed by facsimile
signatures and all such counterparts and facsimile signatures taken together
will constitute one and the same Agreement and will be binding on the parties
as if they had originally signed one copy of this Agreement.
11.4 ASSIGNMENT
a. Owner may assign all or any part of its interest in this Agreement or the
Assets, provided however, that any assignment to a competitor of Manager,
shall require the prior written consent of Manager. Any assignment shall
be effected by:
i. giving written notice of the name and address of the assignee; and
ii. by delivering to Manager a written undertaking of the assignee,
acknowledging receipt of a copy of this Agreement and agreeing to be
bound by the terms and conditions of this Agreement; and
b. Manager may not assign this Agreement, without the prior written consent of
Owner.
11.5 BINDING EFFECT
This Agreement and all of its provisions will enure to the benefit of
the parties and their respective successors and permitted assigns, and will
be binding upon the parties and their respective successors and permitted
assigns. The expressions the "Manager" and the "Owner" as used herein will
include Manager's and Owner's permitted assigns whether immediate or
derivative, respectively.
11.6 RELATIONSHIP OF THE PARTIES
This Agreement is not a joint venture or other such business arrangement
and any agreement between the parties as to joint business activities will be
set forth in subsequent written agreements. Each party is acting
independently and not as partner, or joint venturer with the other parties
for any purpose. Except as provided in this Agreement none of the parties
will have any right, power, or authority to act or to create any obligations,
express or implied, on behalf of the other parties hereto.
11.7 TIME OF THE ESSENCE
Time will be of the essence of this Agreement.
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11.8 AMENDMENT
This Agreement may be altered or amended in any of its provisions when
any such changes are reduced to writing and signed by the parties hereto but
not otherwise.
11.9 COSTS
Each party hereto will bear its-own legal, accounting and other costs
relating to all matters involved in this transaction.
11.10 CONFIDENTIALITY
The parties will treat this Agreement and all information relating to
this Agreement and the transactions contemplated by this Agreement
confidentially and no public disclosure by either party will be made without
the prior approval of the other, not to be unreasonably withheld, except as
legally required by a party to satisfy disclosure obligations to shareholders
and regulators, in which case simultaneous notice of such disclosure will be
given to the other party.
11.11 ENTIRE AGREEMENT
This Agreement and the Application Software Purchase Agreement, and the
exhibits and schedules referred to in each of the foregoing, constitute the
entire Agreement among the parties and SUPERSEDE all proposals, letters of
intent, oral or written, and all other communications among them relating to
the subject matter hereof.
11.12 EQUITABLE REMEDIES
The parties acknowledge that money damages would not be a sufficient
remedy for certain violations of the terms of this Agreement and,
accordingly, either party will be entitled to specific performance and
injunctive relief as remedies for such violations of the Agreement by the
other party. These remedies will not be exclusive remedies but will, in
addition to all other remedies, be available to such party, at law or equity.
11.13 JURISDICTION, VENUE AND GOVERNING LAW
This Agreement shall be governed by and construed and enforced in
accordance with the laws of British Columbia and of Canada (regardless of
either jurisdiction's or any other jurisdiction's choice of law principles).
To the extent permitted by law, the parties hereto agree that all actions or
proceedings arising in connection herewith, shall be
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arbitrated or litigated in Vancouver, British Columbia, Canada, and each
party hereby waives any right it may have to assert the doctrine of Forum Non
Conveniens or to object to venue. The parties each hereby stipulate that the
courts located in Vancouver, British Columbia, Canada, shall have personal
jurisdiction and venue over each party for the purpose of litigating any such
dispute, controversy or proceeding arising out of or related to this
Agreement.
11.14 NOTICES
Except as expressly provided herein, all notices, requests or other
communications required hereunder shall be in writing and shall be given
personal delivery, international overnight courier service, or by facsimile
(subject of confirmation of receipt), addressed to the respective party at
the applicable address set forth above, or to any party at such other
addresses as shall be specified in writing by such party to the other parties
in accordance with the terms and conditions of this Section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or two (2) business days following deposit with any international overnight
courier service, or upon confirmation of receipt if sent by facsimile
transmission.
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed by their duly authorized representatives as of the date first above
written.
ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
--------------------------------
Milan Carnogursky
Chairman of the Board
[PURCHASER 5]
By: /s/
--------------------------------
[VICE-PRESIDENT OF PURCHASER 5]
Vice-President
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SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of the 31st day of December, 1998, is by and
AMONG:
[SECURITY AGENT], having a business address at [ADDRESS] ("Security Agent");
OF THE FIRST PART
AND
ALYA INTERNATIONAL, INC. a Delaware corporation having a business
address at 2465 East Bayshore Road, No. 348, Palo Alto, CA 94303
("Alya")
OF THE SECOND PART
AND
[PURCHASER 5], a corporation incorporated pursuant to the laws of
Arizona, having a business address at [PURCHASER 5'S ADDRESS]
("[PURCHASER 5]").
OF THE THIRD PART
WHEREAS:
A. Pursuant to that certain Application Software Purchase
Agreement dated as of December 31, 1998, by and between Alya and [PURCHASER 5]
(the "Purchase Agreement"), [PURCHASER 5] purchased the Purchased Assets, as
more particularly described in Schedule A to the Purchase Agreement;
B. Pursuant to the terms of the Purchase Agreement, [PURCHASER 5]
caused [PURCHASER 5'S SHAREHOLDER] to grant a security interest in the Shares,
as defined in the Purchase Agreement, to ALYA as a means of securing
performance of [PURCHASER 5]'s obligations under the Purchase Agreement. In
connection therewith, the parties hereto have agreed to establish and
maintain this Security Agent Agreement; and
C. This Security Agent Agreement provides, INTER ALIA, that
[PURCHASER 5] shall deliver, or cause to be delivered, to the Security Agent
the source code version of the Application Software, and that the Security
Agent shall hold the source code version of the Application Software subject
to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals, and
the terms, conditions and covenants contained herein, [PURCHASER 5], the
Security Agent and Alya hereby agree as follows:
1. INTERPRETATION.
1.1 DEFINITIONS.
Except as otherwise set forth herein, capitalized terms shall
have the meanings ascribed to them in the Purchase Agreement:
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a. "Release Notice" means a notice to the Security Agent in the form
attached as Schedule A to this Agreement; and
1.2 INTERPRETATION.
a. The terms "this Agreement", "hereof", "hereunder" and similar
expressions refer to this Agreement and not to any particular Section,
Subsection or other portion of this Agreement and include any
agreement amending or supplemental to this Agreement. Unless something
in the subject matter or context is inconsistent therewith, reference
herein to Sections and Subsections are to Sections and Subsections of
this Agreement;
b. Except as specifically stated in this Agreement, all references to
currency are to Canadian dollars. Any currency conversion required or
contemplated by this Agreement with respect to Canadian and United
States of America currency will be based on the rate published by the
Bank of Canada as the noon spot rate of exchange applicable for such
currencies on the business day immediately before the date of
conversion; and
c. Wherever the singular, plural, masculine, feminine or neuter is used
throughout this Agreement the same will be construed as meaning the
singular, plural, masculine, feminine, neuter, body politic or body
corporate where the fact or context so requires.
2. DEPOSIT OF SECURITY.
2.1 ORIGINAL DEPOSIT. Concurrently with the Closing, [PURCHASER 5]
shall deliver, or cause to be delivered, to the Security Agent, the Shares,
duly endorsed in blank, as security for [PURCHASER 5]'s obligations to ALYA
under the Purchase Agreement.
2.2 RETENTION OF SECURITY. The Security Agent shall hold the Shares
and shall release the same upon the terms and conditions provided in this
Agreement.
3. RELEASE OR RETURN OF SHARES BY SECURITY AGENT.
3.1 DELIVERY TO [PURCHASER 5]. The Security Agent shall deliver all
Shares which have been deposited with the Security Agent to [PURCHASER 5] upon
the occurrence of either of the following events:
a. ALYA and [PURCHASER 5] deliver a Release Notice, executed by each of
ALYA and [PURCHASER 5], to the Security Agent; or
b. Subject to compliance with Section 3.2 hereof, the Security Agent has
received from [PURCHASER 5] each of the following items:
i. notice that (x) the Management Agreement has been terminated or
(y) that all the Purchase Price under the Purchase Agreement has
been paid;
ii. written demand that all Shares deposited with the Security Agent
be delivered to [PURCHASER 5]; and
iii. specific instructions from [PURCHASER 5] for delivery of the
Shares.
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3.2 PROCEDURE FOR DELIVERY TO [PURCHASER 5] .
a. If the provisions of Section 3.1 b. are met, the Security Agent shall,
within five days following receipt of all of the items specified in
Section 3.1 b., send by overnight courier to ALYA a copy of all such
documents received by the Security Agent pursuant to Section 3.1 b.
ALYA shall have twenty (20) days from the date that the Security Agent
shall have delivered the documents to ALYA to send to the Security
Agent written notice of its objection to the release of all the Shares
and to request that the issue of [PURCHASER 5]'s entitlement to the
Shares be submitted to arbitration in accordance with the provisions
of this Agreement;
b. If ALYA shall request arbitration, the matter shall be submitted to
and settled by arbitration in accordance with Article 7 hereof; and
c. If within twenty (20) days following delivery of the items specified
in Section 3.1 b. to ALYA, the Security Agent has not received written
notice of ALYA's objection to the release of the Shares and its
request for arbitration, then the Security Agent shall release the
Shares to [PURCHASER 5] in accordance with the instructions specified
in Section 3.1 b. iii.
3.3 DELIVERY TO ALYA. The Security Agent shall deliver all Shares which
have been deposited with the Security Agent to ALYA upon the occurrence of
either of the following events:
a. [PURCHASER 5] and ALYA deliver a Release Notice executed by each of
[PURCHASER 5] and ALYA to the Security Agent; or
b. Subject to compliance with Section 3.4 hereof, the Security Agent has
received from ALYA each of the following items:
i. written notification that [PURCHASER 5] is in breach of the
Purchase Agreement or the Marketing Agreement;
ii. a written demand that all Shares deposited with the Security
Agent be delivered to ALYA; and
iii. specific instructions from ALYA for delivery of the Shares.
3.4 PROCEDURE FOR DELIVERY TO ALYA.
a. If the provisions of Section 3.3 b. are met, the Security Agent shall,
within five days following receipt of all of the items specified in
Section 3.3 b., send by overnight courier to [PURCHASER 5] a copy of
all such documents received by the Security Agent pursuant to
Section 3.3 b. [PURCHASER 5] shall have twenty (20) days from the date
the Security Agent shall have delivered the documents to [PURCHASER 5]
to send to the Security Agent written notice of its objection to the
release of all the Shares and to request that the issue of ALYA's
entitlement to the Shares be submitted to arbitration in accordance
with the provisions of this Agreement;
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b. If [PURCHASER 5] shall request arbitration, the matter shall be
submitted to and settled by arbitration in accordance with Article 7
hereof; and
c. If within twenty (20) days following delivery of the items specified
in Section 3.3 b. to [PURCHASER 5], the Security Agent has not
received written notice of [PURCHASER 5]'s objection to the release of
the Shares and its request for arbitration, then the Security Agent
shall release the Shares to ALYA in accordance with the instructions
specified in Section 3.3 b. iii.
4. OWNERSHIP OF PURCHASED ASSETS.
ALYA and [PURCHASER 5] each hereby recognize and acknowledge that
[PURCHASER 5'S SHAREHOLDER] owns all right, title and interest in and to the
Shares, subject only to the security interest created pursuant to the
Purchase Agreement in favor of ALYA. Without limiting the generality of the
foregoing, [PURCHASER 5'S SHAREHOLDER]shall retain the exclusive rights to vote
the Shares, elect directors of [PURCHASER 5], and otherwise control
[PURCHASER 5], unless and/or until the Shares may be released to Alya
pursuant to Section 3.4 hereof.
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5. DUTIES AND RESPONSIBILITIES OF THE SECURITY AGENT.
5.1 DUTIES. The Security Agent shall not be bound in any way by an
agreement or contract between [PURCHASER 5] and ALYA (whether or not the
Security Agent has knowledge thereof), and the Security Agent's only duties
and responsibilities shall be to hold the Shares it receives and to deliver
same in accordance with the terms of this Agreement. The Security Agent
shall have no duties except those which are expressly set forth herein and it
shall not be bound by any waiver, modification, amendment, termination or
rescission of this Agreement, unless received by it in writing and signed by
ALYA and [PURCHASER 5]and, if its duties are affected, unless it shall have
given its prior written consent thereto.
5.2 AUTHORITY TO ACT. The Security Agent has the absolute authority to
accept or act upon each executed Release Notice and any other document
received pursuant to this Agreement, without any obligation of inquiry as to
the validity, authenticity or accuracy thereof. Should it be necessary for
the Security Agent to accept or act upon any instructions, directions,
documents or instruments signed or issued by or on behalf of any corporation,
partnership, fiduciary or individual, it shall not be necessary for the
Security Agent to inquire into the authority of the signer(s). The Security
Agent shall be protected in acting upon any notice, request, waiver, consent,
receipt, statutory declaration or other paper or document furnished to it,
signed by any of the parties hereto, not only as to its due execution and
validity and effectiveness of its provisions but also as to the truth and
accuracy of any information therein contained. Unless otherwise directed in
a writing mutually executed by ALYA and [PURCHASER 5], the Security Agent is
hereby authorized to make deliveries pursuant hereto by the commercial
courier, which the Security Agent, in its sole discretion, selects. The
Security Agent shall not be liable in any manner for the acts, omissions,
delays or failures to deliver by any such selected commercial couriers.
5.3 AMENDMENT, RESIGNATION AND/OR TERMINATION. This Agreement may be
altered or amended only with the consent of each of ALYA, [PURCHASER 5] and
Security Agent. The Security Agent may resign as Security Agent at any time
upon 30 days' prior written notice to [PURCHASER 5] and ALYA. [PURCHASER 5]
and ALYA may remove the Security Agent as security agent at any time upon 30
days' prior written notice to the Security Agent. In the event of
resignation or removal of the Security Agent, ALYA and [PURCHASER 5] shall
attempt to mutually agree upon the selection of a new security agent. In the
event that they are unable to agree, the new security agent shall be another
firm of barristers and solicitors authorized to practice law in Canada or an
independent, qualified trust or escrow company or organization selected by
[PURCHASER 5]. From the date the Security Agent receives notice of
termination or gives notice of resignation and until a successor Security
Agent shall have been appointed and shall have accepted such appointment, the
Security Agent's only duty shall be to hold any deposited Shares then in the
Security Agent's possession in accordance with the provisions of this
Agreement (but without regard to any notices, requests, instructions or
demands received by the Security Agent from any party hereto after the
Security Agent's notice of resignation shall have been given or notice of
termination shall be received). Upon the appointment of, and acceptance by, a
successor security agent, the former Security Agent shall deliver to the
successor security agent any Shares and other documents or instruments
relating thereto then in its possession.
5.4 NO ACTION REQUIRED. In the event that any of the notices and/or
Shares or other documents or instruments to be delivered pursuant to the
terms hereof are not delivered to the Security Agent, Security Agent shall
have no duty whatsoever to take any action with respect to procurement of the
same. The Security Agent shall have no obligation or responsibility to
verify that any Shares or other documents or instruments delivered hereunder
are the documents required to be delivered by the respective party.
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5.5 EXPENSE REIMBURSEMENT. In addition to the indemnification
obligations set forth herein, ALYA hereby agrees to reimburse Security Agent
for all expenses incurred in connection with performing and carrying out its
responsibilities hereunder, including without limitation, legal and
professional fees and expenses.
5.6 DISCLAIMER OF LIABILITY. Except for fraud or intentional
misconduct, neither the Security Agent nor its partners, employees or agents
shall be liable to ALYA, [PURCHASER 5] or any other party claiming
beneficiary status under this Agreement for any act, or failure to act, by
the Security Agent in connection with this Agreement. The Security Agent
will not be liable for special, indirect, incidental or consequential damages
hereunder.
5.7 INDEMNITY AND LIABILITY. [PURCHASER 5], ALYA and any party
claiming beneficiary status under this Agreement hereby, jointly and
severally, agree to indemnify and hold harmless and be liable to Security
Agent and each of its partners, employees and agents, absolutely and forever,
from and against any and all claims, actions, damages, suits, liabilities,
obligations, costs, fees, charges, and any other expenses whatsoever,
including legal and professional fees and expenses, that may be asserted
against or incurred by Security Agent or any of its partners, employees or
agents, with respect to the performance of its duties under this Agreement.
This indemnity shall survive the termination of this Agreement and the
resignation or removal of the Security Agent.
5.8 DISPUTES AND INTERPLEADER. In the event of any dispute between
[PURCHASER 5] and ALYA or any third party claiming beneficiary status under
this Agreement, Security Agent may submit this matter to any court of
competent jurisdiction in an interpleader or similar action. Any and all
costs incurred by Security Agent in connection therewith shall be borne by
the party seeking a the Shares deposited with Security Agent. Without
limiting the generality of the foregoing, if Security Agent shall be
uncertain as to its duties or rights hereunder, shall receive any notice,
advice, schedule, report, certificate, direction or other document from any
person or entity with respect to the Shares, that in the opinion of the
Security Agent, in its sole discretion, is in conflict with any provisions of
this Agreement, or shall be advised that a dispute has arisen with respect to
the ownership or right of possession of the Shares or any part thereof,
Security Agent shall be entitled, without liability to anyone, to refrain
from taking any action other than to exercise best efforts to keep safely the
Shares until Security Agent shall be directed otherwise in writing by an
order, decree, or judgment of a court of competent jurisdiction that is then
finally affirmed on appeal or that by the lapse of time or otherwise is no
longer subject to appeal; but Security Agent shall be under no duty to
institute or defend any such proceeding.
5.9 NO CONFLICT. ALYA and [PURCHASER 5] acknowledge that (a) the
Security Agent or her employees, agents or associates have provided counsel
to [PURCHASER 5] and Alya; (b) the duties of the Security Agent hereunder are
purely mechanical; and (c) the Security Agent is acting hereunder for the
convenience of ALYA and [PURCHASER 5] and shall not be impeachable or
accountable because of any conflicting or potentially conflicting duty to
either party or any advice provided to either party.
5.10 LEGAL COUNSEL. If the Security Agent believes it to be reasonably
necessary to consult with counsel concerning any of its duties hereunder, or
if the Security Agent becomes involved in litigation relating to this
Agreement, ALYA and [PURCHASER 5] shall be jointly and severally responsible
for the costs, expenses and legal fees incurred by the Security Agent, and
the Security Agent is authorized to act on the instructions of such counsel
without being liable.
6. NOTICES.
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All notices and other communications hereunder or in connection
herewith shall be in writing and shall be given by personal delivery,
international overnight courier service or facsimile, to the respective party
at the address set forth below, or to any party at such other addresses as
shall be specified in writing by such party to the other parties in
accordance with the terms and conditions of this Section. All notices,
requests or communications shall be deemed effective upon personal delivery,
or upon the next business day after sending by facsimile or two (2) business
days following deposit with any international overnight courier service.
If to [PURCHASER 5] to:
[PURCHASER 5]
[PURCHASER 5'S ADDRESS]
Attention: President
Fax No.: [PURCHASER 5'S FAX]
50
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If to Alya to:
Milan Carnogursky
Alya International, Inc.
2465 East Bayshore Road, Suite 348
Palo Alto, CA 94303
Fax No.: (604) 528-9983
If to Security Agent to:
[SECURITY AGENT]
[SECURITY AGENT'S ADDRESS]
Fax No. [SECURITY AGENT'S FAX]
7. ARBITRATION
In the event that either party disputes the release of the Shares
in accordance with Article 3 hereof, or has any other dispute relating to the
terms and conditions of this Agreement, and such dispute cannot be resolved
informally, then upon written notice by either party to the other party, such
dispute shall be settled by final and binding arbitration in Santa Clara,
California, by a single neutral arbitrator mutually agreed upon by the
parties, or in the event the parties are unable to agree within fifteen (15)
days following notice of arbitration, by an arbitrator appointed by
JAMS/ENDISPUTE in accordance with the rules and regulations of
JAMS/ENDISPUTE, or by any other body mutually agreed upon by the parties.
Except as otherwise set forth herein, such arbitration shall be conducted in
accordance with the then-existing rules (the "Rules") of JAMS/ENDISPUTE and
judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof; provided, however, that the law applicable
to any such controversy shall be the law of California, regardless of its or
any jurisdiction's choice of law principle. By entering into this provision,
it is the parties intention to expedite, and limit the costs involved in,
resolution of any future dispute, and therefore pre-hearing discovery shall
be limited to production of key documents and, if appropriate, subpoena of
not more than one key witness, as determined by the arbitrator, and shall not
extend to depositions of parties. Any award shall be limited to a recovery
of foreseeable, contract damages, which are a direct consequence of a breach
of this Agreement. In further limitation hereof, no arbitrator shall be
empowered to award any other damages, including, but not limited to,
consequential, compensatory or punitive damages.
8. NO WAIVER OF RIGHTS.
The delay or failure of either party to enforce at any time any
provision of this Agreement shall in no way be considered a waiver of any
such provision, or any other provision, of this Agreement. No waiver of, or
delay or failure to enforce any provision of this Agreement shall in any way
be considered a continuing waiver or be construed as a subsequent waiver of
any such provision, or any other provision of this Agreement. No waiver or
modification of this Agreement shall be binding unless it is in writing
signed by the parties hereto.
9. BINDING EFFECT; ASSIGNMENT.
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This Agreement shall be binding upon, and enure to the benefit of,
all the parties hereto and their respective successors, legal representatives
and assigns permitted under the Purchase Agreement. Each of the parties
hereto acknowledges and accepts that any assignee permitted under the
Purchase Agreement, which assignee has agreed to abide by and be bound by all
the applicable conditions set forth in each of the Purchase Agreement and the
Management Agreement, shall constitute an intended third party beneficiary
under this Agreement, and be entitled to all the rights of an intended third
party beneficiary. The parties will amend this agreement to include such
persons, if requested to do so by [PURCHASER 5] or ALYA, and in any event
[PURCHASER 5] and ALYA will notify the Security Agent of the name of any
assignee.
10. GENERAL.
10.1 VALIDITY. If any one or more of the provisions or parts thereof
contained in this Agreement should be or become invalid, illegal or
unenforceable in any respect in any jurisdiction, such provision shall be
construed so as to most closely reflect the original intent of the parties
but still be enforceable, and the validity, legality or enforceability of
such remaining provisions or parts thereof will not in any way be affected or
impaired thereby. The invalidity, illegality or unenforceability of any
provision or part thereof contained in this Agreement in any jurisdiction
will not affect or impair such provision or part thereof or any other
provisions of this Agreement in any other jurisdiction.
10.2 FURTHER ASSURANCES. The parties will, at any time and from time to
time at the request of the other, execute and deliver any and all such
further instruments or assurances as may be necessary or desirable to give
effect to the terms and conditions of this Agreement.
10.3 COUNTERPART AND FACSIMILE EXECUTION. This Agreement, and any and
all ancillary documents contemplated herein, may be executed in one or more
counterparts and may be executed by facsimile signatures and all such
counterparts and facsimile signatures taken together will constitute one and
the same Agreement and will be binding on the parties as if they had
originally signed one copy of this Agreement.
10.4 TIME OF THE ESSENCE. Time will be of the essence of this Agreement.
10.5 COSTS. Except as specifically provided in this Agreement, each
party hereto will bear its own legal, accounting and other costs relating to
all matters involved in this transaction.
10.6 CONFIDENTIALITY. The parties will treat this Agreement and all
information relating to this Agreement and the transactions contemplated by
this Agreement confidentially and no public disclosure by either party will
be made without the prior approval of the other, not to be unreasonably
withheld, except as legally required by a party to satisfy disclosure
obligations to shareholders and regulators, in which case simultaneous notice
of such disclosure will be given to the other party.
10.7 ENTIRE AGREEMENT. This agreement, constitutes the entire Agreement
among the parties and supersede all proposals, oral or written, and all other
communications among them relating to the subject matter hereof.
10.8 THIRD PARTY BENEFICIARY. The parties acknowledge and agree that
[PURCHASER 5'S SHAREHOLDER] is a third party beneficiary under this Agreement,
and is entitled to all the rights and benefits of a third party beneficiary.
10.9 JURISDICTION, VENUE AND GOVERNING LAW. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of California (regardless of that jurisdiction or any other
jurisdiction's choice of law principles). To the extent permitted by law,
the parties hereto agree that all actions or proceedings arising
52
<PAGE>
in connection herewith, shall be arbitrated or litigated in the state and
federal courts located in the State of California, and each party hereby
waives any right it may have to assert the doctrine of Forum Non Conveniens
or to object to venue. The parties each hereby stipulate that the state and
federal courts located in the County of Sonoma, State of California, shall
have personal jurisdiction and venue over each party for the purpose of
litigating any such dispute, controversy or proceeding arising out of or
related to this Agreement.
53
<PAGE>
IN WITNESS WHEREOF the undersigned have executed this Security
Agent Agreement as of the date first set forth above.
[PURCHASER 5]
By: /s/ [OFFICER OF PURCHASER 5]
--------------------------
- -----------------------------
(Print Name and Title)
ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
--------------------------
Milan Carnogursky, President
- -----------------------------
(Print Name and Title)
/s/
- -----------------------------
[SECURITY AGENT]
THE UNDERSIGNED hereby grants a security interest in the Shares to
ALYA to secure [PURCHASER 5]'s obligations under the Purchase Agreement..
The undersigned will promptly deliver to Security Agent Certificate Number 1
in the name of [PURCHASER 5'S SHAREHOLDER], evidencing his ownership of 100
shares of Common Stock of [PURCHASER 5]. The undersigned hereby consents to
the terms and conditions set forth herein.
Dated: December 31, 1998 /s/
----------------------------------
[PURCHASER 5'S SHAREHOLDER]
54
<PAGE>
SCHEDULE "A" to the Security Agent Agreement dated December 31, 1998
RELEASE NOTICE
[SECURITY AGENT]
[SECURITY AGENT'S ADDRESS]
RE: SECURITY AGENT AGREEMENT
Dear [SECUIRTY AGENT],
This Release Notice is being delivered pursuant to the Security
Agreement dated as of December 31, 1998 ("Security Agent Agreement"), among
[PURCHASER 5] ("[PURCHASER 5]"), Alya International, Inc. ("ALYA") and you
("Security Agent"). Except as otherwise set forth herein, capitalized terms
shall have the meanings ascribed to them in the Security Agent Agreement.
Security Agent is hereby authorized and directed to deliver all the Shares
and all documents, instruments and other items delivered to it by
[PURCHASER 5] or ALYA in its capacity as Security Agent to [______________].
55
<PAGE>
AMENDMENT NO. 1
This AMENDMENT NO. 1 is entered into this 24th day of February,
1999, by and between [PURCHASER 5], an Arizona corporation ("[PURCHASER 5]"),
and Alya International, Inc., a Delaware corporation ("Alya"), and amends
that certain Application Software Purchase Agreement dated December 30, 1998,
by and between [PURCHASER 5] and Alya (the "Purchase Agreement"), and that
certain Management and Marketing Agreement, dated December 30, 1998, by and
between [PURCHASER 5]and Alya (the "Management Agreement") as set forth
below.
1. Except as otherwise set forth herein, capitalized terms shall
have the meanings ascribed to them in the Purchase Agreement.
2. Section 1.1(r) of the Purchase Agreement is hereby amended and
restated to read as follows:
"r. "Purchase Price" means the sum of (i) Five Hundred Thousand Canadian
Dollars (Cdn. $500,000), payable at the Closing; (ii) Two Hundred
Thousand Canadian Dollars (Cdn. $200,000), payable on or before
February 25, 1999; (iii) Two Hundred Fifty Thousand Canadian Dollars
(Cdn. $250,000), payable on or before March 31, 1999; and (iii) an
eleven-year annual accrual of Two Million Five Hundred Thousand U.S.
Dollars (U.S. $2,500,000), with the first annual payment accruing on
September 30, 1999 (pro-rated to U.S. $1,875,000 for the partial
year), and due and payable on or before December 31, 1999, and
continuing to accrue on each September 30th thereafter, through
September 30, 2010, with the last annual payment due and payable on or
before December 31, 2010."
3. Section 3.1 of the Purchase Agreement is hereby amended and
restated to read as follows:
"3.1 The Purchase Price will be payable as follows:
a. Cdn. $500,000 on Closing, by wire transfer;
b. Cdn. $200,000 on or before February 25, 1999, by wire transfer;
c. Cdn. $250,000 on or before March 31, 1999, by wire transfer;
c. U.S. $1,875,000 on or before December 31, 1999, by wire transfer;
and
56
<PAGE>
d. U.S. $2,500,000 on or before December 31 of each year, commencing
December 31, 2000 and continuing through December 31, 2010."
4. All references to Canadian currency in Sections 1.1(a) and
1.1(q) of the Purchase Agreement are hereby amended and revised to be
references to U.S. currency.
5. Notwithstanding anything to the contrary, all references in
the Management Agreement to Canadian currency shall be deemed to be
references to U.S. currency.
6. Except as amended herein, each of the Purchase Agreement and
the Management Agreement shall continue in full force and effect, in
accordance with their respective terms and conditions.
IN WITNESS WHEREOF, the undersigned have executed this Amendment
No. 1 as of this 24th day of February, 1999.
ALYA INTERNATIONAL, INC. [PURCHASER 5]
By: /s/ Milan Carnogursky By: /s/
-------------------------- --------------------------------
Milan Carnogursky, President
- ----------------------------- -----------------------------------
(Print Name and Title) (Print Name and Title)
57
<PAGE>
ALYA INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN.
(a) The purpose of this Plan is to advance the interests of the Company
and its stockholders by helping the Company obtain and retain the
services of employees, officers, consultants, and directors, upon
whose judgment, initiative and efforts the Company is substantially
dependent, and to provide those persons with further incentives to
advance the interests of the Company.
(b) This Plan will become effective on the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the
Company (excluding holders of shares of Stock issued by the Company
pursuant to the exercise of options granted under this Plan) within
twelve months before or after that date. If the Plan is not so
approved by the stockholders of the Company, any options granted under
this Plan will be rescinded and will be void. This Plan will remain
in effect until it is terminated by the Board or the Committee (as
defined hereafter) under section 9 hereof, except that no ISO (as
defined herein) will be granted after the tenth anniversary of the
date of this Plan's adoption by the Board. This Plan will be governed
by, and construed in accordance with, the laws of the State of
Delaware.
2. CERTAIN DEFINITIONS. Unless the context otherwise requires, the following
defined terms (together with other capitalized terms defined elsewhere in
this Plan) will govern the construction of this Plan, and of any stock
option agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth
in Section 424(d) of the Code at the time he or she is granted an
Option, stock possessing more than ten percent (10%) of the total
combined voting power or value of all classes of stock of the Company
and/or of its subsidiaries;
(b) "1933 Act" means the federal Securities Act of 1933, as amended;
(c) "1934 Act" means the federal Securities Exchange Act of 1934, as
amended;
(d) "Board" means the Board of Directors of the Company;
(e) "Called for under an Option," or words to similar effect, means
issuable pursuant to the exercise of an Option;
(f) "Code" means the Internal Revenue Code of 1986, as amended (references
herein to Sections of the Code are intended to refer to Sections of
the Code as enacted at the time of this Plan's adoption by the Board
and as subsequently amended, or to any
<PAGE>
substantially similar successor provisions of the Code resulting from
recodification, renumbering or otherwise);
(g) "Committee" means a committee of two or more Disinterested Directors,
appointed by the Board, to administer and interpret this Plan;
provided that the term "Committee" will refer to the Board during such
times as no Committee is appointed by the Board;
(h) "Company" means ALYA International, Inc., a Delaware corporation;
(i) "Disability" has the same meaning as "permanent and total disability,"
as defined in Section 22(e)(3) of the Code;
(j) "Disinterested Director" means a member of the Board who is not during
the period of one year prior to his or her service as an administrator
of the Plan, or during the period of such service, granted or awarded
Stock, options to acquire Stock, or similar equity securities of the
Company under this Plan or any similar plan of the Company;
(k) "Eligible Participants" means persons who, at a particular time, are
employees, officers, consultants, or directors of the Company or its
subsidiaries;
(l) "Fair Market Value" means, with respect to the Stock and as of the
date an ISO is granted hereunder, the market price per share of such
Stock determined by the Committee, consistent with the requirements of
Section 422 of the Code and to the extent consistent therewith, as
follows:
(i) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value will be equal to the
closing price reported by the applicable
composite-transactions report for such date;
(ii) If the Stock was traded over-the-counter on the date in
question and was classified as a national market issue, then
the Fair Market Value will be equal to the last-transaction
price quoted by the NASDAQ system for such date;
(iii) If the Stock was traded over-the-counter on the date in
question but was not classified as a national market issue,
then the Fair Market Value will be equal to the average of the
last reported representative bid and asked prices quoted by
the NASDAQ system for such date; and
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value will be determined by the Committee in good
faith on such basis as it deems appropriate.
2
<PAGE>
(m) "ISO" has the same meaning as "incentive stock option," as defined in
Section 422 of the Code;
(n) "Just Cause Termination" means a termination by the Company of an
Optionee's employment by and/or service to the Company (or if the
Optionee is a director, removal of the Optionee from the Board by
action of the stockholders or, if permitted by applicable law and the
by-laws of the Company, the other directors), in connection with the
good faith determination of the Company's board of directors (or of
the Company's stockholders if the Optionee is a director and the
removal of the Optionee from the Board is by action of the
stockholders, but in either case excluding the vote of the Optionee if
he or she is a director or a stockholder) that the Optionee has
engaged in any acts involving dishonesty or moral turpitude or in any
acts that materially and adversely affect the business, affairs or
reputation of the Company or its subsidiaries;
(o) "NSO" means any option granted under this Plan whether designated by
the Committee as a "non-qualified stock option," a "non-statutory
stock option" or otherwise, other than an option designated by the
Committee as an ISO, or any option so designated but which, for any
reason, fails to qualify as an ISO pursuant to Section 422 of the Code
and the rules and regulations thereunder;
(p) "Option" means an option granted pursuant to this Plan entitling the
option holder to acquire shares of Stock issued by the Company
pursuant to the valid exercise of the option;
(q) "Option Agreement" means an agreement between the Company and an
Optionee, in form and substance satisfactory to the Committee in its
sole discretion, consistent with this Plan;
(r) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the
Option Stock called for under such Option;
(s) "Option Stock" means Stock issued or issuable by the Company pursuant
to the valid exercise of an Option;
(t) "Optionee" means an Eligible Participant to whom Options are granted
hereunder, and any transferee thereof pursuant to a Transfer
authorized under this Plan;
(u) "Plan" means this 1997 Stock Option Plan of the Company;
(v) "QDRO" has the same meaning as "qualified domestic relations order" as
defined in Section 414(p) of the Code;
3
<PAGE>
(w) "Stock" means shares of the Company's Common Stock, $.0001 par value;
(x) "Subsidiary" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(f) of the Code;
(y) "Transfer," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer,
conveyance, pledge, hypothecation, encumbrance, disposal, loan, gift,
attachment or levy of such Option Stock, including without limitation
an assignment for the benefit of creditors of the Optionee, a transfer
by operation of law, such as a transfer by will or under the laws of
descent and distribution, an execution of judgment against the Option
Stock or the acquisition of record or beneficial ownership thereof by
a lender or creditor, a transfer pursuant to a QDRO, or to any decree
of divorce, dissolution or separate maintenance, any property
settlement, any separation agreement or any other agreement with a
spouse (except for estate planning purposes) under which a part or all
of the shares of Option Stock are transferred or awarded to the spouse
of the Optionee or are required to be sold; or a transfer resulting
from the filing by the Optionee of a petition for relief, or the
filing of an involuntary petition against such Optionee, under the
bankruptcy laws of the United States or of any other nation.
3. ELIGIBILITY. The Company may grant Options under this Plan only to persons
who are Eligible Participants as of the time of such grant. Subject to the
provisions of sections 4(d), 5 and 6 hereof, there is no limitation on the
number of Options that may be granted to an Eligible Participant.
4. ADMINISTRATION.
(a) COMMITTEE. The Committee, if appointed by the Board, will administer
this Plan. If the Board, in its discretion, does not appoint such a
Committee, the Board itself will administer this Plan and take such
other actions as the Committee is authorized to take hereunder;
provided that the Board may take such actions hereunder in the same
manner as the Board may take other actions under the Company's
Articles of Incorporation and by-laws generally.
(b) AUTHORITY AND DISCRETION OF COMMITTEE. The Committee will have full
and final authority in its discretion, at any time and from time to
time, subject only to the express terms, conditions and other
provisions of the Company's Articles of Incorporation, by-laws and
this Plan, and the specific limitations on such discretion set forth
herein:
(i) to select and approve the persons who will be granted Options
under this Plan from among the Eligible Participants, and to
grant to any person so selected
4
<PAGE>
one or more Options to purchase such number of shares of
Option Stock as the Committee may determine;
(ii) to determine the period or periods of time during which
Options may be exercised, the Option Price and the duration of
such Options, and other matters to be determined by the
Committee in connection with specific Option grants and
Options Agreements as specified under this Plan;
(iii) to interpret this Plan, to prescribe, amend and rescind rules
and regulations relating to this Plan, and to make all other
determinations necessary or advisable for the operation and
administration of this Plan; and
(iv) to delegate all or a portion of its authority under
subsections (i) and (ii) of this section 4(b) to one or more
directors of the Company who are executive officers of the
Company, but only in connection with Options granted to
Eligible Participants who are not subject to the reporting and
liability provisions of Section 16 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations
thereunder, and subject to such restrictions and limitations
(such as the aggregate number of shares of Option Stock called
for by such Options that may be granted) as the Committee may
decide to impose on such delegate directors.
(c) LIMITATION ON AUTHORITY. Notwithstanding the foregoing, or any other
provision of this Plan, the Committee will have no authority to grant
Options to any of its members, whether or not approved by the Board.
(d) DESIGNATION OF OPTIONS. Except as otherwise provided herein, the
Committee will designate any Option granted hereunder either as an ISO
or as an NSO. To the extent that the Fair Market Value (determined at
the time the Option is granted) of Stock with respect to which all
ISOs are exercisable for the first time by any individual during any
calendar year (pursuant to this Plan and all other plans of the
Company and/or its subsidiaries) exceeds $100,000, such option will be
treated as an NSO. Notwithstanding the general eligibility provisions
of section 3 hereof, the Committee may grant ISOs only to persons who
are employees of the Company and/or its subsidiaries.
(e) OPTION AGREEMENTS. Options will be deemed granted hereunder only upon
the execution and delivery of an Option Agreement by the Optionee and
a duly authorized officer of the Company. Options will not be deemed
granted hereunder merely upon the authorization of such grant by the
Committee.
5
<PAGE>
5. SHARES RESERVED FOR OPTIONS.
(a) OPTION POOL. The aggregate number of shares of Option Stock that may
be issued pursuant to the exercise of Options granted under this Plan
initially will not exceed Seven Hundred Thousand (700,000) (the
"Option Pool"), provided that such number automatically shall be
adjusted annually on September 1 to a number equal to 10% of the
number of shares of Stock of the Company outstanding on August 31 of
the immediately preceding year, or 700,000, whichever is greater, and
provided further that such number will be increased by the number of
shares of Option Stock that the Company subsequently may reacquire
through repurchase or otherwise. Shares of Option Stock that would
have been issuable pursuant to Options, but that are no longer
issuable because all or part of those Options have terminated or
expired, will be deemed not to have been issued for purposes of
computing the number of shares of Option Stock remaining in the Option
Pool and available for issuance.
(b) ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change in the
outstanding Stock of the Company as a result of a stock split, reverse
stock split, stock dividend, recapitalization, combination or
reclassification, appropriate proportionate adjustments will be made
in:
(i) the aggregate number of shares of Option Stock in the Option
Pool that may be issued pursuant to the exercise of Options
granted hereunder;
(ii) the Option Price and the number of shares of Option Stock
called for in each outstanding Option granted hereunder; and
(iii) other rights and matters determined on a per share basis under
this Plan or any Option Agreement hereunder.
Any such adjustments will be made only by the Board, and when so made
will be effective, conclusive and binding for all purposes with
respect to this Plan and all Options then outstanding. No such
adjustments will be required by reason of the issuance or sale by the
Company for cash or other consideration of additional shares of its
Stock or securities convertible into or exchangeable for shares of its
Stock.
6. TERMS OF STOCK OPTION AGREEMENTS. Each Option granted pursuant to this
Plan will be evidenced by an agreement (an "Option Agreement") between the
Company and the person to whom such Option is granted, in form and
substance satisfactory to the Committee in its sole discretion, consistent
with this Plan. Without limiting the foregoing, each Option Agreement
(unless otherwise stated therein) will be deemed to include the following
terms and conditions:
6
<PAGE>
(a) COVENANTS OF OPTIONEE. At the discretion of the Committee, the person
to whom an Option is granted hereunder, as a condition to the granting
of the Option, must execute and deliver to the Company a confidential
information agreement approved by the Committee. Nothing contained in
this Plan, any Option Agreement or in any other agreement executed in
connection with the granting of an Option under this Plan will confer
upon any Optionee any right with respect to the continuation of his or
her status as an employee of, consultant or independent contractor to,
or director of, the Company or its subsidiaries.
(b) VESTING PERIODS. Except as otherwise provided herein, each Option
Agreement may specify the period or periods of time within which each
Option or portion thereof will first become exercisable (the "Vesting
Period") with respect to the total number of shares of Option Stock
called for thereunder (the "Total Award Option Stock"). Such Vesting
Periods will be fixed by the Committee in its discretion, and may be
accelerated or shortened by the Committee in its discretion.
(c) Exercise of the Option.
(i) MECHANICS AND NOTICE. An Option may be exercised to the
extent exercisable (1) by giving written notice of exercise to
the Company, specifying the number of full shares of Option
Stock to be purchased and accompanied by full payment of the
Option Price thereof and the amount of withholding taxes
pursuant to subsection 6(c)(ii) below; and (2) by giving
assurances satisfactory to the Company that the shares of
Option Stock to be purchased upon such exercise are being
purchased for investment and not with a view to resale in
connection with any distribution of such shares in violation
of the 1933 Act; provided, however, that in the event the
Option Stock called for under the Option is registered under
the 1933 Act, or in the event resale of such Option Stock
without such registration would otherwise be permissible, this
second condition will be inoperative if, in the opinion of
counsel for the Company, such condition is not required under
the 1933 Act, or any other applicable law, regulation or rule
of any governmental agency.
(ii) WITHHOLDING TAXES. As a condition to the issuance of the
shares of Option Stock upon full or partial exercise of an NSO
granted under this Plan, the Optionee will pay to the Company
in cash, or in such other form as the Committee may determine
in its discretion, the amount of the Company's tax withholding
liability required in connection with such exercise. For
purposes of this subsection 6(c)(ii), "tax withholding
liability" will mean all federal and state income taxes,
social security tax, and any other taxes applicable to the
compensation income arising from the transaction required by
applicable law to be withheld by the Company.
7
<PAGE>
(d) PAYMENT OF OPTION PRICE. Each Option Agreement will specify the
Option Price with respect to the exercise of Option Stock thereunder,
to be fixed by the Committee in its discretion, but in no event will
the Option Price for an ISO granted hereunder be less than the Fair
Market Value (or, in case the Optionee is a 10% Stockholder, one
hundred ten percent (110%) of such Fair Market Value) of the Option
Stock at the time such ISO is granted, and in no event will the Option
Price for an NSO granted hereunder be less than the 85% of Fair Market
Value. The Option Price will be payable to the Company in United
States dollars in cash or by check or, such other legal consideration
as may be approved by the Committee, in its discretion.
(i) For example, the Committee, in its discretion, may permit a
particular Optionee to pay all or a portion of the Option
Price, and/or the tax withholding liability set forth in
subsection 6(c)(ii) above, with respect to the exercise of an
Option either by surrendering shares of Stock already owned by
such Optionee or by withholding shares of Option Stock,
provided that the Committee determines that the fair market
value of such surrendered Stock or withheld Option Stock is
equal to the corresponding portion of such Option Price and/or
tax withholding liability, as the case may be, to be paid for
therewith.
(ii) If the Committee permits an Optionee to pay any portion of the
Option Price and/or tax withholding liability with shares of
Stock with respect to the exercise of an Option (the
"Underlying Option") as provided in subsection 6(d)(i) above,
then the Committee, in its discretion, may grant to such
Optionee (but only if Optionee remains an Eligible Participant
at that time) additional NSOs, the number of shares of Option
Stock called for thereunder to be equal to all or a portion of
the Stock so surrendered or withheld (a "Replacement Option").
Each Replacement Option will be evidenced by an Option
Agreement. Unless otherwise set forth therein, each
Replacement Option will be immediately exercisable upon such
grant (without any Vesting Period) and will be coterminous
with the Underlying Option. The Committee, in its sole
discretion, may establish such other terms and conditions for
Replacement Options as it deems appropriate.
(e) TERMINATION OF THE OPTION. Except as otherwise provided herein, each
Option Agreement will specify the period of time, to be fixed by the
Committee in its discretion, during which the Option granted therein
will be exercisable, not to exceed ten years from the date of grant in
the case of an ISO (the "Option Period"); provided that the Option
Period will not exceed five years from the date of grant in the case
of an ISO granted to a 10% Stockholder. To the extent not previously
exercised, each Option will terminate upon the expiration of the
Option Period specified in the Option Agreement; provided, however,
that each such Option will terminate, if earlier:
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(i) ninety days after the date that the Optionee ceases to be an
Eligible Participant for any reason, other than by reason of
death or disability or a Just Cause Termination;
(ii) twelve months after the date that the Optionee ceases to be an
Eligible Participant by reason of such person's death or
disability; or
(iii) immediately as of the date that the Optionee ceases to be an
Eligible Participant by reason of a Just Cause Termination.
In the event of a sale or all or substantially all of the assets of
the Company, or a merger or consolidation or other reorganization in
which the Company is not the surviving corporation, or in which the
Company becomes a subsidiary of another corporation (any of the
foregoing events, a "Corporate Transaction"), then notwithstanding
anything else herein, the right to exercise all then outstanding
Options will vest immediately prior to such Corporate Transaction and
will terminate immediately after such Corporate Transaction; provided,
however, that if the Board, in its sole discretion, determines that
such immediate vesting of the right to exercise outstanding Options is
not in the best interests of the Company, then the successor
corporation must agree to assume the outstanding Options or substitute
therefor comparable options of such successor corporation or a parent
or subsidiary of such successor corporation.
(f) OPTIONS NONTRANSFERABLE. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and
distribution, or in the case of an NSO, pursuant to a QDRO. During
the lifetime of the Optionee, the Option will be exercisable only by
him or her, or the transferee of an NSO if it was transferred pursuant
to a QDRO.
(g) QUALIFICATION OF STOCK. The right to exercise an Option will be
further subject to the requirement that if at any time the Board
determines, in its discretion, that the listing, registration or
qualification of the shares of Option Stock called for thereunder upon
any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory authority, is
necessary or desirable as a condition of or in connection with the
granting of such Option or the purchase of shares of Option Stock
thereunder, the Option may not be exercised, in whole or in part,
unless and until such listing, registration, qualification, consent or
approval is effected or obtained free of any conditions not acceptable
to the Board, in its discretion.
(h) ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Options and/or
Option Stock under this Plan, the Optionee will be deemed to
represent, warrant and agree as follows:
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(i) SECURITIES ACT OF 1933. The Optionee understands that the
shares of Option Stock have not been registered under the 1933
Act, and that such shares are not freely tradeable and must be
held indefinitely unless such shares are either registered
under the 1933 Act or an exemption from such registration is
available. The Optionee understands that the Company is under
no obligation to register the shares of Option Stock.
(ii) OTHER APPLICABLE LAWS. The Optionee further understands that
Transfer of the Option Stock requires full compliance with the
provisions of all applicable laws.
(iii) INVESTMENT INTENT. Unless a registration statement is in
effect with respect to the sale of Option Stock obtained
through exercise of Options granted hereunder: (1) Upon
exercise of any Option, the Optionee will purchase the Option
Stock for his or her own account and not with a view to
distribution within the meaning of the 1933 Act, other than as
may be effected in compliance with the 1933 Act and the rules
and regulations promulgated thereunder; (2) no one else will
have any beneficial interest in the Option Stock; and (3) he
or she has no present intention of disposing of the Option
Stock at any particular time.
(i) COMPLIANCE WITH LAW. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, and Option Stock
may be issued pursuant to the exercise thereof by an Optionee, only
after there has been compliance with all applicable federal and state
securities laws, and all of the same will be subject to this
overriding condition. The Company will not be required to register or
qualify Option Stock with the Securities and Exchange Commission or
any State agency, except that the Company will register with, or as
required by local law, file for and secure an exemption from such
registration requirements from, the applicable securities
administrator and other officials of each jurisdiction in which an
Eligible Participant would be granted an Option hereunder prior to
such grant.
(j) STOCK CERTIFICATES. Certificates representing the Option Stock issued
pursuant to the exercise of Options will bear all legends required by
law and necessary to effectuate this Plan's provisions. The Company
may place a "stop transfer" order against shares of the Option Stock
until all restrictions and conditions set forth in this Plan and in
the legends referred to in this section 6(k) have been complied with.
(k) NOTICES. Any notice to be given to the Company under the terms of an
Option Agreement will be addressed to the Company at its principal
executive office, Attention: Corporate Secretary, or at such other
address as the Company may designate in writing. Any notice to be
given to an Optionee will be addressed to the Optionee at the address
provided to the Company by the Optionee. Any such notice
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will be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, registered and
deposited, postage and registry fee prepaid, in a post office or
branch post office regularly maintained by the United States
Government.
(l) OTHER PROVISIONS. The Option Agreement may contain such other terms,
provisions and conditions, including such special forfeiture
conditions, rights of repurchase, rights of first refusal and other
restrictions on Transfer of Option Stock issued upon exercise of any
Options granted hereunder, not inconsistent with this Plan, as may be
determined by the Committee in its sole discretion.
7. PROCEEDS FROM SALE OF STOCK. Cash proceeds from the sale of shares of
Option Stock issued from time to time upon the exercise of Options granted
pursuant to this Plan will be added to the general funds of the Company and
as such will be used from time to time for general corporate purposes.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms and
conditions and within the limitations of this Plan, the Committee may
modify, extend or renew outstanding Options granted under this Plan, or
accept the surrender of outstanding Options (to the extent not theretofore
exercised) and authorize the granting of new Options in substitution
therefor (to the extent not theretofore exercised). Notwithstanding the
foregoing, however, no modification of any Option will, without the consent
of the holder of the Option, alter or impair any rights or obligations
under any Option theretofore granted under this Plan.
9. AMENDMENT AND DISCONTINUANCE. The Board may amend, suspend or discontinue
this Plan at any time or from time to time; provided that no action of the
Board will cause ISOs granted under this Plan not to comply with Section
422 of the Code unless the Board specifically declares such action to be
made for that purpose and provided further that no such action may, without
the approval of the stockholders of the Company, materially increase (other
than by reason of an adjustment pursuant to section 5(b) hereof) the
maximum aggregate number of shares of Option Stock in the Option Pool that
may be issued under Options granted pursuant to this Plan or materially
increase the benefits accruing to Plan participants or materially modify
eligibility requirements for the participants. Moreover, no such action
may alter or impair any Option previously granted under this Plan without
the consent of the holder of such Option.
10. PLAN COMPLIANCE WITH RULE 16B-3. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934, transactions under this
plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the 1934 Act. To the extent any provision of the plan
or action by the plan administrators fails so to comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
plan administrators.
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11. COPIES OF PLAN. A copy of this Plan will be delivered to each Optionee at
or before the time he or she executes an Option Agreement.
* * *
Date Plan Adopted by Board of Directors: March 18, 1997
Date Plan Approved by Stockholders: March 18, 1997
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[LETTERHEAD] PricewaterhouseCoopers
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the use in the prospectus constituting part of this
Registration Statement on Form SB-1 of our report dated January 12, 1999
relating to the consolidated financial statements of Alya International Inc.
as at and for the years ended September 30, 1998 and 1997, which appears in
such prospectus. We also consent to the references to us under the heading
"Experts" in such prospectus.
/s/ PricewaterhouseCoopers LLP
Richmond, B.C.
July 14, 1999
<PAGE>
July 14, 1999
Alya International, Inc.
#101 - 16 Fawcett Road
Coquitlam, BC V3K 6X9 Canada
Gentlemen:
As counsel for your company, we have reviewed your Certificate of
Incorporation, Bylaws, and such other corporate records, documents, and
proceedings and such questions of law as we have deemed relevant for the
purpose of this opinion.
We have also examined the Registration Statement of your company on Form SB-1
which is to be transmitted for filing with the Securities and Exchange
Commission (the "Commission") on July 15, 1999, covering the registration
under the Securities Act of 1933, as amended, of 5,000,000 shares of Common
Stock to be sold to the public, including the exhibits and form of prospectus
(the "Prospectus") filed therewith.
On the basis of such examination, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware with all requisite
corporate power and authority to own, lease, license, and use its
properties and assets and to carry on the businesses in which it is now
engaged.
2. The Company has an authorized capitalization as set forth in the
Prospectus.
3. The shares of Common Stock of the Company to be issued are validly
authorized and, when (a) the pertinent provisions of the Securities Act of
1933 and such "blue sky" and securities laws as may be applicable have been
complied with and (b) such shares have been duly delivered against payment
therefor as contemplated by the Prospectus, such shares will be validly
issued, fully paid, and nonassessable.
We hereby consent to the use of our name in the Registration Statement and
Prospectus in the section captioned "Legal Matters," and we also consent to
the filing of this opinion as an exhibit thereto. In giving this consent, we
do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Commission thereunder.
Very truly yours,
DILL DILL CARR STONBRAKER
& HUTCHINGS, P.C.
/s/ Dill Dill Carr Stonbraker
& Hutchings, P.C.
