<PAGE>
As filed November 2, 1999 File No. 333-82877
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-1/A
AMENDMENT NO. 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 jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Common Stock 5,000,000 shares $1.00 $5,000,000 $1,390
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
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.
Disclosure Alternative used (check one) Alternative 1 _______;
Alternative 2 X
-----------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 2, 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. We may offer these shares to our creditors as repayment of our debt
at $1.00 per share. We are not required to sell any specific number or dollar
amount of shares but will use our best efforts to sell the maximum number of
shares offered. See "Underwriting" which explains in detail the terms and
conditions of this offering. 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 "pink sheets" published by the National Quotation Bureau under the symbol
"ALYA."
----------------------
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.
----------------------
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.
We 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.
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
UNDERWRITING DISCOUNTS
SHARES OFFERED BY ALYA PRICE TO PUBLIC AND COMMISSIONS PROCEEDS TO ALYA
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
<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
up to a 10% commission.
Proceeds to Alya: These amounts do not reflect the deduction of
expenses of this offering, estimated at $75,000.
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.............................................................................................3
Special Note Regarding Forward-Looking Statements..............................................................4
Risk Factors...................................................................................................4
Dilution.......................................................................................................9
Market for Common Equity and Related Stockholder Matters......................................................10
Dividend Policy...............................................................................................10
Use of Proceeds...............................................................................................11
Selected Financial Data.......................................................................................12
Management's Discussion and Analysis Of.......................................................................12
Financial Condition and Results Of Operations.................................................................12
Business......................................................................................................17
Management....................................................................................................28
Security Ownership of Certain Beneficial Owners and Management................................................31
Description of Securities.....................................................................................34
Plan of Distribution..........................................................................................35
SEC Position on Indemnification...............................................................................36
Legal Matters.................................................................................................36
Experts.......................................................................................................36
Available Information.........................................................................................37
Reports to Stockholders.......................................................................................37
Consolidated Financial Statements............................................................................F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
ALYA INTERNATIONAL, INC.
Alya International, Inc. ("Alya"/ "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. Our systems are developed
to result in products which share similar communication media and/or
similarities in the software, which is known in the industry as an open
architecture system. Among other things, such systems can lead to savings in
building energy costs, operating efficiencies, and installation costs. 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
<TABLE>
<S> <C>
Securities offered............5,000,000 shares of common stock
Securities outstanding........15,102,444 shares of common stock (as at
October 15, 1999)
Use of Proceeds...............Estimated at $4,425,000 net of offering
expenses. To be used for marketing, product
development, furniture and equipment,
strategic alliances and acquisitions,
repayment of debt, and working capital.
</TABLE>
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 nine month period ended June
30, 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.
<TABLE>
<CAPTION>
BALANCE SHEET DATA: JUNE 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<S> <C> <C> <C>
Current Assets $ 177,103 $224,974 $139,213
Total Assets $ 219,821 $280,997 $251,995
Current Liabilities $1,359,209 $400,379 $723,857
Advances on sale of software rights $1,353,180 $688,692 --
Stockholders' Deficiency $2,492,568 $808,074 $472,946
Working Capital Deficiency $1,182,106 $175,405 $584,644
<CAPTION>
STATEMENT OF LOSS DATA: 9 MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<S> <C> <C> <C>
Revenues $ 428,760 $ 323,734 $ 110,878
Net Loss $2,364,126 $2,223,461 $2,557,840
Net Loss per Share $ 0.17 $ 0.19 $ 0.32
</TABLE>
3
<PAGE>
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; our ability 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.
WE HAVE SUBSTANTIAL CAPITAL REQUIREMENTS AND DO NOT HAVE SUFFICIENT CAPITAL TO
COMPLETE THE DEVELOPMENT OF OUR PRODUCTS
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.
WE DO NOT GENERATE SUFFICIENT REVENUE TO FINANCE OUR OPERATIONS, AND WE RELY
SUBSTANTIALLY UPON OUTSIDE FINANCING
For the nine months ended June 30, 1999, we incurred $2,792,886 of
expenses while generating $428,760 of revenues. Because of our inability to
sufficient revenues, 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.
WE ARE AN EARLY STAGE COMPANY GENERATING SUBSTANTIAL LOSSES
We generated a net loss of $2,223,461 for the fiscal year ended
September 30, 1998, and a net loss of $2,364,126 (unaudited) for the nine months
ended June 30, 1999. To date we have not had any significant revenues. The
commercial development of our products is still ongoing and we lack marketing
experience and any 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.
4
<PAGE>
OUR FUTURE EXISTENCE REMAINS UNCERTAIN
The report of the independent auditors on Alya's financial statements
for the year ended September 30, 1998, includes an explanatory paragraph
relating to our ability to continue as a going concern. We have suffered
substantial losses from operations, require additional financing, and need to
continue the development of our products. Ultimately we need to generate
revenues and 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.
WE HAVE NO HISTORICAL PATTERN OF SALES OR EARNINGS
O.P.E.N.centrix-TM- has been on the market as a near-production stage
product for less than nine months 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. 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.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OUR PRODUCTS OR DEVELOP OUR PRODUCTS
IN A TIMELY MANNER
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.
OUR SHORT-TERM OBLIGATIONS SIGNIFICANTLY EXCEED THE VALUE OF OUR ASSETS
AVAILABLE TO MEET THOSE OBLIGATIONS
As of June 30, 1999, we had outstanding current liabilities of
$1,359,209 (unaudited), as compared to current assets $177,103 (unaudited). In
addition, subsequent to June 30, 1999, we have borrowed approximately $530,000
to finance our operations. 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.
INVESTORS IN THIS OFFERING WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DECREASE
IN THEIR INVESTMENT AS COMPARED TO THE NET TANGIBLE BOOK VALUE OF THE STOCK
The initial public offering price of the shares does not necessarily
bear any relationship to assets, book value or net worth of Alya. 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 decrease in your investment when measured against the net tangible
book value of the stock. This decrease can range from $1.09 per share or
approximately 109% of the offering price of the shares, if only 25% of the
offering is sold, to $0.91 per share or 91% of the offering price, if all of the
offering is sold.
5
<PAGE>
WE DO NOT KNOW IF OUR PRODUCTS WILL BE ACCEPTED BY OUR TARGET MARKET
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.
OUR SUCCESS IS DEPENDENT UPON A SUFFICIENT GROWTH OF OUR 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.
WE HAVE VERY LITTLE EXPERIENCE MARKETING OUR PRODUCTS AND WE MAY NOT BE ABLE TO
SELL OUR PRODUCTS
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. Given our limited
marketing experience, our marketing plan may not be effective in selling our
products. If our marketing plans fail and we are unable to develop new plans, we
would not be able to sell our products and we may be forced to cease operations.
WE MAY EXPERIENCE PROBLEMS DEVELOPING UPGRADES AND FOLLOW-UP PRODUCTS
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.
WE HAVE ONLY A LIMITED NUMBER OF 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.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS
Our products are based upon proprietary technology. We try to protect
that technology through various trademarks, copyrights, and other means,
including confidentiality and license agreements. We have not yet attempted to
patent any of our products or technology. It is possible that unauthorized
persons may copy our
6
<PAGE>
products and technology and use it to develop competing products. In that
event, our sales and profitability could be adversely affected. We intend to
enforce our intellectual property rights, but we may not be able to do so.
THE LOSS OF OUR KEY PERSONNEL OR OUR FAILURE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
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 of 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 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 enter into 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, we may not be able to maintain our
business and might have to cease operations, in which case you might lose all of
your investment.
YOU MAY HAVE TO HOLD YOUR SHARES OF COMMON STOCK FOR AN INDEFINITE AMOUNT OF
TIME
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.
YOU MAY SUFFER DILUTION IN YOUR OWNERSHIP OF OUR SHARES FROM THE EXERCISE OR
CONVERSION OF OPTIONS, WARRANTS, AND CONVERTIBLE SECURITIES ISSUED TO OTHER
PERSONS
As of October 15, 1999, there were outstanding options, warrants, and
convertible securities to acquire an aggregate of 2,943,500 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 October 15,
1999, 400,000 shares of $0.0001 preferred stock were issued and outstanding
7
<PAGE>
"PENNY STOCK" RULES COULD AFFECT THE SECONDARY MARKET FOR OUR COMMON STOCK AND
MAY AFFECT YOUR ABILITY TO SELL SHARES OF OUR 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 our common stock and may
affect the secondary market for the common stock.
OUR OPERATIONS AND PRODUCTS MAY BE AFFECTED BY THE YEAR 2000 PROBLEM
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
customers, suppliers, creditors, financial organizations, and on 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.
8
<PAGE>
DILUTION
"Dilution" represents the difference between the public offering price
per share of common stock and the adjusted pro forma net tangible book value per
share of common stock immediately after the completion of this offering.
Dilution arises mainly from an arbitrary decision by Alya about the offering
price per share of common stock. In this offering, the level of dilution will be
increased as a result of Alya's low net tangible book value before this
offering.
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 June 30, 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 $(0.17) $(0.17) $(0.17)
- ------------------------------------------------------------------------ --------------- --------------- -------------
Increase per share attributable to new investors $ 0.08 $ 0.15 $ 0.26
- ------------------------------------------------------------------------ --------------- --------------- -------------
Pro forma net tangible book value per common share after offering $(0.09) $(0.02) $ 0.09
- ------------------------------------------------------------------------ --------------- --------------- -------------
Dilution per common share to new investors $ 1.09 $ 1.02 $ 0.91
- ------------------------------------------------------------------------ --------------- --------------- -------------
Percentage dilution 109% 102% 91%
- ------------------------------------------------------------------------ --------------- --------------- -------------
</TABLE>
The following table sets forth, as of June 30, 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 PER
NUMBER PERCENT AMOUNT PERCENT SHARE
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 15,102,444 92.4% $5,479,431 81.4% $0.36
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
New investors 1,250,000 7.6% $1,250,000 18.6% $1.00
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
Total 16,352,444 100.0% $6,729,431 100.0%
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
</TABLE>
<TABLE>
<CAPTION>
50% OF OFFERING SOLD
- ----------------------------------------------------------------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
- ----------------------------------------- ------------------------------- ------------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 15,102,444 85.8% $5,479,431 68.7% $0.36
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
New investors 2,500,000 14.2% $2,500,000 31.3% $1.00
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
Total 17,602,444 100.0% $7,979,431 100.0%
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
</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 15,102,444 75.1% $5,479,431 52.3% $0.36
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
New investors 5,000,000 24.9% $5,000,000 47.7% $1.00
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
Total 20,102,444 100.0% $10,479,431 100.0%
- ----------------------------------------- --------------- --------------- -------------- --------------- -------------
</TABLE>
9
<PAGE>
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock was traded over-the-counter on the OTC Bulletin Board
from July 1997 until August 1999. As a result of Alya not being a reporting
issuer with the Securities and Exchange Commission, our common stock was
delisted from the OTC Bulletin Board. Since August 1999 our common stock has
been quoted in the "Pink Sheets" published by the National Quotation Bureau.
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
Quarter ending 06/30/99 $0.90 $0.34
Quarter ending 09/30/99 $0.80 $0.25
</TABLE>
On October 28, 1999, the closing price for the common stock was
$0.27. The number of record holders of our common stock as of October 29,
1999, were 101 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 intend 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
10
<PAGE>
USE OF PROCEEDS
If we sell all of the shares being offered, our net proceeds are
estimated to be $4,425,000 after deducting legal, accounting, and other offering
expenses estimated at $75,000 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 months.
We may offer these shares to our creditors as repayment of our debt at
$1.00 per share. If our offer is accepted by our creditors, this will reduce our
cash proceeds form this offering. However, this will also reduce the amount of
proceeds allocated for the repayment of demand loans and loans from related
parties.
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 $250,000 $550,000 $1,800,000
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 270,000 400,000 900,000
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 equipment 75,000 150,000 200,000
Strategic alliances and possible acquisitions 80,000 90,000 100,000
1. Identify targets and perform due diligence on those targets.
Repayment of demand loans and loans from related parties 200,000 750,000 1,000,000
Working Capital: 175,000 235,000 425,000
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. Other uses not now expressly contemplated, such as legal costs
relating to patents and trademarks and funding
unanticipated negative cash flow from operations. ---------- --------- ----------
Total - $1,050,000 $2,175,000 $4,425,000
========== ========== ==========
</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
11
<PAGE>
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.
Our current business plan has identified total capital requirements
over the next several years that are substantially more than the anticipated
offering proceeds. However, assuming that we are able to sell all of the shares
of stock we are offering, 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 Alya's board
of directors.
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 nine-month period ended June 30,
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: JUNE 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<S> <C> <C> <C>
Current Assets $177,103 $224,974 $139,213
Total Assets $219,821 $280,997 $251,995
Current Liabilities $1,359,209 $400,379 $723,857
Advances on sale of software rights $1,353,180 $688,692 -
Stockholders' Deficiency $2,492,568 $808,074 $472,946
Working Capital Deficiency $1,182,106 $175,405 $584,644
<CAPTION>
STATEMENT OF LOSS DATA: 9 MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<S> <C> <C> <C>
Revenues $428,760 $323,734 $110,878
Net Loss $2,364,126 $2,223,461 $2,557,840
Net Loss per Share $0.17 $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." An example of
interoperability is represented by the swiping of an access card to gain
entry to a parking lot, which also calls the elevator, turns on the air
conditioning, lights, etc.
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
12
<PAGE>
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 higher education establishment;
the Federal Court House in Chicago; the Bank of Norway; and Motorola
facilities in Switzerland and Schaumburg, Illinois.
By the end of June, 1999, we had invested over $8.1 million in our
technology and had grown to 43 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
($1,182,106) at June 30, 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.
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1998
RESULTS FROM OPERATIONS
OPERATING LOSS. During the nine months ended June 30, 1999, we incurred
an operating loss of $2,364,126, or $0.17 per common share, compared to a loss
of $1,555,309, or $0.14 per common share, during the same period in 1998. This
increased loss is the result of the addition of personnel in all areas of our
business (see Operating Expenses, below) as we enhanced our products and
increased the sales distribution channels for our products.
SALES AND GROSS PROFIT. Sales revenues for the nine months ended June
30, 1999, were $428,760, as compared to $200,952 for the same period during
1998. The increase is generally attributable to an increase in the number of
customers and a major installation in Slovakia, which accounted for $192,223
(44%) of the sales revenue. Sales for the third quarter alone ($41,965) were
slightly less than the same quarter in 1998 ($43,203), and were lower than
anticipated as we delayed orders until late in the quarter when the latest
release of our O.P.E.N.centrix-TM- software product was available.
The gross profit for the nine months ended June 30, 1999, increased to
$148,849 (35% of sales) from $20,227 (10% of sales) for the same period in 1998.
This increase is largely attributed to increased sales in the current year.
Additionally, the gross margin for the nine month period ended June 30, 1999,
increased compared to the same period in 1998, due to the higher volume of
sales. Essentially, at higher sales levels, manufacturing overhead costs are a
lower percentage of the cost of sales, thereby increasing the gross margin.
The final quarter sales for 1999 are expected to increase as two major
projects are underway. We opened a sales office in the San Francisco,
California, area in late May and added two additional key people to the sales
team. It is expected that the benefits of these additions will contribute to
increase sales in the final quarter of the fiscal year and early in fiscal 2000.
OPERATING EXPENSES. General and administrative expenses for the period
were $1,286,666, compared to $903,735 for the same period during 1998. This
increase is the result of the additional office space and additional staff hired
within the last year, particularly in the second quarter of fiscal 1999, for
finance, product management and customer support.
13
<PAGE>
Research and development expenses have increased by $268,608, from
$368,167 for the nine months ended June 30, 1998 to $636,775 for the same period
in 1999. This increase is due primarily to the addition of personnel.
Marketing and sales expenses increased significantly during the nine
months ended June 30, 1999, to $588,212, compared to $303,634 in the same period
in fiscal 1998. We incurred additional expenditures as the sale and marketing
teams have increased from a staff of four in fiscal 1998 to a staff of nine at
June 30, 1999 with the opening of sales offices in Belgium, Beijing and San
Francisco. We also attended more trade shows and made more direct sales
presentations at customers sites, increasing travel and trade show expenditures.
CAPITAL EXPENDITURES. We invested nominally in capital assets during
the reporting period ($22,195 for computer equipment). We also acquired an
additional 20 computers and some telephone equipment through operating leases
during this period. At present, our only capital commitments are for equipment
leases (3 year terms) and facilities leases, which expire over the course of the
next year. Negotiations have begun for the lease of new premises, with expected
occupancy in mid-2000.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, we had $13,089 (1998: $2,462) in cash and a working
capital deficiency of $1,182,106 (1998: $168,001). This $1,006,701 increase in
working capital deficiency is primarily the result of using trade payables
(accounts payable increased $510,455 during the period), demand loans ($257,180)
and loans from related parties ($246,465) to fund the operating loss.
During the nine months ended June 30, 1999, we also financed our
operations from private sales of our common stock ($744,310) and the sale of
our European O.P.E.N.centrix-TM- software rights (net $638,008). See Sale of
Software, below.
Subsequent to June 30, 1999, we have borrowed additional funds of
approximately $530,000 to fund our operations.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
RESULTS FROM OPERATIONS
OPERATING LOSS. During the year ended September 30, 1998, we incurred
an operating loss of $2,223,461, or $0.19 per common share, compared to a loss
of $2,557,840, or $0.32 per common share, during the same period in 1997. This
decreased loss was primarily the result of increased sales (see Sales and Gross
Profit, below) and a reduction in interest expense. See Operating Expenses,
below.
SALES AND GROSS PROFIT. 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.
Gross profit on sales increased to $136,305 for the year ended
September 30, 1998, compared to $110,878 during the same period in 1997;
however, gross margin decreased to 42% of sales from 45% of sales in 1997. This
decrease in gross margin 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 the result of reallocating
resources from research and development to marketing and
14
<PAGE>
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.
CAPITAL EXPENDITURES. We invested nominally in capital assets during
the year. Computers were acquired for new staff members through the use of
operating leases.
Our review of the Year 2000 issued is well under way and the
preliminary result of testing indicates that our software and hardware
products will be unaffected by the date change. We anticipate this issue will
not have a material impact on our operations, liquidity or capital resources.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, we had $74,768 (1997: $6,802) in cash and a
working capital deficiency of $175,405 (1997: $584,644). This improvement in our
working capital position resulted from increased sales (see Sales and Gross
Profit, above), reduced interest expense (see Operating Expenses, above),
private sales of common stock ($1,397,686) and sales of certain software rights
which yielded net cash of $724,138. See Sale of Software, below.
GEOGRAPHIC INFORMATION
Customers located in the following geographic regions generated sales
revenues:
<TABLE>
<CAPTION>
9 Months Ended Year Ended Year Ended
June 30, 1999 September 30, 1998 September 30, 1997
(000's) (000's) (000's)
-------------- ------------------ ------------------
<S> <C> <C> <C>
Canada $ 27 $ 144 $ 107
Slovakia 206 124 2
Norway 21 36 -
United States 158 13 2
Other foreign countries 17 7 -
-------- --------- ---------
Total $ 429 $ 324 $ 111
======== ========= =========
</TABLE>
During the nine months ended June 30, 1999, revenues to one customer
located in Slovakia represented 44% (years ended September 30, 1998: 36%;
1997: nil) of total sales; and revenues to one customer in the United States
accounted for 29% (years ended September 30, 1998: 2%; 1997: 1%) of total
sales. See the Notes to Consolidated Financial Statements.
SALE OF SOFTWARE
We have executed Application Software Purchase Agreements and 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. The
table below lists the names of the purchaser(s), consideration received, and
territories for each agreement.
15
<PAGE>
<TABLE>
<CAPTION>
CONSIDERATION RECEIVED (CDN$)
--------------------------------------------------
PROMISSORY
NOTES/
INSTALLMENT
PURCHASER DATE CASH CONTRACT ASSIGNMENTS TOTAL TERRITORY
- --------------- ---- ---- ------------ ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Video Technology December 30, $ 950,000 $42,887,500 $43,837,500 EUROPE
Systems, Inc. 1998,
as amended
February 24, 1999
Mark Silver September 30, $ 780,000 $ 7,620,000 $ 8,400,000 USA WEST
1997 AK, AZ, AR, CA, CO, D.C.,
HI, ID, IL, IN, IA, KS, MN,
MS, MO, MT, NE, NV, NM, ND,
OH, OK, OR, PR, SD, TX, UT,
WA, WI, WY.
Barry Pike and December 22, 1997 $ 323,000 $ 2,430,000 $247,000 $ 3,000,000 EAST CANADA (Barry Pike)
G. Kingsley Ward Alberta, Ontario, New
Brunswick, Nova Scotia,
Prince Edward Isle,
Newfoundland, Northwest
Territories, and Yukon.
WEST CANADA (G. Kingsley
Ward)
British Columbia,
Manitoba, Saskatchewan,
Quebec.
Gary J. Drummond September 30, $ 520,000 $ 5,080,000 $ 5,600,000 USA EAST
1997 AL, CT, DE, FL, GA, KY,
LO, ME, MD, MA, MI, NH, NJ,
NY, NC, PA, RI, SC, TN, VT,
VA, WV.
---------- ----------- ---------- -----------
TOTAL (CDN$) $2,573,000 $58,017,500 $ 247,000 $60,837,500
========== =========== ========== ===========
TOTAL (US$) $1,845,810 $39,738,000 $ 177,190 $41,761,000
========== =========== ========== ===========
</TABLE>
In exchange for the rights to the O.P.E.N.centrix-TM- software, we
received cash payments and the assignment of debt 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). Each note and the installment contract is
collateralized by the transferred software rights. Subject to extension of
the Management and Marketing Agreements discussed below, the promissory 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>
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).
We accounted for the cash we received from the sale of these
software rights as advances on sale of software rights under the provisions
of the "Emerging Issues Task Force, 88-18: Sales of Future Revenues."
Additionally, 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
promissory notes or the installment contract on our financial statements, as
they are expected to have no financial statement impact.
Concurrently with the execution of the Application Software Purchase
Agreements, we entered into Management and Marketing Agreements with each
purchaser. The Management and Marketing Agreements expire on September 30,
2007 (two agreements), December 22, 2007, and December 30, 2008. Each
agreement may be
16
<PAGE>
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, and 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 revenue remaining after the
payment of the costs of goods sold, cost of hardware incorporated in
the systems, expenses relating to the marketing, distribution and
selling of the systems, management fees, administrative costs, and
rebates, refunds, and credits. The revenues paid to the purchasers 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 revenues, if any, are to be
applied as follows: a) 45% of the revenue applied to the note balance,
and b) 55% of the revenue paid in cash to the purchaser. On the other
contract, the remaining 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 with Messrs. Pike, Ward, Silver and Durmmond,
Alya's management fee is based upon Formula 1. Under the agreement with Video
Technology Systems, Inc., 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.
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 a non-proprietary design
which is referred to in the industry as "open architecture." Open
architecture allows many products to 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 Database Compliant (ODBC). The impact
of open architecture 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.
17
<PAGE>
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 which communicate with
each other or share components on the network and database levels, the obstacle
on the device communication level has 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 can 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.
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
compact disk 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.
18
<PAGE>
- 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 first quarter of 2000. 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, was released in October 1999. Additional
releases, with enhancements focused on the requirements of major installations,
are expected to be introduced during the last quarter of calendar 1999.
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
the first quarter of calendar 2000. Subject to final agreements, we will also be
introducing a number of original equipment manufacturer 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.
19
<PAGE>
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 Alya 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 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 such
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 reassess these functions with a view to eventual
outsourcing when, and if, it makes economic and operational sense.
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. Transceivers are
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,
20
<PAGE>
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
application specific terminal equipment in order to allow our dealers and
original equipment manufacturers 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, Open Database Compliant software, and wide
area network 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.
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, 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
21
<PAGE>
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 original equipment manufacturer
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
original equipment manufacturer 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 original equipment
manufacturers 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 original equipment manufacturer
relationships with security system suppliers and integrators.
In addition, we have pursued total solution providers at both the
dealer level and at the original equipment manufacturer 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 original equipment manufacturers, on the other hand, take
longer to implement, but we believe they will provide revenue stability due to
the original equipment manufacturers wide coverage of territory and customers.
22
<PAGE>
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 Solutions, LLC Charlotte, NC
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
Havel Bros Ft. Wayne, IN
Facility Robotics, Inc. Roswell, GA
Control Contractors Seattle, WA
BITS Antwerp, Belgium
McDonald-Miller Co. Inc. Seattle, WA
</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.
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.
23
<PAGE>
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 our the business, operating results or
financial condition. 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).
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
24
<PAGE>
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 original equipment manufacturers
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 our products, increase competition, and
have a material adverse effect on Alya'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 original equipment
manufacturers, 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 original equipment
manufacturer 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.
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
25
<PAGE>
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. Federal Communications Commission 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 achieving compliance with the Software Engineering
Institute's capability maturity model level 2 and ISO 9001. The Software
Engineering Institute's capability maturity model is a methodology for rating
an organization's software development and quality practices. Achieving level
2 compliance 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.
RESEARCH AND DEVELOPMENT
Our development team currently consists of the following persons:
- 1 Chief Technology Officer
- 1 Engineering Manager
26
<PAGE>
- 1 Project Manager
- 12 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
original equipment manufacturer 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 $636,000, $545,000 and $583,000 in the nine
months ended June 30, 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 $8.1 million has been spent on marketing,
administration, research and development from inception to June 30, 1999.
R & D FACILITY AND CAPABILITY IMPROVEMENT PLANS
Our research and development group is currently designing, and
preparing to equip an expanded acceptance-testing and staging lab. This facility
will enable us to more accurately simulate the larger and more complex
campus-type or remote-building system installations typical of large,
multi-building installations. We will also be able to use it as a resource to
test new trouble-shooting procedures.
EMPLOYEES
As of October 22, 1999, we employed 37 people, of which 32 were
full-time employees, and we engaged six consultants and independent contractors
to provide services related to the development of the system and marketing. We
expect to hire other personnel as necessary for product development, quality
assurance, sales and marketing, and administration.
FACILITIES
Our headquarters facility is currently located in Coquitlam, a suburb
of Vancouver, British Columbia, Canada. These offices total approximately 10,500
square feet and are suitable for light-industrial, engineering and general
office use. These facilities are the site of our product development,
manufacturing and marketing departments. In addition, a global network of sales
and service locations is to be established as market requirements dictate to
support this main location. Management estimates the development, test and
training facilities are currently being utilized at 80% of building capacity and
100% of equipment capacity. We anticipate moving to a larger facility during the
spring or summer of the year 2000. Management believes our properties are
sufficiently insured against loss.
The details of the terms of leases for each office are as follows:
<TABLE>
<CAPTION>
MONTHLY
UNIT LEASED EXPIRATION PAYMENT ($) 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>
We have the following annual commitments under the terms of office and
equipment leases:
<TABLE>
<S> <C>
1999 $ 112,340
2000 100,575
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
2001 33,932
2002 8,015
2003 1,259
$ 256,121
</TABLE>
Office lease payments were $59,557 for the nine months ended June 30,
1999, $30,930 for the 1998 fiscal year, and $20,440 for the 1997 fiscal year.
Equipment lease payments were $37,664 for the nine months ended June 30, 1999,
$25,098 for the 1998 fiscal year, and $8,723 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. In July 1999, we leased approximately 1,350 square
feet of office space in San Francisco for our operations there. This lease
expires in July 2001, and the monthly cost is $3,105.
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.
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.
Arthur J. Ayres 41 Chief Financial Officer since October 1999.
Arthur Cunnington 44 Vice President - Sales and Marketing since May 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 the University of Bratislava, Slovakia.
28
<PAGE>
PETER SOBOTKA, Director since December 1998. Dr. 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 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 Motorola in various positions.
From 1997 to 1998, Mr. Hamilton was a program manager in the Packet data
inter-working unit at Motorola. His work focused on developing a compact
wireless database station and implementing a divisional Year 2000 readiness
program. From 1993 to 1997, Mr. Hamilton was the Manager of Business and
Technical Communications for Motorola, 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.
ARTHUR J. AYRES, Chief Financial Officer since October 1999. Mr.
Ayres started as Alya's Chief Financial Officer, on a part-time basis,
October 4, 1999. It is anticipated that Mr. Ayres will begin working full
time on November 1, 1999. Since November 1994, Mr. Ayres has been the
Controller of Micrologix Biotech Inc., Vancouver, British Columbia, and also
served as Corporate Secretary for Micrologix from January 1995 to September
1997. Mr. Ayres manages Micrologix's finance, accounting, purchasing,
investor relations and engineering and technical services functions. Mr.
Ayres received his Chartered Accountant designation in 1985 and a Bachelor of
Arts (Commerce and Computer Science) degree from the Simon Fraser University
in 1981.
ARTHUR CUNNINGTON, Vice President - Sales and Marketing since May
1999. From 1995 to 1999, Mr. Cunnington was the Western Regional Manager for
the Worldwide Smartcard Solutions Division of Motorola. His responsibilities
included the development of direct and indirect distribution channels for
WSSD's products. Mr. Cunnington also conducted new product evaluations with
original equipment manufacturer customers and WSSD's engineering department.
Mr. Cunnington has a Bachelor of Business Administration (1978) from Ohio
University.
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.
29
<PAGE>
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 1995 to 1998, 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 $67,195 129,000
</TABLE>
The following table sets forth all individual grants of stock options
and freestanding Stock Appreciation Rights (SARs) made during the last completed
fiscal year to each of three highest paid officers and directors:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE OR BASE
NAME OPTIONS (#) FISCAL YEAR PRICE ($/SH) VESTED EXPIRATION DATE
- ------------------------- -------------- ------------------- ------------------ --------------- ----------------------
<S> <C> <C> <C> <C> <C>
Milan Carnogursky 60,000 14.9 .55 (1) April 14, 2003(1)
75,000 .69 Yes September 11, 2003
- ------------------------- -------------- ------------------- ------------------ --------------- ----------------------
Jaro Bucko 60,000 14.9 .50 (1) April 14, 2003(1)
75,000 .63 Yes September 11, 2003
- ------------------------- -------------- ------------------- ------------------ --------------- ----------------------
Douglas Corbett 54,000 14.2 .50 (1) April 14, 2003(1)
75,000 .63 Yes September 11, 2003
- ------------------------- -------------- ------------------- ------------------ --------------- ----------------------
</TABLE>
(1) One-half of these options are vested and exercisable, the remaining
one-half vest and are exercisable on or after April 14, 2001.
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 1,510,244 shares are currently
authorized for grant to provide incentive compensation to our officers and
key employees. 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. As of October
15, 1999 options for the purchase of 2,843,500 common shares had been
granted, of which 1,535,500 are subject to shareholder approval.
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
30
<PAGE>
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.
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 October 15, 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) $0.47 May 7, 2004
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
300,000(3) $0.43 May 7, 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) $0.43 May 7, 2004
Art Cunnington, Options 175,000(4) $0.43 May 7, 2004
Vice President - Sales & Marketing
Robert Hamilton Options 150,000(1) $0.43 May 7, 2004
Vice President - Operations
Arthur J. Ayres Options 150,000(5) $0.60 September 2, 2002
Chief Financial Officer
Officers, directors & 5% shareholders 1,561,500 -
as a group (6 persons)
</TABLE>
(1) Subject to shareholder approval. One-half of these options are
exercisable after May 7, 2000, and the remaining are exercisable after
May 7, 2001.
(2) One-half of these options are not exercisable until April 14, 2001.
(3) Three-quarters of these options are subject to shareholder approval.
One-half of these options are exercisable after May 7, 2000, and the
remaining are exercisable after May 7, 2001.
(4) One-half of these options are subject to shareholder approval. One-half
of these options are exercisable after May 7, 2000, and the remaining
are exercisable after May 7, 2001.
(5) One-half of these options are exercisable after September 2, 2000,
and the remaining are exercisable after September 2, 2001.
31
<PAGE>
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 October 15, 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 29.9
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 343,000 135,000 478,000 3.2
Port Coquitlam, British Columbia
Robert Hamilton, Vice President - Operations 21,000 0 21,000 0.1
White Rock, British Columbia
Arthur J. Ayres, Chief Financial Officer 0 0 0 0
Maple Ridge, British Columbia
Officers and directors, as a group (6 persons) 5,336,717 399,500 5,736,217 38.0
</TABLE>
(1) Management does not anticipate that any of the persons listed will
subscribe for shares in this offering.
(2) Includes options of shares of common stock exercisable within 60 days
from October 15, 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 October 15,
1999. Where the persons listed on this table have the right to obtain
additional shares of common stock within 60 days from October 15, 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.
32
<PAGE>
The following table provides information as to the holders of more than
10% of the shares of our preferred stock, as of October 15, 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) 75,000
Vancouver, BC CANADA
</TABLE>
(1) We do not anticipate that Mr. Paruk will subscribe for shares in this
offering.
(2) Includes options of shares of common stock exercisable within 60 days
from October 15, 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.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
During the year ended September 30, 1998, Alya loaned up to $137,574 to
Milan Carnogursky, an officer, director and principal shareholder of Alya. The
loan was unsecured, did not accrue interest, and was repaid during the year. Mr.
Carnogursky loaned Alya $69,000 during the year. The loan was non-interest
bearing and unsecured. As of September 30, 1998, the remaining balance on the
loan to Mr. Carnogursky was $13,721, which was included as due to shareholders
and directors in Alya's financial statements. As of June 30, 1999, the loan had
been repaid.
During the nine months ended June 30, 1999, Alya loaned $23,000 to Mr.
Carnogursky, an officer, director and principal shareholder of Alya. The
advances were repaid during the period. The advances were unsecured and did not
bear interest.
During the nine months ended June 30, 1999, Mr. Carnogursky
loaned Alya up to $199,200. As of June 30, 1999, a total of $266,085 was due to
Mr. Carnogursky. The loan is without interest and is unsecured.
During the year ended September 30, 1998, Alya paid $114,134 for
consulting services to the following related entities as follows:
<TABLE>
<S> <C>
Carn Projects International $82,759
Carn Projects International is owned by Mr. Carnogursky,
an officer, director and principal shareholder of Alya.
Dalton Capital Corp. $19,250
Dalton Capital Corp. is a company owned and controlled by
Lionel Johnson, a former officer and director of Alya.
Nexstep Systems International $12,125
Nexstep Systems International is a company owned and
controlled by Roger Mutimer, a former officer and director of
Alya.
</TABLE>
At September 30, 1998, an aggregate of $27,212 was outstanding to Carn
Projects ($23,446) and Nexstep ($3,766).
In December 1998, Peter Sobotka, was appointed as to Alya's Board of
Directors. Mr. Sobotka is the owner of a major customer of Alya. During the year
ended September 30, 1998, Alya's total sales to this customer were $120,000 of
which $51,382 was receivable by Alya at September 30, 1998.
33
<PAGE>
During July 1999, Tital Enterprises Ltd., a principal shareholder of
Alya at the time, loaned Alya $59,252. The loan is unsecured, bears interest at
the rate of 10% per annum, and is payable upon demand. Eleini Kyriacou is the
president, a shareholder and a director of Tital Enterprises Ltd. Ms. Kyriacou
is also is the secretary and a director of Selepia Trading Company Ltd. During
July 1999, Selepia Trading Company Ltd., a shareholder of Alya, loaned Alya
$72,000. The loan is unsecured, bears interest at the rate of 10% per annum, and
is payable upon demand. As of October 15, 1999, these loans had not been repaid.
On August 30, 1999, J. Faban, a shareholder, loaned Alya $14,000. The
loan is unsecured, bears interest at the rate of 10% per annum, and is payable
upon demand.
During the period from July 1, 1999 to September 30, 1999, Mr.
Carnogursky loaned Alya approximately $70,000. The loans are payable upon demand
and bear interest at the rate of 10% per annum.
DESCRIPTION OF SECURITIES
GENERAL
Alya is 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
October 15, 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 October 15,
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 October 15, 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.
34
<PAGE>
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.
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 $1.00 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 up to 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 do not intend to
register as a broker-dealer under Section 15 of the Exchange Act. Section 15
requires persons "in the business" of selling securities to register as
broker-dealers. We do not believe that we are "in the business" of selling
securities.
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.
In addition, we may offer these shares to our creditors as repayment of
our debt at $1.00 per share.
METHOD OF SUBSCRIBING
You may subscribe by completing and delivering our form of subscription
agreement to us. The subscription price of $1.00 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").
35
<PAGE>
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.
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, (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, or (iv) for any transaction
from which the director derives an improper personal benefit. 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.
36
<PAGE>
AVAILABLE INFORMATION
Alya 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 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 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 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, we 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. We will furnish our 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.
37
<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>
[LOGO]
ALYA INTERNATIONAL, INC.
INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
<PAGE>
Alya International, Inc.
INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTICE TO READER
THE COMPANY HAS PREPARED THESE INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR
MANAGEMENT AND INTERIM REPORTING PURPOSES ONLY.
READERS ARE CAUTIONED THAT THE FINANCIAL STATEMENTS HAVE NOT BEEN AUDITED,
REVIEWED OR OTHERWISE EXAMINED BY EXTERNAL INDEPENDENT ACCOUNTANTS.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 1999
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 13,089 $ 2,462
Accounts receivable 55,498 17,789
Inventories 10,565 17,574
Prepaid expenses and other assets (NOTE 3) 97,951 49,044
----------- ------------
177,103 86,869
CAPITAL ASSETS (NOTE 4) 42,718 58,642
----------- ------------
$ 219,821 $ 145,511
----------- ------------
----------- ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable (NOTE 5) $ 814,631 $ 218,044
Current demand loans (NOTE 6) 257,180 -
Due to related parties (NOTE 14) 287,398 36,826
----------- ------------
1,359,209 254,870
----------- ------------
Advances on sale of software rights (NOTE 11) 1,353,180 746,693
SHAREHOLDERS' DEFICIENCY
Common Shares (NOTE 8) 1,511 1,269
Preferred Shares (NOTE 8) 40 40
Additional paid-in capital (NOTE 8) 5,477,880 4,204,071
Stock options (NOTE 8) 51,425 25,000
Share subscription receivable (NOTE 8) - (108,656)
Warrants (NOTE 8) 18,854 18,854
Accumulated deficit (8,038,453) (5,006,175)
Accumulated other comprehensive income (3,825) 9,545
----------- ------------
(2,492,568) (856,052)
----------- ------------
$ 219,821 $ 145,511
----------- ------------
----------- ------------
Going concern (NOTE 1)
Commitments (NOTE 10)
Subsequent events (NOTE 12)
</TABLE>
Approved by the Directors /s/ Douglas Corbett /s/ Milan Carnogursky
------------------- ---------------------
Director Director
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDING JUNE 30, 1999
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
SALES (NOTE 9) $ 428,760 $ 200,952
COST OF SALES 279,911 180,725
-------------- -------------
GROSS PROFIT 148,849 20,227
OPERATING EXPENSES
General and administrative 1,286,666 903,735
Research and development 636,775 368,167
Marketing and sales 588,212 303,634
-------------- -------------
2,511,653 1,575,536
-------------- -------------
LOSS FROM OPERATIONS (2,362,804) (1,555,309)
INTEREST EXPENSE 1,322 -
-------------- -------------
LOSS FOR THE PERIOD $ (2,364,126) $ (1,555,309)
-------------- -------------
-------------- -------------
OTHER COMPREHENSIVE INCOME (EXPENSE):
Foreign currency translation adjustment (64,678) -
-------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (2,428,804) $ (1,555,309)
-------------- -------------
-------------- -------------
LOSS PER COMMON SHARE - BASIC AND FULLY DILUTED $ (0.17) $ (0.14)
-------------- -------------
-------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARE EQUIVALENTS (NOTE 2) 14,131,382 11,221,812
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
ALYA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDING JUNE 30, 1999
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Income (loss) for period $ (2,364,126) $ (1,555,309)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of capital assets 23,017 73,317
Gain on disposal of capital assets (3,995) -
Options and stock issued for services 47,642 -
Changes in non-cash working capital
Accounts receivable 16,324 79,226
Inventories 6,170 (5,324)
Prepaid expenses and other receivables (36,302) (25,898)
Accounts payable 510,455 (296,217)
-------------- -------------
Net cash used in operating activities (1,800,815) (1,730,205)
FINANCING ACTIVITIES
Issuance of common and preferred stock, net 696,668 1,152,265
Advances on sales of software rights, net 664,488 746,693
Warrants - 18,854
Change in operating line of credit - (21,600)
Convertible debt - (72,000)
Demand loans 257,180 -
Due to related parties 246,465 (34,865)
Other short term debt (55,270) (44,305)
-------------- -------------
Net cash provided by financing activities 1,809,531 1,745,042
INVESTING ACTIVITIES
Proceeds on disposal of capital assets 7,001 -
Purchase of capital assets (11,335) (19,177)
-------------- -------------
Net cash provided by investing activities (4,334) (19,177)
-------------- -------------
DECREASE IN CASH ON HAND 4,382 (4,340)
EXCHANGE EFFECT ON CASH (66,061) -
CASH ON HAND, BEGINNING OF PERIOD 74,768 6,802
-------------- -------------
CASH ON HAND, END OF PERIOD $ 13,089 $ 2,462
-------------- -------------
-------------- -------------
Supplemental cash flow disclosures:
Interest paid $ 1,322 $ 770
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.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
FOR THE NINE MONTHS ENDED JUNE 30, 1999
(Expressed in US dollars) (Unaudited)
<TABLE>
<CAPTION>
Common shares Preferred shares Additional Warrants
-------------------- ---------------- paid-in -------------------
Number Amount Number Amount Capital Number Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <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
Sale of shares 1,331,967 133 - - 678,477 - -
(NOTE a(c))
Collection of Share
subscription receivable - - - - - - -
Forfeiture of Options - - - - - - -
(NOTE a(b))
Granting of Options - - - - - - -
(NOTE a(b))
Translation Adjustment - - - - - - -
Net loss for the year - - - - - - -
- ---------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 15,102,444 $ 1,511 400,000 $ 40 5,477,880 245,032 $18,854
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Options Share Other
------------------- subscription Comprehensive Accumulated
Number Amount receivable Income deficit Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 1,008,500 $51,425 $ (65,700) $ 60,853 $ (5,674,327) $ (808,074)
Sale of shares - - (10,005) - - 668,605
(NOTE a(c))
Collection of Share
subscription receivable - - 75,705 - - 75,705
Forfeiture of Options (182,500) - - - - -
(NOTE a(b))
Granting of Options 1,932,000 - - - - -
(NOTE a(b))
Translation Adjustment - - - (64,678) - (64,678)
Net loss for the year - - - - (2,364,126) (2,364,126)
- -------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 2,758,000 $51,425 $ - $ (3,825) $ (8,038,453) $(2,492,568)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US 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 $2,364,126 for the nine months ended June 30, 1999 (1998 -
$1,555,309). As at June 30, 1999, the Company also had a working capital
deficiency of $1,139,388 and shareholders' deficiency of $2,492,568.
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:
<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.
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US Dollars)
- ------------------------------------------------------------------------------
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 June 30, 1999, one customer accounted for 35% 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 June 30,
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.
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 derivative 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
-2-
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US Dollars)
- ------------------------------------------------------------------------------
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 $ 22,311 $ 9,500
Goods and services tax receivable 51,575 14,097
Prepaid expenses 24,065 25,447
---------------------------
$ 97,951 $ 49,044
---------------------------
</TABLE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
COST ACCUMULATED NET NET
AMORTIZATION 1999 1998
-----------------------------------------------
<S> <C> <C> <C> <C>
Automobile $ 9,472 $ 7,104 $ 2,368 $ 5,207
Furniture and Fixtures 25,738 10,731 15,007 17,310
Computer equipment 159,445 146,503 12,942 16,440
Leasehold improvements 29,676 17,275 12,401 19,685
-----------------------------------------------
$224,331 $181,613 $ 42,718 $ 58,642
-----------------------------------------------
</TABLE>
5. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
---------------------------------
<S> <C> <C>
Employee and payroll taxes $ 184,117 $ 20,059
Trade accounts payable 253,165 93,636
Consulting services 114,230 32,939
Other accrued items 28,573 6,871
Vacation accrual 105,086 49,935
Deposit by customers 17,817 -
Legal and accounting 111,643 14,604
---------------------------------
$ 814,631 $ 218,044
---------------------------------
</TABLE>
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 rate plus 1%. It was
repaid in the quarter ended March 31, 1999. The effective rate of
interest was 7.8%.
-3-
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
CURRENT DEMAND LOANS
As at June 30, 1999, the Company had borrowed $257,180 from some
shareholders of the Company. The funds are due on demand and are
non-interest bearing.
7. CONVERTIBLE DEBT
In February of 1998, non-interest bearing convertible subordinated
debentures was converted into 133,333 common shares at $0.542 per share.
8. SHARE CAPITAL
<TABLE>
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
15,102,444 common shares (1998: 12,683,282) $ 1,511 $ 1,269
400,000 preferred shares (1998: 400,000) 40 40
-----------------------
$ 1,551 $ 1,309
-----------------------
</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 a par value of $0.0001 per share. This
transaction was accounted for as a re-capitalization 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. In May 1999, the Board of Directors resolved to amend the stock
option plan to 20% of the common shares outstanding as at the previous
month-end, subject to ratification by the shareholders.
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.
-4-
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US Dollars)
- --------------------------------------------------------------------------------
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 (182,500) 0.62 -
Granted -- market value 1,782,000 0.43 0.43
- above market value 150,000 0.47 0.43 -
--------------------------------------------------
Balance -- June 30, 1999 2,758,000 $ 0.57 -
--------------------------------------------------
</TABLE>
As at June 30, 1999, the options outstanding have exercise prices
ranging from $0.42 to $0.69, a weighted average exercise price of $0.47
(1998 - $0.50), and a weighted average remaining contractual life of
4.35 years (1998 - 3.17 years).
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
April 16, 1999 101,350 $0.40 40,540 - Cash
May 6, 1999 400,000 $0.50 200,000 - Cash
---------------------------------------------------------------
At June 30, 1999 1,331,967 $ 678,610 $ 7,400
---------------------------------------------------------------
</TABLE>
-5-
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(EXPRESSED IN US DOLLARS)
- -------------------------------------------------------------------------------
The excess of fair value over the cash consideration received for
certain share issuance in the nine months ended June 30, 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 PRICE PER
OF 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 EXERCISE
OF PRICE EXPIRY DATE
WARRANTS
----------------------------------------------------
<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.
9. GEOGRAPHIC INFORMATION
Sales revenues were generated by customers located in the following
geographic regions:
<TABLE>
<CAPTION>
1999 1998
--------------------------------
<S> <C> <C>
United States $ 156,834 $ 7,364
Canada 26,569 121,827
Slovakia 207,434 61,197
Norway 20,837 7,021
Other Foreign countries 17,086 3,543
------------------------------
$ 428,760 $ 200,952
------------------------------
</TABLE>
During the nine months ended June 30, 1999, revenues to one customer
located in Slovakia represented 44% of total sales (1998-25%), and a
customer in the US accounted for 29% (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):
-6-
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US Dollars)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1999 $ 112,340
2000 100,575
2001 33,932
2002 8,015
2003 1,259
---------
$ 256,121
---------
</TABLE>
Office lease payments for the nine months ended June 30, 1999 of $59,557
(1998-$28,427), and equipment lease payments of $37,664 (1998-15,750),
were included in general and administrative expenses.
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 a 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.
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 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.
-7-
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US Dollars)
- -------------------------------------------------------------------------------
During the nine months ended June 30, 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.
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 nine months ended June 30, 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
RELATED PARTY TRANSACTIONS
Subsequent to the end of the period, shareholders loaned the Company a
further $152,720 without interest and without stated terms of repayment.
- 8 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US Dollars)
- -------------------------------------------------------------------------------
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)
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 nine months
ended June 30, 1999 of approximately $7,400 (1998 - $15,000). 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 $287,398 $36,826
</TABLE>
Included in fixed assets is $2,368 (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 nine months ended June 30, 1998, the majority shareholder
loaned the Company up to $199,200 without interest and without stated
terms of repayment of which $266,085 was included as due to shareholders
and directors at June 30, 1999 (1998 - $36,826). During the nine months
ended June 30, 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 $59,210 during the nine months ended June 30, 1999
(1998 - $83,037) for consulting services to companies controlled by
directors of the Company ($21,312 was outstanding at June 30, 1999).
- 9 -
<PAGE>
ALYA INTERNATIONAL, INC.
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Expressed in US 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 $ 13,088 $ 13,088 $ -- $ --
Accounts receivable 55,498 55,498 17,789 17,789
Accounts payable 814,631 814,631 213,256 213,256
Operating line of credit -- -- -- --
Due to related parties 287,398 287,398 36,826 36,826
</TABLE>
16. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified where
necessary in order to conform to changes in presentation adopted in the
current period.
- 10 -
<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:
<TABLE>
<CAPTION>
<S> <C>
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............................................... 35,000
Transfer agent fees and expenses...................................... 2,000
Printing expenses..................................................... 10,000
Miscellaneous expenses................................................ 10,610
------
Total.................................................................$ 75,000
=========
</TABLE>
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 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 October 1998, Alya has sold shares of its common stock, which sales were
not registered under the Securities Act as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DOLLAR REGISTRATION
PURCHASER NUMBER OF SHARES AMOUNT ($) DATE EXEMPTION
- --------- ---------------- ---------- ---- ---------
<S> <C> <C> <C> <C>
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
<TABLE>
<CAPTION>
- -------------- ------------------------------------------------------------------------------------
Exhibit
No. Exhibit
- -------------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Selling Agent Agreement
- -------------- ------------------------------------------------------------------------------------
2.1 Articles of Incorporation (1)
- -------------- ------------------------------------------------------------------------------------
2.2 Bylaws (1)
- -------------- ------------------------------------------------------------------------------------
4.1 Form of Subscription Agreement (1)
- -------------- ------------------------------------------------------------------------------------
6.1 Joint Development Agreement between the Company and WSSD dated May 21, 1997 (1)
- -------------- ------------------------------------------------------------------------------------
6.2 Documents Relating to Sale of O.P.E.N.centrix-TM- Software Rights to Gary Drummond
- -------------- ------------------------------------------------------------------------------------
6.3 Documents Relating to Sale of O.P.E.N.centrix-TM- Software Rights to Mark Silver
- -------------- ------------------------------------------------------------------------------------
6.4 Documents Relating to Sale of O.P.E.N.centrix-TM- Software Rights to G. Kingsley Ward
and Barry Pike.
- -------------- ------------------------------------------------------------------------------------
6.5 Documents Relating to Sale of O.P.E.N.centrix-TM- Software Rights to Video Technology
Systems, Inc.
- -------------- ------------------------------------------------------------------------------------
6.6 1997 Stock Option Plan (1)
- -------------- ------------------------------------------------------------------------------------
10.1 Consent of PricewaterhouseCoopers LLP. (1)
- -------------- ------------------------------------------------------------------------------------
10.2 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. (incorporated by reference
to exhibit 11.1) (1)
- -------------- ------------------------------------------------------------------------------------
11.1 Opinion re legality (1)
- -------------- ------------------------------------------------------------------------------------
</TABLE>
(1) Previously filed as an exhibit to Alya's Registration Statement on Form
SB-1, filed with the Commission on July 15, 1999. File number 33-82877.
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 November 2, 1999.
Alya International, Inc.
(Registrant)
By: /s/ Milan Carnogursky
-----------------------------
Milan Carnogursky
Chairman, Chief Executive Officer
and Director
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, Chief Executive Officer
- ------------------------------ and Director November 2, 1999
Milan Carnogursky
- ------------------------------ Director November 2, 1999
Peter Sobotka
/s/ Douglas Corbett President
- ------------------------------ and Director November 2, 1999
Douglas Corbett
/s/ Jaro Bucko Chief Technology Officer, Secretary,
- ------------------------------ Treasurer and Director November 2, 1999
Jaro Bucko
/s/ Robert Hamilton Vice President - Operations November 2, 1999
- ------------------------------
Robert Hamilton
II-4
<PAGE>
Chief Financial Officer
/s/ Arthur J. Ayres (Principal Financial Officer)
- ------------------------------ (Principal Accounting Officer) November 2, 1999
Arthur J. Ayres, CA
</TABLE>
II-5
<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 delivery
of the Shares, to the approval of legal matters by counsel, and to the terms
and conditions herein set forth.
<PAGE>
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:
a) IM-2110-1 "Free-Riding and Withholding",
b) Rule 2420 "Dealing with Non-Members",
c) Rule 2730 "Securities Taken in Trade",
d) Rule 2740 "Selling Concessions, Discounts and Other", and
e) Rule 2750 "Transactions with Related Persons".
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.
2
<PAGE>
6. PROSPECTUS AND OFFERING. The Registration Statement on Form SB-1
(File No. 333-82877) 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 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>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 30th day of September 1997 (the "Effective
Date").
BETWEEN:
Gary J. Drummond, an individual, having a business address at 1000, 111
5th Avenue SW, Calgary, Alberta T2P 3Y6, FAX: (403) 266-6684 ("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 American Appraisal Canada,
Inc.;
<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
E. information required to be disclosed pursuant to applicable
law, regulation, judicial or administrative order, lawful
subpoena or
2
<PAGE>
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 American Appraisal
Canada, Inc. 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 Purchased Assets;
m. "Note" means the 6.0% Secured Term Note, secured by the Purchased Assets,
in substantially the form attached as Schedule D;
3
<PAGE>
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 paragraph (iii) and (iv) are hereinafter collectively referred
to as the "Intellectual Property"); and
4
<PAGE>
(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 Burnet, Duckworth & Palmer, 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.
d. Headings are inserted in the Agreement for convenience of reference
only and are not intended to affect the Agreement's interpretation.
5
<PAGE>
1.3 SCHEDULES
The following schedules are incorporated into and made part of this
Agreement:
<TABLE>
<S> <C> <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 - Territory
Schedule G - 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 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.
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.
6
<PAGE>
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;
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
7
<PAGE>
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 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;
8
<PAGE>
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 lawfully and
9
<PAGE>
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 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.
10
<PAGE>
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
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
11
<PAGE>
(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;
d. each Receiving Party that receives Confidential Information from the
Disclosing Party shall maintain such Confidential Information in
confidence, shall not
12
<PAGE>
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, 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):
13
<PAGE>
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;
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;
14
<PAGE>
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
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,
15
<PAGE>
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 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
16
<PAGE>
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.
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.
17
<PAGE>
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
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 facsimilie
transmission.
18
<PAGE>
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/ Gary J. Drummond
---------------------------
Gary J. Drummond
19
<PAGE>
MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of September 30, 1997.
BETWEEN:
GARY J. DRUMMOND, an individual, having a business address at 1000, 111 5th
Avenue SW, Calgary, Alberta T2P 3Y6, FAX (403) 266-6684 (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
2
<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;
3
<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 Burnet, Duckworth & Palmer, 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,
4
<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:
5
<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 found by any Customer will be provided by
Manager pursuant to the terms of its support services
6
<PAGE>
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:
i. automobile liability insurance on all vehicles used in connection with
this Agreement. In respect of
7
<PAGE>
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
a. Manager will distribute, annually, the Net Revenues for the preceding year
in the following order of priority:
8
<PAGE>
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;
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;
9
<PAGE>
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 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
10
<PAGE>
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
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.
11
<PAGE>
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 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
12
<PAGE>
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 within the time
required to file such return and shall provide a copy thereof to the Owner.
13
<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 the
amount of Owner's Return credited to Owner to the date of termination.
4.5 PROTECTION OF PROPRIETARY RIGHTS
14
<PAGE>
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 under this Agreement, subject to Section
3.4, if such breach has not been remedied;
15
<PAGE>
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;
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
16
<PAGE>
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 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
17
<PAGE>
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 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.
18
<PAGE>
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 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.
19
<PAGE>
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 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
20
<PAGE>
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:
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
21
<PAGE>
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 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.
22
<PAGE>
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. 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.
23
<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/ Gary J. Drummond
----------------------------
Gary J. Drummond
24
<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 Drummond and the
Holder;
b. "Drummond" means Gary J. Drummond 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 Gary J. Drummond and Alya
International Inc. ;
i. "Note" means this 6% Secured Term Note as originally executed, or as
amended or supplemented as herein provided;
2
<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 Drummond 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 Drummond, 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
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
3
<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 Drummond, 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 Drummond 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;
4
<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 Drummond 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 Drummond to pay interest at the rate provided herein will
not merge in any judgment in respect of any obligation of Drummond
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 Drummond, 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
Drummond hereby assigns the Product Proceeds to the Holder as security for
payment of Drummond'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
5
<PAGE>
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
Drummond, 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 Drummond of
obligations herein contained, Drummond 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 Drummond 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,
Drummond will not, and Drummond 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
Drummond 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
6
<PAGE>
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
Drummond cancel and discharge the lien of this Note and execute and deliver to
Drummond such deeds or other instruments as will be requisite to discharge the
lien hereof and to reconvey to Drummond any part of the Purchased Assets subject
to the lien of this Note and to release Drummond 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 Drummond 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, Drummond 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
6.1 DRUMMOND'S REPRESENTATIONS AND WARRANTIES
Drummond hereby represents and warrants to the Holder for the benefit of
the Holder as follows:
a. Drummond has the requisite power and authority to execute and deliver this
Note, to consummate the
7
<PAGE>
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 Drummond is subject
or constitute or result in a default under any agreement, contract or
commitment to which Drummond 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 Drummond 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 Drummond with any such governmental authority,
regulatory body or court is required in order for Drummond:
i. to incur the obligations expressed to be incurred by Drummond in or
pursuant to this Note;
ii. to execute and deliver all documents and instruments to be delivered
by Drummond 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
Drummond in accordance with its terms.
ARTICLE 7
COVENANTS OF DRUMMOND
Drummond hereby covenants and agrees with the Holder for the benefit of the
Holder as follows:
8
<PAGE>
7.1 TO PAY PRINCIPAL AND INTEREST
Drummond 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
Drummond 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 Drummond 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 Drummond of any material provision of this Note;
c. any representation or warranty made by Drummond herein or in any financial
statements, reports or other documents supplied to the Holder by Drummond
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 Drummond in good
faith;
provided that Drummond will not have remedied such default within thirty (30)
days (ten (10) days in the case of a monetary default) following receipt by
Drummond 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 Drummond will immediately pay to the
9
<PAGE>
Holder all indebtedness of Drummond owing to it pursuant to this Note.
8.2 REMEDIES
If an Event of Default has occurred and is continuing and Drummond 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 Drummond 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 Drummond that all of its recourse rights, powers and remedies
for payment of any obligations of Drummond 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 Drummond 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
10
<PAGE>
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 Drummond under this
Note allocated firstly as to interest and the remainder as to
principal; and
iii. the balance to Drummond;
c. Any balance owing by Drummond under this Note after the allocation of the
Sale Proceeds will be forgiven by the Holder and Drummond 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, Drummond, 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, Drummond 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 Drummond 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
11
<PAGE>
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
Drummond 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 Drummond will be binding unless it is in writing.
The inspection or approval by the Holder or Drummond 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
12
<PAGE>
not affect or impair such provision or part thereof or any other provisions
of this Agreement in any other jurisdiction.
12.2 FURTHER ASSURANCES
Drummond 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 Drummond and the Holder
as if they had originally signed one copy of this Note.
12.4 ASSIGNMENT
Drummond 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 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 Drummond 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 Drummond and will be binding upon the Holder and Drummond. The expressions
the "Holder" and the "Drummond" as used herein will include the Holder's and
Drummond's assigns, whether immediate or derivative, respectively.
12.6 AMENDMENT
13
<PAGE>
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 Drummond and the Holder have duly executed these
presents under the hands of their proper officers in that behalf.
DRUMMOND: /s/ Gary J. Drummond
-------------------------
Gary J. Drummond
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
-------------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
14
<PAGE>
SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of the 30th day of September, 1997, is by and
AMONG:
BURNET, DUCKWORTH & PALMER, Barristers and Solicitors, having a
business address at 1400, 350 - 7th Avenue S.W., Calgary, Alberta,
T2P 3N9 ("Security Agent");
OF THE FIRST PART
AND
GARY J. DRUMMOND, an individual, having a business address at
1000, 111 - 5th Avenue SW, Calgary, Alberta T2P 3Y6 ("Drummond")
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 Drummond and Alya (the "Purchase
Agreement"), Drummond purchased the Purchased Assets, as more particularly
described in Schedule A to the Purchase Agreement;
B. The Purchase Agreement provided that Drummond would purchase and
acquire the Purchased Assets for cash and a Note deliverable at Closing;
C. Pursuant to the terms of the Note, Drummond granted a security
interest in the Purchased Assets to Alya as a means of securing performance of
Drummond's obligations under the Note. In connection therewith, the parties
hereto have agreed to establish and maintain this Security Agent Agreement; and
D. This Security Agent Agreement provides, INTER ALIA, that Drummond
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, Drummond, the Security
Agent and Alya hereby agree as follows:
ARTICLE 1
1.1 Definitions
<PAGE>
2
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 Drummond and Alya;
2. "Note" means the 6.0% Secured Term Note dated as of September 30 1997
issued by Drummond 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.
1.2 Interpretation
1. 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;
2. 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
3. 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>
3
'
ARTICLE 2
DEPOSIT OF SECURITY
1.3 Original Deposit
Concurrently with the Closing, Drummond shall deliver, or cause to
be delivered, to the Security Agent, the Software as security for Drummond'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 Drummond, forwarding the
same to the Security Agent with a copy to Drummond.
1.4 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 Drummond'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 Drummond, forwarding
same to the Security Agent with a copy to Drummond.
1.5 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
1.6 Delivery to Drummond
The Security Agent shall deliver all Software which has been
deposited with the Security Agent to Drummond upon the occurrence of either of
the following events:
1. Alya and Drummond deliver a Release Notice, executed by each of Alya and
Drummond, to the Security Agent; or
<PAGE>
4
2. Subject to compliance with Section 3.2 hereof, the Security Agent has
received from Drummond 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 Drummond; and
3. specific instructions from Drummond for delivery of the Software.
1.7 Procedure for Delivery to Drummond
1. 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 Drummond's entitlement to the Software be
submitted to arbitration in accordance with the provisions of this
Agreement;
2. If Alya shall request arbitration, the matter shall be submitted to and
settled by arbitration in accordance with Article 7 hereof; and
3. 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 Drummond in accordance with the instructions specified in
Section 3.1 b. iii.
<PAGE>
5
1.8 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:
1. Drummond and Alya deliver a Release Notice executed by each of Drummond
and Alya to the Security Agent; or
2. Subject to compliance with Section 3.4 hereof, the Security Agent has
received from Alya each of the following items:
1. written notification that Drummond 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.
1.9 Procedure for Delivery to Alya
1. 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 Drummond a copy of all such
documents received by the Security Agent pursuant to Section 3.3 b.
Drummond shall have twenty (20) days from the date the Security Agent
shall have delivered the documents to Drummond 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;
2. If Drummond shall request arbitration, the matter shall be submitted to
and settled by arbitration in accordance with Article 7 hereof; and
<PAGE>
6
3. If within twenty (20) days following delivery of the items specified in
Section 3.3 b. to Drummond, the Security Agent has not received written
notice of Drummond'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
1.10 Acknowledgement
Alya and Drummond each hereby recognize and acknowledge that
Drummond 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
1.11 Duties
The Security Agent shall not be bound in any way by an agreement
or contract between Drummond 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 Drummond and, if its
duties are affected, unless it shall have given its prior written consent
thereto.
1.12 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
<PAGE>
7
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 Drummond, 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.
1.13 Amendment, Resignation and/or Termination
This Agreement may be altered or amended only with the consent
of each of Alya, Drummond and Security Agent. The Security Agent may resign
as Security Agent at any time upon 30 days' prior written notice to Drummond
and Alya. Drummond 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 Drummond
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 Drummond. 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.
1.14 No Action Required
<PAGE>
8
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 Drummond 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.
1.15 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.
1.16 Disclaimer of Liability
Except for fraud or intentional misconduct, neither the
Security Agent nor its partners, employees or agents shall be liable to Alya,
Drummond 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.
1.17 Indemnity and Liability
Drummond, 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
<PAGE>
9
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.
1.18 Disputes and Interpleader
In the event of any dispute between Drummond 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.
1.19 No Conflict
Alya and Drummond acknowledge that (a) the Security Agent or
its partners, employees, agents or associates have provided counsel to
Drummond 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 Drummond and shall not be impeachable or accountable
because of any conflicting or potentially conflicting duty to Drummond or any
advice provided to him.
1.20 Legal Counsel
If the Security Agent believes it to be reasonably necessary to
consult with counsel concerning any of its duties
<PAGE>
10
hereunder, or if the Security Agent becomes involved in litigation relating
to this Agreement, Alya and Drummond 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
1.21 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 Gary J. Drummond to:
Gary J. Drummond
1000, 111 5th Ave. SW
Calgary, Alberta
T2P 346
Fax No.: (403) 266-6684
If to Security Agent to:
Burnet, Duckworth & Palmer
1400, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
<PAGE>
11
Attention: Mr. G. Dino DeLuca
Fax No.: (403) 260-0332
ARTICLE 7
ARBITRATION
1.22 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
1.23 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
1.24 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
<PAGE>
12
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 Drummond or
Alya, and in any event Drummond and Alya will notify the Security Agent of
the name of any assignee.
ARTICLE 10
AUDIT RIGHTS
1.25 During the term of this Agreement, Drummond 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
1.26 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.
1.27 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.
1.28 Counterpart and Facsimile Execution
This Agreement, and any and all ancillary documents
contemplated herein, may be executed in one or more counterparts
<PAGE>
13
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.
1.29 Time of the Essence
Time will be of the essence of this Agreement.
1.30 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.
1.31 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.
1.32 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.
1.33 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>
11
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 & CEO
/s/ Gary J. Drummond
-----------------------------------
GARY J. DRUMMOND
BURNET, DUCKWORTH & PALMER
By: /s/ [Illegible]
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
<PAGE>
SCHEDULE "A" to the Security Agent Agreement dated September 30, 1997
RELEASE NOTICE
Burnet, Duckworth & Palmer
#1400, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
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 Gary J.
Drummond ("Drummond"), Alya International Inc. ("Alya") and Burnet, Duckworth
& Palmer ("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 Drummond or
Alya in its capacity as Security Agent to [______________].
Dated: ALYA INTERNATIONAL INC.
-----------------------
By:
-----------------------
Dated:
----------------------- ---------------------------
GARY J. DRUMMOND
<PAGE>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 30th day of September 1997 (the "Effective
Date").
BETWEEN:
Mark Silver, an individual, having a business address at 1000, 111 5th
Avenue SW, Calgary, Alberta T2P 3Y6, FAX: (403) 266-6684 ("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 American Appraisal Canada, Inc.;
<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
E. information required to be disclosed pursuant to applicable law,
regulation, judicial or
2
<PAGE>
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 American Appraisal
Canada, Inc. 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;
m. "Note" means the 6.0% Secured Term Note, secured by the Purchased Assets,
in substantially the form attached as Schedule D;
3
<PAGE>
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 paragraph
(iii) and (iv) are hereinafter collectively referred to as the
"Intellectual Property"); and
4
<PAGE>
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 Burnet, Duckworth & Palmer, 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.
d. Headings are inserted in the Agreement for convenience of reference only
and are not intended to affect the Agreement's interpretation.
5
<PAGE>
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.
6
<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;
7
<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
capable of being obtained at such time, other software suitable for
substitution
8
<PAGE>
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;
q. none of the Purchased Assets has been disclosed to any third party except
under obligations of confidentiality,
9
<PAGE>
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 to
enter into this Agreement and each and every agreement to be
10
<PAGE>
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 admits in writing its
11
<PAGE>
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;
12
<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.
13
<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;
14
<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
8.1 VALIDITY
15
<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.
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 Note
and the Security Agent Agreement, to (i) any corporation, partnership or other
entity which is controlled
16
<PAGE>
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.
8.7 AMENDMENT
17
<PAGE>
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
18
<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/ Mark Silver
------------------------------
Mark Silver
19
<PAGE>
MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of September 30, 1997.
BETWEEN:
MARK SILVER, an individual, having a business address at 1000, 111 5th
Avenue SW, Calgary, Alberta T2P 3Y6, FAX (403) 266-6684 (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
2
<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;
3
<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 Burnet, Duckworth & Palmer, 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,
4
<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:
5
<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 found by any Customer will be provided by
Manager pursuant to the terms of its support services
6
<PAGE>
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:
i. automobile liability insurance on all vehicles used in connection with
this Agreement. In respect of
7
<PAGE>
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
a. Manager will distribute, annually, the Net Revenues for the preceding year
in the following order of priority:
8
<PAGE>
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 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;
9
<PAGE>
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 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
10
<PAGE>
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:
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.
11
<PAGE>
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 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
12
<PAGE>
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 within the time
required to file such return and shall provide a copy thereof to the Owner.
13
<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 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.
4.5 PROTECTION OF PROPRIETARY RIGHTS
14
<PAGE>
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 under this Agreement, subject to Section
3.4, if such breach has not been remedied;
15
<PAGE>
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 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
16
<PAGE>
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 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
17
<PAGE>
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 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.
18
<PAGE>
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 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.
19
<PAGE>
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 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
20
<PAGE>
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:
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
21
<PAGE>
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 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.
22
<PAGE>
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. 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.
23
<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/ Mark Silver
-------------------------------
Mark Silver
24
<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 Silver
and the Holder;
b. "Silver" means Mark Silver 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 Mark Silver and Alya
International Inc. ;
i. "Note" means this 6% Secured Term Note as originally executed, or as
amended or supplemented as herein provided;
j. "Person" includes any individual, firm, corporation, company, joint
venture, partnership, association, trust or unincorporated body of
persons;
2
<PAGE>
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 Silver 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 Silver, 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
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
d. Headings are inserted in the Note for convenience of reference only and
are not intended to affect the Note's interpretation.
3
<PAGE>
ARTICLE 2
PROMISE TO PAY
2.1 Silver, 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 Silver 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;
c. Interest accrued and unpaid at the end of each year, will be paid
annually within thirty (30) days of receipt by Silver of Product
Proceeds for the year, to the extent of the Product Proceeds, if any;
4
<PAGE>
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 Silver to pay interest at the rate provided herein will
not merge in any judgment in respect of any obligation of Silver
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 Silver, 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
Silver hereby assigns the Product Proceeds to the Holder as security
for payment of Silver'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
<PAGE>
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
Silver, 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 Silver of obligations
herein contained, Silver 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 Silver 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, Silver will not, and Silver 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
Silver 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
6
<PAGE>
The Holder will at the written request and sole cost and expense of
Silver cancel and discharge the lien of this Note and execute and deliver to
Silver such deeds or other instruments as will be requisite to discharge the
lien hereof and to reconvey to Silver any part of the Purchased Assets subject
to the lien of this Note and to release Silver 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 Silver 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, Silver 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
6.1 SILVER'S REPRESENTATIONS AND WARRANTIES
Silver hereby represents and warrants to the Holder for the benefit of
the Holder as follows:
a. Silver 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
7
<PAGE>
or foreign, to which Silver is subject or constitute or result in a
default under any agreement, contract or commitment to which Silver
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 Silver
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 Silver with any such governmental authority,
regulatory body or court is required in order for Silver:
i. to incur the obligations expressed to be incurred by Silver in
or pursuant to this Note;
ii. to execute and deliver all documents and instruments to be
delivered by Silver 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 Silver in accordance with its terms.
ARTICLE 7
COVENANTS OF SILVER
Silver hereby covenants and agrees with the Holder for the benefit of
the Holder as follows:
7.1 TO PAY PRINCIPAL AND INTEREST
Silver 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
8
<PAGE>
Silver 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 Silver 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 Silver of any material provision of this Note;
c. any representation or warranty made by Silver herein or in any
financial statements, reports or other documents supplied to the Holder
by Silver 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 Silver
in good faith;
provided that Silver will not have remedied such default within thirty (30) days
(ten (10) days in the case of a monetary default) following receipt by Silver
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 Silver will immediately pay to the Holder all
indebtedness of Silver owing to it pursuant to this Note.
8.2 REMEDIES
If an Event of Default has occurred and is continuing and Silver 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
9
<PAGE>
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 Silver 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 Silver that all of its recourse rights, powers and
remedies for payment of any obligations of Silver 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 Silver 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
10
<PAGE>
Assets including, without limitation, reasonable attorneys'
fees and costs;
ii. to the Holder as a reduction of amounts owing by Silver under
this Note allocated firstly as to interest and the remainder
as to principal; and
iii. the balance to Silver;
c. Any balance owing by Silver under this Note after the allocation of the
Sale Proceeds will be forgiven by the Holder and Silver 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, Silver, 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, Silver 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 Silver 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 Silver 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 Silver will be binding unless it is in
writing. The inspection or approval by the Holder or Silver 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.
11
<PAGE>
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
Silver 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
12
<PAGE>
all such counterparts and facsimile signatures taken together will constitute
one and the same Note and will be binding on Silver and the Holder as if they
had originally signed one copy of this Note.
12.4 ASSIGNMENT
Silver 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 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 Silver 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 Silver and will be binding upon the Holder and Silver.
The expressions the "Holder" and the "Silver" as used herein will
include the Holder's and Silver'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
13
<PAGE>
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 Silver and the Holder have duly executed these
presents under the hands of their proper officers in that behalf.
SILVER: /s/ Mark Silver
--------------------------
Mark Silver
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Dirk Schillebeeckx
-----------------------
Dirk Schillebeeckx
President and
Chief Executive Officer
14
<PAGE>
SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of the 30th day of September, 1997, is by and
AMONG:
BURNET, DUCKWORTH & PALMER, Barristers and Solicitors, having
a business address at 1400, 350 - 7th Avenue S.W., Calgary,
Alberta, T2P 3N9 ("Security Agent");
OF THE FIRST PART
AND
MARK SILVER, an individual, having a business address at 1000,
111 - 5th Avenue SW, Calgary, Alberta T2P 3Y6 ("Silver")
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 Silver and Alya (the
"Purchase Agreement"), Silver purchased the Purchased Assets, as more
particularly described in Schedule A to the Purchase Agreement;
B. The Purchase Agreement provided that Silver would purchase
and acquire the Purchased Assets for cash and a Note deliverable at Closing;
C. Pursuant to the terms of the Note, Silver granted a security
interest in the Purchased Assets to Alya as a means of securing performance
of Silver's obligations under the Note. In connection therewith, the parties
hereto have agreed to establish and maintain this Security Agent Agreement;
and
D. This Security Agent Agreement provides, INTER ALIA, that
Silver 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, Silver, the
Security Agent and Alya hereby agree as follows:
<PAGE>
2
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 September 30, 1997 between Silver and Alya;
b. "Note" means the 6.0% Secured Term Note dated as of September 30 1997
issued by Silver to Alya in connection with the purchase of the
Purchased Assets;
c. "Release Notice" means a notice to the Security Agent in the form
attached as Schedule A to this Agreement; and
d. "Software" means the source code for the Application Software.
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.
ARTICLE 2
DEPOSIT OF SECURITY
2.1 ORIGINAL DEPOSIT
Concurrently with the Closing, Silver shall deliver, or
cause to be delivered, to the Security Agent, the Software as security for
Silver'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 Silver, forwarding the
same to the Security Agent with a copy to Silver.
<PAGE>
3
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 quarterly in
accordance with the Management Agreement as security for Silver'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 Silver, forwarding same to the Security Agent with a copy to
Silver.
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.
ARTICLE 3
RELEASE OR RETURN OF SOFTWARE BY SECURITY AGENT
3.1 DELIVERY TO SILVER
The Security Agent shall deliver all Software which has been
deposited with the Security Agent to Silver upon the occurrence of either of the
following events:
a. Alya and Silver deliver a Release Notice, executed by each of Alya and
Silver, to the Security Agent; or
b. Subject to compliance with Section 3.2 hereof, the Security Agent has
received from Silver 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 Silver; and
iii. specific instructions from Silver for delivery of the Software.
3.2 PROCEDURE FOR DELIVERY TO SILVER
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 Software and to request that the issue of Silver's entitlement to
the Software be submitted to arbitration in accordance with the
provisions of this Agreement;
<PAGE>
4
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 Software and
its request for arbitration, then the Security Agent shall release
the Software to Silver in accordance with the instructions specified
in Section 3.1 b. iii.
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:
a. Silver and Alya deliver a Release Notice executed by each of Silver
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 Silver is in breach of the Note;
ii. a written demand that all Software deposited with the Security
Agent be delivered to Alya; and
iii. 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 Silver a copy of all such
documents received by the Security Agent pursuant to Section 3.3 b.
Silver shall have twenty (20) days from the date the Security Agent
shall have delivered the documents to Silver 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 Silver 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 Silver, the Security Agent has not received
written notice of Silver'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.
<PAGE>
5
ARTICLE 4
OWNERSHIP OF PURCHASED ASSETS
4.1 ACKNOWLEDGEMENT
Alya and Silver each hereby recognize and acknowledge that
Silver 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
5.1 DUTIES
The Security Agent shall not be bound in any way by an
agreement or contract between Silver 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 Silver 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 Silver, 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, Silver and Security Agent. The Security Agent may
resign as Security Agent at any time upon 30 days' prior written notice to
Silver and Alya. Silver 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 Silver
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
<PAGE>
6
independent, qualified trust or escrow company or organization selected by
Silver. 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 Silver 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.
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,
Silver 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
Silver, 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
<PAGE>
7
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 Silver 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.
5.9 NO CONFLICT
Alya and Silver acknowledge that (a) the Security Agent or
its partners, employees, agents or associates have provided counsel to Silver
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 Silver
and shall not be impeachable or accountable because of any conflicting or
potentially conflicting duty to Silver or any advice provided to him.
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 Silver 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
6.1 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 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.
<PAGE>
8
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 Mark Silver to:
Mark Silver
1000, 111 5th Ave. SW
Calgary, Alberta
T2P 346
Fax No.: (403) 266-6684
If to Security Agent to:
Burnet, Duckworth & Palmer
1400, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Mr. G. Dino DeLuca
Fax No.: (403) 260-0332
ARTICLE 7
ARBITRATION
7.1 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
8.1 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
<PAGE>
9
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
9.1 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 Silver or Alya, and in any
event Silver and Alya will notify the Security Agent of the name of any
assignee.
ARTICLE 10
AUDIT RIGHTS
10.1 During the term of this Agreement, Silver 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
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
<PAGE>
10
Agreement and will be binding on the parties as if they had originally signed
one copy of this Agreement.
11.4 TIME OF THE ESSENCE
Time will be of the essence of this Agreement.
11.5 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.
11.6 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.
11.7 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.
11.8 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>
11
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 & CEO
/s/ Mark Silver
---------------------------------------
MARK SILVER
BURNET, DUCKWORTH & PALMER
By: /s/ [ILLEGIBLE]
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
<PAGE>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 22 day of December 1997 (the "Effective
Date").
BETWEEN:
CURTIS BARTLETT, an individual having a business address at #700,
300 5th S.W. Street, 7th Floor, Calgary, Alberta, T2P 3C4, Fax No.
(403) 215-5445 ("Agent"), as agent acting on behalf of G. Kingsley Ward and
Barry Pike 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 American Appraisal Canada, Inc.;
c. "Assigned Notes" means those promissory notes from Computron Management,
Inc. 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 breach of this Agreement
by the Receiving Party;
2
<PAGE>
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 manager pursuant to the Management
Agreement, acting reasonably, continues to believe that they are
3
<PAGE>
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 G. Kingsley Ward and Barry Pike, 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 American Appraisal,
Inc. 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
Territory, including, without limitation, a perpetual, non-exclusive,
royalty free right to use, modify, develop, license and distribute
within
4
<PAGE>
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,
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.
5
<PAGE>
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 - 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
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 Date, at and for Three
Million Canadian Dollars (Cdn.$3,000,000)(the "Purchase Price") payable and
allocated in accordance with Article 3 hereof.
6
<PAGE>
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 Barry
Pike, and Cdn.$38,000 on Closing, by Wire transfer, by Agent on account of
G. Kingsley Ward;
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
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF ALYA
7
<PAGE>
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 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:
8
<PAGE>
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;
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;
9
<PAGE>
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;
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
10
<PAGE>
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)
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
11
<PAGE>
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
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
12
<PAGE>
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
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
13
<PAGE>
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 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.
14
<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 agreements hereunder to be performed or
complied with; and
15
<PAGE>
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
ix. a copy of all authors' assignments of copyright, patent and trademark
and waivers of moral rights in the Application Software.
16
<PAGE>
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
8.1 VALIDITY
If any one or more of the provisions or parts thereof contained in this
Agreement should be or become invalid,
17
<PAGE>
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.
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
18
<PAGE>
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
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
19
<PAGE>
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.
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
20
<PAGE>
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/ M. Carnogursky
------------------------------
M. CARNOGURSKY PRESIDENT CEO
-----------------------------------
(Print Name and Title)
AGENT:
/s/ Curtis Bartlett
-----------------------------------
Curtis Bartlett,
as agent for G. Kingsley Ward
and Barry Pike and not in his
personal capacity.
21
<PAGE>
MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of December 22, 1997.
BETWEEN:
G. Kingsley Ward, with an address at 20 Queen Street West, Suite 316,
Toronto, Ontario M5H 3R3, Fax: (416) 581-0020, & Barry Pike, with an address
at 605 Alden Road, Markham, Ontario, L3R 3L5, Fax: (905) 305-1022, 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 Curtis Bartlett, 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 Ward) to be carried on in the Eastern
Territory and the other (for the account of Pike) to be carried on in the
Western Territory;
D. Ward wishes to appoint Manager, as his exclusive agent, to manage, market,
distribute and sell the Security System in the Eastern Territory on the
terms and conditions set out in this Agreement; and
<PAGE>
E. Pike 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 Curtis Bartlett, 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. "Confidential Information" of the Disclosing Party shall not
include:
2
<PAGE>
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;
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.;
3
<PAGE>
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 Ward Note and/or the Pike Note, individually or
collectively, as applicable.
r. "Pike" means Barry Pike, utilizing a business address at #980, 700 4th
Avenue, S.W., Calgary, Alberta, T2P 3J4,
s. "Pike Interest Amount" means an amount equal to the annual interest payable
under the Pike Note;
4
<PAGE>
t. "Pike Note" means the 6.0% Secured Term Note, executed and delivered by
Pike and secured by Pike'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. "Pike Return" has the meaning specified in Subsection 3.2.c;
v. "Security Agent" means Burnet, Duckworth & Palmer, 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. "Ward" means G. Kingsley Ward, utilizing a business address at #980, 700
4th Avenue, S.W., Calgary, Alberta, T2P 3J4,
aa. "Ward Interest Amount" means an amount equal to the annual interest payable
under the Ward Note;
bb. "Ward Note" means the 6.0% Secured Term Note, executed and delivered by
Ward and secured by Ward'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. "Ward 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.;
5
<PAGE>
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;
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
6
<PAGE>
a. Ward 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. Pike 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
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
7
<PAGE>
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.
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
8
<PAGE>
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 Ward shall pertain to
the Eastern Territory, and such review and report for Pike 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 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 Ward 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 Pike 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:
9
<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 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 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
10
<PAGE>
a. Manager will distribute to Pike, 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 Pike Interest Amount, plus any other accrued and unpaid
interest on the Pike Note; and
ii. to pay the Pike Return, including any cumulative amount of the Pike
Return not paid in prior years.
b. Thereafter, Manager will distribute to Pike, 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 Pike, for payment against the principal sum outstanding from
time to time under the Pike Note and in accordance with the Pike Note;
and
ii. 55% to Pike for retention by Pike; and
c. For the purposes of this Agreement the following terms have the following
meanings:
i. "Western Management Fee" means an annual marketing and management fee
payable to Manager by Pike 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 Pike Interest Amount in such year, plus any other accrued and
unpaid interest on the Pike Note;
WU = the outstanding principal on the Pike 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:
11
<PAGE>
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, 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
12
<PAGE>
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 credited to the customer, to the extent of the payment or credit in
such year; and
vii. "Pike's Return" means an annual cumulative preferential return to Pike
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 Ward Interest Amount, plus any other accrued and unpaid
interest on the Ward Note; and
ii. to pay the Ward Return, including any cumulative amount of the Ward
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 Ward, for payment against the principal sum outstanding from
time to time under the Ward Note and in accordance with the Ward Note;
and
13
<PAGE>
ii. 55% to Ward for retention by Ward; 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 Ward 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]
Where,
EN = Eastern Net Revenues, calculated without reference to Paragraph E
of the definition for Eastern Expenses;
EI = the Ward Interest Amount in such year, plus any other accrued and
unpaid interest on the Ward Note;
EU = the outstanding principal on the Ward 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,
14
<PAGE>
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
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
15
<PAGE>
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. "Ward'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
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.
16
<PAGE>
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
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
17
<PAGE>
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 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
18
<PAGE>
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
GRANT OF RIGHTS
4.1 In consideration of the Ward Return and the Pike 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 Ward 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 Ward pursuant to
Subsection 5.4, if Manager is not then in default of this Agreement; or
19
<PAGE>
b. upon termination of this Agreement with respect to Ward, pursuant to
Section 5.3, if Manager pays Ward, an amount calculated as the difference
between Four Hundred Thousand Canadian Dollars (Cdn. $400,000) and the
amount of Ward's Return credited to Ward to the date of termination.
4.5 Manager will have, upon termination of this Agreement with respect to
Pike 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 Pike 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 Pike, pursuant to
Section 5.3, if Manager pays Pike, an amount calculated as the difference
between Four Hundred Thousand Canadian Dollars (Cdn. $400,000) and the
amount of Pike's Return credited to Pike 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,
20
<PAGE>
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
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:
21
<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
22
<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 Manager, on such terms as such
Joint Venturer may deem
23
<PAGE>
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 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.
24
<PAGE>
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 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
25
<PAGE>
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 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
26
<PAGE>
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:
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
27
<PAGE>
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
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
28
<PAGE>
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.
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
29
<PAGE>
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.
30
<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/ Milan Carnogursky
--------------------------------------------
Milan Carnogursky, President CEO
--------------------------------------------
(Print Name and Title)
/s/ G. Kingsley Ward
--------------------------------------------
G. Kingsley Ward
/s/ Barry Pike
--------------------------------------------
Barry Pike
31
<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
31
<PAGE>
BARRY PIKE
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 Curtis Bartlett as
agent on behalf of G. Kingsley Ward and Barry Pike 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., G.
Kingsley Ward and Barry Pike;
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;
2
<PAGE>
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 Pike 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 Pike, 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. "Pike" means Barry Pike 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.
3
<PAGE>
ARTICLE 2
PROMISE TO PAY
2.1 Pike, 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 Pike 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;
4
<PAGE>
c. Interest accrued and unpaid at the end of each year, will be paid annually
within thirty (30) days of receipt by Pike 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 Pike to pay interest at the rate provided herein will not
merge in any judgment in respect of any obligation of Pike 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
Pike hereby assigns the Product Proceeds to the Holder as security for
payment of Pike'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.
5
<PAGE>
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
Pike, 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 Pike of obligations
herein contained, Pike 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 Pike 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, Pike will not, and Pike 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.
5.2 FURTHER ASSURANCES
Pike 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
6
<PAGE>
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 Pike
cancel and discharge the lien of this Note and execute and deliver to Pike
such deeds or other instruments as will be requisite to discharge the lien
hereof and to reconvey to Pike any part of the Purchased Assets subject to
the lien of this Note and to release Pike 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 Pike 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, Pike 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 PIKE'S REPRESENTATIONS AND WARRANTIES
Pike hereby represents and warrants to the Holder for the benefit of the
Holder as follows:
a. Pike 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;
7
<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 Pike is subject or
constitute or result in a default under any agreement, contract or
commitment to which Pike 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 Pike 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 Pike with any such governmental authority,
regulatory body or court is required in order for Pike:
i. to incur the obligations expressed to be incurred by Pike in or
pursuant to this Note;
ii. to execute and deliver all documents and instruments to be delivered
by Pike 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 Pike
in accordance with its terms.
ARTICLE 7
COVENANTS OF PIKE
Pike hereby covenants and agrees with the Holder for the benefit of the
Holder as follows:
7.1 TO PAY PRINCIPAL AND INTEREST
Pike will duly and punctually pay or cause to be paid to the Holder the
Principal Sum and accrued interest thereon and
8
<PAGE>
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
Pike 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 Pike 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 Pike of any material provision of this Note;
c. any representation or warranty made by Pike herein or in any financial
statements, reports or other documents supplied to the Holder by Pike
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 Pike in good
faith;
provided that Pike will not have remedied such default within thirty (30)
days (ten (10) days in the case of a monetary default) following receipt by
Pike 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 Pike will immediately pay
to the Holder all indebtedness of Pike owing to it pursuant to this Note.
8.2 REMEDIES
If an Event of Default has occurred and is continuing and Pike 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
9
<PAGE>
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 Pike 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 Pike that all of its recourse rights, powers and
remedies for payment of any obligations of Pike 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 Pike 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:
10
<PAGE>
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 Pike under this Note
allocated firstly as to interest and the remainder as to principal;
and
iii. the balance to Pike;
c. Any balance owing by Pike under this Note after the allocation of the Sale
Proceeds will be forgiven by the Holder and Pike 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, Pike, 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, Pike 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 Pike 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 Pike 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 Pike will be binding unless it is in
writing. The inspection or approval by the Holder or Pike 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
11
<PAGE>
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
Pike 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
12
<PAGE>
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 Pike and the
Holder as if they had originally signed one copy of this Note.
12.4 ASSIGNMENT
Pike 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 Pike 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 Pike and will be binding upon the Holder and Pike. The expressions
the "Holder" and the "Pike" as used herein will include the Holder's and
Pike'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
13
<PAGE>
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 Pike and the Holder have duly executed these presents
under the hands of their proper officers in that behalf.
PIKE: /s/ Barry Pike
---------------------------------------
Barry Pike
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
---------------------------------
Milan Carnogursky
President, Chairman and
Chief Executive Officer
14
<PAGE>
G. KINGSLEY WARD
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 Curtis Bartlett as
agent on behalf of G. Kingsley Ward and Barry Pike 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., G.
Kingsley Ward and Barry Pike;
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;
2
<PAGE>
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 Ward 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 Ward, 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. "Ward" means G. Kingsley Ward 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
3
<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 Ward, 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 Ward 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;
4
<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 Ward 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 Ward to pay interest at the rate provided herein will not
merge in any judgment in respect of any obligation of Ward 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
Ward hereby assigns the Product Proceeds to the Holder as security for
payment of Ward'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
5
<PAGE>
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
Ward, 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 Ward of obligations
herein contained, Ward 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 Ward 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, Ward will not, and Ward 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.
5.2 FURTHER ASSURANCES
Ward 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
6
<PAGE>
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 Ward
cancel and discharge the lien of this Note and execute and deliver to Ward
such deeds or other instruments as will be requisite to discharge the lien
hereof and to reconvey to Ward any part of the Purchased Assets subject to
the lien of this Note and to release Ward 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 Ward 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, Ward 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 WARD'S REPRESENTATIONS AND WARRANTIES
Ward hereby represents and warrants to the Holder for the benefit of the
Holder as follows:
7
<PAGE>
a. Ward 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 Ward is subject or
constitute or result in a default under any agreement, contract or
commitment to which Ward 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 Ward 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 Ward with any such governmental authority,
regulatory body or court is required in order for Ward:
i. to incur the obligations expressed to be incurred by Ward in or
pursuant to this Note;
ii. to execute and deliver all documents and instruments to be delivered
by Ward 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 Ward
in accordance with its terms.
ARTICLE 7
COVENANTS OF WARD
Ward hereby covenants and agrees with the Holder for the benefit of the
Holder as follows:
8
<PAGE>
7.1 TO PAY PRINCIPAL AND INTEREST
Ward 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
Ward 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 Ward 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 Ward of any material provision of this Note;
c. any representation or warranty made by Ward herein or in any financial
statements, reports or other documents supplied to the Holder by Ward
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 Ward in good
faith;
provided that Ward will not have remedied such default within thirty (30)
days (ten (10) days in the case of a monetary default) following receipt by
Ward 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 Ward will immediately pay
to the Holder all indebtedness of Ward owing to it pursuant to this Note.
8.2 REMEDIES
9
<PAGE>
If an Event of Default has occurred and is continuing and Ward 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 Ward 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 Ward that all of its recourse rights, powers and
remedies for payment of any obligations of Ward 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 Ward 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;
10
<PAGE>
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 Ward under this Note
allocated firstly as to interest and the remainder as to principal;
and
iii. the balance to Ward;
c. Any balance owing by Ward under this Note after the allocation of the Sale
Proceeds will be forgiven by the Holder and Ward 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, Ward, 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, Ward 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 Ward 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 Ward 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 Ward will be binding unless it is in
writing. The inspection or approval by the
11
<PAGE>
Holder or Ward 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
Ward 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
12
<PAGE>
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 Ward and the
Holder as if they had originally signed one copy of this Note.
12.4 ASSIGNMENT
Ward 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 Ward 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 Ward and will be binding upon the Holder and Ward. The expressions
the "Holder" and the "Ward" as used herein will include the Holder's and
Ward'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
13
<PAGE>
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 Ward and the Holder have duly executed these presents
under the hands of their proper officers in that behalf.
WARD: /s/ G. Kingsley Ward
-------------------------------------
G. Kingsley Ward
HOLDER: ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
----------------------------------
Milan Carnogursky
President, Chairman and
Chief Executive Officer
14
<PAGE>
SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of this 22nd day of December, 1997, is by
and AMONG:
BURNET, DUCKWORTH & PALMER, having a business address at
First Canadian Centre 1400, 350 7th Avenue S.W. Calgary,
Alberta T2P 3N9 Canada, Fax: (403) 260-0332 ("Security
Agent")
OF THE FIRST PART;
- and -
G. KINGSLEY WARD ("Ward") and BARRY PIKE ("Pike"), both
individuals, as joint venturers (each with an undivided 50%
interest) utilizing a business address at #700, 300 5th
S.W. Street, 7th Floor, Calgary Alberta, T2P 3C4,
Fax: (403) 215-5445 (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 "Ward
Note" and the "Pike Note"), each secured by an undivided 50% interest in
the Purchased Assets;
<PAGE>
D. Pursuant to the terms of the Ward Note, Ward 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 Ward Note; and
pursuant to the terms of the Pike Note, Pike 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 Pike Note;
E. In connection with the Ward Note and the Pike 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 "Ward Note" means such Note issued by Ward, and "Pike Note"
means such Note issued by Pike;
(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
(a) The terms "this Agreement", "hereof", "hereunder" and similar
expressions refer
<PAGE>
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.
ARTICLE 3
<PAGE>
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
<PAGE>
Assets (each as to an undivided 50% interest), subject only to the security
interests created pursuant to the Note in favour of 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
<PAGE>
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, 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.
<PAGE>
ARTICLE 6
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,
<PAGE>
return receipt requested, 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 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:
#700, 300 5th S.W. Street, 7th Floor
Calgary, Alberta T2P 3C4
Fax No. (403) 215-5445
If to Security Agent to: Burnet, Duckworth & Palmer
First Canadian Centre 1400
350 7th Avenue SW
Calgary, Alberta T2P 3N9
Attention: G.Dino DeLuca
Fax No: (403) 260-0332
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
<PAGE>
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 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.
<PAGE>
ARTICLE 14
GENERAL
14.1 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.
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
<PAGE>
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
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/ G. Kingsley Ward
-----------------------------------------
G. Kingsley Ward
Witness: /s/ June Hamette
Witness: /s/ Cheryl Ostilly
/s/ Barry Pike
-----------------------------------------
Barry Pike
SECURITY AGENT: BURNET, DUCKWORTH & PALMER
By: /s/ G. Dino Deluca
-----------------------------------------
G. Dino Deluca, Partner
-----------------------------------------
(Print name and Title)
<PAGE>
SCHEDULE A
RELEASE NOTICE
Burnet, Duckworth & Palmer
First Canadian Centre 1400
350 7th Avenue SW
Calgary, Alberta T2P 3N9 Canada
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 G.
Kingsley Ward and Barry Pike as joint venturers, each with an undivided 50%
interest, ("The Joint Venturers"), Alya International, Inc. ("Alya") and
Burnet, Duckworth & Palmer ("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: G. Kingsley Ward
Dated:
---------------------------------
Barry Pike
<PAGE>
APPLICATION SOFTWARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 30th day of December 1998 (the "Effective
Date").
BETWEEN:
VIDEO TECHNOLOGY SYSTEMS, INC., an Arizona corporation, having a
business address at 4303 East Hamblin Drive, Phoenix, AZ 85024 ("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
<PAGE>
technical specifications more particularly described in Schedule A to this
Agreement together with Enhancements;
c. "Asset Valuation Report" means the software valuation prepared for
Purchaser by American Appraisal Canada, Inc.;
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;
2
<PAGE>
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 VTS 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";
3
<PAGE>
m. "Letter of Representation" means a letter from Alya to American Appraisal
Canada, Inc. 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;
ii. the benefit of all agreements necessary for the operation of, or the
realization of the benefit from, the Application Software within the
4
<PAGE>
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 Laurie Miller, 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 Neil
Enright and evidenced by stock certificate number 001.
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,
5
<PAGE>
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 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.
6
<PAGE>
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 hereunder, unless such Annual Payment(s) are not paid in full on
or before December 31, 2010.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
7
<PAGE>
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;
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;
8
<PAGE>
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;
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
9
<PAGE>
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 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;
10
<PAGE>
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.
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
11
<PAGE>
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 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
12
<PAGE>
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;
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
13
<PAGE>
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, 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
14
<PAGE>
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;
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;
15
<PAGE>
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 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
16
<PAGE>
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 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
17
<PAGE>
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 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
18
<PAGE>
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.
By: /s/ Milan Carnogursky
------------------------------------
Milan Carnogursky
Chairman of the Board
PURCHASER: VIDEO TECHNOLOGY SYSTEMS, INC.
By: /s/ Shawn Johnson
------------------------------------
Shawn Johnson
Vice-President
19
<PAGE>
AMENDMENT NO. 1
This AMENDMENT NO. 1 is entered into this 24th day of February, 1999, by
and between Video Technology Systems, Inc., an Arizona corporation ("VTS"),
and Alya International, Inc., a Delaware corporation ("Alya"), and amends
that certain Application Software Purchase Agreement dated December 30, 1998,
by and between VTS and Alya (the "Purchase Agreement"), and that certain
Management and Marketing Agreement, dated December 30, 1998, by and between
VTS 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 16, 1999, by wire transfer;
c. U.S. $1,875,000 on or before December 31, 1999, by wire transfer;
and
d. U.S. $2,500,000 on or before December 31 of each year, commencing
December 31, 2000 and continuing through December 31, 2010."
<PAGE>
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. VIDEO TECHNOLOGY SYSTEMS, INC.
By: /s/ M. Carnogursky By: /s/ Neil Enright
--------------------------------- -----------------------------------
M. CARNOGURSKY CHAIRMAN NEIL ENRIGHT, PRESIDENT
- ------------------------------------ --------------------------------------
(Print Name and Title) (Print Name and Title)
2
<PAGE>
MANAGEMENT AND MARKETING AGREEMENT
THIS AGREEMENT made as of December 30, 1998.
BETWEEN:
VIDEO TECHNOLOGY SYSTEMS, INC., an Arizona corporation, having a
business address at 4303 East Hamblin Drive, Phoenix, AZ 85027, FAX (602)
585-4287; (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
<PAGE>
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,
2
<PAGE>
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;
3
<PAGE>
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,
4
<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:
5
<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 found by any Customer will be provided by
Manager pursuant to the terms of its support services
6
<PAGE>
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:
i. automobile liability insurance on all vehicles used in connection with
this Agreement. In respect of
7
<PAGE>
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
a. Manager will distribute, annually, the Net Revenues for the preceding year
in the following order of priority:
8
<PAGE>
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 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
9
<PAGE>
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
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);
10
<PAGE>
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
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
11
<PAGE>
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
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
12
<PAGE>
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 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
13
<PAGE>
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 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
14
<PAGE>
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 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
15
<PAGE>
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
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
16
<PAGE>
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, 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
17
<PAGE>
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.
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;
18
<PAGE>
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
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
19
<PAGE>
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.
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:
20
<PAGE>
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.
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
21
<PAGE>
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 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
22
<PAGE>
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
VIDEO TECHNOLOGY SYSTEMS, INC.
By: /s/ Shawn Johnson
-------------------------------------------
Shawn Johnson
Vice-President
23
<PAGE>
1
SECURITY AGENT AGREEMENT
THIS AGREEMENT made as of the 31st day of December, 1998, is by and
AMONG:
LAURIE A. MILLER, Attorney at Law, having a business address at
1735 East Bayshore Road, Suite 29A, Redwood City, CA 94063
("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
VIDEO TECHNOLOGY SYSTEMS, INC., a corporation incorporated
pursuant to the laws of Arizona, having a business address at 4303
Hamblin Drive, Phoenix, Arizona, 85024 ("VTS").
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 VTS (the
"Purchase Agreement"), VTS purchased the Purchased Assets, as more
particularly described in Schedule A to the Purchase Agreement;
B. Pursuant to the terms of the Purchase Agreement, VTS caused
Neil Enright to grant a security interest in the Shares, as defined in the
Purchase Agreement, to ALYA as a means of securing performance of VTS'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 VTS
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, VTS, 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:
<PAGE>
2
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, VTS shall deliver,
or cause to be delivered, to the Security Agent, the Shares, duly endorsed in
blank, as security for VTS'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 VTS. The Security Agent shall deliver all Shares which have
been deposited with the Security Agent to VTS upon the occurrence of either of
the following events:
a. ALYA and VTS deliver a Release Notice, executed by each of ALYA and VTS,
to the Security Agent; or
b. Subject to compliance with Section 3.2 hereof, the Security Agent has
received from VTS 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 VTS; and
iii. specific instructions from VTS for delivery of the Shares.
3.2 PROCEDURE FOR DELIVERY TO VTS .
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 VTS's entitlement to the Shares be submitted to
arbitration in accordance with the provisions of this Agreement;
<PAGE>
3
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 VTS
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. VTS and ALYA deliver a Release Notice executed by each of VTS 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 VTS 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 VTS a copy of all such
documents received by the Security Agent pursuant to Section 3.3 b. VTS
shall have twenty (20) days from the date the Security Agent shall have
delivered the documents to VTS 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;
b. If VTS 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 VTS, the Security Agent has not received written notice
of VTS'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 VTS each hereby recognize and acknowledge that Neil Enright
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, Neil Enright shall retain the
exclusive rights to vote the Shares, elect directors of VTS, and otherwise
control VTS, unless and/or until the Shares may be released to Alya pursuant to
Section 3.4 hereof.
<PAGE>
4
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 VTS 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 VTS 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 VTS, 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, VTS and Security
Agent. The Security Agent may resign as Security Agent at any time upon 30
days' prior written notice to VTS and ALYA. VTS 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 VTS 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 VTS. 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.
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, VTS 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.
<PAGE>
5
5.7 INDEMNITY AND LIABILITY. VTS, 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 VTS
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 VTS acknowledge that (a) the Security Agent or
her employees, agents or associates have provided counsel to VTS 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 VTS
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 VTS 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.
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 VTS to:
Video Technology Systems, Inc.
4303 Hamblin Drive
Phoenix, Arizona
U.S.A. 85024
Attention: President
Fax No.: (602) 595-1746
<PAGE>
6
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:
Laurie A. Miller
Attorney at Law
1735 E. Bayshore Road, Ste. 29A
Redwood City, CA 94063
Fax No. (650) 361-8286
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.
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 VTS or ALYA, and in any event VTS and ALYA
will notify the Security Agent of the name of any assignee.
<PAGE>
7
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 Neil
Enright 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 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.
<PAGE>
8
IN WITNESS WHEREOF the undersigned have executed this Security
Agent Agreement as of the date first set forth above.
VIDEO TECHNOLOGY SYSTEMS, INC.
By: /s/ Shawn Johnson
--------------------------
Shawn Johnson, Vice-President
- -----------------------------
(Print Name and Title)
ALYA INTERNATIONAL, INC.
By: /s/ Milan Carnogursky
--------------------------
Milan Carnogursky, Chairman
- -----------------------------
(Print Name and Title)
- -----------------------------
LAURIE A. MILLER
THE UNDERSIGNED hereby grants a security interest in the Shares to
ALYA to secure VTS's obligations under the Purchase Agreement.. The
undersigned will promptly deliver to Security Agent Certificate Number 1 in
the name of Neil Enright, evidencing his ownership of 100 shares of Common
Stock of VTS. The undersigned hereby consents to the terms and conditions
set forth herein.
Dated: December 31, 1998 /s/ Neil Enright
-----------------------------
Neil Enright
<PAGE>
9
SCHEDULE "A" to the Security Agent Agreement dated December 31, 1998
RELEASE NOTICE
Laurie A. Miller
1735 E. Bayshore Road, Ste. 29A
Redwood City, CA 94063
RE: SECURITY AGENT AGREEMENT
Dear Ms. Miller,
This Release Notice is being delivered pursuant to the Security
Agreement dated as of December 31, 1998 ("Security Agent Agreement"), among
Video Technology Systems, Inc. ("VTS"), 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 VTS or ALYA
in its capacity as Security Agent to [______________].
Dated: VIDEO TECHNOLOGY SYSTEMS, INC.
--------
By: /s/ Shawn Johnson
------------------------------------
Shawn Johnson, Vice-President
---------------------------------------
(Print Name and Title)
Dated: ALYA INTERNATIONAL, INC.
--------
By: /s/ M Carnogursky
------------------------------------
M CARNOGURSKY, CHAIRMAN
---------------------------------------
(Print Name and Title)
