<PAGE> 1
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON MARCH 15, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLONETWORK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
ONTARIO, CANADA 573407 94-322947
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OF ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NUMBER)
</TABLE>
260 KING STREET EAST
TORONTO, ONTARIO, CANADA
M5A 1K3
(416) 369-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
REGINA BRADY
FLONETWORK US, INC.
391 EAST PUTNAM AVENUE
COS COB, CONNECTICUT 06807-2501
(203) 552-6841
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
JOHN A. BURGESS, ESQ. CHRISTOPHER A. HEWAT, ESQ. KEVIN J. LAVIN, ESQ. JOHN STEVENS, ESQ.
HALE AND DORR LLP BLAKE, CASSELS & GRAYDON LLP BROBECK, PHLEGER & OSLER, HOSKIN & HARCOURT LLP
60 STATE STREET BOX 25, COMMERCE COURT WEST HARRISON LLP 1 FIRST CANADIAN PLACE
BOSTON, MASSACHUSETTS TORONTO, ONTARIO 701 PENNSYLVANIA AVE., NW TORONTO, ONTARIO
02109 CANADA M5L 1A9 SUITE 220 CANADA M5X 1B8
(617) 526-6000 (416) 863-2400 WASHINGTON, DC 20004 (416) 862-6666
(202) 220-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS 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 of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE(1)(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares................... 4,312,500 $12.00 $51,750,000 $13,662
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 562,500 common shares to be sold upon the exercise of underwriters'
over-allotment option. See "Underwriting."
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c).
------------------------
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 SUCH SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
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 WE ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 15, 2000
PROSPECTUS
3,750,000 SHARES
[FLONETWORK LOGO]
COMMON SHARES
This is an initial public offering of our common shares. We expect that the
public offering price of our common shares will be between $10.00 and $12.00 per
share.
We have applied to have our common shares approved for quotation and
trading on the Nasdaq National Market under the symbol "FNWK."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to FloNetwork.................... $ $
</TABLE>
The underwriters may also purchase up to an additional 562,500 of common
shares from us to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
-------------------------
SG COWEN
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
WILLIAM BLAIR & COMPANY
, 2000
<PAGE> 3
Description of inside front cover:
Centered at the top of the page is the heading "flonetwork," with the letters
"flo" in orange and the remaining letters in black. Under this heading is the
phrase "the future of direct marketing" in gray.
In the center of the page are four computer screen shots. Beneath the screen
shots is a stick figure sitting at a desk working at a computer. Below the stick
figure is the text "The clients identified in the screenshots above represent
our four largest clients based on number of e-mails deployed for the five months
ended December 31, 1999. Each accounted for between 2% and 17% of our total
revenue for the five months ended December 31, 1999." Coming from the rear of
the computer is a blue line with the words "Permission-based e-mail
communications" in white. Above the blue line are three images of envelopes.
Above the three envelopes are the words "Promotions & Discounts," "Newsletters"
and "Product Releases." Below the blue line are also three images of envelopes.
Below the three envelopes are the words "Advertising & Marketing," "Alerts &
Reminders" and "Market Research."
Description of two-page graphical foldout:
This two-page layout has a heading flush right in gray, reading "the future of
direct marketing." Beneath this heading is an orange line that runs
horizontally across the page. Beneath this line is the heading "flonetwork."
This heading is flush left, with the letters "flo" in orange and the remaining
letters in black.
Underneath these headings is a large box containing seven smaller boxes in a
horizontal line. Above these boxes is the heading "FloNetwork Technology &
Services" in orange. Each box contains an image and has text at the bottom. The
first box features a stick figure examining a poster of a rocket. The text at
the bottom of this box reads "(1) DESIGN." The second box features a stick
figure applying a blow torch to the base of a rocket. The text at the bottom
reads "(2) BUILD." The third box features a stick figure holding a remote
control and has a rocket taking off in the background. The text at the bottom
reads "TEST (3)." The fourth box features a stick figure standing behind a
podium and waving. The text at the bottom reads "(4) DEPLOY." The fifth box
depicts a stick figure looking at a radar screen. The text at the bottom reads
"(5) TRACK." The sixth box features a stick figure reading a data printout. The
text at the bottom reads "(6) REPORT." The seventh box features three stick
figures sitting at a table observing a fourth stick figure giving a
presentation. The text at the bottom reads "(7) ANALYZE." Underneath these boxes
is a series of connected images. From left to right, the images are as follows.
The first image consists of two screen monitors featuring stick figures. The
first television monitor reads "E-marketing Services Consulting." The second
reads "Client Services & Support." The monitors are connected to an image of a
stick figure wearing a hat and carrying a pitchfork. Under this image is the
text "FloServer Farms." Connected to this image is an image of a stick figure
manipulating the controls of a machine. Under this image is the text "Database
Warehouse & Network." Connected to this image is an image of a flying stick
figure carrying an envelope. Above this image is the text "High Speed Internet
Connection." Originating from the large box are four images. The first image is
connected by an orange line to the right hand side of the large box. This image
consists of three computer screen shots tiled diagonally and a vertical list
reading "Trackable Behaviors," "View Message," "Click-Through," "Request Info,"
"Buy Product," "Pass-Along" and "Unsubscribe." Above this image is the heading
"Tracking & Reporting."
The second image is connected by an orange line to the lower right hand corner
of the large box. This image is of an envelope. Next to the image is the text
"Secure, Reliable, High-Volume E-mail Messaging."
The third image is connected by an orange line to the base of the large box.
This image is an orange cloud with the text "Internet" inside the cloud in
black.
The fourth image is connected to the third image by an orange line and sits to
the left of the third image. This image consists of a stick figure sitting at a
desk working on a computer. Above the image is the text "Direct Client Access
to FloNetwork Technology & Services through the Internet."
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Use of Proceeds..................... 19
Dividend Policy..................... 19
Presentation of Financial
Information....................... 19
Exchange Rate Information........... 20
Forward-Looking Statements; Market
Data.............................. 20
Capitalization...................... 21
Dilution............................ 23
Selected Consolidated Financial
Data.............................. 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 26
Business............................ 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management.......................... 50
Principal Shareholders.............. 59
Related Transactions................ 62
Description of Share Capital........ 64
Shares Eligible for Future Sale..... 67
Income Tax Consequences............. 69
Underwriting........................ 74
Legal Matters....................... 76
Experts............................. 76
Where You Can Find More
Information....................... 76
Index to Consolidated Financial
Statements........................ F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON SHARES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON SHARES.
------------------------
Until , 2000, which is 25 days after the date of this
prospectus, all dealers that buy, sell or trade our common shares, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligations to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
------------------------
flonetwork(TM) is our trademark. All other trademarks or trade names
referred to in this prospectus are the property of their respective owners.
i
<PAGE> 5
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 6
PROSPECTUS SUMMARY
The following is a summary of key aspects of this offering. You should
carefully read the more detailed information contained elsewhere in this
prospectus, including the consolidated financial statements and related notes.
Our business involves significant risks. You should carefully consider the
information under the heading "Risk Factors."
FLONETWORK INC.
We provide Internet direct marketing and communications services. Our
technology infrastructure, software and services enable businesses to market to
and communicate with their customers through personalized and targeted e-mail
messaging campaigns. Our clients access our technology and services, and retain
control of their e-mail campaigns, through the Internet. Our technology platform
is comprised of specialized hardware and software applications which we host for
clients who wish to outsource any or all aspects of e-mail messaging. We also
provide our clients with a full range of Internet direct marketing and
communications services, or e-marketing services, on an outsourced basis to
assist our clients in the development, execution and assessment of their e-mail
campaigns.
Currently, we manage all aspects of permission-based e-mail messaging
campaigns, including designing the campaigns, building and managing e-mail
address lists, testing and deploying the campaigns and tracking, reporting and
analyzing the results. Permission-based e-mail involves sending e-mails to
individuals who have given their prior consent by subscribing to receive e-mails
on specific topics. Our objective is to broaden our e-mail messaging services
and to develop other hosted direct marketing applications and services over the
Internet.
According to Forrester Research, total Internet marketing and advertising
expenditures in the United States will increase from $2.8 billion in 1999 to
$22.0 billion in 2002. We believe that a growing portion of these total
expenditures will be devoted to e-mail marketing because of the perceived cost
savings of e-mail marketing relative to traditional marketing methods and the
perceived effectiveness of e-mail marketing relative to other forms of Internet
marketing and Internet banner advertising. According to Forrester Research, the
market for e-mail marketing services will grow from $156.4 million in 1999 to
$4.8 billion in 2004. We believe that, as businesses rely more on e-mail
messaging to communicate with and market to existing and potential customers,
the costs and resources required to implement e-mail communication systems
in-house will lead many companies to seek an outsourced solution to their e-mail
messaging needs.
We have provided e-mail messaging services to over 100 clients since May
1998 when we began offering these services. To date, we have targeted clients in
the electronic publishing, or e-publishing, and electronic business, or
e-business, market segments because of their e-mail volume potential, the range
of e-mail services they require and their desire to outsource their e-mail
messaging needs. Our five largest clients based on volume of e-mails deployed in
the five months ended December 31, 1999 were CNET, barnesandnoble.com,
Continental Airlines, LowestFare.com and iPrint.com.
Our e-mail messaging services provide our clients with the following
benefits:
Lower Cost of Ownership and Quicker Time to Market. By outsourcing their
e-mail messaging functions to us, our clients eliminate the need to lease, buy
and continually upgrade bandwidth, hardware and software, and recruit and retain
systems engineers and skilled personnel to run and monitor their e-mail
messaging systems and campaigns. This also reduces the time it takes our clients
to begin their e-mail campaign deployment.
Reliable and Scalable High Volume Deployment. We have developed a network
of specialized servers and software, which have been engineered to handle high
volumes of personalized and trackable
1
<PAGE> 7
e-mail messages. This network has been designed to be reliable and secure and
easily-scaled to handle large volumes of e-mail messages.
Web-based Client Control. Our clients have access to our technology
infrastructure, software and services through the Internet, seven days a week,
24 hours a day, giving them control over their e-mail messaging campaigns by
enabling them to organize their campaigns, compose messages, personalize
messages, choose the time and pace of delivery, perform test campaigns and
evaluate reports while the campaign is being executed.
Personalization and Targeting. Our services enable our clients to
personalize messages to the needs and interests of particular recipients. Our
tracking capabilities enable us to collect data on customer behavior and
response rates and create a database of customer value information. This assists
our clients in more effectively targeting their audiences and evaluating the
effectiveness of their campaigns.
Instantaneous Reporting. Our continuously updated Internet-based reports
enable our clients to quickly evaluate the effectiveness of a campaign and to
make immediate adjustments to the campaign during execution. These reports
provide transactional and response statistics which allow our clients to
identify their most active customers and prospects.
We were incorporated in Toronto, Ontario in August 1993 under the name
Media Synergy Inc. and in November 1999 changed our name to FloNetwork Inc. Our
initial business involved the development, sale and licensing of multimedia
consumer software products. In 1998, we began developing and selling e-mail
messaging software applications and services. In January 1999, we discontinued
the development, sale and licensing of our multimedia consumer software products
and adopted a business strategy to offer e-mail messaging services over a hosted
technology platform. Our decision to shift our business focus to e-mail
messaging services was based on the opportunity that e-mail messaging presented
as compared to our multimedia consumer software products. Since we shifted our
focus to the e-mail messaging services business, our percentage of revenue
derived from e-mail messaging has increased from 42.1% of our total revenue for
the five month period ended December 31, 1998, to 99.8% for the five month
period ended December 31, 1999.
We operate in a highly competitive market. We have recently adopted our new
business model and have a limited operating history based on that model. We have
a history of losses and, as of December 31, 1999, had an accumulated deficit of
approximately $6.0 million. Our executive officers and directors and their
respective affiliates will own approximately 52.5% of our common shares after
this offering.
Our executive offices are located at 260 King Street East, Toronto,
Ontario, Canada, M5A 1K3, and our telephone number at that location is (416)
369-1100. Our web site address is www.flonetwork.com. Information contained on
our web site is not a part of this prospectus.
2
<PAGE> 8
THE OFFERING
Common shares offered by
FloNetwork......................... 3,750,000 shares
Common shares to be outstanding
after this offering................ 16,648,977 shares
Use of proceeds.................... For general corporate purposes, including
sales and marketing expansion, research
and development activities, capital
expenditures and working capital and
possible acquisitions. See "Use of
Proceeds."
Ownership of common shares by our
executive officers and directors
and their respective affiliates
after this offering.............. 52.5%
Proposed Nasdaq National Market
symbol............................. FNWK
The number of common shares to be outstanding after this offering is based
on the number of common shares outstanding as of December 31, 1999, which was
12,898,977, after giving effect to:
- the conversion upon the consummation of this offering of our outstanding
class A preferred shares, class B preferred shares, class C preferred
shares and class D preferred shares into an aggregate of 5,011,134 common
shares (assuming an initial public offering price of $11.00 per share);
- the issuance of 800,000 common shares concurrent with the consummation of
this offering upon the exercise of warrants outstanding as of December
31, 1999, at a weighted-average exercise price of approximately $0.85 per
share;
- the issuance of 874,870 common shares concurrent with the consummation of
this offering upon the exercise of an option pursuant to an Option
Agreement held by CNET, Inc. dated September 15, 1999 at a price of
approximately $6.23 per share (assuming an initial public offering price
of $11.00 per share); and
- a 1-for-5 reverse split of our common shares to be effected prior to the
consummation of this offering.
The number of common shares to be outstanding after this offering does not
include 1,723,302 common shares issuable upon the exercise of options
outstanding as of December 31, 1999 at a weighted-average exercise price of
approximately $1.54 per share, and an additional 1,427,336 common shares
available for issuance under our share incentive plan and employee share
purchase plan.
------------------------
ASSUMPTIONS THAT APPLY TO THIS PROSPECTUS
This offering is for 3,750,000 shares. The underwriters have a 30-day
option to purchase up to 562,500 additional shares from us to cover
over-allotments. Some of the disclosures in this prospectus would be different
if the underwriters exercise their over-allotment option.
Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option.
------------------------
All references in this prospectus to "we," "us," "ours" and "FloNetwork"
are intended to include FloNetwork Inc., FloNetwork US, Inc., our wholly-owned
subsidiary, and their predecessor businesses and entities.
3
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize our consolidated financial data. For a more
detailed explanation of our financial condition and operating results, you
should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the more detailed consolidated financial statements
and notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED JULY 31, DECEMBER 31,
---------------------------- ------------------------
1997 1998 1999 1998 1999
------ ------ ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue:
E-mail service revenue................ $ -- $ 14 $ 431 $ 93 $ 1,194
License and software revenue(1)....... 1,155 734 346 129 2
------ ------ ---------- ------ ----------
1,155 748 777 222 1,196
E-mail service cost of revenues......... -- -- 331 82 741
Total operating expenses.............. 1,306 1,527 2,597 857 2,629
Net loss attributable to common
shareholders.......................... $ (174) $ (811) $ (2,429) $ (768) $ (2,384)
====== ====== ========== ====== ==========
Net loss per common share:
Basic and diluted..................... $(0.05) $(0.22) $ (0.66) $(0.21) $ (0.58)
====== ====== ========== ====== ==========
Weighted average shares outstanding... 3,672 3,672 3,672 3,672 4,079
------ ------ ---------- ------ ----------
Pro forma net loss per common share:
Basic and diluted..................... $ (0.65) $ (0.25)
========== ==========
Weighted average shares outstanding... 7,533 8,543
---------- ----------
</TABLE>
- ---------------
(1) Costs related to the sale and licensing of our discontinued multimedia
consumer software products are operational in nature and were included in
sales and marketing expenses during the periods we generated revenue from
this business. These costs consisted primarily of nominal expenditures
related to the printing, shipping and distribution of our multimedia
consumer software products.
4
<PAGE> 10
The following table is a summary of our balance sheet at December 31, 1999:
- on an actual basis after giving effect to a 1-for-5 reverse split of our
common shares to be effected prior to the consummation of this offering;
- on a pro forma basis to give effect to (1) the conversion upon the
consummation of this offering of our outstanding class A, B, C and D
preferred shares into an aggregate of 5,011,134 common shares (assuming
an initial public offering price of $11.00 per share), (2) the issuance
of 800,000 common shares concurrent with the consummation of this
offering upon the exercise of warrants outstanding as of December 31,
1999 at a weighted average exercise price of approximately $0.85 per
share and the receipt of net proceeds of $678,670 from the sale thereof,
and (3) the issuance of 874,870 common shares concurrent with the
consummation of this offering upon the exercise of an option pursuant to
an Option Agreement held by CNET dated September 15, 1999 at a price of
approximately $6.23 per share and the receipt of net proceeds of
approximately $5.4 million from the sale thereof (assuming an initial
public offering price of $11.00 per share); and
- on a pro forma basis to give effect to the sale of 3,750,000 common
shares in this offering at an assumed initial public offering price of
$11.00 per share and the application of the estimated net proceeds from
the sale.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $13,538 $19,669 $57,032
Working capital....................................... 12,507 18,638 56,345
Total assets.......................................... 17,005 23,136 60,154
Redeemable convertible class A preferred shares....... 1,369 -- --
Total shareholders' equity............................ 13,507 21,007 58,370
</TABLE>
5
<PAGE> 11
RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common shares. Additional risks and uncertainties may also impair our
business operations. If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer and the
trading price of our common shares could decline, and you could lose all or part
of the money you paid to buy our common shares.
RISKS ASSOCIATED WITH OUR BUSINESS
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE BEEN OPERATING UNDER OUR
NEW BUSINESS MODEL SINCE JANUARY 1999.
Our operating history as an Internet direct marketing and communications
services provider is limited. From our inception in August 1993 through January
1999, our activities consisted primarily of the development, sale and licensing
of multimedia consumer software products. However, in 1998, we identified the
e-mail messaging opportunity and began developing e-mail messaging software
applications and services. In November 1998, we completed the development of
version 1.0 of this software, and, in January 1999, adopted a business strategy
to offer this software application on a hosted basis. We have since focused our
efforts on implementing and developing the technology to execute our current
business strategy, and have discontinued the development, sale and licensing of
our multimedia consumer software products. Our decision to shift our business
focus to e-mail messaging services was based on the opportunity that e-mail
messaging presented as compared to our multimedia consumer software products.
Because our operating history in this area is limited, our business is difficult
to evaluate. You must consider the challenges, risks and difficulties frequently
encountered by companies using new and unproven business models in new and
rapidly evolving markets. We cannot be certain that our business will be
successful or that we will successfully address these and other challenges,
risks and uncertainties.
WE HAVE A HISTORY OF LOSSES, WE EXPECT CONTINUING LOSSES AND WE MAY NEVER
ACHIEVE PROFITABILITY.
We have not generated enough revenue to cover the amounts we have spent to
create, launch and enhance our products and services. Our operating costs have
exceeded our revenue in all quarters since our inception. We incurred net losses
of approximately $6.0 million from August 4, 1993, the date of our inception,
through December 31, 1999.
We have invested heavily in technology and infrastructure development. In
order to continue to expand our business, we expect to continue to invest
heavily in technology and infrastructure development, including between $5.0
million and $10.0 million of the net proceeds of this offering for the expansion
of our e-mail deployment and client service infrastructure. We also plan to
devote a substantial portion of our financial and other resources to expand our
sales and marketing organizations, including between $10.0 million and $15.0
million of the net proceeds of this offering, and to expand our research and
development activities, including between $3.0 million and $5.0 million of the
net proceeds of this offering. We expect that our cost of revenues, sales and
marketing expenses, general and administrative expenses and research and
development expenses will continue to increase in absolute dollars over previous
levels and may increase as a percentage of revenue. As a result, we expect to
incur net losses and negative operating cash flow for the foreseeable future. If
we do not generate enough revenue to cover the amounts we spend, we may never
become profitable. In addition, if we do not achieve or sustain profitability in
the future, we may be unable to continue our operations.
6
<PAGE> 12
OUTSOURCED E-MAIL MESSAGING SERVICES MAY NOT ACHIEVE BROAD MARKET ACCEPTANCE OR
MARKET ACCEPTANCE MAY BE SLOWER THAN ANTICIPATED.
We anticipate that virtually all of our revenue and growth in the
foreseeable future will come from sales of our e-mail messaging services. Broad
market acceptance of these services is, therefore, critical to our future
financial performance. The market for outsourced e-mail messaging services is
new and rapidly evolving. If sufficient demand for our services does not
develop, we may not generate sufficient revenue to offset our costs and we may
never become profitable.
Our current and planned services are very different from the traditional
advertising, direct mail and information distribution methods that our clients
have historically used to attract new customers and to maintain and enhance
customer relationships. Businesses that have already invested substantial
resources in traditional or other methods of marketing and communications may be
reluctant to adopt new marketing strategies and methods. Consumers may also be
reluctant to alter established patterns of purchasing goods and services. These
factors may limit market acceptance of our existing and planned services, which
will depend on the acceptance and use of permission-based e-mail messaging
solutions.
WE MAY FAIL TO DEVELOP OR ENHANCE E-MAIL MESSAGING SERVICES.
We are developing and enhancing our e-mail messaging services to meet the
needs of our clients for customer acquisition, data management, customer
service, campaign management, personalization and content management. If we fail
to develop or enhance these services, we could lag behind our competitors in the
e-mail messaging business.
INTENSE COMPETITION EXISTS IN THE MARKET FOR E-MAIL MESSAGING SERVICES AND WE
EXPECT COMPETITION TO CONTINUE TO INTENSIFY.
Competition in the Internet direct marketing and communications services
industry and the e-mail messaging services industry is intense. If we do not
respond successfully to competitive pressures, we could lose market share. Our
ability to compete successfully in this market depends upon many factors within
and beyond our control, including:
- the performance, reliability, ease of use and price of services that we
or our competitors offer;
- market acceptance of outsourced, permission-based e-mail messaging
systems as compared to internally developed or site specific software and
hardware solutions;
- expanding the capacity of our technology infrastructure as our clients'
needs grow;
- timeliness and market acceptance of new services and enhancements to
existing services introduced by us or our competitors;
- consolidation among our existing clients, potential clients and
competitors;
- sales and marketing efforts by us or our competitors; and
- client service and support efforts by us or our competitors.
An increasing number of companies are entering our market. The market for
e-mail messaging services is still evolving and is subject to intense
competition as companies attempt to establish a market presence.
We compete with the information technology departments of current and
prospective clients who use in-house e-mail systems to manage and deliver e-mail
messaging campaigns. We also compete with companies providing outsourced
solutions including e-mail distribution list management, reporting and bounce
processing, e-mail consulting and campaign analysis. We compete directly with
e-mail service
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providers such as Digital Impact, Inc., Exactis.com, Inc., MessageMedia, Inc.,
Post Communications, Inc. and Responsys.com, Inc. A number of e-mail service
providers also offer customers the ability to purchase or license software to
internally handle their own e-mail marketing programs. A number of other
companies from related market segments could enter our market, including banner
ad networks, e-mail list brokers, Internet advertising and direct marketing
agencies, corporate e-mail services providers, Internet service providers, or
ISPs, and inbound e-mail management companies.
Many of our competitors have greater financial, marketing and other
resources than we have. We have in the past been and may in the future be forced
to reduce the prices of our services in order to compete, which could materially
and adversely affect our net revenue and gross margins. Additionally, our
competitors may develop or provide services that are superior to ours or that
achieve greater market acceptance. We expect competition to persist and to
intensify. Barriers to entry of this market are insubstantial and we may face
substantial and growing competitive pressures from companies in both the United
States and Canada or abroad.
We have generally entered into contracts with our clients for terms of one
to two years. Under these contracts, we commit to meet specified capacity and
campaign delivery standards for delivering our clients' e-mails on a fixed price
basis. However, these contracts generally do not provide for any minimum usage
commitment by our clients, nor do they provide for any penalty in the event that
our clients terminate the contract early. Our client contracts generally can be
terminated by clients on short notice. Accordingly, these contracts do not
constitute a significant barrier to our competitors' ability to acquire our
clients' business.
WE DERIVED 27.5% OF OUR REVENUE FROM TWO CLIENTS DURING THE FIVE-MONTH PERIOD
ENDED DECEMBER 31, 1999.
A small number of clients account for a large portion of our revenue. If we
lose existing clients and do not replace them with new clients, our revenue will
decrease. For the five months ended December 31, 1999, we received approximately
17.0% of our revenue from the sale of e-mail messaging services to CNET, Inc.
and approximately 10.5% of our revenue from the sale of e-mail messaging
services to barnesandnoble.com (under a contract with Impower). Our reliance on
a small number of clients could cause our revenue and profitability to fluctuate
from quarter to quarter based on the timing of the signing and expiration of
contracts. The loss of a major client could harm our business.
IF WE CANNOT EFFECTIVELY MANAGE THE ANTICIPATED EXPANSION OF OUR OPERATIONS AND
AUGMENT OUR TECHNICAL INFRASTRUCTURE, WE MAY NOT BE ABLE TO GROW OUR BUSINESS.
In order to grow, we intend to rapidly expand our operations, including our
sales and marketing organizations and our client service infrastructure, and
augment our technical infrastructure. This growth will place a significant
strain on our managerial, operational and financial resources. We may not be
able to manage effectively expansion of our operations and our technical
infrastructure may not be adequate to support our operations. Failure to
effectively manage this expansion could result in service disruptions and a loss
of competitive position and could adversely affect our ability to grow our
business.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN ORDER TO FUND OUR OPERATIONS, DEVELOP
NEW OR ENHANCED SERVICES AND RESPOND TO COMPETITIVE PRESSURES.
We may need to raise additional funds through the public or private sale of
our equity or debt securities or from other sources for the following purposes:
- to fund our operations;
- to develop new or enhanced services; or
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- to respond to competitive pressures.
We cannot assure you that additional funds will be available when we need
them, or that if funds are available, they will be available on terms favorable
to us or our shareholders. If we are not able to obtain sufficient funds or if
adequate funds are not available on terms acceptable to us, we may not be able
to develop or enhance our services. A lack of sufficient funds could also
prevent us from taking advantage of market opportunities or being able to
respond to competitive pressures. Any of these results could have a material
adverse effect on our business, financial condition and results of operations.
Our need to raise additional funds could also directly and adversely affect
your investment in FloNetwork in another way. When a company raises funds by
issuing common shares, the percentage ownership of the existing shareholders of
that company is reduced and diluted. If we raise funds in the future by issuing
additional common shares, you may experience significant dilution. Additionally,
certain types of equity securities that we may issue in the future could have
rights, preferences or privileges senior to your rights as a holder of our
common shares.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND MAY NOT MEET MARKET
EXPECTATIONS.
We believe that our operating results are likely to vary significantly from
period to period although our limited operating history as a provider of e-mail
messaging services is insufficient to predict the existence or magnitude of
these variations. These fluctuations may be due to a number of factors, many of
which are beyond our control. Some of the factors that may cause fluctuations
include the following:
- the fixed nature of many of our expenses, such as salaries and rent,
incurred in advance of revenue based on our expectation of future growth;
- the loss of a major client or the timing of the implementation of the
e-mail messaging campaigns of a major client; and
- the variability in our sales cycle, historically ranging from one to six
months.
Our revenue for the foreseeable future will remain dependent on the level
of e-mail messaging activity and the fees we charge for our services. This
future revenue is difficult to forecast. In addition, we plan to increase our
operating expenses significantly to increase our sales and marketing operations,
to upgrade and enhance our e-mail messaging services and to market and support
our services. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenue, then our
business, results of operations and financial condition would be materially and
adversely affected. This would likely affect the market price of our common
shares in a manner which may be unrelated to our long-term operating
performance.
In addition, our operating results will be affected by non-cash charges
associated with share-based compensation arrangements with employees. As a
result of our grant of options to purchase 823,282 common shares with exercise
prices below fair market value, we recorded, in the year ended December 31,
1999, unearned share-based compensation expense of $933,193 which we are
recognizing over the vesting period of the options, which is generally four
years.
Period-to-period comparisons of our operating results are not necessarily
indicative of our future operating or financial performance. Due to the factors
listed above and other factors, it is likely that our future operating results
will at times not meet the expectations of market analysts or investors. If our
operating results fail to meet these expectations, the price of our common
shares could decline.
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SEASONAL TRENDS MAY CAUSE OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE, WHICH
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES.
The traditional direct marketing industry has typically generated lower
revenues during the summer months and higher revenues during the calendar
year-end months. We believe our business may be affected by similar revenue
fluctuations, but our limited operating history is insufficient to predict the
existence or magnitude of these fluctuations. If we do experience these
fluctuations, market analysts and investors may not be able to predict our
quarterly or annual operating results, and if we fail to meet expectations of
market analysts or investors, the price of our common shares could decline.
WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS SUCCESSFULLY IF WE LOSE ANY MEMBER OF
OUR SENIOR MANAGEMENT TEAM.
We believe that our success will depend on the continued services of our
key senior management personnel, especially Eric Goodwin, our Chief Executive
Officer, Paul Chen, our Founder and Chief Technology Officer, Chris Keevill, our
President and Chief Operating Officer, Wilson Lee, our Chief Financial Officer,
Peter Evans, our Vice President Marketing, Mark Thorburn, our Vice President
Operations and Technology, Craig Rennick, our Vice President Sales, and Regina
Brady, our Vice President Partners and Strategic Development. The loss of any
member of our senior management team could negatively affect our future
operating results.
WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS SUCCESSFULLY IF OUR NEWLY FORMED
MANAGEMENT TEAM DOES NOT WORK EFFECTIVELY TOGETHER.
If our management team is unable to work together effectively, our business
could be adversely affected. The majority of our executive officers, including
Eric Goodwin, our Chief Executive Officer, and Chris Keevill, our President and
Chief Operating Officer, have joined us within the past twelve months.
Accordingly, our management team has had a limited time to work together and may
not be able to work together effectively.
OUR BUSINESS WILL SUFFER IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL HIGHLY
SKILLED PERSONNEL.
In order for us to succeed, we must identify, attract, retain and motivate
highly skilled technical, client service and managerial personnel. In
particular, our sales model relies on a high level of client service. As we seek
to grow our base of clients, we must add additional client service personnel to
handle the increased volume of e-mails and campaigns. Failure to retain and
attract necessary personnel will limit our ability to provide our service and
compete effectively. We plan to expand our operations significantly and we will
need to hire additional personnel as our business grows. Competition for
qualified personnel is intense. In particular, we have experienced difficulties
in hiring and retaining highly skilled technical, client services and managerial
personnel due to significant competition for experienced personnel in our
market. In 1999, we hired 71 persons and 22 persons terminated their employment
with us. In 2000, we expect to hire an additional 100 employees.
OUR FAILURE TO EXPAND OUR SALES AND MARKETING OPERATIONS MAY ADVERSELY AFFECT
OUR BUSINESS.
If we fail to expand our direct and indirect sales and marketing operations
substantially, our growth will be limited. We have recently expanded our sales
and marketing team from 16 persons on September 30, 1999 to 28 persons on
December 31, 1999 and plan to increase our sales and marketing team to over 50
persons by December 31, 2000. We might not be able to hire, train or retain the
kind and number of sales and marketing personnel we are targeting because
competition for qualified sales and marketing personnel is intense. If we do not
effectively expand our sales and marketing channel, or execute our marketing
plans, our business and results of operations could suffer.
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WE RELY ON INFORMAL RELATIONSHIPS WITH E-MARKETING COMPANIES THAT MAY NOT
CONTINUE IN THE FUTURE.
We have developed relationships with third parties, including
Directmedia.com (formerly known as Acxiom Direct Media), Grizzard List Services,
The Lake Group, Impower (formerly known as American List Counsel interactive)
and other e-marketing companies, that are in a position to influence their
customers' marketing strategies and tactics. We rely in part on these parties to
market our products and generate leads for our direct sales force. However, most
of these relationships are informal and are not exclusive, and the third party
generally is not obligated to market our services, provide leads or maintain its
relationship with us. If we fail to establish new relationships or maintain
existing relationships our business could suffer.
OUR BUSINESS IS SUBJECT TO CURRENCY FLUCTUATIONS THAT CAN ADVERSELY AFFECT OUR
OPERATING RESULTS.
Due to our multinational operations, our business is subject to
fluctuations based upon changes in the exchange rates between the currencies in
which we collect revenues, primarily the United States dollar, and pay expenses,
primarily the Canadian dollar. In particular, a decrease in the value of the
United States dollar relative to the Canadian dollar would negatively impact our
operating results.
RISKS ASSOCIATED WITH OUR TECHNOLOGY
IF WE FAIL TO UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO CONTINUE TO EXPAND OUR
BUSINESS AND TO ACCOMMODATE GROWING E-MAIL VOLUME, WE MAY EXPERIENCE SLOWER
RESPONSE TIMES OR SYSTEM FAILURES.
We must continue to expand our network infrastructure as the number of our
clients increases and as our clients' requirements change. If we do not add
sufficient capacity and adapt our network infrastructure to handle the growing
volume and complexity of e-mail messages, we could suffer slower response times
or system failures which could result in the loss of existing clients and the
failure to acquire new ones. In the past and prior to the recent expansion of
our network, we have occasionally experienced slower response times which have
not materially interfered with our business.
In addition, we may not be able to project the rate or timing of e-mail
volume increases accurately or to upgrade our systems and network infrastructure
to accommodate future volume levels. As we upgrade our network infrastructure to
increase the capacity available to our clients, we may encounter equipment or
software incompatibility which may cause delays in implementation. The expansion
of our network infrastructure will also require substantial financial,
operational and managerial resources. We may not be able to expand or adapt our
network infrastructure to meet the additional demands or the changing
requirements of our clients in a timely manner or at all.
IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 ISSUES, WE MAY INCUR SIGNIFICANT COSTS
AND OUR BUSINESS COULD SUFFER.
Failure of our internal computer systems, hardware or software systems
maintained by third parties or electronic data that we receive to operate
properly with regard to Year 2000 and thereafter could cause systems
interruptions or loss of data or could require us to incur significant
unanticipated expenses to remedy any problems. Despite the fact that many
computer systems are currently processing 21st century dates correctly we could
experience latent Year 2000 problems. If we are unable to address any latent
Year 2000 compliance issues, or if third party vendors, licensors and providers
of hardware, software and services with which we conduct business do not
successfully address these issues, we may experience service interruptions and a
loss of clients. Presently, we are unable to estimate reasonably the duration
and extent of any interruption that may be caused by any latent Year 2000
issues, or to quantify the effect it may have on our future revenue. As of the
date of this prospectus, we have not
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experienced any Year 2000 interruptions or other issues relating to our
software, computer technology or services or to the software, computer
technology or services of any third parties on which we rely.
WE MAY NOT COMPETE SUCCESSFULLY AND THE VALUE OF YOUR INVESTMENT MAY DECLINE IF
WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGY AND MARKET CONDITIONS.
If we do not successfully respond to technological developments in our
industry or are unable to respond in a cost-effective manner, we may experience
a loss of competitive position and lose market share. We operate in an industry
that is characterized by rapid technological change, frequent new service
introductions, changing client demands and the emergence of new industry
standards and practices that could render our existing services, proprietary
technology and systems obsolete. We must continually improve the performance,
features and reliability of our services, particularly in response to
competitive offerings. Our success depends, in part, on our ability to enhance
our existing services and to develop new services, functionality and technology
that address the increasingly sophisticated and varied needs of our current and
potential clients. Our failure to develop new services could lead to the loss of
existing clients. The development of our technology and necessary service
enhancements may entail significant technical and business risks and may require
substantial expenditures and lead-time. We may not be able to keep pace with the
latest technological developments or adapt our services to client requirements
or emerging industry standards.
IF WE ENCOUNTER SYSTEM FAILURE, WE MAY NOT BE ABLE TO PROVIDE ADEQUATE SERVICE
TO OUR CLIENTS AND OUR BUSINESS AND REPUTATION COULD BE DAMAGED.
Our ability to send e-mail messages successfully and provide acceptable
levels of client service largely depends on the efficient and uninterrupted
operation of our computer and communications hardware and network systems. All
of our data centers are located in or near Toronto, Ontario. As a result, if
there were to be a natural disaster affecting the Toronto area, our
communications systems could be disrupted and our business and reputation could
be harmed. We may not be able to relocate quickly under those circumstances.
Our clients have experienced some short-term interruptions in our e-mail
messaging services in the past due to network outages and internal system
failures which have slowed or delayed those clients' e-mail messaging campaigns.
Similar interruptions may occur from time to time in the future. Our revenue
depends on the number of clients who use our e-mail messaging services and the
number of e-mails we send. Our business will suffer if we experience frequent or
long-term system interruptions that result in the unavailability or reduced
performance of our systems or networks or that reduce our ability to provide
e-mail messaging services. Our systems and operations are also vulnerable to
damage or interruption from fire, flood, earthquake, power loss,
telecommunications failure, physical break-ins and similar events. If any of
these events occur, our business, results of operations and financial condition
could be adversely affected.
UNKNOWN SOFTWARE DEFECTS OR COMPUTER VIRUSES COULD DISRUPT OUR SERVICES, WHICH
COULD HARM OUR BUSINESS AND REPUTATION.
Our service offerings depend on complex software, which is both internally
developed and licensed from third parties. Complex software often contains
defects, particularly when first introduced or when new versions are released.
We also run the risk of having computer viruses infect our systems or the
systems of our clients. These defects and computer viruses could cause service
interruptions which could damage our reputation, increase our service costs,
cause us to lose revenue, delay market acceptance and divert our development
resources. Although we test the software in our network infrastructure, we may
not discover software defects or computer viruses that affect current or planned
services or enhancements until after they are deployed. Any unplanned
interruption of services as a result of
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software defects, computer viruses or otherwise may adversely affect our ability
to attract and retain clients and could damage our reputation.
IF OUR SECURITY SYSTEM IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER.
We currently retain highly confidential client information in secure
database servers. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to these database servers. If any
compromise or breach of security were to occur, it could harm our reputation and
expose us to possible liability. Any unauthorized access to our database servers
could result in the misappropriation of confidential client information or cause
interruptions in our services. It is also possible that one of our employees
could attempt to misuse confidential client information, exposing us to
liability. In addition, our reputation may be harmed if we lose client
information maintained in our database servers due to systems interruptions or
other events.
OUR DATA CENTERS ARE LOCATED AT FACILITIES PROVIDED BY THIRD PARTIES, AND IF
THESE PARTIES ARE UNABLE TO PROTECT OUR DATA CENTERS ADEQUATELY, OUR REPUTATION
MAY BE ADVERSELY AFFECTED AND OUR RELATIONSHIP WITH OUR CLIENTS MAY BE HARMED.
Our data centers, which are critical to our ongoing operations, are located
at three facilities operated by third parties. One facility is operated by UUNet
Canada Inc. and is located in Toronto, Ontario. The second facility is operated
by Teleglobe Communication Services Inc. and is located in Scarborough, Ontario.
The third facility is operated by RACO Remote Access Company, Limited and is
located in Toronto, Ontario. We rely on these parties to house our servers, set
up the required technology and provide Internet access. Our operations depend on
the ability of these parties to protect our data centers from technological
problems, system interruptions, computer viruses, physical damage, theft,
vandalism and other negative events. If these parties are unable to protect our
data centers adequately and our ability to deliver our services is interrupted,
our reputation may be adversely affected and our relationship with our clients
may be harmed.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT
OUR COMPETITIVE POSITION.
The misappropriation of our proprietary rights could harm our competitive
position and adversely affect our profitability. Trademarks, service marks,
trade secrets, copyrights and other proprietary rights, including our trademark
flonetwork(TM) and copyrights covering our software, are important to our
success and competitive position. Our efforts to protect our proprietary rights
in this intellectual property may be inadequate. Policing unauthorized use of
our intellectual property is difficult, and existing trade secret, copyright and
trademark laws offer only limited protection. Further, effective trademark,
copyright and trade secret protection may not be available in every country in
which our services are made available, or the expense of pursuing this
protection may be prohibitive. Finally, if we resort to legal proceedings to
enforce our proprietary rights, the proceedings could be burdensome and
expensive and the outcome could be uncertain.
OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS WHICH COULD
HARM OUR BUSINESS.
There is a substantial risk of litigation regarding intellectual property
rights in our industry. A successful claim against us of infringement with
respect to our products or technology and our failure or inability to license
the infringed or similar technology could harm our business. From time to time,
third parties have asserted and may assert exclusive patent, copyright,
trademark and other intellectual property rights to technologies and related
standards that are used in our business. We expect that our products may be
increasingly subject to third-party infringement claims as the number of our
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competitors grows. We cannot be certain that third parties will not make future
claims. Any claims, with or without merit, could:
- be time consuming to defend;
- result in costly litigation;
- divert management's attention and resources;
- cause delays in delivering services;
- require the payment of monetary damages which may be tripled if the
infringement is found to be willful;
- result in an injunction which would prohibit us from offering a
particular service; or
- require us to enter into royalty or licensing agreements, which if
required, may not be available on acceptable terms, if at all.
RISKS ASSOCIATED WITH THE INTERNET
OUR BUSINESS WILL SUFFER AND THE VALUE OF YOUR INVESTMENT WILL DECLINE IF THE
INTERNET DOES NOT ACHIEVE CONTINUING, WIDESPREAD ACCEPTANCE AS A MARKETING AND
COMMUNICATIONS MEDIUM.
Our future success will depend substantially upon our assumption that the
Internet will continue to evolve as an attractive platform for marketing and
communications applications. Most businesses and consumers have only limited
experience with the Internet as a marketing and communications medium. Our
revenue and profitability will be adversely affected if the Internet does not
achieve continuing, widespread acceptance as a marketing and communications
medium.
THE INTERNET INFRASTRUCTURE MAY NOT BE VIABLE OR CONTINUE TO GROW, WHICH WOULD
ADVERSELY AFFECT OUR BUSINESS.
Our success is largely dependent upon the viability and continued growth of
the Internet infrastructure. We depend on the Internet infrastructure to provide
the performance, capacity and reliability needed to support the growth of the
Internet. If the Internet infrastructure fails to support the growth of the
Internet, our business and results of operations would be adversely affected.
There have been regular failures in the Internet infrastructure, and there are
likely to be more in the future, which may undermine our potential clients'
confidence in the Internet as a viable commercial medium. If the Internet
continues to experience an increase in users, an increase in frequency of use or
an increase in the capacity requirements of users, we cannot assure you that the
Internet infrastructure will be able to support the demands placed upon it. Any
actual or perceived degradation in the performance of the Internet as a whole
could undermine the benefits of our services. In addition, the Internet could
lose its viability as a commercial medium due to delays in the development or
adoption of new technology required to accommodate increased levels of Internet
activity or due to increased government regulation. Changes in, or insufficient
availability of, telecommunications services to support the Internet could
result in slower response times and could hamper the use of the Internet
generally. Even if the required infrastructure, standards, protocols and
complementary products, services and facilities are developed, we may be
required to spend heavily to adapt our solutions to emerging technologies.
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WE DEPEND HEAVILY ON THIRD PARTIES TO PROVIDE US WITH INTERNET AND RELATED
TELECOMMUNICATIONS SERVICES.
We depend heavily on our third party providers of Internet and related
telecommunications services. Any interruption by our Internet and
telecommunications service providers would likely disrupt the operation of our
e-mail messaging services, causing a loss of revenue and a potential loss of
clients. In the past, we have experienced disruptions and delays in our e-mail
messaging services due to service disruption from those providers. These
companies may be unable to provide services to us without disruptions, at the
current cost or at all. The costs associated with a transition to a new service
provider would be substantial. We would have to reroute our computer systems and
telecommunications infrastructure to accommodate a new service provider. This
process would be both expensive and time consuming.
WE MAY HAVE LIABILITY FOR INTERNET CONTENT AND WE MAY NOT HAVE ADEQUATE
LIABILITY INSURANCE.
As a provider of e-mail messaging services, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement and other
claims based on the nature and content of the materials transmitted by e-mail.
We do not and cannot screen all of the content generated by our users and we
could be exposed to liability with respect to this content. Furthermore, some
foreign governments have enacted laws and regulations related to content
distributed over the Internet that are stricter than those currently in place in
the United States and Canada.
Any imposition of liability, particularly liability that is not covered by
our insurance or is in excess of our insurance coverage, could harm our
reputation and our operating results or could result in the imposition of
criminal penalties. Although we carry general liability and umbrella liability
insurance, our insurance may not cover claims of these types or may not be
adequate to indemnify us for all liability that may be imposed. A single claim
or multiple claims, if successfully asserted against us, could exceed the total
of our coverage limits or may not qualify for coverage under our insurance
policies as a result of coverage exclusions that are contained within these
policies. In this case, we may need to use capital contributed by our
shareholders to settle claims.
WE MAY LOSE CLIENTS AND OUR REPUTATION MAY SUFFER IF OUR E-MAIL MESSAGING
CAMPAIGNS ARE IDENTIFIED AS SPAM.
If we fail in our attempts to prevent the distribution of unsolicited bulk
e-mail, or spam, through our system, our business and reputation may be harmed.
Our ability to avoid the delivery of spam is dependent, in part, on the accuracy
of the lists of permission-based e-mail addresses and support documentation
provided to us by our clients. Additionally, spam may contain false e-mail
addresses or be generated by the use of false e-mail addresses. Our reputation
may be harmed if e-mail addresses with our domain names are used in this manner.
If we develop a reputation for spamming, or if ISPs receive a large number of
complaints regarding our e-mail messaging campaigns, ISPs may refuse to do
business with us or anti-spam advocates may target us. Any of these events may
cause clients to become dissatisfied with our services and terminate their use
of our services.
IF THE DELIVERY OF OUR E-MAILS IS LIMITED OR BLOCKED, THEN OUR CLIENTS MAY
DISCONTINUE THEIR USE OF OUR SERVICES.
Our business model relies on our ability to deliver e-mails to recipients
over the Internet through ISPs and to recipients in major corporations. America
Online, commonly referred to as AOL, and other ISPs are able to block unwanted
messages to their users. Although, to our knowledge, our e-mail messages have
never been ultimately identified as spam, we have had instances where our
messages have been temporarily blocked by ISPs at different times, and in one
instance our e-mails were deleted by AOL, because of the high volume of e-mail.
In those instances, we have been able to remove the
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temporary block promptly and successfully by advising the ISP that the e-mails
were delivered by us and were permission-based. We were subsequently able to
deploy the e-mail messaging campaigns through these ISPs. As the volume of
e-mail messages being delivered increases, ISPs may be more likely to block or
slow down e-mails to conserve their capacity and manage network traffic. If
these companies limit or halt the delivery of our e-mails, then our clients may
discontinue their use of our services.
INCREASED GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES MAY IMPAIR THE GROWTH
OF THE INTERNET AND DECREASE DEMAND FOR OUR SERVICES OR INCREASE OUR COST OF
DOING BUSINESS.
Although there are currently few laws and regulations directly applicable
to the Internet and commercial e-mail messaging services, the adoption of
additional laws or regulations may impair the growth of our business and the
Internet which could decrease the demand for our services and increase our cost
of doing business. A number of laws in both the United States and Canada have
been proposed involving the Internet, including laws addressing:
- user privacy;
- taxation;
- content;
- copyrights;
- characteristics and quality of services; and
- consumer protection.
In particular, a number of jurisdictions have already passed statutes
prohibiting spam. In addition, a number of statutes have been introduced in the
United States Congress and state legislatures to impose penalties for sending
unsolicited e-mails which, if passed, could impose additional restrictions on
our business. Also, a California court recently held that unsolicited e-mail
distribution is actionable as an illegal trespass for which the sender could be
liable for monetary damages.
Further, the growth and development of the market for on-line e-mail may
result in more stringent consumer protection laws that may impose additional
burdens on those companies conducting business on-line, including us. Our
business, operations and financial condition may be harmed if we were alleged to
have violated United States or Canadian federal, state, provincial or foreign
civil or criminal law, even if we could successfully defend these claims.
CHANGES IN TELECOMMUNICATIONS REGULATIONS COULD CAUSE REDUCED DEMAND FOR OUR
SERVICES.
Several telecommunications carriers are advocating that the United States
Federal Communications Commission regulate the Internet in the same manner as it
does other telecommunications services by imposing access fees on ISPs. These
regulations could substantially increase the costs of communicating on the
Internet. This, in turn, could slow the growth in Internet use and thereby
decrease the demand for our services.
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RISKS ASSOCIATED WITH THIS OFFERING
BECAUSE OUR EXECUTIVE OFFICERS, DIRECTORS AND EXISTING STOCKHOLDERS WHO
CURRENTLY OWN MORE THAN 5% OF OUR COMMON SHARES, AND THEIR RESPECTIVE
AFFILIATES, WILL HOLD APPROXIMATELY 73.5% OF OUR COMMON SHARES AFTER THIS
OFFERING, YOUR ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER
MATTERS REQUIRING SHAREHOLDER APPROVAL MAY BE LIMITED.
Following this offering, our executive officers, our directors and our
existing shareholders who currently own over five percent of our capital stock,
and their respective affiliates, will, in the aggregate, beneficially own
approximately 73.5% of our outstanding common shares (assuming an initial public
offering price of $11.00 per share). These shareholders, if they vote together,
will be able to influence significantly matters that our shareholders are
required to approve, including electing directors and approving significant
corporate transactions. This concentration of ownership could make it more
difficult for a third party to acquire control of us by, for example,
discouraging an unsolicited acquisition proposal or a proxy contest, the effect
of which may be to deprive our shareholders of a control premium that might
otherwise be realized in connection with an acquisition of our company.
FUTURE SALES OF OUR COMMON SHARES IN THE PUBLIC MARKET COULD CAUSE OUR SHARE
PRICE TO FALL AND DECREASE THE VALUE OF YOUR INVESTMENT.
The market price of our common shares could decline if our existing
shareholders sell substantial amounts of their common shares, including shares
issued upon the exercise of outstanding options, in the public market following
this offering. These sales might also make it more difficult for us to sell
equity securities in the future at a time and price that we deem appropriate.
Some shareholders possess registration rights, which entitle them, after the
date six months from the closing of this offering, to cause us to file a
registration statement under the Securities Act to cover the sale of their
shares. The exercise of these rights could adversely affect the market price of
our common shares. 11,466,513 shares will be eligible for resale 180 days after
this offering, including the common shares outstanding upon completion of this
offering and shares subject to options which are exercisable within 60 days of
December 1, 1999.
WE HAVE $2.3 MILLION IN UNAMORTIZED ACCRETION CHARGES RELATING TO OUR REDEEMABLE
CONVERTIBLE CLASS A PREFERRED SHARES WHICH WILL DECREASE OUR EARNINGS WHEN
RECOGNIZED.
The accretion of our redeemable convertible class A preferred shares
represents the difference between the carrying value of the class A preferred
shares of $856,000 and their liquidation value of $3.7 million. The carrying
value of the class A preferred shares equals the excess of the proceeds of the
sale of class A preferred shares over the amounts allocated to warrants issued
in connection with this sale. The difference of $2.8 million between the
carrying value and the liquidation value is being amortized over five years to
the fixed date of redemption, November 19, 2003. Upon completion of this
offering, the class A preferred shares will be converted into common shares and
the remaining unamortized accretion amount at that time will be charged to
operations which will decrease our earnings for the period in which this
offering is completed. As of December 31, 1999, the unamortized accretion amount
was $2.3 million. For additional information see the notes to our consolidated
financial statements.
WE HAVE ISSUED A SIGNIFICANT NUMBER OF OPTIONS WHICH HAVE EXERCISE PRICES
SIGNIFICANT LOWER THAN THE INITIAL PUBLIC OFFERING PRICE OF OUR COMMON SHARES,
WHICH WHEN EXERCISED, COULD SUBSTANTIALLY DILUTE YOUR OWNERSHIP IN OUR COMPANY.
During the year ended December 31, 1999, we issued options to employees to
purchase an aggregate of 715,100 common shares with a weighted average exercise
price of $2.57 per share and an option to an investor to purchase an aggregate
of 874,870 common shares with a weighted average
17
<PAGE> 23
exercise price of $6.23 per share. When these instruments are exercised, you
will suffer substantial dilution, in that the net tangible book value per share
of the common shares you acquired in this offering will decrease.
OUR BOARD OF DIRECTORS MAY ISSUE, WITHOUT SHAREHOLDER APPROVAL, ADDITIONAL
COMMON SHARES AND PREFERRED SHARES THAT HAVE RIGHTS AND PREFERENCES SUPERIOR TO
THOSE OF COMMON SHARES, WHICH ISSUANCES MAY DELAY OR PREVENT A CHANGE OF
CONTROL.
Our board of directors may issue an unlimited number of common shares and
an unlimited number of preferred shares, issuable in one or more series, without
any vote or action by our shareholders. If we issue any additional common shares
or any preferred shares, the percentage ownership of existing shareholders may
be reduced and diluted. In addition, our board of directors may determine the
price, rights, preferences, privileges and restrictions, including voting,
dividend and conversion rights, of the preferred shares and determine to whom
they shall be issued. After this offering, there will be no preferred shares
outstanding and we have no present plans to issue any preferred shares. However,
the rights of the holders of any preferred shares that may be issued in the
future may be senior to the rights of holders of common shares, which could
preclude holders of common shares from receiving dividends, proceeds of a
liquidation or other benefits. The issuance of preferred shares, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire
control of us by, for example, discouraging an unsolicited acquisition proposal
or a proxy contest, the effect of which may be to deprive our shareholders of a
control premium that might otherwise be realized in connection with an
acquisition of our company.
YOU MAY NOT BE ABLE TO OBTAIN ENFORCEMENT OF CIVIL LIABILITIES AGAINST US
OUTSIDE THE UNITED STATES.
We are formed under the laws of the Province of Ontario, Canada. Our
principal office and many of our assets are located outside the United States.
In addition, a majority of the members of our board of directors and our
officers and certain experts named in this prospectus are residents of countries
other than the United States. As a result, it may be impossible for you to
effect service of process within the United States upon us or these persons or
to enforce against us or these persons any judgments in civil and commercial
matters, including judgments under United States federal securities laws.
Investors should not assume that Canadian courts (1) would enforce judgments of
United States courts obtained in actions against FloNetwork or such persons
predicated upon the civil liability provisions of the United States federal
securities laws or the securities or "blue sky" laws of any state within the
United States or (2) would enforce, in original actions, liabilities against
FloNetwork or such persons predicated upon the United States federal securities
laws or any such state securities or blue sky laws. No treaty exists between the
United States and Canada for the reciprocal enforcement of foreign court
judgments.
18
<PAGE> 24
USE OF PROCEEDS
We expect to receive approximately $37.3 million in net proceeds from the
sale of 3,750,000 common shares offered by us at the assumed initial public
offering price of $11.00 per share, or approximately $43.1 million if the
underwriters' over-allotment is exercised in full, after deducting estimated
offering expenses and underwriting discounts and commissions payable by us. The
principal purposes of this offering are to obtain additional capital, to create
a public market for our common shares and to facilitate our future access to the
public capital markets.
We currently expect to use between $5.0 million and $10.0 million of the
net proceeds of this offering for the expansion of our e-mail deployment and
client service infrastructure, $10.0 million and $15.0 million for the expansion
of our sales and marketing activities and $3.0 million and $5.0 million for
research and development activities. We expect to use the remaining net proceeds
for general corporate purposes. We currently do not have specific plans with
respect to the remaining net proceeds from this offering. We may use a portion
of the net proceeds to fund acquisitions of, or investments in, businesses,
products or technologies that expand, complement or are otherwise related to our
current business. The types of any acquisitions or investments that we may make
will largely depend upon the business opportunities that we identify, if any,
which we cannot predict at this time. We presently have no agreements or
commitments with respect to any acquisition or investment. Our plans with
respect to the allocation of these proceeds among the uses described above may
change after the date of this prospectus if the number of clients using our
services or the volume of e-mails deployed by us differs from what we currently
expect. Pending these uses, we expect to invest the net proceeds in short-term,
interest-bearing investment grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our share capital and do
not currently intend to pay any cash dividends for the foreseeable future. We
currently intend to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
PRESENTATION OF FINANCIAL INFORMATION
Unless otherwise specified, all references to U.S. dollars, dollars or $
are to United States dollars, the legal currency of the United States of
America. All references to CDN$ are to the Canadian dollar, the legal currency
of Canada. Our financial statements are presented in U.S. dollars and have been
prepared in conformity with United States generally accepted accounting
principles.
In December 1999, we changed our fiscal year end from July 31 to December
31. As used in this prospectus, fiscal 1997 refers to the financial year ended
July 31, 1997, fiscal 1998 refers to the financial year ended July 31, 1998 and
fiscal 1999 refers to the financial year ended July 31, 1999.
19
<PAGE> 25
EXCHANGE RATE INFORMATION
A significant portion of our expenses is denominated in currencies other
than United States dollars. We do not currently anticipate paying any dividends
to shareholders. However, any dividends declared by us would be in the currency
determined by our directors at the time they are declared, and exchange rate
fluctuations would affect the United States dollar equivalent of any cash
dividend received by holders of common shares that is paid in a currency other
than United States dollars. Prices quoted for the common shares on the Nasdaq
National Market will be quoted in United States dollars.
The table below presents, for the periods and dates indicated, information
concerning the noon buying rates for the Canadian dollar expressed in Canadian
dollars per one United States dollar. The information below the caption "Period
Average" represents the average of the noon buying rates on the last business
day of each full calendar month during the relevant period. No representation is
made that the Canadian dollar or United States dollar amounts referred to below
could be or could have been converted into United States dollars or Canadian
dollars at any particular rate or at all.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, HIGH LOW PERIOD AVERAGE PERIOD END
- ------------------------------ ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
1995.......................... CDN$1.4238 CDN$1.3285 CDN$1.3689 CDN$1.3655
1996.......................... CDN$1.3822 CDN$1.3310 CDN$1.3644 CDN$1.3697
1997.......................... CDN$1.4398 CDN$1.3357 CDN$1.3894 CDN$1.4288
1998.......................... CDN$1.5770 CDN$1.4075 CDN$1.4903 CDN$1.5375
1999.......................... CDN$1.5302 CDN$1.4440 CDN$1.4827 CDN$1.4440
</TABLE>
Unless otherwise specified, the amounts in this prospectus which have been
converted into United States dollars have been converted at a conversion rate
equal to the noon buying rate on December 31, 1999: United States $1.00 =
Canadian $1.4440, which is equivalent to Canadian $1.00 = United States $0.6925.
FORWARD-LOOKING STATEMENTS; MARKET DATA
Many statements made in this prospectus under the captions "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business" and elsewhere are
forward-looking statements that are not based on historical facts. In some
cases, you can identify forward-looking statements by terminology such as "may",
"will", "should", "potential", "continue", "expects", "anticipates", "intends",
"plans", "believes", "estimates" and similar expressions. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
The forward-looking statements made in this prospectus relate only to
events as of the date on which the statements are made. We undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events, except as may be required by law.
This prospectus contains market data related to our business and the e-mail
messaging services industry. This market data includes projections that are
based on a number of assumptions. If these assumptions turn out to be incorrect,
actual results may differ from the projections based on these assumptions. The
failure of these markets to grow at these projected rates may have a material
adverse effect on our business, results of operations and financial condition,
and the market price of our common shares.
20
<PAGE> 26
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis after giving effect to a 1-for-5 reverse split of our
common shares to be effected prior to the consummation of this offering;
- on a pro forma basis to give effect to (1) the conversion of our
outstanding class A, B, C and D preferred shares into an aggregate of
5,011,134 common shares upon the consummation of this offering (assuming
an initial public offering price of $11.00 per share), (2) the issuance
of 800,000 common shares concurrent with the consummation of this
offering upon the exercise of warrants outstanding as of December 31,
1999, at a weighted-average exercise price of approximately $0.85 per
share and the receipt of net proceeds of $678,670 from the sale thereof,
and (3) the issuance of 874,870 common shares concurrent with the
consummation of this offering upon the exercise of an option pursuant to
an Option Agreement held by CNET dated September 15, 1999, at a price of
approximately $6.23 per share and the receipt of net proceeds of
approximately $5.4 million from the sale thereof (assuming an initial
public offering price of $11.00 per share); and
- on a pro forma as adjusted basis to give effect to the sale of 3,750,000
common shares in this offering at an assumed initial public offering
price of $11.00 per share and the application of the estimated net
proceeds from the sale.
The outstanding share information excludes 1,723,302 common shares issuable
upon the exercise of options outstanding as of December 31, 1999 with a
weighted-average exercise price of approximately $1.54 per share, and an
additional 1,427,336 common shares available for issuance under our share
incentive plan and employee share purchase plan.
21
<PAGE> 27
This information should be read in connection with our financial statements
and the notes relating to these statements included elsewhere in this
prospectus, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable convertible class A preferred shares,
unlimited number of shares authorized; 550,000
shares issued and outstanding, actual; and no shares
issued and outstanding, pro forma and pro forma as
adjusted............................................ $ 1,369 $ -- $ --
Shareholders' equity:
5% cumulative voting convertible class B preferred
shares, unlimited number of shares authorized;
8,640,000 shares issued and outstanding, actual;
and no shares issued and outstanding, pro forma
and pro forma as adjusted........................ 772 -- --
Voting convertible class C preferred shares,
unlimited number of shares authorized; 2,650,423
shares issued and outstanding, actual; and no
shares issued and outstanding, pro forma and pro
forma as adjusted................................ 1,003 -- --
Voting convertible class D preferred shares,
unlimited number of shares authorized; 12,033,983
shares issued and outstanding, actual; and no
shares issued and outstanding, pro forma and pro
forma as adjusted................................ 14,900 -- --
Common shares, unlimited number of shares
authorized; 6,212,973 shares issued and
outstanding, actual; and 12,898,977 shares issued
and outstanding, pro forma; and 16,648,977 shares
issued and outstanding pro forma as adjusted..... 2,766 29,380 66,743
Additional paid in capital............................ 933 933 933
Unearned share-based compensation..................... (872) (872) (872)
Accumulated deficit................................... (5,995) (8,434) (8,434)
------- ------- -------
Total shareholder's equity....................... 13,507 21,007 58,370
------- ------- -------
Total capitalization............................. $14,876 $21,007 $58,370
======= ======= =======
</TABLE>
22
<PAGE> 28
DILUTION
Our net tangible book value, as of December 31, 1999, was $21.0 million or
$1.63 per common share after giving effect to (1) the conversion of our
outstanding class A, B, C and D preferred shares into an aggregate of 5,011,134
common shares upon the consummation of this offering (assuming an initial public
offering price of $11.00 per share), (2) the issuance of 800,000 common shares
concurrent with the consummation of this offering upon the exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price of
approximately $0.85 per share and the receipt of net proceeds of $678,670 from
the sale thereof, and (3) the issuance of 874,870 common shares concurrent with
the consummation of this offering upon the exercise of an option pursuant to an
Option Agreement held by CNET dated September 15, 1999 at a price of
approximately $6.23 per share and the receipt of net proceeds of approximately
$5.4 million from the sale thereof (assuming an initial public offering price of
$11.00 per share). Net tangible book value per share is calculated by
subtracting our total liabilities from our total tangible assets, which equals
total assets minus intangible assets, and dividing this amount by the number of
common shares outstanding as of December 31, 1999.
After giving effect to the sale by us of 3,750,000 common shares in this
offering at an assumed initial public offering price of $11.00 per share and the
application of the estimated net proceeds from this offering, our net tangible
book value as of December 31, 1999 would have been $58.4 million, or $3.51 per
common share. This represents an immediate increase in pro forma net tangible
book value of $1.63 per common share to existing shareholders and an immediate
and substantial dilution in pro forma net tangible book value of $7.49 per
common share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $1.63
Pro forma increase per share attributable to new
investors.............................................. 1.88
-----
Pro forma net tangible book value per share after the
offering.................................................. 3.51
------
Pro forma dilution per share to new investors............... $ 7.49
======
</TABLE>
The following table summarizes the total number of common shares purchased
from us, the total consideration paid to us and the average price per common
share paid, before deducting discounts and commissions and estimated offering
expenses, by existing shareholders and by new investors, in each case on a pro
forma basis as of December 31, 1999:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 12,898,977 77.5% $26,557,341 39.2% $ 2.06
New investors................ 3,750,000 22.5 41,250,000 60.8% 11.00
---------- ----- ----------- -----
Total................... 16,648,977 100.0% $67,807,341 100.0%
========== ===== =========== =====
</TABLE>
The tables and calculations above exclude 1,723,302 common shares issuable
upon the exercise of options outstanding as of December 31, 1999 with a
weighted-average exercise price of approximately $1.54 per share and an
additional 1,427,336 common shares available for issuance under our share
incentive plan and employee share purchase plan. To the extent that any of these
options are exercised there will be further dilution to new investors.
23
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read in
connection with the financial statements and notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. The statement of operations data for the years
ended July 31, 1999, 1998 and 1997 and the five months ended December 31, 1999
and the balance sheet data at July 31, 1999 and 1998 and December 31, 1999 are
derived from our financial statements which have been audited by Arthur Andersen
LLP, independent auditors, and are included elsewhere in this prospectus. The
statement of operations data for the five months ended December 31, 1998 have
been derived from our unaudited financial statements which have been prepared on
the same basis as the audited financial statements and, in our opinion, contain
all adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for this
period. The balance sheet data at July 31, 1997 are derived from our financial
statements which have been audited by Arthur Andersen LLP, independent auditors,
and are not included in this prospectus. The statement of operations data for
the years ended July 31, 1995 and 1996 and the balance sheet data at July 31,
1995 and 1996 are derived from unaudited financial statements not included in
this prospectus, but have been prepared on the same basis as the audited
financial statements and, in our opinion, contain all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for these periods. Historical
results are not necessarily indicative of the results to be expected in the
future and results for interim periods are not necessarily indicative of results
for the entire year.
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEARS ENDED JULY 31, DECEMBER 31,
-------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---- ----- ------ ------ ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
E-mail service revenue................................. $ -- $ -- $ -- $ 14 $ 431 $ 93 $ 1,194
License and software revenue(1)........................ 108 234 1,155 734 346 129 2
---- ----- ------ ------ ------- ------ -------
108 234 1,155 748 777 222 1,196
E-mail service cost of revenues.......................... -- -- -- -- 331 82 741
---- ----- ------ ------ ------- ------ -------
Gross margin............................................. 108 234 1,155 748 446 140 455
Operating expenses:
Sales and marketing.................................... 68 218 647 580 1,110 348 1,444
General and administrative............................. 66 104 381 388 674 210 584
Research and development............................... 25 41 278 559 813 299 540
Share-based compensation............................... -- -- -- -- -- -- 61
---- ----- ------ ------ ------- ------ -------
Total operating expenses............................. 159 363 1,306 1,527 2,597 857 2,629
---- ----- ------ ------ ------- ------ -------
Loss from operations..................................... (51) (129) (151) (779) (2,151) (717) (2,174)
Interest income, net..................................... -- -- 4 4 26 4 70
---- ----- ------ ------ ------- ------ -------
Loss before income taxes................................. (51) (129) (147) (775) (2,125) (713) (2,104)
Provision for income taxes............................... -- -- -- -- -- -- (20)
---- ----- ------ ------ ------- ------ -------
Net loss for the period.................................. $(51) $(129) $ (147) $ (775) $(2,125) $ (713) $(2,124)
==== ===== ====== ====== ======= ====== =======
Accretion of redeemable convertible class A preferred
shares to liquidation value.......................... -- -- -- -- (268) (40) (244)
Convertible class B preferred share dividends.......... -- -- (27) (36) (36) (15) (16)
---- ----- ------ ------ ------- ------ -------
Net loss attributable to common shareholders............. $(51) $(129) $ (174) $ (811) $(2,429) $ (768) $(2,384)
==== ===== ====== ====== ======= ====== =======
Net loss per common share:
Basic and diluted...................................... $(0.05) $(0.22) $ (0.66) $(0.21) $ (0.58)
====== ====== ======= ====== =======
Weighted average shares outstanding.................... 3,672 3,672 3,672 3,672 4,079
------ ------ ------- ------ -------
Pro forma net loss per common share:
Basic and diluted...................................... $ (0.65) $ (0.25)
======= =======
Weighted average shares outstanding.................... 7,533 8,543
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Costs related to the sale and licensing of our discontinued multimedia consumer software products are operational in
nature and were included in sales and marketing expenses during the periods we generated revenue from this business.
These costs consisted primarily of nominal expenditures related to the printing, shipping and distribution of our
multimedia consumer software products.
</TABLE>
24
<PAGE> 30
<TABLE>
<CAPTION>
JULY 31,
----------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
---- ----- ----- ----- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1 $ 30 $ 243 $ 348 $ 920 $13,538
Working capital............................................. (72) (206) 267 (538) 776 12,507
Total assets................................................ 41 100 774 537 1,545 17,005
Redeemable convertible class A preferred shares............. -- -- -- -- 1,125 1,369
Total shareholders' equity (deficit)........................ (67) (196) (314) (461) (91) 13,507
</TABLE>
25
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes which appear elsewhere in
this prospectus. The consolidated financial statements have been prepared in
conformity with United States generally accepted accounting principles. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those discussed below and elsewhere in this prospectus, particularly under the
heading "Risk Factors."
OVERVIEW
We provide Internet direct marketing and communications services. Our
technology infrastructure, software and services enable businesses to market to
and communicate with their customers through personalized and targeted e-mail
messaging campaigns. Our clients access our technology and services, and retain
control of their e-mail campaigns, through the Internet. Our technology platform
is comprised of specialized hardware and software applications which we host for
clients who wish to outsource any or all aspects of e-mail messaging. We also
provide our clients with a full range of e-marketing services on an outsourced
basis to assist in the development, execution and assessment of their e-mail
campaigns.
In 1998, we began developing and selling e-mail messaging software
applications and services and, in January 1999, we adopted a business strategy
to offer these software applications over a hosted technology platform and
discontinued the development, sale and licensing of our multimedia consumer
software products. Our decision to shift our business focus to e-mail messaging
services was based on the opportunity that e-mail messaging presented as
compared to our multimedia consumer software products. Since we shifted our
focus to the e-mail messaging service business, our percentage of revenue
derived from that business has increased from 42.1% of our total revenue for the
five month period ended December 31, 1998 to 99.8% for the five month period
ended December 31, 1999.
We generate revenue from the sale of e-mail messaging services. We
generally seek to provide e-mail messaging services under contracts entered into
with our clients for terms of one to two years. Under these contracts, we commit
to meet specified capacity and campaign delivery standards for delivery of our
clients' e-mails on a fixed price basis. These contracts generally do not
provide for a minimum usage commitment by our clients, nor do they provide for
any penalty in the event that our clients terminate the contract early. For each
campaign, we typically charge an annual program fee and a variable fee based on
each 1,000 e-mail messages delivered. The variable fee is determined on a case-
by-case basis and varies depending on the range of services to be provided to
the client and expected e-mail volume levels.
We recognize the annual program fee evenly over the term of the contract
and the variable fee as the e-mail messages are delivered. We also enter into
contractual arrangements with certain customers to provide e-mail messaging
services for a fixed fee which is invoiced and recognized monthly. Revenue for
integration and development services is recognized upon the completion of the
services, provided there are no remaining significant obligations and collection
of the resulting receivable is probable. Revenue that has been prepaid or
invoiced, but does not yet qualify for recognition under our policies is
recorded as deferred revenue and recognized as we fulfill our obligation to
deploy e-mails or complete services.
E-mail service cost of revenues consists primarily of expenses relating to
the delivery of e-mail messaging services, including client services and network
operations staff, depreciation and amortization of network equipment and
licensed technology, equipment leases, Internet connectivity charges and data
center co-location costs.
26
<PAGE> 32
Costs related to the sale and licensing of our discontinued multimedia
software are operational in nature and were included in sales and marketing
expenses during the periods we generated revenue from this business. These costs
consisted primarily of nominal expenditures related to the printing, shipping
and distribution of our multimedia software product.
Sales and marketing costs consist primarily of salaries and other personnel
costs related to our sales, account management, client care and marketing
employees, as well as commissions, travel, advertising and other promotional
costs.
General and administrative costs consist primarily of salaries and other
personnel costs related to executive and administrative personnel, finance,
human resources, legal, office and facilities costs, professional fees,
depreciation and amortization of equipment and recognition of gains and losses
from foreign currency transactions.
Research and development costs consist primarily of salaries and other
personnel costs related to research and development, consultants and outside
contractor costs, and software and hardware maintenance expenses. Research and
development costs are expensed as incurred.
Share-based compensation represents the aggregate difference, at the date
of grant, between the respective exercise price of options to acquire our shares
and the deemed fair market value of the underlying shares. Share-based
compensation is amortized over the vesting period of the underlying options,
generally four years. For the five months ended December 31, 1999, we recorded
unearned share-based compensation of $933,000, of which $61,100 was amortized
during the five months ended December 31, 1999. The remaining unamortized
share-based compensation balance at December 31, 1999 of $872,000 will be
amortized as follows: $156,000 for the year ending December 31, 2000; $233,000
for the year ending December 31, 2001; $179,000 for the year ending December 31,
2002; $174,000 for the year ending December 31, 2003; and $130,000 for the year
ending December 31, 2004.
Accretion of redeemable convertible class A preferred shares represents the
difference between the carrying value of the class A preferred shares of
$856,000 and their liquidation value of $3.7 million. The carrying value of the
class A preferred shares is the excess of the proceeds of the sale of the class
A preferred shares over the amounts allocated to warrants issued in connection
with this sale. The difference of $2.8 million between the carrying value and
the liquidation value is being amortized over five years to the fixed date of
redemption, November 19, 2003. As of December 31, 1999, $512,000 had been
amortized. Upon completion of this offering, the class A preferred shares will
be converted into common shares and the remaining unamortized balance at that
time will be charged to operations. As of December 31, 1999, the unamortized
accretion amount was $2.3 million. For additional information, see the notes to
our consolidated financial statements.
Convertible class B preferred share dividends represents the 5% cumulative
dividends attributable to the stated capital of the class B preferred shares,
when and if those dividends are declared by our board of directors. We recorded
dividends of $15,800 and $14,800 for the five months ended December 31, 1999 and
1998 and $36,000, $36,200 and $27,400 for the fiscal years ended July 31, 1999,
1998 and 1997, respectively. Presently, our board of directors does not
anticipate declaring any dividends on the class B preferred shares prior to the
consummation of this offering. Therefore, upon conversion of the class B
preferred shares to common shares, the stated capital of the class B preferred
shares and the unpaid cumulative dividends will be included in the stated
capital of common shares.
We have incurred significant losses since inception and, as of December 31,
1999, we had an accumulated deficit of $6.0 million. This deficit is the
accumulation of losses of $2.4 million for the five month period ended December
31, 1999, $2.4 million for the year ended July 31, 1999, $811,000 for the year
ended July 31, 1998, $174,000 for the year ended July 31, 1997 and $196,000 from
August 1, 1993 (inception) to July 31, 1996. The increases in our net losses in
the years ended July 31, 1999 and
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<PAGE> 33
1998 and the five month period ended December 31, 1999 reflect the development
of our infrastructure and network to provide e-mail messaging services and the
shift in focus to our new business strategy.
We expect to increase spending on sales and marketing as we expand our
sales force and increase promotional and advertising expenditures to build brand
and market awareness. We also expect to incur higher general and administrative
and research and development expenses as we expand our infrastructure to support
expected growth in the number of clients serviced and the volume of e-mail
messages sent, and continue to develop and expand our suite of e-mail messaging
services. As a result of these increases, we expect to continue to incur
significant net losses on a quarterly and annual basis for the foreseeable
future.
FIVE MONTHS ENDED DECEMBER 31, 1999 AND 1998
Revenue. Total revenue increased by 439% to $1.2 million for the five
months ended December 31, 1999 from $222,000 for the five months ended December
31, 1998. E-mail service revenue as a percentage of total revenue increased to
99.8% of revenue for the five months ended December 31, 1999 from 42.1% of total
revenue for the five months ended December 31, 1998, reflecting our shift in
focus to the e-mail messaging services business. E-mail service revenue
increased to $1.2 million for the five months ended December 31, 1999 from
$93,400 for the five months ended December 31, 1998. The increase in e-mail
service revenue was primarily due to an increase in the number of clients to
whom we provide e-mail messaging services, including integration and development
services, and a significant increase in the number of e-mails sent on behalf of
our clients.
License and software revenue decreased by 98% to $2,400 for the five months
ended December 31, 1999 from $129,000 for the five months ended December 31,
1998, as we discontinued the sale and licensing of our multimedia consumer
software products to concentrate on e-mail messaging services.
For the five months ended December 31, 1999, CNET, Inc. and
barnesandnoble.com accounted for 27.5% of our revenue, while RealNetworks Inc.
and International Microcomputer Software Inc. accounted for 52.6% of our revenue
during the five months ended December 31, 1998.
E-mail Service Cost of Revenues. E-mail service cost of revenues increased
by 803% to $741,000 for the five months ended December 31, 1999 from $82,100 for
the five months ended December 31, 1998. The increase reflects our shift in
focus to the e-mail services business and was primarily due to increased
personnel costs and increased Internet connectivity charges associated with
supporting a larger number of clients and the significant increase in the number
of e-mails sent on behalf of our clients. Costs related to the sale and
licensing of our multimedia consumer software products were operational in
nature and are included in sales and marketing expenses. For the five months
ended December 31, 1999 and 1998, the cost of revenues related to software
licensing and sales activities was nominal.
Sales and Marketing. Sales and marketing expenses increased by 315% to
$1.4 million for the five months ended December 31, 1999 from $348,000 for the
five months ended December 31, 1998. The increase primarily reflects increased
personnel costs associated with the growth in our direct sales and marketing
staffs, as well as increased promotional spending and travel and entertainment
expenses. We expect our sales and marketing expenses to increase significantly
as we continue to expand our sales force and our marketing activities.
General and Administrative. General and administrative expenses increased
by 178% to $584,000 for the five months ended December 31, 1999 from $210,000
for the five months ended December 31, 1998. The increase was primarily due to
an increase in senior management and administrative personnel costs and an
increase in facilities and overhead related costs associated with the expansion
of our office space. These increases were partially offset by higher foreign
currency gains for the five months ended December 31, 1999 than for the five
months ended December 31, 1998.
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Research and Development. Research and development expenses increased by
81% to $540,000 for the five months ended December 31, 1999 from $299,000 for
the five months ended December 31, 1998. The increase was primarily due to an
increase in personnel costs. As a result of the change in our business strategy,
we hired additional research and development professionals and terminated
certain employees who were focused on multimedia consumer software development.
We expect our research and development expenses to continue to increase as we
continue to invest substantially in the development of new product features and
services.
Share-Based Compensation. We recorded unearned share-based compensation of
$933,000 during the five months ended December 31, 1999, which is being
amortized over the period during which the options vest, generally four years.
For the five months ended December 31, 1999, the related amortization for
options granted was $61,100. No unearned share-based compensation was recognized
for the five months ended December 31, 1998.
Provision For Income Taxes. The provision for income taxes of $20,000 for
the five months ended December 31, 1999 relates to our wholly owned subsidiary,
FloNetwork US, Inc., which commenced operations in January 1999. No provision
for income tax was recorded in the prior period as our Canadian operations were
in a loss position.
Net Loss Attributable to Common Shareholders. Our net loss attributable to
common shareholders increased by 210% to $2.4 million for the five months ended
December 31, 1999, from 768,000 for the five months ended December 31, 1998. The
increase was primarily due to an increase in sales and marketing expenses of
$1.1 million, an increase in general and administrative expenses of $374,000,
and an increase in research and development expenses of $241,000, reflecting our
shift in focus to e-mail messaging services. In addition, the net loss was
increased by non-cash charges related to our class A and class B preferred share
financings. These non-cash charges totaled $260,000 for the five months ended
December 31, 1999 and $54,700 for the five months ended December 31, 1998, an
increase of $205,000.
YEARS ENDED JULY 31, 1999 AND 1998
Revenue. Total revenue increased by 4% to $777,000 for the year ended July
31, 1999 from $748,000 for the year ended July 31, 1998. In January 1999, we
adopted a business strategy to offer e-mail messaging services on a hosted basis
and focused our efforts on implementing and developing the infrastructure and
technology required to execute our new strategy. In addition, we began to
discontinue the development, sale and licensing of our multimedia consumer
software products to enable us to focus exclusively on the development of the
e-mail messaging services business.
E-mail service revenue as a percentage of total revenue increased to 55.5%
for the year ended July 31, 1999 from 1.8% for the year ended July 31, 1998,
reflecting our shift in focus to the e-mail messaging service business. E-mail
service revenue increased to $431,000 for the year ended July 31, 1999 from
$13,800 for the year ended July 31, 1998. The increase in e-mail service revenue
was primarily due to an increase in the number of clients to whom we provide
e-mail messaging services and a significant increase in the number of e-mails
sent on behalf of our clients.
License and software revenue decreased by 53% to $346,000 for the year
ended July 31, 1999 from $734,000 for the year ended July 31, 1998, as we
discontinued the sale and licensing of our multimedia consumer software products
to concentrate on e-mail messaging services.
For the year ended July 31, 1999, Hallmark Connections, RealNetworks, Inc.
and International Microcomputer Software, Inc. accounted for 41.2% of our
revenue. For the year ended July 31, 1998, Hallmark Connections and Tarae
Information and Communications Co., Ltd. accounted for 61.0% of our revenue.
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<PAGE> 35
E-mail Service Cost of Revenues. E-mail service cost of revenues increased
to $331,000 for the year ended July 31, 1999 from a nominal amount for the year
ended July 31, 1998, reflecting our shift in focus to the e-mail messaging
services business. The increase was primarily due to increased client service
and network operation personnel costs, and network equipment and Internet
connectivity charges. For the years ended July 31, 1999 and 1998, the cost of
revenues related to software licensing and sales activities was approximately
$19,000 and $36,000, respectively. These costs were operational in nature and
are included in sales and marketing expenses.
Sales and Marketing. Sales and marketing costs increased by 92% to $1.1
million for the year ended July 31, 1999 from $580,000 for the year ended July
31, 1998. The increase reflects increased personnel costs associated with the
growth in our U.S. based direct sales force and the growth in our marketing
staff, as well as increased promotional costs aimed at building our brand and
increasing our sales.
General and Administrative. General and administrative costs increased by
74% to $674,000 for the year ended July 31, 1999 from $388,000 for the year
ended July 31, 1998. The increase was primarily due to increased occupancy and
general office costs, increased personnel costs relating to the addition of
senior management and administrative personnel and foreign currency losses.
Research and Development. Research and development costs increased by 45%
to $813,000 for the year ended July 31, 1999 from $559,000 for the year ended
July 31, 1998. The increase was primarily due to the growth in personnel costs
incurred to further develop and enhance our e-mail messaging services.
Provision for Income Taxes. No provision for income taxes was recorded for
the years ended July 31, 1999 and 1998 as our Canadian operations were in a loss
position. As of July 31, 1999, we had approximately $3.1 million of net
operating loss carryforwards which expire in varying amounts beginning in the
taxation year ending July 31, 2001. Due to the uncertainty regarding the
realization of the benefit of the net operating loss carryforwards, a valuation
allowance has been recorded for the entire amount of the net deferred tax asset.
Net Loss Attributable to Common Shareholders. Our net loss increased by
200% to $2.4 million for the year ended July 31, 1999, from $811,000 for the
year ended July 31, 1998. The increase was primarily due to an increase in sales
and marketing expenses of $530,000, an increase in general and administrative
expenses of $286,000 and an increase in research and development expenses of
$254,000, reflecting our shift in focus to e-mail messaging services. In
addition, the net loss was increased by non-cash charges related to our class A
and class B preferred share financings. These non-cash charges totaled $304,000
for the year ended July 31, 1999 and $36,200 for the year ended July 31, 1998,
an increase of $268,000.
YEARS ENDED JULY 31, 1998 AND 1997
Revenue. Total revenue decreased by 35% to $748,000 for the year ended
July 31, 1998 from $1.2 million for the year ended July 31, 1997. The decrease
was primarily due to a decrease in license and software revenue from our
multimedia consumer software products. E-mail service revenue was $13,800 for
the year ended July 31, 1998 and nil for the year ended July 31, 1997. For the
year ended July 31, 1998, Hallmark Connections and Tarae Information and
Communications Co., Ltd. accounted for 61.0% of our revenue. For the year ended
July 31, 1997, Nippon Denso Industry Co., Ltd., Seyang Information and
Communication Co., Ltd. and VRex, Inc. accounted for 56.4% of our revenue.
E-mail Service Cost of Revenues. E-mail service cost of revenues was
nominal for the year ended July 31, 1998 and non-existent in the prior year.
Costs related to the licensing and sale of our multimedia consumer software
products were included in operating expenses for the years ended July 31, 1998
and 1997.
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<PAGE> 36
Sales and Marketing. Sales and marketing costs decreased by 10% to
$580,000 for the year ended July 31, 1998 from $647,000 for the year ended July
31, 1997. The decline was primarily due to a decrease in sales commissions
resulting from lower sales for the year ended July 31, 1998 than for the prior
year.
General and Administrative. General and administrative costs increased by
2% to $388,000 for the year ended July 31, 1998 from $381,000 for the year ended
July 31, 1997. The initial transition from multimedia consumer software sales
and licensing to e-mail messaging services was accomplished without substantial
increases in administrative personnel, occupancy and general office costs during
the development stage.
Research and Development. Research and development costs increased by 101%
to $559,000 for the year ended July 31, 1998 from $278,000 for the year ended
July 31, 1997. The increase was primarily due to the increase in personnel costs
as we began to invest in the development of our e-mail messaging solution.
Provision for Income Taxes. No provision for income taxes was recorded for
the years ended July 31, 1998 and 1997 as our Canadian operations were in a loss
position.
Net Loss Attributable to Common Shareholders. Our net loss attributable to
common shareholders increased by 364% to $811,000 for the year ended July 31,
1998, from $174,000 for the year ended July 31, 1998. The increase was primarily
due to the decrease in revenue from sales of multimedia software of $407,000 and
the increase in our research and development expenses of $281,000 as we began
our shift in focus to e-mail messaging services. In addition, the net loss was
increased by non-cash charges related to our class B preferred share financing.
These non-cash charges totaled $36,200 for the year ended July 31, 1998 and
$27,400 for the year ended July 31, 1997, an increase of $8,800.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly statements of
operations data for the four quarters ended December 31, 1999. This information
is derived from our consolidated financial statements and notes included
elsewhere in this prospectus, which have been prepared in conformity with United
States generally accepted accounting principles, and, in the opinion of
management, contains all necessary adjustments, consisting only of normal
recurring adjustments, to present fairly the unaudited quarterly results of
operations. This data should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
E-mail service revenue................. $ 112 $ 155 $ 268 $ 994
License and software revenue(1)........ 211 3 1 2
----- ----- ------- -------
323 158 269 996
E-mail service cost of revenues.......... 69 105 222 594
----- ----- ------- -------
Gross margin............................. 254 53 47 402
Operating expenses:
Sales and marketing.................... 327 265 501 1,198
General and administrative............. 151 166 235 398
Research and development............... 197 209 239 418
Share-based compensation............... -- -- 24 37
----- ----- ------- -------
Total operating expenses............ 675 640 999 2,051
----- ----- ------- -------
Loss from operations..................... (421) (587) (952) (1,649)
Interest income, net..................... 8 15 5 65
----- ----- ------- -------
Loss before income taxes................. (413) (572) (947) (1,584)
Provision for income taxes............... -- -- (13) (7)
----- ----- ------- -------
Net loss for the period.................. $(413) $(572) $ (960) $(1,591)
===== ===== ======= =======
Accretion of redeemable convertible
class A preferred shares to
liquidation value................... (90) (90) (147) (147)
Convertible class B preferred share
dividends........................... (9) (9) (9) (9)
----- ----- ------- -------
Net loss attributable to common
shareholders........................... $(512) $(671) $(1,116) $(1,747)
===== ===== ======= =======
</TABLE>
- ---------------
(1) Costs related to the sale and licensing of our discontinued multimedia
consumer software products are operational in nature and were included in
sales and marketing expenses during the periods we generated revenue from
this business. These costs consisted primarily of nominal expenditures
related to the printing, shipping and distribution of our multimedia
consumer software products.
Our quarterly operating results have fluctuated significantly in the past,
and will continue to fluctuate in the future, as a result of a number of
factors, many of which are outside our control. As a result of our limited
operating history under our present business model, we cannot forecast operating
expenses based on historical results. Accordingly, we base our anticipated level
of expense in part on our future revenue projections. Most of our expenses are
fixed and, therefore, in the short term we may not be able to quickly reduce
spending if revenue is lower than we have projected. If revenue in a particular
quarter does not meet expectations, our net losses in a given quarter would be
greater than
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expected. As a result, these operating results are not necessarily indicative of
results for any future period. Investors should not rely on them to predict
future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements primarily through private sales of our equity
securities, which have resulted in net proceeds of $20.2 million through
December 31, 1999. At December 31, 1999, we had $13.5 million in unrestricted
cash and cash equivalents and $12.5 million in working capital.
Net cash used in operating activities was $1.3 million and $738,000 for the
five months ended December 31, 1999 and 1998, respectively, and $2.2 million,
$448,000 and $346,000 for the years ended July 31, 1999, 1998 and 1997,
respectively.
Net cash used in investing activities was $1.9 million and $53,000 for the
five months ended December 31, 1999 and 1998, respectively, and $217,000,
$46,500 and $46,000 for the years ended July 31, 1999, 1998 and 1997,
respectively. Net cash used in investing activities was related to purchases of
property, equipment and software.
Net cash provided by financing activities was $15.9 million and $2.0
million for the five months ended December 31, 1999 and 1998, respectively, and
$3.0 million, $600,000 and $605,000 for the years ended July 31, 1999, 1998 and
1997, respectively. Net cash provided by financing activities was primarily from
proceeds of the sale of our preferred shares.
Upon the consummation of this offering, pursuant to the exercise of an
option issued to CNET in connection with the sale of our class C preferred
shares, CNET has agreed to purchase a number of common shares which, on the date
of exercise, equals 5% of all of our issued and outstanding common shares on a
fully diluted basis at a price of approximately $6.23 per share. See "Related
Transactions".
We believe that the cash flows that we expect to generate from sales of our
services and our current cash balances will be sufficient to meet our
anticipated cash needs for working capital and capital expenditure requirements
for at least the next 12 months if this offering does not occur and we do not
expand our infrastructure, sales and marketing activities and research and
development activities as we currently contemplate. We believe that the net
proceeds from this offering, together with the cash flows that we anticipate
generating from sales of our services, the proceeds from the exercise of our
outstanding warrants, the option held by CNET, and our current cash and cash
equivalents, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditure requirements assuming the expansion of our
business as currently contemplated for at least the next eighteen months. If we
do not generate our anticipated cash flows, we may require additional funds
prior to such date. If such additional financing is not available on acceptable
terms, we would seek to reduce our planned rate of growth, reduce our operating
expenses as necessary and use other sources of cash on hand and from our
operations.
FOREIGN CURRENCY TRANSLATION AND HEDGING
We are exposed to foreign currency fluctuations through our operations in
Canada. Substantially all of our revenue and corresponding receivables are
denominated in United States dollars. However, a majority of our network
operations, client services, research and development and administrative
expenses are denominated in Canadian dollars. Changes in the value of the
Canadian dollar relative to the U.S. dollar may result in currency translation
gains and losses and could adversely affect our operating results. We have not
engaged in any hedging transactions to mitigate our exposure to currency
fluctuations and, accordingly, include gains and losses on foreign currency
transactions in our statement of operations. To date, foreign currency exposure
has been minimal. However, in the future we intend to hedge all or a significant
portion of our annual estimated Canadian dollar expenses to minimize our
Canadian dollar exposure. We are in the process of implementing our currency
strategy with respect to other foreign currencies.
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YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. This could result in
system failures or miscalculations causing disruption of operations for any
company using these computer programs or hardware. Among other things, this
could include a temporary inability to process transactions, send or receive
e-mail messages, send invoices or engage in normal business activities. As a
result, many companies' computer systems may need to be upgraded or replaced in
order to avoid Year 2000 issues.
We are a comparatively new enterprise. Accordingly, the majority of
software and hardware we use to operate and manage our business has all been
purchased or developed by us within the last two years. While this does not
uniformly protect us against Year 2000 exposure, and subject to the comments
below concerning other companies' products and software, we believe our exposure
is limited because the information technology we use to operate and manage our
business is not based upon legacy hardware and software systems. Generally,
hardware and software designed within the current decade and the past several
years in particular has given greater consideration to Year 2000 issues.
We have evaluated the Year 2000 readiness of substantially all of the
information technology systems that we use. Based on the results of our
evaluation, we believe our information technology systems are Year 2000
compliant and will not suffer any latent Year 2000 problems. We have also
received certifications from our providers of our non-information technology
systems, such as our phone systems, power supplies and other systems. These
certifications indicate that our non-information technology systems are Year
2000 compliant.
In implementing our Year 2000 compliance program, we have identified and
inventoried Year 2000 sensitive components in our internal systems. We have also
made reasonable efforts to contact vendors and suppliers that provide us with
Year 2000 sensitive components in order to determine the compliance of these
components. The majority of our vendors have certified to us that they are Year
2000 compliant. We have completed our evaluation of substantially all of our
hardware components and have received vendor certification that they are Year
2000 compliant. We have also upgraded all our operating systems to Year 2000
compliant system versions.
Because we are unable to control other companies' products and software, we
are not able to certify that these products and software will not suffer any
errors or malfunctions related to Year 2000. Our suppliers and vendors could
experience latent Year 2000 problems. In addition, although some Year 2000
sensitive components in our internal systems may have passed internal Year 2000
compliance testing by our suppliers or vendors, we do not certify that these
materials or components will perform as tested when used in circumstances not
reflected in the testing.
As of the date of this prospectus, we have not experienced any material
Year 2000 problems relating to our software, computer technology or services,
nor are we aware of any material Year 2000 problems relating to the software,
computer technology or services of any third parties on which we rely. We do not
believe that any aspects of our business are still subject to any material Year
2000 problems.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, or SOP 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. We do not expect that the
adoption of SOP 98-1 will have a material impact on our financial statements.
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BUSINESS
OVERVIEW
We provide Internet direct marketing and communications services. Our
technology infrastructure, software and services enable businesses to market to
and communicate with their customers through personalized and targeted e-mail
messaging campaigns. Our clients access our technology and services, and retain
control of their e-mail campaigns, through the Internet. Our technology platform
is comprised of specialized hardware and software applications which we host for
clients who wish to outsource any or all aspects of e-mail messaging. We also
provide our clients with a full range of e-marketing services on an outsourced
basis to assist our clients in the development, execution and assessment of
their e-mail campaigns.
INDUSTRY BACKGROUND
Many companies have begun to expand their use of Internet-based
technologies to replace or improve traditional operations such as marketing and
advertising. According to Forrester Research, total Internet marketing and
advertising expenditures in the United States will increase from $2.8 billion in
1999 to $22.0 billion in 2002. E-mail has become an increasingly popular choice
for companies to market to and communicate with their customers both through
advertising and direct marketing. According to Forrester Research, the market
for e-mail marketing services will grow from $156.4 million in 1999 to $4.8
billion in 2004.
The significant increase in e-mail as a vehicle for marketing is a
reflection of the cost effectiveness, speed of delivery and higher response
rates of e-mail marketing relative to traditional direct marketing campaigns and
Internet banner advertising. Marketing through e-mail offers a potentially more
effective medium for reaching target audiences and soliciting higher response
rates from recipients. However, to date, a large number of e-mail campaigns for
marketing purposes have principally involved mass e-mailings of promotional
messages. Although these e-mailings are a low-cost method of communication for
many businesses, the unsolicited and untargeted nature of these e-mailings,
commonly referred to as spam, has resulted in relatively low rates of
effectiveness, negative consumer reaction and proposals for legislation to
regulate the activity.
The need for more effective, targeted e-mail has resulted in the
development of permission-based e-mail campaigns. Unlike unsolicited mass e-mail
campaigns, recipients of permission-based e-mails have given their consent to
receive e-mails on specific topics. Given this self-selection, permission-based
e-mail messaging campaigns do not face the same issues as untargeted and
unsolicited mass e-mail campaigns do, and the success rates of permission-based
e-mail messaging campaigns are significantly higher than those of traditional
campaigns. Forrester Research reports response rates for permission-based e-mail
campaigns of 5.0% to 25.0%, compared to response rates of 1.2% to 3.9% for
traditional direct mail marketing methods and an average of approximately 0.7%
for Internet banner advertisements. Another significant benefit of e-mail is the
estimated cost of e-mail as compared to traditional physical mail campaigns.
According to Forrester Research, a traditional catalog mailing costs $0.50 to
$1.00 per catalog, while a highly personalized e-mail campaign costs $0.05 to
$0.10 per e-mail. The combined success rate and cost benefits provide a more
efficient method to reach target customers and provide greater returns on
investment than the available alternatives.
CHALLENGES IN IMPLEMENTING AND OPERATING E-MAIL MESSAGING SYSTEMS
The majority of companies today conduct their commercial e-mail messaging
activities in-house and face several challenges in implementing and operating
their e-mail communications systems. These challenges include the need to
implement, scale, maintain and enhance an e-mail communications system for
commercial e-mail messaging, which require large investments in technology and
staff, as well as dedicated computing facilities. To deliver a high volume of
e-mail messages, companies must
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invest in high bandwidth data facilities, servers that can accommodate a high
volume of e-mail, and software that can be used to develop, send and schedule
campaigns. Companies must also establish a dedicated team of information
technology professionals to maintain, enhance and operate their e-mail
communication systems. In addition, companies require significant expertise in
the following areas to ensure the success of their e-mail messaging efforts:
- Database Management. Companies must develop and maintain databases which
contain accurate e-mail addresses for proposed recipients of e-mail
communications and appropriate demographic, transactional and behavioral
data about the recipients.
- Campaign Management. Companies must have the ability to assemble and
deliver high volumes of personalized e-mail messages, track and analyze
large volumes of individual customer responses and obtain reports
concerning the effectiveness of the campaign while the campaign is being
executed in order to make immediate adjustments.
- Safeguards to Avoid Spam. Companies must have the ability to conduct
high volume e-mail messaging campaigns that will not be identified as
spam. Spam is a major concern among Internet users and ISPs and a number
of jurisdictions have enacted or are considering enacting legislation
banning spam. In addition, many corporations and ISPs utilize software to
block spam. Significant expertise is required both to comply with the
rules and protocols that govern the delivery of high volume e-mail
messaging campaigns and to manage relationships with major ISPs in order
to facilitate the delivery of our e-mail messages.
We believe that as e-mail messaging becomes more heavily used by companies
seeking to market to and communicate with existing and potential customers, the
costs associated with obtaining the required resources and expertise necessary
to successfully address the challenges of implementing e-mail communication
systems in-house will lead many companies to seek an outsourced solution to
their e-mail messaging needs.
THE FLONETWORK SOLUTION
We provide the technology and services needed by businesses to market to
and communicate with their customers using e-mail. Our technology platform is
comprised of specialized hardware and software applications which we host for
clients who wish to outsource any or all aspects of e-mail messaging campaigns.
Our clients access our technology and services, and can retain control of their
e-mail messaging campaigns, through the Internet. We also provide our clients
with a full range of Internet direct marketing and communications services.
We manage all aspects of permission-based e-mail messaging campaigns,
including designing the campaigns, building and managing e-mail address lists,
testing and deploying the campaigns and tracking, reporting and analyzing the
results. Our e-mail messaging services provide our clients with the following
benefits:
Lower Cost of Ownership. By outsourcing their e-mail messaging functions
to us, our clients can reduce their administrative burdens and relieve their
internal information technology departments of the responsibility for
purchasing, installing and maintaining a system required to support in-house
e-mail messaging services. Our technology infrastructure is maintained at our
facilities, where we employ a team of systems administrators who monitor the
network seven days a week, 24 hours a day. Our services eliminate our clients'
need to lease, buy or continually upgrade bandwidth, hardware and software, and
recruit and retain systems engineers and administrative personnel to run and
monitor their e-mail messaging systems and campaigns.
Quicker Time to Market. Many companies attempting to manage their e-mail
messaging needs in-house do not have the resources or expertise to implement a
dedicated e-mail deployment network on a timely basis. By outsourcing their
e-mail messaging functions to us, new clients can begin e-mail
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campaign deployment within one to two months from the signing of a contract with
us, depending on the level of required customization and the complexity of the
e-mail database. Once the initial integration and setup is complete, we can
generally deploy an e-mail messaging campaign in five to 48 hours from the time
we receive a client's list of recipients, e-mail content and permission to
deploy the campaign.
Reliable and Scalable High Volume Deployment. We have developed a network
of specialized servers and software which have been engineered to handle high
volumes of personalized and trackable e-mail messages. E-mails are deployed
through three data centers which are connected to high-speed Internet
connections. We maintain a reliable network by using several server farms in
multiple locations with different ISPs, decreasing our reliance on any single
location or ISP, and monitoring our system seven days a week, 24 hours a day.
The network is designed to be easily scaled to handle large volumes of e-mails.
Web-based Client Control. Our clients have access to our technology
infrastructure, software and services through the Internet, seven days a week,
24 hours a day, giving them control over their e-mail campaigns and enabling
them to organize their campaigns, compose and personalize messages, choose the
time and pace of delivery, perform test campaigns and evaluate reports while the
campaign is being executed.
Personalization. We collect data on customer behavior and response rates
to help our clients target their customers. We also store information on our
clients' customers to create a database of customer value information. This
information enables our clients to make more informed decisions regarding the
content and offer being delivered to their existing and potential customers. Our
clients can also personalize each e-mail to the needs and interests of a
particular recipient based on information contained within the database of
customer value information. Messaging can be personalized by inserting any text
into the subject line, body of the text message or HTML message.
Sophisticated Targeting and Tracking. Our sophisticated e-mail messaging
campaign tracking capabilities allow our clients to more effectively target
their audiences and evaluate the effectiveness of their campaigns. We track
statistics including total dollars spent and total number of transactions
measured by individual customers and by customer segment, pass-along rates of
e-mails sent by the original recipient to other on-line users, rates of
click-throughs from an e-mail to a client's web site, click-through rates at
certain time periods, the number of recipients who have subscribed or
unsubscribed and the number of e-mails that have bounced back.
Instantaneous Reporting. Our Internet-based reports enable our clients to
evaluate the effectiveness of a campaign and to make immediate adjustments to
the campaign during execution. These reports provide transactional and response
statistics which allow our clients to identify their most active customers.
Transactional and response information from these reports can be exported into a
spreadsheet application for further analysis using standard data analysis tools.
We believe that our reporting capabilities represent a significant competitive
advantage compared with that of e-mail service bureaus.
OUR STRATEGY
Our objective is to become a leading provider of e-marketing services. As
part of this strategy we intend to continue to broaden our e-mail messaging
services and to develop other hosted direct marketing applications and services
over the Internet. Key elements of our strategy include:
Expand Our Client Base. We intend to more than double the size of our
direct sales force by the end of 2000. Presently, our sales force focuses
primarily on the e-publishing and e-business markets. As we expand the size of
our sales force, we intend to increase our focus on specific vertical markets in
order to provide our clients with solutions and services tailored to their
particular needs.
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<PAGE> 43
Develop Strategic Relationships. We believe that by strengthening
relationships with our clients and by developing relationships with other
e-marketing companies, we can further strengthen our market position and enhance
the products and services we offer to our clients. For example, we continue to
work closely with CNET to design new and innovative product features and service
offerings. In addition, the relationships we maintain with direct marketers and
e-mail list brokers, including Directmedia.com (formerly known as Acxiom Direct
Media), Grizzard List Services, The Lake Group and Impower, provide a marketing
channel that supplements our direct sales force. We intend to continue to
develop close relationships with clients and e-marketing companies to bring
innovative solutions to market and to expand our client base.
Develop Value Added Services. We are developing additional e-mail
messaging services for customer acquisition, data management, customer service,
campaign management, personalization and content management to provide clients
with a complete e-marketing solution. We will develop some of these services
internally and access others through relationships with third parties. These
additional services will be designed specifically for Internet direct marketing
campaigns to enable our clients to more effectively target their customers and
better evaluate the success of their campaigns.
Create a Network of Resellers. We intend to enter into reseller
arrangements to help establish the FloNetwork brand as the preferred provider of
e-mail messaging services. Under these arrangements, we expect resellers to use
our technology platform to deliver Internet direct marketing and communications
professional services to their clients. We also expect that these resellers will
provide us with services that complement our core offerings. We also believe
that a network of resellers can give us access to additional vertical and
geographical markets, and provide us with greater market reach and revenue
potential.
Enhance and Expand Our Technology. We are investing heavily in research
and development activities to incorporate additional direct marketing features
into the services we provide. In addition, we are continuing to invest in
enhancing the reliability, scalability and performance of our specialized
servers, data centers and network infrastructure to support higher e-mail volume
deployment capacities, a greater degree of personalization and enhanced
targeting capabilities.
Continue to Provide a High Level of Client Service. We will continue to
emphasize the importance of client service throughout our company. We assign
each client an account team that is responsible for the quality execution of
each element of the service delivery process including sales, contract
management, scheduling, set-up, deployment and data administration. We are
highly client-focused and committed to having 100% of our clients act as
positive references for future business.
Build Brand Awareness. We are pursuing an aggressive branding strategy to
promote our technological excellence and our clients' high level of satisfaction
with our services. We intend to establish FloNetwork as the standard for
reliable, high-volume e-mail deployment with exceptional tracking and reporting
capabilities. We plan to expand this brand identity to promote our brand as the
standard for Internet direct marketing and communications services. In pursuing
this strategy, we will continue to participate in key industry associations and
conferences, actively report our service capabilities and client successes to
the trade press and direct marketing community and leverage relationships with
leading Internet direct marketing and communications analysts.
Pursue Strategic Acquisitions and Investments. We plan to evaluate
acquisition and investment opportunities in complementary businesses, products
and technologies. We will explore opportunities that may accelerate our growth,
provide us with new technologies or help us penetrate new markets. Presently, we
do not have any commitments or understandings for acquisitions or investments,
and we are not presently engaged in any negotiations in that regard.
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OUR SERVICES
We provide services that address all aspects of e-mail messaging.
LOGO
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DESIGN OF E-MAIL MESSAGING CAMPAIGNS
<TABLE>
<S> <C>
LOGO - Personalization of E-mail Messages. We provide our
clients with the ability to personalize e-mails through an
Internet browser using customer information stored in a
database. Messages can be personalized by inserting any
text into the subject line or the message, whether in
plain text, HTML or Rich Media formats.
- Targeting E-mails Through Filtering and Segmenting E-mail
Address Lists. Our filtering and segmentation technology
allows our clients to segment their list for a particular
campaign based on the demographic, geographic or
behavioral information contained in the database.
- Targeting AOL Users. Often a large percentage of a
client's mailing list is made up of recipients who are AOL
users, who cannot click-through directly from a universal
resource locator, commonly referred to as a URL, link. We
have developed software that provides active URL links for
these recipients, improving click-through rates for this
important audience.
- Multiple Content Formats for Better Targeting. We can
support and deliver plain text, HTML and Rich Media
messages. This provides clients with the flexibility to
choose the right content for the right message.
- HTML Auto-Sensing for Better Targeting. Our auto-sensing
technology detects whether a recipient is able to view HTML
messages and updates the database accordingly. This
information can be used for all future mailings to ensure
that the highest level of content is sent to the
recipient.
</TABLE>
BUILDING AND MANAGING E-MAIL ADDRESS LISTS
<TABLE>
<S> <C>
LOGO - E-mail Address and Data Hosting. We provide e-mail
address and data hosting services that enable our clients to
store their e-mail address lists. We continually update
the database of response and transactional information
gathered as a result of delivering e-mail messages.
Updating this database with response and transactional
information allows our clients to target their customers
more effectively on future mailings.
- Building E-mail Address Lists from a Client's Web Site.
Our technology enables our clients to build an "enter your
e-mail address here" form on their web sites to capture
subscription requests for e-mail newsletters as well as
user profile information such as age, income, gender, and
occupation. All e-mail addresses and user profile
information entered into the form are automatically
imported into our database providing a centralized point
of data collection and maintenance.
</TABLE>
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<TABLE>
<S> <C>
- E-mail Address List Management. We provide e-mail address
list management services to assist our clients with
maintaining and updating their e-mail lists and with
preparing an e-mail address list in advance of a mailing.
Our technology identifies defective e-mail addresses,
merges multiple e-mail address lists, suppresses duplicate
e-mail addresses and allows filtering of e-mail addresses
or domain names to which we or our clients have had
trouble delivering e-mails in the past or which have
specifically requested not to receive e-mail deliveries
from us. Our technology is designed to ensure that no
e-mail address will receive the same message twice.
Invalid e-mail addresses and bounced back e-mails are
flagged in the database and suppressed from future
mailings. Subscribe and unsubscribe requests are
automatically handled by us and are flagged and updated in
the database.
- Web-Based Subscriber Profile Management. We can host a
branded web page for each of our clients where e-mail
recipients may update their own profiles and unsubscribe
from a mailing list. For example, if the recipient's
e-mail address is going to change, the recipient can go to
the member profile page of the branded web page and
provide a new address which will be reflected
automatically in the database for future mailings.
</TABLE>
TESTING
<TABLE>
<S> <C>
LOGO - Splitting E-mail Messaging Campaigns to Test Different
Offers. Our technology enables clients to create
statistically valid and random e-mail address lists in
order to test a campaign before sending it out to the
entire list. This allows our clients to determine which
messages generate better response rates before deploying a
full campaign. The names used on test lists are
automatically removed from the original list so that they
are not sent the message again when the full mailing is
executed.
- Analyze Performance of Tests in Hours. Tests can be
deployed and the results can be viewed through the Internet.
Our tracking and reporting features allow our clients to
make immediate changes to their campaigns, delay their
campaigns or abort campaigns depending on the response to
the test mailing.
- Quality Control Testing. We test e-mail messages against
leading e-mail packages and web-based e-mail services to
ensure that message format and URL links are optimized for
maximum viewing impact and click-throughs.
- Anti-Spam Testing. New e-mail address lists are sampled
to determine if they give rise to an unusually high number
of complaints. E-mail address lists that result in
unusually high complaints are investigated.
</TABLE>
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DEPLOYMENT OF E-MAILS
<TABLE>
<S> <C>
LOGO - Reliable and Scalable Deployment of E-mails. Our targeted
e-mail delivery system delivers e-mail messages quickly,
reliably and in high volumes. Customizing and
personalizing each e-mail message typically affects volume
throughput. Our services have been optimized to deliver
high volumes of personalized e-mail messages. All messages
are delivered from our data centers, using high speed
Internet connections, which currently provide a high
volume capacity of over 20 million personalized and
targeted e-mail messages per day.
- Direct Client Control Over Deployment. Our services are
hosted on our specialized network of e-mail servers to which
our clients have direct access through the Internet. This
provides our clients with the ability to control the
delivery of their e-mail messaging campaigns. Clients can
change, delay or stop an e-mail campaign at any point
during its deployment. Our clients can also schedule
e-mail messaging campaigns to be deployed at a specific
date and time.
</TABLE>
TRACKING, REPORTING AND ANALYSIS
<TABLE>
<S> <C>
LOGO - Tracking of Specific Online Behavior. We track statistics
that are important to our clients. These statistics include
buy rates measured by total dollars spent, pass-along
rates of e-mails sent by the original recipient to other
on-line users, rates of click-throughs from an e-mail to a
client's web site, click-through rates at certain time
periods, the number of e-mail recipients who have
subscribed or unsubscribed and the number of e-mail
messages that have bounced back. These statistics provide
our clients with the ability to identify their most active
customers and prospects, and those who have specifically
requested not to receive e-mail messages.
- Reporting and Analysis. We capture transactional and
response data from e-mail messages delivered through our
network. This information is captured in standard reports
which can be viewed at the same time as a mailing is being
executed. This information can be exported into a
spreadsheet application for further analysis using
standard data analysis tools.
- Historical Reports on Customers over Multiple Campaigns.
We capture response and transactional data by individual
e-mail address on a continuous basis over multiple
campaigns. Our customer value reports provide our clients
with key statistics such as total purchases and total
number of click-throughs over the last twelve months. This
historical data extends our clients' understanding of
their customers over multiple e-mail messaging campaigns.
</TABLE>
SALES AND MARKETING
We market and sell our services primarily through direct sales
representatives located in Pleasanton, California, Chicago, Illinois, Cos Cob,
Connecticut and Toronto, Ontario. Presently, our sales force is primarily
focused on the e-publishing and the e-business markets. As we expand the size of
our sales force, we intend to increase our focus on specific vertical markets.
We believe that by focusing on
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specific vertical markets we will be able to provide our clients with solutions
and services specifically tailored to their particular needs. As of December 31,
1999, we employed a total of 28 sales and marketing personnel. We plan to
increase the number of sales and marketing personnel significantly in the next
twelve months to over 50 by the end of calendar 2000.
We complement our direct sales force generally through informal, unwritten
and nonbinding relationships with direct marketers and e-mail list brokers who
are in a position to influence their clients' marketing strategies and tactics.
We have relationships with Directmedia.com (formerly known as Acxiom Direct
Media), Grizzard List Services, Impower (formerly known as American List Counsel
interactive) and The Lake Group. We also have an informal marketing relationship
with Michael Tchong, publisher of Iconocast, an Internet marketing newsletter,
who uses our services for the electronic distribution of his newsletter. We
generally pay these direct marketers and e-mail list brokers commissions for
each client that they introduce to us. We plan to enter into additional
relationships in the future.
Our marketing strategy is focused on continuing to develop and promote our
brand as the standard for reliable, high-volume e-mail deployment with superior
tracking and reporting capabilities. We plan to expand this brand identity to
promote our brand as the standard for e-marketing services on the Internet. To
generate qualified leads for our sales team, we focus our marketing efforts on
entities that use direct marketing to promote their products and services, with
an emphasis on e-publishers and e-business merchants. We use a range of
marketing initiatives including exhibits and speaking engagements at key trade
shows, ongoing contact with leading industry analysts, space advertising in
leading direct marketing and Internet magazines, sponsorship of direct marketing
web sites, conferences, industry events and trade associations, and our own web
site. We publish collateral materials including company brochures, feature
descriptions, technology research papers and client case studies.
CLIENTS
We began providing e-mail messaging services in May 1998, and, to date, we
have provided these services to over 100 clients primarily in the e-publishing
and e-business markets. We have concentrated on clients in these markets because
of their e-mail volume potential, the range of e-mail services they require and
their desire for outsourced e-mail solutions.
We typically seek to enter into contracts with our clients for terms of one
to two years. Under these contracts, we commit to meet specified capacity and
campaign delivery standards for delivering our clients' e-mails on a fixed price
basis. These contracts generally do not provide for any minimum usage commitment
by our clients, nor do they provide for any penalty in the event that our
clients terminate the contract early. We generally charge our clients based on
each 1,000 e-mail messages delivered. The rates charged to clients for each
1,000 e-mail messages delivered are determined on a case-by-case basis and vary
depending on the range of services to be provided to the clients and expected
e-mail volume levels.
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For the five months ended December 31, 1999, a two-year e-mail services
contract with CNET and a two-year e-mail services contract with Impower for
services provided to barnesandnoble.com, both of which have contract terms
consistent with the terms described in the previous paragraph, accounted for
17.0% and 10.5% of our revenues, respectively.
Select customers who have signed one to two year contracts with us are
listed below. Most of our other clients have signed contracts for terms of less
than one year or have used our services for a specific number of e-mail
messaging campaigns.
<TABLE>
<S> <C>
AdvanStar Internet World
AIG iPrint.com
barnesandnoble.com Lawnmower Online
Bigstep.com LowestFare.com
Brain.com Meredith Corporation
Broadband Digital Group MicroWarehouse Inc.
Buy.com New Media
Calyx & Corrolla Petstore.com
Chapters Online Shopping4sure.com
CNET Tech Republic
Continental Airlines Thomas Publishing Company
Day Timers Transpoint
DigiTrends ValueAmerica.com
DoubleDay Select Viewsonic
E machines Win Freestuff
Eve.com Worldwide Business Research
Fashionmall.com Ziff Davis Publishing
</TABLE>
CLIENT CASE STUDIES
The client case studies set forth below illustrate the five key aspects of
e-mail messaging and are representative of the ways in which our clients use our
services. For the five months ended December 31, 1999, we received 24.3% of our
revenues from the clients listed below.
<TABLE>
<CAPTION>
CLIENT CURRENT SERVICES SUMMARY OF CASE STUDY
- ----------------- --------------------- -----------------------------------------------
<S> <C> <C>
LOWESTFARE.COM Design of E-mail LowestFare.com, an on-line provider of discount
Campaigns travel services, used our HTML technology and
creative design services to create a compelling
travel promotion aimed at generating new
customers. This HTML promotion resulted in a
higher response than previously attained when
plain text e-mail was used. We started working
with LowestFare.com in September 1999.
</TABLE>
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<TABLE>
<CAPTION>
CLIENT CURRENT SERVICES SUMMARY OF CASE STUDY
- ----------------- --------------------- -----------------------------------------------
<S> <C> <C>
CNET Building and Managing CNET, a new media company, uses our services to
E-mail Lists build and manage their e-mail address lists and
to deliver millions of plain text and HTML
newsletters. We built a direct link between
CNET's web site and the FloNetwork database.
This link enables users to sign up to CNET
newsletters and be instantly included in the
FloNetwork database, which streamlines the
e-mail collection process. Since June 1999,
CNET's subscription growth has increased
nine-fold. This growth represents a significant
increase in CNET's revenue potential from their
mailing lists. We began working with CNET in
June 1999.
VALUEAMERICA.COM Testing Value America Inc. (ValueAmerica.com), an
online electronics and technology superstore,
uses our system to segment and test offers to
their existing customers. ValueAmerica.com can
send several offers to different segments of
their mailing lists and track which one
performs the best. Each mailing list is also
split automatically into plain text and HTML
mailings using our auto-sensing technology. The
different offers and formats are evaluated
before a final offer is generated. Through this
process, we have helped ValueAmerica.com
improve response rates by 200-300% over
standard text, non-tested offers. We began
working with ValueAmerica.com in September
1999.
CONTINENTAL Deployment Continental Airlines, the fifth largest airline
AIRLINES in the U.S., needed reliable e-mail deployment
services using a high quality e-mail database.
Continental also required a deployment process
which would include content from its numerous
marketing partners (hotels, rental car
agencies, etc.) in all mailings. We did
extensive work to improve the quality of
Continental's e-mail database and created a
process which enabled campaigns to be executed
in hours. As a result of this work, we
currently deliver millions of targeted and
measurable messages per month to Continental's
customers. We began working with Continental in
October 1999.
PETSTORE.COM Tracking, Reporting & Petstore.com, an on-line pet supply store, uses
Analysis our advanced reporting services to measure
return on investment from e-mail campaigns. Our
tracking features integrate with Petstore.com's
web site to provide them with information on
purchases resulting from e-mail messaging
campaigns. We began working with Petstore.com
in September 1999.
</TABLE>
CLIENT SERVICES, ACCOUNT MANAGEMENT AND THE SERVICE DELIVERY PROCESS
We emphasize the importance of client service throughout our company. Our
goal is to provide a high level of service and support that results in each
client being a positive reference for future clients.
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An account team is responsible for each client relationship and is led by an
account executive from sales. The team is supported by an account manager, an
inside client services manager, deployment staff, data administrators and a
representative from our executive team. The account team is responsible for the
quality execution of each element of the service delivery process including
sales, contract management, scheduling, set-up, deployment and data
administration. Historically, the number of clients served by each account team
has been relatively small. However, as our number of clients grows, we face the
challenge of serving more clients per account team without compromising service
quality.
TECHNOLOGY
Our proprietary technology is optimized for high volume, personalized
e-mail messaging, complete with back-end reporting and analysis. We have spent
over two years developing this technology. The web-based user interface,
features and functionality were created with a direct marketing application in
mind. By constructing a distributed network of over 100 servers to run the
software and connecting this network to the Internet backbone through our ISPs,
we have created a scalable, reliable e-mail network which is currently capable
of delivering over 20 million, highly personalized and targeted e-mail messages
per day. Our software handles the critical elements of an e-mail messaging
campaign including e-mail delivery, e-mail address list management, targeting,
segmentation, testing, personalization, tracking, real-time reporting, bounced
back e-mail processing and data hosting. We can also deliver e-mail in multiple
formats including plain text, HTML or Rich Media.
ARCHITECTURE
Our technology has been designed to offer a reliable and scalable
operation. The network design is based on a distributed architecture consisting
of Unix OS, Cisco and IBM hardware, Microsoft NT and SQL 7.0 database. Multiple
redundancy is built in to provide parallel processing to enhance the overall
reliability of the system.
The distributed system can be divided into these functional components:
- Data Hosting. Client databases, such as campaign results and profile
information, are warehoused in a secure and reliable environment based on
Microsoft SQL technology. Our proprietary software and design allow us to
leverage advanced Microsoft SQL technology without sacrificing
performance and ease of maintenance.
- Content Management and Personalization. A proprietary client-server
application is used for multi-format management, content configuration,
personalization, e-mail list management and campaign scheduling. The
application architecture can be distributed across multiple hardware
platforms and systems for maximum scalability.
- E-mail Deployment. Our e-mail deployment engine is based on both
proprietary and open source simple messaging transfer protocol, commonly
referred to as SMTP, technology. The open source SMTP technology is
modified to meet our requirement of scaled performance and distributed
server farms.
- Tracking. A centralized tracking and measuring sub-system is used to
collect e-mail campaign statistics from various measurable events such as
e-mails delivered, opened and responded to, and amounts purchased. This
event architecture allows us to increase the overall measurability of the
system with little incremental development.
- Bounced E-mail Processing. Inbound e-mails and bounced e-mails are
sorted and processed through our proprietary distributed server-based
software, which is configurable through rule tables. Processed incoming
e-mails are tracked and reported for further analysis. Customer inquiries
are forwarded to our clients for response.
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- Reporting. We provide reporting capability to our clients through a
secure web-based user interface accessible via a web browser. In
addition, our reports can be exported to a spreadsheet application for
further analysis using standard data analysis tools.
NETWORK OPERATIONS CENTER
Our data and network centers are located at three separate third party
facilities. These facilities are climate controlled, equipped with back up
generators and include service level guarantees for bandwidth uptime, fire
protection and seven days a week, 24 hours a day security surveillance. Our data
centers are connected remotely to our network operations headquarters via a
direct private network with multi-layered security to ensure reliable and secure
remote network management. In building and maintaining the network, we have
focused on reliability, scalability and performance. We are planning to open an
additional remote facility within the next twelve months. The current network is
monitored and managed by our internal operations team of network engineers,
database administrators and network operators for around the clock operation.
SECURITY
Our security system which safeguards client data consists of five layers:
comprehensive security policies and standard operating procedures; control of
access to our technology platform through log-ins and passwords; independent
security audits on server farms; real-time intrusion detection through a
hardware-based firewall; and maintenance of a dedicated emergency response team
providing seven days a week, 24 hours a day surveillance.
COMPETITION
The Internet direct marketing and communications services industry in
general, and the e-mail messaging services industry in particular, is intensely
competitive with few barriers to entry. Accordingly, a number of competitors
entered the market during 1999. We believe that competitive pressures will
increase with new and established companies entering the e-mail messaging
services space.
We compete on the basis of a number of factors including the quality of our
clients and our clients' willingness to act as references, the quality of our
client service, the scalability and reliability of our solution, the
effectiveness of our outsourced model, the technical strength of our reporting
and tracking capabilities, and the direct marketing expertise of our people. We
compete with the information technology departments of current and prospective
clients who use in-house e-mail systems to manage and deliver e-mail messaging
campaigns.
We also compete with companies providing outsourced solutions including
e-mail distribution, list management, reporting and bounce processing, e-mail
consulting and campaign analysis. We compete directly with e-mail service
providers such as Digital Impact, Exactis.com, MessageMedia, Post Communications
and Responsys.com. A number of e-mail service providers also offer customers the
ability to purchase or license software to internally handle their own e-mail
marketing programs. A number of other companies from related market segments
could enter our market, including banner ad networks, e-mail list brokers,
Internet advertising and direct marketing agencies, corporate e-mail services
providers, ISPs, inbound e-mail management companies, customer relationship
management vendors, marketing automation companies, personalization companies
and others with large and established Internet businesses, including portals.
These include companies such as Yesmail.com, Mypoints.com, Cybergold,
NetCreations, Netcentives, Kana Communications, eGain, Mail.com, and Critical
Path.
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INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent upon our
technology and intellectual property. Trademarks, service marks, trade secrets,
copyrights and other proprietary rights, including our trademark flonetwork(TM)
and copyrights covering our software, are important to our success and
competitive position. While we rely on copyright, trade secret and trademark law
to protect our technology and intellectual property, we believe that factors
such as the technological and creative skills of our personnel, new service
developments and frequent service enhancements are more essential to
establishing and maintaining an intellectual property leadership position.
We generally enter into confidentiality agreements with our employees and
consultants. Our confidentiality agreements require our employees and
consultants not to disclose any of our proprietary information that is not
generally available to or generally known by the public. Despite our efforts to
protect our proprietary information, unauthorized parties may attempt to obtain
and use our proprietary information. Policing unauthorized use of our
proprietary information is difficult, and the steps we have taken may not
prevent misappropriation, particularly in foreign countries where the laws may
not protect our proprietary rights as fully as do the laws of the United States
and Canada.
We collect and use data derived from our clients. This creates the
potential for claims to be made against us, either directly or through
contractual indemnification provisions with clients, including copyright or
trademark infringement, invasion of privacy or other legal theories. Although we
carry general liability and umbrella liability insurance, our insurance may not
cover potential claims of this type or may not be adequate to indemnify us for
all liability that may be imposed.
Substantial litigation regarding intellectual property rights exists in the
technology industry. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to us. We expect
that we may face infringement claims as the number of competitors in our
industry segment grows and the functionality of products and services in
different industry segments overlaps. In addition, we believe that many of our
competitors have filed or intend to file patent applications covering aspects of
their technology that they may claim our intellectual property infringes.
Although we currently are not party to any litigation asserting claims that
allege infringement of intellectual property rights, we cannot assure you that
we will not be a party to litigation in the future. Any third party claims, with
or without merit, could be time-consuming to defend, result in costly
litigation, divert management's attention and resources or require us to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us. A successful claim of
infringement against us could harm our business.
GOVERNMENT REGULATION
As the Internet continues to evolve, we expect federal, state or foreign
agencies will adopt regulations covering such issues as user privacy, pricing,
content and quality of products and services. A number of legislative and
regulatory proposals are currently under consideration by federal and state
lawmakers and regulatory bodies and may be adopted with respect to the Internet.
In particular, a number of states have already passed statutes prohibiting
unsolicited commercial e-mail, or spam. A number of statutes have also been
introduced in Congress and state legislatures to impose penalties for sending
unsolicited e-mails which, if passed, could impose additional restrictions on
our business. In addition, a California court recently held that unsolicited
e-mail distribution is actionable as an illegal trespass for which the sender
could be liable for monetary damages.
The adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the projected demand for e-mail services
or increase our cost of doing business. The applicability to the Internet of
existing United States, Canadian and international laws governing issues
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such as property ownership, copyright, trade secret, libel taxation and personal
privacy is uncertain and developing and may take years to resolve.
Any new legislation or regulation or application or interpretation of
existing laws could harm our business, operating results and financial
condition. Additionally, because we expect to expand our operations outside the
United States and Canada, the international regulatory environment relating to
the Internet could harm our business, operating results and financial condition.
PRIVACY CONCERNS
We believe that issues relating to the privacy of Internet users and the
monitoring of online behavior are extremely important. We have a comprehensive
privacy policy which we publish on our web site. We also strictly adhere to
government and industry privacy standards, including those of the Direct
Marketing Association. We are also a member of the TRUSTe Privacy Partnership.
We manage all aspects of permission-based e-mail messaging campaigns, which
involve sending e-mails to individuals who have provided e-mail addresses and
explicitly asked to receive information on specific topics. With each e-mail
sent, individuals are given the opportunity to opt-out or unsubscribe from
receiving any future mailings. Our policy is not to send out unsolicited
commercial e-mail (or "spam") on behalf of our clients. We work with our clients
to maintain a suppression list of e-mail addresses that have opted-out of
receiving any e-mails from us no matter which client is sending the e-mail. We
monitor the mailing lists we receive from clients to make sure the opt-out rate
is low and that the amount of replies to e-mail from concerned or dissatisified
recipients is low. When we encounter a high opt-out rate or a high amount of
inbound e-mail from concerned or dissatisfied recipients, we notify our client
of the possibility that the list being used contains addresses that are not
opt-in. When this occurs, we discontinue the mailing and notify our client of
the high rate of dissatisfaction. We work with our client to determine whether
there is a problem with the offer, the list being used or some other technical
problem. If the list is deemed to be not opt-in, the campaign is discontinued
until an opt-in list is used.
EMPLOYEES
As of December 31, 1999, we employed 91 full-time people, 20 in research
and development, 28 in sales and marketing, 31 in operations, and 12 in finance
and administration. None of our employees is represented by a labor union, and
we consider our relations with our employees to be good.
FACILITIES
Our principal executive and administrative offices are located in a 13,651
square foot leased office facility in Toronto, Ontario. Our principal executive
and administrative offices for the United States are located in a 2,318 square
foot leased facility in Pleasanton, California. We also have a sales office in
Cos Cob, Connecticut and in Chicago, Illinois.
LEGAL PROCEEDINGS
We are not party to any material legal proceedings.
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<PAGE> 55
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth our executive officers, directors and key
employees, their ages and the positions they hold as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Eric Goodwin........................ 58 Chief Executive Officer and Director
John Eckert(1)(2)................... 42 Chairman and Director
Paul Chen........................... 33 Founder and Chief Technology Officer
and Director
Wilson Lee.......................... 33 Chief Financial Officer
Chris Keevill....................... 34 President and Chief Operating
Officer
Craig Rennick....................... 39 Vice President Sales
Peter Evans......................... 37 Vice President Marketing
Regina Brady........................ 52 Vice President Partners and
Strategic Development
Mark Thorburn....................... 39 Vice President Operations and
Technology
Edward Anderson(2).................. 45 Director
Kit Wong(1)(2)...................... 35 Director
John Hayter(1)...................... 59 Director
</TABLE>
- -------------------------
(1) Member of the compensation committee
(2) Member of the audit committee
Set forth below is certain information regarding the business experience
during the past five years for each of the above-named persons.
Eric Goodwin has served as our Chief Executive Officer since July 1, 1999
and as a director since June 1998. From April 1999 to June 1999, Mr. Goodwin
served as a consultant to us. Prior to joining us as a consultant, Mr. Goodwin
served as the Chairman and Chief Executive Officer of Fulcrum Technologies Inc.,
a computer software company that he co-founded in 1983. Mr. Goodwin currently
serves on the board of directors of Olap@Work Inc., a provider of embedded
business intelligence technology. Mr. Goodwin received a Bachelor of Commerce
degree from Carleton University in Ottawa.
John Eckert has served as a director since October 1996. Mr. Eckert is a
co-founder and Managing Partner of McLean Watson Capital Inc., a Toronto-based
venture capital company and the manager of McLean Watson SOFTECH Fund and McLean
Watson Ventures II Fund, each of which invests in information technology
companies. Mr. Eckert has held his position at McLean Watson since 1992. Mr.
Eckert currently serves on the board of directors of IVL Technologies, Ltd.,
Pictorius Incorporated, KyberPASS, and RainMaker Digital Pictures Corp., each an
information technology company. Mr. Eckert received a Bachelor of Arts degree
and an MBA degree from the University of Western Ontario.
Paul Chen founded FloNetwork in 1993 and currently serves as our Chief
Technology Officer and a director. From August 1993 until July 1999, Mr. Chen
served as our Chief Executive Officer. Prior to founding FloNetwork, Mr. Chen
held senior development positions with IBM, Honeywell Inc., a diversified
manufacturing and technology company, and Bell-Northern Research Inc., the
research and
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<PAGE> 56
development subsidiary of Northern Telecom. Mr. Chen received a Bachelor of
Applied Science in Electrical Engineering degree from the University of Toronto.
Wilson Lee has served as our Chief Financial Officer since June 1, 1997.
From September 1990 to June 1997, Mr. Lee worked with Arthur Andersen LLP in
their audit and business advisory practice. Mr. Lee received a Bachelor of
Commerce degree from the University of Toronto and is a Chartered Accountant.
Chris Keevill has served as our President and Chief Operating Officer since
October 1, 1999. From 1994 until joining us, Mr. Keevill served in a variety of
senior executive positions within Bell Canada, most recently as President and
Chief Operating Officer of MediaLinx Inc./Sympatico Inc., a consumer Internet
access service and portal. From March 1998 to May 1999, Mr. Keevill served as
President of New North Media Inc., a company that develops direct marketing
screen phone devices. From October 1998 to May 1999, Mr. Keevill also served as
President of NBTel Global Inc., a subsidiary of BCE Inc., a large
telecommunications holding company. Mr. Keevill received a Bachelor of Business
Administration degree from Acadia University and an MBA from The Ivey School at
the University of Western Ontario.
Craig Rennick has served as our Vice President Sales since August 24, 1998.
From 1996 until joining us, Mr. Rennick served as National Sales Manager of New
North Media Inc. From 1994 to 1996, Mr. Rennick served as Director of Sales and
Marketing of Le Groupe Videotron/UBI, one of the largest cable companies in
Canada. Mr. Rennick received a Bachelor of Arts in Business Administration from
the University of Western Ontario.
Peter Evans has served as our Vice President Marketing since August 17,
1999. From December 1997 until joining us, Mr. Evans served as Director of
Marketing and Research at MediaLinx/ Sympatico. From 1994 to 1997, Mr. Evans
served as the head of the product management team for Bell Canada's Advantage
outbound long distance portfolio. Mr. Evans studied Cognitive Psychology and
Telecommunications Management at the University of Toronto and Ryerson
Polytechnic University, and received an MBA from Queen's University.
Regina Brady has served as our Vice President Partners and Strategic
Development since October 18, 1999. From 1997 until joining us, Ms. Brady served
as the head of Acxiom Direct Media, Inc.'s direct marketing, interactive and
Internet initiatives for business-to-business and consumer clients. From 1986 to
1997, Ms. Brady served as the Director of Interactive Marketing for CompuServe,
Inc., where she focused on strategic development and management of e-commerce,
interactive advertising and direct marketing activities. Ms. Brady received a
Bachelor of Arts degree in English from Pace University in White Plains, New
York and studied communications at Temple University in Philadelphia,
Pennsylvania.
Mark Thorburn has served as our Vice President Operations and Technology
since October 12, 1999. From 1993 until joining us, Mr. Thorburn held various
senior positions with NBTel Global Inc., most recently as Vice President of
Technology for NBTel Global Inc., and Vice President, Operations & Technology,
at New North Media Inc. Mr. Thorburn received a Bachelor degree in Science and
Engineering from Acadia University and the Technical University of Nova Scotia,
and a Masters of Applied Science in Operations Research from the Technical
University of Nova Scotia.
Edward Anderson has served as a director since November 26, 1998. Since
1996, Mr. Anderson has served as Senior Vice President of Ventures West
Management Inc., a venture capital firm based in Vancouver and Toronto that
invests exclusively in high technology companies. From 1994 to 1996, he served
as a vice president at Trillwood Investments Inc., a venture capital firm. He
currently serves on the board of directors of InSystems Technologies Inc.,
InterNetivity Inc., Trimax Retail Systems Inc. and Instrumar Inc., each an
information technology company. Mr. Anderson received a Bachelor of Arts in
Economics from Victoria College at the University of Toronto and an MBA from
York University.
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<PAGE> 57
Kit Wong has served as a director since November 23, 1999. Since 1996, Mr.
Wong has served as a Partner at Sycamore Ventures, a venture capital firm based
in New Jersey. Prior to joining Sycamore Ventures, from 1990 to 1996, Mr. Wong
held various positions at J.P. Morgan & Co., including as a Vice President in
charge of managing the bank's worldwide credit exposure to a portfolio of hedge
funds. Mr. Wong currently serves on the board of directors of Horizon ABS
(China) Holdings, Ltd., an information technology holding company. Mr. Wong
graduated summa cum laude in Mechanical Engineering from The Cooper Union in New
York and received an MBA with honors from Columbia University.
John Hayter has served as a director since June 1, 1998. Mr. Hayter is the
Chairman, Chief Executive Officer and a major shareholder of Vickers and Benson
Companies Limited, a communications and advertising agency. He has held his
position at Vickers and Benson since 1990. Mr. Hayter studied at the University
of New Brunswick.
Pursuant to a shareholders' voting agreement that we entered into with each
of our shareholders in connection with the sale of our preferred shares, Eric
Goodwin, Paul Chen, John Eckert, Edward Anderson, John Hayter and Kit Wong were
elected to our board of directors. This agreement will terminate by its terms
upon the completion of this offering. By our request, all of the directors
elected pursuant to the shareholders' voting agreement have agreed to remain on
the board following this offering.
BOARD COMPOSITION
Our board of directors is comprised of six persons. In accordance with the
provisions of the Business Corporations Act (Ontario), the directors are
authorized to fill vacancies on the board of directors, to increase the size of
the board of directors, to fix the number of directors, up to the maximum of ten
persons currently provided under our articles of incorporation, and to appoint
additional directors, provided that the total number of directors after any
appointment does not exceed one and one-third times the number of directors
required to have been elected at the last annual meeting of shareholders, in
each case without the prior consent of the shareholders. Each director is
elected at the annual meeting of shareholders to serve until the next annual
meeting or until a successor is elected or appointed.
BOARD COMMITTEES
Our board of directors may delegate certain aspects of its responsibilities
to committees of the board. We established an audit committee and a compensation
committee in January 1999. The audit committee consists of Edward Anderson, John
Eckert and Kit Wong. The audit committee reviews the professional services
provided by our independent auditors, recommends the engagement of auditors and
reviews our internal audits.
The compensation committee consists of John Hayter, John Eckert and Kit
Wong. The compensation committee establishes compensation policies and is
responsible for determining cash and equity compensation for executive officers,
including the granting of options under our share incentive plan.
DIRECTOR COMPENSATION
The board of directors may, in its discretion, grant directors options,
restricted share awards or other share-based awards under our share incentive
plan. Our directors receive no cash remuneration for their service on the board
of directors. The board of directors may establish and change the amount of
director remuneration at its discretion. Directors are reimbursed for travelling
and other expenses properly incurred by them in attending meetings of the board
and any meetings of its committees.
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<PAGE> 58
EXECUTIVE COMPENSATION
The following table sets forth the compensation received by the two
officers who served as our Chief Executive Officer during the 12 months ended
December 31, 1999 and a third officer whose salary and bonus during the 12
months ended December 31, 1999 exceeded U.S. $100,000, referred to as the named
executive officers. No other executive officer's salary and bonus during the 12
months ended December 31, 1999 exceeded U.S. $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SHARES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Eric Goodwin(1)...................................... $ 87,834 -- 520,282
Chief Executive Officer
Paul Chen(2)......................................... 100,992(3) -- --
Former Chief Executive Officer and Chief Technology
Officer
Craig Rennick........................................ 76,466 $56,293 60,000
Vice President Sales
</TABLE>
- -------------------------
(1) Mr. Goodwin became our Chief Executive Officer on July 1, 1999. From April
to June 1999, he served as a consultant to FloNetwork.
(2) Mr. Chen resigned as Chief Executive Officer and assumed the position of
Chief Technology Officer on July 1, 1999.
(3) Includes $57,133 paid to Mr. Chen in 1999 for services provided by Mr. Chen
to us prior to January 1, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options
granted to the named executive officers during the 12 months ended December 31,
1999. We have never granted any share appreciation rights. The potential
realizable value is calculated based on the term of the option at its time of
grant. It is calculated assuming that the fair market value of the common shares
on the date of grant appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised and
sold on the last day of its term for the appreciated share price. These numbers
are calculated based on the requirements of the Securities and Exchange
Commission and do not reflect our estimate of future share price growth. The
percentage of total options granted to employees in the last
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<PAGE> 59
fiscal year is based on options to purchase an aggregate of 1,235,382 common
shares granted during the 12 months ended December 31, 1999.
<TABLE>
<CAPTION>
% OF
INDIVIDUAL GRANTS
-------------------------------------------------------------
TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED EXERCISE MARKET OF SHARE APPRECIATION
UNDERLYING TO PRICE PRICE FOR OPTION TERM
OPTIONS EMPLOYEES PER PER EXPIRATION --------------------------------
NAME GRANTED(1) IN 1999(2) SHARE SHARE DATE 0% 5% 10%
---- ---------- ---------- -------- ------ --------------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eric Goodwin(1)...... 520,282 42% $0.87 $1.28 July 1, 2009 $213,316 $632,135 $1,274,686
Paul Chen............ -- -- -- -- -- -- -- --
Craig Rennick(2)..... 40,000 3 1.28 1.28 May 1, 2004 -- 14,145 31,258
20,000 2 2.42 2.42 August 15, 2004 -- 13,372 29,548
</TABLE>
- -------------------------
(1) Each option represents the right to purchase one common share. The options
shown in the table vest in 24 equal monthly installments. At the completion
of this offering, the vesting of these options will be accelerated in part.
See "-- Employment Agreements and Change in Control Arrangements." These
options will become fully vested in the event of a merger in which we are
not the surviving corporation or upon the sale of all or substantially all
of our assets. See "-- Employment Agreements and Change in Control
Arrangements".
(2) Each option represents the right to purchase one common share. The options
shown in the table vest in four equal annual installments. These options
will become fully vested in the event of a merger in which we are not the
surviving corporation or upon the sale of all or substantially all of our
assets and Mr. Rennick's position is terminated without cause. See
"-- Employment Agreements and Change in Control Arrangements".
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR OPTION VALUES
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the named executive officers on
December 31, 1999. None of our named executive officers exercised options in the
12 months ended December 31, 1999. There was no public trading market for the
common shares as of December 31, 1999. Accordingly, the value of these options
have been calculated on the basis of the assumed initial public offering price
of $11.00 per share, less the applicable exercise price per share, multiplied by
the number of shares underlying such options.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eric Goodwin................................. 140,071 400,211 $1,418,919 $4,054,137
Paul Chen.................................... -- -- -- --
Craig Rennick................................ 15,000 105,000 155,400 1,024,600
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
On July 1, 1999, we entered into an employment agreement with Mr. Goodwin
for an indefinite period. Mr. Goodwin receives an annual base salary of
CDN$200,000. We may terminate Mr. Goodwin without cause if we provide him with
three months prior written notice, or instead of notice, we may pay him an
amount equal to the salary and benefits he would have received over the three
month notice period. On July 1, 1999, Mr. Goodwin received options to purchase
520,282 common shares. These
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<PAGE> 60
options have an exercise price of $0.87 per share and vest over two years in 24
equal monthly installments. Upon the consummation of this offering, the vesting
of Mr. Goodwin's options will accelerate such that a number of common shares
issuable under the options equal to the number of common shares that are fully
vested under the options on the date of closing of this offering shall become
fully vested. The remaining unvested shares under the options will vest at a
rate of 43,357 common shares per month until all of such options are vested. If
we are sold or upon certain other events constituting a change in control, all
of Mr. Goodwin's options will automatically become fully vested.
On November 15, 1996, we entered into an employment agreement with Mr. Chen
for an indefinite period. This agreement was amended on May 1, 1999 and March 8,
2000. Under the terms of this agreement, as amended, Mr. Chen receives an annual
base salary of CDN$110,000. We may terminate Mr. Chen without cause if we
provide him with written notice of such termination equal to the aggregate of
one week plus one further week for every full year of Mr. Chen's service with
FloNetwork, or, instead of notice, the salary and benefits he would have
received over the proper notice period.
On September 2, 1998, we entered into an employment agreement with Mr.
Rennick for an indefinite period. This agreement was amended on May 6, 1999 and
October 7, 1999. Under the terms of this agreement, as amended, Mr. Rennick
receives an annual base salary of CDN$125,000. Mr. Rennick is also entitled to
receive an annual bonus and quarterly commissions based the achievement of
corporate targets and personal objectives. We may terminate Mr. Rennick without
cause if we provide him with written notice equal to the aggregate of one week
plus one additional week for every full year of Mr. Rennick's service with
FloNetwork, or, instead of notice, we may pay him an amount equal to Mr.
Rennick's salary and benefits that otherwise would have been paid over the
proper notice period. Mr. Rennick may terminate his employment upon two weeks
written notice. On August 24, 1998, Mr. Rennick received options to purchase
60,000 common shares. These options have an exercise price of $0.64 per share,
and vest in four equal annual installments commencing on August 24, 1998. On May
1, 1999, Mr. Rennick received options to purchase an additional 40,000 shares
with an exercise price of $1.28 per share, which vest in four equal annual
installments commencing on May 1, 2000. On August 15, 1999, Mr. Rennick received
options to purchase 20,000 common shares with an exercise price of $2.42, which
vest in four equal annual installments commencing August 15, 2000. If we are
sold or upon certain other events constituting a change in control, and Mr.
Rennick's position is terminated, all of Mr. Rennick's options will
automatically become fully vested.
SHARE INCENTIVE PLAN
Under our Share Incentive Plan we are authorized to issue an aggregate of
2,200,000 common shares. In addition, beginning on January 1, 2001, the number
of common shares authorized for issuance under the Share Incentive Plan, will
increase by an amount equal to the lesser of 700,000 shares, 4% of our
outstanding shares or a lesser amount determined by our board of directors. As
of December 31, 1999, options to purchase an aggregate of 1,203,020 common
shares at a weighted average exercise price of approximately $1.83 per share
were outstanding under the plan and 69,644 options to purchase common shares had
been exercised. No restricted share awards have been granted under the plan.
The plan provides for the grant of incentive share options intended to
qualify under Section 422 of the United States Internal Revenue Code of 1986, as
amended, non-statutory share options, restricted share awards and other
share-based awards.
All of our officers, employees, directors, consultants and advisors and all
officers, employees, directors, consultants and advisors of our subsidiaries are
eligible to receive awards under the plan. Under present law, however, incentive
share options may only be granted to employees.
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<PAGE> 61
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common shares on the date of grant. Under
present law, incentive share options and options intended to qualify as
performance-based compensation under Section 162(m) of the United States
Internal Revenue Code of 1986, as amended, may not be granted at an exercise
price less than the fair market value of the common shares on the date of grant
or less than 100% of the fair market value in the case of incentive share
options granted to optionees holding more than 10% of the voting power of our
company. The plan permits the board of directors to determine how optionees may
pay the exercise price of their options, including by cash, check or in
connection with a "cashless exercise" through a broker, by surrender of common
shares, by delivery to us of a promissory note or by any combination of the
permitted forms of payment.
Our board of directors administers the plan. The board of directors has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. It may delegate
authority under the plan to one or more committees of the board of directors
and, subject to certain limitations, to one or more of our executive officers.
The board of directors has authorized the compensation committee to administer
the plan, including the granting of options to executive officers. Subject to
any applicable limitations contained in the plan, the board of directors, the
compensation committee or any other committee or executive officer to whom the
board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:
- the number of common shares covered by options and the dates upon which
such options become exercisable;
- the exercise price of options;
- the duration of options; and
- the number of common shares subject to any restricted share or other
share-based awards and the terms and conditions of such awards, including
the conditions for repurchase, issue price and repurchase price.
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to provide for outstanding options or other
share-based awards to be assumed or substituted for by the acquiror and to
accelerate the vesting schedule of awards.
No award may be granted under the plan after August 4, 2003, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. The board of directors may at any time amend, suspend or terminate the
plan, except that no award granted after any amendment of the plan and
designated as subject to Section 162(m) of the United States Internal Revenue
Code of 1986, as amended, by the board of directors shall become exercisable,
realizable or vested, to the extent the amendment was required to grant the
award, unless and until the amendment is approved by our shareholders.
SHARE PURCHASE PLAN
Our Share Purchase Plan authorizes the issuance of up to a total of 500,000
common shares to participating employees.
All of our employees, including our directors who are employees and all
employees of any participating subsidiaries, whose customary employment is more
than 20 hours per week for more than five months in a calendar year, are
eligible to participate in the plan. However, employees who immediately after an
option grant would own 5% or more of the total combined voting power or value of
our shares or the shares of any of our subsidiaries are not eligible to
participate in the plan.
We will make one or more offerings to our employees to purchase shares
under the plan. Our board of directors will determine the dates upon which these
offerings will begin. Each offering
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<PAGE> 62
commencement date will begin a six-month period during which payroll deductions
will be made and held for the purchase of our common shares at the end of the
purchase period.
On the first day of a designated payroll deduction period, or offering
period, we will grant to each eligible employee who has elected to participate
in the purchase plan an option to purchase common shares as follows: the
employee may authorize between 1% and 10% of his or her base pay to be deducted
by us during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option price, to the
extent of accumulated payroll deductions. Under the terms of the purchase plan,
the option price is an amount equal to 85% of the closing price (as defined) per
share of our common shares on either the first day or the last day of the
offering period, whichever is lower. In no event may an employee purchase in any
one offering period a number of shares which is more than 15% of the employee's
annualized base pay divided by 85% of the market value of our common shares on
the commencement date of the offering period. Our board of directors may, in its
discretion, choose an offering period of 12 months or less for each offering and
may choose a different offering period for each offering.
An employee who is not a participant on the last day of the offering period
is not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason, except that upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the employee's account would purchase at the date of death.
Because participation in the purchase plan is voluntary, we cannot now
determine the number of our common shares to be purchased by any particular
current executive officer, by all current executive officers as a group or by
non-executive employees as a group.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Subject to the limitations contained in the Business Corporations Act
(Ontario), our by-laws provide that we may indemnify our directors and officers,
our former directors and officers and any person who acts or has acted at our
request as a director or officer of a body corporate of which our company is or
was a shareholder or creditor, from and against all costs, charges and expenses,
including amounts paid to settle an action or satisfy a judgment in a civil,
criminal or administrative action or proceeding to which they are made parties
because they have been directors or officers. Indemnification of a director or
officer under the Business Corporations Act (Ontario) is possible only if it is
shown that the director or officer acted honestly and in good faith with a view
to our best interests, and, in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, the director or officer
had reasonable grounds for believing that his or her conduct was lawful.
We have authorized and are in the process of entering into indemnity
agreements with each of our directors and officers. Each indemnity agreement
calls for us to indemnify the director or officer against all liabilities in
connection with any claim arising out of the individual's status or service as a
director or officer of FloNetwork, other than claims arising from gross
negligence or willful misconduct. Each agreement also calls for us to advance
expenses incurred by the individual in connection with any action with respect
to which the individual may be entitled to indemnification by FloNetwork.
Currently, there is no pending litigation or proceeding where a current or
past director, officer or employee is seeking indemnification, nor are we aware
of any threatened litigation that may result in claims for indemnification.
We maintain insurance for the benefit of our directors and officers against
liability in their respective capacities as directors and officers. The total
amount of insurance purchased for the directors
57
<PAGE> 63
and officers as a group is $15.0 million. Our directors and officers are not
required to pay any premium with respect to the insurance policy. The policy
contains standard industry exclusions and no claims have been made under the
policy to date.
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<PAGE> 64
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to us regarding
the beneficial ownership of our common shares as of December 31, 1999 and as
adjusted to reflect the sale of common shares in this offering for:
- each person known by us to beneficially own more than 5% of our common
shares;
- each of our directors;
- each of our executive officers named in the Summary Compensation Table;
and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The information is not necessarily
indicative of beneficial ownership for any other purpose. Unless otherwise
indicated, each person or entity named in the table below has sole voting and
investment power (or shares such power with his or her spouse) with respect to
all common shares shown as beneficially owned by them, subject to applicable
community property laws.
Percentage of beneficial ownership is based on 12,898,977 common shares
outstanding as of December 31, 1999, after giving effect to:
- the conversion upon the consummation of this offering of our outstanding
class A preferred shares, class B preferred shares, class C preferred
shares and class D preferred shares into an aggregate of 5,011,134 common
shares (assuming an initial public offering price of $11.00 per share);
- the issuance of 800,000 common shares concurrent with the consummation of
this offering upon the exercise of warrants outstanding as of December
31, 1999 at a weighted-average exercise price of approximately $0.85 per
share; and
- the issuance of 874,870 common shares concurrent with the consummation of
this offering upon the exercise of an option pursuant to an Option
Agreement held by CNET dated September 15, 1999 at a price of
approximately $6.23 per share (assuming an initial public offering price
of $11.00 per share).
The number of common shares deemed outstanding after this offering includes
3,750,000 common shares being offered for sale in this offering, but assumes no
exercise of the underwriters' over-allotment option.
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<PAGE> 65
In computing the number of common shares beneficially owned by a person and
the percentage ownership of that person, common shares subject to options held
by that person that are currently exercisable or exercisable within 60 days
after December 31, 1999 are deemed outstanding. These shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of any
other person. Unless otherwise indicated, the address of each beneficial owner
listed below is c/o FloNetwork Inc., 260 King Street East, Toronto, Ontario,
Canada, M5A 1K3.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON SHARES
BENEFICIALLY OWNED
--------------------
COMMON SHARES PRIOR TO AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
- ---------------- ------------------ -------- --------
<S> <C> <C> <C>
5% Shareholders:
McLean Watson(1)................................... 3,938,246 30.5% 23.7%
Suite 1410
One First Canadian Place
Toronto, Ontario
M5X 1A4
Entities Affiliated with Ventures West Capital
Ltd.(2).......................................... 2,401,350 18.6% 14.4%
20 Adelaide Street East
Suite 1200
Toronto, Ontario
M5C 2T6
Pi-Hsia Hsiao...................................... 1,396,800 10.8% 8.4%
5400 Fallingbrook Drive
Missisauga, Ontario
LSV 1P7
CNET, Inc.(3)...................................... 1,485,180 11.5% 8.9%
150 Chestnut Street
San Francisco, California 94111
Mina Chen Lux...................................... 686,400 5.3% 4.1%
MacDonald Communications
135 W. 50th Street, 16th Floor
New York, New York 10020
Entities Affiliated with Sycamore Ventures(4)...... 641,812 5.0% 3.9%
989 Lenox Drive, Suite 208
Laurenceville, New Jersey 08648
Directors and Executive Officers:
Eric Goodwin(5).................................... 183,427 1.4% 1.1%
John Eckert(6)..................................... 3,938,246 30.5% 23.7%
Paul Chen.......................................... 1,366,800 10.6% 8.2%
Edward Anderson(7)................................. 2,401,350 18.6% 14.4%
John Hayter(5)..................................... 10,000 * *
Kit Wong(8)........................................ 645,021 5.0% 3.9%
Craig Rennick(5)................................... 15,000 * *
All directors and executive officers as a group (12
persons)(9)...................................... 8,910,177 67.3% 52.5%
</TABLE>
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<PAGE> 66
- -------------------------
* Represents beneficial ownership of less than one percent of the common
shares.
(1) Includes 800,000 common shares issuable upon the exercise of warrants
outstanding as of December 31, 1999, which McLean Watson has agreed to
exercise concurrent with the consummation of this offering.
(2) Includes 1,200,675 shares held by Ventures West VI Limited Partnership and
1,200,675 shares held by Bank of Montreal Capital Corporation. Ventures West
Management VI Ltd., a wholly-owned subsidiary of Ventures West Capital Ltd.,
is the general partner of Ventures West VI Limited Partnership. Ventures
West Management TIP Inc., also a wholly-owned subsidiary of Ventures West
Capital Ltd., is the manager of certain investments held by Bank of Montreal
Capital Corporation, including an investment in us.
(3) Includes 874,870 shares issuable upon the exercise of an option pursuant to
an Option Agreement dated September 15, 1999 (assuming an initial public
offering price of $11.00 per share). CNET has agreed to exercise this option
concurrent with the consummation of this offering.
(4) Includes 521,472 shares held by CG Asian-American Fund, L.P. and 120,340
shares held by Princeton Global Fund, L.P. Sycamore Management Corp., a
subsidiary of Sycamore Ventures, is the general partner of the general
partner of CG Asian-American Fund, L.P. and Princeton Global Fund, L.P.
(5) Consists solely of shares issuable pursuant to options that are currently
exercisable or exercisable within 60 days after December 31, 1999.
(6) Consists solely of shares held by McLean Watson. Mr. Eckert is a director of
McLean Watson Capital Inc. which is the parent of McLean Watson. Mr. Eckert
disclaims beneficial ownership of the shares held by McLean Watson.
(7) Consists solely of shares held by entities affiliated with Ventures West VI
Limited Partnership and Bank of Montreal Capital Corporation, which are
managed by affiliates of Ventures West Capital Ltd. Mr. Anderson is a Senior
Vice President of Ventures West Capital Ltd. Ventures West Management VI
Ltd., a wholly-owned subsidiary of Ventures West Capital Ltd., is the
general partner of Ventures West VI Limited Partnership. Ventures West
Management TIP Inc., also a wholly-owned subsidiary of Ventures West Capital
Ltd., is the manager of certain investments held by Bank of Montreal Capital
Corporation, including an investment in us. Mr. Anderson disclaims
beneficial ownership of the shares held by Ventures West VI Limited
Partnership and Bank of Montreal Capital Corporation.
(8) Includes shares held by Princeton Global Fund, L.P. and CG Asian-American
Fund, L.P. Mr. Wong is a partner of Sycamore Ventures. Sycamore Management
Corp., a subsidiary of Sycamore Ventures, is the general partner of the
general partner of Princeton Global Fund, L.P. and CG Asian-American Fund,
L.P. Mr. Wong disclaims beneficial ownership of the shares held by Princeton
Global Fund, L.P. and CG Asian-American Fund, L.P.
(9) Includes 800,000 shares issuable upon the exercise of warrants outstanding
as of December 31, 1999 and 336,760 shares issuable pursuant to options that
are currently exercisable or exercisable within 60 days after December 31,
1999.
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<PAGE> 67
RELATED TRANSACTIONS
Since August 1, 1996, we have engaged in the following transactions with
the following directors, officers, and shareholders who beneficially own more
than 5%, known as 5% shareholders, of any class of our voting securities, and
affiliates of our directors, officers and 5% shareholders.
NOTE FINANCING AND ISSUANCE OF CLASS A PREFERRED SHARES
On March 30, 1998, we issued a promissory note in the principal amount of
$692,521 to 1206832 Ontario Inc., a nominee of McLean Watson and referred to as
McLean Watson. On October 20, 1998, we issued two additional promissory notes in
the aggregate principal amount of $207,756 to McLean Watson and Ventures West VI
Limited Partnership. The notes bore interest at a rate equal to the prime
lending interest rate of a Canadian chartered bank plus 2% per annum. On
November 20, 1998, the outstanding principal amount of these notes was converted
into an aggregate of 130,000 class A preferred shares at a price of $6.93 per
share. The outstanding interest on each of the notes was forgiven by the holders
at the time of the conversion of the notes. In addition, in connection with the
conversion of these notes, we sold an additional 420,000 class A preferred
shares on November 20, 1998 and June 30, 1999 for an aggregate purchase price of
$2,908,587. In connection with the sale of the class A preferred shares we
issued to the purchasers warrants to purchase an aggregate of 2,471,329 common
shares at an exercise price of $0.0003 per share. These warrants were exercised
in full on November 30, 1999 and December 8, 1999.
<TABLE>
<CAPTION>
CLASS A COMMON SHARES ISSUED UPON
NAME PREFERRED SHARES EXERCISE OF WARRANTS
- ---- ---------------- -------------------------
<S> <C> <C>
McLean Watson.................................. 150,000 673,999
Bank of Montreal Capital Corporation........... 200,000 898,665
Ventures West VI Limited Partnership........... 200,000 898,665
</TABLE>
Also on November 20, 1998, McLean Watson exchanged warrants to purchase an
aggregate of 800,000 common shares, which it had acquired in a previous
transaction for warrants to purchase 400,000 common shares at an exercise price
of $1.2812 per share and warrants to purchase 400,000 common shares at an
exercise price of $0.4155 per share. McLean Watson has agreed in writing that it
will exercise these warrants prior to or concurrent with the consummation of
this offering.
All class A preferred shares will be automatically converted into an
aggregate of 346,261 common shares which, upon the consummation of this
offering, will have an aggregate value of $3,808,871 (assuming an initial public
offering price of $11.00 per share).
CLASS B FINANCING
In November 1996 and April 1997, we issued an aggregate of 2,880,000 class
A preferred shares to McLean Watson for a total consideration of $692,521. In
July 1997, we effected a three-for-one share split resulting in 8,640,000 class
A preferred shares outstanding. In November 1998, prior to the issuance of the
class A preferred shares referenced above we exchanged all of these class A
preferred shares for class B preferred shares on a one-for-one basis. All class
B shares will automatically be converted into an aggregate of 1,728,000 common
shares which, upon the consummation of this offering, will have an aggregate
value of $19,008,000 (assuming an initial public offering of $11.00 per share).
CLASS D FINANCING
On November 3, 1999, we issued three non-interest bearing promissory notes
in the principal amounts of $165,900, $82,950 and $82,950 to McLean Watson,
Ventures West VI Limited Partnership
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<PAGE> 68
and Bank of Montreal Capital Corporation, respectively. On November 24, 1999, we
issued 12,033,983 units, each unit consisting of one class D preferred share and
one warrant to purchase 0.10 of a common share, at a price per unit of $1.24647
for a total purchase price of $15,000,000 to the shareholders listed below,
Telepeak Investments, Ltd., Ontario Teachers Pension Plan Board and 10
individual investors. Each of the notes was repaid from the proceeds of that
offering and was cancelled. Of the 12,033,983 units sold by us, an aggregate of
8,580,230 units were sold to the following shareholders:
<TABLE>
<CAPTION>
COMMON SHARES
ISSUABLE UPON
CLASS D EXERCISE OF
NAME PREFERRED SHARES WARRANTS TOTAL CONSIDERATION
- ---- ---------------- ------------- -------------------
<S> <C> <C> <C>
McLean Watson............................. 3,209,062 320,906 $4,000,000
Bank of Montreal Capital Corporation...... 880,486 88,049 1,097,500
Ventures West VI Limited Partnership...... 880,486 88,049 1,097,500
CNET, Inc. ............................... 401,133 40,113 500,000
CG Asian-American Fund, L.P. ............. 2,607,363 260,736 3,250,000
Princeton Global Fund, L.P. .............. 601,700 60,170 750,001
Kit Wong.................................. 16,045 1,605 20,000
</TABLE>
By their terms, all of the warrants issued as part of the units will expire
without being exercised upon the consummation of this offering. All class D
preferred shares will be automatically converted into an aggregate of 2,406,789
common shares which, upon the consummation of this offering, will have an
aggregate value of $26,474,679 (assuming an initial public offering price of
$11.00 per share).
RELATIONSHIP WITH CNET, INC.
On July 19, 1999, we entered into a two-year automatically renewable
contract to provide e-mail messaging services to CNET. Under this contract, we
provide e-mail messaging services in connection with the distribution of CNET's
e-mail newsletters. As of December 31, 1999, we have received a total of
$100,000 from CNET under the agreement.
On September 15, 1999, we issued 2,650,423 class C preferred shares to CNET
at a price of $0.3972 per share for a total purchase price of $1,052,748. All
class C preferred shares will automatically be converted into an aggregate of
530,084 common shares which, upon the consummation of this offering, would
represent an aggregate value of $5,830,924 (assuming an initial public offering
price of $11.00 per share).
We have also provided CNET with an irrevocable option to purchase a number
of common shares which, on the date of exercise, would equal 5% of all of our
issued and outstanding common shares on a fully diluted basis. CNET has agreed
in writing that it will exercise this option to purchase all common shares to
which it is entitled (expected to equal 874,870 common shares upon the
consummation of this offering, assuming an initial public offering price of
$11.00 per share) at a price of approximately $6.23 per share resulting in net
proceeds of approximately $5.4 million from the sale thereof concurrent with the
consummation of this offering.
LOANS FROM EXECUTIVE OFFICERS AND DIRECTORS
On August 1, 1993, Paul Chen, a director and our Chief Technology Officer,
loaned us $148,282 to provide us with initial working capital. This loan was an
interest-free loan. In December 1999, the loan was repaid in full.
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<PAGE> 69
DESCRIPTION OF SHARE CAPITAL
After this offering, we will be authorized to issue an unlimited number of
common shares and an unlimited number of preferred shares. The following is a
summary of the material terms of the common shares and the preferred shares. You
should carefully read our articles of incorporation, as amended to date, and our
by-laws, as amended to date, which are included as exhibits to the registration
statement containing this prospectus.
COMMON SHARES
As of December 31, 1999, we were authorized to issue an unlimited number of
common shares of which 12,898,977 common shares were issued and outstanding and
after giving effect to the automatic conversion upon the consummation of this
offering of our class A, B, C and D preferred shares into an aggregate of
5,011,134 common shares, the issuance of 800,000 common shares concurrent with
the consummation of this offering upon the exercise of warrants outstanding as
of December 31, 1999, and the issuance of 874,870 common shares concurrent with
the consummation of this offering upon the exercise of an option pursuant to an
Option Agreement with CNET dated September 15, 1999 (assuming an initial public
offering price of $11.00 per share). Following this offering (and assuming no
exercise of the underwriters' over-allotment option or of any options
outstanding as of December 31, 1999 or granted thereafter), there will be
16,648,977 common shares outstanding.
Holders of common shares are entitled to one vote per share on all matters
to be voted by the shareholders. Subject to preferences of any outstanding
preferred shares, the holders of common shares are entitled to receive any
dividends the board of directors declares out of funds legally available for the
payment of dividends. Upon the liquidation, dissolution or winding up of
FloNetwork, the holders of common shares are entitled to share all of our assets
remaining after payment of liabilities and after giving effect to the
liquidation preferences of any outstanding preferred shares. All outstanding
common shares are fully paid and non-assessable, and the common shares to be
issued following this offering will be fully paid and non-assessable.
PREFERRED SHARES
Effective upon the consummation of this offering, all of our outstanding
redeemable, convertible class A preferred shares, our 5% cumulative, voting,
convertible class B preferred shares, our voting, convertible class C preferred
shares and our voting, convertible class D preferred shares will convert into
common shares and these classes of preferred shares will be cancelled.
Our articles of incorporation, as amended, will provide that the board of
directors will have the authority, without further action by the shareholders,
to issue an unlimited number of preferred shares in one or more series. The
preferred shares are entitled to dividend and liquidation preferences over the
common shares. The board may also fix the price, rights, privileges and
restrictions of the preferred shares. Special rights which may be granted to a
series of preferred shares may include dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences, any of which may
be superior to the rights of the common shares. Preferred share issuances could
decrease the market price of the common shares and may adversely affect the
voting and other rights of the holders of common shares. The issuance of
preferred shares also could have the effect of delaying or preventing a change
of control of our company.
REGISTRATION RIGHTS
After this offering, the holders of 12,829,333 common shares will be
entitled to require us to register their shares under the Securities Act as
provided in a registration rights agreement between us
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<PAGE> 70
and such holders. Under this agreement, if we propose to register any of our
securities under the Securities Act, either for our account or for the account
of other security holders exercising registration rights, the holders are
entitled to notice of the registration and to include their common shares in the
registration. Additionally, such holders are also entitled to demand
registrations pursuant to which they may, on up to two occasions, require us to
register their common shares under the Securities Act. We are required to use
our best efforts to effect any such registration. We are responsible for paying
the expense of any such registration. Further, such holders may require us to
file six additional registration statements on Form F-3 at our expense. These
registration rights are subject to conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares included
in such registration and our right not to effect a requested registration within
180 days following an offer of our securities pursuant to a Form F-1, including
this offering made hereby.
ANTI-TAKEOVER PROVISIONS
There are provisions of our articles of incorporation, as amended to date,
and of the Business Corporation Act (Ontario) which may hinder or impede
take-over bids. For example, as described above, our board of directors may,
without shareholder approval, issue preferred shares with rights superior to the
rights of the holders of common shares. As a result, preferred shares could be
issued quickly and easily, adversely affecting the rights of holders of common
shares and could be issued with terms calculated to delay or prevent a change in
control of FloNetwork or make removal of management more difficult. In addition,
under the Business Corporations Act (Ontario), certain business combinations,
including a merger or reorganization or the sale, lease, or other disposition of
all or substantially all of our assets, must be approved by at least two-thirds
of the votes cast by shareholders or, in certain cases, holders of each class of
shares. In some cases, a business combination must be approved by an Ontario
court. Shareholders may also have a right to dissent from the transaction, in
which case we would be required to pay dissenting shareholders the fair value of
their shares provided they have followed the required statutory procedures.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING HOLDERS OF COMMON SHARES
There is no law, governmental decree or regulation in Canada that restricts
the export or import of capital, or which would affect the remittance of
dividends or other payments by us to non-resident holders of our common shares,
other than tax withholding requirements. See "Income Tax
Consequences -- Canadian Federal Income Tax Considerations."
There are no limitations imposed by Canadian law or by our articles of
incorporation, as amended to date, or other charter documents, on the right of a
non-resident of Canada to hold or vote our common shares, other than those
imposed by the Investment Canada Act (Canada), as amended and as amended by the
North American Free Trade Agreement Implementation Act (Canada) (NAFTA) and the
World Trade Organization Agreement Implementation Act (Canada). This legislation
subjects an acquisition of control of FloNetwork by a non-Canadian to government
review if the value of our assets at the time exceeds a threshold amount which
is adjusted annually to reflect inflation and the Canadian real growth rate.
Generally speaking, the threshold for review will be higher in monetary terms
for residents or members of the World Trade Organization or NAFTA.
The acquisition of a majority of our voting shares is deemed to be an
acquisition of control. The acquisition of less than a majority but one-third or
more of our voting shares is presumed to be an acquisition of control unless the
acquirer can establish that there is no control in fact by the acquirer through
the ownership of voting shares. The acquisition of less than one-third of our
voting shares is deemed not to be an acquisition of control. Share acquisitions
in the ordinary course of an acquirer's business as a trader or dealer in
securities are exempt from review under this legislation.
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<PAGE> 71
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for our common shares will be Chase Mellon
Shareholder Services. Its address is 111 Founders Plaza, Eleventh Floor, East
Hartford, Connecticut 06108, and its telephone number at this location is (860)
282-3509.
NASDAQ NATIONAL MARKET LISTING
We have applied for the listing of common shares on the Nasdaq National
Market, subject to official notice of issuance, under the symbol "FNWK."
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<PAGE> 72
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for our shares. We
cannot provide any assurance that a significant public market for our common
shares will develop or be sustained after this offering has been completed. The
sale of a substantial number of common shares in the public market, or the
possibility of such a sale, could adversely affect prevailing market prices for
our common shares.
Upon completion of this offering, a total of 16,648,977 of our common
shares will be outstanding, assuming (1) no exercise of the underwriters'
over-allotment option or of any options outstanding as of December 31, 1999 or
granted thereafter, (2) the conversion upon the consummation of this offering of
our class A, B, C and D preferred shares into an aggregate of 5,011,134 common
shares, (3) the issuance of 800,000 common shares concurrent with the
consummation of this offering upon the exercise of warrants outstanding as of
December 31, 1999, and (4) the issuance of 874,870 common shares concurrent with
the consummation of this offering upon the exercise of an option pursuant to an
Option Agreement held by CNET dated September 15, 1999.
All of the common shares sold in the offering will be freely tradable
without restriction under the Securities Act, except by "affiliates" as defined
in Rule 144 under the Securities Act.
Holders of the remaining 12,898,977 common shares outstanding upon
completion of this offering have entered lock-up agreements pursuant to which
they have agreed not to dispose of or hedge any of their common shares for 180
days following the date of the prospectus without the consent of SG Cowen
Securities Corporation on behalf of the underwriters. See "Underwriting."
Upon completion of this offering, options to purchase 1,723,302 common
shares will be held by existing optionees, based on options outstanding at
December 31, 1999. Under the terms of their option agreements, holders of all of
these options have agreed to be bound by a 180-day lock-up.
We intend to file with the Securities and Exchange Commission registration
statements on Form S-8 after the date of this prospectus covering shares issued
under our share incentive plan and employee share purchase plan. The S-8
registration statements will allow holders of common shares that are issued
under our share plans to resell those shares in the public market, without
restriction under the Securities Act subject to the lock-up agreements.
As a result of the lock-up agreements, the S-8 registration statements and
the provisions of Rule 144 and Rule 701 under the Securities Act and the
continued vesting of outstanding options, the common shares outstanding upon
completion of this offering, including shares subject to presently outstanding
options, will be eligible for resale in the public market in the United States
as follows, subject in some cases to Rule 144 limitations:
<TABLE>
<CAPTION>
TOTAL
-----------
<S> <C>
At the date of this prospectus.............................. --
90 days after the date of this prospectus................... --
180 days after the date of this prospectus.................. 11,466,513
Later than 180 days after the date of this prospectus....... 3,155,766
</TABLE>
U.S. RESALE RESTRICTIONS
Upon completion of this offering, 16,648,977 common shares will be held by
U.S. residents or others (including residents of Ontario who acquired common
shares prior to this offering and whose shares were "restricted securities" when
issued), assuming (1) no exercise of the underwriters' over-allotment option or
of any options outstanding as of December 31, 1999 or granted thereafter, (2)
the
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<PAGE> 73
conversion upon the consummation of this offering of our class A, B, C and D
preferred shares into an aggregate of 5,011,134 common shares, (3) the issuance
of 800,000 common shares concurrent with the consummation of this offering upon
the exercise of warrants outstanding as of December 31, 1999, and (4) the
issuance of 874,870 common shares concurrent with the consummation of this
offering upon the exercise of an option pursuant to an Option Agreement held by
CNET dated September 15, 1999. As a result of the lock-up agreements and the
provisions of Rule 144 and Rule 701 under the Securities Act, such shares will
be available for sale in the public market in the United States as set forth in
the table above, subject in some cases to Rule 144 limitations.
In general, under Rule 144, as in effect on the date of this prospectus,
any person, including an affiliate of FloNetwork, who has beneficially owned
common shares for at least one year will be entitled to sell, in any three-month
period, a number of shares that, together with sales of any common shares with
which such person's sales must be aggregated, does not exceed the greater of:
- 1% of the then outstanding common shares; and
- the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks immediately preceding the
date on which such sale is made.
Sales of restricted securities pursuant to Rule 144 are subject to
requirements relating to manner of sale, notice and availability of current
public information about us. Persons who are affiliates of FloNetwork must also
comply with the restrictions and requirements of Rule 144, other than the one-
year holding period requirement, in order to sell common shares in the public
market which are not restricted securities.
Our employees, directors, officers, consultants or advisers may rely on
Rule 701 to resell common shares issued to them, pursuant to written
compensatory benefit plans or written contracts relating to their compensation.
Rule 701 also will apply to shares acquired upon exercise of options granted
before the date of this prospectus, including exercises after the date of this
prospectus. Common shares issued in reliance on Rule 701 are restricted
securities and, subject to the 180-day lock-up agreements described above, may
be sold beginning 90 days after the date of this prospectus:
- by persons other than affiliates of FloNetwork, subject only to the
manner of sale provisions of Rule 144; and
- by persons deemed to be affiliates of FloNetwork under Rule 144 without
compliance with its one-year minimum holding period requirements.
Holders of 12,829,333 common shares will be entitled to require us to
register their common share under the Securities Act, subject to the lock-up
agreements. See "Description of Share Capital -- Registration Rights".
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<PAGE> 74
INCOME TAX CONSEQUENCES
In this section we summarize the material anticipated United States and
Canadian federal income tax considerations relevant to a purchase of shares in
this offering by individuals and corporations which:
- for purposes of the United States Internal Revenue code, the Income Tax
Act (Canada) and the Canada-United States Income Tax Convention, are
resident in the United States and not in Canada and have never been
resident in Canada;
- hold shares as capital assets for purposes of the Internal Revenue Code
and capital property for purposes of the Income Tax Act;
- deal at arm's length with us for purposes of the Income Tax Act; and
- do not use or hold the shares in carrying on a business in Canada and, in
the case of insurers, do not hold shares as designated insurance property
for purposes of the Income Tax Act and, in the case of individual
holders, are also U.S. citizens.
We will refer to persons who satisfy the above conditions as "Unconnected
U.S. Shareholders."
We will assume, for purposes of this discussion, that you are an
Unconnected U.S. Shareholder. The tax consequences of a purchase of common
shares by persons who are not Unconnected U.S. Shareholders may differ
substantially from the tax consequences discussed in this section. The Income
Tax Act contains rules relating to securities held by shareholders that are
financial institutions for the purposes of the Act. We do not discuss these
rules and holders that are financial institutions should consult their own tax
advisors.
This discussion is based upon the current provisions of:
- the Income Tax Act and regulations under the Income Tax Act;
- the Internal Revenue Code and regulations under the Internal Revenue
Code;
- the Canada-United States Income Tax Convention;
- our understanding of the current administrative policies and assessing
practices of the Canada Customs and Revenue Agency;
- all specific proposals to amend the Income Tax Act and the regulations
under the Income Tax Act that have been publicly announced by the
Minister of Finance (Canada) prior to the date of this prospectus;
- the administrative policies published by the U.S. Internal Revenue
Service; and
- judicial decisions;
all of which are subject to change either prospectively or retroactively. We do
not discuss the potential effects of any recently proposed legislation in the
United States and do not take into account the tax laws of the various provinces
or territories of Canada or the tax laws of the various state and local
jurisdictions of the United States or foreign jurisdictions.
WE INTEND THIS DISCUSSION TO BE A GENERAL DESCRIPTION OF THE U.S. FEDERAL
AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS MATERIAL TO A PURCHASE OF COMMON
SHARES. THIS DISCUSSION DOES NOT DEAL WITH ALL POSSIBLE TAX CONSEQUENCES
RELATING TO AN INVESTMENT IN OUR COMMON
69
<PAGE> 75
SHARES. WE HAVE NOT TAKEN INTO ACCOUNT YOUR PARTICULAR CIRCUMSTANCES AND DO NOT
ADDRESS CONSEQUENCES PECULIAR TO YOU UNDER PROVISIONS OF U.S. OR CANADIAN INCOME
TAX LAW. THEREFORE, YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING YOUR
INDIVIDUAL TAX CONSEQUENCES OF PURCHASING COMMON SHARES IN THIS OFFERING.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
As an Unconnected U.S. Shareholder, you generally will include in income
dividend distributions paid by us to the extent of our current or accumulated
earnings and profits. You must include in income an amount equal to the U.S.
dollar value of such dividends on the date of receipt based on the exchange rate
on such date, without reduction for the Canadian withholding tax. You generally
will be entitled to a foreign tax credit, or deduction for U.S. federal income
tax purposes, in an amount equal to the Canadian tax withheld. To the extent
dividend distributions paid by us exceed our current or accumulated earnings and
profits, they will be treated first as a return of capital up to your adjusted
tax basis in the shares, and then as a gain for the sale of exchange of the
shares.
Dividends paid by us generally will constitute "passive income" for
purposes of the foreign tax credit, which could reduce the amount of foreign tax
credit available to you. The Internal Revenue Code applies various limitations
on the amount of foreign tax credit that may be available to a U.S. taxpayer.
Because of the complexity of those limitations, you should consult your own tax
advisor with respect to the potential consequences of those limitations.
Dividends paid by us on the shares generally will not be eligible for the
"dividends received" deductions. An Unconnected U.S. Shareholder which is a
corporation may, under some circumstances, be entitled to a 70% deduction of the
U.S. source portion of dividends received from us if such Unconnected U.S.
Shareholder owns shares representing at least 10% of our voting power and value.
If you sell the shares, you generally will recognize gain or loss in an
amount equal to the difference, if any, between the amount realized on the sale
and your adjusted tax basis in the shares. Any gain or loss you recognize upon
the sale of shares held as capital assets will be long-term or short-term
capital gain or loss, depending on whether the shares have been held by you for
more than one year.
Under current U.S. tax regulations, dividends paid by us on the shares
generally will not be subject to U.S. information reporting or the 31% backup
withholding tax unless they are paid in the United States through a U.S. or
U.S.-related paying agent, including a broker. If you furnish the paying agent
with a duly completed and signed Form W-9 such dividends will not be subject to
the backup withholding tax. You will be allowed a refund or a credit equal to
any amounts withheld under the U.S. backup withholding tax rules against your
U.S. federal income tax liability, provided you furnish the required information
to the Internal Revenue Service.
PERSONAL HOLDING COMPANIES
We could be classified as a personal holding company for U.S. federal
income tax purposes if both of the following tests are satisfied:
- if at any time during the last half of our taxable year, five or fewer
individuals own or are deemed to own more than 50% of the total value of
our shares; and
- we receive 60% or more of our U.S. related gross income from specified
passive sources, such as royalty payments.
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<PAGE> 76
A personal holding company is taxed on a portion of its undistributed U.S.
source income, including specific types of foreign source income which are
connected with the conduct of a U.S. trade or business, to the extent this
income is not distributed to shareholders. We do not believe we are a personal
holding company presently, and we do not expect to become one. However, we can
not assure you that we will not qualify as a personal holding company in the
future.
FOREIGN PERSONAL HOLDING COMPANIES
We could be classified as a foreign personal holding company if in any
taxable year both of the following tests are satisfied:
- five or fewer individuals who are United States citizens or residents own
or are deemed to own more than 50% of the total voting power of all
classes of our shares entitled to vote or the total value of our shares;
and
- at least 60% or 50% in some cases, of our gross income consists of
"foreign personal holding company income," which generally includes
passive income such as dividends, interest, gains from the sale or
exchange of shares or securities, rent and royalties.
If we are classified as a foreign personal holding company and if you hold
shares on the last day of our taxable year, you must include in your gross
income as a dividend your pro rata portion of our undistributed foreign personal
holding company income. If you dispose of your shares prior to such date, you
will not be subject to tax under these rules. We do not believe we are a foreign
personal holding company presently, and we do not expect to become one. However,
we can not assure you that we will not qualify as a foreign personal holding
company in the future.
PASSIVE FOREIGN INVESTMENT COMPANIES
The rules governing "passive foreign investment companies" can have
significant tax effects on Unconnected U.S. Shareholders. We could be classified
as a passive foreign investment company if, for any taxable year, either:
- 75% or more of our gross income is "passive income," which includes
interest, dividends and some types of rents and royalties; or
- the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of "passive income," is 50% or more.
Distributions which constitute "excess distributions," as defined in
Section 1291 of the Internal Revenue Code, from a passive foreign investment
company and dispositions of shares of a passive foreign investment company are
subject to the highest rate of tax on ordinary income in effect and to an
interest charge based on the value of the tax deferred during the period during
which the shares are owned. However, if an Unconnected U.S. Shareholder makes a
timely election to treat us as a qualified electing fund under section 1295, the
above-described rules generally will not apply. Instead, the Unconnected U.S.
Shareholder would include annually in his gross income his pro rata share of our
ordinary earnings and net capital gain, regardless of whether such income or
gain was actually distributed. Tax on this income, however, may be deferred.
In addition, subject to specific limitations, Unconnected U.S. Shareholders
actually or constructively owning marketable shares in a passive foreign
investment company may make an election under section 1296 of the Internal
Revenue Code to mark that stock to market annually, rather than being subject to
the above-described rules. Amounts included in or deducted from income under
this mark to market
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<PAGE> 77
election and actual gains and losses realized upon disposition, subject to
specific limitations, will be treated as ordinary gains or losses.
In addition, special rules apply if we qualify as both a passive foreign
investment company and a "controlled foreign corporation," as defined below, and
an Unconnected U.S. Shareholder owns, actually or constructively, 10% or more of
the total combined voting power of all classes of our shares entitled to vote.
We believe that we will not be a passive foreign investment company for the
current fiscal year and we do not expect to become a passive foreign investment
company in future years. You should be aware, however, that if we are or become
a passive foreign investment company we may not be able to satisfy
record-keeping requirements that would permit you to make a qualified electing
fund election. You should consult your tax advisor with respect to how the
passive foreign investment company rules affect your tax situation, including
the advisability of making an election to treat us as a qualified electing fund
or making a mark to market election.
CONTROLLED FOREIGN CORPORATION
If more than 50% of the voting power of all classes of our shares or the
total value of our shares is owned, directly or indirectly, by citizens of the
United States, U.S. domestic partnerships and corporations or estates or trusts
other than foreign estates or trusts, each of which owns 10% or more of the
total combined voting power of all classes of our shares, we could be treated as
a "controlled foreign corporation" under Subpart F of the Internal Revenue Code.
This classification would effect many complex results, including requiring such
shareholders to include in income their pro rata shares of our "Subpart F
Income," as defined by the Internal Revenue Code. In addition, under Section
1248 of the Internal Revenue Code, gain from the sale or exchange of shares by
an Unconnected U.S. Shareholder who is or was a 10% or greater shareholder at
any time during the five-year period ending with the sale or exchange will be
ordinary dividend income to the extent of our earnings and profits attributable
to the shares sold or exchanged.
We do not believe that we are a controlled foreign corporation and we do
not anticipate that we will become a controlled foreign corporation as a result
of the offering. We are not a controlled foreign corporation presently, and we
do not expect to become one. However, we can not assure you that we will not
qualify as a controlled foreign corporation in the future.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In this section, we summarize the material anticipated Canadian federal
income tax considerations relevant to your purchase of shares.
Under the Income Tax Act, as modified by the Canada-United States Income
Tax Convention, assuming the shares are listed on Nasdaq at all times and that
you are an Unconnected U.S. Shareholder, you will generally be exempt from
Canadian tax on a capital gain realized on an actual or deemed disposition of
the shares if either:
- you did not have a permanent establishment in Canada, and a fixed base in
Canada was not available to you, in each case within the twelve-month
period before the disposition and our shares do not derive their value
principally from real property situated in Canada; or
- you (either alone or together with persons with whom you did not deal at
arm's length for the purposes of the Income Tax Act) did not own or have
interests in or rights to acquire 25% or more of our issued shares of any
class or series at any time during the 60 month period ending at the time
of disposition.
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<PAGE> 78
Dividends paid, credited or deemed to have been paid or credited on the
shares to Unconnected U.S. Shareholders will be subject to a Canadian
withholding tax at a rate of 25% under the Income Tax Act. Under the
Canada-United States Income Tax Convention, the rate of withholding tax
generally applicable to Unconnected U.S. Shareholders who beneficially own the
dividends is reduced to 15%. In the case of Unconnected U.S. Shareholders that
are companies that beneficially own at least 10% of our voting shares, the rate
of withholding tax on dividends is reduced to 5%.
Canada does not currently impose any federal estate taxes or succession
duties; however, if you die, there is generally a deemed disposition of the
shares held at that time for proceeds of disposition equal to the fair market
value of the shares immediately before the death. Capital gains realized on the
deemed disposition, if any, will generally have the income tax consequences
described above.
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<PAGE> 79
UNDERWRITING
FloNetwork Inc. and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to the
terms and conditions of the underwriting agreement, each underwriter has
severally agreed to purchase the number of shares indicated in the following
table at the public offering less the underwriting discounts and commissions set
forth on the cover page of this prospectus. SG Cowen Securities Corporation,
Prudential Securities Incorporated and William Blair & Company, L.L.C. are
acting as the representatives of the underwriters named below.
<TABLE>
<CAPTION>
NAME AMOUNT
- ---- ----------
<S> <C>
SG Cowen Securities Corporation.............................
Prudential Securities Incorporated..........................
William Blair & Company, L.L.C. ............................
----------
Total.................................................. 3,750,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the common shares being offered by us if any shares
are purchased, other than those covered by the over-allotment option described
below.
The underwriters propose to offer the common shares directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriting fee will be an amount equal to the offering price to the public of
the common shares, less the amount paid by the underwriters to FloNetwork per
common share. The underwriters may offer the common shares to securities dealers
at that price less a concession not in excess of per share. Securities
dealers may reallow a concession not in excess of $ per share to other
dealers. After the common shares are released for sale to the public, the
underwriters may vary the offering price and other selling terms from time to
time.
Prudential Securities Incorporated also facilitates the marketing of
securities online through its PrudentialSecurities.com division. Clients of
Prudential Advisor(SM), a full service brokerage firm program, may view offering
terms and a prospectus online and place orders through their financial advisors.
Other than the prospectus in electronic format, the information on the web site
is not part of this prospectus or the registration statement of which this
prospectus forms a part and has not been approved and/or endorsed by FloNetwork
or any underwriter in such capacity and should not be relied upon by prospective
investors.
Our company granted to the underwriters an option to purchase up to an
aggregate of 562,500 additional common shares at the public offering price set
forth on the cover of this prospectus to cover over-allotments, if any. The
option is exercisable for a period of 30 days. If the underwriters exercise
their over-allotment option, the underwriters have severally agreed to purchase
shares in approximately the same proportion as shown in the table above.
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933 and
liabilities arising from breaches of representations and warranties contained in
the underwriting agreement, and to contribute to payments that the underwriters
may be required to make in respect of those liabilities.
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<PAGE> 80
FloNetwork, our directors and executive officers, all principal
shareholders and certain other existing shareholders who hold an aggregate of
13,873,302 shares (including 974,325 shares issuable pursuant to options, all of
which are exercisable within 60 days of December 31, 1999), based on the number
of common shares outstanding as of December 31, 1999, have agreed with the
underwriters or are otherwise subject to agreements which provide that for a
period of 180 days following the date of this prospectus, they will not dispose
of or hedge any shares of common shares or any securities convertible into or
exchangeable for common shares. SG Cowen Securities Corporation may, in its sole
discretion, at any time without prior notice, release all or any portion of the
shares from the restrictions in any such agreement to which SG Cowen Securities
Corporation is a party.
The underwriters have reserved up to 5.0% of our common shares for sale, at
the initial public offering price to directors, officers, employees and specific
existing shareholders, specific clients and third party vendors. The number of
shares available for sale to the general public will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares not purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
common shares in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when the
common shares originally sold by such syndicate member is purchased in a
syndicate covering transaction to cover syndicate short positions. Penalty bids
may have the effect of deterring syndicate members from selling to people who
have a history of quickly selling their shares. In passive market marking,
market makers in the common shares who are underwriters or prospective
underwriters may, subject to certain limitations, make bids for or purchases of
the common shares until the time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common shares to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Prior to this offering, there has been no public market for the common
shares. Consequently, the initial public offering price will be determined by
negotiations between us and the underwriters. The various factors to be
considered in these negotiations will include prevailing market conditions, the
market capitalizations and the states of development of other companies that we
and the underwriters believe to be comparable to us, estimates of our business
potential, our results of operations in recent periods, the present state of our
development and other factors deemed relevant.
We estimate that our out-of-pocket expenses for this offering, excluding
underwriting discounts and commissions, will be approximately $1.0 million.
We have entered into an agreement dated March 6, 2000 with SG Cowen
Securities Corporation which provides that they will act as our exclusive
financial advisor in connection with our general financial strategy and planning
activities for a period of twelve months from the date of that agreement. In
consideration for their services, SG Cowen Securities Corporation will receive a
retainer fee of $50,000, plus a transaction fee in connection with certain
completed transactions.
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<PAGE> 81
LEGAL MATTERS
Certain Canadian legal matters in connection with this offering will be
passed upon on behalf of the company by Blake, Cassels & Graydon LLP, Toronto,
Ontario, our Canadian counsel. Some legal matters under U.S. law in connection
with this offering will be passed upon on behalf of the company by Hale and Dorr
LLP, Boston, Massachusetts, our U.S. counsel. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, Washington, D.C., with respect to United States
law, and Osler, Hoskin & Harcourt LLP, New York, New York with respect to
Canadian law.
EXPERTS
The audited financial statements as of July 31, 1998 and 1999 and December
31, 1999 and for each of the three years ended July 31, 1997, 1998, 1999 and for
the five month period ended December 31, 1999 included in this prospectus have
been audited by Arthur Andersen LLP, independent auditors, as stated in their
reports appearing herein, and have been so included in reliance upon the reports
of that firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form F-1 with the Commission for
the common shares we are offering by this prospectus. This prospectus does not
include all of the information contained in the registration statement. You
should refer to the registration statement and its exhibits for additional
information. Whenever we make reference in this prospectus to any of our
contracts, agreements or other documents, the references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document.
You can read our Commission filings, including the registration statement,
over the Internet at the Commission's web site at http://www.sec.gov. You may
also read and copy any document we file with the Commission at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549; Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also
obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the Commission at 1-800-SEC-0330 for further information on
the operation of the public reference facilities.
Upon completion of this offering, we will become subject to the reporting
requirements of the United States Securities Exchange Act of 1934, as amended,
applicable to foreign private issuers. Accordingly, we have agreed to file with
the Commission reports on Form 10-K and Form 10-Q. We also intend to furnish our
shareholders with annual reports containing consolidated financial statements
prepared in accordance with U.S. GAAP and examined by our independent auditors
and proxy statements that substantially comply with the Commission's proxy
rules. We intend to file our proxy statements with the Commission as part of or
as exhibits to reports under the Securities Exchange Act. We also intend to make
available quarterly reports containing condensed unaudited consolidated
financial information for each of the first three quarters of each fiscal year,
prepared in accordance with U.S. GAAP.
Although the rules of the Nasdaq National Market will require us to solicit
proxies from our shareholders, we will not be subject to the proxy solicitation
requirements of Section 14 of the Securities Exchange Act, and our officers,
directors and 10% beneficial owners will not be subject to the
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<PAGE> 82
beneficial ownership reporting requirements or the short-swing profits recovery
rules of Section 16 of the Securities Exchange Act.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell any of our common shares
and seeking offers to buy our common shares only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of the common shares.
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<PAGE> 83
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 84
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
Report of Independent Chartered Accountants............... F-2
Consolidated Balance Sheets as at December 31, 1999 and
1998, and July 31, 1999 and 1998....................... F-3
Consolidated Statements of Operations for the five months
ended December 31, 1999 and 1998, and the years ended
July 31, 1999, 1998 and 1997........................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)
for the five months ended December 31, 1999 and the
years ended July 31, 1999, 1998 and 1997............... F-5
Consolidated Statements of Cash Flows for the five months
ended December 31, 1999 and 1998 and the years ended
July 31, 1999, 1998 and 1997........................... F-6
Notes to Consolidated Financial Statements................ F-8
</TABLE>
F-1
<PAGE> 85
The foregoing report is in the form that will be signed upon the completion
of the reverse share split described in Note 13 and Note 8 to the financial
statements.
Arthur Andersen LLP
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Directors of
FloNetwork Inc.:
We have audited the consolidated balance sheets of FLONETWORK INC.
(formerly Media Synergy Inc., an Ontario corporation) as at July 31, 1998 and
1999 and December 31, 1999, and the consolidated statements of operations,
shareholders' equity (deficit), and cash flows for each of the three years ended
July 31, 1999 and for the five months ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as at July 31, 1998 and 1999 and December 31, 1999, and the results of its
operations and its cash flows for each of the three years ended July 31, 1999
and for the five months ended December 31, 1999 in accordance with accounting
principles generally accepted in the United States of America.
Arthur Andersen LLP
(unsigned)
January 24, 2000 (except for Note 13 and Note 8
for which the date is , 2000).
Toronto, Canada.
F-2
<PAGE> 86
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 AND 1999 AND DECEMBER 31, 1999
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
JULY 31, DECEMBER 31, PRO FORMA
------------------------- ------------------------- DECEMBER 31,
1998 1999 1998 1999 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
(UNAUDITED) (NOTE 2)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents...................... $ 347,559 $ 919,857 $ 1,518,567 $13,538,042 $57,031,708
Accounts receivable (Note 3)................... 94,143 264,819 45,053 922,346 922,346
Unbilled revenue............................... 1,837 49,427 41,669 -- --
Prepaid and other current assets............... 16,375 52,740 25,741 175,520 175,520
----------- ----------- ----------- ----------- -----------
Total Current Assets............................. 459,914 1,286,843 1,631,030 14,635,908 58,129,574
Restricted cash (Note 3)......................... -- -- -- 20,418 20,418
Deferred costs of issuing common shares (Note
4)............................................. -- -- -- 344,345 --
Property, plant and equipment, net (Note 3)...... 77,548 257,790 120,528 2,004,350 2,004,350
----------- ----------- ----------- ----------- -----------
Total Assets..................................... $ 537,462 $ 1,544,633 $ 1,751,558 $17,005,021 $60,154,342
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities
Loan payable (Note 5).......................... $ 661,400 $ -- $ -- $ -- $ --
Accounts payable and accrued liabilities (Note
3)........................................... 273,485 318,722 247,475 2,023,885 1,679,540
Deferred revenue............................... 18,986 147,561 10,090 105,018 105,018
Due to shareholder (Note 10)................... 44,285 44,285 44,285 -- --
----------- ----------- ----------- ----------- -----------
Total Liabilities................................ 998,156 510,568 301,850 2,128,903 1,784,558
----------- ----------- ----------- ----------- -----------
Redeemable convertible Class A preferred shares,
authorized -- unlimited; issued and outstanding
shares -- 550,000 at December 31, 1999 (Note
7)............................................. -- 1,124,647 895,713 1,369,228 --
----------- ----------- ----------- ----------- -----------
Shareholders' Equity (Deficit) (Note 8)
Class B cumulative, convertible preferred
shares, authorized -- unlimited; issued and
outstanding shares -- 8,640 000.............. 720,419 756,456 735,235 772,215 --
Class C convertible preferred shares,
authorized -- unlimited; issued and
outstanding shares -- 2,650,423 at December
31, 1999..................................... -- -- -- 1,002,748 --
Class D convertible preferred shares,
authorized -- unlimited; issued and
outstanding shares -- 12,033,983, at December
31, 1999..................................... -- -- -- 14,900,000 --
Common shares, authorized -- unlimited; issued
and outstanding shares -- 6,212,973 at
December 31, 1999, 3,672,000 at July 31,
1999, December 31, 1998 and July 31, 1998.... 72 72 72 2,765,532 66,743,026
Additional paid in capital..................... -- 2,763,483 1,767,633 933,193 933,193
Unearned share-based compensation.............. -- -- -- (872,058) (872,058)
----------- -----------
Accumulated deficit............................ (1,181,185) (3,610,593) (1,948,945) (5,994,740) (8,434,376)
----------- ----------- ----------- ----------- -----------
Total Shareholders' Equity (Deficit)............. (460,694) (90,582) 553,995 13,506,890 58,369,784
----------- ----------- ----------- ----------- -----------
Total Liabilities and Shareholders' Equity
(Deficit)...................................... $ 537,462 $ 1,544,633 $ 1,751,558 $17,005,021 $60,154,342
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 87
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1997, 1998 AND 1999
AND THE FIVE MONTHS ENDED DECEMBER 31, 1999
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS ENDED
JULY 31, DECEMBER 31,
------------------------------------- -------------------------
1997 1998 1999 1998 1999
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
E-mail service revenue........... $ -- $ 13,798 $ 431,097 $ 93,402 $ 1,193,429
License and software revenue..... 1,154,536 734,501 346,339 128,436 2,389
---------- ---------- ----------- ---------- -----------
1,154,536 748,299 777,436 221,838 1,195,818
E-mail service cost of revenues.... -- -- 331,034 82,089 741,086
---------- ---------- ----------- ---------- -----------
Gross Margin....................... 1,154,536 748,299 446,402 139,749 454,732
Operating Expenses:
Sales and marketing.............. 647,032 579,794 1,110,511 347,845 1,444,208
General and administrative....... 381,307 387,725 673,947 210,420 583,218
Research and development......... 277,921 559,549 812,840 298,978 540,001
Share-based compensation......... -- -- -- -- 61,135
---------- ---------- ----------- ---------- -----------
Total Operating Expenses........... 1,306,260 1,527,068 2,597,298 857,243 2,628,562
---------- ---------- ----------- ---------- -----------
Loss from Operations............... (151,724) (778,769) (2,150,896) (717,494) (2,173,830)
Interest income, net............... 4,485 4,020 26,323 4,414 70,019
---------- ---------- ----------- ---------- -----------
Loss before income taxes........... (147,239) (774,749) (2,124,573) (713,080) (2,103,811)
Provision for income taxes......... -- -- -- -- (19,996)
---------- ---------- ----------- ---------- -----------
NET LOSS for the period............ $ (147,239) $ (774,749) $(2,124,573) $ (713,080) $(2,123,807)
========== ========== =========== ========== ===========
Accretion of redeemable,
convertible Class A preferred
shares to liquidation value
(Note 7)...................... $ -- $ -- $ (268,798) $ (39,864) $ (244,581)
Convertible Class B preferred
shares dividends (Note 8)..... (27,401) (36,193) (36,037) (14,816) (15,759)
---------- ---------- ----------- ---------- -----------
Net loss attributable to common
shareholders..................... $ (174,640) $ (810,942) $(2,429,408) $ (767,760) $(2,384,147)
========== ========== =========== ========== ===========
Net loss per common share:
Basic and Diluted................ $ (0.05) $ (0.22) $ (0.66) $ (0.21) $ (0.58)
========== ========== =========== ========== ===========
Weighted average common shares
outstanding...................... 3,672,000 3,672,000 3,672,000 3,672,000 4,079,204
Pro forma net loss per common share
basic and diluted (Note 2)....... $ (0.65) $ (0.25)
=========== ===========
Pro forma weighted average common
shares outstanding (Note 2)...... 7,533,203 8,542,962
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 88
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JULY 31, 1997, 1998 AND 1999 AND FOR
THE FIVE MONTHS ENDED DECEMBER 31, 1999
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
COMMON SHARES
UNEARNED ADDITIONAL PREFERRED SHARES ------------------------
SHARE-BASED PAID IN ------------------------ (NOTE 8)
COMPENSATION CAPITAL SHARES AMOUNT SHARES AMOUNT (DEFICIT)
------------ ----------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1996............. $ $ $ 3,672,000 $ 72 $ (195,603)
Issuance of Class B preferred
shares, net of issuance costs of
$63,175.......................... 8,640,000 656,825
Class B preferred shares
dividends........................ 27,401 (27,401)
Net loss........................... (147,239)
--------- ----------- ---------- ----------- ----------- ---------- -----------
Balance, July 31, 1997............. 8,640,000 684,226 3,672,000 72 (370,243)
Class B preferred shares
dividends........................ 36,193 (36,193)
Net loss........................... (774,749)
--------- ----------- ---------- ----------- ----------- ---------- -----------
Balance, July 31, 1998............. 8,640,000 720,419 3,672,000 72 (1,181,185)
Issuance of 12,356,641 warrants
with redeemable, convertible
Class A preferred shares (Note
8)............................... 2,763,483
Accretion of Class A preferred
shares to liquidation value...... (268,798)
Class B preferred shares
dividends........................ 36,037 (36,037)
Net loss........................... (2,124,573)
--------- ----------- ---------- ----------- ----------- ---------- -----------
Balance, July 31, 1999............. 2,763,483 8,640,000 756,456 3,672,000 72 (3,610,593)
Issuance of Class C preferred
shares, net of issuance costs of
$50,000 (Note 8)................. 2,650,423 1,002,748
Issuance of Class D preferred
shares, net of issuance costs of
$100,000 (Note 8)................ 12,033,983 14,900,000
Exercise of 12,356,641 Class A
warrants......................... (2,763,483) 2,471,329 2,764,348
Accretion of Class A preferred
shares to liquidation value...... (244,581)
Class B preferred shares
dividends........................ 15,759 (15,759)
Exercise of employee stock
options.......................... 69,644 1,112
Unearned share-based
compensation..................... (933,193) 933,193
Amortization of share-based
compensation (Note 8)............ 61,135
Net loss........................... (2,123,807)
--------- ----------- ---------- ----------- ----------- ---------- -----------
Balance, December 31, 1999......... $(872,058) $ 933,193 23,324,406 $16,674,963 6,212,973 $2,765,532 $(5,994,740)
========= =========== ========== =========== =========== ========== ===========
<CAPTION>
TOTAL
-----------
<S> <C>
Balance, July 31, 1996............. $ (195,531)
Issuance of Class B preferred
shares, net of issuance costs of
$63,175.......................... 656,825
Class B preferred shares
dividends........................ --
Net loss........................... (147,239)
-----------
Balance, July 31, 1997............. 314,055
Class B preferred shares
dividends........................ --
Net loss........................... (774,749)
-----------
Balance, July 31, 1998............. (460,694)
Issuance of 12,356,641 warrants
with redeemable, convertible
Class A preferred shares (Note
8)............................... 2,763,483
Accretion of Class A preferred
shares to liquidation value...... (268,798)
Class B preferred shares
dividends........................ --
Net loss........................... (2,124,573)
-----------
Balance, July 31, 1999............. (90,582)
Issuance of Class C preferred
shares, net of issuance costs of
$50,000 (Note 8)................. 1,002,748
Issuance of Class D preferred
shares, net of issuance costs of
$100,000 (Note 8)................ 14,900,000
Exercise of 12,356,641 Class A
warrants......................... 865
Accretion of Class A preferred
shares to liquidation value...... (244,581)
Class B preferred shares
dividends........................ --
Exercise of employee stock
options.......................... 1,112
Unearned share-based
compensation..................... --
Amortization of share-based
compensation (Note 8)............ 61,135
Net loss........................... (2,123,807)
-----------
Balance, December 31, 1999......... $13,506,890
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 89
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1997, 1998 AND 1999 AND
THE FIVE MONTHS ENDED DECEMBER 31, 1999
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS ENDED
JULY 31, DECEMBER 31,
------------------------------------- -------------------------
1997 1998 1999 1998 1999
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operations:
Net loss for the period................ $(147,239) $(774,749) $(2,124,573) $ (713,080) $(2,123,807)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 9,465 15,802 37,093 9,993 166,856
Share-based compensation............ -- -- -- -- 61,135
Changes in non-cash working capital
items............................... (208,304) 310,836 (80,819) (35,014) 587,395
--------- --------- ----------- ---------- -----------
Net cash used in operating
activities..................... (346,078) (448,111) (2,168,299) (738,101) (1,308,421)
--------- --------- ----------- ---------- -----------
Cash flows from investing activities:
Purchase of property, plant and
equipment........................... (45,981) (46,460) (217,335) (52,973) (1,913,416)
--------- --------- ----------- ---------- -----------
Net cash used in investing
activities..................... (45,981) (46,460) (217,335) (52,973) (1,913,416)
--------- --------- ----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of Class A
redeemable, convertible preferred
shares and warrants................. -- -- 2,763,502 1,962,082 --
Proceeds from issuance of Class B
cumulative, convertible preferred
shares.............................. 656,825 -- -- -- --
Proceeds from issuance of Class C
convertible preferred shares........ -- -- -- -- 1,002,748
Proceeds from issuance of Class D
convertible preferred shares........ -- -- -- -- 14,900,000
Proceeds from exercise of Class A
warrants............................ -- -- -- 865
Proceeds from exercise of employee
stock options....................... -- -- -- -- 1,112
Repayment of amount due to
shareholder......................... (52,306) (61,891) -- -- (44,285)
Proceeds from loan payable............. -- 661,400 194,430 -- --
--------- --------- ----------- ---------- -----------
Net cash provided by financing
activities..................... 604,519 599,509 2,957,932 1,962,082 15,860,440
--------- --------- ----------- ---------- -----------
</TABLE>
F-6
<PAGE> 90
<TABLE>
<CAPTION>
YEARS ENDED FIVE MONTHS ENDED
JULY 31, DECEMBER 31,
------------------------------------- -------------------------
1997 1998 1999 1998 1999
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS.... 212,460 104,938 572,298 1,171,008 12,638,603
CASH AND CASH EQUIVALENTS, beginning of
period................................. 30,161 242,621 347,559 347,559 919,857
--------- --------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of
period................................. $ 242,621 $ 347,559 $ 919,857 $1,518,567 $13,558,460
========= ========= =========== ========== ===========
SUPPLEMENTAL INFORMATION
Interest paid.......................... $ -- $ -- $ -- $ -- $ --
Income taxes paid...................... $ -- $ -- $ -- $ -- $ (19,996)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 91
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
1. NATURE OF BUSINESS
FloNetwork Inc. (the "Company") was incorporated in Toronto, Ontario in
August 1993 under the name Media Synergy Inc. In November 1999, the Company
changed its name to FloNetwork Inc. Initially its main business was the
development, sale and licensing of multimedia consumer software products. During
1997, the Company identified the opportunity for e-mail to be used on a broader
basis by businesses for e-mail messaging solutions. As a result, in 1997, the
Company began developing an e-mail messaging software application, which would
allow businesses to use e-mail to market to and communicate with their
customers. The Company completed the development of version 1.0 of the software
for this business in November 1998. In January 1999, the Company adopted a
business strategy to offer the software on a hosted basis and focused its
efforts on developing and implementing the infrastructure and network required
to deliver high-volume, targeted and personalized e-mail messages to
permission-based e-mail lists. In addition, the Company began to discontinue the
development, sale and licensing of its multimedia consumer software products to
enable it to focus exclusively on the development of its e-mail messaging
solutions business.
The Company is subject to risks common to rapidly growing technology-based
companies, including a limited operating history, dependence on key personnel,
the need to raise capital, managing rapid growth and technological change,
competition from other service providers, and the need for successful
development and marketing of services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGE OF YEAR END
On December 15, 1999, the Company's Board of Directors approved the change
in its fiscal year end from July 31 to December 31. The change was effective for
the five month period ended December 31, 1999.
UNAUDITED COMPARATIVE RESULTS
The accompanying consolidated balance sheet as at December 31, 1998, and
the consolidated statements of operations, and cash flows for the five months
ended December 31, 1998 are unaudited. The unaudited comparative statements have
been prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments necessary to present fairly the
Company's financial position and its results of operations and its cash flows
for the five months ended December 31, 1998. The financial data and other
information disclosed in these notes to financial statements related to this
period are unaudited.
PRINCIPLES OF CONSOLIDATION
These consolidated statements have been prepared by management in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP") and include the accounts of FloNetwork Inc., and its
wholly owned subsidiary, FloNetwork US Inc. All significant inter-company
accounts and transactions have been eliminated.
F-8
<PAGE> 92
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
USE OF ESTIMATES
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generates revenue from the sale of e-mail messaging services
and typically charges an annual program fee and a variable fee based on the
number of e-mail messages delivered. The annual program fee is recognized evenly
over the term of the contract and the variable fee is recognized as the e-mail
message is delivered. The Company also enters into contractual arrangements with
certain customers to provide e-mail messaging services for a fixed fee which is
invoiced and recognized monthly.
Revenue for integration and development services are recognized upon the
completion of the services, provided there are no remaining significant
obligations and collection of the resulting receivable is probable.
Revenues that have been prepaid or invoiced but do not yet qualify for
recognition under the Company's policies are reflected as deferred revenue.
In October, 1997, the American Institute of Certified Public Accountants
("AICPA") issued SOP 97-2, Software Revenue Recognition, which supercedes SOP
91-1 and is effective for transactions entered into for fiscal years beginning
after December 15, 1997. The Company adopted the provisions of SOP 97-2 for the
year commencing August, 1997. The adoption of SOP 97-2 did not have an impact on
the Company's policy or the results of operation or financial position.
The Company ceased the selling and licensing of its consumer multimedia
software product during the year ended July 31, 1999. The Company previously
recognized sales of its consumer multimedia software as follows:
Software license revenues were recognized upon execution of a contract and
delivery of software, provided that the license fee was fixed and determinable,
no significant production, modification or customization of the software was
required and collection was considered probable by management.
Software license revenues under arrangements which included significant
production, modification or customization of software were recognized under the
percentage of completion method of accounting.
Royalty revenues from licensing agreements containing minimum purchase
clauses were recognized when the product master copy of the software was shipped
or when the Company fulfilled its obligations in accordance with such
agreements. Royalty revenues relating to purchases in excess of the minimum
requirements were recognized as the software was sold by the licensee.
F-9
<PAGE> 93
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of less than 90 days to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosure
About Fair Value of Financial Instruments", requires disclosure concerning the
estimated fair values of certain financial instruments. Financial instruments
consist primarily of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities. The carrying amounts of these financial
instruments approximate fair value based on their liquidity or based on their
short-term nature. Financial instruments also include redeemable, convertible
Class A preferred shares. Due to the uncertainty surrounding the actual date
that the redeemable, convertible Class A preferred shares may be redeemed, in
addition to the actual terms of redemption, it is not practical to determine the
fair value of this financial instrument.
CONCENTRATION OF CREDIT RISK
SFAS No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off-balance sheet risk and credit
risk concentrations.
The Company has no significant off-balance sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
currency hedging arrangements.
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of accounts receivable.
Concentration of credit risk with respect to accounts receivable is limited to
certain customers to whom the Company makes substantial sales. During the five
month period ended December 31, 1999, two customers accounted for 27.5% of the
Company's revenue. During the five month period ended December 31, 1998, two
customers accounted for 52.6% of the Company's revenue. During the fiscal year
ended July 31, 1999, three customers accounted for 41.2% of the Company's
revenue. During the fiscal year ended July 31, 1998, two customers accounted for
61.0% of the Company's revenue.
The Company is exposed to foreign exchange risk in that the Company enters
into sales contracts with certain customers in Canadian dollars. The Company has
not entered into any foreign exchange contracts, option contracts or other
foreign currency hedging arrangements.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company and its subsidiary is the U.S.
dollar. Assets and liabilities denominated in other currencies are translated
using the exchange rates prevailing at the balance sheet date. Revenues and
expenses are translated using average exchange rates prevailing during the
period. Gains and losses on foreign currency transactions are recorded in the
consolidated statements of operations.
F-10
<PAGE> 94
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
DEFERRED COSTS OF ISSUING COMMON SHARES
The Company defers costs directly attributable to a proposed offering of
securities which would then be deducted from the gross proceeds of the offering.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided using the following annual rates:
<TABLE>
<S> <C>
Computer software................................. 100% declining balance
Computer equipment................................ 30% declining balance
Furniture and fixtures............................ 20% declining balance
Leasehold improvements............................ Term of lease
</TABLE>
The Company makes reviews for the impairment of long-lived assets to
determine whether any impairment of these assets has occurred. In accordance
with SFAS No. 121, an impairment loss would be recognized when estimates of
future cash flows expected to result from the use of an asset and its eventual
disposition are less than its carrying amount. No such impairment losses have
been identified by the Company to date.
SOFTWARE DEVELOPMENT COSTS
Under SFAS No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed", capitalization of computer software
development costs is to begin upon the establishment of technological
feasibility, limited to the net realizable value of the software product, and
cease when the software product is available for general release to customers.
Amortization is to be computed on each product based upon the greater of the
amount computed on units sold basis (ratio of gross product revenue to
anticipated future gross revenue for that product) or straight-line basis over
the remaining estimated economic life of the product. Costs of maintenance and
customer support are to be charged to expense when related revenue is recognized
or when those costs are incurred, whichever occurs first.
The Company incurs software development costs. The Company has determined
that technological feasibility occurs late in the development cycle and close to
general release of the products. The development costs incurred between the time
technological feasibility is established and general release of the product are
not material; accordingly, the Company expenses these costs as incurred.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
F-11
<PAGE> 95
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109,
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and
liabilities are determined based on temporary differences between the financial
statement and tax bases of assets and liabilities and net operating loss and
credit carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
A provision for income tax expense is recognized for the taxes payable for the
current period, plus the net changes in deferred income tax.
ACCOUNTING FOR SHARE-BASED COMPENSATION
The Company's employee stock option plan is accounted for in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions required under SFAS 123, "Accounting for Stock-Based Compensation."
PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1999 (UNAUDITED)
Upon completion of an Initial Public Offering ("IPO"), the Company's Class
A Preferred shares will be converted at their redemption value, on the basis
described in Note 7. The Company's Class B, C and D Preferred shares will
convert on a one-for-one basis (post reverse split are convertible into 1/5 of a
common share) into shares of the Company's common shares. Holders of the
warrants (Note 8) and option (Note 8) have served notice to the Company of their
intent to exercise and convert their respective securities into common shares.
These conversions and the IPO have been reflected in the pro forma consolidated
balance sheet.
After the conversion of the preferred shares and exercise of the warrants
and options, the common shares will be the only class of shares of the Company
outstanding.
NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted net loss per share is computed by giving effect to all
dilutive securities convertible into common shares, including options, warrants
and preferred shares. Options, warrants and preferred shares were not included
in the computation of diluted net loss per share for the periods presented, as
the effect would be anti-dilutive.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the conversions
of the Company's Class A, B, C, and D Preferred Shares, and the exercise of
warrants and options, effective upon the closing of the Company's IPO, as if
such conversions occurred on August 1, 1998, or the date of issuance of the
preferred shares if later.
F-12
<PAGE> 96
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The following table sets forth the computation of basic and diluted
historical and pro forma loss per share:
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED JULY 31, DECEMBER 31,
------------------------------------- -------------------------
1997 1998 1999 1998 1999
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL
Net loss attributable to common
shareholders(A).................. $ (174,640) $ (810,942) $(2,429,408) $ (767,760) $(2,384,147)
Weighted average number of common
shares(B)........................ 3,672,000 3,672,000 3,672,000 3,672,000 4,079,204
---------- ---------- ----------- ---------- -----------
Loss per common share:
Basic and diluted(A/B)........... $ (0.05) $ (0.22) $ (0.66) $ (0.21) $ (0.58)
========== ========== =========== ========== ===========
PRO FORMA
Net loss attributable to common
shareholders..................... $(2,429,408) $(2,384,147)
Add: Class B preferred dividends... 36,037 15,759
Add: Accretion of Class A preferred
shares to liquidation value
charged in period................ 268,798 244,581
Less: Accretion of unamortized
discount on Class A preferred
shares to liquidation value...... $(2,795,601)
----------- -----------
Pro forma net loss attributable to
common shareholders(A)........... $(4,920,174) $(2,123,807)
=========== ===========
Pro forma weighted average number
of common shares(B).............. 7,533,203 8,542,962
----------- -----------
Pro forma loss per common share:
Basic and diluted(A/B)........... $ (0.65) $ (0.25)
=========== ===========
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Standards Accounting Board ("FASB") issued SFAS
No. 130, "Reporting of Comprehensive Income". SFAS No. 130 requires disclosure
of all components of comprehensive income on an annual and interim basis.
Comprehensive income is defined as the change in shareholders' equity (deficit)
of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. The Company adopted SFAS No. 130 effective
June 1997. For the years ending July 31, 1997, 1998, and 1999 and for the five
month period ending
F-13
<PAGE> 97
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
December 31, 1999 there were no differences between the net loss reported during
the fiscal periods and the comprehensive loss for the period.
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position No 98-1, or SOP 98-1, "Software for Internal Use"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The adoption of
SOP 98-1 did not have a material impact on the Company's financial statements.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
No. 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
SFAS No. 133 will be effective for fiscal years beginning after June 15, 2000.
The Company does not currently hold derivative instruments or engage in hedging
activities.
3. FINANCIAL STATEMENT COMPONENTS
CASH AND CASH EQUIVALENTS
The Company has entered into lease agreements for some of its computer
hardware and software. The lessor has required that $20,418 be held by the bank
as letters of credit.
ACCOUNTS RECEIVABLE
Accounts receivable are net of an allowance for doubtful accounts of
$29,575 and $24,799 at July 31, 1998 and 1999, and $4,838 and $23,255 at
December 31, 1998 and 1999, respectively.
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
---------------------
JULY 31, DECEMBER 31,
---------------------- ---------------------
1998 1999 1998 1999
-------- ----------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software................ $ 69,136 $265,682 $112,637 $1,785,662
Furniture and fixtures......................... 25,240 44,308 34,225 154,497
Leasehold improvements......................... 13,807 15,528 14,294 298,775
-------- -------- -------- ----------
108,183 325,518 161,156 2,238,934
Accumulated depreciation and amortization...... (30,635) (67,728) (40,628) (234,584)
-------- -------- -------- ----------
Net book value................................. $ 77,548 $257,790 $120,528 $2,004,350
======== ======== ======== ==========
</TABLE>
F-14
<PAGE> 98
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
------------------------
JULY 31, DECEMBER 31,
------------------- ------------------------
1998 1999 1998 1999
-------- -------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accounts payable............................... $131,751 $161,534 $ 99,624 $1,151,423
Accrued compensation........................... 49,008 93,601 14,054 340,388
Other accrued liabilities...................... 92,726 63,587 133,797 532,074
-------- -------- -------- ----------
$273,485 $318,722 $247,475 $2,023,885
======== ======== ======== ==========
</TABLE>
FOREIGN CURRENCY
Included in operating expenses are gains (losses) on foreign currency
transactions. For the year ended July 31, 1997, 1998 and 1999, gains (losses)
were ($12,805), $32,857 and ($19,618), respectively. For the five months ended
December 31, 1998 and 1999, gains (losses) were $(43,538) and $97,321,
respectively.
4. DEFERRED COSTS OF ISSUING COMMON SHARES
At December 31, 1999, the Company has incurred professional fees of
$344,345 in connection with a proposed offering of common shares.
5. LOAN PAYABLE
On March 30, 1998, the Company issued a term promissory note, convertible
into common shares, at a price equal to CDN $1.11 for each common share, or at
the price per share at which common shares are issued and sold pursuant to a
private placement, resulting in gross proceeds of $661,400. Additional term
promissory notes were issued in October 1998, with proceeds of $194,430 received
by the Company. The notes bear interest at CDN prime plus 2%, beginning at the
earliest of April 1999 or when the Company is deemed to be in default of the
loans. On November 20, 1998, the loans, under a new financing agreement, were
converted to redeemable, convertible Class A preferred shares (see Note 7), and
are included as part of the proceeds of $3,651,450 from the November 20, 1998
private placement of redeemable, convertible Class A preferred shares.
6. COMMITMENTS
OPERATING LEASES
The Company leases office facilities under operating leases which generally
require the Company to pay a share of operating costs, including property taxes,
insurance and maintenance. Rent expense totaled approximately $26,590, $53,831
and $69,958 in the years ended July 31, 1997, 1998 and 1999, respectively. Rent
expense totaled approximately $25,928 and $63,889 in the five month periods
ended December 31, 1998 and 1999, respectively.
F-15
<PAGE> 99
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
Future minimum operating lease payments for facilities and equipment for
the years ending December 31 pursuant to leases outstanding as at December 31,
1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 607,410
2001........................................................ 375,692
2002........................................................ 157,000
2003........................................................ 78,477
2004........................................................ 61,350
----------
$1,279,929
==========
</TABLE>
7. REDEEMABLE CONVERTIBLE CLASS A PREFERRED SHARES
In November 1998, the Company exchanged the issued and outstanding Class A
preferred shares for Class B preferred shares on a one for one basis, and
amended its articles of incorporation to cancel the authorized class of Class A
preferred shares. The Class B preferred shares are entitled to similar rights as
the prior Class A preferred shares. In addition, a new class of unlimited
redeemable, convertible Class A preferred shares were authorized. This share
exchange has been applied retroactively for all periods presented.
Immediately subsequent to the above transactions, the Company completed a
private placement, in two closes, for total proceeds of $3,651,450 whereby
550,000 of the new redeemable, convertible Class A preferred shares were issued.
The first close of the financing took place in November 1998 for proceeds of
$2,655,600 and the second close took place in June 1999 for proceeds of
$995,850. Total issuance costs of $32,118 were incurred and charged against the
redeemable, convertible Class A preferred share account.
The redeemable, convertible Class A preferred shares are redeemable at the
option of the holder at the earlier of November 19, 2003 or at the time of
completion of an Initial Public Offering ("IPO"). If an IPO is completed, and,
if in the opinion of the lead underwriter of the IPO, cash redemption is not in
the best interests of the Company, the Class A preferred shares will be
converted to common shares. The number of common shares issuable on conversion
will be equal to CDN $5,500,000 divided by the IPO common share issue price.
In connection with the private placement, the Company issued warrants to
purchase 2,471,329 common shares for CDN $0.0005 per share. The fair value of
the warrants at the time of issuance was CDN $1.85 per warrant. During the year
ended December 31, 1999 all Class A warrants were exercised. (See Note 8).
The net proceeds of the private placement have been allocated to the
warrants (as additional paid in capital) based on the excess of the fair value
at the date of issuance of the warrants over the exercise price of the warrants.
The $855,849 allocated to the Class A preferred shares is the excess of proceeds
over the amount allocated to the warrants (see Note 8 for the allocation to the
warrants). The Class A preferred shares, if redeemed, are redeemable at CDN $10
per share or a total redemption value of
F-16
<PAGE> 100
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
CDN $5,500,000 (U.S. equivalent of $3,651,450 at July 31, 1999 and $3,736,150 at
December 31, 1999).
The discount on the Class A preferred shares is being amortized over their
term, to the fixed date of redemption, November 19, 2003. As at July 31, 1999,
$268,798 had been amortized. As at December 31, 1999, $513,379 had been
amortized.
8. SHAREHOLDERS' CAPITAL
SHARE SPLITS
Share information for all periods has been retroactively restated to
reflect the following:
- 61,200-for-1 common share split on its then issued 100 common shares
effected November 12, 1996, resulting in 6,120,000 common shares
outstanding;
- 3-for-1 preferred and common share split effected July 30, 1997, on its
then issued 2,880,000 Class A preference shares and 6,120,000 common
shares, resulting in 18,360,000 common shares and 8,640,000 Class A
preference shares;
- 1-for-5 reverse common share split on its then issued 18,360,000 common
shares, warrants and options or rights to acquire common shares which was
declared and approved by the Company's Board of Directors on December 15,
1999 to be effective prior to the effective date of the Company's IPO. In
connection with the reverse common share split, the conversion ratio of
the Class A, B, C, and D preferred shares was adjusted accordingly, and
upon completion of an IPO, each preferred share is convertible into 1/5
of a common share.
On November 20, 1998 the Company exchanged the 8,640,000 issued and
outstanding Class A preference shares, for 8,640,000 Class B preferred shares
(See Note 7).
CLASS B PREFERRED SHARES
The Class B preferred shares are voting, convertible on a share for share
basis into common shares (post reverse share split are convertible into 1/5 of a
common share) and are entitled to cumulative dividends at a rate of 5% per annum
of the stated capital of the Class B preferred shares. Upon completion of an
IPO, the Class B preferred shares are deemed to have been converted into common
shares.
Included in the balance attributed to Class B preferred shares are arrears
of cumulative dividends of $63,594 and $99,631, at July 31, 1998 and 1999 and
$78,410 and $115,390, at December 31, 1998 and 1999 respectively.
CLASS C PREFERRED SHARES
On September 15, 1999, the Company amended its articles of incorporation to
create an unlimited number of voting, convertible Class C preferred shares. The
Company issued 2,650,423 Class C preferred shares to one of its major customers
for $0.3972 per share (fair value at date of issuance) for total cash proceeds
of $1,052,748. Each Class C preferred share is convertible into common shares on
a
F-17
<PAGE> 101
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
share for share basis (post reverse share split are convertible into 1/5 of a
common share) and subject to an adjustment for dilution that may occur from
future equity transactions. The convertible Class C preferred shares convert
automatically to common shares in the event of an IPO.
As a part of this financing, the above shareholder was granted an option to
purchase common shares equal to 5% of all the issued and outstanding common
shares on a fully diluted basis. The exercise price for the options was to be
determined based on the subsequent equity financing yielding a minimum of
$2,000,000 in proceeds. As of result of the Class D financing described below,
the exercise price was determined to be $6.23235 per common share (post reverse
share split). The option expires at the earliest of: (i) September 15, 2001;
(ii) 30 days following the completion of an IPO; or (iii) 90 days after
termination or expiration of the e-mail services agreement entered into between
the Company and the shareholder.
CLASS D PREFERRED SHARES
On November 24, 1999, the Company amended its articles of incorporation to
create an unlimited number of voting, convertible Class D preferred shares. The
Company issued 12,033,983 convertible Class D preferred shares and 2,406,794
warrants entitling the holder to purchase one half of a common share at a price
of $0.05 per common share for total proceeds of $15,000,000. The warrants become
exercisable on December 31, 2000 and expire the earliest of (i) December, 31,
2005; (ii) the date of completion of an IPO; or (iii) the date the current
shareholders of the Company cease to hold a majority of the voting rights as a
result of a merger, acquisition or similar transaction. The holders of
convertible Class D preferred shares are entitled to receive cash dividends, if
declared by the Board of Directors, at the rate of $0.124647 per share per
annum.
The Class D preferred shares convert automatically to common shares: (i)
upon the consent of a majority of the outstanding Class D preferred
shareholders, at any time; or (ii) upon the completion of an underwritten public
offering that is priced so as to reflect a valuation of the Company of not less
than $125,000,000 and results in gross proceeds to the Company of not less than
$20,000,000 in cash. Each convertible Class D preferred share is convertible
into common shares on a share for share basis (post reverse share split are
convertible into 1/5 of a common share) and subject to adjustment for dilution
that may occur from future equity transactions.
All proceeds from the sale and issuance of Class D (preferred shares and
warrants) have been allocated to the Class D preferred shares. The units have
been recorded at fair value as preferred shares with a stated value of
$14,900,000 (net of issuance costs of $100,000) on the balance sheet with no
separate allocation of fair value between each security.
WARRANTS
On November 12, 1996, as part of a private placement of Class B preferred
shares, the Company granted certain rights to an Investor. These rights entitled
the Investor to be paid a 40% annual compound rate of return on its investment
in the event of a change in control, other than by way of a prospectus offering.
F-18
<PAGE> 102
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
On November 20, 1998, as part of a private placement of Class A preferred
shares, the 40% annual compound rate of return, given as part of the Class B
financing, was given up as a condition to closing the Class A financing. In
exchange for giving up these rights, the Company issued warrants entitling the
Investor to purchase 400,000 common shares. The issuance of these warrants was
intended to replace rights granted as of November 1996 and as such were deemed
to have been granted as of November 1996. The exercise price of CDN $0.60 for
the warrants was equal to the fair value of the Company's shares at November
1996. The warrants are exercisable at any time until the earlier of November 20,
2003 or at the time of completion of an IPO.
In connection with the issuance of a term promissory note on March 30,
1998, the Company issued warrants entitling the holder to purchase 400,000
common shares, exercisable at any time until the earlier of March 30, 2001 or on
completion of an IPO. The exercise price of the warrants was initially set at
CDN $1.11 per common share. However, in the event a private placement was
completed prior to March 30, 1999, the exercise price of the warrants would be
adjusted to equal the price per share of such private placement. On November 20,
1998, the Company completed a private placement of its Class A preferred shares.
As a result, the Company cancelled the outstanding warrants granted on March 30,
1998 and replaced them with warrants entitling the holder to purchase 400,000
common shares at an exercise price of CDN $1.85 per common share (based on the
fair value of the common shares at the date of issue). The warrants are
exercisable at any time until the earlier of March 30, 2001 or on completion of
an IPO.
In connection with the issuance of redeemable, convertible Class A
preferred shares, the Company issued 2,471,329 warrants entitling the holder to
purchase an aggregate of 2,471,329 common shares. Each warrant entitles the
holder to purchase one common share. On November 20, 1998, the Company issued
1,439,578 warrants and on June 30, 1999, the Company issued the remaining
1,031,751 warrants. The warrants are exercisable at any time until the earlier
of five years from the date of issuance, or any time until 30 days following the
completion of an Initial Public Offering by the Company, at an exercise price of
CDN $0.0005 per common share. Based on the fair value of the warrants at the
time of the grant (CDN $1.85), the warrants were recorded as additional paid in
capital in the amount of $2,763,483.
On November 30, 1999, 673,999 Class A warrants issued in connection with
the issuance of redeemable, convertible Class A preferred shares were exercised.
The remaining 1,797,330 Class A warrants, were exercised on December 8, 1999.
The warrants were exercised for an aggregate 2,471,329 common shares for total
proceeds of $865. Following the exercise of the warrants, the balance remaining
in additional paid in capital was transferred and added to the stated capital of
the Company's common shares.
EMPLOYEE STOCK OPTION PLAN AND OTHER MANAGEMENT OPTIONS
Effective December 15, 1999, the Company's Board of Directors approved a
number of actions including an increase in common shares issuable under the
Company's Employee Stock Option Plan (the "ESOP"), and the adoption of an
Employee Share Purchase Plan (the "ESPP").
The ESOP provides for the grant of options to purchase common shares to
officers, employees, and consultants of the Company. Options granted under the
ESOP may be incentive stock options or non-
F-19
<PAGE> 103
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
statutory stock options. Incentive stock options may only be granted to
employees. The exercise price for options granted under the ESOP is established
by the Board of Directors of the Company at the time of grant. The ESOP permits
the Company to issue options for the purchase of up to 1,800,000 common shares.
The options generally have terms of not greater than five years and vesting
periods not greater than four years.
Subsequent to December 31, 1999, the Company's Board of Directors approved
changes to the ESOP including increasing the amount of shares permitted to be
issued to 2,200,000 common shares and an automatic increase in the number of
shares permitted to be issued at the beginning of each fiscal year beginning on
January 1, 2001. [Note 13]
As of July 31, 1999, the Company has granted options for an aggregate of
738,270 common shares, including options held by officers of the Company to
acquire an aggregate of 460,000 common shares, at prices ranging from CDN $0.415
to CDN $1.85 per share.
As of December 31, 1999, the Company has granted options for an aggregate
of 1,203,020 common shares, including options held by officers of the Company to
acquire an aggregate of 790,000 common shares, at prices ranging from CDN $0.415
to CDN $10.00 per share.
The following is a summary of activity with respect to share options
(prices in Canadian dollars):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS RANGE PRICE
--------- --------------- --------
<S> <C> <C> <C>
Outstanding at July 31, 1996............ 0 $ 0 $ 0
Options granted....................... 437,000 $0.065 to $0.615 $0.595
--------- --------------- ------
Outstanding at July 31, 1997............ 437,000 $0.415 to $0.615 $0.595
Options granted....................... 460,570 $0.850 to $1.250 $1.220
Options cancelled..................... (241,700) $0.415 to $1.250 $0.625
--------- --------------- ------
Outstanding at July 31, 1998............ 655,870 $0.415 to $1.250 $0.975
Options granted....................... 258,200 $0.925 to $1.850 $1.565
Options cancelled..................... (175,800) $0.065 to $1.850 $0.575
--------- --------------- ------
Outstanding at July 31, 1999............ 738,270 $0.415 to $1.850 $1.150
Options granted....................... 552,900 $1.850 to $10.00 $4.454
Options exercised..................... (69,644) $0.065 to $0.085 $0.343
Options cancelled..................... (18,506) $0.415 to $10.00 $2.357
--------- --------------- ------
Outstanding at December 31, 1999........ 1,203,020 $0.415 to $10.00 $2.636
========= =============== ======
Exercisable at July 31, 1999............ 214,351 $0.065 to $1.250 $0.860
========= =============== ======
Exercisable at December 31, 1999........ 193,493 $0.615 to $3.500 $0.962
========= =============== ======
</TABLE>
F-20
<PAGE> 104
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The following table summarizes information concerning outstanding and
exercisable options as at December 31, 1999 (prices in Canadian dollars):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C>
91,000 2.343 $0.610 46,000 $0.603
328,520 4.119 $1.220 118,993 $1.210
236,200 4.738 $1.537 22,500 $0.944
547,300 4.752 $4.295 6,000 $3.500
- --------------------- -------
1,203,020 193,493
===================== =======
</TABLE>
In addition to the employee stock option plan discussed above, on July 1,
1999, the Company granted 520,282 options to purchase common shares, at an
exercise price of CDN $1.25, to an executive officer. The options vest monthly
over a two year period. Vesting is accelerated if an Initial Public Offering is
completed or a change in control occurs. The difference between the exercise
price of options and the fair value of the common shares at the date of grant is
being charged to operations over the two year vesting period of the options. The
options have a ten year term.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123 "Accounting for Stock-Based
Compensation". As permitted by SFAS No. 123, the Company has continued to
account for employee stock options under Accounting Principles Board Opinion No.
25 and has elected the disclosure-only alternative under the FASB Statement No.
123.
Estimated fair values of the common shares at the dates of grant have been
determined based on the most recent arm's length financings by the Company.
During the five month period ended December 31, 1999, the Company recorded
unearned share-based compensation of $933,193, which represents the difference
between the exercise price of the stock options and fair value of common shares
at the dates of grant. Unearned shares-based compensation is being charged to
operations over the vesting period of the options. The Company recorded
share-based compensation expense of $61,135 for the five month period ended
December 31, 1999. Amortization of the unearned share-based compensation balance
of $872,058 at December 31, 1999 will approximate $156,079, $232,742, $178,696,
$174,224, and $130,317 for the fiscal years ending December 31, 2000, 2001,
2002, 2003, and 2004 respectively. Amortization of $61,135 at December 31, 1999
was charged to operations.
Subsequent to December 31, 1999 the Company has entered into additional
agreements with employees whereby it has granted options to purchase common
shares at prices below estimated fair values.
F-21
<PAGE> 105
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The weighted-average grant-date fair value of options issued was CDN $0.22,
CDN $0.37, and CDN $1.21 for the years ended July 31, 1998 and 1999 respectively
and the five month period ended December 31, 1999.
For the purposes of the pro forma disclosures required by SFAS No. 123, the
fair value of each option grant is estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
YEAR ENDED JULY 31, DECEMBER 31,
----------------------------- ------------
1997 1998 1999 1999
------- ------- ------- ------------
<S> <C> <C> <C> <C>
Expected volatility................... 0% 0% 0% 0%
Weighted average risk free interest
rate................................ 3.77% 5.06% 5.00% 4.98%
Expected life of stock options........ 5 years 5 years 5 years 5 years
Expected dividend yield............... 0% 0% 0% 0%
</TABLE>
The total pro forma value of options granted through December 31, 1999 was
computed at approximately the following values:
<TABLE>
<CAPTION>
PRO FORMA VALUE
OPTIONS GRANTED IN OF OPTIONS
PERIOD ENDED GRANTED
- ------------------ ------------------
<S> <C>
July 31, 1997........................................... $ 22,870
July 31, 1998........................................... $ 90,102
July 31, 1999........................................... $ 592,129
December 31, 1999....................................... $1,524,895
</TABLE>
F-22
<PAGE> 106
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. Had the Company's share
option plans been accounted for under SFAS No. 123, net loss would have been
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
JULY 31, DECEMBER 31,
----------------------------------- -------------------------
1997 1998 1999 1998 1999
--------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss attributable to common
shareholders:
As reported..................... $(174,640) $(810,942) $(2,429,408) $(767,760) $(2,384,147)
SFAS No. 123 pro forma.......... (180,358) (821,133) (2,508,445) (789,049) (2,574,169)
Basic and diluted loss per share:
As reported..................... $ (0.05) $ (0.22) $ (0.66) $ (0.21) $ (0.58)
SFAS No. 123 pro forma.......... $ (0.05) $ (0.22) $ (0.68) $ (0.21) $ (0.63)
</TABLE>
9. INCOME TAXES
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $4,898,297, which begin to expire in the year ended December
31, 2000.
Due to the uncertainty regarding the ultimate utilization of the net
operating loss carryforwards, the Company has not recorded any net benefit of
the loss carryforwards and a valuation allowance has been recorded for the
entire amount of the net deferred tax assets.
The difference between the income tax benefit at the Canadian federal
statutory rate of 44.6% and the Company's effective tax rate is due primarily to
recognition of a full valuation allowance to offset the deferred tax assets.
The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets as of December 31,
1999, are as follows:
<TABLE>
<S> <C>
Deferred income tax assets --
Net operating loss carryforwards.......................... $ 2,184,640
Less: valuation allowance................................... (2,184,640)
-----------
$ --
===========
</TABLE>
The Company has recorded a valuation against gross deferred tax assets due
to uncertainties surrounding their realization. The amount of net deferred tax
assets considered realizable, however, could be increased in the future if
estimates of future taxable income are increased.
F-23
<PAGE> 107
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
10. RELATED PARTY TRANSACTION
Amount due to shareholder was non-interest bearing and had no specific
repayment terms. In the fiscal year ended December 31, 1999, the amount has been
repaid in full.
11. CHANGE IN NON-CASH WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
JULY 31, DECEMBER 31,
----------------------------------- --------------------------
1997 1998 1999 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accounts receivable........ $(388,197) $ 325,233 $(170,676) $ 49,090 $(657,527)
Unbilled revenue........... -- (1,837) (47,590) (39,832) 49,427
Prepaid and other current
assets................... (36,447) 48,427 (36,365) (9,366) (122,780)
Deferred charges........... -- -- -- -- (344,345)
Accounts payable and
accrued liabilities...... 116,630 98,298 45,237 (26,010) 1,705,163
Deferred revenue........... 99,710 (159,285) 128,575 (8,896) (42,543)
--------- --------- --------- ---------- ---------
$(208,304) $ 310,836 $ (80,819) $ (35,014) $ 587,395
========= ========= ========= ========== =========
</TABLE>
12. SEGMENTED INFORMATION
Prior to the fiscal year ended December 31, 1998, the Company's primary
operating segment was the development, sale and licensing of multimedia consumer
software products. In late fiscal 1997 and throughout 1998, the Company began
developing an e-mail messaging software application, which would allow
businesses to use e-mail to market to and communicate with their customers, for
which version 1.0 was completed in November 1998. In January 1999, the Company
adopted a strategy to offer this software on a hosted basis, and at the same
time discontinued the activities related to the former multimedia consumer
software products business. Accordingly, 1998 and 1999 reflect a transitionary
period for the Company as it proceeded to its current strategic focus. During
this transitionary period the Company did not allocate its operating expenses
between its e-mail services activity and its multimedia consumer software
products activity, and accordingly, the extent to which the Company is able to
report segment profitability is limited to its current presentation in the
statements of operations. The Company has aggregated its Canadian and U.S.
operations in that the services provided to customers, and class of customers
are substantially similar.
F-24
<PAGE> 108
FLONETWORK INC.
(FORMERLY MEDIA SYNERGY INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN U.S. DOLLARS)
The Company sells to customers located in the United States of America, as
well as Canada, and other overseas markets as follows:
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
JULY 31, DECEMBER 31,
---------------------------------- -------------------------
1997 1998 1999 1998 1999
---------- -------- -------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States............... $ 672,274 $514,877 $684,087 $206,478 $1,086,760
Canada...................... 1,954 93,349 15,360 34,058
Asia Pacific................ 482,262 178,136 -- -- 75,000
Europe...................... -- 53,332 -- -- --
---------- -------- -------- -------- ----------
$1,154,536 $748,299 $777,436 $221,838 $1,195,818
========== ======== ======== ======== ==========
</TABLE>
13. SUBSEQUENT EVENTS
REVERSE COMMON SHARE SPLIT
On December 15, 1999, the Company's Board of Directors approved the
declaration of a 1-for-5 reverse share split of the Company's common shares. All
common share amounts and per share dollar amounts have been adjusted for all
periods presented (Note 8) to reflect the effect of the anticipated 1-for-5
reverse share split to be effected prior to the effective date of the Company's
IPO. Simultaneously with the completion of an IPO, it is expected that all
outstanding preferred shares will be converted into common shares.
AMENDMENT TO EMPLOYEE STOCK OPTION PLAN
On March 13, 2000, the Company's Board of Directors approved changes to the
Company's Employee Stock Option Plan that would automatically increase the
number of common shares reserved for issuance pursuant to the Plan by (a)
400,000 common shares plus (b) an automatic increase on the first day of each
fiscal year beginning on January 1, 2001, equal to the lesser of 700,000 common
shares, 4% of the Company's outstanding common shares on such date or a lesser
amount determined by its board of directors.
F-25
<PAGE> 109
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<PAGE> 110
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 111
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 112
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,750,000 SHARES
[FLONETWORK LOGO]
COMMON SHARES
---------------------------------
PROSPECTUS
---------------------------------
SG COWEN
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
WILLIAM BLAIR & COMPANY
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale of the common shares being registered. All amounts are estimated
except the SEC registration fee, the NASD filing fees and the Nasdaq National
Marketing listing fee.
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
SEC registration fee........................................ $14,801
NASD filing fee............................................. 6,106
Nasdaq National Marketing listing fee....................... 17,500
Printing and engraving...................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses (including legal fees)........... *
Transfer agent fees......................................... *
Miscellaneous............................................... *
-------
Total.................................................. *
</TABLE>
- -------------------------
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subject to the limitations contained in the Business Corporations Act
(Ontario), our by-laws provide that we may indemnify our directors and officers,
our former directors and officers and any person who acts or has acted at our
request as a director or officer of a body corporate of which our company is or
was a shareholder or creditor, from and against all costs, charges and expenses,
including amounts paid to settle an action or satisfy a judgment in a civil,
criminal or administrative action or proceeding to which they are made parties
because they have been directors or officers. Indemnification of a director or
officer under the Business Corporations Act (Ontario) is possible only if it is
shown that the director or officer acted honestly and in good faith with a view
to our best interests, and, in the case of a criminal or administrative action
or proceeding that is enforced by a monetary penalty, the director or officer
had reasonable grounds for believing that his or her conduct was lawful.
We are currently in the process of entering into indemnity agreements with
each of our directors and officers. Each indemnity agreement calls for us to
indemnify the director or officer against all liabilities in connection with any
claim arising out of the individual's status or service as a director or officer
of FloNetwork, other than claims arising from gross negligence or willful
misconduct. Each agreement also calls for us to advance expenses incurred by the
individual in connection with any action with respect to which the individual
may be entitled to indemnification by FloNetwork.
Currently, there is no pending litigation or proceeding where a current or
past director, officer or employee is seeking indemnification, nor are we aware
of any threatened litigation that may result in claims for indemnification.
II-1
<PAGE> 114
We maintain insurance for the benefit of our directors and officers against
liability in their respective capacities as directors and officers. The total
amount of insurance purchased for the directors and officers as a group is $15.0
million. Our directors and officers are not required to pay any premium with
respect to the insurance. The policy contains standard industry exclusions and
no claims have been made under the policy to date.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is a description of the Registrant's
sales of unregistered securities since October 31, 1996. The sales made to
investors were made in accordance with Section 4(2) or Regulation D of the
Securities Act. Sales to all of our employees, directors and officers were
deemed to be exempt from registration under the Securities Act in reliance on
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions
under compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.
On November 12, 1996 and April 16, 1997, in reliance on Section 4(2) of the
Securities Act, we sold an aggregate of 2,880,000 class A preferred shares to
McLean Watson. We sold 1,530,000 of the shares for $0.226 per share and
1,350,000 of the shares for $0.257 per share (for a total consideration of
$692,521). In November 1996, we effected a three-for-one share split resulting
in 8,640,000 class A preferred shares outstanding. In November 1998, we
exchanged all outstanding class A preferred shares for class B preferred shares
on a one-for-one basis. As a result, McLean Watson held a total of 8,640,000
class B preferred shares.
On March 30, 1998, we issued a promissory note in the principal amount of
$692,521 to McLean Watson. On October 20, 1998 we issued two promissory notes in
the aggregate principal amount of $207,756 to McLean Watson and Ventures West VI
Limited Partnership. On November 20, 1998 and June 30, 1999, in reliance on
Section 4(2) of the Securities Act, the principal amounts of these notes, as
well as additional advances of $1,385,042 from Bank of Montreal Capital
Corporation, $1,233,380 from Ventures West VI Limited Partnership, and $290,166
from McLean Watson, were converted into an aggregate of 550,000 class A
preferred shares.
Also on November 20, 1998, in reliance on Section 4(2) of the Securities
Act, McLean Watson SOFTECH exchanged warrants to purchase an aggregate of
800,000 common shares it acquired on March 30, 1998, for warrants to purchase
400,000 common shares at an exercise prices of $1.281 per share and warrants to
purchase 400,000 common shares at an exercise price of $0.416 per share.
On September 15, 1999, in reliance on Section 4(2) of the Securities Act,
we issued 2,650,423 class C preferred shares to CNET, Inc. at a price of $0.3972
per share for a total subscription price of $1,052,748. We also provided CNET
with an irrevocable option to purchase the number of common shares equal to 5%
of all issued and outstanding common shares on a fully diluted basis.
On November 24, 1999, in reliance on Rule 506 of the Securities Act, we
issued 12,033,983 units, each consisting of one of our class D preferred shares
and one warrant to purchase 0.10 common shares, at a price per unit of $1.24647,
for a total purchase price of $15,000,000. These shares and warrants were issued
to McLean Watson, Bank of Montreal Capital Corporation, Ventures West VI Limited
Partnership, CNET, Telepeak Investments Limited, Ontario Teachers Pension Plan
Board, CG Asian-American Fund, L.P., Princeton Global Fund, L.P., Kit Wong and
other venture capitalists.
On November 30, 1999 and December 8, 1999, in reliance on Section 4(2) of
the Securities Act, we issued an aggregate 2,471,329 common shares to McLean
Watson, Ventures West VI Limited Partnership and Bank of Montreal Capital
Corporation upon the exercise of warrants originally issued in connection with
the issuance of Class A preferred shares on November 30, 1998 and June 30, 1999.
Upon the exercise of these warrants, we received total net proceeds of $865.
II-2
<PAGE> 115
On December 30, 1999, in reliance on Rule 701 of the Securities Act, we
issued an aggregate 69,644 common shares to Lan Wong, an employee of the
Company, and Bill Marsh, a consultant to the Company, upon the exercise by such
employees and consultants of options under our Share Incentive Plan. We received
total proceeds of $1,112 from the exercise of these options.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of Media Synergy Inc., as amended,
dated November 24, 1999
*3.2 Restatement of Articles of Incorporation of the Registrant
to be filed after the effective date of this initial public
offering
3.3 Bylaw No. 1 of the Registrant dated August 4, 1993
3.4 Bylaw No. 2 of the Registrant dated August 4, 1993
3.5 Bylaw No. 1 of the Registrant, as amended, dated December
15, 1999, which will be effective upon the completion of
this public offering
4.1 Specimen of Common Share certificate
5.1 Opinion of Blake, Cassels & Graydon LLP
10.1+ Email Services Agreement between the Registrant and CNET,
Inc. dated July 19, 1999
10.2+ Email Services Agreement between the Registrant and Impower
Inc., dated October 25, 1999
10.3 Office Lease Agreement between The Manufacturers Life
Insurance Company and the Registrant dated December 5, 1996
10.4 Amendment of Office Lease Agreement between The
Manufacturers Life Insurance Company and the Registrant
dated August 10, 1999
10.5 Amendment of Office Lease Agreement between The
Manufacturers Life Insurance Company and the Registrant
dated September 15, 1999
10.6 Sublease between Alliance for Converging Technologies Corp.
and the Registrant dated June 23, 1999
10.7 Consent by Landlord to Sublease, between The Manufacturers
Life Insurance Company, Alliance for Converging Technologies
Corp. and the Registrant, undated
10.8 Lease between Cranbrook Realty Investment Fund, L.P. and the
Registrant dated October 10, 1999
10.9 Lease between Frank J. Gilbride II, Trustee and the
Registrant dated September 30, 1999
10.10 Co-Location Letter Agreement between Teleglobe
Communications Services Inc. and the Registrant dated August
6, 1999
10.11 Co-Location Letter Agreement between UUNet Canada Inc. and
the Registrant dated November 23, 1999
10.12 CNET Option Agreement between the Registrant and CNET, Inc.
dated September 15, 1999
10.13 Employment Agreement between the Registrant and Eric Goodwin
dated July 1, 1999
*10.14 Employment Agreement between the Registrant and Paul Chen
dated July 1, 1999, as amended
10.15 Employment Agreement between the Registrant and Craig
Rennick dated August 24, 1998 as amended May 6, 1999 and
October 7, 1999
</TABLE>
II-3
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.16 Share Incentive Plan
10.17 Share Purchase Plan
10.18 Registration Rights Agreement between the Registrant and its
Shareholders dated November 24, 1999
10.19 Second Amended and Restated Shareholders' Agreement between
the Registrant and its Shareholders dated November 24, 1999
10.20 Non-Statutory Stock Option Agreement between the Registrant
and Eric Goodwin dated July 1, 1999.
*10.21 Engagement Letter dated as of March 6, 2000 between the
Registrant and SG Cowen Securities Corporation
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Blake, Cassels & Graydon LLP (included in Exhibit
5.1)
23.3 Consent of Hale and Dorr LLP
24.1 Powers of Attorney (included on signature page)
</TABLE>
- -------------------------
* to be filed by Amendment
+ Confidential treatment to be requested as to portions of such exhibits
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification to liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
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 Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant 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 hereunder, the Registrant will, unless in the opinion of counsel the
matter has been settled by the controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-4
<PAGE> 117
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Toronto, Ontario, Canada,
on this 15th day of March, 2000.
FLONETWORK INC.
By: /s/ ERIC GOODWIN
------------------------------------
Eric Goodwin
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of FloNetwork hereby
severally constitute and appoint Eric Goodwin, Chief Executive Officer, and
Wilson Lee, Chief Financial Officer, and each of them individually, with full
powers of substitution and resubstitution, our true and lawful attorneys, with
full powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the Registration Statement on Form F-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on this 15th day of March, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<S> <C>
/s/ ERIC GOODWIN Chief Executive Officer and Director
--------------------------------------------------- (Principal Executive Officer)
Eric Goodwin
/s/ WILSON LEE Chief Financial Officer
--------------------------------------------------- (Principal Financial and Accounting
Wilson Lee Officer)
/s/ JOHN ECKERT Director
---------------------------------------------------
John Eckert
/s/ PAUL CHEN Director
---------------------------------------------------
Paul Chen
</TABLE>
II-6
<PAGE> 119
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<S> <C>
/s/ JOHN HAYTER Director
---------------------------------------------------
John Hayter
/s/ EDWARD ANDERSON Director
---------------------------------------------------
Edward Anderson
/s/ KIT WONG Director
---------------------------------------------------
Kit Wong
</TABLE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933,
as amended, the undersigned has signed this Registration Statement solely in the
capacity of the duly authorized representative of FloNetwork US, Inc. in the
United States, on this 15th day of March, 2000.
FloNetwork US Inc., a California
corporation
By: /s/ REGINA BRADY
------------------------------------
Regina Brady
Vice President
II-7
<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation of the Registrant, as amended,
dated November 24, 1999
*3.2 Restatement of Articles of Incorporation of the Registrant
to be filed after the effective date of this initial public
offering
3.3 Bylaw No. 1 of the Registrant dated August 4, 1993
3.4 Bylaw No. 2 of the Registrant dated August 4, 1993
3.5 Bylaw No. 1 of the Registrant, as amended, dated December
15, 1999, effective upon the completion of this public
offering
4.1 Specimen of Common Share certificate
5.1 Opinion of Blake, Cassels & Graydon LLP
10.1+ Email Services Agreement between the Registrant and CNET,
Inc. dated July 19, 1999
10.2+ Email Services Agreement between the Registrant and Impower
Inc., dated October 25, 1999
10.3 Office Lease Agreement between The Manufacturers Life
Insurance Company and the Registrant dated December 5, 1996
10.4 Amendment of Office Lease Agreement between The
Manufacturers Life Insurance Company and the Registrant
dated August 10, 1999
10.5 Amendment of Office Lease Agreement between The
Manufacturers Life Insurance Company and the Registrant
dated September 15, 1999
10.6 Sublease between Alliance for Converging Technologies Corp.
and the Registrant dated June 23, 1999
10.7 Consent by Landlord to Sublease, between The Manufacturers
Life Insurance Company, Alliance for Converging Technologies
Corp. and the Registrant, undated
10.8 Lease between Cranbrook Realty Investment Fund, L.P. and
Media Synergy Software Corporation dated October 10, 1999
10.9 Lease between Frank J. Gilbride II, Trustee and the
Registrant dated September 30, 1999
10.10 Co-Location Letter Agreement between Teleglobe
Communications Services Inc. and the Registrant dated August
6, 1999
10.11 Co-Location Letter Agreement between UUNet Canada Inc. and
the Registrant dated November 23, 1999
10.12 CNET Option Agreement between the Registrant and CNET, Inc.
dated September 15, 1999
10.13 Employment Agreement between the Registrant and Eric Goodwin
dated July 1, 1999
*10.14 Employment Agreement between the Registrant and Paul Chen
dated July 1, 1999, as amended
10.15 Employment Agreement between the Registrant and Craig
Rennick dated August 24, 1998 as amended May 6, 1999 and
October 7, 1999
10.16 Share Incentive Plan
10.17 Share Purchase Plan
10.18 Registration Rights Agreement between the Registrant and its
Shareholders dated November 24, 1999
10.19 Second Amended and Restated Shareholders' Agreement between
Registrant and its Shareholders dated November 24, 1999
10.20 Non-Statutory Stock Option Agreement between the Registrant
and Eric Goodwin dated July 1, 1999
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*10.21 Engagement Letter dated as of March 6, 2000 between the
Registrant and SG Cowen Securities Corporation.
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Blake, Cassels & Graydon LLP (included in Exhibit
5.1)
23.3 Consent of Hale and Dorr LLP
24.1 Powers of Attorney (included on signature page)
</TABLE>
- -------------------------
* to be filed by Amendment
+ confidential treatment to be requested as to portions of such exhibits
<PAGE> 1
Exhibit 3.1
1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la compagnie en Ontario
1039951
Ministry of Ministere de
Consumer and la Consummation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigeur les
AUGUST 4 AOUT, 1993
- --------------------------------------------------------------------------------
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
1. The name of the corporation is:
Denomination sociale de la compagnie:
MEDIA SYNERGY INC.
2. The address of the registered office is:
Adresse du siege social:
7 Carlton Street, Suite 1404
- --------------------------------------------------------------------------------
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero ou numero de la R.R. et, s'il s'agit d'un
edifice a bureax, numero du bureau)
Toronto M5B2M3
- --------------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau de poste) (Code postal)
City of Toronto in the Municipality of Metropolitan Toronto
- ------------------------- -----------------------------------------
(Name of Municipality,
Geographical Township) dans le/la (County, District, Regional Municipality)
(Nom de la municipalite, (Compte, district, municipalite regionale)
du canton)
3. Number (or minimum and maximum number) directors is:
Nombre (ou nombres minimal et maximal) d'administrateurs:
A minimum of one and a maximum of five
4. The first director(s) is/are:
Premire(s) administrateur(s):
<TABLE>
<CAPTION>
Residence address, giving street & No. or R.R. Resident Canadian State
No. or municipality and postal code. Yes or No
First name, initials and surname
Adresse personelle, y compris la rue et le numero, le numero Resident Canadien
Prenom, initiales et nom de famille de la R.R. ou, le nom de la municipalite et le code postal Oui/Non
- ----------------------------------- ------------------------------------------------------------ -----------------------
<S> <C> <C>
Paul Chen 22 Edenbrook Court Yes
Nepean, Ontario
K2E 7H4
Sing Li 7 Carlton Street, Suite 1404 Yes
Toronto, Ontario
M5B 2M3
</TABLE>
<PAGE> 2
2
5. Restrictions, if any, on business the corporation may carry on or on
powers the corporation may exercise.
Limites, s'il y a lieu, imposees aux activites commerciales ou aux
pouvoirs de la compagnie.
NONE
6. The classes and any maximum number of shares that the corporation is
authorized to issue.
Categories at nombre maximal, s'il y a lieu, d'actions que la compagnue
est autorisee a emettre:
THE CORPORATION IS AUTHORIZED TO ISSUE AN UNLIMITED NUMBER OF COMMON
SHARES.
<PAGE> 3
3
7. Rights, privileges, restrictions and conditions (if any) attaching to
each class of shares and directors authority with respect to any class
of shares which may be issued in series:
Droits, privileges, restrictions et conditions, s'il y a liey,
rattachee a chaque categorie d'actions et pouvoits des administrateurs
relatifs a chaque categorie d'actions qui peut etre emise en serie:
NOT APPLICABLE
<PAGE> 4
4
8. The issue, transfer or ownership of shares is/is not restricted and the
restrictions (if any) are as follows:
L'emission, le transfert ou la propriete d'actions est/n'est pas
restreinte. Les restrictions, s'il y a lieu, sont les suivantes:
No share of the Corporation shall be transferred without the express
consent of the board of Directors evidenced by a resolution passed at a
meeting of directors by the affirmative vote of not less than a
majority of the directors or by instrument or instruments in writing
signed by all of the directors.
<PAGE> 5
5
9. Other provisions, if any, are:
Autres dispositions, s'il y a lieu:
(1) That the number of shareholders of the Corporation, exclusive
of persons who are in its employment and exclusive of persons,
who, having been formerly in the employment of the
Corporation, were, while in the employment, and have continued
after the termination of that employment to be shareholders of
the Corporation, is limited to not more than fifty, two or
more persons who are the joint registered owners of one or
more shares being counted as one shareholder.
(2) That any invitation to the public to subscribe for securities
of the Corporation is prohibited.
<PAGE> 6
6
10. The names and addresses of the incorporators are
Nom et adresse dea fondateurs
<TABLE>
<CAPTION>
Full residence address of registered office or of principal place of
business giving street & No. or R.R. No. municipality and postal code
First name, initials and surname or corporate name Adresse personnelle au complet, adresse du siege social ou adresse de
l'etablissement principal, y compris la rue et la numero, le
Prenom, initiale et nom de famille ou denomination sociale numero de la R.R., le nom de la municipalite et le code postal
- ---------------------------------------------------------- ----------------------------------------------------------
<S> <C>
SING LI 7 Carlton Street, Suite 1404
Toronto, Ontario
M5B 2M3
PAUL CHEN 22 Edenbrook Court
Nepean, Ontario
K2E 7H4
</TABLE>
These articles are signed in duplicate
Les presents statuts son signes en double examplaire.
- --------------------------------------------------------------------------------
Signatures of incorporators
(Signature des fondateurs)
/s/ Paul Chen /s/ Sing Li
<PAGE> 7
1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la compagnie en Ontario
001039951
Ministry of Ministere de
Consumer and la Consummation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigeur les
NOVEMBER 12 NOVEMBRE, 1996
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The present name of the corporation is:
Denomination social actuelle de la compagnie:
MEDIA SYNERGY INC.
2. The name of the corporation is changed to (if applicable):
Novelle denomination sociale de la compagnie (s'il y a lieu):
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
04 08 1993
- --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as follows:
Les statuts de la compagnie sont modifies de la facon suivante:
A. to provide that the existing 100 Common Shares of the Corporation be
divided on a basis of Sixty-One Thousand Two Hundred (61,200) Common
Shares to One (1) Common Share;
B. to increase the authorized capital of the Corporation by the creation
of an unlimited number of Class A Preference Shares and by providing
that the Class A Preference Shares have the rights, privileges,
restrictions and conditions below:
<PAGE> 8
1A
1. INTERPRETATION
1.1 Defined Terms
The following words and phrases whenever used in the Preferred
Share Provisions shall have the following meaning, unless
there is something in the context otherwise inconsistent
therewith:
(a) "business day" shall mean a day other than a
Saturday, a Sunday or any other day that is treated
as a holiday in the municipality where the
Corporation's registered office in Canada is
situated;
(b) "Common Shares" shall mean Common Shares of the
Corporation as such shares were constituted on
November 8th, 1996 and shares of any other class
resulting from any reclassification or change of such
shares;
(c) "conversion basis" at any time shall mean the number
of Common Shares of the Corporation into which at
such time one Preferred Share shall be convertible in
accordance with the provisions of section 5 of these
Preferred Share Provisions;
(d) "dividend payment date" shall mean the 1st day of
February, May, August, and November in each calendar
year commencing February 1, 1997.
1.2 Reference to Status
Any reference in the Preferred Share Provisions to any statute
shall be deemed to be a reference to such statute as amended
or re-enacted from time to time.
1.3 Canadian Funds
All amounts payable pursuant hereto shall be payable in lawful
money of Canada.
1.4 Non-Business Day
If any day on which any dividend on the Preferred Shares is
payable or by which any other action is required to be taken
hereunder is not a business day, then such dividend shall be
payable or such other action shall be required to be taken on
the next succeeding day that is a business day.
<PAGE> 9
1B
1.5 Herein, hereto, etc
The words "herein", "hereto", "hereof" and similar words
refer, unless the context clearly indicates the contrary, to
the whole of the Preferred Share Provisions and not to any
particular section, clause or paragraph thereof
1.6 Number and Gender
Words importing the singular number only shall include the
plural and vice versa, words importing the use of any gender
shall include all genders and words importing persons shall
include firms and corporations and vice versa.
2. VOTING RIGHTS
The holders of the Preferred Shares shall be entitled to receive notice
of and to attend and vote at all meetings of the shareholders of the
Corporation (except where the holders of a specified class of shares
are entitled to vote separately as a class as provided in the Business
Corporations Act (Ontario) as amended from time to time), and each
Preferred Share shall confer the right to one vote in person or by
proxy at all meetings of shareholders of the Corporation.
3. DIVIDENDS
The holders of the Preferred Shares, in priority to any other class or
type of shares, shall be entitled to receive as and when declared by
the board of directors of the Corporation out of monies of the
Corporation properly applicable to the payment of dividends, fixed,
preferential, cumulative, cash dividends at the rate of 5% per annum on
an amount equal to the stated capital of the Preferred Shares as
recorded in the stated capital account maintained for the Preferred
Shares payable on dates to be fixed from time to time by the directors;
such dividends shall accrue and be cumulative from the respective dates
of issue of the Preferred Shares; if on any dividend payment date the
Corporation shall not have paid the said dividends in full on all
Preferred Shares then issued and outstanding, such dividends on the
unpaid part thereof shall be paid on a subsequent date or dates in
priority to dividends on any other class or type of shares; no dividend
shall be declared or paid or set apart in respect of any other class or
type of shares until such dividends or the unpaid part thereof on all
Preferred Shares then issued and outstanding shall have been declared
and paid or provided for at the date of such declaration or payment or
setting apart.
4. RIGHTS ON LIQUIDATION
In the event of liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of the
Preferred Shares shall be entitled to receive, in priority to and
before any distribution of any part of the assets of the Corporation
among the holders of any other class or type of shares, for each
<PAGE> 10
1C
Preferred Share, an amount per Preferred Share equal to the stated
capital per share of the Preferred Shares as recorded in the stated
capital account maintained for the Preferred Shares together with any
unpaid cumulative dividends, whether or not declared, which shall have
accrued thereon and which, for such purposes, shall be treated as
accruing up to the date of such liquidation, dissolution or winding-up,
to the extent that such unpaid dividends are not reflected in the
stated capital account maintained for the Preferred Shares, and no
more.
5. CONVERSION PRIVILEGE
5.1 Right of Conversion
Holders of Preferred Shares shall have the right at any time
from and after the date of issuance of such shares (the
"conversion period"), subject as hereinafter provided, to
convert any or all of their Preferred Shares into Common
Shares on the following original conversion basis, namely one
Common Share for each Preferred Share converted, until such
time as the original conversion basis shall be adjusted as
hereinafter provided and thereafter on the adjusted conversion
basis.
5.2 Conversion Procedure
The conversion privilege herein provided for may be exercised
by notice in writing given to the transfer agent for the
Preferred Shares in any office for the transfer of the
Preferred Shares or to the Corporation at its registered
office in the City of Toronto accompanied by the certificate
or certificates representing Preferred Shares in respect of
which the holder thereof desires to exercise such right of
conversion. Such notice shall be signed by such holder or by
his duly authorized attorney or agent and shall specify the
number of Preferred Shares which the holder desires to have
converted. The transfer form on the certificate or
certificates in question need not be endorsed, except in the
circumstances hereinafter contemplated. If less than all the
Preferred Shares represented by a certificate or certificates
accompanying any such notice are to be converted, the holder
shall be entitled to receive, at the expense of the
Corporation, a new certificate representing the Preferred
Shares comprised in the certificate or certificates
surrendered as aforesaid which are not to be converted.
On any conversion of Preferred Shares, the share certificates
for Common Shares of the Corporation resulting therefrom shall
be issued in the name of the registered holder of the
Preferred Shares converted or in such name or names as such
registered holder may direct in writing (either in the notice
referred to above or otherwise), provided that such registered
holder shall pay any applicable security transfer taxes; in
any such case the transfer form on the back of the certificate
in question shall be endorsed by the registered holder of the
Preferred Shares or his duly authorized
<PAGE> 11
1D
attorney, with signature guaranteed in a manner satisfactory
to the Corporation.
5.3 Effective Date of Conversion
Subject as hereinafter provided in this clause 5.3, the right
of a holder of Preferred Shares to convert the same into
Common Shares shall be deemed to have been exercised, and the
registered holder of Preferred Shares to be converted (or any
person or persons in whose name or names any such registered
holder of Preferred Shares shall have directed certificates
representing Common Shares to be issued as provided in clause
5.2) shall be deemed to have become a holder of record of
Common Shares of the Corporation for all purposes on the date
of surrender of certificates representing the Preferred Shares
to be converted accompanied by notice in writing as provided
in clause 5.2 hereof, notwithstanding any delay in the
delivery of certificates representing the Common Shares into
which such Preferred Shares have been converted.
5.4 Adjustment of Conversion Basis
If and whenever at any time there is a capital reorganization
of the Corporation or a reclassification by the Corporation of
its Common Shares or a subdivision or consolidation by the
Corporation of its outstanding Common Shares into a greater or
lesser number of shares, as the case may be, or an
amalgamation or merger of the Corporation with or into any
other body corporation, trust partnership or other entity, or
a sale or conveyance of the property and assets of the
Corporation as an entity or substantially as an entity to any
other body corporate, trust, partnership or other entity, or
the issuance of any rights or the payment of any stock
dividend (any such event is herein called an "Event"), any
holder of Preferred Shares who has not exercised his right of
conversion prior to the record date where one has been
established, or otherwise, on the effective date of such Event
(the record date or the effective date of such Event is herein
called the "Relevant Date") shall be entitled to receive and
shall accept, upon the exercise of such right at any time
thereafter, in lieu of the number (the "Original Number") of
Common Shares to which he was theretofore entitled upon
conversion, the aggregate number of shares or other securities
or property of the Corporation or of the body corporate,
trust, partnership or other entity resulting from such Event,
that such holder would have been entitled to receive as a
result of such Event if, on the Relevant Date, he had been the
registered holder of the Original Number of Common Shares;
provided that no such Event shall be carried into effect
unless, in the opinion of the directors, all necessary steps
have been taken to ensure that the holders of the Preferred
Shares shall thereafter be entitled to receive such number of
shares or other securities or property of the Corporation or
of the body corporate, trust, partnership or other entity
resulting from such Event, as the case may be, subject to
<PAGE> 12
1E
adjustment thereafter in accordance with provisions, as nearly
similar as may be, to those contained in this clause 5.4, as
such holders would be entitled to receive pursuant to the
foregoing provisions of this clause 5.4.
5.5 Conversion Adjustment Rules
The following rules and procedures shall be applicable to
conversion basis adjustments made pursuant to clause 5.4
hereof;
Common Shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding but, for the
purposes of this subclause 5.5(a), any Common Shares owned by
a pension plan or share purchase plan or analogous plan for
employees of the Corporation or its subsidiaries or affiliates
shall not be considered to be owned by or held for the account
of the Corporation;
the adjustment provided for in clause 5.4 hereof shall be made
cumulatively and consecutively in respect of any Event
contemplated by clause 5.4 as giving rise to any adjustment of
the conversion basis;
if any question shall at any time arise with respect to
adjustments in the conversion basis, such question shall be
conclusively determined by the auditors of the Corporation and
any such determination shall be binding upon the Corporation
and any transfer agents and all shareholders of the
Corporation; and
forthwith after any adjustment in the conversion basis
pursuant to the foregoing clause 5.4 the Corporation shall
give written notice to the registered holders of Preferred
Shares of the conversion basis following such adjustment. Any
such notice shall be sufficiently given if delivered or sent
by registered mail, postage prepaid, to the holders of record
of the Preferred Shares at the addresses last recorded by the
Corporation in the register maintained by the Corporation. Any
notice so mailed shall be deemed to have been given on the
third business day after the date of the mailing.
5.6 Entitlement to Dividends
A holder of any Preferred Share on the record date for any
dividend declared payable on any such share shall be entitled
to such dividend notwithstanding that any such share is
converted after such record date and before the payment date
of such dividend, and the registered holder of any Common
Share resulting from any conversion shall be entitled to rank
equally with the registered holders of all Common Shares in
respect of all dividends declared payable to holders of Common
Shares or record on any date after the date of conversion.
Subject as aforesaid, no payment or adjustment will be made on
account of any dividend, accrued or
<PAGE> 13
1F
otherwise, on the Preferred Shares converted or the Common
Shares resulting from any conversion.
5.7 Notice of Certain Events
If the Corporation intends to fix a date for any Common Share
reorganization or for any capital reorganization or for any
rights offering or for any special distribution, the
Corporation shall, not less than 21 days prior to such record
date, notify each registered holder of Preferred Shares of
such intention by written notice to the extent that such
particulars have been determined at the time of giving the
notice. Any such notice shall be sufficiently given if
delivered or sent by registered mail, postage prepaid, to the
holders of record of the Preferred Shares at the addresses
last recorded by the Corporation. Any notice so mailed shall
be deemed to have been given on the third business day after
the date of the mailing.
5.8 Avoidance of Fractional Shares
In any case where a fraction of a Common Share would otherwise
be issuable on conversion of one or more Preferred Shares, the
Corporation shall adjust such fractional interest by the
payment by cheque of an amount equal to the then current
market value of such fractional interest computed on the basis
of the last board lot sale price (or the average of the last
bid and ask prices if there has not been board lot sale), on
any stock exchange or quotation system on which such shares
are listed or quoted as may be selected for such purpose by
the directors next preceding the date of surrender of
certificates representing the Preferred Shares to be
converted. In the event that the Common Shares are not listed
or quoted on any stock exchange or quotation system, the then
current market value of such fractional interest shall be
determined by the directors of the Corporation, which
determination shall be conclusive and binding.
5.9 Postponement of Issuance of Shares upon Conversion
In any case where the application of the foregoing provisions
results in an increase of the conversion basis taking effect
immediately after the record date for a specific Event, if any
Preferred Shares are converted after the record date and prior
to completion of the Event, the Corporation may postpone the
issuance to the holder of the additional Common Shares to
which he is entitled by reason of the increase of the
conversion basis but such additional Common Shares shall be so
issued and delivered to that holder upon completion of the
Event and the Corporation shall, in the interim, deliver to
the holder an appropriate instrument evidencing his right to
receive such additional Common Shares.
<PAGE> 14
2
5.10 Automatic Conversion upon Shares going Public
Notwithstanding any other term hereof, in the event of an
initial public offering by the Corporation or the commencement
of the offering or trading of shares on a stock exchange,
over-the-counter market or other market such as NASDAQ where
the Common Shares are available on the open market, the
holders of the Preferred Shares shall be deemed to convert all
Preferred Shares into fully paid non-assessable Common Shares
of the Corporation without any further act required by the
holder, at the conversion rate in effect on the date of the
conversion.
5. The amendment has been duly authorized as required by Sections 168 &
170 (as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et,
s'il y a lieu, a l'article 170 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les administrateurs (le cas echeant) de la
compagnie ont approuve la resolution autorisant la modification le
12 11 1996
- --------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
MEDIA SYNERGY INC.
-------------------------------------
(Name of Corporation)
(Denomination social de la compagnie)
By/Par: /s/ Paul Chen
------------------------------
Office: President
<PAGE> 15
1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1039951
Ministry of Ministere de
Consumer and la Consummation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigeur les
AUGUST 25 AOUT, 1997
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The name of the corporation is:
Denomination sociale de la societe:
MEDIA SYNERGY INC.
2. The name of the corporation is changed to (if applicable):
Novelle denomination sociale de la societe (s'il y a lieu):
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
1993, August, 4th
- --------------------------------------------------------------------------------
(Year, Month, Day
(annee, mois, jour)
4. The articles of the corporation are amended as follows:
Les statuts de la societe sont modifies de la facon suivante:
To provide that the existing Six Million One Hundred Twenty Thousand
(6,120,000) Common Shares of the Corporation and the existing Two
Million Eight Hundred and Eighty Thousand (2,880,000) Class A
Preference Shares of the Corporation be divided on a basis of Three (3)
Common Shares to One (1) Common Share and Three (3) Class A Preference
Shares to One (1) Class A Preference Share.
<PAGE> 16
2
5. The amendment has been duly authorized as required by Sections 168 &
170 (as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'article 168 et
170 (selon le cas) de la Loi sur les socie tes par actions.
6. The resolution authorizing the amendment was approved by the
shareholders/directors (as applicable) of the corporation on
Les actionnaires ou les administrateurs (selon le cas) de la socie te
ont approuve la resolution autorisant la modification le
1997, July, 30th
- --------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
MEDIA SYNERGY INC.
-------------------------------------
(Name of Corporation)
(Denomination sociale de la societe)
By/Par: /s/ Wilson Lee
---------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
WILSON LEE, Secretary
<PAGE> 17
1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1039951
Ministry of Ministere de
Consumer and la Consummation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigeur les
NOVEMBER 20 NOVEMBRE, 1998
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The name of the corporation is:
Denomination sociale actuelle de la societe:
MEDIA SYNERGY INC.
2. The name of the corporation is changed to (if applicable):
Novelle denomination sociale de la societe (s'il y a lieu):
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
1993 Aug 4
- --------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
4. The articles of the corporation are amended as follows:
Les statuts de la societe sont modifies de la facon suivante:
See pages 1A to 1J attached hereto.
<PAGE> 18
1A
The Articles of the Corporation are amended as follows:
The maximum number of allowable directors be increased from five (5) to ten
(10).
The issued and outstanding 8,640,000 Class A Preference Shares of the
Corporation are exchanged for 8,640,000 Class B Preferred Shares described below
in these articles, and all issued and outstanding Class A Preference Shares, and
the authorized class of Class A Preference Shares, are hereby cancelled upon the
issuance and exchange for the Class B Preferred Shares.
To increase and amend the authorized capital of the Corporation by the creation
of an unlimited number of Class A Preferred Shares and an unlimited number of
Class B Preferred Shares, having the following rights, privileges, restrictions
and conditions attaching thereto:
ARTICLE 1
INTERPRETATION
1.1 DEFINED TERMS
In these Preferred Share Conditions, the following words and phrases
shall have the following meanings:
"ACT" means the Business Corporations Act (Ontario);
"BUSINESS DAY" means a day other than a Saturday, a Sunday or any other
day that is treated as a holiday in the municipality where the
Corporation's registered office in Canada is situated;
"COMMON SHARES" means common shares in the capital of the Corporation
and shares of any other class resulting from any reclassification or
change of such shares;
"DIVIDEND PAYMENT DATE" shall mean the first day of February, May,
August and November in each calendar year;
"IPO" means the successful completion of an offering of treasury
securities of the Corporation to the public led by an underwriter
chosen solely by the board of directors of the Corporation pursuant to
a prospectus filed with applicable securities regulatory authorities
including the Ontario Securities Commission and/or the Securities &
Exchange Commission of the United States and a listing on NASDAQ
National Market, The Toronto Stock Exchange, the New York Stock
Exchange or on some other exchange or market acceptable to the holder,
with net proceeds from the sale of such treasury securities and
secondary securities of at least Twenty Million Dollars (Cdn) with a
pre-money valuation of not less than Thirty-Five Million Dollars (Cdn).
<PAGE> 19
1B
"IPO UNDERWRITER" means the underwriter who led the IPO;
"REDEMPTION AMOUNT" of each Class A Preferred Share means the sum of
$10.00;
"CLASS A CONVERSION RATE" means the number obtained by dividing the
Redemption Amount by the issue price of the Corporation's treasury
securities under the IPO; and
"CLASS B CONVERSION BASIS" at any time shall mean the number of Common
Shares of the Corporation into which at such time one Class B Preferred
Share shall be convertible in accordance with the provisions of section
4.5 of these Preferred Share Conditions.
1.2 REFERENCE TO STATUTES
Any reference in these Preferred Share Conditions to any statute shall
be deemed to be a reference to such statute as amended or re-enacted from time
to time.
1.3 CANADIAN FUNDS
All amounts payable pursuant hereto shall be payable in lawful money of
Canada.
1.4 NON-BUSINESS DAY
If any day on which or by which any action is required to be taken
hereunder is not a Business Day, then such action shall be required to be taken
on the next succeeding day that is a Business Day.
1.5 HEREIN, HERETO, ETC.
The words "herein", "hereto", "hereof" and similar words refer, unless
the context clearly indicates the contrary, to the whole of these Preferred
Share Conditions and not to any particular section, clause or paragraph thereof.
1.6 NUMBER AND GENDER
Words importing the singular number only shall include the plural and
vice versa, words importing the use of any gender shall include all genders and
words importing persons shall include individuals, firms and corporations and
vice versa.
<PAGE> 20
1C
ARTICLE 2
CLASS A PREFERRED SHARES
2.1 NAME
The first class of preferred shares having the rights, privileges,
restrictions and conditions set forth in this Article 2 shall be designated as
Class A Preferred Shares (the "Class A Preferred Shares").
2.2 VOTING RIGHTS
Subject to the Act, the holders of the Class A Preferred Shares shall
not, as such, be entitled to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting, but shall be
entitled to receive notice of and to attend, but not to vote at, any meeting of
the shareholders called for the purpose of authorizing the dissolution of the
Corporation or the sale, lease or exchange of all or substantially all the
property of the Corporation other than in the ordinary course of business.
2.3 DIVIDENDS
The holders of the Class A Preferred Shares shall not be entitled to
any dividends.
2.4 REDEMPTION AT OPTION OF CORPORATION
Subject to the Act, the Corporation may at any time or from time to
time redeem the whole or any part of the issued Class A Preferred Shares on
payment for each share to be redeemed of the redemption amount. Unless all the
holders of the Class A Preferred Shares to be redeemed shall have waived notice
of such redemption, the Corporation shall give not less than 30 days' notice in
writing of such redemption, specifying the date and place of redemption.
2.5 MANDATORY REDEMPTION BY THE CORPORATION
(1) General. Subject to the Act, the Corporation shall redeem, at
the option of the registered holder of Class A Preferred
Shares the whole of the Class A Preferred Shares held by such
holder at the earlier of November 19, 2003 or at the time of
completion of an IPO (the "Redemption Date").
(2) Redemption Procedure. The Corporation shall have 120 days from
the Redemption Date to redeem the Class A Preferred Shares by
paying to such registered holder an amount equal to the
Redemption Amount. Such payment shall be made in cash or
certified cheque or in such other manner acceptable to each
registered holder its sole discretion.
(3) Failure to Redeem. If the Corporation fails to redeem in full
the Class A Preferred Shares within 120 days of the Redemption
Date, any amount then outstanding shall be converted into
debenture(s) (the "Debenture(s)").
<PAGE> 21
1D
The Debenture(s) shall bear interest at the Prime Rate plus
four percent (4%) (where Prime Rate means the rate posted from
time to time by the Bank of Montreal for its Canadian Dollar
loans), payable semi-annually. The Debenture(s) will be
repayable in four equal semi-annual installments, with the
first payment being due 120 days from the Redemption Date, and
the remaining three payments at six month intervals
thereafter. In the event the Corporation fails to make a
semi-annual payment of principal, the holders of the
Debenture(s) shall have the right to jointly appoint a
majority of the board of directors of the Corporation, which
right shall continue until the Debenture(s) have been repaid
in full.
(4) Conversion in Lieu of Redemption. If in the opinion of the IPO
Underwriter, the redemption required by subsection (a) above
at the time of completion of such IPO would not be in the best
interests of the Corporation, then the Class A Preferred
Shares shall be converted into that number of Common Shares
determined by multiplying the number of Class A Preferred
Shares by the Class A Conversion Rate, which Common Shares
shall have been qualified by such IPO.
2.6 DISTRIBUTION RIGHTS
In the event of the liquidation, dissolution or winding up or the sale,
consolidation, merger or reorganization of the Corporation, whether voluntary or
involuntary, the holders of the Class A Preferred Shares shall be entitled to
receive, before and in priority to any distribution of any part of the assets of
the Corporation among the holders of the Common Shares or the Class B Preferred
Shares, an amount equal to the Redemption Amount for such shares and no more.
2.7 AMENDMENT TO CLASS A PREFERRED SHARE PROVISIONS
The designation, rights, privileges, restrictions and conditions of the
Class A Preferred Shares may not be amended without the affirmative vote of
holders of all of the Class A Preferred Shares then outstanding.
ARTICLE 3
CLASS B PREFERRED SHARES
3.1 NAME
The class of preferred shares having the rights, privileges,
restrictions and conditions set forth in this Article 3 shall be designated as
Class B Preferred Shares (the "Class B Preferred Shares").
<PAGE> 22
1E
3.2 VOTING RIGHTS
The holders of the Class B Preferred Shares shall be entitled to
receive notice of and to attend and vote at all meetings of the shareholders of
the Corporation (except where the holders of a specified class of shares are
entitled to vote separately as a class as provided in the Act), and each Class B
Preferred Share shall confer the right to one vote in person or by proxy at all
meetings of shareholders of the Corporation.
3.3 DIVIDENDS
The holders of the Class B Preferred Shares, in priority to any other
class or type of shares, shall be entitled to receive as and when declared by
the board of directors of the Corporation out of monies of the Corporation
properly applicable to the payment of dividends, fixed, preferential,
cumulative, cash dividends at the rate of 5% per annum on an amount equal to the
stated capital of the Class B Preferred Shares as recorded in the stated capital
account maintained for the Class B Preferred Shares payable on dates to be fixed
from time to time by the directors; such dividends shall accrue and be
cumulative from the respective dates of issue of the Class B Preferred Shares;
if on any Dividend Payment Date the Corporation shall not have paid the said
dividends in full on all Class B Preferred Shares then issued and outstanding,
such dividends on the unpaid part thereof shall be paid on a subsequent date or
dates in priority to dividends on any other class or type of shares; no dividend
shall be declared or paid or set apart in respect of any other class or type of
shares until such dividends or the unpaid part thereof on all Class B Preferred
Shares then issued and outstanding shall have been declared and paid or provided
for at the date of such declaration or payment or setting apart.
3.4 DISTRIBUTION RIGHTS
In the event of liquidation, dissolution, winding-up, or the sale,
consolidation, merger or reorganization of the Corporation, whether voluntary or
involuntary, the holders of the Class B Preferred Shares shall be entitled to
receive, in priority to and before any distribution of any part of the assets of
the Corporation among the holders of Common Shares, for each Class B Preferred
Share, an amount per Class B Preferred Share equal to the stated capital per
share of the Class B Preferred Shares as recorded in the stated capital account
maintained for the Class B Preferred Shares together with any unpaid cumulative
dividends, whether or not declared, which shall have accrued thereon and which,
for such purposes, shall be treated as accruing up to the date of such
liquidation, dissolution, winding-up, sale, consolidation, merger or
reorganization, to the extent that such unpaid dividends are not reflected in
the stated capital account maintained for the Class B Preferred Shares, and no
more.
<PAGE> 23
1F
3.5 CONVERSION PRIVILEGE
(1) Right of Conversion. Holders of Class B Preferred Shares shall
have the right at any time from and after the date of issuance
of such shares (the "Conversion Period"), subject as
hereinafter provided, to convert any or all of their Class B
Preferred Shares into Common Shares on the following original
Class B Conversion Basis, namely one Common Share for each
Class B Preferred Shares converted, until such time as the
original Class B Conversion Basis shall be adjusted as
hereinafter provided and thereafter on the adjusted Class B
Conversion Basis.
(2) Conversion Procedure. The conversion privilege herein provided
for may be exercised by notice in writing given to the
transfer agent for the Class B Preferred Shares in any office
for the transfer of the Class B Preferred Shares or to the
Corporation at its registered office in the City of Toronto
accompanied by the certificate or certificates representing
Class B Preferred Shares in respect of which the holder
thereof desires to exercise such right of conversion. Such
notice shall be signed by such holder or by his duly
authorized attorney or agent and shall specify the number of
Class B Preferred Shares which the holder desires to have
converted. The transfer form on the certificate or
certificates in question need not be endorsed, except in the
circumstances hereinafter contemplated. If less than all the
Class B Preferred Shares represented by a certificate or
certificates accompanying any such notice are to be converted,
the holder shall be entitled to receive, at the expense of the
Corporation, a new certificate representing the Class B
Preferred Shares comprised in the certificate or certificates
surrendered as aforesaid which are not to be converted.
On any conversion of Class B Preferred Shares, the share
certificates for Common Shares of the Corporation resulting
therefrom shall be issued in the name of the registered holder
of the Class B Preferred Shares converted or in such name or
names as such registered holder may direct in writing (either
in the notice referred to above or otherwise), provided that
such registered holder shall pay any applicable security
transfer taxes; in any such case the transfer form on the back
of the certificate in question shall be endorsed by the
registered holder of the Class B Preferred Shares or his duly
authorized attorney, with signature guaranteed in a manner
satisfactory to the Corporation.
<PAGE> 24
1G
(3) Effective Date of Conversion. Subject as hereinafter provided
in this clause 3.5(3), the right of a holder of Class B
Preferred Shares to convert the same into Common Shares shall
be deemed to have been exercised, and the registered holder of
Class B Preferred Shares to be converted (or any person or
persons in whose name or names any such registered holder of
Class B Preferred Shares shall have directed certificates
representing Common Shares to be issued as provided in clause
3.5(2)) shall be deemed to have become a holder of record of
Common Shares of the Corporation for all purposes on the date
of surrender of certificates representing the Class B
Preferred Shares to be converted accompanied by notice in
writing as provided in clause 3.5(2) hereof, notwithstanding
any delay in the delivery of certificates representing the
Common Shares into which such Class B Preferred Shares have
been converted.
(4) Adjustment of Class B Conversion Basis. If and whenever at any
time there is a capital reorganization of the Corporation or a
reclassification by the Corporation of its Common Shares or a
subdivision or consolidation by the Corporation of its
outstanding Common Shares into a greater or lesser number of
shares, as the case may be, or an amalgamation or merger of
the Corporation with or into any other body corporation, trust
partnership or other entity, or a sale or conveyance of the
property and assets of the Corporation as an entity or
substantially as an entity to any other body corporate, trust,
partnership or other entity, or the issuance of any rights or
the payment of any stock dividend (any such event is herein
called an "event"), any holder of Class B Preferred Shares who
has not exercised his right of conversion prior to the record
date where one has been established, or otherwise, on the
effective date of such Event (the record date or the effective
date of such Event is herein called the "Relevant Date") shall
be entitled to receive and shall accept, upon the exercise of
such right at any time thereafter, in lieu of the number (the
"Original Number") of Common Shares to which he was
theretofore entitled upon conversion, the aggregate number of
shares or other securities or property of the Corporation or
of the body corporate, trust, partnership or other entity
resulting from such Event, that such holder would have been
entitled to receive as a result of such Event if, on the
Relevant Date, he had been the registered holder of the
Original Number of Common Shares; provided that no such Event
shall be carried into effect unless, in the opinion of the
directors, all necessary steps have been taken to ensure that
the holders of the Class B Preferred Shares shall thereafter
be entitled to receive such number of shares or other
securities or property of the Corporation or of the body
corporate, trust, partnership or other entity resulting from
such Event, as the case may be, subject to adjustment
thereafter in accordance with provisions, as nearly similar as
may be, to those contained in this clause 3.5(4), as such
holders would be
<PAGE> 25
1H
entitled to receive pursuant to the foregoing provisions of
this clause 3.5(4).
(5) Conversion Adjustment Rules. The following rules and
procedures shall be applicable to Class B Conversion Basis
adjustments made pursuant to clause 3.5(4):
(i) Common Shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding
but, for the purposes of this subclause 3.5(5)(i),
any Common Shares owned by a pension plan or share
purchase plan or analogous plan for employees of the
Corporation or its subsidiaries or affiliates shall
not be considered to be owned by or held for the
account of the Corporation;
(ii) the adjustment provided for in clause 3.5(4) hereof
shall be made cumulatively and consecutively in
respect of any Event contemplated by clause 3.5(4) as
giving rise to any adjustment of the Class B
Conversion Basis;
(iii) if any question shall at any time arise with respect
to adjustments in the Class B Conversion Basis, such
question shall be conclusively determined by the
auditors of the Corporation and any such
determination shall be binding upon the Corporation
and any transfer agents and all shareholders of the
Corporation; and
(iv) forthwith after any adjustment in the Class B
Conversion Basis pursuant to the foregoing clause
3.5(4) the Corporation shall give written notice to
the registered holders of Class B Preferred Shares of
the Class B Conversion Basis following such
adjustment. Any such notice shall be sufficiently
given if delivered or sent by registered mail,
postage prepaid, to the holders of record of the
Class B Preferred Shares at the addresses last
recorded by the Corporation in the register
maintained by the Corporation. Any notice so mailed
shall be deemed to have been given on the third
business day after the date of the mailing.
(6) Entitlement to Dividends. A holder of any Class B Preferred
Share on the record date for any dividend declared payable on
any such share shall be entitled to such dividend
notwithstanding that any such share is converted after such
record date and before the payment date of such dividend, and
the registered holder of any Common Share resulting from any
conversion shall be entitled to rank equally with the
registered holders of all Common Shares in respect of all
dividends declared payable to holders of Common Shares or
record on any date after the date of conversion. Subject as
aforesaid, no payment or adjustment will be made on account of
any
<PAGE> 26
1I
dividend, accrued or otherwise, on the Class B Preferred
Shares converted or the Common Shares resulting from any
conversion.
(7) Notice of Certain Events. If the Corporation intends to fix a
date for any Common Share reorganization or for any capital
reorganization or for any rights offering or for any special
distribution, the Corporation shall, not less than 21 days
prior to such record date, notify each registered holder of
Class B Preferred Shares of such intention by written notice
to the extent that such particulars have been determined at
the time of giving the notice. Any such notice shall be
sufficiently given if delivered or sent by registered mail,
postage prepaid, to the holders of record of the Class B
Preferred Shares at the addresses last recorded by the
Corporation. Any notice so mailed shall be deemed to have been
given on the third business day after the date of the mailing.
(8) Avoidance of Fractional Shares. In any case where a fraction
of a Common Share would otherwise be issuable on conversion of
one or more Class B Preferred Shares, the Corporation shall
adjust such fractional interest by the payment by cheque of an
amount equal to the then current market value of such
fractional interest computed on the basis of the last board
lot sale price (or the average of the last bid and ask prices
if there has not been board lot sale), on any stock exchange
or quotation system on which such shares are listed or quoted
as may be selected for such purpose by the directors next
preceding the date of surrender of certificates representing
the Class B Preferred Shares to be converted. In the event
that the Common Shares are not listed or quoted on any stock
exchange or quotation system, the then current market value of
such fractional interest shall be determined by the directors
of the Corporation, which determination shall be conclusive
and binding.
(9) Postponement of Issuance of Shares upon Conversion. In any
case where the application of the foregoing provisions results
in an increase of the Class B Conversion Basis taking effect
immediately after the record date for a specific Event, if any
Class B Preferred Shares are converted after the record date
and prior to completion of the Event, the Corporation may
postpone the issuance to the holder of the additional Common
Shares to which he is entitled by reason of the increase of
the Class B Conversion Basis but such additional Common Shares
shall be so issued and delivered to that holder upon
completion of the Event and the Corporation shall, in the
interim, deliver to the holder an appropriate instrument
evidencing his right to receive such additional Common Shares.
(10) Automatic Conversion upon Shares going Public. Notwithstanding
any other term hereof, in the event of an IPO the holders of
the Class B Preferred Shares shall be deemed to convert all
Class B Preferred Shares into fully paid non-assessable Common
Shares of the Corporation without
<PAGE> 27
1J
any further act required by the holder, at the Class B
Conversion Basis in effect on the date of the conversion.
3.6 AMENDMENT TO CLASS A PREFERRED SHARE PROVISIONS
The designation, rights, privileges, restrictions and conditions of the
Class B Preferred Shares may not be amended without the affirmative vote of
holders of all of the Class B Preferred Shares then outstanding.
<PAGE> 28
2
5. The amendment has been duly authorized as required by Sections 168 &
170 (as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement a l'articles 168 et
170 (selon le cas) de la Loi sur les socie tes par actions.
6. The resolution authorizing the amendment was approved by the
shareholders (as applicable) of the corporation on
Les actionnaires (selon le cas) de la socie te ont approuve la
resolution autorisant la modification le
1998, 11, 20
- --------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
MEDIA SYNERGY INC.
---------------------------------------------
(Name of Corporation)
(Denomination sociale de la societe)
By/Par: /s/ Wilson Lee CFO
--------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 29
1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1039951
Ministry of Ministere de
Consumer and la Consummation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigeur les
SEPTEMBER 15 SEPTEMBRE, 1999
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The name of the corporation is:
Denomination sociale actuelle de la societe:
MEDIA SYNERGY INC.
2. The name of the corporation is changed to (if applicable):
Novelle denomination sociale de la societe (s'il y a lieu):
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
1993 Aug 4
- --------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
4. The articles of the corporation are amended as follows:
Les statuts de la societe sont modifies de la facon suivante:
To increase and amend the authorized capital of the Corporation by the
creation of an unlimited number of Class C Preferred Shares, having the
rights, privileges, restrictions and conditions set out in the attached
pages 1A through to 1K.
<PAGE> 30
1A
ARTICLE 1
CLASS C PREFERRED SHARES
1.1 NAME
The class of preferred shares having the rights, privileges,
restrictions and conditions set forth in this Article 1 shall be
designated as Class C Preferred Shares (the "Class C Preferred
Shares").
1.2 VOTING RIGHTS
The holders of the Class C Preferred Shares shall be entitled to
receive notice of and to amend and vote at all meetings of the
shareholders of the Corporation (except where the holders of a
specified class of shares are entitled to vote separately as a class as
provided in the Act), and each Class C Preferred Share shall confer the
right to one vote in person or by proxy at all meetings of shareholders
of the Corporation.
1.3 DIVIDENDS
The holders of Class C Preferred Shares, shall rank equally with the
holders of Common Shares and Class B Shares in respect of the
declaration and payment of dividends and shall be entitled to receive,
and the Corporation shall pay thereon, if, as and when declared by the
directors of the Corporation, out of monies of the Corporation properly
applicable to the payment of dividends, dividends in such amount as the
directors may, in their discretion, declare from time to time. If, in
any year, the directors of the Corporation in their discretion shall
not have declared and paid or set apart for payment dividends on the
Common Shares and Class C Preferred Shares, then no dividends shall be
paid or payable to the holders of Class C Preferred Shares for such
period.
1.4 DISTRIBUTION RIGHTS
In the event of liquidation, dissolution, winding-up, or the sale,
consolidation, merger or reorganization of the Corporation, whether
voluntary or involuntary, the holders of the Class C Preferred Shares
shall be entitled to receive, in priority to and before any
distribution of any part of the assets of the Corporation among the
holders of Common Shares, the Class A Shares or the Class B Shares, an
amount per Class C Preferred Share equal to the stated capital per
share of the Class C Preferred Shares as recorded in the stated capital
account maintained for the Class C Preferred Shares together with any
declared but unpaid dividends, to the extent that such unpaid dividends
are not reflected in the stated capital account maintained for the
Class C Preferred Shares, and no more.
1.5 CONVERSION PRIVILEGE
(1) Right of Conversion. Holders of Class C Preferred Shares shall
have the right at any time from and after the date of issuance
of such shares (the "Conversion Period"), subject as
hereinafter provided, to convert any or all of their Class C
Preferred Shares into Common Shares on the following Class C
Conversion
<PAGE> 31
1B
Basis, namely for each Class C Preferred Share converted, that
number of Common Shares equal to 1 multiplied by a fraction,
the denominator of which will be $0.3972 US and the numerator
of which will be the Conversion Price in effect at the time of
such conversion.
(2) Conversion Procedure. The conversion privilege herein provided
for may be exercised by notice in writing given to the
transfer agent for the Class C Preferred Shares in any office
for the transfer of the Class C Preferred Shares or to the
Corporation at its registered office in the City of Toronto
accompanied by the certificate or certificates representing
Class C Preferred Shares in respect of which the holder
thereof desires to exercise such right of conversion. Such
notice shall be signed by such holder or by his duly
authorized attorney or agent and shall specify the number of
Class C Preferred Shares which the holder desires to have
converted. The transfer form on the certificate or
certificates in question need not be endorsed, except in the
circumstances hereinafter contemplated. If less than all the
Class C Preferred Shares represented by a certificate or
certificates accompanying any such notice are to be converted,
the holder shall be entitled to receive, at the expense of the
Corporation, a new certificate representing the Class C
Preferred Shares comprised in the certificate or certificates
surrendered as aforesaid which are not to be converted.
On any conversion of Class C Preferred Shares, the share
certificates for Common Shares of the Corporation resulting
therefrom shall be issued in the name of the registered holder
of the Class C Preferred Shares converted or in such name or
names as such registered holder may direct in writing (either
in the notice referred to above or otherwise), provided that
such registered holder shall pay any applicable security
transfer taxes; in any such case the transfer form on the back
of the certificate in question shall be endorsed by the
registered holder of the Class C Preferred Shares or his duly
authorized attorney, with signature guaranteed in a manner
satisfactory to the Corporation.
(3) Effective Date of Conversion. Subject as hereinafter provided
in this clause 1.5(3), the right of a holder of Class C
Preferred Shares to convert the same into Common Shares shall
be deemed to have been exercised, and the registered holder of
Class C Preferred Shares to be converted (or any person or
persons in whose name or names any such registered holder of
Class C Preferred Shares shall have directed certificates
representing Common Shares to be issued as provided in clause
1.5(2)) shall be deemed to have become a holder of record of
Common Shares of the Corporation for all purposes on the date
of surrender of certificates representing the Class C
Preferred Shares to be converted accompanied by notice in
writing as provided in clause 1.5(2) hereof, notwithstanding
any delay in the delivery of certificates representing the
Common Shares into which such Class C Preferred Shares have
been converted.
(4) Issue of Additional Shares.
(i) Conversion Price Adjustment. For purposes of
determining the Class C Conversion Basis pursuant to
these Class C Preferred Shares Conditions, the Class
C Shares shall be deemed to have a "Conversion Price"
of
<PAGE> 32
1C
$0.3972 US per share of Class C Preferred Shares. In
order to prevent dilution of the conversion rights
granted under this subdivision, the Conversion Price
will be subject to adjustment from time to time
pursuant to this clause 1.5(4).
(ii) Conversion Price Adjustment Calculation. If and
whenever, on or after the original date of issuance
of the Class C Preferred Shares, the Corporation
issues or sells, or is deemed to have issued or sold,
any of its Common Shares for consideration per share
less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then
immediately after such issue or sale the Conversion
Price of Class C Preferred Shares will be reduced to
the price determined by multiplying the Conversion
Price by a fraction, the numerator of which will be
(a) the number of Common Shares outstanding
immediately prior to such issue or sale (assuming the
exercise or conversion of all Options (as defined
below) and Convertible Securities (as defined below)
that are then exercisable or convertible, including,
without limitation, all Options outstanding under any
employee share ownership plan and all outstanding
Class C Preferred Shares), plus (b) the number of
Common Shares that the aggregate consideration
received by the Corporation for the total number of
additional Common Shares so issued or sold would
purchase at such Conversion Price, and the
denominator of which will be the number of Common
Shares outstanding immediately prior to such issue or
sale (assuming the exercise or conversion of all
Options and Convertible Securities that are then
exercisable or convertible, including, without
limitation, all Options outstanding under any
employee stock ownership plan and all outstanding
Class C Preferred Shares) plus the number of
additional Common Shares actually issued.
It is the intention of the Corporation that the
Conversion Price shall apply only in respect of
transactions in which the Corporation raises
additional equity financing. Accordingly,
notwithstanding the foregoing, the Conversion Price
will not be adjusted by reason of the issuance of
Common Shares if such issuance is (i) upon conversion
of any presently outstanding shares or exercise of
presently outstanding warrants or other rights to
acquire shares (including the options granted to
CNET, Inc., pursuant to the Option Agreement dated
September 15, 1999), (ii) as a dividend or
distribution on the Class C Preferred or Common
Shares, (iii) pursuant to any employee stock
ownership plan or agreement that is approved from
time to time by the Board of Directors or (iv) in
connection with an acquisition transaction, building
or equipment lease transaction, strategic alliance or
partnering arrangement that is approved by the Board
of Directors.
(5) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under clause 1.5(4),
the following will be applicable:
(i) Deemed Issuance of Underlying Common Shares on Grant
of Options. If the Corporation in any manner issues
or grants any additional options,
<PAGE> 33
1D
warrants or similar rights to purchase or acquire
Common Shares ("Options") or additional securities
convertible or exchangeable, with or without
consideration, into or for Common Shares
("Convertible Securities") and the price per share
for which Common Shares are issuable upon the
exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than
the Conversion Price in effect immediately prior to
the granting of such Options, then the total maximum
number of Common Shares issuable upon the exercise of
such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities
issuable upon the exercise of such Options will be
deemed to be outstanding and to have been issued and
sold by the Corporation for such price per share. For
purposes of this paragraph, the "price per share for
which Common Shares are issuable" will be determined
by dividing (a) the total amount, if any, received or
receivable by the Corporation as consideration for
the granting of such Options, plus the minimum
aggregate amount of additional consideration payable
to the Corporation upon exercise of all such Options,
plus, in the case of such Options that relate to
Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable to the
Corporation upon the issuance of sale or such
Convertible Securities and the conversion or exchange
thereof, by (b) the total maximum number of Common
Shares issuable upon the exercise of such Options or
upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of
such Options. No further adjustment of the Conversion
Price will be made when Convertible Securities are
actually issued upon the exercise of such Options or
when Common Shares are actually issued upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities.
<PAGE> 34
1E
(ii) Deemed Issuance of Underlying Common Shares Upon
Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any
additional Convertible Securities and the price per
share for which Common Shares are issuable upon such
conversion or exchange is less than the Conversion
Price in effect immediately prior to the time of such
issue or sale, then the maximum number of Common
Shares issuable upon conversion or exchange of such
Convertible Securities will be deemed to be
outstanding and to have been issued and sold by the
Corporation for such, price per share. For the
purposes of this paragraph, the "price per share for
which Common Shares are issuable" will be determined
by dividing (a) the total amount received or
receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (b) the
total maximum number of shares of Common Shares
issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the
Conversion Price will be made when Common Shares are
actually issued upon the conversion or exchange of
such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the
Conversion Price had been or are to be made pursuant
to other provisions of this clause 1.5(5), no further
adjustment of the Conversion Price will be made by
reason of such issue or sale.
(iii) Changes in Pricing of Previously Issued Options or
Convertible Securities. If the purchase price
provided for in any Options, or the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities or the rate at
which any Convertible Securities are convertible into
or exchangeable for Common Shares changes at any
time, the Conversion Price in effect at the time of
such change will be readjusted to the Conversion
Price that would have been in effect at such time had
such Options or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or changed conversion rate,
as the case may be, at the time initially granted,
issued or sold.
(iv) Reverse Adjustment on Expiry of Unexercised Options
or Convertible Securities. Upon the expiration of any
Option or the termination of any right to convert or
exchange any Convertible Security without the
exercise of any such Option or right, the Conversion
Price then in effect hereunder will be adjusted to
the Conversion Price that would have been in effect
at the time of such expiration or termination had
such Option or Convertible Security, to the extent
outstanding immediately prior to such expiration or
termination, never been issued.
<PAGE> 35
1F
(v) Non-Cash Consideration. If the Corporation issues or
sells, or is deemed to have issued or sold, for cash
any additional Common Shares, Option or Convertible
Security, the consideration received therefor will be
deemed to be the net amount received by the
Corporation therefor.
(vi) Deemed Price of Options Not Otherwise Priced. In case
any Option is issued in connection with the issue or
sale of other securities of the Corporation, together
comprising one integrated transaction in which no
specific consideration is allocated to such Option by
the parties thereto, the Option will be deemed to
have been issued for a consideration of $0.01.
(vii) Shares Held by Corporation. The number of Common
Shares outstanding at any given time does not include
shares owned or held by or for the account of the
Corporation or any Subsidiary, and the disposition of
any shares so owned or held will be considered an
issue or sale of Common Shares by the Corporation.
(viii) Record Date. If the Corporation takes a record of the
holders of Common Shares for the purpose of entitling
them (a) to receive a dividend or other distribution
payable in Common Shares, Options or Convertible
Securities or (b) to subscribe for or purchase Common
Shares, Options or Convertible Securities, then such
record date will be deemed to be the date of the
issue or sale of the Common Shares deemed to have
been issued or sold upon the declaration of such
dividend or upon the making of such other
distribution or the date of the granting of such
right of subscription or purchase, as the case may
be.
(6) Adjustment of Class C Conversion Basis. If and whenever at any
time there is a capital reorganization of the Corporation or a
reclassification by the Corporation of its Common Shares or a
subdivision or consolidation by the Corporation of its
outstanding Common Shares into a greater or lesser number of
shares, as the case may be, or an amalgamation or merger of
the Corporation with or into any other body corporation, trust
partnership or other entity, or a sale or conveyance of the
property and assets of the Corporation as an entity or
substantially as an entity to any other body corporate, trust,
partnership or other entity, or the issuance of any rights or
the payment of any stock dividend (any such event is herein
called an "event"), any holder of Class C Preferred Shares who
has not exercised his right of conversion prior to the record
date where one has been established, or otherwise, on the
effective date of such Event (the record date or the effective
date of such Event is herein called the "Relevant Date") shall
be entitled to receive and shall accept, upon the exercise of
such right at any time thereafter, in lieu of the number (the
"Original Number") of Common Shares to which he was
theretofore entitled upon conversion, the aggregate number of
shares or other securities or property of the Corporation or
of the body corporate, trust, partnership or other entity
resulting from such Event, that such holder would have been
entitled to receive as a result of such Event if, on the
Relevant Date, he had been the registered holder of the
Original Number of Common Shares; provided that no such Event
shall be carried into effect unless, in the opinion of
<PAGE> 36
1G
the directors, all necessary steps have been taken to ensure
that the holders of the Class C Preferred Shares shall
thereafter be entitled to receive such number of shares or
other securities or property of the Corporation or of the body
corporate, trust, partnership or other entity resulting from
such Event, as the case may be, subject to adjustment
thereafter in accordance with provisions, as nearly similar as
may be, to those contained in this clause 1.5(6), as such
holders would be entitled to receive pursuant to the foregoing
provisions of this clause 1.5(6).
(7) Conversion Adjustment Rules. The following rules and
procedures shall be applicable to Class C Conversion Basis
adjustments made pursuant to clause 1.5(6):
(i) Common Shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding
but, for the purposes of this subclause 1.5(7)(i),
any Common Shares owned by a pension plan or share
purchase plan or analogous plan for employees of the
Corporation or its subsidiaries or affiliates shall
not be considered to be owned by or held for the
account of the Corporation;
(ii) the adjustment provided for in clause 1.5(6) hereof
shall be made cumulatively and consecutively in
respect of any Event contemplated by clause 1.5(6) as
giving rise to any adjustment of the Class C
Conversion Basis
(iii) if any question shall at any time arise with respect
to adjustments in the Class C Conversion Basis, such
question shall be conclusively determined by the
auditors of the Corporation and any such
determination shall be binding upon the Corporation
and any transfer agents and all shareholders of the
Corporation; and
(iv) forthwith after any adjustment in the Class C
Conversion Basis pursuant to the foregoing clause
1.5(6) the Corporation shall give written notice to
the registered holders of Class C Preferred Shares of
the Class C Conversion Basis following such
adjustment. Any such notice shall be sufficiently
given if delivered or sent by registered mail,
postage prepaid, to the holders of record of the
Class C Preferred Shares at the addresses last
recorded by the Corporation in the register
maintained by the Corporation. Any notice so mailed
shall be deemed to have been given on the third
business day after the date of the mailing.
(8) Entitlement to Dividends. A holder of any Class C Preferred
Share on the record date for any dividend declared payable on
any such share shall be entitled to such dividend
notwithstanding that any such share is converted after such
record date and before the payment date of such dividend, and
the registered holder of any Common Share resulting from any
conversion shall be entitled to rank equally with the
registered holders of all Common Shares in respect of all
dividends declared payable to holders of Common Shares or
record on any date after the date of conversion. Subject as
aforesaid, no payment or adjustment will be made
<PAGE> 37
1H
on account of any dividend, accrued or otherwise, on the Class
C Preferred Shares converted or the Common Shares resulting
from any conversion.
(9) Notice of Certain Events. If the Corporation intends to fix a
date for any Common Share reorganization or for any capital
reorganization or for any rights offering or for any special
distribution, the Corporation shall, not less than 21 days
prior to such record date, notify each registered holder of
Class C Preferred Shares of such intention by written notice
to the extent that such particulars have been determined at
the time of giving the notice. Any such notice shall be
sufficiently given if delivered or sent by registered mail,
postage prepaid, to the holders of record of the Class C
Preferred Shares at the addresses last recorded by the
Corporation. Any notice so mailed shall be deemed to have been
given on the third business day after the date of the mailing.
(10) Avoidance of Fractional Shares. In any case where a fraction
of a Common Share would otherwise be issuable on conversion of
one or more Class C Preferred Shares, the Corporation shall
adjust such fractional interest by the payment by cheque of an
amount equal to the then current market value of such
fractional interest computed on the basis of the last board
lot sale price (or the average of the last bid and ask prices
if there has not been board lot sale), on any stock exchange
or quotation system on which such shares are listed or quoted
as may be selected for such purpose by the directors next
preceding the date of surrender of certificates representing
the Class C Preferred Shares to be converted. In the event
that the Common Shares are not listed or quoted on any stock
exchange or quotation system, the then current market value of
such fractional interest shall be determined by the directors
of the Corporation, which determination shall be conclusive
and binding.
(11) Postponement of Issuance of Shares upon Conversion. In any
case where the application of the foregoing provisions results
in an increase of the Class C Conversion Basis taking effect
immediately after the record date for a specific Event, if any
Class C Preferred Shares are converted after the record date
and prior to completion of the Event, the Corporation may
postpone the issuance to the holder of the additional Common
Shares to which he is entitled by reason of the increase of
the Class C Conversion Basis but such additional Common Shares
shall be so issued and delivered to that holder upon
completion of the Event and the Corporation shall, in the
interim, deliver to the holder an appropriate instrument
evidencing his right to receive such additional Common Shares.
(12) Automatic Conversion upon Shares going Public. Notwithstanding
any other term hereof, in the event of an IPO the holders of
the Class C Preferred Shares shall be deemed to convert all
Class C Preferred Shares into fully paid non-assessable Common
Shares of the Corporation without any further act required by
the holder, at the Class C Conversion Basis in effect on the
date of the conversion.
<PAGE> 38
1I
1.6 AMENDMENT TO CLASS C PREFERRED SHARE PROVISIONS
The designation, rights, privileges, restrictions and conditions of the
Class C Preferred Shares may not be amended without the affirmative vote of
holders of all of the Class C Preferred Shares then outstanding.
<PAGE> 39
1J
ARTICLE 2
AMENDMENT TO CLASS A PREFERRED SHARES
2.1 DISTRIBUTION RIGHTS
Section 2.6 of the provisions attaching to the Class A Preferred Shares
is hereby amended by adding the following words immediately after "Class B
Preferred Shares," in the last line thereof:
"but after any distribution of any part of the assets of the
Corporation among the holders of the Class C Preferred Shares,".
<PAGE> 40
1K
ARTICLE 3
AMENDMENT TO CLASS B PREFERRED SHARES
3.1 DISTRIBUTION RIGHTS
Section 3.4 of the provisions attaching to the Class B Preferred Shares
is hereby amended by adding the following words immediately after "Common
Shares," in the fourth line thereof:
"but after any distribution of any part of the assets of the
Corporation among the holders of the Class C Preferred Shares
and the Class A Preferred Shares,".
<PAGE> 41
2
5. The amendment has been duly authorized as required by Sections 168 &
170 (as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement aux articles 168 et
170 (selon le cas) de la Loi sur les socie tes par actions.
6. The resolution authorizing the amendment was approved by the
shareholders (as applicable) of the corporation on
Les actionnaires (selon le cas) de la socie te ont approuve la
resolution autorisant la modification le
1999, Sept 15
- --------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
MEDIA SYNERGY INC.
-----------------------------------------------
(Name of Corporation)
(Denomination sociale de la societe)
By/Par: /s/ Wilson Lee CFO
---------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 42
1
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en Ontario
1039951
Ministry of Ministere de
Consumer and la Consummation
Commercial et du Commerce
Ontario Relations
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigeur les
NOVEMBER 24 NOVEMBRE, 1999
- --------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
1. The name of the corporation is:
Denomination sociale de la societe:
MEDIA SYNERGY INC.
2. The name of the corporation is changed to (if applicable):
Novelle denomination sociale de la societe (s'il y a lieu):
FLONETWORK INC.
3. Date of incorporation/amalgamation:
Date de la constitution ou de la fusion:
1993 AUGUST 04
- --------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
4. The articles of the corporation are amended as follows:
Les statuts de la societe sont modifies de la facon suivante:
1. The name of the Corporation is changed to:
FloNetwork Inc.
2. The authorized capital of the Corporation is amended to
increase the authorized capital of the Corporation by creating
an unlimited by creating an unlimited number of Class D
Preferred Shares which shall have the rights, privileges,
restrictions and conditions set out in the annexed Schedule 1
which is incorporated in this form.
3. Item 8 - Restrictions on Transfer of Shares is deleted in its
entirety.
4. Item 9 - Other provisions is deleted in its entirety.
<PAGE> 43
1A
SCHEDULE 1
1. Dividends:
1.1 Subject to the Business Corporations Act (Ontario) (the "Act"), the
holders of the Class D Preferred Shares shall be entitled to receive, if, as and
when declared in the discretion of the Board of Directors out of funds of the
Company legally available therefor (but in any event pari passu with any
dividends paid to holders of the Class A Preferred Shares, Class B Preferred
Shares and the Class C Preferred Shares and in preference and priority to any
payment of dividends on the Common Shares), cash dividends at the rate of
US$0.124647 per share per annum from the date of issue (computed on the basis of
a 360-day year, 30-day month), payable commencing on December 30, 1999 and
thereafter quarterly on the last day of March, June, September and December in
each year to shareholders of record on such dates, not exceeding 60 days
preceding such dividend dates, as shall be fixed for such purpose by the Board
of Directors in advance of payment of each particular dividend. Dividends shall
not be cumulative, provided that if in any year the Board of Directors in their
discretion shall not have declared or set apart for payment dividends on the
Common Shares or the Class D Preferred Shares, then no dividends shall be paid
or payable or owing to the holders of the Class D Preferred Shares for such
period. Arrears of dividends shall not bear interest.
1.2 So long as any Class D Preferred Shares are outstanding, no
dividend shall be declared or paid or other distribution made on the Class A
Preferred Shares, Class B Preferred Shares, the Class C Preferred Shares or the
Common Shares nor shall the Company purchase or otherwise acquire, or permit any
subsidiary of the Company to purchase or otherwise acquire, any Common Shares
unless all dividends on the Class D Preferred Shares for the current and all
past quarterly dividend periods that have been declared but are unpaid shall
have been paid in full or sums set apart for the payment thereof and there shall
exist no default with respect to the redemption provisions for the Class D
Preferred Shares.
1.3 The holders of Class D Preferred Shares shall be entitled to
receive dividends pari passu with any dividends paid to the holders of the
Common Shares, as if the Class D Preferred Shares had been converted to Common
Shares in accordance with Section 4 below, on the record date for each such
dividend payable to holders of the Common Shares, such dividends as the Board of
Directors may from time to time determine in its discretion to pay to such
holders of Common Shares, notwithstanding any other dividend payments which may
have been made to the holders of Class D Preferred Shares pursuant to this
Section 1.
2. Liquidation:
2.1 In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, then out of the assets of the Company
available for distribution to its shareholders before any distribution or
payment to the holders of the Class A Preferred Shares, the Class B Preferred
Shares, the Class C Preferred Shares or the Common Shares, the holders of the
Class D Preferred Shares shall
<PAGE> 44
1B
be entitled to be paid the sum of US$1.24647 per share, together with any
dividends declared and unpaid to and including the date of such liquidation,
dissolution or winding up; and the holders of the Class D Preferred Shares shall
be entitled to no other or further distribution.
2.2 After payment in full to the holders of the Class D Preferred
Shares of the sums which such holders are entitled to receive hereunder or the
setting apart of such sums for such payment, the remaining assets of the Company
available for distribution shall be distributed among and paid to the holders of
the Class A Preferred Shares, the Class B Preferred Shares, the Class C
Preferred Shares and the Common Shares in accordance with the rights attaching
thereto.
2.3 If the assets of the Company available for distribution to its
Shareholders shall be insufficient to permit payment in full to the holders of
the Class D Preferred Shares of the sums which such holders are entitled to
receive pursuant to Section 2.1, then all of the assets available for
distribution to the shareholders shall be distributed among and paid to the
holders of the Class D Preferred Shares ratably in proportion to the respective
amounts that would be payable per share if such assets were sufficient to permit
such payment in full.
2.4 The consolidation or merger of the Company with or into any other
corporation or corporations (other than a consolidation or merger where the
shareholders of the Company immediately prior to the consolidation or merger
continue to own voting power of at least 50% of the surviving entity immediately
following such consolidation or merger) or the sale of all or substantially all
of the assets of the Company shall be deemed a liquidation, dissolution or
winding up of the Company within the meaning of this Section 2, unless such
consolidation or merger or sale shall have been consented to by the holders of a
majority of the Class D Preferred Shares at the time outstanding in the manner
provided in Section 3.2 of this Article.
3. Voting Rights:
3.1 Each holder of the Class D Preferred Shares shall be entitled to
one vote for each whole Common Share into which the Class D Preferred Shares
registered as of the record date in the name of such holder on the books of the
Company is convertible pursuant to Section 4.1 immediately prior to the time of
any meeting of holders of shares of the Company of which voting rights attaching
to the Common Shares are exercisable. Except as otherwise provided hereinafter
in this Section 3 or as otherwise required by the Act, the holders of the Class
D Preferred Shares, the Class B Preferred Shares, the Class C Preferred Shares
and the Common Shares shall vote together as if holders of one class of shares.
3.2 As long as a number of Class D Preferred Shares equal to at least
33 1/3 % of the total number Class D Preferred Shares ever issued by the Company
remain outstanding (subject to adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares), the Company shall not at any time without the consent of the holders of
at least a majority of the Class D
<PAGE> 45
1C
Preferred Shares at the time outstanding, given in person or by proxy, either in
writing or at a meeting called for the purpose, at which the holders of the
Class D Preferred Shares shall vote separately as a class (unless the consent of
the holders of a greater number of such shares shall be required by statute):
(a) effect any change described in Section 170(l) of the Business
Corporations Act (Ontario);
(b) create, authorize or issue any additional class of shares ranking
prior to or on a parity with the Class D Preferred Shares, or create or
authorize any obligation or security exercisable or exchangeable for or
convertible into shares of any class ranking prior to or on a parity with the
Class D Preferred Shares;
(c) amend, alter or repeal any provision of the Articles of
Incorporation or By-Laws of the Company which would affect adversely the rights,
privileges restrictions or conditions attaching to the Class D Preferred Shares
or of the holders thereof,
(d) sell, lease or convey all or substantially all of the assets or
business of the Company or of the capital stock or the assets or business of any
subsidiary of the Company or consolidate or merge the Company or any subsidiary
of the Company with any other corporation (except a consolidation or merger of
the Company with any wholly-owned subsidiary of the Company), or in any way
reorganize the capital of the Company, or voluntarily liquidate, dissolve or
wind up the Company;
(e) purchase or otherwise acquire all or substantially all of the
shares or any other securities of any other entity or person or all or
substantially all of the assets or properties of any other entity or person;
(f) redeem any Common Shares (other than pursuant to equity incentive
agreements with service providers giving the Company the rights to repurchase
such Common Shares upon the termination of such services, or as required under
the Articles of Incorporation of the Company or any agreements to which the
Company is a party existing as of the date hereof,
(g) change the minimum or maximum number of members of the Board of
Directors of the Company set forth in the Articles of Incorporation of the
Company as amended by Articles of Amendment dated November 20, 1998; or
(h) pay or declare any dividend on the Class A Preferred Shares, the
Class B Preferred Shares, the Class C Preferred Shares or the Common Shares.
4. Conversion of the Class D Preferred Shares:
4.1 Each Class D Preferred Share may be converted at the option of the
holder thereof, at any time and from time to time, in the manner and upon the
terms and conditions hereinafter in this Section 4 set forth into such number of
fully paid and non-assessable Common Shares of the Company equal to US$1.24647
divided by the
<PAGE> 46
1D
conversion price (the "Conversion Price") in effect at the time of conversion.
The Class D Preferred Shares shall be automatically converted as set forth
hereinabove:
(a) upon the consent of the holders of a majority of the outstanding
Class D Preferred Shares, at any time and from time to time, in the manner and
upon the terms and conditions hereinafter in this Section 4 set forth; or
(b) upon the consummation of an underwritten public offering of its
Common Shares which is priced so as to reflect a pre-money valuation (understood
as the total number of fully diluted Equity Securities outstanding (as defined
in Section 4.3 and including for this purpose shares issued under a stock option
or purchase plan approved by the Board of Directors of the Company) immediately
prior to such offering multiplied by the price per share at which such Common
Shares are sold to the public in such offering) of not less than US$125,000,000
and results in gross proceeds of not less than US$20,000,000 in cash, in the
manner and upon the terms and conditions hereinafter in this Section 4 set
forth.
4.2 The Conversion Price shall be US$1.24647 per Common Share until
adjusted (to the nearest cent, a half-cent being considered a full cent) as
hereinafter set forth in this Section 4 and thereafter the Conversion Price
shall be further adjusted and readjusted from time to time as hereinafter in
this Section 4 provided, each such adjustment or readjustment to remain in
effect until a further adjustment or readjustment is required by this Section 4.
4.3 If at any time or from time to time after the date on which the
Class D Preferred Shares were originally issued (hereinafter called the
"Original Issue Date"), the Company shall issue or sell any of its Common
Shares, options, warrants, rights or agreements for the purchase or acquisition
from the Company of any Common Shares or Convertible Securities (as defined
below) ("Options") or shares or other securities directly or indirectly
convertible into or exchangeable for Common Shares (excluding Options,
"Convertible Securities") (other than (i) Common Shares issued upon conversion
of any of the Class A Preferred Shares, the Class B Preferred Shares, the Class
C Preferred Shares or the Class D Preferred Shares or Convertible Securities or
upon exercise of Options outstanding prior to the Original Issue Date; (ii)
Options, including shares issued upon exercise of Options, or shares issued to
directors, officers and employees of and consultants to the Company or a
subsidiary of the Company pursuant to a stock option or purchase plan approved
by the Board of Directors of the Company, (iii) securities issued pursuant to a
dividend or distribution or (iv) Common Shares, Convertible Securities or
Options issued (or shares issued upon conversion or exercise thereof) in
connection with an acquisition transaction, building or equipment lease
transaction, strategic alliance or partnering arrangement that is approved by
the Board of Directors) (the Common Shares, Convertible Securities and Options
to be referred to collectively as the "Equity Securities") for a consideration
per Common Share less than the Conversion Price in effect immediately prior to
such issue or sale, then in each such case the Conversion Price shall be
adjusted (to the nearest cent, a half cent being considered a full cent) to
equal the result of dividing
<PAGE> 47
1E
(a) the sum of (x) the result obtained by multiplying the number of
Common Shares of the Company outstanding immediately prior to such issue or sale
by the Conversion Price in effect immediately prior to such issue or sale, and
(y) the consideration, if any, received by the Company upon such issue or sale,
by
(b) the aggregate number of Common Shares of the Company outstanding
immediately after such issue or sale,
provided that, (i) for the purpose of this Subsection 4.3, all Common Shares
issuable upon conversion or exchange of Convertible Securities or exercise of
Options outstanding at the time of determination of the number of Common Shares
outstanding shall be deemed to be outstanding, and (ii) for the purpose of
determining the number of Common Shares issuable upon conversion or exchange of
such Convertible Securities or exercise of Options at the time of determination
or the number of Common Shares outstanding no effect shall be given to any
adjustments to the conversion or exchange price or conversion or exchange rate
of such Convertible Securities or Options resulting from the issuance of Equity
Securities that is the subject of the calculation set forth above.
4.4 For purposes of determining the consideration per Common Share
received by the Company upon the issuance of an Equity Security:
(a) If after the Original Issue Date the Company shall (i) grant any
Options, or (ii) issue or sell any Convertible Securities, then in each such
case the price per Common Share issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities shall be determined by
dividing (x) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options or the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, by (y) the maximum number
of Common Shares issuable upon such exercise, conversion or exchange, as the
case may be. If the price per share so determined is less than the Conversion
Price in effect immediately prior to the granting of such Options or the issue
or sale of such Convertible Securities, such granting or issue or sale shall be
deemed to be an issue or sale for cash of such maximum number of Common Shares
at such price per share and such maximum number of Common Shares shall be deemed
to be outstanding, provided that (1) if such Options or Convertible Securities
by their terms provide, with the passage of time or otherwise, for any increase
in the amount of additional consideration payable to the Company or decrease in
the number of Common Shares issuable upon such exercise, conversion or exchange
(by change of rate or otherwise), the Conversion Price shall, upon each such
increase or decrease becoming effective, be readjusted to reflect such increase
or decrease insofar as it affects rights of exercise, exchange or conversion
which have not theretofore expired, and (2) upon the expiration of such Options
or the rights of conversion or exchange of such Convertible Securities, if any
thereof shall not have been exercised, the Conversion Price shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been had
it been originally adjusted (or had the original adjustment not been required,
as the case
<PAGE> 48
1F
may be) on the basis that (xx) the only Common Shares so issued were the Common
Shares, if any, actually issued or sold upon the exercise of such Options or the
rights of conversion or exchange of such Convertible Securities, and (yy) such
Common Shares, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the consideration, if any,
actually received by the Company for the granting of all of such Options,
whether or not exercised, or for the issue or sale of all such Convertible
Securities which shall have been converted or exchanged, provided, further, that
no such readjustment shall have the effect of increasing the Conversion Price by
an amount in excess of the amount of the adjustment thereof initially made in
respect of the granting of such Options or the issue or sale of such Convertible
Securities.
(b) If the Company shall pay a dividend or make a distribution on or in
respect of any shares of the Company other than the Class D Preferred Shares,
which dividend or distribution is payable in Common Shares or Convertible
Securities, such Common Shares or Convertible Securities shall be deemed to have
been issued or sold for no consideration.
(c) In case of a consideration consisting in whole or in part of cash,
the cash consideration shall be deemed to be the amount of cash constituting or
included in such consideration. In case of a consideration consisting in whole
or in part of property other than cash, the amount of the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors of the Company. In case Common Shares or
Convertible Securities are issued or sold or rights or options to purchase or
otherwise acquire Common Shares or Convertible Securities are granted together
with other stock or securities or assets of the Company for a consideration
which covers a combination of them, the portion of such consideration allocable
to the Common Shares, Convertible Securities, rights or options shall be as
determined in good faith by the Board of Directors of the Company.
(d) The issuance of Common Shares on the exercise of any Options or the
conversion or exchange of any Equity Securities issued, sold or granted after
the Original Issue Date shall not be deemed to be an issuance of Equity
Securities.
4.5 If the Company shall subdivide or reclassify the then outstanding
Common Shares into a greater number of Common Shares or combine or reclassify
the then outstanding Common Shares into a smaller number of Common Shares, the
Conversion Price in effect immediately prior to such subdivision, combination or
reclassification, as the case may be, shall be proportionately adjusted as of
the effective date thereof so that the holder of any Class D Preferred Shares
thereafter surrendered for conversion shall be entitled to receive the number of
Common Shares which he would have owned after the happening of such event had
such Class D Preferred Shares been converted immediately prior to the happening
of such event.
4.6 Subject to Section 2.4, in case of any capital reorganization of
the Company, or any consolidation or merger of the Company with or into another
corporation in which the Common Shares are converted into or exchanged for
securities, cash or other property, the holder of each Class D Preferred Share
then outstanding shall
<PAGE> 49
1G
have the right thereafter to convert such share into the kind and amount of
shares and other securities and property receivable upon such reorganization,
consolidation or merger by a holder of the number of Common Shares of the
Company into which such Class D Preferred Share might have been converted
immediately prior to such reorganization, consolidation or merger; and effective
provision shall be made in the Articles of Incorporation of the resulting or
surviving corporation or otherwise so that the provisions set forth in this
Section 4 for the protection of the conversion rights of the Class D Preferred
Shares shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares and other securities and property deliverable upon conversion
of the Class D Preferred Shares remaining outstanding or other convertible
securities received by the holders in place thereof, and any such resulting or
surviving corporation shall expressly assume the obligation to deliver, upon the
exercise of the conversion privilege, such shares, securities or property as the
holders of the Class D Preferred Shares, or other convertible securities
received by the holders in place thereof, shall be entitled to receive pursuant
to the provisions hereof, and to make provisions for the protection of the
conversion right as above provided. In case securities or property other than
Common Shares shall be issuable or deliverable upon conversion as aforesaid,
then all references in this Section 4 to Common Shares shall be deemed to apply,
so far as appropriate and as nearly as may be, to such other securities or
property.
4.7 In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend at the same rate as
the rate of the last cash dividend theretofore paid) or other distribution, or
any right to subscribe for, purchase or otherwise acquire any shares of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or consolidation or merger
of the Company with or into another corporation other than one in which the
Company is the surviving entity and its Common Shares are not converted into or
exchanged for securities, cash or other property, or
(c) any voluntary or involuntary dissolution, liquidation or winding up
of the Company;
then and in each such event the Company will mail to each holder of the Class, D
Preferred Shares then outstanding at such holder's address as it appears on the
records of the Company a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is to
take place, and the time, if any is to be fixed, of which the holders of record
of Common Shares shall be entitled to exchange their Common Shares for
securities or other properties deliverable upon such event, and (iii) the amount
and
<PAGE> 50
1H
character of any shares or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant, and the person or class of person to whom such proposed issue or grant is
to be offered or made. Such notice shall be mailed at least 20 days prior to the
date therein specified.
4.8 Upon each adjustment or readjustment in the Conversion Price, the
Company at its expense will cause the Chief Financial Officer to compute, and
will have the independent accountants who regularly audit the books and accounts
of the Company or other independent accountants of recognized standing selected
by the Company certify, such adjustment or readjustment in accordance with the
provisions of this Section 4 and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (i) the
consideration received or to be received by the Company for any additional
Common Shares issued or sold or deemed to have been issued or sold, (ii) the
number of Common Shares outstanding or deemed to be outstanding, and (iii) the
Conversion Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required) on account thereof. The Company forthwith
shall file such certificate with its corporate records and mail a copy to each
holder of the Class D Preferred Shares then outstanding at such holder's address
as it appears on the records of the Company.
4.9 In order to convert the Class D Preferred Shares into Common
Shares, the holder thereof shall surrender at the principal office of the
Company (or at such other place as the Board of Directors shall have designated
for the purpose) the certificate or certificates for such Class D Preferred
Shares properly endorsed in blank for transfer or accompanied by a proper
instrument of assignment or transfer in blank and bearing any necessary transfer
tax stamps thereto affixed and canceled, together with a written request for
conversion in which shall be stated the name or names in which such holder
wishes the certificate or certificates for Common Shares to be issued. The
Company will, as soon as practicable thereafter, deliver at said office to such
holder of the Class D Preferred Shares, or to his nominee or nominees, a
certificate or certificates for the number of full Common Shares to which he
shall be entitled as aforesaid, together with a cash payment in lieu of any
fraction of a Common Share. No fraction of a Common Share shall be issued upon
any conversion but, in lieu thereof, shall be paid upon such conversion an
amount in cash equal to the same fraction of the Conversion Price at the time of
conversion. No payment or adjustment for dividends on any Class D Preferred
Share converted into Common Shares or any Common Share that shall be issuable
upon conversion of the Class D Preferred Shares shall be made. The Class D
Preferred Shares shall be deemed to be converted and the person or persons in
whose name or names any certificate or certificates for Common Shares shall be
issuable upon such conversion shall be deemed to have become a holder or holders
of record of the Common Shares at the close of business on the date upon which
the certificate representing the Class D Preferred Shares has been surrendered
to the Company for conversion. The Company will pay all issue taxes, if any,
incurred upon the issuance of Common Shares upon conversion of the Class D
Preferred Shares, provided that the Company will not pay any transfer or other
taxes incurred by reason of the issuance of such Common Shares in a
<PAGE> 51
1I
name or names other than that in which the Class D Preferred Shares so converted
were registered.
4.10 All Class D Preferred Shares which shall have been converted as
provided in this Section 4 shall no longer be deemed to be outstanding and all
rights with respect to such shares shall forthwith cease and terminate except
for the right of the holders thereof to receive full Common Shares, together
with a cash payment in lieu of any fraction of a Common Share. All Class D
Preferred Shares surrendered for conversion shall be canceled and shall not be
reissued.
4.11 The Company will at all times reserve and keep available out of
its authorized but unissued Common Shares, solely for the purpose of effecting
the conversion of all the Class D Preferred Shares, the full number of Common
Shares from time to time issuable upon conversion of all the Class D Preferred
Shares then outstanding.
<PAGE> 52
2
5. The amendment has been duly authorized as required by Sections 168 &
170 (as applicable) of the Business Corporations Act.
La modification a ete dument autorisee conformement aux articles 168 et
170 (selon le cas) de la Loi sur les socie tes par actions.
6. The resolution authorizing the amendment was approved by the
shareholders (as applicable) of the corporation on
Les actionnaires ou les administrateurs (selon le cas) de la socie te
ont approuve la resolution autorisant la modification le
November 24, 1999
- --------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in duplicate.
Les presents status sont signes en double exemplaire.
MEDIA SYNERGY INC.
-----------------------------------------------------
(Name of Corporation)
(Denomination sociale de la societe)
By/Par: /s/ Wilson Lee CFO
---------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
By/Par: /s/ Chris Keevill President and COO
---------------------------------------------
(Signature) (Description of Office)
(Signature) (Fonction)
<PAGE> 1
Exhibit 3.3
BY-LAW NO. 1
A by-law relating generally to the conduct of the business and affairs of
MEDIA SYNERGY INC.
(herein called the "Corporation")
CONTENTS
1. INTERPRETATION
2. DIRECTORS
3. MEETINGS OF DIRECTORS
4. REMUNERATION AND INDEMNIFICATION
5. OFFICERS
6. MEETINGS OF SHAREHOLDERS
7. SHARES
8. DIVIDENDS
9. FINANCIAL YEAR
10. NOTICES
11. EXECUTION OF DOCUMENTS
12. EFFECTIVE DATE
13. REPEAL
BE IT ENACTED as a by-law of the Corporation as follows:
1. INTERPRETATION
1.01 In this by-law and all other by-laws and resolutions of the Corporation,
unless the context otherwise requires:
(a) "Act" means the Ontario Business Corporations Act together
with the Regulations made pursuant thereto and any statute or
regulations that may be substituted therefor, as amended from
time to time;
(b) "articles" means the articles of incorporation of the
Corporation as amended or restated from time to time;
(c) "board" means the board of directors of the Corporation;
(d) "by-laws" means this by-law and all other by-laws of the
Corporation as amended from time to time, and from time to
time in force and effect;
<PAGE> 2
-2-
(e) "Corporation" means this Corporation;
(f) "meeting of shareholders" means any meeting of shareholders,
whether annual or special; and "special meeting of
shareholders" means a special meeting of all shareholders
entitled to vote at an annual meeting of shareholders and a
meeting of any class or classes of shareholders entitled to
vote on the question at issue;
(g) "person" includes an individual, sole proprietorship,
partnership, unincorporated association, unincorporated
syndicate, unincorporated organization, trust, body corporate,
and a natural person in his capacity as trustee, executor,
administrator, or other legal representative;
(h) "recorded address" means, in the case of a shareholder, his
address as recorded in the shareholders' register; and, in the
case of joint shareholders, the address appearing in the
shareholders' register in respect of such joint holding or the
first address so appearing if there are more than one; and, in
the case of a director, officer, auditor or member of a
committee of the board, his latest address recorded in the
records of the Corporation; and
(i) "unanimous shareholder agreement" shall have the meaning
ascribed to such term under the Act.
1.02 In this by-law where the context requires, words importing the singular
include the plural and vice versa and words importing gender include the
masculine, feminine and neuter genders.
1.03 Save as aforesaid, all the words and terms appearing in this by-law shall
have the same definitions and application as in the Act.
2. DIRECTORS
2.01 POWERS - Subject to any unanimous shareholder agreement, the business and
affairs of the Corporation shall be managed or supervised by a board of
directors.
Until changed in accordance with the Act, the board shall consist of
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not fewer than the minimum number and not more than the maximum number
of directors provided for in the articles.
2.02 RESIDENT CANADIANS - Except where the Corporation is a non-resident
Corporation, a majority of the directors shall be resident Canadians but where
the Corporation has only one or two directors, that director or one of the two
directors, as the case may be, shall be a resident Canadian.
2.03 QUALIFICATIONS - No person shall be qualified for election as a director if
he is less than 18 years of age; if he is of unsound mind and has been so found
by a court in Canada or elsewhere; if he is not an individual; or if he has the
status of a bankrupt.
2.04 ELECTION AND TERM - The election of directors shall take place at the first
meeting of shareholders and at each succeeding annual meeting at which an
election of directors is required. The directors shall hold office for an
expressly stated term, which shall expire not later than the close of the third
annual meeting of shareholders following the election. A director not elected
for an expressly stated term ceases to hold office at the close of the first
annual meeting of shareholders following his election. Incumbent directors, if
qualified, shall be eligible for re-election. If an election of directors is not
held at the proper time, the incumbent directors shall continue in office until
their successors are elected.
2.05 RESIGNATION - A director who is not named in the articles may resign from
office upon giving a written resignation to the Corporation and such resignation
becomes effective when received by the Corporation or at the time specified in
the resignation, whichever is later. A director named in the articles shall not
be permitted to resign his office unless at the time the resignation is to
become effective a successor is elected or appointed.
2.06 REMOVAL - Subject to the provisions of the Act, the shareholders may, by
ordinary resolution passed at a meeting of shareholders, remove any director or
directors from office before the expiration of his or their respective terms and
may, by a majority of the votes cast at the meeting, elect any person in his
place for the remainder of his term.
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2.07 VACATION OF OFFICE - A director ceases to hold office when he dies,
resigns, is removed from office by the shareholders, or becomes disqualified to
serve as a director.
2.08 VACANCIES - Subject to the provisions of the Act, where a vacancy occurs on
the board, a quorum of the directors then in office may appoint a person to fill
the vacancy for the remainder of the term. If there is not a quorum of directors
or if there has been a failure to elect the number of directors required by the
articles or in the case of a variable board as required by special resolution,
the directors then in office shall forthwith call a special meeting of
shareholders to fill the vacancy and, if they fail to call a meeting or if there
are no directors then in office, the meeting may be called by any shareholder.
3. MEETINGS OF DIRECTORS
3.01 PLACE OF MEETINGS - Meetings of the board may be held at any place within
or outside Ontario and it shall not be necessary that, in any financial year of
the Corporation, a majority of the meetings of the board be held at a place
within Canada.
3.02 MEETINGS BY TELEPHONE - Where all the directors present at or participating
in the meeting have consented thereto, any director may participate in a meeting
of the board or of a committee of the board by means of conference telephone,
electronic or other communication facilities as permit all persons participating
in the meeting to communicate with each other simultaneously and instantaneously
and a director participating in such a meeting by such means is deemed for the
purposes of the Act and these by-laws to be present at the meeting. If a
majority of the directors participating in such a meeting are then in Canada,
the meeting shall be deemed to have been held in Canada.
3.03 CALLING OF MEETINGS - Meetings of the board shall be held from time to time
at such place, at such time and on such day as the president or a vice-president
who is a director or any two directors may determine, and the secretary shall
call meetings when directed or authorized by the president or by a
vice-president who is a director or by any
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two directors. Notice of every meeting so called shall be given to each director
not less than 48 hours (excluding any part of a Sunday and of a holiday as
defined by the Ontario Interpretation Act) before the time when the meeting is
to be held, except that no notice of meeting shall be necessary if all the
directors are present or if those absent have waived notice of or otherwise
signified their consent to the holding of such meeting. A notice of a meeting of
directors need not specify the purpose of or the business to be transacted at
the meeting except where the Act requires such purpose or business to be
specified.
3.04 REGULAR MEETINGS - The board may appoint a day or days in any month or
months for regular meetings at a place and hour to be named. A copy of any
resolution of the board fixing the place and time of regular meetings of the
board shall be sent to each director forthwith after being passed, but no other
notice shall be required for any such regular meetings except where the Act
requires the purpose thereof or the business to be transacted thereat to be
specified.
3.05 FIRST MEETING OF NEW BOARD - Each newly elected board may without notice
hold its first meeting immediately following a meeting of shareholders at which
such board is elected, provided that a quorum of directors is present.
3.06 QUORUM - Where the Corporation has fewer than three directors, all
directors must be present at any meeting of directors to constitute a quorum.
Subject to the articles or by-laws of the Corporation, a majority of the number
of directors or minimum number of directors required by the articles constitutes
a quorum at any meeting of directors but in no case shall a quorum be less than
two-fifths of the number of directors or less than the minimum number of
directors, as the case may be.
3.07 RESIDENT CANADIANS - Directors shall not transact business at a meeting of
the board unless a majority of the directors present are resident Canadians or,
where the Corporation has fewer than three directors, one of the directors
present is a resident
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Canadian. However, directors may transact business at a meeting of the board
where a majority of resident Canadian directors is not present if
(a) a resident Canadian director who is unable to be present
approves in writing or by telephone or other communications
facilities the business transacted at the meeting; and
(b) a majority of resident Canadian directors would have been
present had the director been present at the meeting.
3.08 CHAIRMAN - The chairman of any meeting of the board shall be the first
mentioned of such of the following officers as have been appointed and who is a
director and is present at the meeting:
(a) Chairman of the Board;
(b) President; or
(c) a Vice-President.
If no such officer is present, the directors present shall choose one of their
number to be chairman.
3.09 VOTES TO GOVERN - At all meetings of the board, every question shall be
decided by a majority of the votes cast on the question.
3.10 CASTING VOTE - In the case of an equality of votes on any question at a
meeting of the board, the chairman of the meeting shall be entitled to a second
or casting vote.
3.11 DISCLOSURE OF INTERESTS IN CONTRACTS - Every director or officer of the
Corporation who is a party to a material contract or transaction or proposed
material contract or transaction with the Corporation, or is a director or
officer of or has a material interest in any person who is a party to a material
contract or transaction or proposed material contract or transaction with the
Corporation, shall disclose in writing to the Corporation or request to have
entered in the minutes of the meeting of directors the nature and extent of his
interest at the time and in the manner required by the Act. Any such contract or
proposed contract shall be referred to the board or shareholders for approval
even if such contract is one that in the ordinary course of the Corporation's
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business would not require approval by the board or the shareholders, and a
director interested in a contract so referred to the board shall not vote on any
resolution to approve the same except as provided by the Act.
3.12 RESOLUTION IN LIEU OF MEETING - A resolution in writing, signed by all the
directors entitled to vote on that resolution at a meeting of directors or
committee of directors, is as valid as if it had been passed at a meeting of
directors or committee of directors. A copy of every such resolution shall be
kept with the minutes of the proceedings of the directors or committee of
directors.
3.13 DELEGATION - Directors may appoint from their number a managing director
who is a resident Canadian or a committee of directors and delegate to such
managing director or committee any of the powers of the directors. If the
directors appoint a committee of directors, a majority of the members of the
committee must be resident Canadians. Unless otherwise determined by the board
and subject to the Act, each committee shall have the power to fix its quorum at
not less than a majority of its members, to elect its chairman and to regulate
its procedure.
4. REMUNERATION AND INDEMNIFICATION
4.01 REMUNERATION - Subject to the provisions of the Act, the articles, and the
by-laws of the Corporation or any unanimous shareholder agreement, the board may
fix the remuneration of the directors. Nothing contained herein shall preclude
any director from serving the Corporation in any other capacity and receiving
remuneration therefor. In addition, directors shall be paid such sums in respect
of their out-of-pocket expenses incurred in attending board, committee or
shareholders' meetings or otherwise in respect of the performance by them of
their duties as the board may from time to time determine.
4.02 LIMITATION OF LIABILITY - Every director and officer of the Corporation, in
exercising his powers and discharging his duties, shall act honestly and in good
faith with a view to the best interests of the Corporation, and exercise the
care, diligence and skill
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that a reasonably prudent person would exercise in comparable circumstances.
Subject to the foregoing, no director or officer shall be liable for the acts,
receipts, neglects or defaults of any other director or officer or employee, or
for joining in any receipt or other act for conformity, or for any loss, damage
or expense happening to the Corporation through the insufficiency or deficiency
of title to any property acquired for or on behalf of the Corporation, or for
the insufficiency or deficiency of any security in or upon which any of the
monies of the Corporation shall be invested, or for any loss or damage arising
from the bankruptcy, insolvency or tortious acts of any person with whom any of
the monies, securities or effects of the Corporation shall be deposited, or for
any loss occasioned by any error of judgment or oversight on his part, or for
any other loss, damage or misfortune whatever, which shall happen in the
execution of the duties of his office or in relation thereto, unless the same
are occasioned by his own willful neglect or default; provided that nothing
herein shall relieve any director or officer from the duty to act in accordance
with the Act or from liability for any breach thereof.
4.03 INDEMNITY OF DIRECTORS AND OFFICERS - Subject to the provisions of the Act,
the Corporation shall indemnify a director or officer of the Corporation, a
former director or officer of the Corporation, or a person who acts or acted at
the Corporation's request as a director or officer of a body corporate of which
the Corporation is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
such Corporation or body corporate if
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was lawful.
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4.04 INSURANCE - Subject to the limitations contained in the Act, the
Corporation may purchase and maintain such insurance for the benefit of its
directors and officers as such, as the board may from time to time determine.
5. OFFICERS
5.01 APPOINTMENT - Subject to the provisions of the Act, the articles or any
unanimous shareholder agreement, the board may from time to time appoint a
president, one or more vice-presidents (to which title may be added words
indicating seniority or function), a secretary, a treasurer and such other
officers as the board may determine, including one or more assistants to any of
the officers so appointed. The board may specify the duties of and, in
accordance with this by-law and subject to the provisions of the Act, delegate
to such officers powers to manage the business and affairs of the Corporation.
Save for the chairman of the board and the managing director, an officer may but
need not be a director and one person may hold more than one office.
5.02 TERM, REMUNERATION AND REMOVAL - The terms of employment and remuneration
of all officers elected or appointed by the board (including the president)
shall be determined from time to time by resolution of the board. The fact that
any officer or employee is a director or shareholder of the Corporation shall
not disqualify him from receiving such remuneration, as may be determined. All
officers, in the absence of agreement to the contrary, shall be subject to
removal by resolution of the board at any time with or without cause.
5.03 CHAIRMAN OF THE BOARD - The board may from time to time also appoint a
chairman of the board who shall be a director. If appointed, the board may
assign to him any of the powers and duties that are by any provisions of this
by-law capable of being assigned to the president; and he shall, subject to the
provisions of the Act, have such other powers and duties as the board may
specify. During the absence or disability of the chairman of the board, his
duties shall be performed and his powers exercised by the president.
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5.04 MANAGING DIRECTOR - The board may from time to time appoint a managing
director who shall be a resident Canadian and a director. If appointed, he shall
be the chief executive officer and, subject to the authority of the board, shall
have general supervision of the business and affairs of the Corporation; and he
shall, subject to the provisions of the Act, have such other powers and duties
as the board may specify. During the absence or disability of the president, or
if no president has been appointed, the managing director shall also have the
powers and duties of that office.
5.05 PRESIDENT - The board may from time to time appoint a president. The
president shall be the chief operating officer of the Corporation and, if no
managing director has been appointed, and subject to the authority of the board,
shall have the general supervision of the business and affairs of the
Corporation and he shall have such other powers and duties as the board may
specify. During the absence or disability of the managing director, or if no
managing director has been appointed, the president shall also have the powers
and the duties of that office.
5.06 VICE-PRESIDENT - The board may from time to time appoint one or more
vice-presidents. A vice-president so appointed shall have such powers and such
duties as the board or the chief executive officer may prescribe.
5.07 SECRETARY - The board may from time to time appoint a secretary. The
secretary shall attend all meetings of the directors, shareholders and
committees of the board and shall enter or cause to be entered in books kept for
that purpose, minutes of all proceedings at such meetings; he shall give, or
cause to be given, when instructed, notices required to be given to
shareholders, directors, auditors and members of committees; he shall be the
custodian of the stamp or mechanical device generally used for affixing the
corporate seal of the Corporation and of all books, papers, records, documents
and other instruments belonging to the Corporation; and he shall perform such
other duties as may from time to time be prescribed by the board.
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5.08 TREASURER - The board may from time to time appoint a treasurer. The
treasurer shall keep, or cause to be kept, proper accounting records as required
by the Act, he shall deposit, or cause to be deposited, all monies received by
the Corporation in the Corporation's bank account; he shall, under the direction
of the board, supervise the safekeeping of securities and the disbursement of
the funds of the Corporation; he shall order to the board, whenever required, an
account of all his transactions as treasurer and of the financial position of
the Corporation; and he shall perform such other duties as may from time to time
be prescribed by the board.
5.09 OTHER OFFICERS - The duties of all other officers of the Corporation shall
be such as the terms of their engagement call for or the board requires of them.
Any of the powers and duties of an officer to whom an assistant has been
appointed may be exercised and performed by such assistant, unless the board
otherwise directs.
5.10 VARIATION OF DUTIES - From time to time and subject to the provisions of
the Act, the board may vary, add to or limit the powers and duties of any
officer.
5.11 AGENTS AND ATTORNEYS - The board shall have power from time to time to
appoint agents or attorneys for the Corporation in or outside of Ontario with
such powers of management or otherwise (including the power to sub-delegate) as
may be thought fit.
5.12 FIDELITY BONDS - The board may require such officers, employees and agents
of the Corporation, as it deems advisable, to furnish bonds for the faithful
performance of their duties, in such form and with such surety as the board may
from time to time prescribe.
5.13 CONFLICT OF INTEREST - An officer shall disclose his interest in any
material contract or transaction or proposed material contract or transaction
with the Corporation in accordance with Section 3.11 herein.
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6. MEETINGS OF SHAREHOLDERS
6.01 ANNUAL MEETINGS - Subject to Section 6.16 herein, the directors shall call
the first annual meeting of shareholders not later than eighteen months after
the Corporation comes into existence and, subsequently, not later than fifteen
months after holding the last preceding annual meeting. The annual meeting of
shareholders of the Corporation shall be held at such time and on such day in
each year as the board may from time to time determine, for the purposes of
receiving the reports and statements required by the Act to be laid before the
annual meeting, electing directors, appointing auditors and fixing or
authorizing the board to fix their remuneration, and for the transaction of such
other business as may properly be brought before the meeting.
6.02 SPECIAL MEETINGS - The board may at any time call a special meeting of
shareholders for the transaction of any business which may properly be brought
before such meeting of shareholders. All business transacted at an annual
meeting of shareholders, except consideration of the financial statements,
auditor's report, election of directors and reappointment of the incumbent
auditor, is deemed to be special business.
6.03 PLACE OF MEETINGS - Meetings of shareholders shall be held at the
registered office of the Corporation, or at such other place within or outside
of Ontario as the board from time to time determines.
6.04 NOTICE OF MEETINGS - Notice of the time and place of each meeting of
shareholders shall be sent not less than 10 days and not more than 50 days
before the date of the meeting to the auditor of the Corporation, to each
director, and to each person whose name appears on the records of the
Corporation at the close of business on the day next preceding the giving of the
notice as a shareholder entitled to vote at the meeting. Notice of a special
meeting of shareholders shall state:
(a) the nature of the business to be transacted at the meeting in
sufficient detail to permit the shareholders to form a
reasoned judgment thereon; and
(b) the text of any special resolution or by-law to be submitted
to the meeting.
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A shareholder and any other person entitled to attend a meeting of shareholders
may in any manner and at any time waive notice of or otherwise consent to a
meeting of shareholders.
6.05 PERSONS ENTITLED TO BE PRESENT - The only persons entitled to attend a
meeting of shareholders shall be those entitled to vote thereat, the directors
and the auditor of the Corporation and others who although not entitled to vote
are entitled or required under any provision of the Act or by-laws of the
Corporation to be present at the meeting. Any other persons may be admitted only
on the invitation of the chairman of the meeting or with the consent of the
meeting.
6.06 QUORUM - Subject to the provisions of the Act, the holders of a majority of
the shares entitled to vote at a meeting of shareholders present in person or by
proxy constitute a quorum for the transaction of business at any meeting of
shareholders.
6.07 ONE-SHAREHOLDER MEETING - If the Corporation has only one shareholder, or
only one holder of any class or series of shares, the shareholder present in
person or by proxy constitutes a meeting.
6.08 RIGHT TO VOTE - At any meeting of shareholders, unless the articles
otherwise provide, each share of the Corporation entities the holder thereof to
one vote at a meeting of shareholders, subject to the provisions of the Act.
6.09 JOINT SHAREHOLDERS - Where two or more persons hold the same share or
shares jointly, any one of such persons present at a meeting of shareholders may
in the absence of the other vote the shares but, if two or more of such persons
who are present in person or by proxy, vote, they shall vote as one on the
shares jointly held by them.
6.10 PROXIES - Every shareholder entitled to vote at a meeting of shareholders
may, by means of a proxy, appoint a proxy holder or one or more alternate proxy
holders who are not required to be shareholders to attend and act at the meeting
in the manner and to the
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extent authorized by the proxy and with the authority conferred by the proxy. A
proxy shall be in writing and executed by the shareholder or by his attorney
authorized in writing and shall conform with the requirements of the Act. The
board may by resolution fix a time not exceeding 48 hours, excluding Saturdays
and holidays, preceding any meeting or adjourned meeting of shareholders, before
which time proxies to be used at that meeting must be deposited with the
Corporation or an agent thereof, and any period of time so fixed shall be
specified in the notice calling the meeting. A proxy shall be acted upon only
if, prior to the time so specified, it shall have been deposited with the
Corporation or an agent thereof specified in such notice or, where no time is
specified in such notice, the proxy has been received by the secretary of the
Corporation or by the chairman of the meeting or any adjournment thereof prior
to the time of voting.
6.11 SCRUTINEERS - At each meeting of shareholders one or more scrutineers may
be appointed by a resolution of the meeting or by the chairman with the consent
of the meeting to serve at the meeting. Such scrutineers need not be
shareholders of the Corporation.
6.12 VOTES TO GOVERN - Subject to the provisions of the Act, the articles and
the by-laws of the Corporation or any unanimous shareholder agreement, all
questions proposed for the consideration of the shareholders at a meeting shall
be decided by a majority of the votes cast thereon. In case of an equality of
votes either on a show of hands or on a poll, the chairman of the meeting shall
be entitled to a second or casting vote.
6.13 SHOW OF HANDS - Subject to the provisions of the Act, at all meetings of
shareholders every question shall be decided by a show of hands unless a ballot
thereon be required by the chairman or be demanded by a shareholder or
proxyholder present and entitled to vote. Upon a show of hands, every person
present and entitled to vote has one vote regardless of the number of shares he
represents. After a show of hands has been taken upon any question, the chairman
may require, or any shareholder or proxyholder present and entitled to vote may
demand, a ballot thereon. Whenever a vote by show of hands shall have been taken
upon a question, unless a ballot thereon be so required or
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demanded, a declaration by the chairman that the vote upon the question has been
carried or carried by a particular majority or not carried and an entry to that
effect in the minutes of the meeting shall be prima facie evidence of the fact
without proof of the number or proportion of the votes recorded in favour of or
against the question. The result of the vote so taken and declared shall be the
decision of the Corporation on the question. A demand for a ballot may be
withdrawn at any time prior to the taking of the ballot.
6.14 BALLOTS - If a ballot is required by the chairman of the meeting or is
demanded and the demand is not withdrawn, a ballot upon the question shall be
taken in such manner as the chairman of the meeting directs.
6.15 ADJOURNMENT - The chairman of a meeting of shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may decide,
adjourn the meeting from time to time and from place to place.
6.16 RESOLUTION IN LIEU OF MEETING - Except where a written statement with
respect to the subject matter of the resolution is submitted by a director or
the auditors in accordance with the Act,
(a) a resolution in writing signed by all the shareholders entitled to
vote on that resolution at a meeting of shareholders is as valid as if it had
been passed at a meeting of the shareholders; and
(b) a resolution in writing dealing with any matter required by the Act
to be dealt with at a meeting of shareholders, and signed by all the
shareholders entitled to vote at that meeting, satisfies all the requirements of
the Act relating to that meeting of shareholders.
7. SHARES
7.01 ALLOTMENT - Subject to the provisions of the Act, the articles and any
unanimous shareholder agreement, the board may from time to time allot or grant
options to purchase the whole or any part of the authorized and unissued shares
of the Corporation at such time and to such persons and for such consideration
as the board shall determine, provided that no share shall be issued until it is
fully paid as provided by the Act.
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7.02 LIEN FOR INDEBTEDNESS - Subject to the provisions of the Act, the
Corporation shall have a lien on shares registered in the name of a shareholder
indebted to the Corporation. Such lien may be enforced, subject to any other
provision of the articles and to any unanimous shareholder agreement, by the
sale of the shares thereby affected or by any other action, suit, remedy or
proceeding authorized or permitted by law or by equity and, pending such
enforcement, the Corporation may refuse to register a transfer of the whole or
any part of such shares.
7.03 SHARE CERTIFICATES - Every holder of one or more shares of the Corporation
is entitled, at his option, to a share certificate, or to a non-transferable
written acknowledgment of his right to obtain a share certificate, stating the
number and class or a series of shares held by him as shown on the records of
the Corporation. Share certificates and acknowledgments of a shareholder's right
to a share certificate shall be in such form as the board shall from time to
time approve. Any share certificate shall be signed in accordance with Section
11.01 herein and need not be under the corporate seal.
7.04 REPLACEMENT OF SHARE CERTIFICATES - Subject to the provisions of the Act,
the directors may by resolution prescribe, either generally or in a particular
case, the conditions upon which a new share certificate may be issued to replace
a share certificate which has been defaced, lost, stolen or destroyed.
7.05 TRANSFER AGENT AND REGISTRAR - The board may from time to time appoint a
registrar to maintain the securities register and a transfer agent to maintain
the register of transfers and may also appoint one or more branch registrars to
maintain branch security registers and one or more branch transfer agents to
maintain branch registers of transfers, but one person may be appointed both
registrar and transfer agent. The board may at any time terminate any such
appointment.
7.06 JOINT SHAREHOLDERS - If two or more persons are registered as joint holders
of any share, the Corporation shall not be bound to issue more than one
certificate in respect
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thereof, and delivery of such certificate to one of such persons shall be
sufficient delivery to all of them. Any one of such persons may give effectual
receipts for the certificate issued in respect thereof or for any dividends,
bonus, return of capital or other money payable or warrant issuable in respect
of such share.
8. DIVIDENDS
8.01 DECLARATION - Subject to the provisions of the Act, the articles and to any
unanimous shareholder agreement, the board may declare and the Corporation may
pay dividends to the shareholders according to their respective rights and
interests in the Corporation. Dividends may be paid by issuing fully paid shares
of the Corporation or options or rights to acquire fully paid shares of the
Corporation or, subject to the provisions of the Act, may be paid in money or
property.
8.02 PAYMENT - A dividend payable in cash shall be paid by cheque drawn on the
Corporation's bankers or one of them to the order of each registered holder of
shares of the class in respect of which it has been declared, and mailed by
ordinary mail postage prepaid to such registered holder at his recorded address,
unless such holder otherwise directs. In the case of joint holders, the cheque
shall, unless such joint holders otherwise direct, be made payable to the order
of all of such joint holders and mailed to them at their recorded addresses. The
mailing of such cheque as aforesaid shall satisfy and discharge all liability
for the dividend to the extent of the sum represented thereby plus the amount of
any tax which the Corporation is required to and does withhold, unless such
cheque be not paid on due presentation.
8.03 NON-RECEIPT OF CHEQUE - In the event of the non-receipt of any cheque for a
dividend by the person to whom it is so sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the board may from time to time prescribe, whether generally or in a particular
case.
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9. FINANCIAL YEAR
9.01 FINANCIAL YEAR - The financial year of the Corporation shall end on the
31st day of July in each year, until changed by a resolution of the board.
10. NOTICES
10.01 METHOD OF GIVING NOTICE - Any notice, communication or other document
required by the Act, the regulations, the articles or the by-laws to be given by
the Corporation to a shareholder, director, officer, or auditor or member of a
committee of the board of the Corporation under any provision of the Act, the
articles or by-laws or otherwise shall be sufficiently given if delivered
personally to the person to whom it is to be given or if delivered to his
recorded address or if mailed to him at his recorded address by prepaid ordinary
mail or if sent to him at his recorded address by any means of any prepaid
transmitted or recorded communication. A notice so delivered shall be deemed to
have been given when it is delivered personally or delivered to the recorded
address as aforesaid; a notice so mailed shall be deemed to have been received
on the fifth day after mailing; and a notice so sent by any means of transmitted
or recorded communication shall be deemed to have been given when dispatched or
delivered to the appropriate communication company or agency or its
representative for dispatch. The secretary may change or cause to be changed the
recorded address of any shareholder director, officer or auditor of the
Corporation in accordance with any information believed by him to be reliable.
The recorded address of a director shall be his latest address as shown in the
records of the Corporation or in the most recent notice filed under the Ontario
Corporations Information Act, whichever is the more current.
10.02 COMPUTATION OF TIME - In computing the date when notice must be given
under any provision requiring a specified number of days' notice of any meeting
or other event, "day" means a clear day and a period of days shall be deemed to
commence on the day following the event that began the period and shall be
deemed to terminate at midnight of the last day of the period except that if the
last day of the period falls on a Sunday or
<PAGE> 19
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holiday the period shall terminate at midnight of the day next following that is
not a Sunday or holiday.
10.03 OMISSIONS AND ERRORS - The accidental omission to give any notice to any
shareholder, director, officer or auditor, or the non-receipt of any notice by
any shareholder, director, officer or auditor or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
10.04 NOTICE TO JOINT SHAREHOLDERS - All notices with respect to any shares
registered in more than one name may, if more than one address appears on the
records of the Corporation in respect of such joint holding, be given to such
joint shareholders at the first address so appearing, and notice so given shall
be sufficient notice to all the holders of such shares.
10.05 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW - Every person who by
operation of law, by transfer or the death of a shareholder or otherwise becomes
entitled to shares is bound by every notice in respect of such shares which has
been duly given to the registered holder from whom he derives title prior to his
name and address being entered on the records of the Corporation (whether such
notice was given before or after the happening of the event upon which he became
so entitled) and prior to his furnishing to the Corporation the proof of
authority or evidence of his entitlement prescribed by the Act.
10.06 WAIVER OF NOTICE - Any shareholder (or his duly appointed proxy),
director, officer or auditor may waive any notice or abridge the time required
for any notice required to be given under any provision of the Act, the articles
or by-laws of the Corporation or otherwise, and such waiver or abridgement,
whether given before or after the meeting or other event of which notice is
required to be given, shall cure any default in the giving or in the time of
such notice, as the case may be. Any such waiver or
<PAGE> 20
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abridgement shall be in writing except a waiver of notice of a meeting of
shareholders or of the board or a committee of the board which may be given in
any manner.
10.07 SIGNATURES TO NOTICES - The signatures to any notice to be given by the
Corporation may be written, stamped, typewritten or printed or partly written,
stamped, typewritten or printed.
11. EXECUTION OF DOCUMENTS
11.01 SIGNING OFFICERS - Deeds, transfers, assignments, contracts and
obligations of the Corporation may be signed by the president or a
vice-president or a director together with the secretary or treasurer or an
assistant secretary or assistant treasurer or another director. Notwithstanding
this, the board may at any time and from time to time direct the manner in which
and the person or persons by whom any particular deed, transfer, contract or
obligation or any class of deeds, transfers, contracts or obligations may be
signed.
11.02 SEAL - Any person authorized to sign any document may affix the corporate
seal thereto.
12. EFFECTIVE DATE
12.01 EFFECTIVE DATE - This by-law shall come into force when enacted by the
directors, subject to the provisions of the Act.
13. REPEAL
13.01 REPEAL - Upon this by-law coming into force, By-law Number 1 of the
Corporation is repealed provided that such repeal shall not affect the previous
operation of such by-law so repealed or affect the validity of any act done or
right, privilege,
<PAGE> 21
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obligation or liability acquired or incurred under the validity of any contract
or agreement made pursuant to any such by-law prior to its repeal.
ENACTED by the board the 4th day of August 1993
/s/ Paul Chen
- -------------------------------- -----------------------------------
Paul Chen President Sing Li Secretary
(Corporate Seal)
CONFIRMED by the shareholders the 4th day of August, 1993
-----------------------------------
Sing Li Secretary
Resolved that the foregoing by-law is hereby enacted by the directors
of the Corporation, pursuant to the Ontario Business Corporations Act as
evidenced by the respective signatures hereto of all the directors.
Dated the 4th day of August, 1993
/s/ Paul Chen
- -------------------------------- -----------------------------------
Paul Chen Sing Li
In lieu of confirmation at a general meeting of the shareholders, we
the undersigned, being all of the shareholders of the Corporation entitled to
vote at a meeting of shareholders, hereby confirm in writing the above by-law in
accordance with the Ontario Business Corporations Act.
Dated the 4th day of August, 1993
/s/ Paul Chen /s/ Mina Chen
- -------------------------------- -----------------------------------
Paul Chen Mina Chen
<PAGE> 22
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/s/ Pi-Hsia Hsiao
- --------------------------------
Pi-Hsia Hsiao
<PAGE> 1
Exhibit 3.4
BY-LAW NO. 2
A by-law respecting the borrowing of money and the issuing of
securities by:
MEDIA SYNERGY INC.
(herein called the "Corporation")
BE IT ENACTED as a by-law of the Corporation as follows:
1. Without limiting the borrowing powers of the Corporation as set forth in the
Ontario Business Corporations Act (the "Act"), the Directors of the Corporation
may, from time to time without the authorization of the Shareholders:
(a) borrow money upon the credit of the Corporation;
(b) issue, re-issue, sell or pledge debt obligations of the
Corporation;
(c) subject to Section 20 of the Act, give a guarantee on behalf
of the Corporation to secure performance of an obligation of
any person; and
(d) charge, mortgage, hypothecate, pledge or otherwise create a
security interest in all or any property of the Corporation,
owned or subsequently acquired, to secure any obligation of
the Corporation.
2. The Directors may, from time to time, by resolution delegate any or all of
the powers referred to in paragraph 1 of this by-law to a director, a committee
of directors or one or more officers of the Corporation.
ENACTED by the Directors and sealed with the Corporation's seal
the 4th day of August 1993
/s/ Paul Chen
------------------------------
Paul Chen President
(Corporate Seal)
/s/ Sing Li
------------------------------
Sing Li Secretary
(Corporate Seal)
<PAGE> 2
Resolved that the foregoing by-law is hereby enacted by the directors
of the Corporation, pursuant to the Ontario Business Corporations Act is
evidenced by the respective signatures hereto of all the directors.
Dated the 4th day of August, 1993
/s/ Paul Chen /s/ Sing Li
- ------------------------------ -----------------------------------
Paul Chen Sing Li
In lieu of confirmation at a general meeting of the shareholders, we
the undersigned, being all of the shareholders of the Corporation entitled to
vote at a meeting of shareholders, hereby confirm in writing the foregoing
by-law in accordance with the Ontario Business Corporations Act.
Dated the 4th day of August, 1993
/s/ Mina Chen
- ------------------------------ -----------------------------------
Paul Chen Mina Chen
/s/ Pi-Hsia Hsiao
- ------------------------------
Pi-Hsia Hsiao
<PAGE> 1
EXHIBIT 3.5
BY-LAW NO. 1
A by-law relating generally to the
transaction of the business and
affairs of
FLONETWORK INC.
CONTENTS
One - Interpretation
Two - Business of the Corporation
Three - Borrowing and Security
Four - Directors
Five - Committees
Six - Officers
Seven - Protection of Directors, Officers and Others
Eight - Shares
Nine - Dividends and Rights
Ten - Meetings of Shareholders
Eleven - Notices
Twelve - Effective Date and Repeal
BE IT ENACTED as a by-law of the Corporation as follows:
<PAGE> 2
SECTION ONE
INTERPRETATION
1.01 DEFINITIONS. - In the by-laws of the Corporation, unless the context
otherwise requires:
"ACT" means the Business Corporations Act (Ontario), or any statute
that may be substituted therefor, as from time to time amended;
"AFFILIATE" has the meaning ascribed thereto by the Act;
"APPOINT" includes "elect" and vice versa;
"ARTICLES" means the articles on which is endorsed the certificate of
incorporation of the Corporation as from time to time amended or
restated;
"BOARD" means the board of directors of the Corporation and "director"
means a member of the board;
"BY-LAWS" means this by-law and all other by-laws of the Corporation
from time to time in force and effect;
"CORPORATION" means the corporation incorporated under the Act by the
said certificate endorsed on the articles and named "FloNetwork Inc.";
"MEETING OF SHAREHOLDERS" includes an annual meeting of shareholders
and a special meeting of shareholders; and "SPECIAL MEETING OF
SHAREHOLDERS" includes a meeting of any class or classes of
shareholders and a special meeting of all shareholders entitled to vote
at an annual meeting of shareholders; and
"RECORDED ADDRESS" has the meaning set forth in Section 11.08.
Save as aforesaid, words and expressions defined in the Act, including "RESIDENT
CANADIAN" and "UNANIMOUS SHAREHOLDER AGREEMENT", have the same meanings when
used herein. Words importing the singular number include the plural and vice
versa; and words importing a person include an individual, sole proprietorship,
partnership, unincorporated association, unincorporated syndicate,
unincorporated organization, trust, body corporate, and a natural person in his
capacity as trustee, executor, administrator, or other legal representative.
<PAGE> 3
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SECTION TWO
BUSINESS OF THE CORPORATION
2.01 REGISTERED OFFICE. - The registered office of the Corporation shall be in
the municipality or geographic township within Ontario initially specified in
its articles and thereafter as the shareholders may from time to time determine
by special resolution and at such location therein as the board may from time to
time determine.
2.02 CORPORATE SEAL. - The Corporation may, but need not, have a corporate
seal and if one is adopted it shall be in a form approved from time to time by
the board.
2.03 FINANCIAL YEAR. - Until changed by the board, the financial year of the
Corporation shall end on the last day of December in each year.
2.04 EXECUTION OF INSTRUMENTS. - Deeds, transfers, assignments, contracts,
obligations, certificates and other instruments may be signed on behalf of the
Corporation by two persons, one of whom holds the office of chair of the board,
managing director, president, vice-president or is a director and the other of
whom is a director or holds one of the said offices or the office of secretary,
treasurer, assistant secretary or assistant treasurer or any other office
created by by-law or by the board. In addition, the board or the said two
persons may from time to time direct the manner in which and the person or
persons by whom any particular instrument or class of instruments may or shall
be signed. Any signing officer may affix the corporate seal to any instrument
requiring the same.
2.05 BANKING ARRANGEMENTS. - The banking business of the Corporation
including, without limitation, the borrowing of money and the giving of security
therefor, shall be transacted with such banks, trust companies or other bodies
corporate or organizations as may from time to time be designated by or under
the authority of the board. Such banking business or any part thereof shall be
transacted under such agreements, instructions and delegations of powers as the
board may from time to time prescribe.
2.06 VOTING RIGHTS IN OTHER BODIES CORPORATE. - The signing officers of the
Corporation under Section 2.04 may execute and deliver proxies and arrange for
the issuance of voting certificates or other evidence of the right to exercise
the voting rights attaching to any securities held by the Corporation. Such
instruments shall be in favour of such persons as may be determined by the
officers executing or arranging for the same. In addition, the board may from
time to time direct the manner in which and the persons by whom any particular
voting rights or class of voting rights may or shall be exercised.
2.07 DIVISIONS. - The board may cause the business and operations of the
Corporation or any part thereof to be divided into one or more divisions upon
such basis, including without limitation types of business or operations,
geographical territories, product lines or goods or services, as may be
considered appropriate in each case. In connection with any such division
<PAGE> 4
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the board or, subject to any direction by the board, the chief executive officer
may authorize from time to time, upon such basis as may be considered
appropriate in each case:
(a) SUBDIVISION AND CONSOLIDATION - the further division of the
business and operations of any such division into sub-units
and the consolidation of the business and operations of any
such divisions and sub-units;
(b) NAME - the designation of any such division or sub-unit by,
and the carrying on of the business and operations of any such
division or sub-unit under, a name other than the name of the
Corporation; provided that the Corporation shall set out its
name in legible characters in all places required by law; and
(c) OFFICERS - the appointment of officers for any such division
or sub-unit, the determination of their powers and duties, and
the removal of any of such officers so appointed, provided
that any such officers shall not, as such, be officers of the
Corporation.
<PAGE> 5
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SECTION THREE
BORROWING AND SECURITY
3.01 BORROWING POWER. - Without limiting the borrowing powers of the
Corporation as set forth in the Act, but subject to the articles, the board may
from time to time on behalf of the Corporation, without authorization of the
shareholders:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge bonds, debentures, notes or
other evidences of indebtedness or guarantee of the
Corporation, whether secured or unsecured;
(c) to the extent permitted by the Act, give directly or
indirectly financial assistance to any person by means of a
loan, a guarantee or otherwise on behalf of the Corporation to
secure performance of any present or future indebtedness,
liability or obligation of any person; and
(d) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any currently owned or subsequently
acquired real or personal, movable or immovable, property of
the Corporation including book debts, rights, powers,
franchises and undertakings, to secure any such bonds,
debentures, notes or other evidences of indebtedness or
guarantee or any other present or future indebtedness,
liability or obligation of the Corporation.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Corporation.
3.02 DELEGATION. - Unless the articles of the Corporation otherwise provide,
the board may from time to time delegate to a director, a committee of the
board, or an officer of the Corporation any or all of the powers conferred on
the board by Section 3.01 to such extent and in such manner as the board may
determine at the time of such delegation.
<PAGE> 6
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SECTION FOUR
DIRECTORS
4.01 NUMBER OF DIRECTORS. - Until changed in accordance with the Act, the
board shall consist of not fewer than the minimum number and not more than the
maximum number of directors provided in the articles.
4.02 QUALIFICATION. - No person shall be qualified for election as a director
if such person is less than 18 years of age, is of unsound mind and has been so
found by a court in Canada or elsewhere, is not an individual, or has the status
of a bankrupt. A director need not be a shareholder. No election of a person as
a director shall be effective unless the person consents in writing on or within
ten days after the date of the election. A majority of the directors shall be
resident Canadians. At least one-third of the directors shall not be officers or
employees of the Corporation or any of its affiliates.
4.03 ELECTION AND TERM. - Each director named in the articles shall hold
office from the date of incorporation until the first meeting of shareholders.
The election of directors shall take place at each annual meeting of
shareholders and all the directors then in office shall retire but, if
qualified, shall be eligible for re-election. Subject to the Act, the number of
directors to be elected at any such meeting shall be the number of directors
determined from time to time by special resolution or, if the special resolution
empowers the directors to determine the number, by resolution of the board.
Where the shareholders adopt an amendment to the articles to increase the number
or maximum number of directors, the shareholders may, at the meeting at which
they adopt the amendment, elect the additional number of directors authorized by
the amendment to take office from the effective date of the endorsement of the
articles of amendment with respect thereto. The election shall be by resolution.
If an election of directors is not held at the proper time, the incumbent
directors shall continue in office until their successors are elected.
4.04 REMOVAL OF DIRECTORS. - Subject to the Act, the shareholders may by
ordinary resolution passed at an annual or special meeting of shareholders
remove any director from office and the vacancy created by such removal may be
filled by the election of any qualified individual at the same meeting, failing
which it may be filled by the board.
4.05 VACATION OF OFFICE. - A director ceases to hold office on death, on
removal from office by the shareholders, on ceasing to be qualified for election
as a director, on receipt of a written resignation by the Corporation, or, if a
time is specified in such resignation, at the time so specified, whichever is
later. Until the first meeting of shareholders, the resignation of a director
named in the articles shall not be effective unless at the time the resignation
is to become effective a successor has been elected.
4.06 VACANCIES. - Subject to the Act, a quorum of the board may appoint a
qualified individual to fill a vacancy in the board.
<PAGE> 7
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4.07 ACTION BY THE BOARD. - The board shall manage or supervise the management
of the business and affairs of the Corporation. The powers of the board may be
exercised at a meeting (subject to Sections 4.08 and 4.09) at which a quorum is
present or by resolution in writing signed by all the directors entitled to vote
on that resolution at a meeting of the board. Where there is a vacancy in the
board, the remaining directors may exercise all the powers of the board so long
as a quorum remains in office.
4.08 CANADIAN MAJORITY AT MEETINGS. - The board shall not transact business
at a meeting, other than filling a vacancy in the board, unless a majority of
the directors present are resident Canadians, except where
(a) a resident Canadian director who is unable to be present
approves in writing or by telephone, electronic, or other
communications facilities the business transacted at the
meeting; and
(b) a majority of resident Canadians would have been present had
that director been present at the meeting; or
(c) the Corporation has fewer than three directors, one of the
directors present is a resident Canadian.
4.09 MEETING BY TELEPHONE. - If all the directors of the Corporation consent
thereto generally or if all the directors of the Corporation present at or
participating in the meeting consent, a director may participate in a meeting of
the board or of a committee of the board by means of such telephone, electronic
or other communications facilities as permit all persons participating in the
meeting to communicate with each other, simultaneously and instantaneously, and
a director participating in such a meeting by such means is deemed to be present
at the meeting. Any such consent shall be effective whether given before or
after the meeting to which it relates and may be given with respect to all
meetings of the board and of committees of the board.
4.10 PLACE OF MEETINGS. - Meetings of the board may be held at any place
within or outside Ontario and in any financial year of the Corporation a
majority of the meetings need not be held in Canada.
4.11 CALLING OF MEETINGS. - Meetings of the board shall be held from time to
time at such time and at such place as the board, the chair of the board, the
managing director, the president or any two directors may determine.
4.12 NOTICE OF MEETING. - Notice of the time and place of each meeting of the
board shall be given in the manner provided in Section Eleven to each director
not less than 48 hours before the time when the meeting is to be held. No notice
of a meeting shall be necessary if all the directors in office are present or if
those absent waive notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
on the grounds that the meeting is not lawfully called. A notice of a meeting of
directors need
<PAGE> 8
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not specify the purpose of or the business to be transacted at the meeting
except where the Act requires such purpose or business or the general nature
thereof to be specified.
4.13 FIRST MEETING OF NEW BOARD. - Provided a quorum of directors is present,
each newly elected board may without notice hold its first meeting immediately
following the meeting of shareholders at which such board is elected.
4.14 ADJOURNED MEETING. - Notice of an adjourned meeting of the board is not
required if the time and place of the adjourned meeting is announced at the
original meeting.
4.15 REGULAR MEETINGS. - The board may appoint a day or days in any month or
months for regular meetings of the board at a place and hour to be named. A copy
of any resolution of the board fixing the place and time of such regular
meetings shall be sent to each director forthwith after being passed, but no
other notice shall be required for any such regular meeting except where the Act
requires the purpose thereof or the business to be transacted thereat to be
specified.
4.16 CHAIR. - The chair of any meeting of the board shall be the first
mentioned of such of the following officers as have been appointed and who is a
director and is present at the meeting: chair of the board, managing director or
president. If no such officer is present, the directors present shall choose one
of their number to be chair.
4.17 QUORUM. - Subject to Section 4.08, the quorum for the transaction of
business at any meeting of the board shall be two-fifths of the number of
directors or minimum number of directors, as the case may be, or such greater
number of directors as the board may from time to time determine. If the
Corporation has fewer than three directors, all the directors shall be present
to constitute a quorum.
4.18 VOTES TO GOVERN. - At all meetings of the board every question shall be
decided by a majority of the votes cast on the question. In case of an equality
of votes the chair of the meeting shall not be entitled to a second or casting
vote.
4.19 CONFLICT OF INTEREST. - A director who is a party to, or who is a
director or officer of or has a material interest in any person who is a party
to, a material contract or transaction or proposed material contract or
transaction with the Corporation shall disclose to the Corporation the nature
and extent of that interest at the time and in the manner provided by the Act.
Such a director shall not vote on any resolution to approve the same except as
provided by the Act.
4.20 REMUNERATION AND EXPENSES. - The directors shall be paid such
remuneration for their services as the board may from time to time determine.
The directors shall also be entitled to be reimbursed for travelling and other
expenses properly incurred by them in attending meetings of the board or any
committee thereof. Nothing herein contained shall preclude any director from
serving the Corporation in any other capacity and receiving remuneration
therefor.
<PAGE> 9
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SECTION FIVE
COMMITTEES
5.01 COMMITTEES OF THE BOARD. - The board may appoint from their number one or
more committees of the board, however designated, and delegate to any such
committee any of the powers of the board except those which pertain to items
which, under the Act, a committee of the board has no authority to exercise. A
majority of the members of any such committee shall be resident Canadians.
5.02 TRANSACTION OF BUSINESS. - The powers of a committee of the board may be
exercised by a meeting at which a quorum is present or by a resolution in
writing signed by all members of such committee who would have been entitled to
vote on that resolution at a meeting of the committee. Meetings of such
committee may be held at any place in or outside Ontario.
5.03 AUDIT COMMITTEE. - The board shall select annually from among their
number an audit committee to be composed of not fewer than 3 directors of whom a
majority shall not be officers or employees of the Corporation or any of its
affiliates. The audit committee shall have the powers and duties provided in the
Act.
5.04 ADVISORY BODIES. - The board may from time to time appoint such advisory
bodies as it may deem advisable.
5.05 PROCEDURE. - Unless otherwise determined by the board, each committee and
advisory body shall have power to fix its quorum at not less than a majority of
its members, to elect its chair and to regulate its procedure.
<PAGE> 10
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SECTION SIX
OFFICERS
6.01 APPOINTMENT. - The board may from time to time appoint a president, one
or more vice-presidents (to which title may be added words indicating seniority
or function), a secretary, a treasurer and such other officers as the board may
determine, including one or more assistants to any of the officers so appointed.
One person may hold more than one office. The board may specify the duties of
and, in accordance with this by-law and subject to the Act, delegate to such
officers powers to manage the business and affairs of the Corporation. Subject
to Sections 6.02 and 6.03, an officer may but need not be a director.
6.02 CHAIR OF THE BOARD. - The board may from time to time also appoint a
chair of the board who shall be a director. If appointed, the board may assign
to the Chair any of the powers and duties that are by any provisions of this
by-law assigned to the managing director or to the president. The Chair shall
have such other powers and duties as the board may specify.
6.03 MANAGING DIRECTOR. - The board may from time to time also appoint a
managing director who shall be a resident Canadian and a director. If appointed,
the managing director shall be the chief executive officer and, subject to the
authority of the board, shall have general supervision of the business and
affairs of the Corporation and such other powers and duties as the board may
specify. During the absence or disability of the president, or if no president
has been appointed, the managing director shall also have the powers and duties
of that office.
6.04 PRESIDENT. - The president shall be the chief operating officer and,
subject to the authority of the board, shall have general supervision of the
business of the Corporation and such other powers and duties as the board may
specify. During the absence or disability of the managing director, or if no
managing director has been appointed, the president shall also have the powers
and duties of that office.
6.05 SECRETARY. - Unless otherwise determined by the board, the secretary
shall be the secretary of all meetings of the board, shareholders and committees
of the board that he attends. The secretary shall enter or cause to be entered
in records kept for that purpose minutes of all proceedings at meetings of the
board, shareholders and committees of the board, whether or not in attendance at
such meetings. The secretary shall give or cause to be given, as and when
instructed, all notices to shareholders, directors, officers, auditors and
members of committees of the board. The secretary shall be the custodian of the
stamp or mechanical device generally used for affixing the corporate seal of the
Corporation and of all books, records and instruments belonging to the
Corporation, except when some other officer or agent has been appointed for that
purpose, and have such other powers and duties as otherwise may be specified.
6.06 TREASURER. - The treasurer shall keep proper accounting records in
compliance with the Act and shall be responsible for the deposit of money, the
safekeeping of securities and the disbursement of the funds of the Corporation.
The treasurer shall render to the board whenever required an account of all
transactions as treasurer and of the financial position of the Corporation and
shall have such other powers and duties as otherwise may be specified.
<PAGE> 11
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6.07 POWERS AND DUTIES OF OFFICERS. - The powers and duties of all officers
shall be such as the terms of their engagement call for or as the board or
(except for those whose powers and duties are to be specified only by the board)
the chief executive officer may specify. The board and (except as aforesaid) the
chief executive officer may, from time to time and subject to the provisions of
the Act, vary, add to or limit the powers and duties of any officer. Any of the
powers and duties of an officer to whom an assistant has been appointed may be
exercised and performed by such assistant, unless the board or the chief
executive officer otherwise directs.
6.08 TERM OF OFFICE. - The board, in its discretion, may remove any officer of
the Corporation. Otherwise each officer appointed by the board shall hold office
until his successor is appointed or until the officer resigns.
6.09 AGENTS AND ATTORNEYS. - The Corporation, by or under the authority of the
board, shall have power from time to time to appoint agents or attorneys for the
Corporation in or outside Canada with such powers (including the power to
subdelegate) of management, administration or otherwise as may be thought fit.
6.10 CONFLICT OF INTEREST. - An officer shall disclose any interest in a
material contract or transaction or proposed material contract or transaction
with the Corporation in accordance with Section 4.19.
<PAGE> 12
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SECTION SEVEN
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
7.01 LIMITATION OF LIABILITY. - All directors and officers of the Corporation
in exercising their powers and discharging their duties shall act honestly and
in good faith with a view to the best interests of the Corporation and exercise
the care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Subject to the foregoing, no director or officer shall
be liable for the acts, omissions, failures, neglects or defaults of any other
director, officer or employee, or for any loss, damage or expense happening to
the Corporation through the insufficiency or deficiency of title to any property
acquired for or on behalf of the Corporation, or for the insufficiency or
deficiency of any security in or upon which any of the moneys of the Corporation
shall be invested, or for any loss or damage arising from the bankruptcy,
insolvency or tortious acts of any person with whom any of the moneys,
securities or effects of the Corporation shall be deposited, or for any loss
occasioned by any error of judgment or oversight on the part of such director or
officer, or for any other loss, damage or misfortune which shall happen in the
execution of the duties of office or in relation thereto; provided that nothing
herein shall relieve any director or officer from the duty to act in accordance
with the Act and the regulations thereunder or from liability for any breach
thereof.
7.02 INDEMNITY. - Subject to the Act, the Corporation shall indemnify
directors or officers, former directors or officers, or persons who act or acted
at the Corporation's request as directors or officers of a body corporate of
which the Corporation is or was a shareholder or creditor, and their heirs and
legal representatives, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
them in respect of any civil, criminal or administrative action or proceeding to
which they are made a party by reason of being or having been a director or
officer of the Corporation or such body corporate, if (a) they acted honestly
and in good faith with a view to the best interests of the Corporation; and (b)
in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, they had reasonable grounds for believing that
their conduct was lawful. The Corporation shall also indemnify such person in
such other circumstances as the Act or law permits or requires. Nothing in this
by-law shall limit the right of any person entitled to indemnity to claim
indemnity apart from the provisions of this by-law.
7.03 INSURANCE. - Subject to the Act, the Corporation may purchase and
maintain insurance for the benefit of any person referred to in Section 7.02
hereof as the board may from time to time determine.
<PAGE> 13
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SECTION EIGHT
SHARES
8.01 ALLOTMENT OF SHARES. - Subject to the Act and the articles, the board may
from time to time allot or grant options to purchase the whole or any part of
the authorized and unissued shares of the Corporation at such times and to such
persons and for such consideration as the board shall determine, provided that
no share shall be issued until it is fully paid as provided by the Act.
8.02 COMMISSIONS. - The board may from time to time authorize the Corporation
to pay a reasonable commission to any person in consideration of such person
purchasing or agreeing to purchase shares of the Corporation, whether from the
Corporation or from any other person, or procuring or agreeing to procure
purchasers for any such shares.
8.03 REGISTRATION OF TRANSFERS. - Subject to the Act, no transfer of a share
shall be registered in a securities register except upon presentation of the
certificate representing such share with an endorsement which complies with the
Act made thereon or delivered therewith duly executed by an appropriate person
as provided by the Act, together with such reasonable assurance that the
endorsement is genuine and effective as the board may from time to time
prescribe, upon payment of all applicable taxes and any reasonable fees
prescribed by the board, upon compliance with such restrictions on issue,
transfer or ownership as are authorized by the articles.
8.04 NON-RECOGNITION OF TRUSTS. - Subject to the Act, the Corporation may
treat the registered holder of any share as the person exclusively entitled to
vote, to receive notices, to receive any dividend or other payment in respect of
the share, and otherwise to exercise all the rights and powers of an owner of
the share.
8.05 SHARE CERTIFICATES. - Every holder of one or more shares of the
Corporation shall be entitled, at the holder's option, to a share certificate,
or to a non-transferable written certificate of acknowledgement of such right to
obtain a share certificate, stating the number and class or series of shares
held by such holder as shown on the securities register. Such certificates shall
be in such form as the board may from time to time approve. Any such certificate
shall be signed in accordance with Section 2.04 and need not be under the
corporate seal. Notwithstanding the foregoing, unless the board otherwise
determines, certificates in respect of which a registrar, transfer agent, branch
transfer agent or issuing or other authenticating agent has been appointed shall
not be valid unless countersigned by or on behalf of such registrar, transfer
agent, branch transfer agent or issuing or other authenticating agent. The
signature of one of the signing officers under Section 2.04 (or, in the case of
a certificate which is not valid unless countersigned by or on behalf of a
registrar, transfer agent, branch transfer agent or issuing or other
authenticating agent, the signatures of both signing officers under Section
2.04) may be printed or otherwise mechanically reproduced thereon. Every such
printed or mechanically reproduced signature shall for all purposes be deemed to
be the signature of the officer whose signature it reproduces and shall be
binding upon the Corporation. A certificate executed as aforesaid shall
<PAGE> 14
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be valid notwithstanding that one or both of the officers whose printed or
mechanically reproduced signature appears thereon no longer holds office at the
date of issue of the certificate.
8.06 REPLACEMENT OF SHARE CERTIFICATES. - The board or any officer or agent
designated by the board may direct the issue of a new share or other such
certificate in lieu of and upon cancellation of a certificate that has been
mutilated or in substitution for a certificate claimed to have been lost,
apparently destroyed or wrongfully taken on payment of such reasonable fee and
on such terms as to indemnity, reimbursement of expenses and evidence of loss
and of title as the board may from time to time prescribe, whether generally or
in any particular case.
8.07 JOINT SHAREHOLDERS. - If two or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof, and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any one of such persons may
give effectual receipts for the certificate issued in respect thereof or for any
dividend, bonus, return of capital or other money payable or warrant issuable in
respect of such share.
8.08 DECEASED SHAREHOLDERS. - In the event of the death of a holder, or of one
of the joint holders, of any share, the Corporation shall not be required to
make any entry in the securities register in respect thereof or to make any
dividend or other payments in respect thereof except upon production of all such
documents as may be required by law and upon compliance with the reasonable
requirements of the Corporation and its transfer agents.
8.09 TRANSFER AGENTS AND REGISTRARS. - The Corporation may from time to time,
in respect of each class of securities issued by it, appoint a trustee, transfer
or other agent to keep the securities register and the register of transfers and
a registrar, trustee or agent to maintain a record of issued security
certificates and may appoint one or more persons or agents to keep branch
registers, and, subject to the Act, one person may be appointed to keep the
securities register, register of transfers and the records of issued security
certificates. Such appointment may be terminated at any time by the board.
<PAGE> 15
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SECTION NINE
DIVIDENDS AND RIGHTS
9.01 DIVIDENDS. - Subject to the Act, the articles and any unanimous
shareholder agreement, the board may from time to time declare dividends payable
to the shareholders according to their respective rights and interests in the
Corporation. Dividends may be paid in money or property or by issuing fully paid
shares of the Corporation or options or rights to acquire fully paid shares of
the Corporation. Any dividend unclaimed after a period of 6 years from the date
on which the same has been declared to be payable shall be forfeited and shall
revert to the Corporation.
9.02 DIVIDEND CHEQUES. - A dividend payable in money shall be paid by cheque
to the order of each registered holder of shares of the class or series in
respect of which it has been declared and mailed by prepaid ordinary mail to
such registered holder at the holder's recorded address, unless such holder
otherwise directs. In the case of joint holders the cheque shall, unless such
joint holders otherwise direct, be made payable to the order of all of such
joint holders and mailed to them at their recorded address. The mailing of such
cheque as aforesaid, unless the same is not paid on due presentation, shall
satisfy and discharge the liability for the dividend to the extent of the sum
represented thereby plus the amount of any tax which the Corporation is required
to and does withhold. In the event of non-receipt of any dividend cheque by the
person to whom it is sent as aforesaid, the Corporation shall issue to such
person a replacement cheque for a like amount on such terms as to indemnity,
reimbursement of expenses and evidence of non-receipt and of title as the board
may from time to time prescribe, whether generally or in any particular case.
9.03 RECORD DATE FOR DIVIDENDS AND RIGHTS. - The board may fix in advance a
date, preceding by not more than 50 days the date for the payment of any
dividend or the date for the issue of any warrant or other evidence of the right
to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
exercise the right to subscribe for such securities, and notice of any such
record date shall be given not less than 7 days before such record date in the
manner provided by the Act. If no record date is so fixed, the record date for
the determination of the persons entitled to receive payment of any dividend or
to exercise the right to subscribe for securities of the Corporation shall be at
the close of business on the day on which the resolution relating to such
dividend or right to subscribe is passed by the board.
<PAGE> 16
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SECTION TEN
MEETINGS OF SHAREHOLDERS
10.01 ANNUAL MEETINGS. - The annual meeting of shareholders shall be held at
such time in each year and, subject to Section 10.03, at such place as the
board, the chair of the board, the managing director or the president may from
time to time determine, for the purpose of considering the financial statements
and reports required by the Act to be placed before the annual meeting, electing
directors, appointing auditors and for the transaction of such other business as
may properly be brought before the meeting.
10.02 SPECIAL MEETINGS. - The board, the chair of the board, the managing
director or the president shall have power to call a special meeting of
shareholders at any time.
10.03 PLACE OF MEETINGS. - Subject to the articles and any unanimous
shareholder agreement meetings of shareholders of the Corporation shall be held
at such place in or outside Ontario as the directors determine or, in the
absence of such a determination, at the place where the registered office of the
Corporation is located.
10.04 NOTICE OF MEETINGS. - Notice of the time and place of each meeting of
shareholders shall be given in the manner provided in Section Eleven not less
than 21 nor more than 50 days before the date of the meeting to each director,
to the auditor, and to each shareholder who at the close of business on the
record date for notice is entered in the securities register as the holder of
one or more shares carrying the right to vote at the meeting. Notice of a
meeting of shareholders called for any purpose other than consideration of the
minutes of an earlier meeting, financial statements and auditor's report,
election of directors and reappointment of the incumbent auditor shall state the
nature of such business in sufficient detail to permit the shareholder to form a
reasoned judgment thereon and shall state the text of any special resolution or
by-law to be submitted to the meeting.
10.05 LIST OF SHAREHOLDERS ENTITLED TO NOTICE. - For every meeting of
shareholders, the Corporation shall prepare a list of shareholders entitled to
receive notice of the meeting, arranged in alphabetical order and showing the
number of shares held by each shareholder entitled to vote at the meeting. If a
record date for the meeting is fixed pursuant to Section 10.06, the shareholders
listed shall be those registered at the close of business on such record date.
If no record date is fixed, the shareholders listed shall be those registered at
the close of business on the day immediately preceding the day on which notice
of the meeting is given or, where no such notice is given, on the day on which
the meeting is held. The list shall be available for examination by any
shareholder during usual business hours at the registered office of the
Corporation or at the place where the central securities register is maintained
and at the meeting for which the list was prepared. Where a separate list of
shareholders has not been prepared, the names of persons appearing in the
securities register at the requisite time as the holder of one or more shares
carrying the right to vote at such meeting shall be deemed to be a list of
shareholders.
<PAGE> 17
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10.06 RECORD DATE FOR NOTICE. - The board may fix in advance a date, preceding
the date of any meeting of shareholders by not more than 50 days and not less
than 21 days, as a record date for the determination of the shareholders
entitled to notice of the meeting, and notice of any such record date shall be
given not less than 7 days before such record date, by newspaper advertisement
in the manner provided in the Act and by written notice to each stock exchange
in Canada on which the shares of the Corporation are listed for trading. If no
such record date is so fixed, the record date for the determination of the
shareholders entitled to receive notice of the meeting shall be at the close of
business on the day immediately preceding the day on which the notice is given
or, if no notice is given, shall be the day on which the meeting is held.
10.07 MEETINGS WITHOUT NOTICE. - A meeting of shareholders may be held without
notice at any time and place permitted by the Act (a) if all the shareholders
entitled to vote thereat are present in person or duly represented or if those
not present or represented waive notice of or otherwise consent to such meeting
being held, and (b) if the auditors and the directors are present or waive
notice of or otherwise consent to such meeting being held; so long as such
shareholders, auditors or directors present are not attending for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called. At such a meeting any business may be transacted
which the Corporation at a meeting of shareholders may transact.
10.08 CHAIR, SECRETARY AND SCRUTINEERS. - The chair of any meeting of
shareholders shall be the first mentioned of such of the following officers as
have been appointed and who is present at the meeting: managing director,
president, chair of the board, or a vice-president who is a shareholder. If no
such officer is present within 15 minutes from the time fixed for holding the
meeting, the persons present and entitled to vote shall choose one of their
number to be chair. If the secretary of the Corporation is absent, the chair
shall appoint some person, who need not be a shareholder, to act as secretary of
the meeting. If desired, one or more scrutineers, who need not be shareholders,
may be appointed by a resolution or by the chair with the consent of the
meeting.
10.09 PERSONS ENTITLED TO BE PRESENT. - The only persons entitled to be
present at a meeting of shareholders shall be those entitled to vote thereat,
the directors and auditor of the Corporation and others who, although not
entitled to vote, are entitled or required under any provision of the Act or the
articles or by-laws to be present at the meeting. Any other person may be
admitted only on the invitation of the chair of the meeting or with the consent
of the meeting.
10.10 QUORUM. - A quorum for the transaction of business at any meeting of
shareholders shall be two persons present in person, each being a shareholder
entitled to vote thereat or a duly appointed proxyholder or representative for a
shareholder so entitled, irrespective of the number of shares held by such
persons. If a quorum is present at the opening of any meeting of shareholders,
the shareholder or shareholders present or represented may proceed with the
business of the meeting notwithstanding that a quorum is not present throughout
the meeting. If a quorum is not present at the time appointed for the meeting or
within a reasonable time thereafter as the shareholders may determine, the
shareholders present or represented may adjourn the meeting to a fixed time and
place but may not transact any other business.
<PAGE> 18
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10.11 RIGHT TO VOTE. - Every person named in the list referred to in Section
10.05 shall be entitled to vote the shares shown thereon opposite such person's
name at the meeting to which such list relates, except to the extent that (a)
where the Corporation has fixed a record date in respect of such meeting, such
person has transferred any of his shares after such record date or, where the
Corporation has not fixed a record date in respect of such meeting, such person
has transferred any shares after the date on which such list is prepared, and
(b) the transferee, having produced properly endorsed certificates evidencing
such shares or having otherwise established ownership of such shares, has
demanded not later than 10 days before the meeting that the transferee's name be
included in such list. In any such excepted case the transferee shall be
entitled to vote the transferred shares at such meeting.
10.12 PROXYHOLDERS AND REPRESENTATIVES. - Every shareholder entitled to vote
at a meeting of shareholders may appoint a proxyholder, or one or more alternate
proxyholders, as nominee of such shareholder to attend and act at the meeting in
the manner and to the extent authorized and with the authority conferred by the
proxy. A proxy shall be in writing executed by the shareholder or the
shareholder's attorney and shall conform with the requirements of the Act.
Alternatively, every such shareholder which is a body corporate or association
may authorize by resolution of its directors or governing body an individual to
represent it at a meeting of shareholders and such individual may exercise on
the shareholder's behalf all the powers it could exercise if it were an
individual shareholder. The authority of such an individual shall be established
by depositing with the Corporation a certified copy of such resolution, or in
such other manner as may be satisfactory to the secretary of the Corporation or
the chair of the meeting. Any such proxyholder or representative need not be a
shareholder. A proxy ceases to be valid one year from its date.
10.13 TIME FOR DEPOSIT OF PROXIES. - The board may fix a time not exceeding 48
hours, excluding Saturdays and holidays, preceding any meeting or adjourned
meeting of shareholders before which time proxies to be used at the meeting must
be deposited with the Corporation or an agent thereof, and any period of time so
fixed shall be specified in the notice calling the meeting. A proxy shall be
acted upon only if, prior to the time so specified, it shall have been deposited
with the Corporation or an agent thereof specified in such notice or if, no such
time having been specified in such notice, it has been received by the secretary
of the Corporation or by the chair of the meeting or any adjournment thereof
prior to the time of voting.
10.14 JOINT SHAREHOLDERS. - If two or more persons hold shares jointly, any
one of them present in person or duly represented at a meeting of shareholders
may, in the absence of the other or others, vote the shares; but if two or more
of those persons are present in person or represented and vote, they shall vote
as one the shares jointly held by them.
10.15 VOTES TO GOVERN. - At any meeting of shareholders every question shall,
unless otherwise required by the articles or by-laws or by law, be determined by
a majority of the votes cast on the question. In case of an equality of votes
either upon a show of hands or upon a poll, the chair of the meeting shall not
be entitled to a second or casting vote.
10.16 SHOW OF HANDS. - Subject to the Act, any question at a meeting of
shareholders shall be decided by a show of hands, unless a ballot thereon is
required or demanded as hereinafter provided, and upon a show of hands every
person who is present and entitled to vote
<PAGE> 19
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shall have one vote. Whenever a vote by show of hands shall have been taken upon
a question, unless a ballot thereon is so required or demanded, a declaration by
the chair of the meeting that the vote upon the question has been carried or
carried by a particular majority or not carried and an entry to that effect in
the minutes of the meeting shall be prima facie evidence of the fact without
proof of the number or proportion of the votes recorded in favour of or against
any resolution or other proceeding in respect of the said question, and the
result of the vote so taken shall be the decision of the shareholders upon the
said question.
10.17 BALLOTS. - On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, the
chair may require a ballot or any person who is present and entitled to vote on
such question at the meeting may demand a ballot. A ballot so required or
demanded shall be taken in such manner as the chair shall direct. A requirement
or demand for a ballot may be withdrawn at any time prior to the taking of the
ballot. If a ballot is taken each person present shall be entitled, in respect
of the shares which such person is entitled to vote at the meeting upon the
question, to that number of votes provided by the Act or the articles, and the
result of the ballot so taken shall be the decision of the shareholders upon the
said question.
10.18 ADJOURNMENT. - The chair at a meeting of shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may decide,
adjourn the meeting from time to time and from place to place. If a meeting of
shareholders is adjourned for less than 30 days, it shall not be necessary to
give notice of the adjourned meeting, other than by announcement at the earliest
meeting that is adjourned. Subject to the Act, if a meeting of shareholders is
adjourned by one or more adjournments for an aggregate of 30 days or more,
notice of the adjourned meeting shall be given as for an original meeting.
<PAGE> 20
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SECTION ELEVEN
NOTICES
11.01 METHOD OF GIVING NOTICES. - Any notice (which term includes any
communication or document) to be given (which term includes sent, delivered or
served) pursuant to the Act, the regulations thereunder, the articles, the
by-laws or otherwise to a shareholder, director, officer, auditor or member of a
committee of the board shall be sufficiently given if delivered personally to
the person to whom it is to be given, if mailed to such person at the person's
recorded address by prepaid mail, or if transmitted by telephone facsimile or
other electronic telecommunication facility. A notice so delivered shall be
deemed to have been received when it is delivered personally, a notice so mailed
shall be deemed to have been received on the fifth day after it is deposited in
a post office or public letter box, and a notice so transmitted shall be deemed
to have been received on the day it is transmitted. The secretary may change or
cause to be changed the recorded address of any shareholder, director, officer,
auditor or member of a committee of the board in accordance with any information
believed by the secretary to be reliable.
11.02 NOTICE TO JOINT SHAREHOLDERS. - If two or more persons are registered as
joint holders of any share, any notice may be addressed to all such joint
holders, but notice addressed to one of such persons shall be sufficient notice
to all of them.
11.03 COMPUTATION OF TIME. - In computing the date when notice must be given
under any provision requiring a specified number of days' notice of any meeting
or other event, the day of giving the notice shall be excluded and the day of
the meeting or other event shall be excluded.
11.04 UNDELIVERED NOTICES. - If any notice given to a shareholder pursuant to
Section 11.01 is returned on three consecutive occasions because the shareholder
cannot be found, the Corporation shall not be required to give any further
notices to such shareholder until informed in writing by the shareholder of a
new address.
11.05 OMISSIONS AND ERRORS. - The accidental omission to give any notice to
any shareholder, director, officer, auditor or member of a committee of the
board or the non-receipt of any notice by any such person or any error in any
notice not affecting the substance thereof shall not invalidate any action taken
at any meeting held pursuant to such notice or otherwise founded thereon.
11.06 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW. - Every person who, by
operation of law, transfer, death of a shareholder or any other means
whatsoever, shall become entitled to any share, shall be bound by every notice
in respect of such share which shall have been duly given to the shareholder
from whom such person derives title to such share prior to the name and address
of such person being entered on the securities register (whether such notice was
given before or after the happening of the event upon which such person became
so entitled) and prior to such person furnishing to the Corporation the proof of
authority or evidence of entitlement prescribed by the Act.
<PAGE> 21
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11.07 WAIVER OF NOTICE. - Any shareholder, proxyholder or other person
entitled to attend a meeting of shareholders, or any director, officer, auditor
or member of a committee of the board, may at any time waive any notice, or
waive or abridge the time for any notice, required to be given to him under the
Act, the regulations thereunder, the articles, the by-laws or otherwise, and
such waiver or abridgement, whether given before or after the meeting or other
event of which notice is required to be given, shall cure any default in the
giving or in the time of such notice, as the case may be. Any such waiver or
abridgement shall be in writing except a waiver of notice of a meeting of
shareholders or of the board or a committee of the board which may be given in
any manner.
11.08 INTERPRETATION. - In this by-law, "RECORDED ADDRESS" means, in the case
of a shareholder, the address as recorded in the securities register; and, in
the case of joint shareholders, the address appearing in the securities register
in respect of such joint holding or the first address so appearing if there are
more than one; in the case of an officer, auditor or member of a committee of
the board, the latest address as recorded in the records of the Corporation; and
in the case of a director, the latest address as shown in the records of the
corporation or in the most recent notice filed under the Corporations
Information Act, whichever is the more current.
<PAGE> 22
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SECTION TWELVE
EFFECTIVE DATE AND REPEAL
12.01 EFFECTIVE DATE. - This by-law shall come into force when made by the
board in accordance with the Act, or at such other effective date as the
directors may determine.
12.02 REPEAL. - The general by-law of the Corporation (By-law No. 1) is
repealed as of the coming into force of this by-law. Such repeal shall not
affect the previous operation of any by-law so repealed or affect the validity
of any act done or any right, privilege, obligation or liability acquired or
incurred under, or the validity of any contract or agreement made pursuant to,
or the validity of any articles (as defined in the Act) or predecessor charter
documents of the Corporation obtained pursuant to, any such by-law prior to its
repeal. All officers and persons acting under any by-law so repealed shall
continue to act as if appointed under the provisions of this by-law and all
resolutions of the shareholders or the board or a committee of the board with
continuing effect passed under any repealed by-law shall continue to be good and
valid except to the extent inconsistent with this by-law and until amended or
repealed.
The foregoing by-law was made by the directors of the Corporation on the
24th day of November, 1999 , and was confirmed without variation by the
shareholders of the Corporation on the 24th day of November, 1999 .
/s/ Wilson Lee
---------------------------------------
Secretary
<PAGE> 1
EXHIBIT 4.1
NUMBER
FLONETWORK INC.
SHARES
INCORPORATED UNDER THE LAWS OF THE PROVINCE OF ONTARIO
CUSIP 339741 10 0
THIS CERTIFIES THAT
is the registered holder of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE CAPITAL STOCK OF
FLONETWORK INC.
transferable only on the books of the Corporation by the registered holder in
person or by duly authorized Attorney on surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar of the Corporation.
The class or series of shares represented by this Certificate has rights,
privileges, restrictions or conditions attached thereto and the Corporation will
furnish to the holder, on demand and without charge, a full copy of the text of,
(i) the rights, privileges, restrictions and conditions attached to
the said shares and to each class authorized to be issued and to
each series insofar as the same have been fixed by the directors,
and
(ii) the authority of the directors to fix the rights, privileges,
restrictions and conditions of subsequent series, if applicable.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers.
DATED:
COUNTERSIGNED AND REGISTERED
CHASE MELLON SHAREHOLDER SERVICES
OF RIDGEFIELD PARK, NEW JERSEY
TRANSFER AGENT AND REGISTRAR
CHIEF EXECUTIVE OFFICER
BY:
-----------------------------------
SECRETARY
TRANSFERS OF THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE EFFECTED
AT THE PRINCIPAL STOCK TRANSFER OFFICE OF CHASE MELLON SHAREHOLDER SERVICES
OF RIDGEFIELD PARK, NEW JERSEY
<PAGE> 2
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL INSURANCE, SOCIAL SECURITY OR TAX
IDENTIFICATION NUMBER OF TRANSFEREE
- ---------------------------------------------------------------------------
(Name and address of transferee)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
______________________________________________________________ shares registered
in the name of the undersigned on the books of the Corporation named on the face
of this Certificate and represented hereby, and irrevocably constitutes and
appoints
______________________________________________________________ the attorney of
the undersigned to transfer the said shares on the register of transfers and
books of the Corporation with full power of substitution hereunder.
DATED:
- ------------------------------- --------------------------------
(Signature of Witness) (Signature of Shareholder)
<PAGE> 1
BLAKE, CASSELS & GRAYDON LLP Exhibit 5.1
-----------
Box 25, Commerce Court West
199 Bay Street
Toronto, Ontario, Canada
M5L 1A9
Deliveries: 28th Floor
Telephone: 416.863.2400
Facsimile: 416.863.2653
www.blakes.com
March 14, 2000
FloNetwork Inc.
260 King Street East, Building B
Toronto, Ontario M5A 1K3
Dear Sirs:
RE: REGISTRATION STATEMENT ON FORM F-1
This opinion is furnished to you in connection with a Registration Statement on
Form F-1 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of 3,750,000 common shares (the
"Shares"), of FloNetwork Inc. (the "Company"), including 562,500 Shares issuable
upon exercise of an over-allotment option granted by the Company.
The Shares are to be sold by the Company pursuant to an underwriting agreement
(the "Underwriting Agreement") to be entered into by and among the Company and
SG Cowen Securities Corporation, Prudential Volpe Technology, a unit of
Prudential Securities, and William Blair & Company, as representatives of the
several underwriters named in the Underwriting Agreement, the form of which has
been filed as Exhibit 1.1 to the Registration Statement.
We are acting as Canadian counsel for the Company in connection with the issue
and sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the board of directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the Articles
of Incorporation and By-Laws of the Company, each as restated and/or amended to
date, and such other documents as we have deemed necessary or desirable for
purposes of rendering the opinions hereinafter set forth, without independent
verification of the accuracy thereof.
In our examination of the foregoing documents, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified, conformed or photostatic copies or facsimiles thereof and the
legal capacity of all signatories to such documents.
<PAGE> 2
BLAKE, CASSELS & GRAYDON LLP Page 2
We assume that the appropriate action will be taken, prior to the offer and sale
of the Shares in accordance with the Underwriting Agreement, to register and
qualify the Shares for sale under all applicable state and Canadian provincial
securities or "blue sky" laws.
We have not made any examination of the laws of any jurisdiction other than
Canada and the Province of Ontario and we do not express or imply any opinion in
respect of the laws of any jurisdiction other than the Province of Ontario and
the federal laws of Canada applicable therein.
Based upon and subject to the foregoing, we are of the opinion that the Shares
have been duly authorized for issuance and, when the Shares are issued and paid
for in accordance with the terms and conditions of the Underwriting Agreement,
the Shares will be validly issued, fully paid and non-assessable.
It is understood that this opinion is to be used only in connection with the
offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters". In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Blake, Cassels & Graydon LLP
BLAKE, CASSELS & GRAYDON LLP
<PAGE> 1
Exhibit 10.1
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EMAIL SERVICES AGREEMENT
This Email Services Agreement (the "Agreement") is made and entered into
effective as of July 19, 1999 (the "Effective Date") by and between Media
Synergy Inc. ("MSI"), located at 260 King Street East, Building C, Toronto,
Ontario, M5A IK3, and CNET, Inc. ("CNET"), located at 150 Chestnut Street, San
Francisco, CA 94111. CNET operates a number of email newsletters that deliver
technology-related information to online users, and MS1 provides mass email
delivery services. Accordingly, the parties, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
"CNET Marks" means any trademarks, trade names, service marks and logos
(a) used in any Dispatch, or (b) delivered by CNET to MSI in accordance
with this Agreement.
"Dispatch" means an electronic newsletter, alert, or other periodic
electronic mail message described on Exhibit A, which may be modified
by CNET from time to time.
"FLO Network" means the software, hardware, and Internet connectivity
configured to provide mass e-mail delivery services.
"MSI Marks" means any trademarks, trade names, service marks and logos
delivered by MSI to CNET in accordance with this Agreement.
"Services" means the email sending and support services described on
Exhibit D.
"Term" means the term of this Agreement as described in Section 5. 1.
"User" means any Dispatch subscriber.
"User Data" means any data or information related to a User, including
but not limited to a name, email address, physical address and any
other related information.
2. CNET DISPATCHES.
2.1. Sending and Support Services. MSI will provide all email
sending and support Services related to the CNET Dispatches
described on Exhibit D. MSI guarantees that it will install
and make available to CNET the most current versions of all
applications used by MSI, including all bug-fixes, service
releases, and upgrades.
<PAGE> 2
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.2. Links within Dispatch. MSI will take all steps necessary to
ensure that URL links contained within a Dispatch delivered by
MSI appear to originate from the relevant CNET domains. CNET
will provide MSI with access to appropriate subdomains (e.g.,
dispatch.shareware.com) for the sole purpose of assisting MSI
with the foregoing.
2.3. Send Volume. MSI will send Dispatches at a minimum, guaranteed
aggregate rate of [**] per hour for standard text Dispatches
through [**] dedicated server farm cluster networks.
2.4. Off-Schedule Delivery. If CNET is late providing MSI with
approved copy for any Dispatch, MSI guarantees that so long as
the copy is received within three (3) hours after the
originally scheduled send time, MSI will commence delivering
such Dispatch as soon as the approved copy is received from
CNET.
2.5. Tracking and Reporting for all Email Dispatches. MSI will
provide CNET with access, at no cost to CNET, to the latest
and newest innovations developed for tracking and reporting as
such innovations are developed and become commercially
available. At a minimum, each month throughout the Term MSI
will provide CNET with the reporting and tracking metrics set
forth on Exhibit B.
2.6. No Spam. CNET acknowledges that MSI sends only
permission-based email marketing messages. CNET will use
commercially reasonable efforts to include "unsubscribe"
information and instructions in each Dispatch. MSI reserves
the right, at its sole discretion, to refuse to send any email
if MSI reasonably and conclusively determines that the email
database is not an "opt-in" database. If MSI, CNET or their
respective Internet access providers receive hostile email
"flames" from recipients of the CNET Dispatches, CNET will use
commercially reasonable efforts to contact such recipients and
inform them why their email addresses were included in the
database.
2.7. Email Response Study. MSI will conduct and provide CNET with
the results of a four week Dispatch study describing the
optimal time and day to deliver CNET Dispatches in order
maximize User click-through and response rates for both CNET
advertisers and CNET. Such report shall include (a) a written
summary of the findings and conclusions of such report, (b) an
electronic copy of all relevant survey data and information in
a form reasonably requested by CNET.
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<PAGE> 3
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3. PRODUCT DEVELOPMENT.
3.1. Development. MSI acknowledges that CNET [**] into the [**] and
[**] of the FLO Network. Therefore, representatives from MSI
and CNET will meet together in good faith [**] to discuss CNET
[**] and [**] schedules. Further, MSI shall provide [**] to be
applied towards [**] CNET. MSI will work with the CNET
representative to [**] into the [**] schedule. CNET shall
follow the process described on Exhibit C for all development
requests and changes. MSI will work towards a [**] development
cycle and will aim to provide product improvements and
enhancements every [**]; provided, however, that CNET
acknowledges that in some cases product releases may take
longer due to complex feature set requests or unforeseen
development issues.
3.2. Beta Testing. MSI will include CNET in its beta testing
program, and will allow CNET to test relevant features prior
to their public release.
3.3. Representatives. CNET will appoint one representative to
gather all CNET feature set requests and approve all requests
in accordance with Exhibit C, and work closely with MSI to
communicate such requests, and MSI will appoint one
representative to receive such requests from CNET. The parties
agree that the representatives shall initially be as follows:
CNET: Alexander Hughes, CNET Group Circulation Manager
MSI: Alex Sirota, MSI Product Manager
4. PRICING AND PAYMENT.
4.1. Advance. With fifteen (15) days after the Effective Date, CNET
shall pay MSI a [**] advance to be credited against future
monthly Deployment Fees due hereunder.
4.2. Deployment Fees. All Deployment Fees shall be due within
thirty (30) days after the receipt of a monthly invoice by
CNET. All Deployment Fees shall be calculated in accordance
with the pricing set forth on Exhibit D.
4.3. Payment upon Termination. Upon termination of this Agreement
for any reason, all amounts due and payable to MSI at the time
of termination shall be due and payable by CNET within
forty-five (45) days of the termination date. CNET's payment
obligations hereunder shall survive the termination of this
Agreement.
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<PAGE> 4
5. TERM AND TERMINATION.
5.1. Term. The initial Term of the Agreement shall be two (2) years
from the Effective Date of the Agreement. Following the
initial term, the Agreement may be renewed for subsequent
terms of one (1) year each. Renewal shall be automatic unless
either party notifies the other of its desire to not renew at
least ninety (90) days prior to the end of the then current
Term.
5.2. Termination for Cause. Either party may terminate this
Agreement upon a notice of termination for any material breach
of this Agreement, provided such notice (i) describes the
grounds for termination in sufficient detail and (ii) gives
the breaching party thirty (30) days to cure the breach.
Notwithstanding that a party gives notice of termination, such
termination shall not be effective if the breach is cured
prior to expiration of the notice period and the terminating
party is given timely notice of the cure. Notwithstanding the
above, either party shall have an absolute right, exercisable
in its sole discretion, to terminate the Agreement immediately
and without further obligations of any kind whatsoever
hereunder (including an opportunity to cure), by giving the
other party written notice of such termination if such other
party ceases business, becomes insolvent or commits any act of
bankruptcy.
5.3. Termination by CNET for Convenience. CNET shall have the right
to terminate this Agreement for any reason (or for no reason)
upon ninety (90) days' notice to MSI, which may be delivered
at any time; except in the event of a change of control in
which case the notice period shall be thirty (30) days' notice
to MSI.
5.4. Consequences of Termination or Expiration.
5.4.1. User List Data. Upon termination or expiration of
this Agreement, MSI will transfer all User Data for
Users appearing on CNET lists (the "CNET List User
Data") in a format and on a timetable reasonably
acceptable to CNET, and all rights in the CNET List
User Data and such base of subscribed Users to CNET
or to CNET's designee. Following such transfer, CNET
will have the unrestricted right to use all User
Data, and MSI will have no right to use any CNET List
User Data without CNET's express written consent. MSI
will cooperate in good faith with CNET or its
designee to ensure an orderly and expeditious
transfer of the CNET List User Data from MSI to CNET
or its designee. CNET acknowledges that MSI will not
be required to develop any new software code to
assist in the transfer process. Both parties
anticipate that the transfer will be completed, and
that CNET will be in a position to launch a successor
e-mail service, within three months after termination
(the "Completed Transition"). Until the Completed
Transition, the terms of this Agreement, as then in
effect, will apply to the continued operation of the
Services. If CNET terminates this Agreement for
convenience pursuant to Section 5.3 or MSI terminates
this Agreement for cause pursuant to Section 5.2,
then CNET will pay
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<PAGE> 5
MSI the liquidated damages described in Section 5.4.3
related to transferring such CNET List User Data.
5.4.2. Return of Information. Each party will return to the
other party any documentation and confidential
information received from such other party.
5.4.3. Payment by CNET. If this Agreement is terminated
pursuant to Section 5.2 as a result of a breach by
CNET or pursuant to Section 5.3, then within ten (10)
days after the Completed Transition, CNET will pay
MSI an amount in cash equal to 150% of the
engineering and labor costs associated with transfer
of the CNET List User Data. MSI and CNET acknowledge
that this amount is $200.00 per person hour of labor.
Further, MSI and CNET acknowledge that this amount is
reasonable in liquidated damages and not as a
penalty.
5.4.4. Transfer of Hardware. If this Agreement is terminated
pursuant to Section 5.2 as a result of a breach by
MSI, then at CNET's request, MSI will sell all
hardware used to provide the Services at a cost equal
to the initial cost of the hardware less a 20%
depreciation per year, calculated as of the date of
termination.
5.5. Survival. The provisions of Sections 6, 7, 8 and 10 and any
obligations arising prior to termination will survive any
termination of this Agreement.
6. SOFTWARE ESCROW.
At CNET's request, MSI will deliver into escrow a current copy of all
software source code and documentation used in connection with the
operation and maintenance of the Services used by CNET, excluding any
software readily available from third parties or developed and owned by
CNET (the "MSI Software"). CNET will choose the escrow agent, which
must be reasonably acceptable to MSI, and the retention and release of
the MSI Software from escrow to CNET upon termination of the Agreement
by CNET pursuant to Section 5.2 or if MSI materially breaches its
obligation to cooperate with the transfer of CNET List Users Data
pursuant to Section 5.4.1. Upon release, CNET will have a royalty-free
license solely to use the MSI Software in operating email services like
those provided in the course of this Agreement, and such license will
continue (a) for 12 months, if the termination occurs pursuant to
Section 5.2 based on breach, or (b) indefinitely, if the termination
occurs pursuant to Section 5.2 based on insolvency, bankruptcy or
discontinuing business. MSI will put into escrow the most current
working version of the MSI Software used by CNET. CNET will pay the
cost of escrowing the MSI Software as described herein. Nothing in this
Section 6 shall give CNET the right to resell or sublicense the MSI
Software. Further, nothing herein shall affect any provisions contained
in Section 7, below.
7. INTELLECTUAL PROPERTY.
-5-
<PAGE> 6
7.1. FLO Network Ownership. CNET acknowledges that the FLO Network
technology and software are the property of MSI or its
licensers and that MSI owns all proprietary rights, including
patent, copyright, trade secret and trademark rights in and to
the FLO Network. CNET has no rights in the foregoing except
those expressly granted by this Agreement, and this Agreement
does not transfer ownership of any of these rights. Nothing
herein shall be construed as restricting MSI's right to sell,
license, modify, publish or otherwise distribute and use the
FLO Network, in whole or in part, to any other person.
7.2. FLO Network Enhancement. CNET acknowledges and agrees that all
product enhancements and modifications made to the FLO Network
as a result of the joint collaboration between CNET and MSI
shall belong to MSI. CNET hereby assigns to MSI all
proprietary rights for any product enhancements and
modifications created for the FLO Network as a result of its
input.
7.3. Ownership of Dispatch Domain Names. Notwithstanding the domain
access granted to MSI in Section 2.2, above, MSI acknowledges
that CNET owns all rights and title in and to the Dispatch
domains and sub-domains, and that CNET is in no way, either
express or implied, granting any rights, title or other
ownership whatsoever to CNET's domains. MSI acknowledges and
agreed that all CNET trademarks and service marks remain the
sole property of CNET.
7.4. User Data. MSI acknowledges that CNET is the sole owner of all
User Data (including email addresses and related information)
associated with the Dispatches, and MSI shall not use such
User Data for any purpose without the prior express written
consent of CNET. MSI further acknowledges that such User Data
is the Confidential Information of CNET (as defined in Section
10.6, below) and may not be disclosed to any third party
without the prior written consent of CNET.
7.5. MSI Marks. MSI hereby grants to CNET a non-exclusive,
royalty-free license, effective throughout the Term, to use,
display and publish the MSI Marks solely as provided in
Section 9. Any use of the MSI Marks by CNET must comply with
any reasonable usage guidelines communicated by MSI to CNET
from time to time. CNET acknowledges and agrees that, as
between MSI and CNET, MSI is the sole owner of all rights in
and to the MSI Marks.
7.6. CNET Marks. CNET hereby grants to MSI a non-exclusive, royalty
free license, effective throughout the Term, to use, display
and publish the CNET Marks solely as provided in Section 9.
Any use of the CNET Marks by MSI must comply with any
reasonable usage guidelines communicated to MSI by CNET from
time to time. MSI acknowledges and agrees that, as between MSI
and CNET, CNET is the sole owner of all rights in and to the
CNET Marks.
7.7. General Limitation. Neither party shall use or reproduce any
trade name, logo, trademark or copyright of the other party
except in accordance with the terms and conditions of this
Agreement. Neither party shall register or attempt to register
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<PAGE> 7
any trade name, logo, trademark or copyright owned by the
other party anywhere in the world except with the owner's
express written permission.
7.8. Result of Termination. Upon the expiration or termination of
this Agreement, each party will cease using the trademarks,
service marks and/or trade names of the other party except as
the parties may agree in writing or to the extent permitted by
applicable law.
8. MUTUAL INDEMNIFICATION.
8.1. Indemnification by CNET. CNET shall indemnify and hold MSI
harmless from and against any costs, losses, liabilities and
expenses, including all court costs, reasonable expenses and
reasonable attorney's fees (collectively, "Losses") that MSI
may suffer, incur or be subjected to by reason of any legal
action, proceeding, arbitration or other claim by a third
party, whether commenced or threatened, arising out of or as a
result of a Dispatch containing (a) any unlawful, threatening
abusive, libelous, defamatory, obscene, pornographic, profane,
or otherwise objectionable information, including without
limitation any transmission constituting or encouraging
conduct that would constitute a criminal offense, give rise to
civil liability, or otherwise violate any local, state,
federal or international law; (b) any misleading or deceptive
information, or any misrepresentation with respect to products
or services offered by CNET or its advertisers; (c) any chain
letters, or illegal pyramid type schemes; (d) any information,
audio, video, graphics, software, or other works in violation
of any person's copyright, trademark or any other intellectual
property rights; (e) any deceptive information which would
imply affiliation or sponsorship of any entity or person other
than CNET or its advertisers without the written consent of
such entity or person, or (f) information delivered to anyone
who has not given CNET permission to send email communications
to them or "SPAM".
8.2. Indemnification by MSI. MSI shall indemnify and hold CNET
harmless from and against any Losses that CNET may suffer,
incur or be subjected to by reason of any legal action,
proceeding, arbitration or other claim by a third party,
whether commenced or threatened, arising out of or as a result
of (a) the use of the Services by CNET; (b) the operation of
the Services; or (c) damage caused by any virus, worm, "trojan
horse," time bomb or similar contaminating or destructive
feature attached or included with any Dispatch subsequent to
receiving such Dispatch from CNET; provided however, MSI shall
have no obligation under this section 8.2 for any Losses due
to or arising from a Dispatch containing any of the items
contained in section 8.1 above, unless CNET can conclusively
prove that MSI was solely responsible for the inclusion of
such item in a Dispatch without the approval of CNET.
8.3. Indemnification Procedures. If any party entitled to
indemnification under this Section (an "Indemnified Party")
makes an indemnification request to the other, the Indemnified
Party shall permit the other party (the "Indemnifying Party")
to control the defense, disposition or settlement of the
matter at its own expense;
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<PAGE> 8
provided that the Indemnifying Party shall not, without the
consent of the Indemnified Party enter into any settlement or
agree to any disposition that imposes an obligation on the
Indemnified Party that is not wholly discharged or
dischargeable by the Indemnifying Party, or imposes any
conditions or obligations on the Indemnified Party other than
the payment of monies that are readily measurable for purposes
of determining the monetary identification or reimbursement
obligations of Indemnifying Party. The Indemnified Party shall
notify Indemnifying Party promptly of any claim for which
Indemnifying Party is responsible and shall cooperate with
Indemnifying Party in every commercially reasonable way to
facilitate defense of any such claim; provided that the
Indemnified Party's failure to notify Indemnifying Party shall
not diminish Indemnifying Party's obligations under this
Section except to the extent that Indemnifying Party is
materially prejudiced as a result of such failure. An
Indemnified Party shall at all times have the option to
participate in any matter or litigation through counsel of its
own selection and at its own expense.
9. MEDIA AND PUBLIC RELATIONS.
9.1. Media Contact. Each party will designate a contact for media
relations between CNET and MSI. The parties agree that the
contacts shall initially be as follows:
CNET: Alexander Hughes, CNET Group Circulation Manager
MSI: Shane Wagg, Marketing/MarCom Manager
9.2. Prior Announcement Rights. MSI will inform CNET, in writing,
of the acquisition of any client with a weekly send volume
equal to, or greater than, 70% of the current CNET email send
volume. All such notification will occur prior to any public
announcement of the new client acquisition.
9.3. Reference and Endorsement. CNET will act as a customer
reference for MSI in a manner reasonably determined by CNET.
9.4. Marketing Materials. MSI may include CNET in its list of
entities, including "strategic affiliates," using the
Services. MSI agrees to remove CNET from any materials upon
the reasonable request of CNET.
9.5. Presentations. MSI may include the Dispatches and pre-approved
CNET logos in MSI presentations. MSI agrees to remove the
Dispatches and CNET logos from any presentation upon the
reasonable request of CNET.
9.6. Speaking Engagements. Pending agreement by both parties, CNET
will participate in MSI speaking engagements and co-marketing
activities from time to time.
10. MISCELLANEOUS.
10.1. LIMITATION OF DAMAGES, DISCLAIMER OF WARRANTY. NEITHER PARTY
WILL BE LIABLE FOR ANY SPECIAL, INDIRECT,
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<PAGE> 9
CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED
TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER,
EXCEPT FOR ANY CLAIM ARISING UNDER SECTION 8 OR 10.6, IN NO
EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF
THE TOTAL PAYMENTS MADE UNDER THIS AGREEMENT. EXCEPT AS
EXPRESSLY SET FORTH HEREIN, EACH PARTY ACKNOWLEDGES AND AGREES
THAT THE OTHER HAS NOT MADE ANY REPRESENTATIONS, WARRANTIES OR
AGREEMENTS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
10.2. Assignment. Neither party may assign this Agreement, except
(a) in connection with the transfer of substantially all of
the business operations of such party (whether by asset sale,
stock sale, merger or otherwise); (b) to an affiliate of such
party; or (c) with the written permission of the other party.
Notwithstanding the foregoing, if MSI's acquirer is at any
time reasonably determined by CNET to be a competitor of CNET,
then CNET may terminate this Agreement upon ten days written
notice to the acquiror.
10.3. Relationship of Parties. This Agreement will not be construed
to create a joint venture, partnership or the relationship of
principal and agent between the parties hereto, nor to impose
upon either party any obligations for any losses, debts or
other obligations incurred by the other party except as
expressly set forth herein.
10.4. Audit Rights. CNET will have the right to engage an
independent third party to audit the books and records of MSI
relevant to the quantification of the Dispatches delivered per
hour, upon reasonable notice and during normal business hours,
and MSI will provide reasonable cooperation in connection with
any such audit. CNET will pay all expenses of the auditor
unless the audit reveals an underdelivery by MSI of more than
5%, in which case MSI will reimburse all reasonable expenses
of the auditor.
10.5. Applicable Law. This Agreement will be construed in accordance
with and governed by the laws of the State of California,
United States of America without regard to principles of
conflicts of law or treaty provisions.
10.6. Confidentiality. In connection with the activities
contemplated by this Agreement, each party may have access to
confidential or proprietary technical or business information
of the other party, including without limitation (a)
proposals, ideas or research related to possible new products
or services; (b) financial statements and other financial
information; (c) any reporting information herein; and (d) the
material terms of the relationship between the parties;
provided, however, that such information will be considered
confidential only if it is conspicuously designated as
"Confidential," or if provided orally, identified at the
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time of disclosure and confirmed in writing within 30 days of
disclosure (collectively, "Confidential Information"). Each
party will take reasonable precautions to protect the
confidentiality of the other party's Confidential Information,
which precautions will be at least equivalent to those taken
by such party to protect its own Confidential Information.
Except as required by law or as necessary to perform under
this Agreement, neither party will knowingly disclose the
Confidential Information of the other party or use such
Confidential Information for the benefit of any third party.
Each party's obligations in this Section with respect to any
portion of the other party's disclosed Confidential
Information shall terminate when the party seeking to avoid
its obligation under such Paragraph can document that such
disclosed Confidential Information: (i) was in the public
domain at or subsequent to the time it was communicated to the
receiving party ("Recipient") by the disclosing party
("Discloser ") through no fault of Recipient; (ii) was
rightfully in Recipient's possession free of any obligation of
confidence at or subsequent to the time it was communicated to
Recipient by Discloser; (iii) was developed by employees or
agents of Recipient independently of and without reference to
any information communicated to Recipient by Discloser; (iv)
was communicated by the Discloser to an unaffiliated third
party free of any obligation of confidence; or (v) was in
response to a valid order by a court or other governmental
body, was otherwise required by law or was necessary to
establish the rights of either party under this Agreement;
provided, however, that both parties will stipulate to any
orders necessary to protect said information from public
disclosure.
10.7. Severability of Agreement. If a court of an arbitrator or
competent jurisdiction holds any provision of this Agreement
to be illegal, unenforceable, or invalid in whole or in part
for any reason, the validity and enforceability of the
remaining provisions, or portions thereof, will not be
affected.
10.8. Dispute Resolution. In the event that any dispute arises
hereunder, the parties agree that prior to commencing
litigation, arbitration, or any other legal proceeding, each
party shall send an officer of such party to negotiate a
resolution of the dispute in good faith at a time and place as
may be mutually agreed. Each officer shall have the power to
bind its respective party in all material respects related to
the dispute. If the parties cannot agree on a time or place,
upon written notice from either party to the other, the
negotiations shall be held at the principal executive offices
of CNET twenty one days following such notice (or on the next
succeeding business day, if the twenty first day is a weekend
or holiday). Notwithstanding the foregoing dispute resolution
process, neither party shall be excluded from seeking
provisional remedies in the courts of any jurisdiction,
including, but not limited to, temporary restraining orders
and preliminary injunctions, but such remedies shall not be
sought as a means to avoid the dispute resolution process.
10.9. Force Majeure. If the performance of this Agreement or any
obligations hereunder is prevented, restricted or interfered
with by reason of fire or other casualty or accident, strikes
or labor disputes, war or other violence, any law,
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order, proclamation, regulations, ordinance, demand or
requirement of any government agency, or any other similar act
or condition beyond the reasonable control of the parties
hereto, the party so affected upon giving prompt notice to the
other party will be excused from such performance during such
prevention, restriction or interference.
10.10. Article Headings. The captions and headings of the various
articles of this Agreement are inserted merely for the purpose
of convenience and do not expressly or by implication limit,
define or extend and specific terms or text of the article so
designated and shall not in any way alter the meaning or
interpretation of this Agreement.
10.11. Press Release. Neither party shall issue a press release
concerning the terms of this Agreement or the relationship of
the parties without the prior written consent of the other.
10.12. No Waiver. No waiver of breach, failure of any condition, or
any right or remedy contained in or granted by the provisions
of this Agreement will be effective unless it is in writing
and signed by the party waiving the breach, failure, right or
remedy. No waiver of any other breach, failure, right or
remedy will be deemed a waiver of any other breach, failure,
right or remedy, whether or not similar, nor shall any waiver
constitute a continuing waiver unless the writing so
specifies.
10.13. Remedies Not Exclusive. Any specific right or remedy provided
in this Agreement shall not be exclusive but shall be
cumulative upon all other rights and remedies set forth herein
and allowed or allowable under applicable law.
10.14. Entire Agreement. This Agreement constitutes and contains the
entire agreement between the parties with respect to the
subject matter hereof and supersedes any prior oral or written
agreements. This Agreement may not be amended except in
writing signed by both parties. Each party acknowledges and
agrees that the other has not made any representations,
warranties or agreements of any kind, except as expressly set
forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
CNET, Inc. Media Synergy Inc.
By: /s/ Matthew Barzun By: /s/ Wilson Lee
--------------------- -----------------------
Name: Matthew Barzun Name: Wilson Lee
--------------------- -----------------------
Title: Senior Vice President Title: Chief Operating Officer
--------------------- -----------------------
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EXHIBIT A
CNET DISPATCHES
MSI shall provide the Services for all of the following CNET Dispatches. CNET
may reasonably amend the following list from time to time upon notice to MSI.
1. Digital Dispatch
2. Digital Dispatch (HTML version)
3. NEWS.COM Dispatch
4. NEWS.COM Dispatch (HTML version)
5. COMPUTERS.COM Dispatch
6. GAMECENTER.COM Dispatch
7. Shopper.com Dispatch
8. DOWNLOAD.COM Dispatch (PC version)
9. DOWNLOAD.COM Dispatch (Mac version)
10. Builder Blast
11. ACTIVEX.COM Dispatch
12. SHAREWARE.COM Dispatch
13. COMPUTERS.COM Content Dispatch
14. Browser Alert (PC version)
15. Browser Alert (Mac version)
16. Software Dispatch
17. Cool Gear
18. For What It's Worth
19. ATC Dispatch
20. Message Board Newsletter
21. Web Design Dispatch
22. CNET Help ICQ Tips Dispatch
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<PAGE> 13
EXHIBIT B
TRACKING AND REPORTING REQUIREMENTS
MSI will provide CNET with the following tracking and reporting information:
1. Total list size
2. Total subscribes
3. Total unsubscribes
4. Messages sent
5. Hard Bounce Count
6. Soft Bounce Count
7. Click through by URL
8. A/B split testing
9. Pass along rate
10. Response curve by hours from send
11. Open mail percentages (HTML only)
12. Buy rate and amount
13. Number of click through by customer
14. Number of purchase transactions by customer
15. Total dollar amount purchased by customer
16. Number of messages received by customer
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<PAGE> 14
EXHIBIT C
DEVELOPMENT REQUEST AND CHANGE PROCEDURES
1. ORIGINAL FEATURE REQUESTS
a. Feature requests documented in a Product Requirements Document
(PRD)
b. CNET representative signs off on the PRD
c. MSI development team develops feature set based on CNET
approved PRD
2. CHANGES AND AMENDMENTS
a. Changes and amendments are to be documented as a PRD amendment
b. CNET representative signs off on the PRD amendment
c. MSI development team develops feature set based on the CNET
approved PRD amendment
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<PAGE> 15
EXHIBIT D
SERVICES AND DEPLOYMENT FEES
1. Services.
(i) Email Sending. MSI shall provide all hardware, software,
Internet connections, and bandwidth necessary to send the
Dispatches as described in the Agreement. MSI is responsible
for all costs and expenses associated with sending the
Dispatches.
(ii) Virus Checking. MSI shall install and maintain the most
current virus signatures prior to sending any Dispatch, and
shall scan each Dispatch prior to sending it to Users.
(iii) List Maintenance. MSI will add and delete Users from CNET's
email lists as requested by CNET and Users. MSI will not add
any email address to CNET's email lists unless specifically
authorized in writing by CNET or the owner of the email
address. After receiving a request to add a User to or remove
a User from any email list, MSI will use its best efforts to
add or remove such User as soon as possible, not to exceed 24
hours. At least once per month, MSI shall deliver a file
containing all CNET User List Data to CNET in a zipped ASCII,
tab-delimited format or other format reasonably requested by
CNET.
(iv) Bad Address Handling. MSI shall install and maintain a system
of rules for the purging of "bad addresses" from the CNET
database of subscribers. All bad address rules will be
approved by the designated CNET contact prior to being
implemented. These rules will function within the parameters
of the Service "uptime" described in the following paragraph,
2(i).
2. Technical and Operational Specifications
(i) Uptime. The Services will be operational and fully functional
in all material respects (i.e. capable of sending Dispatches,
accessing the FLO Network) at least 95% of the time during any
30 day period (or, in a cure period, time during any 7 day
period), excluding reasonable scheduled downtime.
(ii) Scheduled Downtime. The parties acknowledge that MSI may be
required to interrupt the Service for scheduled maintenance,
and that such scheduled downtime shall not be included in the
5% downtime permitted each month. Notwithstanding the
foregoing, MSI agrees that (a) MSI will use commercially
reasonable efforts to minimize the adverse impact of such
scheduled downtime on CNET and the delivery of the Dispatches,
(b) MSI will use commercially reasonable efforts to notify
CNET in writing two (2) business days prior to such scheduled
downtime, and (c) in no event shall the total uptime for the
MSI Services be less than 90% in a given month. In the event
of any interruption of the Services
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<PAGE> 16
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
within the control of MSI, MSI will promptly notify CNET of
such interruption and shall use commercially reasonable
efforts to restore the Services within four hours.
(iii) Minimum Volume. At all times during the Term, the average send
volume per hour, per list will be [**] or more during any
consecutive three month period (or, if in a cure period,
during a 7 day period),
3. Deployment Fees
(i) Setup Fee. Initial transition, database design, and setup fee:
[**]
(ii) Email Delivery Pricing*. The pricing for all CNET email
dispatches are based on weekly email volumes. The email
delivery fees will be calculated based on the total number of
emails delivered in the course of a week such that a send of
[**] pieces will be billed at [**] per thousand sends while a
send of [**] pieces will be billed at [**] per thousand sends.
(iii) Message Fee (CPM).
[**] million sends per week [**]/CPM
[**] million sends per week [**]/CPM
*Note: An additional [**] per advertiser web site is charged to enable the buy
rate tracking feature. This is [**] cost only. All other tracking and reporting
features are included in the above pricing.
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<PAGE> 1
EXHIBIT 10.2
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
E-MAIL SERVICES AGREEMENT
This E-MAIL SERVICES AGREEMENT ("Agreement") is made and entered into effective
as of October 25, 1999 ("Effective Date") by and between Media Synergy Inc., an
Ontario corporation with an office at 260 King Street East, Building C Toronto,
Ontario CANADA M5A lK3 ("MSI"), and Impower Inc., with an office at One Phoenix
Mill Lane, Peterborough, NH 03458 (Impower).
STATEMENT OF PURPOSE
The purpose of this Agreement is to define the terms and conditions under which
MSI will support barnesandnoble.com's interactive marketing efforts on behalf of
Impower. These efforts shall be limited solely to sending email messages to
third parties designated by Impower.
In consideration of the mutual promises, covenants and agreements hereinafter
set forth, and other good and valuable consideration, MSI and Impower hereby
agree as follows:
1. DEFINITIONS. As used in this Agreement:
1.1 "CONFIDENTIAL INFORMATION" means any confidential or proprietary
information, source code, software tools, designs, schematics, plans or any
other information relating to any research project, work in process, future
development, scientific, engineering, manufacturing, marketing or business plan
or financial or personnel matter relating to any party, its present or future
products, sales, suppliers, customers, employees, investors or business,
disclosed by one party to the other parties, whether in oral, written, graphic
or electronic form, and whose confidential or proprietary nature is identified
at the time of such disclosure.
1.2 "CONTENT" means any information or content contained in any
database, electronic newsletter, template, message, or other similar document
provided Impower to MSI.
1.3 "INTELLECTUAL PROPERTY RIGHTS" means all current and future
worldwide patents and other patent rights, utility models, copyrights, mask work
rights, moral rights, trade secrets, trademarks, trade names, service marks, and
all other intellectual property rights, including all applications and
registrations with respect thereto.
1.4 "MESSAGE" means an electronic mail message containing the Content
that is sent by MSI on behalf of Impower during the term of this Agreement.
1.5 "SERVICES" means the MSI services as set forth in EXHIBIT A
attached hereto.
2. SERVICES.
2.1 MSI OBLIGATIONS.
<PAGE> 2
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
2.1.1 MSI will provide all email sending and support Services related
to Impower Messages described on Exhibit A.
2.1.2 MSI will take all reasonable steps to ensure that URL links
contained within a Message delivered by MSI appear to originate from the
relevant domains. Impower will provide MSI with access to all appropriate
sub-domains for the sole purpose of assisting MSI with the foregoing;
IMPOWER OBLIGATIONS
2.1.3 Impower is responsible for obtaining content from B&N.com at
least [**] hours prior to a scheduled push in one or more electronic or other
formats reasonably acceptable to MSI.
2.1.4 IMPOWER shall provide electronic lists of Message recipients at
least [**] hours prior to a scheduled push in one or more electronic formats
reasonably acceptable to MSI. MSI shall reserve the right to exclude Content as
required by law or best business practices in effect at that time.
2.1.5 Impower acknowledges that MSI sends only permission-based email
marketing messages. Impower will include "unsubscribe" information and
instructions in each Message. MSI reserves the right, at its sole discretion, to
refuse to send any Message if MSI reasonably determines that the email database
is not an "opt-in" database. If MSI, Impower or their respective Internet access
providers receive hostile email "flames" from recipients of Impower Message,
upon notification, Impower will contact such recipients and inform them why
their email addresses were included in the database as follows:
(i) Any spam complaints or inquiries from recipients about the origin
of the mailing list received by MSI will be forwarded to Impower who must in
turn respond to the complaint within 2 business days, or
(ii) If a spam complaint is also forwarded to MSI's Internet access
provider or to any blackhole list, Impower must respond to such spam complaint
within 4 hours of receipt of such complaint.
EXCEPTIONS
2.1.6 MSI reserves the right to control all facets of B&N email
dispatches during an MSI defined transition period. MSI will provide Impower
with 14 days notice prior to transferring B&N dispatch obligations.
3. PAYMENTS.
3.1 GENERAL. IMPOWERi shall pay MSI for the Services in accordance with
the pricing and any limitations set forth in EXHIBITS B.
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<PAGE> 3
3.2 INVOICING AND PAYMENT. MSI will invoice Impower for amounts due in
connection with the Services on a monthly basis for barnesandnoble.com and
Barnes and Noble Inc. Each invoice shall set forth the number of Messages sent
for each campaign, a list of other services provided, and a calculation of the
total amount due. All invoices shall be deemed MSI Confidential Information.
Impower shall pay all invoices within thirty (30) days of receipt. All overdue
amounts under this Agreement shall bear interest at the rate of 1.5% per month
or the maximum rate allowed by law, which ever is less.
3.3 TAXES. Impower agrees to pay, and to indemnify and hold MSI and its
service bureau partners harmless from, any sales, use, excise, import or export,
stamp, value added or similar tax or duty not based on MSI's net income,
property values, and business license taxes, as well as the collection or
withholding thereof, including penalties and interest, and all government permit
or license fees and all customs or similar fees, levied upon the performance of
the Services by MSI. The parties shall, at their own option and expense, have
the right to seek administrative relief, a ruling, judicial review or other
appropriate review (in a manner deemed appropriate by the party seeking such
determination), as to the applicability of any tax, penalty or interest, or to
protest any assessment and control any legal challenge to such assessment, but
shall be liable hereunder for any such amount ultimately determined to be due.
The parties agree to cooperate and provide reasonable documentation toward the
resolution of tax audits conducted by government taxing authorities relating to
purchases under this Agreement.
4. TRADEMARK LICENSE; OWNERSHIP OF TECHNOLOGY.
4.1 TRADEMARK LICENSE. Each party (the "Granting Party" and
barnesandnoble.com) hereby grants the other parties (the "Receiving Parties") a
limited license to use the Granting Party's applicable trademarks and service
marks in connection with the provision and support of the Services. The
Receiving Parties agree that such marks are the exclusive property of the
Granting Party and that all usage of such marks and any goodwill established by
the use of such marks shall inure to the benefit of the Granting Party and that
this Agreement does not confer any goodwill or other interests in such marks on
the Receiving Parties. The Receiving Parties will comply with the Granting
Party's standard trademark and service mark usage guidelines. Upon request by
the Granting Party, the Receiving Parties shall provide to the Granting Party,
at no cost to the Granting Party and prior to any use, examples of the Receiving
Parties' use of any of the Granting Party's marks. The Receiving Parties shall
modify or discontinue such use if requested by the Granting Party, except that
during the term of this Agreement, the Receiving Parties may re-use previously
approved uses without further approval. No party shall adopt or attempt to
register any trademark, trade name, or service mark that is confusingly similar
to any other party's marks.
4.2 MSI TECHNOLOGY. Impower acknowledges that the all technology used
to provide the Services and all Intellectual Property Rights thereto (the "MSI
Technology") is the sole and exclusive property of MSI or its licensers and that
MSI owns all proprietary rights, including patent, copyright, trade secret and
trademark rights in and to the MSI Technology. Impower has no rights in the
foregoing, and this Agreement does not transfer ownership of any of these
rights. Impower acknowledges and agrees that all enhancements and modifications
made to the MSI Technology as a result of the Services provided hereunder shall
belong exclusively to MSI.
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<PAGE> 4
5. REPRESENTATIONS AND WARRANTIES.
5.1 POWER AND AUTHORITY; DUE ORGANIZATION. All parties represent and
warrant that they are duly organized, validly existing and in good standing in
its state of incorporation, and have full power and authority to enter into this
Agreement and to contract for the Services in accordance with the terms of this
Agreement.
5.2 IMPOWER CONTENT WARRANTY. Impower acknowledges that MSI is acting
as a passive conduit for the distribution of the Content and that MSI has no
obligation to review the Content to determine whether it may incur liability to
third parties. Impower acknowledges its sole responsibility for all Content and
Messages provided to MSI hereunder. Without limiting the foregoing, Impower
represents and warrants that all Content and Messages (a) shall not infringe any
third party's copyright, patent, trademark, trade secret or other proprietary
rights or rights of publicity or privacy; (b) shall not violate any law,
statute, ordinance or regulation (including without limitation the laws and
regulations governing export control, unfair competition, antidiscrimination or
false advertising); (c) shall not be defamatory, trade libelous, unlawfully
threatening or unlawfully harassing; (d) shall not be obscene or contain child
pornography or, if otherwise pornographic or indecent, shall be distributed only
to people legally permitted to receive such content; (e) shall not contain any
viruses, trojan horses, worms, time bombs, cancelbots or other computer
programming routines that are intended to damage, detrimentally interfere with,
surreptitiously intercept or expropriate any system, data or personal
information, (f) shall not contain any deceptive information which would imply
affiliation or sponsorship of any entity or person other than barnesandnoble.com
or its advertisers without the written consent of such entity or person, or (f)
shall not be delivered to anyone who has not given Impower or barnesandnoble.com
permission to send email communications to them.
5.3 YEAR 2000. MSI warrants that the Services include or shall include
by the time the Services are rendered, design and performance capabilities so
that prior to, during, and after the calendar year 2000, the Services will not
malfunction, produce invalid or incorrect results or abnormally cease to
function because of the year 2000 date change. Such design and performance
capabilities shall include without limitation the ability to recognize the
century and to manage and manipulate data involving dates, including single
century and multi-century formulas and date values, without resulting in the
generation of incorrect values involving such dates or causing an abnormal
ending; date data interfaces with functionalities and data fields that indicate
the century; and data-related functions that indicate the century. In the event
of any breach by MSI of the foregoing warranty, Impower's sole and exclusive
remedy shall be to have MSI use its commercially reasonable efforts to correct
such systems and/or re-perform any affected Services at no additional charge.
5.4 NETWORK LIMITATIONS. MSI and its partners shall use their
commercially reasonable efforts to ensure that all Messages are sent on a timely
basis. Impower acknowledges that computer networks, including the public
Internet, are inherently unpredictable. Notwithstanding any other provision of
this Agreement, MSI will not be in breach of their obligations to provide the
Services hereunder if their commercially reasonable efforts are not sufficient
to successfully transmit one or more Messages hereunder.
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<PAGE> 5
6. INDEMNITY.
6.1 MSI INDEMNIFICATION.
6.1.1 GENERAL. MSI will indemnify Impower and its officers,
directors and employees for, and defend and hold them harmless against, any
loss, expense, damages or liability, including, without limitation, any
reasonable attorneys' and expert witness fees, arising from any claim, suit,
action or proceeding, ("Claims") that the Service infringes or misappropriates
any third party's United States copyrights or trade secrets recognized as such
under the Uniform Trade Secrets Act, provided that MSI is given prompt written
notice of the existence of each such Claim and are given the right to control
the investigation, preparation, defense and settlement of such Claim.
6.1.2 IMPOWER REMEDIES. Following notice of an infringement Claim,
MSI may, at its option and expense and in addition to any indemnity provided
under Section 6.1.1, either procure the right to continue to offer the Services,
or to replace or modify the Services, as applicable, to make them
non-infringing. If MSI determines that neither of the foregoing alternatives is
feasible, MSI may terminate this Agreement and the availability of the Services
and neither party shall have any further obligation or liability to the other
party in connection with this Agreement.
6.1.3 EXCEPTIONS. MSI shall have no liability to Impower or any
other third party for Claims (a) based on any Content or Message; or (b) to the
extent based on Impower's use of the Service following its receipt of written
notice of the existence of a Claim and MSI's election to terminate the Agreement
under Section 6.1.2.
6.1.4 DISCLAIMER. THE FOREGOING SHALL BE IMPOWER'S SOLE AND
EXCLUSIVE REMEDIES AGAINST MSI FOR ANY CLAIM OF INFRINGEMENT OF ANY INTELLECTUAL
PROPERTY RIGHTS.
6.2 IMPOWER INDEMNIFICATION.
6.2.1 GENERAL. Impower agrees to defend, indemnify and hold
harmless MSI and its directors, officers, agents, and employees from any and all
losses, costs, liabilities or expenses (including without limitation reasonable
attorney's fees) incurred or arising from any claim by a third party arising out
of a breach of the representations contained in Section 5.2 hereof or otherwise
relating to MSI's distribution of Messages and/or Content.
6.3 MUTUAL INDEMNIFICATION. Impower, on the one hand, and MSI,
on the other, agree to defend, indemnify and hold one another and each
subscriber harmless from and against any damages, liabilities, claims, costs and
expenses (including reasonable attorneys' fees) to the extent arising out of or
resulting from the gross negligence or willful misconduct of the indemnifying
party. If the indemnifying party shall, within 30 days after notice, fail to
accept defense, the party seeking indemnification shall have the right, but not
the obligation, to undertake the defense of, and to compromise or settle any
claims on behalf of, for the account of, and at the risk of the indemnifying
party. If the claims cannot by their nature be defended solely by one party, the
other party shall make available all information and assistance that may
reasonably be requested, regardless of any obligation to indemnify hereunder.
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<PAGE> 6
7. LIMITATION OF LIABILITY.
7.1 DISCLAIMER. EXCEPT FOR CLAIMS ARISING UNDER SECTION 8 HEREOF, NO
PARTY WILL BE LIABLE TO ANY OTHER PARTY FOR ANY INCIDENTAL, INDIRECT, SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING LOST
PROFITS, LOSS OF DATA, LOSS OF USE AND THE LIKE, ARISING OUT OF OR RELATING TO
THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE.
7.2 LIABILITY LIMIT. IN NO EVENT WILL MSI LIABILITY TO IMPOWER IN
CONNECTION WITH OR UNDER THIS AGREEMENT EXCEED AN AMOUNT EQUAL TO THE AMOUNTS
RECEIVED BY MSI FROM IMPOWER HEREUNDER. THIS LIMITATION IS CUMULATIVE, WITH ALL
PAYMENTS FOR ALL LIABILITIES UNDER OR IN CONNECTION WITH THE AGREEMENT BEING
AGGREGATED TO DETERMINE SATISFACTION OF THE LIMIT. THE EXISTENCE OF ONE OR MORE
CLAIMS WILL NOT ENLARGE THE LIMIT.
8. CONFIDENTIALITY.
8.1 NON-DISCLOSURE. All parties agree that they will not make use of,
disseminate, or in any way disclose any other party's Confidential Information
to any person, firm or business, except as authorized by this Agreement and to
the extent necessary for performance of this Agreement. All parties agree that
they will disclose Confidential Information only to those of their employees and
contractors who need to know such information and who have previously agreed to
be bound by the terms and conditions of this Agreement. All parties agree that
they will treat all Confidential Information of the other parties with the same
degree of care as they accord their own confidential information; all parties
represent that they exercise reasonable care to protect their own confidential
information.
8.2 EXCEPTIONS. A receiving party's obligations with respect to any
portion of Confidential Information will terminate when the receiving party can
demonstrate that (a) the Confidential Information was in the public domain at
the time it was communicated to the receiving party by the disclosing party; (b)
it entered the public domain subsequent to the time it was communicated to the
receiving party by the disclosing party through no fault of the receiving party;
(c) it was in the receiving party's possession free of any obligation of
confidence at the time it was communicated to the receiving party by the
disclosing party; (d) it was rightfully in the receiving party's possession free
of any obligation of confidence at or subsequent to the time it was communicated
to the receiving party by the disclosing party; (e) it was developed by
employees or agents of the receiving party independently of and without
reference to any information communicated to the receiving party by the
disclosing party; or (f) the disclosure was in response to a valid order by a
court or other governmental body, was otherwise required by law, or was
necessary to establish the rights of either party under this Agreement. Impower
agrees that MSI may disclose the existence and terms of the Agreement to actual
and prospective investors and their counsel and advisors in connection with any
private placement of MSI securities, in connection with a merger, acquisition or
sale of all or substantially all of MSI's assets, or in connection with MSI's
initial public offering.
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<PAGE> 7
9. TERM AND TERMINATION.
9.1 TERM. The term of this Agreement will commence on the Effective
Date and will continue for a period of two (2) years, unless terminated in
accordance with the provisions hereof Either party may terminate this agreement
without cause as long as written notification has been provided 90 days in
advance.
9.2 TERMINATION FOR CAUSE. Any party may terminate this Agreement
immediately upon written notice:
9.2.1 If another party breaches a material term or condition of
the Agreement and does not cure such breach (or commence a cure in a manner
satisfactory to the non-breaching party) within thirty (30) days after written
notice of such breach.
9.2.2 If any party ceases to do business, or otherwise terminates
its business operations, except as a result of an assignment permitted under
Section 10.8 below; or
9.2.3 If any party fails to promptly secure or renew any license,
registration, permit, authorization or approval for the conduct of its business
in the manner contemplated by this Agreement or if any such license,
registration, permit, authorization or approval is revoked or suspended and not
reinstated within sixty (60) days; or
9.2.4 Effective immediately and without notice if any party
becomes insolvent or seeks protection under any bankruptcy, receivership, trust
deed, creditors arrangement, composition or comparable proceeding, or if any
such proceeding is instituted against any other party (and not dismissed within
ninety (90) days).
9.3 RIGHTS UPON EXPIRATION OR TERMINATION. Upon termination of this
Agreement, each party will deliver to all other parties Confidential Information
of the other parties, and an authorized officer of each party will certify in
writing that it has done so. The parties will cooperate to migrate subscribers
to an alternative service if Impower so chooses; provided, however, that MSI has
received all amounts due hereunder.
9.4 SURVIVAL. In the event of the termination or expiration of this
Agreement, (a) any accrued payment obligations, (b) any right of action for
breach of this Agreement prior to termination and (c) all the rights and
obligations pursuant to Section 1 (Definitions), 3 (Invoicing and Payment), 4.1
(Ownership), 5 (Representations and Warranties), 6 (Indemnification), 7
(Limitation of Liability), 8 (Confidentiality), 9 (Term and Termination) and 10
(General) will remain in effect.
10. GENERAL.
10.1 NO AGENCY. Each party will in all matters relating to this
Agreement act as an independent contractor. No party will have authority and
will not represent that it has any authority to assume or create any obligation,
express or implied, on behalf of any other, or to represent any other party as
an agent, employee or in any other capacity. Neither execution nor performance
of this Agreement will be construed to have established any agency, joint
venture or partnership.
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<PAGE> 8
10.2 FORCE MAJEURE. Any delay in or failure by MSI or Impower in
performance of this Agreement shall be excused if and to the extent that such
delay or failure is caused by occurrences beyond the reasonable control of the
affected party, including, but not limited to, decrees or restraints of
governments, acts of God, strikes or other labor disturbances, war or sabotage,
provided that, if a Force Majeure Event occurs for more than twenty-four (24)
hours, the affected party shall promptly provide written or faxed notice thereof
to the other parties, which notice shall include a description of the Force
Majeure Event and the affected party's best estimate of the length of time such
Force Majeure Event will delay or prevent performance of the Agreement.
10.3 NOTICES. All notices, demands, consents, approvals or other
communications permitted or required hereunder shall not be effective unless the
same shall be in writing and delivered, or sent postage prepaid, by first class
mail, with or without return receipt requested, or sent by an local or overnight
courier service with tracking capabilities or faxed to the parties at their
addresses shown below, and shall be deemed served when so delivered or deposited
in the United States Postal Service, courier service and/or upon receipt of the
fax. Any party may designate by notice a new or different address, from time to
time in accordance herewith.
10.4 NO SOLICITATION. MSI agrees that it will not solicit or attempt
to hire any employee from Impower, while that employee is on the payroll of
Impower. If an employee leaves Impower, MSI may not solicit that employee for
hire for a period of twelve months after an employee's resignation date. Impower
agrees that it will not solicit or attempt to hire any employee from MSI, while
that employee is on the payroll of MSI. If an employee leaves MSI, Impower may
not solicit that employee for hire for a period of twelve months after an
employee's resignation date. Further, MSI agrees it will not solicit or approach
any client brought into contact with MSI through the efforts of Impower without
the express written consent of Impower. In turn, Impower agrees it will not
solicit or approach any client brought into contact with Impower through the
efforts of MSI without the express written consent of Impower.
Media Synergy
King Street East, Building C
Toronto, Ontario CANADA M5A IK3
Attn: Craig Rennick
Fax: (416) 369-9037
Impower Inc.
One Phoenix Mill Lane
Peterborough, NH 03458
Attn: Eric Zilling
Fax: (603) 924-0088
10.4 ARBITRATION. Any dispute, claim or controversy arising out of,
connected with or relating to this Agreement shall be resolved by binding
arbitration administered and conducted under the Commercial Arbitration Rules of
the American Arbitration Association and Title 9 of the United States Code. The
prevailing party in any judicial action or arbitration shall be entitled to
reimbursement from the other parties for costs; filing, fees; arbitration filing
fees; reasonable
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<PAGE> 9
pretrial, trial and appellate attorneys' fees; witness fees; expert fees;
arbitration panel fees and travel fees. A judgment upon the arbitration award
may be entered in any court having jurisdiction. Any arbitration "hearing shall
take place in New York, New York. Nothing in this Section, however, shall
prevent any other party from seeking equitable relief from a court of competent
jurisdiction for ant other party's breach of its confidentiality obligations or
infringement of the aggrieved party's intellectual property rights.
10.5 GOVERNING LAW. This Agreement will be governed in all respects by
the laws of the State of New York excluding the application of its conflict of
laws rules.
10.6 WAIVER. The failure of any party to require performance by any
other party of any provision hereof will not affect the full right to require
such performance at any time thereafter; nor will the waiver by any party of a
breach of any provision hereof be taken or held to be a waiver of the provision
itself.
10.7 SEVERABILITY. In the event that any provision of this Agreement
is found by a court or other body of competent jurisdiction to be unenforceable
or invalid under any applicable law such unenforceability or invalidity will not
render this Agreement unenforceable or invalid as a whole, and, in such event,
such provision will be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable court decisions.
10.8 ASSIGNMENT. No party will assign any rights or obligations
arising under this Agreement without the prior written consent of the others,
provided that either party may assign this Agreement without consent in the
context of a merger, acquisition or sale of all or substantially all of its
assets. Subject to the above restriction on assignment, this Agreement will
inure to the benefit of and bind the successors and assigns of the parties.
10.9 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto
constitute the entire agreement between the parties with respect to the subject
matter hereof. This Agreement supersedes, and the terms of this Agreement
govern, any prior or collateral agreements with respect to the subject matter
hereof with the exception of any prior confidentiality agreements between the
parties. This Agreement may only be changed by mutual, written agreement of
authorized representatives of the parties.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the undersigned have caused this E-Mail Services
Agreement to be executed by their respective authorized representatives. This
Agreement may be executed in counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same original.
Media Synergy Impower Inc. Media
/s/ John Wright /s/ Eric Zilling
- ------------------------------- --------------------------------------
Authorized Signature Authorized Signature
John Wright Eric Zilling
- ------------------------------- --------------------------------------
Printed Name Printed Name
Director President
- -------------------------------- --------------------------------------
Title Title
EXHIBITS:
Exhibit A: Description of Services Provided
Exhibit B: Services and Deployment Fees
-10-
<PAGE> 11
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
EXHIBIT A
DESCRIPTION OF SERVICES PROVIDED
DATA MERGING
MSI will merge barnesandnoble.com's [**] database with [**] database and create
a consolidated database. The consolidated database will contain all unique data
from the [**] database and the [**] database.
DATA MAINTENANCE
MSIi will maintain all customer [**] email preference and summarized online
transactional history provided by barnesandnoble.com. A [**] data transfer
system between barnesandnoble.com and Impower or its partners will be initiated
to update the barnesandnoble.com database with current customer data.
CUSTOMER UNSUBSCRIBE/[**] CENTER
MSI will assume the maintenance of Barnes and Noble Inc. customer unsubscribes
and change of preferences through the [**] to be [**]. This center will enable
barnesandnoble.com's website visitors to unsubscribe from barnesandnoble.com
communications. This center will automatically send updates to the
barnesandnoble.com database [**].
CUSTOMER CHANGE OF ADDRESS CENTER
MSI will assume the maintenance of a barnesandnoble.com customer change of
address center to be [**]. This center will enable barnesandnoble.com's website
visitors to change their preferred email address for the receipt of email
communications from barnesandnoble.com.
UNSUBSCRIBE/UNDELIVERABLE HANDLING
MSI and its partners will assume the handling of all barnesandnoble.com customer
unsubscribe requests and undeliverable email resulting from email campaigns
executed by Impower on behalf of barnesandnoble.com.
REPORTING
MSI will report email campaign statistics as they currently reside in the Flo
Network to barnesandnoble.com on a real time basis.
E-MAIL DISPATCH
MSI will provide the software and network facilities to Impower for
barnesandnoble.com email deployment. After a MSI defined transition period
Impower will be responsible for campaign setup, campaign deployment, and
campaign tracking and reporting for barnesandnoble.com.
-11-
<PAGE> 12
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
EXHIBIT B
SERVICES AND DEPLOYMENT FEES
INTERACTIVE MESSAGING PROCESSING SERVICES
Basic Fee Per Outbound Email Messages Sent: [**]
RUSH FEES
Charge: [**] surcharge*
* standard e-mail message delivery schedules for barnesandnoble.com are:
- data submitted at least [**] business [**] prior to e-mail campaign
execution
- content submitted at least [**] business [**] prior to e-mail
campaign execution
If barnesandnoble.com does not submit data and content within the above agreed
deadlines, then MSI will impose a [**] surcharge for the execution of campaigns
outside of the standard pricing. The fee will only apply if Impower and MSI are
able to meet barnesandnoble.com's delivery goals. The ability to meet
barnesandnoble.com's delivery goals is at the discretion of both MSI and Impower
when data and content is not received within the above-agreed deadlines.
OTHER SERVICES
HTML Development [**]
Database Development [**]
C++/Java Software Development [**]
Other Services Quoted Upon Request
-12-
<PAGE> 13
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
DEFINITIONS OF SERVICES AND TERMS
1. BROADCAST MESSAGE: Text only and contains no instructions for
personalization, placement of text or graphics.
2. PERSONALIZED MESSAGE: Personalized header, URLs, and anything in the
body of the Message ([**]) personalized to the recipient.
3. ADVANCED RESPONSE HANDLING:
Un-subscribe - Upon receipt of an email requesting to un-subscribe,
[**] code the customer record within the barnesandnoble.com database.
Bounce or Undeliverable - Upon receipt of an undeliverable email
message, [**] code the customer record within the barnesandnoble.com
database.
-13-
<PAGE> 14
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
.
DISCOUNT SCHEDULE OF
INTERACTIVE MESSAGING PROCESSING SERVICES*
MSI and Impower agree to a per thousand e-mail messaging cost of [**] for
barnesandnoble.com and Barnes and Noble Inc. It is understood that the [**] fee
will be [**]. This pricing is based upon barnesandnoble.com's expected monthly
minimum volume of [**] e-mail messages per month and applies to each partner
service bureau. By [**], all parties agree to evaluate barnesandnoble.com's
on-going volume to determine if barnesandnoble.com's mailing volume meets the
expected minimum. If barnesandnoble.com's mailing volume is not within the
minimum to qualify for the agreed-to cost per thousand for e-mail delivery, then
all parties agree to adjust the per thousand delivery rate to reflect the
pricing in the table below.
- -------------------------------------------------------------------------------
Total Monthly Messages Transmitted Transmission Rate
- --------------------------------------------------------------------------------
[**] [**]
- --------------------------------------------------------------------------------
[**] [**]
- --------------------------------------------------------------------------------
[**] [**]
- --------------------------------------------------------------------------------
[**] [**]
- --------------------------------------------------------------------------------
[**] [**]
- --------------------------------------------------------------------------------
-14-
<PAGE> 1
Exhibit 10.3
THE MANUFACTURERS LIFE INSURANCE COMPANY
(LANDLORD)
AND
MEDIA SYNERGY INC.
(TENANT)
***********************************
OFFICE LEASE
***********************************
Project: ONTARIO DESIGN CENTRE, 260 KING STREET EAST, TORONTO
Premises: SUITE C-1 - APPROXIMATELY FIVE THOUSAND, FIVE HUNDRED AND
EIGHTY-FOUR (5,584) SQUARE FEET OF RENTABLE AREA
Dated: DECEMBER 5, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS
1.01 Project
1.02 Office Building
1.03 Leased Premises
1.04 Common Areas
1.05 Usable Area of Leased Premises
1.06 Rentable Area of Leased Premises
1.07 Rentable Area of Office Building
1.08 Storage Space
1.09 Proportionate Share
1.10 Property Taxes
1.11 Capital Tax
1.12 Utilities and Services
1.13 Contaminants
ARTICLE 2 - COMPLETION OF LEASED PREMISES
2.01 Landlord's Work
2.02 Acceptance of Leased Premises
2.03 Tenant's Work
ARTICLE 3 - LEASE AND TERM
3.01 Lease
3.02 Term
ARTICLE 4 - RENT
4.01 Rent
4.02 Commencement of Rent
4.03 Payments to Constitute Rent
4.04 Installment Payments of Rent
4.05 Calculation of Rent During Broken Period
4.06 Application of Payments
4.07 Manner of Payment
4.08 Post-Dated Cheques and Pre-Authorized Payment Plan
4.09 Deposit
ARTICLE 5 - BASE RENT
5.01 Base Rent
<PAGE> 3
ARTICLE 6 - TAXES
6.01 Property Taxes on Leased Premises
6.02 Determination of Property Taxes
6.03 Business Taxes and Other Taxes of Tenant
6.04 Tax Increases Attributable to Tenant
6.05 Goods and Services Tax
ARTICLE 7 - UTILITIES AND SERVICES
7.01 Payment for Utilities and Services
7.02 Interruption of Utilities
7.03 Interior Climate Control
7.04 Janitorial Service
7.05 Electricity
7.06 Washrooms
ARTICLE 8 - OPERATING COSTS
8.01 Tenant to Pay Proportionate Share
8.02 Allocation Relating to Alternate Uses
8.03 Adjustment for Vacancies
ARTICLE 9 - QUIET ENJOYMENT
9.01 Quiet Enjoyment
ARTICLE 10 - COMMON AREAS AND FACILITIES
10.01 Use of Common Area and Facilities
10.02 Parking
10.03 Tenant Not to Interfere
10.04 Interruption and Alteration of Common Areas and Facilities
ARTICLE 11 - USE OF PREMISES
11.01 Use of Premises
11.02 Compliance with By-laws
11.03 Use of Names
ARTICLE 12 -TENANT'S BEHAVIOUR
12.01 Nuisance
<PAGE> 4
12.02 Rules and Regulations
12.03 Signs and Exterior Installations
ARTICLE 13 - MAINTENANCE, REPAIRS, ALTERATIONS
13.01 Tenant's Maintenance and Repair
13.02 Landlord's Approval
13.03 Performance of Work
13.04 Entry
13.05 Landlord's Repairs
13.06 Notice of Damage
13.07 Damage to Project
13.08 Liens
13.09 Performance by Landlord
13.10 Right to Relocate
13.11 Contaminants
ARTICLE 14 -INSURANCE AND LIABILITY
14.01 Tenant's Insurance
14.02 Compliance with Landlord's Insurance
14.03 Loss or Damage
14.04 Landlord's Insurance
14.05 Indemnification of Landlord
ARTICLE 15 - DAMAGE, EXPROPRIATION
15.01 Damage to Leased Premises
15.02 Damage to Project
15.03 Decision of Architect
15.04 Expropriation
15.05 Termination on Demolition
ARTICLE 16 - FINANCING BY LANDLORDS
16.01 Acknowledgement
16.02 Subordination
16.03 Attornment
16.04 Attorney
16.05 Financial Information
ARTICLE 17 - ASSIGNMENT AND SUBLETTING
17.01 Consent Required
<PAGE> 5
17.02 Conditions of Consent
17.03 Landlord's Option
17.04 No Advertising of Leased Premises
17.05 Corporate Ownership
17.06 Assignment by the Landlord
ARTICLE 18 - DEFAULT
18.01 Defaults and Remedies
18.02 Interest and Costs
18.03 Waiver by Tenant
18.04 Enforcement by Landlord
18.05 Waiver of Repudiation of Lease
ARTICLE 19 - END OF TERM
19.01 Expiration
19.02 Removal at End of Term
19.03 Surviving Obligations
19.04 Showing Premises
19.05 Overholding
ARTICLE 20 - GUARANTOR OBLIGATIONS
20.01
ARTICLE 21 - MISCELLANEOUS
21.01 Force Majeure
21.02 Relationship of Parties
21.03 Constitution of Tenant
21.04 Successors
21.05 Entire Agreement
21.06 Severability of Clauses
21.07
21.08 Captions
21.09 Extended Meanings
21.10 Notices
21.11 No Lease Prior to Execution
21.12 Registration
21.13 Governing Law
21.14 Additional Charges
21.15 Net Lease
21.16 Compliance with Planning Statutes, Etc.
21.17 Waiver
<PAGE> 6
21.18 SURRENDER OF EXISTING LEASE
21.19 TENANT'S RIGHT TO LEASE ADJACENT SPACE
SCHEDULE "A" Description of Project
SCHEDULE "B" Plan Showing Leased Premises
SCHEDULE "C" Rules and Regulations
<PAGE> 7
LEASE OF OFFICE SPACE
This Indenture made the 5TH day of DECEMBER, 1996
BETWEEN:
THE MANUFACTURERS LIFE INSURANCE COMPANY
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
MEDIA SYNERGY INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
ARTICLE I
DEFINITIONS
1.01 PROJECT
"Project" means the lands described or shown in Schedule "A" attached hereto as
they are altered, reduced or expanded from time to time, together with the
improvements, buildings, fixtures and equipment(whether chattels or fixtures) on
such lands (but not including tenant's fixtures, improvements or chattels).
1.02 OFFICE BUILDING
"Office Building" means, where Project includes uses other than office uses
(such as retail or residential uses), the portion of the Project allocated and
intended to be leased for office purposes and all Common Areas and Facilities of
the Project ordinarily and primarily used in connection with office tenants of
the Project, but excluding any portion of the Project used for office purposes
but located on a floor which consists primarily of retail tenants. Where the
Project includes only office uses, then "Office Building" means the Project.
1.03 LEASED PREMISES
(a) "Leased Premises" means the office premises and the storage space (if
any) shown outlined in red or indicated in Schedule "B" attached
hereto, containing a Usable Area of approximately FIVE THOUSAND, THREE
HUNDRED AND EIGHTEEN (5,318) square feet and a Rentable Area of
approximately FIVE THOUSAND, FIVE HUNDRED AND EIGHTY-FOUR (5,584)
square feet. The Landlord may appoint an architect, professional
engineer, or surveyor to determine the Usable Area and
1
<PAGE> 8
Rentable Area of the Leased Premises, and any decision by such person shall be
final and binding on the Landlord and the Tenant. The Leased Premises shall
extend on each floor:
(i) to the lower face of the finished ceiling;
(ii) to the upper face of the structural floor;
(iii) to the line of the inside surface of the glass in the outer
building walls or where an outer building wall contains no
glass, to the inside surface of the outer building wall;
(iv) in the case of a multiple tenancy floor to the boundaries set
out in clause (iii) and to the centre line of any interior
walls separating the Leased Premises from adjoining premises
intended for leasing, and to the inside face of walls
separating the Leased Premises from corridors, or other parts
of the Common Areas and Facilities of the Project.
(b) The Leased Premises shall include the paint or other finishing element
that may be applied to the above mentioned boundaries of the Leased
Premises. The Leased Premises shall include any doors, windows (except
exterior building windows), or other coverings of any opening in such
boundaries, whether within or beyond the line formed by adjacent
surfaces of such boundaries, and all leasehold improvements and
fixtures within the Leased Premises, together with any pipes, wires,
utility lines or similar facilities that serve the Leased Premises
exclusively, whether or not located within the above mentioned
boundaries. The Leased Premises shall include lobbies, stairs,
washrooms, air-conditioning rooms, janitors' closets, or electrical
closets, and other rooms or service areas, located within and serving
the Leased Premises exclusively.
(c) The Leased Premises shall not include elevator shafts, flues, stacks,
pipes, shafts, vertical ducts and service rooms or areas and lobbies,
stairs or washrooms, provided by the Landlord for use in common with
other tenants, and the enclosing walls of any of the foregoing, but
shall include the paint or other finishing clement applied to the
Leased Premises side of any of the foregoing.
IN CLARITY, THE LEASED PREMISES SHALL NOT INCLUDE ANY PREMISES WHICH ARE NOT FOR
THE EXCLUSIVE USE OF THE TENANT.
1.04 COMMON AREAS AND FACILITIES
"Common Areas and Facilities" means all that part of the Project including
lands, improvements, buildings, parts of buildings, fixtures and equipment
(whether chattels or fixtures) which at any time is not included in premises
leased to tenants or intended to be leased to tenants.
1.05 USABLE AREA OF LEASED PREMISES
"Usable Area of the Leased Premises" on any floor shall be computed by measuring
the horizontal area in accordance with Section 1.03 without deduction for
columns and projections necessary to the building, but shall exclude all Storage
Space on such floor.
1.06 RENTABLE AREA OF LEASED PREMISES
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<PAGE> 9
"Rentable Area of the Leased Premises" on a single tenancy floor shall equal the
Usable Area of the Leased Premises. "Rentable Area of the Leased Premises" on a
multiple tenancy floor shall equal the product of the Usable Area of such floor,
as if it were leased as a single tenancy floor, multiplied by a fraction whose
numerator is the Usable Area of the Leased Premises and whose denominator is the
Usable Area of all premises intended for leasing on such floor (excluding any
Storage Space).
1.07 RENTABLE AREA OF OFFICE BUILDING
"Rentable Area of the Office Building" means the total of the Rentable Areas of
all premises intended for leasing on all floors in the Office Building computed
in accordance with Section 1.06 hereof. The Landlord may appoint an architect,
professional engineer, or surveyor to determine the Rentable Area of the Office
Building and any decision by such person as to the Rentable Area of the Office
Building shall be final and binding on the Landlord and the Tenant. The Rentable
Area of the Office Building may be adjusted from time to time to take account of
any alteration to the buildings in the Project or any change in the leasing
pattern in the Project.
1.08 STORAGE SPACE
"Storage Space" means any space leased or set aside for leasing by the Landlord
exclusively for the purpose of storage, and shall not include any area within
the Leased Premises, or any other premises intended for leasing for office
purposes, which may be used by any tenant for storage.
1.09 PROPORTIONATE SHARE
"Proportionate Share" means the fraction which has as its numerator the Rentable
Area of the Leased Premises and as its denominator the Rentable Area of the
Office Building.
1.10 PROPERTY TAXES
"Property Taxes" means all taxes, rates, local improvement rates, impost
charges, duties, assessments or levies which may be levied, rated, charged or
assessed against property, whether real or personal, moveable or immoveable, by
any authority having jurisdiction, whether federal, provincial, municipal,
school board, utility commission or other, and includes any taxes or levies
which may be imposed on the Landlord or the Tenant or anyone else on account or
in lieu thereof, whether or not forming a charge on the property itself, and any
other taxes, rates, duties, assessments or levies which may hereafter be levied
in lieu of, or of a nature similar to, the foregoing, and whether recurring
annually, or at other intervals, or on a special or single instance only.
1.11 CAPITAL TAX
"Capital Tax" is an amount imputed by the Landlord to the Project for tax or
taxes imposed from time to time upon the Landlord or the owners by any taxing
authority based upon or computed by reference to the capital invested in the
Project. Capital Tax will be imputed, (i) as if the Project were the only
property of the Landlord or the owners; and (ii) on the basis of the Landlord's
determination of the amount of capital attributable to the Project.
1.12 UTILITIES AND SERVICES
3
<PAGE> 10
"Utilities and Services" (or "Utility and Service", as the case may be) include
the supply of water, hot water, climate control, steam, chilled water, heating,
ventilating and air conditioning, gas, electricity, light bulbs, tubes and
ballasts, energy saving equipment and programmes, sewage disposal service,
janitorial and cleaning services and supplies, exterior and interior window
cleaning, garbage and trash removal, telephone and cable television (if any).
1.13 CONTAMINANTS
"Contaminants" means any and all hazardous substances, hazardous waste, toxic
waste, contaminants, pollutants or related materials, including without
limitation, heavy oil, pesticides, flammables, explosives, radioactive
materials, asbestoses, urea formaldehyde foam insulation, radon gas, PCB, any
products of waste, or any other contaminants, pollutants, substances or products
declared to be hazardous or toxic under the Applicable Laws. "Applicable Laws"
means any statutes, laws, by-laws, regulations, ordinances, and requirements of
governmental and other public authorities having jurisdiction over or in respect
of the Project, or any portion thereof, and all amendments thereto at any time
and from time to time.
ARTICLE 2
COMPLETION OF LEASED PREMISES
2.01 LANDLORD'S WORK
WITH RESPECT TO THE INITIAL CONSTRUCTION OF THE LEASED PREMISES ONLY, THE
LANDLORD SHALL PROVIDE LEASEHOLD IMPROVEMENTS IN THE LEASED PREMISES TO A
MAXIMUM COST TO THE LANDLORD OF THIRTY-FIVE THOUSAND DOLLARS ($35,000.00) (THE
"ALLOWANCE"). IN THE EVENT THAT THE TOTAL COSTS OF THE LEASEHOLD IMPROVEMENTS
EXCEED THE ALLOWANCE, THE TENANT SHALL PAY SUCH EXCESS COSTS TO THE LANDLORD
FORTHWITH UPON DEMAND AS ADDITIONAL RENT.
2.02 ACCEPTANCE OF LEASED PREMISES
After the Tenant has received notice from the Landlord that the Leased Premises
have been completed to the extent that the Tenant may inspect the Leased
Premises and may notify the Landlord in writing prior to taking possession of
the Leased Premises of any defects or faults in the Landlord's work. Unless such
notice is received prior to taking possession, the Tenant shall be deemed to
have accepted the Landlord's Work and the Leased Premises in all respects and
the Landlord shall have no further responsibility with respect to any defects or
faults in the construction thereof. If the Tenant notifies the Landlord of any
defects or faults, and such defects or faults substantially interfere with the
carrying on of the Tenant's business, then the Tenant shall not enter the Leased
Premises, and the commencement of the Term shall be postponed until such defects
or faults have been corrected to the extent that they no longer substantially or
materially interfere with the carrying on of the Tenant's business. If the
Landlord and Tenant cannot agree on any matter relating to the existence or
nature of any alleged defect or fault, or the correction thereof, within three
(3) business days after the delivery of the Tenant's notice referred to above,
the question shall be resolved by the written decision of the Landlord's
architect or professional engineer, whose decision shall be final and binding on
the Landlord and the Tenant. If any such defects or faults are matters which do
not substantially interfere with the carrying on of the Tenant's business, the
commencement of the Term shall not be postponed and the Landlord shall be
obligated to correct such defects within a reasonable time. Commencement of
business on the Leased Premises shall be conclusive evidence that the Tenant has
accepted the
4
<PAGE> 11
Leased Premises as free of any defects or faults which are the responsibility of
the Landlord, except such defects or faults as the Landlord and Tenant have
agreed in writing may be corrected by the Landlord after commencement of
business.
2.03 TENANT'S WORK
THE TENANT SHALL ENTER THE LEASED PREMISES ON THE DAY THE TERM COMMENCES AND
SHALL THEREAFTER DILIGENTLY CARRY OUT THE PREPARATION OF THE LEASED PREMISES FOR
THE COMMENCEMENT OF BUSINESS, IN A GOOD AND WORKMANLIKE MANNER, IN ACCORDANCE
WITH PLANS AND SPECIFICATIONS WHICH HAVE FIRST BEEN APPROVED BY THE LANDLORD.
ARTICLE 3
LEASE AND TERM
3.01 LEASE
In consideration of the rents, covenants and agreements hereinafter reserved and
contained to be paid, observed and performed by the Tenant, the Landlord hereby
demises and leases to the Tenant the Leased Premises to have and to hold the
same for and during the Term set out in Section 3.02. The Tenant hereby accepts
the Lease of the same. In addition, the Tenant shall have the rights set out in
Article 10 to use and enjoy the Common Areas and Facilities of the Project.
3.02 TERM
The term of this Lease shall be for a period of FIVE (5) years commencing on 1ST
DAY OF DECEMBER, 1996 (the "Commencement Date") and to be fully completed and
ended on the 30TH DAY OF NOVEMBER, 2001 (the "Term").
ARTICLE 4
RENT
4.01 RENT
The Landlord reserves and the Tenant covenants and agrees to pay to the Landlord
yearly and every year during the Term as rent in lawful money of Canada, without
any deduction, compensation, set-off or abatement whatsoever (except as
expressly provided herein) each of the following (herein called "Rent"):
(a) Base Rent; (Article 5)
(b) taxes attributable to the Leased Premises; (Article 6)
(c) charges for Utilities and Services; (Section 7.01)
(d) the Tenant's Proportionate Share of Operating Costs; (Article 8)
5
<PAGE> 12
(e) such other monies, costs or charges as are required to be paid by the
Tenant pursuant to any provision of this Lease.
4.02 COMMENCEMENT OF RENT
Rent shall commence on the 1ST day of DECEMBER, 1996 (the "Rent Commencement
Date").
4.03 PAYMENTS TO CONSTITUTE RENT
All the payments set out in Section 4.01 hereof shall constitute rent or
additional rent and shall be deemed to be and shall be paid as rent, whether or
not any payment is payable to the Landlord or otherwise and whether or not as
compensation to the Landlord for expenses to which it has been put. In the event
of non-payment or late payment thereof, the Landlord shall have the same
remedies as it is entitled to under this Lease and by law for non-payment of
rent. If any such payments are also due to third parties, the Landlord shall
have the right to make such payments to the third parties, and the Tenant shall
promptly reimburse the Landlord for such payments, as additional rent.
4.04 INSTALMENT PAYMENTS OF RENT
The items of Rent listed in Section 4.01 shall be payable, unless otherwise
provided herein, in equal monthly instalments in advance on the first day of
each and every month during the Term. Where the method of determining the amount
of any such monthly instalment is not stated elsewhere in this Lease, the
Landlord shall have the right from time to time to reasonably estimate the
amount of the relevant item of Rent on a yearly or other appropriate basis, and
if the Landlord does so and notifies the Tenant thereof, the Tenant shall
thereafter pay such item of Rent as estimated, in equal monthly instalments on
the first day of each and every month. The Landlord may from time to time revise
the amount of the monthly instalments. When the final amount of each item of
Rent is established for any calendar year or such other period as the Landlord
may determine, the Landlord shall notify the Tenant thereof and any underpayment
shall, unless otherwise provided herein, forthwith be paid by the Tenant to the
Landlord without interest. Any overpayment may be paid by the Landlord to the
Tenant without interest or credited to the Tenant's account and held by the
Landlord without interest and applied to payment falling due under the Lease.
NOTWITHSTANDING THE FOREGOING, THE LANDLORD SHALL NOTIFY THE TENANT OF ANY
OVERPAYMENT AND THE TENANT MAY REQUEST REPAYMENT OF SUCH OVERPAID AMOUNT AT THE
END OF EACH CALENDAR YEAR ONCE THE YEAR END ADJUSTMENTS ARE COMPLETED BY THE
LANDLORD.
4.05 CALCULATION OF RENT DURING BROKEN PERIOD
If the Rent Commencement Date is other than the first day of a full period in
respect of which any of the items of Rent listed in Section 4.01 is calculated,
or the day of termination of this Lease other than the last day of such a full
period, then unless otherwise provided herein, the amount of such item of Rent
payable in respect of the broken period shall be determined on a prorated daily
basis. Instalments due in respect of any broken period shall be in such amount
as the Landlord may reasonably estimate.
4.06 APPLICATION OF PAYMENTS
All payments made to the Landlord by the Tenant may be applied, imputed or
appropriated by the Landlord towards payment of any of the items of Rent listed
in Section 4.01 or any other monies due or owing by the
6
<PAGE> 13
Tenant to the Landlord at the date of such payment regardless of the purpose for
which the payment was made or the intended application of the payment by the
Tenant.
4.07 MANNER OF PAYMENT
Unless otherwise specifically provided herein, all payments of Rent shall be
payable without any prior demand therefor at such place and directed to such
person as the Landlord may designate from time to time. Until further notice,
all Rent shall be paid to:
ENTERPRISE PROPERTY GROUP LIMITED
Ontario Design Centre
260 King Street East
3rd Floor
Toronto, Ontario
M5A 4L5
Attention: Property Manager
4.08 POST-DATED CHEQUES AND PRE-AUTHORIZED PAYMENT PLAN
The Landlord may at any time, and from time to time, require the Tenant to
provide to the Landlord a series of monthly post-dated cheques, each cheque in
the amount of the monthly instalment of Base Rent together with the Landlord's
reasonable estimate of the monthly instalment of the other items of Rent listed
in Section 4.01 or to participate and execute the documentation necessary to
take part in the Landlord's pre-authorized payment plan. In the event of any
change in such estimates, the Landlord may return any outstanding post-dated
cheques and require a new series of monthly post-dated cheques.
4.09 DEPOSIT
(a) THE LANDLORD ACKNOWLEDGES RECEIPT OF FIVE THOUSAND AND FIFTY-FOUR DOLLARS
AND SIXTY-FIVE CENTS ($5,054.65) WHICH AMOUNT INCLUDES GOODS AND SERVICES TAX,
TO BE APPLIED TOWARDS RENT LAST PAYABLE UNDER THIS LEASE. THE LANDLORD ALSO
CONFIRMS THAT THE REMAINING DEPOSIT IN THE AMOUNT OF ONE THOUSAND, FOUR HUNDRED
AND EIGHTEEN DOLLARS AND ELEVEN CENTS ($1,418.11) HELD BY THE LANDLORD UNDER THE
EXISTING LEASE (AS HEREINAFTER DEFINED) SHALL ALSO BE APPLIED TOWARDS RENT LAST
PAYABLE UNDER THIS LEASE.
(b)
7
<PAGE> 14
ARTICLE 5
BASE RENT
5.01 BASE RENT
The Tenant shall pay to the Landlord yearly and every year during the Term a
base rent (herein called "Base Rent") of:
(i) during the period of time from DECEMBER 1, 1996 through to
NOVEMBER 30, 1997, the annual sum of TWELVE THOUSAND, FOUR
HUNDRED AND TWENTY-FOUR DOLLARS AND FORTY CENTS ($12,424.40)
payable in advance in equal monthly instalments of ONE
THOUSAND AND THIRTY-FIVE DOLLARS AND THIRTY-SEVEN CENTS
($1,035.37) each on the first day of each month, based upon an
annual rate of FOUR DOLLARS AND FORTY-FIVE CENTS ($4.45) per
square foot based on a RENTABLE AREA OF 2,792 SQUARE FEET
ONLY;
(THE PARTIES ACKNOWLEDGE THAT NOTWITHSTANDING THE ACTUAL
RENTABLE AREA OF THE LEASED PREMISES, THE TENANT SHALL ONLY BE
REQUIRED TO PAY BASE RENT DURING THE PERIOD FROM DECEMBER 1,
1996 TO AND INCLUDING NOVEMBER 30, 1997, BASED ON A RENTABLE
AREA OF 2,792 SQUARE FEET.)
(ii) during the period of time from DECEMBER 1, 1997 through to
NOVEMBER 30, 1998, the annual sum of NINETEEN THOUSAND, TWO
HUNDRED AND SIXTY-FOUR DOLLARS AND EIGHTY CENTS ($19,264.80)
payable in advance in equal monthly instalments of ONE
THOUSAND, SIX HUNDRED AND FIVE DOLLARS AND FORTY CENTS
($1,605.40) each on the first day of each month, based upon an
annual rate of THREE DOLLARS AND FORTY-FIVE CENTS ($3.45) per
square foot of the Rentable Area of the Leased Premises; and
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(iii) during the period of time from DECEMBER 1, 1998 through to
NOVEMBER 30, 1999, the annual sum of TWENTY-ONE THOUSAND, TWO
HUNDRED AND NINETEEN DOLLARS AND TWENTY CENTS ($21,219.20)
payable in advance in equal monthly instalments of ONE
THOUSAND, SEVEN HUNDRED AND SIXTY-EIGHT DOLLARS AND
TWENTY-SEVEN CENTS ($1,768.27) each on the first day of each
month, based upon an annual rate of THREE DOLLARS AND EIGHTY
CENTS ($3.80) per square foot of the Rentable Area of the
Leased Premises.
(iv) during the period of time from DECEMBER 1, 1999 through to
NOVEMBER 30, 2000, the annual sum of TWENTY-TWO THOUSAND,
EIGHT HUNDRED AND NINETY-FOUR DOLLARS AND FORTY CENTS
($22,894.40) payable in advance in equal monthly instalments
of ONE THOUSAND, NINE HUNDRED AND SEVEN DOLLARS AND
EIGHTY-SEVEN CENTS ($1,907.87) each on the first day of each
month, based upon an annual rate of FOUR DOLLARS AND TEN CENTS
($4.10) per square foot of the Rentable Area of the Leased
Premises.
(v) during the period of time from DECEMBER 1, 2000 through to
NOVEMBER 30, 2001, the annual sum of TWENTY-FOUR THOUSAND, TWO
HUNDRED AND NINETY DOLLARS AND FORTY CENTS ($24,290.40)
payable in advance in equal monthly instalments of TWO
THOUSAND AND TWENTY-FOUR DOLLARS AND TWENTY CENTS ($2,024.20)
each on the first day of each month, based upon an annual rate
of FOUR DOLLARS AND THIRTY-FIVE CENTS ($4.35) per square foot
of the Rentable Area of the Leased Premises.
If the Landlord in accordance with Section 1.03 hereof determines that
the Rentable Area of the Leased Premises is other than the area set out
in Section 1.03 there shall be a proportionate increase or decrease in
the Base Rent, retroactive to the Rent Commencement Date.
ARTICLE 6
TAXES
6.01 PROPERTY TAXES ON LEASED PREMISES
The Tenant shall pay to the Landlord, as additional rent all Property Taxes
levied, rated, charged or assessed during the Term on or in relation to the
Leased Premises, or any part thereof or allocated thereto under Section 6.02.
Payment shall be due in equal monthly instalments over the period Property Taxes
are collected by the taxing authority, based on estimates by the Landlord, such
that the Landlord will have in its hands an amount sufficient to pay each
instalment of Property Taxes when due to the taxing authorities. If the Landlord
so directs, the Tenant shall pay Property Taxes directly to the taxing
authorities. In that event the Tenant shall make payment on or before the due
date of each instalment and shall provide to the Landlord on demand evidence of
payment in the form of receipted bills.
6.02 DETERMINATION OF PROPERTY TAXES
(a) If in any year with respect to any Property Taxes the Leased Premises
are assessed separately by the relevant authorities, the Property Taxes
payable by the Tenant under Section 6.01 shall be computed
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on the basis of such separate assessments. The Tenant shall, subject to
obtaining the Landlord's prior written approval (not to be unreasonably
withheld) and subject to providing the Landlord with such security in
respect of such appeal as the Landlord shall reasonably require, be at
liberty from time to time to appeal any such separate assessments
directly to the taxing authorities and shall give notice of such appeal
to the Landlord immediately upon filing the notice of appeal with the
taxing authorities and keep the Landlord informed as to the progress of
proceedings in respect thereof. The Tenant shall pay all Property Taxes
based on such separate assessments, notwithstanding any such appeal
and, notwithstanding that the separate assessments may include
assessment relating to property or rights additional to the Leased
Premises, such as Tenant's improvements, or an allocation to the Tenant
of part of the assessment of Common Areas and Facilities.
(b) If in any year with respect to any Property Taxes the Leased Premises
are not assessed separately as described in subsection (a), the
Property Taxes payable by the Tenant under Section 6.01 shall be
determined by the Landlord by allocating the Property Taxes levied or
assessed against the total Project, or those portions that are not
separately assessed, on a proportionate share basis. The Landlord shall
allocate an equitable portion of the Property Taxes to any vacant
premises intended for leasing, which portion shall not be included in
the taxes described in Section 8.01(a).
6.03 BUSINESS TAXES AND OTHER TAXES OF TENANT
In each and every year during the Term, the Tenant shall pay as additional rent
and discharge as and whenever they become due, and indemnify the Landlord from
and against payment of, and any interest or penalty in respect of, the
following:
(a) all Property Taxes in respect of tenant's fixtures, leasehold
improvements, equipment or facilities on or about the Leased Premises,
other than such as are included in the Property Taxes payable under
Section 6.01;
(b) every tax, licence fee, rate, duty, and assessment of every kind
(herein called "Business Taxes") with respect to any business carried
on by the Tenant in the Leased Premises or by any subtenant, licensee,
concessionaire or franchisee or anyone else, or in respect of the use
or occupancy of, the Leased Premises by the Tenant, its subtenants,
licensees, concessionaires or franchisees, or anyone else, (other than
such taxes as income, profit, or similar taxes assessed upon the income
of the Landlord).
At the direction of the Landlord, the Tenant shall pay all or any taxes
mentioned in subsections (a) and (b) of this Section 6.03 to the Landlord, who
shall then remit them to the proper authority. The Tenant shall on request
furnish the Landlord with receipts for payment of such taxes.
6.04 TAX INCREASES ATTRIBUTABLE TO TENANT
If Property Taxes or any other taxes in respect of the Leased Premises or
Project are greater than they otherwise would have been by reason of the
constitution or ownership of the Tenant, the use of the premises by the Tenant,
the school support of the Tenant, or any other reason peculiar to the Tenant,
the portion of such taxes in each year attributable to such reason, as
determined by the Landlord, shall be paid by the Tenant to the Landlord at the
same time as, and in addition to, Property Taxes otherwise payable hereunder.
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6.05 GOODS AND SERVICES TAX
The Tenant shall pay to the federal, provincial and municipal authorities
imposing the same all goods and services tax and other taxes, by whatever name,
assessed upon or as a direct result of the payment of Rent or any other amounts
hereunder as often as such taxes (herein called "GST") become due. The Tenant
shall pay GST to the Landlord for remittance by the Landlord to the taxing
authority unless otherwise required by law. Without limiting the foregoing, if
the Department of National Revenue issues an assessment claiming the Tenant has
failed to pay all GST imposed under the Excise Tax Act or other applicable
legislation in respect of any amounts payable by the Tenant under the Lease, the
Tenant will immediately pay the amount of such assessment. The Tenant shall be
entitled to appeal such assessment but will be obliged to hold the Landlord
harmless from all liability arising from such assessment and appeal.
In the event that the Landlord is not entitled to claim an input tax credit with
respect to GST paid on any expense or other charge which the Tenant is required
to pay to the Landlord as part of Operating Costs under this Lease, the Landlord
shall be entitled to include such GST as part of the Operating Costs but
otherwise any GST payable by the Landlord in respect of any expense or other
charge payable under the Lease shall not form part of Operating Costs and shall
not be payable by the Tenant.
The amount of GST so payable by the Tenant shall be calculated by the Landlord
in accordance with the applicable legislation and shall be paid to the Landlord
at the same time as the amounts to which such GST applies are payable to the
Landlord under the terms of this Lease or upon demand at such time or times as
the Landlord from time to time reasonably determines. Notwithstanding any other
provision of this Lease, the amount payable by the Tenant under this section
shall be deemed not to be Rent, but the Landlord shall have all of the same
remedies for and rights of recovery of such amount as it has for recovery of
Rent under this Lease.
ARTICLE 7
UTILITIES AND SERVICES
7.01 PAYMENT FOR UTILITIES AND SERVICES
The Tenant shall throughout the Term pay as additional rent all charges for use
of Utilities or Services (including charges for excessive use) in or with
respect to the Leased Premises as determined by the Landlord, ACTING REASONABLY.
The Tenant shall advise the Landlord forthwith of any installations, appliances
or business machines used by the Tenant and consuming or likely to consume large
amounts of electricity or other Utilities and on request shall promptly provide
the Landlord with a list of all installations, appliances and business machines
used in the Leased Premises. The Landlord may require the Tenant to install a
separate meter at the Tenant's expense if the Landlord determines that a
separate meter is appropriate having regard to the Tenant's likely usage of
Utilities. The Landlord SHALL, engage a qualified engineer or consultant to
advise on any matter referred to in this section, and such party's decision
shall be binding on the Landlord and Tenant.
7.02 INTERRUPTION OF UTILITIES
In no event shall the Landlord be liable for any injury to the Tenant, its
employees, agents, or invitees, or to the Leased Premises, or to any property of
the Tenant or anyone else, or for any loss of profits or business
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interruption, indirect or consequential damages, or for any other costs, losses
or damages of whatsoever kind caused by or arising from any interruption or
failure in the supply of any Utility to the Leased Premises.
7.03 INTERIOR CLIMATE CONTROL
The Landlord shall maintain in the Leased Premises conditions of reasonable
temperature and comfort for normal occupancy for office purposes during business
hours as determined by the Landlord (which hours shall be, until changed by the
Landlord by notice in writing to the Tenant, from 8.00 a.m. to 6.00 p.m. from
Monday to Friday, inclusive, except for holidays). The Landlord shall not be
liable for any inadequacy in performance of the interior climate control system
if the occupancy of the Leased Premises exceeds one person for every ten square
metres (one person for every 108 square feet) of Usable Area or the electrical
power consumed in the Leased Premises for all purposes exceeds 50 watts per
square metre (4.6 watts per square foot) of Usable Area, or if the Tenant
installs partitions or other installations in locations which interfere with the
proper operation of the system or if the window coverings and exterior windows
are not kept fully closed while the windows are exposed to direct sunlight. The
Landlord may, and at the written request of the Tenant shall, make any changes
which are reasonably necessary, and are feasible, to improve or alter the system
so as to compensate for any use of the Leased Premises by the Tenant not in
accordance with the foregoing standards, all at the Tenant's cost and expense in
accordance with Section 13.09.
7.04 JANITORIAL SERVICE
THE TENANT ACKNOWLEDGES THAT IT SHALL, AT ITS OWN COST, BE RESPONSIBLE FOR THE
JANITORIAL SERVICE IN THE LEASED PREMISES THROUGHOUT THE TERM.
7.05 ELECTRICITY
The Landlord shall furnish electricity to the Leased Premises for lighting and
for office equipment capable of operating from the circuits available and
standard to the Office Building, and the Landlord shall replace from time to
time in accordance with a procedure established by the Landlord the electrical
light bulbs, tubes and ballasts installed in the standard lighting fixtures in
the Leased Premises. The Landlord may adopt a system of relamping and
reballasting periodically on a group basis in accordance with its standard
practice.
7.06 WASHROOMS
If the Leased Premises do not include washrooms, the Landlord shall permit the
Tenant, its employees and invitees access to washrooms in common with others
entitled thereto.
ARTICLE 8
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OPERATING COSTS
8.01 TENANT TO PAY PROPORTIONATE SHARE
The Tenant shall during the Term pay to the Landlord yearly as additional rent
by monthly instalments its Proportionate Share of the REASONABLE costs and
expenses (herein called "Operating Costs") incurred with respect to the
operation, administration and management of the Project, such costs and expenses
to include, without limiting the generality of the foregoing, the aggregate of:
(a) Property Taxes and Business Taxes and commercial concentration taxes
levied, rated, charged or assessed against or in relation to the
Project or any part thereof, or for which the Landlord may be liable in
respect thereof, other than those applicable to particular premises
intended for leasing and referred to in Article 6 hereof and similar
provisions in other tenants' leases (including all costs incurred by
the Landlord in appealing or contesting Property Taxes and Business
Taxes) and Capital Tax as defined in Section 1.11 as it relates to or
is attributed by the Landlord to the Project;
(b) the cost of maintaining the insurance set out in Section 14.04;
(c) the cost of maintenance and operation of the Project including, without
limiting the generality of the foregoing, the cost of Utilities and
Services used or consumed in or with respect to the Project including
the Leased Premises, other premises intended for leasing, and the
Common Areas and Facilities, and the cost of snow removal, gardening,
landscaping, garbage and waste collection, disposal and recycling,
elevator and escalator maintenance, rental of equipment and signs, the
cost of building supplies used by the Landlord in the maintenance and
repairs of the Common Areas and Facilities, Utilities, heating,
ventilating and air-conditioning, policing, security services,
supervising and traffic control, painting and decorating, parking lot
or garage, and signage; SUCH COST SHALL EXCLUDE THE PREPARATION OF ANY
VACANT SPACE INTENDED FOR LEASING.
(d) REASONABLE management fees payable under contract for the
administration of all matters relating to the Project and the cost of
salaries and benefits (PROVIDED THAT IF SUCH PERSONNEL SERVICE MORE
THAN ONE BUILDING, THE COST OF SALARIES AND BENEFITS SHALL BE ALLOCATED
EQUITABLY AMONG THE BUILDINGS) provided to all personnel including
contributions and premiums for fringe benefits, unemployment insurance,
and workers' compensation insurance, pension plan contributions, and
similar premiums and contributions and employer health levies, and
payroll taxes, and the cost of any contractors or agents attributable
to carrying out the maintenance, operation, supervision, management and
promotion of the Project;
(e) the cost of repairs, replacements and REASONABLE improvements to the
Common Areas and Facilities and the systems and facilities of the
Project, including, without limiting the generality of the foregoing,
the roof, parking lot, heating, ventilating and air-conditioning and
Utility and Service systems and energy-saving and security devices,
elevators and escalators, and to the equipment and chattels used in
connection with the Project,
(f) audit or accounting fees incurred by the Landlord in the preparation of
statements delivered to tenants of the Project, and the cost of
conducting environmental audits;
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(g)
(i)
(ii)
(h)
(i)
In calculating Operating Costs, the following shall not be included:
(j) Property Taxes, Business Taxes, and the cost of Utilities and Services
which are chargeable to the Tenant under Articles 6 and 7 of this Lease
or would be chargeable to other tenants of the Project under comparable
provisions in their leases;
(k) interest, depreciation, financing or capital costs and income taxes and
other taxes personal to the Landlord;
(l) any compensation received with respect to any of the foregoing expenses
by way of insurance proceeds or damages; and
(m) the cost of improvements to particular premises intended for leasing
and real estate or other commissions relating to leasing premises
within the Project
8.02 ALLOCATION RELATING TO ALTERNATE USES
Where the Project includes retail, residential or industrial uses, the Landlord
shall allocate the Operating Costs referred to in Section 8.01 to office
tenants, retail tenants, residential tenants and industrial tenants on such
basis as it may in its sole discretion determine, and for the purpose of Section
8.01, Operating Costs shall include only the portion of Operating Costs
allocated to office tenants.
8.03 ADJUSTMENT FOR VACANCIES
If there are any vacancies in the Project and because of such vacancies actual
Operating Costs are less than they would have been if the Project had been fully
rented, then for the purpose of determining the amount payable by the Tenant
under Section 8.01 actual Operating Costs for the relevant accounting period
shall be increased by the amount of any savings in Operating Costs for such
period attributable to such vacancies (as
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determined by the Landlord acting reasonably) and any reference to Operating
costs in this Article 8 shall be deemed to refer to Operating Costs as so
increased.
ARTICLE 9
QUIET ENJOYMENT
9.01 QUIET ENJOYMENT
The Landlord covenants with the Tenant that if the Tenant pays the rents hereby
reserved and performs its covenants and obligations herein contained, the Tenant
shall and may peaceably possess and enjoy the Leased Premises for the Term
hereby granted without any interruption or disturbance from the Landlord or any
other person lawfully claiming by, from or under him.
ARTICLE 10
COMMON AREAS AND FACILITIES
10.01 USE OF COMMON AREAS AND FACILITIES
The Tenant shall have the right to the use of the Common Areas and Facilities of
the Project for itself and its invitees in common with the Landlord, other
tenants, and their invitees for the purpose of access to the Leased Premises,
but subject to and in accordance with this Lease and the Rules and Regulations
described in Section 12.02. The regulation and management of the Common Areas
and Facilities shall be under the exclusive control of the Landlord.
10.02 PARKING
PROVIDED THE TENANT IS NOT IN DEFAULT UNDER THE TERMS AND CONDITIONS OF THIS
LEASE, THE LANDLORD WILL MAKE AVAILABLE TO THE TENANT FOR ITS USE FOUR (4)
PARKING SPACE: ONE (1) RESERVED PARKING SPACE IN THE KING STREET PARKING LOT,
TWO (2) UNRESERVED PARKING SPACES IN THE ADELAIDE STREET PARKING LOT AND ONE (1)
OFF-SITE, UNRESERVED PARKING SPACE IN THE ADELAIDE STREET PARKING LOT FOR AS
LONG AS THE LANDLORD HAS THE CONTRACT FOR SUCH PARKING SPACE, AT SIXTY-FIVE
DOLLARS ($65.00) PER MONTH PER SPACE PLUS APPLICABLE TAXES SUBJECT TO CHANGE
FROM TIME TO TIME AND SUBJECT TO LANDLORD'S RULES AND REGULATIONS WITH RESPECT
TO SUCH PARKING FACILITIES THROUGHOUT THE TERM OF THE LEASE. THE LANDLORD
COVENANTS AND AGREES TO USE ITS BEST REASONABLE EFFORTS TO MAINTAIN ITS CONTRACT
FOR THE AFORESAID PARKING SPACES.
The regulation and management of the parking area shall be under the exclusive
control of the Landlord who shall have the sole right to determine the manner,
location and times of parking by the Tenant and its invitees and whether or not
to maintain or institute a system of parking charges. The Tenant shall
co-operate and observe all provisions of the Landlord's parking policies and any
Rules and Regulations made with respect thereto. The Landlord may lease or make
other arrangements for management of the parking areas or facilities with any
person or company.
10.03 TENANT NOT TO INTERFERE
The Tenant shall not without the permission of the Landlord keep or display any
merchandise, sign or other thing on or about, or solicit or conduct business on,
or obstruct any of the Common Areas and Facilities.
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10.04 INTERRUPTION AND ALTERATION OF COMMON AREAS AND FACILITIES
The Landlord may from time to time effect changes, alterations, enclosures,
expansions, reductions, replacements or repairs to all or any part of the Common
Areas and Facilities and the buildings in the Project including, without
limiting the generality of the foregoing, the construction of additional
buildings or additions to existing buildings. In so doing, the Landlord shall
not disturb the operation of the Tenant's business any more than is reasonably
necessary in the circumstances, but shall not be liable for any damages whether
direct, indirect or consequential to any person or property in respect of any
temporary interference with or denial of access during the performance of such
work, or in any other way in respect of the performance of such work, or for
failure to perform such work, or for any interference with the business of the
Tenant while any portion of the Common Areas and Facilities is in need of
repair, inoperable or otherwise not in its normal operating condition. The
Landlord may now own, or may acquire, lands or buildings contiguous to or near
the Project and may at its option retain them separately or treat them as part
of the Project. The Landlord may cease to treat as part of the Project any
buildings or vacant lands (whether or not paved) now forming part of the
Project. The Landlord may create easements, burdens, servitudes, and
restrictions over the lands of the Project for the benefit of any contiguous or
nearby lands. When any change or other event described in this section has been
effected, the term "Project" as used herein shall refer to the Project as
altered by such change or event. The Landlord shall at all times ensure that any
such change or event does not prevent reasonable access to the Project,
notwithstanding that portions of the parking areas, common walkways, enclosed
common areas or other portions of the Common Areas and Facilities may be reduced
or eliminated as a consequence of any such change or event.
ARTICLE 11
USE OF PREMISES
11.01 USE OF PREMISES
(a) The Tenant shall use the Leased Premises for the purpose only of a
SOFTWARE PUBLISHING COMPANY and business offices, as permitted by
applicable by-laws or regulations, but not for the business of a bank
or trust company or taking deposits from the public, and not for
retailing, manufacturing or residential purposes, or for any unlawful
purpose.
(b) The Landlord shall have the right in its sole and exclusive discretion
to determine whether any aspect of the Tenant's business is within the
use permitted under subsection (a) hereof and any REASONABLE notice
thereof by the Landlord to the Tenant shall be conclusive and binding.
11.02 COMPLIANCE WITH BY-LAWS
The Tenant shall at its sole cost and expense at all times comply with all
provisions of any present or future law, by-law, regulation or order enacted or
made by any federal, provincial or municipal authority having jurisdiction or
the Landlord's fire insurance underwriters, and shall not commit any act or
omission that causes an increase in the fire and/or environmental risk or the
cost of insurance or prevents the placing of insurance on the Project and shall
promptly at its own expense effect any changes, additions, or repairs to the
Leased Premises necessary to so comply or to cease so affecting the fire and/or
environmental risk or the insurance. The foregoing obligations shall apply both
with respect to the use of the Leased Premises and the construction, fixturing,
repair, replacement, alteration, addition to or improvement thereof.
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11.03 USE OF NAMES
The Tenant shall not use any name for the Project on its advertising and
promotional materials relating to the business conducted on the Leased Premises
other than the names designated by the Landlord from time to time. The Tenant
shall not use such names for any purpose other than that of the business address
of the Tenant. The Tenant shall acquire no rights in such names and shall
forthwith discontinue the use of such names on the termination of this Lease.
ARTICLE 12
TENANT'S BEHAVIOUR
12.01 NUISANCE
The Tenant shall not commit, cause or permit any nuisance or waste on the Leased
Premises or the Common Areas and Facilities or permit the emission of any
offensive or toxic substance, odour, or noise from the Leased Premises.
12.02 RULES AND REGULATIONS
The Rules and Regulations contained in Schedule "D" hereto shall form a part of
this Lease and the remedies available to the Landlord for enforcement thereof
shall be the same as for enforcement of any other provision of this Lease. The
Landlord may from time to time in its sole discretion promulgate additional
reasonable Rules and Regulations, which shall as soon as the Tenant is given
notice of them have full force and effect as if originally embodied in this
Lease. Any such additional REASONABLE Rules and Regulations may effect
alterations to existing Rules and Regulations and may deal with the matters
dealt with in the Rules and Regulations contained in Schedule "D" and any other
matters of a similar or dissimilar nature as the Landlord deems advisable, but
may not conflict with any specific provisions of this Lease. The Landlord shall
be under no obligation to enforce the Rules and Regulations against the Tenant
or against any other tenant of the Project or any other person, and shall be
under no liability for failure to enforce them.
12.03 SIGNS AND EXTERIOR INSTALLATIONS
(a) The Tenant shall be entitled to an identification sign at or near the
entrance to the Leased Premises and a directory listing in the main
directory of the Office Building, to be subject to the prior written
approval of the Landlord as to design, size and location, and to be
installed at the Tenant's expense and in accordance with any uniform
pattern of signs which may be adopted by the Landlord. The Landlord
reserves the right to attend to such installation and bill the Tenant
therefor.
(b) The Tenant shall not, without the prior written consent of the
Landlord, erect, install or maintain any sign, lettering, placard or
any other advertising material of whatsoever nature or size, painted
upon, posted upon or otherwise affixed to the exterior of the building
or exterior of the Leased Premises, or within the Common Areas and
Facilities, or affixed to either side of any glass on the windows or
doors of the Leased Premises.
(c) The Tenant shall not install any exterior lighting, plumbing or
electrical lines, shades, awnings, exterior decorations or painting or
marking, or erect or permit any insignia, barrier, aerial mast or
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other device or installation on the exterior of the Leased Premises
without the prior written consent of the Landlord.
ARTICLE 13
MAINTENANCE, REPAIRS, ALTERATIONS
13.01 TENANT'S MAINTENANCE AND REPAIR
(a) The Tenant shall at all times at its own expense keep the Leased
Premises and its contents, including, without limiting the generality
of the foregoing, all leasehold improvements, fixtures, inventory,
glass, doors, hardware, walls, floors and ceilings in a neat, clean and
tidy condition, painted and decorated and in good and substantial
repair. The Tenant shall make all needed repairs and replacements
thereto (except for repairs or replacements which the Landlord must
make under Section 13.05 or Article 15) and perform all necessary
painting, decoration, redecoration, repairs, and replacements with due
diligence and dispatch. The Landlord may at its option elect to perform
any of the obligations of the Tenant set out in this section.
(b) The Landlord shall at the Tenant's expense (unless the Landlord is
covered for such expense under its insurance) perform all necessary
repairs or replacements to the electric, plumbing, heating,
ventilating, air-conditioning and other fixtures, piping or wiring
serving the Leased Premises exclusively, whether or not located herein.
THE LANDLORD ACKNOWLEDGES THAT AS OF THE DATE THE TENANT TAKES
POSSESSION OF THE LEASED PREMISES, THE BUILDING STANDARD MECHANICAL
SYSTEMS SUCH AS THE HEATING, VENTILATING AND AIR-CONDITIONING SYSTEM
AND BUILDING STANDARD LIGHTING, ELECTRICAL AND PLUMBING SYSTEMS SERVING
THE LEASED POESIES SHALL BE IN GOOD WORKING ORDER.
13.02 LANDLORD'S APPROVAL
The Tenant shall not make any repairs, alterations, replacements or improvements
to the structure, any perimeter or bearing wall, the sprinkler system, or the
heating, ventilating, air-conditioning, plumbing, electrical or mechanical
equipment of the Leased Premises without obtaining the Landlord's prior written
approval, which approval may NOT be unreasonably or arbitrarily withheld AND may
be given on such conditions as the Landlord imposes. With any such request the
Tenant shall submit to the Landlord details of the proposed work, including
drawings and specifications prepared by qualified architects or engineers, if
the Landlord shall so require, and conforming to good construction practice. The
Tenant will pay the Landlord's reasonable out-of-pocket expenses for
PRE-APPROVED consulting services in connection with the Landlord's consideration
of any request for approval under this section. Any such repairs, alterations,
replacements or improvements shall comply with all applicable laws, by-laws,
regulations, and orders enacted or made by any federal, provincial or municipal
authority having jurisdiction, and the Landlord's fire insurance underwriters
and with Section 11.02 hereof. The Tenant shall at its own expense obtain all
requisite building and other permits. All repairs, alterations, replacements or
improvements shall become part of the Leased Premises and shall not be removed
by the Tenant without the prior written consent of the Landlord.
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13.03 PERFORMANCE OF WORK
The Tenant shall indemnify the Landlord and save it harmless from any costs,
expenses, damages or increased insurance premiums DUE TO THE PERFORMANCE OF ANY
WORK BY THE TENANT OR BY THE TENANT'S CONTRACTORS OR SERVICE PROVIDERS (whether
or not the Landlord's approval was required or obtained under Section 13.02).
Any work shall be performed only by competent persons whose labour affiliations
are compatible with those of others employed by the Landlord or its contractors
subject to supervision and direction of the Landlord. The Tenant shall promptly
remove any persons from the Leased Premises and the Project, if so instructed by
the Landlord, in the event of a conflict of jurisdiction between unions, or if
the presence of such persons causes or may cause a labour dispute. In performing
any work, the Tenant, its employees, agents and invitees shall not interfere
with the use and enjoyment of other tenants' premises or with the use and
enjoyment of the Common Areas and Facilities. The Landlord may require that the
Tenant permit the Landlord to construct any proposed work, at the cost and
expense of the Tenant, together with fifteen percent (15%) on account of the
Landlord's overhead and supervision.
13.04 ENTRY
The Landlord and persons authorized by it may enter the Leased Premises at all
reasonable times to examine the condition thereof and the Tenant shall promptly
repair in accordance with REASONABLE notice in writing given by the Landlord.
The Landlord and persons authorized by it may enter the Leased Premises at all
reasonable times UPON REASONABLE NOTICE, and at any time in case of emergency,
for the purpose of effecting changes, repairs or alterations to any of the
fixtures, equipment or systems contained in the Leased Premises or adjacent
thereto, or for the purpose of access to other parts of the Project and may
install fixtures, equipment and systems in the Leased Premises for service to
the Leased Premises or other parts of the Project. In so doing, the Landlord
shall interfere as little as possible with the Leased Premises and the business
of the Tenant, but shall not be liable to the Tenant with respect to any
interference.
13.05 LANDLORD'S REPAIRS
Subject to Article 15, the Landlord shall make structural repairs to the roof,
foundations, exterior walls, structural floor, columns and bearing walls
supporting or surrounding the Leased Premises, and shall service and repair the
elevators and escalators. The Landlord shall effect any repairs for which it is
responsible expeditiously in the circumstances AND SHALL INTERFERE AS LITTLE AS
IS REASONABLY POSSIBLE IN THE CIRCUMSTANCES WITH THE TENANT'S BUSINESS
OPERATIONS IN THE LEASED PREMISES, but shall not be liable for any damages,
whether direct, indirect or consequential, to any person or property in respect
of any non-repair or for failure to carry out repairs. Subject to Article 15,
there shall be no abatement of rent until the completion of or during the
performance of repairs.
13.06 NOTICE OF DAMAGE
The Tenant shall promptly notify the Landlord of any damage to or deficiency or
defect in any part of the Leased Premises or the Project as soon as the Tenant
becomes aware thereof and whether or not the Landlord has any obligation to
repair such damage.
13.07 DAMAGE TO PROJECT
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If the Project or any part thereof becomes damaged through the negligence,
carelessness or misuse of the Tenant, its employees or agents, the Tenant shall
be responsible for rectifying such damage, which rectification shall be
performed by the Landlord at the REASONABLE cost and expense of the Tenant,
together with fifteen percent (15%) on account of the Landlord's overhead and
supervision.
13.08 LIENS
The Tenant shall forthwith on demand indemnify and save the Landlord harmless
from any liabilities, claims, damages or expenses (including legal expenses) due
to or arising from any claim for a construction, builders' or other lien made
against the Leased Premises or made against the Project in relation to any work
done by, for or on behalf of the Tenant. The Tenant shall cause all
registrations of any such claims or Certificates of Action related thereto to be
discharged or vacated within five (5) days of notice from the Landlord requiring
it to do so, failing which the Landlord, in addition to any other rights or
remedies it may have hereunder, may, but shall not be obligated to, cause such
claims or Certificates to be discharged or vacated by payment to the claimant,
payment into court, or otherwise and the Tenant shall pay the Landlord's costs
and expenses thereof, together with fifteen per cent (15 %) on account of the
Landlord's overhead and supervision.
13.09 PERFORMANCE BY LANDLORD
If the Tenant fails to expeditiously perform any duty for which it is
responsible under this Article, the Landlord may perform any such duty and the
Tenant shall pay the Landlord's costs and expenses thereof forthwith on their
being incurred, together with fifteen percent (15%) on account of the Landlord's
overhead and supervision.
13.10 RIGHT TO RELOCATE
The Landlord has the right at any time or times to change or relocate the Leased
Premises as shown on Schedule "B".
In the event of any relocation of, or change made to the Leased Premises by the
Landlord after the approval of the Tenant's plans, but prior to the Rent
Commencement Date, the Landlord shall reimburse the Tenant for additional
expenses to which the Tenant may be put as a result of such change or
relocation.
IN THE EVENT OF ANY RELOCATION OF THE LEASED PREMISES BY THE LANDLORD AFTER THE
RENT COMMENCEMENT DATE, THE LANDLORD SHALL:
(i) PAY TO THE TENANT ALL REASONABLE MOVING COSTS AND ALL OTHER
REASONABLE DIRECT COSTS INCURRED BY THE TENANT, BUT IN NO
EVENT SHALL THE LANDLORD BE RESPONSIBLE FOR ANY LOSS OF
BUSINESS OR CONSEQUENTIAL DAMAGES. ALL SUCH COSTS SHALL BE AS
EVIDENCED BY PAID INVOICES DELIVERED BY THE TENANT TO THE
LANDLORD;
(ii) ENSURE THAT THE RENTABLE AREA OF THE LEASED PREMISES IS NOT
INCREASED OR DECREASED BY MORE THAN TEN PERCENT (10%); AND
(iii) CONSTRUCT LEASEHOLD IMPROVEMENTS IN THE RELOCATED PREMISES OF
EQUAL QUALITY AND COMPARABLE TO THOSE IN THE LEASED PREMISES
AT THE TIME OF SUCH RELOCATION.
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The Tenant shall not have the right to object to or make any claim other than as
expressly set forth herein on account of the exercise by the Landlord of any of
its rights under this Section 13.10 and the Tenant shall not be entitled to any
abatement of Rent except an abatement of Base Rent for the period of time, if
any, that the Tenant is unable to conduct business in the Leased Premises, as
defined herein or as relocated, as a result of the performance of such changes.
The Base Rent and additional rent payable by the Tenant with respect to the
relocated premises shall be increased or reduced proportionately to any increase
or reduction in the area of the Leased Premises as relocated.
The Landlord shall make any such changes as expeditiously as is reasonably
possible in the circumstances and shall interfere as little as is reasonably
possible in the circumstances with the Tenant's business operation in the Leased
Premises. The Tenant shall forthwith, at the request of the Landlord, execute
such further assurances, releases or documents as may be required by the
Landlord to give effect to any of the Landlord's rights under this Section
13.10.
13.11 CONTAMINANTS
(a) The Tenant will not bring into or store in the Leased Premises nor
allow or cause the Leased Premises or any part of it to be used for any
business which, either directly or indirectly, involves the
preparation, production or storage of any Contaminants except in
accordance with this Section 13.11 and the Applicable Laws.
(b) If at any time, notwithstanding the foregoing covenant of the Tenant,
there shall be any Contaminants upon the Leased Premises or a part
thereof AS A RESULT OF THE TENANT'S USE OR OCCUPANCY, or if there shall
be an occurrence on the Leased Premises contrary to any provision of
the Applicable Laws, then such Contaminants shall be and remain the
sole and exclusive property of the Tenant and shall not become the
property of the Landlord notwithstanding the degree of affixation of
Contaminants or the goods containing the Contaminants to the Leased
Premises and notwithstanding the expiry or earlier termination of this
Lease, and the Tenant shall, at its own expense:
(i) immediately give the Landlord notice to that effect and
thereafter from time to time give the Landlord written notice
of the extent and nature of the Tenant's compliance with the
following provisions of this section;
(ii) promptly remove the Contaminants from the Leased Premises in a
manner which conforms with the applicable Laws governing the
movement of the same;
(iii) remedy any damages to the Leased Premises, the Project or the
lands caused by such event within the Leased Premises or by
the performance of the Tenant's obligations under this section
as a result of such occurrence;
(iv) if required by any of the Applicable Laws, clean up any
Contaminants held, released, spilled, abandoned or placed upon
the Leased Premises, the Project or the lands or released into
the environment by the Tenant in the course of the Tenant's
business or as a result of the Tenant's use or occupancy of
the Leased Premises. The Tenant shall, at its own expense,
prepare all necessary studies, plans and proposals and submit
the same for approval, provide all bonds and other security
required by governmental authorities having jurisdiction to
carry out the work required and shall keep the Landlord fully
informed and provide to the
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Landlord full information with respect to proposed plans and
comply with the Landlord's reasonable requirements with
respect to such plans. The Tenant agrees that the Landlord may
itself undertake such work or any part thereof at the cost and
expense of the Tenant; and
(v) if requested by the Landlord, obtain a report from an
independent qualified consultant designated or approved by the
Landlord verifying the complete and proper removal thereof
from the Leased Premises or reporting as to the extent and
nature of any failure to comply with the foregoing provisions
of this section.
(c) The Tenant shall not allow any Contaminants to migrate FROM AND beyond
the Leased Premises onto the Common Areas and Facilities or any portion
of the Project or off the Project to any adjacent lands. However, the
Tenant covenants that it shall, at its own expense, remove or clean up
any Contaminants whether it be found on the Leased Premises, on the
Common Areas and Facilities or any portion of the Project, or on any
adjacent lands off the Project, as a result of any migration of
Contaminants from the Leased Premises.
(d) The Tenant shall immediately notify the Landlord of any notice of
violation or of any allegation of a violation received by the Tenant
that any environmental law or regulation may have been violated by the
Tenant, or of any notice that any administrative or judicial order has
been made against the Tenant, or of any notice requiring the Tenant to
take any action in connection with the discharge of any Contaminants
into the environment.
(e) By written request, the Tenant may request the Landlord's consent to
the bringing, storage or use of Contaminants on the Leased Premises.
The Landlord may withhold or refuse to give consent or may withdraw
consent previously granted without any obligation by the Landlord to
provide a reason for doing so. With respect to any such Contaminants to
which the Landlord consents, the Tenant shall:
(i) comply with the Applicable Laws regulating the manufacture,
use, storage, transportation or disposal of Contaminants and
provide to the Landlord any proof of the Tenant's compliance
with such Applicable Laws as required by the Landlord;
(ii) promptly submit written reports to the Landlord regarding the
Tenant's use, storage, treatment, transportation, generation,
disposal and/or sale of Contaminants.
(f) The Tenant hereby authorizes the Landlord to make enquiries from time
to time of any government or governmental agency with respect to the
Tenant's compliance with any Applicable Laws pertaining to the Tenant,
the Tenant's business and the Leased Premises including, without
limitation, laws and regulations pertaining to Contaminants and the
protection of the environment; and the Tenant covenants and agrees that
it shall from time to time provide to the Landlord such written
authorization as the Landlord may reasonably require in order to
facilitate the obtaining of such information.
(g) The Tenant shall indemnify, defend and save the Landlord harmless from
and against any and all claims, demands, actions, losses, damages,
costs, fees, penalties and charges whatsoever for which the Landlord
shall or may become liable or incur or suffer by reason of any
Contaminants being held, released, spilled, abandoned, or placed upon
or under the lands, Project or the Office Building by
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the Tenant, subsequent to the Commencement Date but notwithstanding the
expiry or earlier termination of this Lease.
(h) The obligations of the Tenant hereunder relating to Contaminants shall
survive the expiry or earlier termination of this Lease save only that,
to the extent that the performance of those obligations requires access
to or entry upon the Leased Premises or any part thereof, the Tenant
shall have such entry and access only at such times and upon such terms
and conditions as the Landlord may from time to time specify and the
Landlord may, at the Tenant's cost and expense, itself or by its
agents, servants, employees, contractors and subcontractors undertake
the performance of any necessary work in order to complete such
obligations of the Tenant, but having commenced such work, the Landlord
shall have no obligation to the Tenant to complete such work.
THE LANDLORD CONFIRMS THAT AS OF THE COMMENCEMENT DATE, TO THE BEST OF ITS
KNOWLEDGE AND BELIEF, THE LEASED PREMISES DO NOT CONTAIN ANY CONTAMINANTS.
ARTICLE 14
INSURANCE AND LIABILITY
14.01 TENANT'S INSURANCE
(a) The Tenant shall throughout the Term hereof keep in full force and
effect at its sole cost and expense in the names of the Tenant, the
Landlord, the Landlord's property manager and the Landlord's mortgagees
or hypothecary creditors, as their respective interests may appear, the
following insurance:
(i) insurance upon the Tenant's property normally located within
the Project, and property which the Tenant is obligated to
repair under Article 13, including stock in trade, inventory,
furniture, fittings, leasehold improvements, Tenant's fixtures
in an amount equal to the full replacement costs thereof,
against at least the perils of fire, sprinkler leakage, theft,
robbery, burglary, vandalism, riot, civil commotion, impact of
aircraft, water damage, earthquake, flood, and any perils not
mentioned above which are included in normal "all risks"
coverage. The decision of the Landlord as to full replacement
cost of the property insured shall be conclusive;
(ii) insurance against all explosion, rupture or failure of
boilers, pressure vessels or equipment owned by the Tenant;
(iii) liability insurance against claims for personal injury
liability, death or property damage occurring upon, in or
about the Leased Premises, including personal liability,
liability assumed by contract, Tenant's legal liability. Such
policy shall have a limit of not less than $3,000,000 in
respect of any one occurrence and not less than $1,000,000 for
injury or death to a single person and not less than $500,000
in respect of any single instance of property damage, and
shall provide for cross liability and severability of
interests and that it is primary insurance and will not call
into contribution any other insurance available to the
Landlord, its mortgagees.
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(iv) such other types of insurance, or such other amounts or
additional risks with respect to insurance of the types set
out above, as would be carried by a prudent Tenant and as the
Landlord or its mortgagees may from time to time REASONABLY
require.
(b) All the foregoing policies shall be kept in good standing and in full
force and effect at all times throughout the Term, shall be reviewed
annually by the Tenant to ensure that they are up to date, and shall be
in a form and with insurers acceptable to the Landlord. All the
foregoing policies shall contain a waiver of any right of subrogation
or recourse by the Tenant's insurers against the Landlord or the
Landlord's mortgagees, their contractors, agents and employees, whether
or not any loss is caused by the act, omission or negligence of the
Landlord, its mortgagees, their contractors, agents or employees. The
Tenant shall obtain undertakings to the Landlord from its respective
insurers that none of the foregoing policies shall be cancelled or
allowed to lapse or materially changed, as against the Landlord or its
mortgagees until at least thirty (30) days written notice has been
given to the Landlord and its mortgagees to that effect. The Tenant
shall furnish the Landlord and keep it furnished at all times with
certified copies of all such insurance policies in force and copies or
such undertakings or other evidence thereof satisfactory to the
Landlord.
(c) If the Tenant fails to take out any of the foregoing insurance, or
permits any such insurance to lapse, or fails to put such insurance in
good standing promptly after the Landlord or its mortgagees have
received notice of an intended cancellation or lapse and have notified
the Tenant thereof, the Landlord or its mortgagees may place such
insurance on the Tenant's behalf and the premiums payable for such
insurance shall be payable by the Tenant to the Landlord or its
mortgagees forthwith.
14.02 COMPLIANCE WITH LANDLORD'S INSURANCE
The Tenant agrees that it, its employees, agents and invitees will not keep,
use, sell, or offer for sale in or upon the Leased Premises any article or
substance which may be prohibited by the insurance policies of the Landlord
covering the Project, or do or omit, or permit to be done or omitted anything
which will cause any increase in the insurance premiums or the cancellation of
any insurance policy of the Landlord. In the event any increase in premiums is
caused by any breach of the foregoing, or by any other activity of the Tenant,
its employees, agents, or invitees, the Tenant shall pay such increase to the
Landlord forthwith ON RECEIPT OF PROOF OF THE FOREGOING. If any insurance policy
shall be cancelled or the coverage reduced by reason of anything arising out of
the use and occupation of the Leased Premises, whether or not the first sentence
of this section has been complied with, and if the Tenant fails to forthwith
remedy the condition giving rise to such cancellation or reduction upon notice
thereof by the Landlord, the Landlord may enter the Leased Premises and remedy
the condition at the sole cost and expense of the Tenant, and in addition or in
the alternative, the Landlord may exercise any other remedies provided in this
Lease or by law for default by the Tenant without further notice, any other
provision in this Lease notwithstanding.
14.03 LOSS OR DAMAGE
The Landlord, its contractors, agentes and employees shall not be liable for any
death, injury, or damage to or loss of property, of the Tenant, its employees,
agents, or invitees occurring in or about the Leased Premises or the Project,
whether or not such death, injury, damage or loss resulted from the deliberate
act, omission, or negligence of the Landlord, its contractors, agents or
employees or other persons for whom it
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may be responsible. All property of the Tenant within the Leased Premises
(including storage space, if any) shall be at the risk of the Tenant only and
the Landlord shall have no obligation with respect to security or protection of
any such property. The Tenant will indemnify the Landlord and save it harmless
from any and all losses or claims, actions, demands, liabilities and expenses
(including legal fees as between a solicitor and his own client and judicial or
extra-judicial fees of advocates and notaries) in connection with loss of life,
personal injury and/or damage to or loss of property arising out of any
occurrence in or about the Leased Premises or the Project occasioned or caused
wholly or in part by any act or omission of the Tenant or its invitees.
14.04 LANDLORD'S INSURANCE
The Landlord shall throughout the Term of this Lease maintain insurance on the
Project, its income therefrom, and the machinery, boilers, pressure vessels and
equipment contained therein (other than insurance on any property which the
Tenant is obliged to insure under the provisions of Section 14.01 and other than
any insurance which other tenants are obliged to maintain under the provisions
of their leases) against damage by fire, explosion, rupture and such other
perils and in such amounts and with such insurers as the Landlord may, in its
sole discretion, determine. The Landlord shall carry liability insurance for
injury, death and property damage in such amounts as it deems prudent. The
Tenant shall not be an insured under the Landlord's policies, nor shall it be
deemed to have any insurable interest in the property covered by such policies,
or any other right or interest in such policies or their proceeds.
14.05 INDEMNIFICATION OF THE LANDLORD
Despite anything else in this Lease, the Tenant will indemnify the Landlord and
Mortgagee and save them harmless from all loss (including loss of Rent payable
by the Tenant under this Lease), claims, actions, damages, liability and
expenses in connection with loss of life, personal injury, damage to property or
any other loss or injury arising from this Lease or any occurrence in, on, or at
the Leased Premises, or the occupancy or use by the Tenant of the Leased
Premises, or any part of them, or occasioned wholly or in part by any act or
omission of the Tenant or by anyone permitted to be on the Leased Premises by
the Tenant.
ARTICLE 15
DAMAGE, EXPROPRIATION
15.01 DAMAGE TO LEASED PREMISES
If the Leased Premises shall at any time be wholly or partially destroyed or
damaged, the following provisions shall apply.
(a) If the Leased Premises are not rendered unfit for the Tenant's use by
such damage, then Rent shall not abate and the Tenant shall promptly
repair the Leased Premises.
(b) If the Leased Premises are rendered unfit for the Tenant's use to an
extent of less than fifty percent (50%) then RENT shall abate from the
date of the damage in the proportion that the area rendered unfit bears
to the area of the Leased Premises.
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(c) If the Leased Premises are rendered unfit for the Tenant's use to an
extent of fifty per cent (50%) or more, then the full amount of RENT
shall wholly abate from the date of the damage and the Tenant shall
cease to carry on business on the Leased Premises. The Landlord may, at
its option (without prejudice to its right of termination hereinafter
expressed) permit the Tenant to carry on business in any portion of the
Leased Premises which is fit for use on such terms as to payment of
Rent and otherwise as the Landlord may specify. In the event the Leased
Premises are rendered unfit for use to an extent of fifty per cent
(50%) or more, the Landlord may elect to terminate this Lease by
written notice to the Tenant given within ninety (90) days from the
date of the damage, and in that event the Lease shall terminate
effective from the date of the damage.
(d) Whenever subsections (b) or (c) apply, unless the Landlord elects to
terminate this Lease under subsection (c) or under Section 15.02, the
Landlord shall commence diligently to reconstruct, rebuild or repair
the building TO THE SAME CONDITION THAT EXISTED PRIOR TO THE DAMAGE and
to the extent only of the Landlord's repair obligations under the
Lease. In performing any reconstruction or repair, the Landlord may
effect changes in the buildings, equipment or systems of the Project or
minor changes in the location or area of the Leased Premises. The
Landlord shall have no obligation to grant to the Tenant any Tenant's
allowances to which it may have been entitled at the beginning of the
Term.
(e) Whenever subsections (b) or (c) apply and the Landlord has not elected
to terminate this Lease, the Landlord shall give the Tenant written
notice, WITHIN NINETY (90) DAYS FROM THE DATE OF THE DAMAGE, OF THE
PERIOD REQUIRED BY THE LANDLORD TO COMPLETE the Landlord's
reconstruction, rebuilding or repair of the Leased Premises to the
extent that the Tenant can have access thereto or that no Landlord's
reconstruction. rebuilding or repair is required. Basic Rent shall
recommence on the date or delivery of such notice and thereafter the
Tenant shall proceed diligently to perform all Tenant's work to the
extent of the Tenant's repair obligations under this Lease, and to
perform all other work required to fully restore the Leased Premises.
IN THE EVENT THE LANDLORD'S RECONSTRUCTION, REBUILDING OR REPAIR OF THE
LEASED PREMISES CANNOT BE COMPLETED WITHIN ONE HUNDRED AND EIGHTY (180)
DAYS OF THE DATE OF THE DAMAGE, THE TENANT MAY TERMINATE THIS LEASE BY
WRITTEN NOTICE TO THE LANDLORD GIVEN WITHIN TEN (10) DAYS OF RECEIPT OF
THE LANDLORD'S ESTIMATE AND IN SUCH EVENT RENT WILL ABATE AS OF THE
DATE OF DAMAGE OR DESTRUCTION.
15.02 DAMAGE TO PROJECT
If the Project shall at any time be wholly or partially destroyed or damaged, or
in need of structural repair, or otherwise rendered unfit for use (whether or
not the Leased Premises have been affected) to the extent that any of the
following shall have occurred:
(a) twenty-five per cent (25%) or more of the floor area of the Office
Building has become unfit for use;
(b) twenty-five per cent (25 %) or more of the floor area of the buildings
or structures in the Project has become unfit for use;
then the Landlord may elect, within sixty (60) days from the date of such damage
or from the date the premises become unfit for use, as follows:
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(c) to terminate this Lease on thirty (30) days' notice to the Tenant, in
which event Rent shall remain payable until the date of termination
(unless it has abated under Section 15.01);
(d) to close the Project or any portion thereof during the performance of
repairs;
(e) to close the Leased Premises (if they are part of the portion of the
Project requiring repairs), in which event the Leased Premises shall be
closed from the day specified by the Landlord, all Rent shall abate
from such day, and the Landlord shall (unless it elects to terminate
this Lease under Section 15.01(c), if applicable) proceed diligently to
effect the necessary repairs and to reopen the portions of the Project
so closed. The Landlord shall (subject to Section 15.01(c), if
applicable) notify the Tenant of the day on which it may recommence
business on the Leased Premises and Rent shall recommence on such date.
15.03 DECISION OF ARCHITECT
Any decisions regarding the extent to which the Leased Premises or any portion
of the Project has become unfit for use shall be made by an architect,
professional engineer or surveyor appointed by the Landlord, whose decision
shall be final and binding upon the parties.
15.04 EXPROPRIATION
If at any time during the Term, by exercise by any competent authority of powers
of expropriation, condemnation or eminent domain, title is taken to any of the
following:
(a) the whole or any portion of any of the buildings situate on the Project
whether or not the Leased Premises is included;
(b) any portion of the lands (including paved parking areas) of the Project
not covered by buildings, such that the portion of lands remaining does
not comply with all applicable municipal or other governmental
building, zoning, parking, or other requirements;
(c) any portion or the lands (including paved parking areas) of the Project
not covered by buildings, consisting of ten per cent (10%) or more of
the land area of the Project at the time of such taking; the Landlord
may at its option within sixty (60) days of receiving notice that title
has been so taken give to the Tenant at least thirty (30) days notice
of termination of this Lease. Upon such termination, neither the
Landlord nor the Tenant shall have any claim on the other with respect
to any such expropriation or taking, but both parties shall be free to
separately pursue their claims for compensation for the loss of their
respective interests in the Leased Premises and shall be entitled to
receive and retain such compensations as may be awarded or paid to them
respectively and agree to co-operate with each other in pursuing their
respective claims. If an award of compensation made to the Landlord
specifically includes an award for the Tenant, the Landlord will remit
to the Tenant the portion awarded for it. If any portion of the Leased
Premises are so expropriated or taken, and the Landlord does not elect
to terminate the Lease, then the provisions of Section 15.01 respecting
abatement shall apply as if the portion so taken had been damaged, and
the provisions of Section 15.01 with respect to reconstruction by the
Landlord and Tenant shall apply to the portion remaining. After such
reconstruction, Base Rent payable by the Tenant shall be in the same
proportion to the original Base Rent as the area of the Leased Premises
as reconstructed is to the area of the Leased Premises immediately
prior to the taking.
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15.05 TERMINATION ON DEMOLITION
If the Landlord shall have decided to substantially reconstruct, renovate,
alter, sell and/or redevelop all or any part of the Project to the extent that
vacant possession of the Leased Premises is required, or to demolish the
building of which the Leased Premises form a part, the Landlord may terminate
this Lease AT ANY TIME AFTER DECEMBER 31, 1998 by giving TWELVE (12) months
notice in writing to the Tenant without obligation or liability to the Tenant.
The Tenant shall deliver up vacant possession of the Leased Premises in
accordance with the provisions of the Lease and will execute all documents and
other assurances as are reasonably required to give effect to the provisions of
this section.
ARTICLE 16
FINANCING BY LANDLORD
16.01 ACKNOWLEDGMENT
Within ten (10) days after written request therefor by the Landlord, the Tenant
shall deliver, in a form supplied by the Landlord, a certificate and
acknowledgment to any proposed mortgagee or purchaser, or the Landlord,
certifying (if such be the case) that this Lease is in full force and effect (or
if there have been amendments, that the Lease is in full force and effect as
amended and identifying the amending agreements), the Commencement Date and term
of the Lease, the dates to which rent and other charges have been paid and
whether the Tenant has made any prepayments hereof, whether there is any
existing default by the Landlord or Tenant or any set-offs or claims by the one
against the other, the Tenant is not insolvent as defined under the Bankruptcy
and Insolvency Act (or if the Tenant is insolvent, providing details of same),
and whether there is any work remaining to be done by the Landlord within or to
the Leased Premises, and shall provide evidence of the Tenant's financial
standing in reasonable detail and such other information as the Landlord may
reasonably request. The Tenant shall, on the request of the Landlord,
acknowledge in writing receipt of any notice of assignment of this Lease by the
Landlord.
16.02 SUBORDINATION
This Lease and all the rights of the Tenant hereunder are and shall at all times
be subject and subordinate to any and all mortgages, trust deeds, charges, liens
or other security instruments or rights granted or placed on the Project or any
part thereof by the Landlord. Upon request of the Landlord from time to time,
the Tenant shall within ten days of such request execute such documents or
assurances in such form as the Landlord or its lenders may require to
subordinate this Lease to such security and all advances made or to be made upon
the security thereof, and if requested, attorning to the holder thereof.
Provided that the Tenant at all times shall (and whether or not a statement to
that effect is made in any instrument referred to in the previous sentence) be
entitled to be undisturbed in its occupation and possession of the Leased
Premises by any holder of any security as described in this section, so long as
the Tenant shall perform all of the terms and obligations contained in this
Lease and shall execute such reasonable documents attorning to any such security
holder as may be required.
16.03 ATTORNMENT
If any proceedings are brought for the foreclosure or other enforcement of any
security held on the Project and upon the security holder duly entering into
possession of the Project, or the portion thereof of
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which the Leased Premises form a part, the Tenant agrees to attorn to and become
Tenant of such security holder and recognize such security holder as Landlord
under this Lease.
16.04 ATTORNEY
The Tenant shall execute within ten (10) days of request therefor such
instruments or certificates to carry out, evidence and give effect to the
provisions of Sections 16.01, 16.02 and 16.03 hereof as shall be requested by
the Landlord or any security holder in possession. IF SUCH EXECUTION IS NOT
FORTHCOMING WITHIN THE TEN (10) DAY PERIOD THEN the Tenant hereby irrevocably
appoints the Landlord as the Tenant's attorney with full power and authority to
execute and deliver in the name of the Tenant any such instruments or
certificates, and to appoint substitute attorneys.
16.05 FINANCIAL INFORMATION
THROUGHOUT THE TERM OF THIS LEASE, THE TENANT SHALL KEEP AND MAINTAIN, IN AN
ACCESSIBLE LOCATION, AT ALL TIMES, FULL, TRUE AND ACCURATE BOOKS OF ACCOUNTS AND
RECORDS ADEQUATE TO REFLECT CORRECTLY THE OPERATIONS OF THE TENANT WITH RESPECT
TO THE LEASED PREMISES. THE LANDLORD IS TO BE PROVIDED WITH FULL FINANCIAL
STATEMENTS PERTAINING TO THE OPERATION OF THE TENANT IMMEDIATELY UPON RECEIPT OF
THE LANDLORD'S WRITTEN REQUEST. THE TENANT ACKNOWLEDGES THAT SUCH FINANCIAL
STATEMENTS ARE BEING PROVIDED TO THE LANDLORD SO THAT IT MAY DETERMINE WHETHER
OR NOT THE TENANT IS INSOLVENT WITHIN THE MEANING OF THE BANKRUPTCY AND
INSOLVENCY ACT.
THE LANDLORD ACKNOWLEDGES THAT THE FINANCIAL INFORMATION DELIVERED TO IT
PURSUANT TO THIS SECTION 16.05 SHALL BE AND REMAIN STRICTLY CONFIDENTIAL, AND
SHALL NOT BE USED FOR OTHER THAN THE LANDLORD'S BONA FIDE INTERNAL PURPOSES
WITHOUT DISCLOSURE TO THIRD PERSONS, EXCEPT IN LITIGATION PROCEEDINGS BETWEEN
THE PARTIES, AND, IF SUCH THIRD PERSONS THEMSELVES AGREE WITH THE LANDLORD NOT
TO FURTHER DISCLOSE THE INFORMATION DELIVERED TO THEM, FOR FINANCING PURPOSES.
The Tenant agrees to provide to the Landlord prompt notice of any impending
financial difficulties which could lead to a secured creditor's exercising, or
providing notice of an intention to exercise, its remedies, including a notice
under Section 244 of the Bankruptcy and Insolvency Act.
ARTICLE 17
ASSIGNMENT AND SUBLETTING
17.01 CONSENT REQUIRED
The Tenant will not assign this Lease in whole or in part, nor sublet all or any
part of the Leased Premises, nor mortgage or encumber this Lease or the Leased
Premises or any part thereof, nor suffer or permit the occupation of all or any
part thereof by others, without the prior written consent of the Landlord in
each instance, which consent may NOT be unreasonably withheld. The consent by
the Landlord to any assignment or subletting shall not constitute a waiver of
the necessity for such consent to any subsequent assignment or subletting. This
prohibition against assignment or subletting shall be construed to include a
prohibition against any assignment or subletting by operation of law. If this
Lease is assigned, or if the Leased Premises or any part thereof is sublet or
occupied by anyone other than the Tenant, the Landlord may collect rent from the
assignee, subtenant or occupant, and apply the net amount
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collected to rent herein reserved, but no such assignment, subletting, occupancy
or collection shall be deemed a waiver of this covenant, or the acceptance of
the assignee, subtenant, or occupant as tenant, or a release of the Tenant from
the further performance by the Tenant of covenants on the part of the Tenant
herein contained. Notwithstanding any assignment or sublease, the Tenant shall
remain jointly and severally liable on this Lease and shall not be released from
performing any of the terms, covenants and conditions of the Lease. Any consent
to assignment of this Lease shall be prepared by the Landlord or its solicitors,
and any and all legal costs with respect thereto shall be borne by the Tenant.
Any consent granted by the Landlord shall be subject to the Tenant causing any
such assignee, sublessee or occupant to execute an indenture and covenant
directly with the Landlord agreeing to be bound by all of the terms contained in
this Lease, as if such assignee, sublessee or occupant had originally executed
this Lease as Tenant.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE LEASE, THE TENANT MAY,
WITHOUT THE LANDLORD'S CONSENT BUT UPON PRIOR WRITTEN NOTICE TO THE LANDLORD,
ASSIGN THE TENANT'S INTEREST IN THIS LEASE OR SUBLET THE WHOLE OR ANY PART OF
THE LEASED PREMISES WHERE THE SUBLESSEE OR ASSIGNEE IS:
(i) A HOLDING BODY CORPORATE, A SUBSIDIARY BODY CORPORATE, AN AFFILIATED
BODY CORPORATE OR ASSOCIATE OF THE TENANT (AS THOSE ARE DEFINED IN THE
BUSINESS CORPORATIONS ACT (ONTARIO) OR ANY SUCCESSOR OR REPLACEMENT
ACT) AS LONG AS THE SUBLESSEE OR ASSIGNEE REMAINS A HOLDING BODY
CORPORATE, A SUBSIDIARY BODY CORPORATE, AN AFFILIATED BODY CORPORATE OR
AN ASSOCIATE OF THE TENANT;
(ii) A CORPORATION RESULTING FROM THE MERGER, AMALGAMATION OR OTHER
CORPORATE RE-ORGANIZATION OF THE TENANT;
(iii) A BONA FIDE LENDER OF THE TENANT, THE PARENT, SUBSIDIARY, ASSOCIATED OR
AFFILIATED COMPANY OF THE TENANT, IN CONNECTION WITH A GENERAL
FINANCING OF THE TENANT'S BUSINESS.
NO SUCH SUBLET OR ASSIGNMENT SHALL HAVE THE EFFECT OF RELEASING THE TENANT FROM
ITS OBLIGATIONS UNDER THIS LEASE.
17.02 CONDITIONS OF CONSENT
In the event that the Tenant receives consent under Section 17.01, such consent
shall be subject to the condition that the fixed annual Base Rent payable by any
such assignee, subtenant or occupant thereafter shall be no less than the
average annual Base Rent paid by the Tenant for the two (2) full years
immediately preceding such assignment, subletting or parting with or sharing
possession. All of the other terms, covenants and conditions of this Lease shall
remain as herein specified, including without limitation, the provisions of
Section 17.01 relating to the continuing liability of the Tenant.
17.03 LANDLORD'S OPTION
In the event that the Tenant desires to assign, sublet or part with possession
of all or any part of the Leased Premises or to transfer this Lease in any other
manner, in whole or in part or any estate or interest thereunder, then and so
often as such event shall occur the Tenant shall give prior written notice to
the Landlord of such desire, specifying therein the proposed assignee,
transferee or sublet tenant and the Landlord shall, within thirty (30) days
thereafter, notify the Tenant in writing either, that: (i) it consents
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or (ii) does not consent as aforesaid to the assignment, subletting or parting
with or sharing possession as the case may be, or (iii) it elects to cancel this
Lease in preference to the giving of such consent. In the event the Landlord
elects to cancel this Lease as aforesaid, the Tenant shall notify the Landlord
in writing within fifteen (15) days thereafter of the Tenant's intention either
to refrain from such assigning, subletting or parting with or sharing possession
or to accept the cancellation of this Lease. Should the Tenant fail to deliver
such notice within such period of fifteen (15) days, this Lease will thereby be
terminated upon the expiration of the said fifteen (15) day period. If the
Landlord shall not exercise its option to cancel this Lease, then Sections 17.01
and 17.05 shall continue to apply.
17.04 NO ADVERTISING OF LEASED PREMISES
The Tenant shall not print, publish, post, mail, display, broadcast or otherwise
advertise or offer for any of the aforesaid purposes, the whole or any part of
the Leased Premises for purposes of assignment, sublet, transfer or encumbrance,
and shall not permit any broker or other party to do any of the foregoing,
unless the complete text and format of any such notice, advertisement, or offer
shall have first been approved in writing by the Landlord. Without in any way
restricting or limiting the Landlord's right to refuse any text and format on
other grounds, any text and format proposed by the Tenant shall not contain any
reference to the rental rate for the Leased Premises.
17.06 ASSIGNMENT BY THE LANDLORD
The Landlord shall have the unrestricted right to sell, transfer, lease, charge
or otherwise dispose of all or any part of its interest in the Project or any
interest in the Lease. In the event of the sale, transfer or lease by the
Landlord of the Project or any part or parts thereof, or the assignment by the
Landlord of this Lease or any interest of the Landlord hereunder, and to the
extent that the assignee has assumed the covenants and obligations of the
Landlord hereunder, the Landlord shall thereupon, without further written
agreement be freed and relieved of liability upon such covenants and
obligations.
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ARTICLE 18
DEFAULT
18.01 DEFAULTS AND REMEDEES
If any of the following shall occur:
(a) if the Tenant shall fail to pay any Rent or other sums due hereunder
(including all items of Rent listed in Section 4.01) when due, and if
such Rent or other sums are not paid within seven (7) days after notice
is given by the Landlord of such non-payment;
(b) if the Tenant does not observe, perform and keep each and every of the
covenants, provisions, stipulations, conditions, rules and regulations
and other terms herein contained to be observed, performed and kept by
the Tenant, and, where the breach can be rectified, such non-observance
or non-performance shall continue for fifteen (15) days (or such
shorter period as may be specified in any particular section of this
Lease) after notice is given by the Landlord requiring that the Tenant
rectify the breach, except where rectifying the breach would reasonably
require more than fifteen (15) days and the Tenant has commenced
rectification in good faith within the fifteen (15) day period and
thereafter promptly, diligently and continuously proceeds with
rectification of the breach;
(c) if the Tenant abandons, threatens to abandon or attempts to abandon the
Leased Premises, or leave them vacant for more than seven (7) days, or
make a bulk sale of its goods or sell the business conducted at the
Leased Premises, or move, or commence, attempt or threaten to move any
of its goods, chattels and equipment out of the Leased Premises (other
than in the ordinary course of its business), or cease to conduct
business from the Leased Premises other than in conjunction with an
authorized and approved assignment or subletting;
(d) if a writ of execution shall issue against the Tenant, or if the Term
hereby granted or any of the goods, chattels or equipment of the Tenant
shall be taken in execution or attachment or be seized by any creditor
of the Tenant, whether secured or otherwise;
(e) if the Tenant shall become insolvent or commit an act of bankruptcy or
become bankrupt or take the benefit of any Act that may be in force for
bankrupt or insolvent debtors, or become involved in voluntary or
involuntary winding up proceedings, or if a receiver shall be appointed
by the Court or by any creditor for the business, property, affairs or
revenues of the Tenant;
then, and in every such case, the Landlord may, in addition to any other rights
or remedies it may have under other provisions of this Lease or by law, at its
option exercise all or any of the following remedies:
(f) The Landlord may perform any obligation which the Tenant should have
performed or cause the same to be performed and for such purpose may
enter upon the Leased Premises and do such things thereon as the
Landlord may consider requisite without effecting a termination of this
Lease;
(g) The Landlord may enter the Leased Premises and distrain upon the goods
and chattels of the Tenant, or may remove and sell goods, chattels and
equipment of the Tenant
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and the Landlord may seize and sell the goods and chattels and the
equipment whether they are within the Leased Premises or at any place
to which the Tenant or any other person may have removed them in the
same manner as if they had remained and been distrained upon in the
Leased Premises, and the Landlord may follow the goods and chattels for
the maximum period permitted by law, and any sale by the Landlord may,
in its sole discretion be effected by public auction or private
contract and either in bulk or by individual items, or partly by one
means and partly by the other.
(h) The Landlord may remove the goods, chattels, equipment and fixtures of
the Tenant from the Leased Premises and store them in a public
warehouse or elsewhere at the cost of and for the account of the
Tenant.
(i) In order to relet, the Landlord may take possession of the Leased
Premises as agent of the Tenant and effect such alterations and repairs
as it may deem necessary or advisable for the purpose of such
reletting, and it may relet the Leased Premises or any part thereof for
such term or terms (which may be for a term extending beyond the Term)
and at such rental or rentals and upon such other terms and conditions
as the Landlord, in its sole discretion, may deem advisable. Upon such
reletting, all rentals received by the Landlord from such reletting
shall be applied, first to the payment of the Landlord's costs and
expenses of such reletting and costs of such alterations and repairs;
second to the payment of any indebtedness other than Rent due from the
Tenant to the Landlord; third to the payment of arrears of Rent; fourth
to the payment of Rent as it falls due; and the residue, if any, shall
be held by the Landlord without interest until the end of the Term and
applied from time to time in payment of Rent as the same may become due
and payable, and any residue remaining at the end of the Term shall be
held for the Tenant. No such reletting nor the receipt of any such
rentals from any new tenant nor the creation of the relation of
landlord and tenant between the Landlord and any party to whom the
Leased Premises may have been relet shall have the effect of
exonerating the Tenant from its obligations to pay rent hereunder as it
falls due or of in any way terminating this Lease.
(j) The Landlord may terminate this Lease by commencing an action for
possession or for termination of the Lease or by notice to the Tenant.
Such termination may be effected either at or after the time of the
breach or at any later time and notwithstanding that the Landlord may
have exercised any of its other remedies including that set out under
subsection (i) hereof. In the event that the Landlord or anyone
claiming under it or to whom it has rented the Leased Premises is in
possession under the provisions of subsection (i) hereof, the Landlord
may at any time terminate this Lease by notice to the Tenant and
thereafter any then existing or later lease of the Leased Premises
shall be for the account of the Landlord notwithstanding that such
Lease may originally have been entered into as agent for the Tenant. If
the Landlord enters the Leased Premises without notice to the Tenant as
to whether it is terminating this Lease under subsection (j) or
proceeding under subsection (i) or any other provision of this Lease,
the Landlord shall be deemed to be proceeding under subsection (i) and
the Lease shall not be terminated, nor shall there be any surrender by
operation of law, but the Lease shall remain in full force and effect
until the Landlord notifies the Tenant that it has elected to terminate
this Lease. No entry by the Landlord during the Term shall have the
effect of terminating this Lease without notice to that effect to the
Tenant.
(k) The Landlord shall be entitled to damages from the Tenant for breach of
this Lease. If it should be necessary to determine the present value of
any item of rent, such present value shall be
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determined using a discount rate equal to the prime rate of the
Canadian Imperial Bank of Commerce at the time less one percentage (1%)
point.
(l) At the option of the Landlord, the full amount of the current month's
Rent and the next ensuing three (3) months' Rent shall accelerate and
shall immediately become due and payable. For the purpose of this
subsection, where any of the items of Rent set out in Section 4.01 are
not known, definite or established at the time of the exercise of such
option by the Landlord, the acceleration in respect of such items shall
be equal to three (3) times the average monthly instalment during the
full twelve month period preceding such acceleration, or if there has
not been a full twelve month period, it shall be equal to three (3)
times the average monthly instalment since the beginning of the Term.
(m) On any termination for default, all fixtures, Tenant's improvements or
other installations in the Leased Premises, which in law are fixtures
or a part of the realty or are attached, affixed to or incorporated
into or with the immoveable properties situated in or upon the Project,
and which are not the property of the Landlord, shall at the Landlord's
option forthwith become the property of the Landlord, and whether or
not such fixtures are in the nature of Tenant's trade fixtures, and
whether or not they would be removable by the Tenant at the expiry of
the Term if there had been no default.
18.02 INTEREST AND COSTS
Whenever the Landlord takes any proceedings, sends any notices, does any work,
or otherwise incurs any expense or trouble or takes any action with respect to
any default by the Tenant, and whether or not legal proceedings are begun or
considered in consequence of such default, and whether or not this Lease is
terminated, the Landlord shall be entitled to be paid by the Tenant forthwith on
demand in addition to any other amounts which may be payable or owing hereunder,
all of the following:
(a) the cost of effecting any repairs or performing any obligation of the
Tenant, together with an allowance of fifteen per cent (15%) for the
Landlord's overhead and supervision;
(b) the Landlord's costs and expenses in preparing the Leased Premises for
reletting in such manner as in its sole discretion it deems necessary
or advisable, together with an allowance of fifteen percent (15%) for
the Landlord's overhead and supervision;
(c) the Landlord's Court costs, collection costs, and legal fees as between
a solicitor and his own client and all judicial and extra-judicial fees
of advocates and notaries;
(d) interest on rent or any other amounts overdue under the terms of this
Lease and on any monies expended by the Landlord in consequence of any
default by the Tenant at the rate of TWELVE (12%) per annum;
(e) a charge of fifty dollars ($50.00) for each cheque of the Tenant which
is returned to the Landlord because of insufficient funds in the
Tenant's account;
(f) any other costs, charges or expenses, which the Landlord incurs or to
which it is put, and which would not have been necessary at the time at
which they were incurred but for the default of the Tenant.
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18.03 WAIVER BY TENANT
Notwithstanding anything contained in any statute at the present time or in the
future in force, the Tenant hereby agrees with the Landlord that none of the
Tenant's goods or chattels on the Leased Premises at any time during the Term
shall be exempt from levy by distress for Rent (including all items set out in
Section 4.01) in arrears, and that the Landlord may follow the Tenant's goods or
chattels without limitation of time, and that on any termination of the Lease by
the Landlord under the terms hereof, the Tenant shall have no right of
redemption or relief from forfeiture and that the Landlord may enter or take
possession of the Leased Premises without judicial order, a writ of possession
or any other legal process, and without notice to the Tenant except as provided
under this Lease.
18.04 ENFORCEMENT BY LANDLORD
The failure by the Landlord to enforce any term or covenant or obligation of the
Tenant contained herein shall not be deemed to be a waiver of such term,
covenant or obligation, or permission for any subsequent breach of the same, and
the Landlord may at any time enforce such term, covenant or obligation. The
waiver by the Landlord of any breach of any term, covenant or obligation hereof
shall not be deemed to be a waiver of such term, covenant or obligation with
respect to any subsequent breach. No term, covenant or obligation of the Tenant
contained in this Lease may be waived by the Landlord, unless such waiver be in
writing executed by the Landlord. The acceptance of Rent by the Landlord
subsequent to any such breach shall not be deemed to be a waiver of such breach,
whether or not the Landlord had knowledge of the breach at the time of
acceptance of the Rent. No payment by the Tenant or receipt by the Landlord
whether it be of a lesser amount than the fixed base monthly rent herein
stipulated or the full amount or a greater amount thereof, shall be deemed,
unless otherwise determined by the landlord in its sole and uncontrolled
discretion, to be other than on account of the earliest stipulated rent, and no
endorsement or statement on any cheque or any letter accompanying any cheque or
payment as rent shall constitute an effective direction from the Tenant as to
the appropriation of such cheque or payment nor shall any such endorsement or
statement or any such letter be deemed an acknowledgment of full payment or an
accord and satisfaction and the Landlord may accept such cheque or payment
without prejudice to the Landlord's right to recover the balance of such rent or
any other amount owing by the Tenant or pursue any other remedy provided for in
this Lease. The Landlord shall be under no obligation to the Tenant to enforce
any provision of this Lease, or any provision of any other tenant's Lease of
premises in the Project.
18.05 WAIVER OF REPUDIATION OF LEASE
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ARTICLE 19
END OF TERM
19.01 EXPIRATION
On the expiration of the Term hereby created, the Tenant shall surrender and
yield up the Leased Premises to the Landlord in as good condition as the Tenant
is required to maintain the Leased Premises throughout the Term and the Tenant
shall deliver to the Landlord all keys to the Leased Premises and the Project
and the combination of all locks, safes and vaults, if any, in the Leased
Premises.
19.02 REMOVAL AT END OF TERM
When not in default at the expiration of the Term hereby created, the Tenant may
remove its trade fixtures. The Tenant shall on any surrender of possession of
the Leased Premises remove such of its trade fixtures, other fixtures, leasehold
improvements and equipment which are incorporated into, affixed or attached for
a permanency to and which have become a part of the realty or immoveable
property comprising the Project, as the Landlord may require and the Tenant
shall remove any Contaminants which have been spilled, stored or incorporated in
or on any part of the Leased Premises, and in effecting such removal shall do no
damage to the Leased Premises or any parts of the building and the Tenant shall
be responsible for any environmental liability as a result of the removal of any
improvements or Contaminants. Where required by the Landlord, the Tenant shall
return the Leased Premises to the condition in which they existed at the
beginning of the Term. Any leasehold improvements, equipment and fixtures which
are not required to be removed by the Landlord shall on surrender of possession
by the Tenant be left in the Leased Premises by the Tenant without payment by
the Landlord to the Tenant.
19.03 SURVIVING OBLIGATIONS
On any termination of this Lease, the Tenant's right of possession shall cease
and terminate, but the obligations of the parties with respect to payment of
Rent or covenants not performed at the date of such termination,
indemnification, or any other obligations which, by their nature or by reason of
the circumstances at the time of such termination, are not completely performed
prior to such termination, shall remain in full force and effect until
satisfied. It is agreed, however, that in no event shall the Tenant have any
interest in or right to possession of the Leased Premises or any part of the
Project after the termination of the Lease.
19.04 SHOWING PREMISES
At any time in business hours during the last six (6) months of the Term, the
Landlord may show the Leased Premises to prospective tenants and for that
purpose, the Landlord, its agents, and prospective tenants may enter upon and
inspect all parts of the Leased Premises. In addition, the Landlord may at any
time during the Term show the Leased Premises to prospective mortgagees or
purchasers of the Project, and for that purpose, its and their agents and
employees may enter upon and inspect all parts of the Leased Premises. In so
doing, the Landlord shall interfere as little as possible with the Leased
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Premises and the business of the Tenant, but shall not be liable to the Tenant
with respect to any interference.
19.05 OVERHOLDING
If the Tenant remains in possession of the Leased Premises after the end of the
Term, with the consent of the Landlord and without the execution and delivery of
a new lease, there shall be no tacit renewal of the Lease or renewal or
extension of the Term, nor shall a tenancy from year to year be created, but
notwithstanding any statutory provisions to the contrary, a monthly tenancy
shall be created, which may be terminated by either party on one (1) month's
notice. Rent shall be payable in advance on the first day of each month equal to
the sum of:
(a) one HUNDRED AND TWENTY-FIVE PERCENT (125%) of the monthly instalment of
Base Rent payable during the last year of the Term:
(b) one-twelfth (1/12) of the amount of all other items of Rent set out in
Section 4.01 hereof, determined in the same manner as if the Lease had
been renewed for the year of which any such month is a part;
and otherwise upon the terms and conditions set out in this Lease insofar as
they are applicable.
ARTICLE 20
GUARANTOR OBLIGATIONS
20.01 GUARANTOR OBLIGATIONS
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ARTICLE 21
MISCELLANEOUS
21.01 FORCE MAJEURE
Notwithstanding anything herein contained, neither party shall be in default
with respect to the performance of any of the terms of this Lease if any
non-performance is due to any strike, lock-out, labour dispute, civil commotion,
war or similar event, invasion, the exercise of military power, act of
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God, government regulations or controls, inability to obtain any material or
service, failure by the Landlord to complete the Project, or any cause beyond
the control of the party relying on this section (other than lack of or
inability to obtain financial resources by such party). Otherwise, time shall be
of the essence of this Lease and all the obligations contained herein.
21.02 RELATIONSHIP OF PARTIES
Nothing contained in this Lease shall create any relationship between the
Landlord and Tenant other than that of landlord and tenant. It is specifically
agreed that the Landlord is not a partner of the Tenant, or a joint venturer or
in any way interested in the business of the Tenant except as Landlord.
21.03 CONSTITUTION OF TENANT
If the Tenant as named herein is or becomes a partnership, each person who is
presently a member of the partnership and each person who becomes a member of
the partnership or any successor partnership, shall be and continue to remain
jointly and severally liable for the obligations of the Tenant under this Lease,
regardless of whether or not he ceases to be a member of the partnership. If the
Tenant is an agent, unless specifically set out herein to the contrary, then the
principal or principals of the agent shall be jointly and severally liable
together with the agent for all of the Tenant's obligations under this Lease.
The Tenant covenants that it has and at all times during the Term will have all
licences, approvals or authorities necessary to own and carry on its business on
the Leased Premises and to hold the Term created by this Lease and perform its
obligations hereunder, including without limiting the generality of the
foregoing, any required extra-provincial licence or licence in mortmain or
approval under the Investment Canada Act.
21.04 SUCCESSORS
The rights and liabilities of the parties shall enure to the benefit of their
respective heirs, executors, administrators, successors and assigns, subject to
any requirement for consent by the Landlord under Article 17.
21.05 ENTIRE AGREEMENT
This Lease contains the entire agreement between the parties and it is agreed
that there is no covenant, promise, agreement, condition precedent or
subsequent, warranty or representation or understanding, whether oral or
written, other than as set forth herein. Notwithstanding the terms thereof, this
Lease fully replaces and supersedes any offer, agreement, letter, letter of
intent, or other contractual arrangement between the parties related to the
Leased Premises or the Project in existence at the time of execution of this
Lease.
21.06 SEVERABILITY OF CLAUSES
If any term, article, section, subsection, paragraph, clause or subclause or any
of the words contained in this Lease shall be held wholly or partially invalid
or unenforceable by any Court of competent jurisdiction, the Landlord and Tenant
agree that the remainder of this Lease shall not be affected by such judicial
holding, but shall remain in full force and effect.
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21.07 TERMINATION IF PROJECT NOT COMPLETED
21.08 CAPTIONS
The captions, article and section names and numbers and table of contents
appearing in this Lease are for convenience of reference only, and in no way
define, limit or describe the scope or intent of any portion of this Lease and
have no effect on its interpretation.
21.09 EXTENDED MEANINGS
The word "Tenant" as used herein shall include each and every person or
corporation mentioned as Tenant herein or liable as Tenant under the provisions
of Section 21.03, their successors and assigns. If at any time, there shall be
more than one Tenant, any notice required or permitted by the terms of this
Lease may be given by the Landlord to any one thereof, and shall have the same
force and effect as if given to all. Where the context allows, the word "Tenant"
shall include the servants, employees, agents, invitees, patrons, customers,
concessionaires, franchisees and licensees of the Tenant and all others over
whom the Tenant might reasonably be expected to exercise control. Provided,
however, that this extended meaning shall not confer any rights where any
required consent has not been duly obtained under Article 17. The word
"Landlord" as used in this Lease shall be deemed to include the successors and
assigns of the Landlord. The Landlord may act through such managers,
representatives, agents or employees as it may from time to time appoint. All
references to the Landlord or the Tenant or others under this Lease shall be
construed and adjusted for the applicable gender and number, regardless of the
gender and number in which they are expressed. All provisions of this Lease
creating obligations on any party hereto shall be deemed to be and shall be
construed as covenants.
21.10 NOTICES
Any notice required or permitted under this Lease may be sufficiently given to
the following addresses:
To the Landlord:
c/o ENTERPRISE PROPERTY GROUP LIMITED
SUITE 200
480 UNIVERSITY AVENUE
TORONTO, ONTARIO
M5G 1V2
To the Tenant:
AT THE LEASED PREMISES
40
<PAGE> 47
Either party may by notice in writing to the other from time to time designate
another address in Canada to which notices given more than ten (10) days
thereafter shall be addressed. Notices shall be sufficiently given if delivered
or if sent by prepaid registered mail from any place in Canada to such
addresses. Any notice so delivered shall be deemed to have been given when
delivered and any notice so mailed shall be deemed to have been given on the
third day after mailing. Provided, however, that in the event or an interruption
of mail services at the time of such mailing or within three (3) days
thereafter, by reason of strike, wildcat strike, lock-out, industrial dispute or
other reason, whether of the foregoing nature or not, the notice shall not be
deemed to have been received until it is actually delivered, whether by mail or
otherwise.
21.11 NO LEASE PRIOR TO EXECUTION
The submission of this Lease for examination by the Tenant, whether or not
executed by the Landlord, shall not constitute an offer or agreement nor shall
there be any obligation on the part of the Landlord towards the Tenant
hereunder, until the Lease has been fully executed and delivered by both the
Landlord and the Tenant.
21.12 REGISTRATION
Either party may register the minimum notice or memorial of lease required to
give notice of its interest under the applicable registration statute, and the
other party agrees to execute such documentation as may be necessary or
convenient for such purpose. Except as set out above, the Tenant shall not
register this Lease or register or deposit any evidence of its interest in the
Project pursuant to this Lease or otherwise, without the written consent of the
Landlord. If any notice or memorial of lease is registered by the Tenant, the
Tenant shall, prior to registration, provide the Landlord with the sum of Two
Hundred Dollars ($200.00) to be held by the Landlord and to be used for the
discharge of such registration at the expiry of this Lease.
21.13 ADDITIONAL CHARGES
The Landlord may impose reasonable charges (as compensation for the Landlord's
overhead and administration) at any time and from time to time for any service
requested by the Tenant which is not otherwise provided by the Landlord under
this Lease. Further, in the event that any cost incurred by the Landlord in its
maintenance and operation of the Common Areas and Facilities of the Project is
the result of the actions of the Tenant or the Tenant's employees, the Tenant
shall be responsible for such costs and shall reimburse the Landlord for same
immediately upon demand by the Landlord. The Tenant acknowledges that it shall
be responsible for any extra security, cleaning and legal costs incurred by the
Landlord as a result of a union's attempt to organize the employees of the
Tenant, or as a result of the Tenant's employees' exercising their right to
picket in the Common Areas and Facilities of the Project plus a further fifteen
percent (15%) of the cost thereof representing the Landlord's overhead.
21.14 NET LEASE
The parties hereby declare that it is the intention of this Lease that it shall
be a "carefree" lease to the Landlord in that the Base Rent provided herein
shall be entirely net to the Landlord and all costs and expenses incurred by the
Landlord in connection with the operation, administration, management,
supervision and repair of the Project, other than as specifically provided
herein, shall be borne by the Tenant and other tenants of the Project.
41
<PAGE> 48
21.15 GOVERNING LAW
This agreement shall be construed in accordance with and governed by the laws of
the Province where the Leased Premises are located.
21.16 COMPLIANCE WITH PLANNING STATUTES, ETC.
This Lease is entered into subject to compliance with any statute, law, by-law
or regulation to the conveying or granting of interest in real property. The
Landlord or the Tenant may, at the Tenant's expense, apply to the appropriate
authority for its consent to or approval of this Lease, if required. The
Landlord and Tenant agree to co-operate with each other in obtaining such
consent or approval and to pursue such application diligently. If such consent
or approval is not obtained within ninety (90) days after the date of execution
of this Lease, the Landlord shall have thirty (30) days within which to notify
the Tenant in writing that all rights and obligations of the parties under this
Lease are terminated. If the Landlord fails to so notify the Tenant, then
notwithstanding anything herein contained, the Term shall expire on the last day
of the maximum term permitted without such consent or approval.
21.17 WAIVER
The waiver by the Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by the
Landlord shall not be deemed to be a waiver of any preceding breach by the
Tenant of any term, covenant or condition of this Lease, regardless of the
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent. No covenant, term or condition of this Lease shall be deemed to have been
waived by the Landlord unless such waiver be in writing by the Landlord.
All rent, additional rent and other sums of money to be paid by the Tenant to
the Landlord hereunder, shall be paid without any deduction, abatement or
set-off whatsoever and the Tenant hereby waives the benefit of any statutory or
other rights in respect of abatement or set-off in its favour at the time hereof
or at any future time.
21.18 SURRENDER OF EXISTING OFFER
THE PARTIES ACKNOWLEDGE THAT UPON ACCEPTANCE OF THIS LEASE BY THE LANDLORD, THE
OFFER TO LEASE BETWEEN THE TENANT AND NORTH AMERICAN LIFE ASSURANCE COMPANY AS
LANDLORD DATED THE 1ST DAY OF FEBRUARY, 1995 (THE "EXISTING LEASE") SHALL BE
SURRENDERED EFFECTIVE THE 30TH DAY OF NOVEMBER, 1996 (THE "EFFECTIVE DATE") AND
THE TENANT SHALL DELIVER VACANT POSSESSION OF THE PREMISES DESCRIBED THEREIN TO
THE LANDLORD ON THE EFFECTIVE DATE IN ACCORDANCE WITH THE EXISTING LEASE. THE
PARTIES ACKNOWLEDGE THAT, WITH RESPECT TO THE EXISTING LEASE, THE LANDLORD IS
THE SUCCESSOR OF NORTH AMERICAN LIFE ASSURANCE COMPANY. THE TENANT SHALL BE
RELIEVED OF ALL ITS OBLIGATIONS UNDER THE EXISTING LEASE WITH EFFECT FROM THE
EFFECTIVE DATE EXCEPT FOR ANY ADJUSTMENTS WITH RESPECT TO THE TENANT'S ESTIMATED
PROPORTIONATE SHARE OF OPERATING COSTS AND TAXES AS DEFINED IN THE EXISTING
LEASE.
42
<PAGE> 49
21.19 TENANT'S RIGHT TO LEASE ADJACENT SPACE
PROVIDED THE TENANT IS MEDIA SYNERGY INC. AND IS NOT IN DEFAULT UNDER THE TERMS
AND CONDITIONS OF THIS LEASE, AT ANY TIME DURING THE TERM, THE TENANT SHALL HAVE
THE RIGHT TO LEASE THE ADJACENT VACANT PREMISES, HAVING A RENTABLE AREA OF
APPROXIMATELY THREE THOUSAND, THREE HUNDRED AND SEVENTY-SIX (3,376) SQUARE FEET,
SHOWN OUTLINED IN BLUE ON SCHEDULE "B" ATTACHED HERETO (THE "ADDITIONAL
PREMISES"), SUBJECT TO THE TERMS AND CONDITIONS TO BE NEGOTIATED BETWEEN THE
PARTIES AT THE TIME THE TENANT EXERCISES ITS RIGHT TO LEASE THE ADDITIONAL
PREMISES.
NOTWITHSTANDING THE FOREGOING, IN THE EVENT THE LANDLORD RECEIVES A BONA FIDE
OFFER FROM A THIRD PARTY AT ANY TIME DURING THE TERM TO LEASE THE ADDITIONAL
PREMISES (THE "THIRD PARTY OFFER"), WHICH THIRD PARTY OFFER THE LANDLORD DESIRES
TO ACCEPT, THE LANDLORD SHALL FIRST GIVE THE TENANT NOTICE OF THE THIRD PARTY
OFFER AND SUCH NOTICE SHALL CONSTITUTE AN OFFER TO LEASE THE ADDITIONAL PREMISES
TO THE TENANT UPON THE TERMS AND CONDITIONS CONTAINED IN THE THIRD PARTY OFFER.
THE TENANT MAY ELECT, BY GIVING WRITTEN NOTICE TO THE LANDLORD WITHIN THIRTY-SIX
(36) HOURS AFTER RECEIPT OF THE LANDLORD'S NOTICE, TO LEASE THE ADDITIONAL
PREMISES ON THE TERMS AND CONDITIONS SET OUT HEREIN, AND IF IT SO ELECTS, THEN
THERE SHALL BE A BINDING AGREEMENT TO LEASE BETWEEN THE PARTIES. IF THE TENANT
DOES NOT ELECT TO LEASE THE ADDITIONAL PREMISES WITHIN THE TIME AND IN THE
MANNER SET OUT HEREIN, THEN THIS RIGHT TO LEASE THE ADDITIONAL PREMISES SHALL BE
NULL AND VOID AND OF NO FORCE OR EFFECT WHATSOEVER AND THE LANDLORD SHALL BE
ENTITLED TO LEASE THE ADDITIONAL PREMISES TO SUCH THIRD PARTY.
IN WITNESS WHEREOF the parties hereto have executed this document under seal.
Executed by the Tenant this 19 day of September, 1997.
SIGNED, SEALED AND DELIVERED
in the presence of: TENANT:
MEDIA SYNERGY INC.
/s/ Judy Lucas Per /s/ Wilson Lee
---------------------------------
Name: Wilson Lee
---------------------------------
Title: CFO
---------------------------------
I HAVE THE AUTHORITY TO BIND THE COMPANY
/s/ Judy Lucas Per: /s/ Paul Chen
----------------------------------
Name: Paul Chen
----------------------------------
Title: President
----------------------------------
43
<PAGE> 50
I HAVE THE AUTHORITY TO BIND THE COMPANY
Executed by the Landlord this
8 day of October, 1997 LANDLORD:
THE MANUFACTURERS LIFE INSURANCE COMPANY BY
ITS AGENT ENTERPRISE COMMERCIAL MANAGEMENT INC.
/s/ Ron Meanchoff Per: /s/ Ron Varley
-------------------------------------
Authorized Official RON VARLEY
REGIONAL DIRECTOR
TORONTO REAL ESTATE OFFICE
Per:
-------------------------------------
Authorized Official
44
<PAGE> 51
SCHEDULE "A"
LEGAL DESCRIPTION
Lots 1, 2, 3, 4, 5, 6 and Lane Registered Plan D-84;
Town Lot 8, South Side of Adelaide Street
Town Lot 8, Parts of Town Lots 6 and 7, North side of King Street, Town of York
Plan;
All of which lands and premises are more particularly described as Parts 9 and
10 on a Plan of Reference filed in the Land Registry Office for the Registry
Division of Toronto as No. 63R-3338.
45
<PAGE> 52
SCHEDULE "B"
FLOOR PLAN
46
<PAGE> 53
SCHEDULE "D"
Attached to and forming part of the Lease by and between THE MANUFACTURERS LIFE
INSURANCE COMPANY as Landlord and MEDIA SYNERGY INC. as Tenant dated the 5TH day
of DECEMBER, 1996, with respect to premises located in the Project known as
ONTARIO DESIGN CENTRE.
RULES AND REGULATIONS
1. USE OF LEASED PREMISES OR PROJECT
The Tenant shall not use or permit the use of the Leased Premises or bring or
keep anything therein in such manner as to create any objectionable noises,
odours or other nuisance or hazard or increase the risk of fire, or breach any
applicable provisions of any municipal by-law or other lawful requirement
applicable thereto or any requirement of the Landlord's insurers; shall not
permit the Leased Premises to be used for cooking (except with the Landlord's
prior written consent) or for sleeping; shall keep the Leased Premises tidy and
free from rubbish; shall deposit rubbish in receptacles which are either
designated or clearly intended for such use; and shall leave the Leased Premises
at the end of each business day in a condition such as to facilitate the
performance of the Landlord's janitorial services in the Leased Premises unless
otherwise arranged. To ensure efficient operation of the heating, ventilating
and air-conditioning systems, no window shades, blinds or curtains shall be
installed and nothing shall be placed on any radiator or heating or ventilating
unit without the prior written consent of the Landlord.
2. CARE OF LEASED PREMISES
The Tenant shall not abuse, misuse or damage the Leased Premises or any of the
improvements or facilities therein, and in particular shall not deposit rubbish
in any plumbing apparatus or use it for any purpose other than that for which it
is intended and shall not deface or mark any walls or other part of the Leased
Premises. No broadloom or carpeting shall be affixed to the Leased Premises by
means of a non-soluble adhesive or similar product unless approved in writing by
the Landlord. The Tenant shall keep the outside areas in front of and
immediately adjoining the Leased Premises clean and free from dirt and rubbish.
3. DEFACING LEASED PREMISES OR PROJECT
The Tenant and its employees shall not mark or place any sign or advertising,
paint, drill or in any way deface the walls, doors, ceilings, windows,
partitions, floors, wood, concrete, metal or other material of or in the Leased
Premises or the Project without the prior written consent of the Landlord.
4. OVERLOADING
The Tenant shall not permit any floor of the Leased Premises to be overloaded
nor bring onto or move any safe or other heavy object onto or from the Leased
Premises without the prior written consent of the Landlord. The installation or
moving of any such item shall be under the Landlord's direction and at such
times and by such means and such movers as the Landlord shall have approved.
5. RESTRICTION ON DANGEROUS MATERIALS AND ACTIVITIES, FOOD, ETC.
1
<PAGE> 54
The Tenant shall not perform, patronize or (to the extent under its control)
permit any canvassing, soliciting or peddling in the Project, shall not install
in the Leased Premises any machines vending or dispensing refreshments, tobacco
or other merchandise, or coin-operated telephones, and shall not permit food or
beverages to be delivered to the Leased Premises by any persons who have been
prohibited by the Landlord from bringing food or beverages to the Project, and
the Tenant shall require any food or beverages being delivered to the Leased
Premises to be so delivered by such means and at such times as have been
authorized by the Landlord. The Tenant shall not keep, use, sell or offer for
sale in or upon the Leased Premises anything which in the opinion of the
Landlord is of a dangerous, toxic, inflammable or explosive nature.
6. DEBRIS, GARBAGE, TRASH OR REFUSE
Debris, garbage, trash, recycling, or refuse shall not be placed or left by the
Tenant, its employees or agents, in, on or upon any part of the Project outside
the Leased Premises, but shall be deposited by the Tenant in containers as
specified by the Landlord, in areas and at times and in such a manner as may be
designated by the Landlord from time to time. If any debris, garbage, trash or
refuse is of a perishable nature, it shall be kept properly refrigerated in
equipment provided by the Tenant at its own expense. If there are charges for
the removal of such items in addition to any removal services provided by the
municipality in which the Leased Premises are situated, the Tenant shall pay
such charges.
7. CONNECTIONS AND WIRING
The Tenant shall not permit the installation of any telephone, telegraphic or
electrical/mechanical connections or wiring in the Leased Premises in places
other than those approved initially by the Landlord, without the prior written
consent of the Landlord.
8. PEST EXTERMINATION
The Tenant shall at its own expense, use such pest extermination contractors for
the Leased Premises as the Landlord may direct and at such intervals as the
Landlord may require.
9. OVERLOADING OF ELECTRICAL FACILITIES
The Tenant shall not overload the electrical facilities of the Leased Premises
or the Project. If any equipment desired by the Tenant would overload the
electrical/mechanical facilities inside the Leased Premises, the Tenant shall
forthwith at its expense make whatever changes are necessary to comply with the
requirements of applicable authorities or insurance underwriters, but no changes
shall be made until the Tenant first submits to the Landlord plans and
specifications for such changes and obtains the Landlord's written approval. If
any proposed equipment would overload the electrical or mechanical facilities
outside the Leased Premises, the Tenant shall not install such equipment unless
it shall first have made arrangements satisfactory to the Landlord for the
alteration of the electrical facilities of the Project on such terms as the
Landlord may permit and at the Tenant's expense.
10. ACCESS TO LEASED PREMISES AND COMMON AREAS AND FACILITIES
The Tenant shall permit and facilitate the entry of the Landlord, or those
designated by it, into the Leased Premises for the purpose of inspection,
repair, window cleaning, the performance of janitorial services, and other
proper purposes. The Tenant shall not obstruct or restrict access to ducts,
janitorial and electrical
2
<PAGE> 55
closets and other necessary means of access to mechanical, electrical and other
facilities by the placement of furniture, carpeting or otherwise. In the event
of such obstruction, the Tenant will be responsible for the cost of clearing the
obstruction and of providing such access.
11. LOCKS
The Tenant shall not install, permit the installation of, or change any lock,
bolt, fastening or other security device on any door of the Leased Premises
without the prior written consent of the Landlord.
12. DELIVERIES
All moving, loading, unloading, delivery and shipping of merchandise, supplies,
materials, fixtures and chattels to and from the Leased Premises shall be made
only through such doorways and corridors and during such days and hours as the
Landlord may designate in writing from time to time. Any damage caused to the
Leased Premises or any part of the Project during any such activity shall be the
sole responsibility of the Tenant.
13. MOVING EQUIPMENT AND FURNITURE
No safe or heavy equipment shall be moved by or for the Tenant unless the
consent of the Landlord is first obtained and unless all due care is taken. Such
equipment shall be moved upon appropriate steel-bearing plates, skids or
platforms by the service elevator only and subject to the Landlord's direction,
and at such times, by such means and by such persons as the Landlord shall have
approved. No furniture, freight or bulky matter of any description shall be
moved in or out of the Leased Premises or carried in the elevators of the
Project except during such hours as the Landlord shall have approved. Hand
trucks and similar appliances shall be equipped with rubber tires, rubber
bumpers and other safeguards approved by the Landlord, and shall be used only by
prior arrangement with the Landlord. Service elevators have size and weight
control limits. All extra costs incurred by the Landlord due to a move will be
at the Tenant's expense.
14. NO PETS
No pets, animals or birds shall be brought into the Project or kept therein
without the prior written consent of the Landlord.
15. USE OF COMMON AREAS AND FACILITIES
The Tenant shall not obstruct or misuse the Common Areas and Facilities of the
Project, or permit them to be obstructed or misused by its agents, employees,
invitees or persons under its control. Any injury or damage caused to the Common
Areas and Facilities or other areas of the buildings or heating or cooling
apparatus or any other appliances, or to any other tenant or to premises
occupied by any other tenant, by interference with or neglect of the heating
appliances, or any other person or servant subject to it, shall be made good by
the Tenant in whose premises the neglect, interference or misconduct arose.
16. ENTRY OUTSIDE OF NORMAL BUSINESS HOURS
At any time other than during normal business hours as established from time to
time by the Landlord, the Landlord may require that all or any persons entering
and leaving the Project identify themselves and register
3
<PAGE> 56
in books kept for that purpose, and may prevent any person from entering the
Leased Premises unless provided with a key thereto and a pass or other
authorization from the Tenant in a form satisfactory to the Landlord, and may
prevent any person removing any goods therefrom without written authorization,
and may restrict access to all or any part of the Common Areas and Facilities.
17. USE OF PARKING FACILITIES
The Landlord may at its discretion, and under any rules and limitations it
imposes, allow the Tenant and its employees to access and use the parking
facilities for cars and motorcycles at the Tenant's expense. No propane or
natural gas propelled vehicles will be permitted in the parking facility. The
parking of cars or bicycles in the parking facility shall be subject to the
reasonable regulations of the Landlord or those operating such parking facility.
18. RESTRICTIONS ON THE RIGHT OF ENTRY
The Tenant, its employees or invitees, shall not without the written consent of
the Landlord enter the janitors' closets, mechanical and electrical closets or
other service areas, whether or not within the Leased Premises.
19. NOTICE OF ACCIDENTS
The Tenant shall give the Landlord prompt notice of any accident to or any
defect in the plumbing, electrical or mechanical facilities or installations or
any part of the buildings.
20. ADDITIONAL RULES
The Landlord shall have the right to make such other and further reasonable
rules and regulations as in its reasonable judgment may from time to time be
necessary or desirable for the safety, care, cleanliness and appearance of any
premises in the Project, or for the preservation of good order therein, and the
same shall be kept and observed by all tenants and their employees.
4
<PAGE> 1
Exhibit 10.4
AMENDMENT
OF A
LEASE
Dated: April 1, 1995
BETWEEN: THE MANUFACTURERS LIFE INSURANCE COMPANY SUCCESSOR BY AMALGAMATION
OF NORTH AMERICAN LIFE ASSURANCE CO. AND THE MANUFACTURERS LIFE
INSURANCE COMPANY EFFECT JANUARY 1, 1996
and
MEDIA SYNERGY INC. (LESSEE)
FOR: Approximately 5,584 sq.ft. on the second floor of Building C
the Ontario Design Centre
260 King Street East,
Amended November 6, 1996, save and except for the below changes, the existing
lease shall remain in full force and effect.
1. The Landlord agrees that upon expiration of the term of the Subtenant's Lease
Agreement with Alliance for Converging Technologies, 31st July, 2001, the
Subtenant shall have an extension of a lease for the premises, it will observe,
comply with and perform all terms, conditions and covenants in the Lease and
perform all obligations of any kind whatsoever in the Lease as and when the same
are due to be performed by the Tenant pursuant to the terms of the Lease, except
for the basic net rental rate will be $11.00 net per square foot until November
30, 2001.
DATED at Toronto, this 10th day of August, 1999.
Signed, Sealed and MEDIA SYNERGY INC.
Delivered in the presence of:
per:
/s/ Judy Lucas /s/ Martha Miller
- ---------------------------------- ----------------------------------
Signed, Sealed and The Manufacturers Life Insurance
Delivered in the presence of: Company
per:
/s/ Judy Lucas /s/ Ron Meanchoff
- ---------------------------------- ----------------------------------
<PAGE> 1
Exhibit 10.5
AMENDMENT
OF A
LEASE
Dated: December 5, 1996
BETWEEN: THE MANUFACTURERS LIFE INSURANCE COMPANY
(LANDLORD)
AND
MEDIA SYNERGY INC. (TENANT)
FOR: Approximately 5,584 sq. ft. on the second floor of Building C
the Ontario Design Centre
260 King Street East,
Save and except for the below changes, the existing lease shall remain in full
force and effect.
1. LEASED PREMISES
The Tenant shall lease an additional gross area of 4,150 square feet on the
ground floor of B Building as outlined on Schedule "B".
2. BASE RENT
The Tenant shall pay to the Landlord yearly by monthly installment base Rent as
per following schedule:
Year 1 - $8.00/sq. ft. = $2,766.67/month or $33,200 per annum
Year 2 - $9.00/sq. ft. = $3,112.50/month or $37,350 per annum
3. TERM
The term on the additional space shall be from November 1, 1999 to November 30,
2001. The tenant shall have access to the space upon execution of this amendment
to complete their leasehold improvements.
4. COMMENCEMENT OF RENT
Rent shall commence on November 1, 1999.
<PAGE> 2
DATED at Toronto, this 15th day of September 1999.
Signed, Sealed and MEDIA SYNERGY INC.
Delivered in the presence of
per:
/s/ Shanna Finman /s/ Martha Ainsley
- ----------------------------------- ----------------------------------
Signed, Sealed and The Manufacturers Life Insurance
Delivered in the presence of: Company
per:
/s/ Judy Lucas /s/ Ron Meanchoff
- ----------------------------------- ----------------------------------
<PAGE> 1
Exhibit 10.6
SUBLEASE
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT
B E T W E E N:
ALLIANCE FOR CONVERGING TECHNOLOGIES CORP.
(hereinafter called the "SUBLANDLORD")
OF THE FIRST PART
- and -
MEDIA SYNERGY INC.
(hereinafter called the "SUBTENANT")
OF THE SECOND PART
WHEREAS the Sublandlord has entered into a lease dated May 10, 1996 (the "HEAD
LEASE"), with The Manufacturers Life Insurance Company, by its agent Enterprise
Property Group Limited (the "HEAD LANDLORD") (a copy of which the Subtenant
acknowledges having received) of the premises more particularly described in the
Head Lease containing three thousand nine hundred seventeen (3,917) square feet
of Rentable Area (as defined in the Head Lease) on the first floor and legally
described in Schedule "A" attached hereto and known municipally as 260 King
Street East, Suite B-100, Toronto, Ontario, M5A 4L5 (the "LEASED PREMISES");
AND WHEREAS the Sublandlord and the Subtenant have agreed to enter into a
Sublease of all of the Leased Premises as crosshatched on the floor plan
attached as Schedule "B" hereto (the "SUBLEASED PREMISES") for the term, at a
rental and on such terms as are hereinafter set forth;
AND WHEREAS the Head Landlord has given its consent, in writing, to the Sublease
in accordance with the terms and provisions of the Head Lease;
NOW THEREFORE IN CONSIDERATION of the rents, covenants and agreements herein
contained the Sublandlord and Subtenant agree as follows:
TERM
1. The Sublandlord hereby subleases the Subleased Premises to the
Subtenant; TO HAVE AND TO HOLD the Subleased Premises for a term of one
(1) year, ten (10) months and twenty-four (24) days to commence the 6th
day of September, 1999, or such other
<PAGE> 2
-2-
mutually acceptable date agreed upon between the parties hereto acting
reasonably, which in no event shall be later than October 15, 1999, and
to expire the 30th day of July, 2001 (the "SUBTERM").
RENT
2. The Subtenant shall pay to the Sublandlord from and after the date of
commencement of the Subterm as an annual base rent the sum of Thirty
One Thousand Three Hundred Thirty-Five Dollars Ninety-Six Cents
($31,335.96) per annum, being Two Thousand Six Hundred Eleven Dollars
Thirty-Three Cents ($2,611.33) per month based on Eight Dollars ($8.00)
per square foot of Rentable Area (the "SUBLEASE BASE RENT") payable in
advance on the first day of each and every month during the Subterm
with the rent for any broken portion of a calendar month in which the
Subterm of this Sublease shall commence or terminate shall be
pro-rated.
The Sublandlord acknowledges receipt of the sum of Fourteen Thousand
One Hundred Sixty-Six Dollars Twenty Two Cents ($14,166.22) as a
deposit to be held by the Sublandlord pending completion or other
termination of this Sublease and to be held as a security deposit and
to be applied against the Sublease Base Rent for the first rent due
plus GST pursuant to the terms of this Sublease.
ADDITIONAL RENT
3. The Subtenant agrees to pay to the Sublandlord that proportionate share
of all payments which the Sublandlord is required to pay to the Head
Landlord under the Head Lease as Additional Rent (as this term is
defined in the Head Lease) chargeable to, or attributable to the
Subleased Premises. Additional Rent is presently estimated by the Head
Landlord to amount to approximately Twelve Dollars, Twenty-Eight Cents
($12.28) per square foot per annum including utilities for the calendar
year 1999.
SUBTENANT'S COVENANTS
4. The Subtenant covenants with the Sublandlord:
(a) to pay Sublease Base Rent and Additional Rent;
(b) to pay all business taxes in respect of the business carried
on by the Subtenant in and upon or by reason of its occupancy
of the Subleased Premises;
(c) to keep the Subleased Premises clean and in good and
tenantable condition;
(d) to keep the Subleased Premises, reasonable wear and tear and
damage by fire, lightning and tempest only excepted;
<PAGE> 3
-3-
(e) to observe and perform all covenants and obligations of the
Subtenant under this Sublease;
(f) to use the Subleased Premises only for the purpose of carrying
on the business of general offices and for no other purpose
and not to do or omit to do any act or thing upon the
Subleased Premises which would cause a breach of any of the
Sublandlord's obligations under the Head Lease; and
(g) to perform or cause to be performed with respect to the
Subleased Premises all of the covenants of the Sublandlord as
Head Tenant under the Head Lease, including the performance of
the Sublandlord's obligations as to the use of the Leased
Premises and the performance of tenants' repairs therein.
INSURANCE
5. The Subtenant shall take out and keep in force during the Subterm such
insurance in respect of the Subleased Premises as shall comply with the
obligations of the Sublandlord as Head Tenant under the Head Lease and
shall be subject to the same obligations and same limitations of
liability with respect to damage, loss or injury as are set out in the
Head Lease.
COVENANTS OF THE SUBLANDLORD
6. The Sublandlord covenants with the Subtenant:
(a) for quiet enjoyment;
(b) to observe and perform all covenants and obligations of the
Sublandlord under the Sublease; and
(c) to pay all Base Rent (as defined in the Head Lease) and
Additional Rent reserved under the Head Lease and to duly
perform and observe all the obligations of the Sublandlord as
Head Tenant under the Head Lease and to indemnify and hold the
Subtenant harmless from and against any cost, loss or damage
resulting from the Sublandlord's default under the Head Lease.
ABATEMENT AND TERMINATION
7. In the event of damage to the Subleased Premises:
(a) rent in respect of the Subleased Premises shall abate if and
to the extent rent under the Head Lease abates under the terms
of the Head Lease; and
<PAGE> 4
-4-
(b) this Sublease shall terminate if either the Head Landlord or
the Head Tenant shall become entitled to terminate the Head
Lease pursuant to the provisions of the Head Lease.
RIGHT TO SUBLEASE
8. Subject to the provisions of Article 17 of the Head Lease and any other
relevant provisions contained in the Head Lease, the Sublandlord agrees
that the Subtenant shall have the right to sub-sublet and/or assign all
or part of the Subleased Premises at any time during the Subterm,
subject to the approval of the Sublandlord and/or the Head Landlord
which approvals shall not be unreasonably withheld.
LEASEHOLD IMPROVEMENTS
9. The Subtenant acknowledges that it is leasing the Subleased Premises on
an "AS IS" basis. Subject to the provisions of Article 13, and in
particular Section 13.02, of the Head Lease, all leasehold improvements
shall be at the Subtenant's sole cost and expense and the Subtenant
must first obtain the prior written approval of both the Sublandlord
and the Head Landlord prior to the installation and/or construction of
any leasehold improvement, such approval not to be unreasonably
withheld. The Sublandlord acknowledges that the Subleased Premises, as
viewed, shall be turned over to the Subtenant, with all existing
improvements located therein in their existing state of repair.
PARKING
10. The Sublandlord agrees to sublease to the Subtenant for the Subterm the
three (3) parking spaces at the rate, and pursuant to the provisions,
contained in Section 10.02 of the Head Lease.
APPLICATION OF HEAD LEASE
11. Except as hereinbefore expressly provided, all terms, conditions,
covenants and agreements contained in the Head Lease shall apply to and
be binding upon the parties hereto, and their respective successors and
permitted assigns, the appropriate changes of reference being deemed to
have been made with the intent that such clauses shall govern the
relationship in respect of such matters as between the Sublandlord and
the Subtenant.
NOTICE
12. The provisions of the Head Lease shall govern the giving of notice
hereunder. The address of the Sublandlord for the purpose of such
notice shall be 360 Adelaide Street West, 4th Floor, Toronto, Ontario,
M5V 2L2 and the address for the Subtenant for the purpose of such
notice shall be the Subleased Premises.
<PAGE> 5
-5-
IN WITNESS WHEREOF the parties herein have affixed their corporate seals under
the hands of their proper signing officers duly authorized in that behalf.
ALLIANCE FOR CONVERGING TECHNOLOGIES CORP.
Per: /s/ David Agnew
---------------------------------------
Name: David Agnew
Title: Executive Director
I have the authority to bind the corporation.
MEDIA SYNERGY INC.
Per: /s/ Martha Miller
----------------------------------------
Name: Martha Miller
Title: Controller
I have the authority to bind the corporation.
<PAGE> 6
-6-
SCHEDULE "A"
LEGAL DESCRIPTION
Lots 1, 2, 3, 4, 5, 6 and Lane Registered Plan D-84;
Town Lot 8, South Side Adelaide Street
Town Lot 8, Parts of Town Lots 6 and 7,
North side of King Street, Town of York Plan;
all designated as Parts 9 and 10, Plan 63R-3338
City of Toronto
<PAGE> 7
-7-
SCHEDULE "B"
FLOOR PLAN
<PAGE> 1
Exhibit 10.7
CONSENT BY LANDLORD TO SUBLEASE
The Manufacturers Life Insurance Company (the "Landlord") is the landlord of
premises described in Clause 1 of a lease dated the 10th day of May, 1996 (the
"Lease"), between the Landlord and Alliance for Converging Technologies Corp.
(the "Tenant"), a copy of which Lease is attached hereto as Schedule "A". The
Lease contains a restriction against assignment or subletting by the Tenant
without the Landlord's prior written consent thereto. The Landlord consents,
subject to the following conditions, to the sublease of the Leased Premises by
the Tenant, to Media Synergy Inc. (the "Subtenant"), dated the 23rd day of June,
1999, a copy of which Sublease is attached hereto as Schedule "B".
1. The Landlord's consent is expressly conditioned upon the payment of the Basic
Rent and Additional Rent reserved by the Lease, and the performance and
observance of the covenants, conditions and agreements in the Lease and this
consent in no way affects or releases the Tenant from its obligations,
liabilities and responsibilities under the Lease. The Tenant confirms and
acknowledges that, notwithstanding the Sublease, that it will remain liable
under the Lease for the fulfillment of all the Tenant's agreements, covenants
and obligations thereunder.
2. This consent is given without prejudice to the Landlord's rights under the
Lease, and is expressly limited to the Sublease, and will not be deemed to be
consent to or authorization for any further or other assignment, subletting or
parting with or sharing possession of all or any part of the Leased Premises by
either the Tenant or the Subtenant.
3. Notwithstanding anything to the contrary contained in the Sublease, the
Subtenant will not act in any manner which is inconsistent with the terms of the
Lease. The Subtenant covenants to and with the Landlord that it will not cause,
by any act or omission, the Tenant to be in default of its agreements, covenants
and obligations under the Lease.
4. In granting its consent to the Sublease, the Landlord does not:
(a) make any representation or warranties with respect to the status of the
Lease, or
(b) acknowledge or approve of any of the terms of the Sublease.
Further, nothing contained in the Sublease or this consent will be construed as
modifying, waiving or affecting any of the provisions, covenants and conditions
or any of the Landlord's rights or remedies under the Lease other than as
specifically set forth herein.
5. In consideration of the Landlord's consent to the Sublease, the Subtenant
acknowledges and agrees that:
(a) the Sublease is subject to and subordinate to the Lease;
<PAGE> 2
(b) it will observe, comply with and perform all terms, conditions and covenants
in the Lease and perform all obligations of any kind whatsoever in the Lease as
and when the same are due to be performed by the Tenant pursuant to the terms of
the Lease, and
(c) it is subject to all of the Landlord's rights thereunder, as though the
Subtenant were named the Tenant under the Lease, except as to those covenants
relating to the portion of the Leased Premises not leased to the Subtenant under
the Sublease. The Subtenant further expressly acknowledges and agrees to be
subject to the prohibition against subletting, assigning, mortgaging or
encumbering or permitting the occupation or use of all or part of the Leased
Premises by others without the prior written consent of the Landlord, upon the
terms and conditions as are set forth in Article 17 of the Lease.
6. The Subtenant confirms to the Landlord its right to occupy the Leased
Premises is derived solely from the Lease and that should the Lease be
terminated by the Landlord the Sublease will also automatically be terminated
and the Subtenant will have no further rights of occupancy or tenancy of the
Leased Premises pursuant to the Sublease. The Subtenant waives any statutory
rights or rights at law pursuant to which it may continue to occupy the Leased
Premises.
7. The Tenant and the Subtenant represent and warrant that they have dealt with
no broker, finder, agent or other person in connection with the Sublease and
they agree to indemnify and hold the Landlord harmless from and against any
claims or causes of action for a commission or other form of compensation
arising from the Sublease or the Lease, whether advanced by Broker or any other
person or entity. The provisions of this paragraph will survive the termination
of the Sublease and any renewal thereof.
8. All capitalized terms uses herein, and not otherwise defined, have the
meaning ascribed to such terms in the Lease.
In witness whereof, the undersigned have executed this Consent By Landlord to
Sublease on this day of , 1999.
THE MANUFACTURERS LIFE INSURANCE COMPANY
(Landlord)
- ------------------------
Witness PER: /s/ Ron Meanchoff
------------------------------------
Name: Ron Meanchoff
Title: Leasing Manager
I/We have authority to bind the corporation
<PAGE> 3
Alliance for Converging Technologies Corp.
(Tenant)
- ------------------------
Witness PER: /s/ Elliot S. Schreiber
------------------------------------
Name: Elliot S. Schreiber
Title: Managing Partner, COO
I/We have the authority to bind the corporation
Media Synergy Inc.
- ------------------------
Witness (Subtenant)
PER: /s/ Martha Miller
------------------------------------
Name: Martha Miller
Title: Controller
I/We have the authority to bind the corporation
<PAGE> 1
Exhibit 10.8
The CRANBROOK Group
dba Las Positas Office Plaza
LEASE
DATED
OCTOBER 10, 1999
BY AND BETWEEN
CRANBROOK REALTY INVESTMENT FUND, L.P.
AS LANDLORD
AND
MEDIA SYNERGY SOFTWARE CORPORATION
AS TENANT
AFFECTING PREMISES COMMONLY KNOWN AS
LAS POSITAS OFFICE PLAZA
5976 W. LAS POSITAS BLVD., SUITE 126
PLEASANTON, CALIFORNIA
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS.........................................................4
1.1 General...................................................4
1.2 Additional Rent...........................................4
1.3 Address for Notices.......................................4
1.4 Agents....................................................4
1.5 Agreed Interest Rate......................................4
1.6 Base Monthly Rent.........................................4
1.7 Building..................................................4
1.8 Commencement Date.........................................4
1.9 Common Area...............................................4
1.10 Common Operating Expenses.................................4
1.11 Effective Date............................................4
1.12 Event of Tenant's Default.................................4
1.13 Hazardous Materials.......................................4
1.14 Insured and Uninsured Peril...............................4
1.15 Law.......................................................5
1.16 Lease.....................................................5
1.17 Lease Term................................................5
1.18 Lender....................................................5
1.19 Permitted Use.............................................5
1.20 Premises..................................................5
1.21 Project...................................................5
1.22 Private Restrictions......................................5
1.23 Real Property Taxes.......................................5
1.24 Rentable Area.............................................5
1.25 Scheduled Commencement Date...............................5
1.26 Security Instrument.......................................5
1.27 Summary...................................................6
1.28 Tenant's Alterations......................................6
1.29 Tenant's Share............................................6
1.30 Trade Fixtures............................................6
ARTICLE 2
DEMISE, CONSTRUCTION, AND ACCEPTANCE................................6
2.1 Demise of Premises........................................6
2.2 Commencement Date.........................................6
2.3 Construction of Improvements..............................6
2.4 Delivery and Acceptance of Possession.....................7
2.5 Early Occupancy...........................................7
2.6 Relocation................................................7
ARTICLE 3
RENT................................................................8
3.1 Base Monthly Rent.........................................8
3.2 Additional Rent...........................................8
3.3 Payment of Rent...........................................8
3.4 Late Charge and Interest on Rent in Default...............9
3.5 Security Deposit..........................................9
ARTICLE 4
USE OF PREMISES.....................................................9
4.1 Limitation on Use.........................................9
<PAGE> 3
4.2 Compliance with Regulations..............................10
4.3 Outside Areas............................................10
4.4 Signs....................................................10
4.5 No Light, Air or View Easement...........................10
4.6 Parking..................................................10
4.7 Rules and Regulations....................................10
ARTICLE 5
TRADE FIXTURES AND ALTERATIONS.....................................11
5.1 Trade Fixtures...........................................11
5.2 Tenant's Alteration......................................11
5.3 Alterations Required by Law..............................11
5.4 Amortization of Certain Capital Improvements.............12
5.5 Mechanic's Liens.........................................12
5.6 Taxes on Tenant's Property...............................12
ARTICLE 6
REPAIR AND MAINTENANCE.............................................12
6.1 Tenant's Obligation to Maintain..........................12
6.2 Landlord's Obligation to Maintain........................12
6.3 Control of Common Area...................................13
ARTICLE 7
WASTE DISPOSAL AND UTILITIES.......................................13
7.1 Waste Disposal...........................................13
7.2 Hazardous Materials......................................13
7.3 Utilities................................................14
7.4 Utilities and Services...................................14
7.5 Compliance with Governmental Regulations.................14
ARTICLE 8
COMMON OPERATING EXPENSES..........................................14
8.1 Tenant's Obligations to Reimburse........................14
8.2 Common Operating Expenses Defined........................16
8.3 Real Property Taxes Defined..............................16
ARTICLE 9
INSURANCE..........................................................17
9.1 Tenant's Insurance.......................................17
9.2 Landlord's Insurance.....................................18
9.3 Tenant's Obligation to Reimburse.........................18
9.4 Release and Waiver of Subrogation........................18
ARTICLE 10
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY...................19
10.1 Limitation on Landlord's Liability.......................19
10.2 Limitation on Tenant's Recourse..........................19
10.3 Indemnification of Landlord..............................19
ARTICLE 11
DAMAGE TO PREMISES.................................................20
11.1 Landlord's Duty to Restore...............................20
11.2 Landlord's Right to Terminate............................20
11.3 Tenant's Right to Terminate..............................21
11.4 Abatement of Rent........................................21
ARTICLE 12
CONDEMNATION.......................................................21
12.1 Landlord's Termination Right.............................21
12.2 Tenant's Termination Right...............................21
<PAGE> 4
12.3 Restoration and Abatement of Rent........................21
12.4 Temporary Taking.........................................22
ARTICLE 13
DEFAULT AND REMEDIES...............................................22
13.1 Events of Tenant's Default...............................22
13.2 Landlord's Remedies......................................23
13.3 Waiver...................................................24
13.4 Limitation on Exercise of Rights.........................24
13.5 Waiver by Tenant of Certain Remedies.....................24
ARTICLE 14
ASSIGNMENT AND SUBLETTING..........................................25
14.1 Transfer By Tenant.......................................25
14.2 Transfer By Landlord.....................................27
ARTICLE 15
GENERAL PROVISIONS.................................................27
15.1 Landlord's Right to Enter: .............................27
15.2 Surrender of the Premises................................28
15.3 Holding Over.............................................28
15.4 Subordination............................................28
15.5 Mortgaged Protection and Attornment......................29
15.6 Estoppel Certificates and Financial Statements...........29
15.7 Reasonable Consent.......................................29
15.8 Notices..................................................29
15.9 Attorneys' Fees..........................................29
15.10 Corporate Authority......................................29
15.11 Miscellaneous............................................30
15.12 Termination by Exercise of Right.........................30
15.13 Brokerage Commissions....................................30
15.14 Force Majeure............................................30
15.15 Private Restrictions.....................................31
15.16 Entire Agreement.........................................31
15.17 Corporate Signers........................................31
ARTICLE 16
ADDITIONAL PROVISIONS .............................................31
Exhibit "A"
Site Plan.........................................................33
Exhibit "B"
Space Plan........................................................34
Exhibit "D"
Acceptance Agreement..............................................35
Exhibit "E"
Form of Subordination Agreements..................................36
Exhibit "F"
Landlord Services.................................................39
Exhibit "G"
Rules and Regulations.............................................41
Exhibit "H"
Hazardous Materials Questionnaire.................................45
Exhibit "I"
Description of Recording Information for Private Restrictions.....51
Exhibit "J"
Sign Criteria.....................................................52
<PAGE> 5
SUMMARY OF BASIC LEASE TERMS
SECTION
(LEASE REFERENCE)TERMS
A.
(Introduction)
Lease Reference Date: October 10, 1999
B. Landlord: Cranbrook Realty Investment Fund, L.P., dba Las Positas
Office Plaza
C. Tenant: Media Synergy Software Corporation, a Ontario corporation
D.
(Section 1.20)Premises: That area consisting of approximately 2,318 square
feet of rentable area the address of which is 5976 W.
Las Positas Blvd., Suite 126, Pleasanton, California,
within the building as Shown on Exhibit A.
E.
(Section 1.21)Project: The land and improvements shown on Exhibit A
consisting of two (2) buildings the aggregate
rentable area of which is approximately 105,358
square feet.
F.
(Section 1.7)Building: The building in which the Premises are located, known
as 5976 W. Las Positas Boulevard, Pleasanton, CA
94688 containing approximately 2,318 square feet of
rentable area.
G.
(Section 1.29)Tenant's Share: 2.2%
H.
Section (4.6)Tenant's Allocated
Parking Stalls: Nine (9) spaces
I.
(Section 1.25)Scheduled
Commencement Date: November 1, 1999 or upon substantial completion
of tenant improvements.
J.
(Section 1.17)Lease Term: Five (5) years
K.
(Section 3.1)Base Monthly Rent:
Months 01-12: $2.30 per rentable square foot, full service
Months 13-24: $2.35 per rentable square foot, full service
Months 25-36: $2.40 per rentable square foot, full service
Months 37-48: $2.45 per rentable square foot, full service
Months 49-60: $2.50 per rentable square foot, full service
L.
(Section 3.3)Prepaid Rent: $0.00
M.
1
<PAGE> 6
(Section 3.5)Security Deposit: Eleven thousand five hundred ninety and
00/100 dollars ($11,590.00). See paragraph
16.3.
N.
(Section 4.1)Permitted Use: General office/administrative
O.
(Section 5.2)Permitted Tenant's
Alterations Limit: $0.00
P.
(Section 8.1)Common Operating
Expense Base Year: 1999
Q.
(Section 9.1)Tenant's Liability
Insurance Minimum: $2,000,000.00
R.
(Section 1.3)Landlord's Address: The Cranbrook Group
5994 W. Las Positas Blvd., Suite 205
Pleasanton, CA 94588
S.
(Section 1.3)Tenant's Address: Media Synergy Software Corporation
5976 W. Las Positas Blvd., Suite 126
Pleasanton, CA 94588
ATTN: Office Manager
T.
(Section 15.13)Retained Real
Estate Brokers: Cornish & Carey Commercial representing the
Landlord/TRI representing the Tenant
U.
(Section 1.16)Lease: This Lease includes the summary of the Basic
Lease Terms, the Lease, and the following
exhibits and addenda: Exhibit A (site plan
of the Project containing description of the
Premises), Exhibit B (Space Plan), Exhibit D
(acceptance agreement), Exhibit E (form of
subordination agreement), Exhibit F
(Landlord Services), Exhibit G (Rules and
Regulations), Exhibit H (Hazardous Materials
Questionnaire), Exhibit I (description of
Private Restrictions), Exhibit J (sign
criteria).
The foregoing Summary is hereby incorporated into and made a part of
this Lease. Each reference in this Lease to any term of the Summary shall mean
the respective information set forth above and shall be (Approved
Specifications), construed to incorporate all of the terms provided under the
particular paragraph pertaining to such information. In the event of any
conflict between the Summary and the Lease, the Summary shall control.
LANDLORD: TENANT:
Cranbrook Realty Investment Fund, L.P. Media Synergy Software Corporation,
a California corporation
Dba: Las Positas Office Plaza
By: Cranbrook Equity Investment Corporation
a California Corporation, General Partner
2
<PAGE> 7
By: /s/ Kevin M. Fitzpatrick By: /s/ Martha Ainsley
- ---------------------------------- ------------------------------
Kevin M. Fitzpatrick Wilson Lee
Vice President, Operations Chief Financial Officer
Dated: 11/1/99 Date: 10/21/99
---------------------------- ---------------------------
This Lease is dated as of the lease reference date specified in Section
A of the Summary and is made by and between the party identified in Section B of
the Summary and the party identified as Tenant in Section C of the Summary.
ARTICLE 1
DEFINITIONS
1.1 General: Any initially capitalized term that is given a special
meaning by this Article 1, the Summary, or by any other provision of this Lease
(including the exhibits attached hereto) shall have such meaning when used in
this Lease or any addendum or amendment hereto unless otherwise clearly
indicated by the context.
1.2 Additional Rent: The term "Additional Rent" is defined in Section
3.2.
1.3 Address for Notices: The term "Address for Notices" shall mean the
addresses set forth in Sections R and S of the Summary; provided, however, that
after the Commencement Date, Tenant's Address for Notices shall be the address
of the Premises.
1.4 Agents: The term "Agents" shall mean the following: (i) with
respect to Landlord or Tenant, the agents, employees, contractors, and invitees
of such party; and (ii) in addition with respect to Tenant, Tenant's permitted
subtenants and their respective agents employees, contractors, and invitees.
1.5 Agreed Interest Rate: The term "Agreed Interest Rate" shall mean
that interest rate determined as of the time it is to be applied that is equal
to the lessee of (i) the greater of (A) 5% in excess of the discount rate
established by the Federal Reserve Bank of San Francisco as it may be adjusted
from time to time or (B) 10% per annum, or (ii) the maximum interest rate
permitted by Law.
1.6 Base Monthly Rent: The term "Base Monthly Rent" shall mean the
fixed monthly rent payable by Tenant pursuant to Section 3.1 which is specified
in Section K of the Summary.
1.7 Building: The term "Building" shall mean the building in which the
Premises are located which Building is identified in Section F of the Summary,
the rentable area of which is referred to herein as the "Building Rentable
Area."
1.8 Commencement Date: The term "Commencement Date" is the date the
Lease Term commences, which term is defined in Section 2.2.
1.9 Common Area: The term "Common Area" shall mean all areas and
facilities within the Project that are not designated by Landlord for the
exclusive use of Tenant or any other lessee or other occupant of the Project,
including the parking areas, access and perimeter roads, pedestrian sidewalks,
landscaped areas, trash enclosures, recreation areas and the like.
1.10 Common Operating Expenses: The term "Common Operating Expenses" is
defined in Section 8.2.
3
<PAGE> 8
1.11 Effective Date: The term "Effective Date" shall mean the date the
last signatory to this Lease whose execution is required to make it binding on
the parties hereto shall have executed this Lease.
1.12 Event of Tenant's Default: The term "Event of Tenant's Default" is
defined in Section 13.1.
1.13 Hazardous Materials: The terms "Hazardous Materials" and
"Hazardous Materials Laws" are defined in Section 7.2E.
1.14 Insured and Uninsured Peril: The terms "Insured Peril" and
"Uninsured Peril" are defined in Section 11.2E.
1.15 Law: The term "Law" shall mean any judicial decision, statute,
constitution, ordinance, resolution, regulation, rule, administrative order, or
other requirement of any municipal, county, state, federal or other government
agency or authority have jurisdiction over the parties to this Lease or the
Premises, or both, in effect either at the Effect Date or any time during the
Lease Term.
1.16 Lease: The term "Lease" shall mean the Summary and all elements of
this Lease identified in Section U of the Summary, all of which are attached
hereto and incorporated herein by this reference.
1.17 Lease Term: The term "Lease Term" shall mean the term of this
Lease, which shall commence on the Commencement Date and continue for the period
specified in Section J of the Summary.
1.18 Lender: The term "Lender" shall mean any beneficiary, mortgagee,
secured party, lessor, or other holder of any Security Instrument.
1.19 Permitted Use: The term "Permitted Use" shall mean the use
specified in Section N of the Summary.
1.20 Premises: The term "Premises" shall mean that building area
described in Section D of the Summary that is within the Building.
1.21 Project: The term "Project" shall mean that real property and the
improvements thereon which are specified in Section E of the Summary, the
aggregate rentable area of which is referred to herein as the "Project Rentable
Area."
1.22 Private Restrictions: The term "Private Restrictions" shall mean
all recorded covenants, conditions and restrictions, private agreements,
reciprocal easement agreements, and any other recorded instruments affecting the
use of the Premises which (i) exist as of the Effective Date, or (ii) are
recorded after the Effective Date including, without limitation, those set forth
on Exhibit I hereto.
1.23 Real Property Taxes: The term "Real Property Taxes" is defined in
Section 8.3.
1.24 Rentable Area: The term "Rentable Area" as used in the Lease shall
mean:
A. The usable area as determined by Landlord's architect,
multiplied by a load factor of 1.15 to approximate Tenant's share of common
areas which include corridors, lobbies, restrooms, mechanical rooms, electrical
rooms, and telephone closets, which are maintained by the Landlord for the
common benefit of all tenants of the building.
4
<PAGE> 9
B. Landlord and Tenant agree that (i) each has had an
opportunity to determine to its satisfaction the actual area of the Project and
the Premise, (ii) all measurements of area contained in this Lease are
conclusively agreed to be correct and binding upon the parties, even if a
subsequent measurement of any one of these areas determines that it is more or
less than the amount of area reflected in this Lease, and (iii) any such
subsequent determination that the area is more or less than shown in this Lease
shall not result in a change in any way of the computations of rent, improvement
allowances, or other matters described in this Lease where area is a factor.
1.25 Scheduled Commencement Date: The term "Scheduled Commencement
Date" shall mean the date specified in Section I of the Summary.
1.26 Security Instrument: The term "Security Instrument" shall mean any
underlying lease, mortgage or deed of trust which now or hereafter affects the
Project, and any renewal, modification, consolidation, replacement or extension
thereof.
1.27 Summary: The term "Summary" shall mean the Summary of Basic Lease
Terms executed by Landlord and Tenant that is part of this Lease.
1.28 Tenant's Alterations: The term "Tenant's Alterations" shall mean
all improvements, additions, alterations, and fixtures installed in the Premises
by Tenant at its expense, which are not Trade Fixtures.
1.29 Tenant's Share: The term "Tenant's Share" shall mean the
percentage obtained by dividing Tenant's Rentable Area by the Building Rentable
Area, which as of the Effective Date is the percentage identified in Section G
of the Summary. In the event Landlord constructs other buildings on the Project
Landlord may, in Landlord's sole discretion, reformulate Tenant's Share, as to
any or all of the items which comprise Operating Expenses, to reflect the
rentable square footage of the Premises as a percentage of all rentable square
footage of the Project. In the event Tenant's Share is reformulated in
accordance with this Paragraph 1.30, Landlord shall promptly provide Tenant
notice of such reformulation, together with a written statement showing in
reasonable detail the manner in which Tenant's Share was reformulated and a list
of all items of Operating Expenses which will be accounted for using the
reformulated percentage. Any items of Operating Expenses to which the
reformulated share is not applied shall be accounted for using the Tenant's
Share set forth in Section G of the Summary.
1.30 Trade Fixtures: The term "Trade Fixtures" shall mean (i) Tenant's
inventory, furniture, signs, and business equipment, and (ii) anything affixed
to the Premises by Tenant at its expense for purposes of trade, manufacture,
ornament or domestic use (except replacement of similar work or material
originally installed by Landlord) which can be removed without material injury
to the Premises unless such thing has, by the manner in which it is affixed,
become an integral part of the Premises.
ARTICLE 2
DEMISE, CONSTRUCTION, AND ACCEPTANCE
2.1 Demise of Premises: Landlord hereby leases to Tenant, and Tenant
leases from Landlord, for the Lease Term upon the terms and conditions of this
Lease, the Premises for Tenant's own use in the conduct of Tenant's business
together with (i) the non-exclusive right to use the number of Tenant's
Allocated Parking Stalls within the Common Area (subject to the limitations set
forth in Section 4.5), and (ii) the non-exclusive right to use the Common Area
for ingress to and egress from the Premises. Landlord reserves the use of
exterior walls, the roof and the area beneath and above the Premises, together
with the right to install, maintain, use, and replace ducts, wires, conduits and
pipes leading through the Premises in locations which will not materially
interfere with Tenant's use of the Premises.
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2.2 Commencement Date: If Landlord is not obligated to construct
improvements prior to the Commencement Date pursuant to Section 2.3, then on the
Scheduled Commencement Date Landlord shall deliver possession of the Premises to
Tenant and the Lease Term shall commence, and such date shall be referred to
herein as the "Commencement Date". If Landlord is required to construct
improvements to the Premises prior to the Commencement Date, then the Scheduled
Commencement Date shall be only an estimate of the actual Commencement Date, and
the term of this Lease shall begin on the first to occur of the following, which
shall be the "Commencement Date": (i) the date Landlord offers to deliver
possession of the Premises to Tenant following substantial completion of all
improvements to be constructed by Landlord pursuant to Section 2.3 except for
punchlist items which do not prevent Tenant from using the Premises for the
Permitted Use and such work as Landlord is required to perform but cannot
complete until Tenant performs necessary portions of construction work it has
elected or is required to do; or (ii) the date Tenant enters into occupancy of
the Premises.
2.3 Construction of Improvements: Prior to the Commencement Date,
Landlord shall construct certain improvements that shall constitute or become
part of the Premises if required by, and then in accordance with, the terms of
Exhibit B and Exhibit C.
2.4 Delivery and Acceptance of Possession: If this Lease provides that
Landlord must deliver possession of the Premises to Tenant on a certain date,
then if Landlord is unable to deliver possession of the Premises to Tenant on or
before such date for any reason whatsoever, this Lease shall not be void or
voidable for a period of 180 days thereafter, and Landlord shall not be liable
to Tenant for any loss or damage resulting therefrom. Tenant shall accept
possession and enter into good faith occupancy of the entire Premises and
commence the operation of its business therein within 30 days after the
Commencement Date. Tenant acknowledges that it has had an opportunity to
conduct, and has conducted, such inspections of the Premises, as it deems
necessary to evaluate its condition. Except as otherwise specifically provided
herein, Tenant agrees to accept possession of the Premises in its then existing
condition, "as-is", including all patent and latent defects. Tenant's taking
possession of any part of the Premises shall be deemed to be an acceptance by
Tenant of any work of improvement done by Landlord in such part as complete and
in accordance with the terms of this Lease except for defects of which Tenant
has given Landlord written notice prior to the time Tenant takes possession. At
the time Landlord delivers possession of the Premises to Tenant, Landlord and
Tenant shall together execute an acceptance agreement in the form attached as
Exhibit D, appropriately completed. Landlord shall have no obligation to deliver
possession, nor shall Tenant be entitled to take occupancy, of the Premises
until such acceptance agreement has been executed, and Tenant's obligation to
pay Base Monthly Rent and Additional Rent shall not be excused or delayed
because of Tenant's failure to execute such acceptance agreement.
2.5 Early Occupancy: If Tenant enters or permits its contractors to
enter the Premises prior to the Commencement Date and the written permission of
Landlord, it shall do so upon all of the terms of this Lease (including its
obligations regarding indemnity and insurance) except those regarding the
obligation to pay rent, which shall commence on the Commencement Date.
2.6 Relocation.
A. Relocation Prior to Possession. Prior to Tenant's occupancy
Landlord shall have the right to relocate the Premises to another part of the
Project in accordance with the following:
(1) The relocated Premises shall be substantially the
same in size, dimension, configuration, decor and nature as the Premises
described in this Lease, and shall be placed in that condition at Landlord's
cost.
(2) The physical relocation of the premises shall be
accomplished at Landlord's cost.
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(3) Landlord shall give Tenant at least fifteen (15)
days prior written notice of Landlord's intention to relocate the Premises.
(4) If the relocation has not been completed as of
Scheduled Commencement Date Rent shall be abated during the period between the
Scheduled Commencement Date and the time the relocated Premises are delivered to
Tenant.
(5) All reasonable costs incurred by Tenant which are
directly related to the relocation, including, but not limited to, the costs of
reasonable quantities of new stationery and business cards for which address
changes are required, customary advertising then is use, and the cost of address
changes to directories and similar items in which Tenant is customarily and
actually advertising at the date of Landlord's notice to Tenant of the proposed
relocation, shall be paid by Landlord in a sum not to exceed, in the aggregate,
Tenant's Base Monthly Rent as specified in Section K of the Summary.
(6) If the relocated Premises are smaller or larger
than the Premises as they existed before the relocation, Base Rent shall be
adjusted to a sum computed by multiplying the Base Rent by a fraction, the
numerator of which shall be the total number of square feet in the relocated
Premises, and the denominator of which shall be the total number of square feet
in the Premises before relocation. In addition, Tenant's percentage share of
Common Operating Expenses shall be similarly adjusted.
(7) Tenant may not terminate this Lease as a result
of Landlord's election to relocate the Premises pursuant to this Paragraph 2.6
B. Relocation During Term. At any time during the Lease Term,
Landlord shall have the right to relocate the Premises to another part of the
Project in the same manner and upon the same terms and conditions set forth in
Paragraph 2.6A except:
(1) Landlord shall give Tenant sixty (60) days notice
of Landlord's intention to relocate the Premises.
(2) Within said sixty (60) day period Tenant shall
have the right to accept or reject the proposed relocation.
(3) If Tenant rejects the proposed relocation or
fails to unequivocally accept, in writing, the proposed relocation within said
sixty (60) day period, Landlord shall have the right, exercisable by written
notice to Tenant within thirty (30) days after the expiration of said sixty (60)
day period, to terminate this Lease, such termination to be effective as of any
date chosen by Landlord and specified in Landlord's notice of termination but
not less than sixty (60) days after the date of Landlord's notice of
termination. If Landlord does not deliver its notice of termination within said
thirty (30) day period, this Lease shall remain in full force and effect for the
balance of the term remaining hereunder as to the Premises then occupied by
Tenant and Tenant shall not be required to relocate.
C. New Premises. Upon any relocation pursuant to Section
Section 2.6A or 2.6B, the relocated Premises shall become the premises leased by
Tenant hereunder and all references in this Lease to the "Premises" shall refer
thereto.
ARTICLE 3
RENT
3.1 Base Monthly Rent: Commencing on the Commencement Date and
continuing throughout the Lease Term, Tenant shall pay to Landlord the Base
Monthly Rent set forth in Section K of the Summary.
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3.2 Additional Rent: Commencing on the Commencement Date and continuing
throughout the Lease Term, Tenant shall pay the following as additional rent
(the "Additional Rent"): (i) any late charges or interest due Landlord pursuant
to Section 3.4; (ii) Tenant's Share of Common Operating Expenses as provided in
Section 8.1; (iii) Landlord's share of any Subrent received by Tenant upon
certain assignments and sublettings as required by Section 14.1; (iv) any legal
fees and costs due Landlord pursuant to Section 15.9, and (v) any other charges
due Landlord pursuant to this Lease.
3.3 Payment of Rent: Concurrently with the execution of this Lease by
both parties, Tenant shall pay to Landlord the amount set forth in Section L of
the Summary as prepayment of rent for credit against the first installment(s) of
Base Monthly Rent. All rent required to be paid in monthly installments shall be
paid in advance on the first day of each calendar month during the Lease Term.
If Section K of the Summary provides that the Base Monthly Rent is to be
increased during the Lease Term and if the date of such increase does not fall
on the first day of a calendar month, such increase shall become effective on
the first day of the next calendar month. All rent shall be paid in lawful money
of the United States, without any abatement, deduction or offset whatsoever
(except as specifically provided in Section 11.4 and Section 12.3), and without
any prior demand therefor. Rent shall be paid to Landlord at its address set
forth in Section R of the Summary, or at such other place as Landlord may
designate form time to time. Tenant's obligation to pay Base Monthly Rent and
Tenant's Share of Common Operating Expenses shall be prorated at the
commencement and expiration of the Lease Term.
3.4 Late Charge and Interest on Rent in Default: If any Base Monthly
Rent or Additional Rent is not received by Landlord from Tenant within three
business days following the date such payment is due, then Tenant shall
immediately pay to Landlord a late charge equal to 5% of such delinquent rent as
liquidated damages for Tenant's failure to make timely payment. In no event
shall this provision for a late charge be deemed to grant to Tenant a grace
period or extension of time within which to pay any rent or prevent Landlord
from exercising any right or remedy available to Landlord upon Tenant's failure
to pay any rent due under this Lease in a timely fashion, including any right to
terminate this Lease pursuant to Section 13.2C. If any rent remains delinquent
for a period in excess of 30 days then, in addition to such late charge, Tenant
shall pay to Landlord interest on any rent that is not paid when due at the
Agreed Interest Rate following the date such amount became due until paid.
3.5 Security Deposit: On the Effective Date, Tenant shall deposit with
Landlord the amount set forth in Section M of the Summary as security for the
performance by Tenant of its obligations under this Lease, and not as prepayment
of rent (the "Security Deposit"). Landlord may from time to time apply such
portion of the Security Deposit as is reasonably necessary for the following
purposes: (i) to remedy any default by Tenant in the payment of rent; (ii) to
repair damage to the Premises caused by Tenant; (iii) to clean the Premises upon
termination of the Lease; and (iv) to remedy any other default of Tenant to the
extent permitted by Law and, in this regard, Tenant hereby waives any
restriction on the uses to which the Security Deposit may be put contained in
California Civil Code Section 1950.7. In the event the Security Deposit or any
portion thereof is so used, Tenant agrees to pay to Landlord promptly upon
demand an amount in cash sufficient o restore the Security Deposit to the full
original amount. Landlord shall not be deemed a trustee of the Security Deposit,
may use the Security Deposit in Business, and shall not be required to segregate
it from its general accounts. Tenant shall not be entitled to any interest on
the Security Deposit. If Landlord transfers the Premises during the Lease Term,
Landlord may pay the Security Deposit to any transferee of Landlord's interest
in conformity with the provisions of California Civil Code Section 1950.7 and/or
any successor statute, in which event the transferring Landlord will be released
from all liability for the return of the Security Deposit.
ARTICLE 4
USE OF PREMISES
4.1 Limitation on Use: Tenant shall use the Premises solely for the
Permitted Use specified in Section N of the Summary. Tenant shall not do
anything in or about the Premises which will (i) cause structural injury to the
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Building, or (ii) cause damage to any part of the Building except to the extent
reasonably necessary for the installation of Tenant's Trade Fixtures and
Tenant's Alterations, and then only in a manner which has been first approved by
Landlord in writing. Tenant shall not operate any equipment within the Premises
which will (i) materially damage the Building or the Common Area, (ii) overload
existing electrical systems or other mechanical equipment servicing the
Building, (iii) impair the efficient operation of the sprinkler system or the
heating, ventilating or air conditioning ("HVAC") equipment within or servicing
the Building, or (iv) damage, overload or corrode the sanitary sewer system.
Tenant shall not attach, hang or suspend anything from the ceiling, roof, walls
or columns of the Building or set any load on the floor in excess of the load
limits for which such items are designed nor operate hard wheel forklifts within
the Premises. Any dust, fumes, or waste products generated by Tenant's use of
the Premises shall be contained and disposed so that they do not (i) create an
unreasonable fire or health hazard, (ii) damage the Premises, or (iii) result in
the violation of any Law. Except as approved by Landlord, Tenant shall not
change the exterior of the Building or install any equipment or antennas on or
make any penetration of the exterior or roof of the Building. Tenant shall not
commit any waste in or about the Premises, and Tenant shall keep the Premises in
a neat, clean, attractive and orderly condition, free of any nuisances. If
Landlord designates a standard window covering for use throughout the Building,
Tenant shall use this standard window covering to cover all windows in the
Premises. Tenant shall not conduct on any portion of the Premises or the Project
any sale of any kind, including any public or private auction, fire sale, going
out of business sale, distress sale or other liquidation sale.
4.2 Compliance with Regulations: Tenant shall not use the Premises in
any manner, which violates any Laws, or Private Restrictions, which affect the
Premises. Tenant shall abide by and promptly observe and comply with all Laws
and Private Restrictions (including, without limitation, the Americans with
Disabilities Act). Tenant shall not use the Premises in any manner, which will
cause a cancellation of any insurance policy covering Tenant's Alterations, or
any improvements installed by Landlord at its expense or which poses an
unreasonable risk of damage or injury to the Premises. Tenant shall not sell, or
permit to be kept, used, or sole in or about the Premises any article, which may
be prohibited by the standard form of fire insurance policy. Tenant shall comply
with all reasonable requirements of any insurance company, insurance
underwriter, or Board of Fire Underwriters, which are necessary to maintain the
insurance coverage carried by either Landlord or Tenant pursuant to this Lease.
4.3 Outside Areas: No materials, supplies, tanks or containers,
equipment, finished products or semi-finished products, raw materials,
inoperable vehicles or articles of any nature shall be stored upon or permitted
to remain outside of the Premises except in fully fenced and screened areas
outside the Building which have been designed for such purpose and have been
approved in writing by Landlord for such use by Tenant.
4.4 Signs: Tenant shall not place on any portion of the Premises any
sign, placard, lettering in or on windows, banner, displays or other advertising
or communicative material which is visible from the exterior of the Building
without the prior written approval of Landlord. All such approved signs shall
strictly conform to all Laws, Private Restrictions, and Landlord's sign criteria
attached as Exhibit J, and shall be installed at the expense of Tenant.
Tenant shall maintain such signs in good condition and repair.
4.5 No Light, Air or View Easement: Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to
the Building shall in no way affect this Lease or impose any liability on
Landlord.
4.6 Parking: Tenant is allocated and shall have the non-exclusive right
to use not more than the number of Tenant's Allocated Parking Stalls contained
within the Project described in Section H of the Summary for its use and the use
of Tenant's Agents, the location of which may be designated from time to time by
Landlord. Tenant shall not at any time use more parking spaces than the number
so allocated to Tenant or park its vehicles or the vehicles of others in any
portion of the Project not designated by Landlord as a non-exclusive parking
area. Tenant shall not have the exclusive right to use any specific parking
space. If Landlord grants to any other tenant the exclusive right to use any
particular parking space(s), Tenant shall not use such spaces. Landlord reserves
the right, after having given Tenant
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reasonable notice, to have any vehicles owned by Tenant or Tenant's Agents
utilizing parking spaces in excess of the parking spaces allowed for Tenant's
use to be towed away at Tenant's cost. All trucks and delivery vehicles shall be
(i) parked at the rear of the Building, (ii) loaded and unloaded in a manner
which does not interfere with the businesses of other occupants of the Project,
and (iii) permitted to remain on the Project only so long as is reasonably
necessary to complete loading and unloading. In the event Landlord elects or is
required by any Law to limit or control parking in the Project, whether by
validation of parking tickets or any other method of assessment, Tenant agrees
to participate in any such validation or assessment program under such
reasonable rules and regulations as are from time to time established by
Landlord.
4.7 Rules and Regulations: Landlord may from time to time promulgate
reasonable and nondiscriminatory rules and regulations applicable to all
occupants of the Project for the care and orderly management of the Project and
the safety of its tenants and invitees, including, without limitation, those set
forth on Exhibit G hereto. Such rules and regulations shall be binding upon
Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees to abide by
such rules and regulations. If there is a conflict between the rules and
regulations and any of the provisions of this Lease, the provision of this Lease
shall prevail. Landlord shall not be responsible for the violation by any other
tenant of the Project of any such rules and regulations.
ARTICLE 5
TRADE FIXTURES AND ALTERATIONS
5.1 Trade Fixtures: Throughout the Lease Term, Tenant may provide and
install, and shall maintain in good condition, any Trade fixtures required in
the conduct of its business in the Premises. All Trade Fixtures shall remain
Tenant's property.
5.2 Tenant's Alteration: Construction by Tenant of Tenant's Alterations
shall be governed by the following:
A. Tenant shall not construct any Tenant's Alterations or
otherwise alter the Premises without Landlord's prior written approval. Tenant
shall be entitled, without Landlord's prior approval, to make Tenant's
Alterations (i) which do not affect the structural or exterior parts or water
tight character of the Building, and (ii) the reasonably estimated cost of
which, plus the original cost of any part of the Premises removed or materially
altered in connection with such Tenant's Alterations, together do not exceed the
Permitted Tenant Alterations Limit specified in Section O of the Summary per
work of improvements. In the event Landlord's approval for any Tenant's
Alterations is required, Tenant shall not construct the Leasehold Improvement
until Landlord has approved in writing the plans and specifications therefor,
and such Tenant's Alterations shall be constructed substantially in compliance
with such approved plans and specifications by a licensed contractor first
approved by Landlord. All Tenant's Alterations constructed by Tenant shall be
constructed by a licensed contractor in accordance with all Laws using new
materials of good quality.
B. Tenant shall not commence construction of any Tenant's
Alterations until (i) all required governmental approvals and permits have been
obtained, (ii) all requirements regarding insurance imposed by this Lease have
been satisfied, (iii) Tenant has given Landlord at least five days' prior
written notice of its intention to commence such construction, and (iv) if
reasonably requested by Landlord, Tenant has obtained contingent liability and
broad form builders' risk insurance in an amount reasonably satisfactory to
Landlord if there are any perils relating to the proposed construction not
covered by insurance carried pursuant to Article 9.
C. All Tenant's Alterations shall remain the property of
Tenant during the Lease Term but shall not be altered or removed from the
Premises. At the expiration or sooner termination of the Lease Term, all
Tenant's Alterations shall be surrendered to Landlord as part of the realty and
shall then become Landlord's property, and
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Landlord shall have no obligation to reimburse Tenant for all or any portion of
the value or cost thereof; provided, however, that if Landlord requires Tenant
to remove any Tenant's Alterations, Tenant shall so remove such Tenant's
Alterations prior to the expiration or sooner termination of the Lease Term.
Notwithstanding the foregoing, Tenant shall not be obligated to remove any
Tenant's Alterations with respect to which the following is true: (i) Tenant was
required, or elected, to obtain the approval of Landlord to the installation of
the Leasehold Improvement in question; (ii) at the time Tenant requested
Landlord's approval, Tenant requested of Landlord in writing that Landlord
inform Tenant of whether or not Landlord would require Tenant to remove such
Leasehold Improvement at the expiration of the Lease Term; and (iii) at the time
Landlord granted its approval, it did not inform Tenant that it would require
Tenant to remove such Leasehold improvements at the expiration of the Lease
Term.
5.3 Alterations Required by Law: Tenant shall make any alteration,
addition or change of any sort to the Premises that is required by any Law
because of (i) Tenant's particular use or change of use of the Premises; (ii)
Tenant's application for any permit or governmental approval; (iii) Tenant's
construction or installation of any Tenant's Alterations or Trade Fixtures; or
(iv) the Americans with Disabilities Act. Any other alteration, addition, or
change required by Law, which is not the responsibility of Tenant pursuant to
the foregoing, shall be made by Landlord (subject to Landlord's right to
reimbursement from Tenant specified in Section 5.4).
5.4 Amortization of Certain Capital Improvements: Tenant shall pay
Additional Rent in the event Landlord reasonably elects or is required to make
any of the following kinds of capital improvements to the Project and the cost
thereof is not reimbursable as a Common Operating Expense: (i) capital
improvements required to be constructed in order to comply with any Law
(excluding Hazardous Materials Law) not in effect or applicable to the Project
as of the Effective Date, and specifically including the Americans with
Disabilities Act (as it applies to Common Areas); (ii) modification of existing
or construction of additional capital improvements or building service equipment
for the purpose of reducing the consumption of utility services or Common
Operating Expenses of the Project; (iii) replacement of capital improvements or
building service equipment existing as of the Effective Date when required
because of normal wear and tear; and (iv) restoration of any part of the Project
that has been damaged by any peril to the extent the cost thereof is not covered
by insurance proceeds actually recovered by Landlord up to a maximum amount per
occurrence of 10% of the then replacement cost of the Project. The amount of
Additional Rent Tenant is to pay with respect to each such capital improvement
shall be determined as follows:
A. All costs paid by Landlord to construct such improvements
(including financing costs) shall be amortized over the useful life of such
improvements (as reasonably determined by Landlord in accordance with generally
accepted accounting principles) with interest on the unamortized balance at the
then prevailing market rate Landlord would pay if it borrowed funds to construct
such improvements from an institutional leader (but in no event to exceed the
maximum legal rate), and Landlord shall inform Tenant of the monthly
amortization payment required to so amortize such costs, and shall also provide
Tenant with the information upon which such determination is made.
B. As Additional Rent, Tenant shall pay at the same time the
Base Monthly Rent is due an amount equal to Tenant's Share of that portion of
such monthly amortization payment fairly allocable to the Building (as
reasonably determined by Landlord) for each month after such improvements are
completed until the first to occur of (i) the expiration of the Lease Term (as
it may be extended), or (ii) the end of the term over which such costs were
amortized.
5.5 Mechanic's Liens: Tenant shall keep the Project free from any liens
and shall pay when due all bills arising out of any work performed, materials
furnished, or obligations incurred by Tenant or Tenant's Agents relating to the
Project. If any claim of lien is recorded (except those caused by Landlord or
Landlord's Agents), Tenant shall bond against or discharge the same within 10
days after the same has been recorded against the Project. Should any lien be
filed against the Project or any action be commenced affecting title to the
Project, the party receiving notice of such lien or action shall immediately
give the other party written notice thereof.
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5.6 Taxes on Tenant's Property: Tenant shall pay before delinquency any
and all taxes, assessments, license fees and public charges levied, assessed or
imposed against Tenant or Tenant's estate in this Lease or the property of
Tenant situated within the Premises which become due during the Lease Term. If
any tax or other charge is assessed by any governmental agency because of the
execution of this Lease, such tax shall be paid by Tenant. On demand by
landlord, Tenant shall furnish Landlord with satisfactory evidence of these
payments.
ARTICLE 6
REPAIR AND MAINTENANCE
6.1 Tenant's Obligation to Maintain: Except as otherwise provided in
Section 6.2, Section 11.1, and Section 12.3, Tenant shall, at all times during
the Lease Term, maintain the Premises in good order, condition and repair.
Tenant shall be responsible for the maintenance, repair and replacement, when
necessary of wall, window and floor coverings.
6.2 Landlord's Obligation to Maintain: Landlord shall repair and
maintain, in reasonably good condition except as provided in Section 11.2 and
Section 12.1 the following: (i) the structural parts of the Building (including
foundation, load-bearing and exterior walls, subflooring and roof), (ii) the
Common Area of the Building, (iii) the electrical, utility, plumbing, sewage and
HVAC equipment servicing of the Building, installed or furnished by Landlord,
and (iv) interior demising walls and partitions (but not wall or partition
coverings), windows, ceiling light fixtures, drop ceiling and doors. It is an
express condition precedent to all Landlord's Obligations to repair and maintain
that Tenant shall have first notified Landlord in writing of the need for such
repairs and maintenance.
6.3 Control of Common Area: Landlord shall at all times have exclusive
control of the Common Area. Landlord shall have the right, without the same
constituting an actual or constructive eviction and without entitling Tenant to
any abatement of rent, to: (i) close any part of the Common Area to whatever
extent required in the opinion of Landlord's counsel to prevent a dedication
thereof or the accrual of any prescriptive rights therein; (ii) temporarily
close the Common Area to perform maintenance or for any other reason deemed
sufficient by Landlord; (iii) change the shape, size, location and extent of the
Common Area; (iv) eliminate from or add to the Project any land or improvement,
including multi-deck parking structures; (v) make changes to the Common Area
including, without limitation, changes in the location of driveways, entrances,
passageways, doors and doorways, elevators, stairs, restrooms, exits, parking
paces, parking areas, sidewalks or the direction of the flow of traffic and the
site of the Common Area; (vi) remove unauthorized persons from the Project,
and/or (vii) change the name or address of the Building or Project. Tenant shall
keep the Common Area clear of all obstructions created or permitted by Tenant.
If in the opinion of Landlord unauthorized persons are using any of the Common
Area by reason of the presence of Tenant in the Building, Tenant, upon demand of
Landlord, shall restrain such unauthorized use by appropriate proceedings. In
exercising any such rights regarding the Common Area, (i) Landlord shall make a
reasonable effort to minimize any disruption to Tenant's business, and (ii)
Landlord shall not exercise its rights to control the Common Area in a manner
that would materially interfere with Tenant's use of the Premises without first
obtaining Tenant's consent.
ARTICLE 7
WASTE DISPOSAL AND UTILITIES
7.1 Waste Disposal: Tenant shall store its waste either inside the
Premises or within outside trash enclosures that are fully fenced and screened
in compliance with all Private Restrictions, and designed for such purpose. All
entrances to such outside trash enclosures shall be kept closed, and waste shall
be stored in such manner as not to be visible from the exterior of such outside
enclosures. Tenant shall keep all fire corridors and mechanical equipment rooms
in the Premises free and clear of all obstructions at all times.
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7.2 Hazardous Materials: Landlord and Tenant agree as follows with
respect to the existence or use of Hazardous Materials on the Project:
A. As a condition to the effectiveness of this Lease, Tenant
shall accurately and fully complete Landlord's Hazardous Materials Questionnaire
in the form attached hereto as Exhibit H. This Lease shall be of no force or
effect unless and until Landlord approves Tenant's completed Hazardous Materials
Questionnaire. Any handling, transportation, storage, treatment, disposal or use
of Hazardous Materials by Tenant and Tenant's Agents after the Effective Date in
or about the Project shall strictly comply with all applicable Hazardous
Materials Laws. Tenant shall save, protect, indemnify, defend upon demand with
counsel reasonably acceptable to Landlord, and hold harmless Landlord from and
against any liabilities, losses, claims, damages, lost profits, consequential
damages, interest, penalties, fines, monetary sanctions, attorneys' fees,
experts' fees, court costs, remediation costs, investigation costs, and other
expenses which result from or arise in any manner whatsoever out of the use,
storage, treatment, transportation, release, or disposal of Hazardous Materials
on or about the Project by Tenant or Tenant's Agents after the Effective Date.
B. If the presence of Hazardous Materials on the Project
caused or permitted by Tenant or Tenant's Agents after the Effective Date
results in contamination or deterioration of water or soil resulting in a level
of contamination greater than the levels established as acceptable by any
governmental agency having jurisdiction over such contamination, then Tenant
shall promptly take any and all action necessary to investigate and remediate
such contamination if required by Law or as a condition to the issuance or
continuing effectiveness of any governmental approval which relates to the use
of the Project or any part thereof. Tenant shall further be solely responsible
for, and shall save, protect, defend, indemnify and hold Landlord and its agents
harmless from and against, all claims, costs and liabilities, including
attorneys' fees, experts' fees, and costs, arising out of or in connection with
any investigation and remediation required hereunder to return the Project to
its condition existing prior to the appearance of such Hazardous Materials.
C. Landlord and Tenant shall each give written notice to the
other as soon as reasonably practicable of (i) any communication received from
any governmental authority concerning Hazardous Materials which relates to the
Project, and (ii) any contamination of the Project by Hazardous Materials which
constitutes a violation of any Hazardous Materials Law. Tenant may use small
quantities of household chemicals such as adhesives, lubricants, and cleaning
fluids in order to conduct its business at the Premises and such other Hazardous
Materials as are necessary for the operation of Tenant's business of which
Landlord receives notice prior to such Hazardous Materials being brought onto
the Premises and which Landlord consents in writing may be brought onto the
Premises. At any time during the Lease Term, Tenant shall, within five days
after written request therefor received from Landlord, disclose in writing all
Hazardous Materials that are being used by Tenant on the Project, the nature of
such use, and the manner of storage and disposal.
D. Landlord may cause testing wells to be installed on the
Project, and may cause the ground water to be tested to detect the presence of
Hazardous Material by the use of such tests as are then customarily used for
such purposes. If Tenant so requests, Landlord shall supply Tenant with copies
of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such wells shall be paid by Tenant if
such tests disclose the existence of facts which give rise to liability of
Tenant pursuant to its indemnity given in Section 7.2A and/or Section 7.2B.
E. As used herein, the term "Hazardous Material," means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government. The term "Hazardous Material," includes, without limitation,
petroleum products, asbestos, PCB's, and any material or substance with is (i)
listed under Article 9 or defined as hazardous or extremely hazardous pursuant
to Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20, (ii) defined as a "hazardous waste" pursuant to Section 1004 of the
Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901
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et seq. (42 U.S.C. 6903), or (iii) defined as a "hazardous substance" pursuant
to Section 101 of the Comprehensive Environmental Response; Compensation and
Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601). As used herein, the term
"Hazardous Material Law" shall mean any statute, law, ordinance, or regulation
of any governmental body or agency (including the U.S. Environmental Protection
Agency, the California Regional Water Quality Control Board, and the California
Department of Health Services) which regulates the use, storage, release or
disposal of any Hazardous Material.
F. The obligations of Landlord and Tenant under this Section
7.2 shall survive the expiration or earlier termination of the Lease Term. The
rights and obligations of Landlord and Tenant with respect to issues relating to
Hazardous Materials are exclusively established by this Section 7.2. In the
event of any inconsistency between any other part of this Lease and this Section
7.2, the terms of this Section 7.2 shall control.
7.3 Utilities: Tenant shall promptly pay, as the same become due, all
charges for water, gas, electricity, telephone, sewer service, waste pick-up and
any other utilities, materials or services furnished directly to or used by
Tenant on or about the Premises during the Lease Term, including, without
limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fee
(excluding any connection fees or hook-up fees which relate to making the
existing electrical, gas, and water service available to the Premises as of the
Commencement Date), and (ii) penalties for discontinued or interrupted service.
However, if Landlord determines that Tenant is using a disproportionate amount
of any utility service not separately metered, then Landlord at its election may
(i) periodically charge Tenant, as Additional Rent, a sum equal to Landlord's
reasonable estimate of the cost of Tenant's excess use of such utility service,
or (ii) install a separate meter (at Tenant's expense) to measure the utility
service supplied to the Premises.
7.4 Utilities and Services. Provided that there are no uncured Events
of Tenant's Default, Landlord agrees to furnish or cause to be furnished to the
Premises the utilities and services described in the Landlord Services, attached
hereto as Exhibit F, subject to the conditions and in accordance with the
standards set forth therein. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall rent be
abated by reason of failure to furnished any of the foregoing items as a result
of: (a) accident, breakage, or repairs; (b) strikes, lockouts or other labor
disturbance or labor dispute of any character; (c) governmental regulation,
moratorium or other governmental action; (d) inability, despite the exercise of
reasonable diligence, to obtain electricity, water or fuel; (e) interruption
necessary to install or repair facilities in the Building; or (f) any other
causes beyond Landlord's reasonable control. In the event of any failure,
stoppage or interruption of such services, Landlord shall diligently attempt to
resume service promptly.
7.5 Compliance with Governmental Regulations. Landlord and Tenant shall
comply with all rules, regulations and requirements promulgated by national,
state or local governmental agencies or utility suppliers concerning the use of
utility services, including any rationing, limitation or other control. Tenant
shall not be entitled to terminate this Lease nor to any abatement in rent by
reason of such compliance.
ARTICLE 8
COMMON OPERATING EXPENSES
8.1 Tenant's Obligations to Reimburse. As Additional Rent, Tenant shall
pay Tenant's Share (specified in Section G of the Summary) of the amount (if
any) by which Common Operating Expenses paid or incurred in any calendar year
during the Lease Term exceeds the Common Operating Expense Base Amount
identified in Section P of the Summary (which excess is referred to herein as
the "Excess Expense") for any annual period or portion hereof. If the Project
contains more than one building, then Tenant shall pay Tenant's Share of the
Excess Expenses for the calendar year in question based upon the Common
Operating Expenses fairly allocable to the Building, which includes (i) all
Common Operating Expenses paid with respect to the maintenance, repair,
replacement and use of the Building, and (ii) a proportionate share based on the
Building Rentable Area as a percentage of the Project Rentable Area of the
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Common Operating Expenses which relate to the Project in general and are not
fairly allocable to any one building within the Project. The following provision
shall apply to the foregoing obligation of Tenant:
A. Payment shall be made by whichever of the following methods
is from time to time designed by Landlord, and Landlord may change the method of
payment at any time. After each calendar year during the Lease Term, Landlord
may invoice Tenant for Tenant's Share of the Excess Expenses for such calendar
year, and Tenant shall pay such amounts so invoiced within five (5) days after
receipt of such notice. Alternatively, (i) Landlord shall deliver to Tenant
Landlord's reasonable estimate of the Excess Expenses it anticipates will be
paid or incurred for the calendar year in question; (ii) during such calendar
year, Tenant shall pay such Tenant's Share of the estimated Excess Expenses in
advance in equal monthly installments due with each installment of the Base
Monthly Rent; and (iii) within ninety (90) days after the end of such calendar
year, Landlord shall furnish to Tenant a statement in reasonable detail of the
actual Excess Expenses paid or incurred by landlord in accordance with this
paragraph during the just ending calendar year, and thereupon there shall be an
adjustment between Landlord and Tenant, with payment to or repayment by
Landlord, as the case may require, within five (5) days after delivery by
Landlord to Tenant of such statement, to the end that Landlord shall receive the
entire amount of Tenant's Share of all the Excess Expenses for such calendar
year and no more.
B. Tenant shall have the right, exercisable upon reasonable
prior notice to Landlord in writing, to inspect Landlord's books and records
relating to Common Operating Expenses at Landlord's office within 90 days of
receipt of any annual statement for the same, for the purpose of verifying the
charges contained in such statement.
Tenant may not withhold payment pending completion of such inspection.
8.2 Common Operating Expenses Defined: The term "Common Operating
Expenses" shall mean the following:
A. All costs and expenses paid or incurred by Landlord in
doing the following (including payments to independent contractors providing
services related to the performance of the following): (i) maintaining,
cleaning, repairing and resurfacing the roof (including repair of leaks) and the
exterior surfaces (including painting) of all buildings located on the Project;
(ii) maintenance of the liability, fire and property damage insurance covering
the Project carried by Landlord pursuant to Section 9.2 (including the
prepayment of premiums for coverage of up to one year); (iii) maintaining,
repairing, operating and replacing when necessary HVAC equipment, utility
facilities and other building service equipment; (iv) providing utilities to the
Common Area (including lighting, trash removal and water for landscaping
irrigation); (v) complying with all applicable Laws and Private Restrictions;
(vi) operating, maintaining, repairing, cleaning, painting, restriping and
resurfacing the Common Area; (vii) replacement or installation of lighting
fixtures, directional or other signs and signals, irrigation systems, trees,
shrubs, ground cover and other plant materials, and all landscaping in the
Common Area; and (viii) providing security; and (ix) staffing and administering
(including supplies, telephones, equipment rental, payroll burden, professional
fees, taxes and licenses and tenant and broker relations) an on-site project
office.
B. The following costs: (i) Real Property Taxes as defined in
Section 8.3; (ii) the amount of any "deductible" paid by Landlord with respect
to damage caused by any Insured Peril; (iii) the cost to repair damage caused by
an Uninsured Peril up to a maximum amount in any 12 month period equal to 2% of
the replacement cost of the buildings or other improvements damaged; and (iv)
that portion of all compensation (including benefits and premiums for workers'
compensation and other insurance) paid to or on behalf of employees of Landlord
but only to the extent they are involved in the performance of the work
described by Section 8.2A that is fairly allocable to the Project;
C. Fees for management services rendered by either Landlord or
a third party manager engaged by Landlord (which may be a party affiliated with
Landlord).
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D. All additional costs and expenses incurred by Landlord with
respect to the operation, protection, maintenance, repair and replacement of the
Project which would be considered a current expense (and not a capital
expenditure) pursuant to generally accepted accounting principles; provided,
however, that Common Operating Expenses shall not include any of the following:
(i) payments on any loans or ground leases affecting the Project; (ii)
depreciation of any buildings or any major systems of building service equipment
within the Project; (iii) leasing commissions; (iv) the cost of tenant
improvements installed for the exclusive use of other tenants of the Project;
and (v) any cost incurred in complying with Hazardous Materials Laws, which
subject is governed exclusively by Section 7.2.
8.3 Real Property Taxes Defined: The term "Real Property Taxes" shall
mean all taxes, assessments, levies and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any existing or future
general or special assessments for public improvements, services or benefits,
and any increases resulting from reassessments resulting from a change in
ownership, new construction or any other cause), now or hereafter imposed by an
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with special district having the direct or indirect power
to tax or levy assessments, which are levied or assessed against, or with
respect to the value, occupancy or use of all or any portion of the Project (as
now constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein, the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of and
located on the Project, the gross receipts, income, or rentals from the Project,
or the use of parking areas, public utilities, or energy within the Project, or
Landlord's business of leasing the Project. If at any time during the Lease Term
the method of taxation or assessment of the Project prevailing as of the
Effective Date shall be altered so that in lieu of or in addition to any Real
Property Tax described above there shall be levied, assessed or imposed (whether
by reason of a change in the method of taxation or assessment, creation of a new
tax or charge, or any other cause) an alternate or additional tax or charge (i)
on the value, use or occupancy of the Project or Landlord's interest therein, or
(ii) on or measured by the gross receipts, income or rentals from the project,
on Landlord's business of leasing the project, or computed in any manner with
respect to the operation of the Project, then any such tax or charge, however
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the project, then only that part of such Real
Property Tax that is fairly allocable to the project shall be included within
the meaning of the term "Real Property Taxes". Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, transfer,
gift or franchise taxes of Landlord or the federal or state net income tax
imposed on Landlord's income from all sources. Tenant acknowledges that the
"assessments" referred to in this Section 8.3 may include assessment districts
or other funding mechanisms, including but not limited to, improvement
districts, maintenance districts, special services zones or districts, or any
combination thereof (collectively hereafter called "Assessment Districts") for
the construction, alteration, expansion, improvement, completion, repair,
operation, or maintenance, as the case may be, of on-site or off-site
improvements, or services, or any combination thereof as required by the City of
Pleasanton (the "City"), as a condition of approving or modifying the
development of which the Premises are a part. These Assessment Districts may
provide, among other things, the following improvements or services: streets,
curbs, interchanges, highways, traffic noise studies and mitigation measures,
traffic control systems and expansion of city facilities to operate same,
landscaping and lighting maintenance services, maintenance of flood and control
facilities, water storage and distribution facilities, fire apparatus, manpower,
and other fire safety facilities, and sports facilities. Tenant hereby consents
to the formation of any and all existing and future Assessment Districts and
waives any and all rights of notice and any and all rights of protest in
connection with formation of any Assessment Districts and agrees to execute all
documents, including, but not limited to, formal waivers of notice and protest,
evidencing such consent and waiver upon request of Landlord or the City.
ARTICLE 9
INSURANCE
9.1 Tenant's Insurance: Tenant shall maintain insurance complying with
all of the following:
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A. Tenant shall procure, pay for and keep in full force and
effect the following:
(1) Commercial general liability insurance, including
property damage, against liability for personal injury, bodily injury, death and
damage to property occurring in or about, or resulting from an occurrence in or
about, the Premises with combined single limit coverage of not less than the
amount of Tenant's Liability Insurance Minimum specified in Section Q of the
Summary, which insurance shall contain a "contractual liability" endorsement
insuring Tenant's performance of Tenant's obligation to indemnify Landlord
contained in Section 10.3;
(2) Fire and property damage insurance in so-called
"all risk" form insuring Tenant's Trade Fixtures and Tenant's Alterations for
the full actual replacement cost thereof;
(3) Such other insurance that is either (i) required
by any Lender, or (ii) reasonably required by Landlord and customarily carried
by tenants of similar property in similar businesses.
B. Where applicable and required by Landlord, each policy of
insurance required to be carried by Tenant pursuant to this Section 9.1: (i)
shall name Landlord and such other parties in interest as Landlord reasonably
designates as additional insured; (ii) shall be primary insurance which provides
that the insurer shall be liable for the full amount of the loss up to and
including the total amount of liability set forth in the declarations without
the right of contribution from any other insurance coverage of Landlord; (iii)
shall be in a form satisfactory to Landlord; (iv) shall be carried with
companies reasonably acceptable to Landlord; (v) shall provide that such policy
shall not be subject to cancellation, lapse or change except after at least 30
days prior written notice to Landlord so long as such provision of 30 days
notice is reasonably obtainable, but in any event not less than 10 days prior
written notice; (vi) shall not have a "deductible" in excess of such amount as
is approved by Landlord; (vii) shall contain a cross liability endorsement; and
(viii) shall contain a "severability" clause. If Tenant has in full force and
effect a blanket policy of liability insurance with the same coverage for the
Premises as described above, as well as other coverage of other premises and
properties of Tenant, or in which Tenant has some interest, such blanket
insurance shall satisfy the requirements of this Section 9.1.
C. A copy of each paid-up policy evidencing the insurance
required to be carried by Tenant pursuant to this Section 9.1 (appropriately
authenticated by the insurer) or a certificate of the insurer, certifying that
such policy has been issued, providing the coverage required by this Section
9.1, and containing the provisions specified herein, shall be delivered to
Landlord prior to the time Tenant or any of its Agents enters the Premises and
upon renewal of such policies, but not less than 5 days prior to the expiration
of the term of such coverage. Landlord may, at any time, and from time to time,
inspect and/or copy and all insurance policies required to be procured by Tenant
pursuant to this Section 9.1. If any Lender or insurance advisor reasonably
determines at any time that the amount of coverage required for any policy of
insurance Tenant is to obtain pursuant to this Section 9.1 is not adequate, then
Tenant shall increase such coverage for such insurance to such amount as such
Lender or insurance advisor reasonably deems adequate, not to exceed the level
of coverage for such insurance commonly carried by comparable businesses
similarly situated.
9.2 Landlord's Insurance: Landlord shall have the following obligations
and options regarding insurance:
A. Landlord shall maintain a policy or polices of fire and
property insurance in so-called "all risk" form insuring Landlord (and such
others as Landlord may designate) against loss of rents for a period of not less
than 12 months and from physical damage to the Project with coverage of not less
than the full replacement cost thereof. Landlord may so insure the Project
separately, or may insure the Project with other property owned by Landlord,
which Landlord elects to insure together under the same policy or policies. Such
fire and property damage insurance (i) may be endorsed to cover loss caused by
such additional perils against which Landlord may elect to insure, including
earthquake and/or flood, and to provide such additional coverage as Landlord
reasonably requires, and (ii) shall contain reasonable "deductibles" which, in
the case of earthquake and flood insurance, may be up to 10% of the replacement
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value of the property insured or such higher amount as is then commercially
reasonable. Landlord shall not be required to cause such insurance to cover any
Trade Fixtures or Tenant's Alterations of Tenant.
B. Landlord may maintain a policy or policies of commercial
general liability insurance insuring Landlord (and such others as are designated
by Landlord) against liability for personal injury, bodily injury, death and
damage to property occurring or resulting from and occurrence in, on or about
the project, with combined single limit coverage in such amount as Landlord from
time to time determines is reasonably necessary for its protection.
9.3 Tenant's Obligation to Reimburse: If Landlord's insurance rates for
the Building are increased at any time during the Lease Term as a result of the
nature of Tenant's use of the Premises, Tenant shall reimburse Landlord for the
full amount of such increase immediately upon receipt of a bill from Landlord
therefor.
9.4 Release and Waiver of Subrogation: The parties hereto release each
other, and their respective agents and employees, from any liability for injury
to any person or damage to property that is caused by or results from any risk
insured against under any valid and collectible insurance policy carried by
either of the parties which contains a waiver of subrogation by the insurer and
is in force at the time of such injury or damage; subject to the following
limitations: (i) the foregoing provision shall not apply to the commercial
general liability insurance described by subparagraphs Section 9.1A and Section
9.2B; (ii) such release shall apply to liability resulting from any risk insured
against or covered by self-insurance maintained or provided by Tenant to satisfy
the requirements of Section 9.1 to the extent permitted by this Lease; and (iii)
Tenant shall not be released from any such liability to the extent any damages
resulting from such injury or damage are not covered by the recovery obtained by
Landlord from such insurance, but only if the insurance in questions permits
such partial release in connection with obtaining a waiver of subrogation from
the insurer. This release shall be in effect only so long as the applicable
insurance policy contains a clause to the effect that this release shall not
affect the right of the insured to recover under such policy. Each party shall
use reasonable efforts to cause each insurance policy obtained by it to provide
that the insurer waives all right of recovery by way of subrogation against the
other party and its agents and employees in connection with any injury or damage
covered by such policy. However, if any insurance policy cannot be obtained with
such a waiver of subrogation, or if such waiver of subrogation is only available
at additional cost and the party for whose benefit the waiver is to be obtained
does not pay such additional cost, then the party obtaining such insurance shall
notify the other party of that fact and thereupon shall be relieved of the
obligation to obtain such waiver of subrogation rights from the insurer with
respect to the particular insurance involved.
ARTICLE 10
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
10.1 Limitation on Landlord's Liability: Landlord shall not be liable
to Tenant, nor shall Tenant be entitled to terminate this Lease or to any
abatement of rent (except as expressly provided otherwise herein), for any
injury to Tenant or Tenant's Agents, damage to the property of Tenant or
Tenant's Agents, or loss to Tenant's business resulting from any cause,
including without limitation any: (i) failure, interruption or installation of
any HVAC or other utility system or service; (ii) failure to furnish or delay in
furnishing any utilities or services when such failure or delay is caused by
fire or other peril, the elements, labor disturbances of any character, or any
other accidents or other conditions beyond the reasonable control of Landlord;
(iii) limitation, curtailment, rationing or restriction on the use of water or
electricity, gas or any other form of energy or any services or utility serving
the Project; (iv) vandalism or forcible entry by unauthorized persons or the
criminal act of any person; or (v) penetration of water into or onto any portion
of the Premises or the Building through roof leaks or otherwise. Notwithstanding
the foregoing but subject to Section 9.4, Landlord shall be liable for any such
injury, damage or loss which is proximately caused by Landlord's willful
misconduct or gross negligence of which Landlord has actual notice and a
reasonable opportunity to cure but which it fails to so cure.
10.2 Limitation on Tenant's Recourse: If Landlord is a corporation,
trust, partnership, joint venture, unincorporated association or other form of
business entity: (i) the obligations of Landlord shall not constitute personal
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obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals or representatives of such
business entity; and (ii) Tenant shall not have recourse to the assets of such
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders, principals or representatives except to the extent of their
interest in the Project. Tenant shall have recourse only to the interest of
Landlord in the Project for the satisfaction of the obligations of Landlord and
shall not have recourse to any other assets of Landlord for the satisfaction of
such obligations.
10.3 Indemnification of Landlord: Tenant shall save, protect, hold
harmless, indemnify and defend Landlord, and its employees, agents and
contractors, with competent counsel reasonably satisfactory to Landlord (and
Landlord agrees to accept counsel that any insurer requires be used), from all
liability, penalties, losses, damages, costs, expenses, causes of action, claims
and/or judgments arising by reason of any death, bodily injury, personal injury
or property damage resulting from (i) any cause or causes whatsoever (other than
the willful misconduct or gross negligence of Landlord of which Landlord has had
notice and a reasonable time to cure, but which Landlord has failed to cure)
occurring in or about or resulting from an occurrence in or about the Premises
during the Lease Term, (ii) the negligence or willful misconduct of Tenant or
its agents, employees and contractors, wherever the same may occur, or (iii) an
Event of Tenant's Default. The provisions of this Section 10.3 shall survive the
expiration or sooner termination of this Lease.
ARTICLE 11
DAMAGE TO PREMISES
11.1 Landlord's Duty to Restore: If the Premises are damaged by any
peril after the Effective Date, Landlord shall restore the Premises unless
Landlord terminates the Lease pursuant to Section 11.2 or by Tenant pursuant to
Section 11.3. All insurance proceeds available from the fire and property damage
insurance carried by Landlord pursuant to Section 9.2 shall be paid to and
become the property of Landlord. If this Lease is terminated pursuant to either
Section 11.2 or Section 11.3, then all insurance proceeds available from
insurance carried by Tenant which covers loss to property that is Landlord's
property or would become Landlord's property on termination of this Lease shall
be paid to and become the property of Landlord. If this Lease is not so
terminated, then upon receipt of the insurance proceeds (if the loss is covered
by insurance) and the issuance of all necessary governmental permits, Landlord
shall commence and diligently prosecute to completion the restoration of the
Premises, to the extent then allowed by Law, to substantially the same condition
in which the Premises were immediately prior to such damage. Landlord's
obligation to restore shall be limited to the Premises and interior improvements
constructed by Landlord as they existed as of the Commencement Date, excluding
any Tenant's Alterations, Trade Fixtures and/or personal property constructed or
installed by Tenant in the Premises. Tenant shall forthwith replace or fully
repair all Tenant's Alterations and Trade Fixtures installed by Tenant and
existing at the time of such damage or destruction, and all insurance proceeds
received by Tenant from the insurance carried by it pursuant to Section 9.1A(2)
shall be used for such purpose.
11.2 Landlord's Right to Terminate: Landlord shall have the right to
terminate this Lease in the event any of the following occurs, which right may
be exercised only by delivery to Tenant of a written notice of election to
terminate within 30 days after the date of such damage:
A. Either the Project or the Building is damaged by an Insured
Peril to such an extent that the estimated cost to restore exceeds 33% of the
then actual replacement cost thereof;
B. Either the Project or the Building is damaged by an
Uninsured Peril to such an extent that the estimated cost to restore exceeds 2%
of the then actual replacement cost thereof; provided, however, that Landlord
may not terminate this Lease pursuant to this Section 11.2B if one or more
tenants of the Project agree in writing to pay the amount by which the cost to
restore the damage exceeds such amount and subsequently deposit such amount with
Landlord within 30 days after Landlord has notified Tenant of its election to
terminate this Lease;
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C. The Premises are damaged by any peril within 12 months of
the last day of the Lease Term to such an extent that the estimated cost to
restore equals or exceeds an amount equal to six times the Base Monthly Rent
then due; provided, however, that Landlord may not terminate this Lease pursuant
to this Section 11.2C if Tenant, at the time of such damage, has a then valid
express written option to extend the Lease Term and Tenant exercises such option
to extend the Lease Term within 15 days following the date of such damage; or
D. Either the Project or the Building is damaged by any peril
and, because of the Laws then in force, (i) cannot be restored at reasonable
cost to substantially the same condition in which it was prior to such damage,
or (ii) cannot be used for the same use being made thereof before such damage if
restored as required by this Article.
E. As used herein, the following terms shall have the
following meanings: (i) the term "Insured Peril" shall mean a peril actually
insured against for which the insurance proceeds actually received by Landlord
are sufficient (except for any "deductible" amount specified by such insurance)
to restore the Project under then existing building codes to the condition
existing immediately prior to the damage; and (ii) the term "Uninsured Peril"
shall mean any peril which is not an Insured Peril. Notwithstanding the
foregoing, if the "deductible" for earthquake or flood insurance exceeds 2% of
the replacement cost of the improvements insured, such peril shall be deemed an
"Uninsured Peril".
11.3 Tenant's Right to Terminate: If the Premises are damaged by any
peril and Landlord does not elect to terminate this Lease or is not entitled to
terminate this Lease pursuant to Section 11.2, then as soon as reasonably
practicable, Landlord shall furnish Tenant with the written opinion of
Landlord's architect or construction consultant as to when the restoration work
required of Landlord may be completed. Tenant shall have the right to terminate
this Lease in the event any of the following occurs, which right may be
exercised only by delivery to Landlord of a written notice of election to
terminate within 7 days after Tenant receives from Landlord the estimate of the
time needed to complete such restoration.
A. The Premises are damaged by any peril and, in the
reasonable opinion of Landlord's architect or construction consultant, the
restoration of the Premises cannot be substantially completed within 270 days
after the date of such damage; or
B. The Premises are damaged by any peril within 12 months of
the last day of the Lease Term and, in the reasonable opinion of Landlord's
architect or construction consultant, the restoration of the Premises cannot be
substantially completed within 90 days after the date of such damage and such
damage renders unusable more than 30% of the Premises.
11.4 Abatement of Rent: In the event of damage to the Premises which
does not result in the termination of this Lease, the Base Monthly Rent and the
Additional Rent shall be temporarily abated during the period of restoration in
proportion to the degree to which Tenant's use of the Premises is impaired by
such damage. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of Tenant's business or property or for any inconvenience or
annoyance caused by such damage or restoration. Tenant hereby waives the
provisions of California Civil Code Sections 1932(2) and 1933(4) and the
provisions of any similar law hereinafter enacted.
ARTICLE 12
CONDEMNATION
12.1 Landlord's Termination Right: Landlord shall have the right to
terminate this Lease if, as a result of a taking by means of the exercise of the
power of eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation), (i) all or any part of the Premises is
so taken, (ii) more than 10% of the
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Building Rentable Area is so taken, or (iii) more than 50% of the Common Area is
so taken. Any such right to terminate by Landlord must be exercised within a
reasonable period of time, to be effective as of the date possession is taken by
the condemnor.
12.2 Tenant's Termination Right: Tenant shall have the right to
terminate this Lease if, as a result of any taking by means of the exercise of
the power of eminent domain (including any voluntary sale or transfer by
Landlord to any condemnor under threat of condemnation), (i) 10% or more of the
Premises is so taken and that part of the Premises that remains cannot be
restored within a reasonable period of time and thereby made reasonably suitable
for the continued operation of the Tenant's business, or (ii) there is a taking
affecting the Common Area and, as a result of such taking, Landlord cannot
provide parking spaces within reasonable walking distance of the Premises equal
in number to at least 80% of the number of spaces allocated to Tenant by Section
2.1, whether by rearrangement of the remaining parking areas in the Common Area
(including construction of multi-deck parking structures or restriping for
compact cars where permitted by Law) or by alternative parking facilities on
other land. Tenant must exercise such right within a reasonable period of time,
to be effective on the date that possession of that portion of the Premises or
Common Area that is condemned is taken by the condemnor.
12.3 Restoration and Abatement of Rent: If any part of the Premises or
the Common Area is taken by condemnation and this Lease is not terminated, then
Landlord shall restore the remaining portion of the Premises and Common Area and
interior improvements constructed by Landlord as they existed as of the
Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or
personal property constructed or installed by Tenant. Thereafter, except in the
case of a temporary taking, as of the date possession is taken, the Base Monthly
Rent shall be reduced in the same proportion that the floor area of that part of
the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises.
12.4 Temporary Taking: If any portion of the Premises is temporarily
taken for one year or less, this Lease shall remain in effect. If any portion of
the Premises is temporarily taken by condemnation for a period which exceeds one
year or which extends beyond the natural expiration of the Lease Term, and such
taking materially and adversely affects Tenant's ability to use the Premises for
the Permitted Use, then Tenant shall have the right to terminate this Lease,
effective on the date possession is taken by the condemnor.
12.5 Division of Condemnation Award: Any award made as a result of any
condemnation of the Premises or the Common Area shall belong to and be paid to
Landlord, and Tenant hereby assigns to Landlord all of its right, title and
interest in any such award; provided, however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant for the following
so long as the award made to Landlord is not thereby reduced: (i) for the taking
of personal property or Trade Fixtures belonging to Tenant; (ii) for the
interruption of Tenant's business or its moving costs; (iii) for loss of
Tenant's goodwill; or (iv) for any temporary taking where this Lease is not
terminated as a result of such taking. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article, and
each party hereby waives the provisions of California Code of Civil Procedure
Section 1265.130 and the provisions of any similar law hereinafter enacted
allowing either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises. Any award other than for a
temporary taking shall be solely for the benefit of Landlord, and Tenant hereby
waives any right thereto (including, without limitation, any award based upon
any "bonus value" of this Lease). Tenant hereby waives the provisions of any Law
governing a lessee's right to terminate a leasehold or share in any award
therefor to the extent inconsistent with this Article 12.
ARTICLE 13
DEFAULT AND REMEDIES
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13.1 Events of Tenant's Default: Tenant shall be in default of its
obligations under this Lease if any of the following events occur (an "Event of
Tenant's Default"):
A. Tenant shall have failed to pay Base Monthly Rent or
Additional Rent when due, and such failure is not cured within 3 days after
delivery of written notice from Landlord specifying such failure to pay; or
B. Tenant shall have failed to perform any term, covenant, or
condition of this Lease except those requiring the payment of Base Monthly Rent
or Additional Rent, and Tenant shall have failed to cure such breach within 30
days after written notice from Landlord specifying the nature of such breach
where such breach could reasonably be cured within said 30 day period, or if
such breach could not be reasonably cured within said 30 day period, Tenant
shall have failed to commence such cure within said 30 day period and thereafter
continue with due diligence to prosecute such cure to completion within such
time period as is reasonably needed but not to exceed 90 days from the date of
Landlord's notice; or
C. Tenant shall have sublet the Premises or assigned its
interest in the Lease in violation of the provisions contained in Article 14; or
D. Tenant shall have abandoned the Premises or left the
Premises substantially vacant; or
E. The occurrence of the following: (i) the making the Tenant
of any general arrangements or assignments for the benefit of creditors; (ii)
Tenant becomes a "debtor" as defined in 11 USC Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Tenant, the
same is dismissed within 60 days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where possession is not
restored to Tenant within 30 days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within 30 days; provided, however, in the event that any provision of this
Paragraph 13.1E is contrary to any applicable Law, such provision shall be of no
force or effect; or
F. Tenant shall have failed to deliver documents required of
it pursuant to Section 15.4 or Section 15.6 within the time periods specified
therein.
13.2 Landlord's Remedies: If an Event of Tenant's Default occurs,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by any Law or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
A. Landlord may keep this Lease in effect and enforce by an
action at law or in equity all of its rights and remedies under this Lease,
including (i) the right to recover the rent and other sums as they become due by
appropriate legal action, (ii) the right (but not the obligation) to make
payments required of Tenant or perform Tenant's obligations and be reimbursed by
Tenant for the cost thereof with interest at the Agreed Interest Rate from the
date the sum is paid by Landlord until Landlord is reimbursed by Tenant, and
(iii) the remedies of injunctive relief and specific performance to compel
Tenant to perform its obligations under this Lease. Notwithstanding anything
contained in this Lease, in the event of a breach of an obligation by Tenant
which results in a condition which poses an imminent danger to safety of persons
or damage to property, an unsightly condition visible from the exterior of the
Building, or a threat to insurance coverage, then if Tenant does not cure such
breach within 3 days after delivery to it of written notice from Landlord
identifying the breach, Landlord may cure the breach of Tenant and be reimbursed
by Tenant for the cost thereof with interest at the Agreed Interest Rate from
the date the sum is paid by Landlord until Landlord is reimbursed by Tenant.
B. Landlord may enter the Premises and re-lease them to third
parties for Tenant's account for any period, whether shorter or longer than the
remaining Lease Term. Tenant shall be liable immediately to Landlord
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for all costs Landlord incurs in re-leasing the Premises, including brokers'
commissions, expenses of altering and preparing the Premises required by the
re-leasing. Tenant shall pay to Landlord the rent and other sums due under this
Lease on the date the rent is due, less the rent and other sums Landlord
received from any re-leasing. No act by Landlord allowed by this subparagraph
shall terminate this Lease unless Landlord notifies Tenant in writing that
Landlord elects to terminate this Lease. Notwithstanding any re-leasing without
termination, Landlord may later elect to terminate this Lease because of the
default by Tenant.
C. Landlord may terminate this Lease by giving Tenant written
notice of termination, in which event this Lease shall terminate on the date set
forth for termination in such notice. Any termination under this Section 13.2C
shall not relieve Tenant from its obligation to pay sums then due Landlord or
from any claim against Tenant for damages or rent previously accrued or then
accruing. In no event shall any one or more of the following actions by
Landlord, in the absence of a written election by Landlord to terminate this
Lease, constitute a termination of this Lease: (i) appointment of a receiver or
keeper in order to protect Landlord's interest hereunder; (ii) consent to any
subletting of the Premises or assignment of this Lease by Tenant, whether
pursuant to the provisions hereof or otherwise; or (iii) any other action by
Landlord or Landlord's Agents intended to mitigate the adverse effects of any
breach of this Lease by Tenant, including without limitation any action taken to
maintain and preserve the Premises or any action taken to relet the Premises or
any portions thereof to the extent such actions do not affect a termination of
Tenant's right to possession of the Premises.
D. In the event Tenant breaches this Lease and abandons the
Premises, this Lease shall not terminate unless Landlord gives Tenant written
notice of its election to so terminate this Lease. No act by or on behalf of
Landlord intended to mitigate the adverse effect of such breach, including those
described by Section 13C, shall constitute a termination of Tenant's right to
possession unless Landlord gives Tenant written notice of termination. Should
Landlord not terminate this Lease by giving Tenant written notice, Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover the rent as it becomes due under the lease as provided in California
Civil Code Section 1951.4.
E. In the event Landlord terminates this Lease, Landlord shall
be entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2 as in effect on the Effective Date. For
purposes of computing damages pursuant to California Civil Code Section 1951.2,
(i) an interest rate equal to the Agreed Interest Rate shall be used where
permitted, and (ii) the term "rent" includes Base Monthly Rent and Additional
Rent. Such damages shall include:
(1) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided, computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%); and
(2) Any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would be
likely to result therefrom, including the following: (i) expenses for cleaning,
repairing or restoring the Premises; (ii) expenses for altering, remodeling or
otherwise improving the Premises for the purpose of reletting, including
installation of leasehold improvements (whether such installation be funded by a
reduction of rent, direct payment or allowance to a new tenant, or otherwise);
(iii) broker's fees, advertising costs and other expenses of reletting the
Premises; (iv) costs of carrying the Premises, such as taxes, insurance
premiums, utilities and security precautions; (v) expenses in retaking
possession of the Premises; and (vi) attorneys' fees, experts' fees and court
costs incurred by Landlord in retaking possession of the Premises and in
releasing the Premises or otherwise incurred as a result of Tenant's default.
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F. Nothing in this Section 13.2 shall limit Landlord's right
to indemnification from Tenant as provided in Section 7.2 and Section 10.3. Any
notice given by Landlord in order to satisfy the requirements of Section 13.1A
or Section 13.1B above shall also satisfy the notice requirements of California
Code of Civil Procedure Section 1161 regarding unlawful detainer proceedings.
13.3 Waiver: One party's consent to or approval of any act by the other
party requiring the first party's consent or approval shall not be deemed to
waive or tender unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by Landlord. No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any such
breach theretofore or thereafter occurring. The waiver by either party of any
breach of any provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other provisions herein contained.
13.4 Limitation on Exercise of Rights: At any time that an Event of
Tenant's Default has occurred and remains uncured, (i) it shall not be
unreasonable for Landlord to deny or withhold any consent or approval requested
of it by Tenant which Landlord would otherwise be obligated to give, and (ii)
Tenant may not exercise any option to extend, right to terminate this Lease, or
other right granted to it by this Lease which would otherwise be available to
it.
13.5 Waiver by Tenant of Certain Remedies: Tenant waives the provisions
of Sections 1932(1), 1941 and 1942 of the California Civil Code and any similar
or successor law regarding Tenant's right to terminate this Lease or to make
repair and deduct from forfeiture under the laws of the State of California, or
under any other present or future law, including the provisions of Section 1174
and 1179 of the California Code of Civil Procedure.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfer By Tenant: The following provisions shall apply to any
assignment, subletting or other transfer by Tenant or any subtenant or assignee
or other successor in interest of the original Tenant (collectively referred to
in this Section 14.1 as "Tenant"):
A. Tenant shall not do any of the following (collectively
referred to herein as a "Transfer"), whether voluntarily, involuntarily or by
operation of law, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed: (i) sublet all or any part of the
Premises or allow it to be sublet, occupied or used by any person or entity
other than Tenant; (ii) assign its interest in this Lease; (iii) mortgage or
encumber the Lease (or otherwise use the Lease as a security device) in any
manner; or (iv) materially amend or modify an assignment, sublease or other
transfer that has been previously approved by Landlord. Tenant shall reimburse
Landlord for all reasonable costs and attorneys' fees incurred by Landlord in
connection with the evaluation, processing, and/or documentation of any
requested Transfer, whether or not Landlord's consent is granted. Landlord's
reasonable costs shall include the cost of any review or investigation performed
by Landlord or consultant acting on Landlord's behalf of (i) a Hazardous
Material (as defined in Paragraph 7.2E of this Lease) used, stored, released, or
disposed of by the potential Subtenant or Assignee, and/or (ii) violations of
Hazardous Materials Law (as defined in Paragraph 7.2E of this Lease) by the
Tenant or the proposed Subtenant or Assignee. Any Transfer so approved by
Landlord shall not be effective until Tenant has delivered to Landlord an
executed counterpart of the document evidencing the Transfer which (i) is in a
form reasonably approved by Landlord, (ii) contains the same terms and
conditions as stated in Tenant's notice given to Landlord pursuant to Section
14.1B, and (iii) in the case of an assignment of the Lease, contains the
agreement of the proposed transferree to assume all obligations of Tenant under
this Lease arising after the effective date of such Transfer and to remain
jointly and severally liable therefor with Tenant. Any attempted Transfer
without Landlord's consent
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shall constitute a waiver of the provisions of this Section 14.1 as to any
subsequent Transfer or a consent to any subsequent Transfer. No Transfer, even
with the consent of Landlord, shall relieve Tenant of its personal and primary
obligation to pay the rent and to perform all of the other obligation to be
performed by Tenant hereunder. The acceptance of rent by Landlord from any
person shall not be deemed to be a waiver by Landlord of any provision of this
Lease nor to be consent to any Transfer.
B. At least 30 days before a proposed Transfer is to become
effective, Tenant shall give Landlord written notice of the proposed terms of
such Transfer and request Landlord's approval, which notice shall include the
following: (i) the name and legal composition of the proposed transferee; (ii) a
current financial statement of the transferee, financial statements of the
transferee covering the preceding three years if the same exist, and (if
available) an audited financial statement of the transferee for a period ending
not more than one year prior to the proposed effective date of the Transfer, all
of which statements are prepared in accordance with generally accepted
accounting principles; (iii) the nature of the proposed transferee's business to
be carried on in the Premises; (iv) all consideration to be given on account of
the Transfer; (v) a current financial statement of Tenant; and (vi) an
accurately filled out response to Landlord's standard Hazardous Materials
Questionnaire. Tenant shall provide to Landlord such other information as may be
reasonably requested by Landlord within seven days after Landlord's receipt of
such notice from Tenant. Landlord shall respond in writing to Tenant's request
for Landlord's consent to a Transfer within the later of (i) 15 days of receipt
of such request together with the required accompanying documentation, or (ii)
seven days after Landlord's receipt of all information which Landlord reasonably
requests within seven days after it receives Tenant's first notice regarding the
Transfer in question. If Landlord fails to respond in writing within said
period, Landlord will be deemed to have withheld consent to such Transfer.
Tenant shall immediately notify Landlord of any material modification to the
proposed terms of such Transfer.
C. In the event that Tenant seeks to make any Transfer,
Landlord shall, prior to addressing the issue of whether or not it will consent
to the proposed Transfer, have the right to terminate this Lease or, in the case
of a sublease of less than all of the Premises, terminate this Lease as to that
part of the Premises proposed to be so sublet, either (i) on the condition that
the proposed transferee immediately entered into a direct lease of the Premises
with Landlord (or, in the case of a partial sublease, a lease for the portion
proposed to be so sublet) on the same terms and conditions contained in Tenant's
notice, or (ii) so that Landlord is thereafter free to lease the Premises (or,
in the case of a partial sublease, the portion proposed to be so sublet) to
whomever it pleases on whatever terms are acceptable to Landlord. Under no
circumstances shall Tenant be entitled to share in any proceeds of any such new
lease, nor shall it be entitled to receive any amounts from Landlord as a result
of any such termination. In the event Landlord elects to so terminate this Lease
then (i) if such termination is conditioned upon the execution of a lease
between Landlord and the proposed transferee, Tenant's obligations under this
Lease shall not be terminated until such transferee executes a new lease with
Landlord, enters into possession and commences the payment of rent, and (ii) if
Landlord elects simply to terminate this Lease (or, in the case of a partial
sublease, terminate this Lease as to the portion to be so sublet), the Lease
shall so terminate in its entirety (or as to the space to be so sublet) fifteen
(15) days after Landlord has notified Tenant in writing of such election. Upon
such termination, Tenant shall be released from any further obligation under
this Lease if it is terminated in its entirety, or shall be released from any
further obligation under the Lease with respect to the space proposed to be
sublet in the case of a proposed partial sublease. In the case of a partial
termination of the Lease, the Base Monthly Rent and Tenant's Share shall be
reduced to an amount which bears the same relationship to the original amount
thereof as the area of that part of the Premises which remains subject to the
Lease bears to the original area of the Premises. Landlord and Tenant shall
execute a cancellation and release with respect to the Lease to effect such
termination.
D. If Landlord consents to a Transfer proposed by Tenant,
Tenant may enter into such Transfer, and if Tenant does so, the following shall
apply:
(1) Tenant shall not be released of its liability for
the performance of all of its obligations under the Lease.
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(2) If Tenant assigns its interest in this Lease,
then Tenant shall pay to Landlord 50% of all Subrent (as defined in Section
14.1D(5)) received by Tenant over and above (i) the assignee's agreement to
assume the obligations of Tenant under this Lease, and (ii) all Permitted
Transfer Costs related to such assignment. In the case of assignment, the amount
of Subrent owed to Landlord shall be paid to Landlord on the same basis, whether
periodic or in lump sum, that such Subrent is paid to Tenant by the assignee.
(3) If Tenant sublets any part of the Premises, then
with respect to the space so subleased, Tenant shall pay to Landlord 50% of the
positive difference, if any, between (i) all Subrent paid by the subtenant to
Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable
to the space sublet and all Permitted Transfer Costs related to such sublease.
Such amount shall be paid to Landlord on the same basis, whether periodic or in
lump sum, that such Subrent is paid to Tenant by its subtenant. In calculating
Landlord's share of any periodic payments, all Permitted Transfer Costs shall be
first recovered by Tenant.
(4) Tenant's obligations under this Section 14.1D
shall survive any Transfer, and Tenant's failure to perform its obligations
hereunder shall be an Event of Tenant's Default. At the time Tenant makes any
payment to Landlord required by this Section 14.1D, Tenant shall deliver an
itemized statement of the method by which the amount to which Landlord is
entitled was calculated, certified by Tenant as true and correct. Landlord shall
have the right at reasonable intervals to inspect Tenant's books and records
relating to the payments due hereunder. Upon request therefor, Tenant shall
deliver to Landlord copies of all bills, invoices or other documents upon which
its calculations are based. Landlord may condition its approval of any Transfer
upon obtaining a certification from both Tenant and the proposed transferee of
all Subrent and other amounts that are to be paid to Tenant in connection with
such Transfer.
(5) As used in this Section 14.1D, the term "Subrent"
shall mean any consideration of any kind received, or to be received, by Tenant
as a result of the Transfer, if such sums are related to Tenant's interest in
this Lease or in the Premises, including payments from or on behalf of the
transferee (in excess of the book value thereof) for Tenant's assets, fixtures,
leasehold improvements, inventory, accounts, goodwill, equipment, furniture, and
general intangibles. As used in this Section 14.1D, the term "Permitted Transfer
Costs" shall mean (i) all reasonable leasing commissions paid to third parties
not affiliated with Tenant in order to obtain the Transfer in question, and (ii)
all reasonable attorneys' fees incurred by Tenant with respect to the Transfer
in question.
E. If Tenant is a corporation, the following shall be deemed a
voluntary assignment of Tenant's interest in this Lease: (i) any dissolution,
merger, consolidation, or other reorganization of or affecting Tenant, whether
or not Tenant is the surviving corporation; and (ii) if the capital stock of
Tenant is not publicly traded, the sale or transfer to one person or entity (or
to any group of related persons or entities) of stock possessing more than 50%
of the total combined voting power of all classes of Tenant's capital stock
issued, outstanding and entitled to vote for the election of directors. If
Tenant is a partnership, any withdrawal or substitution (whether voluntary,
involuntary or by operation of law, and whether occurring at one time or over a
period of time) of any partner owning 25% or more (cumulatively) of any interest
in the capital or profits of the partnership, or the dissolution of the
partnership, shall be deemed a voluntary assignment of Tenant's interest in this
Lease.
F. Notwithstanding anything contained in Section 14.1, so long
as Tenant complies with the provisions of Section 14.1 Tenant may enter into any
of the following transfers (a "Permitted Transfer") without Landlord's prior
written consent, and Landlord shall not be entitled to terminate the Lease
pursuant to Section 14.1C or to receive any part of any Subrent resulting
therefrom that would otherwise be due it pursuant to Section 14.1D:
(1) Tenant may sublease all or part of the Premises
or assign its interest in this Lease to any corporation which controls, is
controlled by, or is under common control with the original Tenant to this Lease
by means of an ownership interest of more than 50%;
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(2) Tenant may assign its interest in the Lease to a
corporation which results from a merger, consolidation or other reorganization
in which Tenant is not the surviving corporation, so long as the surviving
corporation has a net worth at the time of such assignment that is equal to or
grater than the net worth of Tenant immediately prior to such transaction; and
(3) Tenant may assign this Lease to a corporation
which purchases or otherwise acquires all or substantially all of the assets of
Tenant, so long as such acquiring corporation has a net worth at the time of
such assignment that is equal to or greater than the net worth of Tenant
immediately prior to such transaction.
14.2 Transfer By Landlord: Landlord and its successors in interest
shall have the right to transfer their interest in this Lease and the Project at
any time and to any person or entity. In the event of any such transfer, the
Landlord originally named herein (and in the case of any subsequent transfer,
the transferor) from the date of such transfer, shall be automatically relieved,
without any further act by any person or entity, of all liability for the
performance of the obligations of the Landlord hereunder which may accrue after
the date of such transfer. After the date of any such transfer, the term
"Landlord" as used herein shall mean the transferee of such interest in the
Premises.
ARTICLE 15
GENERAL PROVISIONS
15.1 Landlord's Right to Enter: Landlord and its agents may enter the
Premises at any reasonable time after giving at least 24 hours' prior notice to
Tenant (and immediately in the case of emergency) for the purpose of: (i)
inspecting the same; (ii) posting notices of non-responsibility; (iii) supplying
any service to be provided by Landlord to Tenant; (iv) showing the Premises to
prospective purchasers, mortgagees or tenants; (v) making necessary alterations,
additions or repairs; (vi) performing Tenant's obligations when Tenant has
failed to do so after written notice from Landlord; (vii) placing upon the
Premises ordinary "for lease" signs or "for sale" signs; and (viii) responding
to an emergency. Landlord shall have the right to use any and all means Landlord
may deem necessary and proper to enter the Premises in an emergency. Any entry
into the Premises obtained by Landlord in accordance with this Section 15.1
shall not be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction, actual or constructive, of Tenant from the Premises. Tenant
hereby waives any claims for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby.
15.2 Surrender of the Premises: Upon the expiration or sooner
termination of this Lease, Tenant shall vacate and surrender the Premises to
Landlord in the same condition as existed at the Commencement Date, except for
(i) reasonable wear and tear, (ii) damage caused by any peril or condemnation,
and (iii) contamination by Hazardous Materials for which Tenant is not
responsible pursuant to Section 7.2A or Section 7.2B. In this regard, normal
wear and tear shall be construed to mean wear and tear caused to the Premises by
the natural aging process which occurs in spite of prudent application of the
best standards for maintenance, repair and janitorial practices, and does not
include items of neglected or deferred maintenance. If Landlord so requests,
Tenant shall, prior to the expiration or sooner termination of this Lease, (i)
remove any Tenant's Alterations which Tenant is required to remove pursuant to
Section 5.2 and repair all damage caused by such removal, and (ii) return the
Premises or any part thereof to its original configuration existing as of the
time the Premises were delivered to Tenant. If the Premises are not so
surrendered at the termination of this Lease, Tenant shall be liable to Landlord
for all costs incurred by Landlord in returning the Premises to the required
condition, plus interest on all costs incurred at the Agreed Interest Rate.
Tenant shall indemnify Landlord against loss or liability resulting from delay
by Tenant in so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenant or losses to Landlord due to lost
opportunities to lease to succeeding tenants.
15.3 Holding Over: This Lease shall terminate without further notice at
the expiration of the Lease Term. Any holding over by Tenant after expiration of
the Lease Term shall not constitute a renewal or extension of the Lease
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or give Tenant any rights in or to the Premises except as expressly provided in
this Lease. Any holding over after such expiration with the written consent of
Landlord shall be construed to be a tenancy from month to month on the same
terms and conditions herein specified insofar as applicable except that Base
Monthly Rent shall be increased to an amount equal to 150% of the Base Monthly
Rent payable during the last full calendar month of the Lease Term.
15.4 Subordination: The following provisions shall govern the
relationship of this Lease to any Security Instrument:
A. The Lease is subject and subordinate to all Security
Instruments existing as of the Effective Date. However, if any Lender so
requires, this Lease shall become prior and superior to any such Security
Instrument.
B. At Landlord's election, this Lease shall become subject and
subordinate to any Security Instrument created after the Effective Date.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in default and performs
all of its obligations under this Lease, unless this Lease is otherwise
terminated pursuant to its terms.
C. Tenant shall upon request execute any document or
instrument reasonably required by any Lender to make this Lease either prior to
or subordinate to a Security Instrument, which may include such other matters as
the Lender customarily and reasonably requires in connection with such
agreements, including provisions that the Lender not be liable for (i) the
return of any security deposit unless the Lender receives it from Landlord, and
(ii) any defaults on the part of Landlord occurring prior to the time the Lender
takes possession of the Project in connection with the enforcement of its
Security Instrument. Tenant's failure to execute any such document or instrument
within 10 days after written demand therefor shall constitute an Event of
Tenant's Default. Tenant approves as reasonable the form of subordination
agreement attached to this Lease as Exhibit E.
15.5 Mortgaged Protection and Attornment: In the event of default on
the part of the Landlord, Tenant will use reasonable efforts to give notice by
registered mail to any Lender whose name has been provided to Tenant and shall
offer such Lender a reasonable opportunity to cure the default, including time
to obtain possession of the Premises by power of sale or judicial foreclosure or
other appropriate legal proceedings, if such should prove necessary to effect
a cure. Tenant shall attorn to any purchaser of the Premises at any foreclosure
sale or private sale conducted pursuant to any Security Instrument encumbering
the Premises, or to any grantee or transferee designated in any deed given in
lieu of foreclosure.
15.6 Estoppel Certificates and Financial Statements: At all times
during the Lease Term, each party agrees, following any request by the other
party, promptly to execute and deliver to the requesting party within 15 days
following delivery of such request an estoppel certificate: (i) certifying that
this Lease is unmodified and in full force and effect or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect, (ii) stating the date to which the rent and other
charges are paid in advance, if any, (iii) acknowledging that there are not, to
the certifying party's knowledge, any uncured defaults on the part of any party
hereunder or, if there are uncured defaults, specifying the nature of such
defaults, and (iv) certifying such other information about the Lease as may be
reasonably required by the requesting party. A failure to deliver an estoppel
certificate within 15 days after delivery of a request therefor shall be a
conclusive admission that, as of the date of the request for such statement: (i)
this Lease is unmodified except as may be represented by the requesting party in
said request and is in full force and effect, (ii) there are no uncured defaults
in the requesting party's performance, and (iii) no rent has been paid more than
30 days in advance. At any time during the Lease Term Tenant shall, upon 15
days' prior written notice from Landlord, provide Tenant's most recent financial
statement and financial statements covering the 24 month period prior to the
date of such most recent financial statement to any existing Lender or to any
potential Lender or buyer of the Premises. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant.
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15.7 Reasonable Consent: Except where a different standard for approval
or consent is expressly set forth in this Lease, whenever any party's approval
or consent is required by this Lease before an action may be taken by the other
party, such approval or consent shall not be unreasonably withheld or delayed.
15.8 Notices: Any notice required or desired to be given regarding this
Lease shall be in writing and may be given by personal delivery, by facsimile
telecopy, by courier service, or by mail. A notice shall be deemed to have been
given (i) on the third business day after mailing if such notice was deposited
in the United States mail, certified or registered, postage prepaid, addressed
to the party to be served at its Address for Notices specified in Section R or
Section S of the Summary (as applicable), (ii) when delivered if given by
personal delivery, and (iii) in all other cases when actually received at the
party's Address for Notices. Either party may change its address by giving
notice of the same in accordance with this Section 15.8, provided, however, that
any address to which notices may be sent must be a California address.
15.9 Attorneys' Fees: In the event either Landlord or Tenant shall
bring any action or legal proceeding for an alleged breach of any provision of
this Lease, to recover rent, to terminate this Lease or otherwise to enforce,
protect or establish any term or covenant of this Lease, the prevailing party
shall be entitled to recover as a party of such action or proceeding, or in a
separate action brought for that purpose, reasonable attorneys' fees, court
costs, and experts' fees as may be fixed by the court.
15.10 Corporate Authority: If Tenant is a corporation (or partnership),
each individual executing this Lease on behalf of Tenant represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of such
corporation in accordance with the by-laws of such corporation (or partnership
in accordance with the partnership agreement of such partnership) and that this
Lease is binding upon such corporation (or partnership) in accordance with its
terms. Each of the persons executing this Lease on behalf of a corporation does
hereby covenant and warrant that the party for whom it is executing this Lease
is a duly authorized and existing corporation, that it is qualified to do
business in California, and that the corporation has full right and authority to
enter into this Lease.
15.11 Miscellaneous: Should any provision of this Lease prove to be
invalid or illegal, such invalidity or illegality shall in no way affect, repair
or invalidate any other provision hereof, and such remaining provision shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provisions of this Lease in which time of performance is a
factor. The captions used in this Lease are for convenience only and shall not
be considered in the construction or interpretation of any provision hereof. Any
executed copy of this Lease shall be deemed an original for all successors,
executors, administrators and assigns of Landlord and Tenant. "Party" shall mean
Landlord or Tenant, as the context implies. If Tenant consists of more than one
person or entity, then all members of Tenant shall be jointly and severally
liable hereunder. This Lease shall be construed and enforced in accordance with
the laws of the State of California. The language in all parts of this Lease
shall in all cases be construed as a whole according to its fair meaning and not
strictly for or against either Landlord or Tenant. When the context of this
Lease requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, and the singular includes the
plural. The terms "shall", "will" and "agree" are mandatory. The term "may" is
permissive. When a party is required to do something by this Lease, it shall do
so at its sole cost and expense without right of reimbursement from the other
party unless a provision of this Lease expressly requires reimbursement.
Landlord and Tenant agree that (i) the gross leasable area of the Premises
includes any atriums, depressed loading docks, covered entrances or egresses,
and covered loading areas, (ii) each has had an opportunity to determine to its
satisfaction the actual area of the Project and the Premises, (iii) all
measurements of area contained in this Lease are conclusively agreed to be
correct and binding upon the parties, even if a subsequent measurement of any
one of these areas determines that it is more or less than the amount of area
reflected in this Lease, determination that the area is more or less than shown
in this Lease shall not result in a change in any of the computations of rent,
improvement allowances, or other matters described in this Lease where area is a
factor. Where a party hereto is obligated not to perform any act, such party is
also obligated to restrain any others within its control from performing said
act, including the Agents of such party.
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Landlord shall not become or be deemed a partner or a joint venture with Tenant
by reason of the provisions of this Lease.
15.12 Termination by Exercise of Right: If this Lease is terminated
pursuant to its tenants by the proper exercise of a right to terminate
specifically granted to Landlord or Tenant by this Lease, then this Lease shall
terminate 30 days after the date the right to terminate is properly exercised
(unless another date is specified in that part of the Lease creating the right,
in which event the date so specified for termination shall prevail), the rent
and all other charges due hereunder shall be prorated as of the date of
termination, and neither Landlord nor Tenant shall have any further rights or
obligations under this Lease except for those that have accrued prior to the
date of termination or those obligations which this Lease specifically provides
are to survive termination. This Section 15.12 does not apply to termination of
this Lease by Landlord as a result of an Event of Tenant's Default.
15.13 Brokerage Commissions: Each party hereto (i) represents and
warrants to the other that it has not had any dealings with any real estate
brokers, leasing agents or salesmen, or incurred any obligations for the payment
of real estate brokerage commissions or finder's fees which would be earned or
due and payable by reason of the execution of this Lease, other than to the
Retained Real Estate Brokers described in Section T of the Summary, and (ii)
agrees to save, protect, indemnify, defend, and hold harmless the other party
from any claim for any such commission or fees which result form the actions of
the indemnifying party. Landlord shall be responsible for the payment of any
commission owed to the Retained Real Estate Brokers if there is a separate
written commission agreement between Landlord and the Retained Real Estate
Brokers for the payment of a commission as a result of the execution of this
Lease.
15.14 Force Majeure: Any prevention, delay or stoppage due to strikes,
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of the party obligated to
perform (except financial inability) shall excuse the performance, for a period
equal to the period of any said prevention, delay or stoppage, of any obligation
hereunder except the obligation of Tenant to pay rent or any other sums due
hereunder.
15.15 Private Restrictions: Landlord reserves to itself the right, from
time to time, to grant such Private Restrictions that Landlord deems necessary
or desirable, and to cause the recordation of parcel, tentative and final maps
and other Private Restrictions, so long as such Private Restrictions do not
unreasonably interfere with the use of the Premises by Tenant. Tenant shall sign
any documents reasonably necessary or appropriate to effect or evidence any of
such private Restrictions upon request of Landlord, and failure to do so shall
constitute a material breach of this Lease.
15.16 Entire Agreement: This Lease constitutes the entire agreement
between the parties, and there are no binding agreements or representations
between the parties except as expressed herein. Tenant acknowledges that neither
Landlord nor Landlord's Agents has made any legally binding representation or
warranty as to any matter except those expressly set forth herein, including any
warranty as to (i) whether the Premises may be used for Tenant's intended use
under existing Law, (ii) the suitability of the Premises or the Project for the
conduct of Tenant's business, or (iii) the condition of any improvements. There
are no oral agreements between Landlord and Tenant affecting this Lease, and
this Lease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings if any, between Landlord
and Tenant or displayed by Landlord to Tenant with respect to the subject matter
of this Lease. This instrument shall not be legally binding until both Landlord
and Tenant executes it. No subsequent change or addition to this lease shall be
binding unless in writing and signed by Landlord and Tenant.
15.17 Corporate Signers: If Tenant is a California corporation, then
one of the following alternative requirements must be satisfied:
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A. This Lease must be signed by two (2) officers of
such corporation: one being the chairman of the board, the president or
a vice president, and the other being the secretary, an assistant
secretary, the chief financial officer or an assistant treasurer. If
one (1) individual is signing in two (2) of the foregoing capacities,
that individual must sign twice: once as one officer and again as the
other officer.
B. If there is only one (1) individual signing in two
(2) capacities, or if the two (2) signatories do not satisfy the
requirements of A above, then Tenant shall deliver to Landlord a
certified copy of a corporate resolution in a form reasonably
acceptable to Landlord, authorizing the signatory(ies) to execute this
Lease.
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ARTICLE 16
ADDITIONAL PROVISIONS
16.1 Interior Improvements: The Premises shall be delivered to Tenant
according to the space plan attached hereto, further described as Exhibit B.
Tenant acknowledges and agrees that the Premises are to be leased and accepted
by Tenant in their condition existing as of the Effective Date of this Lease
without implied or expressed warranty or representation and with all patent and
latent defects. Tenant shall be responsible for any costs associated with
changes to Exhibit B before or after the execution of the Lease document.
Landlord shall provide the Premises with all existing
electrical, HVAC and plumbing in good and workable condition, and to the extent
that there are any warranties available, Landlord agrees to endeavor to provide
Tenant with access to those warranties.
A. Tenant shall establish and maintain during the Terms hereof
a program to encourage maximum use of public Transportation by personnel of
Tenant employed on the Premises, including without limitation the distribution
to such employees of written materials explaining the convenience and
availability of public transportation facilities adjacent or proximate to the
Building, staggering work hours of employees, and encouraging use of such
facilities, all at Tenants' sole reasonable cost and expense.
B. Tenant agrees to comply with any lawful regulation or
ordinance of the City of Pleasanton or the County of Alameda respecting
transportation management in those jurisdictions, related solely to the conduct
of Tenant's business within the premises. In particular, Tenant shall comply at
all times with the City of Pleasanton's Transportation Systems Management
Ordinance (T.S.M. Ordinance, Chapter 17.24, Pleasanton Municipal Code), as said
Ordinance may be amended from time to time.
16.2 Additional Security Deposit: Upon Lease execution, Tenant shall
deposit with Landlord Twenty-three thousand four hundred ten and 00/100 dollars
($23,410.00) as Additional Security Deposit as security for the performance by
Tenant of its obligations under this Lease, and not as prepayment of rent. The
Additional Security Deposit shall be subject to the same terms and conditions of
paragraph 3.5 of the Master Lease.
The additional Security Deposit shall be returned to Tenant under the following
schedule so long as Tenant has not been in default of the Lease as defined in
Article 13 of the Master Lease:
<TABLE>
<S> <C>
At the end of the twelfth month of occupancy $7,804.00 returned to Tenant
At the end of the twenty-fourth month of occupancy $7,804.00 returned to Tenant
At the end of the thirty-six month of occupancy $7,802.00 returned to Tenant
</TABLE>
Landlord agrees to review the revised financial information on
Media Synergy Software Corporation subsequently to the plan IPO. Within thirty
(30) days of receipt of such financial information, Landlord shall reasonably
determine if the Additional Security Deposit shall be returned, in its entirety
or portion thereof, to Tenant in lieu of the above stated schedule.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease with the intent to be legally bound thereby, to be effective as of the
Effective Date.
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LANDLORD: TENANT
Cranbrook Realty Investment Fund, LP Media Synergy Software Corporation,
dba: Las Positas Office Plaza a California corporation
By: Cranbrook Equity Investment Corporation
a California Corporation, General Partner
/s/ K.M. FitzPatrick /s/ Martha Ainsley
- -------------------------------------- -----------------------------------
Kevin M. FitzPatrick Wilson Lee
Vice President, Operations Chief Financial Officer
Dated: 11/2/99 Date: 11/2/99
-------------------------------- -----------------------------
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EXHIBIT A
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EXHIBIT B
All work to be completed by Landlord will be done using building standard
finishes:
- - Paint the Premises
- - Carpet the Premises
- - Installation of lower cabinets with sink
- - Sidelight replaced with drywall
- - Demising wall installed
- - VCT installed in kitchen area
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EXHIBIT D
ACCEPTANCE AGREEMENT
THIS ACCEPTANCE AGREEMENT is made as of ____________1999, by and between the
parties hereto with regard to that Lease dated October 10, 1999, by and between
Cranbrook Realty Investment Fund, L.P. dba Las Positas Office Plaza as Landlord
and Media Synergy Corporation as Tenant, affecting those Premise commonly known
as 5976 W. Las Positas Blvd., Suite 126, Pleasanton, California. The parties
hereto agree as follows:
1. All improvements required to lie constructed by Landlord by
the Lease have been completed in accordance with the terms of
the Lease and are hereby accepted by Tenant, subject to the
completion of punchlist items on Exhibit "A" attached hereto.
2. Possession of the Premise has been delivered to Tenant and
Tenant has accepted and taken possession of the Premise.
3. The commencement Date of the Lease Term is dated November 1,
1999 and the Lease Term shall expire October 31, 2004 unless
sooner terminated according to file terms of the Lease or by
mutual agreement.
4. The Base Monthly Rent initially due pursuant to the lease is
$2.30 per rentable square foot per mouth, subject to any
subsequent adjustments required by the Lease.
5. Landlord has received a Security Deposit of Eleven thousand
five hundred ninety and 00/00 dollars ($11,590.00). In
addition, Tenant has prepaid rent in the amount of five
thousand three hundred thirteen and 40/100 dollars
($5,331.40), which shall be applied to the first installment
of Base Monthly Rent.
6. The Lease is in full force and effect, neither party is in
default of its obligations under the Lease, and as of the date
hereof, Tenant has no setoffs, claims, or defenses to the
enforcement of the Lease.
LANDLORD: TENANT
Cranbrook Realty Investment Fund, LP Media Synergy Software Corporation,
dba: Las Positas Office Plaza a California corporation
By: Cranbrook Equity Investment Corporation
a California Corporation, General Partner
By:______________________________
Kevin M. FitzPatrick
Vice President, Operations By:________________________________
Wilson Lee
Dated:___________________________ Chief Financial Officer
Dated______________________________
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EXHIBIT E
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS Agreement made and entered into as of this ___ day of _________, 1999 by
and among Cranbrook Realty Investment fund, L.P., dba: Las Positas Office Plaza,
with an address at 5994 W. Las Positas Boulevard, Suite 205, Pleasanton,
California (hereinafter "Lessor") and Media Synergy Software Corporation, a
California corporation with an address at 5976 West Las Positas Blvd., Suite
126, Pleasanton, California (hereinafter: "Lessee") and THE LINCOLN NATIONAL
LIFE INSURANCE COMPANY, an Indiana Corporation, with an address c/o Lincoln
Investment Management, Inc., 200 East Barry Street, P.O. Box 2390, Fort Wayne,
IN 46801, Attention: Financial Services (hereinafter "Lender"),
WITNESSETH:
WHEREAS Lessor and Lessee have entered into a Lease dated, 1999 (hereinafter
referred to as "Lease") whereby Lessee leases from Lessor those certain premises
located in the City of Pleasanton, County of Alameda, and State of California,
more particularly described in Exhibit A attached hereto and made a part hereof
(hereinafter "Demised Premises"); and
WHEREAS Lessor, for the purposes of securing a loan (hereinafter "Loan") from
Lender, has executed (or will execute) a Promissory Note (hereinafter "Note") in
favor of Lender, and for the purpose of securing the Note, Lessor has executed
(or will execute) a Mortgage and Security Agreement or a Deed of Trust and
Security Agreement or a Deed of Trust and Security Agreement (as applicable)
(hereinafter "Mortgage":) creating a first and superior lien upon the real
property described in Exhibit A; and
WHEREAS Lessor, Lessee and Lender desire to confirm their understanding with
respect to the Lease and the Mortgage:
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained and to induce Lender to proceed with the closing of the Loan, Lessor,
Lessee and Lender hereby agree and covenant as follows:
1. Lessor agrees to all matters contained in this Agreement insofar as
same affect its interests, and also agrees to furnish Lender,
immediately upon receipt or dispatch of same, with copies of all
notices which either Lessee or Lessor send to each other.
2. During the term of the Lease or any extensions or renewals thereof, so
long as Lessee is not in default (after giving effect to any applicable
grace period) in the payment of basic recent or percentage rent or in
the performance of any of the terms, covenant or conditions of the
Lease on Lessee's part to be performed, Lender agrees that it will not
(i) take any action designed to disturb Lessee's possession and
occupancy of the demised Premises nor to diminish or interfere with any
of Lessee's rights and privileges under the Lease, or (ii) join lessee
as a party defendant in any action or proceeding for the purpose of
terminating Lessee's interest and estate under the Lease because of any
default under the Mortgage.
3. In the event any proceedings are brought for the foreclosure of the
Mortgage or if the Demised Premises are conveyed to the Lender by deed
in lieu of foreclosure, Lessee shall attorn to Lender or the purchaser
upon any such conveyance or foreclosure sale or trustee's sale and
shall recognize Lender or such purchaser as landlord (lessor) under the
Lease. Such attornment shall be effective and self-operative without
the execution of any further instrument on the part of any of the
parties hereto. Lessee agrees, however, to execute and deliver at any
time and from time to time, upon the request of Lessor or Lender or
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any such purchaser (a) any instrument or certificate which, in the
reasonable judgment of Lessor or Lender or such purchaser, may be
necessary or appropriate in any such foreclosure proceeding or
otherwise to evidence such attornment, and (b) an instrument or
certificate regarding the status of the Lease, consisting of
statements, if true, (i) that the Lease is in full force and effect,
(ii) the date through which rentals have been paid, (iii) the date of
the commencement of the term of the Lease, (iv) the nature of any
amendments or modifications to the Lease, (v) that no default, or state
of facts, which with the passage of time or notice would constitute a
default, exists on the part of either party to the Lease, and (vi) the
dates on which payments of percentage rentals (if any) are due under
the terms of the Lease.
4. If Lender shall succeed to the interest of Lessor under the Lease in
any manner, or if any purchaser acquires the Demised Premises upon any
foreclosure of the Mortgage of any trustee's sale (or similar sale)
under the Mortgage, Lender or such purchaser, as the case may be, in
the event of attornment shall have the same remedies by entry, action
or otherwise in the event of a default by Lessee in the payment of rent
or additional rent or in the performance of any of the terms, covenants
and conditions of the Lease on Tenant's part to be performed that
Lessor had or would have had if Lender or such purchaser had not
succeeded to the interest of Lessor. From and after any such
attornment, Lender or such purchaser shall be bound to Lessee under all
the terms, covenants and conditions of the Lease, and Lessee shall,
from and after the succession to the interest of Lessor under the Lease
by Lender or such purchaser have the same remedies against Lender or
such purchaser for the breach of an agreement contained in the Lease
that Lessee might have had under the Lease against the Lessor if Lender
or such purchaser had not succeeded to the interest of Lessor, provided
further, however, that Lender or such purchaser shall not be subject to
any liability or obligation under the Lease or otherwise until Lender
or such purchaser shall have acquired the interest of Lessor in the
demised Premises by foreclosure or otherwise, and then only to the
extent of liabilities or obligations accruing subsequent to the date
that Lender or such purchaser has acquired the interest of Lessor, in
furtherance of the foregoing, neither Lender or such purchaser shall be
(a) liable for any action or omission of any prior
landlord failure to maintain and (including Lessor);
or
(b) liable for the return of any security deposits
(except such as have been delivered to it); or
(c) subject to any offsets or defenses which Lessee might
have against any prior landlord (including Lessor)
except for offsets and defenses which arise
subsequent to the date that Lender or such purchaser
acquires the interest of Lessor; or
(d) bond by any rent or additional rent which Lessee
might have paid for more than the current month to
any prior landlord (including Lessor); or
(e) bound by any amendment or modification of the Lease
made without its written consent; or
(f) bound by the consent of any prior landlord (including
Lessor), if required by the terms of the Lease, to
any assignment or sublease or Lessee's interest in
the Lease made without also obtaining Lender's prior
written consent; or
(g) personally liable for any default under the Lease or
any covenant on its part to be performed thereunder
as landlord, it being acknowledged that Lessee's sole
remedy in the event of such default shall be to
proceed against Lender's interest as mortgagee in the
Demised Premises.
5. Lessee agrees to give Lender notice of any default by Lessor under the
Lease at the same time as Lessee gives notice to the Lessor. Lender
shall be entitled, but shall not be obligated, upon notice of a default
by Lessor under the Lease to remedy the default of the Lessor provided
that Lender promptly commences action to correct the default within
thirty (30) days, and Lender proceeds with due diligence and without
interruption to complete the action necessary to cure the default.
Lender shall in no event be obliged to cure a default which is personal
to Lessor and, therefore, not reasonably susceptible of cure by Lender.
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6. In the event Lessee receives written notice from Lender that there has
been a default under the Loan and that rentals due under the Lease are
to be paid to Lender pursuant to the terms of the Lease and authorizes
Lessee to make such payments to Lender, or as otherwise directed by
Lender, and hereby releases and discharges Lessee of any and from any
liability to Lessor on account of any such payments.
7. Nothing herein contained is intended, nor shall it be construed, to
abridge or adversely affect any right or remedy of Lessor under the
Lease in the event of any default by Lessee in the payment of any rent
or in the performance of any of the terms, covenants or conditions of
the Lease on Tenant's part to be performed.
8. Any notice or communication required or permitted hereunder shall be
given in writing, sent by United States mail, postage prepaid,
registered or certified mail, or by facsimile transmission (provided
that such facsimile is confirmed by mail in the manner previously
described), addressed to the recipient party at its address set forth
above, or to such other address or in the case of such other person as
hereafter shall be designated in writing by the applicable party and
shall be deemed to have been given as of the date of receipt.
9. This Agreement may not be modified orally or in any manner other than
by an agreement in writing signed by the parties hereto or there
respective successors in interest. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their successors and
assigns, and any purchaser or purchasers at foreclosure of the Demised
Premises, and their respective heirs, personal representatives,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have hereunder caused this Agreement to
be duly executed as of the day and year first above written.
"LESSOR" "LENDER"
Cranbrook Realty Investment Fund, L.P. Lincoln National Life Insurance Company
Dba: Las Positas Office Plaza By: Lincoln Investment Management, its
Attorney in Fact
By: Cranbrook Equity Investment By:____________________________________
Corporation
a California Corporation, Title:_________________________________
General Partner
Date:__________________________________
By:___________________________________
Kevin M. FitzPatrick
Title: Vice President/Operations
Date:_________________________________
"LESSEE"
Media Synergy Software Corporation,
a California corporation
By:___________________________________
Wilson Lee
Title: Chief Financial Officer
Date:_________________________________
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EXHIBIT F
STANDARDS FOR UTILITIES AND SERVICES
The following Standards for Utilities and Services are in
effect. Landlord reserves the right to adopt nondiscriminatory modification and
additions hereto:
As long as Tenant is not in default under any of the terms,
covenants, conditions, provisions or agreements of this Lease, Landlord shall:
(a) Provide non-attended automatic elevator facilities Monday through
Friday, except holidays, from 8:00 a.m. to 8:00 p.m., and have one elevator
available at all other times.
(b) On Monday through Friday, except holidays, from 8:00 a.m. to 6:00
p.m., (and other times for a reasonable additional charge to be fixed by
Landlord), ventilate the Premises and furnish air conditioning or heating on
such days and hours, when in the judgment of Landlord it may be required for the
comfortable occupancy of the Premises. The air conditioning system achieves
maximum cooling when the window coverings are closed. Landlord shall not be
responsible for room temperatures if Tenant does not keep all window coverings
in the Premises closed whenever the system is in operation. Tenant agrees to
co-operate fully at all times with Landlord, and to abide by all regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of said air conditioning system. Tenant agrees not to connect any
apparatus, device, conduit or pipe to the building's chilled and hot water air
conditioning supply lines. Tenant further agrees that neither Tenant nor its
servants, employees, agents, visitors, licensees or contractors shall at any
time enter mechanical installations or facilities of the Building or adjust,
tamper with, touch or otherwise in any manner affect said installations or
facilities.
(c) Landlord shall furnish to the Premises, during the usual business
hours on business days, electric current as required by the Building standard
office lighting and fractional horsepower office business in the amount
approximately two and one half (2.5) watts per square foot. Tenant agrees,
should its electrical installation or electrical consumption be in excess of the
aforesaid quantity or extend beyond normal business hours, to reimburse Landlord
monthly for the measured consumption at the terms, classifications and rate
charges to similar consumers by the public utility serving the neighborhood in
which the Building is located. If a separate meter is not installed at Tenant's
cost, such excess cost will be established by an estimate agreed upon by
Landlord and Tenant, and if the parties fail to agree, as established by an
independent licensed engineer. Tenant agrees not to use any apparatus or device
in, or upon, or about the Premises which may in any way increase the amount of
such services usually furnished or supplied to said Premises, and Tenant further
agrees not to connect any apparatus or device with wires, conduits or unusual
amounts of such services without written consent of Landlord. Should Tenant use
such services to excess, the refusal on the part of Tenant to pay upon demand of
Landlord the amount established by Landlord for such excess charge shall
constitute a breach of the obligation to pay rent under this Lease and shall
entitle Landlord to the rights therein granted for such breach. At all times
Tenant's use of electric current shall never exceed the capacity of the feeders
to the Building or the risers or wiring installation and Tenant shall not
install or use or permit the installation or use of any computer or electronic
data processing equipment in the Premises without the prior written consent of
Landlord.
(d) Water will be available in public areas for drinking and lavatory
purposes only, but if Tenant requires, uses or consumes water for any purposes
in addition to ordinary drinking and lavatory purposes of which fact Tenant
constitutes Landlord to be the sole judge, Landlord may install a water meter
and thereby measure Tenant's water consumption for all purposes. Tenant shall
pay Landlord for the cost of the meter and the cost of the
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installation thereof and throughout the duration of Tenant's occupancy Tenant
shall keep said meter and installation equipment in good working order and
repair at Tenant's own cost and expense, in default of which Landlord may cause
such meter and equipment to be replaced or repaired and collect the cost thereof
from Tenant. Tenant agrees to pay for water consumed, as shown on said meter, as
and when bills are rendered, and on default in making such payment, Landlord may
pay such charges and collect the same from Tenant. Any such costs or expenses
incurred, or payments made by Landlord for any of the reasons or purposes herein
above stated shall be deemed to be additional rent payable by Tenant and
collectible by Landlord as such.
(e) Provide janitor service to the Premises, provided the same are used
exclusively as offices, and are kept reasonably in order by Tenant, and if to be
kept clean by Tenant, no one other than persons approved by Landlord shall be
permitted to enter the Premises for such purposes. If the Premises are not used
exclusively as offices, they shall be kept clear and in order by Tenant, at
Tenant's expense, and to the satisfaction of Landlord, and by persons approved
by Landlord. Tenant shall pay to Landlord the cost of removal or any of Tenant's
refuse and rubbish, to the extent that the same exceeds the refuse and rubbish
usually attendant upon the use of the premises as offices.
(f) Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electric systems, when necessary, by
reason of accident or emergency or for repairs, alterations or improvements, in
the judgment of Landlord desirable or necessary to be made, until said repairs,
alterations or improvements shall have been completed, and shall further have no
responsibility or liability for failure to supply elevator facilities, plumbing,
ventilating, air conditioning or electric service, when prevented from so doing
by strike or accident or by any cause beyond Landlord's reasonable control, or
by laws, rules, orders, ordinances, directions, regulations or requirements of
any federal, state, county or municipal authority or failure of gas, oil or
other suitable fuel supply or inability by exercise of reasonable diligence to
obtain gas, oil or other suitable fuel. It is expressly understood and agreed
that any covenants, conditions, provisions or agreement of this Lease, or to
perform any act or thing for the benefit of Tenant, shall not be deemed breached
if Landlord is unable to furnish or perform the same by virtue of a strike or
labor trouble or any other cause whatsoever beyond Landlord's control.
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EXHIBIT G
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the
Building without the prior written consent of Landlord. Landlord shall
have the right to remove, at Tenant's expense and without notice, any
sign installed or displayed in violation of this rule. All approved
signs or lettering on doors and walls shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person chosen by
Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens
or hanging plants or other similar objects attached to or used in
connection with any window or door of the Premises, Tenant shall
immediately discontinue such use. No awning shall be permitted on any
part of the Premises. Tenant shall not place anything against or near
glass partitions or doors or windows which may appear unsightly from
outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Building. The
halls, passages, exits, entrances, shopping malls, elevators,
escalators and stairways are not open to the general public. Landlord
shall in all cases retain the right to control and prevent access
thereto of all persons whose presence in the judgment of Landlord would
be prejudicial to the safety, character, reputation and interest of the
Building and its tenants; provided that nothing herein contained shall
be construed to prevent such access to persons with whom any Tenant
normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities. No Tenant and no employee or
invitee of any Tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of Tenants only and Landlord reserves
the right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building will be provided
exclusively through Landlord, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord
shall be employed by Tenant or permitted to enter the Building for
purpose of cleaning the same. Tenant shall not cause any unnecessary
labor by carelessness or indifference to the good order and cleanliness
of the Premises. Landlord shall not in any way be responsible to any
Tenant for any loss of property on the Premises, however occurring, or
for any damage to any Tenant's property by the janitor or any other
employee or any other person.
6. Landlord will furnish Tenant, free of charge, with two keys to each
door lock in the Premises. Landlord may make a reasonable charge for
any additional keys. Tenant shall not make or have made additional
keys, and Tenant shall not alter any lock or install a new additional
lock or bolt on any door of its Premises. Tenant, upon the termination
of its tenancy, shall deliver to Landlord the keys of all doors which
have been furnished to Tenant, and in the event of loss of any keys so
furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
8. Any freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture,
packages, supplies, merchandise or other property will be received in
the Building or carried in the elevators except between such hours and
in such elevators as may be designated by Landlord.
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry
and which is allowed by law. Landlord shall have the right to prescribe
the weight,
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size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by
Landlord to be necessary to properly distribute the weight. Business
machines and mechanical equipment belonging to Tenant, which cause
noise or vibration that may be transmitted to the structure of the
Building or to any space herein to such a degree as to be objectionable
to Landlord or to any tenants in the Building, shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or
other devices sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building must be
acceptable to Landlord. Landlord will not be responsible for loss of,
or damage to, any such equipment or other property from any cause, and
all damage done to the Building by maintaining or moving such equipment
or other property shall be repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
other inflammable or combustible fluid or material other than those
limited quantities necessary for the operation or maintenance of office
equipment. Tenant shall not use or permit to be used in the Premises
any foul or noxious gas or substance, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the building by reason of noise, odors
or vibrations, nor shall Tenant bring into or keep in or about the
Premises any birds or animals.
11. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord.
12. Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and to comply
with any governmental energy-saving rules, laws or regulations of which
Tenant has actual notice, and shall refrain from adjusting controls.
Tenant shall keep corridor doors closed, and shall close window
coverings at the end of each business day.
13. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the
Building.
14. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 7:00 a.m. the following day, or such other hours
as may be established from time to time by Landlord, and on Sundays and
legal holidays, any person unless that person is known to the person or
employee in charge of the Building and has a pass or is properly
identified. Tenant shall be responsible for all persons for whom it
requests passes and shall be liable to Landlord for all acts of such
persons. Landlord shall not be liable for damages for any error with
regard to the admission to or exclusion from the Building of any
person. Landlord reserves the right to prevent access to the Building
in case of invasion, mob, riot, public excitement or other commotion by
closing the doors or by other appropriate action.
15. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus, and electricity, gas or
airs outlets before Tenant and its employees leave the Premises. Tenant
shall be responsible for any damage or injuries sustained by other
tenants or occupants of the Building or by Landlord for noncompliance
with this rule.
16. Tenant shall not obtain for use on the Premises ice, drinking water,
food, beverage, towel or other similar services or accept barbering or
bootblacking service upon the Premises, except at such hours and under
such regulations as may be fixed by Landlord.
17. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be
thrown therein.
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The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by Tenant who, or whose employees
or invitees, shall have caused it.
18. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or
merchandise to the general public in or on the Premises. Tenant shall
not make any room-to-room solicitation of business from other tenants
in the Building. Tenant shall not use the premises for any business or
activity other than that specifically provided for in Tenant's Lease.
19. Tenant shall not install any radio or television antenna, loudspeaker
or other device on the roof or exterior walls of the Building. Tenant
shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
20. Tenant shall nor mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Premises or any part
thereof. Landlord reserves the right to direct electricians as to where
and how telephone and telegraph wires are to be introduced to the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall
not affix any floor covering to the floor of the Premises in any manner
except as approved by Landlord. Tenant shall repair any damage
resulting from noncompliance with this rule.
21. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord.
22. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Building are prohibited, and each
Tenant shall cooperate to prevent same.
23. Landlord reserves the right to exclude or expel form the Building any
person who, in Landlord's judgment, is intoxicated or under the
influence of liquor or drugs or who is in violation of any of the Rules
and Regulations of the Building.
24. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material
which cannot be disposed of in the ordinary and customary manner of
trash and garbage disposal. All garbage and refuse disposal shall be
made in accordance with directions issued from time to time by
Landlord.
25. The Premises shall not be used for the storage of merchandise held for
sale to the general public, or for lodging or for manufacturing of any
kind, nor shall the Premises be used for any improper, immoral or
objectionable purpose. No cooking shall be done or permitted by any
Tenant on the Premises, except that use by Tenant of Underwriters
Laboratory-approved equipment for brewing coffee, tea, hot chocolate
and similar beverages shall be permitted, provided that such equipment
and use is in accordance with all applicable federal, state, county and
city laws, codes, ordinances, rules and regulations.
26. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with rubber tires and
side guards or such other material-handling equipment as Landlord may
approve. Tenant shall not bring any other vehicles of any kind into the
Building.
27. Without the written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
28. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
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29. Tenant assumes any and all responsibility for protecting its Premises
from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
30. The requirements of the Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord will admit any
person (Tenant or otherwise) to any office without specific
instructions from Landlord.
31. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building. Tenant shall
not leave vehicles in the Building parking areas overnight nor park any
vehicles in the Building parking areas other than automobiles,
motorcycles, motor driven or non-motor driven bicycles or four-wheeled
trucks.
32. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other Tenant, but no such waiver by
Landlord shall be constructed as a continuous waiver of such Rules and
Regulations in favor of Tenant or any other Tenant, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the Building.
33. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the
terms, covenants, agreements and conditions of any lease of premises in
the Building.
34. Landlord reserves the right to make such other reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for
safety and security, for care and cleanliness of the Building and for
the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations herein above stated and any additional rules
and regulations which are adopted.
35. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
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EXHIBIT "H"
HAZARDOUS MATERIALS QUESTIONNAIRE
Las Positas Office Plaza
To: Media Synergy Software Corporation
From: The Cranbrook Group
SUBJECT: Hazardous Materials Questionnaire As It Relates to California
Health and Safety Code Sections 25503.5 and 25503.6
California Health and Safety Code Section 25503.5 requires any business which
handles hazardous Materials in excess of certain limits to establish a business
plan for emergency response to a release or threatened release of Hazardous
Materials. Health and Safety code Section 25503.6 specifies that any business
which is required under Section 25503.5 to establish and implement a business
plan and is located on leased property is required to notify the owner in
writing that the business is subject to Section 25503.5 and to provide a copy of
the business plan to the owner within five working days after receiving a
request from the owner or owner's agent for a copy.
The purpose of this letter is to request that you either verify that you are not
subject to Health and Safety Code Sections 25503.5 and 25503.6 or that you
provide the information required to be provided by those Sections by:
1. Completing the attached acknowledgment;
2. Completing the attached questionnaire;
3. If you are a reporting company, attaching a copy of your
hazardous materials management plan.
If you have any questions as to your own specific requirements, please contact
the local fire department to assess your use.
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ACKNOWLEDGMENT
THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT IT (Mark One):
________________ Does not use any hazardous materials other than minor amounts
of reproduction janitorial chemicals consistent with routine office uses (NO
NEED TO FILL OUT THE ATTACHED HAZARDOUS MATERIALS QUESTIONNAIRE.)
________________ Does not use hazardous materials in a manner or in a quantity
requiring the preparation of a hazardous material management plan or any other
documents under California Health and Safety Code Section 25503.5. (Please fill
out the attached Hazardous Materials Questionnaire.)
________________ Uses only those chemicals identified in the attached
questionnaire in accordance with the provisions of the attached hazardous
materials management plan, which has been approved by the Fire Department of the
City of Pleasanton and is in full force and effect. (Please fill out the
attached Hazardous Materials Questionnaire and attached copy of your Hazardous
Materials Management Plan.)
THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT IT HAS COMPLETED IN ALL RESPECTS TO
THE PROVISIONS OF LOCAL, STATE AND FEDERAL LAW AND THE HAZARDOUS MATERIALS
MANAGEMENT LAW ATTACHED HERETO IN CONNECTION WITH ITS STORAGE, USE AND DISPOSAL
OF HAZARDOUS MATERIALS AND THAT IT HAS DISPOSED OF HAZARDOUS MATERIALS ONLY BY
(1) DISCHARGE TO APPROPRIATELY TREATED WASTE TO A PUBLICLY OWNED TREATMENT WORK
IN ACCORDANCE WITH A VALID AND ENFORCEABLE WASTE DISCHARGE PERMIT AND (2)
DELIVERY OF HAZARDOUS WASTES TO A PROPERLY LICENSED WASTE DISPOSAL AGENT.
IN WITNESS WHEREOF, the undersigned, an authorized officer of the aforementioned
company has executed to this acknowledgment as of the date written below.
Media Synergy Software Corporation
By: /s/ Martha Ainsley
-------------------------------
Wilson Lee
Chief Financial Officer
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<PAGE> 52
HAZARDOUS MATERIALS QUESTIONNAIRE
This questionnaire is designed to solicit information regarding your proposed
use of hazardous or toxic materials. Please complete the questionnaire and
return it to (with Lease Documents) for evaluation. If your use of materials or
generation of wastes is considered to be significant, further information may be
requested regarding your plans for hazardous and toxic materials management.
Your cooperation in this matter is appreciated. If you have any questions do not
hesitate to call us for assistance.
PROPOSED LESSEE OR TENANT
Name (Corporation, Individual, Corporate
or Individual DBA, or Public Agency
Standard Industrial Classification Code (SIC)
Street Address
City, State, Zip Code
Contact Person & Title:______________________________________________________
Phone Number:(____) ________________ Facsimile Number: (____) _________________
LOCATION AND ADDRESS OF PROPOSED LEASE
Street Address
City, State, Zip Code
DESCRIPTION OF PROPOSED FACILITY USE:
Describe proposed use and operation of Premises including principal products or
service to be conducted at facility:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Does the operation of your business involve the use, generation, treatment,
storage, transfer or disposal or hazardous wastes or materials? Yes ____ No
____. If yes, or if your SIC code number is between 2000 to 4000, please
complete Section IV.
PERMIT DISCLOSURE
Does the require permits, license or plan approval from any of the following
agencies?
Environmental Protection Agency
or County Sanitation District
The Department of Health Services
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Nuclear Regulatory Commission
Quality Management District
Bureau of Alcohol, Firearms and Tobacco
or County Fire Department
Regional Water Quality Control Board
Corporate permit or license numbers, issuing agency and expiration date or
renewal date, if applicable.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If your answer is yes to any of the above questions please complete Sections V
and VI.
HAZARDOUS MATERIALS DISCLOSURE
Are any hazardous or toxic materials or substances be stored on-site? Yes ____
No ____. If yes, please describe the materials or substances to be stored,
qualities and proposed method of storage (i.e., drums, aboveground or
underground storage tanks, cylinders, other), and whether the material is a
Solid(S), Liquid(L) or Gas(G):
Material Storage Method Quantity On A Monthly Basis
Attach additional sheets if necessary.
Is any facility modification required or planned to mitigate the release of
toxic or hazardous substance or wastes into the environment? ________ Yes ____
No ____. If yes, please describe the proposed facility modifications:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HAZARDOUS WASTE DISCLOSURE
Will any hazardous waste, including recyclable waste, be generated by the
operation of your business? Yes ____ No ____. If yes, please list the hazardous
waste which will be generated at the facility, its hazardous waste and
volume/frequency of generation on a monthly basis.
Waste Name Hazardous Class Volume/Month
Attached additional sheets if necessary.
If yes, please also indicate if any such wastes are to be stored within the
Premises and the proposed method of storage (i.e., drums, aboveground or
underground storage tanks, cylinders, other).
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Waste Name Storage/Month
If yes, please also describe the method(s) of disposal for each waste. Indicate
where disposal will take place and method of transportation to be used:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Is any treatment or processing of hazardous wastes to be conducted on-site? Yes
____ No ____. If yes, please describe proposed treatment/processing methods:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Which agencies are responsible for monitoring and evaluating compliance with
respect to the storage and disposal of hazardous materials or wastes at or from
the Premises? (Please list all agencies.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Have there been any agency enforcement actions regarding the company facilities,
or any existing company facilities, or any past, pending our outstanding
administrative orders or consent decrees? Yes ____ No ____. If yes, have there
been any continuing compliance obligations imposed on your company as a result
of decrees or orders? Yes ____ No ____. If yes, please describe.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Has the company been the receipt of requests for information, notice and demand
letters, cleanup and abatement orders, or cease and desist orders or other
administrative inquiries? Yes ____ No ____. If yes, please describe:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Are there any pending citizen lawsuits, or have any notices of violations been
provided to the company or any existing facilities pursuant to the citizens suit
provisions of any statute? Yes ____ No ____. If yes, please describe:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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Have there been any previous lawsuits against the company regarding
environmental concerns? Yes ____ No ____. If yes, please describe:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Has any environmental audit ever been conducted at any of your company's
existing facilities? Yes ____ No ____. If yes, please describe:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Does your company carry environmental impairment insurance? Yes ____ No ____. If
yes, what is the name of the carrier and what are the effective periods and
monetary limits of such coverage?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Hazardous Materials Questionnaire is certified as being true and accurate
and has been completed by the party whose signature appears below on behalf of
Tenant as of the date set forth below.
Dated: _______________________ Signature: ___________________________
Print Name: ___________________________
Title: ________________________________
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EXHIBIT I
DESCRIPTION OF PRIVATE RESTRICTIONS
Reference is hereby made to that certain Declaration of Covenants, Conditions
and Restrictions for Hacienda Business Park (No. 2) recorded January 24, 1985,
Series No. 85-14396 of Office Records, Chicago Title Insurance Company. Landlord
and Tenant agree that they are fully bound by the above-named Declaration.
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<PAGE> 57
EXHIBIT J
SIGN CRITERIA
1. SIGN CRITERIA
These criteria establish the uniform policies for all Tenant signage for
leased space at Las Positas Office Plaza. These criteria have been
established for the purpose of maintaining the overall appearance of the
project. Conformance will be strictly enforced. Any sign installed which
does not conform to the sign criteria will be brought into conformity at
the expense of the Tenant.
A. General Specifications
1. Measurements
a. Tenant Name - 1" upper and lower case minus 65%
spacing; Color #48, Camel Beige; Typeface - Rockwell
Medium
b. Suite Number 1 1/4" minus 65% spacing; Color - #48,
Camel Beige; Typeface - Rockwell Medium
2. All signage is to be applied to existing tenant name plate.
3. Tenant shall be allowed one (1) directory strip on the
building directory sign.
4. Tenant shall be allowed one (1) sign regardless of size of
occupancy.
5. Lettering and installation provided at sole cost of Landlord.
6. No electrical or audible signs will be allowed.
7. Except as provided herein, no company logos, advertising
placards, banners, pennants, names, insignias, trademarks or
other descriptive material shall be affixed or maintained upon
any automated machine, glass panes of the building, building
exterior, landscaped areas, streets, or parking or other
common areas of the project.
8. Sign criteria are subject to change as may be determined at
Landlord's sole discretion.
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<PAGE> 1
Exhibit 10.9
THIS LEASE, dated as of the 30th day of September, 1999 between FRANK
J. GILBRIDE II, TRUSTEE, 31 Brookside Drive, Greenwich, Connecticut 06830
(hereinafter referred to as the Landlord), and MEDIA SYNERGY SOFTWARE
CORPORATION (hereinafter referred to as the Tenant).
WITNESSETH: That the Landlord hereby demises and leases unto the
Tenant, and the Tenant hereby hires and takes from the Landlord for the term and
upon the rentals hereinafter specified, the premises described as follows,
situated in the Town of Greenwich, County of Fairfield and State of Connecticut;
Approximately 1,800 square feet of the ground floor of Landlord's
building located at 391 East Putnam Avenue, Cos Cob, Connecticut, and 13 parking
spaces plus basement storage space.
The term of this demise shall be for three (3) years beginning October
15, 1999 and ending October 14, 2002.
The rent for the demised term shall be ONE HUNDRED THIRTY SEVEN
THOUSAND SEVEN HUNDRED AND XX/100 ($137,700.00) DOLLARS, which shall accrue at
the yearly rate of FORTY FOUR THOUSAND ONE HUNDRED AND XX/100 ($44,100.00)
DOLLARS for the year beginning October 15, 1999, FORTY FIVE THOUSAND NINE
HUNDRED ($45,900.00) DOLLARS for the year beginning October 15, 2000 and FORTY
SEVEN
<PAGE> 2
THOUSAND SEVEN HUNDRED AND XX/100 ($47,700.00) DOLLARS for the year beginning
October 15, 2001.
The said rent is to be payable monthly in advance on the fifteenth day
of each calendar month for the term hereof, in installments as follows:
$3,675.00 per month for the year beginning October 15, 1999; $3,825.00 per month
for the year beginning October 15, 2000; and $3,975.00 per month for the year
beginning October 15, 2001 to Crane Management LLC, 31 Brookside Drive,
Greenwich, Connecticut 06830, or as may be otherwise directed by the Landlord in
writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS:
1. The Landlord covenants that the Tenant, on paying the said rental
and performing the covenants and conditions in this Lease contained, shall and
may peaceably and quietly have, hold and enjoy the demised premises for the term
aforesaid.
2. The Tenant covenants and agrees to use the demised premises as and
for its executive offices and agrees not to use or permit the premises to be
used for any other purpose without the prior written consent of the Landlord.
The Tenant agrees that it may only receive business visitors between 7:30 a.m.
and 8:30 p.m. up to 2 days per week and between 7:30 a.m. and 6:00 p.m. up to 4
days per week and not at all on Sundays and national holidays.
2
<PAGE> 3
3. The Tenant shall, without any previous demand therefor, pay to the
Landlord, or its agent, the said rent at the times and in the manner above
provided. In the event of the non-payment of said rent, or any installment
thereof, at the times and in the manner above provided, and if the same shall
remain in default for ten days after becoming due, or if the Tenant shall be
dispossessed for non-payment of rent, or if the leased premises shall be
deserted or vacated, the Landlord or its agents shall have the right to and may
enter the said premises as the agent of the Tenant, either by force or
otherwise, without being liable for any prosecution or damages therefor, and may
relet the premises as the agent of the Tenant, and receive the rent therefor,
upon such terms as shall be satisfactory to the Landlord, and all rights of the
Tenant to repossess the premises under this lease shall be forfeited. Such
re-entry by the Landlord shall not operate to release the Tenant from any rent
to be paid or covenants to be performed hereunder during the full term of this
lease. For the purpose of reletting, the Landlord shall be authorized to make
such repairs or alterations in or to the leased premises as may be necessary to
place the same in good order and condition. The Tenant shall be liable to the
Landlord for the cost of such repairs or alterations, and all expenses of such
reletting. If the sum realized or to be realized from the reletting is
insufficient to satisfy the monthly or term rent provided in this lease, the
Landlord at its option, may require the Tenant to pay such deficiency month by
month, or may hold the Tenant in advance for the entire deficiency to be
realized during the term of the reletting. The Tenant shall not be entitled to
any surplus accruing as a result of the reletting. The Landlord is hereby
granted a lien, in addition to any statutory lien or right to distrain that may
exist, on all personal property of the Tenant in or upon the demised premises,
to secure payment of the rent and performance of the covenants and conditions of
this lease. The Tenant agrees to pay, as
3
<PAGE> 4
additional rent, all attorneys' fees and other expenses incurred by the Landlord
in enforcing any of the obligations under this lease.
4. The Tenant shall not sub-let the demised premises nor any portion
thereof, nor shall this lease be assigned by the Tenant without the prior
written consent of the Landlord.
5. The Tenant has examined the demised premises, and accepts them in
their present condition (except as otherwise expressly provided herein) and
without any representations on the part of the Landlord or its agents as to the
present or future condition of the said premises. The Tenant shall keep the
demised premises in good condition, and shall redecorate, paint and renovate the
same premises as may be necessary to keep them in repair and good appearance.
The Tenant shall quit and surrender the premises at the end of the demised term
in as good condition as the reasonable use thereof will permit. The Tenant shall
not make any alterations, additions, or improvements to said premises without
the prior written consent of the Landlord. All erections, alterations, additions
and improvements, whether temporary or permanent in character, which may be made
upon the premises either by the Landlord or the Tenant, shall be the property of
the Landlord and shall remain upon and be surrendered with the premises as a
part thereof at the termination of this Lease, without compensation to the
Tenant. The Tenant further agrees to keep said premises and all parts thereof in
a clean and sanitary condition and free from trash, inflammable material and
other objectionable matter.
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<PAGE> 5
6. In the event that any mechanics' lien is filed against the premises
as a result of alterations, additions or improvements made by the Tenant, the
Landlord, at its option, after thirty days' notice to the Tenant, may terminate
this lease and may pay the said lien, without inquiring into the validity
thereof, and the Tenant shall forthwith reimburse the Landlord the total expense
incurred by the Landlord in discharging the said lien, as additional rent
hereunder.
7. The Landlord shall not be responsible for the loss of or damage to
property, or injury to persons, occurring in or about the demised premises, by
reason of any existing or future condition, defect, matter or thing in said
demised premises or the property of which the premises are a part, or for the
acts, omissions or negligence of other persons or tenants in and about the said
property. The Tenant agrees to indemnify and save the Landlord harmless from all
claims and liability for losses of or damage to property, or injuries to persons
occurring in or about the demised premises unless such loss was caused by the
negligent act or omission of the Landlord or Landlord's agent.
8. Utilities furnished to the demised premises for the benefit of the
Tenant shall be provided and paid for by the Landlord except Tenant shall be
responsible for electricity. Landlord shall be responsible for maintenance of
the grounds and parking area, including snow removal, trash removal and
gardening. Tenant shall be responsible for interior janitorial services. The
Landlord shall not be liable for any interruption or delay in any of the above
services for any reason.
5
<PAGE> 6
9. The Landlord, or its agents, shall have the right to enter the
demised premises at reasonable hours in the day or night to examine the same, or
to run telephone or other wires, or to make such repairs, additions or
alterations as it shall deem necessary for the safety, preservation or
restoration of the improvements, or for the safety or convenience of the
occupants or users thereof (there being no obligation, however, on the part of
the Landlord to make any such repairs, additions or alterations), or to exhibit
the same to prospective purchasers. For four months prior to the expiration of
the demised term, the Landlord, or its agents, may similarly exhibit the
premises to prospective tenants.
10. In the event of the destruction of the demised premises or the
building containing the said premises by fire, explosion, the elements or
otherwise during the term hereby created or such partial destruction thereof as
to render the premises wholly untenantable or unfit for occupancy, or should the
demised premises be so badly injured that the same cannot be replaced within
ninety days from the happening of such injury, then and in such case the term
hereby created shall, at the option of the Landlord, cease and become null and
void from the date of such damage or destruction, and the Tenant shall
immediately surrender said premises and all the Tenant's interest therein to the
Landlord, and shall pay rent only to the time of such surrender, in which event
the Landlord may re-enter and re-possess the premises thus discharged from this
lease and may remove all parties therefrom. Should the demised premises be
rendered untenantable and unfit for occupancy, but yet be repairable within
ninety days from the happening of said injury, the Landlord may enter and repair
the same with reasonable speed, and the rent shall not accrue after said injury
or while repairs are being made, but shall recommence
6
<PAGE> 7
immediately after said repairs shall be completed. But if the premises shall be
so slightly injured as not to be rendered untenantable and unfit for occupancy,
then the Landlord agrees to repair the same with reasonable promptness and in
that case the rent accrued and accruing shall not cease or determine. The Tenant
shall immediately notify the Landlord in case of fire or other damage to the
premises.
11. The Tenant agrees to observe and comply with all laws, ordinances,
rules and regulations of the Federal, State, County and Municipal authorities
applicable to the demised premises and to Tenant's business to be conducted
therein. The Tenant agrees not to do or permit anything to be done in said
premises, or keep anything therein, which will increase the rate of fire
insurance premiums on the improvements or any part thereof, or on property kept
therein, or which will obstruct or interfere with the rights of other tenants,
or conflict with the regulations of the Fire Department or with any insurance
policy upon said improvements, or any part thereof. In the event of any increase
in insurance premiums resulting from the Tenant's occupancy of the premises, or
from any act or omission on the part of the Tenant, the Tenant agrees to pay
said increase in insurance premiums on the improvements or contents thereof as
additional rent.
12. No sign, advertisement or notice shall be affixed to or placed upon
any part of the demised premises by the Tenant, except in such manner, and of
such size, design and color as shall be approved in advance in writing by the
Landlord.
7
<PAGE> 8
13. This lease is subject and is hereby subordinated to all present and
future mortgages, deeds of trust and other encumbrances affecting the demised
premises or the property of which said premises are a part. The Tenant agrees to
execute, at no expense to the Landlord, any instrument which may be deemed
necessary or desirable by the Landlord to further effect the subordination of
this lease to any such mortgage, deed of trust or encumbrance.
14. The rules and regulations regarding the demised premises, affixed
to this lease, if any, as well as any other and further reasonable rules and
regulations which shall be made by the Landlord, shall be observed by the Tenant
and by the Tenant's employees, agents and customers. The Landlord reserves the
right to rescind any presently existing rules applicable to the demised
premises, and to make such other and further reasonable rules and regulations
as, in its judgment, may from time to time be desirable for the safety, care and
cleanliness of the premises, and for the preservation of good order therein,
which rules, when so made and notice thereof given to the Tenant, shall have the
same force and effect as if originally made a part of this lease. Such other and
further rules shall not, however, be inconsistent with the proper and rightful
enjoyment by the Tenant of the demised premises.
15. In case of violation by the Tenant of any of the covenants,
agreements and conditions of this lease, or of the rules and regulations now or
hereafter to be reasonably established by the Landlord, and upon failure to
discontinue such violation within ten days after notice thereof given to the
Tenant, this lease shall thenceforth, at the option of the Landlord, become null
and void, and the Landlord may re-enter without further notice or demand. The
rent
8
<PAGE> 9
in such case shall become due, be apportioned and paid on and up to the day of
such re-entry, and the Tenant shall be liable for all loss or damage resulting
from such violation as aforesaid. No waiver by the Landlord of any violation or
breach of condition by the Tenant shall constitute or be construed as a waiver
of any other violation or breach of condition, nor shall lapse of time after
breach of condition by the Tenant before the Landlord shall exercise its option
under this paragraph operate to defeat the right of the Landlord to declare this
lease null and void and to re-enter upon the demised premises after the said
breach or violation.
16. All notices and demands, legal or otherwise, incidental to this
lease, or the occupation of the demised premises, shall be in writing. If the
Landlord or its agent desires to give or serve upon the Tenant any notice or
demand, it shall be sufficient to send a copy thereof by certified mail, return
receipt requested, addressed to the Tenant at the demised premises, or to leave
a copy thereof with a person of suitable age found on the premises, or to post a
copy thereof upon the door to said premises. Notices from the Tenant to the
Landlord shall be send by certified mail, return receipt requested, or delivered
to the Landlord at the place hereinbefore designated by the payment of rent, or
to such party or place as the Landlord may from time to time designate in
writing.
17. It is further agreed that if at any time during the term of this
lease the Tenant shall make any assignment for the benefit of creditors, or be
decreed insolvent or bankrupt according to law, or if a receiver shall be
appointed for the Tenant, then the Landlord may, at its option, terminate this
lease, exercise of such option to be evidenced by notice to that effect served
upon
9
<PAGE> 10
the assignee, receiver, trustee or other person in charge of the liquidation of
the property of the Tenant or the Tenant's estate, but such termination shall
not release or discharge any payment of the property of the Tenant or the
Tenant's estate, but such termination shall not release or discharge any payment
of rent payable hereunder and then accrued, or any liability then accrued by
reason of any agreement or covenant herein contained on the part of the Tenant,
or the Tenant's legal representatives.
18. In the event that the Tenant shall remain in the demised premises
after the expiration of the term of this lease without having executed a new
written lease with the Landlord, such holding over shall not constitute a
renewal or extension of this lease. The Landlord may, at its option, elect to
treat the Tenant as one who has not removed at the end of his term, and
thereupon be entitled to all the remedies against the Tenant provided by law in
that situation, or the Landlord may elect, at its option, to construe such
holding over as a tenancy from month to month, subject to all the terms and
conditions of this lease, except as to duration thereof, and in that event the
Tenant shall pay monthly rent in advance at the rate provided herein as
effective during the last month of the demised term.
19. If the property or any part thereof wherein the demised premises
are located shall be taken by public or quasi-public authority under any power
of eminent domain or condemnation, this lease, at the option of the Landlord,
shall forthwith terminate and Tenant shall have no claim or interest in or to
any award of damages for such taking.
10
<PAGE> 11
20. The Tenant has this day deposited with the Landlord the sum of
$11,025.00 as security for the full and faithful performance by the Tenant of
all the terms, covenants and conditions of this lease upon the Tenant's part to
be performed, which said sum shall be returned to the Tenant after the time
fixed as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendee for the
benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the tenant agrees
to look to the new Landlord solely for the return of the said security, and it
is agreed that this shall apply to every transfer or assignment made of the
security to a new Landlord. The security deposited under this lease shall not be
mortgaged, assigned or encumbered by the Tenant without the written consent of
the Landlord.
21. Any dispute arising under this lease shall be settled by
arbitration. The Landlord and Tenant shall each choose an arbitrator, and the
two arbitrators thus chosen shall select a third arbitrator. The findings and
award of the three arbitrators thus chosen shall be final and binding on the
parties hereto.
22. No rights are to be conferred upon the Tenant until this lease has
been signed by the Landlord, and an executed copy of the lease has been
delivered to the Tenant.
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<PAGE> 12
23. The foregoing rights and remedies are not intended to be exclusive
but as additional to all rights and remedies the Landlord would otherwise have
by law.
24. All of the terms, covenants and conditions of this lease shall
inure to the benefit of and be binding upon the respective heirs, executors,
administrators, successors and assigns of the parties hereto. However, in the
event of the death of the Tenant, if an individual, the Landlord may, at its
option, terminate this lease by notifying the executor or administrator of the
Tenant at the demised premises.
25. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no way be affected, impaired or excused because Landlord
is unable to supply or is delayed in supplying any service expressly or
impliedly to be supplied or is unable to make, or is delayed in making any
repairs, additions, alterations or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of governmental preemption in connection with
the National Emergency declared by the President of the United States or in
connection with any rule, order or regulation of any department or subdivision
thereof of any governmental agency or by reason of the conditions of supply and
demand which have been or are affected by the war.
26. This instrument may not be changed orally.
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<PAGE> 13
27. Tenant agrees to obtain public liability insurance covering the
premises in the amount of $2,000,000.00 and to have said policy protect the
Landlord to the limits of the policy against liability to, or loss by, any
person(s) and to deliver proof of said policy and payment of premiums thereunder
to the Landlord.
28. Prior to the commencement of the lease, Landlord will, at its
expense, complete the renovation of the premises in a good and workmanlike
manner so as to obtain a certificate of occupancy from the Town of Greenwich.
Anything hereinbefore to the contrary notwithstanding, the Tenant's obligation
to pay rent hereunder shall not begin until such certificate of occupancy is
issued.
IN WITNESS WHEREOF, the said Parties have hereunto set their hands and
seals the day and year first above written.
LANDLORD
/s/ Frank J. Gilbride II, Trustee
--------------------------------------------
Frank J. Gilbride II, Trustee
TENANT
MEDIA SYNERGY SOFTWARE CORPORATION
By: /s/ Martha Ainsley
----------------------------------------
Martha Ainsley
Its Controller
13
<PAGE> 1
Exhibit 10.10
LES SERVICES D'AFFAIRES TELEGLOBE
TELEGLOBE BUSINESS SERVICES
TELEGLOBE
Mr. Wilson Lee
Media Synergy Inc.
260 King Street East, Building C
Toronto, Ontario
M5A 1K3
July 7, 1999
Dear Mr. Lee,
Thank you for your request for quotation. Teleglobe Communications Services Inc.
("Teleglobe") is pleased to offer Media Synergy Inc. (the "Customer") the
services herein (collectively the "Globeinternet Service"). Please acknowledge
your acceptance of the content of this quotation (the "Quotation") and
Globeinternet Terms and Conditions attached hereto by signing and initializing
where indicated and returning them by fax to my attention at Teleglobe at (514)
868-7622. The fax transmission is for order confirmation only. Two copies of
this Quotation together with the Globeinternet Terms and Conditions have been
sent to you by post mail for signature. We will also be contacting you shortly
to confirm your ready for service date as well as to finalize the technical
details. Here below is the quotation:
GLOBEINTERNET SALES QUOTATION FOR DEDICATED INTERNET ACCESS
- dedicated access to the global commercial Internet
- one hour of set-up support and procedural assistance
- secondary and / or primary DNS service
- non-portable IP address numbers as immediately required and
justified under current ARIN policy
- 24x7 customer support with 800 support line
- access to Usenet hierarchies: can, comp, misc, news, rec, sci,
soc, talk and your regional hierarchy
- Teleglobe's router is located at: 825 Milner Avenue,
Scarborough, Ontario
- The customer's router is located at: 825 Milner Avenue,
Scarborough, Ontario
The current prices of the Globeinternet Services and related hardware are as
follows:
<TABLE>
<CAPTION>
ITEM DESCRIPTION QUANTITY UNIT PRICE PRICE/MONTH
<S> <C> <C> <C> <C>
1 Burstable 100 Mbps Internet Link 1 Minimum $11,700.00*
2 Burstable 100 Mbps installation 1 $6000.00
3 10" X 11" sq. ft. co- location space 1 $35 sq. ft. $3850.00
4 Additional co-location space $25 sq. ft
</TABLE>
* Please refer to Burstable 100 Mbps Internet Access pricing annex for complete
rate sheet.
The term for the Globeinternet Service is 12 months from the Service Date. All
dedicated access charges are billed one month in advance. The first invoice is
sent upon receipt of this Quotation signed by the Customer. Payment for all
router products and peripherals must be made in advance of shipment. All
applicable taxes are extra. Other terms and conditions of payment are as set
forth in the Globeinternet Terms and
Page 1 of 10
<PAGE> 2
Conditions. This Quotation is subject to credit approval. Offer is valid for 30
days from the date of submission, and contingent upon a signed contract within
10 days thereafter and provisioning within 60 days after contract execution.
The Customer and Teleglobe hereby agree to be bound by all the terms and
conditions of this Quotation (including the attached Globeinternet Terms and
Conditions) by signing in the space provided below and initialing each page of
the attached Globeinternet Terms and Conditions. The Quotation (including
Globeinternet Terms and Conditions) are collectively hereinafter referred to as
the "Agreement".
TELEGLOBE COMMUNICATIONS SERVICES INC. MEDIA SYNERGY INC.
Signature /s/ Richard Gendron Signature /s/ Wilson Lee
Name of the authorized Name of the authorized
signatory Richard Gendron signatory Wilson Lee
Title Vice President, Sales & Marketing Title COO
Teleglobe Business Services Date Aug. 6, 1999
Teleglobe Communication Services Inc.
Date
Page 2 of 10
<PAGE> 3
TELEGLOBE
100Mb ETHERNET - BURSTABLE INTERNET ACCESS
GLOBEINTERNET STANDARD RATE SCHEDULE
For port-only, local burstable 100Mb Ethernet Internet access in Montreal,
Toronto and Vancouver:
100Mb Ethernet - Burstable Internet Access
<TABLE>
<CAPTION>
Bandwidth Range Installation Price per Mbps
<S> <C> <C>
0 - 10 Mbps $6000 $1,170
11 - 25 Mbps $6000 $1,080
26 - 45 Mbps $6000 $1,020
46 - 60 Mbps $6000 $975
61 - 80 Mbps $6000 $940
81 - 100 Mbps $6000 $900
</TABLE>
Notes:
1. Prices are for a one year commitment.
2. This pricing supersedes any previous standard pricing.
3. Minimum monthly charge of $11,700.00 applies (0-10Mbps).
4. The above pricing includes Internet access port only. Local access
circuit and CSU/DSU are not included in the above pricing.
5. Teleglobe's Burstable Option for Globeinternet access uses the
"sustained usage" formula to determine the monthly access rate. At the
end of each month of service, based on samples taken every 5 minutes,
these samples are placed in ascending order and the 95th percentile is
taken as the "sustained usage rate". For example, if the sustained
usage rate for a given month is 6.0 Mbps (at the 95th percentile), the
monthly price for that month is $11,700.00 per the rate chart above.
Customer initials: /s/WL
-----
Page 3 of 10
<PAGE> 4
GLOBEINTERNET TERMS AND CONDITIONS
1. DESCRIPTION OF SERVICE. The Services shall consist of the provision by
TELEGLOBE of TCP/IP connectivity to the Internet, on a dedicated access
basis world wide from TELEGLOBE's Internet router identified in the
Quotation (the "Router"), using a local loop circuit between the
Customer's premises and the Router, at the Kbps or Mbps speed specified
in the Quotation. The Service will be generally available twenty- four
(24) hours a day, seven (7) days a week from the date of completion of
connection to the Router to provide connectivity to the Internet, the
completion of which shall be confirmed by TELEGLOBE in writing to the
Customer (the "Service Date"). The point of Interconnection with the
Customer shall be the Customer's interconnection location identified by
the Customer in the Quotation.
2. LOCAL LOOP FACILITIES. TELEGLOBE shall be responsible for ordering the
local loop between the Customer's premises and the Router and will
charge it back to the Customer.
3. DURATION. The Agreement shall enter into effect on the date of
acceptance by TELEGLOBE of the Quotation, such acceptance being
conditional upon credit acceptance by TELEGLOBE, and shall continue in
effect for the duration of the term set forth in the Quotation (the
"Initial Term"). It shall be renewed thereafter for the equivalent of
the Initial Term unless and until terminated by either party giving the
other not less than thirty (30) day notice in writing prior to the
expiration of the Initial Term or any renewal thereof. The Initial Term
shall commence on the Service Date.
4. PRICING AND BILLING
4.1 In consideration for TELEGLOBE providing the Service to the
Customer, the Customer shall pay TELEGLOBE the monthly and one-time
charges set forth in the Quotation (hereinafter collectively referred
to as the "Charges"). The Charges are expressed in Canadian currency
and all payments shall be made in Canadian dollars.
4.2 TELEGLOBE shall render monthly Invoices to the Customer. Any
invoiced amount shall be due and payable within thirty (30) days of the
invoice's date. TELEGLOBE shall not be responsible for any fraudulent
or unauthorized use of the Service.
4.3 In the event that the Customer disputes any invoiced amount, the
Customer shall provide TELEGLOBE with a reasonably detailed written
statement on or before the date when payment is due. If the amount in
dispute represents less than 5% of the total invoiced amount (excluding
any applicable tax), the total invoiced amount shall be payable on the
due date, as per the provisions of Article 4.2 herein. If the amount in
dispute represents 5% or more of the total invoiced amount (excluding
any applicable tax), the amount in dispute may be withheld by the
Customer until the dispute is resolved whereas the non-disputed amount
shall be payable on the due date, as per the provisions of Article 4.2
herein. The Customer and TELEGLOBE shall use their respective
commercially reasonable efforts to resolve any dispute as expeditiously
as possible and upon mutual agreement, an adjustment will be made on a
subsequent invoice (either a credit shall be issued by TELEGLOBE or the
withheld amount shall be paid by the Customer, along with interest as
set forth below).
4.4 All amounts due to TELEGLOBE by the Customer that are not paid when
due shall accrue extended payment interest, to the extent permitted by
applicable laws, at a fixed rate per annum equal to the National Bank
of Canada's publicly announced rate for ninety (90) day commercial
loans in Montreal in effect on the day following the due date, plus 2%.
Such extended payment interest shall accrue from the day following the
due date up to and including the date such payments is received by
TELEGLOBE, and such amount will be included in a subsequent invoice to
the Customer making late payment.
4.5 If the Agreement is terminated for any reason, the Customer shall
remain liable to pay invoices for payments arising under the Agreement
covering the period ending on the effective date of termination.
4.6 TELEGLOBE reserves the right at any time to require the Customer to
issue a deposit, irrevocable letter of credit or other form of security
acceptable to TELEGLOBE if the Customer's financial circumstances or
payment history is or becomes unacceptable to TELEGLOBE. Upon
TELEGLOBE's written request for a security, the Customer shall have
three (3) business days to provide or implement such security and if
the Customer fails to comply with such request within said period,
TELEGLOBE shall be authorized to immediately suspend the Service and/or
terminate this Agreement without further notice or demand.
4.7 All charges due hereunder are exclusive of all applicable taxes,
including sales taxes and product and services taxes and any other
similar taxes imposed by any authority, government or government agency
(except income
Please initial: /s/WL
-----
Page 4 of 10
<PAGE> 5
tax attributable to TELEGLOBE), all of which shall be paid promptly by
the Customer.
5. FACILITIES
5.1 TELEGLOBE shall use commercially reasonable efforts to maintain, or
cause to be maintained, TELEGLOBE's facilities in sufficient working
order to provide the Service to be furnished hereunder. Subject to the
foregoing, the Service is provided exclusive of any warranties, express
or implied, including warranties of merchantability or fitness for a
particular purpose or warranty of uninterrupted service, all of which
TELEGLOBE hereby specifically disclaims.
5.2 TELEGLOBE's subcontractors, agents and employees may, at reasonable
hours, enter premises on which Service is or is to be provided to
install, inspect, repair and remove its facilities, to inspect and
perform necessary maintenance in cases of network-affecting disruptions
involving Customer-provided facilities. TELEGLOBE will provide the
Customer with a reasonable advance notice when circumstances allow.
6. EQUIPMENT
6.1 TELEGLOBE may provide the Customer with such equipment (the
"Equipment") to provide the Customer access to the Service at the
Customer's premises. The Equipment shall be supplied and installed by
TELEGLOBE or TELEGLOBE's subcontractors or agents. The Equipment shall
be maintained and repaired only by Teleglobe or TELEGLOBE's
subcontractors or agents.
6.2 The Customer acknowledges that TELEGLOBE is the owner of all right,
title and interest in the Equipment, or has obtained the right to make
the Equipment available for use by the Customer from a third party. The
Equipment will at all times remain the property of TELEGLOBE or such
third party, as the case may be, regardless of the manner in which it
is installed in or attached at the Customer's premises. The Customer
shall be responsible for any loss or damage caused to the Equipment
from any cause whatsoever, unless such loss or damage is due to the
negligence of TELEGLOBE.
6.3 The Customer shall not without TELEGLOBE's prior written consent,
make any alteration, addition or correction to the Equipment, connect
any of Customer's equipment to the Equipment, or permit access to the
Equipment by any person not approved by TELEGLOBE.
6.4 The Customer shall purchase all risk insurance coverage sufficient
to protect the Equipment. The Customer shall name TELEGLOBE as an
additional insured on any policy or policies obtained with respect to
the Equipment and provide TELEGLOBE with a copy of such policies upon
TELEGLOBE's request. Such insurance policy shall contain endorsements
waiving any right of subrogation to any claim against TELEGLOBE and
requiring thirty (30) days written notice from the insurer to TELEGLOBE
before cancellation of or any change in such policy.
6.5 TELEGLOBE's subcontractors, agents or employees may, at reasonable
hours, enter the Customer's premises, to install, inspect, repair and
remove the Equipment.
7. LIMITATION OF LIABILITY
7.1 Except as specifically provided hereunder, TELEGLOBE, its
directors, officers, employees or agents, shall not be liable to the
Customer for any loss or damage incurred by reason of or incidental to
any delay in or interruption of the Service for any reason, or for any
failure in or breakdown of facilities associated with the Service
provided hereunder, whether those facilities are TELEGLOBE's facilities
or those of any third party, or for any mistakes, omissions, delays,
errors or defects in transmission occurring in the course of furnishing
the Service.
7.2 In no event will either party be liable to the other party for any
indirect, special, incidental, or consequential losses or damages,
including, without limitation, loss of revenue, loss of customers or
clients, loss of goodwill or loss of profits, arising in any manner
from this Agreement or the performance or non-performance of its
obligations hereunder.
7.3 The Customer agrees to Indemnify and to save TELEGLOBE, its
directors, officers, employees and agents harmless from and against all
claims arising from any deliberate or negligent acts or fault of, or
improper or unlawful use of the Service by the Customer or those
authorized by the Customer, which cause loss or damage to TELEGLOBE's
equipment or property, or death or injury to personnel, or interfere
with, or degrade facilities provided by TELEGLOBE, or disrupt the
operation thereof.
7.4 It is acknowledged by the Customer that TELEGLOBE does not operate
or control the Internet in any way whatsoever, and that all
merchandise, information, content and services offered or made
available or accessible on the Internet are offered or made available
or accessible by third parties with whom the Customer shall
Please initial: /s/WL
-----
Page 5 of 10
<PAGE> 6
contact directly for such services. Consequently, TELEGLOBE offers no
warranty, whether express or implied, and makes no representation with
regard to any merchandise, information and services offered or made
available or accessible on the Internet and TELEGLOBE shall not be
liable for Customer's reliance on or use of such merchandise,
information, content and services offered or make available or
accessible on the Internet.
7.5 TELEGLOBE does not restrict access to any destinations within the
Internet network; however, Customer acknowledges that other Internet
service providers may, from time to time, filter or restrict access to
other destinations within the Internet network, and Customer agrees
that TELEGLOBE shall have no liability for any such actions by such
third party Internet service providers.
7.6 In no event shall TELEGLOBE be liable for any loss, expense or
damage (including without limitation, direct, indirect, and
consequential damages) sustained by Customer in using the Service or in
accessing the Internet.
8. CUSTOMER'S USE
8.1 The Customer undertakes to TELEGLOBE that the Service shall be used
by it in a lawful and responsible manner.
8.2 The customer undertakes to supply TELEGLOBE with all relevant
technical information or specifications to enable the Service to be
appropriately configured. The Customer further undertakes that the
Service shall be utilized in such a way as to avoid any reduction in
the overall performance of the Service or the causing of any
interruption or interference with any other transmissions through or
via the Service.
8.3 TELEGLOBE reserves the right to cancel and/or temporarily suspend
the Service if: (i) TELEGLOBE detects fraud problems on its network
warranting the cancellation or interruption of the Service; or (ii) the
Customer is engaging in activities which may potentially or actually
cause disruption or damage to TELEGLOBE's network. TELEGLOBE shall use
commercially reasonable efforts to provide the Customer with advance
notice of such cancellation or interruption and in any case shall
endeavor to provide written confirmation of such action within a
reasonable time thereafter.
8.4 The Customer shall be responsible for providing, at its own
expense, the facilities located within its premises, at the entire
exoneration of TELEGLOBE. Without limiting the generality of the
foregoing, the Customer shall be solely responsible for the
installation, operation and maintenance of any equipment or software
required to access Internet.
8.5 The Customer shall not use the Service for the purpose of resale.
9. TERMINATION
9.1 Without prejudice to any other rights of the parties hereunder,
this Agreement may be terminated by the non defaulting party in
accordance with applicable provisions hereof and/or on the occurrence
of any of the following events; (i) Material breach of this Agreement
(other than the default of payment by the Customer) after written
notice thereof and failure of the breaching party to cure such breach
within thirty (30) days of receipt of such notice; (ii) A final
determination by any government entity having jurisdiction over the
Service provided under the Agreement that the relationship of the
parties and/or the Service provided hereunder are contrary to the then
existing laws; or (iii) The adjudication of bankruptcy of either party
under any bankruptcy or insolvency act, or the appointment of a
receiver or any act or action constituting a general assignment by a
party of its properties and interest for the benefit of its creditors.
9.2 TELEGLOBE, without prejudice to its other rights hereunder or at
law, may terminate this Agreement forthwith on duly notifying the
Customer to that effect in the event that the Customer fails to make
payment punctually by the due date.
10. ADVERTISING OR INFORMATION RELEASE AND CONFIDENTIALITY. Neither party
shall disclose the existence of this Agreement or any related facts to
any third party without the prior written consent to the other party.
Each party shall maintain the confidentiality of all information or
data of any nature ("Information") provided to it by the other party
hereto for a period of two (2) years from the date of disclosure of the
Information provided the Information contains a conspicuous marking
identifying it as "Confidential" or "Proprietary". Each party shall use
the same efforts (but in no case less than reasonable efforts) to
protect Information it receives hereunder as it accords to its own
Information. Despite any indication thereon, the above requirements
shall not apply to information which (a) is already known to the
receiving party at the time that it is disclosed; (b) is or becomes
publicly known through no wrongful act of the receiving party; (c) is
Please initial: /s/WL
-----
Page 6 of 10
<PAGE> 7
rightfully received from a third party without restriction on
disclosure and without breach of this clause 10; (d) is independently
developed by the receiving party; (e) is approved for release by
written authorization of the disclosing party; (f) is furnished by the
disclosing party to a third party without a similar restriction on
disclosure. This clause 10 shall not prevent any disclosure of
Information pursuant to a lawful order of court or agency with proper
jurisdiction, provided that prior to making such disclosure, the
receiving party shall use reasonable efforts to notify the disclosing
party of this required disclosure. All Information provided by any
party to the other hereunder shall be used solely for the purpose for
which it is supplied. The provision by TELEGLOBE of the Service in no
way grants to the Customer any title or ownership in intellectual
property which may be included or embodied therein, it being understood
that such intellectual property shall at all times remain the exclusive
property of TELEGLOBE.
11. MISCELLANEOUS
11.1 No failure or omission by either party to carry out or observe any
of the terms and conditions of this Agreement, except for payment
obligations, shall give rise to any claim against the party in question
or be deemed a breach of this Agreement if such failure or omission
arises from an Act of God, or any other force majeure, an act of
Government, or any other cause beyond the reasonable control of that
party. No term or provision of this Agreement shall be deemed waived,
and no breach or default shall be deemed excused, unless such waiver or
consent is made in writing and signed by the party claimed to have
waived or consented. No consent by any party to, or waiver of, a breach
or default by the other, whether express or implied, shall constitute a
consent to, waiver of, or excuse for any different or subsequent breach
or default.
11.2 This Agreement represents the final terms of understanding between
the parties. The Agreement sets forth the terms and conditions upon
which the activities of the parties as to matters set forthwith herein
will be based and no negotiations, promises or discussions conducted
prior to execution of the Agreement not specifically set forth herein
shall be of any force or effect. This Agreement may only be modified,
altered, supplemented, or amended or any covenant herein or default
hereunder waived upon the execution and delivery of a written agreement
signed by the parties. It is agreed by the parties that this Agreement
shall be governed by and interpreted in accordance with the laws of the
Province where the Customer has its legal address and the laws of
Canada applicable therein. The Customer has agreed that this Agreement
be drawn up in English. Le Client a consenti a ce que le present
contrat soit redige en langue anglaise.
11.3 The Customer shall not, without the prior written consent of
TELEGLOBE, sell, assign, transfer or in any manner dispose of its
rights or obligations under this Agreement. 11.4 The relationship
between and among the parties hereto shall not be that of partners and
shall be limited to the express provisions of this Agreement. Nothing
herein shall be deemed to constitute a partnership or "societe de fait"
between and among them, or to merge their assets or their fiscal or
other liabilities or undertakings, nor shall it allow a party to act as
a mandatory agent of the other party, except to the extent specifically
permitted.
11.5 If any term or provision of this Agreement is found to be illegal
or unenforceable, then, notwithstanding such illegality or
unenforceability, this Agreement shall remain in full force and effect
and such term or provision shall be deemed to be deleted and shall be
replaced, if possible, by a mutually acceptable provision which comes
closest to the intention of the parties. The terms and provisions
contained in this Agreement that by their sense and context are
intended to survive the performance thereof or hereof by any or all
parties shall so survive the completion of performance and termination
of this Agreement, including, without limitation, the making of any and
all payment due.
11.6 Unless otherwise provided for in this Agreement, all notices,
requests or other communications to be given under this Agreement shall
be in writing, addressed to the parties at their respective addresses
set forth in the Quotation. If any party wishes to alter the recipient
or address to which communications are sent hereunder, it may do so by
providing the name of the new recipient or a new address, in writing,
to the other party.
Please initial: /s/WL
-----
7 of 10
<PAGE> 8
TELEGLOBE
ACCEPTABLE USE POLICY
1. PURPOSE. The purpose of this Acceptable Use Policy (hereinafter the
"Policy") is to protect Teleglobe and the users of Teleglobe's network
from illegal or improper use of the Service.
2. MODIFICATION. Teleglobe reserves the right to modify this Policy at any
time.
3. RESPONSIBILITY. The Customer shall ensure that its own customers and/or
end-users abide by the terms and conditions of this Policy.
4. RIGHT TO TERMINATE THE AGREEMENT. Teleglobe may, in its absolute
discretion, terminate this Agreement forthwith without further notice
and without any liability to the Customer if Teleglobe discovers or is
advised by anyone that the Customer engages in any activity which may
constitute an abuse of the Service, including, without limitation, the
following:
4.1 Sending unsolicited electronic mail messages leading to
complaints from any user of Teleglobe's network;
4.2 "Mailbombing" which consists of sending massive quantities of
unsolicited electronic mail messages to individual users of
Teleglobe's network or individual business accounts using
Teleglobe's network;
4.3 Using any mechanism precluding a user from identifying the
sender of an electronic mail message;
4.4 Posting off-topic messages to one or several newsgroups;
4.5 Using Teleglobe's network in a manner which would interfere
with the use of the Service by other users of Teleglobe's
network;
4.6 Perform any activity that would cause a denial or blockage of
the Service on Teleglobe's network.
8 of 10
<PAGE> 9
GLOBEINTERNET
SERVICE LEVEL AGREEMENT
This Service Level Agreement ("SLA") shall form an integral part of the
Agreement entered into between the Customer and TELEGLOBE for the Globeinternet
Service.
1. DEFINITIONS
In this SLA, the following terms and expressions shall have the
following meanings:
1.1 "SERVICE UNAVAILABILITY" shall consist of the number of
minutes that the Service is not available to the Customer due
to a complete interruption of the Service caused by the
failure or breakdown of TELEGLOBE's network excluding: (i) any
Planned Interruption; (ii) any interruption caused by
customer-provided equipment and the Router; (iii) any
interruption of the local loop circuit between the Customer's
premises and the Router and/or connection between
customer-provided equipment, applications or facilities; (iv)
any interruption caused by an act or omission of the Customer;
or (v) any interruption caused by force majeure.
1.2 "PLANNED INTERRUPTION" shall mean a complete interruption of
the Service planned by TELEGLOBE for the purpose of performing
maintenance and/or repair activities on its network;
1.3 "NORTH AMERICAN LATENCY" shall mean the duration of the
round-trip transmissions between the North American Hub
Routers;
1.4 "TRANSATLANTIC LATENCY" shall mean the duration of the
round-trip transmissions between the Transatlantic Hub
Routers;
1.5 "NORTH AMERICAN HUB ROUTERS" shall mean the TELEGLOBE-
designated inter-regional transit backbone routers in
North America;
1.6 "TRANSATLANTIC HUB ROUTERS" shall mean the TELEGLOBE-
designated inter-regional transit backbone routers in
North America and England.
2. AVAILABILITY GUARANTEE
2.1 The Service shall be available 99.95% of the time.
2.2 For each cumulative hour of Service Unavailability exceeding
0.05% of the time in
9 of 10
<PAGE> 10
any calendar month, TELEGLOBE shall provide the Customer with
a credit corresponding to 1/30th of the monthly charges
applicable for this calendar month.
2.3 No credit shall be allowed under Article 2.2 above unless
TELEGLOBE has received a written request of credit from the
Customer.
2.4 The commencement and ending of any Service Unavailability
shall be determined solely by TELEGLOBE.
3. LATENCY GUARANTEE
3.1 The North American Latency shall correspond to an average of
85 milliseconds or less.
3.2 The Transatlantic Latency shall correspond to an average of
120 milliseconds or less.
3.3 The North American Latency and the Transatlantic Latency shall
be measured by TELEGLOBE by averaging sample measurements
taken every thirty (30) minutes during a calendar month
between the North American Hub Routers for the North American
Latency and between the Transatlantic Hub Routers for the
Transatlantic Latency.
3.4 If the North American Latency exceeds 85 milliseconds in two
(2) consecutive calendar months, TELEGLOBE shall provide the
Customer with a credit corresponding to 1/30th of the monthly
charges applicable for the second month of the two (2)
consecutive month period.
3.5 If the Transatlantic Latency exceeds 120 milliseconds in two
(2) consecutive calendar months, TELEGLOBE shall provide the
Customer with a credit corresponding to 1/30th of the monthly
charges applicable for the second month of the two (2)
consecutive month period.
3.6 No credit shall be allowed under Articles 3.4 or 3.5 above for
failure to meet the Latency Guarantee attributable to force
majeure or any cause beyond TELEGLOBE's reasonable control.
4. INSTALLATION GUARANTEE
4.1 The Service shall be ready to be used by the Customer on the
ready-for-service ("RFS") date promised by TELEGLOBE to the
Customer. If TELEGLOBE fails to have the Service ready to be
used by the RFS date, for reasons not attributable to force
majeure or any of the Customer's act or omission, TELEGLOBE
shall credit 50% of the installation charge applicable for the
Service.
10 of 10
<PAGE> 1
EXHIBIT 10.11
UUNET
An MCI WorldCom Company
QUOTATION - UUDIRECT ETHERNET IN TORONTO
23 November 1999
Media Synergy Inc.
260 King Street East
Toronto, Ontario, Canada
M5A 1K3
The services quoted will provide you ("Customer") with access to the commercial
Internet. UUNET Canada Inc. ("UUNET Canada") will dedicate a full 100 Mbps
Ethernet connection for your use, and will provide an RJ45 interface at your
premises. Customer is responsible for providing a router that will speak IP over
Ethernet. The service includes one hour of set-up support and procedural
assistance in properly establishing your connection to the Internet,
registration of one domain name and primary and/or secondary Domain Name Service
(DNS), non-portable IP numbers as immediately required and as justified under
current ARIN policy, SMTP mail forwarding, one free POP mailbox and 24x7
customer support. Access will be provided to USENET news hierarchies including
can, comp, misc, news, rec, sci, soc, talk, and your regional hierarchy. All of
the services provided by UUNET Canada in this Agreement are collectively
referred to as "Services" and the current prices of the Services and related
hardware are as follows:
<TABLE>
<CAPTION>
ITEM DESCRIPTION QUANTITY PER UNIT PER MONTH
- ---------- ------------------------------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
1 DEDICATED SETUP (100 MBPS ETHERNET) 1 $20000.00
COLLOCATION SPACE CUSTOM DESIGNED TO YOUR REQUIREMENTS
INCLUDING SUBFLOORING, CABLE MANAGEMENT SYSTEM, POWER
SUPPLY, UPS AND AIR-CONDITIONING. AT 60 ADELAIDE ST. E.
2 DEDICATED ACCESS MONTHLY $12800.00
(BURSTABLE ETHERNET 0-10 MBPS)* 24
3 COLLOCATION SPACE OF 750SQ.FT. 24 $20800.00
THE SPACE WILL BE READY FOR INSTALL ON DECEMBER 15, 1999 UUNET WILL
NOT BEGIN BILLING UNTIL JANUARY 1, 1999 (ADDITIONAL SPACE WILL BE
PROVIDED AT $20.00/SQ.FT.)
</TABLE>
PRICING IS RENEGOTIABLE AFTER TWELVE MONTHS TO 10% OFF OUR LIST PRICE AT THAT
TIME OR THE CONTRACTED RATE. WHICHEVER IS LOWER. THIS CONTRACT CAN BE TERMINATED
WITHOUT PENALTY IF UUNET FAILS TO PROVIDE SERVICE AS GUARANTEED BY OUR SLA FOR A
PERIOD OF 30 CONSECUTIVE DAYS.
FIRST RIGHT OF REFUSAL WILL BE GIVEN ON ALL ADJACENT SPACE TO THE COLLOCATION
AREA DESIGNED IN THE FINAL DESIGN DRAWING.
SEE ATTACHED SCHEDULE A FOR BILLING USAGE TIERS, TAXES AND
FREIGHT CHARGES NOT INCLUDED. There is a minimal one-time charge for changing
the circuit configuration from half duplex to full duplex or from full duplex to
half duplex. Please speak with your UUNET Account Executive for complete
details.
The "Minimum Service Period" for dedicated access is the number of months listed
above under quantity. All dedicated access items are invoiced monthly in
advance. The first invoice is sent upon our receipt of this Quotation signed by
you. Subsequent months are invoiced in advance once you have basic IP
connectivity on your link. PAYMENT FOR ALL ROUTER PRODUCTS AND PERIPHERALS MUST
BE MADE IN ADVANCE OF SHIPMENT. DEDICATED ACCESS TERMS ARE NET THIRTY (30) DAYS.
All payments must be made payable to UUNET Canada Inc.
I (the Customer) have read and accept the attached Terms and Conditions (TC-DACC
v2.2), the Acceptable Use Policy (referred to in section 4 of the attached Terms
and Conditions) and the Service Level Agreement (referred to in section 9 of the
attached Terms and Conditions), which, together with this Quotation, constitute
the entire "Agreement" between UUNET Canada and Customer. This agreement is
subject to credit approval, which will be deemed granted upon start of service
delivery.
UUNET Canada Inc. Media Synergy Inc.
Per: /s/ Matthew Taylor Per: /s/ Mark Thorburn
------------------------- -------------------------------
Matthew Taylor Print: Mark Thorburn
Account Executive -----------------------------
Authorized Signing Authority Title: VP-Operations and Technology
------------------------------
Authorized Signing Authority
Date: November 25, 1999
------------------------------
<PAGE> 2
UUNET
SCHEDULE A: DEDICATED HIGH SPEED ACCESS TO THE
INTERNET
BURSTABLE FAST ETHERNET - PRICING (UP TO 100 MBPS)
The Burstable Fast Ethernet service gives the user the advantage of a full 100M
connection to the Internet with a flexibility of paying only for the actual
bandwidth level used.
UUNET provides the customer with full FAST ETHERNET from the UUNET Point of
Presence (POP) to the customer's equipment location. Burstable service customers
always have the full 100M bandwidth available to them over an unshared,
non-fractional 100 Mbps connection.
FAST ETHERNET PRICING TO 100 MBPS
USAGE LEVEL MONTHLY SERVICE
0 to 10M $12,800
10 to 15M $20,000
15 to 20M $25,600
20 to 25M $31,200
25 to 30M $36,800
30 to 35M $42,400
35 to 40M $48,000
40 to 45M $53,600
45 to 50M $59,200
50 to 60M $70,400
60 to 70M $81,600
70 to 80M $92,800
80 to 90M $104,000
90 to 100M $115,200
Monthly billing for Burstable FAST ETHERNET service is based on sustained usage
level during the month, as determined by traffic samples taken approximately
every five minutes over the course of the month. The customer's monthly charge
is determined by the usage level under which 95% of samples fall.
<PAGE> 3
UUNET
An MCI WorldCom Company
TERMS & CONDITIONS
This Agreement takes effect on the date UUNET Canada receives the Quotation
signed by Customer.
(1) In the event Customer terminates this Agreement prior to the expiration of
the Minimum Service Period, Customer will pay to UUNET Canada an amount equal to
the number of months remaining in the Minimum Service Period times the monthly
rate, provided that, if Customer terminates this Agreement because the Customer
commits to a higher speed service access with UUNET Canada, the Customer commits
to a longer term service with UUNET Canada or UUNET Canada is unable to provide
the dedicated access service, then the above Minimum Service Period charge does
not apply.
Following the Minimum Service Period, Customer may terminate this
Agreement at any time by giving at least 60 days advance notice in writing.
UUNET Canada may, by giving at least 30 days advance written notice, terminate
this Agreement at any time following any material breach of this Agreement by
Customer for which an express termination right is not otherwise provided
herein.
Upon any termination of this Agreement by Customer of UUNET Canada
pursuant to the terms of this Agreement, Customer shall continue to be obligated
to pay to UUNET Canada any amounts payable by Customer under this Agreement up
to and including the effective date of termination or the expiration of the
Minimum Service Period, as applicable.
(2) UUNET Canada exercises no control whatsoever over the content of the
information passing through its host computers and points of presence ("UUNET
Canada's Network"). UUNET Canada specifically denies any responsibility for the
accuracy or quality of information obtained through UUNET Canada's Network or
any of its Services.
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 9 BELOW, UUNET Canada (a)
MAKES NO WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, FOR THE SERVICES
AND EQUIPMENT IT IS PROVIDING AND (b) DISCLAIMS ANY WARRANTY OF TITLE,
MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.
Notwithstanding anything to the contrary stated in this Agreement, Customer's
sole remedies for any claims relating to this service or the UUNET Canada
Network are set forth in Section 9 below.
Although UUNET Canada's security efforts are consistent with industry
practice in Canada, complete privacy, confidentiality and security is not yet
possible over the Internet. Customer agrees that since the Internet is not a
fully secure medium for the communication of information, and since privacy and
confidentiality therefore cannot be guaranteed, use of UUNET Canada's Network
may be accessed by, or disclosed to, other persons. Therefore, Customer agrees
that UUNET Canada shall not be responsible or liable for any damage that
customer or any other person may suffer in connection with communication of
private, confidential or sensitive information through UUNET Canada's Network.
(3) UUNET Canada will invoice Customer for one-time set-up charge which include,
UUNET Canada's telecommunication carrier charge, upon receiving the signed
quotation from Customer. UUNET Canada will inform Customer when the dedicated
access service is operational, at which point Customer will be billed for any
hardware or software purchases, the then current month (pro-rated), the first
two months of dedicated access service from UUNET Canada and UUNET Canada's
charge for UUNET Canada's telecommunications carrier. Invoicing for Services,
including dedicated access services, shall be monthly in advance. All relevant
telecommunications carrier charges any additional charges such as Committed
Information Rate or equipment rental required for the Services are included in
the invoiced amounts.
All pricing, invoices, and payments shall be in Canadian dollars.
Payment is due within 30 days after date of invoice. Accounts are in default if
payment is not received within 30 days after date of invoice. If any account
remains unpaid 60 days after date of invoice, UUNET Canada may, upon notice to
Customer, suspend or terminate any Services or terminate this Agreement. Such
interruption does not relieve Customer from the obligation to pay the monthly
charge. If Customer defaults, Customer agrees to pay UUNET Canada its reasonable
expenses, including solicitor and collection agency fees, incurred by enforcing
its rights under this Agreement. Accounts in default are subject to an interest
charge of 1.5% per month (19.56% per annum)
(4) UUNET Canada Services are for the exclusive use of Customer and neither this
Agreement nor any of Customer's rights or obligations under this Agreement nor
any of the Services may be assigned or otherwise provided by Customer to any
other person without UUNET Canada's prior written consent.
<PAGE> 4
UUNET
An MCI WorldCom Company
Use of UUNET Canada's Network is restricted by UUNET Canada's
Acceptable Use Policy ("AUP") http://www.uunet.ca/aup.html or available from
UUNET Canada at Customer's request). UUNET Canada reserves the right to suspend
or terminate any Services or terminate this Agreement for a violation of the AUP
effective upon notice to Customer. Customer agrees to indemnify and hold
harmless UUNET Canada from any losses, damages, costs or expenses resulting from
any third party claim or allegation ("Claim") arising out of or relating to use
of any of the Services, including any Claim which, if true, would constitute a
violation of the AUP.
Customer agrees that although UUNET Canada has no obligation whatsoever
to monitor, review, inspect, screen, audit or otherwise verify content of the
information passing through UUNET Canada's Network, UUNET Canada shall have the
right to undertake any such activities concerning compliance with the
restrictions under this Agreement.
Any access to other networks connected to UUNET Canada's Network must
comply with the rules appropriate for that other network.
(5) Once the dedicated access service is operational, UUNET Canada will furnish
contact information to enable Customer to report and resolve service problems.
(6) All Services are provided subject to pricing and availability of service
from UUNET Canada's telecommunications carrier. UUNET Canada reserves the right
to 1) cancel based on lack of availability of service from UUNET Canada's
telecommunications carrier and 2) adjust pricing subject to final determination
of Customer location according to the definition of municipal and/or city
boundaries.
(7) Customer will have sole responsibility for obtaining, installing and
maintaining all equipment, software and/or communications services necessary for
interconnection with UUNET Canada's Network or otherwise for use in conjunction
with any of the Services. Customer will have sole responsibility for ensuring
that such equipment, software and services are compatible with UUNET Canada's
requirements and that they continue to be compatible with any modifications to
any of the Services by UUNET Canada from time to time.
(8) UUNET Canada may, from time to time, modify the charges (including late
payment charges) or any other term or condition of this Agreement provided that
it gives the Customer at least 30 days advance written notice, provided however
that any price increase attributable to telecommunications carrier or other
service provider pricing shall be effective immediately upon written notice to
customer. Customer agrees that an insert in or a notice on Customer's UUNET
Canada invoice constitutes a sufficient notice to Customer. Customer agrees to
pay the new charges and abide by the new terms and conditions described in such
notice, or alternatively, Customer may terminate this Agreement without penalty
upon giving written notice to UUNET Canada prior to the expiration of the 30
days period referred to above.
(9) The Service Level Agreement ("SLA") for dedicated access service is set
forth at http://www.uunet.ca/sla/agreement and applies only to Customers
agreeing to a Minimum Service Period of at least one year and only in respect of
dedicated access services provided during such Minimum Service Period. UUNET
Canada reserves the right to amend the SLA from time to time effective upon
posting of the revised SLA to the URL referred to above, provided that in the
event of any amendment resulting in a material reduction of the SLA's service
levels or credits, Customer may terminate this Agreement without penalty by
providing UUNET Canada written notice of termination during the 30 days
following such amendment. The SLA sets forth Customer's sole remedies for any
claim relating to any of the Services or UUNET Canada's Network, including any
failure to meet any guarantee set forth in the SLA. UUNET Canada's records and
data shall be the basis for all SLA calculations and determinations.
Notwithstanding anything to the contrary, the maximum amount of credit in any
calendar month under the SLA shall not exceed the UUNET Canada Dedicated Access
Monthly Fee and/or Set-up Charge which, absent the credit, would have been
charged for the dedicated access service that month. The provision of dedicated
access service at any particular connection rate does not constitute a guarantee
of the end to end throughput or bandwidth available to Customer.
(10) UUNET Canada shall not be liable for any delay or failure in performance
due to force majeure, which shall include without limitation acts of God,
earthquake, labor disputes, changes in law, regulation or government policy,
riots, ware, fire, epidemics, acts or omissions of vendors or suppliers,
equipment failures, transportation difficulties, or other occurrences which are
beyond UUNET Canada's reasonable control.
(11) Customer may not use UUNET Canada's name, trademark, tradenames or other
proprietary identifying symbols without the prior written approval of UUNET
Canada. Customer may not assign or transfer any of its rights or obligations
under this Agreement without the express, prior written consent of UUNET Canada;
provided,
<PAGE> 5
UUNET
An MCI WorldCom Company
that the Customer may assign or transfer this Agreement to any
affiliate of the Customer upon advance written notice to UUNET Canada.
(12) This Agreement shall be governed by and interpreted in accordance with the
laws of the Province of Ontario, and the federal laws of Canada applicable in
such province.
(13) No failure on the part of either party to exercise, and no delay in
exercising, any right or remedy under this Agreement shall operate as a waiver
of such right or remedy; nor shall any single or partial exercise of any right
or remedy under this Agreement preclude any other or further exercise of such
right or remedy or the exercise of any other right or remedy granted under this
Agreement or by law.
(14) If any term of this Agreement, or the application of such term to any
person or circumstances, shall be held invalid, the remainder of this Agreement,
or the application of such term to persons or circumstances other than those to
which it is held invalid, shall not be affected thereby.
(15) Le client et UUNET Canada ont demande expressment que la presente entente
et tous les documents, annexes, et avis annexes soient rediges en anglais. The
Customer and UUNET Canada have expressly requested that the Agreement and all
documents, appendices, and notices to be drafted in the English language.
<PAGE> 6
UUNET
An MCI WorldCom Company
Service Level Agreement
Terms and Conditions
The following SLA Terms and Conditions apply only to Customers agreeing
to a Minimum Service Period of one year or more by one of UUNET Canada's frame
relay, 56K, T1, T3, Ethernet or OC-3 dedicated access services and only in
respect of the provision of such services during such period. To activate the
SLA for one of the above services, eligible Customers must register for the SLA
with UUNET Canada.
NETWORK QUALITY
NETWORK LATENCY GUARANTEES
NORTH AMERICAN NETWORK LATENCY GUARANTEE SCOPE: UUNET's North American Network
Latency Guarantee is average round-trip transmissions of 85 milliseconds or less
between UUNET-designated inter-regional transit backbone network routers ("Hub
Routers") in North America.
EUROPEAN NETWORK LATENCY GUARANTEE SCOPE: UUNET's European Network Latency
Guarantee is average round-trip transmissions of 85 milliseconds or less between
UUNET-designated Hub Routers within Europe.
TRANSATLANTIC NETWORK LATENCY GUARANTEE SCOPE: UUNET's Transatlantic Network
Latency Guarantee is average round-trip transmissions of 120 milliseconds or
less between UUNET-designated Hub Router in the New York metropolitan area and a
UUNET-designated Hub Router in the London metropolitan area.
NETWORK LATENCY GUARANTEE PROCESS: Latency shall be measured by averaging sample
measurements taken during a calendar month between Hub Routers. Each month's
Network performance statistics relenting to the Network Latency Guarantees shall
be posted at http://www.uunet.ca/sla/latency.html. No credits will be made if
failure to meet a Network Latency Guarantee is attributable in reasons of Force
Majeure (as defined in the applicable service agreement).
NETWORK LATENCY GUARANTEE REMEDY: If UUNET fails to meet any Network Latency
Guarantee in two consecutive calendar months, Customer's account shall be
automatically credited for that second month and any subsequent consecutive
month in which that Network Latency Guarantee is not met for the pro-rated
charges for one day of the UUNET Monthly Fee for the service with respect to
which a Latency Guarantee has not been met.
SERVICE QUALITY
100% SERVICE AVAILABILITY GUARANTEE
SERVICE AVAILABILITY GUARANTEE SCOPE: UUNET's Service Availability Guarantee is
to have the UUNET Network (as defined in the applicable service agreement)
available 100% of the time.
SCHEDULED MAINTENANCE SCOPE: Scheduled Maintenance shall mean any maintenance at
the UUNET hub to which Customer's circuit is connected (a) in respect of which
Customer shall be notified a minimum of 48 hours in advance, and (b) that is
performed during a standard maintenance window on Tuesdays and Thursdays from 3
AM to 7 AM local time of the UUNET hub to which Customer's circuit is connected.
Notice of Schedule Maintenance will be provided to Customer's designated grant
of contract by a method elected by UUNET (telephone, e-mail, or fax).
SERVICE AVAILABILITY GUARANTEE PROCESS: At Customer's request, UUNET will
calculate Customer's "Network Unavailability" in a calendar month. "Network
Unavailability" consists of the number of minutes that the UUNET Network or a
UUNET-ordered telephone company circuit in the contiguous U.S. or Canada was not
available to Customer, and includes unavailability associated with any
maintenance at the UUNET hub to which Customer's circuit is connected other than
Scheduled Maintenance. Outages will be counted as Network Unavailability only if
<PAGE> 7
UUNET
An MCI WorldCom Company
UUNET notifies Customer of the outage in accordance with the Outage Reporting
Guarantee set forth below or if Customer opens a trouble ticket with UUNET
customer support within five days of the outage. Network unavailability will not
include Scheduled Maintenance, or any unavailability resulting from (a) any
Customer-ordered telephone company circuits, (b) Customer's applications,
equipment, or facilities, (c) acts or omissions of Customer, or any use or user
of the service authorized by Customer or (d) reasons of Force Majeure (as
defined in the applicable service agreement).
SERVICE AVAILABILITY GUARANTEE REMEDY: For each cumulative hour of Network
Unavailability or fraction thereof in any calendar month, at Customer's request
Customer's account shall be credited for the pro-rated charges for one day of
the UUNET Monthly Fee and one day's telephone company line charges for the
service with respect to which this Guarantee has not been met.
CUSTOMER CARE QUALITY
OUTAGE REPORTING GUARANTEE
OUTAGE REPORTING GUARANTEE SCOPE: UUNET's Outage Reporting Guarantee is to
notify Customer within 15 minutes after UUNET's determination that Customer's
service is unavailable. UUNET's standard procedure is to plug Customer's router
every five minutes. If Customer's router does not respond after two consecutive
five-minute ping cycles, UUNET will deem the service available and will contact
Customer's designated point of contact by a method elected by UUNET (telephone,
e-mail or fax).
OUTAGE REPORTING GUARANTEE PROCESS: The Outage Reporting Guarantee is applicable
only to service provided in the contiguous United States and in Canada, and is
applicable only if Customer completes UUNET's Customer Information Form in its
entirety or registers for the Outage Reporting Guarantee by submitting the form
available at http://www.uunet.ca/sla/registration.html. Customer is solely
responsible for providing UUNET accurate and current contact information for
Customer's designated points of contact. UUNET will be relieved of its
obligations under this Outage Reporting Guarantee if UUNET's contact information
for Customer is out of date or inaccurate due to Customer's action or omission
or if UUNET's failure is due to reasons of Force Majeure (as defined in the
applicable service agreement).
OUTAGE REPORTING GUARANTEE REMEDY: If UUNET fails to meet the Outage Reporting
Guarantee, at Customer's request Customer's account shall be credited the
pro-rated charges for one day of the UUNET Monthly Fee for the service with
respect to which this Guarantee has not been met; provided, that Customer may
obtain no more than one credit per day, irrespective of how often in that day
UUNET failed to meet the Outage Reporting Guarantee.
CIRCUIT INSTALL GUARANTEE
CIRCUIT INSTALL GUARANTEE SCOPE: UUNET's Circuit Install Guarantee is to have
installation of a UUNET-ordered telephone company circuit and activation of a
UUNET port completed within 40 business days for frame relay, 56K and T1
services, 60 business days for T3 services, and within the scheduled
installation date provided in writing by a UUNET Sales Manager for OC-3
services.
CIRCUIT INSTALL GUARANTEE PROCESS: These dates shall be counted from the date
UUNET has received all of the following from Customer: (1) signed Service
Agreement, (2) signed price quotation or authorized purchase order, (3)
completed Customer Information Form, and (if requested by UUNET) (4) completed
credit application. The Circuit Install Guarantee is not available for
Customer-ordered telephone company circuits. UUNET-ordered telephone company
circuits outside of Canada, or if the installation delay is attributable to
Customer equipment, Customer's facility, acts or omissions of Customer, its
employees or agents, Customer not passing UUNET's credit check, or reasons of
Force Majeure (as defined in the applicable service agreement).
CIRCUIT INSTALL GUARANTEE REMEDY: If UUNET determines in its reasonable
commercial judgment that UUNET has failed to meet this Circuit Install
Guarantee, Customer's account shall be credited 50% of UUNET's standard Start-up
Charge for the service with respect to which this Guarantee has not been met.
<PAGE> 1
Exhibit 10.12
OPTION AGREEMENT dated the 15th day of September, 1999.
B E T W E E N:
MEDIA SYNERGY INC., a corporation incorporated under the
laws of Ontario
(hereinafter referred to as "Media")
OF THE FIRST PART
- - and -
CNET, INC., a corporation incorporated under the laws of the
State of Delaware
(hereinafter referred to as "CNET")
OF THE SECOND PART
THIS AGREEMENT WITNESSES that in consideration of the sum of one dollar ($1.00)
and other good and valuable consideration (the receipt and sufficiency of which
is hereby acknowledged), it is agreed by and between the parties hereto as
follows:
1. DEFINITIONS. When used herein the following terms shall have the
following meanings, respectively:
"COMMON SHARES" means the issued and outstanding common shares in the
capital of Media;
"EXPIRY TIME" has the meaning set out in section 4 of this Agreement;
"FULLY DILUTED" means the number of Common Shares outstanding at any
time including any stock dividends which have been declared but not
issued and assuming all securities which are convertible directly or
indirectly into such Common Shares are converted into Common Shares and
all options, warrants or rights to acquire directly or indirectly such
Common Shares as if exercised;
"EQUITY FINANCING" means an equity financing of Media which yields net
proceeds to Media of not less than $2,000,000;
"IPO" means an offering of treasury securities of Media to the public
led by an underwriter chosen solely by the board of directors of Media,
pursuant to a prospectus filed with the applicable securities
regulatory authorities including the Ontario Securities Commission
<PAGE> 2
2
and/or the Securities & Exchange Commission of the United States and a
listing on an exchange approved by the board of directors of Media,
with net proceeds from the sale of such treasury securities and
secondary securities of at least $20,000,000 Cdn. with a pre-money
valuation of not less than $35,000,000 Cdn.;
"OPTION" means the irrevocable option granted by Media to CNET pursuant
to this Agreement;
"OPTION PRICE" means the prices referred to in section 3 payable in
respect of the exercise of the Option; and
"SHAREHOLDERS AGREEMENT" means Media's unanimous shareholders agreement
dated as of November 20, 1998 as amended.
2. GRANT OF OPTIONS. Media hereby grants to CNET, subject to the terms and
conditions hereinafter set out, an irrevocable option to subscribe for
and purchase such number of Common Shares equal to 5% of all the issued
and outstanding Common Shares on a Fully Diluted basis. In the event
the Option is exercised in conjunction with the completion of an Equity
Financing, the term "Common Shares" shall refer to the same class of
equity securities as is issued in such Equity Financing.
3. CONDITIONS. CNET shall be entitled to exercise the Option, in whole or
in part, at any time and from time to time in conjunction with or after
the completion of an Equity Financing and prior to the Expiry Time at
an exercise price per share equal to the price per share paid in the
Equity Financing. Notwithstanding the foregoing, in the event Media has
not completed an Equity Financing by September 30, 2000, CNET shall be
entitled at any time and from time to time thereafter and prior to the
Expiry Time to subscribe for and purchase such number of Common Shares
equal to 5% of the Common Shares on a Fully Diluted Basis at the time
of exercise, for an exercise price per share equal to the fair value of
the Common Shares determined in accordance with section 6.6 the
Shareholders Agreement.
4. EXPIRATION OF OPTION. The Option shall expire and terminate as to the
Common Shares in respect of which the Option has not then been
exercised on the earliest of the following dates and times (the "Expiry
Time"):
a. 6:00 p.m. (Toronto time) on September 15, 2001;
b. 6:00 p.m. (Toronto time) on the date which is 30 days
following the completion of an IPO; and
c. the date which is 90 days after termination or expiration of
the e-mail services agreement entered into between Media and
CNET dated July 19, 1999.
<PAGE> 3
3
5. METHOD OF EXERCISE OF OPTION. The Option may be exercised by CNET
giving to Media written notice of its desire to exercise the Option
accompanied by a certified cheque or bank draft representing the Option
Price in respect of the Common Shares for which the Option is being
exercised. The Common Shares subscribed for and purchased by exercise
of this Option shall be and be deemed to be issued to CNET as the
registered owner of such shares as of the close of business on the date
on which payment has been made for such shares as aforesaid.
Certificates for the Common Shares so purchased shall be delivered to
CNET within a reasonable time after the Option shall have been so
exercised.
6. ADJUSTMENT. In the event of any subdivision or change of the Common
Shares of Media into a greater number of Common Shares at any time
prior to the exercise in whole or in part of the Option, Media shall
deliver, in connection with any exercise of the Option occurring after
the record date or effective date of such subdivision or change, such
additional number of Common Shares as would have resulted from such
subdivision or change if such exercise of the Option had occurred prior
to the record date or effective date of such subdivision or change, and
the Exercise Price per Common share shall be decreased proportionately.
In the event of any consolidation or change of the Common Shares of
Media into a lesser number of Common Shares at any time prior to the
exercise in whole or in part of the Option, Media shall deliver, in
connection with any exercise of the Option occurring after the record
date or effective date of such consolidation or change, such lesser
number of Common Shares as would have resulted from such consolidation
or change if such exercise of the Option had occurred prior to the
record date or effective date of such consolidation or change, and the
Exercise Price per Common Share shall be increased proportionately.
In the event of any reclassification of the shares of Media at any time
prior to the exercise in whole or in part of the Option, Media shall
deliver, in connection with any exercise of the Option occurring after
the effective date of any such reclassification, such number and class
of shares as would have resulted from such reclassification if such
exercise of the Option had occurred prior to the effective date of such
reclassification.
In the event that Media proposes any reorganization, merger,
dissolution or sale of all or substantially all its assets or proposes
to amalgamate with one or more other corporations, it shall give notice
thereof to CNET in sufficient time to enable CNET to exercise the
Option to the extent that CNET is entitled to exercise the Option as at
the date of such reorganization, merger, dissolution, sale or
amalgamation. In addition, upon a reorganization, merger or
amalgamation with one or more other corporations, Media shall ensure
that the Option shall be exercisable into the same number and class of
securities of the reorganized, merged or amalgamated corporation that
would have been issued had the Option been exercised prior to the
reorganization, merger or amalgamation.
If Media shall at any time when CNET is entitled to exercise the
Option:
<PAGE> 4
4
a. declare any dividend upon its Common Shares;
b. offer for subscription pro rata to the holders of its Common
Shares any additional shares of any class or other rights;
c. effect any capital reorganization or reclassification of the
capital stock of Media, or consolidation, amalgamation or
merger of Media with, or sale of all or substantially all of
its assets to, another corporation;
d. effect a voluntary or involuntary dissolution, liquidation or
winding-up of Media; or
e. fix a record date for or take any other action which may
result in any adjustment under the within provisions,
then in any one or more of such cases, Media shall give to the holder
at least 20 days' written notice of the record date or effective date
as the case may be of any of the foregoing events.
The adjustments provided for herein are cumulative and shall apply
(without duplication) to successive subdivisions, consolidations,
distributions or other events resulting in any adjustment under the
within provisions, before the Expiry Time.
Media shall not be required to issue fractional Common Shares in
satisfaction of its obligations hereunder, but rather shall issue the
nearest whole number of Common Shares.
7. COVENANTS OF MEDIA. Media hereby agrees as follows:
a. All Common Shares which may be issued upon the exercise of the
rights represented by this Agreement will, upon issuance, be
validly issued, fully paid and non-assessable and free from
any and all taxes, liens and charges with respect to the issue
thereof.
b. During the period within which the rights represented by this
Agreement may be exercised, Media will at all times have
authorized and reserved a sufficient number of its Common
Shares to provide for the exercise of the rights represented
by this Agreement.
8. ASSIGNMENT. This Agreement shall be binding upon and enure to the
benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement and the rights granted hereunder may
be transferred by CNET only in accordance with the Shareholders
Agreement.
9. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the province of Ontario and the laws of
Canada applicable thereto.
<PAGE> 5
5
- - TIME OF THE ESSENCE. Time shall be of the essence of this Agreement.
- - EXECUTION. This Agreement may be executed by manual or facsimile
signature in several counterparts, each of which when so executed shall
be deemed to be an original and such counterparts shall constitute one
and the same instrument.
IN WITNESS WHEREOF the parties have executed this Agreement.
MEDIA SYNERGY INC.
By: /s/ Wilson Lee
-----------------------
CNET, INC.
By: /s/ Douglas N. Woodrum
-----------------------
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of July, 1999.
BETWEEN:
FLONETWORK INC., 260 King Street East, Building C, Toronto, Ontario, a
corporation incorporated under the laws of Ontario (the "Employer" or
the "Company")
-and-
ERIC GOODWIN, of Lombardy, in the Province of Ontario
(the "Employee")
WHEREAS the Employer is an Internet based services company providing e-mail
marketing and delivery solutions and other products and services developed or
offered by the Employer and its affiliates from time to time (the "BUSINESS");
AND WHEREAS the Employer wishes to employ the Employee and the Employee wishes
to serve the Employer on the terms and conditions contained in this Agreement;
The parties agree, in consideration of the mutual covenants and conditions
contained herein, as follows:
1. DUTIES AND RESPONSIBILITIES OF EMPLOYEE
The Employee shall assume the position of Chief Executive Officer of the
Employer and shall have those responsibilities set forth in Schedule "A" hereto.
The Employee shall also serve as a member of the Board of Directors of the
Employer (the "Board"), subject to election or appointment to the Board by the
Employer's shareholders or directors (in accordance with applicable law) from
time to time, and shall report to the Board on the Business. In each such
capacity, the Employee shall perform all such duties and exercise all such
powers consistent with his obligations as may from time to time be assigned to
or vested in him by the Board.
2. DURATION
The term of this Agreement (the "Term") shall commence effective July 1, 1999
and shall continue until terminated in the manner contemplated in section 9
hereof.
3. STANDARD OF CARE
(a) The Employee shall devote all of his working time, attention and
ability to the Business and to the carrying out of his duties and
responsibilities hereunder.
<PAGE> 2
(b) During the continuance of his employment hereunder, the Employee shall
well and faithfully serve the Employer and shall use his best efforts
to promote the interests of the Employer.
(c) It is acknowledged that the Employee may, subject to the terms of the
Non-Competition Agreement and Intellectual Property Assignment dated
as of July 1, 1999 executed by the parties to this Agreement (the
"Non-Competition Agreement"), serve as a director of other companies
from time to time, provided that such positions do not impair the
Employee's ability to carry out his duties hereunder.
4. REMUNERATION
The remuneration of the Employee for his services hereunder shall be as set out
in Part I of Schedule "B" hereto, or such other remuneration as may from time to
time be mutually agreed upon in writing between the Employer and the Employee.
5. BENEFITS
The benefits of the Employee for his services hereunder shall be as set out in
Part II of Schedule "B" hereto.
6. VACATION
During the employment of the Employee hereunder, the Employee shall from time to
time be entitled to such vacations as are set out in Part III of Schedule "B"
hereto. Such vacations shall be taken at such time or times as the Employee
shall decide, provided that the Employee shall schedule his vacations with due
regard to the performance of his essential duties to the Employer pursuant to
the terms of this Agreement.
7. EMPLOYEE STOCK OPTIONS
(a) The Employee shall be eligible to participate in the employee stock
option plan of the Employer, as administered by the Board and on such
terms as shall from time to time be determined by the Board.
(b) On July 1, 1999, the Employee was granted stock options to purchase
common shares in the capital of the Employer on the terms set out in
the option agreement dated as of July 1, 1999 between the Employee and
the Employer (the "Non-Statutory Stock Option Agreement"). Such
options shall not form a part of the Employer's employee stock option
plan (the "ESOP") but shall nonetheless be administered in accordance
with the ESOP.
8. ANNUAL COMPENSATION REVIEW AND BUSINESS PLAN
An annual review of the compensation of the Employee provided for herein shall
be conducted by the Compensation Committee of the Board, taking into account
such contributing factors as shall reasonably be determined by the Compensation
Committee or the Board from time to time
2
<PAGE> 3
and communicated at the beginning of each fiscal year to the Employee. In
addition, the Employee shall present on an annual basis, by the end of the first
quarter of each fiscal year of the Employer, a business plan for the next
following fiscal year for approval by the Board. This plan shall serve both as a
guideline for operations of the Employer, and shall also be used, in part, as a
benchmark against which the Employee's performance can be assessed and
compensation determined.
9. TERMINATION
The employment of the Employee hereunder may be terminated in the following
manner or circumstances:
(a) at any time, without prior notice or payment in lieu of notice or
severance payment, by notice in writing from the Employer to the
Employee, for a reason which would in law permit an employer to
terminate the employment of an employee for cause, or upon receipt of
notice from the Employee that he has resigned from the employment;
(b) at any time without cause, by three months prior notice in writing
from the Employer to the Employee, or by payment of three month's
salary as provided for in section 4 hereof in lieu of notice and
severance payment including without limitation any entitlement under
the Employment Standards Act (Ontario);
(c) upon the death of the Employee, in which case the employment shall be
deemed to terminate on the date of death; and
(d) in the event of the bona fide illness, physical or mental, resulting
in the Employee being unable to devote his full time and attention to
the affairs of the Employer for six consecutive months (and in
calculating the six-month period of disability, unless and until the
Employee shall have returned to attending to the affairs of the
Employer on a full-time basis for 30 consecutive normal working days,
the said period of disability shall be deemed to have been continued
without interruption whatsoever), or the adjudication of the Employee
as a mental incompetent, in either of which cases notice in writing
from the Employer shall be sent to the Employee or his legal
representative and the Employee's employment shall be deemed to
terminate on the giving of such notice.
Upon any notice being given pursuant to subsections 9(a) or (b), upon payment of
the amount referred to in subsection (b), or upon the occurrence of an event
described in subsections 9(c) or (d), as the case may be (the "EFFECTIVE DATE OF
TERMINATION"), this Agreement and the employment of the Employee hereunder shall
be wholly terminated. The Employee acknowledges and agrees that, notwithstanding
the termination of his employment, however caused, the provisions of the
Non-Competition Agreement and the Non-Statutory Stock Option Agreement shall
remain in full force and effect in accordance with the terms thereof. Upon such
termination, the Employee have no claim against the Employer for damages or
otherwise except in respect of payment of remuneration earned, due and owing as
provided for in section 4 or in respect of other benefits to which the Employee
is entitled hereunder to and including the
3
<PAGE> 4
effective date of termination. For greater certainty, the termination of the
Employee pursuant to subsection 9(d) shall in no way affect any disability
benefits the Employee would otherwise be entitled to pursuant to the Employer's
Employee Benefits Plan.
The parties hereto acknowledge and agree that the payment referred to in
subsection 9(b) is a reasonable estimate of the damages that might be suffered
by the Employee for termination of this Agreement, the said amount being
liquidated damages and not a penalty.
10. NOTICES
Any notice under this Agreement shall be in writing and may be delivered (i) by
personal delivery, which shall made to the Chief Financial Officer of the
Employer in the case of the Employer; (ii) by registered or certified mail,
which shall be deemed duly delivered four business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid; or
(iii) by a reputable nationwide overnight courier service which shall be deemed
duly delivered one business day after it is sent for next-business day delivery
by such overnight courier service, in each case to the undersigned at 260 King
Street East, Building C, Toronto, Ontario, in the case of the Employer, and to
the last address of the Employee known to the Employer, in the case of the
Employee. Either party may change the address to which notices are to be
delivered by giving notice of such change to the other party in the manner set
forth this section 10.
11. INDEPENDENT LEGAL ADVICE
The Employee hereby acknowledges and agrees that the Employee has had full
opportunity to seek and receive independent legal advice with respect to this
Agreement and that if the Employee failed to seek or receive such independent
legal advice before signing this Agreement, shall not rely on such failure as a
defence to an argument that this Agreement, or any part of it, is valid or
enforceable.
12. ENTIRE AGREEMENT
This Agreement, except as otherwise specifically provided herein, represents the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement may not be amended except by further agreement made in writing
between the parties.
13. GOVERNING LAW
This Agreement shall be deemed to have been made in and shall be construed in
accordance with the laws of the Province of Ontario and for the purposes of all
legal proceedings this Agreement shall be deemed to have been performed in such
province and the courts of such province shall have jurisdiction to entertain
any action arising under this Agreement; provided always that nothing contained
herein shall prevent the Employer from proceeding at its election against the
Employee in the courts of any other province or country.
14. MISCELLANEOUS
4
<PAGE> 5
It is agreed by and between the parties hereto that Schedules "A" and "B"
referred to herein, and annexed hereto, form an integral part of this Agreement
and this Agreement shall be construed as incorporating such Schedules. The terms
"HEREOF", "HEREIN", "HEREUNDER" and similar terms refer to this Agreement as a
whole and not to any specific provision or subdivision thereof. The terms
"AFFILIATE" and "PERSON" as used herein have the meanings ascribed thereto in
the Business Corporations Act (Ontario).
15. SUCCESSORS, ASSIGNS
The provisions hereof, where the context permits, shall ensure to the benefit of
and be binding upon the heirs, executors, administrators and legal personal
representatives of the Employee, and the successors and assigns of the Employer,
respectively. When the context so requires or permits, the masculine gender
shall be read as if the feminine or neuter genders were expressed.
16. COUNTERPARTS AND EXECUTION BY FACSIMILE
This Agreement may be executed by the parties in any number of separate
counterparts each of which, when so executed and delivered, shall be an
original, but all such counterparts shall together constitute one and the same
instrument. This Agreement may be executed and delivered by facsimile, provided
that actual executed copies of this Agreement shall be substituted forthwith
after execution for the copies executed by facsimile.
17. SEVERABILITY
If any provision of this Agreement is determined to be invalid or unenforceable
in whole or in part, such invalidity or unenforceability shall attach only to
such provision or part thereof and the remaining part of such provision and all
other provisions hereof shall continue in full force and effect.
IN WITNESS WHEREOF the Employer has executed this Agreement and the Employee has
hereunto set his hand and seal as of the date first above written.
FLONETWORK, INC.
By: /s/ Eric Goodwin
----------------------------
/s/ Wilson Lee ________________________________1/s
- -------------------------------
Witness ERIC GOODWIN
5
<PAGE> 6
SCHEDULE "A"
DUTIES AND RESPONSIBILITIES OF CHIEF EXECUTIVE OFFICER
The Chief Executive Officer shall perform such executive and managerial duties
and responsibilities customary to his offices and as are reasonably necessary to
the operations of the Employer and the Business as may be assigned to him from
time to time by or under authority of the Board. The Employee shall have primary
responsibility and authority for the general management, administration,
long-term planning and day-to-day operations of the Employer and the Business,
including without limitation: the development and implementation of the
Employer's annual operating and financial plan; the coordination of the internal
and external communications of the Employer; the development and implementation
of programs, policies and procedures designed to improve the overall
productivity, efficiency, and profitability of the Employer; and the hiring,
evaluation and termination of staff.
6
<PAGE> 7
SCHEDULE "B"
PART I - REMUNERATION
$200,000 per annum (base salary) in Canadian dollars.
The Company will also reimburse the Employee for all reasonable out-of-pocket
living expenses incurred by the Employee in connection with maintaining a second
residence in Toronto, subject to a maximum of $Cdn $30,000 per annum.
PART II - BENEFITS
The Employee shall be eligible to participate in all employee benefit plans of
the Employer made available to senior management of the Employer generally and
such other benefits as may be determined by the Board from time to time and
agreed to in writing by the Employer and the Employee.
PART III - VACATION
4 weeks per annum.
7
<PAGE> 8
NON-COMPETITION AGREEMENT AND
INTELLECTUAL PROPERTY ASSIGNMENT
TO: FloNetwork Inc.
(hereinafter referred to as "FLONETWORK")
WHEREAS the undersigned is an employee of FloNetwork and, effective as of
July 1, 1999, being the time of employment of the undersigned by FloNetwork, has
agreed to enter this Agreement to protect the confidential information,
intellectual property and other assets of FloNetwork;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and covenants contained herein and the receipt of five dollars and
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged by the undersigned), the undersigned hereby covenants and
agrees in favour of FloNetwork, as follows:
1. DEFINITIONS. For the purposes of this Agreement:
(a) "AFFILIATE" has the meaning ascribed thereto in the Business
Corporations Act (Ontario).
(b) "BUSINESS" means the business of the design, development and marketing
of e-mail marketing and delivery solutions and related services and
other products and services developed or offered by FloNetwork or its
Affiliates from time to time.
(c) "CONFIDENTIAL INFORMATION" means all secrets, trade secrets, know-how
and information (and all documents and other tangible items which
record information, whether in writing, in computer readable format or
otherwise), in each case relating to the Business or any person with
which FloNetwork does business, which is of a private, secret or
confidential nature or is not known generally to persons outside the
employ of FloNetwork or the person with which FloNetwork does
business, respectively, including without limitation, the following:
(i) all information relating to the Intellectual Property and the
products and services of FloNetwork;
(ii) all computer programs, either now existing or currently under
development, including algorithms, specifications, flow charts,
listings, source code and object code either owned by FloNetwork
or to which FloNetwork has access and which FloNetwork wishes or
is required to keep confidential;
(iii) all unpatented inventions, source code versions of software,
program and products specifications, production and quality
control manuals, prototypes, drawings, data, designs,
construction and operating techniques, analyses, compilations,
studies, processes, systems, photographs, models,
<PAGE> 9
operating manuals, created, invented or acquired by or licensed
to a person with which FloNetwork does business;
(iv) information relating to past, present and contemplated products,
techniques and modes of merchandising, marketing techniques,
manufacturing processes, procedures and know-how of FloNetwork;
(v) all financial information, all information relating to
marketing, and manufacturing, and marketing strategies of
FloNetwork or any person with which it does business;
(vi) information concerning the clients or customers and former
clients and customers of FloNetwork including their names,
customer lists and records; and
(vii) any information, process or idea that is proprietary to
FloNetwork or that FloNetwork is bound to hold confidential and
is not generally known outside of FloNetwork.
(d) "INTELLECTUAL PROPERTY" means all intellectual and industrial
property, including without limitation, financial, operating and
training ideas, copyrights, patents processes and materials, works of
expression, improvements, inventions, designs, computer programs and
any other creations, data, topographies, concepts and trade secrets,
the Confidential Information, and all intellectual and industrials
property rights, applications and registrations relating to the
foregoing, without limitation, all rights and trade secrets, patents,
industrial design and topography, registrations and copyrights, and
divisions, derivative applications, continuations, re-issues,
re-examinations, extensions and reversions and rights of priority
resulting from the filing of applications, including without
limitation all Developments (as defined in Section 6), which are
related to the past, current, future, actual or anticipated business,
products, services, manufacturing or research and development
activities of FloNetwork or its Affiliates, either solely or in
concert with third parties.
2. NON-COMPETITION. The undersigned shall not, without the prior written
consent of FloNetwork, at any time during the term of the undersigned's
employment with FloNetwork or within the period of two years following the
date of termination thereof, either individually or in partnership or in
conjunction with any person, whether as principal, agent, shareholder,
director, officer, employee, investor, lender, advisor, consultant or in
any other manner whatsoever, directly or indirectly, advise, manage, carry
on, be engaged in, be interested in, be concerned with, invest in, or lend
money to, or guarantee debts or obligations of, or permit the undersigned's
name or any part thereof to be used or employed by any person, managing,
carrying on, engaged in, interested in, or concerned with a business which
is in any way competitive to or in competition with the Business as
currently carried on or as proposed by FloNetwork to be carried on after
the date hereof by FloNetwork or its Affiliates. The foregoing shall not
prevent the undersigned (i) from purchasing as a passive investor up to 1%
of the outstanding shares
2
<PAGE> 10
or other securities of any class of any publicly-held issuer to which are
attached not more than 1% of all votes attaching to all voting securities
of such issuer.
3. CUSTOMERS. The undersigned shall not, at any time during the term of the
undersigned's employment with FloNetwork or within the period of two years
following the date of termination thereof, either individually or in
partnership or in conjunction with any person, whether as principal, agent,
shareholder, director, officer, employee, investor, advisor, consultant or
in any other manner whatsoever, directly or indirectly, engage in the
solicitation of and/or sale to any the customers of FloNetwork or its
Affiliates of any products or services of the type sold by the Business
carried on or as proposed by FloNetwork to be carried on after the date
hereof by FloNetwork or its Affiliates.
4. EMPLOYEES. The undersigned shall not, during the term of the undersigned's
employment with FloNetwork or within a period of two years following the
date of termination thereof, either individually or in partnership or in
conjunction with any person, whether as principal, agent, shareholder,
director, officer, employee, investor, advisor, consultant or in any other
manner whatsoever, directly or indirectly, attempt to induce or persuade
any employee employed by FloNetwork or its Affiliates to leave such employ,
nor solicit for employment or employ, or hire or engaged as an independent
contractor, any such employee.
5. CONFIDENTIAL INFORMATION. The undersigned shall not, during the term of the
undersigned's employment with FloNetwork or within a period of two years
following the date of termination thereof, either individually or in
partnership or in conjunction with any person, whether as principal, agent,
shareholder, director, officer, employee, investor, advisor, consultant or
in any other manner whatsoever, directly or indirectly, disclose or use,
publish or seek to protect for any purposes other than those of the
Business, any Confidential Information however obtained by the undersigned,
and the undersigned agrees to return to FloNetwork promptly following the
date hereof, all documents, copies, records and other materials in the
possession or under the control of the undersigned which pertain to the
Confidential Information or to the Business generally. Notwithstanding,
this Section 5 shall not apply to information became readily available to
the public after the time such Confidential Information was made available
to the undersigned other than through a breach of this Agreement.
6. ASSIGNMENT OF INTELLECTUAL PROPERTY.
(a) The undersigned will make full and prompt disclosure to FloNetwork of
all inventions, improvements, discoveries, methods, developments,
software, works of authorship, whether patentable or not, which are
created, made, conceived or reduced to practice by him or her or under
his or her direction or jointly with others during his or her
employment by FloNetwork, whether or not during normal working hours
or on the premises of FloNetwork (all of which collectively referred
to in this Agreement as "Developments").
3
<PAGE> 11
(b) The undersigned, without further consideration from FloNetwork,
hereby:
(i) disclaims all interest in and to the Intellectual Property;
(ii) assigns all the undersigned's right, title and interest in and
to all Intellectual Property and any application filed therefor
to FloNetwork;
(iii) confirms that any work done by the undersigned for FloNetwork
prior to his or her employment by FloNetwork relating in any way
to the conception, design, development or support of products or
services for FloNetwork constitutes Intellectual Property which
is the property of FloNetwork;
(iv) agrees not to incorporate or permit to be incorporated any
intellectual property rights of the undersigned into any
products or services of FloNetwork without FloNetwork's prior
written consent;
(v) agrees to execute all instruments and papers, and perform all
acts necessary including, but not limited to, assisting
FloNetwork in obtaining any type of Intellectual Property
protection throughout the world as may be reasonably considered
necessary or desirable by FloNetwork at the expense of
FloNetwork;
(vi) agrees to return to FloNetwork promptly following the date
hereof all expressions of data and information related to the
Intellectual Property and agrees that all records, documentation
and expressions are and shall remain the property of FloNetwork;
and
(vii) represents that the undersigned's performance of the terms of
this Agreement does not and will not breach any other agreement
to keep in confidence proprietary information acquired by the
undersigned, and the undersigned has not entered into, and
agrees not to enter into, any agreement (whether oral or
written) in conflict herewith.
7. GOVERNMENT OBLIGATIONS. The undersigned acknowledges that FloNetwork from
time to time may have agreements with other parties or with government
bodies, or agencies thereof, which impose obligations or restrictions on
FloNetwork regarding inventions made during the course of work under such
agreements or regarding the confidential nature of such work. The
undersigned agrees to be bound by all such obligations and restrictions
which are made known to the undersigned and to take all appropriate action
necessary to discharge the obligations of FloNetwork under such agreements.
8. WAIVER OF MORAL RIGHTS. The undersigned agrees to waive any and all moral
rights in the Intellectual Property arising under the Copyright Act
(Canada), as amended, or similar legislation and/or any rights to similar
effect in any country or at common law that the undersigned or any agent
performing services on behalf of the undersigned hereunder, may have with
respect to the Intellectual Property, including but not limited to the
right to the integrity of the Intellectual Property, the right to
attribution of authorship, the right to
4
<PAGE> 12
restrain any distortion, mutilation or other modification of the
Intellectual Property and the right to permit any use of the Intellectual
Property in association with a product, service, cause or institution that
may be prejudicial to the honour or reputation of the undersigned
(collectively the "Moral Rights"). Without limiting the foregoing, the
undersigned grants to FloNetwork the right to edit, adapt and in any other
way modify and translate the Intellectual Property, including without
limitation the right to produce or reproduce part of the Intellectual
Property or any derivative work based thereon, and the right to use the
Intellectual Property in association with all products, services, causes
and institutions. The undersigned agrees that anything which FloNetwork may
do with the Intellectual Property does not or will not constitute any
prejudice to the undersigned's honour or reputation. Further, the
undersigned hereby transfers its right to restrain any violation of Moral
Rights in the Intellectual Property including any distortion, mutilation or
other modification of the Intellectual Property, to FloNetwork, or, failing
the ability to transfer such right, the undersigned hereby irrevocably
appoints FloNetwork as the undersigned's agent to enforce its right to
restrain any violation of the Moral Rights at the expense of FloNetwork and
the complete indemnification of the undersigned.
9. UNITED STATES COPYRIGHT LAW. For the purposes of the United States of
America, the undersigned confirms that the Intellectual Property was
specially ordered or commissioned by, and was authored under the direction,
control and supervision of, FloNetwork and is one of the works enumerated
in the United States Copyright Law of 1976 as, and shall be considered as,
a "work made for hire" within the meaning of the copyright laws of the
United States, and that FloNetwork is entitled to the entire right, title
and interest in and to the copyright in the United States. If, however, the
Intellectual Property is not deemed a "work made for hire" under the United
States Copyright Law, the undersigned shall be bound by the provision; of
the assignment herein in respect of the United States of America.
10. REMEDIES FOR BREACH. The undersigned recognizes that a breach of any of the
covenant contained herein would result in substantial and irreparable
damages to FloNetwork and that FloNetwork could not adequately be
compensated for such damages by monetary award alone. Accordingly, the
undersigned agrees that in the event of any such breach, in addition to any
other remedies available to FloNetwork at law or otherwise, FloNetwork
shall each be separately entitled as a matter of right to apply to a court
of competent jurisdiction for relief by way of injunction, restraining
order, decree or otherwise as may be appropriate to ensure compliance by
the undersign with the provisions of this Agreement. Any remedy expressly
set forth in this Agreement shall be in addition to and not inclusive of or
dependent upon the exercise of any other remedy available to FloNetwork at
law or otherwise.
11. COVENANTS. The undersigned agrees and acknowledges that the covenants and
provisions contained in this Agreement are in addition to, and not in
replacement of, any similar covenants and provisions provided in any other
agreement relating to the subject matter hereof.
12. REASONABLENESS OF RESTRICTIONS. The undersigned agrees that (a) all
restrictions in the Agreement are necessary for the protection of the
business and goodwill of FloNetwork
5
<PAGE> 13
and are reasonable and valid, and all defences to the strict enforcement
thereof by FloNetwork are hereby waived by the undersigned, and (b) the
time periods and geographic scope of the provisions hereof are reasonable
and valid.
13. SEVERABILITY. Each covenant and provision contained in this Agreement shall
severable, separate and distinct and the unenforceability in whole or in
part of any covenant or provision hereof shall be deemed not to affect or
impair the validity or enforceability of any other covenant or provision
hereof
14. NOTICES. Any notice under this Agreement shall be in writing and may be
delivered (i) by personal delivery, which delivery shall be made to the
Chief Financial Officer of FloNetwork in the case of FloNetwork; (ii) by
registered or certified mail, which shall be deemed duly delivered four
business days after it is sent by registered or certified mail, return
receipt requested, postage prepaid; or (iii) by a reputable nationwide
overnight courier service which shall be deemed delivered one business day
after it is sent for next-business day delivery by such overnight courier
service, in each case to FloNetwork at 260 King Street East, Building C,
Toronto, Ontario, in the case of FloNetwork, and to the last address of the
undersigned known to FloNetwork, in the case of the undersigned. Either
party may change the address to while notices are to be delivered by giving
notice of such change to the other party in the manners forth this Section
14.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties and supersedes all prior agreements and understandings, whether
written or oral, relating to the subject matter of this Agreement.
16. AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both FloNetwork and the undersigned.
17. FURTHER ASSURANCES. The undersigned shall, from and after the date hereof
as requested by FloNetwork, from time to time, do and execute or cause to
be made, done and executed all such further acts, deeds and assurances as
may reasonably be considered necessary or desirable by FloNetwork to effect
the purpose of this Agreement and to carry out its provisions.
18. EXTENDED MEANINGS. In this Agreement, words importing the singular number
include the plural and vice-versa and words importing the masculine gender
include the feminine and neuter genders.
19. ATTORNMENT. The undersigned agrees (i) that any action or proceeding
relating to this Agreement may be brought in any court of competent
jurisdiction in the Province of Ontario, and for that purpose now
irrevocably and unconditionally attorns and submits to the jurisdiction of
such Ontario court; (ii) not to oppose any such Ontario action or
proceeding on the basis of forum non conveniens or for any other reason;
and (iii) not to oppose the enforcement against it in any other
jurisdiction of any judgment or order duly obtained from an Ontario court
contemplated by this Section.
20. WAIVERS. No delay or omission by the Company in exercising any right under
the Agreement shall operate as a waiver of that or any other right. A
waiver or consent given
6
<PAGE> 14
by the Company on any one occasion shall be effective only in that instance
and shall not be construed as a bar or waiver of any right on any other
occasion.
21. SUCCESSORS AND ASSIGNMENT. This Agreement shall enure to the benefit of,
and be binding on, the parties hereto and their respective heirs,
executors, administrators, successor's and legal representatives.
FloNetwork may assign its rights hereunder to any person without the
consent of the undersigned and, upon such assignment, this Agreement shall
enure to the benefit of and be binding upon any such respective assign of
FloNetwork.
22. INDEPENDENT LEGAL ADVICE. The undersigned hereby acknowledges and agrees
that undersigned has had full opportunity to seek and receive independent
legal advice with respect to this Agreement and that if the undersigned
failed to seek or receive such independent legal advice before signing this
Agreement, shall not rely on such failure as a defence to an argument that
this Agreement, or any part of it, is valid or enforceable.
23. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Ontario and the federal laws of Canada
applicable therein.
DATED as of the 1st day of July, 1999.
SIGNED, SEALED AND DELIVERED )
in the presence of )
)
)
)
/s/ Wilson Lee ) /s/ Eric Goodwin
- ------------------------------------ -------------------------------
Name: Eric Goodwin
7
<PAGE> 1
EXHIBIT 10.15
PRIVATE AND CONFIDENTIAL.
- -------------------------
August 24, 1998
Craig Rennick
Dear Craig:
RE: EMPLOYMENT WITH MEDIA SYNERGY
---------------------------------
Further to our discussions, the following terms and conditions comprise your
employment agreement with Media Synergy hereinafter referred to as "The Company"
or "MEDIA SYNERGY".
1.01 The Company shall employ you and you shall serve the Company in the
position of Vice President of Sales for an indefinite period commencing
August 24, 1998 subject to termination of employment pursuant to
Article 8 herein.
2.01 You will be compensated in accordance with the attached Addendum "A"
titled "COMPENSATION PLAN", as it may be amended annually or from time
to time at the Company's discretion and with or without prior notice to
you. The Company shall be entitled to withhold from amounts to be paid
to you any federal, state or local withholding or other taxes, payroll
deductions, or other charges which it is from time to time required to
withhold.
3.01 During the term of this Agreement, you shall perform such duties and
exercise such powers as may be necessary to properly fulfill the
position of Vice President of Sales, as outlined or required by the
Company. The Company reserves the discretion to amend, alter, or change
your job duties as it sees fit.
3.02 You shall serve the Company faithfully and to the best of your ability
and, during the term of your employment by the Company, shall devote
your full working time, attention, and ability to the business affairs
of the Company.
3.03 You shall make such reports as the Company requests.
3.04 You shall voluntarily disclose any non-confidential information
received in the course of providing your services to the Company which
would be of significant interest to the Company's sphere of business
activity in the area of multimedia email communication software.
3.05 While employed by the Company, you shall not disclose to anyone or
entity outside the company any information provided to you by the
Company which would impede or reduce the Company's ability to operate
its business profitably. Specifically, unless you first secure written
consent from the Company, you shall not disclose or use at any time
either during or for a period of three (3) years subsequent to said
employment, any secret or confidential information of the Company or
clients of the Company of which you become informed during the
<PAGE> 2
employment, whether or not developed by you, except as required in your
duties to the Company. For the purposes of this Agreement, confidential
information shall include the names or any other information about the
Company's customers or suppliers and any fact, information,
documentation, knowledge, data, know how, property, material and work,
not generally available to or generally known by the public, which is
owned, possessed or controlled by the Company or any person associated
or affiliated therewith. Confidential information shall also include
any such fact, information, documentation, knowledge, data, know how,
property, material and work relating to research and development,
experimentation, computer software programs, inventions, innovations,
improvements, formulae, processes, business plans, financial
information, trade secrets, computer based systems, data storage in a
computer, any computer readable media, product plans, marketing
strategies and names or other information about the Company's
customers, suppliers or employees Confidential Information shall not
include any information which; (i) is or becomes publicly available
through no act of you, (ii) is rightfully received by you from a third
party without restrictions, or (iii) is independently developed by you.
3.06 The Company has a proprietary interest in all information or property
relating to the business of affairs of the Company, except information
which is in the public domain. At the expiry of your employment with
the Company or at any other time that Company so requests, you shall
return or cause to be returned to the Company all tangible property of
the Company and you shall not retain any copies of such property.
3.07 It is a term of the Agreement that you sign a copy of the Agreement for
Assignment of Inventions attached hereto.
3.08 Absence of Prior Agreements.
You represent as follows:
(a) You entering into employment with the Company under this
Agreement does not constitute a breach of any contract,
agreement or understanding and you are free to execute this
Agreement and to enter into the employ of the Company.
(b) You are not bound by the terms of any agreement with any
previous employer or other party (a) to refrain from using or
disclosing any trade secret, confidential, or proprietary
information of such previous employer or other party in the
course of your employment with the Company or (b) to refrain
from competing, directly or indirectly, with the business of
such previous employer or any other party.
4.01 You agree that during your employment with the Company and for a period
of eighteen (18) months after your employment with the Company ends for
whatever reason, you shall not solicit, endeavor to entice away from
the Company or otherwise interfere with the Company's relationship with
any person who is employed by or otherwise engaged to perform services
for the Company or any
<PAGE> 3
person or entity who is, or was within the then most recent twelve (12)
month period a customer, client or prospective client of the Company.
For purposes of this agreement a prospective client is one that a
representative of Media Synergy has made a proposal to during the
twelve (12) months proceeding the date of termination. For further
clarity the above clause does not restrict you from approaching
contacts/customers with products/services which are not competitive
with the products and services sold by the Company.
4.02 You agree that during your employment with the Company and for a period
of eighteen (18) months after your employment with the Company ends for
whatever reason, you will not, without the advance written consent of
the Company, directly or indirectly engage in any activity or which is
directly competitive with that of the Company or any of its
subsidiaries or affiliates in any province of Canada or any state in
the United States of America where the Company is engaged in business
at the time your employment with the Company ceases.
5.01 You will be entitled to annual vacation in accordance with Company
policy.
5.02 You will be eligible to participate in the Company's benefit program.
The Company reserves the right to amend, alter, change or end any or
all benefits at its discretion and with or without prior notice to you.
6.01 You will be entitled to holidays observed by the Company.
7.01 Should you be required to use your personally owned vehicle for
purposes of undertaking business on behalf of MEDIA SYNERGY, you will
be reimbursed in accordance with the standard rates established for the
period. You will be reimbursed for your out-of-pocket expenses incurred
on behalf of the Company. All claims for travel and expense
reimbursement must be submitted on a timely basis and be clearly
identified and supported by original receipts. The Company reserves the
right to determine what is or what is not a compensable expense.
8.01 We expect this agreement for provision of your services to prove to be
satisfactory to both parties. However, in the event that your services
must be terminated for any reason, the following will apply:
Your employment may be terminated:
(a) without cause, notice, compensation in lieu of notice or
severance pay at any time during the first three (3) months of
your employment, or in the event the Company has just cause to
terminate your employment. For the purposes hereof, the
Company shall determine in its sole discretion whether "just
cause" exists as defined in (i), (ii), (iii) or (iv) below:
(i) being convicted of a criminal offense involving or
relating to the property or affairs of the Company;
<PAGE> 4
(ii) being guilty of grave misconduct with the Company
reasonably determines has materially harmed the
Company or any of its affiliates; or
(iii) a refusal to follow lawful and proper directions of
your supervisor or manager, after written notice of
that refusal and a reasonable opportunity to comply
therewith;
(iv) failure to meet reasonable performance objectives or
standards after written notice of the requirement
which have been agreed to by you.
(b) at any time, at your option, by providing two weeks prior
written notice to the Company of your effective date of
resignation, or
(c) without just cause, at the opinion of the Company upon
providing written notice to you equal to the period described
as follows:
Notice equal to the aggregate of one week plus one further
week for every full year of service with the Company as at the
date of your dismissal.
It is agreed that the Company may pay you compensation in lieu
of providing you with the aforesaid notice by paying you an
amount equal to your salary, and providing your benefits that
would otherwise have been paid over the aforesaid period of
notice.
8.02 In the event that you receive the payments and benefits described in
paragraph 8.01 herein, you hereby release and forever discharge the
Company and its officers, directors, employees, shareholders and agents
from any and all actions, causes of action, claims and demands
whatsoever arising from your employment with the Company and the
termination of that employment.
9.01 You understand that if you violate any provisions of this agreement
relating to Confidential Information or to your duty to cooperate in
matters relating to protection of intellectual property, the Company
will suffer immediate and irreparable injury. If you violate any of
such provisions, you agree that, in addition to any other remedies that
may apply, your strict compliance with Agreement should be ordered by a
court of competent Jurisdiction and Company is therefore entitled to
preliminary and final injunctive relief to enforce this Agreement.
10.01 In the event that, notwithstanding the foregoing, any part of the
provisions set forth in this Agreement shall be held to be invalid or
unenforceable, the remaining parts thereof shall nevertheless continue
to be valid and enforceable as though the invalid or unenforceable
parts had not been included therein. In the event that any provisions
relating to time period and/or areas of restriction shall be declared
by a court of competent jurisdiction to exceed the maximum time period
or areas such court deems reasonable and enforceable, the agreed upon
time period and/or areas
<PAGE> 5
of restriction shall be deemed to become and thereafter be the maximum
time period and/or areas which such court deems reasonable and
enforceable.
11.01 It is the policy of the Company to conduct its affairs in strict
compliance with the letter and spirit of the law and to adhere to the
highest principles of business ethics. Accordingly, all officers,
employees and independent contractors must avoid activities which are
in conflict, or give the appearance of being in conflict, with these
principles and with the interests of the Company. The following are
potentially compromising or harmful situations which must be avoided.
Any exceptions must be reported to the President and written approval
for continuation must be obtained.
(a) CONFIDENTIAL INFORMATION: Revealing confidential information
to outsiders or misusing confidential information.
Unauthorized divulging of information is a violation of this
policy, whether or not for personal gain and whether or not
harm to the Company is intended.
(b) GIFTS: Accepting or offering substantial gifts, excessive
entertainment, favors or payments which may be deemed to
constitute undue influence or otherwise be improper or
embarrassing to the Company.
(c) CIVIC OR PROFESSIONAL ORGANIZATIONS: Participating in civic or
professional organizations that might involve divulging
confidential information of the Company.
(d) PERSONAL RELATIONSHIPS: Initiating or approving personnel
actions affecting reward or punishment of employees or
applicants where there is a family relationship or is or
appears to be a personal or social involvement.
(e) HARASSMENT: Initiating or approving any form of personal,
sexual, or social harassment of employees, customers,
suppliers or anyone else.
(f) OUTSIDE INVESTMENT OR INVESTMENTS: Investing or holding an
ownership interest or outside directorship in suppliers,
customers, or competing companies, including financial
speculations, where such investment or directorship might
influence in any manner a decision or course of action of the
Company.
(g) BORROWING AND LENDING: Borrowing from or lending to employees,
customers or suppliers.
(h) REAL ESTATE: Acquiring real estate of interest to the Company.
(i) OTHER INFORMATION: Improperly using or disclosing to the
Company any proprietary information or trade secrets of any
former or concurrent employer or other person or entity with
whom obligations of confidentiality exist.
<PAGE> 6
(j) COMPETITORS: Unlawfully discussing prices, costs, customers,
sales or markets with competing companies or their employees.
(k) ILLEGAL AGREEMENTS: Making any unlawful agreement with
distributors, competitors or their employees.
(l) COMPANY PROPERTY: Improperly using or authorizing the use of
any property of the Company or any other thing or property
that is owned by person or entity.
(m) GENERAL CONDUCT: Engaging in any conduct which is not in the
best interest of the Company.
(n) FOREIGN PAYMENTS: Making any unlawful agreement with or
payment to any domestic or foreign government official or
corporate representative.
(o) HEADINGS: The headings used herein are for the convenience of
the parties only and shall not be used to define, enlarge or
limit any term of this Agreement.
Each officer, employee and independent contractor must take every
necessary action to ensure compliance with these guidelines and to
bring problem areas to the attention of higher management for review.
Violations of this conflict of interest policy may result in discharge
without warning.
12.01 You hereby agree that because of the nature of Company's business, the
restrictions contained in this letter are reasonable and necessary in
order to protect the legitimate interest of the Company.
13.01 No waiver of any provision of this agreement shall be valid unless the
same is in writing and signed by the party against whom such waiver is
sought to be enforced; moreover, no valid waiver of any other provision
of this agreement at such time or will be deemed a valid waiver of such
provision at any other time.
14.01 Construction and interpretation of this agreement shall at all times
and in all respects be governed by the laws of the Province of Ontario,
Canada.
14.02 This agreement shall be binding upon, and shall inure to the benefit
of, the Company and you, and their respective heirs, personal and legal
representatives, successors and assigns.
14.03 This letter and the attached Addendum titled "Compensation Plan"
constitutes the entire agreement between you and the Company. It is
agreed and acknowledged that there are no representations. oral or
written warranties or covenants upon which the two parties are relying
in reaching this agreement, outside of the terms contained within this
letter and the attached Compensation Plan. All prior agreements
relating to your employment are superseded by this letter of
<PAGE> 7
agreement. No change or modification hereof shall be valid or binding
unless the same is in writing and signed by the party intended to be
bound.
This letter is being provided to you in duplicate and we would appreciate return
of one (1) copy of this letter indicating your acceptance of the terms and
conditions.
Yours very truly,
Jessica Gelberg
Human Resources Manager
ACCEPTED AND AGREED TO THIS 2nd DAY OF September, 1998.
/s/ Craig Rennick
- --------------------------------
CRAIG RENNICK
<PAGE> 8
AGREEMENT FOR ASSIGNMENT OF INVENTIONS
If I should be employed to perform services for Media Synergy or any Media
Synergy division, affiliate, subsidiary or associate company or any successor in
business of any of the foregoing, then, in consideration of such employment and
the wages and salary to be paid to me, and regardless of the duration of such
employment, I hereby agree to perform to the best of my ability all duties
required of me from time to time by my employer, and I agree to comply strictly
with all the conditions herein set forth. For the purposes of these conditions,
Media Synergy or its division, affiliate, subsidiary, associate company or
successor in business of any of the foregoing by which I may be employed or to
which from time to time I may be transferred, shall deemed to be the "Employer".
- --------------------------------------------------------------------------------
PART ONE
1. ASSIGNMENT - I agree to assign to the Employer, it's successors,
assigns or nominees, all my rights to inventions, improvements and
developments, patentable or unpatentable, including the right to invoke
the benefit of the right of priority provided by the International
Convention for the Protection of Industrial property, as amended, or by
a Convention which may hereafter be substituted for it and to invoke
and claim such right or priority without further written or oral
authorization, which, during the period of my employment by the
Employer or by its predecessors or successors in business or by any
associated company. I have made or conceived or hereafter may make or
conceive, either solely or jointly with others: (a) with the use of the
Employer's time, materials or facilities; or (b) resulting from or
suggested by my work for the Employer; or (c) in any way appertaining
to any subject matter related to the existing or contemplated business,
products and services of (i) Media Synergy, its affiliate, subsidiary
or associate company by which I am employed, (ii) any other Media
Synergy division, affiliate, subsidiary or associate company in the
same field of business, products or services and (iii) any other Media
Synergy division, affiliate, subsidiary or associate company, to which
I may be exposed in the course of my employment.
2. DISCLOSURE - I agree to make and maintain adequate and current written
records of all inventions, improvements, and developments in the form
of notes, sketches, drawings, or reports relating thereto: which
records shall be and remain the property of and available to the
Employer at all times and I agree promptly to disclose to the Employer
all such inventions, improvements and developments.
3. EXECUTION OF DOCUMENTS - At any time requested by the Employer, either
during employment or after termination thereof, and without charge to
the said Employer, but at its expense, I agree to execute, acknowledge
and deliver all such further papers, including applications for
patents, and to perform such other lawful acts as, in the opinion of
said Employer, may be necessary to obtain or
<PAGE> 9
maintain patents for such inventions in any and all countries and to
vest title thereto in the Employer, its successors, assigns or
nominees.
4. TERMINATION - Upon termination of my employment, I agree to return to
the Employer all property of the Employer of which I have had custody,
including delivery to the Finance Department of all notebooks and other
data relating to research or experiments conducted by me or any
inventions made by me, and to make full disclosure relating to such
research, experiments or inventions relating to the products, processes
or methods of manufacture of the Employer or otherwise covered by this
agreement.
5. PRIOR INVENTIONS - If, prior to the date of execution hereof, I have
made or conceived any unpatented inventions, improvements or
developments, whether patentable or unpatentable, which I desire to
have excluded from this Agreement, I have written below a complete list
thereof
6.. COMPLIANCE NOT CONTINGENT UPON ADDITIONAL CONSIDERATION - I have not
been promised, and I shall not claim am additional or special payment
for compliance with the covenants and agreements herein contained.
7. SEVERABILITY - I agree that the unenforceability or inapplicability of
any one or more phases and/or provisions of this Agreement and Covenant
shall not affect the remaining provisions of this Agreement and
Covenant or any part thereof.
I have read or have had read to me, and have full knowledge of and understand
the aforementioned Agreement
Employee Name: Craig Rennick
---------------------------------------
Employee Signature: /s/ Craig Rennick
----------------------------------
Witness (Media Synergy employee): /s/ Wilson Lee
---------------------
Date: September 2, 1998
------------------------------------------------
- --------------------------------------------------------------------------------
PART TWO
List any unpatented inventions, improvements and developments whether patentable
or unpatentable made or conceived prior to the date of execution herewith which
you desire to have excluded from the foregoing Agreement. Note: If none, state
"none". Also, it is necessary to record issued patents, pending patent
applications or prior inventions previously assigned or agreed to be assigned to
others.
Employee Signature: /s/ Craig Rennick
------------------------------
<PAGE> 10
ADDENDUM A - COMPENSATION PLAN
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
POSITION Vice President of Sales
- --------------------------------------------------------------------------------
BASE $100,000 annually
- --------------------------------------------------------------------------------
BONUS Discretionary Bonus: $10,000 annually, payable in quarterly
installments, commencing after completion of 90 day
probationary period if certain non-revenue based milestones are
achieved e.g. building direct sales force team, establishment
of a U.S. based sales presence
Revenue Bonus: $40,000 annually, payable at the end of
July 31, 1999 fiscal year if:
1. Aggregate revenue of $5.0 million for fiscal
year is achieved. Accelerator of $25,000 paid
if revenues exceed $5.0 million target.
For purposes of this agreement actual sales shall be
defined as sales which are recognizable for financial
reporting purposes in accordance with Generally
Accepted Accounting Principals, as determined by the
Company's auditors.
- --------------------------------------------------------------------------------
STOCK OPTIONS 300,000 Common shares to be vested evenly over 4 years
commencing the first date of employment. Strike price to be at
$0.185 per share (50% of the latest financing price of $0.37
per share).
- --------------------------------------------------------------------------------
SHAREHOLDER Upon exercise of any stock options you will
AGREEMENT be required to sign and comply with the Company's
standard shareholder's agreement.
- --------------------------------------------------------------------------------
RRSP MATCHING RRSP matching of $1,000 prorated from commencement of
employment to July 31, 1998.
For example, assuming first date of employment is
January 1, 1998 then the RRSP entitlement would be (7 1/2 mths
* $1,000) = $583
- --------------------------------------------------------------------------------
BENEFITS Standard employee benefits after 3 months probation.
Reimbursement of monthly parking charges.
- --------------------------------------------------------------------------------
VACATION 3 weeks plus statutory holidays.
- --------------------------------------------------------------------------------
REVIEWS Compensation to be reviewed by Compensation Committee
annually. First review no later than August, 1999.
- --------------------------------------------------------------------------------
</TABLE>
Media Synergy, Inc. Craig Rennick
Signed: /s/ Wilson Lee Signed: /s/ Craig Rennick
------------------------------- -----------------------------
Name Printed: Wilson Lee Name Printed: Craig Rennick
------------------------- -----------------------
Date: September 2, 1998 Date: September 2, 1998
--------------------------------- -------------------------------
<PAGE> 11
Mr. Craig Rennick
Vice President Sales
Media Synergy
May 6, 1999
Dear Craig,
It is my pleasure to inform you that the compensation committee has accepted the
proposed changes to your compensation plan. The changes will take effect May 1,
1999 except for the commission calculation which will be calculated as at
February 1, 1999. In addition the compensation committee has added two marquee
account bonuses to your compensation plan. A bonus of $5,000 Cdn for Multiple
Zones and a bonus of $10,000 Cdn for the signing of CNET. Since Multiple Zones
is now a client you will be paid your $5,000 bonus on the next-pay period.
Congratulations !
The section below outlines your current compensation and your new compensation
plan. Please note that the revenue target for the period Feb 99 to July 99 has
been reduced to $800k from $1.1 million for purposes of calculating your sales
commission and team bonus commission.
CURRENT COMPENSATION
Base Salary 100,000
Discretionary Bonus 10,000
Revenue Bonus (l) 40,000
Revenue Accelerator Bonus (2) 25,000
Stock Options 300,000 strike price $0.185/share.
(1) Payable if revenues of $5 million achieved as at July 31, 1999.
(2) Payable in addition to $40k bonus if revenues as at July 31, 1999
exceed $5 million.
NEW COMPENSATION
Base Salary 100,000
Commission on total revenue up to target 1.25%
Commission on revenue in excess of target (3) 2.25%
Team Bonus (4) $22,500
Multiple Zones Bonus $ 5,000
CNET Bonus $10,000
<PAGE> 12
Stock Options:
Existing 300,000 strike price $0.185/share
Additional 200,000 strike price $0.37/share
(3) Revenue target for the period Feb 99 to July 99 = $0.8 million.
(4) Payable if target revenue of $0.8 million achieved for period Feb 99 to
July 99.
As always your compensation plan is confidential and should not be shared with
anyone within the Company. I want to thank you for your continued support and
commitment to Media Synergy.
Yours truly,
Wilson Lee
Chief Operating Officer
<PAGE> 13
MEDIASYNERGY
October 7, 1999
To: Craig Rennick
Re: 2000 Compensation
Effective August 1, 1999 to July 31, 2000 your total compensation package will
include the following components.
Target
------
Base Salary $ 125,000
Performance Bonus $ 25,000
Super Marquee Bonus $ 50,000
Commission $ 50,000
---------
Total $ 250,000
- - Options will be granted annually at the discretion of CEO.
Performance Bonus: (Format is subject to change)
- - 50% on corporate targets paid annual - Target bonus is $12,500 with 60%
weight on Revenue and 40% weight on EBITDA targets. The range will be applied
to the scale below.
- - 50% on personal objectives paid quarterly - $3125 per quarter based on
instituting:
- - sales automation,
- - sales knowledge and skill transfer process,
- - reusable sales training process,
- - market intelligence process,
- - revenue forecasting process
Super Marquee Bonus:
- - $10,000 paid for each Super Marquee client on signed contract (target 5
accounts with no cap)
- - Super Marquee defined as $300,000 in annualized revenue. Bonus will be
adjusted at end of contract based on actual billings.
<PAGE> 14
Commission:
- - Commissions will be paid quarterly based on billed revenues using the
following schedule and applied to the scale below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Target - C$619,500 Target - C$1,173,000 Target - C$2,203,500 Target - C$3,684,000
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Quarter YTD Quarter YTD Quarter YTD Quarter YTD
- -------------------------------------------------------------------------------------------------------------
$5,000 NA $5,000 $5,000 $7,500 $7,500 $10,000 $10,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Scale:
The following scale will be applied against bonus for annual corporate targets
(EBITDA and revenue) and commissions paid on quarterly revenue targets.
Revenue Targets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
If % Plan Attainment: 75% to 100% to 125% 4:1 Up & Down
Then % Incentive Plan 0% to 100% to 200%
</TABLE>
EBITDA (Loss) Target
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
If % Plan Attainment: 0% to 100% to 125% 2:1 Down (Smaller Loss)
Then % Incentive Plan 3000% to 100% to 0% 4:1 Up (greater loss)
</TABLE>
(0% plan attainment means break even)
<PAGE> 1
Exhibit 10.16
FLONETWORK INC.
SHARE INCENTIVE PLAN
1. Purpose
The purpose of this Share Incentive Plan, as amended and restated from
time to time (the "Plan") of FloNetwork Inc., a corporation incorporated under
the laws of Ontario, Canada (the "Company"), is to advance the interests of the
Company's shareholders by enhancing the Company's ability to attract, retain and
motivate persons who make (or are expected to make) important contributions to
the Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's shareholders. Except where the context
otherwise requires, the term "Company" shall include any of the Company's
present or future subsidiary corporations as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder (the "Code") and any other business venture (including, without
limitation, joint venture or limited liability company) in which the Company has
a significant interest, as determined by the Board of Directors of the Company
(the "Board").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted share awards, or other share-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
<PAGE> 2
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (each a "Committee"). All
references in the Plan to the "Board" shall mean the Board or a Committee or the
executive officer referred to in Section 3(b) to the extent that the Board's
powers or authority under the Plan have been delegated to such Committee or
executive officer.
(d) Accounts and Statements. The Company shall maintain records of the
details of each Option granted to each Participant under the Plan, including the
date of grant, Designated Amount and the Option Price of each Option, the number
of common shares of the Company ("Common Shares") in respect of which the Option
has been exercised and the maximum number of Common Shares which the Participant
may still purchase under the Option. Upon request therefor from a Participant
and at such other times as the Company shall determine, the Company shall
furnish the Participant with a statement setting forth the details of his
Options. Such statement shall be deemed to have been accepted by the Participant
as correct unless written notice to the contrary is given to the Company within
30 days after such statement is given to the Participant.
4. Shares Available for Awards
(a) Number of Shares. Awards may be made under the Plan for up to
11,000,000 Common Shares of the Company; provided, however, that the number of
Common Shares reserved for issuance under the Plan shall be automatically
increased every January 1, beginning in 2001, by the lesser of (i) 3,500,000
Common Shares, (ii) 4% of the Company's outstanding Common Shares on such date,
and (iii) a lesser amount determined by the Board. The numbers of Common Shares
referenced in this Section 4(a) shall be subject to adjustment as provided in
Section 8 hereof. If any Award expires or is terminated, surrendered or
canceled without having been fully exercised or is forfeited in whole or in
part or results in any Common Shares not being issued, the unused Common Shares
covered by such Award shall again be available for the grant of Awards under
the Plan, subject, however, in the case of Incentive Share Options (as
hereinafter defined), to any limitation required under the Code.
(b) Per-Participant Limit. Subject to adjustment under Section 8, for
Awards granted after the Common Shares are registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), the maximum number of Common Shares
with respect to which Awards may be granted to any Participant under the Plan
shall be 1,750,000 per calendar year. The per-Participant limit described in
this Section 4(b) shall be construed and applied consistently with Section
162(m) of the Code ("Section 162(m)").
-2-
<PAGE> 3
5. Share Options
(a) General. From time to time, the Board may grant one or more options
to a Participant to purchase Common Shares (each, an "Option") in accordance
with the Plan and determine the number of Common Shares to be covered by each
Option, the exercise price of each Option and the conditions and limitations
applicable to the exercise of each Option, including conditions relating to
applicable federal or state securities laws, as it considers necessary or
advisable. An Option which is not intended to be an Incentive Share Option (as
hereinafter defined) shall be designated a "Nonstatutory Share Option".
(b) Incentive Share Options. An Option that the Board intends to be an
"incentive share option" as defined in Section 422 of the Code (an "Incentive
Share Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Share Option is not an Incentive Share Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
delivered in accordance with Section 10, together with payment in full as
specified in Section 5(f) for the number of shares for which the Option is
exercised.
(f) Payment Upon Exercise. Common Shares purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker to deliver promptly to the
Company sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price;
(3) when the Common Shares are registered under the Exchange Act,
by delivery of Common Shares owned by the Participant valued at their fair
market
-3-
<PAGE> 4
value as determined by (or in a manner approved by) the Board in good faith
("Fair Market Value"), provided (i) such method of payment is then permitted
under applicable law and (ii) such Common Shares were owned by the Participant
at least six months prior to such delivery;
(4) to the extent permitted by applicable law and the Board, in
its sole discretion by (i) delivery of a promissory note of the Participant to
the Company on terms determined by the Board, or (ii) payment of such other
lawful consideration as the Board may determine; or
(5) by any combination of the above permitted forms of payment.
(g) Substitute Options. In connection with a merger or consolidation of
an entity with the Company or the acquisition by the Company of property or
shares of an entity, the Board may grant Options in substitution for any options
or other shares or share-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5.
6. Restricted Shares
(a) Grants. The Board may grant Awards entitling recipients to acquire
Common Shares, subject to the right of the Company to repurchase all or part of
such shares at their issue price or other stated or formula price (or to require
forfeiture of such shares if issued at no cost) from the recipient in the event
that conditions specified by the Board in the applicable Award are not satisfied
prior to the end of the applicable restriction period or periods established by
the Board for such Award (each, a "Restricted Share Award"). Any Common Shares
repurchased by the Company shall be canceled in accordance with applicable law.
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Share, including the conditions for repurchase
(or forfeiture) and the issue price, if any. Any share certificates issued in
respect of a Restricted Share Award shall be registered in the name of the
Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a share power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Share-Based Awards
-4-
<PAGE> 5
The Board shall have the right to grant other Awards based upon the
Common Shares having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Shares and the grant of share appreciation
rights.
8. Adjustments for Changes in Common Shares and Certain Other Events
(a) Changes in Capitalization. In the event of any share split, reverse
share split, share dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Shares other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Share Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Share Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition Events
(1) Definition. An "Acquisition Event" shall mean: (a) any
merger, consolidation or amalgamation of the Company with or into another entity
as a result of which the Common Share is converted into or exchanged for the
right to receive cash, securities or other property or (b) any exchange of
shares of the Company for cash, securities or other property pursuant to a
statutory share exchange transaction or plan of arrangement.
(2) Consequences of an Acquisition Event on Options. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement approved by the Board with respect to an Acquisition Event, the Board
shall provide that all outstanding Options shall be assumed, or equivalent
options shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof). For purposes hereof, an Option shall be considered to be
assumed if, following
-5-
<PAGE> 6
consummation of the Acquisition Event, the Option confers the right to purchase,
for each Common Share subject to the Option immediately prior to the
consummation of the Acquisition Event, the consideration (whether cash,
securities or other property) received as a result of the Acquisition Event by
holders of Common Share for each Common Share held immediately prior to the
consummation of the Acquisition Event (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Common Shares); provided, however, that if the consideration
received as a result of the Acquisition Event is not solely common shares of the
acquiring or succeeding corporation (or an affiliate thereof), the Company may,
with the consent of the acquiring or succeeding corporation, provide for the
consideration to be received upon the exercise of Options to consist solely of
common shares of the acquiring or succeeding corporation (or an affiliate
thereof) equivalent in fair market value to the per share consideration received
by holders of outstanding Common Shares as a result of the Acquisition Event.
(3) Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall, upon written notice to the
Participants, provide that all then unexercised Options will become exercisable
in full as of a specified time prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants before the consummation of such Acquisition
Event; provided, however, that in the event of an Acquisition Event under the
terms of which holders of Common Shares will receive upon consummation thereof a
cash payment for each Common Share surrendered pursuant to such Acquisition
Event (the "Acquisition Price"), then the Board may instead provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and that each Participant shall receive, in exchange therefor, a cash payment
equal to the amount (if any) by which (A) the Acquisition Price multiplied by
the number of Common Shares subject to such outstanding Options (whether or not
then exercisable), exceeds (B) the aggregate exercise price of such Options.
(4) Consequences of an Acquisition Event on Restricted Share
Awards. Upon the occurrence of an Acquisition Event, the repurchase and other
rights of the Company under each outstanding Restricted Share Award shall inure
to the benefit of the Company's successor and shall apply to the cash,
securities or other property which the Common Shares converted into or exchanged
for pursuant to such Acquisition Event in the same manner and to the same extent
as they applied to the Common Shares subject to such Restricted Share Award.
(5) Consequences of an Acquisition Event on Other Awards. The
Board shall specify the effect of an Acquisition Event on any other Award
granted under the Plan at the time of the grant of such Award.
-6-
<PAGE> 7
(d) Fractional Common Shares. No fractional Common Shares shall be
issued upon the exercise of an Option nor shall any script certificates in lieu
therefor be issuable at any time. Accordingly, if as a result of any adjustment
under Section 8, a Participant would otherwise have become entitled to a
fractional common share upon the exercise of an Option, he or she shall have the
right to purchase only the next lower whole number of Common Shares and no
payment or other adjustment will be made with respect to the fractional
interests so disregarded.
9. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written
instrument in such form as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each
Award may be made alone or in addition or in relation to any other Award. The
terms of each Award need not be identical, and the Board need not treat
Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Shares are registered under the Exchange
Act, Participants may, to the extent then permitted under applicable law,
satisfy such tax obligations in whole or in part by delivery of Common Shares,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award
-7-
<PAGE> 8
of the same or a different type, changing the date of exercise or realization,
and converting an Incentive Share Option to a Nonstatutory Share Option,
provided that the Participant's consent to such action shall be required unless
the Board determines that the action, taking into account any related action,
would not materially and adversely affect the Participant.
(g) Conditions on Delivery of Shares. The Company will not be obligated
to deliver any Common Shares pursuant to the Plan or to remove restrictions from
shares previously delivered under the Plan until (i) all conditions of the Award
have been met or removed to the satisfaction of the Company, (ii) in the opinion
of the Company's counsel, all other legal matters in connection with the
issuance and delivery of such shares have been satisfied, including any
applicable securities laws and any applicable stock exchange or stock market
rules and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may consider
appropriate to satisfy the requirements of any applicable laws, rules or
regulations.
(h) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Share Awards shall be free of restrictions in full or in part or that any other
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
10. Miscellaneous.
(a) Shareholders' Agreement. Upon issuance of any Common Shares upon
the exercise of an Award, the Participant receiving such shares shall agree, in
writing, to be bound by the terms of the Second Amended and Restated
Shareholders' Agreement dated as of November 24, 1999, as amended from time to
time, by and among the Company and persons and entities who are signatories
thereto.
(b) Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award. Unless otherwise determined by the Board, neither any period
of notice, if any, nor any payment in lieu thereof, or combination thereof, upon
termination of employment shall be considered as extending the period of
employment for the purposes of the Plan.
(c) No Rights As Shareholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a shareholder with respect to any Common Shares to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event
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<PAGE> 9
the Company effects a split of the Common Shares by means of a share dividend
and the exercise price of and the number of shares subject to such Option are
adjusted as of the date of the distribution of the dividend (rather than as of
the record date for such dividend), then an optionee who exercises an Option
between the record date and the distribution date for such share dividend shall
be entitled to receive, on the distribution date, the share dividend with
respect to the Common Shares acquired upon such Option exercise, notwithstanding
the fact that such shares were not outstanding as of the close of business on
the record date for such share dividend.
(d) Effective Date and Term of Plan. The Plan shall become effective as
of the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's shareholders to the extent
shareholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's shareholders, but Awards previously
granted may extend beyond that date.
(e) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's shareholders as required by
Section 162(m) (including the vote required under Section 162(m)).
(f) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by, and interpreted in accordance with, the laws of
the Province of Ontario, Canada and the federal laws of Canada applicable
therein, without regard to any applicable conflicts of law principles.
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<PAGE> 1
EXHIBIT 10.17
FLONETWORK INC.
2000 EMPLOYEE SHARE PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of FloNetwork
Inc. (the "Company") and certain of its subsidiaries with opportunities to
purchase the Company's common shares (the "Common Shares"), commencing on
January 1, 2000. Up to TWO MILLION, FIVE HUNDRED THOUSAND (2,500,000) Common
Shares in the aggregate have been approved for this purpose, subject to
adjustment upon changes in the capitalization of the Company as provided for in
Sections 16 and 17 hereof. This Plan is intended to qualify as an "employee
stock purchase plan" as defined in Section 423 of the United States Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder, and shall be interpreted consistent therewith.
1. ADMINISTRATION. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and all
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. All employees of the Company, including directors who are
employees, and all employees of any subsidiary of the Company (as defined in
Section 424(f) of the Code) designated by the Board or the Committee from time
to time (each a "Designated Subsidiary"), are eligible to participate in any one
or more of the offerings of Options (as defined in Section 9) to purchase Common
Shares under this Plan provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five
months in a calendar year;
(b) they have been employed by the Company or a Designated Subsidiary
for at least ___ months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on the
Offering Commencement Date of the applicable Plan Period (as these
terms are defined below).
[For purposes of this Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.]
No employee may be granted an Option (as defined in Section 9)
hereunder if such employee, immediately after the Option is granted, owns 5% or
more of the total combined voting power or value of the stock of the Company or
any subsidiary of the Company. For purposes of the preceding sentence, the
attribution rules of Section 424(d) of the Code shall
<PAGE> 2
apply in determining the stock ownership of an employee, and all stock which the
employee has a contractual right to purchase shall be treated as stock owned by
the employee.
3. OFFERINGS. The Company will make one or more offerings ("Offerings") to
employees to purchase shares under this Plan. Offerings will begin each ________
and ________, or the first business day thereafter (each an "Offering
Commencement Date") or on such other Offering Commencement Date or Dates as the
Board or the Committee may determine. Each Offering Commencement Date will begin
a ___ month period (a "Plan Period") during which payroll deductions will be
made and held for the purchase of Common Shares at the end of the Plan Period.
The Board or the Committee may, at its discretion, choose a different Plan
Period of twelve (12) months or less for subsequent Offerings.
4. PARTICIPATION. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
subscription agreement in the form of Exhibit A to this Plan and filing it with
the Company's payroll office at least ___ days prior to the applicable Offering
Commencement Date. The form will authorize a regular payroll deduction from the
Compensation received by the employee (a "Participant") during the Plan Period.
Payroll deductions for a Participant shall commence on the first payroll
following the Offering Commencement Date and shall end on the last payroll in
the Plan Period to which such authorization is applicable, unless sooner
terminated by the Participant as provided in Section 8 hereof. Unless an
employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the
employee's [Federal Income Tax Withholding Statement], excluding [overtime,
shift premium, incentive or bonus awards, allowances and reimbursements for
expenses such as relocation allowances for travel expenses, income or gains on
the exercise of Company stock options or stock appreciation rights, and similar
items, whether or not shown on the employee's Federal Income Tax Withholding
Statement, but including, in the case of salespersons, sales commissions to the
extent determined by the Board or the Committee].
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a maximum
of [50]% of the Compensation he or she receives during the Plan Period or such
shorter period during which deductions from payroll are made. [Payroll
deductions may be at the rate of _____%, _____%, _____% or _____% of
Compensation.] Any change in Compensation during the Plan Period shall result in
an automatic corresponding change in the dollar amount withheld. The minimum
payroll deduction is such percentage of Compensation as may be established from
time to time by the Board or the Committee.
A Participant may discontinue his or her participation in the Plan as
provided in Section 8 hereof, or may increase or decrease the rate of his or her
payroll deductions during the Plan Period by completing or filing with the
Company a new subscription agreement authorizing a change in the payroll
deduction rate. The Board may, in its discretion, limit the number of
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<PAGE> 3
participation rate changes during any Plan Period. The change in rate shall be
effective with the first full payroll period following five business days after
the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A Participant's
subscription agreement shall remain in effect for successive Plan Periods unless
terminated as provided in Section 8 hereof.
At the time an Option is exercised, in whole or in part, or at the time
some or all of the Common Shares issued under the Plan are disposed of, the
Participant must make adequate provision for the Company's federal, state, or
other tax withholding obligations, if any, which arise upon the exercise of an
Option or the disposition of the Common Shares. At any time, the Company may,
but will not be obligated to, withhold from the Participant's Compensation the
amount necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common
Shares by the employee.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Shares under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 or the
fair market value of such Common Shares (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Shares on the Exercise
Date (as defined below).
7. INTEREST. Interest will not accrue and will not be paid on any employee
accounts, except to the extent that the Board or the Committee, in its sole
discretion, elects to credit employee accounts with interest at such per annum
rate as it may from time to time determine.
8. WITHDRAWAL OF FUNDS. A Participant may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out all but not less than all of the balance accumulated in the
Participant's account by giving written notice to the Company in the form of
Exhibit B to this Plan and thereby withdraw from participation in an Offering.
Partial withdrawals are not permitted. The Participant may not begin
participation again during the remainder of the Plan Period, but the Participant
may participate in any subsequent Offering in accordance with terms and
conditions established by the Board or the Committee.
Except as provided in this Section 8, a Participant's withdrawal from a
Plan Period will not have any effect upon his or her eligibility to participate
in any similar plan which may hereafter be adopted by the Company or in
succeeding Plan Periods which commence after the termination of the Plan Period
from which the Participant withdraws.
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<PAGE> 4
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan Period,
the Company will grant to each eligible employee who is then a Participant in
the Plan an option ("Option") to purchase on the last business day of such Plan
Period (the "Exercise Date"), at the Option Price hereinafter provided for, the
largest number of whole shares of Common Shares of the Company as does not
exceed the number of shares determined by multiplying $2,083 by the number of
full months in the Offering Period and dividing the result by the closing price
(as defined below) on the Offering Commencement Date of such Plan Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Shares on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be, (a) the closing price on any securities exchange on which the
Common Shares is listed, (b) the closing price of the Common Shares on the
Nasdaq National Market, or (c) the average of the closing bid and asked prices
in the over-the-counter-market, whichever is applicable, as published in THE
WALL STREET JOURNAL; [provided that, with respect to the first Plan Period, the
closing price on the Offering Commencement Date shall be the initial public
offering price provided for in the underwriting agreement entered into by the
Company in connection with such initial public offering]. If no sales of Common
Shares were made on such a day, the price of the Common Shares for purposes of
clauses (a) and (b) above shall be the reported price for the next preceding day
on which sales were made.
Each employee who continues to be a Participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the maximum
number of full Common Shares reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for, but not in excess of
the maximum number determined in the manner set forth above. No fractional
Common Shares will be purchased or issued under this Plan.
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except that
any balance which is less than the purchase price of one Common Share will be
carried forward into the employee's payroll deduction account for the following
Offering, unless the employee elects not to participate in the following
Offering under the Plan, in which case the balance in the employee's account
shall be refunded.
10. ISSUANCE OF CERTIFICATES. Certificates representing Common Shares
purchased under the Plan may be issued only in the name of the Participant, in
the name of the Participant and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the Participant.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event of
a Participant's termination of employment prior to the last business day of a
Plan Period, such Participant shall be deemed to have elected to withdraw from
the Plan and no payroll deduction shall be taken from any pay due and owing to
such Participant and the balance in the
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<PAGE> 5
Participant's account shall be paid to the Participant or, in the event of the
Participant's death, (a) to a beneficiary previously designated in a revocable
notice signed by the Participant (with any spousal consent required under state
or provincial law) or (b) in the absence of such a designated beneficiary, to
the executor or administrator of the Participant's estate or (c) if no such
executor or administrator has been appointed to the knowledge of the Company, to
such other person(s) as the Company may, in its discretion, designate. If, prior
to the last business day of the Plan Period, the Designated Subsidiary by which
a Participant is employed shall cease to be a subsidiary of the Company, or if
the Participant is transferred to a subsidiary of the Company that is not a
Designated Subsidiary, the Participant's employment shall be deemed to have been
terminated for the purposes of this Plan effective as of the effective date of
such cessation or transfer.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Shares covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable by a
Participant other than by will or the laws of descent and distribution, and are
exercisable during the Participant's lifetime only by the Participant. Any
attempt at assignment, transfer, pledge or other disposition other than as
described in the preceding sentence shall be without effect, except that the
Company may treat such act as an election to withdraw funds from a Plan Period
in accordance with Section 8 hereof.
14. DESIGNATION OF BENEFICIARY. A Participant may file a written designation
of a beneficiary who is to receive any Common Shares and cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to an Exercise Date on which an Option is exercised but prior to
delivery to such Participant of such Common Shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's account under the Plan in the event of such
Participant's death prior to exercise of an Option. If a Participant is married
and the designated beneficiary is not the spouse, the consent of such
Participant's spouse shall be required in order for any such designation to be
effective.
Such designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such Participant's death, the Company shall deliver such Common
Shares and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
Common Shares and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Board or the Committee may
designate.
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<PAGE> 6
15. APPLICATION OF FUNDS. All funds received or held by the Company under this
Plan may be combined with other corporate funds and may be used for any
corporate purpose and the Company shall not be obligated to segregate such funds
or to pay any interest thereon.
16. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON SHARES. Subject to any
required action by the shareholders of the Company, the number of shares
approved for this Plan, the price per Common Share, the share limitation set
forth in Section 9 and the number of Common Shares covered by each Option under
this Plan which has not yet been exercised, shall be proportionately adjusted
for any increase or decrease in the number of issued Common Shares resulting
from a Common Share split, Common Share consolidation, Common Share dividend,
combination or reclassification of the Common Shares, or any other increase or
decrease in the number of Common Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board or
the Committee, whose determination in that respect shall be final, binding and
conclusive. In the event of any other change affecting the Common Shares, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
17. MERGER. If the Company shall at any time merge, amalgamate or consolidate
with another corporation and the holders of the capital stock of the Company
immediately prior to such merger, amalgamation or consolidation continue to hold
at least 80% by voting power of the capital stock of the surviving corporation
("Continuity of Control"), the holder of each Option then outstanding will
thereafter be entitled to receive at the next Exercise Date upon the exercise of
such Option for each share as to which such Option shall be exercised the
securities or property which a holder of one share of the Common Shares was
entitled to upon and at the time of such merger, amalgamation or consolidation,
and the Board or the Committee shall take such steps in connection with such
merger, amalgamation or consolidation as the Board or the Committee shall deem
necessary to assure that the provisions of Section 16 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be entitled
to receive thereunder.
In the event of a merger, amalgamation or consolidation of the Company
with or into another corporation which does not involve Continuity of Control,
or of a sale of all or substantially all of the assets of the Company while
unexercised Options remain outstanding under the Plan, (a) subject to the
provisions of clauses (b) and (c), after the effective date of such transaction,
each holder of an outstanding Option shall be entitled, upon exercise of such
Option, to receive in lieu of shares of Common Shares, shares of such stock or
other securities as the holders of shares of Common Shares received pursuant to
the terms of such transaction, or (b) all outstanding Options may be cancelled
by the Board or the Committee as of a date prior to the effective date of any
such transaction and all payroll deductions shall be paid out to the
participating employees, or (c) all outstanding Options may be cancelled by the
Board or the Committee as of the effective date of any such transaction,
provided that notice of such cancellation shall be given to each holder of an
Option, and each holder of an Option shall have the right to exercise such
Option in full based on payroll deductions then credited to his account
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<PAGE> 7
as of a date determined by the Board or the Committee, which date shall not be
less than ten (10) days preceding the effective date of such transaction.
18. DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or
liquidation of the Company, the Plan Period then in progress shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
19. AMENDMENT OF THE PLAN. The Board may at any time, and from time to time,
amend or suspend this Plan in whole or in part in any respect, except that (a)
if the approval of any such amendment by the shareholders of the Company is
required by Section 423 of the Code, such amendment shall not be effected
without such approval, and (b) in no event may any amendment be made which would
cause the Plan to fail to comply with Section 423 of the Code.
20. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Shares specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
21. TERMINATION OF THE PLAN. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded to such employees.
22. CONDITIONS UPON ISSUANCE OF COMMON SHARES. The Company's obligation to
sell and deliver Common Shares under this Plan is subject to listing on a
securities exchange or quotation on the Nasdaq National Market (to the extent
the Common Shares is then so listed or quoted) and the approval of all
governmental authorities required in connection with the authorization, issuance
or sale of such shares. Common Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of such
Common Shares pursuant thereto shall comply with all applicable provisions of
law, domestic or foreign, including, without limitation, applicable provincial
securities laws, the U.S. Securities Act of 1933, as amended, the U.S.
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any securities exchange or
quotation system upon which the Common Shares may then be listed or quoted, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
23. GOVERNING LAW. The Plan shall be governed by the laws of the Province of
Ontario and the federal laws of Canada applicable therein.
24. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option from
authorized but unissued Common Shares, from Common Shares held in the treasury
of the Company, or from any other proper source.
25. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of Common Shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased.
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<PAGE> 8
26. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
27. GENERAL. This Plan shall enure to the benefit of and be binding upon the
Company and its successors. Participation in this Plan shall be entirely
voluntary and any decision not to participate shall not affect any employee's
employment with the Company. Participation in this Plan shall not in any way
affect the right of the Company to discharge a Participant.
28. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take effect on
January 1, 2000 subject to approval by the shareholders of the Company as
required by Section 423 of the Code, which approval must occur within twelve
months of the adoption of the Plan by the Board.
Adopted by the Board of Directors
on December 15, 1999
Approved by the stockholders on
February __, 2000
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<PAGE> 9
EXHIBIT A
FLONETWORK INC.
2000 EMPLOYEE SHARE PURCHASE PLAN
SUBSCRIPTION AGREEMENT
[ ] Original Application
[ ] Change in Payroll Deduction Rate
[ ] Change of Beneficiary(ies)
Offering Commencement Date: ________________
1. ___________________________ hereby elects to participate in the
FloNetwork Inc. 2000 Employee Share Purchase Plan (the "Plan") and
subscribes to purchase Common Shares in accordance with this
Subscription Agreement and the Plan.
2. I understand that contributions to the Plan may be made by payroll
deduction as well as by other forms of payment that have been approved
in advance in writing by the Company. I intend to contribute to the
Plan as follows (check one or both of the following as applicable):
I hereby authorize payroll deductions from each paycheque in the amount
of __% of my Compensation on each pay day (not to exceed __% nor to be
less than __%) during each Plan Period in accordance with the Plan
(please note that no fractional percentages are permitted).
_______ I intend to make contributions to the Plan on a basis to be
agreed to by the undersigned and the Company.
3. I understand that any payroll deductions authorized under section 2
shall be accumulated for the purchase of Common Shares at the
applicable Purchase Price determined in accordance with the Plan. I
understand that if I do not withdraw from an Plan Period, any
accumulated contributions to the Plan will be used to automatically
exercise my option.
4. I have received a copy of the complete Plan. I understand that my
participation in the Plan is in all respects subject to the terms of
the Plan. I understand that the grant of the option by the Company
under this Subscription Agreement is subject to obtaining shareholder
approval of the Plan.
5. Common Shares purchased for me under the Plan should be issued in the
name(s) of (employee or employee and spouse only): ___________________
<PAGE> 10
6. I understand that if I dispose of any Common Shares received by me
pursuant to the Plan within 2 years after the Offering Commencement
Date (the first day of the Plan Period during which I purchased such
Common Shares), I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the Common
Shares on the Purchase Date over the price which I paid for the Common
Shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS
AFTER THE DATE OF ANY DISPOSITION OF COMMON SHARES AND I WILL MAKE
ADEQUATE PROVISION FOR FEDERAL, STATE, PROVINCIAL OR OTHER TAX
WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF
THE COMMON SHARES. The Company may, but will not be obligated to,
withhold from my Compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Shares by me.
7. I acknowledge that (i) the Common Shares have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") or the
securities laws of any other jurisdiction in the United States, (ii)
the distribution of Common Shares has not been qualified by prospectus
in any jurisdiction in Canada, and (iii) I have no rights to require
such registration or prospectus qualification. I acknowledge that I may
not transfer my option for the purchase of Common Shares under the Plan
and I agree not to transfer the Common Shares, except (i) in a
transaction that is exempt from the registration provisions of the
Securities Act and all applicable state laws, (ii) in a transaction
that is exempt from the prospectus requirements of applicable
provincial securities laws in Canada, or (iii) pursuant to an effective
registration statement or qualified prospectus.
8. I hereby represent and warrant that the purchase of Common Shares on my
behalf, pursuant to the Plan, is for investment purposes only and
without any present intention to sell or otherwise distribute or
dispose of such Common Shares.
9. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
<PAGE> 11
10. In the event of my death I hereby designate the following as my
beneficiary(ies) to receive all payments and Common Shares due me under
the Plan:
BENEFICIARY
NAME:(Please print) _________________________________________________________
(First) (Middle) (Last)
BENEFICIARY
ADDRESS:(Please print) _________________________________________________________
_________________________________________________________
_________________________________________________________
_______________________________
Relationship to Employee
EMPLOYEE
NAME: (Please print) _________________________________________________________
(First) (Middle) (Last)
EMPLOYEE'S
ADDRESS: _________________________________________________________
_________________________________________________________
_________________________________________________________
__________________________________________
Social Insurance or Social Security Number
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE PLAN PERIODS UNLESS TERMINATED BY ME.
Dated: ________________________
__________________________________
Signature of Participant
__________________________________
Spouse's Signature
(If beneficiary other than spouse)
<PAGE> 12
EXHIBIT B
FLONETWORK INC.
2000 EMPLOYEE SHARE PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned Participant in the Plan Period of the FloNetwork Inc.
2000 Employee Share Purchase Plan which began on ______________________________
(the "Offering Commencement Date") hereby notifies the Company that he or she
hereby withdraws from the Plan Period. He or she hereby directs the Company to
pay to the undersigned, as promptly as practicable, all contributions to the
Plan credited to his or her account with respect to such Plan Period. The
undersigned understands and agrees that his or her Option for such Plan Period
will be automatically terminated. The undersigned understands further that no
further payroll deductions will be made for the purchase of Common Shares in the
current Plan Period or for the period of six months from the date of receipt of
this notice by the Company, and that the undersigned shall be eligible to
participate in succeeding Plan Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
_____________________________________________
_____________________________________________
_____________________________________________
Signature:
_____________________________________________
Date: _______________________________________
<PAGE> 1
Exhibit 10.18
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of November 24, 1999 by and
between FLONETWORK INC., a corporation incorporated under the laws of the
Province of Ontario, Canada (the "Company"), CG ASIAN-AMERICAN FUND, L.P., a
limited partnership organized under the laws of the Cayman Islands, and
Princeton Global Fund, L. P., a limited partnership organized under the laws of
the Cayman Islands (collectively, "Sycamore Ventures"), 1206832 ONTARIO INC., a
corporation incorporated under the laws of Ontario ("SOFTECH"), BANK OF MONTREAL
CAPITAL CORPORATION, incorporated under the laws of Canada ("BMCC"), VENTURES
WEST VI LIMITED PARTNERSHIP, a partnership organized under the laws of British
Columbia ("VWVI") (BMCC and VWVI collectively referred to as "Ventures West")
CNET, Inc., a corporation incorporated under the laws of the State of Delaware,
PAUL CHEN, MINA CHEN and PI-HSIA HSIAO and the other shareholders of the Company
listed on Annex I (together, the "Investors").
WHEREAS, concurrently herewith certain of the Investors are purchasing
from the Company, and the Company is selling to such Investors, Units comprised
of Class D Preferred Shares of the Company and Warrants, all upon the terms and
conditions of a Unit Purchase Agreement dated as of the date hereof (the "Share
Purchase Agreement") among the Company and such Investors.
WHEREAS, the Company has agreed to provide the Investors with certain
registration rights with respect to the common shares of the Company held by
such Investors as of the date hereof or issuable upon conversion or exercise of
certain securities held by such Investors as of the date hereof.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement:
"Holder" means any Investor owning Registrable Securities or any
assignee thereof in accordance with Section 11 of this Agreement; and
"Registrable Securities" means (1) all presently outstanding
common shares in the capital of the Company ("Common Shares"), (2) the Common
Shares issuable upon the conversion of the Company's redeemable, retractable
class A preferred shares (the "Class A Preferred Shares"), 5% cumulative,
voting, convertible class B preferred shares (the "Class B Preferred Shares"),
class C preferred shares (the "Class C Preferred Shares") or 10% non-cumulative,
voting, convertible class D preferred shares (the "Class D Preferred Shares")
presently outstanding and upon exercise of all warrants of the Company existing
as of or issued
<PAGE> 2
on the date hereof (the "Warrants"), (3) the shares issuable pursuant to the
Option Agreement dated September 15, 1999 between the Company and CNET, Inc.
(the "CNET Option"), and (4) any other Common Shares issued in respect of such
shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that Common Shares
which are Registrable Securities shall cease to be Registrable Securities upon
(i) any sale pursuant to a Registration Statement or Rule 144 under the
Securities Act or (ii) any sale in any manner to a person or entity which by
virtue of Section 11 of this Agreement is not entitled to the rights provided by
this Agreement. Wherever reference is made in this Agreement to a request or
consent of holders of a certain percentage of Registrable Securities, the
determination of such percentage shall include Common Shares issuable upon
conversion of the Class A Preferred Shares, Class B Preferred Shares, Class C
Preferred Shares or Class D Preferred Shares even if such conversion has not
been effected and issuable upon exercise of the Warrants or the CNET Option even
if such exercise has not been effected.
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act.
"Equity Securities" means all Common Shares and all securities directly
or indirectly convertible into or exercisable for Common Shares,
including, without limitation, the Warrants and the CNET Option.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by an amendment or prospectus
supplement, including post-effective amendments, and all materials
incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Qualified Public Offering" means the completion of an offering of
securities of the Company to the public led by an underwriter chosen
solely by the board of directors of the Company pursuant to a
prospectus or registration statement filed with applicable securities
regulatory authorities including the Ontario Securities Commission
and/or the Commission, with gross proceeds from the sale of such
securities of at least Twenty Million Dollars (US) and which is priced
to reflect a pre-money valuation (understood as the total number of
fully diluted Equity Securities outstanding (including for this purpose
shares issuable under a stock option or purchase plan approved by the
Board of Directors of the Company) immediately prior to such offering
multiplied by the price per share at which such securities are sold to
the public in such offering) of not less than One Hundred Twenty-Five
Million Dollars (US).
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of
securities of the Company (other than a registration statement on Form
S-8 or Form S-4, or their successors, or any other form for a similar
limited purpose, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation).
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they
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<PAGE> 3
each may, from time to time, be in effect.
2. Requests for Registration. If the Company becomes a
publicly listed company in the United States, the following shall apply at any
time six months after the closing of the Company's Qualified Public Offering:
2.1 Subject to Section 2.2., if the Company receives a written
request from (i) Holders of at least 51% of the Registrable Securities then held
by Holders or (ii) in the case of a request made after a registration requested
pursuant to this paragraph has been effected hereunder, Holders of at least 25%
of the Registrable Securities then held by Holders, that the Company file a
registration statement under the Securities Act covering the registration of at
least 20% of the Registrable Securities then outstanding to be distributed
pursuant to an underwriting and having a reasonably anticipated aggregate
offering price, net of underwriting discounts and commissions, greater than
US$10,000,000 (based on the then current market price), then upon receipt of
such request the Company shall, within ten (10) days of the receipt thereof,
give written notice of such request to all Holders, and shall use its best
efforts to effect as soon as practicable, and in any event within 90 days of the
receipt of such request will file the registration under the Securities Act of
all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company. The Company shall
keep each Registration Statement completed pursuant to this paragraph effective
for ninety (90) days plus any period for which sales are deferred pursuant to
Section 2.6 below.
2.2 Upon the written request by (i) Holders of at least 51% of
the Registrable Securities then held by Holders or (ii) in the case of a request
made after a registration requested pursuant to Section 2.1 has been effected
hereunder, Holders of at least 25% of the Registrable Securities then held by
Holders, that the Company file a registration statement on Form S-3, Form F-3 or
any similar short-form registration statement available to the Company under the
Securities Act covering the registration of Registrable Securities with a
reasonably anticipated aggregate offering price, net of underwriting discounts
and commissions, greater than US$2,500,000 (based on the then current market
price), then the Company shall, within ten (10) days of the receipt thereof,
give written notice of such request to all Holders, and shall use its best
efforts to effect as soon as practicable, and in any event within 90 days of the
receipt of such request will file, the registration under the Securities Act of
all Registrable Securities which the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company. The Company shall
keep each registration statement completed pursuant to this paragraph effective
for ninety (90) days plus any period for which sales are deferred pursuant to
Section 2.7 below.
2.3 If the Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to Section 2.1 or
2.2, as the case may be, and the Company shall include such information in its
written notice referred to in Section 2.1 or 2.2. The right of any Holder to
include its Registrable Securities in such registration pursuant to Section 2.1
or 2.2, as the case may be, shall be conditioned upon such other Holder's
participation in such underwriting on the terms set forth herein.
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<PAGE> 4
2.4 If the Company desires that any officers or directors of
the Company holding securities of the Company be included in any registration
for an underwritten offering requested pursuant to Section 2.1 or 2.2 or if
other holders of securities of the Company who are entitled, by contract with
the Company, to have securities included in such a registration (the "Other
Holders") request such inclusion, the Company may include the securities of such
officers, directors and Other Holders in such registration and underwriting on
the terms set forth herein. The Company shall (together with all Holders,
officers, directors and Other Holders proposing to distribute their securities
through such underwriting) enter into an underwriting agreement in customary
form (including, without limitation, customary indemnification and contribution
provisions on the part of the Company) with the managing underwriter.
Notwithstanding any other provision of this Section, if the managing underwriter
advises the Company that the inclusion of all shares requested to be registered
would adversely affect the offering, the securities of the Company held by
officers or directors of the Company (other than Registrable Securities held by
Holders) and the securities held by Other Holders (other than Registrable
Securities held by Holders) shall be excluded from such registration and
underwriting to the extent deemed advisable by the managing underwriter, and if
a further limitation on the number of shares is required, the number of shares
that may be included in such registration and underwriting shall be allocated
among all Holders of Registrable Securities requesting registration in
proportion, as nearly as practicable, to the respective number of Registrable
Securities held by them at the time of the request for registration. If any
Holder of Registrable Securities, officer, director or Other Holder who has
requested inclusion in such registration as provided above disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, and the securities so withdrawn shall also be
withdrawn from registration. If the managing underwriter has not limited the
number of Registrable Securities or other securities to be underwritten, the
Company may include securities for its own account in such registration if the
managing underwriter so agrees and if the number of Registrable Securities and
other securities which would otherwise have been included in such registration
and underwriting will not thereby be limited.
2.5 The Holders shall have the right to select the managing
underwriter(s) for any underwritten offering requested pursuant to Section 2.1
or 2.2, subject to the reasonable approval of the Company.
2.6 The Company is obligated to effect only two (2)
registrations pursuant to Section 2.1 and only six (6) registrations pursuant to
Section 2.2, provided, however, that the Company is not obligated to effect a
registration statement pursuant to Section 2.2 more than once in any six month
period. A Registration Statement shall not be counted until such time as such
Registration Statement has been declared effective by the Commission (unless the
Holders withdraw their request for such registration (other than as a result of
information concerning the business or financial condition of the Company which
is made known to the Holders after the date on which such registration was
requested) and elect to pay the registration expenses therefor pursuant to
Section 6).
2.7 Notwithstanding the foregoing, if the Company shall
furnish to the Holders requesting the filing of a registration statement
pursuant to this Section 2 a certificate
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<PAGE> 5
signed by the Chief Executive Officer of the Company stating that the Company is
engaged or has plans to engage in a registered public offering or is engaged in
any other activity which, in the good faith determination of the Company's Board
of Directors, would be adversely affected by the requested registration then the
Company shall have the right to defer such filing for a period of not more than
120 days after receipt of the request of the Investors; provided, however, that
the Company may not utilize this right for more than 120 days in total in any
twelve month period; and provided further that if the Company proposes to and
files a Registration Statement as to which Holders have rights under Section 3
hereunder, the Company shall have no obligation to effect such requested filing
and registration by the Holders at all (and the deferral provisions of this
Section 2.5 shall not be deemed to have been invoked by the Company).
3. Company Registration. (a) Whenever the Company proposes to
file a Registration Statement (other than a Registration Statement filed
pursuant to Section 2) at any time and from time to time, it will, prior to such
filing, give written notice to all Holders of its intention to do so; provided,
that no such notice need be given if no Registrable Securities of the Holders
are to be included therein as a result of a determination of the managing
underwriter pursuant to Section 3(b). Upon the written request of a Holder or
Holders given within 20 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Securities), the Company shall cause all Registrable Securities which the
Company has been requested by such Holder or Holders to register to be
registered under the Securities Act in such registration; provided that the
Company shall have the right to postpone or withdraw any registration effected
pursuant to this Section 3 without obligation to any Holder.
(b) If the registration for which the Company gives notice
pursuant to Section 3(a) is a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 3(a). In such event, the right of any Holder to
include its Registrable Securities in such registration pursuant to Section 3
shall be conditioned upon such Holder's participation in such underwriting on
the terms set forth herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for the
underwriting by the Company. Notwithstanding any other provision of this Section
3, if the managing underwriter determines that the inclusion of all shares
requested to be registered would adversely affect the offering, the Company may
limit the number of Registrable Securities to be included in the registration
and underwriting. The Company shall so advise all Holders of Registrable
Securities requesting registration, and the number of shares that are entitled
to be included in the registration and underwriting shall be allocated in the
following manner. The securities of the Company held by holders other than
Holders and Other Holders shall be excluded from such registration and
underwriting to the extent deemed advisable by the managing underwriter, and, if
a further limitation on the number of shares is required, the number of shares
that may be included in such registration and underwriting shall be allocated
among all Holders and Other Holders requesting registration in proportion, as
nearly as practicable, to the respective number of Common Shares (on an as
converted basis) which they held at the time the Company gives the notice
specified in Section 3(a); provided that if the registration and underwriting is
being effected by the Company at the request of Other Holders pursuant to rights
similar to the rights of the Holders under Sections 2.1 and 2.2 hereof then the
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<PAGE> 6
Registrable Securities of the Holders shall be excluded from the registration
and underwriting before any shares of the Other Holders. If any Holder or Other
Holder would thus be entitled to include more securities than such Holder or
Other Holder requested to be registered, the excess shall be allocated among
other requesting Holders and Other Holders pro rata in the manner described in
the preceding sentence. If any Holder of Registrable Securities or any officer,
director or Other Holder disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company, and any
Registrable Securities or other securities so excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) Notwithstanding the foregoing, the Company shall not be
required, pursuant to this Section 3, to include any Registrable Securities of
any Holder in a Registration Statement if such Registrable Securities can then
be sold pursuant to Rule 144(k) under the Securities Act.
4. Obligations of the Company. Whenever required under this
Agreement to effect the registration of any of the Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
4.1 Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Investors, keep such registration statement effective for up to ninety
(90) days.
4.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of the
Registrable Securities covered by such registration statement.
4.3 Furnish to the Holders of the Registrable Securities
covered by such registration statement such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of such Registrable Securities.
4.4 Use its best efforts to register and qualify the
Registrable Securities covered by such registration statement under such other
securities or Blue Sky laws of such states or jurisdictions as shall be
reasonably requested by the Holders, provided that the Company shall not be
required to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
4.5 If the Company has delivered a Prospectus to the selling
Holders and after having done so the Prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify the
selling Holders and, if requested, the selling Holders shall immediately cease
making offers of Registrable Securities and return all Prospectuses to the
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<PAGE> 7
Company. The Company shall promptly provide the selling Holders with revised
Prospectuses and, following receipt of the revised Prospectuses, the selling
Holders shall be free to resume making offers of Registrable Securities.
4.6 In the event that, in the judgment of the Company, it is
advisable to suspend use of a Prospectus included in a Registration Statement
due to pending material developments or other events that have not yet been
publicly disclosed and to which the Company believes public disclosure would be
detrimental to the Company, the Company shall notify all selling Holders to such
effect, and, upon receipt of such notice, each such selling Holder shall
immediately discontinue any sales of Registrable Securities pursuant to such
Registration Statement until such selling Holder has received copies of a
supplemented or amended Prospectus or until such selling Holder is advised in
writing by the Company that the then current Prospectus may be used and has
received copies of any additional or supplemental filings that are incorporated
or deemed incorporated by reference in such Prospectus. Notwithstanding anything
to the contrary herein, the Company shall not exercise its rights under this
Section to suspend sales of Registrable Securities for a period in excess of 120
days in any 12-month period.
5. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the selling Holders shall furnish to the Company such information regarding
them, the Registrable Securities held by them, and the intended method of
disposition thereof as shall be required to effect the registration of such
Holder's Registrable Securities.
6. Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2.1 and 2.2 of
this Agreement, including (without limitation) all registration, filing and
qualification fees, printers and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of counsel
for the selling Holders selected by them shall be borne by the Company,
provided, however, that if a registration under Section 2.1 or 2.2 is withdrawn
at the request of the Holders (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Holders after the date on which such registration was requested under Section
2.1 or 2.2, the requesting Holders shall pay the Registration expenses pro rata
in accordance with the number of their Registrable Securities included in such
registration.
7. Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to registrations pursuant
to Section 3 or 2.4 of this Agreement for each Holder (which right may be
assigned as provided in Section 10 of this Agreement), including (without
limitation) all registration, filing, and qualification fees, printers and
accounting fees relating or allocable thereto and fees and disbursements of
counsel up to US$7,500 for the selling Holders selected by them, but excluding
underwriting discounts and commissions relating to the Registrable Securities.
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<PAGE> 8
8. Indemnification. In the event any Registrable Securities
are included in a registration statement under this Agreement:
8.1 To the extent permitted by law, the Company will indemnify
and hold harmless each Holder selling Registrable Securities pursuant to a
Registration Statement, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus (but only if such is not corrected in the final
prospectus) contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading (but
only if such is not corrected in the final prospectus), or (iii) any violation
or alleged violation by the Company in connection with the registration of such
Registrable Securities under the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law; and the Company will reimburse to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 8.1 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
8.2 To the extent permitted by law, each Holder selling
Registrable Securities pursuant to a Registration Statement will indemnify and
hold harmless the Company, each of its directors, and officers, each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling Registrable Securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto) arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse, as incurred, any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 8.2 of this Agreement, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 8.2 shall not apply to amounts paid in
8
<PAGE> 9
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this Section 8.2 exceed the net proceeds from the offering received by
such Holder.
8.3 Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim as to which indemnity may be sought, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties (which
approval shall not be unreasonably withheld); provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 8, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 8. No indemnifying party, in the defense of any such claim or litigation
shall, except with the consent of each indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation, and no indemnified party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
8.4 The obligations of the Company and Holders under this
Section 8 shall survive the completion of any offering of Common Shares in a
registration statement under this Agreement, and otherwise.
9. Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the Commission that may
at any time permit a Holder to sell Registrable Securities of the Company to the
public without registration or pursuant to a registration on Form S-3 or F-3,
the Company agrees to:
9.1 make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of Registrable Securities to the general public;
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<PAGE> 10
9.2 register its Common Shares under Section 12 of the 1934
Act, such action to be taken as soon as practicable after the end of the fiscal
year in which the first registration statement filed by the Company for the
offering of Registrable Securities to the general public is declared effective;
9.3 file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
1934 Act; and
9.4 furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Securities Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or as to its
qualification that it qualifies as a registrant whose Registrable Securities may
be resold pursuant to Form S-3 or Form F-3 (at any time after it so qualifies),
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the Commission which permits the selling of any such Registrable
Securities without registration or pursuant to such form.
10. Transfers of Rights. This Agreement, and the rights and
obligations of each Holder hereunder, may be assigned by such Holder to (i) any
person or entity to which at least 50,000 Registrable Securities are transferred
by such Holder, (ii) to any partner or stockholder of such Holder or (iii) to
any person or entity to which all of the Registrable Securities of the selling
Holder are transferred; provided any such transferee agrees in writing with the
Company to be subject to this Agreement as a "Holder."
11. Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Investors, enter into any agreement with any holder or
prospective holder of any Registrable Securities of the Company which would
allow such holder or prospective holder (a) to include such Registrable
Securities in any registration filed under Section 2 or Section 3 of this
Agreement, unless under the terms of such agreement, such holder or prospective
holder may include such Registrable Securities in any such registration only to
the extent that the inclusion of his Registrable Securities will not reduce the
amount of the Registrable Securities of the Holders which is included or (b) to
make a demand registration which could result in such registration statement
being declared effective within one hundred twenty (120) days of the effective
date of any registration effected pursuant to Section 2 of this Agreement.
12. Restricted Period. All Holders who are parties to this
Agreement shall agree not to offer, sell or otherwise transfer or dispose of any
of the Company's securities, or engage in hedging transactions with respect
thereto, for a period of one hundred eighty (180) days after a public offering
by the Company, and agree to sign any agreement to such effect in customary form
as requested by the Company's managing underwriter.
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13. Canadian Public Offerings.
(a) In the event that the Company undertakes its initial
underwritten public offering of Common Shares in one or more provinces of
Canada, the Company shall, prior to the issuance of the Registrable Securities
and within 60 days of the date of issuance of a receipt issued by the last of
the provincial securities commissions of such provinces in respect of the final
prospectus filed in connection with such offering, qualify through the filing of
a prospectus the distribution of the Registrable Securities in each such
province of Canada.
(b) In the event that the Company undertakes its initial
underwritten public offering of Common Shares in one or more provinces of
Canada, it shall provide the Holders with the right to require the resale of its
Registrable Securities pursuant to any prospectus filed by the Company in one or
more provinces of Canada on the terms set forth in Section 3, mutatis mutandis.
14. Additional Registrable Securities. The definition of
"Registrable Securities" in Section 1.2 hereof may be amended to include
additional Common Shares or Common Shares issuable upon the conversion of any
other security of the Company if (i) the holders of a majority of Registrable
Securities consent to such amendment, (ii) the Company consents to such
amendment, and (iii) the holders of any such security of the Company agrees to
become a party hereunder and be bound by all of the provisions of this
Agreement.
15. General.
15.1 Termination. This Agreement shall terminate and be of no
further force and effect on that date which is 5 years after the Company's
Qualified Public Offering.
15.2 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
15.3 Specific Performance. In addition to any and all other
remedies that may be available at law in the event of any breach of this
Agreement, each Investor shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
15.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York (without
reference to the conflicts of law provisions thereof) and the parties hereto
accept the non-exclusive jurisdiction of the federal and state courts of the
State of New York.
15.5 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two calendar days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one
11
<PAGE> 12
calendar day after being sent via a reputable nationwide overnight courier
service guaranteeing next calendar day delivery, in each case to the intended
recipient as set forth below:
(a) in the case of the Company, to it at:
FloNetwork Inc.
260 King Street East
Building B
Toronto, Ontario
M5A 1K3
Attention: Wilson Lee, Chief Financial Officer
Facsimile: (416) 369-9037
with copies to:
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario
M5L 1A9
Attention: Chris Hewat
Facsimile: (416) 863-2653
and to
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: John A. Burgess
Facsimile: (617) 526-5000
(b) in the case of CG Asian-American Fund, L.P., Princeton Global Fund,
L.P., Kilin To, John R. Whitman, Whitman Children Irrevocable Trust,
Kit C. Wong, Simon Wong, Richard Chong, Michael Horgan, Peter Gerry,
David Lichtenstein and Subir Ray, to it, him, or her at:
Sycamore Management Corp.
989 Lenox Drive, Suite 208
Lawrenceville, New Jersey 08648
Attention: Kit C. Wong
Facsimile: (609) 219-0101
12
<PAGE> 13
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Samuel B. Fortenbaugh III
Facsimile: (212) 309-6273
(c) in the case of Kit-Yee Lam, to her at:
308 Ivy Hill Ct.
Muttontown, New York 11753
Facsimile: (516) 938-0940
(d) in the case of Telepeak Investment Limited, to it at:
Technology Link Capital Corp.
111 South Bedford Street, Suite 101
Burlington, MA 01803-5145
Attention: I-Hwa Shiue
Facsimile: (781) 359-9705
(e) in the case of SOFTECH, to it at:
McLean Watson Capital Inc.
Suite 1410, Box 129
1 First Canadian Place
Toronto, Ontario
M5X 1A4
Attention: Glenn Rumbell
Fax (416) 363-2010
13
<PAGE> 14
with a copy to:
LaBarge Weinstein
Xerox Tower
333 Preston Street
11th Floor
Ottawa, Ontario K1S 5N4
Attention: Randy Taylor
Telephone: (613) 231-3000
Facsimile: (613) 231-3900
(f) in the case of BMCC, to it at:
Bank of Montreal Capital Corporation
c/o Ventures West Management TIP Inc.
Suite 1200, 20 Adelaide Street East
Toronto, Ontario M5C 2T6
Attention: Ted Anderson
Facsimile: 416-861-0866
with a copy to LaBarge Weinstein at the address above;
(g) in the case of VWVI, to it at:
Ventures West VI Limited Partnership
c/o Ventures West Management VI Ltd.
Suite 1200, 20 Adelaide Street East
Toronto, Ontario M5C 2T6
Attention: Ted Anderson
Facsimile: 416-861-0866
with a copy to LaBarge Weinstein at the address above;
(h) in the case of CNET, to it at:
150 Chestnut St.
San Francisco, CA 94111;
14
<PAGE> 15
(i) in the case of Paul Chen and Pi-Hsia Hsiao, to them at:
5400 Fallingbrook Drive
Missisauga, Ontario
L5V 1P7
Facsimile: (416) 369-9037;
(j) in the case of a notice to Mina Chen, to her at:
Doubleday Publishing
1540 Broadway
New York, New York 10036; and
(k) in the case of any other Investor, at the address set forth on Annex I
hereto.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
15.6 Complete Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
15.7 Amendments and Waivers. Any term of this Agreement may be amended
or terminated and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least a majority of the Registrable Securities held by all of the Holders;
provided, that this Agreement may be amended with the consent of the holders of
less than all Registrable Securities only in a manner which applies to all such
holders in the same fashion. Any such amendment, termination or waiver effected
in accordance with this Section shall be binding on all parties hereto, even if
they do not execute such consent. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
15.8 Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
15
<PAGE> 16
15.9 Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
15.10 Section Headings. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.
[SIGNATURE PAGE FOLLOWS]
16
<PAGE> 17
IN WITNESS WHEREOF, the undersigned have executed, or caused to be
executed on their behalf by an agent thereunto duly authorized, this Agreement
as of the date first above written.
/s/ Paul Chen
-----------------------------------------------
PAUL CHEN
/s/ Mina Chen
-----------------------------------------------
MINA CHEN
/s/ Pi-Hsia Hsiao
-----------------------------------------------
PI-HSIA HSIAO
FLONETWORK INC.
By: /s/ Wilson Lee
------------------------------------------
Name: WILSON LEE
Title: CFO
CG ASIAN-AMERICAN FUND, L.P.
by the General Partner of its General Partner,
Sycamore Management Corp.
By: /s/ Kit Wong
------------------------------------------
Name: KIT WONG
Title: Vice President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 18
PRINCETON GLOBAL FUND, L.P.
by the General Partner of its General Partner,
Princeton Global Capital Management
Company, Ltd.
By: /s/ Subir K. Ray
------------------------------------------
Name: Subir K. Ray
Title: Director
1206832 ONTARIO INC.
By: /s/ Glenn Rumbell
------------------------------------------
Name:
Title:
BANK OF MONTREAL CAPITAL CORPORATION
by its manager, Ventures West Management
TIP Inc.
By: /s/ Edward Anderson
------------------------------------------
Name:
Title:
By: /s/ Mark Dubowitz
------------------------------------------
Name:
Title:
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 19
VENTURES WEST VI LIMITED PARTNERSHIP
by its general partner, Ventures West
Management VI, Ltd.
By: /s/ Edward Anderson
------------------------------------------
Name:
Title:
By: /s/ Mark Dubowitz
------------------------------------------
Name:
Title:
TELEPEAK INVESTMENT LIMITED
Telepeak Investments Ltd.
By: /s/ I-Hwa Shuie
------------------------------------------
Name: I-HWA SHUIE
Title: President
/s/ Kilin To
-----------------------------------------------
KILIN TO
/s/ John R. Whitman
-----------------------------------------------
JOHN R. WHITMAN
/s/ Kit C. Wong
-----------------------------------------------
KIT C. WONG
/s/ Kit C. Wong Attorney-in-fact
-----------------------------------------------
SIMON WONG
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 20
/s/ Kit C. Wong Attorney-in-fact
-----------------------------------------------
RICHARD CHONG
/s/ Kit C. Wong Attorney-in-fact
-----------------------------------------------
MICHAEL HORGAN
/s/ Peter G. Gerry
-----------------------------------------------
PETER GERRY
/s/ David Lichtenstein
-----------------------------------------------
DAVID LICHTENSTEIN
/s/ Subir Ray
-----------------------------------------------
SUBIR RAY
/s/ John R. Whitman
-----------------------------------------------
WHITMAN CHILDREN IRREVOCABLE TRUST
CNET, INC.
By: /s/ Shelby W. Bonnie
------------------------------------------
Name: Shelby W. Bonnie
Title: Vice Chairman
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 21
/s/ Kit-Yee Lam
-----------------------------------------------
KIT-YEE LAM
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 22
ONTARIO TEACHERS' PENSION PLAN BOARD
By: /s/ R. Zigrossi
------------------------------------------
Name: ROSEMARY ZIGROSSI
Title: Portfolio Manager, Venture Capital
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 23
ANNEX I
ADDITIONAL INVESTORS
NAME AND ADDRESS OF INVESTOR
Telepeak Investment Limited
Kilin To
John R. Whitman
Whitman Children Irrevocable Trust
Kit C. Wong
Simon Wong
Richard Chong
Michael Horgan
Peter Gerry
David Lichtenstein
Subir Ray
Kit-Yee Lam
Ontario Teachers' Pension Plan Board
Address: 5650 Yonge St., 5th Floor
North York, Ontario
M2M 4H5
Attention: Portfolio Manager, Venture Capital
with a copy to: Legal Counsel, Investments
Facsimile: (416) 730-3771
<PAGE> 1
Exhibit 10.19
SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This AGREEMENT made as of the 24th day of November, 1999.
A M O N G:
PAUL CHEN, of the City of Mississauga, in the Province of
Ontario
(hereinafter referred to as "P. CHEN")
- and -
MINA CHEN, of the City of New York
(hereinafter referred to as "M. CHEN")
- and -
PI-HSIA HSIAO, of Taiwan
(hereinafter referred to as "HSIAO")
- and -
1206832 ONTARIO INC., a corporation incorporated under the
laws of the Province of Ontario
(hereinafter referred to as "SOFTECH")
- and -
BANK OF MONTREAL CAPITAL CORPORATION, by its Manager,
VENTURES WEST MANAGEMENT TIP INC., a corporation
incorporated under the laws of Canada
(hereinafter referred to as "BMCC")
<PAGE> 2
- and -
VENTURES WEST VI LIMITED PARTNERSHIP,
by its General Partner, VENTURES WEST MANAGEMENT VI LTD., a
partnership formed under the laws of the Province of British
Columbia
(hereinafter referred to as "VWVI")
(BMCC and VWVI are hereinafter sometimes referred to
collectively as "VENTURES WEST")
- and -
CG ASIAN-AMERICAN FUND, L.P., a limited partnership
organized under the laws of the Cayman Islands, by the
General Partner of its General Partner, SYCAMORE MANAGEMENT
CORP., a corporation incorporated under the laws of the
State of Delaware
- and -
PRINCETON GLOBAL FUND, L.P., a limited partnership organized
under the laws of the Cayman Islands, by the General Partner
of its General Partner, PRINCETON GLOBAL CAPITAL MANAGEMENT
COMPANY, LTD., a corporation incorporated under the laws of
the Cayman Islands
(CG Asian-American Fund, L.P., and Princeton Global Fund,
L.P., are hereinafter referred to collectively as "SYCAMORE
VENTURES")
- and -
CNET, INC., a corporation incorporated under the laws of the
State of Delaware
(hereinafter referred to as "CNET")
- and -
ONTARIO TEACHERS' PENSION PLAN BOARD, a corporation
incorporated under the laws of the Province of Ontario
(hereinafter referred to as "TEACHERS")
- and -
2
<PAGE> 3
Each other shareholder of the Corporation whose name is set
forth in Annex I
(each such shareholder together with P. Chen, M. Chen,
Hsiao, SOFTECH, Ventures West, Sycamore Ventures, CNET and
Teachers, hereinafter collectively referred to as the
"INVESTORS")
- and -
Each other person who from time to time becomes the legal or
beneficial owner of Shares of the Corporation and who
executes this Agreement or a counterpart hereof in
accordance with the terms hereof or who otherwise agrees to
be bound by this Agreement
(hereinafter sometimes referred to as the "ADDITIONAL
SHAREHOLDERS" and together with the Investors, the
"SHAREHOLDERS")
- and -
FLONETWORK INC., a corporation incorporated under the laws
of the Province of Ontario
(hereinafter referred to as the "CORPORATION")
WHEREAS the authorized capital of the Corporation consists of an
unlimited number of common shares ("COMMON SHARES"), an unlimited number of
redeemable, retractable class A preferred shares ("CLASS A PREFERRED SHARES"),
an unlimited number of 5% cumulative, voting, convertible class B preferred
shares ("CLASS B PREFERRED SHARES"), an unlimited number of class C preferred
shares ("CLASS C PREFERRED SHARES"), and an unlimited number of 10%
non-cumulative, voting, convertible class D preferred shares ("CLASS D PREFERRED
SHARES"), having the rights, restrictions, conditions and limitations as set
forth in the Articles of Incorporation of the Corporation dated August 4, 1993
as amended by articles of amendment dated November 12, 1996, August 25, 1997,
November 20, 1998, September 15, 1999 and November 24, 1999;
AND WHEREAS the only issued capital of the Corporation consists of
18,360,000 Common Shares, 550,000 Class A Preferred Shares, 8,640,000 Class B
Preferred Shares, 2,650,423 Class C Preferred Shares and 12,033,983 Class D
Preferred Shares, the owners of which are set out in Schedule A hereto;
AND WHEREAS certain of the Investors are purchasing 12,033,983 Units of
the Corporation as of the date hereof (each Unit consisting of one Class D
Preferred Share and one Purchase Warrant);
AND WHEREAS in order to induce the Unit Purchasers to purchase the
Units the Shareholders wish to amend and restate the amended and restated
shareholders'
3
<PAGE> 4
agreement dated as of November 20, 1998, as further amended, among SOFTECH,
Ventures West, P. Chen, M. Chen, Hsiao, CNET and the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the mutual covenants and agreements herein contained the parties
hereto agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. In this Agreement, unless something in the subject
matter or context is inconsistent therewith:
"ACCOUNTANT" means the auditor of the Corporation appointed from time
to time;
"ACT" means the Business Corporations Act (Ontario), as now enacted or
as the same may from time to time be amended, re-enacted or replaced;
"AFFILIATES" has the meaning ascribed to such term in the Act;
"AGREEMENT" means this second amended and restated shareholders'
agreement, including all schedules attached hereto, and all amendments to this
agreement;
"ASSOCIATES" has the meaning ascribed to such term in the Act;
"AUDIT COMMITTEE" has the meaning set out in Section 4.6;
"BOARD" or "BOARD" means the board of directors of the
Corporation;
"CASH OFFER" has the meaning set out in section 5.7;
"CHEN GROUP" has the meaning set out in Sections 4.1 and 5.10;
"COATTAIL NOTICE" has the meaning set out in subsection 5.8(3);
"COMPENSATION COMMITTEE" has the meaning set out in Section 4.6;
"COMMUNICATION" has the meaning set out in Section 8.15;
"CONTROL," "CONTROLLED" or "CONTROLLING" has the meaning ascribed to
such term in the Act;
"DEBENTURE" has the meaning set out in Section 5.14;
"DIRECTORS" or "DIRECTORS" means those persons elected to the board
from
4
<PAGE> 5
time to time, each a "DIRECTOR" or "DIRECTOR";
"EMPLOYEE SHAREHOLDER" means any shareholder employed or previously
employed by the Corporation, including without limitation P. Chen;
"EMPLOYEE STOCK OPTION PLAN" has the meaning set out in Section 8.4;
"EQUITY SECURITIES" means all Shares and all securities directly or
indirectly convertible into or exercisable or exchangeable for Shares,
including, without limitation, all Purchase Warrants;
"MEMBERS OF THE IMMEDIATE FAMILY OF THE SHAREHOLDER" means the husband
or wife of the Shareholder and those persons who are within the degrees of
affinity and consanguinity that bar the marriage of that person to the
Shareholder pursuant to the provisions of the Marriage Act (Ontario), as now
enacted or as the same may from time to time be amended, re-enacted or replaced;
"NOTICE" has the respective meanings set out in subsections 5.4(1),
5.6(1), 5.7(1), 5.9(4) and 5.10(4);
"NOTICE OF OFFER" has the meaning set out in subsection 5.8(2);
"OFFER" has the meaning set out in Section 5.8(1);
"OFFERED SECURITIES" has the respective meanings set out in subsections
5.4(1) and 5.8(2);
"OFFERED SHARES" has the respective meanings set out in subsections
5.9(1) and 5.11(6);
"OFFEREES" has the respective meanings set out in subsections 5.4(2),
5.6(1), 5.7(1), 5.8(1), 5.9(1), and 5.11(6);
"OFFEROR" has the respective meanings set out in subsections 5.4(1),
5.8(1), 5.9(1), 5.10(1), 5.11(6), 6.3 and 6.4 (and, for greater certainty, shall
include a group of Offerors);
"PERMITTED TRANSFEREE" has the meaning set out in subsection 5.11(1);
"PERSON" means any individual, company, corporation, association,
partnership, firm, sole proprietorship, government or governmental agency,
authority or any other entity, however designated or constituted;
"PERSONAL REPRESENTATIVE" means the executor of a deceased party named
in the last will and testament of the deceased party or, failing the naming of
such person or the refusal or inability of such person to act, the administrator
of a deceased party duly appointed by a court or public authority having
jurisdiction to do so or, if no such administrator has been appointed, the heirs
at law of the deceased party;
5
<PAGE> 6
"PREFERRED SHARES" means Class A, B, C and D Preferred Shares;
"PURCHASE PRICE" has the meaning set out in subsection 5.4(1);
"PURCHASE WARRANT" means a purchase warrant entitling the holder to
acquire Common Shares;
"PURCHASER" has the meaning set out in Section 5.8;
"PUT RIGHT" has the meaning set out in Section 5.14;
"PUT SHARES" has the meaning set out in Section 5.14;
"QUALIFIED PUBLIC OFFERING" means the completion of an offering of
securities of the Corporation to the public led by an underwriter chosen solely
by the board of directors of the Corporation pursuant to a prospectus or
registration statement filed with applicable securities regulatory authorities,
including the Ontario Securities Commission and/or the Securities and Exchange
Commission of the United States, with gross proceeds from the sale of such
securities of at least Twenty Million Dollars (US) and which is priced to
reflect a pre-money valuation (understood as the total number of fully diluted
Equity Securities outstanding (including for this purpose shares issuable under
the Corporation's Employee Stock Option Plan) immediately prior to such offering
multiplied by the price at which such securities are sold to the public in such
offering) of not less than One Hundred Twenty-Five Million Dollars (US);
"REJECTED SHARES" has the respective meanings set out in subsections
5.4(3), 5.11(6);
"SELLING SHAREHOLDER" has the meaning set out in Section 6.2;
"SHARES" means the Preferred Shares, the Common Shares and any shares
in the capital of the Corporation currently outstanding or hereafter authorized
or issued by the Corporation;
"SUBSIDIARY" or "SUBSIDIARY" has the meaning ascribed to such term in
the Act;
"THIRD PARTY" has the meaning set out in subsection 5.4(4);
"TRANSFEREE" means any person to whom Shares are sold or otherwise
transferred or pledged by a Shareholder and, for greater certainty, includes a
Permitted Transferee; and
"TRANSFEROR" has the meaning set out in subsection 5.11(1).
1.2 SECTIONS AND HEADINGS. The division of this Agreement into
Articles, Sections and other subdivisions and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of
6
<PAGE> 7
this Agreement. The terms "THIS AGREEMENT", "HEREOF", "HEREUNDER" and similar
expressions refer to this Agreement and not to any particular Article, Section
or other subdivision hereof and include any agreement or instrument supplemental
or ancillary hereto. Unless something in the subject matter or context is
inconsistent therewith, references herein to Articles, Sections or other
subdivisions are to Articles, Sections or other subdivisions of this Agreement.
1.3 NUMBER AND GENDER. Words importing the singular number only shall
include the plural and vice versa, and words importing one gender shall include
the other genders.
1.4 ACCOUNTING PRINCIPLES. Wherever in this Agreement reference is made
to generally accepted accounting principles or GAAP, such reference shall be
deemed to be United States generally accepted accounting principles, applicable
as at the date on which such calculation is made or required to be made in
accordance with generally accepted accounting principles.
1.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein (without regard to conflicts of laws rules), and, subject to
the provisions of Section 8.9 hereof, the parties accept the non-exclusive
jurisdiction of the courts of the Province of Ontario.
1.6 SCHEDULES. The following schedules are incorporated by reference in
and form a part of this Agreement.
Schedule "A" - List of Shareholders and Numbers and Classes
of Shares Owned
Schedule "B" - Arbitration Procedures
Schedule "C" - BMCC Undertakings
ARTICLE 2
PURPOSE AND SCOPE
2.1 UNANIMOUS SHAREHOLDER AGREEMENT. This Agreement shall be a
unanimous shareholders' agreement within the meaning of the Act, and, except as
prohibited by law, to the extent that this Agreement specifies that any matters
may only be or shall be dealt with or approved by or shall require action by the
Shareholders, the discretion and powers of the directors of the Corporation to
manage and to supervise the management of the business and affairs of the
Corporation with respect to such matters are correspondingly restricted.
2.2 CARRYING OUT OF THE AGREEMENT. Each Shareholder agrees to vote and
act at all times to carry out, and in all other respects to comply with, and to
cause the Corporation to carry out, the provisions of this Agreement.
7
<PAGE> 8
2.3 IDEM. The Corporation confirms its knowledge of this Agreement and
undertakes to carry out and be bound by the provisions of this Agreement to the
full extent that it has the capacity and power at law to do so.
2.4 IDEM. The Chen Group (as defined in Section 4.1), SOFTECH, Ventures
West and Sycamore Ventures shall cause their respective nominee directors or
director, as applicable, so long as they are directors of the Corporation and to
the extent that the Chen Group, SOFTECH, Ventures West and Sycamore Ventures are
permitted by law to bind their respective nominees or nominee, as applicable, to
do so, to act and vote as directors in order that the purpose, intent and
provisions of this Agreement shall be carried out.
ARTICLE 3
FINANCIAL PARTICIPATION
3.1 EQUITY PARTICIPATION. Each of the Investors represents and warrants
to each of the other Investors and to the Corporation that, at the date hereof,
it is the legal and beneficial owner of such number and class of Shares as are
set forth opposite its name in Schedule "A".
3.2 ADDITIONAL CAPITAL. None of the Shareholders shall be obligated to
acquire additional Shares, or to make loans to or guarantee the indebtedness of,
the Corporation.
ARTICLE 4
MANAGEMENT
4.1 DIRECTORS. The board shall consist of seven directors appointed as
follows: one nominee designated jointly in writing by P. Chen, M. Chen and Hsiao
(collectively, for the purposes of this Article, the "CHEN GROUP"), one nominee
designated by SOFTECH, one nominee designated by Ventures West, one nominee (who
is not an employee of the Corporation or involved with the management of the
Corporation) recommended by a majority of the Shares held by the Chen Group in
writing and approved by SOFTECH, and Ventures West, one nominee designated by
Sycamore Ventures, the Chief Executive Officer of the Corporation, and one
nominee (who is not an employee of the Corporation or involved with the
management of the Corporation) designated by Sycamore Ventures and the Chief
Executive Officer of the Corporation in writing and approved by a majority of
the Board of Directors. The rights of each of SOFTECH, the Chen Group, Ventures
West and Sycamore Ventures, respectively, to designate directors hereunder shall
terminate at such time as each such Shareholder or Shareholders shall hold a
number of Equity Securities that is less than 25% of the Equity Securities held
by such Shareholder or Shareholders as of the date hereof (subject to
appropriate adjustments for stock splits, stock dividends, combinations and
other similar recapitalizations affecting the Equity Securities). Ventures West,
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<PAGE> 9
SOFTECH and Sycamore Ventures may designate an alternate for each nominee that
it has on the board, who shall have the right to attend meetings of the board of
directors of the Corporation. Any such alternate shall be duly appointed by
power of attorney by such nominee to act in place and instead of such director
at any meeting attended by an alternate. Where an alternate is selected,
Ventures West, SOFTECH or Sycamore Ventures, as the case may be, shall provide
written notice to the Corporation in advance of the meeting of directors in
question. Where the Chen Group is required or permitted to nominate or recommend
a board member or approve any matter under this Agreement, it shall do so by
written notice to SOFTECH, Ventures West and Sycamore Ventures and the
Corporation signed by one of P. Chen, M. Chen, and Hsiao on behalf of the Chen
Group (so long as each of them owns Shares). The Company agrees that a
representative of Teachers shall be invited to and may attend all meetings of
its Board of Directors in a nonvoting observer capacity and, in this respect,
shall give such representative copies of all notices, minutes, consents and
other materials that it provides to its directors; provided, however, that the
Company reserves the right to exclude such representative from access to any
material or meeting or portion thereof if the Company believes that such
exclusion is reasonably necessary to preserve the attorney-client privilege
(based upon advice of counsel), to protect highly confidential proprietary
information or for other similar reasons. Such representative may participate in
discussions of matters brought to the Board of Directors. The right of Teachers
hereunder to observer rights shall terminate at such time as Teachers and its
nominee shall hold a number of Equity Securities that is less than 25% of the
Equity Securities held by Teachers as of the date hereof (subject to appropriate
adjustments for stock splits, stock dividends, combinations and other similar
recapitalizations).
4.2 IDEM. Each of the Shareholders agrees to vote and act at all times
to ensure that the nominees designated by the Chen Group, SOFTECH, Ventures West
and Sycamore Ventures, respectively, pursuant to Section 4.1 of this Agreement
are elected to the board from time to time and are maintained in office as
directors. No Shareholder shall exercise his voting rights to remove a director
without the consent of the Shareholder or Shareholders that nominated such
director. In the event that a vacancy shall occur on the board, each Shareholder
shall exercise his voting rights to fill such vacancy with a nominee of the
Shareholder who is not then represented by the nominee or nominees to which he
is entitled hereunder. If such vacancy is that of a nominee to be jointly
nominated, the Shareholders to jointly nominate such director shall, within 21
days of such vacancy occurring, jointly designate, acting reasonably, a nominee
or waive the right to do so for a period of time. If such Shareholders cannot
agree on a nominee within the said 21 day period, such matter shall be
determined conclusively by arbitration in accordance with the procedures set out
in Schedule "B". Until a vacancy is filled, the board shall not, for a period of
5 days, unless waived by the Shareholders with the right to nominate such
director, transact any business or exercise any of its powers or functions, save
and except as may be necessary to elect such new director and/or preserve the
business and assets of the Corporation.
4.3 DIRECTORS' MEETINGS. The board shall meet at least once in every
three-month period during the term of this Agreement. All Directors who are not
employees of the Corporation shall, upon determination by the board, receive a
fee for
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acting as such, which fee shall be unanimously approved by the board. All
directors shall be reimbursed for out-of-pocket expenses related to attending
board and/or committee meetings and attending to business of the Corporation.
4.4 QUORUM. A quorum for meetings of the board shall be four directors,
provided that at least one of such directors shall be a nominee (or alternate)
of SOFTECH, one of such directors shall be a nominee (or alternate) of Ventures
West, one of such directors shall be a nominee of the Chen Group and one of such
directors shall be a nominee (or alternate) of Sycamore Ventures. Each director
shall have one vote and, upon an equal division due to abstention, the chairman
of the board shall have a second or casting vote. If the nominee (or alternate)
of either Ventures West, SOFTECH, Sycamore Ventures or the Chen Group (the
"ABSENT Nominee") fails to attend a meeting of the board, no business shall be
transacted at such meeting without the prior consent of all Absent Nominees, and
failing such consent, the meeting shall be adjourned to a date not earlier than
one week after the first mentioned meeting. If the Absent Nominees do not attend
at such subsequent meeting, the quorum requirements for the meeting shall be
deemed to be satisfied in accordance with this Section notwithstanding the
Absent Nominee's failure to attend.
4.5 OFFICERS. The Chairman of the Board shall initially be the director
designated by SOFTECH. Thereafter, the Chairman of the Board shall be as
determined by the majority approval of the Board.
4.6 AUDIT AND COMPENSATION COMMITTEES. Each of the compensation
committee (the "COMPENSATION COMMITTEE") and the audit committee (the "AUDIT
COMMITTEE") shall consist of three directors, one of whom shall be the nominee
of SOFTECH, one of whom shall be the nominee of Ventures West, and one of whom
shall be the nominee of Sycamore Ventures. A quorum for meetings of each of the
Compensation Committee and the Audit Committee shall be two directors. If the
nominee (or alternate) of Sycamore Ventures, SOFTECH or Ventures West (the
"ABSENT NOMINEE") fails to attend a committee meeting, no business shall be
transacted at such meeting without the prior consent of such Absent Nominee, and
failing such consent, the meeting shall be adjourned to a date not earlier than
one week after the first mentioned meeting. If the Absent Nominee does not
attend at such subsequent meeting, the quorum requirements for the meeting shall
be deemed to be satisfied in accordance with this Section notwithstanding the
Absent Nominee's failure to attend. Each director shall have one vote on all
matters presented to such committee for approval. Compensation for senior
employees of the Corporation, as recommended by the Compensation Committee, will
be in accordance with comparable salaries for such a position, taking into
account the financial progress of the Corporation, and may not be changed
without the approval of the Compensation Committee.
4.9 AUDITOR. Arthur Andersen & Co. shall be appointed the auditor of
the Corporation unless and until the board determines otherwise.
4.10 APPROVAL OF MATERIAL MATTERS BY SHAREHOLDERS. No action shall be
taken by the Corporation with respect to the following matters without the prior
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written approval of the Investors (excluding P. Chen, M. Chen and Hsiao) holding
at least a majority of the Shares (by voting power) then held by Investors
(excluding P. Chen, M. Chen and Hsiao).
(a) any increase or decrease in the number of directors to be elected
to the board;
(b) any change in the articles or by-laws of the Corporation;
(c) any change in the authorized capital of the Corporation;
(d) any change in share capital which adversely affects the rights,
preferences and privileges of holders of the Class A Preferred
Shares, Class B Preferred Shares, Class C Preferred Shares or
Class D Preferred Shares, including the creation or issuance of
any new series of preferred shares that are senior to or on par
with the Class A Preferred Shares, Class B Preferred Shares,
Class C Preferred Shares or Class D Preferred Shares;
(e) any authorization or issuance of a new class of Shares and any
issuance of (i) securities convertible into Shares of the
Corporation, or (ii) warrants exercisable for the purchase of
Shares of the Corporation;
(f) any redemption of any class or series of Shares of the
Corporation other than redemptions of restricted stock given to
employees (prior to the vesting of such restricted stock) or as
required under the Articles of Incorporation of the Corporation
or any agreements to which the Corporation is a party existing as
of the date hereof;
(g) the sale, lease, exchange or disposition of the entire
undertaking or property or assets of the Corporation or any
substantial part thereof;
(h) the declaration or payment of any dividend or other corporate
distribution;
(i) the entering into of an amalgamation, merger or consolidation
with any other body corporate except as contemplated herein;
(j) the carrying on of any non-arm's length business with any
affiliates;
(k) the giving of shareholder approval, as shareholder of any
subsidiary of the Corporation, in respect of any matter for which
such approval would be required under this Agreement;
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(l) the taking of any steps to effect a dissolution, liquidation or
winding-up, or otherwise to terminate the corporate existence, of
the Corporation or to continue the Corporation in another
jurisdiction; and
(m) any commitment or agreement to do any of the foregoing.
4.11 APPROVAL OF CERTAIN MATTERS BY THE BOARD. No action shall be taken
by the Corporation with respect to the following matters without the approval of
a majority of the Board of Directors of the Corporation.
(a) the borrowing of any money (including lease financing), whether
by an issuance of debt or otherwise, or the making or incurring
of any single capital expenditure in excess of $50,000 or any
capital expenditures which, in the aggregate, are in excess of
$120,000 in any fiscal year of the Corporation (other than
capital expenditures which have been approved by the Board under
the Operating Budget);
(b) the entering into of any agreement or the making of any offer or
the granting of any right capable of becoming an agreement to
allot or issue any Shares in the capital of the Corporation other
than the issuance of Shares in the capital of the Corporation
pursuant to the exercise of options granted pursuant to the
Employee Stock Option Plan;
(c) the engagement, directly or indirectly, in any business activity
or the acquisition of any assets unrelated or unnecessary to the
Corporation's present business;
(d) the granting of any security or the creation of any encumbrance
on the assets of the Corporation except as necessary to secure
operating lines of credit with Canadian chartered banks, in
respect of purchase money security interests or in respect of a
lease financing arrangement;
(e) the making, directly or indirectly, of loans or advances to, or
the giving of security for or the guaranteeing of the debts of,
any person other than advances to employees in the ordinary
course of business;
(f) the entering into of a partnership or of any arrangement for the
sharing of profits, union of interests, joint venture or
reciprocal concession with any person. For greater certainty,
this does not include the entering into of distribution or
license agreements in the ordinary course of business; and
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(g) any exercise of the Corporation's right to acquire Equity
Securities pursuant to Sections 5.6, 5.9 or 5.10.
ARTICLE 5
DEALING WITH SHARES AND EQUITY SECURITIES
5.1 NO TRANSFER, ETC. OF EQUITY SECURITIES. (1) Except as expressly
provided for in this Article 5 or in paragraph (2), (3) or (4) of this Section
5.1, no Shareholder shall, directly or indirectly, sell, transfer, assign,
pledge, charge, mortgage or in any other way dispose of or encumber any of its
Equity Securities or its rights or obligations under this Agreement without
first complying with all of the provisions of this Agreement.
(2) Notwithstanding paragraph (1) of this Section 5.1, each of P. Chen
and M. Chen shall be entitled to pledge or otherwise encumber their respective
Equity Securities for the purpose of providing security for the borrowing of
monies to acquire the Equity Securities of Shareholders, including but not
limited to a purchase pursuant to Sections 5.4, 5.6, 5.9 or 5.10 hereof,
provided that the pledgor agrees in writing to be bound by this Agreement.
(3) This Article 5 shall not apply to purchases of Common Shares by
Wilson Lee from any of the Chen Group (as defined in Section 5.10).
(4) This Article 5 shall not apply to the put rights granted to CNET
pursuant to the Subscription Agreement dated September 15, 1999 between CNET and
the Corporation, the put rights granted to SOFTECH and Ventures West pursuant to
that Financing Agreement dated November 20, 1998 or the put rights granted to
Sycamore Ventures and Teachers pursuant to Section 5.14 hereto.
(5) Notwithstanding any other provision of this Agreement, every
transfer of Equity Securities shall be subject to the requirements in the
articles of the Corporation and to the condition that the Transferee, if not
already bound by this Agreement, shall, prior to such transfer, agree in writing
to become a party to, and to be bound by all of the terms of, this Agreement.
5.2 ENDORSEMENT ON CERTIFICATES. Share certificates evidencing Shares
of the Corporation owned by the Shareholders shall bear the following language
either as an endorsement or on the face thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SECOND AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT DATED
NOVEMBER 24, 1999, A COPY OF WHICH IS ON FILE AT THE OFFICE OF
THE ISSUER AND WILL BE FURNISHED TO ANY PROSPECTIVE PURCHASER ON
REQUEST.
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5.3 ISSUE OF ADDITIONAL EQUITY SECURITIES. If any additional Equity
Securities are to be issued from treasury, the Corporation shall first offer
such Equity Securities to the Investors by notice given to them of the
Corporation's intention to issue additional Equity Securities and the number and
class thereof to be so issued. Each of such Investors shall have the right to
purchase the Equity Securities so offered pro rata based upon the number of
Equity Securities, other than options granted or Shares issued or issuable
pursuant to the Employee Stock Option Plan, owned beneficially or of record by
such Shareholders at the date notice is given of such offer. Each of the
Investors shall have 15 days from the date such notice is given in which to
provide notice to the Corporation as to the maximum number of Equity Securities,
if any, it wishes to take up and pay for, which notice may include Equity
Securities in excess of its pro rata entitlement as set forth above in this
Section 5.3 up to the total number Equity Securities offered by the Corporation
under the offering. If any such Investor does not give notice to purchase at
least such Investor's full pro rata entitlement hereunder, such Equity
Securities not so taken up ("EXCESS EQUITY SECURITIES") shall be purchased by
those Investors who elected to take up and pay for Equity Securities in excess
of their pro rata entitlement, and in such event, the number of Equity
Securities purchased by the Investor shall be the lesser of: (i) the maximum
number of Equity Securities set forth in such Investor's notice; or (ii) the sum
of such Investor's initial pro rata entitlement set forth above and such
Investor's pro rata entitlement of the Excess Equity Securities, based upon the
relative number of Equity Securities, other than options granted or Shares
issued or issuable pursuant to the Employee Stock Option Plan or to Eric Goodwin
as of the date hereof, owned beneficially or of record by such Investor in
comparison to other Investors who have given notices which include Excess Equity
Securities. Such Investors shall have six days from the expiry of the 15 day
period referenced above in which to take up and pay for all or any of the Equity
Securities so offered. If all of the Equity Securities offered by the
Corporation have not been taken up and paid for within this six day period, the
Equity Securities not so taken up may be issued to such persons as the directors
in their discretion determine, provided that such persons agree to be bound by
this Agreement and to become parties hereto. The foregoing right shall not apply
to (i) an issuance of Common Shares pursuant to a Qualified Public Offering,
(ii) issuances of stock options or the underlying Shares resulting from the
exercise thereof pursuant to the Employee Stock Option Plan to employees,
officers or directors of the Corporation (provided such options have been
approved in accordance with Section 8.4 hereof) or from the exercise by Eric
Goodwin of those stock options granted to him as of the date hereof, (iii)
issuances of the underlying Common Shares issued upon conversion of the
Corporation's Preferred Shares or upon exercise of the options granted to CNET,
(iv) issuances of the underlying Common Shares issued upon the exercise of the
Corporation's Purchase Warrants existing as of the date hereof, (v) Equity
Securities issued pursuant to a dividend or distribution to holders of Preferred
Shares or (vi) Equity Securities (or shares issued upon conversion or exercise
thereof) issued in connection with an acquisition transaction, building or
equipment lease transaction, strategic alliance or partnering arrangement that
is approved by the Board of Directors.
5.4 RIGHT OF FIRST OFFER - EQUITY SECURITIES. (1) Any Shareholder or
group of Shareholders (for the purposes of this Section, the "OFFEROR") who
desires to
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sell all or any of its Equity Securities (for the purposes of this Section, the
"OFFERED SECURITIES") shall give notice of such proposed sale (for the purposes
of this Section, the "NOTICE") to the Corporation and to each of the other
Investors and shall set out in the Notice the number of Offered Securities and
the terms upon which and the price (for the purposes of this Section, the
"PURCHASE PRICE") at which such Offered Securities are offered for sale.
(2) Upon the Notice being given, the other Investors (for the purposes
of this Section, the "OFFEREES") shall have the right to purchase all, but not
less than all, of the Offered Securities for the Purchase Price. The Offerees
shall be entitled to purchase the Offered Securities pro rata based upon the
number of Equity Securities owned beneficially or of record by the Offerees or
to purchase in such other proportion as all of the Offerees may agree in
writing.
(3) Within 15 days of having been given the Notice, each Offeree who
desires to purchase all of the Offered Securities that it is entitled to
purchase in accordance with subsection 5.4(2) shall give notice to the Offeror,
to the Corporation and to each of the other Offerees. If any Offeree does not
give such notice, the Offered Securities that it had been entitled to purchase
(for the purposes of this Section, the "REJECTED SHARES") may instead be
purchased by the Offerees who did give such notice, pro rata based upon the
number of Equity Securities owned beneficially or of record by such Offerees as
between themselves or in such other proportion as all of such Offerees may agree
in writing, and, within five days of the expiry of the 15 day period specified
in this subsection 5.4(3), each Offeree who desires to purchase all of the
Rejected Shares that it is entitled to purchase in accordance with this
subsection 5.4(3) shall give an additional notice to the Offeror, to the
Corporation and to each of the other Offerees. If any Offeree entitled to give
the said additional notice does not do so, the Rejected Shares that it had been
entitled to purchase may instead be purchased by the Offerees who did give such
notice. If the Offerees are willing to purchase all, but not less than all, of
the Offered Securities, the transaction of purchase and sale shall be completed
in accordance with the terms set out in the Notice.
(4) If the Offerees do not give notice in accordance with subsection
5.4(3) that they are willing to purchase all of the Offered Securities, the
rights of the Offerees, subject as hereinafter provided, to purchase the Offered
Securities shall forthwith cease and terminate and, subject to Sections 5.7 and
5.8, the Offeror may sell the Offered Securities to any person (a "THIRD PARTY")
within 45 days after the expiry of the 15 day period or the last of the five day
periods, as the case may be, specified in subsection 5.4(3), for a price not
less than the Purchase Price and on other terms no more favorable to such Third
Party than those set forth in the Notice, provided that the Third Party agrees
prior to the completion of such transaction to be bound by this Agreement and to
become a party hereto in place of the Offeror with respect to the Offered
Securities and further provided that the Third Party is not a competitor of the
Corporation. If the Offered Securities are not sold within such 45 day period on
such terms, the rights of the Offerees pursuant to this Section 5.4 shall again
take effect and so on from time to time.
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5.5 TRANSFER OF RIGHTS. The pre-emptive rights contained in Section 5.3
and the rights of first offer contained in Section 5.4 may be transferred (i) in
the case of BMCC or VWVI, to Ventures West Capital Ltd., any affiliate of
Ventures West Capital Ltd., or any fund managed by Ventures West Capital Ltd. or
affiliate of Ventures West Capital Ltd., (ii) in the case of SOFTECH, to McLean
Watson Capital Inc., any affiliate of McLean Watson Capital Inc., or any fund
managed by McLean Watson Capital Inc. and (iii) in the case of Sycamore
Ventures, to Sycamore Management Corp., any affiliate of Sycamore Management
Corp., or any fund managed by Sycamore Management Corp. or any of its
affiliates.
5.6 RIGHT OF CO-SALE - CHANGE OF CONTROL. (1) Any Offeror who proposes
to sell Equity Securities to a Third Party in accordance with subsection 5.4(4)
shall, if the sale by the Offeror would result in the Third Party owning,
directly or indirectly, more than 50% of the Equity Securities then outstanding,
give notice of such proposed sale (for the purposes of this Section, the
"NOTICE") to the Corporation and to each of the Investors (for the purposes of
this Section, the "OFFEREES") and shall set out in the Notice the name of the
Third Party and the terms upon which and the price at which the Equity
Securities are to be sold, and it shall be a condition of any such proposed sale
that, prior to the completion thereof, the Offeror shall cause the Third Party
to make an offer to purchase, and each of the Offerees shall be entitled to
sell, to the Third Party (notwithstanding any other provision hereof) any or all
of the Equity Securities held by such Offeree, upon the same terms as the
Offeror. If the Third Party fails to make such an offer to purchase, or does not
take up and pay for the Equity Securities of any Offeree which has provided the
notice contemplated in Clause (2) below, the proposed sale of the Equity
Securities to such Third Party shall not be completed and the rights of the
Offerees pursuant to Section 5.4 shall again take effect.
(2) Within 10 days of having been given the Notice, each Offeree who
desires to sell all, but not less than all, of the Equity Securities that it is
entitled to sell to the Third Party in accordance with subsection 5.6(1) shall
give notice to the Offeror, to the Third Party and to the Corporation.
5.7 DRAG ALONG RIGHT. (1) If at any time after November 18, 2002,
SOFTECH and Ventures West propose to sell Equity Securities to a Third Party in
accordance with subsection 5.4(4), if the Investors have been advised of such
circumstance in the notice contemplated by Section 5.4.1 and if such Third Party
has made an offer to SOFTECH and Ventures West (a "CASH OFFER") to purchase all
of the Equity Securities of the Corporation then outstanding for cash
consideration and such Cash Offer has been irrevocably accepted by SOFTECH and
Ventures West, they may give notice of such acceptance and the exercise of their
rights hereunder (for the purposes of this Section, the "NOTICE") to the
Corporation and to each of the other Shareholders (for the purposes of this
Section, the "OFFEREES") and shall set out in the Notice the name of the Third
Party and the terms upon which and the price at which the Equity Securities are
to be sold pursuant to the Cash Offer.
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(2) Following receipt of the Notice, each Offeree other than Sycamore
Ventures, Telepeak Investment Limited and Teachers shall be required to transfer
(and each of Sycamore Ventures, Telepeak Investment Limited and Teachers may
transfer, at its sole discretion) all of its Equity Securities to the Third
Party in accordance with such Notice, provided that the time specified for such
transfer shall be at least 20 days after the Notice is given, upon such terms
and at such price as are contained in the Cash Offer.
5.8 RIGHT OF CO-SALE - SALE BY P. CHEN - SALE OF 10% MINORITY INTEREST.
(1) In the event (a) P. Chen wishes to sell Equity Securities representing in
the aggregate in any transaction or series of transactions with the same or
related parties during the term of this Agreement, either directly or
indirectly, greater than five percent (5%) of the Equity Securities then held by
P. Chen or (b) any Shareholder wishes to sell a number of Equity Securities
representing more than 10% of the Equity Securities then outstanding (P. Chen or
such Shareholder, as the case may be, for the purposes of this Section, the
"OFFEROR") pursuant to an offer (for the purposes of this Section, an "OFFER")
from any person (whether or not a party to this Agreement) (the "PURCHASER"),
then, in addition to any other rights an Investor may have under this Agreement,
each of the other Investors (for the purposes of this Section, the "OFFEREES")
shall have the right to sell all or a portion of their Equity Securities, upon
the same such terms and at the same price to the Purchaser on the terms set
forth in this Section 5.8.
(2) The Offeror shall give to the Offerees notice in writing (for the
purposes of this Section, the "NOTICE OF OFFER") setting out and certifying all
of the terms and conditions of the Offer (including without limitation the
credit terms, if any, provided that where credit is involved, a cash equivalent
alternative shall also be specified), the Equity Securities which are the
subject of the Offer (for the purposes of this Section, the "OFFERED
SECURITIES"), the identity of the Purchaser and a representation, warranty and
covenant that no compensation other than as stated in the Notice of Offer will
be received, directly or indirectly, by the Offeror or its affiliates and/or
associates by reason of the transaction or series of transactions represented by
the Notice of Offer.
(3) Each of the Offerees shall have 15 days following the giving of the
Notice of Offer to give the Offeror written notice (the "COATTAIL NOTICE")
specifying the number of Equity Securities held by such Offeree it wishes to
sell pursuant to the Offer.
(4) The Offeror shall then use his best efforts to induce the Purchaser
to purchase, in addition to the Equity Securities of the Offeror proposed to be
sold, all of the Equity Securities specified in the Coattail Notice(s) which are
received within 15 days from the date of the Notice of Offer.
(5) If the Purchaser agrees to purchase the Equity Securities specified
in the Coattail Notice(s) received within 15 days from the date of the Notice of
Offer in the Offer, then the Offer shall be deemed to include the Equity
Securities specified in the Coattail Notice(s) and the Equity Securities
specified in the Coattail Notice(s) may be sold under such Offer, provided that
the Offeror has not received a Notice pursuant to
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Section 5.4(3) or 5.6 for all of the Offered Securities. If the Offeror has
received a Notice for all of the Offered Securities pursuant to Section 5.4(3)
or 5.6, then the Coattail Notices shall be null and void.
(6) If the Purchaser does not wish to purchase all of the Equity
Securities made available by the Offeror and the Offerees, then each Offeree and
the Offeror shall be entitled to sell, at the price and on the terms and
conditions set forth in the Notice of Offer, a portion of the Equity Securities
being sold to the Purchaser, in the same proportion as such Offeror or Offeree's
ownership of Equity Securities bears to the aggregate number of Equity
Securities owned by the Offeror and the Offerees.
(7) If the Offerees do not elect to sell the full number of Equity
Securities which they are entitled to sell pursuant to this Section 5.8, the
Offeror shall be entitled to sell to the Purchaser, according to the terms set
forth in the Notice of Offer, that number of Equity Securities which equals the
difference between the number of Equity Securities desired to be purchased by
the Purchaser and the number of Equity Securities the Offerees are entitled to
sell pursuant to Section 5.8(6). If the Offeror wishes to transfer any Equity
Securities at a price per share or upon other terms which differ from those set
forth in the Notice of Offer or more than 45 days after the expiration of the
15-day coattail period, then, as a condition precedent to such transaction, such
Equity Securities must first be offered to the Investors on the same terms and
conditions as given the Offeror, and in accordance with the procedures and time
periods set forth above.
5.9 INSOLVENCY OF A SHAREHOLDER. (1) If any Shareholder (for the
purposes of this Section, the "OFFEROR") (i) makes an assignment for the benefit
of creditors or is the subject of any proceedings under any bankruptcy or
insolvency law or takes steps to wind up or terminate its corporate existence or
(ii) in the case of a pledge or encumbrance permitted by Section 5.(2) hereof,
is subject to an execution of such pledge or encumbrance, then the Corporation,
or, if the Corporation elects not to exercise its rights under this Section 5.9,
the Investors (for the purposes of this Section, the "OFFEREES"), shall have the
right to (x) in the case of (i) above, purchase all, but not less than all, of
the Equity Securities owned beneficially or of record by the Offeror or (y) in
the case of (ii) above, all, but not less than all of such pledged or encumbered
Equity Securities (for the purposes of this Section, as the case may be,
"OFFERED SHARES") at the price determined in accordance with the provisions of
subsection 5.9(3).
(2) In the event of a purchase by the Offerees, the Offerees shall be
entitled to purchase the Offered Shares pro rata based upon the number of Equity
Securities owned by the Offerees beneficially or of record or to purchase in
such other proportion as the Offerees may agree in writing.
(3) The price of the Offered Shares shall be an amount equal to the
fair value of such Equity Securities as determined in accordance with Section
6.6, less all costs and expenses (including, without limitation, all legal fees
and disbursements and the fees and disbursements of the Accountant) incurred by
the Corporation or by any of the
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Offerees in connection with any purchase of Offered Shares by the Offerees
pursuant to this Section 5.5.
(4) Within five days of having been given the report of the fair value
of the Offered Shares, the Corporation shall give notice (for the purposes of
this Section, the "NOTICE") to the Offeror and to the Offerees of its election
either to purchase or not to purchase the Offered Shares.
(5) If the Corporation elects not to purchase the Offered Shares, each
Offeree who desires to purchase all of the Offered Shares that it is entitled to
purchase in accordance with subsection 5.9(2) shall, within five days of having
been given the Notice, give notice to the Offeror, to the Corporation and to the
other Offerees. If any Offeree does not give such notice, the Offered Shares
that it had been entitled to purchase (for the purposes of this Section, the
"REJECTED SHARES") may instead be purchased by the Offerees who did give such
notice, pro rata based upon the number of Equity Securities owned beneficially
or of record by such Offerees as between themselves or in such other proportion
as such Offerees may agree in writing, and, within five days of the expiry of
the five day period specified in this subsection 5.9(5), each Offeree who
desires to purchase all of the Rejected Shares that it is entitled to purchase
in accordance with this subsection 5.9(5) shall give an additional notice to the
Offeror, to the Corporation and to the other Offerees. If any Offeree entitled
to give the said additional notice does not do so, the Rejected Shares that it
had been entitled to purchase may instead be purchased by the Offerees who did
give such notice, and so on from time to time until the Offerees are willing to
purchase all of the Offered Shares or until they are not willing to purchase any
more. If the Offerees are willing to purchase all, but not less than all, of the
Offered Shares, the transaction of purchase and sale shall be completed within
20 days of the expiry of the initial five day period or the last of the five day
periods, as the case may be, specified in this subsection 5.9(5).
(6) If the Offerees do not give notice in accordance with subsection
5.9(5) that they are willing to purchase all of the Offered Shares, the rights
of the Offerees, subject as hereinafter provided, to purchase the Offered Shares
shall forthwith cease and terminate and the Offeror may sell the Offered Shares
to a Third Party within three months after the expiry of the initial five day
period or the last of the five day periods, as the case may be, specified in
subsection 5.9(5), for a price not less than the price that would have been
payable by the Offerees and on other terms no more favorable to such Third Party
than those that would have been applicable had the Offerees agreed to purchase
the Offered Shares in accordance with the provisions of this Section 5.9,
provided that such Third Party agrees prior to the completion of such
transaction to be bound by this Agreement and to become a party hereto in place
of the Offeror with respect to the Offered Shares. If the Offered Shares are not
sold within such three month period on such terms, the respective rights of the
Corporation and the Offerees pursuant to this Section 5.9 shall again take
effect and so on from time to time.
5.10 DEATH OF A SHAREHOLDER. If any Shareholder or any former
Shareholder who has transferred Equity Securities pursuant to Section 5.11 dies,
the
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Corporation, or if the Corporation elects not to exercise its rights under this
Section 5.10, the surviving Investors, shall have the right to purchase, and the
personal representative (for the purposes of this Section, the "OFFEROR") of the
deceased Shareholder (or the transferee under Section 5.11) shall sell, all, but
not less than all, of the Shares owned beneficially or of record by the deceased
Shareholder (or the transferee under Section 5.11) immediately prior to his
death, in the proportions and upon the terms and conditions and in the manner
determined in accordance with Section 5.9, mutatis mutandis, except that the
price to be paid for such Shares shall be equal to 100% of the fair value of
such Shares as determined in accordance with Section 6.6. Notwithstanding the
foregoing, if the deceased Shareholder is M. Chen or P. Chen (collectively,
together with the spouse, if any, of P. Chen and the spouse, if any, of M. Chen,
referred to in this Section 5.10 as the "CHEN GROUP"), then prior to the
Corporation or the other Shareholders being entitled to exercise the above
rights to acquire the deceased Shareholder's Shares (or those of the transferee
under Section 5.11), the surviving member or members of the Chen Group, if any,
shall have the right to purchase all, but not less than all, of the Shares owned
beneficially or of record by such deceased Shareholder (or the transferee under
Section 5.11) at a price to be determined by such deceased Shareholder (or his
or her personal representative) (or that of the transferee under Section 5.11)
and the surviving member or members of the Chen Group. Notwithstanding the
foregoing, (i) if the deceased Shareholder is Hsiao, Hsiao may bequeath her
Shares to a third party on the condition that SOFTECH, Ventures West, Sycamore
Ventures and Teachers are satisfied that the votes attached to such bequeathed
Shares may only be exercised by P. Chen; (ii) if the deceased Shareholder is P.
Chen, P. Chen may bequeath his Shares to a spouse, if any; and (iii) if the
deceased Shareholder is M. Chen, M. Chen may bequeath her Shares to a spouse, if
any.
5.11 SHAREHOLDER CONTROLLED CORPORATION. (1) Notwithstanding any other
provision of this Agreement, each Shareholder (the "TRANSFEROR") shall be
entitled, after giving notice to each of the other Shareholders and to the
Corporation, to sell, transfer and assign all, or any part of the Equity
Securities owned beneficially or of record by it to a corporation (or other
entity) (the "PERMITTED TRANSFEREE") provided that the only shareholders (or
persons controlling such entity) of the Permitted Transferee other than the
Transferor are:
(a) Members of the Immediate Family of the Shareholder; or
(b) corporations of which the Members of the Immediate Family of the
Shareholder are at all times the legal and beneficial owners of
shares carrying at least 51% of the issued and outstanding voting
rights of such corporations, which shares are sufficient, if
exercised, to elect a majority of the board of directors of such
corporation; or
(c) trusts, the sole beneficiaries of which are the Members of the
Immediate Family of the Shareholder; or
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(d) in the case of a corporate Shareholder, affiliates, associates or
shareholder of such Shareholder;
and the Permitted Transferee has entered into an agreement prior to
such transaction not to sell, transfer or assign such Equity Securities except
to another corporation controlled, as determined by reference to the Act, by the
Shareholder from whom it acquired the Equity Securities or by shareholders of
the Permitted Transferee referred to in paragraphs (a) through (d) of this
subsection 5.11(1) and to become a party hereto.
(2) Notwithstanding Section 5.1 or any other provision in this
Agreement, BMCC may sell, transfer or otherwise dispose of the whole or any part
of its Equity Securities in the following circumstances:
(a) Manager - To Ventures West Management TIP Inc., the manager of
BMCC;
(b) Reorganization - In connection with a reorganization of the Bank
of Montreal group of companies with respect to the activities of
BMCC; and
(c) Specialized Financing Corporation - If BMCC is required to divest
itself of its Equity Securities in order to remain a "SPECIALIZED
FINANCING CORPORATION" (as defined in the Bank Act, as amended
from time to time).
In the event that the Equity Securities held by BMCC are transferred to Ventures
West Management TIP Inc., notwithstanding Section 5.1 or any other provision of
this Agreement, Ventures West Management TIP Inc. may sell, transfer or
otherwise dispose of the whole or any part of its Equity Securities to:
(a) Limited Partnership - Any limited partnership of which the
general partner is under common control with those persons who
controlled Ventures West Management TIP Inc. as at the date of
the transfer;
(b) Corporation - Any corporation or other form of entity whose
senior officers are, or which is managed by, a corporate manager
whose senior officers are common officers of Ventures West
Management TIP Inc. as at the date of the transfer,
provided in each case the transferee agrees to be bound by the terms and
conditions of this Agreement.
(3) Notwithstanding Section 5.1 or any other provision in this
Agreement, VWVI may sell, transfer or otherwise dispose of the whole or any part
of its Equity Securities to:
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(a) General Partner - Ventures West Management VI Ltd., the general
partner of VWVI;
(b) Limited Partnership - Any limited partnership of which the
general partner is under common control with those persons who
controlled Ventures West Management VI Ltd. as at the date of the
transfer;
(c) Corporation - Any corporation or other form of entity whose
senior officers are, or which is managed by a corporate manager
whose senior officers are common officers of Ventures West
Management VI Ltd. as at the date of the transfer.
(4) Notwithstanding Section 5.1 or any other provision in this
Agreement, Sycamore Ventures may sell, transfer or otherwise dispose of the
whole or any part of its Equity Securities to:
(a) General Partner - Sycamore Management Corp., the general partner
of the general partner of CG Asian-American Fund, L.P. or
Princeton Global Capital Management Company, Ltd., the general
partner of the general partner of Princeton Global Fund, L.P.;
(b) Limited Partnership - Any limited partnership of which the
general partner is under common control with those persons who
controlled Sycamore Management Corp. or Princeton Global Capital
Management Company, L.P. as at the date of the transfer;
(c) Corporation - Any corporation or other form of entity whose
senior officers are, or which is managed by a corporate manager
whose senior officers are common officers of Sycamore Management
Corp. or Princeton Global Capital Management Company, L.P. as at
the date of the transfer.
(5) Notwithstanding the completion of any sale of Equity Securities by
a Transferor to a Permitted Transferee pursuant to subsection 5.11(1), such
Transferor shall:
(a) not sell, transfer, assign, pledge, charge or in any way dispose
of or encumber its shares of the Permitted Transferee;
(b) continue to be bound by all the obligations hereunder as if it
continued to be a Shareholder of the Corporation and perform such
obligations to the extent that the Permitted Transferee fails to
do so; and
(c) at all times be the legal and beneficial owner of shares carrying
at least 51% of the issued and outstanding voting rights of the
Permitted Transferee, which shares shall be sufficient, if
exercised,
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to elect a majority of the board of directors of the Permitted
Transferee or, if such transferee is not a corporation, interests
carrying sufficient voting rights to control management of the
Permitted Transferee.
(6) Notwithstanding Section 5.1 or any other provision of this
Agreement, SOFTECH shall be entitled to sell, transfer or otherwise dispose of
the whole or any part of the Equity Securities owned beneficially or of record
by it to a corporation, fund or entity owned or controlled, directly or
indirectly, or to any investors in any fund managed, directly or indirectly, by
McLean Watson Capital Inc.
(7) (a) If any Transferor who has sold, transferred or assigned its
Equity Securities to a Permitted Transferee pursuant to subsection 5.11(1) fails
to comply with any of the provisions of subsection 5.11(5) and fails to remedy
such non-compliance within a period of 30 days after the giving of notice by the
Corporation or by any of the other Shareholders, the Investors (for the purposes
of this Section, the "OFFEREES") shall have the right to purchase all, but not
less than all, of the Equity Securities (for the purposes of this Section, the
"OFFERED SHARES") owned by the Permitted Transferee (for the purposes of this
Section, the "Offeror").
(b) The Offerees shall have the right to purchase the Offered Shares
pro rata based upon the number of Equity Securities owned beneficially or of
record by the Offerees or to purchase in such other proportion as the Offerees
may agree in writing, at the price to be determined in accordance with
subsection 5.11(8).
(c) The price of the Offered Shares shall be 60% of the fair value of
such Equity Securities as determined in accordance with Section 6.6.
(d) Within 10 days of having been given the Accountant's report of the
fair value and the book value of the Offered Shares, each Offeree who desires to
purchase all of the Offered Shares that it is entitled to purchase in accordance
with subsection 5.11(7) shall give notice to the Offeror, to the Corporation and
to the other Offerees. If any Offeree does not give such notice, the Offered
Shares that it had been entitled to purchase (for the purposes of this Section,
the "REJECTED SHARES") may instead be purchased by the Offerees who did give
such notice, pro rata based upon the number of Equity Securities owned
beneficially or of record by such Offerees as between themselves or in such
other proportion as such Offerees may agree in writing, and, within five days of
the expiry of the 10 day period specified in this subsection 5.11(9), each
Offeree who desires to purchase all of the Rejected Shares that it is entitled
to purchase in accordance with this subsection 5.11(9) shall give an additional
notice to the Offeror, to the Corporation and to the other Offerees. If any
Offeree entitled to give the said additional notice does not do so, the Rejected
Shares that it had been entitled to purchase may instead be purchased by the
Offerees who did give such notice, and so on from time to time until the
Offerees are willing to purchase all of the Offered Shares or until they are not
willing to purchase any more. If the Offerees are willing to purchase all, but
not less than all, of the Offered Shares, the transaction of purchase and sale
shall be
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completed within 20 days of the expiry of the 10 day period or the last of the
five day periods, as the case may be, specified in this subsection 5.11(9).
(e) If the Offerees do not give notice in accordance with subsection
5.11(9) that they are willing to purchase all of the Offered Shares, the rights
of the Offerees, subject as hereinafter provided, to purchase the Offered Shares
shall forthwith cease and terminate.
5.12 [INTENTIONALLY OMITTED]
5.13 EXCLUSIVITY OF SECTIONS. Each of Sections 5.8 and 5.10 are
exclusive and the provisions thereof may only be relied upon by any party hereto
if the provisions of one of the other of such sections are not at the same time
being relied upon by the same or another party hereto.
5.14 SYCAMORE VENTURES AND TEACHERS PUT OPTION. If a Qualified Public
Offering is not completed prior to December 31, 2003, each of Sycamore Ventures
and Teachers shall have the right to obtain liquidity for any or all of its
Equity Securities, whenever acquired, by exercising the right (the "PUT RIGHT")
granted in this Section 5.14.
(1) Sycamore Ventures or Teachers, as the case may be, may exercise the
Put Right by delivering a notice to the Corporation, SOFTECH, Ventures West,
CNET and each other specifying that it intends to exercise its Put Right and
setting forth the number of Equity Securities in respect of which the Put Right
is being exercised (the "PUT SHARES"). Subject to 5.14(5), the Corporation will
repurchase those Equity Securities at their fair market value.
(2) The fair market value of the Put Shares shall be as agreed upon by
the Board and Sycamore Ventures or Teachers, as the case may be, acting in good
faith to settle the fair value of the Put Shares. In the event that the Board
and Sycamore Ventures or Teachers, as the case may be, are unable to come to an
agreement as to the fair market value of the Put Shares, the fair market value
of the Put Shares shall be determined by an independent expert business valuator
experienced in valuing software companies (the "INDEPENDENT VALUATOR") as agreed
to by the Board and Sycamore Ventures or Teachers, as the case may be, acting
reasonably. The Independent Valuator shall be a reputable professional or firm
of professionals which is experienced in making business valuations. The
valuation shall be made on a "going concern" basis assuming a willing purchaser
and willing seller, and there shall be no discount for a minority interest. If
the Board and Sycamore Ventures or Teachers, as the case may be, are unable to
agree on the Independent Valuator, then any such party may apply under the
Arbitrations Act (Ontario) for the appointment of such Independent Valuator to
determine the fair market value of the Put Shares. A valuation report shall be
delivered by the Independent Valuator within 30 days after its appointment and
shall be final and binding on the Corporation and the applicable Investor(s).
The fees and disbursements of the Independent Valuator shall be borne solely by
the Corporation.
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(3) Within 185 days after the delivery of the notice described in
section 5.14(1), the Corporation, or if the Corporation is unable or unwilling
to purchase the Put Shares, a third party purchaser acceptable to Sycamore
Ventures or Teachers, as the case may be, shall make full payment for the Put
Shares in cash or certified cheque or such other manner acceptable to Sycamore
Ventures or Teachers, as the case may be, in its sole discretion; and all Put
Shares held by Sycamore Ventures or Teachers, as the case may be, at the time of
the exercise of the Put Right shall be held by Sycamore Ventures or Teachers, as
the case may be, as security until such time as full payment of the purchase
price for the Put Shares has been received by it.
(4) If the Corporation, or a third party purchaser acceptable to
Sycamore Ventures or Teachers, as the case may be, fails to purchase in full the
Put Shares within such 185 days, any amount then outstanding shall be converted
into debenture(s) (the "DEBENTURE(S)"). The Debenture(s) shall bear interest at
the Prime Rate plus four percent (4%) (where Prime Rate means the annual rate of
interest posted form time to time by the Bank of Montreal for its Canadian
Dollar commercial loans), payable semi-annually. The Debenture(s) will be
repayable in four equal semi-annual installments, with the first payment being
due 120 days from the date of conversion, and the remaining three payments at
six month intervals thereafter. In the event the Corporation fails to make a
semi-annual payment of principal, Sycamore Ventures or Teachers, as the case may
be, will have the right to appoint a majority of the Board which right shall
continue until the Debenture(s) have been repaid in full.
(5) The parties hereto acknowledge that the Corporation has previously
granted to each of SOFTECH, Ventures West and CNET put rights similar to that
granted to Sycamore Ventures and Teachers above in this Section 5.15. SOFTECH,
Ventures West and CNET hereby agree that in order to exercise their respective
put rights they must deliver a notice to Sycamore Ventures and Teachers
simultaneously with any notice given to the Corporation. In the event that any
of SOFTECH, Ventures West and CNET exercise such put rights either before
Sycamore Ventures or Teachers, as the case may be, or within 30 days following
the notice by Sycamore Ventures or Teachers, as the case may be, referred to in
subsection 5.15(1), the parties hereto agree that all such Investors who so
exercise their put rights shall be treated on a pari passu basis and, without
limiting the foregoing: (i) the agreements respecting the fair market value of
the Put Shares (which for this purpose shall include those Equity Securities, if
any, put to the Corporation by SOFTECH, Ventures West and CNET) and the
appointment of the Independent Valuator pursuant to subsection 5.15(2) shall be
made between the Board and a group consisting of those of Sycamore Ventures,
SOFTECH, Ventures West, Teachers and CNET who have exercised its put rights (the
"PUTTING SHAREHOLDERS"), with the decision of the Putting Shareholders to be
determined by the vote of the Putting Shareholders holding not less than a
majority of the Equity Securities as between them; and (ii) any payment by the
Corporation to Sycamore Ventures or Teachers, as the case may be, under
subsections 5.15(3) or 5.15(4) shall only be made on a pari passu basis with
other Putting Shareholders; and (iii) the right of Sycamore Ventures or
Teachers, as the case may be, to appoint a majority of the Board in the
circumstances described in subsection 5.15(4) shall be the right of all Putting
Shareholders, which right shall be
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exercised in accordance with the vote of the Putting Shareholders holding not
less than a majority of the Equity Securities as between them.
5.15 ACKNOWLEDGEMENT. The parties to this Agreement acknowledge and
agree that:
(a) Bank Act Restrictions - BMCC is a "specialized financing
corporation" under the Bank Act and as such is subject to all
restrictions in the Bank Act (as amended from time to time) with
respect to this type of corporation; and
(b) Undertakings - BMCC is subject to certain other
restrictions/undertakings ("UNDERTAKINGS") with respect to its
operations given by BMCC to the Office of the Superintendent of
Financial Institutions, copies of the Undertakings being attached
as Schedule "C" to this Agreement.
5.16 TRANSFERS TO COMPETITORS. Notwithstanding any other provision of
this Agreement, no Shareholder shall, directly or indirectly, sell, transfer,
assign, pledge, charge, mortgage or in any other way dispose of any of its
Equity Securities or its rights or obligations under this Agreement to any
person or entity within Canada and the United States which is engaged in any
business similar to or competitive with the business carried on by the
Corporation; provided, however, that the provisions of this Section may be
waived by the vote of a majority of the Board.
ARTICLE 6
GENERAL PROVISIONS RELATING TO DISPOSITIONS
6.1 CLOSING. Any transaction between an Offeror and Shareholders or
between an Offeror and the Corporation for the purchase and sale of Equity
Securities in accordance with Section 5.4, 5.6, 5.9, 5.10 or 5.11 shall be
completed at the Corporation's registered office where delivery of the Equity
Securities being sold shall be made by the Offeror with good title, free and
clear of all liens, charges and encumbrances, against payment in full by
certified cheque, bank draft or wire transfer of the Corporation or the
Shareholders, as the case may be.
6.2 DEFAULT BY TRANSFEROR. If any Offeror required under Section 5.4,
5.8, 5.9, 5.10, or 5.11 to sell Equity Securities to an Offeree or to the
Corporation, or if any Shareholder (the "SELLING SHAREHOLDER") electing under
Section 5.6 or required by Section 5.7, to sell Equity Securities to a Third
Party, defaults in transferring any such Equity Securities to such Offeree, the
Corporation or the Third Party, as the case may be, in accordance with the terms
set out in the Notice and the provisions hereof, the Secretary of the
Corporation is authorized and directed to receive the purchase monies and
thereupon cause the name of such Offeree or Third Party to be entered in the
registers of the Corporation as the holder of the Equity Securities purchasable
by it, and, in the case
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of Equity Securities purchasable by the Corporation, to deem such Equity
Securities to be cancelled. The said purchase money shall be held in trust by
the Corporation on behalf of the Offeror or the Selling Shareholder, as the case
may be, and not commingled with the Corporation's assets, except that any
interest accruing thereon shall be for the account of the Corporation. The
receipt by the Secretary of the Corporation for the purchase money shall be a
good discharge to the Offeree or the Third Party and, after its name has been
entered in the registers of the Corporation in exercise of the aforesaid power,
the validity of the proceedings shall not be subject to question by any person.
On such registration, the Offeror or the Selling Shareholder, as the case may
be, shall cease to have any right to or in respect of the Equity Securities
being sold except the right to receive, without interest, the purchase monies
received by the Secretary of the Corporation.
6.3 INDEBTEDNESS OF OFFEROR TO CORPORATION. If, on the date of closing
of any purchase and sale of Equity Securities, the selling Shareholder (for the
purposes of this Section, the "OFFEROR") is indebted to the Corporation in an
amount recorded on the books of the Corporation, then, unless otherwise agreed
in writing between the Corporation and the Offeror, each Transferee shall pay
the purchase price payable by it for the Equity Securities to the Corporation by
tabling and delivering to the Secretary of the Corporation, at the time of
closing such purchase and sale, such purchase price. The Corporation shall apply
the total proceeds so received to repay the indebtedness of the Offeror to the
Corporation, and, if such proceeds exceed such indebtedness, shall pay the
excess over to the Offeror at the time of closing. If the Offeror sells all of
the Equity Securities owned by it and the indebtedness of the Offeror exceeds
the proceeds of such sale, the Offeror shall, at the date of closing, pay the
balance of such indebtedness to the Corporation to retire such indebtedness.
6.4 INDEBTEDNESS OF CORPORATION TO OFFEROR. If, on the date of closing
of any purchase and sale of Equity Securities, the Corporation is indebted to
the selling Shareholder (for the purposes of this Section, the "OFFEROR"), or if
the Offeror or any person controlling the Offeror (as determined by reference to
the Act) is the guarantor of any indebtedness of the Corporation, each
Transferee of such Equity Securities shall, at the time of closing, purchase
such indebtedness at its face value, or obtain a release and assume such
guarantee, in either case, pro rata in accordance with the number of Equity
Securities purchased by such Transferee, provided that if, after using
reasonable efforts, the Transferees are unable to obtain a release of any such
guarantee, the Transferees shall instead provide an indemnity in form
satisfactory to such guarantor, acting reasonably, with respect to any liability
or loss which the guarantor may incur as a result of the guarantee.
6.5 RELEASE AND DISCHARGE. Subject to Section 5.11, any Shareholder who
sells all of its Equity Securities in accordance and in full compliance with
this Agreement, shall thereafter be released and discharged from further
performance of its covenants and obligations hereunder. If a Shareholder who
sells all of his Equity Securities is an officer or director at the time of such
sale, such Shareholder shall resign as a member of the board of directors, if a
member, and from the office(s) held, if any.
6.6 DETERMINATION OF FAIR VALUE. Subject to Section 5.14, where in
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this Agreement the determination of the fair value of Equity Securities is
required, such fair value shall be determined by the Accountant or, at the
request of the Corporation or any affected Shareholder, an independent valuator
selected by the board and who is a reputable professional or firm of
professionals which is experienced in making business valuations of software
companies. The valuation made by the Accountant and/or the said independent
valuator shall be made as at the end of the fiscal quarter immediately preceding
the fiscal quarter in which the event referred to in the applicable Section
occurred and shall be made in accordance with generally accepted accounting
principles, valuation techniques and assumptions appropriate in the
circumstances, assuming a willing purchaser and a willing seller, and there
shall be no discount for a minority interest or premium for a controlling
interest. Such determination shall be made in writing and given to all of the
Shareholders and to the Corporation within 20 days of the date of the event
referred to in the applicable Section or as soon thereafter as may be reasonably
possible. The report of the Accountant and/or independent valuator, when
delivered to the Corporation and to the Shareholders, shall be conclusive and
binding upon all parties.
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ARTICLE 7
COVENANTS OF THE CORPORATION
7.1 Delivery of Financial Statements. Prior to a Qualified Public
Offering, for so long as any Investor owns any securities of the Corporation,
the Corporation and the Subsidiary shall maintain correct and complete books and
records in which full and correct entries shall be made of all of its and the
Subsidiary's business transactions pursuant to a system of accounting
established and administered in accordance with GAAP and deliver to each
Investor holding at least 500,000 Shares (a "Section 7 Investor") (subject to
appropriate adjustments for stock splits, stock dividends, combinations and
other similar recapitalizations affecting the Equity Securities):
(a) As soon as available after the end of each fiscal year, and in any
event within 90 days thereafter, a consolidated balance sheet of the Corporation
and its consolidated subsidiaries, if any, as at the end of such fiscal year,
and consolidated statements of income, retained earnings and changes in cash
flows of the Corporation and its consolidated subsidiaries, if any, for such
year, setting forth in each case in comparative form the corresponding figures
for the previous fiscal year, all prepared in accordance with GAAP and
accompanied by a report and opinion thereon by the Corporation's independent
accountants, who shall be of nationally recognized standing, which audit report
shall state that such consolidated financial statements present fairly in all
material respects the consolidated financial position as of such date and the
consolidated results of operations and cash flows for the periods indicated, all
in conformity with GAAP together with a certification on behalf of the
Corporation by the Chief Financial Officer of the Corporation and certifying
that such officer has reviewed the provisions of this Agreement and has no
knowledge of any default by the Corporation in the performance or observance of
any of the provisions of this Agreement or, if such officer has such knowledge,
specifying such default and the nature thereof; and
(b) As soon as available after the end of each of the first three
fiscal quarters of each fiscal year and in any event within 45 days after the
end of each such quarter, an unaudited consolidated balance sheet of the
Corporation and its consolidated subsidiaries, if any, as of end of such
quarter, and unaudited consolidated statements of income, retained earnings and
changes in cash flows of the Corporation and its consolidated subsidiaries, if
any, for such period and the fiscal year to date, setting forth in comparative
form the corresponding figures for the corresponding period of the previous
fiscal year, in each case prepared in accordance with GAAP (subject to normal
year-end adjustments and without footnote disclosure), and certified on behalf
of the Corporation by the Chief Financial Officer of the Corporation, together
with a comparison of the actual financial results for such quarter to the
Operating Budget (as defined below) and certifying that such officer has
reviewed the provisions of this Agreement and has no knowledge of any default by
the Corporation in the performance or observance of any of the provisions of
this Agreement or, if such officer has such knowledge, specifying such default
and the nature thereof; and
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(c) As soon as available after the end of each fiscal month other than
the last month of each fiscal quarter, and in any event within 30 days after the
end of such month, an unaudited consolidated balance sheet of the Corporation
and its consolidated subsidiaries, if any, as of the end of such month, and
unaudited consolidated statements of income, retained earnings and changes in
cash flows of the Corporation and its consolidated subsidiaries, if any, for
such month and the fiscal year to date, prepared in accordance with GAAP
(subject to normal year-end adjustments and without footnote disclosure),
setting forth in comparative form the corresponding figures for the
corresponding period of the previous fiscal year, and certified on behalf of the
Corporation by the Chief Financial Officer of the Corporation, together with a
comparison of the actual financial results for such month to the Operating
Budget (as defined below) and certifying that such officer has reviewed the
provisions of this Agreement and has no knowledge of any default by the
Corporation in the performance or observance of any of the provisions of this
Agreement or, if such officer has such knowledge, specifying such default and
the nature thereof; and;
(d) At least 45 days prior to the end of each fiscal year of the
Corporation, a preliminary forecast for the Corporation and its consolidated
subsidiaries, if any, which preliminary forecast shall be finalized as the
budget for the Corporation and its consolidated subsidiaries, if any (the
"OPERATING BUDGET"), each of which shall (i) forecast ahead at least one year
the consolidated projected costs, revenues, income, balance sheet and cash flows
of the Corporation and its consolidated subsidiaries, if any, in each case on a
monthly basis, and (ii) forecast ahead at least one year the capital
requirements the Corporation believes necessary to reasonably expand the
Corporation and its subsidiaries, if any. The Corporation shall provide the
Operating Budget no later than the 15th day prior to the start of the applicable
fiscal year. The Corporation shall deliver a preliminary forecast for the fiscal
year ending July 31, 2000 and shall deliver an Operating Budget for such year no
later than December 15, 1999;
(e) Promptly, upon preparation thereof, any other budgets that the
Corporation may prepare and any revisions of the Operating Budget that are
approved by the Board of Directors;
(f) Promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as the Corporation or its
subsidiaries, if any, shall send to its shareholders generally, copies of all
reports which it or any of its officers or directors send to, and all
registration statements (without exhibits), prospectuses or offering memoranda
which it or its subsidiaries, if any, files with the Securities and Exchange
Commission, any other securities commission or any other regulatory body or
governmental body in Canada or elsewhere or any securities exchange (should the
Corporation or any of its subsidiaries become public companies), copies of all
press releases made generally available by the Corporation or any Subsidiary, if
any, to the public concerning material developments in the business of the
Corporation and its subsidiaries, if any, and copies of all other material
communications sent to or received from shareholders of the Corporation and its
subsidiaries, if any;
30
<PAGE> 31
(g) Promptly upon receipt thereof, a copy of each other report
submitted to the Corporation or any of its subsidiaries by independent
accountants in connection with any annual, interim or special audit of the books
of the Corporation or any of its subsidiaries made by such accountants, or any
management letters or similar document submitted to the Corporation or any of
its subsidiaries by such accountants;
(h) Such other information relating to the financial condition,
business, prospects or corporate affairs of the Corporation and its
subsidiaries, if any, as the Section 7 Investors may from time to time
reasonably request, provided, however, that the Corporation shall not be
obligated to provide any information which it reasonably considers to be a trade
secret the disclosure of which the Corporation reasonably believes may adversely
affect any of its, or its subsidiaries', business.
7.2 WAIVER. By their execution hereof, Ventures West and SOFTECH agree
that the obligations of the Corporation set forth in Section 5.1.6 of that
Financing Agreement dated November 20, 1998 among SOFTECH, Ventures West and the
Corporation shall terminate as of the date hereof and that all of the
obligations of the Corporation set forth in Article 5 thereof shall terminate
upon a Qualified Public Offering. By its execution hereof, CNET agrees that the
obligations of the Corporation set forth in Section 6.5 of that Subscription
Agreement dated September 15, 1999 between CNET and the Corporation shall
terminate as of the date hereof and all of the obligations of the Corporation
set forth in Section 6 thereof shall terminate upon a Qualified Public Offering.
ARTICLE 8
GENERAL
8.1 CONFIDENTIALITY. (1) Each of the parties to this Agreement agrees
that it shall not, at any time, directly or indirectly, communicate or disclose
to any person any confidential knowledge or information howsoever acquired by
such party relating to or concerning the customers, products, technology, trade
secrets, systems, operations or other confidential information regarding the
property, business or affairs of the Corporation or any Subsidiary of the
Corporation, nor shall it use or make available any such knowledge or
information directly or indirectly in connection with any business or activity
in which it is or may become involved, any solicitation or acceptance of
employment with any person, or any transfer, disposition or encumbrance of its
Equity Securities.
(2) The restrictions in subsection (1) of this Section 8.1 shall not
apply to such confidential knowledge or information which:
(a) can be demonstrated to have been in the public domain otherwise
than through the fault or negligence of a party hereto;
31
<PAGE> 32
(b) can be demonstrated to have been lawfully obtained by a party
hereto from a third party with full rights of disclosure;
(c) the disclosure of which can be demonstrated to be required by
law;
(d) has been disclosed to those persons who have a need to know such
confidential knowledge or information (including without
limitation the legal and accounting advisers of the disclosing
Shareholder) in connection with any purposes or transactions
contemplated by this Agreement and any other agreements or
instruments ancillary to this Agreement; provided each such
person is aware of the confidential nature of the information and
his/her obligation to hold the information confidential and/or
bound by his or her non-disclosure obligations and, upon notice
from the Corporation as to a breach of any such obligation, such
Shareholder agrees to take all reasonable steps required by the
Corporation to enforce such obligation at such Shareholder's
expense; or
(e) is required to be reported by Ventures West, SOFTECH or Sycamore
Ventures to its respective investors or shareholders or the
investors or shareholders of their respective affiliates or
associates or any fund or other entity of which any of Ventures
West, SOFTECH or Sycamore Ventures or their respective affiliates
or associates is manager, provided that, in any case, such
information is marked confidential.
8.2 INSURANCE. (1) The Corporation shall, to the extent that it is
reasonably obtainable, acquire and maintain insurance on the lives of each of P.
Chen, Eric Goodwin and such employees as the Board reasonably determines to be
appropriate and in such amounts and on such terms as the Board shall determine.
(2) Directors' and officers' liability insurance shall, to the extent
that it is reasonably obtainable, be acquired by the Corporation in such amounts
and upon such terms as are satisfactory to the Board.
(3) The Corporation shall maintain in good standing at all times the
aforementioned insurance policies on the lives of P. Chen and Eric Goodwin of
which it is the owner and the aforementioned directors' and officers' liability
insurance policies and shall not deal in any manner with the said policies and,
without limiting the generality of the foregoing, shall not assign, transfer,
dispose of, surrender, borrow upon or in any way encumber any of the said
policies.
8.3 [INTENTIONALLY OMITTED]
32
<PAGE> 33
8.4 EMPLOYEE STOCK OPTION PLAN. The Corporation has established an
employee stock option plan (the "EMPLOYEE STOCK OPTION PLAN"), to be
administered by the Compensation Committee, pursuant to which the Compensation
Committee will be entitled to issue options to directors, officers, consultants,
advisers and employees of the Corporation exercisable for Common Shares
representing not more than 15% of the issued and outstanding Equity Securities
of the Corporation. Any options to be issued will be upon recommendation of the
Chief Executive Officer of the Corporation and approved by the Compensation
Committee and the board. The parties hereto acknowledge and agree that options
granted to each of A.I.M. Group Canada Inc., William Marsh and board members
have been granted under the Employee Stock Option Plan.
8.5 BENEFIT OF THE AGREEMENT. This Agreement shall enure to the benefit
of and be binding upon the respective heirs, executors, administrators,
successors and permitted assigns of the parties hereto.
8.6 SUBDIVISION, CONSOLIDATION, ETC. OF SHARES. This Agreement shall
apply mutatis mutandis to any shares into which Equity Securities may be
converted or changed, or to any shares resulting from a reclassification,
subdivision or consolidation of Equity Securities, and to any securities of the
Corporation which are received by the holders of Equity Securities as a stock
dividend, and to any securities of the Corporation or any other body corporate
which may be received by the holders of Equity Securities on an amalgamation,
merger or reorganization of the Corporation.
8.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and cancels
and supersedes any prior understandings and agreements between the parties
hereto with respect thereto. There are no representations, warranties, terms,
conditions, undertakings or collateral agreements, express, implied or
statutory, between the parties other than as expressly set forth in this
Agreement.
8.8 CONFLICT. In the event of any conflict or inconsistency between
this Agreement and the by-laws of or resolutions passed by the Corporation, or
any agreements between the Corporation and one or more Shareholders with respect
to the organization or management of the Corporation, the provisions of this
Agreement shall apply.
8.9 ARBITRATION. Any controversy which may arise between the parties to
this Agreement concerning its construction or application, or the rights or
obligations of any party hereunder, shall be determined conclusively by
arbitration in accordance with the procedures set out in Schedule "B".
8.10 AMENDMENTS AND WAIVERS. No amendment to this Agreement shall be
valid or binding unless made in writing by Shareholders representing not less
than 90% of issued and outstanding Equity Securities held by Shareholders. No
waiver of any breach of this Agreement shall be effective or binding unless made
in writing and signed by the party purporting to give the same and, unless
otherwise provided in the
33
<PAGE> 34
written waiver, a waiver of any breach of this Agreement shall be limited to the
specific breach waived.
8.11 ASSIGNMENT. Except as may be expressly provided in this Agreement,
none of the parties hereto may assign its rights or obligations under this
Agreement without the prior written consent of all of the other parties hereto.
8.12 FURTHER ASSURANCES. Each of the parties to this Agreement hereby
covenants and agrees that it and its respective heirs, executors,
administrators, successors and permitted assigns and nominees shall execute and
deliver such further and other instruments, agreements and writings, and shall
cause such meetings to be held, resolutions to be passed and by-laws to be
enacted, exercise their vote and influence, and do and cause to be done such
other acts and things as may be necessary or desirable in order to give full
effect to this Agreement (including, without limitation, any amendment of this
Agreement pursuant to Section 7.11) where such approval has been obtained, and
for the purpose of ensuring that the directors exercise their powers
consistently with the provisions hereof and for the purpose of giving effect to
the same.
8.13 TERMINATION. This Agreement shall terminate:
(a) upon the agreement of the parties to this Agreement who are
shareholders;
(b) upon completion of a Qualified Public Offering;
(c) upon the dissolution of the Corporation; or
(d) upon one Shareholder becoming the beneficial owner of all of
the Shares.
8.14 SEVERABILITY. If any provision of this Agreement is determined to
be invalid or unenforceable in whole or in part, such invalidity or
unenforceability shall attach only to such provision or part thereof and the
remaining part of such provision and all other provisions hereof shall continue
in full force and effect.
8.15 NOTICES. Any demand, notice or other communication (a
"COMMUNICATION") to be given in connection with this Agreement shall be given in
writing and may be given by personal delivery, by registered mail or by
facsimile addressed to the recipient as follows:
34
<PAGE> 35
(a) in the case of a notice to P. Chen/P. Hsiao, at:
5400 Fallingbrook Drive
Mississauga, Ontario
L5V 1P7
Telephone: (416) 369-1100
Facsimile: (416) 369-9037
(b) in the case of a notice to M. Chen, at: Doubleday Publishing
1540 Broadway New York, New York 10036
(c) in the case of the Corporation to it at:
FloNetwork Inc.
260 King Street East
Building B
Toronto, Ontario
M5A 1K3
Attention: Wilson Lee, Chief Financial Officer
Facsimile: (416) 369-9037
with copies to:
Blake, Cassels & Graydon
Box 25, Commerce Court West
Toronto, Ontario
M5L 1A9
Attention: Chris Hewat
Facsimile: (416) 863-2653
and to
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: John A. Burgess
Facsimile: (617) 526-5000
(d) in the case of CG Asian-American Fund, L.P., Princeton Global
Fund, L.P., Kilin To, John R. Whitman, Whitman Children
Irrevocable Trust, Kit C. Wong, Simon Wong, Richard Chong,
35
<PAGE> 36
Michael Horgan, Peter Gerry, David Lichtenstein and Subir Ray
to it, he, or she at:
Sycamore Management Corp.
989 Lenox Drive, Suite 208
Lawrenceville, New Jersey 08648
Attention: Kit C. Wong
Facsimile: (609) 219-0101
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Samuel B. Fortenbaugh III
Facsimile: (212) 309-6273
(e) in the case of Kit-Yee Lam, to her at:
308 Ivy Hill Ct.
Muttontown, New York 11753
Facsimile: (516) 938-0940
(f) in the case of Telepak Investment Limited, to it at:
Technology Link Capital Corp.
111 South Bedford Street, Suite 101
Birlington, MA 01803-5145
Attention: I-Hwa Shiue
Facsimile: (781) 359-9705
(g) in the case of SOFTECH, to it at:
McLean Watson Capital Inc.
Suite 1410, Box 129
1 First Canadian Place
Toronto, Ontario
M5X 1A4
Attention: Glenn Rumbell
Fax (416) 363-2010
36
<PAGE> 37
with a copy to:
LaBarge Weinstein
Xerox Tower
333 Preston Street
11th Floor
Ottawa, Ontario K1S 5N4
Attention: Randy Taylor
Telephone: (613) 231-3000
Facsimile: (613) 231-3900
(h) in the case of BMCC, to it at:
Bank of Montreal Capital Corporation
c/o Ventures West Management TIP Inc.
Suite 1200, 20 Adelaide Street East
Toronto, Ontario M5C 2T6
Attention: Ted Anderson
Facsimile: 416-861-0866
with a copy to LaBarge Weinstein at the address above;
(i) in the case of VWVI, to it at:
Ventures West VI Limited Partnership
c/o Ventures West Management VI Ltd.
Suite 1200, 20 Adelaide Street East
Toronto, Ontario M5C 2T6
Attention: Ted Anderson
Facsimile: 416-861-0866
with a copy to LaBarge Weinstein at the address above;
(j) in the case of CNET, to it at:
150 Chestnut St.
San Francisco, CA 94111; and
(k) in the case of Teachers, to it at:
5650 Yonge St., 5th Floor
North York, Ontario
M2M 4H5
Attention: Portfolio Manager, Venture Capital
With a copy to: Legal Counsel, Investments
37
<PAGE> 38
Facsimile: (416) 730-3771
or such other address, facsimile number or individual as may be designated by
notice by any party to the other. Any Communication given by personal delivery
shall be conclusively deemed to have been given on the day of actual delivery
thereof and, if given by registered mail, on the third day following the deposit
thereof in the mail and, if given by facsimile, on the first day immediately
following the date of transmittal thereof. If the party giving any Communication
knows or ought reasonably to know of any difficulties with the postal system
which might affect the delivery of mail, any such Communication shall not be
mailed but shall be given by personal delivery or by facsimile.
8.16 COUNTERPARTS AND FACSIMILE EXECUTION. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original and all of which together shall constitute the same agreement. This
Agreement may be executed and delivered by telecopier, provided that actual
executed copies of this Agreement shall be substituted forthwith after execution
for the copies executed by telecopier.
8.17 TIME OF THE ESSENCE. Time shall be of the essence of this
Agreement.
8.18 INDEMNITY. The Corporation shall, whenever required or permitted
by the Act or otherwise by law, indemnify each director, each officer of the
Corporation, each former director, each former officer of the Corporation and
each person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a shareholder or
creditor, and his heirs and legal representatives, against all costs, charges
and expenses, including, without limitation, each amount paid to settle an
action or satisfy a judgment, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a
party by reason of being or having been a director or officer of the Corporation
or such body corporate if:
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation or such body corporate; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was lawful.
[SIGNATURE PAGES FOLLOW]
38
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above set out.
/s/ Paul Chen
-----------------------------------------------
PAUL CHEN
/s/ Mina Chen
-----------------------------------------------
MINA CHEN
/s/ Pi-Hsia Hsiao
-----------------------------------------------
PI-HSIA HSIAO
FLONETWORK INC.
By: /s/ Wilson Lee
------------------------------------------
Name: WILSON LEE
Title: CFO
CG ASIAN-AMERICAN FUND, L.P.
by the General Partner of its General Partner,
Sycamore Management Corp.
By: /s/ Kit Wong
------------------------------------------
Name: KIT WONG
Title: Vice President
PRINCETON GLOBAL FUND, L.P.
by the General Partner of its General Partner,
Princeton Global Capital Management
Company, Ltd.
By: /s/ Subir K. Ray
------------------------------------------
Name: SUBIR K. RAY
Title: Director
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 40
1206832 ONTARIO INC.
By: /s/ Glenn Rumbell
------------------------------------------
Name:
Title:
BANK OF MONTREAL CAPITAL CORPORATION
by its manager, Ventures West Management
TIP Inc.
By: /s/ Edward Anderson
------------------------------------------
Name:
Title:
By: /s/ Mark Dubowitz
------------------------------------------
Name:
Title:
VENTURES WEST VI LIMITED PARTNERSHIP
by its general partner, Ventures West
Management VI, Ltd.
By: /s/ Edward Anderson
------------------------------------------
Name:
Title:
By: /s/ Mark Dubowitz
------------------------------------------
Name:
Title:
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 41
TELEPEAK INVESTMENT LIMITED
Telepeak Investments Ltd.
By: /s/ I-Hwa Shuie
------------------------------------------
Name: I-HWA SHUIE
Title: President
/s/ Kilin To
-----------------------------------------------
KILIN TO
/s/ John R. Whitman
-----------------------------------------------
JOHN R. WHITMAN
/s/ Kit C. Wong
-----------------------------------------------
KIT C. WONG
/s/ Kit C. Wong Attorney-in-fact
-----------------------------------------------
SIMON WONG
/s/ Kit C. Wong Attorney-in-fact
-----------------------------------------------
RICHARD CHONG
/s/ Kit C. Wong Attorney-in-fact
-----------------------------------------------
MICHAEL HORGAN
/s/ Peter G. Gerry
-----------------------------------------------
PETER GERRY
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 42
/s/ David Lichtenstein
-----------------------------------------------
DAVID LICHTENSTEIN
/s/ Subir Ray
-----------------------------------------------
SUBIR RAY
/s/ John R. Whitman
-----------------------------------------------
WHITMAN CHILDREN IRREVOCABLE TRUST
CNET, INC.
By: /s/ Shelby W. Bonnie
------------------------------------------
Name: Shelby W. Bonnie
Title: Vice Chairman
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 43
/s/ Kit-Yee Lam
-----------------------------------------------
KIT-YEE LAM
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 44
ONTARIO TEACHERS' PENSION PLAN BOARD
By: /s/ R. Zigrossi
------------------------------------------
Name: ROSEMARY ZIGROSSI
Title: Portfolio Manager, Venture Capital
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 45
ANNEX I
NAME OF INVESTOR
Telepeak Investment Limited
Kilin To
John R. Whitman
Whitman Children Irrevocable Trust
Kit C. Wong
Simon Wong
Richard Chong
Michael Horgan
Peter Gerry
David Lichtenstein
Subir Ray
Kit-Yee Lam
<PAGE> 46
SCHEDULE "A"
<TABLE>
<CAPTION>
NUMBER OF CLASS NUMBER OF CLASS NUMBER OF CLASS NUMBER OF CLASS
NUMBER OF COMMON A PREFERRED B PREFERRED C PREFERRED D PREFERRED
NAME OF SHAREHOLDER SHARES SHARES SHARES SHARES SHARES
- ------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Paul Chen 7,344,000
Pi-Hsia Hsiao 7,344,000
Mina Chen 3,672,000
1206832 Ontario Inc. 150,000 8,640,000 3,209,062
Bank of Montreal Capital 200,000 880,486
Corporation
Ventures West VI Limited 200,000 880,486
Partnership
CNET 2,650,423 401,133
Eric Goodwin
Employees (other than P. Chen
and E. Goodwin)
CG Asian-American Fund, L.P. 2,607,363
Princeton Global Fund, L.P. 601,700
Kilin To 80,226
John R. Whitman 12,034
</TABLE>
<TABLE>
<CAPTION>
SENIOR
NUMBER OF EMPLOYEE STOCK MANAGEMENT
NAME OF SHAREHOLDER PURCHASE WARRANTS OPTIONS OPTIONS
- ------------------- ----------------- ------- -------
<S> <C> <C> <C>
Paul Chen
Pi-Hsia Hsiao
Mina Chen
1206832 Ontario Inc. 10,579,045
Bank of Montreal Capital 5,373,810
Corporation
Ventures West VI Limited 5,373,810
Partnership
CNET 401,133
Eric Goodwin 2,601,408
Employees (other than P. Chen 7,000,000
and E. Goodwin)
CG Asian-American Fund, L.P. 2,607,363
Princeton Global Fund, L.P. 601,700
Kilin To 80,226
John R. Whitman 12,034
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Whitman Children Irrevocable 12,304
Trust
Kit C. Wong 16,045
Simon Wong 8,023
Richard Chong 8,023
Michael Horgan 8,023
Peter Gerry 8,023
David Lichtenstein 4,011
Subir Ray 4,011
Kit-Yee Lam 4,011
Ontario Teachers' Pension Plan 2,487,023
Telepeak Investment Limited 802,266
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Whitman Children Irrevocable 12,304
Trust
Kit C. Wong 16,045
Simon Wong 8,023
Richard Chong 8,023
Michael Horgan 8,023
Peter Gerry 8,023
David Lichtenstein 4,011
Subir Ray 4,011
Kit-Yee Lam 4,011
Ontario Teachers' Pension Plan 2,487,023
Telepeak Investment Limited 802,266
</TABLE>
<PAGE> 48
SCHEDULE "B"
ARBITRATION PROCEDURES
(a) Upon the written demand of any of the parties concerned, the
parties shall meet and attempt to appoint a single arbitrator. If they are
unable to agree on a single arbitrator then, upon the written demand of any of
them and within five Business Days of such demand, the person making the demand
shall name one arbitrator and the other parties concerned shall name another
arbitrator and the two arbitrators so named shall promptly thereafter choose a
third. If either the person making the demand or the other parties concerned
shall fail to name an arbitrator within five Business Days from such demand,
then the second arbitrator shall be appointed by any Justice of the Ontario
Court General Division. If the two arbitrators shall fail within five Business
Days from their appointment to agree upon and appoint the third arbitrator then,
upon written application by any of the parties concerned, such third arbitrator
shall be appointed by any Justice of the Ontario Court General Division.
(b) The arbitrator or arbitrators selected to act hereunder shall be
qualified by education and training to pass upon the particular question in
dispute.
(c) The single arbitrator or the arbitrators so chosen shall proceed
immediately to hear and determine the matter or matters in dispute. The decision
of the arbitrators, or a majority of them, shall be made within 30 Business Days
after the appointment of the third arbitrator, subject to any reasonable delay
due to unforeseen circumstances. Notwithstanding the foregoing, in the event the
single arbitrator fails to make a decision within 40 Business Days after his or
her appointment or if the arbitrators, or a majority of them, fail to make a
decision within 40 Business Days after the appointment of the third arbitrator,
then any of the parties concerned may elect to have a new single arbitrator or
arbitrators chosen in like manner as if none had previously been selected.
(d) The decision of the single arbitrator or the decision of the
arbitrators, or a majority of them, shall be in writing and signed by the single
arbitrator or by the
<PAGE> 49
arbitrators, or a majority of them, and shall be final and binding upon all of
the parties hereto as to any matter or matters so submitted to arbitration and
the parties shall perform the terms and conditions thereof.
(e) The compensation and expenses of the single arbitrator or
arbitrators (unless otherwise determined by the arbitrators) shall be paid by
the parties involved in the arbitration equally.
(f) None of the parties concerned shall be deemed to be in default of
any matter being arbitrated until 10 Business Days after the decision of the
arbitrator or arbitrators is delivered to all of them.
<PAGE> 50
SCHEDULE "C"
UNDERTAKING - SPECIALIZED FINANCING CORPORATION
BANK OF MONTREAL
To: The Superintendent of Financial Institutions
255 Albert Street
Ottawa, Ontario
K1A 0H2
Attention: Director of Rulings and Compliance
WHEREAS Bank of Montreal intends, upon receiving the applicable
regulatory approval, to obtain control within the meaning of subsection 468(5)
of the Bank Act, of Bank of Montreal Capital Corporation, a specialized
financing corporation incorporated under the laws of Canada;
AND WHEREAS, the Superintendent of Financial Institutions has, pursuant
to subsection 470(1) of the Bank Act required Bank of Montreal to provide this
Undertaking regarding the activities of Bank of Montreal Capital Corporation;
NOW THEREFORE, Bank of Montreal undertakes to the Superintendent as
follows:
1. For the purpose of this Undertaking:
(a) "equity instrument" means, in relation to a body corporate,
any instrument that would be shown on the balance sheet of the
body corporate under the heading "Shareholders' Equity" and,
in relation to any other entity, any ownership interest in the
entity however designated, and includes any instrument that
may be exchanged or converted into any of the above or that
creates an option to purchase any of the above;
(b) "equity-like instrument" means any debt obligation, loan,
guarantee or any other similar arrangement for obtaining funds
or credit that carries a right to participate directly or
indirectly in the earnings of the entity or that has
characterizations, the economic result of which cause the
nature of the risks associated with the investment or the rate
of return to be more similar to an equity stakeholder than a
debtholder, and
(c) "investee" means an entity in which Bank of Montreal Capital
Corporation has made, or is proposing to make, an investment
by means or an equity or equity-like instrument.
2. To restrict Bank of Montreal Capital Corporation from engaging or
agreeing to engage in any business, venture or undertaking and from
acquiring assets except as follows:
(a) investing in equity instruments;
<PAGE> 51
(b) providing to an entity financial assistance by means of
equity-like instruments, where that financial assistance is
not otherwise available to the entity on terms and conditions
that are at least as favorable as those offered by Bank of
Montreal in the normal course of its business; and
(c) providing to an investee financing advice and management
counselling on techniques, methods and practices for the
administration, organization, expansion or reorganization of a
business enterprise.
3. Notwithstanding paragraph 2, to cause Bank of Montreal Capital
Corporation to refrain from carrying on any activity that would cause
Bank of Montreal Capital Corporation to cease being a specialized
financing corporation.
4. To provide the Superintendent, Attention: Director, Compliance
Division, within ninety (90) days following the end of each financial
year of Bank of Montreal Capital Corporation a certificate from a duly
authorized senior officer of Bank of Montreal Capital Corporation
confirming that Bank of Montreal Capital Corporation has complied
during the particular financial year and is currently in compliance
with the restrictions mentioned in paragraph 2.
5. This Undertaking shall come into effect when, and shall remain in
effect so long as, Bank of Montreal controls Bank of Montreal Capital
Corporation.
IN WITNESS WHEREOF, Bank of Montreal has executed this Undertaking and
affixed its corporate seal under the signature of its proper officer duly
authorized in that regard.
Date at Toronto, Ontario, this 16th day of November, 1995.
Bank of Montreal
Per: /s/ Vinay Sarin
---------------------------------------
Name: Vinay K. Sarin
Title: Senior Vice-President &
Corporate Controller
Per: /s/ V.J. Jones
---------------------------------------
Name: V.J. Jones
Title: Senior Assistant Secretary
<PAGE> 52
SPECIALIZED FINANCING CORPORATION (BANKS)
REGULATIONS
SOR/92-157 (June 4, 1992)
His Excellency the Governor General Council, on the recommendation of
the Minister of Finance, pursuant to the definition "specialized financing
corporation" in subsection 464(1) and section 559 of the Bank Act, is pleased
hereby to revoke the Venture Capital Corporation Regulations, made by Order in
Council P.C. 1982-2102 of July 15, 1982 (SOR/82-704, 1982 Canada Gazette Part
II, p. 2628), and to make the annexed Regulations prescribing terms and
conditions under which a body corporate is a specialized financing corporation
in substitution therefor.
REGULATIONS PRESCRIBING TERMS AND CONDITIONS UNDER
WHICH A BODY CORPORATE IS A SPECIALIZED FINANCING
CORPORATION
Short Title
1. These Regulations may be cited as the Specialized Financing
Corporation (Banks) Regulations.
Conditions for Specialized Financing Corporation
2. For the purposes of the definition "specialized financing
corporation" in subsection 464(l) of the Bank Act, a body corporate in which a
bank has acquired or proposes to acquire a substantial investment that is
primarily engaged in providing specialized business management, in making
investments or in providing financing or advisory services is a specialized
financing corporation if, at the later of the time that the bank acquires the
substantial investment and the time at which approval is given under paragraph
468(3)(b) of that Act, and at any time thereafter;
(a) the body corporate holds no shares or ownership interests in
(i) a financial institution,
(ii) an entity that is engaged primarily in the leasing of
motor vehicles to customers in Canada for the purpose
of extending credit to a customer or financing a
customer's acquisition of a motor vehicle,
(iii) an entity that is engaged primarily in providing
temporary possession of personal property, including
motor vehicles, to customers in Canada for a purpose
other than to finance the customer's acquisition of
the property, or
(iv) an entity acting as an insurance broker or agent in
Canada.;
(b) the aggregate book value of all shares or ownership interests
that the body corporate holds in any entity in which the body
corporate has a substantial investment does not exceed $90
million;
(c) the aggregate of the book value of the shares held by the bank
and the bank's subsidiaries in the body corporate and in all
specialized financing corporations and the amount of loans
that the bank and its subsidiaries have made to the body
corporate and all specialized financing corporations that are
outstanding does not exceed five percent of the value of the
bank's regulatory capital;
<PAGE> 53
(d) the aggregate amount of all loans that were made to the body
corporate by all entities and that are outstanding does not
exceed twice the value of the body corporate's shareholders'
equity;
(e) the aggregate of the book value of all shares and ownership
interests held by the bank and the bank's subsidiaries, other
than subsidiaries that are specialized financial corporations,
in the body corporate and all entities in which the body
corporate has a substantial investment and the amount of all
loans that the bank and its subsidiaries, other than
subsidiaries that are specialized financial corporations, have
made to the body corporate and to all such entities and that
are outstanding does not exceed 25 per cent of the bank's
regulatory capital; and
(f) the body corporate has not held a substantial investment in
any entity for more than ten years.
3. For the purposes of section 2
(a) the value of a body corporate's debt and shareholders' equity
is the value indicated on its balance sheet, prepared on an
unconsolidated basis, and
(b) the book value of the shares and ownership interests held by
an entity is the book value indicated on the entity's balance
sheet.
4. For the purposes of paragraph 2(c), where a bank has a substantial
investment in two or more bodies corporate that purport to be specialized
financing corporations, the status of each body corporate shall be determined in
the order that the bank acquired or increased its substantial investment in it.
<PAGE> 54
UNDERTAKING - ACCESS TO RECORDS
BANK OF MONTREAL CAPITAL CORPORATION
TO: Bank of Montreal
AND TO: The Superintendent of Financial Institutions
255 Albert Street
Ottawa, Ontario
K1A 0H2
Attention: Director Rulings & Compliance
WHEREAS Bank of Montreal controls, within the meaning of subsection
468(5) of the Bank Act, Bank of Montreal Capital Corporation;
NOW THEREFORE, Bank of Montreal Capital Corporation undertakes that,
while Bank of Montreal controls Bank of Montreal Capital Corporation, a body
corporate referred to in paragraph 468(1)(k) of the Bank Act, Bank of Montreal
Capital Corporation will provide the Superintendent of Financial Institutions
with reasonable access to its records in accordance with the provisions of
subsection 470(4) of the Bank Act.
This Undertaking shall come into effect when, and shall remain in
effect so long as, Bank of Montreal controls Bank of Montreal Capital
Corporation.
IT WITNESS WHEREOF, Bank of Montreal Capital Corporation has executed
this Undertaking and affixed its corporate seal under the signature of its
proper officer duly authorized in that regard as and from the ___________ day of
_______________, 199__.
Dated at Toronto, Ontario.
Bank of Montreal Capital Corporation
By: _______________________________
<PAGE> 55
EXHIBIT E
PRIVATE AND CONFIDENTIAL
[DATE]
RE: EMPLOYMENT WITH MEDIA SYNERGY
Further to our discussions, the following terms and conditions comprise your
employment agreement with Media Synergy hereinafter referred to as "The Company"
or "MEDIA SYNERGY".
1.01 The Company shall employ you and you shall serve the Company in the
position of ______________ for an indefinite period commencing
_____________subject to termination of employment pursuant to Article 8
herein.
2.01 You will be compensated in accordance with the attached Addendum "A"
titled "COMPENSATION PLAN", as it may be amended annually or from time
to time at the Company's discretion and with or without prior notice to
you. The Company shall be entitled to withhold from amounts to be paid
to you any federal, state or local withholding or other taxes, payroll
deductions, or other charges which it is from time to time required to
withhold.
3.01 During the term of this Agreement, you shall perform such duties and
exercise such powers as may be necessary to properly fulfill the
position of _____________ as outlined or required by the Company. The
Company reserves the discretion to amend, alter, or change your job
duties as it sees fit.
3.02 You shall serve the Company faithfully and to the best of your ability
and, during the term of your employment by the Company, shall devote
your full working time, attention, and ability to the business affairs
of the Company.
3.03 You shall make such reports as the Company requests.
3.04 You shall voluntarily disclose any non-confidential information
received in the course of providing your services to the Company which
would be of significant interest to the Company's sphere of business
activity in the area of multimedia email communication software.
3.05 While employed by the Company, you shall not disclose to anyone or
entity outside the company any information provided to you by the
Company which would impede or reduce the Company's ability to operate
its business profitably. Specifically, unless you first secure written
consent from the Company, you shall not disclose or use at any time
either during or for a period of three (3) years subsequent to said
employment, any secret or confidential information of the Company or
clients of the Company of which you become informed during the
employment, whether or not developed by you, except as required in your
duties to the Company. For the purposes of this Agreement, confidential
information shall include the names or any other information about the
Company's customers or suppliers and any fact, information,
documentation, knowledge, data, know how, property, material and work,
not generally available to or generally known by the public, which is
owned, possessed or controlled by the Company or any person associated
or affiliated therewith. Confidential information shall also include
any such fact, information, documentation, knowledge, data, know how,
property, material and work relating to research and development,
experimentation, computer software programs, inventions, innovations,
<PAGE> 56
improvements, formulae, processes, business plans, financial
information, trade secrets, computer based systems, data storage in a
computer, any computer readable media, product plans, marketing
strategies and names or other information about the Company's
customers, suppliers or employees. Confidential Information shall not
include any information which; (i) is or becomes publicly available
through no act of you, (ii) is rightfully received by you from a third
party without restrictions; or (iii) is independently developed by you.
3.06 The Company has a proprietary interest in all information or property
relating to the business of affairs of the Company, except information
that is in the public domain. At the expiry of your employment with the
Company or at any other time that Company so requests, you shall return
or cause to be returned to the Company all tangible property of the
Company and you shall not retain any copies of such property.
3.07 It is a term of the Agreement that you sign a copy of the Agreement for
Assignment of Inventions attached hereto.
3.08 Absence of Prior Agreements.
You represent as follows:
(a) You entering into employment with the Company under this
Agreement does not constitute a breach of any contract,
agreement or understanding and you are free to execute this
Agreement and to enter into the employ of the Company.
(b) You are not bound by the terms of any agreement with any
previous employer or other party (a) to refrain from using or
disclosing any trade secret, confidential, or proprietary
information of such previous employer or other party in the
course of your employment with the Company or (b) to refrain
from competing, directly or indirectly, with the business of
such previous employer or any other party.
4.01 You agree that during your employment with the Company and for a period
of eighteen (18) months after your employment with the Company ends for
whatever reason, you shall not solicit, endeavor to entice away from
the Company or otherwise interfere with the Company's relationship with
any person who is employed by or otherwise engaged to perform services
for the Company or any person or entity who is, or was within the then
most recent twelve (12) month period a customer, client or prospective
client of the Company. For purposes of this agreement a prospective
client is one that a representative of Media Synergy has made a
proposal to during the twelve (12) months proceeding the date of
termination.
4.02 You agree that during your employment with the Company and for a period
of eighteen (18) months after your employment with the Company ends for
whatever reason, you will not, without the advance written consent of
the Company, directly or indirectly engage in any activity or business
substantially similar to or competitive with that of the Company and or
any of its subsidiaries or affiliates in any province of Canada or any
state in the United States of America where the Company is engaged in
business at the time your employment with the Company ceases.
5.01 You will be entitled to annual vacation in accordance with Company
policy.
5.02 You will be eligible to participate in the Company's benefit program.
The Company reserves the right to amend, alter, change or end any or
all benefits at its discretion and with or without prior notice to you.
6.01 You will be entitled to holidays observed by the Company.
<PAGE> 57
7.01 Should you be required to use your personally owned vehicle for
purposes of undertaking business on behalf of MEDIA SYNERGY, you will
be reimbursed in accordance with the standard rates established for the
period. You will be reimbursed for your out-of-pocket expenses incurred
on behalf of the Company. All claims for travel and expense
reimbursement must be submitted on a timely basis and be clearly
identified and supported by original receipts. The Company reserves the
right to determine what is or what is not a compensable expense.
8.01 We expect this agreement for provision of your services to prove to be
satisfactory to both parties. However, in the event that your services
must be terminated for any reason, the following will apply:
Your employment may be terminated:
(a) without cause, notice, compensation in lieu of notice or
severance pay at any time during the first three (3) months of
your employment, or in the event the Company has just cause to
terminate your employment. For the purposes hereof, the
Company shall determine in its sole discretion whether "just
cause" exists as defined in (i), (ii), (iii) or (iv) below:
(i) being convicted of a criminal offense involving or
relating to the property or affairs of the Company;
(ii) being guilty of grave misconduct with the Company
reasonably determines has materially harmed the
Company or any of its affiliates; or
(iii) a refusal to follow lawful and proper directions of
your supervisor or manager, after written notice of
that refusal and a reasonable opportunity to comply
therewith;
(iv) failure to meet reasonable performance objectives or
standards after written notice of the requirement
which have been agreed to by you.
(b) at any time, at your option, by providing two weeks prior
written notice to the Company of your effective date of
resignation; or
(c) without just cause, at the opinion of the Company upon
providing written notice to you equal to the period described
as follows:
Notice equal to the aggregate of one week plus one further
week for every full year of service with the Company as at the
date of your dismissal.
It is agreed that the Company may pay you compensation in lieu
of providing you with the aforesaid notice by paying you an
amount equal to your salary, and providing your benefits that
would otherwise have been paid over the aforesaid period of
notice.
8.02 In the event that you receive the payments and benefits described in
paragraph 8.01 herein, you hereby release and forever discharge the
Company and its officers, directors, employees, shareholders and agents
from any and all actions, causes of action, claims and demands
whatsoever arising from your employment with the Company and the
termination of that employment.
9.01 You understand that if you violate any provisions of this agreement
relating to Confidential Information or to your duty to cooperate in
matters relating to protection of intellectual property, the Company
will suffer immediate and irreparable injury. If you violate any of
such provisions,
<PAGE> 58
you will be subject to damages and remedies as determined by a court of
law.
10.01 In the event that, notwithstanding the foregoing, any part of the
provisions set forth in this Agreement shall be held to be invalid or
unenforceable, the remaining parts thereof shall nevertheless continue
to be valid and enforceable as though the invalid or unenforceable
parts had not been included therein.
11.01 It is the policy of the Company to conduct its affairs in strict
compliance with the letter and spirit of the law and to adhere to the
highest principles of business ethics. Accordingly, all officers,
employees and independent contractors must avoid activities which are
in conflict, or give the appearance of being in conflict, with these
principles and with the interests of the Company. The following are
potentially compromising or harmful situations which must be avoided.
Any exceptions must be reported to the President and written approval
for continuation must be obtained.
(a) CONFIDENTIAL INFORMATION: Revealing confidential information
to outsiders or misusing confidential information.
Unauthorized divulging of information is a violation of this
policy whether or not for personal gain and whether or not
harm to the Company is intended.
(b) GIFTS: Accepting or offering substantial gifts, excessive
entertainment, favors or payments which may be deemed to
constitute undue influence or otherwise be improper or
embarrassing to the Company.
(c) CIVIC OR PROFESSIONAL ORGANIZATIONS: Participating in civic or
professional organizations that might involve divulging
confidential information of the Company.
(d) PERSONAL RELATIONSHIPS: Initiating or approving personnel
actions affecting reward or punishment of employees or
applicants where there is a family relationship or is or
appears to be a personal or social involvement.
(e) HARASSMENT: Initiating or approving any form of personal,
sexual, or social harassment of employees, customers,
suppliers or anyone else.
(f) OUTSIDE INVESTMENT OR INVESTMENTS: Investing or holding an
ownership interest or outside directorship in suppliers,
customers, or competing companies, including financial
speculations, where such investment or directorship might
influence in any manner a decision or course of action of the
Company.
(g) BORROWING AND LENDING: Borrowing from or lending to employees,
customers or suppliers.
(h) REAL ESTATE: Acquiring real estate of interest to the Company.
(i) OTHER INFORMATION: Improperly using or disclosing to the
Company any proprietary information or trade secrets of any
former or concurrent employer or other person or entity with
whom obligations of confidentiality exist.
(j) COMPETITORS: Unlawfully discussing prices, costs, customers,
sales or markets with competing companies or their employees.
(k) ILLEGAL AGREEMENTS: Making any unlawful agreement with
distributors, competitors or customers with respect to prices,
territories, or products.
<PAGE> 59
(l) COMPANY PROPERTY: Improperly using or authorizing the use of
any property of the Company or any other thing or property
that is owned by person or entity.
(m) GENERAL CONDUCT: Engaging in any conduct which is not in the
best interest of the Company
(n) FOREIGN PAYMENTS: Making any unlawful agreement with or
payment to any domestic or foreign government official or
corporate representative.
(o) HEADINGS: The headings used herein are for the convenience of
the parties only and shall not be used to define, enlarge or
limit any term of this Agreement.
Each officer, employee and independent contractor must take
every necessary action to ensure compliance with these guidelines and
to bring problem areas to the attention of higher management for
review. Violations of this conflict of interest policy may result in
discharge without warning.
12.01 You hereby agree that because of the nature of Company's business, the
restrictions contained in this letter are reasonable and necessary in
order to protect the legitimate interest of the Company.
13.01 No waiver of any provision of this agreement shall be valid unless the
same is in writing and signed by the party against whom such waiver is
sought to be enforced; moreover, no valid waiver of any other provision
of this agreement at such time or will be deemed a valid waiver of such
provision at any other time.
14.01 Construction and interpretation of this agreement shall at all times
and in all respects be governed by the laws of the Province of Ontario,
Canada.
14.02 This agreement shall be binding upon, and shall inure to the benefit
of, the Company and you, and their respective heirs, personal and legal
representatives, successors and assigns.
14.03 This letter and the attached Addendum titled "Compensation Plan"
constitutes the entire agreement between you and the Company. It is
agreed and acknowledged that there are no representations, oral or
written, warranties or covenants upon which the two parties are relying
in reaching this agreement, outside of the terms contained within this
letter and the attached Compensation Plan. All prior agreements
relating to your employment are superseded by this letter of agreement.
No change or modification hereof shall be valid or binding unless the
same is in writing and signed by the party intended to be bound.
<PAGE> 60
This letter is being provided to you in duplicate and we would
appreciate return of one (1) copy of this letter indicating your acceptance of
the terms and conditions.
Yours very truly,
Martha Ainsley
Media Synergy Inc.
ACCEPTED AND AGREED TO THIS _________ DAY OF ________________, 1999.
--------------------------------
[NAME]
<PAGE> 61
AGREEMENT FOR ASSIGNMENT OF INVENTIONS
If I should be employed to perform services for Media Synergy or any
Media Synergy division, affiliate, subsidiary or associate company or any
successor in business of any of the foregoing, then, in consideration of such
employment and the wages and salary to be paid to me, and regardless of the
duration of such employment, I hereby agree to perform to the best of my ability
all duties required of me from time to time, by my employer, and I agree to
comply strictly with all the conditions herein set forth. For the purposes of
these conditions, Media Synergy or its division, affiliate, subsidiary,
associate company or successor in business of any of the foregoing by which I
may be employed or to which from time to time I may be transferred, shall deemed
to be the "Employer".
PART ONE
1. ASSIGNMENT - I agree to assign to the Employer, it's successors,
assigns or nominees, all my rights to inventions, improvements and
developments, patentable or unpatentable, including the right to invoke
the benefit of the right of priority provided by the International
Convention for the Protection of Industrial property, as amended, or by
a Convention which may hereafter be substituted for it and to invoke
and claim such right or priority without further written or oral
authorization, which, during the period of my employment by the
Employer or by its predecessors or successors in business or by any
associated company. I have made or conceived or hereafter may make or
conceive, either solely or jointly with others: (a) with the use of the
Employer's time, materials or facilities; or (b) resulting from or
suggested by my work for the Employer; or (c) in any way appertaining
to any subject matter related to the existing or contemplated business,
products and services of (i) Media Synergy, its affiliate, subsidiary
or associate company by which I am employed, (ii) any other Media
Synergy division, affiliate, subsidiary or associate company in the
same field of business, products or services and (iii) any other Media
Synergy division, affiliate, subsidiary or associate company, to which
I may be exposed in the course of my employment.
2. DISCLOSURE - I agree to make and maintain adequate and current written
records of all inventions, improvements, and developments in the form
of notes, sketches, drawings, or reports relating thereto: which
records shall be and remain the property of and available to the
Employer at all times and I agree promptly to disclose to the Employer
all such inventions, improvements and developments.
3. EXECUTION OF DOCUMENTS - At any time requested by the Employer, either
during employment or after termination thereof, and without charge to
the said Employer, but at its expense, I agree to execute, acknowledge
and deliver all such further papers, including applications for
patents, and to perform such other lawful acts as, in the opinion of
said Employer, may be necessary to obtain or maintain patents for such
inventions in any and all countries and to vest title thereto in the
Employer, its successors, assigns or nominees.
4. TERMINATION - Upon termination of my employment, I agree to return to
the Employer all property of the Employer of which I have had custody
including delivery to the Finance Department of all notebooks and other
data relating to research or experiments conducted by me or any
inventions made by me, and to make full disclosure relating to such
research, experiments or inventions relating to the products, processes
or methods of manufacture of the Employer or otherwise covered by this
agreement.
5. PRIOR INVENTIONS - If, prior to the date of execution hereof, I have
made or conceived any unpatented inventions, improvements or
developments, whether patentable or unpatentable, which I desire to
have excluded from this Agreement, I have written below a complete list
thereof.
<PAGE> 62
6. COMPLIANCE NOT CONTINGENT UPON ADDITIONAL CONSIDERATION - I have not
been promised, and I shall not claim any additional or special payment
for compliance with the convenants and agreements herein contained.
7. SEVERABILITY - I agree that the unenforceability or inapplicability of
any one or more phases and/or provisions of this Agreement and
Covenant shall not affect the remaining provisions of this Agreement
and Covenant or any part thereof.
I have read, or have had read to me, and have full knowledge of and
understand the aforementioned Agreement.
Employee Name:____________________________________
Employee Signature:_______________________________
Witness (Media Synergy employee):_________________
Date:_____________________________________________
PART TWO
List any unpatented inventions, improvements and developments whether patentable
or unpatentable made or conceived prior to the date of execution herewith which
you desire to have excluded from the foregoing Agreement. Note: If none, state
"none". Also, it is necessary to record issued patents, pending patent
applications or prior inventions previously assigned or agreed to be assigned to
others.
Employee Signature:_________________________
<PAGE> 63
ADDENDUM A - COMPENSATION PLAN
[NAME]
POSITION
BASE $ xx,xxx per annum.
BONUS $x,xxx annually payable in semiannual installments each
calendar quarter if
1. Personal goals and objectives are met.
RRSP RRSP matching of $1,000 prorated from commencement of
MATCHING employment to July 31, 2000. For example, assuming first date
of employment is January 1, 2000 then the RRSP entitlement
would be (7/12 mths * $1,000) = $583.
STOCK OPTIONS x,xxx stock options granted upon first date of employment,
(ESOP) with a four year vesting period to be vested evenly on each
anniversary date. Strike price of $.xx/share. Upon exercise of
any options you will be required to sign the Company's
standard shareholders agreement.
BENEFITS Employee benefits to commence after probation period.
VACATION x weeks
REVIEWS Compensation to be reviewed by Compensation Committee
annually.
Media Synergy Inc.
Signed:_________________________
Name Printed:____________________
Date:___________________________
[Name]
Signed:_________________________
Name Printed:___________________
Date:___________________________
<PAGE> 1
EXHIBIT 10.20
FLONETWORK INC.
NON-STATUTORY STOCK OPTION AGREEMENT
1. GRANT OF OPTION. This agreement evidences the grant by FloNetwork
Inc., a corporation organized under the laws of Ontario, Canada (the "Company"),
on July 1, 1999 (the "Grant Date") to Eric Goodwin (the "Optionee") of an option
to purchase, in whole or in part, on the terms provided herein, an aggregate of
2,601,408 Common Shares of the Company ("Common Shares") at a price of CDN $.25
per share. Except where the context otherwise requires, the term "Company" shall
include the parent and all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the U.S. Internal Revenue Code of 1986,
as amended or replaced from time to time (the "Code").
2. NON-STATUTORY STOCK OPTION. This option is not intended to qualify
as an incentive stock option under Section 422 of the Code.
3. EXERCISE OF OPTION AND PROVISIONS FOR TERMINATION.
(a) Vesting Schedule. Except as otherwise provided in this
Agreement, this option may be exercised prior to the tenth anniversary of the
Grant Date (hereinafter the "Expiration Date") as to 108,392 of the Shares on
the Grant Date and as to an additional 108,392 of the Shares at the end of each
successive one-month period until such time as this option shall become
exercisable in full.
Notwithstanding the foregoing, if, prior to the date on which the
Employee ceases to be an Eligible Optionee of the Company (as defined below),
(i) the Company consummates an underwritten initial public
offering of its Common Shares pursuant to an effective registration statement in
the United States or prospectus in Canada as a result of which the Company's
Common Shares are listed and traded on the Nasdaq National Market, the Toronto
Stock Exchange or a similar national exchange, then the vesting of the Shares
that have not vested as of the closing of such initial public offering shall
immediately accelerate upon such closing such that (A) upon such date this
option shall become immediately exercisable with respect to a number of the then
unvested Shares equal to the aggregate number of Shares then exercisable under
this option and previously exercised under this option and (B) following such
date this option shall become exercisable with respect to an additional 216,784
of the remaining unvested Shares at the end of each successive one-month period
until such time as this option shall become exercisable in full; or
(ii) a Change in Control (as defined below) of the Company is
consummated, then the vesting of this option shall immediately accelerate in
full upon the date of consummation of the Change in Control such that upon such
date this option shall become immediately exercisable with respect to all of the
Shares. For purposes of this Agreement, a "Change in Control" shall be deemed to
have occurred if: (i) the Company consummates an amalgamation, plan of
arrangement, merger or consolidation with any other entity, other than an
<PAGE> 2
amalgamation, plan of arrangement, merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; (ii) the
stockholders of the Company approve a plan of complete liquidation of the
Company; or (iii) the Company consummates the sale or disposition of all or
substantially all of the Company's assets.
The right of exercise shall be cumulative so that if the option is not
exercised to the maximum extent permissible during any exercise period, it shall
continue to be exercisable, in whole or in part, with respect to all Shares not
so purchased at any time prior to the Expiration Date or the earlier termination
of this option.
This option may not be exercised at any time on or after the Expiration Date.
(b) EXERCISE PROCEDURE. Subject to the conditions set forth in
this Agreement, this option shall be exercised by the Optionee's delivery of
written notice of exercise to the Company specifying the number of shares to be
purchased and the purchase price to be paid therefor and accompanied by payment
in full in accordance with Section 4. Such exercise shall be effective upon
receipt by the Company of such written notice together with the required
payment. The Optionee may purchase fewer than the total number of shares covered
hereby, provided that no partial exercise of this option may be for any
fractional share.
(c) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except
as otherwise provided in this Section 3, this option may not be exercised unless
the Optionee, at the time he or she exercises this option, is, and has been at
all times since the date of grant of this option, an employee, officer or
director of, or consultant or advisor to, the Company (an "Eligible Optionee").
(d) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the
Optionee ceases to be an Eligible Optionee of the Company for any reason other
than death or disability or a termination of such relationship by the Company
for "cause", each as provided below, the right to exercise this option shall
terminate upon the Expiration Date, provided that this option shall be
exercisable only to the extent that the Optionee was entitled to exercise this
option on the date of such cessation. Notwithstanding the foregoing, if the
Optionee, prior to the Expiration Date, materially violates the non-competition
or confidentiality provisions of the Employment Agreement dated as of July 1,
1999 (the "Employment Agreement") between the Company and the Optionee, the
Non-Competition and Assignment of Intellectual Property Agreement dated as of
July 1, 1999 (the "Non-Competition Agreement") between the Company and the
Optionee or any other employment or consulting contract, confidentiality and
non-disclosure agreement or other agreement between the Optionee and the
Company, the right to exercise this option shall terminate immediately upon such
violation.
(e) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Optionee
dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code)
prior to the Expiration Date while he or she is an Eligible Optionee, or if the
Optionee dies prior to the Expiration Date but after the Optionee ceases to be
an Eligible Optionee (other than as the result of a termination of such
relationship by the Company for "cause" as specified in paragraph (f) below),
this option
2
<PAGE> 3
shall be exercisable, within the period of one year following the date of death
or disability of the Optionee (but in no event after the Expiration Date), by
the Optionee or by the person to whom this option is transferred by will or the
laws of descent and distribution, PROVIDED THAT this option shall be exercisable
only to the extent that this option was exercisable by the Optionee on the date
of his or her death or disability. Except as otherwise indicated by the context,
the term "Optionee", as used in this option, shall be deemed to include the
estate of the Optionee or any person who acquires the right to exercise this
option by bequest or inheritance or otherwise by reason of the death of the
Optionee.
(f) DISCHARGE FOR CAUSE. If the Optionee, prior to the
Expiration Date, ceases his relationship with the Company because such
relationship is terminated by the Company for "cause" (as defined below), the
right to exercise this option shall terminate immediately upon such cessation.
"Cause" shall have the meaning set forth in any employment agreement between the
Company and the Optionee, or if there shall be at such time no employment
agreement or no such definition in such employment agreement, shall mean willful
misconduct by the Optionee or willful failure to perform his or her
responsibilities in the best interests of the Company (including, without
limitation, breach by the Optionee of any provision of the Employment Agreement,
the Non-Competition Agreement or any other employment, consulting, advisory,
nondisclosure, non-competition or other similar agreement between the Optionee
and the Company), as determined by the Company, which determination shall be
conclusive.
4. PAYMENT OF PURCHASE PRICE.
(a) METHOD OF PAYMENT. Payment of the purchase price for
Shares purchased upon exercise of this option shall be made (i) by delivery to
the Company of cash or a check to the order of the Company in an amount equal to
the purchase price of such Shares, (ii) subject to the consent of the Company,
by delivery to the Company of Common Shares then owned by the Optionee having a
fair market value equal in amount to the purchase price of such shares, (iii) by
any other means which the Board of Directors approves and determines are
consistent with the purpose of this option and applicable laws and regulations,
or (iv) by any combination of such methods of payment.
(b) VALUATION OF SHARES OR OTHER NON-CASH CONSIDERATION
TENDERED IN PAYMENT OF PURCHASE PRICE. For the purposes hereof, the fair market
value of any Common Shares or other non-cash consideration which may be
delivered to the Company in exercise of this option shall be determined in good
faith by the Board of Directors of the Company.
(c) DELIVERY OF SHARES TENDERED IN PAYMENT OF PURCHASE PRICE.
If the Optionee exercises this option by delivery of Common Shares of the
Company, the certificate or certificates representing the Common Shares of the
Company to be delivered shall be duly executed in blank by the Optionee or shall
be accompanied by a stock power duly executed in blank suitable for purposes of
transferring such shares to the Company. Fractional Common Shares of the Company
will not be accepted in payment of the purchase price of shares acquired upon
exercise of this option.
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5. DELIVERY OF SHARES; COMPLIANCE WITH SECURITIES LAWS, ETC.
(a) GENERAL. The Company shall, upon payment of the option
price for the number of Shares purchased and paid for, make prompt delivery of
such Shares to the Optionee, provided that if any law or regulation requires the
Company to take any action with respect to such Shares before the issuance
thereof, then the date of delivery of such Shares shall be extended for the
period necessary to complete such action.
(b) LISTING, QUALIFICATION, ETC. This option shall be subject
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the Shares subject hereto
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
hereunder, this option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, disclosure, or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure, or to satisfy such other condition.
6. AGREEMENT IN CONNECTION WITH PUBLIC OFFERING.
The Optionee agrees, in connection with the initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any Common Shares held by the
Optionee (other than those shares included in the offering) without the prior
written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.
7. NONTRANSFERABILITY OF OPTION. This option is personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) nor shall any such rights be
subject to execution, attachment or similar process, except that this option may
be transferred (i) by will or the laws of descent and distribution or (ii)
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of this option or of such rights contrary to the provisions hereof, or
upon the levy of any attachment or similar process upon this option or such
rights, this option and such rights shall, at the election of the Company,
become null and void.
8. NO SPECIAL EMPLOYMENT OR SIMILAR RIGHTS. Nothing contained in this
option shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment or other relationship of the
Optionee with the Company for the period within which this option may be
exercised. The Optionee acknowledges that if the Optionee ceases to be an
Eligible Optionee for any reason, the exercisability of this option will be
subject to the
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limitations set forth herein, including those provisions limiting the number of
shares for which this option is exercisable and the period during which this
option may be exercised.
9. RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any Shares which may be purchased by exercise of
this option (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such Shares) unless and until a
certificate representing such Shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued.
10. ADJUSTMENT PROVISIONS.
(a) GENERAL. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding Common
Shares are increased or decreased or are exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such Common Shares or other securities,
then the Board of Directors shall determine, in its sole discretion, appropriate
adjustments with respect to (x) the number and kind of shares as to which this
option is then exercisable and (y) the exercise price per share at which this
option is exercisable.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under
this Section 9 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued pursuant to this
option on account of any such adjustments.
11. ACQUISITION EVENTS.
(a) DEFINITION. An "Acquisition Event" shall mean: (a) any
amalgamation, plan of arrangement, merger or consolidation of the Company with
or into another entity as a result of which Common Shares are converted into or
exchanged for the right to receive cash, securities or other property or (b) any
exchange of shares of the Company for cash, securities or other property
pursuant to a statutory share exchange transaction.
(b) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that
this option shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof). For purposes
hereof, this option shall be considered to be assumed if, following consummation
of the Acquisition Event, this option confers the right to purchase, for each
Common Share subject to this option immediately prior to the consummation of the
Acquisition Event, the consideration (whether cash, securities or other
property) received as a result of the Acquisition Event by holders of Common
Shares for each Common Share held immediately prior to the consummation of the
Acquisition Event (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Common
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Shares); provided, however, that if the consideration received as a result of
the Acquisition Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of outstanding
Common Shares as a result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, this option, then the Board shall, upon written notice to the Optionee,
provide that this option will become exercisable in full as of a specified time
prior to the Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent exercised by the
Optionee before the consummation of such Acquisition Event; provided, however,
that in the event of an Acquisition Event under the terms of which holders of
Common Shares will receive upon consummation thereof a cash payment for each
Common Share surrendered pursuant to such Acquisition Event (the "Acquisition
Price"), then the Board may instead provide that this option shall terminate
upon consummation of such Acquisition Event and that the Optionee shall receive,
in exchange therefor, a cash payment equal to the amount (if any) by which (A)
the Acquisition Price multiplied by the number of Common Shares subject to this
option (whether or not then exercisable), exceeds (B) the exercise price of this
option.
12. WITHHOLDING TAXES. The Company's obligation to deliver shares upon
the exercise of this option shall be subject to the Optionee's satisfaction of
all applicable federal, state and local income and employment tax withholding
requirements.
13. INVESTMENT REPRESENTATIONS; LEGENDS.
(a) REPRESENTATIONS. The Optionee represents, warrants and
covenants that:
(i) Any Shares purchased upon exercise of this option shall be
acquired for the Optionee's account for investment only, and
not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act
of 1933, as amended (the "Securities Act"), or any rule or
regulation under the Securities Act.
(ii) The Optionee has had such opportunity as he has deemed
adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate
the merits and risks of his investment in the Company.
(iii) The Optionee is able to bear the economic risk of
holding such Shares acquired pursuant to the exercise of this
option for an indefinite period.
(iv) The Optionee understands that (A) the Shares acquired
pursuant to the exercise of this option will not be registered
under the Securities Act and are "restricted securities"
within the meaning of Rule 144 under the Securities Act;
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(B) such Shares cannot be sold, transferred or otherwise
disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then
available; (C) in any event, an exemption from registration
under Rule 144 or otherwise under the Securities Act may not
be available for at least two years and even then will not be
available unless a public market then exists for the Common
Shares, adequate information concerning the Company is then
available to the public, and other terms and conditions of
Rule 144 are complied with; and (D) there is now no
registration statement on file with the Securities and
Exchange Commission with respect to any Shares of the Company
and the Company has no obligation or current intention to
register any Shares acquired pursuant to the exercise of this
option under the Securities Act.
By making payment upon exercise of this option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 13.
(b) LEGENDS ON STOCK CERTIFICATE. All stock certificates
representing Common Shares issued to the Optionee upon exercise of this option
shall have affixed thereto legends substantially in the following forms, in
addition to any other legends required by applicable state law:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred,
sold or otherwise disposed of in the absence of an effective
registration statement with respect to the shares evidenced by this
certificate, filed and made effective under the Securities Act of 1933,
or an opinion of counsel satisfactory to the Company to the effect that
registration under such Act is not required."
"The shares of stock represented by this certificate are subject to
certain restrictions on transfer contained in an Option Agreement, a
copy of which will be furnished upon request by the issuer."
14. MISCELLANEOUS.
(a) This option will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of this option agreement shall be final and conclusive. The Board of
Directors of the Company shall have the authority to construe this option and
option agreement and to make all determinations in the judgment of the Board of
Directors necessary or desirable for the administration of this option and
option agreement. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in this option agreement in the manner
and to the extent it shall deem expedient to carry the intent of this option
into effect, and it shall be the sole and final judge of such expediency. No
director or person acting pursuant to authority delegated by the Board of
Directors shall be liable for any action or determination made in good faith.
The Board of Directors may, to the full extent permitted by or consistent with
applicable laws or regulations, delegate any or all of its powers hereunder to a
committee (the "Committee") appointed by the Board of Directors, and if the
Committee is so appointed, all references to the Board of Directors in this
option agreement shall mean and relate to such Committee.
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(b) This option constitutes the entire agreement between the
Company and the Optionee and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this option.
(c) Except as provided herein, this option may not be amended
or otherwise modified unless evidenced in writing and signed by the Company and
the Optionee.
(d) All notices under this option shall be mailed or delivered
by hand to the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing by either
of the parties to one another.
(e) This option shall be governed by and construed in
accordance with the laws of Ontario, Canada.
Date of Grant: FLONETWORK INC.
July 1, 1999
By: /s/ Wilson Lee
---------------------------------
Title: Chief Financial Officer
------------------------------
Address: 260 King Street East
----------------------------
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OPTIONEE'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof.
OPTIONEE
/s/ Eric Goodwin
-----------------------------------
Eric Goodwin
ADDRESS: RR 1
---------------------------
Lombardy, Ontario
---------------------------
<PAGE> 1
Exhibit 21.1
Subsidiaries
-----------------
FloNetwork US, Inc., a California corporation, is a wholly-owned subsidiary
of FloNetwork Inc.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of FloNetwork Inc. on
Form F-1 of our report dated January 24, 2000 (except for Note 13 and Note 8
for which the date is yet to be determined) appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ Arthur Andersen LLP
---------------------
ARTHUR ANDERSEN LLP
March 14, 2000
<PAGE> 1
EXHIBIT 23.3
HALE AND DORR LLP
Counsellors At Law
60 State Street, Boston, Massachusetts 02109
TEL 617-526-6000 * FAX 617-526-5000
March 14, 2000
FloNetwork Inc.
260 King Street East
Toronto, Ontario, Canada M5A 1K3
Re: REGISTRATION STATEMENT ON FORM F-1
Ladies and Gentlemen:
We hereby consent to the use of our name in the Registration Statement
on Form F-1 (the "Registration Statement") and in the related Prospectus under
the caption "Legal Matters," and to the filing of this consent with the
Securities and Exchange Commission (the "Commission") as an exhibit to the
Registration Statement. In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
