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US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended January 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-17740
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
(Exact name of Registrant as specified in its charter)
Vancouver, British Columbia, Canada
(Jurisdiction of incorporation or organization)
101, 3750 North Fraser Way, Burnaby, British Columbia, Canada V5J 5E9
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which
None registered
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Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Stock
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
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(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
18,558,857
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days.
[X] Yes [ ] No
Indicate by check mark which financial statement item the Registrant has
elected to follow.
[ ] Item 17 [x] Item 18
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
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The dollar amounts presented in this annual report are in Canadian
currency unless otherwise noted (CAN$1 = US$0.7325 on June 30, 1996), and are
presented in accordance with accounting principles generally accepted in Canada.
Historic rates of exchange appear in Part I, "Item 8. Selected Financial Data."
To the Company's knowledge, there is no material difference between Canadian and
US generally accepted accounting principles ("GAAP") which would bear upon its
financial statements and, more particularly, income applicable to equity share
and retained earnings, except as disclosed in Note 21 of Notes to Consolidated
Financial Statements.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
HISTORY
Advanced Gravis Computer Technology Ltd. ("Gravis" or the "Company") was
incorporated under the laws of the Province of British Columbia on March 22,
1982 as Gravis Computer Peripherals Inc. The Company began trading on the
Vancouver Stock Exchange (the "VSE") on December 3, 1984 after completing its
initial public offering. The Company currently trades on the Toronto Stock
Exchange (the "TSE") under the symbol "AED," and on the National Association of
Securities Dealers OTC Bulletin Board under the symbol "GRVSF."
Production of the Company's first product, the analog joystick, began on
February 1, 1985. On December 10, 1985 the Company effected a two-for-one
reverse stock split in anticipation of a rights offering which did not
materialize. Following the change in capitalization, the Company changed its
name to International Gravis Computer Technology Inc. ("International"). In
March 1986, the switch joystick and the IBM PC expansion game card were
introduced.
On April 10, 1987 International and Abaton Resources Ltd. ("Abaton")
amalgamated (merged) pursuant to the laws of the Province of British Columbia.
Abaton was incorporated pursuant to the laws of the Province of British Columbia
on February 7, 1980. After the consummation of the amalgamation, the Company
changed its name to Advanced Gravis Computer Technology Ltd. The amalgamation
enabled the Company to take advantage of certain financial resources available
to Abaton and added several resource properties to the Company's assets, namely,
the Sol mineral claim located in the Nicola Mining Division of the Province of
British Columbia and, through the Company's wholly owned subsidiary, Abaton
Resources Inc. ("ARI"), an interest in one oil and gas well in Woods County,
Oklahoma. Revenues attributable to ARI represented less than .1% of the
Company's revenues in fiscal 1994 and fiscal 1993. The Company does not
anticipate that ARI will contribute significantly to the Company in the future
and there are no plans to develop further the ARI properties or the Sol mineral
claim. The Company wrote off the residual book value of the resource properties
in January 1992. In fiscal 1994, ARI sold all of its interest in the oil and gas
well and is currently inactive.
Effective October 18, 1989, the Company agreed to acquire all the
outstanding shares of Aristotle Industries Inc. ("Aristotle"), a Vancouver-based
manufacturer and marketer of completely portable compact external hard disk
drives, in exchange for 100,000 shares of the Company's common stock. Aristotle
began business in 1987 and, after two years of development, commenced commercial
production of its external hard disk drives in January 1989. Subsequent to the
acquisition, Aristotle underwent a reorganization where all its assets were
transferred to the Company and held as part of its Hardpac division. On January
31, 1992 all of these assets were sold for $175,000.
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In November 1991, the PC GamePad(TM) was introduced. The PC GamePad is a
combination control pad and joystick for IBM and IBM-compatible personal
computers.
The Company introduced UltraSound(TM) in October 1992. UltraSound is a
16-bit, 32 voice card which delivers digital quality sound for IBM or
IBM-compatible personal computers. In May 1994, the Company began shipping the
UltraSound Max, an advanced UltraSound product featuring 16-bit recording and
built-in CD-ROM interfaces. In January 1995, the Company introduced the low cost
UltraSound ACE wavetable upgrade sound card for owners of earlier FM-based sound
boards.
The new Gravis flight and weapons control system, The Phoenix Flight,
for PC games and simulators was introduced in September 1994. In May 1995, the
Gravis Firebird programmable joystick was introduced. In December 1995, the
Company introduced the GrIP (Gravis Interface Protocol) game system, the
UltraSound Plug & Play and UltraSound Plug & Play Pro sound cards, the
Thunderbird joystick and the Macintosh version of Firebird joystick.
Gravis has three wholly owned subsidiaries: Advanced Gravis Computer
Technology (US), Inc., a Wyoming corporation, which is not yet active; Abaton
Resources Inc., an inactive Washington corporation; and Gravis Europe B.V., a
Dutch subsidiary company.
The principal business address of the Company is 101, 3750 North Fraser
Way, Burnaby, British Columbia V5J 5E9. Its registered office is at 2800 - 666
Burrard Street, Vancouver, British Columbia.
BUSINESS OF THE COMPANY
GENERAL
The Company designs, develops, manufactures and markets high-quality
computer input devices and accessories for most personal computers ("PCs"). The
Company's primary product, an analog input device, commonly referred to as a
"joystick," is produced for use with IBM PC and compatible computers. The
Phoenix and Firebird flight and weapons control systems are programmable
joysticks. Other products include the PC GamePad, a combination control pad and
joystick for IBM, IBM-compatible and Macintosh computers, and the
MouseStick(TM), an industry "standard" joystick for the Macintosh and the GrIP
game system. In addition to its line of joysticks and game system, the Company
manufactures and markets an expansion game card, for use with the IBM PC, which
permits the computers to interface with joysticks. The Company also manufactures
and markets the UltraSound sound card and the ACE wavetable upgrade sound card.
PRODUCTS
The following table sets forth the approximate dollar amount and
percentage of total sales attributable to the Company's primary products for the
last three fiscal years:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Core Joystick 33,759,499 79% 33,371,665 77% $17,793,426 75%
Products
Sound Card Products 8,811,442 21 10,200,614 23 5,882,070 25
----------- --- ---------- --- ----------- ---
42,570,941 100% 43,572,279 100% 23,675,496 100%
</TABLE>
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JOYSTICKS
Analog Joysticks. The Company's analog joystick enables a computer to
define any point on a two-dimensional grid by utilizing two potentiometers
(variable electrical resistors) to control the horizontal and vertical
direction. The Gravis analog joystick has numerous features that distinguish it
from the competition, including a patented eight-position handle-centering
tension control, three independent and individually selectable microswitch fire
buttons, and a full-size foam-padded pistol grip handle with fire button. The
Company believes that its analog joystick is accepted as the state-of-the-art
joystick by most in the industry.
PC GamePad(TM). The PC GamePad is a combination control pad and joystick
for IBM, IBM-compatible and Macintosh personal computers. The Gravis PC
GamePad's "control pad" design is familiar to millions of Nintendo(R) and Sega
players. By affixing its detachable handle the PC GamePad can be converted to a
joystick for desktop use. Its special characteristics are ideally suited to
arcade and nonproportional or directional control style games. This game-playing
device is easy to install, compatible with current PC game cards and software,
and designed for left- or right-handed use.
MouseStick II. The MouseStick II is the standard for Macintosh
joysticks. It is a 5-button, high resolution joystick that is compatible with
all desktop Macintosh models except Mac 512/Plus. It is ideal for flight
simulation as well as arcade games.
Programmable Joysticks. The newest family of joysticks is the
Thunderbird and Firebird flight and weapons control systems. The Thunderbird has
four quick response buttons. The Firebird features 17 programmable buttons and
is available for IBM, IBM-compatible and Macintosh personal computers.
SOUND CARDS
Gravis UltraSound. The Gravis UltraSound(TM) is a 32-voice, 16-bit sound
card for IBM PCs and compatibles. Using wavetable synthesis, UltraSound(TM)
delivers 16-bit, 44.1 kHz true CD quality stereo sound unmatched by all ordinary
and 16-bit FM-based sound cards. The UltraSound Max is an advanced ultrasound
product with built in CD-ROM interfaces. The UltraSound ACE is a wavetable
upgrade sound card for owners of FM-based sound cards. With the introduction of
the Gravis UltraSound Plug & Play and Plug & Play Pro sound cards, the earlier
models of the UltraSound and the MAX have been discontinued. The Company's sound
card product relies on wavetable synthesis technology.
Wavetable technology uses a library of sounds to create audio by
"looking up" a recording or sample of the original sound in the instrument
library and playing it back in real time. FM synthesis technology generates an
approximate sound within the chip itself. Generally, wavetable technology
produces better sound and music quality than FM-generated sounds but wavetable
technology has historically cost more to develop. Wavetable products are better
suited for music oriented games and music applications.
In addition to game playing and multimedia applications, the wavetable
technology utilized by the Company is also usable by the home
music/entertainment market. Gravis UltraSound allows connection to standard MIDI
(musical instrument digital interface) musical instruments. It can also be used
as a quality general MIDI sound module. Other significant applications include
entertainment multimedia such as the new music CD-ROMs, offering interactively
with the artists and their music.
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UltraSound PC. In February 1994, the Company acquired the technology
related to the UltraSound PC sound card from Forte Technologies, Inc. ("Forte
Technologies"). This technology had previously been utilized through a licensing
agreement with Forte Technologies. The Company also signed a ten-year
development and royalty agreement to exclusively license major portions of its
UltraSound PC sound card technology to Advanced Micro Devices, Inc. ("AMD"). The
Company and AMD intend to introduce further advancements and integration of the
UltraSound sound card in the future. The first new chip, Interwave, was
announced by AMD in April 1995, based on the joint development agreement.
Production quantity shipments of this new AMD chip began in the fall of 1995.
Gravis UltraSound Plug & Play and Plug & Play Pro. In December 1995, the
Company launched the Gravis UltraSound Plug & Play and Plug & Play Pro sound
cards, based on the Interwave audio chip from AMD. Designed to take advantage of
the benefits of Windows 95(R), these cards are currently being marketed as "the
best sound cards for the Internet" because of their full-duplex capabilities
that allow simultaneous two-way conversation via Internet telephone software.
This benefit allows users to capitalize on the growing phenomenon of "toll-free"
long distance calling via the Internet. As a result, the new UltraSound Plug &
Play cards are recommended for use with such products as Internet Phone(TM) as
the only widely available full duplex sound cards. Product offerings from the
sound card market leader, Creative Labs, Inc. to date have not supported full
duplex operation. Using this springboard, the Company has bundled an Internet
access kit, web browser, demo version of Internet Phone(TM), and other Internet
software with the product to provide to the consumer a full Internet access
solution in addition to an attractively priced, high-quality wavetable sound
card.
EXPANSION GAME CARDS
The IBM PC and most IBM compatibles generally require accessory or
expansion cards to interface with certain accessories. Common expansion cards
are video and printer cards, which allow the computer to interface with a
computer monitor and printer. The Company's expansion game cards allow computers
to interface with joysticks. Every IBM PC requires a game card or equivalent
multifunction card for this purpose. Fully adjustable dual joystick game cards
called Eliminator(TM) were introduced in the fall of 1989. As most sound cards
today also include a game card, the market for stand-alone game cards is
decreasing rapidly.
GAME SYSTEMS
GrIP. The Gravis GrIP Game System is the Company's newest product,
capitalizing on its GrIP (Gravis Interface Protocol) technology. This system
brings digital arcade speed and control to PC games. The GrIP MultiPort(TM)
four-player digital game control system connects to any PC game port. The
GrIP-Pad(TM) controllers' eight independent buttons mean PC game players can
play arcade games in their original format, not stripped-down versions for the
PC, and the GrIP-Pads are programmable for keyboard commands in Windows 95(R).
These features have been previously unavailable on the PC, so both PC game
developers and gamer players have responded positively to the Company's
development and advertising efforts. A rapidly expanding list of game titles
from developers such as Electronic Arts support the GrIP technology, and Gravis'
retail channel partners are adding the product to their inventories.
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RETAIL PRICE RANGES OF PRODUCTS
The suggested retail prices in US dollars for the Company's products are
as follows:
<TABLE>
<S> <C>
Analog Joysticks $14.95 to $49.95
Programmable Joysticks $69.95 to $99.95
PC GamePad $19.95
MouseStick II $49.95
Expansion Game Cards $24.95
Sound Cards $119.95 to $199.95
GrIP $119.95
</TABLE>
BACKLOG
The Company does not carry a large inventory of finished goods. To
maximize efficiency and minimize inventory carrying costs, production is tied as
closely as possible to actual orders. For this reason, from time to time for
short periods during the Christmas season, the Company has experienced order
backlogs of up to $2.5 million in past years. For the last three fiscal years,
the Company estimates its backlog levels as at January 31 were as follows:
<TABLE>
<S> <C>
Fiscal 1996: $ 1,470,000
Fiscal 1995: $ 616,000
Fiscal 1994: $ 380,000
</TABLE>
MARKETING AND SALES
The Company distributes its products in the United States, Canada and
Europe through direct sales staff, regional distributors and manufacturer
representatives. In North America, the Company's products are sold primarily to
distributors, computer retail chains, computer resellers and value-added
resellers. In some market areas the Company uses manufacturer representatives to
sell its products. The Company has entered into distribution agreements with
eight national distributors and most major computer retail chains, mass
merchants and clubs in the United States. In total these agreements have
increased the number of storefronts carrying Gravis products from 1,500 in 1989
to over 11,000 worldwide today.
Historically, approximately 70% of the Company's total sales have been
to US customers, with the balance to Canadian customers. Effective April 1994,
the Company established a sales and technical support office in Almere, The
Netherlands. The Company also has customers in Australia and the Far East. As a
result, distribution in fiscal 1996 was as follows:
<TABLE>
<S> <C>
United States 55%
Canada 8%
Europe 30%
Pacific Rim/other 7%
</TABLE>
Advertising expenditures decreased by $18,258 to $3,580,551 in fiscal
1996 compared to fiscal 1995. The Company advertises through a combination of
media advertising, press releases, product test reports, in-store
point-of-purchase displays and posters.
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The Company warrants its products against defects in materials and
workmanship from one to three years from the date of acquisition by the
end-user. To date, warranty expense has not been significant.
MANUFACTURING
Final assembly and testing of the Company's joysticks, programmable
joysticks, Eliminator game cards, and sound cards are performed at the Company's
manufacturing facility in Burnaby, British Columbia. Assembly of a portion of
the Company's sound cards is performed by contracted manufacturers in Taiwan.
The Company also purchases finished joystick products and GamePads from a
manufacturer in the People's Republic of China. The major components used in the
Company's joysticks are cables, micro switches, potentiometers, plastic
moldings, industry standard chips, and certain proprietary items manufactured by
subcontractors. In addition to the wavetable sound chips, the Company's sound
cards also use industry standard electronic components, including resistors,
capacitors, printed circuit boards and memory chips. The Company has multiple
sources for many of its materials and components, including a significant
portion from countries in the Far East such as Hong Kong, Taiwan, Malaysia,
Japan and the People's Republic of China. In the case of the Company's input
devices, the Company generally has had only one set of tooling molds and in the
case of its joystick products the majority of such tooling has been relocated to
the People's Republic of China. Delivery of components from this source
commenced in September 1993. The Company maintains additional inventory to
reflect longer lead times for delivery of parts from the People's Republic of
China.
The Company is dependent on sole- or limited-source suppliers for
certain key components used in its products, including certain components
provided by suppliers that compete with or provide products to competitors of
the Company. The Company has only one set of tooling molds for most of its input
devices, and, in the case of the Company's joysticks, many of the molds are
located in the People's Republic of China. Lack of access to its tooling would
materially adversely affect on at least an interim basis the Company's ability
to manufacture and deliver its products. Because of lead times involved, certain
suppliers' inability to provide components has resulted in temporary reductions
in the Company's ability to deliver its products and could do so again in the
future upon receipt of unexpected large customer orders. The Company believes,
however, that it derives reasonable protection against this possibility from its
practice of dealing and maintaining relationships with well established
suppliers, and submitting orders well in advance of delivery dates.
RESEARCH AND DEVELOPMENT
The computer and sound card industry is subject to rapid technological
advances, and the Company's ability to compete and operate successfully depends
upon, among other things, its ability to anticipate and react to such advances.
Faced with this environment, the Company is continually engaged in developing
enhancements to its computer input devices and sound cards in an effort to offer
increased performance and reliability.
As of January 31, 1996, the Company had 23 hardware and software
engineers employed full time in research and development. Research, development
and engineering expenses were $1,528,075 for fiscal 1996, $1,361,072 for fiscal
1995 and $726,731 for fiscal 1994, and are expected to be $1.4 million for
fiscal 1997.
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COMPETITION
The markets for the Company's products are divided into two general
areas - the joystick and game input market, and the sound card market which
deals primarily with audio. Both markets are related to entertainment using PCs
and are discussed generally below.
Input Devices. The joystick market is related to the computer games
market where the demand for joysticks is driven by the success of games that use
joysticks. The Company experiences intense competition from a number of
competitors. The leading competitors of the Company in the PC joystick market
are Suncom Technologies, Bondwell Global Ltd., Microspeed Incorporated, CH
Products, ThrustMaster, Inc., Logitech International ("Logitech") and Microsoft
Corporation within the last 12 months, with products ranging in retail price
from US$15 to $199. Competition is fragmented, however, and no manufacturer
currently dominates the PC joystick market. In the Apple Macintosh market,
however, the Company currently has a significant market share of the high-end
entertainment input device market with both its MouseStick II and GamePad.
Products based on the Company's GrIP technology do not experience direct
feature-for-feature competition, although there are products which can provide
multi-player or multi-button controller support. None of these products, in the
Company's view, affords the functionality or ease of use of the GrIP system.
The Company believes that the type and number of competitors will
increase as the various market segments continue to grow. Typically, price,
product features and quality have been the primary competitive elements in the
sale of computer input devices.
Sound Cards. The sound card market is dominated by Creative Technology,
Ltd. ("Creative Technology") and to a lesser extent by Aztech Systems. There are
other major companies such as Microsoft Corporation and Logitech that have in
the past developed and sold sound card audio products which compete with the
Company's products. Most of the Company's competition has in the past relied on
products based on FM technologyowned by Yamaha Corporation of America. Well over
80% of the installed base of sound cards is based on this older technology. The
Company's sound card product relies on the wavetable synthesis technology.
Virtually all of the Company's competitors are now offering versions of their
sound cards incorporating wavetable technology.
Competition in the wavetable market is increasing. Yamaha Corporation of
America is now shipping sound chips (the OPL 4) that combine FM synthesis and
wavetable synthesis. Such chips offer backward FM compatibility plus the
improved wavetable sound. Additional wavetable competitors today are Creative
Technology, Roland Corporation US, Turtle Beach Systems, and Ensoniq Corp.
Virtually all the Company's major competitors are now selling wavetable based
versions of their sound cards.
In addition, new technologies are evolving that may challenge both the
FM and wavetable based sound cards. Digital Signal Processors (DSP) from
companies such as AT&T, Analog Devices, Texas Instruments and Sierra
Semi-Conductor can be used to produce music and sound synthesis. The DSP chips
can also be used for other functions including use as fax and data modems. The
Company believes that custom sound specific chips will offer better sound and
performance and be more price competitive than general purpose DSP solutions
that are dependent on significant computing power to generate sound.
The principal competitive factors in the markets for the Company's
products include the ability to integrate diverse technologies, the success and
timing of new product developments by the Company and its competitors, brand
name recognition, breadth and compatibility of product offerings, product
performance
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and price, product quality, breadth of distribution and customer support. The
Company believes it competes favorably on most of the foregoing bases; however,
Creative Technology and Aztec Systems, which entered the sound card market prior
to the Company, and many of the Company's other and potential competitors,
including Microsoft and Logitech, have significantly greater resources and brand
name recognition in the sound card market.
The Company also faces substantial indirect competition from a number of
companies, including personal computer, semi-conductor and software companies
that offer multimedia products or multimedia computing alternatives. The Company
faces indirect competition from electronic games systems connected to
televisions and from the proprietary multimedia products incorporated by major
computer manufacturers as integrated components of their products. The Company
expects that existing and new competitors will continue to introduce multimedia
products which are directly or indirectly competitive with those of the Company.
Many of the Company's current and potential competitors have substantially
greater financial, technical, marketing and sales resources than the Company and
there can be no assurance that the Company will be able to compete successfully
in the future.
PROPRIETARY RIGHTS
The Company relies substantially on unpatented proprietary technology.
The Company owns one US patent relating to the basic technology used in the
Company's analog joysticks and MouseStick, another relating to the basic
technology of the Company's switchstick and another patent in Canada and the
United States relating to the optical encoder for the MouseStick. The Company
has filed patent applications in Canada and the United States covering
technology relating to its PC GamePads, its Phoenix joystick, its new GrIP
technology, and its UltraSound technology.
There can be no assurance that others may not acquire or independently
develop similar technology. There can be no assurance that the patents applied
for will be issued. While the Company believes that patent rights have value,
rapidly changing technology in the computer input device industry makes the
Company's future success dependent primarily on continuing innovation, the
skills of its employees and the timely introduction of product enhancements,
rather than on patent protection.
Certain of the technology underlying the Company's UltraSound products
was licensed on an exclusive basis from Forte Technologies, Inc. ("Forte
Technologies"). In February 1994 the Company acquired outright the technology
related to the Ultrasound PC Sound Card from Forte Technologies.
The Company entered into a license agreement on January 1, 1993 with
Focal Point 3D Audio ("Focal Point") to produce and sell a software product
called Focal Point 3D Audio for use with UltraSound. The Company terminated the
agreement effective December 31, 1994. Focal Point commenced suit against Gravis
in relation to this agreement, which was voluntarily discontinued and moved to
binding arbitration. The arbitrator denied all claims of Focal Point except one
for which it was awarded Can$622,349. Focal Point subsequently refiled a US$20
million claim against the Company which was settled for an additional
Can$591,031 (Can$400,000 of which was paid to Focal Point in common stock of the
Company).
The Company has software manufacturing and distribution licenses for
certain application software that it bundles with its analog joystick, GamePad
and GrIP products. These licenses vary in time and quantity commitments, but the
Company has no significant outstanding software license obligations at the
present.
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There can be no assurance that the Company's present and proposed
products do not and will not infringe patents held by others. The Company
received notice in late 1994 of a potential infringement of a U.S. patent by one
of its products. The Company has responded stating that in its view, the alleged
claim is without substance and that the Company's products do not infringe. The
ultimate outcome is undeterminable at this date, but there has been no further
action taken since the Company responded to the initial notice. The Company is
not aware that the manufacture and sale of its products require licenses from
others except for one license which relates to the Company's Analog Joystick
sales in the United States, and for licenses for bundled software referred to
above. It may be necessary or desirable in the future, however, for the Company
to obtain additional licenses relating to one or more of its products. There can
be no assurance that such licenses could be obtained on conditions which would
not have a materially adverse financial effect on the Company.
RISK FACTORS
In addition to the other information in this annual report, the
following risk factors should be considered carefully in evaluating the Company
and its business.
Operating Losses; Accountants Report Substantial Doubt About the
Company's Ability to Continue as a Going Concern. The Company's independent
auditors include an explanatory paragraph in their report dated May 3, 1996,
indicating that certain conditions raise substantial doubt about the Company's
ability to continue as a going concern. The report states that the Company has
suffered significant losses from operations and may require additional debt or
equity financing. At January 31, 1996, there was an accumulated deficit of
$13,868,645 and a working capital deficiency of $1,103,243. The Company's line
of credit which expired on May 15, 1996, has been extended to August 2, 1996.
While the Company's bank has given conditional assurance that the facility may
be extended to November 30, 1996 if additional investment funds of $2,000,000
are secured, there can be no assurance that an extension will be granted. The
Company has undertaken plans with respect to developing sources of capital to
remove the threat to its continuation in business as a going concern. There can
be no assurance that the Company's strategies to develop sources of capital will
be successful. See "Auditors Report" and Note 1 of "Notes to Consolidated
Financial Statements."
Competition. The Company faces significant competition in the market for
personal computer entertainment devices. In particular, the market for the
growing multimedia segment is intensely competitive. The Company faces direct
competition from companies which have significantly greater marketing and
financial resources than the Company and also faces substantial indirect
competition from a number of companies, including personal computer,
semiconductor and software companies that presently offer, or are actively
engaged in, research and development for multimedia products or multimedia
computing alternatives. The Company expects competition in this area to
intensify and there is no assurance that the Company will be able to compete
successfully in the future with current and potential competitors that have
substantially greater financial, technical, marketing and sales resources than
the Company. Also, because of standardized hardware and software technologies it
is possible for new emerging companies to develop and manufacture competitive
products.
Limited Source of Supply. The Company is dependent on sole or limited
source suppliers for certain key components used in its products, including
certain components provided by suppliers that compete with or provide products
to competitors of the Company. The Company has only one set of tooling molds for
most of its input devices and in the case of the Company's joysticks many of the
molds are located in the People's Republic of China. Lack of access to its
tooling would materially adversely affect on at least an interim basis the
Company's ability to manufacture and deliver its products. The
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Company's reliance on these suppliers, as well as industry supply conditions in
general, involve several risks, including the possibility of a shortage of
components, increases in component costs and reduced control over delivery
schedules, which could adversely affect the Company. Some of the Company's
foreign suppliers are subject to risks of changes in government policies, risk
of imposition of tariffs and other factors beyond the Company's control that
could affect the supply and cost of materials and components.
Fluctuations in Quarterly Results. The Company's quarterly operating
results depend upon the volume and timing of orders received during each
quarter. Consistent with the PC consumer software and add-on accessory industry,
demand for the Company's products has been and is expected to be stronger in the
second half of the calendar (fiscal) year and weaker in the first half of the
calendar year due to seasonal customer buying patterns. Sales of the Company's
products depend upon such factors as new product introductions by the Company
and its competitors, the development of computer games, consumer buying patterns
and overall trends in the economy and purchasing patterns of distributors and
retailers. In addition, retailers and distributors generally order on an
as-needed basis and accordingly, back-logs of orders can at times result.
Product is tied as closely as possible to actual orders and for this reason the
Company has in the past experienced order back-logs which have resulted in lost
sales.
Management of Growth. The Company in the past has significantly expanded
its operations prior to the previous fiscal year. Revenues were down slightly as
compared to fiscal 1995. The Company may not without significant investments be
able to regain its growth and expansion, and may experience further declines in
its revenues. The inability to regain growth will have an adverse effect on the
development of the Company and its operating results.
Foreign Currency Fluctuations. The Company transacts business
predominantly in U.S. dollars and most of its revenues are collected in U.S.
dollars. A substantial portion of the Company's costs are denominated in
Canadian dollars. There are currency exchange risks on the conversion of the
Company's US dollar balances and currency translation gains and losses on the
recording of its U.S. dollar sales in Canadian dollars.
EMPLOYEES
As of January 31, 1996, the Company employed 190 persons, of whom 119
were in manufacturing, 23 in research and development, 24 in marketing and sales
and 24 in general and administrative.
On August 1, 1995, the Company signed a collective bargaining agreement
with the Teamsters Local Union 213 which represents the Company's manufacturing
employees. The agreement expires on June 16, 1997. The Company has never
experienced a work stoppage and it believes its employee relations are
excellent.
ITEM 2. PROPERTIES
The executive offices and production facilities of the Company are
located at Suite 101, 3750 North Fraser Way, Burnaby, British Columbia, and
consist of approximately 44,678 square feet. These offices are leased pursuant
to a lease expiring March 31, 1998, at a rental rate of $20,850, plus
maintenance and taxes, per month. Additional space of 9,481 square feet across
from this location was leased in 1995 at $6,720 per month and the lease expires
March 31, 1998. The Company also has a US distribution and service facility in
Bellingham, Washington, consisting of approximately 10,500 square feet
-11-
<PAGE> 12
under a lease expiring on August 14, 1996 at a rental rate of US$3,990 per month
plus maintenance and taxes. The Company is under lease negotiations regarding
its relocation to a larger facility in Bellingham after the current lease
expires. The Company believes the new lease will be at approximately the same
rent as the current lease. The Company maintains an inventory of products in a
bonded warehouse in Antwerp, Belgium for distribution in Europe. The Company's
European sales office is in Almere, The Netherlands. The lease on this 2,500
square foot office expires on May 15, 1997 and is being leased at a rental rate
of 2,625 NLG (approximately US$1,690) per month.
ITEM 3. LEGAL PROCEEDINGS
The Company entered into a license agreement on January 1, 1993 with
Focal Point, which the Company terminated effective December 31, 1994. Focal
Point commenced suit against the Company for copyright and trademark
infringement claiming US$20 million in damages. The claim was voluntarily
discontinued and moved to binding arbitration wherein the arbitor rejected all
but one claim for which Focal Point was awarded Can$622,349. Focal Point
subsequently refiled the US$20 million suit which was settled out of court for
an additional Can$591,031, Can$400,000 of which was paid to Focal Point in cash
with the balance paid in common stock of the Company. The Company received
notice in late 1994 of a potential infringement of a U.S. patent by one of its
products. The Company responded to the claim stating that in its view, the
alleged claim is without substance and that the Company's products do not
infringe. The ultimate outcome is undeterminable at this date, but there has
been no further action taken since the Company responded to the initial notice.
ITEM 4. CONTROL OF REGISTRANT
(a) To the knowledge of the Company, it is not directly or indirectly
owned or controlled by another corporation or any government.
-12-
<PAGE> 13
(b) The following table sets forth as of January 31, 1996 those persons
known to the Company to be owners of more than 10% of the Company's common stock
and the ownership of the Company's common stock by all directors and officers as
a group:
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIALLY PERCENTAGE
IDENTITY OF PERSON OR GROUP OWNED SHARES OF CLASS
- - - --------------------------- ------------ ----------
<S> <C> <C>
Sagit Investment Management Ltd. 3,251,000 16.7%
Suite 900 - 789 W. Pender St.
Vancouver, B.C.
Altamira Management Ltd. 2,105,200 10.8%
Suite 301
250 Bloor Street West
Toronto, Ontario
CDS & Co. 8,247,327 44.4%
P.O. Box 1038
Station A
25 The Esplanade
Toronto, Ontario
Cede & Co. 3,458,408 18.3%
P.O. Box 20
Bowling Green Station
New York, New York 10274
Directors and Officers as a group (9 1,089,031 5.8%
persons)
</TABLE>
CDS & Co. and Cede & Co. are depository trusts beneficially holding
shares on behalf of shareholders of the Company. Other than as set forth above,
the Company has no knowledge that any such shares are beneficially owned by any
person who owns beneficially 10% or more of the outstanding shares of common
stock of the Company.
ITEM 5. NATURE OF TRADING MARKET
The common stock of the Company or its predecessors was listed on the
VSE from December 3, 1984 through February 1996.
Effective July 10, 1989, the Company's shares commenced trading in the
United States on the Nasdaq National Market ("Nasdaq") under the symbol "GRVSF."
Effective June 17, 1992, the Company's shares ceased trading on Nasdaq because
it failed to meet Nasdaq's capital and surplus requirements. The Company's
shares are listed on the Nasdaq OTC Bulletin Board. The Company intends to seek
reinstatement on Nasdaq once it can fully meet the requirements for listing.
On September 18, 1989, the Company's common stock commenced trading on
the TSE. The trading symbol is "AED" on both the VSE and the TSE. The Company
chose to delist its shares on February 15, 1996 from the VSE and maintain the
TSE as its principal Canadian stock exchange.
-13-
<PAGE> 14
TRADING HISTORY
The following table sets forth the high and low reported sale prices, in
Canadian dollars, of the Company's common stock on the TSE for the periods
indicated:
<TABLE>
<CAPTION>
TSE
Fiscal 1996
-----------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
April 30, 1995 $1.70 $1.60
July 31, 1995 1.36 1.25
October 31, 1995 .68 .67
January 31, 1996 .84 .80
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995
-----------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
April 30, 1994 $3.15 $1.75
July 31, 1994 2.50 1.42
October 31, 1994 1.90 1.30
January 31, 1995 1.89 1.10
</TABLE>
The following table sets forth the high and low reported sale prices, in
Canadian dollars, of the Company's common stock on the VSE for the periods
indicated:
<TABLE>
<CAPTION>
Fiscal 1996
-----------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
April 30, 1995 -- --
July 31, 1995 -- --
October 31, 1995 -- --
January 31, 1996 $1.00 $1.00
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1995
-----------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
April 30, 1994 $3.05 $2.50
July 31, 1994 1.51 1.51
October 31, 1994 1.73 1.52
January 31, 1995 1.50 1.50
</TABLE>
The following table sets forth the high and low reported sale prices, in
U.S. dollars, of the Company's common stock on the Nasdaq OTC Bulletin Board for
the periods indicated:
<TABLE>
<CAPTION>
Fiscal 1996
-----------
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
April 30, 1995 $1.48 $1.24
July 31, 1995 .97 .97
October 31, 1995 .86 .86
January 31, 1996 .55 .55
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
Fiscal 1995
-----------
Quarter Ended
-------------
<S> <C> <C>
April 30, 1994 $2.04 $1.89
July 31, 1994 1.72 1.72
October 31, 1994 1.72 1.72
January 31, 1995 1.72 1.72
</TABLE>
A significant number of the Company's securities are held in bearer
form. To the best of the Company's knowledge, as of January 31, 1996, there were
123 shareholders resident in the United States holding approximately 5,133,172
shares, representing 27.6% of the Company's shares then outstanding. In total
the Company has in excess of 700 shareholders.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS
(a) There are no governmental laws, decrees or regulations in Canada
relating to restrictions on the export or import of capital into Canada which
affect the remittances of interest, dividends or other payments to nonresident
holders of shares of the Company's stock. Any such remittances to US residents,
however, are subject to withholding tax under the Income Tax Act (Canada), which
is generally reduced to a rate of 15% pursuant to Articles X and XI of the
Canada-US Income Tax convention. See "Item 7. Taxation."
(b) Except as provided in the Investment Canada Act (the "Investment
Act"), as amended by the Canada-United States Free Trade Agreement
Implementation Act (Canada) (the "FTA Implementation Act"), there are no
limitations under the laws of Canada, the Province of British Columbia or in the
charter of any other constituent documents of the Company with respect to the
right of foreigners to hold and/or vote the shares of the Company's stock.
The Investment Act requires a "non-Canadian" making an investment to
acquire control of a Canadian business, the gross assets of which exceed certain
defined threshold levels, to file an application for review with Investment
Canada, the federal agency created by the Investment Act. Under the provisions
of the Investment Act, an investment by a non-Canadian (other than an American,
as defined in the Investment Act) in a Canadian business is reviewable if it is
(i) a direct acquisition, which is defined as the acquisition of the assets or
voting shares of a Canadian business or control of its Canadian parent in
Canada, or a Canadian business with assets of Can$5,000,000 or more or (ii) an
indirect acquisition, which is defined as the acquisition of control of a
Canadian business with assets of Can$50,000,000 or more, where the assets of the
Canadian business represent 50% or less of the value of the total assets
acquired, through control of its Canadian parent entity outside Canada. Where
the value of the assets of the Canadian business represents 50% or more of the
value of the total assets acquired, the direct acquisition threshold applies. As
a result of the FTA Implementation Act, the threshold for review of acquisitions
by Americans has been increased. The threshold is presently Can$25,000,000 for
direct acquisitions and Can$100,000,000 for indirect acquisitions. Acquisitions
of control of certain types of Canadian businesses are excluded from these
higher thresholds. An acquisition of a Canadian business, the gross assets of
which do not exceed the above-threshold amounts, will not be subject to review
and the non-Canadian will simply be required to notify Investment Canada within
certain prescribed time limits.
The Investment Act also requires the filing of a notice with Investment
Canada by a "non-Canadian" making an investment to establish a Canadian
business. Where the business activity is, in
-15-
<PAGE> 16
Investment Canada's opinion, related to Canada's cultural heritage or national
identity, an order can be issued making the investment renewable.
If Investment Canada is satisfied that the investment is likely to be of
net benefit to Canada (as compared with the test under the prior investment act
that the investment is of "significant benefit" to Canada), then the
non-Canadian may proceed to implement the investment. If Investment Canada is
not satisfied that the investment is likely to be of net benefit to Canada, then
the non-Canadian shall not make the proposed investment or, if the investment
has been implemented, shall divest itself of control of the Canadian business
that is the subject of the investment.
ITEM 7. TAXATION
The following discussion summarizes some of the primary Canadian income
tax considerations to nonresidents of Canada owning common shares of a
corporation resident in Canada. The comments are confined to a consideration of
the Income Tax Act (Canada) (the "Tax Act"), the regulations thereunder and
counsel's understanding of the current administrative practices of Revenue
Canada, Taxation.
Cash dividends paid by a corporation resident in Canada on common shares
held by nonresidents of Canada will generally be subject to Canadian withholding
tax under the Tax Act. This withholding tax is levied at the basic rate of 25%,
but may be reduced by the terms of any applicable tax treaty. For residents of
the United States not having a "permanent establishment" in Canada, the
Canada-US Income Tax Convention reduces the rate of withholding tax to 15%
generally and to 6% for corporations owning at least 25% of the voting stock of
the payor corporation.
Stock dividends paid by Canadian public companies are treated as taxable
dividends and are subject to withholding tax as discussed above. The amount of a
stock dividend paid by a corporation is deemed to be equal to the amount of the
increase in the paid-up capital of the corporation arising by virtue of the
payment of the stock dividend. A shareholder receiving a stock dividend is
deemed to acquire the shares that are the subject of the dividend at a cost
equal to the amount of the dividend.
A nonresident of Canada who holds common shares as capital property will
not be subject to tax in Canada under the Tax Act on capital gains realized on
the disposition of the shares, unless the shares are "taxable Canadian property"
within the meaning of the Tax Act. Generally, the common shares of a public
company would not be taxable Canadian property unless the nonresident used the
shares in carrying on a business in Canada, the nonresident was previously a
resident of Canada and elected to deem the common shares to be taxable Canadian
property on ceasing to be a Canadian resident or, at any time during the five
years before the disposition of the shares, the nonresident owned, together with
other persons with whom he did not deal at arm's length, greater than 25% of the
issued shares of any class of the capital stock of the public company. The
Canada-US Income Tax Convention provides that US residents will be subject to
tax in Canada under the Tax Act on capital gains realized on the disposition of
shares in a Canadian resident public company where such shares comprise taxable
Canadian property as discussed above and more than 50% of the share value is
derived from real property situated in Canada.
ITEM 8. SELECTED FINANCIAL DATA
(a) SUMMARY FINANCIAL INFORMATION
Beginning on page F-1 of this annual report are the Company's audited
consolidated financial statements for the fiscal years ended January 31, 1996,
1995 and 1994. Beginning below is a summary of
-16-
<PAGE> 17
the Company's operating and balance sheet data. The results presented below are
shown in accordance with Canadian GAAP and in accordance with US GAAP. The
differences between Canadian and US GAAP are set forth in Note 21 of Notes to
Financial Statements included herein and principally pertain to the treatment of
product development costs. Under Canadian GAAP, product development costs that
meet the criteria of the Canadian Institute of Chartered Accountants are
deferred to the extent that their recovery can be reasonably regarded as assured
until the product reaches commercial production, at which time they are
amortized on a systematic basis by reference to the sale or use of the product
or until the product is sold or abandoned, at which time the costs are written
off. Under US GAAP, development costs must be expensed as incurred.
-17-
<PAGE> 18
SUMMARY OF OPERATIONS
SUMMARY OF OPERATIONS -- PREPARED IN ACCORDANCE WITH CANADIAN GAAP
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Sales.................... $42,570,941 $43,572,279 $23,675,496 $13,869,571 $5,768,286
Net Earnings (Loss)...... (8,551,043) (956,150) (776,941) 607,570 (574,000)
Earnings (Loss) Per Share (0.46) (0.05) (0.05) 0.06 (0.07)
</TABLE>
SUMMARY BALANCE SHEET -- PREPARED IN ACCORDANCE WITH CANADIAN GAAP
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Working Capital.......... $(1,103,243) $6,107,236 $7,587,908 $1,817,571 $ (96,385)
Total Assets............. 20,796,255 27,493,273 16,237,382 8,726,747 3,060,572
Total Current Liabilities 16,374,291 14,037,195 5,127,515 4,988,462 2,201,901
Long Term Debt........... 275,676 1,182,135 1,026,535 3,076,416 840,000
Shareholders' Equity..... 4,146,288 12,273,943 10,083,332 661,869 18,671
Net Book Value Per Share 0.22 0.66 0.58 0.07 0
</TABLE>
SUMMARY OF OPERATIONS -- PREPARED IN ACCORDANCE WITH US GAAP
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Sales................... $42,570,941 $43,572,279 $23,675,496 $13,869,571 $5,768,286
Net Earnings (Loss)..... (7,272,713) (2,319,158) (2,185,463) 68,403 (830,371)
Earnings (Loss) Per
Share Before (0.39) (0.13) (0.15) 0.01 (0.10)
Extraordinary Items.....
</TABLE>
SUMMARY BALANCE SHEET -- PREPARED IN ACCORDANCE WITH US GAAP
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working Capital.......... $(1,103,243) $ 6,107,236 $ 7,587,908 $ 1,817,571 $ (96,385)
Total Assets............. 19,909,971 25,764,390 14,814,477 7,852,989 2,725,981
Total Current Liabilities 16,374,291 14,037,195 5,127,515 4,988,462 2,201,901
Long Term Debt........... 275,676 1,182,135 1,026,535 3,076,416 840,000
Shareholders' Equity..... 1,779,330 8,628,655 7,801,052 (211,889) (315,920)
Net Book Value Per Share. 0.10 0.47 0.45 0 0
</TABLE>
(b) CANADIAN AND US DOLLAR EXCHANGE RATES
A history of US-Canadian dollar exchange rates for the indicated years
is set forth below. All amounts shown represent noon buying rates for cable
transfers in New York City certified funds for customs purposes by the Federal
Reserve Bank of New York. Such rate for Canadian dollar per US dollar
-18-
<PAGE> 19
on June 30, 1996 in New York City was $0.7325. The source for this data is the
Federal Reserve Bulletin and Digest.
<TABLE>
<CAPTION>
HIGH $CAN LOW $CAN AVERAGE
------------------- ------------------- --------------------
CAN/US US/CAN CAN/US US/CAN CAN/US US/CAN
------ ------ ------ ------ ------ -------
<C> <C> <C> <C> <C> <C> <C>
1991 1.1229 .8906 1.1589 .8628 1.1457 .87283
1992 1.1748 .8512 1.2858 .7777 1.214 .8237
1993 1.2497 .8002 1.3367 .7481 1.2901 .7751
1994 1.3408 .7458 1.4086 .7099 1.3736 .7280
1995 1.3507 .7404 1.4074 .7105 1.3686 .7307
</TABLE>
(C) DIVIDENDS
The Company has not paid any cash dividends since its inception. The
Company does not intend to pay any cash dividends in the foreseeable future, but
intends to retain all earnings, if any, for use in its business operations.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The results presented in this annual report are in accordance with
Canadian GAAP. See Note 21 of Notes to Consolidated Financial Statements for an
explanation of differences between Canadian GAAP and US GAAP.
RESULTS OF OPERATIONS - FISCAL 1996 COMPARED TO FISCAL 1995 AND FISCAL 1994
Total revenues for the year ended January 31, 1996 were $42,570,941
versus revenues of $43,572,279 in fiscal 1995 and $23,675,496 in fiscal 1994, a
decrease of 2.3% from fiscal 1996 to fiscal 1995. The net loss for the year was
$8,551,043, or $.46 per share, versus a net loss of $965,150, or $.05 per share
in fiscal 1995 and a net loss of $776,941 or $.05 cents per share for fiscal
1994. The slight decrease of total revenues is attributed to two product lines:
Sound Card Products and Core Joysticks (specifically, PC Joystick and PC Pro
Joystick). The Company's product, the UltraSound MAX was replaced this year with
the UltraSound Plug & Play and UltraSound Plug & Play Pro. Delays in the
development process of the UltraSound Plug & Play caused it to be released very
late in the year. These delays resulted in delays in deliveries to members of
the press and retailers in time to generate significant sales during the
November and December buying season.
Gross profit margin decreased to 18.7% as compared to 24.7% in fiscal
1995 and 26.5% in the prior year. This decrease was principally due to the
write-off of inventory totaling $1,940,417. The write-down of inventories was
largely a result of the Phoenix joystick and the UltraSound ACE products. Both
of these products moved very slowly this year. A slow market acceptance and
subsequently reduced sales prices has required the Company to write-down
existing inventory.
In addition, the gross margin was negatively affected by a reserve of
$850,313 for future purchase commitments outstanding for the purchase of the PC
Joystick and PC Pro Joystick sub-assemblies. Increased competition in the market
place this year accelerated the life cycles of these two products and reduced
their sales prices.
-19-
<PAGE> 20
Other factors that affected cost of goods sold included freight and duty
increases because of increased sales activity in Europe, and the expediting of
additional product from China. Freight and duty increased by $95,621 compared
with the previous years.
For the year ended January 31, 1996, total advertising expenses were
$3,580,551 or 8% of sales versus $3,598,809 or 8.3% of sales for fiscal 1995 and
$2,086,814 or 8.8% of sales in the prior year. The major portion of the
Company's advertising expenses are cooperative advertising allowances provided
as a percentage of sales to customers.
Marketing and sales expenses that exclude advertising increased to
$2,867,328 or 6% versus $2,840,983 or 6.5% of sales in fiscal 1995 and
$1,292,561 or 5.5% of sales the prior year. The cost in this area continue to
reflect the focus on building a broad base of software developer support for
both the UltraSound products and the core product lines that started in the
previous year.
General and administrative expenses rose because of increased legal
expenses incurred in connection with the Focal Point litigation and settlement,
one-time severance and related costs, costs associated with the addition of
senior management, increased occupancy costs, and foreign exchange losses. There
was a foreign exchange loss for the year of $166,920 compared with a gain of
$216,564 in fiscal 1995 and $102,699 in fiscal 1994. It should be noted that
over 90% of the Company's revenues are denominated in US dollars. Also included
in this expense category were capital taxes payable to the federal and the
provincial governments totaling $60,950.
Research and Development costs expensed for fiscal 1996 were $1,528,075
compared to $1,361,072 in fiscal 1995 and $726,731 in fiscal 1994. The Company
continued to increase investment in research and development capability for both
core products and the UltraSound product line, in line with an increased revenue
base. It is strongly felt that internal capability to develop and maintain
technology provides an important competitive advantage. Staffing levels
increased, particularly in the software engineering category, as more
development work was brought in-house versus externally contracted.
Interest on short-term debt increased to $430,972 from $183,472 in
fiscal 1995 and $77,294 in fiscal 1994 due to utilization of a larger line of
credit used to finance growth in revenues and higher average interest rates
during the year. Interest on long-term debt indecreased to $96,617 from $84,607
in fiscal 1995 as a result of a full year of interest on capital leases that
commenced during the last fiscal year. Interest from long-term debt was $100,320
in fiscal 1994because the Company had $2,340,000 of debt for a portion of fiscal
1994 which was converted to equity.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, the Company's growth has been funded by the combination
of bank borrowings and private placements of convertible long-term debt. During
the fiscal year ended January 31, 1996, the Company generated the majority of
its funding needs from operations through improved working capital management.
During fiscal 1996, the loss for the year resulted in a deficit from
operations of $5,810,777 compared with $647,627 being earned in the previous
year. This was offset by an increase in operating capital of $7,568,260. This
was the result of a significant decrease in the investment in accounts
receivable and inventories amounting to $4,662,080. Additionally accrued
liabilities and provisions increased over the previous year. This change,
combined with a decrease in investing activities, increased cash by $853,184 for
the year.
-20-
<PAGE> 21
Net investment in fixed assets was $881,236 compared to $1,336,257 last
year. The additions were for moulds and tooling for new products and equipment
for research and development.
Development work is done by the Company's in-house development group and
no development costs were deferred during fiscal 1996. This is a continuation of
changes made in the previous year to move development in-house. In fiscal 1995,
additions to deferred development costs were $916,741.
In fiscal 1996, additions to patents and licenses were $35,395,
primarily for applications for patents and trademarks for the Firebird,
Thunderbird and GrIP products.
The net decrease in long-term debt of $415,440 was the result of paying
down loans and scheduled lease payments.
The Company maintains a credit facility with a major banking institution
that it has done business with since it commenced operations. The Company's
payment obligations to the bank are evidenced by a demand note, as is customary
practice. As of January 31, 1996, the total amount, after netting cash balances,
of the Company's obligations under the demand note was $3,002,486 out of a total
credit facility of $4,500,000. Collateral for the demand loan is provided by
fixed and floating charges on all of the Company's assets. The Company obtained
from its bank an additional receivables discounting facility for US$2,000,000
subsequent to January 31, 1995. The Company also has leasing facilities which
amounted to obligations of $738,010 at January 31, 1996. The Company uses the
leasing facilities principally for the funding of capital expenditures of
research and development, manufacturing and information systems.
The current credit facility expired on May 15, 1996 and although the
Company has been in default of its covenant, the bank has extended the line of
credit to August 2, 1996 by which time the total credit facility will be reduced
to $4,150,000. The bank has given conditional assurance that the facility may be
extended to November 30, 1996 in the event that additional investment funds of
$2,000,000 are secured. At July 30, 1996, the Company had not successfully
negotiated a replacement source of funds or additional capital.
The independent auditors' report for the fiscal year ended January 31,
1996 contains an explanatory paragraph to the effect that the related financial
statements had been prepared assuming that the Company would continue as a going
concern but stated that there were matters that raised substantial doubt about
the Company's ability to continue as a going concern. The Company's financial
statements for such year indicated that the Company's continuation as a going
concern was dependent upon the Company's ability to generate sufficient cash
flow to meet its obligations on a timely basis, to renew its bank credit
agreement or obtain alternative financing and, ultimately, to attain
profitability. Although the Company has recently been profitable, there can be
no assurance that the Company will continue to be profitable, will continue to
be in compliance with the covenants in its loan documents or will be able to
generate sufficient cash flow in the future.
There have been significant expenditures during the past and current
fiscal years for manufacturing tooling and equipment, new product development,
and working capital requirements. The Company anticipates that such spending
levels will continue or increase with anticipated revenue growth. Additionally,
the industry in which the Company participates is characterized by rapid
technological change and intense competition, creating a continual and possibly
significant need for capital. Further funding for future growth will be derived
from increased bank borrowings, cash flow from operations, and possibly new
equity or convertible debt financing.
-21-
<PAGE> 22
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
<TABLE>
<CAPTION>
DATE BECAME A
NAME OFFICE HELD DIRECTOR/OFFICER
- - - ---- ----------- ----------------
<S> <C> <C>
John Campbell Chairman and Director July 17, 1992
Vancouver, BC
Grant Russell Chief Technology Officer, April 30, 1987
Delta, BC Vice-Chairman and Director
K. Michael Cooper President & CEO and Director September 12, 1994
N. Vancouver, B.C.
Dennis Scott-Jackson Vice President, Development April 30, 1987
Coquitlam, BC
Edward M. Pasatiempo Vice President Sales and Marketing January 2, 1996
Seattle, Washington
C. Scott Smyth Vice President, Operations November 24, 1995
Surrey, B.C.
</TABLE>
All directors hold office until the next annual meeting of the
shareholders and until their successors have been elected and qualified. The
officers of the Company are elected annually and serve at the discretion of the
Board of Directors of the Company. There are no family relationships among any
of the directors and executive officers of the Company.
ITEM 11. COMPENSATION OF OFFICERS AND DIRECTORS
The Company does not compensate directors for their services. The
aggregate amount of cash compensation paid by the Company to all officers and
directors as a group during fiscal 1996 was $773,421.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to any person who was the Chief Executive Officer during the last completed
fiscal year and to each of the Company's three most highly compensated executive
officers, other than the Chief Executive Officer, who were serving as executive
officers at the end of the last completed fiscal year, other than executive
officers whose total compensation does not exceed $100,000 (collectively the
"Named Executive Officers") for services rendered by such individuals in all
capacities to the Company for the last three completed financial years.
-22-
<PAGE> 23
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION(6)
---------------------------------- ---------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDER OPTIONS COMPENSATION
POSITION YEAR ($) ($) (5) GRANTED (#)(7) ($)(8)
- - - ------------------- ---- -------- ------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
K. Michael 1996 $238,994 $60,000 -- Nil $32,864
Cooper 1995 $79,659 -- -- 200,000 $ 9,615
President & CEO(1) 1994 -- -- Nil
Grant Russell 1996
President & CEO(2) 1995 $129,007 -- -- -0- $ 6,000
1994 $118,049 $23,068 -- 100,000 $ 6,000
David Reid 1996
Vice-President, 1995 $90,426 $64,559 -- -0- $ 6,000
Sales(3) 1994 $81,242 $24,930 -- 50,000 $ 6,000
Steven Cherry 1996 $96,880 -- -- Nil $ 6,900
Vice-President of 1995 $13,888 -- -- 100,000
Marketing(4) 1994 -- -- -- Nil
</TABLE>
(1) K. Michael Cooper served as President and Chief Executive Officer
commencing June 8, 1995, during the last completed financial year. Prior
to that date he had served as Chief Operating Officer and Chief Financial
Officer of the Company from September 15, 1994.
(2) Grant Russell served as President and Chief Executive Officer of the
Company until June 8, 1995, when he accepted a newly created officer
position as Chief Technology Officer of the Company. In connection with
this change, the Company entered into an employment agreement with Mr.
Russell under which the Company has the right to terminate Mr. Russell at
any time. If so terminated, Mr. Russell would continue to receive his base
salary for 24 months as severance. Mr. Russell agreed to occupy the new
position for at least 12 months, after which he could elect to leave the
Company and his position at any time and receive the same base salary as
severance as outlined above.
(3) David Reid was given 12 months' advance notice of his termination on
August 31, 1995. David Reid performed his regular duties until December
31, 1995, at which time he ceased being an active full-time employee. As
result, in addition to the disclosed compensation amounts for Mr. Reid,
the Company is obligated to pay him a total of $53,200 in salary and
$6,000 in other compensation over the seven-month period ending August 31,
1996. Options granted to David Reid expire on June 30, 1996 unless
exercised.
(4) Steve Cherry worked for the Company from January 2, 1995 to May 15, 1995.
Mr. Cherry's compensation expense for the last completed fiscal year
included $48,300 as severance and $6,900 in other compensation.
-23-
<PAGE> 24
(5) Perquisites and other personal benefits that do not exceed the lesser of
$50,000 and 10% of the total of the annual salary and bonus for any of the
Named Executive Officers are not disclosed.
(6) No stock appreciation rights (SARs) or similar rights were granted by the
Company during the last financial year, and there are no outstanding
restricted shares or units. Other than its Stock Option Plan, the Company
does not have a long term incentive plan, pension plan, or other
compensatory plan for its executive officers.
(7) During the last completed financial year options previously granted to
insiders and employees were repriced from $3.32 to $1.18 per share as
approved by members at the Company's last annual general meeting.
(8) Includes all other compensation for the covered financial year that is not
properly reported in any other column of this table.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
DIRECTORS', OFFICERS' AND EMPLOYEES' STOCK OPTION PLAN
The Company has received shareholder approval of its Directors',
Officers' and Employees' Stock Option Plan, as amended (the "Plan"). The Plan is
administered by the Company's Compensation Committee (the "Committee"),
currently comprised of Grant Russell and N. John Campbell, each a director of
the Company. Under the Plan, the Committee may grant to directors, officers and
eligible employees of the Company and of its subsidiaries options to purchase
shares of common stock of the Company on terms that the Committee may determine,
within the limitations of the Plan. The aggregate number of shares of common
stock reserved for issuance under the Plan may not exceed 1,000,000 shares,
subject to adjustment as provided under the terms of the Plan in the event of
certain changes in the capital of the Company or in the event of an amalgamation
or merger by the Company with another body corporate, and options granted to any
one person may not exceed 5% of the issued and outstanding shares of common
stock of the Company. As of June 30, 1996, director and employee incentive
options to purchase a total of 1,413,715 shares of the Company were outstanding.
As of such date, a total of 700,008 options have been reserved for issuance or
granted under the Plan and there were a total of 705,715 shares issuable
pursuant to stock options granted before the Plan was in place.
In addition, the aggregate number of shares reserved for issuance for
insiders under the Plan and any other share compensation arrangement will not
exceed the following limitations ("insiders" and "associates" having the meaning
ascribed to those terms under the stock option policy issued by the TSE, as
revised):
(a) 10% of the issued shares of the Company outstanding from time to
time (on a non-diluted basis) (the "Outstanding Issue");
(b) 10% of the Outstanding Issue within a one-year period, excluding
shares issued pursuant to options granted under the Plan, or otherwise, within
the one-year period preceding a proposed reservation of shares for issuance (the
"One Year Exercised Options"); and
(c) 5% of the Outstanding Issue to any one insider and such insider's
associates within a one-year period, excluding the One Year Exercised Options.
-24-
<PAGE> 25
The exercise price for an option issued under the Plan is determined by
the Committee at the time of the granting and may not be less than the closing
price of the common shares of the Company quoted on the TSE on the trading day
preceding the date on which an option is granted. An option is exercisable:
(i) in the case of an optionee who is a member of the
Board of Directors and has not been an employee or
officer of the Company within one year preceding the
date of grant, within one year after the date the
option is granted,
(ii) in the case of all other optionees, within one year
after the date the option is granted as to 25% of the
option and at the end of each calendar quarter
thereafter for the next 36 months as to 6.25% per
quarter, and
(iii) for a maximum period of 10 years from the date of
granting, subject to earlier termination if the
optionee ceases for any reason to be a director or
employee of the Company or its subsidiaries.
Under the Plan, an optionee, at the sole discretion of the Committee,
may elect to surrender his right to purchase shares of common stock of the
Company pursuant to his or her option, in consideration of payment in cash or
shares of common stock, or a combination thereof ("Stock Appreciation Right" or
"SAR"), equal in value to the difference if any, after deducting the aggregate
option price of his or her shares under option from an average of the daily high
and low board lot trading prices of the Company's shares quoted on the TSE at
the close of business on the five trading days immediately preceding the day of
such surrender. The term of a SAR may not exceed, nor be exercised earlier than,
the original option term. The Committee has sole discretion to consent to or to
disapprove the election of an optionee to receive cash in full or partial
settlement of a SAR. No SARs have been granted to date.
Options on 469,715 shares are exercisable on or before November 19,
2001 at the price of $0.25 per share. Options on 17,700 shares at $1.15 per
share are exercisable at various dates starting March 1993 and expiring on or
before August 17, 2002. Options on 57,500 shares at $1.18 per share expire on or
before March 29, 2003. Options on 394,000 shares at $1.18 per share are
exercisable on or before November 8, 2003. Options on 75,000 shares at $1.18 per
share are exercisable on or before February 26, 2004. Options on 489,500 shares
at $1.18 per share are exercisable on or before November 18, 2004. Options on
121,000 shares at $1.18 are exercisable on or before September 28, 2005. Options
on 364,000 shares are exercisable on or before January 31, 2006 at $.80 per
share.
As of June 30, 1996, outstanding options held by directors and senior
officers of the Company were held individually as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION SHARES UNDER OPTION SHARES UNDER OPTION
OPTIONEE AT $0.25 PER SHARE AT $1.18 PER SHARE AT $.80 PER SHARE
<S> <C> <C> <C>
Grant Russell 175,000 100,000
K. Michael Cooper -- 200,000
Dennis Scott-Jackson 100,000 25,000
N. John Campbell -- 100,000
Carlton H. Baab -- 100,000
</TABLE>
-25-
<PAGE> 26
<TABLE>
<S> <C> <C> <C>
Eddy Pasatiempo -- -- 125,000
Scott Smyth -- 60,000 40,000
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
None.
PART II
ITEM 14.
Not applicable.
PART III
ITEM 15. DEFAULTS ON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
The authorized share capital of the Company was increased from
20,000,000 shares to 50,000,000 shares in fiscal 1994.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See Item 19 below for Financial Statements filed as a part of this
annual report.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
1. Auditors' Report to the Shareholders
2. Consolidated Balance Sheets
3. Consolidated Statements of Earnings and Deficit
4. Consolidated Statements of Changes in Financial Position
5. Notes to Consolidated Financial Statements
6. Financial Statement Schedules
-26-
<PAGE> 27
(B) EXHIBITS
10.1 Advanced Gravis Computer Technology Ltd. Directors',
Officers', and Employees' Stock Option Plan
10.2 Warehouse Lease between Marine Way Estates LTD and
Advanced Gravis Computer Technology Ltd. dated March
1, 1995
-27-
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned.
Dated: July 30, 1996 ADVANCED GRAVIS COMPUTER
TECHNOLOGY LTD.
By /s/ K. Michael Cooper
----------------------------------------
K. Michael Cooper
President and Chief Executive Officer
<PAGE> 29
INDEX TO FINANCIAL STATEMENTS
Page
AUDITORS' REPORT TO THE SHAREHOLDERS............................... F-1
CONSOLIDATED BALANCE SHEETS AS AT JANUARY 31, 1996 AND 1995 ....... F-2
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT FOR
THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994............. F-3
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994......... F-4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED JANUARY 31, 1996, 1995 AND 1994....................... F-5
SCHEDULES TO FINANCIAL STATEMENTS.................................. F-21
<PAGE> 30
AUDITORS' REPORT
TO THE SHAREHOLDERS OF ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
We have audited the consolidated balance sheets of Advanced Gravis Computer
Technology Ltd. as at January 31, 1996 and 1995 and the consolidated statements
of loss and deficit and changes in financial position for the years ended
January 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at January 31, 1996
and 1995 and the results of its operations and the changes in its financial
position for the years ended January 31, 1996, 1995 and 1994 in accordance with
Canadian generally accepted accounting principles. As required by the British
Columbia Company Act, we report that, in our opinion, these principles have been
applied on a consistent basis.
COOPERS & LYBRAND
- - - ---------------------
Vancouver, B.C., Canada
May 03, 1996 (except notes 1, 9, 11 and 20 which are as at June 13, 1996)
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is
substantial doubt about a company's ability to continue as a going concern for a
reasonable period of time, such as that referred to in note 1 to the
consolidated financial statements. Our report dated May 3, 1996, except as to
notes 1, 9, 11 and 20, which are as at June 13, 1996, is expressed in accordance
with Canadian reporting standards which do not permit a reference to such going
concern doubts in the auditors' report when such matter is adequately disclosed
in the consolidated financial statements.
COOPERS & LYBRAND
- - - ---------------------
Vancouver B.C.
May 03, 1996 (except notes 1, 9, 11 and 20 which are as at June 13, 1996)
- - - --------------------------------------------------------------------------------
F-1
<PAGE> 31
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
CONSOLIDATED BALANCE SHEETS
AS AT JANUARY 31, 1996 AND 1995
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 247,514 $ 385,411
Accounts receivable (note 4) 7,781,478 9,205,464
Inventories (note 5) 7,184,261 10,422,355
Prepaid expenses 57,795 131,201
-------------------------------
15,271,048 20,144,431
FIXED ASSETS (note 6) 2,215,037 2,807,173
INTELLECTUAL PROPERTY (note 7) 2,423,886 2,771,195
DEFERRED DEVELOPMENT COSTS (note 8) 886,284 1,770,474
-------------------------------
$ 20,796,255 $27,493,273
===============================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 9) $ 3,250,000 $ 4,241,081
Accounts payable and accrued liabilities (note 10) 10,575,833 9,235,879
Current portion of long-term debt (note 11) 1,055,638 560,235
Provisions for restructuring (note 18) 679,440
Provision for settlement of litigation (note 20) 813,380
-------------------------------
16,374,291 14,037,195
LONG-TERM DEBT (note 11) 275,676 1,182,135
-------------------------------
16,649,967 15,219,330
-------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (note 12)
Authorized -
50,000,000 common shares without par value
(1995 - 50,000,000)
Issued -
18,558,857 (1995 - 18,465,307) 17,614,933 17,591,545
Commitment to issue shares (note 20) 400,000
-------------------------------
18,014,933 17,591,545
DEFICIT (13,868,645) (5,317,602)
-------------------------------
4,146,288 12,273,943
-------------------------------
$ 20,796,255 $27,493,273
===============================
</TABLE>
APPROVED BY THE DIRECTORS
NATURE OF OPERATIONS (note 1)
CERTAIN SIGNIFICANT ESTIMATES AND RISKS (note 3)
COMMITMENTS (note 16)
CONTINGENCIES (note 20)
/s/ ?????????
- - - -------------------------
Director
/s/ ???????????
- - - -------------------------
Director
The accompanying notes are an integral part of these consolidated financial
statements.
- - - --------------------------------------------------------------------------------
F-2
<PAGE> 32
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
--------------------------------------------------
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
SALES $ 42,570,941 $43,572,279 $23,675,496
COST OF SALES 34,599,377 32,811,869 17,397,788
--------------------------------------------------
GROSS PROFIT 7,971,564 10,760,410 6,277,708
--------------------------------------------------
EXPENSES
Selling 6,447,879 6,439,792 3,379,375
General and administrative 3,519,978 2,043,840 1,814,237
Research and development 1,528,075 1,361,072 726,731
Depreciation 1,051,439 531,876 305,547
Amortization of intellectual property 382,704 405,097 26,757
Amortization of deferred development costs 884,190 663,540 594,681
Interest 430,972 183,472 77,294
Interest on long-term debt 96,617 84,607 100,320
Loss on sale of fixed and other assets 333 3,264 29,707
Restructuring costs (note 18) 967,040
Settlement of litigation (note 20) 1,213,380
--------------------------------------------------
16,522,607 11,716,560 7,054,649
--------------------------------------------------
LOSS FOR THE YEAR (8,551,043) (956,150) (776,941)
DEFICIT - BEGINNING OF YEAR (5,317,602) (4,361,452) (3,584,511)
--------------------------------------------------
DEFICIT - END OF YEAR $(13,868,645) $(5,317,602) $(4,361,452)
==================================================
LOSS PER SHARE (NOTE 15) $ (0.46) $ (0.05) $ (0.05)
==================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- - - --------------------------------------------------------------------------------
F-3
<PAGE> 33
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
----------------------------------------------
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Loss for the year $ (8,551,043) $ (956,150) $ (776,941)
Items not affecting cash -
Depreciation 1,051,439 531,876 305,547
Amortization of intellectual property 382,704 405,097 26,757
Amortization of deferred development costs 884,190 663,540 594,681
Restructuring costs 421,600
Loss on sale of fixed assets and other assets 333 3,264 29,707
----------------------------------------------
(5,810,777) 647,627 179,751
Operating working capital changes (note 19) 7,568,260 (2,011,794) (4,844,491)
----------------------------------------------
1,757,483 (1,364,167) (4,664,740)
----------------------------------------------
FINANCING ACTIVITIES
Long-term debt (411,056) 415,440 549,821
Issue of common shares 23,388 3,146,761 10,198,404
Commitment to issue shares 400,000
Conversion of long-term debt to common shares (2,340,000)
Decrease in amounts due to shareholder (555,225)
Deferred finance fees 60,871
----------------------------------------------
12,332 3,562,201 7,913,871
----------------------------------------------
INVESTING ACTIVITIES
Proceeds on disposal of fixed assets
and other assets 2,049 3,151 19,501
Purchase of fixed assets (883,285) (1,339,408) (1,540,505)
Intellectual property (35,395) (3,132,662) (10,588)
Deferred development costs (961,741) (1,087,216)
----------------------------------------------
(916,631) (5,430,660) (2,618,808)
----------------------------------------------
INCREASE (DECREASE) IN CASH 853,184 (3,232,626) 630,323
NET BANK INDEBTEDNESS -
Cash 385,411 476,956 59,249
Operating line of credit (4,241,081) (1,100,000) (1,312,616)
----------------------------------------------
BEGINNING OF YEAR (3,855,670) (623,044) (1,253,367)
----------------------------------------------
NET BANK INDEBTEDNESS -
Cash 247,514 385,411 476,956
Operating line of credit (3,250,000) (4,241,081) (1,100,000)
----------------------------------------------
END OF YEAR $ (3,002,486) $ (3,855,670) $ (623,044)
==============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- - - --------------------------------------------------------------------------------
F-4
<PAGE> 34
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
1. NATURE OF OPERATIONS AND GOING CONCERN
(a) NATURE OF OPERATIONS
Advanced Gravis Computer Technology Ltd. (the Company) is
engaged in manufacturing and distributing computer
peripherals, input devices and sound cards. The principal
markets for the Company's products are North America and
Europe.
(b) GOING CONCERN
These consolidated financial statements have been prepared on
a going concern basis.
The Company has experienced significant recurring operating
losses. At January 31, 1996, there was an accumulated deficit
of $13,868,645 and a working capital deficiency of $1,103,243.
Certain risks and uncertainties affecting the Company's
operations are set out in notes 3 and 20.
The Company has an operating line of credit with a major bank,
repayable on demand, of $4,500,000 which expired on May 15,
1996 (see note 9). Although the Company has been in default of
its covenant, the bank has extended the line of credit to
August 2, 1996 by which time the total credit facility will be
reduced to $4,150,000. The bank has given conditional
assurance that the facility may be extended to November 30,
1996 in the event that additional investment funds of
$2,000,000 are secured. At June 13, 1996, the Company has not
successfully negotiated a replacement source of funds or
additional capital.
The Company also has a term loan with the Government of Canada
- Western Economic Diversification Program (see note 11). At
January 31, 1996, the Company was in arrears of repayments and
in default of the terms, rendering the full outstanding
balance of $678,464 repayable on demand. In April 1996, the
Company successfully re-negotiated the terms but since that
date has fallen into arrears as to repayment and is now in
default. Accordingly, this amount is now repayable on demand.
These consolidated financial statements do not reflect
adjustments in the carrying values of the assets and
liabilities, the reported revenues and expenses and the
balance sheet classifications used, that would be necessary if
the going concern assumption were not valid. Management is
rigorously seeking the required financing. Accordingly,
management is of the opinion that the going concern assumption
is valid. However, there can be no assurance that financing
will be available and that the Company will be able to realize
its assets and discharge its liabilities in the normal course
of operations in the event that adequate financing is not
found.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in
accordance with accounting principles and practices generally
accepted in Canada, which, as explained in note 21, are
different in certain respects from those in the United States.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, Advanced Gravis
Computer Technology (U.S.) Inc., a Wyoming corporation, which
is not yet active; Abaton Resources Inc., an inactive
Washington state corporation and a Dutch subsidiary company,
Gravis Europe B.V.
- - - --------------------------------------------------------------------------------
F-5
<PAGE> 35
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) RESEARCH, DEVELOPMENT AND ENGINEERING COSTS
Research, development, and engineering costs, including
computer software costs relating to software products, are
expensed in the year incurred except where, in the opinion of
management, the deferral criteria established by the Canadian
Institute of Chartered Accountants are satisfied in all
material respects. In this case, the expenditures are
capitalized as deferred development costs and amortized over
the estimated period of production to a maximum of five years
from the date the related product sales commence. All costs
included in deferred development costs are external. Costs
relating to abandoned projects are written off in the year of
abandonment.
(d) INVENTORIES
Inventories are recorded as follows:
Raw materials - at lower of cost (first-in,
first-out) and replacement cost
Work in progress - at lower of cost (first-in,
first-out) and net realizable value
Finished goods - at lower of cost (first-in,
first-out) and net realizable value
(e) FIXED ASSETS
The Company records its fixed assets, including assets under
capital lease, at cost and depreciation is calculated on a
straight-line basis over five years.
(f) INTELLECTUAL PROPERTY
The Company defers costs relating to the filing of patents and
the acquisition of licenses, trademarks and technology. These
costs are amortized against income on a straight-line basis
over five to ten years. Costs relating to abandoned patent
applications are written off in the year of abandonment.
(g) FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities in foreign currencies are
translated into Canadian dollars at the year-end rates of
exchange. Non-monetary assets are translated at the historical
rate of exchange in effect at the date of the transaction.
Revenues and expenses are translated at average exchange rates
or at the rate of exchange in effect at the date of the
transaction, if identifiable. All exchange gains or losses are
recognized in earnings or loss.
- - - --------------------------------------------------------------------------------
F-6
<PAGE> 36
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
3. CERTAIN SIGNIFICANT ESTIMATES AND RISKS
(a) USE OF ESTIMATES
The preparation of financial statements in conforming with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from
those reported.
(b) CERTAIN SIGNIFICANT ESTIMATES
The Company has made certain significant estimates which are
set out below. It is reasonably possible that the estimates
will change in the near term due to future confirming events
and that the effect of such change could be material to the
consolidated financial statements.
i) The Company manufactures peripheral equipment for the
retail computer industry and as such its products are
subject to rapid technological obsolesence. The
Company has made provisions against currently known
slow-moving and obsolete inventory (see note 5).
ii) The Company defers the cost of acquiring its sound
card technology and amortizes this cost over an
estimated period of 100 months against anticipated
revenues from the sale of that product. This
technology is included in Intellectual Property at
January 31, 1996 at a net book value of $2,372,568.
iii) The Company has plans to restructure its
manufacturing and assembly operations and has made
provisions for costs relating to that restructuring
(see note 18).
(c) CERTAIN CONCENTRATION OF RISKS
i) A significant part of the cost of goods represents
purchases from one supplier in China, which
manufactures sub-assemblies and finished products.
While the Company owns the tooling used by the
supplier and there are other sources of supply, a
change in supplier could materially disrupt the
ongoing operations of the Company.
ii) The Company's only activity is the manufacture and
sale of peripherals to the computer industry. While
the Company has many years of experience and brand
recognition in its products, the industry is highly
competitive and subject to rapid technological
progress and obsolesence. Consequently, the Company
must continually anticipate and adapt its products to
emerging software platforms and evolving consumer
preferences. The introduction of new platforms and
technologies can render existing products obsolete
and unmarketable.
- - - --------------------------------------------------------------------------------
F-7
<PAGE> 37
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
4. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Trade accounts receivable $ 7,876,785 $ 9,482,278
Less: Allowances (95,307) (276,814)
---------------------------
$ 7,781,478 $ 9,205,464
===========================
</TABLE>
5. INVENTORIES
<TABLE>
<CAPTION>
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Raw materials $ 2,870,017 $ 6,450,894
Work in progress 624,159 462,636
Finished goods 3,690,085 3,508,825
--------------------------
$ 7,184,261 $10,422,355
==========================
</TABLE>
The Company has provided for $1,940,417 (1995 - $736,474) against
slow-moving and obsolete inventory as a charge to Cost of Sales during
the year.
In addition, included in Accrued Liabilities, is a further provision of
$850,313 (1995 - $nil) which has been made against purchase commitments
of products that have been either superseded or discontinued.
6. FIXED ASSETS
<TABLE>
<CAPTION>
--------------------------------------
1996
--------------------------------------
Cost Accumulated Net Book
Depreciation Value
<S> <C> <C> <C>
Computer equipment and software $1,008,122 $ 522,992 $ 485,130
Office furniture and equipment 1,521,456 828,278 693,178
Manufacturing equipment 2,538,603 1,595,607 942,996
Trade show equipment 215,729 121,996 93,733
--------------------------------------
$5,283,910 $3,068,873 $2,215,037
======================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
1995
--------------------------------------
Cost Accumulated Net Book
Depreciation Value
<S> <C> <C> <C>
Computer equipment and software $ 879,106 $ 379,349 $ 499,757
Office furniture and equipment 1,402,120 367,301 1,034,819
Manufacturing equipment 1,908,772 757,809 1,150,963
Trade show equipment 210,626 88,992 121,634
--------------------------------------
$4,400,624 $1,593,451 $2,807,173
======================================
</TABLE>
Included in office furniture and equipment are assets under capital
lease of $869,880 (1995 -$846,769) with accumulated depreciation of
$394,621 (1995 - $157,242).
- - - --------------------------------------------------------------------------------
F-8
<PAGE> 38
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
7. INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
--------------------------------------
1996
--------------------------------------
Cost Accumulated Net Book
Amortization Value
<S> <C> <C> <C>
Licenses and technology $3,120,414 $ 747,846 $2,372,568
Patents 74,919 45,139 29,780
Trademarks 41,092 19,554 21,538
--------------------------------------
$3,236,425 $ 812,539 $2,423,886
======================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
1995
--------------------------------------
Cost Accumulated Net Book
Amortization Value
<S> <C> <C> <C>
Licenses and technology $3,120,414 $ 373,782 $2,746,632
Patents 48,976 41,758 7,218
Trademarks 31,640 14,295 17,345
--------------------------------------
$3,201,030 $ 429,835 $2,771,195
======================================
</TABLE>
8. DEFERRED DEVELOPMENT COSTS
<TABLE>
<CAPTION>
--------------------------------------
1996
--------------------------------------
Cost Accumulated Net Book
Amortization Value
<S> <C> <C> <C>
Product development $3,135,293 $2,295,290 $ 840,003
Computer software costs 109,744 63,463 46,281
--------------------------------------
$3,245,037 $2,358,753 $ 886,284
======================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
1995
--------------------------------------
Cost Accumulated Net Book
Amortization Value
<S> <C> <C> <C>
Product development $3,135,293 $1,423,672 $1,711,621
Computer software costs 109,744 50,891 58,853
--------------------------------------
$3,245,037 $1,474,563 $1,770,474
======================================
</TABLE>
- - - --------------------------------------------------------------------------------
F-9
<PAGE> 39
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
9. BANK INDEBTEDNESS
<TABLE>
<CAPTION>
---------------------------
1996 1995
---------------------------
<S> <C> <C>
Operating line of credit $3,250,000 $4,241,081
===========================
</TABLE>
As at January 31, 1996, out of a total facility of $4,500,000 Cdn. or
equivalent (1995 - $4,500,000), the Company had drawn down $3,250,000
(1995 - $4,241,081). An assignment of accounts receivable and
inventories, and a registered floating charge debenture for $2,500,000,
being a first charge on all assets of the Company, have been pledged as
collateral for the operating line. Interest on the operating line is
calculated at prime rate plus 2% for Canadian-dollar-denominated
balances and at the U.S. base rate of the bank plus 2% for
U.S.-dollar-denominated balances. The line provides for restrictions on
the ratio of maximum specified debt to tangible net worth. The Company
did not maintain these restrictions as at January 31, 1996. The bank is
aware of this default and has not taken any action other than that
which is disclosed in note 1.
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Trade accounts payable $ 6,786,431 $ 7,608,126
Accrued liabilities 3,789,402 1,627,753
--------------------------
$10,575,833 $ 9,235,879
==========================
</TABLE>
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
---------------------------
1996 1995
---------------------------
<S> <C> <C>
Government of Canada $ 678,464 $ 875,000
Obligation under capital leases (note 16) 652,850 867,370
---------------------------
1,331,314 1,742,370
Less: Current portion (1,055,638) (560,235)
---------------------------
$ 275,676 $ 1,182,135
===========================
</TABLE>
The amount due to the Government of Canada is unsecured, interest-free,
and repayable in 16 equal quarterly installments commencing August 01,
1994. The Company was in default during the year ended January 31, 1996
as a result of repayments falling into arrears. The Company has since
successfully negotiated a revised repayment schedule of 11 unequal
repayments totaling $625,000 commencing August 1, 1996 and terminating
on February 1, 1999 and one payment due May 1, 1996 of $53,464. All
other terms remain the same. The Company has since fallen into arrears
and is in default of the revised terms. In accordance with generally
accepted accounting principles, the full amount has been reclassified
as current.
The Company may not issue dividends without the prior written consent
of the Minister of Western Economic Diversification until all repayment
installments have been made.
- - - --------------------------------------------------------------------------------
F-10
<PAGE> 40
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995, 1994
(Expressed in Canadian dollars)
12. SHARE CAPITAL
<TABLE>
<CAPTION>
Number of
shares Amount
-----------------------------
<S> <C> <C>
(a) AUTHORIZED -
50,000,000 common shares
without par value (see note 12(h))
Issued -
Balance - January 31, 1993 9,467,470 $ 4,246,380
Issued during the year -
For conversion of debt:
- at $0.56 per share (note 12(f)) 1,500,000 840,000
- at $1.10 per share (note 12(f)) 1,363,637 1,500,000
For share purchase and special
warrants exercised:
- at $0.70 per share (note 12(f)) 1,500,000 1,050,000
- at $1.10 per share (note 12(f)) 1,363,637 1,500,000
Less: Share issue costs (93,235)
- at $2.90 per share (note 12(g)) 2,000,000 5,800,000
Less: Share issue costs (617,530)
- at $2.90 per share 100,000 190,000
Director and employee stock
options exercised for cash:
- at $0.25 per share 83,095 20,774
- at $1.15 per share 7,300 8,395
-----------------------------
Balance - January 31, 1994 17,385,139 14,444,784
Issued during the year -
Director and employee stock
options exercised for cash:
- at $0.25 per share 50,480 12,620
- at $1.15 per share 29,688 34,141
For acquisition of the UltraSound
PC sound card technology (note 12(b)) 1,000,000 3,100,000
-----------------------------
Balance - January 31, 1995 18,465,307 17,591,545
Issued during the year -
Director and employee stock
options exercised for cash:
- at $0.25 per share 93,550 23,388
-----------------------------
Balance - January 31, 1996 18,558,857 $17,614,933
=============================
</TABLE>
- - - --------------------------------------------------------------------------------
F-11
<PAGE> 41
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995, 1994
(Expressed in Canadian dollars)
12. SHARE CAPITAL (continued)
(b) SHARE ISSUE
On February 7, 1994, the Company issued 1,000,000 shares
valued at $3,100,000 for the acquisition of the technology
related to the UltraSound PC sound card from Forte
Technologies, Inc. (Forte). The technology was previously
utilized through a licensing agreement with Forte. At January
31, 1995, 300,000 of the shares were held in escrow in
accordance with the purchase agreement. The escrow
restrictions provided that the shares could not be traded in,
or dealt with, in any manner whatsoever. During 1995, these
shares were released from escrow.
The Company also signed a ten-year development and royalty
agreement to exclusively license major portions of its
UltraSound PC sound card technology to Advanced Micro Devices,
Inc.
(c) DIRECTOR AND EMPLOYEE STOCK OPTIONS
The following were outstanding at the respective year ends:
<TABLE>
<CAPTION>
Number of options
-------------------------------------
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Exercisable at $0.25 on or before
November 19, 2001 465,715 558,675 558,675
Exercisable at $1.15 on or before
August 17, 2002 19,700 19,700 94,700
Exercisable at $1.18 on or before
March 29, 2003 57,500 93,000 98,000
Exercisable at $1.18 on or before
November 08, 2003 394,000 419,000 419,000
Exercisable at $1.18 on or before
February 26, 2004 75,000 75,000
Exercisable at $1.18 on or before
November 18, 2004 489,500 537,500
Exercisable at $1.18 on or before
September 28, 2005 114,000
Exercisable at $0.80 on or before
January 31, 2006 364,000
-------------------------------------
1,979,415 1,702,875 1,170,375
=====================================
</TABLE>
- - - --------------------------------------------------------------------------------
F-12
<PAGE> 42
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995, 1994
(Expressed in Canadian dollars)
12. SHARE CAPITAL (continued)
(d) SHARE PURCHASE WARRANTS
<TABLE>
<CAPTION>
Number of warrants
------------------------------
1996 1995 1994
------------------------------
<S> <C> <C> <C>
Exercisable at $2.20 on or before
December 26, 1994 68,182
Exercisable at $2.90 on or after
October 13, 1993 and on or
before October 12, 1995 (note 12(g)) 100,000 100,000
------------------------------
Nil 100,000 168,182
==============================
</TABLE>
(e) SHARES HELD IN ESCROW
At January 31, 1994, 515,624 shares (1993 - 687,499 shares)
were held in escrow subject to the direction or determination
of the Vancouver Stock Exchange (VSE). The escrow restrictions
provide that the shares may not be traded in, dealt with in
any manner whatsoever, or released, nor may the Company, its
transfer agent, or escrow holder make any transfer or record
any tradings of the shares without prior consent of the VSE
while the shares of the Company are listed on the VSE. During
the year ended January 31, 1995, all of these escrow shares
were released (see also note 12(b)).
(f) During the year ended January 31, 1994, debentures of $840,000
and $1,500,000 were converted into 2,863,637 common shares at
a conversion price of $0.56 per common share and $1.10 per
common share, respectively.
Attached to the $840,000 debenture and the $1,500,000
debenture were 1,500,000 and 1,363,637 special warrants which
were exercised at a price of $0.70 per share and $1.10 per
share respectively, for the issuance of 2,863,637 common
shares.
(g) During the year ended January 31, 1994, 2,000,000 common
shares were issued on the exercise of 2,000,000 previously
issued special warrants. The special warrants were sold for
total proceeds of $5,800,000. In addition, warrants were
issued to the agent for the offering for the purchase of up to
100,000 common shares of the Company. During the year ended
January 31, 1996 these warrants expired unexercised.
(h) On August 16, 1993, the authorized capital of the Company was
increased from 20,000,000 common shares without par value
to50,000,000 common shares without par value.
- - - --------------------------------------------------------------------------------
F-13
<PAGE> 43
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995, 1994
(Expressed in Canadian dollars)
13. EXPORT SALES
The Company operates primarily in the computer accessory products
industry. The Company's net sales by major geographical location were:
<TABLE>
<CAPTION>
----------------------------------------------
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
United States $23,678,328 $24,202,730 $12,761,943
Europe 12,656,552 11,726,939 7,368,787
Other 2,930,458 3,514,372 705,672
Canada 3,305,603 4,128,238 2,839,094
----------------------------------------------
$42,570,941 $43,572,279 $23,675,496
==============================================
</TABLE>
All of the Company's assets, except for certain finished goods
inventories (U.S. and Europe) and manufacturing tooling (China), are
situated in Canada.
14. FUTURE INCOME TAXES
The Company estimates that it has future tax benefits, which have not
been recognized in the accounts, as follows:
(a) The Company has estimated the total amount of losses for
income tax purposes for the years ended January 31, 1995 and
1996 to be $3,000,000. The Company has not yet filed its
fiscal 1995 and 1996 returns.
At January 31, 1994, accumulated losses for income tax
purposes were $40,227. These losses may be carried forward and
used to reduce taxable income in future years and expire in
1999.
(b) The Company has filed claims under the federal Scientific
Research and Experimental Development (SR&ED) program under
the Income Tax Act in the amount of $3,513,485 for taxation
years to January 31, 1994. Claims for fiscal 1995 and 1996 are
estimated to be $2,200,000 but have not yet been filed with
Revenue Canada.
The claims have the effect of reducing the amount of loss
carryforwards otherwise available. The amount of the claims is
added to a pool of SR&ED expenditures which, barring a change
in control, can be carried forward indefinitely and applied to
reduce taxable income in future years.
The amount of loss carryforwards shown in (a) above are net of
the SR&ED claim.
(c) The Company has Canadian Exploration Expenses of approximately
$200,000 for taxation years to January 31, 1993. These amounts
are available to reduce future taxable income.
(d) The Company has filed claims for federal investment tax
credits in the amount of $871,461 for taxation years to
January 31, 1994. These claims are available to reduce federal
taxes payable over a ten year period.
- - - --------------------------------------------------------------------------------
F-14
<PAGE> 44
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
15. LOSS PER SHARE
Loss per share is calculated using the weighted average number of
shares outstanding during the year of 18,490,334 (1995 - 18,373,318;
1994 - 14,661,765). The assumed exercise of all options and warrants
would not be dilutive and has not been disclosed.
16. COMMITMENTS
(a) At January 31, 1996, the Company is committed to lease
payments as follows:
<TABLE>
<CAPTION>
Capital Operating
lease payments lease payments
--------------------------------
<S> <C> <C>
1997 $ 420,528 $ 535,908
1998 235,218 475,833
1999 67,495 78,148
2000 6,769
----------------------------
Total minimum lease payments 738,010 $1,089,889
==========
Less: Amount representing interest at
rates varying between 9% and 21% (85,160)
---------
652,850
Less: Current portion (377,174)
---------
Obligations under capital lease $ 275,676
=========
</TABLE>
Rent expense for the years ended January 31, 1996, 1995, and
1994 was $321,246, $324,361, and $185,912, respectively.
(b) At January 31, 1996, the Company has committed to unfulfilled
purchase orders amounting to $4,603,770 from its principal
supplier in China. Some of the products included in these
orders are expected to be either superseded or discontinued
and have been fully provided for (see note 5).
17. RELATED PARTY TRANSACTIONS
During the year ended January 31, 1996:
(a) an amount of $nil (1995 - $108,456; 1994 - $880,043) in
commissions was paid to Logitech International S.A. (Logitech)
on sales made on behalf of the Company.
(b) interest paid by the Company to Logitech on the note payable
and long-term debt totaled $nil (1995 - $ nil; 1994 -
$72,521).
(c) the Company also made sales of $nil (1995 - $nil; 1994 -
$1,187,025) to Logitech. These sales were made in the United
States under substantially the same terms and conditions as
sales to non-related parties. At January 31, 1996, a balance
of $nil (1995 - $nil; 1994 - $573,217) was included with
accounts receivable and a balance of $nil (1995 - $nil; 1994
-$260,187) was included with accounts payable.
Logitech owned 10.4% of the Company until the year ended January 31,
1995, during which it reduced its share holding to nil.
- - - --------------------------------------------------------------------------------
F-15
<PAGE> 45
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
18. RESTRUCTURING COSTS
In fiscal 1996, the Company approved a plan to migrate gradually
manufacturing activities during fiscal 1997. The Company has provided
an amount of $967,040 for transition costs which comprise certain fixed
costs, fixed asset write downs and other rationalization costs.
19. ANALYSIS OF CHANGES IN OPERATING WORKING CAPITAL
<TABLE>
<CAPTION>
------------------------------------------
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Accounts receivable $ 1,423,986 $(2,083,618) $(3,227,782)
Inventories 3,238,094 (5,014,095) (2,574,416)
Prepaid expenses 73,406 54,116 (107,192)
Accounts payable and accrued liabilities 1,339,954 5,031,803 1,064,899
Provisions 1,492,820
------------------------------------------
$ 7,568,260 $(2,011,794) $(4,844,491)
==========================================
</TABLE>
20. CONTINGENCIES
(a) During fiscal 1995, the Company received a US$20 million claim
for copyright and trademark infringement from Focal Point 3D
Audio. The claim was voluntarily discontinued and moved to
binding arbitration during fiscal 1996, when the arbitrator
declined all the claims of Focal Point 3D Audio except for one
for which it was awarded US$419,000. Focal Point 3D Audio
subsequently refiled the US$20 million claim against Gravis
and management was successful in obtaining an out-of-court
settlement for which the Company has fully provided as
follows:
<TABLE>
<S> <C>
Cash payments $ 622,349
1,000,000 common shares at $0.40 per share 400,000
Other costs 191,031
----------
$1,213,380
==========
</TABLE>
(b) In 1994, the Company received notice of claim that one of its
products infringed on a recent U.S. patent. In the Company's
view, the alleged claim is without substance and the ultimate
outcome is not determinable. There has been no activity in
connection with this claim since 1994 and management believes
the matter will not be pursued.
- - - --------------------------------------------------------------------------------
F-16
<PAGE> 46
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
21. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THOSE IN THE UNITED STATES
(a) The material differences between accounting principles in
Canada and the United States pertain to the Company's
treatment of the following items:
DEVELOPMENT COSTS
Development costs that meet the criteria established by the
Canadian Institute of Chartered Accountants are deferred to
the extent that their recovery can reasonably be regarded as
assured, until the processes to which they relate reach
commercial production, at which time they are amortized over
the estimated period of production, or until the project is
sold or abandoned, at which time the costs are written off.
Under U.S. accounting principles, development costs, except
those relating to the cost of development of computer software
to be marketed and sold, must be expensed as incurred.
STATEMENTS OF CASH FLOWS
The U.S. statement of cash flows differs from the Canadian
statement of changes in financial position in that the U.S.
statement requires separate disclosure of non-cash
transactions and disclosure of interest and taxes actually
paid.
INCOME TAXES
The Financial Accounting Standards Board Statement No. 109
(FAS 109), which requires a change from the deferred method to
the liability method of accounting for income taxes, has no
impact on these consolidated financial statements as any
deferred tax charge recognized would be offset by a valuation
allowance.
ESCROWED SHARES
On the transfer of the original joystick technology to the
Company, certain shares were issued at a nominal price and
held in escrow. In 1995, 515,624 shares were released from
escrow. Under U.S. generally accepted accounting principles,
the difference between the issue price and the fair market
value at the date of release from escrow must be treated as
compensation expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS
U.S. GAAP requires the disclosure of the fair value of
financial instruments as presented below. Such fair value
estimates are made on the balance sheet dates based on
relevant market information and the nature of terms of the
financial instruments.
The following method and assumption were used to estimate the
fair value of each class of financial instruments:
The historical cost carrying amount of receivables and
payables subject to normal trade credit terms
approximates fair value. Cash and other deposits are
recorded at their face value plus accrued interest.
Fair value approximates the amounts reflected in the
consolidated financial statements for the following
balances: cash, accounts receivable and accounts
payable.
STOCK COMPENSATION
The United States Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," which became
effective for fiscal years beginning after December 15, 1995.
The Company has not determined the effect of this statement on
the current or prior years' consolidated financial statements.
- - - --------------------------------------------------------------------------------
F-17
<PAGE> 47
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
21. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THOSE IN THE UNITED STATES (continued)
(b) Loss and deficit as determined under U.S. generally accepted
accounting principles are as follows:
<TABLE>
<CAPTION>
----------------------------------------------
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Deficit - beginning of year
as determined under U.S.
accounting principles $ (8,962,890) $ (6,643,732) $ (4,458,269)
----------------------------------------------
Loss for the year
determined under Canadian
accounting principles (8,551,043) (956,150) (776,941)
Compensation expense due to
release of shares from escrow Nil (1,057,030) (859,375)
Adjustment due to write-
off of development costs Nil (955,250) (1,047,932)
Amortization of deferred
development costs 892,830 649,272 498,785
Restructuring provision 385,500
----------------------------------------------
Loss for the year
as determined under U.S.
accounting principles (7,272,713) (2,319,158) (2,185,463)
----------------------------------------------
Deficit - end of year as
determined under U.S.
accounting principles $(16,235,603) $ (8,962,890) $ (6,643,732)
==============================================
Primary loss per share (note 15) $ (0.39) $ (0.13) $ (0.15)
==============================================
Fully diluted earnings
per share (note 15) $N/A $N/A $N/A
==============================================
</TABLE>
- - - --------------------------------------------------------------------------------
F-18
<PAGE> 48
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
21. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THOSE IN THE UNITED STATES (continued)
(c) Material effects of the different generally accepted
accounting principles on the Company's balance sheets are as
follows:
<TABLE>
<CAPTION>
----------------------------------------------
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
DEFERRED DEVELOPMENT COSTS
As determined under
Canadian accounting
principles, net of
accumulated amortization of
$2,358,752 (1995 - $1,474,562;
1994 - $821,271) $ 886,284 $ 1,770,474 $ 1,493,172
Deduct: Costs written off
under U.S. GAAP (886,284) (1,728,883) (1,422,905)
----------------------------------------------
As determined under U.S.
accounting principles $Nil $ 41,591 $ 70,267
==============================================
Total Assets
As determined under
Canadian accounting
principles $ 20,796,255 $ 27,493,273 $ 16,237,382
Deduct: Deferred
development costs
written off (886,284) (1,728,883) (1,422,905)
----------------------------------------------
As determined under U.S.
accounting principles $ 19,909,971 $ 25,764,390 $ 14,814,477
==============================================
Deficit
As determined under
Canadian accounting
principles $(13,868,645) $ (5,317,602) $ (4,361,452)
==============================================
As determined under U.S.
accounting principles (see (b)) $(16,235,603) $ (8,962,890) $ (6,643,732)
==============================================
</TABLE>
- - - --------------------------------------------------------------------------------
F-19
<PAGE> 49
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
(Expressed in Canadian dollars)
21. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THOSE IN THE UNITED STATES (continued)
(d) Material effects of the different generally accepted
accounting principles on the Company's statements of changes
in financial position are as follows:
<TABLE>
<CAPTION>
-------------------------------------------
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
As determined under Canadian
accounting principles $ 1,757,483 $(1,364,167) $(4,664,740)
Shares issued for settlement of litigation 400,000
-------------------------------------------
As determined under U.S.
accounting principles $ 2,157,483 $(1,364,167) $(4,664,740)
===========================================
FINANCING ACTIVITIES
As determined under Canadian
accounting principles 12,332 3,562,201 7,913,871
Shares issued for licence (3,100,000)
Shares issued for settlement of litigation (400,000)
(Decrease) increase in
bank indebtedness (853,184) 3,232,626 (630,323)
-------------------------------------------
As determined under U.S.
accounting principles $(1,240,852) $ 3,694,827 $ 7,283,548
===========================================
INVESTING ACTIVITIES
As determined under Canadian
accounting principles (916,631) (5,430,660) (2,618,808)
Acquisition of licence
in exchange for shares 3,100,000
As determined under U.S.
accounting principles (916,631) (2,330,660) (2,618,808)
-------------------------------------------
Change in cash $Nil $Nil $Nil
===========================================
Taxes paid $ 108,616 $ 11,976 $Nil
===========================================
Interest paid $ 527,589 $ 268,079 $ 177,614
===========================================
</TABLE>
- - - --------------------------------------------------------------------------------
F-20
<PAGE> 50
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
SCHEDULE IX
SHORT-TERM BORROWINGS
AS AT JANUARY 31, 1996, 1995, 1994
<TABLE>
<CAPTION>
MONTHLY
WEIGHTED MAXIMUM AVERAGE WEIGHTED
AVERAGE AMOUNT AMOUNT AVERAGE
INTEREST RATE OUTSTANDING OUTSTANDING INTEREST
BALANCE AT AT END OF DURING DURING RATE DURING
NATURE OF BORROWING END OF PERIOD PERIOD PERIOD PERIOD PERIOD
------------------- ------------- ------------- ----------- ----------- -----------
1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BANK INDEBTEDNESS $3,250,000 8.83% $4,807,500 $3,943,875 9.87%
DUE TO SHAREHOLDERS 0 N/A 0 0 N/A
DUE TO SHAREHOLDERS 0 N/A 0 0 N/A
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BANK INDEBTEDNESS $4,241,081 10.59% $4,241,081 $1,911,938 8.75%
DUE TO SHAREHOLDERS 0 N/A 0 0 N/A
DUE TO SHAREHOLDERS 0 N/A 0 0 N/A
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BANK INDEBTEDNESS $ 623,044 7.69% $1,473,062 $ 662,442 7.87%
DUE TO SHAREHOLDERS 0 N/A 18,336 16,808 0.00%
DUE TO SHAREHOLDERS 0 N/A 575,520 137,018 10.00%
</TABLE>
NOTES TO SCHEDULE
1. The amounts due to shareholders bear interest at either 0%, 10% or prime
plus 5% per annum, payable on demand.
2. The terms of the bank indebtedness are disclosed in note 9 to the
financial statements.
3. The average amounts outstanding were determined using the average of the
month end balances.
4. The weighted average rate during the period was determined using
month-end rates on the assumption that the indebtedness was similar
throughout the period.
F-21
<PAGE> 51
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
SCHEDULE X
SUPPLEMENTAL INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Maintenance and Repair Costs $ 23,565 $ 10,912 $ 27,988
Amortization of Deferred Costs 884,190 1,037,491 621,438
Taxes 23,470 88,001 70,887
Royalties 30,274 388,705 500,327
Advertising Costs 3,580,551 3,598,809 2,086,814
F-22
</TABLE>
<PAGE> 52
EXHIBIT INDEX
EXHIBIT NUMBER
EXHIBIT
10.1 Advanced Gravis Computer Technology Ltd. Directors',
Officers', and Employees' Stock Option Plan
10.2 Warehouse Lease between Marine Way Estates LTD and Advanced
Gravis Computer Technology Ltd. dated March 1, 1995
<PAGE> 1
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
DIRECTORS', OFFICERS', AND EMPLOYEES' STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
Advanced Gravis Computer Technology Ltd. (the "Corporation") by
resolution of the Board of Directors of the Corporation (the "Board") has
established this Directors', Officers', and Employees' Stock Option Plan (the
"Plan") to encourage directors, officers and employees of the Corporation and
its subsidiaries ("Subsidiaries") to promote the financial interest, growth and
development of the Corporation by providing them with the opportunity through
options to acquire a proprietary interest in the Corporation.
2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed from time to time by the Board or, if no Committee has
been appointed by the Board, the Plan shall be administered by the Board (in
such case the Board shall hereinafter also be referred to as the "Committee").
The Committee shall include not less than three members of the Board, two of
whom are not officers or employees of the Corporation and who have not been
officers or employees of the Corporation within one year of their beginning
service on the Committee.
3. GRANT OF OPTIONS
From time to time the Committee may designate qualified directors,
officers and employees (including part-time employees and others who are engaged
to provide management or consulting services on an on-going basis, or who have
provided, or who are expected to provide services of value) of the Corporation
and its Subsidiaries ("Optionees") eligible to receive options ("Options") to
purchase common shares (the "Shares") of the Corporation. Nothing in the Plan or
in any Option shall confer any right on any employee to continue in the employ
of the Corporation or of its Subsidiaries or shall interfere in any way with the
right of the Corporation or of its Subsidiaries to terminate at any time the
employment of a person who is an Optionee under an Option.
The aggregate number of Shares subject to such Options, as provided in
clause 4 hereof, shall be granted by the Corporation subject to the approval of
the shareholders of the Corporation (or ratification by the shareholders
provided that no
<PAGE> 2
Shares are issued prior to such ratification), in accordance with the prevailing
rules and policies of the regulatory authorities having jurisdiction over the
affairs of the Corporation, (the "Regulatory Authorities") and to the approval
of the Committee from time to time.
4. SHARES SUBJECT TO OPTION
The Shares to be subject to Options under the Plan shall be authorized
but unissued common shares in the capital of the Corporation.
Options may be granted for an aggregate of up to 1,000,000 Shares,
subject to adjustment of such number pursuant to the provisions of clause 10
hereof. Such number of Shares shall be reserved for issuance under the Plan. The
aggregate number of Shares reserved for issuance under this Plan and any other
share compensation arrangement to any one person will not exceed 5%, and the
aggregate number of shares reserved for issuance to all insiders of the
Corporation will not exceed 10%, of the issued shares of the Corporation
outstanding from time to time (on a non-diluted basis) as determined in
accordance with applicable policies of The Toronto Stock Exchange (the
"Outstanding Issue"). The number of shares issued under this Plan and any other
share compensation arrangement within any one year period to any one insider and
such insider's associates will not exceed 5%, and the number of shares issued
under this Plan and any other share compensation arrangement within any one year
period to insiders will not exceed 10%, of the Outstanding Issue.
"Insiders" and "associates" have the meaning ascribed to those terms
under Section 627 of The Toronto Stock Exchange Company Manual.
Shares in respect of which Options expire or are surrendered, cancelled
or terminated are available for subsequent grants of Options. Options which are
surrendered for cancellation in connection with the re-grant to the same
optionee on different terms will be subject to prior regulatory approval.
5. OPTION PRICE
The Option price under the Plan to any Optionee shall be fixed by the
Committee when the Option is granted but may not be less than the closing price
of the Shares on the Toronto Stock Exchange on the trading day preceding the
date of the grant of the Option. In the event that there is no trade of the
Shares on the Toronto Stock Exchange on such trading day, then the Option price
of the Option shall not be less than the average of the closing bid and ask
prices of the Shares on such day.
-2-
<PAGE> 3
6. TERM AND VESTING OF OPTION
The period during which an Option is exercisable will commence one year
from the date the Option is granted in the case of an Optionee that on the date
of the grant of the Option is a member of the Board and is not an officer or
employee of the Corporation and has not been an officer or employee of the
Corporation within one year preceding the date of the grant. In the case of all
other Optionees, the period during which Options are exercisable will commence
one year from the date of grant (as to 25% of the Option) and, at the end of
each calendar quarter thereafter for the next 36 months (as to 6.25% per
quarter). Subject to the provisions of the Plan, the period during which an
Option can be exercised shall not exceed ten (10) years from the date the Option
is granted.
Notwithstanding the foregoing, in the event of a "formal bid" (as that
term is defined in the Securities Act (British Columbia)) for the issued and
outstanding common shares of the Corporation by any corporation, person or other
entity, then the Option shall vest immediately as to 100% upon the making of
such bid. Each Optionee holding an option at the time of such bid may exercise
his option, to the extent the option has not expired and has not been exercised,
cancelled, terminated or surrendered, so as to permit the Optionee to tender the
Shares received upon such exercise pursuant to such bid.
7. EVIDENCE OF OPTIONS
Each Option granted under the Plan shall be embodied in a written
option agreement (the "Option Agreement") between the Corporation and the
Optionee which shall give effect to and be consistent with the provisions of the
Plan.
8. EXERCISE OF OPTION
Subject to the provisions of the Plan and the Option Agreement applying
to such Option, an Option may be exercised from time to time, after vesting and
before expiry, by the Optionee delivering to the Corporation at its head office
a written notice of exercise, specifying the number of Shares (being a minimum
multiple of 100 shares or such lesser number as is equal to the number of
Options held by the Optionee or in respect of which exercise rights have been
vested pursuant to clause 6 hereof) with respect to which the Option is being
exercised, and accompanied by payment in cash, money order, certified cheque or
wire transfer of funds in full for the purchase price of the Shares then being
purchased.
The exercise of any Option will be contingent upon receipt by the
Corporation of payment in cash, money order, certified cheque or wire transfer
of funds of the full
-3-
<PAGE> 4
purchase price of the Shares which are subject to the exercised Option. No
Optionee or his or her legal representatives, legatees or distributees will be,
or will be deemed to be, a holder of any Shares with respect to which he or she
has been granted an Option under the Plan, unless and until certificates for
such Shares are issued to him or her, or them, under the terms of the Plan.
9. SHARE APPRECIATION RIGHTS
Notwithstanding the foregoing and at the sole discretion of the
Committee, an Optionee may under the Plan, by notice in writing to the
Corporation, surrender his right to purchase Shares pursuant to the outstanding
portion of an Option granted to him. In the event of such surrender, the
Optionee is entitled to receive on such terms and conditions as may be
prescribed by the Option Agreement relating to such Option, payment in cash or
Shares, or a combination thereof, equal in value to the difference, if any,
after deducting (a) the aggregate Option exercise price of such shares from (b)
the market price of such Shares determined by calculating the average of the
daily high and low board lot trading prices quoted on The Toronto Stock Exchange
for the Shares at the close of business on the five trading days immediately
preceding the day on which the Optionee submits the notice of surrender.
In no event shall stock appreciation rights be exercised at any time
earlier or later or to a greater extent than the Option to which they relate.
Stock appreciation rights under this clause 9 may be exercised only by
written notice to the head office of the Corporation, in a form satisfactory to
it. The Committee shall have sole discretion to consent to or to disapprove the
election of the Optionee to receive cash in full or partial settlement of the
stock appreciation rights.
If any Option is surrendered in part under this clause 9, it shall
remain in effect without change as to the number of Shares with respect to which
it has not been surrendered. Any surrender shall not affect the right of an
Optionee to be granted further Options.
The Committee may require as a condition of the surrender of an Option
for Shares, cash, or cash and Shares, that the person seeking to surrender the
Option shall, in any jurisdiction where the Corporation is required to withhold
any taxes with respect to such surrender, pay to the Corporation in cash an
amount sufficient to satisfy the Corporation's obligation.
-4-
<PAGE> 5
10. ADJUSTMENTS
Appropriate adjustments in the number of Shares that are subject to
Options and in the Option Price Per Share, both as to Options granted or to be
granted, may be made by the Board in its discretion, subject to the approval if
required of the Regulatory Authorities, to give effect to adjustments in the
number of Shares which result from divisions, consolidations or
reclassifications of the Shares; the reconstruction, reorganization or
recapitalization of the Corporation; or other relevant changes in the capital of
the Corporation. If the Corporation sells all or substantially all of its assets
as an entirety or substantially as an entirety, Options outstanding under the
Plan, to the extent that as of the date of such sale they have not expired and
have not been exercised, cancelled, terminated or surrendered, shall fully vest
and may be exercised in whole or in part at any time up to and including (but
not after) a date 30 days following the date of completion of such sale or prior
to the close of business on the date the Option expires, whichever is earlier.
11. MERGERS
If the Corporation proposes to amalgamate or merge with another body
corporate, the Corporation will give written notice thereof to Optionees at
least 30 days prior to the effective date of such amalgamation or merger to
enable them to exercise outstanding Options if they so elect, to the extent that
as of the date of such amalgamation or merger they have vested and have not
expired, and have not been exercised, cancelled, terminated or surrendered. The
Corporation shall use it best efforts to provide for the reservation and
issuance by the amalgamated corporation to each Optionee of the Corporation any
portion of whose Options remain outstanding and unexercised as of the effective
date of the amalgamation or merger, of a pro rata number of shares of the
amalgamated corporation (on the basis of the number of Shares as to which
Options remain outstanding and unexercised) at the same aggregate purchase price
adjusted according to the increase or decrease in the number of Shares resulting
from such amalgamation or merger.
12. AMENDMENT OR DISCONTINUANCE OF THE PLAN
Subject to any prior approval that may be required by the Regulatory
Authorities or by the shareholders of the Corporation, the Committee may amend
or discontinue the Plan at any time. If the approval or ratification by the
shareholders of the Corporation is required then no Shares will be issued
pursuant to such amendment prior to obtaining such approval or ratification. No
such amendment may alter or impair any Option previously granted to an Optionee
under the Plan without the consent of the Optionee.
-5-
<PAGE> 6
13. TERMINATION
If an Optionee ceases to be employed by or an officer of, or provide
services to, the Corporation or any of its Subsidiaries for cause, any option or
the unexercised portion thereof granted to such Optionee shall terminate
forthwith. If an Optionee ceases to be engaged to provide services to, employed
by or an officer of the Corporation or any of its Subsidiaries for any reason
(other than cause and other than as a result of death, retirement or
circumstances equating to retirement as determined by the Committee) or, in the
case of employees, shall receive notice from the Corporation or any of its
Subsidiaries of the termination of his or her employment (in each such case, the
"Termination") such Optionee may, but only within thirty (30) days next
succeeding such Termination, exercise his or her Option to the extent that he or
she was entitled to exercise such Option under clause 6 at the date of such
Termination, including the rights under clause 9. In the case of officers that
have been terminated other than for cause and other than as a result of death,
retirement, or circumstances equating to retirement as determined by the
Committee, and in the case of a director that ceases to act as director, such
Optionee may, but only within six months next succeeding such termination or
cessation, exercise his or her Option to the extent that he or she was entitled
to exercise such Option under clause 6 at the date of such termination or
cessation, including the rights under clause 9. To the extent that an option has
not fully vested as at the date of a Termination, or any such termination or
cessation in the case of an officer or director, no further vesting shall occur
after such date.
14. DEATH
Notwithstanding any other provision of the Plan, if any Optionee shall
die holding an Option which has vested and has not expired and which has not
been exercised, cancelled, terminated or surrendered, his or her executors,
administrators or legal personal representatives may, within one year after the
date of such death (but in no event later than the normal expiry date of such
Option if sooner under the provisions of clause 6 above), exercise the Option,
to the extent that the Optionee was entitled to exercise such Option under
clause 6 at the date of death, including the rights under clause 9. To the
extent that an option has not fully vested as at the date of death of the
Optionee, no further vesting shall occur after such date.
15. RETIREMENT
Notwithstanding any other provision of this Plan, if an Optionee shall
retire, or terminate his or her employment or office with the consent of the
Committee or the Board under circumstances equating to retirement, while holding
an Option which has vested and has not expired and which has not been fully
exercised, cancelled,
-6-
<PAGE> 7
terminated or surrendered, such Optionee may exercise the Option to the extent
that the Optionee was entitled to exercise such Option under clause 6 at the
date of retirement, or termination including the rights under clause 9, within
three years after the date of such retirement or termination (but in no event
later than the normal expiry date of such Option under the provisions of clause
6). The determination as to whether an Optionee has retired, or shall have
terminated his or her employment or office under circumstances equating to
retirement, shall be solely within the discretion of the Board or the Committee.
16. TRANSFERABILITY OF OPTIONS
An Option (including the rights granted under clause 9) may not be
transferred. An Option (including the rights granted under clause 9) may be
exercised only by the Optionee or his or her legal personal representative.
17. CANCELLATION AND REGRANT OF OPTIONS
The Committee may, subject to the prior approval of the Regulatory
Authorities and subject to any shareholder approval or ratification that may be
required, with the consent of the Optionee, cancel an existing Option and
regrant the Option at an Option price determined in the same manner as provided
in clause 5.
18. INTERPRETATION
The Plan shall be construed according to the laws of the Province of
British Columbia. The Plan shall also comply with the general requirements of
The Toronto Stock Exchange. In the event of any differences arising between the
provisions of the Plan and the requirements of The Toronto Stock Exchange, the
requirements of The Toronto Stock Exchange shall apply.
19. LIABILITY
No member of the Committee or any director or officer or employee of
the Corporation or any Subsidiaries shall be personally liable for any act taken
or omitted in good faith in connection with this Plan.
-7-
<PAGE> 1
3738 NORTH FRASER WAY
BRITISH COLUMBIA
WAREHOUSE LEASE
LANDLORD: MARINE WAY ESTATES LTD.
TENANT: ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
DATE:
Page 1 of 41
<PAGE> 2
I N D E X
<TABLE>
<CAPTION>
ARTICLE PAGE
- - - ------- ----
<S> <C> <C>
1 BASIC TERMS AND DEFINITION
1.01 Basic Terms 5
1.02 Definitions 6
(a) Additional Rent 6
(b) Annual Basic Rent 6
(c) Building 6
(d) Commencement Date 6
(e) Expiry Date 6
(f) Fiscal Year 6
(g) Floor Area 6
(h) Gross Leaseable Area 6
(i) Land 6
(j) Landlord 7
(k) Landlord's Mortgagees 7
(l) Lease 7
(m) Lease Year 7
(n) Mortgages 7
(o) Operating Costs 7
(p) Premises 7
(q) Project 7
(r) Proportionate Share 7
(s) Relative Portion 7
(t) Rent 7
(u) Roof 8
(v) Taxes 8
(w) Tenant's Taxes 8
(x) Term 8
2 DEMISE AND TERM
2.01 Demise 8
2.02 Acceptance 8
3 RENT
3.01 Annual Basic Rent and Additional Rent 8
3.02 No Set-Off 9
3.03 Post-Dated Cheques or Pre-Authorized Withdrawal 9
3.04 Adjustment 9
3.05 Deposit 9
4 TENANT'S COVENANTS
4.01 Rent 9
4.02 Operating Costs and Taxes 9
4.03 Tenant's Taxes 10
4.04 Utilities 10
4.05 Insurance 10
</TABLE>
Page 2 of 41
<PAGE> 3
<TABLE>
<S> <C> <C>
4.06 Repair 11
4.07 Repair on Notice 12
4.08 Business and Trade Fixtures 12
4.09 Alterations and Additions 12
4.10 Use of Premises 13
4.11 Signs 13
4.12 Rubbish 14
4.13 Pollution 14
4.14 Abate Nuisance 14
4.15 Obstruction of Roads 14
4.16 Stacking Material 14
4.17 No Auctions 14
4.18 Will Not Terminate Agreements 14
4.19 Assignment and Subletting 15
4.20 Liens 16
4.21 Registered Charges 16
4.22 Entry for Benefit of Adjoining Premises 16
4.23 Exhibit Premises 16
4.24 Registration of Lease 17
4.25 Compliance with Laws 17
4.26 Provide Financial Information 17
4.27 Subordination 17
4.28 Attornment 18
4.29 Estoppel Certificate 18
4.30 Indemnify Landlord 18
4.31 Name of Project 18
5 LANDLORD'S COVENANTS
5.01 Quiet Enjoyment 19
5.02 Landlord's Insurance 19
5.03 Common Areas 19
5.04 Repair 19
5.05 Maintenance of Common Areas 20
5.06 Payment of Taxes 20
6 MUTUAL COVENANTS, AGREEMENTS AND PROVISOS
6.01 No Warranties 20
6.02 No Waiver 20
6.03 Notices 20
6.04 Damage and Destruction 21
6.05 Payments by Landlord Regarded as Rent 21
6.06 Re-entry on Default 22
6.07 Sale and Reletting 23
6.08 Termination 23
6.09 Distress 23
6.10 Landlord's Expenses Enforcing Lease 23
6.11 Remedies Cumulative 23
6.12 Damage or Injury 23
6.13 Holding Over 24
6.14 Inability to Perform 24
</TABLE>
Page 3 of 41
<PAGE> 4
<TABLE>
<S> <C> <C>
6.15 Interest and Late Payment Charge 24
6.16 Rules and Regulations 24
6.17 Expropriation 24
6.18 Accrual of Annual Basic Rent 25
6.19 Metric Equivalent 25
6.20 Net Lease 25
6.21 Governing Law 25
6.22 Number and Gender 25
6.23 Covenants 25
6.24 Time of the Essence 25
6.25 Headings 25
6.26 Enurement 25
6.27 Joint and Several Liability 25
6.28 Continuation of Obligations 25
6.29 Landlord's Limit of Liability 25
6.30 Consents 26
6.31 Amendments 26
7 ADDITIONAL PROVISIONS 26
EXECUTION 27
SCHEDULES:
Schedule "A" - Description of Lands 28
Schedule "B" - Plan of the Premises 29
Schedule "C" - Option to Renew 30
Schedule "D" - Landlord's Work 31
Schedule "E" - Tenant's Work 32
Schedule "F" - Rules and Regulations 39
Schedule "G" - Right of First Refusal 41
</TABLE>
Page 4 of 41
<PAGE> 5
THIS INDENTURE dated the day of , 1995,
BETWEEN:
MARINE WAY ESTATES LTD., a body corporate with offices
located at Suite 500, 1681 Chestnut Street, Vancouver, B.C.
V6J 4M6
(the "Landlord")
OF THE FIRST PART
AND:
ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD., a body corporate
with offices located at Suite 101 - 3750 North Fraser Way,
Burnaby, B.C. V5J 5G1
(the "Tenant")
OF THE SECOND PART
ARTICLE 1 - BASIC TERMS AND DEFINITIONS
1.01 Basic Terms. The basic terms of this Lease are:
(a) (i) Landlord: Marine Way Estates Ltd.
(ii) Address of Landlord 500 - 1681 Chestnut Street
Vancouver, B.C., V6J 4M6
(b) (i) Tenant (legal name): Advanced Gravis Computer
Technology Ltd.
(ii) Address of Tenant: #101 - 3738 North Fraser Way,
Burnaby, B.C. V5J 5G1
Tel: (604) 431-5020 (Bus.)
(iii) Individuals to contact: Timothy Zier, Grant Russell
(c) (i) Indemnifier(s): N/A
(ii) Address of Indemnifier(s): N/A
Tel: (Bus.) (Home)
(d) Premises: Units 101 and 102
3738 North Fraser Way
Burnaby, B.C. V5J 5G1
(e) Floor Area of Premises 9,481 sq. ft.
(f) Term: Thirty-seven (37) months
(g) Commencement Date: March 1, 1995
Page 5 of 41
<PAGE> 6
(h) Expiry Date: March 31, 1998
(i) Annual Basic Rent:
<TABLE>
<CAPTION>
Lease Year Per Sq. Ft. Per Annum Per Annum Per Month
---------- --------------------- --------- ---------
<S> <C> <C> <C>
37 months $8.50 $80,588.50 $6,715.71
</TABLE>
(j) Permitted Use: For the purpose of warehousing and
assembly of computer products and
office space related to same.
(k) Security Deposit: $14,371.60
First, balance as per Clause 3.05.
(l) Parking: Access to 20 on-site parking stalls
at no cost
1.02 Definitions. The Landlord and the Tenant hereby agree that in this Lease
the following words or phrases shall, unless there is something in the context
inconsistent therewith, have the meanings hereinafter set out:
(a) "Additional Rent" shall mean those amounts payable by the Tenant to the
Landlord in accordance with sections 4.02 and 4.03 and all other sums
which may be payable to the Landlord hereunder or reimbursable to the
Landlord hereunder, including, without limitation, all interest and
penalties payable hereunder, whether or not such sums are referred to as
Additional Rent or otherwise, but excluding the Annual Basic Rent;
(b) "Annual Basic Rent" shall mean the amount specified as such in subsection
1.01(i);
(c) "Building" shall mean all buildings and improvements erected or to be
erected on the Land;
(d) "Commencement Date" shall mean the date specified in subsection 1.01(g);
(e) "Expiry Date" shall mean the date specified in subsection 1.01(h);
(f) "Fiscal Year" shall mean each successive period commencing on January 1
and ending on December 31 in each calendar year, provided that the
Landlord may change the beginning and ending dates of such period from
time to time and create periods containing more or less than 12 months;
(g) "Floor Area" shall mean the area (expressed in square feet or square
meters) of any rentable area in the Project, including mezzanines
constructed by the Landlord or persons other than the Tenant, measured
from the exterior of all exterior walls, doors and windows and from the
centre line of all internal walls, separating the Premises from adjoining
premises, all without deduction for columns or projections necessary to
the Building;
(h) "Gross Leaseable Area" shall mean, whether referring to the whole Building
or any specified portion thereof, the aggregate, from time to time, of the
Floor Areas of all leaseable premises in the Project or in such specified
portion, including the Premises, as the case may be;
(i) "Land" shall mean those lands described in Schedule "A" hereto;
Page 6 of 41
<PAGE> 7
(j) "Landlord" shall mean only the owner or the mortgagee in possession for
the time being of the Premises;
(k) "Landlord's Mortgagees" shall mean the mortgagees, debenture holders and
trustees on behalf of a mortgagee holding Mortgages;
(l) "Lease" shall mean this Indenture together with all schedules attached
hereto;
(m) "Lease Year" shall mean, in the case of the first Lease Year, the period
beginning on the Commencement Date and terminating 12 months from the last
day of the calendar month in which the Commencement Date occurs (except
that if the Commencement Date occurs on the first day of a calendar month,
the first Lease Year shall terminate on the day prior to the first
anniversary of the Commencement Date) and, in the case of each subsequent
Lease Year, shall mean each 12 month period after the first Lease Year.
(n) "Mortgages" shall have the meaning set out in section 4.27;
(o) "Operating Costs" shall mean all costs and expenses of a non-capital
nature incurred by the Landlord in the operation, maintenance and repair
of the Project, including without limiting the generality of the
foregoing, the cost of providing cleaning, garbage removal from common
areas, supervisory and maintenance services, the cost of water and sewer,
electricity, telephone and other utilities and services to all common
space, the cost of heating, cooling and ventilating common space, the cost
of providing janitorial service (if any), the cost of all repairs and
replacements to the Project, the cost of snow clearance, the cost of
repairing and restriping parking areas and roadways, the cost of
landscaping and maintaining any landscaped areas on the Project, the cost
of maintenance and repair to the HVAC system, the cost of security and
supervision, the cost of all insurance maintained by the Landlord in
respect of the Project or any part thereof, accounting costs incurred in
connection with maintenance and operation including computations required
for the imposition of charges to tenants and audit charges for the
reporting of charges hereunder, the amount of that portion of salaries,
wages and fringe benefits paid to employees which is attributable to the
operation and maintenance of the Project, amounts paid to independent
contractors for any services in connection with such operation and
maintenance, management fees (whether management functions are performed
by the Landlord or by an independent contractor) not to exceed 4% of the
gross revenue of the Landlord from the Project, corporation capital tax
calculated as if the Project were the only property owned by the Landlord,
depreciation and carrying costs on all fixtures, equipment and facilities
which require periodic replacement at rates determined by the Landlord in
accordance with generally accepted accounting principles.
(p) "Premises" shall mean that portion of the Building shown outlined in bold
black line on the plan attached as Schedule "B" hereto and having the
Floor Area set out in subsection 1.01(e), more or less;
(q) "Project" shall mean the Land and the Building;
(r) "Proportionate Share; Tenant's Proportionate Share" shall mean the
proportion that the Floor Area of the Premises bears to the Gross
Leaseable Area of all premises within the Project designated for lease to
tenants, whether leased or not;
(s) "Relative Portion" shall mean, with respect to any amount payable under
this Lease, that fraction which has as its denominator the period of time
expressed in days in respect of which an amount payable hereunder is
calculated and which has as its numerator the number of days within the
same calculation period, but which fall within the Term or any renewal
period;
(t) "Rent" shall mean the Annual Basic Rent and the Additional Rent;
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(u) "Roof" shall mean the roof of the Building including the roof membrane,
insulation and deck and all structural components of the roof;
(v) "Taxes" shall mean the aggregate of all taxes, local improvements or
similar rates, duties, assessments and/or charges, municipal realty taxes,
water taxes, school taxes, or any other taxes, rates, duties, assessments
both general or special or any rate, duty, assessment, charge or tax
levied, charged or assessed in lieu thereof now or at any time hereafter
levied or imposed upon or in respect of the Project or any part thereof,
by any governmental authority whether federal, provincial, municipal or
otherwise, together with all costs and expenses (including legal and other
professional fees and interest and penalties on deferred payments)
incurred by the Landlord in good faith contesting or appealing any such
taxes, levies, rates, assessments or charges levied in lieu thereof, but
excluding the Tenant's Taxes and the Landlord's Income Tax;
(w) "Tenant's Taxes" shall mean all taxes, license and permit fees, rates,
duties and assessments imposed or levied by any lawful authority covering
any period during the Term and any renewal thereof and relating to or in
respect of the business of the Tenant or relating to or in respect of
personal property and all business and trade fixtures, machinery and
equipment, cabinet work, furniture and movable partitions owned or
installed by the Tenant at the expense of the Tenant or being the property
of the Tenant, or relating to or in respect of improvements to the
Premises built, made or installed by the Tenant, on behalf of the Tenant
or at the Tenant's request whether any such taxes are payable by law by
the Tenant or by the Landlord and whether such taxes are included by the
taxing authority in the taxes, licenses, rates, duties and assessments
imposed or levied on or with respect to the Premises; and all sales, goods
and services, value-added or other taxes assessed or imposed on the Tenant
or the Landlord, whether or not in existence on the Commencement Date, in
respect of the Rent payable to the Landlord by the Tenant under this
Lease, the rental of the Premises by the Landlord to the Tenant or the
provision of any goods, services or utilities whatsoever by the Landlord
to the Tenant under this Lease and any agreement to Lease between the
Landlord and the Tenant pursuant to which this Lease was entered into; and
(x) "Term" shall mean the term specified in subsection 1.01(f).
ARTICLE 2 - DEMISE AND TERM
2.01 Demise. The Landlord as owner, subject to such Mortgages and encumbrances
as are registered against title as of the date hereof, hereby demises and leases
the Premises to the Tenant and the Tenant takes the Premises on lease from the
Landlord, subject to the terms and conditions set out in this Lease to have and
to hold the Premises unto the Tenant for the Term from and including the
Commencement Date until the Expiry Date.
2.02 Acceptance. Unless the Tenant gives written notice to the Landlord within a
period of ten days after taking possession of the Premises challenging the Floor
Area of the Premises then the Tenant shall be conclusively deemed to have
accepted such calculation of the Floor Area of the Premises. In the event that
the Tenant gives such written notice to the Landlord within the said ten day
period challenging the Floor Area of the Premises, then the Floor Area of the
Premises shall be conclusively determined by a British Columbia land surveyor
chosen by the Landlord, and the determination of such British Columbia land
surveyor shall be final and binding on the Landlord and the Tenant.
ARTICLE 3 - RENT
3.01 Annual Basic Rent and Additional Rent. Yielding and paying therefore during
the Term the following Rent payable at the Landlord's address specified in
subsection 1.01(a)(ii) or at such other place as the Landlord may from time to
time designate in writing, in the following installments:
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(a) the Annual Basic Rent payable in advance in equal consecutive monthly
installments on the first day of each and every month in each and every year
of the Term commencing on the Commencement Date and continuing until and
including the first day of the month immediately preceding the Expiry Date;
and
(b) the Additional Rent payable in accordance with the provisions of this Lease.
3.02 No Set-Off. The Tenant covenants and agrees with the Landlord that all of
the Rent payable under this Lease shall be paid by the Tenant to the Landlord
without demand, deduction, set-off or abatement whatsoever, except as
specifically provided in subsection 6.04(a). The Tenant covenants and agrees
that the Landlord may at its option apply all sums received from or due to the
Tenant against any amounts due and payable hereunder in such manner as the
Landlord may see fit.
3.03 Post-Dated Cheques or Pre-Authorized Withdrawal. The Tenant covenants and
agrees to provide the Landlord with a series of 12 post-dated cheques on the
Commencement Date and on each yearly anniversary thereafter during the Term and
any renewal thereof. Each cheque shall be in the amount of the monthly
installment of the Annual Basic Rent provided for herein and estimated Tenant's
Proportionate Share of Operating Costs and Taxes pursuant to section 4.02. If
the Commencement Date is not the first day of a month, then the first cheque
shall be in the amount of the Relative Portion of the monthly installment
otherwise required. If the Landlord so requests, the Tenant shall instead supply
the Landlord with an automatic debiting authorization by which payments in
respect of the monthly installments due hereunder are automatically deducted
from the Tenant's bank account and credited to the Landlord's bank account. The
failure of the Tenant to comply in any way with the provisions of this section
3.03 shall be deemed to be a default under this Lease and shall entitle the
Landlord to exercise any and all remedies available to the Landlord under this
Lease.
3.04 Adjustment. If the Term shall commence or cease on a day other than the
commencement of or the end of any period of time in respect of which any amount
payable hereunder is calculated, then the Tenant shall pay to the Landlord its
Relative Portion of such amount for such period of time.
3.05 Deposit. The Tenant shall deposit with the Landlord the sum of $14,371.60
which shall be applied as follows: $5,917.72 towards the first month's rent and
G.S.T. The balance to be held by the Landlord to ensure the Premises are left in
a satisfactory state when the Tenant vacates the Premises. The Landlord shall
provide the Tenant with a detailed statement of costs incurred to clean the
Premises and the whole or part of the Deposit shall be returned to the Tenant
within 35 days of termination of the Lease.
ARTICLE 4 - TENANT'S COVENANTS
The Tenant hereby covenants and agrees with the Landlord as follows:
4.01 Rent. The Tenant shall pay throughout the Term Annual Basic Rent and
Additional Rent, at the times and in the manner specified in this Lease.
4.02 Operating Costs and Taxes. The Tenant shall pay the Tenant's Proportionate
Share of Operating Costs and Taxes as estimated by the Landlord for each Fiscal
Year. The Tenant shall pay the Landlord such amount in monthly installments in
advance during each Lease Year on the first day of each calendar month. Within a
reasonable period of time following each Fiscal Year, the Landlord shall furnish
to the Tenant a statement of the Operating Costs and Taxes for such Fiscal Year
and the Tenant's Proportionate Share thereof. If the amount payable by the
Tenant as shown on any such statement is greater or less than the aggregate of
amounts paid by the Tenant pursuant to this section 4.02, the proper adjusting
credit shall be made by the Landlord or payment made by the Tenant, as the case
may be, within 14 days after delivery of the statement. Any credit made by the
Landlord or payment made by the Tenant and accepted by the Landlord in respect
of
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any adjustment made hereunder, shall be without prejudice to the right of the
Landlord to claim a readjustment provided such claim is made within 12 months
from the date of delivery of the statement referred to in this section 4.02.
Notwithstanding the foregoing, whenever in the Landlord's reasonable opinion,
any Operating Costs or item of Operating Costs properly applies to a particular
tenant or tenants within the Project, the Landlord may allocate such Operating
Costs or item of Operating Costs to such tenant or tenants. Any amount allocated
by the Landlord to the Tenant pursuant to this section shall be payable by the
Tenant forthwith upon demand. The Tenant shall have the right to audit the
Operating Expenses, within 30 days of receiving the Statement of Actual Expenses
from the Landlord.
4.03 Tenant's Taxes. The Tenant shall promptly pay the Tenant's Taxes as they
become due. The Tenant shall provide to the Landlord, upon request, the official
receipt for each payment made by the Tenant in respect of the Tenant's Taxes.
4.04 Utilities. The Tenant shall pay promptly for all electricity, gas, other
fuel, water, telephone and other utilities consumed on the Premises as
separately billed by the supplying utility to the Tenant. If any such utilities
used on the Premises are not separately billed by the supplying utility to the
Tenant, the Tenant will pay to the Landlord the cost thereof, as allocated by
the Landlord to the Tenant in accordance with information meters or such other
method as the Landlord may choose.
4.05 Insurance.
(a) The Tenant shall, at its sole cost and expense during the Term and during
such other period of time that the Tenant occupies the Premises, take out and
maintain in full force and effect, the following:
(i) "all risks" insurance upon all merchandise, stock-in-trade,
furniture, fixtures, equipment, leasehold improvements and other
property of every kind and description located at the Premises, owned
by the Tenant or for which the Tenant is responsible or legally
liable, in an amount at least equal to the full insurable value
thereof, calculated on a replacement cost basis. In the event that a
dispute arises as to that sum which represents full replacement cost,
the decision of the Landlord's insurance advisers, acting reasonably,
shall be conclusive;
(ii) automobile liability insurance to a limit of liability of not less
than $2,000,000.00 in any one accident, covering all licensed motor
vehicles owned by the Tenant and used in connection with its business
carried on from the Premises;
(iii) comprehensive bodily injury and property damage liability insurance
applying to the operations of the Tenant carried on from the Premises
and which shall include, without limitation, personal injury
liability, product liability, contractual liability, non-owned
automobile liability, protective liability and Tenant's legal
liability with respect to the occupancy by the Tenant of the
Premises; and such insurance shall be written for an amount of not
less than $2,000,000.00 per occurrence, or such higher amount as the
Landlord may from time to time reasonably require; and
(iv) any other form or forms of insurance as the Landlord or the
Landlord's Mortgages may reasonably require from time to time in
amounts and for perils against which a prudent tenant would protect
itself in similar circumstances.
(b) All policies of insurance referred to in this section 4.05 shall include the
following provisions:
(i) all property damage policies written on behalf of the Tenant shall
contain a waiver of any subrogation rights which the Tenant's
insurer(s) may have against the Landlord and against those for whom
the Landlord is, in law, responsible, whether any insured loss or
damage is caused by the act, omission or negligence of the Landlord
or by those for whose acts the Landlord is, in law, responsible or
otherwise;
(ii) all policies of liability insurance other than auto insurance shall
name the Landlord and any persons or corporations designated by the
Landlord and having an interest in the Project as additional insureds
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and shall provide that each person, firm or corporation insured under
such policies shall be insured in the same manner and to the same
extent as if separate policies had been issued to each; and
(iii) all policies shall contain an undertaking by the insurers to notify
the Landlord and the Landlord's Mortgagees, in writing, not less than
30 days prior to any cancellation or other termination thereof, or
any change which restricts or reduces the coverage afforded thereby.
(c) All policies of insurance referred to in this section 4.05 shall be
underwritten by insurers acceptable to the Landlord and on policy forms
satisfactory to the Landlord. The Tenant agrees that proof of insurance or, if
required by the Landlord or any of the Landlord's Mortgagees, certified copies
of each policy, will be delivered to the Landlord as soon as practicable after
the placing thereof. The Tenant shall, when required by the Landlord, forthwith
provide to the Landlord evidence that all premiums for all insurance policies
have been paid.
(d) For good and valuable consideration, the Tenant does hereby release and
relieve the Landlord and those persons for whom the Landlord is, in law,
responsible, from liability and responsibility for, and waives its entire claim
for recovery for any loss or damage whatsoever arising out of or incident to the
occurrence of any of the perils covered by, or which would be covered by, the
insurance policies which the Tenant is obligated to obtain and maintain in force
under the terms of this Lease, unless any such loss or damage is caused by the
act, omission or negligence of the Landlord or by those persons for whom the
Landlord is, in law, responsible or otherwise.
(e) The Tenant shall not do or permit anything to be done upon the Premises
whereby any policy of insurance against loss or damage to the Premises or
against legal liability for damage to persons or property caused by the
ownership, maintenance, use or occupancy of the Premises, or by reason of the
conduct of any business carried on thereon, may be invalidated, and, for such
purpose, upon receipt of notice in writing from any insurer of the Premises
requiring the execution of works or a discontinuance of any operations in order
to correct such situation, the Tenant shall immediately comply therewith.
(f) The Tenant shall not do or permit anything to be done or exist upon the
Premises which causes an increase in the rate of premium quoted by any insurer
in respect of the insurance of the Building or any part thereof. Without
restricting the rights of the Landlord hereunder in the event of any breach by
the Tenant of this subsection 4.05(f), the Tenant shall repay to the Landlord,
on demand, from time to time during the Term and any renewal thereof an amount
equal to the increase in the rate of premium for such insurance above the usual
rate of premium for such insurance, resulting from anything done or existing
upon the Premises. In determining whether increased premiums are a result of the
Tenant's use or occupancy of the Premises, a schedule issued by the insurer of
the Building or its agent computing the insurance rate of the Building or
relevant part thereof showing the various components of such rate shall be
conclusive evidence of the several items and charges which make up such rate.
(g) The Tenant agrees that if the Tenant fails to take out or keep in force any
insurance coverage referred to in this section 4.05, or if any such insurance is
not approved by the Landlord and the Landlord's Mortgagees, and the Tenant does
not rectify the situation within 72 hours after written notice by the Landlord
to the Tenant setting forth the Landlord's objections, then the Landlord shall
have the right, without assuming any obligation in connection therewith, to
effect such insurance coverage and shall have the right to recover all costs and
premiums incurred in effecting such insurance coverage from the Tenant pursuant
to section 6.05 hereof.
4.06 Repair. The Tenant shall examine the Premises before taking possession
hereunder and such taking of possession shall be conclusive evidence as against
the Tenant that at the Commencement Date the Premises were in good order and
repair, except for any defects in the Roof, foundations, exterior walls or floor
of the Building existing as at the Commencement Date and in respect of which the
Tenant gives written notice to the Landlord not later than 30 days after the
Commencement Date and except for defects which are latent or that would not be
disclosed upon a reasonable inspection. Excepting only the repair of such
defects, reasonable wear
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and tear and repairs for which the Landlord is responsible under this Lease, the
Tenant shall, at all times during the Term and any renewal thereof, promptly, at
its own expense, repair and maintain the Premises and all equipment, fixtures
and improvements in a first class condition. At the end or sooner termination of
the Term or any renewal thereof the Tenant shall yield up to the Landlord,
without notice from the Landlord, the Premises repaired and maintained in the
condition aforesaid.
4.07 Repair on Notice. The Tenant shall permit the Landlord and its duly
authorized agents or nominees, with or without workmen and others, at all
reasonable times to enter upon the Premises for the purpose of examining the
state of repair, condition and use thereof, and to permit such entry after the
Landlord shall have given 24 hours' notice in writing to the Tenant of such
intended entry and examination and in every case the Tenant shall afford the
Landlord all aid and facilities in such entry and examination and upon notice in
writing of defect or want of repair being given by the Landlord to the Tenant,
to cause the same to be repaired to the extent that the Tenant is obligated
hereunder, as required by section 5.04 hereof, within 30 days from the date of
the giving of such notice by the Landlord. If the Tenant shall at any time
default in the performance or observance of any of the covenants in the Lease
for or relating to the repair or maintenance of the Premises or any part thereof
and such default shall continue for 30 days after notice in writing from the
Landlord of default in respect of repair or maintenance of the Premises then the
Tenant shall permit the Landlord and its duly authorized agents and nominees,
with or without workmen and others, and without prejudice to the Landlord's
right of re-entry, to enter into and upon the Premises and repair and maintain
the same at the expense of the Tenant and the Tenant shall afford the Landlord
all aid and facilities in doing or causing the same to be done, and shall repay
to the Landlord on demand all costs and expenses in respect of such repairs and
maintenance as aforesaid.
4.08 Business and Trade Fixtures. The Tenant may install its usual business and
trade fixtures in the usual manner, provided such installation does not damage
the Premises and provided further that the Tenant shall have, if requested by
the Landlord, submitted plans and specifications for such business and trade
fixtures to the Landlord and obtained its prior written consent thereto, which
consent shall not be unreasonably withheld. All business and trade fixtures
owned or installed by the Tenant in or on the Premises shall remain the property
of the Tenant and shall be removed by the Tenant at the expiration of the Term
or any renewal thereof or at the sooner termination thereof, provided that the
Tenant at its expense shall repair any damage to the Premises caused by such
removal, and provided further, that the Tenant shall not be in default under any
covenant or agreement contained herein at the time of such removal, and if in
default, the Landlord shall have a lien on the Tenant's business and trade
fixtures as security against loss or damage resulting from any such default by
the Tenant and the Tenant's business and trade fixtures shall not be removed by
the Tenant until such default is cured, unless otherwise directed by the
Landlord. The Landlord may elect to require the Tenant to remove all or any part
of the business and trade fixtures owned or installed by or on behalf of the
Tenant at the expiration or termination of the Term or any renewal thereof, in
which event such removal shall be done at the Tenant's expense and the Tenant
shall at its expense, repair any damage to the Premises caused by such removal.
If the Tenant does not remove its business and trade fixtures forthwith after
written demand by the Landlord, such property shall, if the Landlord elects, be
deemed to become the Landlord's property or the Landlord may remove the same at
the expense of the Tenant and the cost of such removal shall be paid by the
Tenant forthwith to the Landlord on written demand, and the Landlord shall not
be responsible for any loss or damage to such property as a result of such
removal.
4.09 Alterations and Additions. During the Term of the Lease the Tenant shall
not remove, alter or change the position or style of, or add to, the Premises or
any part thereof, without in any and every such case having first submitted
plans and specifications thereof to the Landlord and having obtained the prior
written consent of the Landlord thereto, and, unless otherwise provided by such
consent, all such alterations, additions, erections or excavations shall be done
either by or under the direction of the Landlord, as the Landlord may determine,
but at the cost of the Tenant. All work shall be done in a good and workmanlike
manner and at such times and in such manner as the Landlord may approve, and
only by contractors or tradesmen approved in writing by the Landlord. The Tenant
shall reimburse the Landlord forthwith on demand for all costs and expenses
incurred by
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the Landlord in the review and approval of any plans and specifications by the
Landlord's architects and engineers. The Tenant shall obtain and pay for all
required building and occupancy permits in respect of its work as aforesaid. The
Tenant shall, at its own cost and expense, take out or cause to be taken out any
additional insurance coverage reasonably required by the Landlord to protect the
respective interests of the Landlord and the Tenant during all periods when any
such work is being performed. Any and all installations, alterations, additions,
partitions, improvements or fixtures other than the Tenant's business and trade
fixtures in or upon the Premises, whether placed there by the Tenant or the
Landlord or a previous occupant of the Premises, shall, immediately upon such
placement, become and shall thereafter remain the property of the Landlord
without compensation therefor to the Tenant. Notwithstanding anything herein
contained, the Landlord shall be under no obligation to repair, maintain,
replace or insure such installations, alterations, additions, partitions and
fixtures or anything in the nature of a leasehold improvement made or installed
by or on behalf of the Tenant. The Landlord may elect that any or all
installations, alterations, additions, partitions, improvements or fixtures made
or installed by or on behalf of the Tenant hereunder or under the provisions of
any previous lease of the Premises to the Tenant or any other tenants be removed
at the expiry or earlier termination of the Term or any renewal thereof and it
shall be the Tenant's obligation to restore the Premises to the condition in
which they were prior to such alterations, installations, additions,
improvements, partitioning and fixturing. Such removal and restoration shall be
at the sole expense of the Tenant.
4.10 Use of Premises. The Tenant shall not use the Premises nor allow the
Premises to be used for any purpose other than that specified in subsection
1.01(j), nor in any manner inconsistent with such use and occupation, and the
Tenant shall not, at any time during the Term or any renewal thereof, commit or
suffer to be committed any waste upon the Premises nor shall the Tenant use,
exercise, or carry on, or permit or suffer to be used, exercised or carried on,
in or upon the Premises, or any part thereof, any noxious, noisome or offensive
art, trade, business, occupation or calling, or keep, sell, use handle or
dispose of any merchandise, goods or things which are objectionable, or by which
the Premises or any part thereof may be damaged or injuriously affected, and no
act, matter or thing whatsoever shall, at any time during the Term or any
renewal thereof, be done in or upon the Premises, or any part thereof, which may
result in annoyance, nuisance, grievance, damage or disturbance to any other
tenants in the Project or to any occupiers or owners of any other lands or
premises or to the holders of any registered easement, right of way or other
encumbrance charging the whole or part of the Project. The Tenant shall use its
best endeavors to prevent anything being done on the Premises which may result
in the Project or any part thereof (other than the Premises) being picketed or
otherwise subjected to industrial action or demonstrations, political or
otherwise. In the event of such picketing, industrial action or demonstrations
the Tenant shall forthwith take all actions and proceedings necessary to cause
such picketing, industrial action and demonstrations to cease without delay. The
Tenant shall not place in the Building any heavy machinery or equipment without
first obtaining the consent in writing of the Landlord. The Tenant shall occupy
the Premises for the purpose aforesaid continuously and without interruption
throughout the Term and any renewal thereof. The Tenant shall immediately advise
the Landlord of the presence of and shall do all things necessary to remove, any
dangerous condition from time to time existing on the Premises and arising as a
result of the act or omission of the Tenant or any person for whom the Tenant
is, at law, responsible.
4.11 Signs. The Tenant shall not, at any time, affix or exhibit or permit to be
affixed or exhibited upon any part of the Premises any sign, except such as
shall have been first approved in writing by the Landlord not to be unreasonably
withheld and which comply at all times with the requirements of any lawful
authority having jurisdiction over the same, provided that if any such sign no
longer complies with the terms of the consent given by the Landlord or the
requirements of any lawful authority having jurisdiction over the same then the
Landlord, after giving the Tenant 30 days' notice, shall have the right to
remove any such sign at the Tenant's expense and the costs, charges and expenses
of such removal shall forthwith be paid by the Tenant to the Landlord. The
provisions of sections 4.07 and 4.08 hereof shall also apply to any such signs.
4.12 Rubbish. The Tenant shall keep the Premises and any loading areas used by
the Tenant clean and tidy and in good order and shall not permit waste or
garbage to be placed or accumulate outside of the Premises but shall dispose of
such waste or garbage in the manner designated by the Landlord from time to
time.
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4.13 Pollution. The Tenant shall not discharge nor permit the discharge of any
oil or grease or any deleterious, objectionable, dangerous, radioactive,
poisonous or explosive matter or substance into any water, ditches, water
courses, culverts, drains or sewers and the Tenant shall take all reasonable
measures for ensuring that any effluent discharged shall not be corrosive,
poisonous or otherwise harmful to or cause obstruction, deposit or pollution
within any waters, ditches, water courses, culverts, drains or sewers or to or
within any sewage disposal works or to the bacteriological process of sewage
purification, and the Tenant shall forthwith at the Landlord's request provide
facilities for testing and monitoring any such effluent from the Tenant's
operations and shall permit the Landlord access to the Premises for the purposes
of carrying out such testing and monitoring from time to time. In addition, the
Tenant shall not at any time whatsoever dispose of or permit to be disposed of
on, in or under the Premises, any oil or grease or any deleterious,
objectionable, dangerous, poisonous or explosive substance or matter nor permit
any such substance or matter to be discharged or accumulated on, in or under the
Premises, including without limitation, any radioactive matter or substance, any
radioactivity, or any microwaves. The Tenant shall construct, maintain and
operate every furnace and burner employed on the Premises so as to substantially
consume or burn the smoke arising from every furnace and burner and shall not
use or suffer any such furnace or burner to be used negligently so that the
smoke arising therefrom is not substantially consumed or burned and shall not
cause or permit any grit, dust or noxious or offensive effluvia to be emitted
from any engine, furnace, burner or apparatus on the Premises without using the
best practicable means reasonably available for preventing or counteracting such
emissions.
4.14 Abate Nuisance. Upon written notice to the Tenant from the Landlord or from
any lawful authority having jurisdiction requiring the abatement of any nuisance
caused by vibration, noise or offensive smell or by any undue emission of smoke,
vapor or dust caused by the Tenant or arising directly or indirectly out of the
operations carried on upon the Premises, the Tenant shall forthwith abate such
nuisance accordingly.
4.15 Obstruction of Roads. The Tenant shall not permit any vehicles owned by or
under the control of the Tenant to cause an obstruction on any roadways in or
about the Project and the Tenant shall use its best endeavors to ensure that all
persons doing business with the Tenant and their servants and workmen shall not
permit any vehicles to cause such obstruction as aforesaid and the Tenant shall
also use its best endeavors to ensure that vehicles owned by or under the
control of the Tenant, its employees or persons doing business with the Tenant
shall observe any regulations and instructions made or given by the Landlord or
by any other person, corporation or body having authority to make or give such
regulations or instructions with regard to the operation and parking or vehicles
on the said roadways or other areas provided for the parking of vehicles in the
Project.
4.16 Stacking Material. The Tenant shall not leave or permit to be left or stack
or permit to be stacked any material on the Project, other than in the Premises.
4.17 No Auctions. The Tenant shall not permit any sale by auction nor any fire
sale, bankruptcy sale, moving sale, going-out-of business sale or bulk sale to
be held upon the Premises or any part thereof, other than annual warehouse sales
in the ordinary course of business.
4.18 Will Not Terminate Agreements. Except where required to do so by the terms
of this Lease, the Tenant shall not enter into, amend or terminate any agreement
with any public utility corporation or railway company relating to or in any
manner whatsoever affecting the Project or the Premises.
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4.19 Assignment and Subletting.
(a) The Tenant shall not assign this Lease or any interest therein, nor sublet
the Premises or any part thereof, nor part with or share possession of all or
any part of the Premises, without the prior written consent of the Landlord
which shall not be unreasonably withheld.
(b) Notwithstanding and without prejudice to any other provision herein, in the
event that the Tenant desires to assign, sublet or part with or share possession
of all or any part of the Premises, or to transfer this Lease in any other
manner, in whole or in part, or to transfer 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, sublessee or occupier and shall provide to the Landlord such
information on the nature of the business of the proposed assignee, transferee,
sublessee or occupier and its financial responsibility and standing as the
Landlord may reasonably require and the terms and conditions of the proposed
assignment, transfer sublease or possession and shall deliver to the Landlord a
copy of the assignment, transfer or sublease intended to be executed by the
Tenant and the assignee, transferee or subtenant. Upon the receipt of such
notice and information from the Tenant, the Landlord shall have the right,
exercisable in writing within seven (7) days after such receipt, to cancel and
terminate this Lease if the request is to assign this Lease or to sublet all of
the Premises or, if the request is to assign or sublet a portion of the Premises
only, to cancel and terminate this Lease with respect to such portion, in each
case as of the date set forth in the Landlord's notice of exercise of such
right, which shall be neither less than 60 nor more than 120 days following
delivery of such notice. If the Landlord shall exercise such right the Tenant
shall surrender possession of the entire Premises or the portion which is the
subject of the right, as the case may be, on the date set forth in such notice
in accordance with the provisions of this Lease relating to condition of the
Premises at the expiration of the Term. If this Lease shall be canceled as to a
portion of the Premises only, the Rent payable by the Tenant under this Lease
shall be abated proportionately. If the Landlord shall not exercise the right to
cancel this Lease as above provided after the receipt of the Tenant's notice,
then, within 15 days after receipt of such notice, the Landlord shall notify the
Tenant in writing, that:
(i) it consents, or
(ii) it does not consent as aforesaid to the assignment, transfer,
subletting or parting with or sharing possession as the case may be,
provided however that such consent shall not be unreasonably refused,
withheld or delayed.
(c) No such assignment, transfer, subletting or parting with or sharing
possession shall:
(i) in any manner release the Tenant from its obligations for the payment
of the Rent and the observance and performance of the covenants,
terms and conditions herein provided; or
(ii) be made to any person, firm, partnership, or corporation carrying on
any business which the Landlord is obliged to restrict by reason of
any other lease or contract relating to any other premises in the
Project.
(d) The Tenant shall not permit any part of the Premises to be used or occupied
by any persons other than the Tenant or any subtenants permitted under
subsection 4.19(b) and the employees of the Tenant and of any such permitted
subtenant, and shall not permit any part of the Premises to be used or occupied
by any licensee or concessionaire, or permit any persons to be upon the Premises
other than the Tenant, such permitted subtenants, and their respective
employees, customers and others having legitimate business with them.
(e) The Tenant shall insert in every permitted sublease of the Premises a
covenant by the sublessee with the sublessor to produce to the Landlord within
one month immediately following the making thereof a copy of every assignment of
the sub-demised premises or any part thereof made by the sublessee or the
persons deriving title under it.
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(f) The Tenant shall, at the request of the Landlord, require any assignee of
the interest of the Tenant hereunder, at the time of such assignment, to enter
into a written agreement with the Landlord whereby the assignee covenants and
agrees with the Landlord to observe and perform all of the covenants,
agreements, provisos, terms and conditions of this Lease, provided that if the
Tenant fails to require the assignee to enter into such a written agreement at
the Landlord's request the Landlord may refuse to grant its consent to the
assignment, or where such consent is not required the assignment shall not be
effective until such written agreement is executed by the assignee. Without in
any way restricting the generality of the Landlord's right to refuse to consent
to an assignment or subletting, the Landlord may refuse to grant its consent to
an assignment or subletting in the event that this Lease is not in good
standing.
(g) The Tenant shall forthwith upon demand by the Landlord, pay to or reimburse
to the Landlord an administration fee of $250.00 or such other greater fee as
the Landlord may reasonably charge from time to time together with all
reasonable solicitors' fees and all other costs, charges, and expenses incurred
by the Landlord in connection with the Tenant's request for consent to any
assignment, subletting or parting with or sharing of possession.
4.20 Liens. The Tenant shall permit the Landlord to post and shall keep posted
in at least two conspicuous places on the Premises any notices which the
Landlord may desire to post under the provisions of the Builders' Lien Act of
British Columbia and any statute which may amend or replace such statute. If any
claim of lien shall be filed against the Project by a contractor or
sub-contractor of the Tenant or any other person claiming against the Tenant,
the Tenant shall take all necessary steps to have the claim of lien canceled and
discharged from title to the Project within 15 days of the date the Tenant has
knowledge of such filing and the Tenant shall indemnify and save harmless the
Landlord from any and all loss, cost, expense, damage and liability in respect
of such claim of lien. The Landlord, in addition to any right or remedy, shall
have the right, but shall not be obliged, to discharge any claim of lien filed
against the Project by paying the amount claimed to be due or by procuring a
discharge of such liens by deposit in the appropriate court and in any such
event the Landlord shall be entitled, if it so elects, to expedite the
prosecution of any action for the enforcement of such claim of lien by the lien
claimant and to pay the amount of the judgment, if any, in favor of the lien
claimant with interest and costs. In any such event the Tenant shall forthwith
pay to and reimburse the Landlord for all money expended by the Landlord, within
reason and approved by the Tenant, and all costs and expenses incurred by the
Landlord.
4.21 Registered Charges. The Tenant shall pay all money owed by it under any
conditional sale agreement or other charge registered or filed against the
Project, and immediately upon all of the payments having been made thereunder,
the Tenant shall obtain a memorandum of satisfaction or other appropriate
document of discharge and shall register the same at its own expense in the
proper land title office or other appropriate office of public record as the
Landlord may require to discharge the same from the title to the Project.
4.22 Entry for Benefit of Adjoining Premises. The Tenant shall permit the
Landlord, its agents and workmen, and the tenants of any adjoining or
neighboring premises and their respective agents and workmen, to enter upon the
Premises at all reasonable times so far as may be necessary or useful in order
to construct, examine, repair or rebuild any adjoining or neighboring premises,
or for any other reasonable purpose, provided that the Landlord shall make good
all damage occasioned by the exercise of such rights by the Landlord, its agents
or workmen, and insofar as any tenant of any adjoining or neighboring premises
and its respective agents and workmen are concerned, no such rights shall be
exercisable until such tenant and its agents and workmen shall have covenanted
with the Tenant to make good all damage occasioned by the exercise of such
rights by those of them concerned.
4.23 Exhibit Premises. The Landlord shall have the right to exhibit the Premises
to:
(a) prospective tenants or sub-tenants during the six month period prior to the
Expiry Date and any renewal of the Term; and
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(b) the Landlord's Mortgagees and prospective mortgagees and any prospective
purchaser of the whole or any part of the Landlord's interest in the Project;
and for such purposes the Landlord shall have the right of entry to the Premises
at any reasonable time on reasonable prior notice and the Tenant at its option
may have a servant or agent present at the time of such entry.
4.24 Registration of Lease. The Tenant covenants and agrees with the Landlord
that the Landlord shall not be obliged to execute or deliver this Lease in form
registrable under the Land Title Act of British Columbia or any other statute of
the Province of British Columbia and that the Tenant shall not register this
Lease or any claim based thereon. All costs and expenses in connection with
registration of this Lease (if permitted by the Landlord) and any plans required
for registration shall be borne by the Tenant.
4.25 Compliance with Laws. The Tenant shall, to the extent that it has
covenanted to do under the terms of this Lease, observe and perform all of its
obligations and all matters and things necessary or expedient to be done,
observed or performed by the Tenant by virtue of any law, statute, by-law,
ordinance, regulation or lawful requirements of any governmental authority or
any public utility or railway company lawfully acting under statutory authority
and all demands and notices in pursuance thereof whether given to the Tenant or
the Landlord and in any manner or degree affecting the Premises, the state of
repair or condition thereof, the safety thereof, the use thereof by the Tenant
or the exercise or fulfillment of any right or obligation arising under or as a
result of this Lease. If any such demand or notice is given lawfully requiring
the execution of works, then:
(a) if such notice is given to the Tenant, the Tenant shall forthwith deliver
the same or a true copy thereof to the Landlord and the Tenant shall
forthwith, at its own expense, execute to the satisfaction of the Landlord
and the person giving such notice all such works as the Landlord may approve
in writing in order to comply with the requirements of the said notice; or
(b) if such notice is given to the Landlord, the Landlord shall notify the
Tenant and thereupon the Tenant shall, at its own expense, forthwith execute
to the satisfaction of the Landlord and the person giving such notice all
such works as the Landlord and the person giving such notice may require in
order to comply with the requirements of the said notice.
Notwithstanding the foregoing, the Landlord shall have the right to execute any
such works and the Tenant shall afford to the Landlord all necessary access to
the Premises and other facilities for that purpose and the Tenant shall, on
demand by the Landlord, pay to the Landlord all costs and expenses incurred by
the Landlord in executing and performing any and all such works.
4.26 Provide Financial Information. Whenever the Landlord, in connection with
any financing of the Project or any part thereof, shall require information
relating to the financial position of the Tenant, then the Tenant, within 15
days after receipt by it of a notice in writing from the Landlord requesting
such information, shall furnish directly to the Landlord copies of the audited
financial statements of the Tenant, including balance sheet and statements of
profit and loss and surplus or deficit, in respect of each of the five years
immediately preceding the year in which such notice is given. All such
information shall be used by the Landlord in connection with such financing only
and shall be supplied to the Landlord on the condition that the information be
treated on a confidential basis.
4.27 Subordination. This Lease is and shall be subject, subordinate and
postponed to all mortgages, including any debentures and any deeds of trust and
mortgages securing bonds and all indentures supplemental thereto (herein
collectively called the "Mortgages") which may now or hereafter charge the
Project or any part thereof and to all renewals, modifications, consolidations,
replacements and extensions of the Mortgages, to the intent that, without
execution of any document other than this Lease, the Mortgages and all renewals,
modifications, consolidations, replacements and extensions thereof shall have
priority over this Lease notwithstanding the respective dates of execution or
registration thereof. Without limiting the generality of the
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foregoing, the Tenant agrees to execute promptly any document in confirmation of
such subordination, postponement and priority which the Landlord may request and
the Tenant hereby irrevocably constitutes and appoints the Landlord the agent
and attorney of the Tenant for the purpose of executing any such document and of
making application in the name of the Tenant at any time and from time to time
to register postponements of this Lease in favor of any of the Mortgages or any
renewal, modification, consolidation, replacement or extension of any of the
Mortgages in order to give effect to the foregoing provisions of this paragraph.
Provided however, the subordination and postponement of this Lease to any of the
Mortgages shall not be effective with respect to a specific Mortgage unless and
until the Landlord's Mortgagee holding such Mortgage shall confirm in writing to
the Tenant that the Tenant shall have the right, if not in default under this
Lease, to remain in possession of the Premises in accordance with the terms of
this Lease in the event such Landlord's Mortgagee obtains title to the Premises
by way of foreclosure or otherwise.
4.28 Attornment. Whenever required by any of the Landlord's Mortgagees under any
of the Mortgages the Tenant shall attorn to and become a tenant or licensee of
such Landlord's Mortgagee or a tenant of any purchaser from such Landlord's
Mortgagee in the event of an exercise by such Landlord's Mortgagees of the power
of sale in any of the Mortgages set out, for the then unexpired residue of the
Term upon all of the terms and conditions hereof.
4.29 Estoppel Certificate. The Tenant shall at any time and from time to time
upon five days' prior notice from the Landlord execute and deliver to the
Landlord or the Landlord's Mortgagees or a prospective purchaser of the Project
or the whole or any portion of the Landlord's interest in the Project, a
statement in writing confirming the terms of this Lease, certifying that this
Lease in unmodified and in full force and effect (or, if modified, stating the
modifications and that the same is in full force and effect as modified), the
amount of the Rent then being paid hereunder, the dates to which the Rent and
other charges hereunder have been paid, that to the best of the Tenant's
knowledge the Landlord has complied with all the terms of this Lease, that the
Premises are acceptable to the Tenant, that the Tenant shall not amend, modify
or surrender this Lease or make any prepayment of the Rent other than the Rent
for the current month without the prior written consent of the Landlord's
Mortgagees, that there are no outstanding set-offs or equities disclosed or
undisclosed as between the Landlord and the Tenant of which the Tenant is aware,
that no money other than a maximum of one month's Rent in accordance with the
provisions of the Lease has been prepaid by the Tenant to the Landlord, that the
Tenant is aware of the assignment by the Landlord to the Landlord's Mortgagees
of all Rent under this Lease, and any other matters pertaining to this Lease in
respect of which the Landlord may desire certification. The Tenant hereby
irrevocably constitutes and appoints the Landlord the agent and attorney of the
Tenant for the purpose of executing and delivering such certificate or
certificates for and on behalf of the Tenant.
4.30 Indemnify Landlord. The Tenant shall indemnify and save harmless the
Landlord from and against any and all manner of actions or causes of action,
damages, costs, loss or expenses of whatever kind which the Landlord, may
sustain, incur or be put to by reason of or arising out of this Lease save and
except to the extent that such is caused by the Landlord or those for whom the
Landlord is responsible at law, or any act or omission of the Tenant or any
persons for whom the Tenant is, at law, responsible, or from the use or
occupation of the Premises by the Tenant in whole or in part and without
limiting the generality of the foregoing, from the non-observance or
non-performance by the Tenant, or any persons for whom the Tenant is, at law,
responsible, of any of the obligations imposed under the provisions of any laws,
ordinances, regulations or requirements of any federal, provincial, municipal or
other authorities, or any of the covenants and agreements in this Lease
contained by the Tenant to be observed and performed and such liability to
indemnify and save harmless shall survive any termination of this Lease, and the
expiry of the Term or any renewal thereof, anything in this Lease to the
contrary notwithstanding.
4.31 Name of Project. In referring to the Project, the Tenant will use the name,
designation and address of the Project and the Premises as established by the
Landlord from time to time, and the Tenant will incorporate such name,
designation and address on its stationery and other material which indicates its
business address at
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the Premises. The Landlord may from time to time, on 30 days' notice to the
Tenant, change the name, designation or address of the Project or the Premises.
ARTICLE 5 - LANDLORD'S COVENANTS
The Landlord covenants with the Tenant as follows:
5.01 Quiet Enjoyment. If the Tenant pays the Rent and performs the covenants
herein on its part contained, the Tenant shall be entitled to quiet enjoyment of
the Premises, subject to the rights of owners or occupiers of the easements and
rights-of-way, if any, now or hereafter registered against title to the Project.
5.02 Landlord's Insurance.
(a) Except as may be otherwise provided in this Lease and to the extent that
such insurance coverage shall be available at a reasonable cost acceptable to
the Landlord, the Landlord shall, during the Term and any renewal thereof, take
out and maintain in full force and effect insurance against all risks of
physical loss or damage to the Building, and such fixtures and improvements as
the Landlord shall determine, including the perils of flood and earthquake and
including business interruption or loss of rental income insurance, in amounts
equal to the full insurable value thereof, calculated on a replacement cost
basis, and subject to such deductibles as the Landlord may reasonably determine.
Provided however, the full insurable value shall not include, and the insurance
shall not cover, any property of the Tenant, whether owned by the Tenant or held
by it in any capacity, nor leasehold improvements whether made by or on behalf
of the Tenant.
(b) The Landlord may, but shall not be obligated to, take out and carry any
other form or forms of insurance as the Landlord or the Landlord's Mortgagees
may consider advisable or beneficial, including, without limiting the foregoing,
comprehensive liability insurance and boiler and machinery insurance.
(c) The Landlord shall maintain "broad form" boiler and machinery insurance upon
any boilers, pressure vessels or mechanical equipment located at the Premises in
such amount as the Landlord may reasonably require from time to time;
(d) The Landlord and all parties claiming under it mutually release and
discharge the Tenant and its agents and employees from all claims and
liabilities arising from or caused by any casualty or hazard covered or required
hereunder to be covered in whole or in part by insurance on the Premises or in
connection with property on or activities conducted on the Premises and the
Landlord shall endeavor to have such policies of insurance contain a waiver of
subrogation which the insurers under such policies might otherwise have.
(e) The costs of taking out and maintaining in force all insurance as
contemplated in this section 5.02 shall form a part of Operating Costs.
Notwithstanding any contribution by the Tenant to any insurance costs as
provided for herein, no insurable interest shall be conferred upon the Tenant
under policies carried by the Landlord.
5.03 Common Areas. To permit the Tenant and its employees and invitees to have
the use in common with all others entitled thereto of the common loading areas
and facilities, roadways and garbage areas of the Project and all other common
areas and common facilities that are a part of the Project.
5.04 Repair. Subject to section 6.04, to repair, reasonable wear and tear
excepted, the Roof, structure, foundations, sub-floors and outer walls of the
Building and the mechanical and electrical works included within the Project for
use in common by the tenants of the Project, the cost of all such work to form a
part of Operating Costs, unless such costs are of a capital nature, in which
event they shall be borne by the Landlord.
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5.05 Maintenance of Common Areas. To maintain all common areas within the
Project, the cost of all such maintenance to form a part of Operating Costs.
5.06 Payment of Taxes. Subject to the Tenant's obligation to pay its
Proportionate Share thereof, to pay or cause to be paid the Taxes in respect of
the Project.
ARTICLE 6 - MUTUAL COVENANTS, AGREEMENTS AND PROVISOS
It is hereby agreed by the Landlord and the Tenant as follows:
6.01 No Warranties. The Tenant acknowledges and agrees that no representations,
warranties, agreements or conditions have been made other than those expressed
herein, and that no agreement collateral hereto shall be binding upon the
Landlord unless it be made in writing and duly executed on behalf of the
Landlord.
6.02 No Waiver.
(a) The failure of the Landlord to exercise any right or option in connection
with any breach or violation of any term, covenant or condition herein contained
shall not be deemed to be a waiver or relinquishment 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 the Rent or any portion
hereunder by the Landlord shall not be deemed to be a waiver of a preceding
breach by the Tenant of any term, covenant or condition of this Lease other than
the failure of the Tenant to pay the particular amount of the Rent so accepted,
regardless of the Landlord's knowledge of such preceding breach at the time of
acceptance of such amount of the Rent.
(b) The acceptance of any of the Rent from, or the performance of any obligation
hereunder by, a person other than the Tenant shall not be construed as an
admission by the Landlord of any right, title or interest of such person as a
subtenant, assignee, transferee or otherwise in the place and stead of the
Tenant.
(c) The acceptance by the Landlord of a part payment of any money required to be
paid hereunder shall not constitute waiver or release of the right of the
Landlord to payment in full of such money.
6.03 Notices. All notices, demands and requests which may or are required to be
given pursuant to this Lease shall be in writing and shall be sufficiently given
if delivered personally to the party or an officer of the party for whom it is
intended or mailed prepaid and registered, in the case of the Landlord and the
Tenant to the respective addresses specified in subsections 1.01(a) and (b), or
at such other addresses in British Columbia as the parties may from time to time
advise by notice in writing. The Tenant shall require any mortgagee, assignee or
sublessee of the Tenant's interest hereunder to supply their respective mailing
addresses to the Landlord. The date of receipt of any such notice, demand or
request shall be deemed to be the date of delivery of such notice, demand or
request if served personally or if mailed as aforesaid on the third day next
following the date of such mailing (excluding Saturdays, Sundays and statutory
holidays in British Columbia), unless there is between the date of mailing and
actual receipt a mail strike or other labour dispute which adversely affects
mail service in British Columbia, in which case:
(a) the party giving the notice, demand or request shall deliver such notice,
demand or request by an alternative method; and
(b) the time of giving such notice, demand or request shall be the time of
actual receipt of such notice, demand or request.
6.04 Damage and Destruction.
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(a) If all or any part of the Premises is damaged by fire or other casualty
thereby rendering all or a portion of the Premises unusable by the Tenant, then
the Annual Basic Rent shall abate, in the proportion that that part of the
Premises which is rendered unusable bears to the whole of the Premises, but only
to the extent that the Annual Basic Rent is covered by insurance and paid to the
Landlord. The Landlord will notify the Tenant in writing if the Landlord is not
insuring the Annual Basic Rent.
(b) Except as provided in subsection 6.04(c) hereof, if the Premises are damaged
by fire or other casualty insured against by the Landlord hereunder or against
which the Landlord is obligated to insure hereunder, then the damage to the
Premises shall be repaired by the Landlord at its expense except that repairs to
installations, alterations, additions, partitions, improvements and fixtures
made by or on behalf of the Tenant or any previous Tenant or occupant of the
Premises or any part thereof shall be performed by the Tenant or, at the option
of the Landlord, shall be performed by the Landlord at the expense of the
Tenant. All repairs which the Landlord is required to make hereunder shall be
made with due diligence, provided that the Landlord shall not be liable to the
Tenant for any loss or damage suffered by the Tenant as a result of any delay
which may arise by reason of adjustment of insurance on the part of the Landlord
or on account of labour troubles or any other cause beyond the Landlord's
control. The Tenant shall, out of its own money, make up any deficiency
necessary to repair, rebuild or make fit the Premises for the purposes of the
Tenant, as follows:
(i) to the extent of the amount of any deductible exceeding $2,500 contained
in any insurance policy effected by the Landlord pursuant to its
covenant to insure herein contained.
(c) If, in the Landlord's opinion, the Building is damaged by fire or other
casualty to the extent that it cannot reasonably be repaired or rebuilt within
120 days after the occurrence of such damage and if the Landlord shall decide
not to restore the same then the Landlord shall within 60 days after the
happening of such fire or other casualty give to the Tenant a notice in writing
of such decision and thereupon the Term and any renewal of this Lease shall
expire forthwith and the Tenant shall vacate the Premises and surrender the same
to the Landlord. If the Building is damaged as aforesaid and the Landlord does
not give notice as aforesaid, then the Landlord shall diligently proceed to
repair the Building, excluding installations, additions, partitions,
improvements and fixtures made by or on behalf of the Tenant or any previous
tenant or occupant of the Premises, subject to any reasonable delay which may
arise by reason of adjustment of insurance on the part of the Landlord or on
account of labour troubles or any other cause beyond the Landlord's control. If
the Building, excluding installations, additions, partitions, improvements and
fixtures made by or on behalf of the Tenant or any previous tenant or occupant
of the Premises, is not repaired within six months from the time of the fire or
other casualty causing the damage, then the Tenant may at its option, to be
exercised within ten days of the termination of the said period of six months
(or the termination of such later period as extended hereby) by notice in
writing, terminate this Lease. Upon the termination of this Lease by the
Landlord as provided in this subsection 6.04(c) the Tenant's liability for the
Rent shall cease as of the day following the fire or casualty.
6.05 Payments by Landlord Regarded as Rent. If the Tenant shall fail to observe
or perform any of the covenants or obligations of the Tenant under or in respect
of this Lease the Landlord may from time to time at its discretion perform or
cause to be performed any of such covenants or obligations or any part thereof
and for such purpose may do such things as may be requisite and may enter upon
the Premises to do such things and all costs and expenses incurred and
expenditures made by or on behalf of the Landlord shall be forthwith paid by the
Tenant to the Landlord and if the Tenant fails to pay the same the Landlord may
add the same to the Rent and recover the same by all remedies available to the
Landlord for the recovery of Rent in arrears, provided that if the Landlord
commences or completes either the performance or the causing to be performed of
any of such covenants or obligations or any part thereof, the Landlord shall not
be obliged to complete such performance or causing to be performed or be later
obliged to act in like fashion. If the Landlord shall suffer or incur any
damage, loss, cost or expense whatsoever for which the Tenant is in any way
liable hereunder, by reason of any failure of the Tenant to observe or comply
with any of the covenants or agreements of the Tenant herein contained, then in
every such case the amount of any such damage, loss, cost or expense shall be
due and payable by the Tenant to the Landlord on demand by the Landlord and the
Landlord shall have the right at its
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option to add the cost or amount of any such damage, loss, cost or expense to
the Rent hereby reserved and any such amount shall thereupon immediately be due
and payable as Rent and recoverable by the Landlord by all remedies available to
the Landlord for the recovery of Rent in arrears.
6.06 Re-entry on Default. If:
(a) any payments of the Rent or any part thereof, whether the same are demanded
or not, are not paid within 5 days of notice of default of such payment when
they become due;
(b) any breach, non-observance or non-performance of any covenant, agreement,
stipulation, proviso, condition, rule or regulation herein contained on the
part of the Tenant to be kept, performed or observed hereunder and any such
breach, non-observance or non-performance shall continue for 15 days after
written notice thereof to the Tenant by the Landlord, unless the Tenant
rectifies or commences to rectify such default within such 15 day period;
(c) the Premises shall be vacated or remain unoccupied for 30 days;
(d) the Term or any renewal thereof or any of the goods and chattels of the
Tenant shall at any time during the Term or any renewal thereof be seized or
taken in attachment by any creditor of the Tenant;
(e) a writ of execution, sequestration or extent shall issue against the goods
and chattels of the Tenant;
(f) the Tenant shall execute any chattel mortgage or bill of sale of its goods
and chattels (other than one incidental to any public issue of bonds,
debentures or other securities of the Tenant or to any reorganization of the
Tenant or its amalgamation with any other company);
(g) any petition or other application is presented to any court of competent
jurisdiction for the dissolution, liquidation or winding up of the Tenant or
for the appointment of a receiver of receiver and manager;
(h) the Tenant shall become bankrupt or insolvent or take the benefit of any
statute now or hereafter in force for bankrupt or insolvent debtors;
(i) if the Premises shall be used for any purpose other than that for which they
were let without the prior written consent of the Landlord; or
(j) the Tenant shall make an assignment for the benefit of creditors or shall
make any sale or other disposition of its goods and chattels pursuant to or
which should legally have been done pursuant to any legislation relating to
bulk sales (except one incidental to any reorganization of the Tenant, if
any, or its amalgamation with any other company);
then and in any such event:
(1) the Landlord, in addition to any other remedy now or hereafter provided, may
re-enter and take possession immediately of the Premises or any part thereof
in the name of the whole by force if necessary without any previous notice
of intention to re-enter and may remove all persons and property therefrom
and may use such force and assistance in making such removal as the Landlord
may deem advisable to recover at once full and exclusive possession of the
Premises and such re-entry shall not operate as a waiver or satisfaction in
whole or in part of any right, claim or demand arising out of or connected
with any breach, non-observance or non-performance of any covenant or
agreement on the part of the Tenant to be kept, observed or performed; and
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<PAGE> 23
(2) the next ensuing three months' Annual Basic Rent and Additional Rent (to be
determined at rates estimated by the Landlord acting reasonably) and any
additional money owing hereunder shall immediately become due and payable
and shall be recoverable by the Landlord as if it were Rent in arrears, but
the Tenant shall remain liable under this Lease.
6.07 Sale and Reletting. Upon the Landlord becoming entitled to re-enter upon
the Premises under any of the provisions of this Lease the Landlord, in addition
to all other rights and remedies, shall have the right to enter the Premises as
the agent of the Tenant either by force or otherwise, without being liable for
any prosecution therefor and to relet the Premises as the agent of the Tenant,
and to receive all rent therefor, and as agent of the Tenant to take possession
of any business and trade fixtures of the Tenant and any goods and property
whatsoever on the Premises and to sell the same at public or private sale
without notice and to apply the proceeds of such sale and any rent derived from
reletting the Premises, after deducting its costs of conducting such sale and
its costs of reletting, in payment of the Rent due under this Lease, and the
Tenant shall be liable to the Landlord for any deficiency.
6.08 Termination. Upon the Landlord becoming entitled to re-enter upon the
Premises under any of the provisions of this Lease, the Landlord, in addition to
all other rights and remedies, shall have the right to determine forthwith this
Lease and the Term or any renewal thereof by giving notice in writing addressed
to the Tenant of its intention so to do, and thereupon the Rent shall be
computed, apportioned and paid in full to the date of such determination of this
Lease, the Tenant shall pay any other amounts for which the Tenant is liable
under this Lease pursuant to section 6.06, the Tenant shall forthwith deliver up
possession of the Premises to the Landlord and the Landlord may re-enter and
take possession of the Premises.
6.09 Distress. Whensoever the Landlord shall be entitled to levy distress
against the goods and chattels of the Tenant it may use such force as it may
deem necessary for the purpose and for gaining admission to the Premises without
being liable for any action in respect thereof or for any loss or damage
occasioned thereby. The Tenant waives and renounces the benefit of any present
or future statute taking away or limiting the Landlord's right of distress, and
covenants and agrees that notwithstanding any such statute none of the goods and
chattels of the Tenant on the Premises at any time during the Term or any
renewal thereof shall be exempt from levy by distress for Rent in arrears.
6.10 Landlord's Expenses Enforcing Lease. If it shall be necessary for the
Landlord to retain the services of any person for the purpose of assisting the
Landlord in enforcing any of its rights hereunder or otherwise available at law,
the Landlord shall be entitled to collect from the Tenant the cost of all such
services including, but not limited to, all legal fees and disbursements
incurred in enforcing the Landlord's rights hereunder and in connection with all
necessary court proceedings at trial or on appeal on a solicitor and own client
basis, as if the same were Rent reserved and in arrears hereunder.
6.11 Remedies Cumulative. No remedy conferred upon or reserved to the Landlord
under this Lease, by statute or otherwise, shall be considered exclusive of any
other remedy, but the same shall be cumulative and shall be in addition to every
other remedy available to the Landlord and all such remedies and powers of the
Landlord may be exercised concurrently and from time to time and as often as the
Landlord deems expedient.
6.12 Damage or Injury. The Landlord shall not be liable for any personal injury,
death or property loss or damage sustained by the Tenant, or its employees,
agents, sublessees, licensees or those doing business with it in the Premises or
anywhere in the Project, no matter how caused except as a result of the
negligence of the Landlord, or those for whom the Landlord is responsible at
law, and the Tenant shall indemnify the Landlord against all actions or
liabilities arising out of such personal injury, death or property damage
or loss.
The Tenant hereby releases the Landlord and its officers, agents and employees
from all claims for damages or other expenses arising out of such personal
injury, death or property loss or damage. Without limiting the foregoing, the
Landlord shall not be liable for any such personal injury, death or property
loss or damage
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sustained by the Tenant or its employees, agents, sublessees, licensees or
invitees in the Premises or anywhere in the Project caused by theft or breakage
or by steam, water, rain, snow, radioactive materials, microwaves, deleterious
substances, gases, pollutants or any other materials or substances which may
leak into, issue or flow from any part of the Project or any adjacent or
neighboring lands and premises or from the water, steam or drainage pipes or
plumbing works of the same or from any place, or any loss or damage caused by or
attributable to the condition or arrangements of any electric or other wiring or
any damage caused by anything done or omitted to be done by any other tenant or
occupant of the Project, and the Tenant shall indemnify the Landlord against all
actions or liabilities arising out of such personal injury, death or property
damage or loss. The Tenant hereby releases the Landlord and its officers, agents
and employees from all claims for damages or other expenses arising out of such
personal injury, death or property loss or damage.
6.13 Holding Over. If the Tenant shall hold over after the expiration of the
Term or any renewal thereof and the Landlord shall accept the Rent or any
portion thereof the new tenancy thereby created shall be deemed a monthly
tenancy and not a yearly tenancy and shall be subject to the covenants and
conditions herein contained insofar as the same are applicable to a tenancy from
month to month, except that if the Tenant remains in possession without the
Landlord's written consent, the monthly installments of Annual Basic Rent shall
be 150% of the monthly installments of Annual Basic Rent payable for the last
month of the Term or any renewal thereof, prorated on a daily basis for each day
that the Tenant remains in possession, and in addition the Tenant shall be
liable for all costs, expenses, losses and damages resulting or arising from the
failure of the Tenant to deliver up possession of the Premises to the Landlord.
6.14 Inability to Perform. Whenever and to the extent that the Landlord or the
Tenant shall be unable to fulfill, or shall be delayed or restricted in the
fulfillment of any obligation hereunder by reason of being unable to obtain the
material, goods, equipment, service, utility or labour required to enable it to
fulfill any such obligation or by reason of any statute, law or order-in-council
or any regulation or order passed or made pursuant thereto or by reason of the
order or direction of any administrator, controller or board, or any
governmental department or officer or other authority, or by reason of not being
able to obtain any permission or authority required thereby, or by reason of any
other cause beyond its control whether of the foregoing character or not, the
Landlord or the Tenant, as the case may be, shall be entitled to extend the time
for fulfillment of such obligation by a time equal to the duration of such delay
or restriction, and the Tenant or the Landlord, as the case may be, shall not be
entitled to compensation for any inconvenience, nuisance or discomfort or damage
thereby occasioned, and shall not be entitled to cancel or terminate this Lease.
6.15 Interest. Interest on any money due to the Landlord under this Lease shall
be paid by the Tenant and shall accrue at the rate of prime plus 2% per annum,
such rate of interest to be calculated and compounded monthly, not in advance,
from the respective date upon which any such money becomes due to the Landlord.
In addition, the Tenant shall pay an administrative charge of $50.00 on all
payments which are not made when due, to compensate the Landlord for its
administrative costs in connection with such late payments.
6.16 Rules and Regulations. The Tenant shall observe and shall cause its
employees, servants, invitees, licensees, agents and all others over whom the
Tenant exercises any control to observe faithfully and comply with such
reasonable rules and regulations as the Landlord may from time to time adopt for
the Project as a whole. Nothing in this Lease shall be construed to impose upon
the Landlord any duty or obligation to enforce the rules and regulations or the
terms, covenants or conditions in any other lease against any other Tenant of
the Project, and the Landlord shall not be liable to the Tenant for violation of
the same by any other tenant, its servants, employees, agents, visitors or
licensees or any other person.
6.17 Expropriation. If the whole or any portion of the Project containing the
Premises shall be acquired or condemned by an authority having the power for
such acquisition or condemnation then the Term and any renewal thereof shall
cease from the date of entry by such authority. Nothing herein contained shall
prevent the
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<PAGE> 25
Landlord or the Tenant or both from recovering damages from such authority for
the value of their respective interests or for such other damages and expenses
allowed by law.
6.18 Accrual of Annual Basic Rent. The Annual Basic Rent shall accrue from day
to day. Where the calculation of any Additional Rent is not made until the
termination or expiry of this Lease, the obligation of the Tenant to pay such
Additional Rent shall survive the termination or expiry of this Lease and such
amounts shall be payable by the Tenant upon demand by the Landlord.
6.19 Metric Equivalent. Wherever there is any reference in this Lease to a
measurement or an area or the requirement for a measurement or calculation of an
area any such measurement or area may be expressed in either units of imperial
measurement or their metric equivalent as published by Canada Mortgage and
Housing Corporation or any other agency of the Government of Canada designated
by the Landlord.
6.20 Net Lease. It is the intention of the parties hereto that this Lease shall
be a net lease and that the Rent provided to be paid to the Landlord hereunder
shall be net to the Landlord and shall yield to the Landlord the entire such
rental during the Term and any renewal thereof without abatement for any cause
whatsoever except as set forth in subsection 6.04(a). Save as specifically set
forth in this Lease, all costs, expenses and obligations of every kind and
nature whatsoever relating to the Premises other than costs of a capital nature,
whether or not herein referred to and whether or not of a kind now existing or
within the contemplation of the parties hereto, shall be paid by the Tenant.
6.21 Governing Law. This Lease shall be construed in accordance with, and
governed by, the laws of the Province of British Columbia.
6.22 Number and Gender. Where required the singular number shall be deemed to
include the plural and the neuter gender the masculine of feminine.
6.23 Covenants. The Landlord and the Tenant agree that all of the provisions of
this Lease are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate provision
thereof. Should any provision or provisions of this Lease be illegal or not
enforceable it or they shall be considered separate and severable from this
Lease and its remaining provisions shall remain in force and be binding upon the
parties hereto as though the said provision or provisions had never been
included.
6.24 Time of the Essence. Time shall be of the essence of this Lease.
6.25 Headings. Any captions, headings and marginal notes throughout this Lease
are for convenience and reference only and the words and phrases contained
therein shall in no way be held deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation, construction or meaning of any
provision of or the scope or intent of this Lease nor in any way affect this
Lease.
6.26 Enurement. This Lease shall extend to, be binding upon and enure to the
benefit of the Landlord and the Tenant and their respective heirs, executors,
administrators, successors and permitted assigns.
6.27 Joint and Several Liability. All covenants, liabilities and obligations
entered into or imposed upon the Tenant, if more than one person, and the
Landlord, if more than one person, shall be joint and several covenants,
liabilities and obligations.
6.28 Continuation of Obligations. This Lease and the obligations of the Tenant
hereunder shall continue in full force and effect notwithstanding any change in
the person or persons comprising the Landlord.
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<PAGE> 26
6.29 Landlord's Limit of Liability. The term "Landlord" as used in this Lease so
far as covenants or obligations on the part of the Landlord are concerned shall
be limited to mean the Landlord as hereinbefore set out while it retains its
interest in the Premises, but upon sale, transfer or other disposition of that
interest, the Landlord shall be automatically relieved after the date of such
sale, transfer or other disposition of and from all liability arising out of the
requirement for performance of any obligations on the part of the Landlord
herein contained, it being understood and agreed hereby that the obligations
contained in this Lease on the part of the Landlord shall be binding upon the
Landlord, its successors and assigns, only during and in respect of the
respective successive periods of its interest in the Premises. The Tenant agrees
to attorn to a purchaser, transferee or person acquiring the interest of the
Landlord in the Premises, such attornment to be effective and self-operative
without the necessity of the execution of any further instrument on the part of
the Landlord, the Tenant or any other person.
6.30 Consents.
(a) Wherever and whenever the approval or consent of the Landlord is required to
be obtained, such approval or consent may be given by such officer, agent,
committee, person or persons as may from time to time be nominated or appointed
in writing by the Landlord for such purpose, and any such power of nomination or
appointment may be delegated by the Landlord. Such nominees, appointees or
delegates shall have the right to withhold approval of or consent to and may
reject any matter or thing submitted for approval or consent, and every such
approval or consent given shall be in writing and may contain such conditions
and stipulations as the Landlord may deem fit.
(b) Whenever the Landlord shall withhold its leave, consent or approval, in any
case where its leave, consent or approval is required under this Lease, the
Landlord shall not be deemed to be withholding such leave, consent or approval
unreasonably if the reason therefor is the due preservation of a standard of
planning and maintenance as high as that required by the Landlord elsewhere in
the Project.
6.31 Amendments. This Lease shall constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and shall not be
modified, amended or waived except by an instrument in writing duly executed and
delivered by the parties hereto or by their successors and permitted assigns.
ARTICLE 7 - ADDITIONAL PROVISIONS
The additional provisions, if any, which are set forth in Schedule "C" are
hereby incorporated in and form a part of this Lease for all purposes.
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<PAGE> 27
IN WITNESS WHEREOF the parties hereto have duly executed and delivered this
Lease as of the day and year first above written.
BY THE LANDLORD:
The Common Seal of )
MARINE WAY ESTATES LTD. )
was hereunto affixed in the presence of: )
)
_______________________________________ ) C/S
Authorized Signatory )
)
_______________________________________ )
Authorized Signatory )
BY THE TENANT:
The Common Seal of )
ADVANCED GRAVIS COMPUTER )
TECHNOLOGY LTD. )
was hereunto affixed in the presence of: )
)
_______________________________________ ) C/S
Authorized Signatory )
)
_______________________________________ )
Authorized Signatory )
This is page twenty-seven (27) of an Indenture dated the day of , 1995
between Marine Way Estates Ltd. and Advanced Gravis Computer Technology Ltd.
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<PAGE> 28
BOUNDARY CENTRE
SCHEDULE "A"
Description of the Lands
LANDLORD: MARINE WAY ESTATES LTD.
TENANT: ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
ALL AND SINGULAR that certain parcel or tract of land and premises situate,
lying and being in the City of Vancouver, Province of British Columbia, and more
particularly known and described as:
Lot 1, Plan 79633, District Lot 161
Page 28 of 41
<PAGE> 29
BOUNDARY CENTRE
SCHEDULE "B"
Plan of the Premises
LANDLORD: MARINE WAY ESTATES LTD.
TENANT: ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
Page 29 of 41
<PAGE> 30
BOUNDARY CENTRE
SCHEDULE "C"
Additional Provisions
LANDLORD: MARINE WAY ESTATES LTD.
TENANT: ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
7.01 Renewal. The Landlord covenants and agrees with the Tenant as follows:
(a) If the Tenant is not then in default in the observance and performance of
the covenants, provisos and agreements contained in this Lease on its part to be
paid, observed and performed, then the Tenant shall have the option, to be
exercised by giving to the Landlord written notice (herein called the "First
Renewal Notice") not more than nine (9) months and not less than six (6) months
prior to the Expiry Date, to renew this Lease for a further term of five (5)
years (the "Renewal Term") on the terms and conditions as are set forth in this
Lease, except for this section 7.01(a) and except for the amount of the Annual
Basic Rent for the Premises during the Renewal Term which amount of Annual Basic
Rent shall be determined by agreement between the Landlord and the Tenant not
less than three months after the date on which the Landlord receives the Renewal
Notice from the Tenant and failing such agreement within such period, the amount
of the Annual Basic Rent for the Premises during the Renewal Term shall be the
rent which would be paid for the Renewal Term as between the Landlord and a
willing tenant dealing at arm's length for premises reasonably comparable to the
Premises, as determined by arbitration as hereinafter set forth. The amount of
the Annual Basic Rent for the Premises during the Renewal Term shall not be less
than the amount of the Annual Basic Rent for the Premises payable during the
Term. The Landlord and the Tenant covenant and agree that upon receipt of the
Renewal Notice by the Landlord, the Tenant shall be obligated to lease the
Premises from the Landlord and the Landlord shall be obligated to lease the
Premises to the Tenant on the terms and conditions set forth in this subsection
7.01(a).
7.02 Arbitration. If under the provisions of this Lease the Landlord and the
Tenant have failed to agree as to the amount of the Annual Basic Rent payable
for the Premises with respect to any renewal term by the date required
hereunder, the determination of the Annual Basic Rent shall be referred to a
single arbitrator to be agreed upon by the Landlord and the Tenant and failing
agreement as to such arbitrator within ten days after either party shall have
demanded the appointment of such arbitrator, then upon the application of either
the Landlord or the Tenant, the arbitrator shall be appointed by a Judge of the
Supreme Court of British Columbia. The determination by the arbitrator shall be
final and binding upon the Landlord and the Tenant, and their respective
successors and permitted assigns. In making the determination of the amount of
the Annual Basic Rent for any renewal term the arbitrator shall follow the basis
for determination set forth in the respective clause of section 7.01 applicable
to such renewal term. The fees and expenses of the arbitrator shall be borne by
the Tenant and the Landlord equally. The provisions of this paragraph shall be
deemed to be a submission to arbitration within the provisions Commercial
Arbitration Act, S.B.C. 1986, Ch. 18, and any statutory modifications or
re-enactment thereof, provided that any limitations on the remuneration of the
arbitrator imposed by such legislation shall not be applicable. The arbitration
shall be held in the City of Vancouver, British Columbia, unless otherwise
agreed in writing by the Landlord and the Tenant. It is understood and agreed by
the Landlord and the Tenant that until the amount of the Annual Basic Rent for
any renewal term is finally determined, the Tenant shall pay to the Landlord
monthly installments on account of the Annual Basic Rent equal to the monthly
installment of Annual Basic Rent payable for the month immediately preceding
such renewal term. Once the arbitrator has determined the amount of the Annual
Basic Rent for such renewal term then the Annual Basic Rent paid as aforesaid
shall be adjusted to reflect the Annual Basic Rent as determined for the
respective renewal term.
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BOUNDARY CENTRE
SCHEDULE "D"
Landlord's Work
LANDLORD: MARINE WAY ESTATES LTD.
TENANT: ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
The Tenant shall lease the Premises "As Is". "As Is shall be the state and
condition of the Premises as of January 20, 1995. The Landlord will repaint the
Premises (same color, one coat) and steam clean the existing carpets. In the
event the Tenant elects a different color paint, the second coat shall be at the
Tenant's expense.
The Tenant is under no obligation to remove or alter any of the Premises from
the "As Is" condition as of March 1, 1995, upon the expiration of the Term.
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<PAGE> 32
BOUNDARY CENTRE
SCHEDULE "E"
Tenant's Work
LANDLORD: MARINE WAY ESTATES LTD.
TENANT: ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
After the completion of the Landlord's Work and in the event the Tenant
undertakes Improvement the Tenant will at its expense and subject to the
provisions of this Schedule C provide, furnish and install within the Premises
all finishings, fixturing, architectural, electrical and mechanical work in
addition to the Landlord's Work described herein to complete the construction of
the Premises in accordance with the approved Tenant's plans and specifications
and to equip the Premises ready for occupation including, but not limited to,
the following:
1. Store Front or Entrance Doors
Any changes to the store front desired by the Tenant must conform to the
Landlord's design criteria. Prior written approval for the Tenant's design
must be obtained from the Landlord. If the Premises are not retail
premises, the Tenant shall provide entrance doors to the building
standard.
2. Tenant Logo Sign
Signing, including lighting thereof, in accordance with the Landlord's
design criteria. Prior written approval for the design must be obtained
from the Landlord. Each tenant shall install its sign on the sign band (if
there is one) above the store front of the Premises and pay the Landlord's
standard charge for use of the sign band.
3. Electrical Installation
The total electrical installation within the Premises conforming to
applicable codes, including breakers in the panel, connection of air
conditioning unit, lighting, outlets, emergency and exit lighting and
electrical service to signs and water heater. If the gypsum board or other
material selected by the Landlord to face the demising walls is removed by
the Tenant for the purpose of installing the Tenant's electrical services
or having them inspected, then such gypsum board or other material shall
be replaced by the Tenant.
4. Telephone Services
All distribution and extensions of telephone conduit within the Premises
and all intercom, communication, burglar alarms and signal systems
required by the Tenant.
5. Plumbing
In accordance with the Landlord's design criteria, the Tenant shall supply
and install all plumbing, piping, equipment, fixtures and labour required
to extend and connect plumbing services from fixtures to point of
connection provided by the Landlord, including provision for hot water
that may be required by the Tenant. If water inlet services in excess of
those provided by the base building system are required, the Tenant may at
the discretion of the Landlord be required to provide metering. If the
Tenant is engaged in a
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<PAGE> 33
retail trade required by law to make provision for public washroom
accommodation within the Premises, the installation of water closets,
washbasins and plumbing pertaining thereto and all finishing of the said
washrooms will be carried out by the Tenant at its cost.
If gypsum board or other material selected by the Landlord to face the
demising walls is removed by the Tenant for the purpose of installing the
Tenant's plumbing services or having them inspected, then such gypsum
board or other material shall be replaced by the Tenant.
6. Mechanical
In accordance with the Landlord's design criteria, the Tenant shall supply
and install piping, ductwork, materials, labour and equipment for the
distribution of air-conditioned air, the removal of air not suitable for
recirculation from the Premises, and the replacement of such air (the
"Ventilation Make-up Air Distribution System"). Any ductwork extensions
and connections and any final piping extensions and connections required
outside the Premises will be done by the Landlord's contractor at the
Tenant's expense.
If required, the Tenant will supply and install, at its expense, a kitchen
exhaust hood complete with control panels, filters and fire protection
systems conforming to applicable by-laws and satisfactory to the Landlord.
7. Sprinklers
Modifications and relocation of sprinkler system layout to suit the
Tenant's requirements. Any such revision to the sprinkler system layout
shall be done by the Landlord's sprinkler consultant to ensure conformity
to insurance underwriting requirements and any work necessitated thereby
performed by the Landlord's contractor at the Tenant's expense. Unit
prices may be provided by the Landlord to the Tenant.
8. Fire Protection
Any fire fighting, fire prevention, safety and emergency equipment or
lighting in and about the Premises, additional to that included in the
base system provided by the Landlord, required by any authority having
jurisdiction.
9. Interior Finishing
All other work, interior finishes and installation (beyond those set out
in the Landlord's Work ), including, without limiting the generality
thereof, ceilings, floor covering, painting, show window enclosures and
display platforms, partitions, special wall and ceiling finishes, vertical
and horizontal transportation equipment, trade fixtures and security
vaults, and all requirements of licensing, health and other authorities
having jurisdiction to the specified project standards established by the
Landlord. Access panels shall be provided in ceilings where removable tile
ceiling systems are not used for access to equipment which may be located
above such ceilings. The Tenant has the right to take down the wall
between the "production area" and "storage area" as necessary.
10. Additional Capacity
If the Tenant requires additional electrical capacity or additional
telephone, air handling or air-conditioning capacity or other increased
services, the Tenant must notify the Landlord in writing within the time
limit for submitting of the Tenant's plans and specifications. Failing
such notification, the Landlord's Work will be complete upon installation
of the primary services for the Premises. The Landlord will only be
prepared to install additional services or additional capacity if the
increased capacity is available, and the Tenant
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<PAGE> 34
shall pay for any additional costs incurred by the Landlord in connection
with such installation, with such work being done by the Landlord's
contractor.
11. Specific Restrictions
(a) Under no circumstances shall the Tenant or its contractor at any time
be permitted to drill or
cut conduit, pipe sleeves, chases, duct equipment, openings in the
floor, columns, walls or roofs of the Project.
(b) No suspended loads will be permitted from the underside of the
structure slab or roof structure without written approval by the
Landlord.
(c) The Tenant will not be permitted to install openings, signs, store
front and/or improvements in the exterior walls or interior demising
partitions or bulkheads above the Premises for any purpose without
the prior written approval of the Landlord.
(d) Mounting of burglar alarms and signal systems on the exterior surface
of the walls of the Premises or the Project requires specific prior
consent. Individual antenna of any nature on, and all access to, the
roof of the Project is prohibited.
PLANS AND SPECIFICATIONS FOR THE TENANT'S WORK
So that the Landlord's and the Tenant's Work may proceed without delay and in
an efficient manner, the following provisions shall apply:
1. Provision of Outline Drawing and Target Dates
(a) Within a reasonable time following acceptance of the Offer to Lease
the Landlord will:
(i) provide the Tenant with an Outline Drawing containing basic
information pertinent to the Project as outlined in the Landlord's
and Tenant's Work portion of this Schedule C; and
(ii) advise the Tenant of target dates (and, thereafter, of any revised
target dates) for the commencement and completion of the Tenant's
Work.
(b) All designers employed by the Tenant shall be familiar with the
project working drawings to the extent necessary to complete the
required architectural working drawings and specifications. The
Landlord shall make such drawings available for inspection at the
site project office or at the Landlord's head office.
2. Submission of Plans and Specifications
Within 30 days of the date of dispatch by the Landlord of the Outline
Drawing the Tenant will provide the Landlord with 1 sepia and 6 printed sets
of plans and specifications for the Tenant' Work.
Such plans and specifications shall be of uniform size to a minimum scale of
1/8" to each foot and shall include, but not be limited to, the following:
(i) specifications, identification and colors of materials for all plans
and work;
(ii) interior elevations;
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(iii) interior finishing schedule;
(iv) facilities or installations that affect the Tenant's perimeter walls;
(v) floor plans;
(vi) complete plans and specifications for all electrical, mechanical, and
plumbing work including details and performance information relating
to all fixtures, equipment and any underfloor services, including
conduit runs to be recessed or buried in the floor, all in accordance
with the Landlord's approvals;
(vii) plans and specifications for store front, including sections and
elevations in accordance with the Landlord's requirements;
(viii) sign details in compliance with the Landlord's requirements;
(ix) reflected ceiling plan showing all equipment and fixtures and the
method of ceiling suspension, access panels servicing Landlord's or
Tenant's equipment and catwalk details (if any); and
(x) complete electrical and mechanical drawings incorporating tabulations
of total loads and loads per square foot in watts.
3. Approval of Plans and Specifications
Within 15 days after receipt of the plans and specifications the Landlord
shall notify the Tenant either of its approval thereof or of any changes
required by it. If changes are required, the Tenant, within 15 working days
after the required changes are notified by the Landlord, shall submit
amended plans and specifications to the Landlord for approval. Prior to
resubmission, the Tenant will, if necessary, discuss any required changes
with the Landlord's construction manager. The Tenant shall keep a complete
set of approved final plans and specifications on the Project throughout the
duration of the Tenant's Work.
4. The Tenant shall pay to the Landlord $ for the review of the Tenant's plans
and specifications by the Landlord's consultants. If the Tenant's plans and
specifications require more than one review the Tenant shall pay the
additional costs.
GENERAL REQUIREMENTS FOR THE TENANT'S WORK
1. Good Workmanship
All the Tenant's Work required by the Tenant to complete the Premises for
occupancy shall be carried out with good workmanship and with new materials
which shall all be of a high quality and conforming to the best standards of
practice and shall not be in contravention of the codes or regulations of
the City or any other authority having jurisdiction.
2. Insurance
Before commencing the Tenant's Work, the Tenant shall furnish written proof
to the Landlord that liability, fire, general workmen's compensation and any
other insurance reasonably required by the Landlord has been effected and is
in force to the limits and on the terms which the Landlord may reasonably
approve. The Landlord shall be named as co-insured in the Tenant's
insurance.
3. Tenant's Responsibility
The preparation of all plans and specifications for the Tenant's Work and
the calling of tenders and letting of contracts relating to the Tenant's
Work and the supervision and completion of the Tenant's Work and payment
therefor shall be the responsibility of the Tenant.
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4. Approval
Approvals must be obtained by the Tenant for its work from the City Building
Department and all other authorities having jurisdiction and the Tenant must
submit evidence of these approvals to the Landlord before commencing work.
The Tenant shall be responsible for payment of all fees and charges incurred
in obtaining said approvals and for obtaining an occupancy permit prior to
opening.
5. Provision for Payment
The Landlord shall be entitled to withhold approval of any plans or
specifications or the authorization for work to proceed until it has been
furnished with reasonable evidence that the Tenant has made suitable
provision to pay the full cost of the work and to discharge any liens that
may arise therefrom including a performance bond if requested by the
Landlord.
6. Professional Designers and Contractors
The Tenant shall utilize professional designers and contractors approved by
the Landlord and acceptable to any labour authority having jurisdiction in
connection with all the requirements of this Schedule C. The Landlord may
provide the Tenant from time to time with a list of approved designers.
7. Rules and Regulations
The Tenant and its contractors shall comply with all rules, regulations and
stipulations which the Landlord or its contractor may make from time to
time. The rules, regulations and stipulations may include, but shall not be
limited to, matters relating to:
(i) the handling and storage of material and equipment;
(ii) hours of work and coordination of activity;
(iii) use of the facilities and utilities;
(iv) scheduling of work; and
(v) deliveries.
8. Waste Disposal
The Tenant shall at all times keep the Premises and all other areas clear of
all waste materials and refuse caused by itself, its suppliers, contractors
or by their work.
The Tenant shall remove all waste materials and refuse directly from the
Premises at its expense.
The Landlord may require the Tenant to cleanup on a daily basis and shall be
entitled to cleanup at the Tenant's expense if the Tenant shall not comply
with Landlord's reasonable requirements in this respect.
At the completion of the Tenant's Work, the Tenant shall leave the Premises
clean and to the satisfaction of the Landlord. The final cleanup shall
include the cleaning of all lighting fixtures, millwork units, store fronts
and space which may be affected by the work.
9. Hoarding or Screening
The Tenant shall ensure that all work is performed and all tools and
materials are used and stored behind hoarding or screening as required by
the Landlord.
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10. Damage
Any damage caused by the Tenant's contractor or sub-trades employed on the
Tenant's Work to any work of the structure or the systems employed in the
Project or to any property of the Landlord or of other tenants shall be
repaired by the Landlord's contractor to the satisfaction of the Landlord
and the Landlord may recover the costs incurred from the Tenant.
11. Landlord may Perform
If the Tenant's contractor neglects to carry out the work properly or fails
to perform any work required by or in accordance with the approved plans and
specifications, the Landlord, after 5 days written notice to the Tenant and
the Tenant's contractor, may, without prejudice to any right or remedy the
Landlord may have, complete the work, remedy the default or make good any
deficiencies and recover the costs incurred from the Tenant.
12. Security
The Tenant shall be entirely responsible for the security of the Premises
during construction and the Landlord shall not be liable for any loss or
damage suffered by the Tenant.
13. Fire Extinguisher
The Tenant shall maintain and keep on the Premises at all times during
construction and the Term of the Lease a suitable portable fire extinguisher
for Class A, B and C fires.
14. Lien
The Tenant shall indemnify and hold harmless the Landlord from any and all
claim arising out of work done by the Tenant or its contractors and the
Tenant shall promptly cause to be removed any liens filed against title to
the Project, failing which the Landlord may do so and the Tenant shall pay
all the Landlord's costs, including legal costs, as incurred by the Landlord
in so doing.
15. Resolution of Dispute
The opinion in writing of the Landlord's Architect shall be binding on both
the Landlord and Tenant respecting all matters of dispute regarding the
Landlord's Work and the Tenant's Work, including the state of completion and
whether or not work is completed in a good and workmanlike manner.
WORK DONE BY LANDLORD FOR TENANT
Any equipment or work provided by the Landlord for or at the request of the
Tenant, shall be at the expense of the Tenant. Changes or additions to the
structure or the systems employed in the Project necessitated by the Tenant's
Work shall be first approved by the Landlord and shall be designed and performed
by the Landlord's Architect or structural, mechanical and electrical engineers
and the Landlord's contractor at the Tenant's cost.
NON-COMPLIANCE
1. If the Tenant does not comply with the provisions of the Offer to Lease or
any other agreement relative to the construction or occupation of the
Premises, including this Schedule C, the Landlord, in addition to and not in
lieu of any other rights or remedies, shall have any or all of the following
rights in its discretion:
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(a) if the Lease contemplated by the Offer to Lease has not yet been
fully executed:
(i) to decline to execute the same unless the Tenant shall forthwith
remedy its default; or
(ii) to withdraw its acceptance of the Offer to Lease and declare the
agreement between the parties arising from its acceptance
terminated; or
(iii) to execute such Lease and require execution by the Tenant,
notwithstanding such non-compliance by the Tenant, provided that the
execution of the Lease by the Landlord is not to be deemed to be a
waiver by the Landlord of the noncompliance by the Tenant and the
provisions of subsection (b) hereof shall then apply;
(b) if the said Lease has been fully executed:
(i) to declare all fees, charges and other sums payable by the Tenant to
the Landlord pursuant to this Schedule C to be rent and to be
collectible as rent under the provisions of the Lease; or
(ii) to declare and treat the Tenant's non-compliance as a default or
breach of covenant under the Lease and exercise any right available
under the provisions of the Lease, including the right of
termination.
2. In any event of termination pursuant to the above provisions the Landlord may
further elect either to:
(a) retain for its own use without payment therefor all or any of the
Tenant's Work which has been commenced, installed or completed to the
date of such termination; or
(b) forthwith demolish or remove all or any work and restore the Project
to the condition in which the same were prior to the commencement,
installation or completion of all or such of the Tenant's Work as is
so demolished or removed and recover the cost of so doing from the
Tenant.
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BOUNDARY CENTRE
SCHEDULE "F"
RULES AND REGULATIONS
LANDLORD: MARINE WAY ESTATES LTD.
TENANT: ADVANCED GRAVIS COMPUTER TECHNOLOGY LTD.
1. In these Rules and Regulations:
(a) "Business Day" means any of the days from Monday to Friday of each week
inclusive unless such day is a holiday;
(b) "Holiday" means any statutory holiday and any day declared to be a civic
holiday in the City of Vancouver, B.C., and any day proclaimed pursuant to
any statute to be a holiday in the Province of British Columbia;
(c) "Demised Premises" means the Premises demised by the Landlord to the
Tenant under and by virtue of the Lease to which these Rules and
Regulations are scheduled;
(d) "Building" means the building in which the Demised Premises are situated.
2. The sidewalks, entries, passages, elevators and staircases, in the
Building shall not be obstructed or used by the Tenant, its agents,
servants, contractors, invitees or employees for any purpose other than
ingress to and egress from the Demised Premises. The Landlord reserves
unrestricted control of all parts of the Lands and Premises employed for
the common benefit of the tenants including without limitation the
sidewalks, entries, corridors and passages not within the Demised
Premises, washrooms, lavatories, air conditioning closets, fan rooms,
janitor's closets and other closets, stairs, elevator shafts, flues,
stacks, pipe shafts and ducts and shall have the right to place such signs
and appliance therein, as it may deem advisable, provided that ingress to
and egress from the Demised Premises is not unduly impaired thereby.
3. The water closets and other water apparatus shall not be used for any
purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
therein. Any damage resulting from misuse shall be borne by the Tenant by
whom or by whose agents, servants, employees, licensees or invitees, the
same is caused. Tenants shall not let the water run unless it is in actual
use, and shall not deface or mark any part of the Building or drive nails,
spikes, hooks or screws into the walls or woodwork of the Building.
4. No one shall use the Demised Premises for sleeping apartments or
residential purposes, or for the storage of personal effects or articles
other than those required for business purposes.
5. Whenever an emergency situation shall exist because of fire, explosion or
the threat of fire, explosion or other hazard, the Tenant, agent,
servants, contractors, invitees or employees shall, if requested by the
Landlord, the Fire Department or the Police vacate the Building forthwith
in the manner prescribed by Fire Department instructions.
6. The Demised Premises shall not be used for storage of any inflammable,
explosive or dangerous materials without adequate proper safeguards or for
any purposes which may in any way increase the risk of fire or
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<PAGE> 40
obstruct or interfere with the rights of other occupants of the Building
or violate or be at variance with any laws relating to fires or with the
regulations of the Fire Department or the Board of Health.
7. No musical instruments or sound producing equipment or amplifiers which
may be heard outside the Demised Premises shall be played or operated on
the Demised Premises.
8. The Tenant shall not obstruct or interfere with access to main header
ducts or janitor or electrical closets or heating, ventilating or air
conditioning ducts or equipment in the Demised Premises.
9. The Tenant shall not mark, drill into, bore or cut, or in any way damage
or deface the walls, ceilings or floors of the Demised Premises. No wires,
pipes or conduits shall be installed on the Demised Premises without the
prior approval of the Landlord, such approval not to be unreasonably
withheld. No broadloom or carpeting shall be affixed to the Demised
Premises by means of a non-soluble adhesive or similar product.
10. No storage of equipment or materials shall be permitted outside of the
leased area.
11. The Landlord shall allocate the parking stalls, the Tenant shall furnish
the Landlord with a list of car license plate numbers and emergency
numbers upon request.
12. The Tenant shall not erect or install any exterior signs or interior
window or door signs or advertising media or window or door lettering or
awnings or canopies in or about the Lease Premises, or elsewhere in the
Building without the previous written consent of the Landlord. The Tenant
shall indemnify and save harmless the Landlord from all claims, demands,
loss or damage to any person or property arising out of or in any way
caused by the erection, maintenance or removal of any sign or other
installation erected or installed on or about the exterior of the media,
lettering, awnings and canopies, as may be approved by the Landlord, in
good condition and repair at all times. Any license or other fee for a
sign erected or other installation made under the provisions of this
Article shall be paid by the Tenant. The Tenant shall promptly remove at
the request of the Landlord, any signs, advertising media, window or door
lettering or awnings or canopies which offends the requirements of this
Article or which are not of a good professional quality. The Landlord may
enter into the Leased Premises to cure a default under this Article.
13. Canvassing, soliciting and peddling in the Building are prohibited and the
Tenants shall cooperate to prevent same.
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BOUNDARY CENTRE
SCHEDULE "G"
Right of First Refusal to Lease Unit 103B - 3738 North Fraser Way
The Tenant shall have the option to lease Unit 103B (mezzanine). This option is
to be exercised prior to March 15, 1995. After that date the Landlord has no
obligation to advise the Tenant that the Landlord has an offer for the Premises
and is free to enter into a lease with a third party.
The net rental rate for Unit 103B shall be based upon Ten ($10.00) Dollars per
square foot per annum. The Landlord will undertake work to complete the Premises
to a value of Sixteen Thousand ($16,000.00) Dollars.
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