<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...... to ......
Commission File Number 0-8345
---------------------------
4FRONT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-0675510
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5650 Greenwood Plaza Blvd., Suite 107
Englewood, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 721 7341
---------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.001 per share
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 requirements for the past 90 days. Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of April 23, 1998, the registrant had 7,051,317 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of April 23, 1998, was approximately $75,159,000 as of the
close of business on that date.
Documents Incorporated by Reference
None
<PAGE>
PART I
ITEM 1. BUSINESS
The following summary is qualified in its entirety by the more detailed
information, including Consolidated Financial Statements, and the Notes thereto,
appearing elsewhere in this Annual Report on Form 10-K. References in this
Annual Report on Form 10-K to a fiscal year of the Company refer to the twelve
month period ending on January 31 of that year. Therefore, fiscal 1998 refers to
the twelve month period ending January 31, 1998.
4Front Technologies, Inc., ("4Front" or "the Company") is a leading
independent computer services and networking company that delivers a broad range
of specialized computer services primarily to blue chip corporations and
government authorities in the United Kingdom ("UK") and, to a growing extent, in
Continental Europe. 4Front's services include hardware maintenance, help desk
support, network services, specialized software solutions and the supply of
high-end storage systems. 4Front's customers include British Petroleum, British
Telecom, Dupont, Reuters, Pfizer, NatWest Capital Markets, JP Morgan, IBM,
Computer Sciences Corporation and the UK Ministry of Defence.
The Company's revenues have grown from approximately $2.8 million in
fiscal 1994 to over $84 million in fiscal 1998 principally through strategic
acquisitions that furthered the expansion of its existing operations,
complemented by organic growth. During that period, pre-tax income increased
from $376,000 to $4.1 million.
The Company seeks to capitalize on technological change in the computer
services industry by providing a single source for specialized high-end
solutions to information systems problems that are beyond the expertise of most
in-house management information systems ("MIS") departments. The UK computer
services market, the fastest growing in Europe, is currently estimated at $18
billion annually, according to the 1997 Holway Report on Software and Computing
Services in Europe. This market grew by an estimated 19% between 1996 and 1997
and remains highly fragmented, with no single company serving more than 5% of
the UK.
The Company believes that the demand for its products and services will
continue to grow in the UK and Europe due to a number of factors that reflect
recent worldwide industry trends. Until recent years, corporations satisfied
information technology ("IT") requirements through mainframe or stand-alone
midrange systems utilizing hardware and software provided by a single original
equipment manufacturer ("OEM"). Design and development as well as maintenance
and support of these systems could be provided directly by such single-source
OEMs in conjunction with a corporate in-house IT staff. Accelerating
technological advancement, migration of organizations toward multivendor
distributed networks, and globalization of IT needs have contributed to a
significant increase in the sophistication and interdependency of corporate
computing systems. The Company believes that the desire by corporations to focus
upon their core activities while enjoying the benefits of such multivendor
distributed networks, together with increasing skill shortages within the IT
industry, have led them increasingly to rely upon specialist outsourcing service
organizations such as the Company to support the development and maintenance of
their IT strategy.
Overview of the UK and European Information Technology Market
Historically, large UK and European organizations satisfied IT
requirements through mainframe or stand-alone midrange systems utilizing
hardware and software produced by a single OEM. Maintenance, support and
development of these systems were usually provided directly by the OEMs or, in
certain instances, by an organization's in-house technical support staff.
However, developments over recent years have resulted in a movement by many
organizations away from this traditional reliance on OEMs and in-house technical
support staff towards outsourced solutions provided by independent suppliers of
multivendor computer hardware maintenance and technology support services.
European computing environments have become increasingly complex as a
result of rapid worldwide changes in technology. The principal factor
contributing to the growing complexity has been the migration of large
organizations from centralized computing environments characterized by single
vendor mainframe or stand-alone systems to a decentralized, geographically
diverse environment characterized by multivendor and multisystem distributed
networks. This has resulted in greater expense and substantial inefficiencies
for organizations in developing and supporting their computer systems.
Furthermore, the imminent introduction of the European single currency and the
problems posed by the need for Year 2000 compliance, are further factors which
add to this growing complexity.
<PAGE>
The Company believes that, as a result of these factors, the complexity
of system development as well as the breadth of corporate computing and
communication needs have surpassed the abilities and the available time of many
in-house MIS departments, and have led to a greater acceptance of outsourcing.
The Company also believes that customers are reluctant to outsource computer
services directly to OEMs, which may be perceived by customers as favoring the
OEMs' own product line. Meanwhile, the increased corporate use of IT for
operational as well as mission critical applications has increased the use of
complex, customized corporate computing systems that are beyond the expertise of
most horizontal integrators and VARs. Furthermore, many OEMs now rely on
independent service organizations such as the Company to provide distribution,
integration and warranty/post warranty maintenance and support services.
As a result, business and government organizations are increasingly
looking to multiple third-party vendors employing skilled IT professionals to
define, develop and install complex customized information and communication
systems and to provide applications software and comprehensive solutions to
their information systems needs. These organizations are also turning to
third-party vendors to provide IT services in order to maximize the
effectiveness of their in-house systems and personnel. In addition, the home
computer market is growing rapidly throughout Europe and home computer users are
also increasingly looking for independent sources of support and advice.
The 4Front Solution
The Company has positioned itself as a single source for a wide range
of specialized high-end information technology solutions and services which its
customers cannot readily obtain from their in-house MIS departments and which
are not ordinarily offered together by most value added resellers and horizontal
distributors. In addition, as an independent provider of solutions and services,
the Company is able to offer products from a range of OEMs and is therefore not
viewed by its customers as favoring one OEM's product over another, except on
the basis of quality. The Company combines strong technical expertise,
innovation and "best of breed" products in order to design and implement
customized IT solutions and to improve the productivity of its customers'
existing IT assets.
The Company reviews its product offerings on a continuous basis in
order to ensure that it is able to provide the most advanced and cost-effective
solutions. The services and products offered by the Company are designed
primarily to enhance the effectiveness of, rather than replace, in-house MIS
departments, thereby creating a partnership approach for the managers of such
departments and an incentive to utilize the services and products of the
Company. The partnership principle is a key aspect of the Company's working
relationship with its customers.
Company Activities
The Company provides a comprehensive array of IT services and products
to customers across a broad range of computing environments, including
mainframes, networks, workgroups, PCs and related peripherals, although its main
area of focus is the network and distributed computing market. The Company
prices its products and services on either a fixed fee or per incident basis.
The Company customizes its contracts to the individual customer based generally
on the nature of the customer's requirements, the term of the contract and the
combination of services that are provided. Products and services are also
bundled to match the requirements of customers. The Company's activities consist
of hardware maintenance, help desk and other managed services, network services,
specialized software solutions and the supply of high-end storage systems.
Hardware Maintenance
The Company is the fourth largest independent hardware maintenance
company in the UK. 4Front provides full on-site maintenance and support services
through a team of field services engineers supported by technical repair
specialists, all tailored to its customers' requirements. The Company's
maintenance services are focused principally on the server, desktop and EPOS
(Electronic Point of Sale) markets. Unlike most in-house IT departments, 4Front
can service mission critical installations by providing guaranteed response
times and 24 hour a day support, 7 days a week, 365 days a year. Services are
coordinated from the Company's National Call Center in West London for UK
operations, from its base outside Paris for its French operations and from
Brussels for its Benelux operations.
<PAGE>
The Company is ISO 9002 certified and supports the majority of the
industry leading hardware platforms including IBM, DEC, SUN, Hewlett-Packard,
Dell, Compaq, Mitsubishi Apricot, as well as networking products and associated
peripherals from suppliers such as Cisco and Bay Networks. The Company typically
provides maintenance and support under service contracts with terms ranging from
one month to three years. During fiscal 1998, these contracts had renewal rates
of approximately 80%. The Company also repairs and refurbishes computer parts
and assemblies for service customers and for OEMs, distributors and other
third-party maintenance companies.
Help-Desk Services
4Front provides a range of help desk services both to corporate
customers, and through alliances with major retailers, to the individual `home
computer' user market. The Company's help desk operations are provided and
directed from the Company's National Call Center in West London.
For corporate customers, 4Front provides help desk services which are
tailored to the specific requirements of the customer. The service can range
from a remote off-site help desk support service for a designated number of
corporate users to a complete "Enterprise Help Desk" providing a single point of
contact for all computer problems. Depending on the customer's requirements, the
help desk service can be run from the Company's own offices or can be located
on-site at the customer's premises. For example, over 50 4Front employees are
based on-site at one customer's location in Southern England. The Company's help
desk services can provide call response and logging, fault diagnosis, first line
support, call priority, liaison with in-house services or third party sources,
back up from 4Front's own centralized support staff, and management of the call
to final resolution. Because the Company is not tied to a specific vendor, the
Company makes recommendations without the limitations imposed by close
affiliation to a particular manufacturer.
The Company provides telephonic help desk services to the individual
home computer user market 24 hours a day, 7 days a week. The service is offered
either under the Company's "4Help" brand or under the name of the Company's
corporate customer. The Company currently has agreements to provide help desk
services to customers of a number of leading UK computer retailers including
Argos, the leading UK catalog retailer, and John Lewis Ltd, the leading UK
private department store chain.
Other Managed Services
4Front also provides a range of managed services to its corporate
customers. These services include special project management, enterprise-wide
roll-out programs, system and software upgrades, Year 2000 consultancy and
training.
Network Services
The Company offers its corporate and government customers a
comprehensive range of enterprise-wide network solutions and services. 4Front
has expertise in a diverse range of specialized areas of wide and local area
networking, including network communications (voice and data) and
interconnectivity, remote access, multi-platform integration, Internet and
Intranet technology, and enterprise wide storage solutions. The Company offers a
complete network solution encompassing network design, installation,
integration, monitoring and support, remote network management and network
training. In meeting its customers' network requirements the Company supplies
both network services and network products. These include hardware, software,
network computers, cabling and storage products. 4Front has a wide range of
network product and service accreditations from vendors such as Novell,
Microsoft, IBM, Compaq, 3Com, British Telecom, Shiva, Unisys, Intel, Sun and
Mitsubishi Apricot.
In addition to offering complete solutions, depending on its customers
needs, 4Front may supply specific individual network services. For example,
cabling and installation is a rapidly growing individual component of 4Front's
offerings. The Company is approved by British Telecom as a Category 5 installer
and is a British Telecom cabling and installation partner.
<PAGE>
Software Solutions
The Company supplies and supports financial application software to
corporate and government customers. The software is either proprietary to the
Company or is a customized version of software produced by outside vendors. The
sale of software involves a substantial service element; consequently, the
Company provides its customers with pre-sales software and technical
consultation, business analysis, software specification, software development
and supply, implementation, training, project management and software support
and upgrades.
The Company's proprietary software products include:
Shortlands - a specialized project accounting product for the
construction industry used worldwide by major
contractors such as Costains and Sir William
Halcrow.
Pharaoh - an asset and property management product used by
health trusts and municipalities
Contender - a work scheduling product used by municipalities
The Company also supplies products by Tetra, a UK software company,
which specializes in software for accounting, distribution and inventory
control. This software is typically customized by the Company to tailor it for
specific vertical markets, including the telesales, technology distribution and
government markets, under the "TaskForce" brand name.
The Company is seeking to add to its product range and in March 1998
acquired the exclusive UK distribution rights of a web-based reporting tool
called DBLive@Web under license from its developer.
Storage Systems
4Front is one of the UK's leading suppliers of high end storage
systems.
The Company is Seagate Technology's leading high capacity disc drive
distributor in Europe, IBM's leading high capacity disc drive distributor in the
UK, and Sony's largest distributor of high capacity tape products in the UK. The
Company has also developed a limited range of its own brand products which are
marketed under the V2 brand name. These include a complete range of build to
order or customized PCs as well as a range of storage sub systems. The Company
markets these products to OEMs, system integrators and VARs in the UK.
Customers
The Company's customers are mainly large and medium sized national and
multinational companies and government authorities. The following is a
representative list of the Company's customers:
<TABLE>
<CAPTION>
<S> <C> <C>
Industrial Telecommunications Finance
British Petroleum British Telecom J P Morgan
Dupont Energis Reuters
Pfizer Fujitsu NatWest Capital Markets
Insurance Construction/Engineering Government
Legal & General Brown & Root French Ministry of Agriculture
Sedgwicks Mitsui Babcock Parliamentary Works
Royal Sun Alliance Sir William Halcrow UK Ministry of Defence
Retail Point of Sale OEM/Outsourcers
Argos Asda IBM
John Lewis Going Places ADP
</TABLE>
During fiscal 1998, no single customer accounted for more than 5% of
the Company's revenues.
<PAGE>
Sales and Marketing
Using its technical expertise, the Company identifies services and
products which it believes would be of use to its customers and markets these
services and products as part of a systems solution. The Company emphasizes its
ability to provide highly qualified locally based personnel to implement
cost-effective solutions. The Company also contrasts the specialized niche focus
of its operations to the generalist focus of its larger competitors.
The Company sells its services through both direct and indirect sales
channels. The Company's direct sales force is primarily focused on large and
multinational corporate customers and is organized by operating groups based on
the Company's services and products and also increasingly on a corporate account
basis in the case of larger customers. Direct sales channels include field
sales, telemarketing and direct mail. Indirect sales channels include sales
through subdistributors and VARs where the Company's products are constituent
parts of the VARs' overall solutions. Sales of services are predominantly made
directly to the corporate and government markets, while the sales of storage
systems are predominantly made through sub distributors and VARs.
The Company's sales representatives are increasingly focused on
developing cross-marketing opportunities within the Company's various activities
and on providing technology solutions which meet the hardware maintenance,
software support and network component needs of its customers.
Competition
The overall computer services industry is intensely competitive and is
composed of literally hundreds of companies, many of whom have capital,
marketing expertise and personnel resources far superior to that of 4Front. The
Company competes primarily with a wide range of small, medium and large size
companies that operate both in the niche markets which the Company serves and in
the computer services industry generally. 4Front also competes with larger
European computer service and consultancy firms.
The Company believes that the principal competitive factors in the
industry are breadth of service offerings, quality of products supplied,
expertise in niche markets, price and service. The Company believes that its
ability to offer specialized solutions and to remain competitive in these
markets will depend largely upon its ability to recruit and retain highly
skilled personnel.
The Company believes that it is able to successfully compete with large
European computer service and consulting firms due to its focus and
concentration in specified niche markets and the Company's high level of
specialized skills and services. The Company also believes that it is able to
obtain a competitive advantage with respect to both larger and smaller
competitors in the niche markets which it serves through its proprietary systems
and customized software and its reputation and leadership position in specialist
markets.
Employees
As of January 31, 1998, the Company employed a total of 726 employees
consisting of 103 in sales and marketing, 253 in engineering, 160 in technical
support and 210 in logistics, management and administration. The Company's
employees are not represented by a labor union, and the Company has not had any
work stoppages, strikes, or organization attempts. The Company believes that its
employee relations are good.
<PAGE>
ITEM 2. PROPERTIES
The Company does not own any real property. The Company leases office
and warehouse space as follows:
<TABLE>
<CAPTION>
Location Square Footage Lease Expiration
- -------- -------------- ----------------
<S> <C> <C>
Belgium
Brussels......................................... 8,980 March, 2002
France
Paris............................................ 10,390 August, 2006
Champs Sur Marne................................. 1,570 February, 2006
United Kingdom
Aberdeen......................................... 1,000 October, 1998
Aylesbury........................................ 3,000 June, 2000
Basingstoke...................................... 14,100 September, 1999
Brighton......................................... 5,340 February, 2002
Bristol.......................................... 9,800 September, 2006
Livingstone...................................... 1,000 May, 2000
London........................................... 5,935 April, 2002
Newbury.......................................... 7,110 September, 2002
Ruislip.......................................... 13,100 February, 2002
Slough........................................... 17,242 December, 2010
Warrington....................................... 3,500 December, 2012
Watford.......................................... 9,500 August, 2013
United States
Englewood, Colorado.............................. 500 December, 1999
</TABLE>
The Company's aggregate property lease payments are currently
$1,505,000 per annum and are subject to reviews during the terms of the various
leases.
The Company's principal corporate offices are located at 5650 Greenwood
Plaza Blvd., Suite 107, Englewood, Colorado 80111, telephone (303) 721-7341. The
Company's principal operational offices are located at 57A Hatton Garden,
London, EC1N 8JD, England, telephone 011-44 171-269-5800.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal proceedings arising
in the ordinary course of business. In the opinion of management, the ultimate
settlement of these matters will not have a material adverse effect on the
Company's consolidated financial position or consolidated results of its
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is quoted on the Nasdaq National Market under the
symbol "FFTI". From January 3, 1996 to June 15, 1996, the Common Stock was
traded on the Nasdaq SmallCap Market. The following table sets forth for the
periods indicated the high and low reported sale prices per share of the Common
Stock as reported by the Nasdaq National Market since June 16, 1996 and the
Nasdaq SmallCap Market prior thereto.
<TABLE>
<CAPTION>
<S> <C> <C>
Year ended December 31, 1996 High Low
---------------------------- ---- ---
First Quarter..................................... $6.88 $3.12
Second Quarter.................................... 8.50 4.25
Third Quarter..................................... 6.50 3.25
Fourth Quarter.................................... 5.00 3.00
Year ended December 31, 1997 High Low
---------------------------- ---- ---
First Quarter......................................... $4.38 $2.75
Second Quarter........................................ 5.38 2.63
Third Quarter......................................... 6.94 3.63
Fourth Quarter........................................ 12.75 5.38
</TABLE>
The number of stockholders of record on April 23, 1998 was 1,634. On
April 23, 1998, the last reported sale price of the Common Stock, as reported by
the Nasdaq National Market, was $12.75 per share.
Dividend Policy
4Front has never declared or paid any dividends on its Common Stock.
The Company currently anticipates that all future earnings will be retained by
the Company to support its growth strategy. Accordingly, 4Front does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the
Company, contractual restrictions and general business conditions. See Item 7. -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Issuance of Unregistered Shares
In fiscal 1998, in connection with the acquisition of Eurosystems
France S.A., the Company issued 58,898 shares of Common Stock. These securities
were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The Company's operating subsidiaries conduct their operations in
British pounds sterling ((pound)), French francs (FFR) and Belgian francs (BFR).
For financial reporting purposes, foreign currencies are converted into U.S.
dollars at the prevailing rate as of the date or at the weighted average for the
period covered. Unless specifically stated otherwise herein, all conversions of
foreign currencies into U.S. dollars referenced in this Annual Report on Form
10-K have been converted using a conversion rate of 1.607 and 1.643 dollars per
British pound in respect of operations during the year ended January 31, 1997
and 1998, respectively, and at a rate of 1.602 and 1.633 dollars per British
pound in respect of the January 31, 1997 and 1998 balance sheets, respectively,
at a conversion rate of 5.90 and 5.94 French francs per U.S. dollar in respect
of operations for the year ended January 31, 1998, and for the January 31, 1998
balance sheet, respectively, and at a conversion rate of 36.52 and 36.52 Belgian
francs per U.S. dollar in respect of operations for the year ended January 31,
1998 and the January 31, 1998 balance sheet, respectively.
<PAGE>
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (1):
Revenues............................... $ 2,837 $ 11,240 $ 32,249 $ 53,015 $ 84,145
Cost of revenues....................... 1,281 6,814 20,808 36,018 54,662
Write down of software development costs
- - 755 - -
------- ------- ------- ------- --------
Gross profit........................... 1,556 4,426 10,686 16,997 29,483
------- ------- ------- ------- --------
Selling general and administrative..... 1,117 3,565 9,566 13,792 22,796
Depreciation and amortization.......... 63 216 560 976 2,213
Write down of goodwill................. - - - 552 -
Reorganization and restructuring
costs (2)........................... - - - 2,286 -
Income (loss) before interest income
and expense, income taxes, share of
results in equity investee and write
down of investments.................. 376 645 559 (609) -
Write down of investments.............. - - - 500 -
Share of results in equity investee (3)
- - (761) (799) -
Net income (loss)...................... $ 304 $ 355 $ (652) $(2,344) $ 3,069
------- ------- ------ ------ -------
------- ------- ------ ------ -------
Net income (loss) per share (Basic).
$ 0.25 $ 0.20 $ (0.24) $ (0.45) $ 0.47
Net income (loss) per share (Diluted)..
$ 0.25 $ 0.20 $ (0.24) $ (0.45) $ 0.43
------- ------- ------ ------ -------
------- ------- ------ ------ -------
Weighted average number of shares:
Basic.................................. 1,198 1,813 2,743 5,170 6,589
Diluted................................ 1,198 1,813 2,743 5,683 7,129
</TABLE>
<TABLE>
<CAPTION>
January 31,
------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets....................... $ 5,041 $ 6,588 $ 13,464 $ 30,349 $ 36,915
Current liabilities.................. 5,892 7,008 14,750 24,763 35,974
Total assets......................... 6,203 9,887 17,943 42,021 59,208
Long-term debt (including capital
lease obligations)................ 403 74 93 489 1,143
Total stockholders' equity
(deficit).......................... $ (92) $ 2,805 $ 3,101 $ 16,769 $ 21,594
</TABLE>
- -----------
<PAGE>
(1) The Company has grown substantially through acquisitions which materially
affect the comparability of the financial data reflected herein. The Selected
Consolidated Financial Data includes the results of operations of acquisitions
which were acquired effective January 1994, November 1994, April 1995, August
1996, October 1996, September 1997 and October 1997, and which were accounted
for under the purchase method of accounting. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview."
(2) Reflects a non-recurring charge which related to the Company's
reorganization and restructuring of its maintenance and support services
businesses, including the reduction of employee headcount.
(3) Consists of the Company's share of the operating loss of the equity investee
(the "ActionTrac Joint Venture") of $(179,000) and $(205,000) and the write down
of the Company's investment in and advances to the ActionTrac Joint Venture of
$(582,000) and $(594,000) for the years ended January 31, 1996 and 1997,
respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning the Company's
business outlook or future economic performance, anticipated profitability,
revenues, income, expenses or other financial items, and statements concerning
assumptions made or exceptions as to any future events, conditions, performance
or other matter are "forward-looking statements" as that term is defined under
the Federal Securities Laws. Forward-looking statements are subject to risks,
uncertainties and other factors which would cause actual results to differ
materially from those stated in such statements. Such risks, uncertainties and
factors include, but are not limited to, (i) the uncertainty of future operating
results, (ii) fluctuations in quarterly and annual operating results, (iii) the
integration of new acquisitions and the ability to manage growth, (iv)
competition, (v) the expansion of the Company's operations, and the acquisition
of businesses, in Continental Europe and (vi) the dependence of the Company on
key personnel.
Overview
The Company has grown rapidly due, in large part, to acquisitions. K2
Systems Plc, Xanadu Systems Ltd ("Xanadu"), and CI Support Limited, were
acquired in fiscal 1995, Compass Computer Group ("Compass") was acquired in
fiscal 1996, Hammer Distribution Limited ("Hammer") and Datapro Computers Group
Limited ("Datapro") were acquired in fiscal 1997 and Firstpoint Limited
("Firstpoint") and Eurosystems France S.A. ("Eurosystems") were acquired in
fiscal 1998. These acquisitions have been accounted for under the purchase
method of accounting and on a consolidated basis in the Company's financial
statements for periods ending after the effective date of such acquisitions.
In the fourth quarter of fiscal 1997, the Company took a charge of $2.3
million which related to the Company's reorganization and restructuring of its
maintenance and support services businesses including the reduction of employee
headcount. In addition, in the fourth quarter of fiscal 1997, the Company
recorded a charge of $552,000 which related to the write down of goodwill
resulting from the Xanadu acquisition due to Xanadu's loss of several key
contracts. Finally, as a result of the bankruptcy of ActionTrac Inc. on December
24, 1996, the Company took a charge of $1.3 million, consisting of $799,000,
which represented the Company's investment in the ActionTrac Joint Venture, a
help desk joint venture with ActionTrac Inc., and $500,000 which represented the
Company's investment in ActionTrac Inc.
The Company's operating expenses have increased significantly since
fiscal 1996 primarily due to headcount increases as a result of acquisitions and
hiring to support revenue growth. Office and general expenses have also
increased since fiscal 1996 primarily due to increased expenditures required to
support the increased revenues and the expansion through acquisitions in the
Company's markets. This category includes expenses for salaries and related
costs and associated benefits as well as payroll taxes, sales commission,
recruitment fees, training costs, business promotion, market research,
advertising and professional fees.
Because of the effect upon the Company's results of operations for the
years ended January 31, 1996, 1997 and 1998 of acquisitions made during those
periods, write downs of certain asset carrying values and restructuring and
reorganization costs, direct comparison of the Company's results of operations
for these periods will not, in the view of management of the Company, prove
meaningful. Instead, a summary of the elements which management of the Company
believes essential to an analysis of the results of operations for such periods
is presented below.
<PAGE>
Fiscal year ended January 31, 1998 compared with Fiscal year ended January 31,
1997
Revenues
Revenues for fiscal 1998 were $84.1 million, an increase of $31.1
million, or approximately 58.7% compared to $53.0 million for fiscal 1997.
Approximately $11.7 million of this increase resulted from the Company's
acquisitions of Firstpoint, effective September 8, 1997, and of Eurosystems,
effective October 28, 1997, none of which revenues were included in the
Company's results for fiscal 1997. The remaining $19.4 million of this increase
came from the growth of the Company's existing businesses, principally in the
services division. Services revenues were $45.3 million or 53.8% of total
revenues for fiscal 1998, an increase of $26.3 million compared to $19.0 million
for fiscal 1997. Products revenues were $38.8 million or 46.2% of total revenues
for fiscal 1998, a decrease from 64.1% of total revenues for fiscal 1997.
Gross Profit
Gross profit for fiscal 1998 was $29.5 million, an increase of $12.5
million, or 73.5% compared to $17.0 million for fiscal 1997. Gross margin
increased to 35.0% for fiscal 1998 from 32.1% for fiscal 1997. This increase in
gross margin arose primarily as a result of the significant internal growth of
the services business which has higher margins than the products business and
the inclusion of Firstpoint's business in the final five months of fiscal 1998.
Gross profit for services for fiscal 1998 increased by $10.4 million to $22.8 or
83.7% from $12.4 million for fiscal 1997. Gross margins for services decreased
in fiscal 1998 to 50.2% from 65.1% in fiscal 1997 resulting from the
acquisitions of Firstpoint and Datapro, whose margins were historically lower
overall than the Company's margins for services. Gross profit for products
increased by $2.1 million or 45.9% to $6.7 million for fiscal 1998 compared to
$4.6 million for fiscal 1997.
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 1998 were $22.8
million, an increase of $9.0 million, or 65.3% compared to $13.8 million for
fiscal 1997. As a percentage of revenues, selling, general and administrative
expenses increased to 27.1% in fiscal 1998, from 26.0% in fiscal 1997. Selling
expenses increased to $8.3 million from $6.6 million in line with the expansion
of the Company's business. General and administrative expenses increased to
$14.5 million from $7.2 million primarily as a result of the growth in
infrastructure necessary to support the expansion of the Company's business.
Depreciation and Amortization
Depreciation and amortization expense for fiscal 1998 was $2.2 million,
an increase of $1.2 million, or 126.7% compared to $1.0 million for fiscal 1997.
This increase arose principally from the acquisitions of Hammer, Datapro and
Firstpoint. Depreciation for fiscal 1998 was $1.1 million, an increase of
$574,000 or 110.8%, from $518,000 for fiscal 1997. Amortization of goodwill from
acquisitions for fiscal 1998 was $1.1 million, an increase of $663,000, or
144.8%, from $458,000 for fiscal 1997.
Income (Loss) Before Interest Income and Expense, Income Taxes and Share of
Results in Equity Investee ("IBITI")
IBITI for fiscal 1998 was $4.5 million, an increase of $5.1 million, as
compared to a loss of $609,000 for fiscal 1997. As a percentage of revenues,
IBITI increased to 5.3% in fiscal 1998 as compared to a negative 1.1% for fiscal
1997. The increase results primarily from the inclusion in fiscal 1997 of a
goodwill write down of $552,000, a charge for reorganization and restructuring
of $2.3 million, and from the overall improvement in operating performances by
the Company. There were no such similar charges in fiscal 1998. IBITI (excluding
write-downs and reorganization and restructuring costs) for fiscal 1997 was $2.2
million. As a percentage of revenue, IBITI (excluding write-downs and
reorganization and restructuring costs) was 4.2% in fiscal 1997.
Interest
Interest expense for fiscal 1998 was $632,000, an increase of $335,000,
or 112.8% compared to $297,000 for fiscal 1997. This increase resulted primarily
for the increased use of bank lines of credit during fiscal 1998, which were not
utilized to the same extent in fiscal 1997. Interest income for fiscal 1998 and
1997 was approximately $276,000.
<PAGE>
Fiscal year ended January 31, 1997 compared with Fiscal year ended January 31,
1996
Revenues
Revenues for fiscal 1997 were $53.0 million, an increase of $20.8
million, or approximately 64.4% compared to $32.2 million for fiscal 1996.
Approximately $13.8 million of this increase resulted from the Company's
acquisitions of Hammer, effective August 15, 1996, and of Datapro effective
October 11, 1996, none of which revenues were included in the Company's
results for fiscal 1996. The remaining $7.0 million of this increase came
from the growth of the Company's existing businesses, principally in
services. Service revenues were $19.0 million for fiscal 1997, an increase of
$11.1 million or 141.9% from $7.9 million for fiscal 1996. Product revenues
were $34.0 million for fiscal 1997, an increase of $9.6 million or 39.4% from
$24.4 million for fiscal 1996.
Gross Profit
Gross profit for fiscal 1997 was $17.0 million, an increase of $6.3
million, or 59.1% compared to $10.7 million for fiscal 1996. Gross margin
decreased to 32.1% for fiscal 1997 from 33.1% for fiscal 1996. This decrease in
gross margin arose primarily as a result of the inclusion for the final six
months of fiscal 1997 of Hammer's information storage systems business, which
had lower gross margins than some other areas of the Company's operations. Gross
profits for services increased 148.8% to $12.4 million for fiscal 1997 compared
to $5.0 million for fiscal 1996. Gross profits for products decreased 19.3% to
$4.6 million for fiscal 1997 from $5.7 million for fiscal 1996.
Selling, General and Administrative
Selling, general and administrative expenses for fiscal 1997 were $13.8
million, an increase of $4.2 million, or 44.2% compared to $9.6 million for
fiscal 1996. As a percentage of revenues, selling, general and administrative
expenses decreased to 26.0% in fiscal 1997 from 29.7% in fiscal 1996. Selling
expenses increased to $6.6 million from $5.9 million in line with the expansion
of the Company's business. General and administrative expenses increased to $7.2
million from $3.7 million primarily as a result of the growth in infrastructure
necessary to support the expansion of the Company's business.
Depreciation and Amortization
Depreciation and amortization expense for fiscal 1997 was $976,000, an
increase of $416,000, or 74.2% compared to $560,000 for fiscal 1996. This
increase arose principally from the acquisition of Hammer and Datapro.
Depreciation for fiscal 1997 was $518,000, an increase of $162,000 or 45.4%,
from $356,000 for fiscal 1996. Amortization of goodwill from acquisitions for
fiscal 1997 was $458,000, an increase of $254,000, or 124.6%, from $204,000 for
fiscal 1996.
Income (Loss) Before Interest Income and Expense, Income Taxes and Share of
Results in Equity Investee ("IBITI")
IBITI for fiscal 1997 was a negative $609,000, a decrease of
$1,168,000, as compared to $559,000 for fiscal 1996. As a percentage of
revenues, IBITI decreased to a negative 1.1% in fiscal 1997 as compared to
1.7% for fiscal 1996. The decrease results primarily from a goodwill write
down of $552,000 and a charge for reorganization and restructuring of $2.3
million. See "-Overview."
IBITI (excluding write-downs and reorganization and restructuring
costs) for fiscal 1997 was $2.2 million, which as a percentage of revenues, was
4.2% for fiscal 1997.
Interest
Interest expense for fiscal 1997 was $297,000, an increase of $38,000,
or 14.8% compared to $258,000 for fiscal 1996. Interest income for fiscal 1997
was $277,000, an increase of $263,000 compared to $14,000 for fiscal 1996,
primarily as a result of the net proceeds from the Company's secondary offering
in June 1996.
<PAGE>
Liquidity and Capital Resources
From inception until June 1996, the Company's sources of capital have
been cash flows from operations, private placements of securities, primarily
from its controlling stockholders and related parties, and borrowings from
banks. On June 19, 1996, the Company completed a public offering of 3,000,000
shares of the Company's Common Stock at a price of $5.75 per share. On July 9,
1996 the Company completed the sale of a further 450,000 shares pursuant to the
underwriters' over-allotment option. As a result of the offering the Company
raised net proceeds of $16.0 million.
The Company maintains three revolving lines of credit with UK banks.
The first line of credit provides for borrowings of up to (pound)650,000 ($1.1
million) and bore interest at 10% per annum on utilized amounts at January 31,
1998 and March 31, 1998. At January 31, 1998, $943,000 was outstanding under
this facility. The second facility provides for borrowings of up to
(pound)997,000 ($1.63 million). This facility also bore interest at 10% per
annum on utilized amounts at January 31, 1998 and March 31, 1998. At January 31,
1998, $644,000 was outstanding under this facility. The third facility provides
for borrowings of up to (pound)300,000 ($490,000). This facility also bore
interest at 10% per annum on utilized amounts at January 31, 1998 and March 31,
1998. At January 31, 1998 this facility was not utilized. Management expects to
be able to retain these facilities for the foreseeable future, although no
assurances can be given.
The Company's French subsidiary maintains revolving credit facilities
in the aggregate amount of $1.1 million. Interest was charged at rates of
between 4.55% and 9.15% on utilized amounts at January 31, 1998 and March 31,
1998. At January 31, 1998, $722,000 was outstanding under these facilities.
The Company maintains a facility with a UK factoring company, pursuant
to which it borrows against eligible trade receivables. The Company pays the
factoring company an administrative fee of 0.075% of eligible trade receivables
and interest of 9% per annum at January 31, 1998 and March 31, 1998. At January
31, 1998, $2.9 million under this agreement was outstanding.
Outstanding advances from stockholders are shown on the Company's
balance sheet as stockholder advances. Outstanding advances as of January 31,
1998 and 1997 were $18,000 and $504,000, respectively. These outstanding
advances do not bear interest and are payable on demand.
The Company's working capital decreased from $5.6 million at January
31, 1997 to $1.0 million at January 31, 1998, a decrease of $4.6 million. This
decrease arose primarily from $6.8 million paid for acquisitions in fiscal 1998.
Net cash provided by operating activities during fiscal 1998 was $1.4
million, an increase of $3.5 million from the net cash used by operations of
$2.1 million in fiscal 1997. The net cash provided reflects the net effect of a
decrease in accounts payable, accrued liabilities, accounts receivable and
deferred revenues and an increase in inventories combined with depreciation and
amortization.
Net cash used by investing activities in fiscal 1998 was $7.2 million,
an increase of $2.4 million from the $4.8 million net cash used in fiscal 1997.
The net cash used primarily reflects the cash paid to acquire Firstpoint and
Eurosystems during fiscal 1998.
Net cash provided by financing activities was $3.8 million for fiscal
1998, a decrease of $8.3 million for fiscal 1997. The decrease is due to the net
proceeds from the Company's secondary offering in June 1996. The cash provided
in fiscal 1998 reflects primarily the proceeds from the exercise of warrants and
proceeds from notes payable and payments of outstanding obligations.
The Company believes that the cash flows from operations and borrowing
availability under its credit facilities will satisfy the Company's anticipated
working capital requirements through at least the next twelve months. In
addition, if the Company deems it financially attractive, the Company may seek
to raise additional funds through increased bank borrowings or through the sale
of its equity securities. To the extent the Company raises additional capital
through the sale of its equity securities, ownership dilution to the Company's
stockholders will result.
<PAGE>
Inflation
Inflation has not had a material effect upon the Company's results of
operations to date. In the event the rate of inflation should accelerate in the
future, it is expected that costs in connection with the provision by the
Company of its services and products will increase, and, to the extent such
increased costs are not offset by increased revenues, the operations of the
Company may be adversely affected.
Year 2000
Many existing computer programs use only two digits to identify a year
in the date field. These programs do not consider the impact of the upcoming
change in the century. If not corrected, many computer applications could fail
or create erroneous results by the Year 2000. Internally, the Company has
assessed its Year 2000 computer issues. The Company estimates that it will have
to spend approximately $400,000 in the aggregate during fiscal 1999 and fiscal
2000 to make its major computer systems, and some non-critical programs, Year
2000 compliant. The Company is testing applications and believes that solutions
will be implemented timely.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are set forth in
Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are listed below,
together with brief summaries of their business experience and certain other
information.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Anil Doshi 53 Chairman of the Board, Chief Executive Officer and Director
Mark Ellis 44 Vice Chairman of the Board, President and Director
Kenneth Newell 54 Vice President of Corporate Affairs and Director
Terence Burt 41 Vice President, Chief Operating Officer and Director
Craig Kleinman 42 Secretary and Director
Stephen McDonnell 35 Chief Financial Officer
Brian V. Murray 50 Director
Arthur Keith Ross 46 Director
</TABLE>
Anil Doshi is Chairman of the Board of Directors, Chief Executive
Officer and a Director of the Company since April 1993. Mr. Doshi co-founded
Communic8 Software (the Company's predecessor-in-interest) in January 1990 and
served as its Chairman from April 1992 to March 1993. Mr. Doshi is a Fellow of
the Institute of Chartered Accountants in England and Wales, and he is also an
Associate of the Institute of Taxation. From January 1990 until October 1990,
Mr. Doshi served as Deputy Chairman of PPI Enterprises, Inc., a New York based
holding company ("PPI"). From 1986 to 1990, Mr. Doshi served as a consultant to
Polly Peck International, PPI's parent company.
Mark Ellis is Vice Chairman of the Board of Directors, President and
Director of the Company since April 1993 and Vice Chairman since April 1998. Mr.
Ellis co-founded Communic8 Software and served as a director from January 1992
until March 1993. From September 1988 to January 1991, Mr. Ellis served as the
President of PPI. As President of PPI, he managed that company's American
expansion program and negotiated a number of acquisitions in the U.S., including
the $875 million acquisition of Del Monte Tropical Fruit from RJR Nabisco. Mr.
Ellis was graduated from St. John's College at Cambridge University in England
and received a B.A. in Law in 1975, an L.L.B. in 1976, and an M.A. in Law in
1978.
Kenneth Newell has been Vice President of Corporate Affairs of the
Company since April 1998 and a Director of the Company since April 1996. He was
a co-founder of K2 Group Plc in 1988, which was acquired by the Company in
January 1994, and was 4Front Group plc's Chief Executive until 1997. Mr. Newell
is a Fellow of the Institute of Chartered Secretaries and Administrators
following study at the City of London College.
Terence Burt has been a Vice President and Chief Operating Officer
since April 1998 and a Director since April 1997. He was a co-founder of K2
Group Plc, and was Managing Director of the Company's systems integration
division between 1990 and 1996. He became Managing Director of the services
division in 1996 and Managing Director of 4Front Group in 1997. Mr. Burt was
graduated from the University of Hertfordshire where he qualified as an
Associate of the Association of Cost and Management Accountants.
Craig Kleinman is Secretary and a Director of the Company since April
1993. Mr. Kleinman served as Chief Financial Officer of the Company from April
1993 until April 1996. During the past nine years, Mr. Kleinman has been a
shareholder in the certified public accounting firm Kleinman, Guerra & Company,
P.C. Mr. Kleinman received a B.S. degree in accounting from the University of
Colorado in 1978 and is a member of the American Institute of Certified Public
Accountants.
Stephen McDonnell has been Chief Financial Officer of the Company since
September 1996. From April 1993 to September 1996, Mr. McDonnell served 4Front
Group plc as a financial accountant. Prior to joining the Company in April 1993,
Mr. McDonnell was Chief Accountant for 5 years to French Connection plc, a UK
public company. Mr. McDonnell was graduated from the College of Commerce in
Dublin, Ireland.
Brian V. Murray has been a Director of the Company since April 1996.
Mr. Murray is President and Chief Executive Officer of B.V. Murray & Co., an
investment banking firm, which he founded in July 1996. Prior thereto, Mr.
Murray held various positions at Bear, Stearns & Co., Inc. from 1976 until July
1996, when he was a Senior Managing Director.
<PAGE>
Arthur Keith Ross has been a Director of the Company since February
1996. Mr. Ross is currently a private investor and a consultant to the London
law firm, Denton, Hall and Burgin. From 1986 to 1994, Mr. Ross was a partner in
the London law firm Clifford Chance, which he joined in 1984. Mr. Ross headed
the Clifford Chance South East Asian office in Singapore from 1988 to 1991. Mr.
Ross was graduated from Christ's College at Cambridge University in England and
received a BA in Law in 1973 and an MA in Law in 1976.
All directors hold office until the next meeting of the stockholders of
the Company and until their successors are elected and qualified.
The Board of Directors has an Audit Committee which is charged with
reviewing the Company's internal accounting procedures and consulting with and
reviewing the selection of the Company's independent auditors. The Audit
Committee currently consists of Messrs. Doshi, Ross and Murray. The Audit
Committee was formed in fiscal 1997 and during fiscal 1998 met once. The Board
of Directors also has a Compensation Committee charged with recommending to the
Board the compensation for the Company's executives and administering the
Company's stock option plans. The Compensation Committee is currently composed
of Messrs. Doshi, Ellis, Murray and Ross. The Compensation Committee was formed
in fiscal 1997 and during fiscal 1998 met two times. The Board of Directors has
also established an Executive Committee charged with exercising powers of the
Board of Directors expressly delegated to it. The Executive Committee is
currently composed of Messrs. Doshi and Ellis. During fiscal 1998, the Executive
Committee did not meet. Each director attended at least 75% of the meetings of
the Board of Directors and of all committees of the Board of Directors on which
he served.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act, as amended (the "Exchange
Act") requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of the Company's Common Stock, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc. Executive officers, directors and greater than ten
percent beneficial owners are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based upon on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during fiscal 1998 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with, except that Messrs. Doshi,
Ellis, Kleinman and Ross each filed one late Form 4.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The tables and discussion below sets forth information about the
compensation awarded to, earned by, or paid to the Company's chief executive
officer and the four other most highly compensated executive officers during the
fiscal years indicated. Except as noted below, no other executive officer of the
Company or any of its then existing subsidiaries earned compensation in excess
of $100,000 during any of such periods.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-term
Annual Compensation Compensation
---------------------------------------- -----------------------
Name and Principal Position Fiscal All Other
- --------------------------- ------ Stock ---------
Year(1) Salary Bonus Options Compensation(2)
------- ------ ----- -------- ---------------
<S> <C> <C> <C> <C> <C>
Anil Doshi.......................................... 1998 $ 205,375 $ 90,365 -0- $ 65,857
Chairman of the Board and Chief Executive Officer(3) 1997 169,821 24,105 -0- 19,631
1996 38,196 -0- 120,000 -0-
Mark Ellis........................................... 1998 180,730 65,720 -0- 43,918
Vice Chairman of the Board and President(3) 1997 158,336 24,105 -0- 15,260
1996 36,158 -0- 120,000 10,266
Kenneth Newell.................................... 1998 152,663 32,860 -0- 37,934
Vice President for Corporate Affairs 1997 129,902 24,105 -0- 25,604
1996 107,107 23,626 109,300 29,580
Terence Burt........................................ 1998 149,239 36,968 10,000 25,424
Vice President and Chief Operating Officer 1997 110,080 44,996 -0- 21,526
1996 94,506 39,378 98,050 13,368
Stephen McDonnell............................... 1998 71,950 24,645 10,000 10,246
Chief Financial Officer 1997 56,212 16,070 4,000 9,481
1996 51,975 -0- 8,000 8,505
</TABLE>
- -----------
(1) Represents the period beginning February 1 of the prior year and ending
January 31 of the year indicated.
(2) Represents contributions made by the Company to Executive Pension Plans, car
allowances and insurance benefits.
(3) Messrs. Doshi and Ellis entered into employment agreements with the Company
in November 1995, which provide for annual base salaries of $256,000 and
$225,000 as of February 1, 1998, respectively. See "- Employment Arrangements."
Prior to November 1995, Messrs. Doshi and Ellis did not receive any salary
compensation for services to the Company.
<PAGE>
Stock Options
The following table sets forth certain summary information concerning
individual grants of stock options made during the year ended January 31, 1998
to each of the Company's executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
Individual Grants
-----------------
% of Total
Number of Options Exercise
Securities Granted to or Base
Underlying Employees Price
Options in Fiscal Per Expiration
Name Granted 1998 (1) Share (2) Date (3)
---- ------- -------- --------- --------
<S> <C> <C> <C> <C>
Anil Doshi........................................... 0 - - -
Mark Ellis........................................... 0 - - -
Kenneth Newell....................................... 0 - - -
Terence Burt......................................... 10,000 2.9% $3.38 2/13/07
Stephen McDonnell.................................... 7,500 2.2% $3.38 2/13/07
2,500 0.7% $8.75 11/24/07
<CAPTION>
Name 5% 10%
---- -- ---
<S> <C> <C>
Anil Doshi........................................... - -
Mark Ellis........................................... - -
Kenneth Newell....................................... - -
Terence Burt......................................... $91,461 $165,000
Stephen McDonnell.................................... $68,550 $124,200
$9,425 $27,975
</TABLE>
- -----------
(1) Based on an aggregate of 334,500 options which were granted during
fiscal 1998.
(2) All options were granted at fair market value on the date of grant.
(3) All options have a fixed term of ten years and vest in full over 30
months from the date of grant.
(4) Potential gains are reported net of the option exercise price, but before
taxes associated with exercise. These amounts represent certain assumed rates of
appreciation only in the price of the Company's Common Stock during the terms of
the options in accordance with rates specified in applicable federal securities
regulations. Actual gains on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. The amounts
reflected in this table may not necessarily be achieved. The Company's Common
Stock price, as reported by the Nasdaq National Market on January 30, 1998, was
$7.69 per share.
On March 24, 1998, subject to stockholder approval to amend the
Company's 1996 Equity Incentive Plan, 40,000 options were granted to each of
Messrs. Doshi, Ellis, Newell and Burt and 6,000 options were granted to Mr.
Kleinman, each at an exercise price $8.75, equal to the fair market value of
the Common Stock on the date of grant. In addition, on March 24, 1998, Mr.
McDonnell also received 5,000 options at an exercise price of $8.75.
The following table sets forth at January 31, 1998, the number of
options and the value of unexercised options held by each of the executive
officers named in the Summary Compensation Table. No options were exercised in
the fiscal year ended January 31, 1998.
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-the-Money
Underlying Unexercised Options at
Options at Year End Year End(1)
---------------------------------------- -----------
Name Exercisable Unexercisable
---- ----------- -------------
<S> <C> <C> <C>
Anil Doshi........................... 270,000 0 $ 876,300
Mark Ellis........................... 270,000 0 876,300
Kenneth Newell....................... 200,000 0 628,200
Terence Burt......................... 168,333 6,667 553,900
Stephen McDonnell.................... 27,667 9,333 93,766
</TABLE>
- -----------
(1) Computed based upon the difference between the stock option exercise price
and the closing price of the Company's Common Stock on January 30, 1998 ($7.69).
Employment Arrangements
Messrs. Doshi and Ellis entered into employment agreements with the
Company which commenced November 1, 1995. These agreements are terminable at any
time after an initial term of three years on one years' notice. Under such
agreements, Messrs. Doshi and Ellis are entitled to base annual salaries of
(pound)156,250 ($256,000) and (pound)137,000 ($225,000), respectively. Prior to
the execution of such employment agreements, neither Messrs. Doshi nor Ellis had
received salary compensation for services performed for the Company and its
affiliates.
Messrs. Newell and Burt entered into employment agreements with the
Company at salaries as at February 1998 of(pound)118,750 ($195,000),
and(pound)118,750 ($195,000).
No other executive officer is currently party to an employment
agreement with the Company. As appropriate, other employment contracts may be
entered into with other key executives.
Stock Options and Benefit Plans
In September and November 1994 the Company issued a total of 1,260,875
options to management, employees and consultants, exercisable for five years at
an exercise price of $4.00 per share.
In August and November 1995 the Company issued a total of 725,463
options to management, employees and consultants, exercisable for five years at
an exercise price of $5.00 per share. Of the options granted, 120,000, 120,000,
60,000, 20,000, 109,300 and 98,050, were granted to Messrs. Doshi, Ellis,
Kleinman, Ross, Newell, Burt, respectively.
The Company maintains contributory, non-defined pension plans for the
benefit of Messrs. Doshi and Ellis to which it makes contributions of
approximately (pound)32,000 ($54,000) per annum. The Company also maintains
contributory, non-defined pension plans for the benefit of Messrs. Newell and
Burt to which it makes contributions of approximately (pound)9,000 ($15,000) per
annum.
<PAGE>
1996 Equity Incentive Plan
In May 1996, the Company, adopted the 1996 4Front Technologies, Inc.
Equity Incentive Plan (the "Plan"), which provides for the issuance of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and non-qualified stock options, to purchase an aggregate of
up to 400,000 shares of the Common Stock of the Company. The Plan permits the
granting of options to officers, employees, directors and consultants of the
Company. This Plan was approved by stockholders on February 5, 1997 and pursuant
to the Plan a total of 247,000 options, exercisable at between $3 3/8 and $5 3/4
per share, being at or above market value at time of grant, have been granted to
employees and to two directors. In November 1997, a total of 87,500 options,
exercisable at $8.75, being at an above market value at the time of grant, were
granted to employees. In March 1998, the Board of Directors adopted amendments
to the Plan, subject to stockholder approval, which would increase the number of
options available for grant thereunder to 800,000 and permit the granting of
additional options to directors. In addition, subject to stockholder approval,
the Board granted 40,000 options each to Messrs. Doshi, Ellis, Newell and Burt
and 6,000 options each to Messrs. Kleinman, Ross and Murray, each at an exercise
price of $8.75 per share, equal to the fair market value of the Common Stock on
the date of grant.
Compensation of Directors
Messrs. Murray and Ross each received compensation of $15,000 in the
fiscal year 1998. In March 1998, their compensation was increased to $20,000 per
year. No other director receives any compensation for services as a director.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Messrs. Doshi, Ellis,
Murray and Ross. Messrs. Doshi and Ellis abstain from votes on their
compensation. See "- Employment Arrangements."
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 21, 1998 (except
as otherwise noted in the footnotes), regarding the beneficial ownership
determined in accordance with the rules of the Securities and Exchange
Commission, which generally attribute beneficial ownership of securities to
persons who possess sole or shared voting power and/or investment power with
respect to those securities, of the Company's Common Stock by: (i) each person
known by the Company to own beneficially more than five percent of the Company's
outstanding Common Stock; (ii) each director of the Company; (iii) each
executive officer named in the Summary Compensation Table (see "Executive
Compensation"); and (iv) all directors and executive officers of the Company as
a group. Except as otherwise specified, the named beneficial owner has the sole
voting and investment power over the shares listed.
<TABLE>
<CAPTION>
Number of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
---------------- ------------------ ----------
<S> <C> <C> <C>
Anil Doshi (1)..................................... 960,212 13.12%
Mark Ellis (2)..................................... 547,812 7.48%
Kenneth Newell (3)................................. 262,578 3.62%
Craig Kleinman (4)................................. 82,500 1.16%
Terence Burt (5)................................... 230,915 3.20%
Stephen McDonnell(6)............................... 27,667 *
Brian Murray (7)................................... 9,167 *
Arthur Keith Ross (8).............................. 182,350 2.56%
FMR Corporation (9)................................ 615,900 8.73%
All Directors and Executive Officers as a Group
(9 persons) (10)................................. 2,251,689 27.69%
</TABLE>
* Less than 1%
(1) Includes 45,512 shares owned by Aliki Financial Corp., in which
Mr. Doshi has a 65% interest. Also includes 270,000 shares purchasable pursuant
to immediately exercisable options.
(2) Includes 45,512 shares owned by Aliki Financial Corp., in which
Mr. Ellis has a 35% interest. Also includes 270,000 shares purchasable pursuant
to immediately exercisable options.
(3) Includes 7,051 shares owned by Mr. Newell's wife and 28,790 shares held by
Lex Nominees International as nominee for a Jersey resident settlement
established for the benefit of Mr. Newell and his wife and children. Also
includes 200,000 shares purchasable pursuant to immediately exercisable options.
Mr. Newell disclaims beneficial ownership of the shares held by his wife.
(4) Includes 75,000 shares purchasable pursuant to immediately exercisable
options.
(5) Includes 33,347 shares owned by Mr. Burt's wife and 28,794 shares held by
Lex Nominees International as nominee for a Jersey resident settlement
established for the benefit of Mr. Burt and his wife and children. Also includes
168,333 shares purchasable pursuant to immediately exercisable options. Mr. Burt
disclaims beneficial ownership of the shares held by his wife.
(6) Consists of 27,667 shares purchasable pursuant to immediately
exercisable options.
(7) Includes 6,667 shares purchasable pursuant to immediately exercisable
options.
(8) Includes 83,500 shares purchasable pursuant to immediately exercisable
options.
(9) Based on information in an amended Schedule 13G dated February 14, 1998,
filed by the beneficial owner. The amended Schedule 13G states that such
beneficial owner has sole power to dispose of all of such shares. The address of
such beneficial owner is 82 Devonshire Street, Boston, MA 02109.
(10) Includes 1,101,167 shares subject to options which are immediately
exercisable. Does not include 202,333 shares subject to options which are not
exercisable within 60 days of April 21, 1998.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Advances from Affiliates and Receivable From Related Party
As of January 31, 1998, a total of $18,000 remained outstanding from
the Company to Mr. Doshi primarily representing expenses due for fiscal 1998.
As at January 31, 1997, a receivable of $644,356 was due from Mr. Anthony
Malpas, a related party. During fiscal 1998, Mr. Malpas invoiced the Company
$198,250 for consultancy services. The remaining receivable from Mr. Malpas
of $446,106 was settled on September 30, 1997. At January 31, 1998, all
receivables from related parties have been settled and there is nothing owed
to the Company.
The Company believes that all transactions with related parties have
been upon terms at least as favorable to the Company as those which would have
been available to the Company from unrelated parties.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. See Index to Consolidated Financial
Statements commencing on page F-1 of the Report
2. Financial Statement Schedules. See Index to Consolidated
Financial Statements commencing on page F-1 of the Report
3. Exhibits
(b) The following exhibits are filed or incorporated by reference as
part of this Report (Exhibit Nos. 10.01, 10.2, 10.5, 10.6, 10.10,
10.11, 10.12, 10.14, 10.19, 10.20 and 10.21 management contracts,
compensation plans or arrangements):
3.1 _ Articles of Incorporation of the Company, as amended to date.
3.2 _ Bylaws of the Company, as amended to date.
4.1 _ Specimen Form
of Stock Certificate for the Company's Common Stock.(3)
10.1 _ 1996 Equity Incentive Plan.
10.2 _ Indemnity Agreement between the Company and Craig Kleinman dated
October 27, 1987.(1)
10.3 _ Share Sale Agreement Relating to K-2 Group Plc dated March
7, 1994 by and among Lex Nominees International Limited and
ORS, Peter Leith Wellings and 4Front Technologies, Inc.(2)
10.4 _ Form of Option to Purchase Shares in 4Front Technologies, Inc.
dated as of March 7, 1994 by and among 4Front
Technologies, Inc. and shareholders of K-2 Group.(2)
10.5 _ Form of Executive Pension Plan for the benefit of Anil Doshi.(3)
10.6 _ Form of Executive Pension Plan for the benefit of Mark Ellis.(3)
10.7 _ Form of 4Front Executive Officer Service Agreement.(3)
10.8 _ Lease Agreement dated September 7, 1988 for lease by K2 of premises
at Unit 4, Colonial Business Park, Colonial
Way, Watford England, as amended.(3)
10.9 _ Lease Agreement dated April 28, 1992 for lease by K2 of premises at
Units 5 and 6, Colonial Business Park,
Colonial Way, Watford England.(3)
10.10 _ Form of Executive Officer Service Agreement (K2).(3)
10.11 _ K2 Systems Group Pension Scheme effective March 6, 1991.(3)
10.12 _ Form of Executive Pension Plan for the benefit of Ken Newell.(3)
10.13 _ Form of Amendment dated October 21, 1994 to Option to Purchase
Shares in 4Front Technologies, Inc. dated as of March 7, 1994 by
and among 4Front Technologies, Inc. and shareholders of K-2 Group.
(4)
10.14 _ Form of November 1, 1994 Option Agreement for Employees and
Consultants.(4)
10.15 _ Share Sale Agreement Relating to CI Support Limited effective
November 1, 1994 by and among Burnaby Investments Limited and K2
Group plc.(4)
10.16 _ Share Sale Agreement Relating to CCG Holdings Limited dated May
11, 1995 by and among Richard Ian Sharpe & ORS and the Company.(4)
10.17 _ Facility Letter dated May 25, 1994 from Barclays Bank Plc to
Compass Computer Group Limited.(4)
10.18 _ Facility Letter dated April 12, 1995 from Barclays Bank Plc to
Compass Computer Group Limited.(4)
10.19 _ Form of Employment Agreement effective as of November 1, 1995
between the Company and Anil Doshi.(5)
10.20 _ Form of Employment Agreement effective as of November 1, 1995
between the Company and Mark Ellis.(5)
10.21 _ Form of August, 1995 Option Agreement for Employees and
Consultants.(5)
10.22 _ Share Sale Amendment Agreement dated December 13, 1995 between
Richard Ian Sharpe & ORS, the Company, Joel Jervis, CCG Holdings
Limited and 4Front Group PLC.(5)
10.23 _ Put Option Agreement dated December 13, 1995 between Richard Ian
Sharpe & ORS and the Company.(5)
10.24 _ Factoring Agreement with Kellock Limited, dated October 23, 1997.
10.25 _ Credit Facility with Midland Bank, dated August 28, 1997.
10.26 _ Lease for Slough Property, as amended, dated as of December 29,
1989, as amended.
10.27 _ Lease for Hatton Garden Property, dated as of July 15, 1997.
10.28 _ Lease for Ruislip Property, dated as of February 21, 1997.
<PAGE>
21.1 _ List of Subsidiaries.
23.1 _ Consent of KPMG
27.0 _ Financial Data Schedule
- -----------
(1) Previously filed as an Exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1987
(2) Previously filed as Exhibit to the Company's Report on Form 8-K dated
March 7, 1994.
(3) Previously filed as Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1994.
(4) Previously filed as Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1995.
(5) Previously filed as Exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal period ended October 31, 1995.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
4FRONT TECHNOLOGIES, INC.
By: /s/ Anil Doshi
-------------------------------------
Anil Doshi, Chairman of the Board,
Chief Executive Officer and Director
Date: April 27, 1998
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name and Position Date
----------------- ----
<S> <C>
/s/ Anil Doshi April 27, 1998
Anil Doshi, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Mark Ellis April 27, 1998
Mark Ellis, Vice Chairman of the Board,
President and Director
/s/ Kenneth Newell April 27, 1998
Kenneth Newell, Vice President for
Corporation Affairs and Director
/s/ Terence W. Burt April 27, 1998
Terence W. Burt, Vice President, Chief
Operating Officer and Director
/s/ Craig Kleinman April 27, 1998
Craig Kleinman, Secretary and Director
/s/ Stephen McDonnell April 27, 1998
Stephen McDonnell, Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Arthur Keith Ross April 27, 1998
Arthur Keith Ross, Director
/s/ Brian V. Murray April 27, 1998
Brian V. Murray, Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<S> <C>
Independent Auditors' Report Covering the Consolidated Financial Statements as of and for the years ended F-2
January 31, 1997 and 1998...............................................................................
Consolidated Financial Statements:
Consolidated Balance Sheets as of January 31, 1997 and 1998.............................................. F-4
Consolidated Statements of Operations for the years ended January 31, 1996, 1997 and 1998................ F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended January 31, 1996, 1997 F-6
and 1998................................................................................................
Consolidated Statements of Cash Flows for the years ended January 31, 1996, 1997 and 1998................ F-7
Notes to the Consolidated Financial Statements............................................................ F-9
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
4Front Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of 4Front
Technologies, Inc. and subsidiaries as of January 31, 1998 and 1997 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three year period ended January 31,
1998. These consolidated 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 generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
4Front Technologies, Inc. and Subsidiaries as of January 31, 1998 and 1997
and the results of their operations and their cash flows for each of the
years in the three year period ended January 31, 1998, in conformity with
United States generally accepted accounting principles.
KPMG
Chartered Accountants
Registered Auditors
London, England
April 30, 1998
<PAGE>
<TABLE>
<CAPTION>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, January 31,
1997 1998
---- ----
$'000's $'000's
<S> <C> <C>
CURRENT ASSETS:
Cash....................................................................... $ 6,653 $ 4,586
Accounts receivable, net of allowance for doubtful accounts of $273,000 and
$452,000, respectively................................................. 15,365 18,357
Deposits................................................................... 31 49
Inventories................................................................ 7,133 11,852
Prepaid expenses........................................................... 905 1,835
Income taxes receivable.................................................... 32 17
Other current assets....................................................... 230 219
------------ -----------
Total current assets................................................... 30,349 36,915
PROPERTY AND EQUIPMENT, net................................................. 2,051 2,855
INVESTMENT IN AND ADVANCES TO EQUITY INVESTEE............................... 143 -
RECEIVABLE, RELATED PARTY................................................... 644 -
INTANGIBLE ASSETS, net...................................................... 7,777 16,935
DEFERRED INCOME TAX......................................................... 974 2,402
OTHER ASSETS................................................................ 83 101
------------ -----------
TOTAL ASSETS................................................................ $ 42,021 $ 59,208
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................... $ 13,057 $ 16,279
Accrued liabilities........................................................ 2,483 4,027
Stockholder advances....................................................... 504 18
Lines of credit - bank..................................................... 1,177 2,309
Notes payable.............................................................. - 2,858
Capital lease obligations, current portion................................. 546 482
Income taxes payable....................................................... 493 1,273
Deferred revenue........................................................... 6,503 8,728
------------ -----------
Total current liabilities.............................................. 24,763 35,974
CAPITAL LEASE OBLIGATIONS, less current portion............................. 489 497
long term liabilities........................ - 1,143
------------ -----------
TOTAL LIABILITIES........................................................... 25,252 37,614
=========== ==========
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Common stock, no par value, 30,000,000 shares authorized, 6,514,747 and
7,051,317 shares issued and outstanding, respectively..................
22,988 24,877
Accumulated (deficit)...................................................... (6,222) (3,154)
Cumulative foreign currency translation adjustment......................... 3 (129)
------------ -----------
Total stockholders' equity............................................. 16,769 21,594
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................. $ 42,021 $ 59,208
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended January 31,
---------------------------------------------------
1996 1997 1998
------ ------ ------
$'000's $'000's $'000's
<S> <C> <C> <C>
REVENUES
Products ...................................... $ 24,380 $ 33,983 $ 38,843
Services ...................................... 7,869 19,032 45,302
----- ------ ------
32,249 53,015 84,145
Cost of Products .............................. 18,673 29,376 32,121
Cost of Services .............................. 2,135 6,642 22,541
Write down of software development
costs ................................. 755 -- --
----- ------ ------
21,563 36,018 54,662
GROSS PROFIT
Products .................................... 5,707 4,606 6,722
Services .................................... 4,979 12,391 22,761
----- ------ ------
10,686 16,997 29,483
OPERATING EXPENSES:
Selling, general and administrative
expenses ................................. 9,566 13,792 22,796
Depreciation ................................. 356 518 1,092
Amortization ................................. 204 458 1,121
Write down of goodwill ....................... -- 552 --
Reorganization and restructuring costs ....... -- 2,286 --
----- ------ ------
Total operating expenses ................. 10,126 17,606 25,009
INCOME (LOSS) BEFORE INTEREST, INCOME
TAXES, AND SHARE OF RESULTS IN EQUITY
INVESTEE..................................... 559 (609) 4,474
Interest income .............................. 14 277 276
Interest expense ............................. (258) (297) (632)
Write down of investments .................... -- (500) --
----- ------ ------
INCOME (LOSS) BEFORE INCOME TAXES AND
SHARE OF RESULTS IN EQUITY INVESTEE.......... 315 (1,129) 4,118
SHARE OF OPERATING (LOSS) OF EQUITY
INVESTEE .................................... (761) (799) --
----- ------ ------
INCOME (LOSS) BEFORE INCOME TAXES.............. (446) (1,928) 4,118
INCOME TAXES .................................. 206 416 1,049
----- ------ ------
NET INCOME (LOSS) ............................. $ (652) $ (2,344) $ 3,069
----- ------ ------
----- ------ ------
NET INCOME (LOSS) PER COMMON SHARE
(Basic) in accordance with SFAS No. 128
$ (0.24) $ (0.45) $ 0.47
NET INCOME (LOSS) PER COMMON SHARE (Diluted) in
accordance with SFAS No. 128 .................. $ (0.24) $ (0.45) $ 0.43
----- ------ ------
----- ------ ------
FULLY DILUTED SHARES OUTSTANDING............... 2,742,614 5,682,716 7,129,307
----- ------ ------
----- ------ ------
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
currency
Accumulated translation
Shares Amount (Deficit) adjustment Total
---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1995..................... 2,511,325 $ 5,810,709 $ (3,226,648) $ 220,870 $ 2,804,931
Stock issued to acquire Compass............... 192,556 385,112 - - 385,112
Stock issued to bridge loan holders........... 25,750 51,500 - - 51,500
Stock issued in private placement, net of
offering costs.............................. 262,144 665,353 - - 665,353
Stock issued for services..................... 13,333 60,000 - - 60,000
Net (loss) for the year....................... - - (651,951) - (651,951)
Foreign currency translation adjustment....... - - - (214,169) (214,169)
---------- ---------- ------------ ----------- ----------
Balance, January 31, 1996..................... 3,005,108 6,972,674 (3,878,599) 6,701 3,100,776
Exercise of stock options..................... 53,639 536 - - 536
Stock issued in offering, net of offering costs 3,450,000 16,003,388 - - 16,003,388
Exercise of warrants.......................... 6,000 11,490 - - 11,490
Net (loss) for the year....................... - - (2,343,787) - (2,343,787)
Foreign currency translation adjustment....... - - - (3,868) (3,868)
-------- --------- ------------ ----------- --------
Balance, January 31, 1997..................... 6,514,747 22,988,088 (6,222,386) 2,833 16,768,535
Stock issued to acquire Eurosystems........... 58,896 600,000 - - 600,000
Exercise of warrants.......................... 477,674 1,289,298 - - 1,289,298
Net income for the year....................... - - 3,068,620 - 3,068,620
Foreign currency translation adjustment....... - - - (132,270) (132,270)
-------- --------- ------------ ----------- --------
Balance, January 31, 1998..................... 7,051,317 $ 24,877,386 $ (3,153,766) $ (129,437) $ 21,594,183
========= ============ ================ ============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended January 31,
-------------------------------------------------
1996 1997 1998
---- ---- ----
$'000's $'000's $'000's
<S> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income (loss).......................... $ (652) $ (2,344) $ 3,069
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities
Depreciation.............................. 356 518 1,092
Amortization.............................. 204 458 1,121
Write down of software development costs.. 755 - -
Write down of goodwill..................... - 552 -
Write down of investments.................. - 500 -
Share of results in equity investee....... 761 799 -
Stock issued for services................. 60 - -
(Gain) on disposal of fixed assets........ (36) (152) (54)
Decrease (increase) in accounts receivable (525) (2,850) 2,234
Decrease (increase) in deposits........... 24 6 (18)
Decrease (increase) in inventories........ (348) (1,162) (2,432)
Decrease (increase) in prepaid
expenses............................. (71) (119) (171)
Decrease in deferred income tax........... - - 725
Increase in income taxes.................. 204 188 256
(Increase) decrease in other current assets
(78) 37 11
Increase (decrease) in receivable - related
party................................. (9) 47 -
Increase (decrease) in accounts payable... 1,876 529 (1,783)
Increase (decrease) in accrued liabilities 543 429 (263)
Increase (decrease) in deferred revenue... 515 499 (2,402)
---------- ---------- ----------
Net cash provided (used) by operating
activities............................ 3,579 (2,065) 1,385
---------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
For the years ended January 31,
----------------------------------------------------
1996 1997 1998
---- ---- ----
$'000's $'000's $'000's
<S> <C> <C> <C>
CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Purchase of equipment...................... $ (406) $ (608) $ (880)
Proceeds from disposal of equipment........ 178 186 164
Acquisition of subsidiaries, including
related expenses, net of cash acquired... (1,614) (3,840) (6,574)
Investment in ActionTrac, Inc.............. - - -
Investment in and advances to
equity investee.......................... (445) (551) 143
Software development costs................. (383) - -
Increase (decrease) in other assets........ (24) 23 (17)
---------- ---------- ----------
Net cash (used) by investing activities... (2,694) (4,790) (7,164)
---------- ---------- ----------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Decrease (increase) in
lines of credit-bank..................... (653) (1,053) 468
Proceeds from notes payable................ 500 - 2,858
Repayment of notes payable................. (584) (2,849) -
Proceeds from (repayment of) stockholders'
advances................................. (228) 112 (40)
Decrease (increase) in deferred offering
costs.................................... (78) 339 -
Payments of capital lease obligations...... (144) (445) (731)
Net proceeds from issuance of common stock.
665 16,015 1,289
---------- ---------- ----------
Net cash provided (used) by financing
activities............................ (522) 12,119 3,844
---------- ---------- ----------
Effect of exchange rate changes on cash.... (213) (3) (132)
Net increase (decrease) in cash............ 150 5,261 (2,067)
---------- ---------- ----------
Cash at beginning of period................ 1,242 1,392 6,653
Cash at end of period...................... $ 1,392 $ 6,653 $ 4,586
Supplemental disclosure of cash flow information:
Cash paid for interest expense............. $ 58 $ 297 $ 632
Cash paid for income taxes................. $ - $ 547 $ 42
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
1. Nature of Business
4Front Technologies, Inc. and subsidiaries (the "Company" or "4 Front")
is a UK based specialized computer services company. The Company provides key
elements of distributed computing, including systems development and
integration, storage and networking solutions and products, as well as extensive
hardware and software support and help desk services.
2. Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries from the date of acquisition. All
significant intercompany balances and transactions have been eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
3. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
presented. Actual amounts could differ from those estimates. Significant assets
and liabilities with reported amounts based on estimates include accounts
receivable, inventories, deferred revenues and deferred income taxes.
4. Summary of Significant Accounting Policies
a) Revenue recognition
Revenue from the sale of computer hardware and software is generally
recognized when the product is shipped and in the case of software licenses only
after the license has been signed and further obligations are not significant.
Where fixed fee contracts involve significant obligations after shipment of the
product, revenue is recognized on the percentage-of-completion method of
accounting.
Revenues from engineering, implementation and training are recognized
as the services are performed. Revenues from maintenance agreements are
recognized ratably over the terms of the agreements.
In all such cases, the Company only recognizes revenue when collection
of the related receivable is probable.
b) Deposits
Amounts paid by the Company as advances against future purchases of
software are recorded as deposits until such time as the software is received.
c) Inventories
Inventories are stated at the lower of cost (first in, first out
method) or market value. Inventories consist primarily of computer hardware,
software and work in progress. Work in progress represents labor and material
costs incurred for customer software projects.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
4. Summary of Significant Accounting Policies (Continued)
d) Deferred offering costs
Deferred offering costs represent costs incurred for proposed offerings
of common stock. Costs are charged against the proceeds of the offering, if
successful, or to operations, if unsuccessful.
e) Depreciation
Property and equipment are stated at cost. Equipment held under capital
leases is stated at the present value of minimum lease payments at the inception
of the lease. The Company provides for depreciation of equipment using the
straight-line method over the estimated useful lives of the respective assets,
which range from three to five years. Equipment held under capital leases is
amortized using the straight-line method over the lease term.
f) Investment in and advances to equity investee
In prior years the investment in the ActionTrac International
partnership was accounted for using the equity method under which the
Company's results included its 50% share of the partnership's operating
profits or losses in accordance with the terms of the partnership agreement.
g) Foreign currency translation
The Company considers the pound sterling to be the functional currency
of its UK operations. The reporting currency of the Company is the US dollar;
accordingly, all amounts included in the consolidated financial statements have
been translated into US dollars.
<TABLE>
<CAPTION>
Years ending January 31,
----------------------------------
Exchange Rates 1996 1997 1998
- -------------- ---- ---- ----
<S> <C> <C> <C>
Average....................... 1.575 1.607 1.643
Period end.................... 1.511 1.602 1.633
</TABLE>
All assets and liabilities of the UK operations are translated into US
dollars using the exchange rates in effect on reporting dates for assets and
liabilities. Income and expenses are translated at averaged rates in effect for
the periods presented. The cumulative currency translation adjustment is reflect
as a separate component of stockholders' equity on the consolidated balance
sheet.
Foreign currency transaction gains and losses are included in the
consolidated results of operations for the periods presented. During the fiscal
year ended January 31, 1997 and 1998 the Company had operating foreign exchange
gains of $339,000, and $611,000 respectively. In fiscal year ended January 31,
1996 gains and losses made were insignificant.
h) Intangible assets
In connection with acquisitions accounted for under the purchase
method (see note 5), the Company recorded goodwill based on the excess of the
purchase price paid (cost of the acquisition) over the estimated fair value
of the identifiable tangible and intangible assets and liabilities of the
acquiree on the date of purchase. Goodwill is reported at cost, net of
accumulated amortization, and is being amortized over its estimated useful
life of between five and fifteen years. Accumulated amortization at January
31, 1997 and 1998 is $1.3 million and $2.4 million, respectively.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
4. Summary of Significant Accounting Policies (Continued)
In September 1997, the Company acquired Firstpoint. The acquisition of
Firstpoint was deemed by management to be of strategic importance to the Company
as it was to be the single largest acquisition by the Company in the services
and help desk marketplace. The acquisition brought the Company into place as one
of the top 5 independent maintenance services and help desk providers in the UK
and gave the Company sufficient critical mass whereby enhancing its ability to
successfully bid for service and help desk contracts in excess of $1 million
revenues per annum. Firstpoint was a company which had strategic importance to
the Company for the above reasons but in addition Firstpoint was a company which
had been in existence for more than 20 years and had successfully maintained
large market presence throughout the technology changes over that period and had
in fact been able to branch out and expand into areas previously not covered. To
date, following the acquisition of Firstpoint, the Company now manages in excess
of 15 services and help desk contracts worth in excess of $1 million revenues
each per annum. Management has deemed that an amortization period of fifteen
years is the appropriate amortization period for the goodwill on this
acquisition.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
In addition, the Company assesses long-lived assets for impairment
under FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. Under those rules, goodwill
associated with assets acquired in a purchase business combination is included
in impairment evaluations when events or circumstances exist that indicate the
carrying amount of those assets may not be recoverable.
i) Software development costs
The Company charges all costs of establishing technological feasibility
of software products to research and development expense as incurred.
Thereafter, software development costs are capitalized and reported at the lower
of unamortized cost or net realizable value. Capitalization of software
development costs ceases and amortization over the estimated useful life (not to
exceed three years) of the product commences when the product is available for
general release to customers. Any write down resulting from the periodic testing
of net realizable value is recorded as accelerated amortization.
The total amounts of software development costs capitalized during the
years ended January 31, 1996, 1997 and 1998, all of which relate to the StreamZ
communication software product, were $337,185, $0 and $0 respectively.
j) Income taxes
The company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are recognized for deferred tax assets if
it is considered more likely than not that all or some portion of the deferred
tax assets will not be realized. Income tax expense is tax payable for the
current period and the change during the year in deferred tax assets and
liabilities.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
4. Summary of Significant Accounting Policies (Continued)
k) Deferred revenue
Deferred revenue is comprised of maintenance and support fees to be
earned in the future on agreements existing and billed for at the balance sheet
date.
l) Net income (loss) per common share
Net income (loss) per common share is calculated in accordance with
SFAS No. 128. Basic net income (loss) per common share is calculated by dividing
net income (loss) by the weighted average number of common stock.
m) Concentration of credit risk
At January 31, 1997 and 1998, cash includes (pound)545,713 ($874,585)
and (pound)2,137,939, ($3,491,254) respectively held in demand deposit accounts
in United Kingdom banks where deposits are not insured by the government. These
balances are subject to foreign currency fluctuations, which in the past have
not been material.
n) Stock-Based Compensation
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation. The
Statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Statement defines a fair value
based method of accounting for stock option plans whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. Under the new Statement, companies may continue to
measure compensation cost of stock-based plans using the current accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. Companies electing to remain with the accounting in Opinion
No. 25 must make pro forma disclosures of net income and earnings per share as
if the fair value based method of accounting defined if the Statement were
applied. The Statement was effective in 1996 and the Company adopted its
provisions as of February 1, 1996. The Company has adopted the alternative
accounting treatment allowed by the Standard and measures compensation cost in
accordance with the provisions in Opinion No. 25.
The cost resulting from the issuance of warrants and options to
employees under a compensatory plan is based on their intrinsic value at the
measurement date, which is equivalent to the excess of the fair market value of
the Company's common stock over the exercise price of the related warrants or
options.
The cost resulting from the issuance of warrants and options to
non-employees as part of transactions involving the exchange of products or
services, or contracts to provide such, is based on their intrinsic value at the
date of grant.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
4. Summary of Significant Accounting Policies (Continued)
o) Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, Accounting for the
impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
February 1, 1996. This Statement required that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell.
p) Adoption of New Standards
The Company adopted the provisions of SFAS No. 128, Earnings Per Share,
in January 1998. This Statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, Earnings per Share, and makes
them more comparable to international EPS standards. Statement 128 replaces the
presentation of primary EPS with a presentation of basic EPS. In addition, the
Statement requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Prior periods
are restated to conform to the new standard.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130") was issued. Under SFAS 130 all
items that meet the definition of comprehensive income will be reported in a
financial statement for the period in which they are recognized. Comprehensive
income will include changes in the balances of items that are reported directly
in a separate component of Stockholders' equity on the Consolidated Balance
Sheets. The Company will make the disclosures required by SFAS in fiscal 1999.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") was also issued
in June 1997 and is effective for fiscal years beginning after December 31,
1997. SFAS 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis used internally
for evaluating segment performance and resource allocation. The Company will
make the required disclosures for fiscal 1999.
In October 1997, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 97-2 "Software Revenue
Recognition". SOP 97-2 establishes standards relating to the recognition of
all aspects of software revenue. SOP 97-2 is effective for transactions
entered into in fiscal years beginning after December 15, 1997, except for
certain provisions related to vendor specific evidence which are effective
for years beginning after December 15, 1998. Implementation guidelines for
this standard have not yet been issued and a wide range of potential
interpretations are being discussed by the accounting profession. Once
available, such implementation guidance could lead to unanticipated changes
in the Company's current revenue accounting practices, and such changes could
be material to the Company's future revenue and earnings.
5. Write-Down of Goodwill
In the fourth quarter of fiscal year 1997, the Company recorded a
charge of $552,000 related to the write down of goodwill to estimated
recoverable value. The asset of goodwill related to the Xanadu acquisition was
determined to have been impaired as a result of the loss during the year of
several key franchises relating to the operation of this subsidiary. Anticipated
future cash flows of the subsidiary indicate the recoverability of the asset is
not reasonably assured.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
5. Write-Down of Goodwill (Continued)
Upon determination that impairment of goodwill has occurred, the amount
of the impairment is calculated by determining that portion of the goodwill
which would not be expected to be recovered against operating income during the
remaining amortization period based on estimated discounted future cash flows.
6. Reorganization and Restructuring
In November 1996, the Company integrated its maintenance and support
services businesses, which involved the closure of surplus facilities and
various involuntary redundancies. The reorganization was substantially
completed by February 1997. The reorganization and restructuring costs of
$2.3 million include $716,000 relating to write down of fixed assets, $1.25
million relating to property costs and $320,000 relating to involuntary
redundancy costs of employees. Of this amount, $1.3 million relates to the
write down and costs paid during the year to January 31, 1997 and $988,000
was included as a liability at January 31, 1997, and this was fully utilized
by January 31, 1998.
7. Business Acquisitions
Effective March 31, 1995, 4Front Group Plc changed its name to Mortlake
Software Limited. At the same time, the K2 Group Plc became the principal
holding company of the UK operations and changed its name to 4Front Group Plc.
Effective April 6, 1995, the Company acquired all the common stock of
CCG Holdings Limited ("CCG") for cash consideration of (pound)550 ($880)
together with the issuance of 83,720 shares of common stock and an agreement to
deliver up to an additional 108,836 shares of common stock valued at $2 per
share in the event that certain profit targets were achieved. In addition, the
Managing Director of CCG received options on 23,680 shares of common stock
exercisable at $0.01 and was also entitled to receive additional options on up
to 29,959 shares of common stock exercisable at $0.01 upon similar terms as to
the entitlement of the CCG sellers to the performance related shares detailed
above. On December 13, 1995 the board of directors of the Company deemed that
all of the profit targets had been achieved and additional shares and options
were duly issued.
The business of CCG, carried out through its principal and wholly owned
subsidiary, Compass Computer Group Limited (Compass), is the supply of computer
hardware and software products for use within the commercial, industrial,
scientific and government market places. It specializes in data storage systems,
high end computers, networking products and associated technical consultancy and
support together with maintenance services, all provided throughout the UK.
Effective August 15, 1996, the Company acquired Hammer Distribution
Limited ("Hammer") for $1.7 million cash ((pound)1.1 million) plus an agreement
to pay an additional maximum of $1.2 million cash ((pound)750,000) based on the
profits for Hammer for the year to January 31, 1997. In April 1997 a final
contingent consideration of (pound)537,000 ($860,000) was paid to the former
stockholders of Hammer based on the profits for the year to January 31, 1997.
Effective October 11, 1996 4Front Technologies Inc., acquired all of
the issued and outstanding stock of Datapro Computers Group Limited ("Datapro"),
for (pound)1.39 million cash ($2.15 million), plus an agreement to pay an
additional maximum of (pound)135,000 ($200,000) based on the net assets in the
Datapro September 1996 management accounts. The additional (pound)135,000
($200,000) was paid in December 1996.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
7. Business Acquisitions (Continued)
All acquisitions in fiscal year ended January 31, 1998 have been
accounted for under the purchase method. On September 8, 1997, the Company
acquired 100% of the issued and outstanding shares of Firstpoint Limited. The
transaction is summarized as follows (in $ thousands):
<TABLE>
<CAPTION>
<S> <C>
$ `000's
Assets acquired:
Current assets.................................................................... $ 6,110
Property and equipment............................................................ 276
Goodwill.......................................................................... 6,871
Deferred taxation...................................................................... 1,380
Liabilities assumed:
Current liabilities............................................................... (4,756)
Deferred revenue.................................................................. (3,594)
----------
Purchase price......................................................................... $ 6,287
========
</TABLE>
The Company paid approximately $4.45 million in cash, net of cash
received in the acquisition. In addition to the amount paid at the closing of
the transaction, the Company will pay a further $1.8 million as deferred
consideration in equal quarterly instalments to February 1999. An
amortization period of fifteen years is used in relation to the Firstpoint
acquisition.
On October 28, 1997, the Company acquired 100% of the issued and
outstanding shares of Eurosystems France S.A. which included the wholly owned
subsidiaries Netix S.A. and Eurosystems Belgium. This transaction is summarized
as follows (in $ thousands):
<TABLE>
<CAPTION>
$ `000's
<S> <C>
Assets acquired:
Current assets...................................... $ 2,163
Property and equipment.............................. 175
Goodwill............................................ 2,728
Liabilities assumed:
Current liabilities................................. (2,904)
Deferred revenue.................................... (1,032)
----------
Purchase price........................................... $ 1,130
========
</TABLE>
The Company issued 58,896, ($600,000) in shares of its common stock to
the former shareholders and $530,000 cash as consideration on acquisition. There
is no deferred consideration. An amortization period of ten years is used in
relation to the Eurosystems acquisition.
8. Earnings Per Share
The computation for basic earnings per share is based on the net income
divided by the weighted average number of common shares outstanding for the
period.
The Computation for diluted earnings per share is based on the Treasury
Stock Method as per the requirements of SFAS No. 128. When common stock
equivalents have an anti-dilutive effect on earnings (loss) per share, they
are excluded from the calculation.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
8. Earnings Per Share (Continued)
The calculation for earnings per share is shown below for the year
ended January 31,
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
Basic Earnings Per Share
<S> <C> <C> <C>
Net income/(loss) $ (651,951) $ (2,343,787) $ 3,068,620
-------- --------- ---------
Weighted Average Number of Common Shares
outstanding 2,742,614 5,170,254 6,588,911
-------- --------- ---------
Net income/(loss) per Common Share Basic $ (0.24) $ (0.45) $ 0.47
======= ======== ========
Diluted Earnings Per Share
Net income/(loss) $ (651,951) $ (2,343,787) $ 3,068,620
------- --------- ---------
Weighted Average Number of Common Shares
outstanding 2,742,614 5,170,254 6,588,911
Additional Shares to be Issued upon Assumed
Exercise of Options and Warrants - - 2,556,925
Shares Hypothetically Repurchased at the Average
Market Price with the Proceeds of Exercise - - (2,016,529)
-------- --------- ---------
Adjusted Shares for Dilution 2,742,614 5,170,254 7,129,307
-------- --------- ---------
Net income/(loss) per Common Share Diluted $ (0.24) $ (0.45) $ 0.43
======= ======== ========
</TABLE>
9. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31,
-----------------------------
1997 1998
---- ----
$ `000's $ `000's
<S> <C> <C>
Computer hardware.................................... $ 6,949 $ 11,702
Computer software.................................... 83 20
Work in progress..................................... 100 130
-------- --------
$ 7,132 $ 11,852
======= =======
</TABLE>
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
10. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
January 31,
------------------------
1997 1998
---- ----
$ `000's $ '000's
<S> <C> <C>
Vehicles..................................... $ 1,324 $ 1,327
Furniture, fixtures and equipment............ 1,246 2,767
Computer equipment........................... 1,508 3,168
-------- --------
4,078 7,262
Less accumulated depreciation................ (2,027) (4,407)
-------- --------
$ 2,051 $ 2,855
======= =======
</TABLE>
11. Investment in and Advances to Equity Investee
On December 7, 1993, the Company and ActionTrac, Inc., a United States
corporation specializing in help desk products and services for the computer
software industry, formed a partnership named ActionTrac International
(ActionTrac) which is equally owned by the Company and ActionTrac, Inc.
ActionTrac held the world rights outside the United States, Canada and Mexico to
the proprietary help desk systems, services and software of ActionTrac, Inc. The
purpose of the partnership was to expand ActionTrac, Inc.'s current North
American operations on a worldwide basis. On May 13, 1994 ActionTrac established
ActionTrac UK Limited as a wholly owned UK subsidiary.
Under the terms of the partnership agreement, the Company was required
to make a capital contribution of $500,000, which was used to establish
ActionTrac UK Limited and to develop the UK help desk operations, and
ActionTrac, Inc. contributed a ten year renewable license for the help desk
software. During the years ended January 31, 1996 and 1997, the Company made
further advances to the partnership amounting to $477,664 and $550,762,
respectively. In conjunction with its participation in the ActionTrac
partnership the Company acquired 500,000 shares of restricted ActionTrac, Inc.
common stock at $1 per share.
Development of the UK help desk was completed and ActionTrac UK Limited
commenced operations on May 1, 1995. The Company's share of the partnership's
operating loss for the period from May 1, 1995 to January 31, 1996 amounted to
$179,246.
Due to the accelerated pace of technological change (including recent
advances in telecommunications systems and help desk software technology) and
the increasing diversity in the market for help desk services the Company
re-evaluated the net realizable value of its investment in and advances to the
ActionTrac International partnership at January 31, 1996. As a result the
Company recorded a write down of $581,770 in the year to January 31, 1996.
On December 24, 1996 ActionTrac Inc., the Company's former partner in
the ActionTrac Joint Venture, filed for bankruptcy in the USA. As a result of
the bankruptcy, the Company reviewed the carrying value of its investment in
ActionTrac Inc. and its advances to the ActionTrac joint venture. It was
concluded that these were not recoverable and the Company has therefore written
off its investment in ActionTrac Inc. of $500,000 and advances to the equity
investee of $798,910.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
11. Investment in and Advances to Equity Investee (Continued)
Further to the acquisition of Datapro in October 1996, the Company has
acquired an investment in a small UK software company called Channel Business
Systems. The Company is actively looking to dispose of this equity investee
which at January 31, 1997 is recorded in the accounts of the Company at
$143,422. The Company disposed of this in fiscal 1998 for its book value.
12. Accrued liabilities
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
January 31,
------------------------
1997 1998
---- ----
$ `000's $ `000's
<S> <C> <C>
Valued Added Tax.......................... $ 1,741 $ 1,876
Payroll taxes............................. 686 1,866
Other..................................... 56 285
------- --------
$ 2,483 $ 4,027
===== ======
</TABLE>
13. Lines of credit bank
<TABLE>
<CAPTION>
January 31,
---------------------
1997 1998
---- ----
$ `000's $ `000's
<S> <C> <C>
The Company has a (pound)650,000 (approximately $1,062,000) line of credit (overdraft
protection) with a United Kingdom bank. Interest is charged at 2.75% above bank
base rates. Bank base interest rate was 7.25% at January 31, 1998.............. $583 $943
The Company has a (pound)997,000 (approximately $1.6 million) line of credit
(overdraft protection) with a United Kingdom bank which includes
(pound)200,000 ($327,000 approximately) VAT and duty deferment on the import
of goods into the United Kingdom. Interest is charged at 2.5% above bank base
rate of 7.25% at
January 31, 1998............................................................... 296 644
The Company has a(pound)700,000 ($1,122,000) line of credit (overdraft protection) with
a United Kingdom bank. Interest is charged on utilized facilities at 2.5%
above bank base rate of 8.25% at January 31, 1998. The line of credit is
secured on
the assets of the Company...................................................... 298 -
The Company's French subsidiary Eurosystems France S.A. has bank lines of credit
with French and Belgium banks for $1.1 million. Interest is charged at rates
between 4.55% and 9.15% on utilized amounts. The lines of credit are secured on
the assets of Eurosystems France............................................... - 722
----- ------
$ 1,177 $ 2,309
===== ======
</TABLE>
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
14. Notes payable
Notes payable are as follows:
<TABLE>
<CAPTION>
January 31,
----------------------
1997 1998
---- ----
$ `000's $ `000's
<S> <C> <C>
Notes payable to a United Kingdom factoring company representing advance
payments on eligible trade receivables.
The Company remains liable for the advance payments in the event the receivables
are not collected. The Company pays the factoring company an administrative
fee of 0.075% of the receivable balance and interest at 1.75% above bank base
rates. Bank base rate was 7.25% at January 31, 1998. This facility was not in
existence at January 31, 1997 the facility is secured by a fixed and floating
charge over the trade receivable of Hammer..................................... $ -- $ 2,858
--------
-----
$- $ 2,858
===== ========
</TABLE>
15. Income taxes
The Company files a separate US federal income tax return for its
domestic operations and a Local income tax return for each of its foreign
subsidiaries. The foreign subsidiaries compute taxes at rates in effect in
their respective locations. Deferred federal income taxes are not provided on
the undistributed earnings of the Company's foreign subsidiaries to the
extent the Company intends to permanently reinvest such earnings in the its
foreign operations.
At January 31, 1998 the Company has available for future use
approximately $1,390,423 of net operating loss carryforwards expiring from 2004
through 2012, related to its domestic operations and $4,876,597 related to its
foreign operations, which are carry forward indefinitely.
The provision for income taxes (benefit) is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
$ `000's $ `000's $ `000's
<S> <C> <C> <C>
Current:
US Federal.................................. $ -- $ -- $ --
US State.................................... -- -- --
Foreign..................................... 206 526 625
---- ------ ------
206 526 625
Deferred:
US Federal.................................. -- -- (467)
US State.................................... -- -- (71)
Foreign..................................... -- (110) 962
---- ----- ------
-- (110) 424
---- ----- ------
Total provision for income taxes........ $ 206 $ 416 $1,049
===== ====== ======
</TABLE>
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
15. Income taxes (Continued)
The Company computes income tax expense based on the foreign statutory
rates. Income tax expense for the years ended January 31, 1996 and 1997 was
computed by applying the UK statutory rate of 33% to pre-tax income (loss).
During the year ended January 31, 1998, the UK statutory rate was reduced
from 33% to 31%. For the year ended January 31, 1998, the Company computed
income tax expense at a rate of 33% for 2 months and 31% for 10 months
resulting in a blended tax rate of 31.33% for the year.
Income tax expense for the years ended January 31, 1996, 1997 and
1998 differed from the amounts computed by applying the UK statutory tax rate
to pre-tax income (loss) as a result of the following:
<TABLE>
<CAPTION>
For the years ended January 31,
--------------------------------------
1996 1997 1998
$ `000's $ `000's $ `000's
<S> <C> <C> <C>
Expected tax at UK rate ................................................... $ (147) $ (636) $ 1,290
Effect of write-downs and amortization of goodwill......................... 500 395 351
Change in valuation allowance.............................................. (156) 452 (418)
Utilization of net operating losses for which no benefit was previously
recognized................................................................. -- -- (289)
Effect of UK statutory rate change on deferred tax assets and liabilities.. -- -- 59
Non deductible items and other............................................. 9 205 56
------- ------ --------
Actual tax charge.......................................................... $ 206 $ 416 $ 1,049
====== ====== ========
</TABLE>
The tax effects of temporary differences and net operating loss
carryforwards that give rise to deferred tax assets and (liabilities) are as
follows at January 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
$ `000's $ `000's
<S> <C> <C>
Net operating loss carryforwards............ $1,361 $2,041
Other deferred tax assets................... 430 662
------- --------
Total deferred tax assets................... 1,791 2,703
Valuation allowance......................... (818) (301)
------- --------
Deferred tax assets, net.................... $ 973 $2,402
======= ========
</TABLE>
In order for the net deferred tax asset to be realized, the Company's
foreign operations will need to earn taxable income of approximately $7 million.
Since the UK net operating loss carryforwards can be carried forward
indefinitely, there is no time limit over the period this income must be earned.
Management believe that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the net deferred
tax assets.
At January 31, 1996 and 1997, the Company had established a
valuation allowance against its otherwise recognizable deferred tax assets of
its domestic operations due to uncertainty surrounding the ability of the
Company, to generate taxable income in furture periods in its domestic
operations. For the year ended January 31, 1998, the valuation allowance
decreased by $289,000 as a result of the utilization of net operating losses
for which no previous benefit had been recognized. Furthermore, the valuation
allowance decreased because management beleives that it is more likely than
not that the results of future operations will generate sufficient taxable
income to realize $418,000 of deferred tax assets of its domestic operations.
Due to the uncertainty surrounding the ability of the Company, to
generate taxable income in future periods in its domestic operations, the
Company has recorded a valuation allowance against a portion of its otherwise
recognizable deferred tax assets of its domestic operations.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
16. Commitments and contingencies
Leases
The Company leases vehicles under capital leases which expire over the
next two years. The gross amount of these capital leases is as follows:
<TABLE>
<CAPTION>
January 31,
----------
1997 1998
---- ----
$ `000's $ `000's
<S> <C> <C>
Vehicles, gross........................... $937 $1,025
Less accumulated depreciation............. (348) (499)
------ ------
Net....................................... $589 $ 526
===== ======
</TABLE>
The total charge for depreciation for assets under capital leases for
the year to January 31, 1998 was $253,196.
Future minimum lease payments including payments for rental inventories
with a net book value of $63,320, under capital leases together with the present
value of net minimum lease payments at January 31, 1998 are as follows:
<TABLE>
<S> <C>
1999.................................................... $ 558,331
2000.................................................... 320,532
2001.................................................... 195,728
2002.................................................... 64,548
2003.................................................... 11,882
--------
Total minimum lease payments............................ 1,151,021
Less amount representing interest....................... (172,197)
--------
Present value of net minimum lease payments............. 978,824
Less current portion.................................... (481,957)
--------
$ 496,867
=======
</TABLE>
The Company also has certain non-cancellable operating leases for
premises and various equipment and vehicles. Total rental expenses for operating
leases for the years ending January 31, 1996, 1997 and 1998 amounted to
$961,455, $1,107,086 and $2,421,431, respectively.
The principal lease commitments for premises are as follows:
the Company's K2 subsidiary leases an office facility in
Watford, England for $197,000 ((pound)124,000) per year. The
lease, on which there are periodic reviews, expires August
2013.
the Company's 4Front Services subsidiary leases an
office/warehouse facility in Ruislip, England for $140,000
((pound)87,410) per year expiring February 2002.
the Company's Firstpoint subsidiary leases an office/warehouse
facility in Slough, England for $465,000 ((pound)285,000) per
year. The lease which expires in December 2010 is subject to
periodic reviews.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
16. Commitments and contingencies (Continued)
- the Company's Datapro subsidiary leases an office/warehouse
facility in Brighton, England for $56,000 ((pound)35,000)
expiring in February 2002.
- the Company's 4Front Products subsidiary leases an
office/warehouse facility in Newbury, England for $60,000
((pound)37,000). The lease expires in September 2002.
- the Company's Hammer subsidiary leases office/warehouse
facilities in Basingstoke, England for $10,000
((pound)67,000). The leases expire in September 1999 and March
2000.
- the Company's 4Front Group subsidiary leases offices in
London, England for $60,000 ((pound)37,000). The lease expires
in April 2002.
Obligations under operating leases are as follows for each of the years
ending January 31:
<TABLE>
<S> <C>
1999...................... $ 2,914,591
2000...................... 2,618,580
2001...................... 1,866,577
2002...................... 1,476,479
2003...................... 881,929
Thereafter................ 6,714,558
----------
Total..................... $ 16,472,714
=========
</TABLE>
Litigation
The Company is involved in various claims and legal proceedings arising
in the ordinary course of business. In the opinion of management, the ultimate
settlement of these matters will not have a material adverse effect on the
Company's consolidated financial position or consolidated results of its
operations.
17. Stockholders' equity
Recent stock transactions
As of January 31, 1995 the Company's counsel, Miller & Holguin,
converted $75,000 of fees into 18,750 shares of the Company's common stock
valued at $4.00 per share.
Effective April 6, 1995 the Company acquired all of the outstanding
shares of CCG Holdings Limited (Compass, now called 4Front Products) in exchange
for 192,556 shares of the Company's common stock and cash consideration payable
to the selling stockholders.
During May 1995 the Company issued 25,750 shares of common stock as
part of a bridge financing valued at $2.00 per share. In connection with this
bridge financing the Company issued warrants convertible at any time from
September 1996 to June 2000 into 257,500 shares of common stock at $4.50 per
share (see note 18).
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
17. Stockholders' equity (Continued)
During 1995 the Company received $1,166,074 ($665,353 net of offering
costs) from the sale of 262,144 shares of common stock in private placement
offerings. In connection with these placements the Company issued warrants
convertible at any time prior to May 2000 into 150,457 shares of common stock at
$6.50 per share and further warrants convertible between October 1996 and
October 2001 into 100,000 shares of common stock at $7.50 a share.
In November 1995, the Company's Counsel, Miller & Holguin, converted
$60,000 of fees into 13,333 shares of the Company's common stock valued at $4.50
per share and were issued with warrants convertible at any time from November
1996 to November 2001 into 13,333 shares of common stock at $7.50 a share.
In June 1996, the Company sold 3,000,000 shares of common stock at
$5.75 in a public offering of shares. Pursuant to this offering the underwriters
exercised the over allotment option under which an additional 450,000 shares of
common stock were sold.
During fiscal year ended January 31, 1997 and 1998, 25,163 options
previously granted in August and November 1995 at $5.00 lapsed due to the
grantees no longer working for the Company.
In the fiscal year ended January 31, 1997, 6,000 warrants at $2.00 were
exercised.
The number of warrants outstanding are summarized as follows at January
31:
<TABLE>
<CAPTION>
Number of shares of common stock
Date convertible Conversion price to be issued on conversion
1997 1998
---- ----
<S> <C> <C> <C>
Prior to December 31, 1997................ $2.00 487,000 -
Prior to December 31, 1997................ 7.50 157,200 -
Prior to August 9, 1997................... 4.00 15,425 -
Prior to January 31, 2000................. 4.50 197,500 197,500
September 1996 to June 2000............... 4.50 257,500 257,500
Prior to May 2000......................... 6.50 150,457 150,457
October 1996 to October 2001.............. 7.50 113,333 113,333
</TABLE>
During fiscal 1998, 407,774 of the $2.00 warrants were exercised,
69,900 of the $7.50 warrants were exercised and all remaining $2.00, $7.50
and $4.00 warrants expired.
18. Stock Options
Pursuant to a non-qualified plan approved by the Board of Directors in
1989, all employees of the Company may be granted options to purchase common
stock of the Company at a price not less than the fair market value on the date
of grant. The term of the option shall be no longer than five years from the
date the option is granted. The Company has reserved 75,000 of the authorized
but unissued shares of common stock for issuance upon exercise of the options.
Pursuant to the above plan 57,500 options were granted as of July 27, 1989 to
current and former officers and directors of the Company. The options were
exercised in July 1994 for $38,352.
In September and November 1994 the Company, through another stock
option plan, has issued 1,260,875 options to management, employees and
consultants to purchase common stock at an exercise price of $4.00 per share.
These options are exercisable through periods ending September and November
1999.
In August and November 1995 the Company through another stock option
plan has issued 725,463 options to management, employees and consultants to
purchase common stock at an exercise price of $5.00 per share. These options are
exercisable through August and November 2000.
In August 1995, options to purchase 24,000 shares of common stock at a
price of $4.40 per share (expiring August 2000) were issued to a consultant
pursuant to a contractual obligation.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
18. Stock Options (Continued)
1996 Equity Incentive Plan
In May 1996, the Company, adopted the 1996 4Front Technologies, Inc.
Equity Incentive Plan (the "Plan"), which provides for the issuance of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and non-qualified stock options, to purchase an aggregate of
up to 400,000 shares of the Common Stock of the Company. The Plan permits the
grant of options to officers, employees, directors and consultants of the
Company. This Plan was approved by stockholders on February 5, 1997 at a Special
Meeting.
Pursuant to the Offering of the Companys' Common Stock completed in
June 1996, 300,000 options to purchase Common Stock were granted to the
underwriters at an exercise price of $9.49.
Pursuant to the Plan, in February 1997, 122,000 options were issued by
the Company to management and employees to purchase common stock at an exercise
price of $5.75. These options are exercisable through February 2007.
Pursuant to the Plan, in February 1997, 125,000 options were issued by
the Company to management and employees to purchase common stock at an exercise
price of $3.38. These options are exercisable through February 2007.
Pursuant to the Plan, in November 1997, 87,500 options were issued by
the Company to management and employees to purchase common stock at an exercise
price of $8.75. These options are exercisable through November 2007.
A summary of the status of the Company's stock option plans as of
January 31, 1996, 1997 and 1998 and changes during the
years ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- --------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,261 $4.00 2,010 $4.37 1,985 $4.36
Granted 749 4.98 - - 335 5.65
Exercised - - - - - -
Forfeited - - (25) 5.00 (135) 4.90
Outstanding at end of year 2,010 4.37 1,985 4.36 2,185 4.52
------ ------ ------
Options exercisable at year-end 2,010 1,985 2,185
====== ====== ======
</TABLE>
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
19. Bridge Financing
The cash portion of the Compass acquisition was funded primarily from
the proceeds of a $790,000 bridge loan which was completed in January, 1995 and
a private equity placement completed in May, 1995 in which gross proceeds of
approximately $630,000 were raised. This bridge loan, plus interest, fell due on
May 31, 1995. Some of the balance of the May, 1995 placement proceeds were
utilized to repay certain participants in the January, 1995 bridge loan, while
the other participants either converted their bridge loan into equity as offered
in the private equity placement or, in the case of the holders of approximately
$530,000 of the January, 1995 bridge loan amount, chose to extend their
participation into a new bridge loan of $1,030,000 which was completed by the
Company in June, 1995. The proceeds of this June, 1995 bridge loan were used to
fund acquisition costs and to provide additional general working capital for the
Company. This bridge loan, plus interest, was originally due on December 14,
1995. At January 31, 1996 $50,000 of this loan had been repaid, and the
remaining $980,000 was fully repaid in June 1996, following the successful
completion of the sale of common stock in the offering.
20. Related Party Transactions
In addition to transactions with related parties discussed throughout
the notes to the consolidated financial statements, the following related party
transactions have taken place.
Control of the Company
The Chairman of the Board and Chief Executive Officer and Vice
Chairman of the Board and President have signifcant shareholdings.
Receivable-related party
As of January 31, 1997 and 1998 the Company is owed $644,356 and $0
respectively by a company controlled by a stockholder. The receivable is
non-interest bearing, due in 1997 and guaranteed by another stockholder.
Stockholders advances
As of January 31, 1997 and 1998 the Company's major stockholders
were owed $504,000 and $18,000 respectively, in non-interest, unsecured
advances, due on demand, subordinated to the collection of a receivable from a
company controlled by a stockholder.
Consulting services
During the periods ended January 31, 1996, 1997, 1998 the Company
compensated one of its officers/stockholders for services in the amount of
approximately $29,818, $47,286 and $64,868 respectively. At January 31, 1996 and
1997, $0 and $0 respectively, was owed to this related party.
Office space
The Company rents office space in Denver, Colorado provided by an
officer/stockholder of the Company at $500 per month. The lease is on a
month-to-month basis.
Private placement costs
During the years ended January 31, 1997 and 1998 the Company's
Chairman/Chief Executive Officer paid offering costs on behalf of the Company of
$192,613 and $0 respectively.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
20. Related Party Transactions (Continued)
Bridge loans
A relative of the Company's Chairman participated in the bridge
financing arrangements described in note 17 and as of January 31, 1997 and 1998
was owed $980,000 and $0, respectively. In addition, the relative received a
total of 36,500 shares of Common Stock and warrants representing 365,000 shares
of Common Stock in connection with the bridge loan arrangements of January and
June 1995. The $980,000 was repaid in June 1996 following the successful
offering of shares by the Company.
Other
Prior to his appointment as a non-executive director of the Company,
Mr. A.K. Ross purchased 15,000 shares of the Company's Common Stock and warrants
to purchase 15,000 shares for total consideration of $66,000 in the Company's
May, 1995 private placement of securities. In June, 1995, Mr. Ross loaned
$50,000 to the Company, in consideration of which the Company issued to Mr. Ross
1,250 shares of Common Stock and warrants to purchase 12,500 shares. The $50,000
loan has been repaid to Mr. Ross, with interest. During the year January 31,
1997 Mr. Ross was paid $10,000 salary for his duties as non-executive director .
This was increased to $15,000 as of February 1, 1997.
In April 1996 Mr. Brian Murray was appointed as a non-executive
director of the Company. Mr. Murray was paid a salary of $10,000 per annum for
his services as non-executive director for the year to January 31, 1997. This
was increased to $15,000 as of February 1, 1997.
21. Pension Plans
The Company sponsors, through its 4Front Group subsidiary, a money
purchase pension plan (voluntary) covering its Chairman and Chief Executive
Officer and President. The Company made contributions of approximately $18,000
((pound)12,000) and $54,000 ((pound)32,000) in the years ended January 31, 1997
and 1998 respectively per year under this plan, although no contribution was
made in the year ended January 31, 1996. The Company through its 4Front
Products, Datapro, Firstpoint, K2 and 4Front Services subsidiaries also sponsor
money purchase pension plans (voluntary) covering certain directors and
employees. There are no accrued pension contributions at January 31, 1995, 1996
and 1997 under any plan. The Company and its subsidiaries contributed $321,000
under all pension plans for other employees in the fiscal year ended January 31,
1998.
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
22. Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", (SFAS No. 123), which encouraged the use of a fair value based
method of accounting for compensation expense associated with stock options and
similar plans. However, SFAS No. 123 permits the continued use of the intrinsic
value based method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", but requires additional disclosures,
including pro forma calculations of net earnings and earnings per share as if
the fair value method of accounting prescribed by SFAS No. 123 had been applied
in 1996 and 1997. The pro forma data presented below is not representative of
the effects on reported amounts for future years for SFAS No. 123 does not apply
to awards prior to 1996 and additional awards are expected in the future.
<TABLE>
<CAPTION>
As Reported Pro Forma
------------------------ ------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) (in thousands) $(2,343) $3,069 $(2,995) $2,155
Income (loss) per share $ (0.45) $ 0.47 $ (0.58) $ 0.31
Average shares outstanding 5,170,254 6,588,911 5,170,254 6,851,253
Average fair value of grants during the year
Black-Scholes option pricing model assumptions:
Risk-free interest rate 5.2%
Expected life (years) 10
Volatility 66.9%
</TABLE>
23. Foreign Operations
Included in the accompanying consolidated financial statements are the
following amounts for the United Kingdom and Continental Europe operations at:
<TABLE>
<CAPTION>
January 31,
-------------------------
1997 1998
---- ----
$ `000's $ `000's
<S> <C> <C>
Cash...................................... $875 $3,438
Accounts receivable....................... 15,365 18,357
Inventories............................... 7,132 11,852
Deposits.................................. 31 49
Other current assets...................... 1,099 1,936
Income taxes receivable................... 32 6
Property and equipment, net............... 2,051 2,855
Other assets.............................. 83 101
---------- -----------
$26,668 $38,594
======== =========
</TABLE>
<PAGE>
4FRONT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997 and 1998
23. Foreign Operations (Continued)
<TABLE>
<CAPTION>
Years Ended January 31,
--------------------------------------------------
1996 1997 1998
---- ---- ----
$ `000's $ `000's $ `000's
<S> <C> <C> <C>
Revenues..................... $ 32,249 $ 53,015 $ 84,145
-------- --------- --------
Cost of revenues............. 20,808 36,018 54,662
Write down of software
development costs.......... 755 - -
Expenses..................... 10,262 16,729 23,937
Income taxes................. 206 416 1,049
--------- --------- ---------
Net income (loss)............ $217 ($148) $ 4,497
======== ========= =========
</TABLE>
During the year ended January 31, 1996, 1997 and 1998, no customers
accounted for 10% or more of total revenues.
24. Supplemental Information to Consolidated Statements of Cash Flows for
Non-cash Investing and Financing Activities
<TABLE>
<CAPTION>
Years ended January 31,
--------------------------------------
1996 1997 1998
---- ---- ----
$ `000's $ `000's $ `000's
<S> <C> <C> <C>
Stock issued to bridge financing holders...................... $ 52 $- $-
Purchase of equipment financed with capital lease obligations. $ 72 $398 $675
Stock issued to acquire Compass................................... $385 $- $-
Stock issued to acquire Eurosystems............................... $- $- $600
</TABLE>
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
4FRONT SOFTWARE INTERNATIONAL, INC.
--------------------------
Under Section 102 of the
General Corporation Law
--------------------------
The undersigned, for the purpose of forming a corporation pursuant
to the provisions of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: The name of the Corporation is 4Front Software International,
Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware shall be at Corporation Trust Center, 1209 Orange
Street, City of Wilmington, County of New Castle and the name of its
registered agent at such address shall be The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware as set forth in Title 8 of the Delaware Code
1953, as amended (the "GCL").
FOURTH: The total number of shares of all classes of stock which the
Corporation has authority to issue is thirty five million (35,000,000)
shares, consisting of thirty million (30,000,000) shares of Common Stock,
par value $.001 per share (the "Common Stock"), and five million
(5,000,000) shares of Preferred Stock, par value $.001 per share, which
shall have such designations as may be authorized by the Board of
Directors from time to time (the "Preferred Stock"). The Board of
Directors is hereby authorized, subject to the provisions contained in
this Article IV, to issue the Preferred Stock from time to time in one or
more series, which Preferred Stock shall rank senior to the Common Stock
as to dividends and distribution of assets of the Corporation on
dissolution, as hereinafter provided, and shall have such distinctive
designations as may be stated in the resolution or resolutions providing
for the issuance of shares of a particular series of Preferred Stock. In
such resolution or resolutions providing for the issuance of shares of a
particular series of Preferred Stock, the Board of Directors is hereby
expressly authorized and empowered to fix the number of shares
constituting such series and to fix the relative rights and preferences of
the shares of the series so established to the full extent allowable by
law except insofar as such rights and preferences are fixed herein. Such
authorization in the Board of Directors shall expressly
<PAGE>
include the authority to fix and determine the relative rights and
preferences of such shares in all respects including, without limitation,
the following:
1. the rate of dividend;
2. whether shares can be redeemed or called and, if so, the
redemption or call price and terms and conditions of
redemption or call;
3. the amount payable upon shares in the event of dissolution,
voluntary and involuntary liquidation or winding up of the
affairs of the Corporation;
4. purchase, retirement or sinking fund provisions, if any, for
the call, redemption or purchase of shares;
5. the terms and conditions, if any, on which shares may be
converted into Common Stock or any other securities;
6. whether or not shares have voting rights, and the extent of
such voting rights, if any; and
7. whether shares shall be cumulative, non-cumulative, or
partially cumulative as to dividends and the date from which
any cumulative dividends are to accumulate.
FIFTH: The name and mailing address of the incorporator is Gregg J.
Berman, Esq., c/o Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York,
New York 10103-3198.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to
make, alter or repeal the by-laws of the Corporation.
EIGHTH: Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the
Corporation may be kept (subject to any provision of the GCL) outside the
State of Delaware at such place or places as may be designated from time
to time by the board of directors or in the by-laws of the Corporation.
Election of directors need not be by written ballot unless the by-laws of
the Corporation shall so provide.
NINTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its
-2-
<PAGE>
stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of
this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of the GCL or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of the GCL, order a
meeting of the creditors or class of creditors, and/or of the stockholders
or class of stockholders of this Corporation, as the case may be, to be
summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in
the manner now or thereafter prescribed by statute, and all rights
conferred on the stockholders herein are granted subject to this
reservation.
ELEVENTH: A director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for the
breach of any fiduciary duty as a director, except (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
GCL, as the same exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit.
If the GCL is amended after the date of incorporation of the Corporation
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the GCL, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of
the Corporation existing at the time of such repeal or modification.
-3-
<PAGE>
I, THE UNDERSIGNED, being the sole incorporator as named above, for
the purpose of forming a corporation pursuant to the GCL, make this Certificate,
hereby declaring and certifying that this is my act and deed and the facts
herein stated are true, and accordingly have hereunto set my hand this 15th day
of November, 1996.
s/Gregg J. Berman
---------------------------------
Gregg J. Berman, Esq.
c/o Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103-3198
-4-
<PAGE>
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
4FRONT SOFTWARE INTERNATIONAL, INC.
* * * * *
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is 4Front Software International, Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article First thereof and by substituting in lieu of
said Article the following new Article:
"The name of the corporation is 4Front Technologies, Inc."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware.
Signed and attested to on October ____, 1997.
________________________________
Mark Ellis
President
Attest:
_________________________________
Craig Kleinman
Secretary
<PAGE>
Exhibit 3.2
BYLAWS
OF
4 FRONT SOFTWARE INTERNATIONAL, INC.
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle, and the name of its registered agent shall be The Corporation
Trust Company.
SECTION 1.02. Other Offices. The corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Place of Meeting. All meetings of stockholders for the
election of directors shall be held at such place, either within or without the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting.
SECTION 2.02. Annual Meeting. The annual meeting of stockholders
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting.
SECTION 2.03. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice, or if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.04. Special Meeting. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of
-1-
<PAGE>
Incorporation, may be called by the Chairman of the Board or by the President of
the corporation or by the Board of Directors or by written order of a majority
of the directors and shall be called by the President or the Secretary at the
request in writing of stockholders owning a majority in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purposes of the proposed meeting. The Chairman of
the Board or the President of the corporation or directors so calling, or the
stockholders so requesting, any such meeting shall fix the time and any place,
either within or without the State of Delaware, as the place for holding such
meeting.
SECTION 2.05. Notice of Meeting. Written notice of the annual, and
each special meeting of stockholders, stating the time, place, and purpose or
purposes thereof, shall be given to each stockholder entitled to vote thereat,
not less than 10 nor more than 60 days before the meeting.
SECTION 2.06. Quorum. The holders of a majority of the shares of the
corporation's capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at any
meeting of stockholders for the transaction of business, except as otherwise
provided by statute or by the Certificate of Incorporation. Notwithstanding the
other provisions of the Certificate of Incorporation or these bylaws, the
holders of a majority of the shares of the corporation's capital stock entitled
to vote thereat, present in person or represented by proxy, whether or not a
quorum is present, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. If the adjournment is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
SECTION 2.07. Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the shares of the
corporation's capital stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the statutes, of the
Certificate of Incorporation or of these bylaws, a different vote is required,
in which case such express provision shall govern and control the decision of
such question. Every stockholder having the right to vote shall be entitled to
vote in person, or by proxy appointed by an instrument in writing subscribed by
such stockholder, bearing a date not more than three years prior to voting,
unless such instrument provides for a longer period, and filed with the
Secretary of the corporation before, or at the time of, the meeting. If such
instrument shall designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of the
same portion of the shares as he is of the proxies representing such shares.
SECTION 2.08. Consent of Stockholders. Whenever the vote of
stockholders
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at a meeting thereof is required or permitted to be taken for or in connection
with any corporate action by any provision of the statutes, the meeting and vote
of stockholders may be dispensed with if all the stockholders who would have
been entitled to vote upon the action if such meeting were held shall consent in
writing to such corporate action being taken; or on the written consent of the
holders of shares of the corporation's capital stock having not less than the
minimum percentage of the vote required by statute for the proposed corporate
action, and provided that prompt notice must be given to all stockholders of the
taking of corporate action without a meeting and by less than unanimous written
consent.
SECTION 2.09. Voting of Stock of Certain Holders. Shares of the
corporation's capital stock standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent, or proxy as the bylaws
of such corporation may prescribe, or in the absence of such provision, as the
Board of Directors of such corporation may determine. Shares standing in the
name of a deceased person may be voted by the executor or administrator of such
deceased person, either in person or by proxy. Shares standing in the name of a
guardian, conservator, or trustee may be voted by such fiduciary, either in
person or by proxy, but no such fiduciary shall be entitled to vote shares held
in such fiduciary capacity without a transfer of such shares into the name of
such fiduciary. Shares standing in the name of a receiver may be voted by such
receiver. A stockholder whose shares are pledged shall be entitled to vote such
shares, unless in the transfer by the pledgor on the books of the corporation,
he has expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent the stock and vote thereon.
SECTION 2.10. Treasury Stock. The corporation shall not vote,
directly or indirectly, shares of its own capital stock owned by it; and such
shares shall not be counted in determining the total number of outstanding
shares of the corporation's capital stock.
SECTION 2.11. Fixing Record Date. The Board of Directors may fix in
advance a date, which shall not be more than 60 days nor less than 10 days
preceding the date of any meeting of stockholders, nor more than 60 days
preceding the date for payment of any dividend or distribution, or the date for
the allotment of rights, or the date when any change, or conversion or exchange
of capital stock shall go into effect, or a date in connection with obtaining a
consent, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend or distribution, or to receive
any such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, or to give such consent, and in
such case such stockholders and only such stockholders as shall be stockholders
of record on the date so fixed, shall be entitled to such notice of, and to vote
at, any such meeting and any adjournment thereof, or to receive payment of such
dividend or distribution, or to receive such allotment of rights, or to exercise
such rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the corporation after any such record date
fixed as aforesaid.
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ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. Powers. The business and affairs of the corporation
shall be managed by its Board of Directors, which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
SECTION 3.02. Number, Election and Term. The number of directors
that shall constitute the whole Board of Directors shall be not less than one.
Such number of directors shall from time to time be fixed and determined by the
directors and shall be set forth in the notice of any meeting of stockholders
held for the purpose of electing directors. The directors shall be elected at
the annual meeting of stockholders, except as provided in Section 3.03, and each
director elected shall hold office until his successor shall be elected and
shall qualify. Directors need not be residents of Delaware or stockholders of
the corporation.
SECTION 3.03. Vacancies, Additional Directors, and Removal From
Office. If any vacancy occurs in the Board of Directors caused by death,
resignation, retirement, disqualification, or removal from office of any
director, or otherwise, or if any new directorship is created by an increase in
the authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
or fill the newly created directorship; and a director so chosen shall hold
office until the next election and until his successor shall be duly elected and
shall qualify, unless sooner displaced. Any director may be removed either for
or without cause at any special meeting of stockholders duly called and held for
such purpose.
SECTION 3.04. Regular Meeting. A regular meeting of the Board of
Directors shall be held each year, without other notice than this bylaw, at the
place of, and immediately following, the annual meeting of stockholders; and
other regular meetings of the Board of Directors shall be held each year, at
such time and place as the Board of Directors may provide, by resolution, either
within or without the State of Delaware, without other notice than such
resolution.
SECTION 3.05. Special Meeting. A special meeting of the Board of
Directors may be called by the Chairman of the Board of Directors or by the
President of the corporation and shall be called by the Secretary on the written
request of any two directors. The Chairman or President so calling, or the
directors so requesting, any such meeting shall fix the time and any place,
either within or without the State of Delaware, as the place for holding such
meeting.
SECTION 3.06. Notice of Special Meeting. Written notice of special
meetings of the Board of Directors shall be given to each director at least 48
hours prior to the time of such meeting. Any director may waive notice of any
meeting. The attendance of a director at any meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any special meeting of the Board of Directors need be specified
in the notice or
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waiver of notice of such meeting, except that notice shall be given of any
proposed amendment to the bylaws if it is to be adopted at any special meeting
or with respect to any other matter where notice is required by statute.
SECTION 3.07. Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute, by the Certificate of
Incorporation or by these bylaws. If a quorum shall not be present at any
meeting of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 3.08. Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof as provided in Article IV of these bylaws, may be taken
without a meeting, if a written consent thereto is signed by all members of the
Board of Directors or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board of Directors or
such committee.
SECTION 3.09. Compensation. Directors, as such, shall not be
entitled to any stated salary for their services unless voted by the
stockholders or the Board of Directors; but by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors or any
meeting of a committee of directors. No provision of these bylaws shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEE OF DIRECTORS
SECTION 4.01. Designation, Powers and Name. The Board of Directors
may, by resolution passed by a majority of the whole Board of Directors,
designate one or more committees, including, if they shall so determine, an
Executive Committee, each such committee to consist of two or more of the
directors of the corporation. The committee shall have and may exercise such of
the powers of the Board of Directors in the management of the business and
affairs of the corporation as may be provided in such resolution. The committee
may authorize the seal of the corporation to be affixed to all papers that may
require it. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of such committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Such committee or committees shall have such name or names and such
limitations of authority as may be determined from time to time by resolution
adopted by the Board of Directors.
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SECTION 4.02. Minutes. Each committee of directors shall keep
regular minutes of its proceedings and report the same to the Board of Directors
when required.
SECTION 4.03. Compensation. Members of special or standing
committees may be allowed compensation for attending committee meetings, if the
Board of Directors shall so determine.
ARTICLE V
NOTICE
SECTION 5.01. Methods of Giving Notice. Whenever under the
provisions of applicable statutes, the Certificate of Incorporation or these
bylaws, notice is required to be given to any director, member of any committee,
or stockholder, such notice shall be in writing and delivered personally or
mailed to such director, member, or stockholder; provided that in the case of a
director or a member of any committee such notice may be given orally or by
telephone or telegram. If mailed, notice to a director, member of a committee,
or stockholder shall be deemed to be given when deposited in the United States
mail first class in a sealed envelope, with postage thereon prepaid, addressed,
in the case of a stockholder, to the stockholder at the stockholder's address as
it appears on the records of the corporation or, in the case of a director or a
member of a committee, to such person at his business address. If sent by
telegraph, notice to a director or member of a committee shall be deemed to be
given when the telegram, so addressed, is delivered to the telegraph company.
SECTION 5.02. Written Waiver. Whenever any notice is required to be
given under the provisions of an applicable statute, the Certificate of
Incorporation, or these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
OFFICERS
SECTION 6.01. Officers. The officers of the corporation shall be a
Chairman of the Board and a Vice Chairman of the Board (if such offices are
created by the Board), a President, one or more Vice Presidents, any one or more
of which may be designated Executive Vice President or Senior Vice President, a
Secretary and a Treasurer. The Board of Directors may appoint such other
officers and agents, including Assistant Vice Presidents, Assistant Secretaries,
and Assistant Treasurers, in each case as the Board of Directors shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined by the Board. Any two or
more offices may be held by the same person. No officer shall execute,
acknowledge, verify or countersign any instrument on behalf of the corporation
in more than one capacity, if such instrument is required by law, by these
bylaws or by any act of the corporation to be executed, acknowledged, verified,
or countersigned by two or more officers. The Chairman and Vice Chairman of the
Board shall be elected from among the directors. With the foregoing exceptions,
none of the other officers need be a director, and none of the officers need be
a stockholder of the corporation.
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SECTION 6.02. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently possible. Each officer shall hold office until his
successor shall have been chosen and shall have qualified or until his death or
the effective date of his resignation or removal, or until he shall cease to be
a director in the case of the Chairman and the Vice Chairman.
SECTION 6.03. Removal and Resignation. Any officer or agent elected
or appointed by the Board of Directors may be removed without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 6.04. Vacancies. Any vacancy occurring in any office of the
corporation by death, resignation, removal, or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 6.05. Salaries. The salaries of all officers and agents of
the corporation shall be fixed by the Board of Directors or pursuant to its
direction; and no officer shall be prevented from receiving such salary by
reason of his also being a director.
SECTION 6.06. Chairman of the Board. The Chairman of the Board (if
such office is created by the Board) shall preside at all meetings of the Board
of Directors or of the stockholders of the corporation. The Chairman shall
formulate and submit to the Board of Directors or the Executive Committee
matters of general policy for the corporation and shall perform such other
duties as usually appertain to the office or as may be prescribed by the Board
of Directors or the Executive Committee.
SECTION 6.07. Vice Chairman of the Board. The Vice Chairman of the
Board (if such office is created by the Board) shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board. The Vice Chairman shall perform such other
duties as from time to time may be prescribed by the Board of Directors or the
Executive Committee or assigned by the Chairman of the Board.
SECTION 6.08. President. The President shall be the chief executive
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control the business and affairs of
the corporation. In the absence of the Chairman of the Board or the Vice
Chairman of the Board (if such offices are created by the Board), the President
shall preside at all meetings of the Board of Directors and of the stockholders.
He may also preside at any such meeting attended by the Chairman or Vice
Chairman of the Board if he is so designated by the Chairman, or in the
Chairman's absence by the Vice Chairman. He shall have the power to appoint and
remove subordinate officers, agents and employees, except those elected or
appointed by the Board of Directors. The President shall keep the Board of
Directors and the Executive Committee fully informed and shall consult them
concerning the business of the corporation. He may sign with the Secretary or
any other officer of the corporation thereunto
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authorized by the Board of Directors, certificates for shares of the corporation
and any deeds, bonds, mortgages, contracts, checks, notes, drafts, or other
instruments that the Board of Directors has authorized to be executed, except in
cases where the signing and execution thereof has been expressly delegated by
these bylaws or by the Board of Directors to some other officer or agent of the
corporation, or shall be required by law to be otherwise executed. He shall
vote, or give a proxy to any other officer of the corporation to vote, all
shares of stock of any other corporation standing in the name of the corporation
and in general he shall perform all other duties normally incident to the office
of President and such other duties as may be prescribed by the stockholders, the
Board of Directors, or the Executive Committee from time to time.
SECTION 6.09. Vice Presidents. In the absence of the President, or
in the event of his inability or refusal to act, the Executive Vice President
(or in the event there shall be no Vice President designated Executive Vice
President, any Vice President designated by the Board) shall perform the duties
and exercise the powers of the President. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the corporation.
The Vice Presidents shall perform such other duties as from time to time may be
assigned to them by the President, the Board of Directors or the Executive
Committee.
SECTION 6.10. Secretary. The Secretary shall (a) keep the minutes of
the meetings of the stockholders, the Board of Directors and committees of
directors; (b) see that all notices are duly given in accordance with the
provisions of these bylaws and as required by law; (c) be custodian of the
corporate records and of the seal of the corporation, and see that the seal of
the corporation or a facsimile thereof is affixed to all certificates for shares
prior to the issue thereof and to all documents, the execution of which on
behalf of the corporation under its seal is duly authorized in accordance with
the provisions of these bylaws; (d) keep or cause to be kept a register of the
post office address of each stockholder which shall be furnished by such
stockholder; (e) sign with the President, or an Executive Vice President or Vice
President, certificates for shares of the corporation, the issue of which shall
have been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the corporation; and (g) in general,
perform all duties normally incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the President, the Board
of Directors or the Executive Committee.
SECTION 6.11. Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. He
shall (a) have charge and custody of and be responsible for all funds and
securities of the corporation; (b) receive and give receipts for moneys due and
payable to the corporation from any source whatsoever and deposit all such
moneys in the name of the corporation in such banks, trust companies, or other
depositories as shall be selected in accordance with the provisions of Section
7.03 of these bylaws; (c) prepare, or cause to be prepared, for submission at
each regular meeting of the Board of Directors, at each annual meeting of the
stockholders, and at such other times as may be required by the Board of
Directors, the President or the Executive Committee, a statement of financial
condition of the corporation in such detail as may be required; and (d) in
general, perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the President, the
Board of Directors or the Executive Committee.
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SECTION 6.12. Assistant Secretary and Treasurer. The Assistant
Secretaries and Assistant Treasurers shall, in general, perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or by
the President, the Board of Directors, or the Executive Committee. The Assistant
Secretaries and Assistant Treasurers shall, in the absence of the Secretary or
Treasurer, respectively, perform all functions and duties which such absent
officers may delegate, but such delegation shall not relieve the absent officer
from the responsibilities and liabilities of his office. The Assistant
Secretaries may sign, with the President or a Vice President, certificates for
shares of the corporation, the issue of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers shall
respectively, if required by the Board of Directors, give bonds for the faithful
discharge of their duties in such sums and with such sureties as the Board of
Directors shall determine.
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ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.01. Contracts. Subject to the provisions of Section 6.01,
the Board of Directors may authorize any officer, officers, agent, or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authority may be general or confined to
specific instances.
SECTION 7.02. Checks. All checks, demands, drafts, or other orders
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers or such
agent or agents of the corporation, and in such manner, as shall be determined
by the Board of Directors.
SECTION 7.03. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VIII
CERTIFICATES OF STOCK
SECTION 8.01. Issuance. Each stockholder of this corporation shall
be entitled to a certificate or certificates showing the number of shares of
capital stock registered in his name on the books of the corporation. The
certificates shall be in such form as may be determined by the Board of
Directors, shall be issued in numerical order and shall be entered in the books
of the corporation as they are issued. They shall exhibit the holder's name and
number of shares and shall be signed by the President or a Vice President and by
the Secretary or an Assistant Secretary. If any certificate is countersigned (1)
by a transfer agent other than the corporation or any employee of the
corporation, or (2) by a registrar other than the corporation or any employee of
the corporation, any other signature on the certificate may be a facsimile. If
the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the designations, preferences, and relative
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations, or restrictions of such
preferences and rights shall be set forth in full or summarized on the face or
back of the certificate which the corporation shall issue to represent such
class of stock; provided that, except as otherwise provided by statute, in lieu
of the foregoing requirements there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish to each stockholder who
so requests the designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations, or restrictions of such preferences and rights. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
case of a lost, stolen, destroyed, or mutilated certificate a new one may be
issued therefor upon such terms and with such indemnity, if any, to the
corporation as the Board of Directors may prescribe. Certificates shall not be
issued representing fractional shares of stock.
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SECTION 8.02. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require (1) the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require, (2) such owner to give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate or certificates alleged to have been
lost, stolen, or destroyed, or (3) both.
SECTION 8.03. Transfers. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the corporation by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney and filed with the Secretary of the
corporation or the Transfer Agent.
SECTION 8.04. Registered Stockholders. The corporation shall be
entitled to treat the holder of record of any share or shares of the
corporation's capital stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.
ARTICLE IX
DIVIDENDS
SECTION 9.01. Declaration. Dividends with respect to the shares of
the corporation's capital stock, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, pursuant to applicable law. Dividends may be paid in cash,
in property, or in shares of capital stock, subject to the provisions of the
Certificate of Incorporation.
SECTION 9.02. Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
INDEMNIFICATION
SECTION 10.01. Third Party Actions. The corporation shall indemnify
any director or officer of the corporation, and may indemnify any other person,
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 10.02. Actions by or in the Right of the Corporation. The
corporation shall indemnify any director or officer and may indemnify any other
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the Court of Chancery or such other court shall deem proper.
SECTION 10.03. Mandatory Indemnification. To the extent that a
director, officer, employee, or agent of the corporation has been successful on
the merits or otherwise in defense of any action, suit, or proceeding referred
to in Sections 10.01 and 10.02, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
SECTION 10.04. Determination of Conduct. The determination that a
director, officer, employee, or agent has met the applicable standard of conduct
set forth in Sections 10.01 and 10.02 (unless indemnification is ordered by a
court) shall be made (1) by the
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Board of Directors by a majority vote consisting of directors who were not
parties to such action, suit, or proceeding even if less than a quorum, or (2)
if there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (3) by the stockholders.
SECTION 10.05. Payment of Expenses in Advance. Expenses incurred in
defending a civil or criminal action, suit, or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee, or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article X.
SECTION 10.06. Indemnity Not Exclusive. The indemnification and
advancement of expenses provided or granted hereunder shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Certificate of Incorporation,
any other bylaw, agreement, vote of stockholders, or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
SECTION 10.07. Definitions. For purposes of this Article X:
(a) "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger that, if its separate
existence had continued, would have had power and authority to indemnify
its directors, officers, and employees or agents, so that any person who
is or was a director, officer, employee, or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, shall
stand in the same position under this Article X with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued;
(b) "other enterprises" shall include employee benefit plans;
(c) "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan;
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(d) "serving at the request of the corporation" shall include any
service as a director, officer, employee, or agent of the corporation that
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and
(e) a person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Article X.
SECTION 10.08. Continuation of Indemnity. The indemnification and
advancement of expenses provided or granted hereunder shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Seal. The corporate seal, if one is authorized by the
Board of Directors, shall have inscribed thereon the name of the corporation,
and the words "Corporate Seal, Delaware." The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or otherwise reproduced.
SECTION 11.02. Books. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at the offices of the corporation, or at such other place or places as
may be designated from time to time by the Board of Directors.
ARTICLE XII
AMENDMENT
These bylaws may be altered, amended, or repealed by a majority of
the number of directors then constituting the Board of Directors at any regular
meeting of the Board of Directors without prior notice, or at any special
meeting of the Board of Directors if notice of such alteration, amendment, or
repeal be contained in the notice of such special meeting.
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Exhibit 10.1
4FRONT SOFTWARE INTERNATIONAL, INC.
1996 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of the Plan is to provide incentives to attract, retain
and motivate eligible persons whose present and potential contributions are
important to the success of the Company and its Subsidiaries and Affiliates, by
offering them an opportunity to participate in the Company's future performance
through awards of Options. The Plan shall be administered as two separate plans,
one for the benefit of Participants who are not Directors of the Company, which
plan shall be governed by the provisions of this Plan excepting Section 5.2
hereof, and one for the benefit of Participants who are Directors of the
Company, which plan shall be governed by the provisions of this Plan, excepting
Section 5.1 hereof.
Capitalized terms not defined in the text are defined in Section 20.
2. SHARES SUBJECT TO THE PLAN
2.1. Number of Shares Available. Subject to Sections 2.2 and 14, the
total number of Shares reserved and available for grant and issuance pursuant to
the Plan shall be 400,000 Shares, provided, however, that the maximum number of
Shares that may be issued under the Plan to members of the Board of Directors of
the Company is 10,000 Shares. Subject to Sections 2.2 and 14, Shares reserved
for issuance pursuant
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to Options granted under this Plan shall again be available for grant and
issuance, in connection with future Options under the Plan, that: (a) are
subject to issuance upon exercise of an Option, but cease to be subject to such
Option for any reason other than exercise of such Option, or (b) are subject to
an Option that otherwise terminates without such Shares being issued and for
which the participant did not receive any benefits of ownership.
2.2. Adjustment of Shares. In the event that the number of
outstanding shares of the Company's Common Stock is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then: (a) the number of Shares reserved for issuance
under the Plan, and (b) the Exercise Prices of and number of Shares subject to
outstanding Options, shall be proportionately adjusted, subject to any required
action by the Board or the stockholders of the Company and compliance with
applicable securities laws; provided, however, that fractions of a Share shall
not be issued, but shall either be paid in cash at Fair Market Value or shall be
rounded up to the nearest Share, as determined by the Committee; and provided,
further, that the Exercise Price of any Option may not be decreased to below the
par value of the Shares.
3. ELIGIBILITY
3.1. Eligibility of Employees, Consultants and Independent
Contractors. ISOs (as defined in Section 5 below) may be granted only to
employees (including officers and directors who are also employees) of the
Company or of a Subsidiary of the Company. NQSOs may be granted to employees,
officers, consultants, independent contractors and advisers of the Company or
any Subsidiary or Affiliate of the Company; provided, however, that such
consultants, contractors and advisers render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted both ISOs and NQSOs under the Plan.
3.2. Eligibility of Directors . No Directors of the Company shall be
eligible to be granted Options under this Plan, other than Brian Murray, who
shall receive NQSOs for 10,000 Shares pursuant to Section 5.2 hereof.
4. ADMINISTRATION
4.1. Committee Authority. The Plan shall be administered by the
Committee or the Board acting as the Committee. Subject to the purposes, terms
and conditions of the Plan, and to the direction of the Board, the Committee
shall have full power to implement and carry out the Plan, provided, however,
that all grants of Options to Directors shall be effected strictly in accordance
with the terms of Section 5.2 hereof. Except as otherwise provided pursuant to
Sections 3.2 or 5 hereof, the Committee shall have the authority to:
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(a) construe and interpret the Plan, any Option Agreement and
any other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations
relating to the Plan;
(c) select persons to receive Options;
(d) determine the form and terms of Options;
(e) determine the number of Shares or other consideration
subject to Options;
(f) determine whether Options will be granted singly, in
combination or in tandem with, in replacement of, or as alternatives
to, other Options under the Plan or any other incentive or
compensation plan of the Company or any Subsidiary or Affiliate of
the Company;
(g) grant waivers of Plan or Option conditions;
(h) determine the vesting, exercisability and payment of
Options and to accelerate the vesting and/or exercisability of
Options, as provided herein;
(i) correct, any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Option or any Option Agreement;
(j) determine whether an Option has been earned; and
(k) make all other determinations necessary or advisable for
the administration of the Plan.
4.2. Committee Discretion. Any determination permitted to be made by
the Committee under the Plan with respect to any Option shall be made in its
sole discretion at the time of grant of the Option or, unless in contravention
of any express term of the Plan or Option, at any later time, and such
determination shall be final and binding on the Company and all persons having
an interest in any Option under the Plan.
4.3. Exchange Act Requirements. If two or more members of the Board
are Outside Directors and Disinterested Persons, the Committee shall be
comprised of at least two members of the Board, all of whom are Outside
Directors and Disinterested Persons. It is the intent of the Company that the
Plan and Options
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hereunder satisfy and be interpreted in a manner, that, in the case of
Participants who are or may be Insiders, satisfies the applicable requirements
of Rule 16b-3 (or its successor) of the Exchange Act. If any provision of the
Plan or of any Option would otherwise conflict with the intent expressed in this
Section 4.3, that provision, to the extent possible, shall be interpreted and
deemed amended so as to avoid such conflict.
5. GRANT AND EXERCISE OF OPTIONS
5.1. Grant of Options to Persons Other Than Directors. Except as
otherwise limited herein, the Committee may grant Options to eligible persons
who are not Directors of the Company pursuant to this Section 5.1 and shall
determine whether such Options shall be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1.1. Form of Option Grant. Each Option granted shall be
evidenced by an Option Agreement, which shall expressly identify the Option as
an ISO or NQSO ("Stock Option Agreement"), and be in such form and contain such
provisions (which need not be the same for each Participant receiving an Option)
as the Committee shall from time to time approve, and which shall comply with
and be subject to the terms and conditions of the Plan. The Committee may in its
discretion include in any NQSO granted under the Plan a condition that the
Participant shall agree to remain in the employ of, and to render services to,
the Company or any of its Subsidiaries for a period of time (specified in the
agreement) following the date the NQSO is granted.
5.1.2. Date of Grant. The date of grant of an Option shall be
the date on which the Committee makes the determination to grant such Option.
The Stock Option Agreement and a copy of the Plan will be delivered to the
Participant within a reasonable time after the granting of such Option.
5.1.3. Exercise Period. Options shall be exercisable within
the times or upon the events determined by the Committee as set forth in the
Stock Option Agreement; provided, however:
(a) no Option shall be exercisable after the expiration of ten
(10) years from the date the Option is granted;
(b) subject to Sections 4.1(h) and 5.3, no Option shall be
exercisable less than six (6) months after the date of grant or
prior to stockholder approval of the Plan:
(c) Each Option granted under the Plan shall be exercisable
only
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with respect to one-third of the total number of Shares subject to
such Option upon the expiration of six (6) months after the date of
grant, with the balance being exercisable, one-half upon the
expiration of eighteen (18) months from the date of such grant, and
one-half upon the expiration of thirty (30) months from the date of
such grant; and
(d) no ISO granted to a person who directly or by attribution
owns more than Ten Percent (10%) of the total combined voting power
of all classes of stock of the Company or any Subsidiary of the
Company ("Ten Percent Stockholder") shall be exercisable after the
expiration of five (5) years from the date the Option is granted.
5.1.4. Exercise Price. The Exercise Price shall be determined
by the Committee when an Option is granted and may be not less than 85% of the
Fair Market Value of the Shares on the date of grant; provided, however, that:
(i) the Exercise Price of an ISO shall be not less than
100% of the Fair Market Value of the Shares on the date of
grant, and
(ii) the Exercise Price of any ISO granted to a Ten
Percent Stockholder shall not be less than 110% of the Fair
Market Value of the Shares on the date of grant.
Payment for the Shares purchased may be made in accordance with Section 6 of the
Plan.
5.1.5. Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant receiving an Option pursuant to the Plan), stating the
number of Shares being purchased, the restrictions imposed on the Shares, if
any, and such representations and agreements regarding Participant's investment
intent, access to information and other matters, if any, as may be required or
desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.1.6. Termination. Notwithstanding the exercise
periods set forth in the Stock Option Agreement, exercise of an Option shall
always be subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then the Participant may exercise such
Participant's Options, only
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to the extent that such Options would have been exercisable upon the
Termination Date, no later than thirty (30) days after the
Termination Date, but in any event, no later than the expiration
date of the Options.
(b) If the Participant is terminated because of death or
Disability, then the Participant's Options which are ISO's may be
exercised, only to the extent that such Options would have been
exercisable by Participant on the Termination Date, and must be
exercised by Participant (or Participant's legal representative or
authorized assignee) no later than one hundred eighty (180) days
after the Termination Date, but in any event no later than the
expiration date of the Options.
5.1.7. Limitations on Exercise. The Committee may specify a
reasonable minimum of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.1.8. Limitations on ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
the Plan or under any other incentive stock option plan of the Company or any
Affiliate or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, the Options for the first $100,000 worth of Shares to become
exercisable in such calendar year shall be ISOs and the Options for the amount
in excess of $100,000 that become exercisable in that calendar year shall be
NQSOs. In the event that the Code or the regulations promulgated thereunder are
amended after the Effective Date of the Plan to provide for a different limit on
the Fair Market Value of Shares permitted to be subject to ISOs, such different
limit shall be automatically incorporated herein and shall apply to any Options
granted after the effective date of such amendment.
5.1.9. Modification, Extension or Renewal. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered shall be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected, by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.1.4 or
5.2.3 of the Plan for Options granted on the date the action is taken to reduce
the Exercise Price; provided, further, that the Exercise Price shall not be
reduced below the par value of the
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Shares.
5.1.10. No Disqualification . Notwithstanding any other
provision in the Plan, no term of the Plan relating to ISOs shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
5.2. Grant of Options to Directors.
Notwithstanding the provisions of Section 5.1, the Computer
shall not have discretion to grant Options, either as ISOs or NQSOs, to
Directors of the Company, but instead, all such Options shall be granted
pursuant to this Section 5.2.
5.2.1. Form of Option Grant. Section 5.1.1 shall apply to
grants of Options to Directors.
5.2.2. Formula for Grant of Options to Directors. Options
shall be granted to Directors on the following basis:
(a) Only Brian Murray shall be granted NQSOs for 10,000 shares
upon approval of the Plan by the Board of Directors.
5.2.3. Exercise Period. Options granted under this Section 5.2
shall be exercisable within the times and upon the events determined by the
committee as set forth in the Stock Option Agreement, provided, however:
(a) no Option shall be exercisable after the expiration of ten
(10) years from the date the Option is granted;
(b) subject to Sections 4.1(h) and 5.3, no Option shall be
exercisable less than six (6) months after the date of grant or
prior to Stockholder approval of the Plan;
(c) each Option granted to Directors under the Plan shall be
exercisable only with respect to one-third of the total number of
Shares subject to such Option upon the expiration of six (6) months
after the date of grant, with the balance being exercisable,
one-half upon the expiration of eighteen (18) months from the date
of such grant, and one-half upon the expiration of thirty (30)
months from the date of such grant; and
(d) no ISO granted to a person who directly or by attribution
owns more than Ten Percent (10%) of the total combined voting power
of all
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classes of stock of the Company or any subsidiary of the Company
("Ten Percent Stockholder") shall be exercisable after the
expiration of five (5) years from the date the Option is granted.
5.2.4. Exercise Price. The Exercise Price for
Director Options shall be as follows:
(a) the Exercise Price of an ISO shall be 100% of the Fair
Market Value of the Shares on the date of grant, provided, however,
that the Exercise Price of any ISO granted to a Ten Percent
Stockholder shall be 110% of the Fair Market Value of the Shares on
the date of grant;
(b) the Exercise Price of a NQSO shall be 100% of the Fair
Market Value of the Shares on the date of grant; and
(c) payment for the Shares purchased may be made in accordance
with Section 6 of the Plan.
5.2.5. Method of Exercise. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement as provided
under Section 5.1.5.
5.2.6. Termination. Section 5.1.6 hereof shall apply to grants
of Options to Directors.
5.2.7. Limitations on ISOs. Section 5.1.8 hereof shall apply
to Options granted to Directors.
5.2.8. No Disqualification. Section 5.1.10 shall apply to all
ISOs granted to Directors hereunder.
5.3. Accelerated Vesting.
5.3.1. Notwithstanding Sections 5.1.3(b) and 5.2.2(b), the
Committee shall have the authority to accelerate the exercisability of Options
granted pursuant to the terms of this Plan, provided however, that the
acceleration of exercisability shall be conditioned upon inclusion in the Option
agreements with Participants of such provisions and restrictions as are
necessary to permit stock issued upon exercise of such Options to continue to
qualify for the exception from Section 16(b) of the Securities Act as is
provided under Rule 16(b)(3)(a), (b) and (c).
5.3.2. Notwithstanding anything herein to the contrary, if a
Change in Control of the Company occurs or if the Committee determines in its
sole discretion that
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an Acceleration Event has occurred, then all Options shall become fully
exercisable as of the date such Change in Control occurred or the Committee
determines that an Acceleration Event has occurred, provided however, that the
acceleration of exercisability shall be subject to the imposition of such
restrictions on transferability of shares of Common Stock subject to such
Options, as are necessary to permit stock issued upon exercise of such Options
to continue to qualify for the exception from Section 16(b) of the Securities
Act as is provided under Rule 16(b)(3)(a), (b) and (c).
6. PAYMENT FOR SHARE PURCHASES
6.1. Payment. Payment for Shares purchased pursuant to the Plan may
be made in cash (by check) or, where expressly approved by the Committee and
permitted by law by:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares of the Company's Common Stock that
either: (1) have been owned by Participant for more than six (6)
months and have been paid for within the meaning of Rule 144 of the
Securities Act; or were obtained by Participant in the public
market; and, (2) are clear of all liens, claims, encumbrances or
security interests;
(c) by waiver of compensation due or accrued to Participant
for services rendered;
(d) provided that a public market for the Company's stock
exists and subject to the ability of the Participant to sell Shares
in compliance with applicable securities laws;
(i) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased in
order to pay the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(ii) through a "margin" commitment from the Participant
and an NASD Dealer whereby Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the
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NASD Dealer in the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company;
or
(e) by any combination of the foregoing.
Notwithstanding the foregoing, the Exercise Price of an Option held
by a director who is not an employee shall be paid either (i) in cash; or (ii)
pursuant to subsection (a) of this Section 6.1, or (iii) by any combination of
the foregoing (i) and (ii).
7. WITHHOLDING TAXES
(a) Withholding Generally. Whenever Shares are to be issued in
satisfaction of Options granted under the Plan, the Company may
require the Participant to remit to the Company an amount sufficient
to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such
Shares.
8. PRIVILEGES OF STOCK OWNERSHIP
(a) Voting and Dividends. No Participant shall have any of the
rights of a stockholder with respect to any Shares until the Shares
are issued to the Participant. After Shares are issued to the
Participant, the Participant shall be a stockholder and have all the
rights of a stockholder with respect to such Shares, including the
right to vote and receive all dividends or other distributions made
or paid with respect to such Shares.
(b) Financial Statements. The Company shall provide financial
statements to each Participant annually during the period such
Participant has Options outstanding, provided, however, that the
Company shall not be required to provide such financial statements
to Participants whose services in connection with the Company assure
them access to equivalent information.
9. TRANSFERABILITY
Options granted under the Plan, and any interest therein, shall not
be transferable or assignable by Participant, and may not be made subject to
execution, attachment or similar process, otherwise than by will or by the laws
of descent and distribution or as consistent with the specific Plan and Option
Agreement provisions relating thereto. During the lifetime of the Participant,
an Option shall be exercisable only by the Participant, and any elections with
respect to an Option, may be made only by the Participant.
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10. CERTIFICATES
All certificates for Shares or other securities delivered under the
Plan shall be subject to such stock transfer orders, legends and other
restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed.
11. EXCHANGE AND BUYOUT OF OPTIONS
The Committee may, at any time or from time to time, authorize the
Company, with the consent of the respective Participants, to issue new Options
in exchange for the surrender and cancellation of any or all outstanding Options
(other than Options granted to Directors pursuant to Section 5.2). The Committee
may at any time buy from a Participant an Option previously granted with payment
in cash, Shares or other consideration, based on such terms and conditions as
the Committee and the Participant shall agree.
12. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE
An Option shall not be effective unless such Option is in compliance
with all applicable federal and state securities laws, rules and regulations of
any governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed, as they are in effect
on the date of grant of the Option and also on the date of exercise or other
issuance. Notwithstanding any other provision in the Plan, the Company shall
have no obligation to issue or deliver certificates for Shares under the Plan
prior to: (a) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (b) completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company shall be under no obligation to register the
Shares with the SEC or to effect compliance with the registration, qualification
or listing requirements of any state securities laws, stock exchange or
automated quotation system, and the Company shall have no liability for any
inability or failure to do so.
13. NO OBLIGATION TO EMPLOY
Nothing in the Plan or any Option granted under the Plan shall
confer to be deemed to confer on any Participant any right to continue in the
employ of, or to continue any other relationship with, the Company, or any
Subsidiary or Affiliate of the Company or limit in any way the right of the
Company or any Subsidiary or Affiliate of the Company to
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terminate Participant's employment or other relationship at any time, with or
without cause.
14. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE
The existence of outstanding Options shall not affect in any way the
right of power of the Company or its stockholders to make or authorize all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any other corporate act or
proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares
or other capital readjustment, the payment of a stock dividend, or other
increase or reduction of the number of shares of its Common Stock outstanding,
without receiving compensation therefor in money, services or property, then (i)
the number, class, and per share price of Shares subject to outstanding Options
hereunder shall be appropriately adjusted in such a manner as to entitle a
Participant to receive upon exercise thereof (and, if relevant, for the same
aggregate cash consideration), the same total number and class of shares as such
Participant would have received had such Participant exercised such Option in
full immediately prior to such event; and (ii) the number and class of shares
with respect to which Options may be granted under the Plan shall be adjusted by
substituting for the total number of shares of Common Stock then reserved that
number and class of shares of stock that would have been received by the owner
of an equal number of outstanding shares of Common Stock as the result of the
event requiring the adjustment.
After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each holder of an outstanding Option
shall, at no additional cost, be entitled to receive upon exercise of such
Option (subject to any required action by stockholders of the Company) in lieu
of the number of Shares as to which such Option shall then be so exercisable,
the number and class of shares of stock or other securities to which such holder
would have been entitled pursuant to the terms of the agreement of merger or
consolidation if, immediately prior to such merger or consolidation, such holder
had been the holder of record of a number of shares of Common Stock equal to the
number of shares as to which such Option shall be so exercised.
If the Company is merged into or consolidated with another
corporation under circumstances where the Company is not the surviving
corporation, or if the Company is liquidated, or sells or otherwise disposes of
substantially all its assets to another corporation while unexercised Options
remain outstanding under the Plan, (i) subject to the provisions of clause (ii)
below, after the effective date of such merger,
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consolidation or sale, as the case may be, each holder of an outstanding Option
shall be entitled to receive upon exercise of such Option in lieu of shares of
Common Stock, shares of such stock or other securities, cash or property as the
holders of shares of Common Stock received pursuant to the terms of the merger,
consolidation or sale; or (ii) all outstanding Options may be canceled by the
Board as of the effective date of any such merger, consolidation, liquidation or
sale provided that: (x) notice of such cancellation shall be given to each
holder of an Option, and (y) each holder of an Option shall have the right to
exercise such Option to the extent that the same is then exercisable or, if the
Board shall have accelerated the time for exercise of all unexercised and
unexpired Options, in full during the 30-day period preceding the effective date
of such merger, consolidation, liquidation or sale.
Except as expressly provided above, the issue by the Company of
shares of stock of any class, securities convertible into shares of stock of any
class, for cash, property or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of price of Shares then subject to outstanding
Options.
15. ADOPTION AND STOCKHOLDER APPROVAL
The Plan shall become effective on the date that it is adopted by
the Board (the "Effective Date"). The Company shall submit the Plan for approval
by the stockholders of the Company at the next annual meeting of stockholders of
the Company to obtain the advantages under NASD, IRS, Securities and Exchange
Commission and other regulations that approval of stockholders may bestow,
provided however, that Options granted under the Plan shall be conditioned upon
stockholder approval of the Plan within one year of adoption by the Board.
16. TERM OF PLAN
The Plan will terminate ten (10) years from the Effective Date.
17. AMENDMENT OR TERMINATION OF PLAN
The Board may at any time terminate or amend the Plan in any
respect, including without limitation amendment of any form of Option Agreement
or instrument to be executed pursuant to the Plan; provided, however, that:
(i) the Board shall not, without the approval of the
stockholders of the Company, amend the Plan in any manner that
requires such
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<PAGE>
stockholder approval pursuant to the Code or the regulations
promulgated thereunder as such provisions apply to ISO plans or
pursuant to the Exchange Act or Rule 16b-3 (or its successor), as
amended, thereunder; and
(ii) the terms and conditions of any awards of Options to
Directors and the category of persons eligible to be awarded such
shares under the Plan shall not be amended more than once every six
months, other than to comply with changes in the Code or ERISA, or
the rules and regulations thereunder.
18. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board, the submission of the
Plan to the stockholders of the Company for approval, nor any provision of the
Plan shall be construed as creating any limitations on the power of the Board to
adopt such additional compensation arrangements as it may deem desirable,
including, without limitation, the granting of stock options and bonuses
otherwise than under the Plan, and such arrangements may be either generally
applicable or applicable only in specific cases.
19. GOVERNING LAW
The Plan and all agreements, documents and instruments entered into
pursuant to the Plan shall be governed by and construed in accordance with the
internal laws of the State of Colorado, excluding that body of law pertaining to
conflict of laws.
20. DEFINITIONS
As used in the Plan, the following terms shall have the following
meanings:
"Acceleration Event" means but is not limited to, any Change of
Control of the Company or other event determined in the discretion of the
Committee.
"Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is under common control with,
another corporation, where "control" (including the terms "controlled by" and
"under common control with") means the possession, direct or indirect, of the
power to cause the direction of the management and policies of the corporation,
whether through the ownership of voting securities, by contract or otherwise.
"Board" means the Board of Directors of the Company.
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<PAGE>
"Change in Control" means the occurrence of any of the following
events:
(A) when the Company acquires actual knowledge that any person (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then-outstanding securities;
(B) upon the first purchase of Common Stock pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the Company);
(C) upon the approval by the Company's shareholders of: (i) a merger
or consolidation of the Company with or into another corporation, which does not
result in any capital reorganization or reclassification or other change in the
Company's then-outstanding shares of Common Stock), (ii) a sale or disposition
of all or substantially all of the Company's assets, or (iii) a plan of
liquidation or dissolution of the Company;
(D) if during any period of two consecutive years, the individuals
who at the beginning of such period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof, unless
the election, or the nomination for election by the Company's shareholders, of
each new director is approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period; or
(E) if the Board of Directors or any designated committee
determines, in its sole discretion, that any person (such as that term is used
in Sections 13(d) and 14(d) of the Exchange Act) directly or indirectly
exercises a controlling influence over the management or policies of the
Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the Board to administer
the Plan, or if no committee is appointed, the Board.
"Company" means 4Front Software International, Inc., a corporation
organized under the laws of the State of Colorado, or any successor corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"Disinterested Person" means a Director who has not, during the
period that person is a member of the Committee and for one year prior to
service as a member of
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<PAGE>
the Committee, been granted Options pursuant to the Plan or any other plan of
the Company, any Subsidiary or Affiliate of the company, except in accordance
with the requirements set forth in rule 16b-3(c)(2)(i) (and any successor
regulation thereto) as promulgated by the SEC under Section 16(b) of the
Exchange Act, as such rule is amended from time to time and as interpreted by
the SEC.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market System, its last reported sale price on the Nasdaq National
Market or, if no such reported sale takes place on such date, the
average of the closing bid and asked prices;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, the last reported sale price or,
if no such reported sale takes place on such date, the average of
the closing bid and asked prices on the principal national
securities exchange on which the Common Stock is listed or admitted
to trading;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on such date, as reported by the Wall Street Journal,
for the over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board of
Directors of the Company in good faith.
"Insider" means an officer or director of the Company or other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"Option" means an option to purchase Shares of Common Stock of the
Company pursuant to Section 5.
"Option Agreement" means, with respect to each Option, the signed
written agreement between the Company and the Participant setting forth the
terms and
-16-
<PAGE>
conditions of the Option.
"Outside Director" means any outside director as defined in Section
162(m) of the Code and the regulations issued thereunder.
"Participant" means a person who receives an Option under the
Plan.
"Plan" means this 4Front Software International, Inc., 1996 Equity
Incentive Plan, as amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock, without par
value, reserved for issuance under the Plan, as adjusted pursuant to Sections 2
and 14, and any security issued in respect thereto or in replacement therefor.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Option, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"Termination" or "Terminated" means, for purposes of the Plan with
respect to a Participant, that the Participant has ceased to provide services as
an employee, director, consultant, independent contractor or adviser, to the
Company or a Subsidiary or Affiliate of the Company, except in the case of sick
leave, military leave, or any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than ninety (90) days, or
reinstatement upon the expiration of such leave is guaranteed by contract or
statute. The Committee shall have sole discretion to determine whether a
Participant has ceased to provide services and the effective date on which the
Participant ceased to provide services (the "Termination Date").
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<PAGE>
TABLE OF CONTENTS
Page #
1. PURPOSE.............................................................. 1
2. SHARES SUBJECT TO THE PLAN........................................... 1
2.1. Number of Shares Available..................................... 1
2.2. Adjustment of Shares........................................... 1
3. ELIGIBILITY.......................................................... 2
3.1. Eligibility of Employees, Consultants and Independent
Contractors.................................................... 2
3.2. Eligibility of Directors....................................... 2
4. ADMINISTRATION....................................................... 2
4.1. Committee Authority............................................ 2
4.2. Committee Discretion........................................... 3
4.3. Exchange Act Requirements...................................... 3
5. GRANT AND EXERCISE OF OPTIONS........................................ 3
5.1. Grant of Options to Persons Other Than Directors............... 3
5.1.1. Form of Option Grant.................................... 3
5.1.2. Date of Grant........................................... 4
5.1.3. Exercise Period......................................... 4
5.1.4. Exercise Price.......................................... 4
5.1.5. Method of Exercise...................................... 5
5.1.6. Termination............................................. 5
5.1.7. Limitations on Exercise................................. 5
5.1.8. Limitations on ISOs..................................... 5
5.1.9. Modification, Extension or Renewal...................... 6
5.1.10. No Disqualification.................................... 6
5.2. Grant of Options to Directors.................................. 6
5.2.1. Form of Option Grant.................................... 6
5.2.2. Formula for Grant of Options to Directors............... 6
5.2.3. Exercise Period......................................... 6
5.2.4. Exercise Price.......................................... 7
5.2.5. Method of Exercise...................................... 7
5.2.6. Termination............................................. 7
5.2.7. Limitations on ISOs..................................... 7
5.2.8. No Disqualification..................................... 7
5.3. Accelerated Vesting............................................ 8
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<PAGE>
6. PAYMENT FOR SHARE PURCHASES.......................................... 8
6.1. Payment........................................................ 8
7. WITHHOLDING TAXES.................................................... 9
(a) Withholding Generally.................................... 9
8. PRIVILEGES OF STOCK OWNERSHIP........................................ 9
(a) Voting and Dividends..................................... 9
(b) Financial Statements..................................... 9
9. TRANSFERABILITY...................................................... 10
10. CERTIFICATES......................................................... 10
11. EXCHANGE AND BUYOUT OF OPTIONS....................................... 10
12. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE....................... 10
13. NO OBLIGATION TO EMPLOY.............................................. 11
14. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE........................... 11
15. ADOPTION AND STOCKHOLDER APPROVAL.................................... 12
16. TERM OF PLAN......................................................... 12
17. AMENDMENT OR TERMINATION OF PLAN..................................... 12
18. NONEXCLUSIVITY OF THE PLAN........................................... 13
19. GOVERNING LAW........................................................ 13
20. DEFINITIONS.......................................................... 13
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<PAGE>
Exhibit 10.24
[LETTERHEAD OF KELLOCK LIMITED]
23rd October 1997
PRIVATE AND CONFIDENTIAL
S Easterbrook Esq
Director
Hammer Distribution Ltd
Hammer House
62 Tempus Business Centre
Kingsclere Road
Basingstoke
RG21 6XG
Dear Steve
Further to our telephone conversation earlier this afternoon, I am delighted to
confine to you that my Credit Committee has given its approval to an Undisclosed
Cashflow Finance facility for your Company.
The terms of our offer are as follows:
Pricing
o Initial Payment: 75 % of the Gross Book Value of an Approved Debt.
o Commission Fee: 0.075 % of the Gross Book Value of a Debt.
o Minimum Annual Fee: (pound)12,000
o Discount: 1.75 % per annum above Bank of Scotland Base Rate.
o Initial Refer Limit: (pound)1,000,000
Cont....
<PAGE>
Page 2
23rd October 1997
PRIVATE AND CONFIDENTIAL
S Easterbrook Esq
Hammer Distribution Ltd
Financial Covenants
o Minimum Tangible Net Worth of (pound)700,000 to be maintained by Hammer
Distribution Limited.
o Minimum Annual Turnover of (pound)8,000,000 to be achieved by Hammer
Distribution Limited.
Security
o All assets debenture from Hammer Distribution Limited.
o Cross Guarantee between 4 Front Group Plc and Hammer Distribution Limited.
Operational Requirements
Monthly provision to us of Aged and Spread Debtors/Creditors Schedules, Sales
Ledger reconciliation and Management Accounts.
o Regular substantive testing.
o Before consideration is to be given to an increase in the Initial Refer
Limit of (pound)1,000,000, we shall require site of:
1. Signed Audited Accounts for Hammer Distribution Limited as at 31st
January 1997.
2. Financial Forecasts for the following 12 month period.
3. Signed Audited Accounts for 4 Front Group Plc as at 31st January 1997.
Miscellaneous
As agreed, we are willing to waive our initial "take-on" fee in recognition of
the commitment given to you by Kellock when you terminated your previous
arrangement with us during last year.
Cont....
<PAGE>
Page 3
23rd October 1997
PRIVATE AND CONFIDENTIAL
S Easterbrook Esq
Hammer Distribution Ltd
I do hope that you will find this offer acceptable to you and that your Board
will give its approval accordingly in this regard. I look forward to hearing
from you shortly and, in the meantime, please do not hesitate to contact me
should you wish to clarify any aspect.
If you are able to accept the above detailed terms and conditions then I shall
arrange for the appropriate documentation to be drawn up without delay and make
arrangements for you to be introduced to your new Client Manager.
Kindest regards.
Yours sincerely
/s/ P L Oakes
P L Oakes
Regional Manager
<PAGE>
KELLOCK
CASHFLOW FINANCE [LOGO]
AGREEMENT - ENGLAND AND WALES
We Kellock Limited, whose principal office is at Abbey Gardens, 4 Abbey Street,
Reading, RG1 3BA
agree with you, HAMMER DISTRIBUTION LIMITED of 62 Tempus Business Center,
Kingsclere Road, Basingstoke, Hants, RG21 6XG that we shall provide you with
facilities on the following terms and conditions and subject to our Cashflow
Finance Agreement Standard Conditions, 'the Standard Conditions', which are
incorporated in this Agreement and which you acknowledge to have read and
understood.
1 Date
This Agreement is made on the date it is signed by us.
2 Type of Facility
(a) This Agreement is an Undisclosed Facility for the sale and Purchase of
your Debts and as such clauses 1(f) to 1(h) inclusive and 4(c) of the
Standard Conditions will not apply.
(b) You will notify us of any credit notes of accounting reductions proposed
to be issued or made to a Customer and will not except with our permission
issue or make any credit note or reductions exceeding $2,000.00 or such
other sum and as we may agree in writing.
(c) Notwithstanding the provisions of clause 5(a) of the Standard Conditions
you will act as our agent to collect payments due from your Customers in
respect of Debts and you will deal with such payments on trust for us in
accordance with clause 5(c) of the Standard Conditions. This agency will
cease upon the termination of this Agreement.
(d) Upon the occurrence of a Termination Event as defined in clause 11 we may
at our discretion:
o notify your Customers of the assignment of their Debts; and/or
o terminate the agency immediately by written notice, and/or
o continue to provide you with facilities upon such terms as we may specify
in writing.
(e) Following termination of the agency, if we collect Debts we shall be
entitled to charge a collection fee at a rate of 10% of amounts so
collected
(f) Within ten days following the end of each month you will send us, in a
form we specify, an aged analysis of Debts and a copy of your sales ledger
control account, together with such other documents as we may require.
3 Financial and Other Particulars
(a) 'Refer Limit' is (pound)1,000,000 or such greater amount as we may specify
in writing from time to time;
(b) 'Commencement' is
(c) 'Commission Fee' is 0.075 per cent of the Gross Book Value of a Debt;
(d) 'Discount Fee' is 1.75 per cent per annum above Bank of Scotland Base
Rate;
(e) 'Initial Payment' is 75 per cent of the Gross Book Value of a Debt or such
percentage as we shall specify in writing from time to time;
(f) 'Minimum Annual Fee' is (pound)12,000
4 Entire Agreement
The terms set out in this Agreement represent the whole of the terms
agreed between us to the exclusion of any other statements by us whether
express or implied.
5 Legal Advice
You acknowledge that you have had the opportunity to take independent
legal advice about your rights and obligations under this Agreement and
that we shall rely on this acknowledgment in entering into this Agreement.
6 Special Conditions
(a) The following shall be additional Termination Events:
(i) your turnover falls below (pound)8,000,000 for a period of one year;
(ii) your net worth falls below (pound)700,000
(b) In addition to your undertaking contained in Standard Condition 8(c) you
irrevocably authorize us to communicate by our agents with any Customer
for the purpose of verifying the status and amount of any Debt.
<PAGE>
Signed as a deed
By Hammer Distribution Limited
Director /s/ [Illegible]
- -----------------------------------
Director [Illegible]
- -----------------------------------
Date 27th OCTOBER 1997
- -----------------------------------
By Kellock Limited
Director
- -----------------------------------
Director/Secretary
- -----------------------------------
Date
- -----------------------------------
<PAGE>
KELLOCK
CASHFLOW FINANCE
AGREEMENT - STANDARD CONDITIONS
The clause headings used in this Agreement are for ease of reference only and do
not form part of this Agreement. A list of general definitions can be found in
clause 18.
1 Sale and Purchase of Debts
(a) You assign to us all Debts owing to you at Commencement and all Debts
arising during the period of this Agreement. Ownership of a Debt shall
vest in us upon Commencement or immediately a Debt comes into existence.
Should any Debt fail to vest in us effectively you will hold such Debt on
trust for us;
(b) You will assign to us the benefit of any insurance policies relating to
Debts:
(c) On signing this Agreement and as soon as a Debt arises you will notify us
in a form we specify, together with such particulars and original or copy
documents evidencing the Debt, the delivery of goods or the performance of
services in respect of the Debt, as we may require.
(d) While this Agreement continues you will not in any way dispose of your
interest in any Debt to another person.
(e) Should we request, you will execute, stamp and deliver to us a deed in a
form that we approve legally assigning to us any Debt together with the
benefit of all guarantees and other related securities and if we ask, you
will immediately give formal written notice to any Customer whose Debt has
been legally assigned.
(f) You will endorse on each invoice a notice of assignment, in a form we
specify.
(g) You will not deliver any invoice or credit note direct to a Customer.
(h) If your Customer becomes entitled to a credit or Customer discount in
respect of any Debt you will forthwith notify us and deliver to us a
credit note in respect of such Debt with any other documents and
information which we may require and we shall be free to deliver the
credit note to the Customer concerned or to reuse to deliver the credit
note without prejudice to any of our other rights. In addition you will
reimburse us the amount of each credit note.
2 Disapproval and Re-Approval
We may at any time Disapprove all or part of a Debt by reason of age,
credit limit, dispute or otherwise. We may also at our discretion
subsequently Re-approve any Disapproved Debt.
If we Disapprove a Debt any Initial Payment made against such Debt shall
become immediately repayable and we may at our discretion re-assign such
Debt to you.
3 Payments to You
Within the limits of your Entitlement and your Refer Limit we will make
available to you:
(a) an Initial Payment less the Commission Fee as soon as we receive
notification in the case of an Approved Debt or when we Re-approve a
Disapproved Debt.
(b) a Balance Payment in respect of any Debt as soon as we receive a payment
from your Customer for such Debt whether Approved or Disapproved except
that we may withhold Balance Payments for three working days to ensure
clearance.
For the purpose of determining the extent to which any payment to be made
at any time under this clause, would exceed the Refer Limit we shall add
to the amount of that payment the total of all payments made and fees
charged by us up to that time less all payments received by us up to that
time under this Agreement and all similar agreements between us and
Related Companies.
Upon the occurrence of a Termination Event we shall not be obliged to make
any Initial Payment or Balance Payment to you.
We make no charge for paying you by cheque or BACS in the United Kingdom.
You will pay us a fee in accordance with our published scale for any
payment made (I) by CHAPS, or (ii) to a place outside the United Kingdom
or (iii) in excess of your Entitlement.
4 Our Fees
You will pay us:
(a) a Commission Fee for each Debt whether Approved or Disapproved;
(b) a Discount Fee on the excess of the total amount we have paid you plus
fees charged over the total cleared funds received by us in payment of
each Debt;
(c) a Late Payment Fee payable on the first day of each month, where any
Customer has not by the Late Payment Date paid us in respect of a Debt
whether Approved or Disapproved and we have not re-assigned the Debt to
you;
(d) where in any 12 month period expiring on the anniversary of Commencement
the total of Commission Fees payable falls short of the Minimum Annual
Fee, or in any period from Commencement or the anniversary of Commencement
to the date of any termination by your notice the total of Commission Fees
payable falls short of the proportion of the Minimum Annual Fee
attributable to that period, a sum equal to the shortfall;
(e) if this Agreement is terminated by us or by you without notice the
proportion of the Minimum Annual Fee attributable to the period from such
termination until the earliest date upon which this Agreement could have
been terminated with the required notice;
<PAGE>
(f) all legal, bank and other costs incurred by us, including our own
administrative costs according to our scale published from time to time,
in any way relating to:
o our entering into, varying the terms of, or enforcing the provisions of,
this Agreement
o our collecting, securing our rights to, or verifying the status or amount
of any Debt:
o our assessing your financial position at any time
o any breach of your obligations to us.
5 Collection from Customers
(a) We shall have the sole and exclusive right to collect and enforce payment
of every Debt and you have no right to collect Debts unless we so request
in writing.
(b) You will assist our collect efforts if we so request and agree that for
such purposes we may institute and conduct legal proceedings in your name
under our full control
(c) You will immediately pass to us or to any bank we direct any pay payment a
Customer makers to you in respect of a Debt and you agree not to mark or
endorse any negotiable instruments relating to such payment otherwise than
in our favour. You will hold any payment you receive for a Debt on trust
for us until we receive it. You will not bank any such payment for your
own account.
(d) If a Customer makes a general payment either to us or to you without any
allocation or that payment we shall appropriate it firstly against Debts,
secondly against the discharge of your liability to us, if any, whether
arising under this Agreement or otherwise, and any balance as you wish.
(e) In the event of a credit balance with any Customer remaining outstanding
we shall be entitled at our discretion to make repayment of such credit
balance out of monies payable to you.
6 Returned or Repossessed Goods
If any goods relating to any Debt are returned or refused by a Customer or
repossessed by you, you will set those goods aside, mark them with our
name as owner and hold them to our account as trustee until they are
subsequently resold at our direction or we are fully reimbursed in
relation to such Debt.
7 Accounts and Set-Off
(a) We shall maintain an account to record all sums payable or paid to you,
all payments received in relation to Debts and all fees, expenses and
other sums payable or paid by you under this Agreement or otherwise.
Within 10 days from the last day of each month we will send to you a copy
of such account which shall be taken as conclusive evidence of the matters
stated in it at the statement date unless within 14 days form despatch you
notify us in writing of any discrepancy.
(b) We may at any time draw up an account to record all amounts due to you
from us and to us from you.
(c) We may at any time set off any monies due to us from you whether pursuant
to this Agreement or otherwise against any sums due from us to you.
8 Records, Information and Disclosure
You agree that you will:
(a) keep proper accounting records and allow us to enter your premises
whenever we wish to inspect such accounting records and such other papers
as we may wish relating to your business of Debts and allow us to take
possession of such material to enable us to make copies provided that we
return such material to you within a reasonable time.
(b) cause a proper audit to be completed of the books of account for yourself
and your subsidiaries, if any, for each financial year and send an audited
report and accounts to us within three months after the end of each
financial year;
(c) keep us informed at all times of the credit worthiness of your Customers
and the validity of each Debt and in particular of any counter-claims,
right of set off or other contra items raised by your Customers in
relation to any Debt and assist us in every way to safeguard our interest;
(d) send us management accounts for your business and at our request for any
Related Company in a form and at intervals acceptable to us:
(e) if we require, send to us within 10 days from the end of each month a list
of your creditors or a copy of your bought ledgers;
(f) report to us immediately about reclaimed, repossessed or returned
merchandise, Customers' claims and disputes, and any other matters
affecting Debts;
(g) provide us with specimen signatures of persons authorized to sign any
documents relating to this Agreement together with a Board resolution
authorizing for this purpose such persons and inform us immediately of any
change in the signatories;
(g) give us a signed letter in our prescribed form for all existing bank
accounts and whenever you open a bank account requesting the bank to pay
over to us monies received directly from your Customers;
(i) notify us in writing
o as soon as you become aware of any event which affect or may affect your
warranties or our rights of immediate termination;
o of any existing charges or other security over your assets;
o immediately when there are any changes in the nature of your business,
your directors or company secretary or a material change in your ownership
(a holding by a person, firm or company of 10 percent or more of your
equity is for this purpose deemed to be material).
o of any company which becomes or ceases to be a related company;
o of any Customer which is your Associate or an Associate of one of your
directors;
o of the terms upon which any goods are supplied to you and obtain such
waivers or variation to such terms as we may require.
<PAGE>
9 Warranties
You warrant in respect of each Debt that:
(a) you will not waive or modify your normal trading terms with any Customer
without obtaining our prior written consent and in particular you will not
extend the time for payment;
(b) we shall obtain a valid binding and enforceable title to the amount owing
to you thereunder and to all assigned rights and remedies included and
that no supplier to you will retain title to any goods sold by you which
are the subject matter of a Debt;
(c) you have already performed all the obligations required for enforcement of
the Debt including delivery of goods or performance of services
(d) the Customer has an established place of business, is not an Associate of
you and has no right which would reduce or extinguish that Gross Book
Value of the Debt.
(e) the Customer has an established place of business, is not an Associate of
you and has no right which would reduce or extinguish the Gross Book Value
of the Debt.
10 Power of Attorney
You irrevocably appoint us as your attorney both during and after
termination of this Agreement to act in your name and on your behalf to
execute all documents and do all things necessary to give effect to this
Agreement or our rights including making any arrangement or compromise,
taking or defending any proceedings endorsing any negotiable instrument on
your behalf and executing legal assignments of all or any Debts.
11 Duration of Agreement
This Agreement will remain in operation from Commencement until either you
or we give six months' notice of intention to terminate this Agreement
subject to a minimum period of one year's operation and subject to our
rights of immediate termination set out below.
We may by giving you written notice terminate this Agreement immediately
if:
(a) you commit a breach of any term of this Agreement; or
(b) the nature or volume of your business is in our view substantially
changed; or
(c) there is any change in the person or persons who Control you; or
(d) any of our payments to you are not used in the ordinary course of your
business; or
(e) any monies owing from you to us are not paid within 7 days after they
become due; or
(f) any distress or execution is levied upon any of your goods or premises or
any garnishee order is made or any person indebted to you; or
(g) a receiver or administrative receiver is appointed of any of your assets;
or
(h) you or any person who has given to us a guarantee or indemnity in respect
of your obligations under this Agreement, become insolvent; or
(i) you convene a meeting for the purpose of passing a resolution for
creditors voluntary winding up, or are the subject of a compulsory winding
up order or a petition for an administrative order is presented or you
cease to carry on business call a meeting of creditors make an arrangement
or composition with creditors or permit a judgement to remain unsatisfied
for 7 days; or
(j) we in our absolute discretion consider that your financial position has
deteriorated to the point at which we believe that repayments of any
amounts due or which may become due from you to us may be put at risk.
12 Consequences of Termination
(a) Termination of this Agreement will not affect the rights or obligations of
either you or us in relation to any Debt of this Agreement will continue
to bind us both as long as it is necessary to satisfy these right and
obligations.
(b) In the event of termination or upon the occurrence of a termination event
then without prejudice to our accrued rights and remedies under this
Agreement you agree to pay us forthwith upon written demand a sum equal
to the amount of all payments we have made to you under this Agreement
plus all fees and charges which have accrued during the Agreement less the
amounts which we have received from your Customers and which have been
allocated to your current account.
(c) If this Agreement is terminated following a Termination Event, in order to
provide for the additional costs and expenses of collection of outstanding
Debts we shall be entitled to a collection fee at a rate of 5% of amounts
so collected. This fee shall be in addition to any charge for collection
provided elsewhere in this Agreement.
(d) In the event of a termination or upon the occurrence of a termination
event we retain any amount received by us in respect of any Debt pending
the drawing up of a final account and the payment of any amount
consequently due to us.
(e) Following the drawing up of a final account and any consequent payment to
us we shall re-assign to you any Debt still outstanding.
13 Charges and Security
You will at our request grant in our favour such fixed or floating charges
as we may from time to time require as security for the payment of all
sums due or becoming due to us under this Agreement and you will not give
any new charge or other security to any third party without first
obtaining our written consent.
14 Indemnity and Continued Responsibility
You agree to indemnify us against any claim by a Customer and any loss
incurred by us as a result of our entering into this Agreement. No waiver
forbearance or indulgence granted by us
<PAGE>
to you or to any Customer will in any way discharge you from your
liabilities to us or establish a precedent.
15 Transfer of Rights
We shall be entitled to assign this Agreement or any of our rights and
obligations hereunder. You may not assign or otherwise deal with this
Agreement or your rights and obligations hereunder without our prior
written consent.
16 Variation
This Agreement may only be varied by a document signed by us and by you.
17 Applicable Law and Notices
This Agreement is to be construed and governed in accordance with English
Law. Any notices to be given by either of us to the other may be either
delivered by hand to the other party or its authorized agent or sent by
prepaid first class letter, registered post, recorded delivery, fax
transmission or telex to such party at its principal place of business or
at its registered office.
18 General Definitions
o 'Approval Debt' means any Debt for which an Initial Payment has been paid
or is payable and which has not been Disapproved by us or which if
previously Disapproved has since been Reapproved; and 'Approve' in
relation to any Debt will be construed accordingly;
o 'Associate' means any relative, or any partner director shareholder or
employee of you or any Related Company;
o 'Balance Payment' means the amount we have received from a Customer for a
Debt less any Initial Payment and any Commission Fee. Discount Fee and/or
other sum due;
o 'Commencement' is the date when this Agreement commences;
o 'Control' means the power to secure that the affairs of a company or a
group of people are conducted in accordance with the wishes of those
holding such power;
o 'Customer' means any person to whom you supply goods or for whom you
perform services;
o 'Debt' means an amount which is owed to you for goods supplied or services
performed calculated or Gross Book Value and includes the benefit of sale
or supply contract relating to such goods or services and all rights and
remedies arising in connection with such contract including retention of
title to goods, right of lien, stoppage in transit, or recovery of
possession;
o 'Disapproved Debt' means any Debt which, in our absolute discretion, we
exclude for the purpose of calculating any payment due to you and
'Disapprove' in relation to any Debt shall be construed accordingly;
o 'Entitlement' at any given time means the total of the Gross Book Value of
the Approved Debts in respect of which a Balance Payment has not at such
time been made multiplied by the Initial Payment percentage less the
amount of all payments made by us to you in respect of such Approved Debts
and less all outstanding fees and costs payable to us;
o 'Gross Book Value' of a Debt is the total amount thereof including VAT and
before taking into consideration any allowances in respect of discounts
for prompt payment or any other allowable deduction;
o 'Initial Payment' means the amount payable on notification of an Approved
Debt;
o "Late Payment Date' means 90 days from the end of the month in which an
invoice is dated when the Debt arising from such invoice remains unpaid;
o 'Related Company' means a company which either you Control or which
Controls you or which is Controlled by the same person, firm or company
which Controls you.
o 'Termination Event' means any of the events described in clause 11.
o 'Refer Limit' at any given time means a limit set by us which the total
payments made and fees charges to you up to that time less payments
received by us at that time should not exceed.
Signed and acknowledged by HAMMER DISTRIBUTION
LIMITED
Director /s/ [Illegible]
---------------------------------------
Director [Illegible]
---------------------------------------
Date 27th OCTOBER 1997
---------------------------------------
FFS DOC
<PAGE>
Exhibit 10.25
[MIDLAND BANK LETTERHEAD]
The Directors MJW/MSL
The Companies Direct Line: 0171 707 1864
(as specified in the Schedule to this letter)
28 August 1997
Dear Sirs,
Midland Bank plc ('Midland') is pleased to offer the five Companies whose names
are listed in the Schedule to this letter ('the Companies') banking facilities
('the Facilities') on the terms referred to below but otherwise subject to
normal banking terms and conditions.
Facilities
Drawings may be made under the following facilities by any of the Companies,
provided that the aggregate amount of drawings at any time shall not exceed the
relevant limit. Where one limit is specified in respect of more than one type of
facility, the amount of drawings at any time in respect of such different
facilities shall not exceed in the aggregate such limit.
Limit
Collective Net Sterling Overdraft )
Single Currency Overdraft )
Engagements ) (pound)650,000
Import Line )
comprising: )
)
Documentary Credits )
Forward Exchange Contracts (pound)400,000
Please refer to the relevant Appendices attached to this letter for details of
the limit/s and/or sub-limit/s which apply to the option/s within the Import
Line Option.
Registered in England: number 14259
Regulated by the Personal Investment Authority and SFA.
Midland only advises on its own life assurance, pensions and unit trusts
Registered Office: 27-32 Poultry, London EC2P 2BX
Telephone: 0171-707 1860 Facsimile: 0171-707 1889 Member HSBC Group
<PAGE>
Page - 2 -
4Front
28 August 1997
Availability
Midland may at any time withdraw all or any of the Facilities and/or demand
immediate repayment of all sums owing. Subject to this, the Facilities are due
for review in twelve months' time.
Interest Rate
Interest on the collective net sterling overdraft facility is to be charged at
the rate of 2.75% p.a. over Midland's Base Rate as published from time to time
on amounts within the Limit.
Interest on the currency overdraft facilities is to be charged at the rate of
2.75% over the relevant Midland Currency Base Rate as varied from time to time.
Interest rates in respect of Import Line facilities are set out in the relevant
Appendix attached to this letter.
Fees
An arrangement fee of (pound)500 will be payable.
Security
The repayment and discharge of all monies at any time owing in respect of the
Facilities will be secured by all security at any time given to Midland in
respect of the liabilities to Midland of the Companies or any of them.
Without limiting the above, the security listed in the attached Security
Schedule is to be held.
All costs, fees and expenses, as mentioned in the General Terms and Conditions
attached to this letter, shall be payable by the Company on whose behalf such
costs and expenses are incurred, or as otherwise agreed with Midland.
The Facilities shall be subject to the General Terms and Conditions and Security
Schedule and the further terms and conditions set out in the Appendices attached
to this letter.
Additional Matters
In considering from time to time the continuation of the Facilities, Midland
will have particular regard to the matters listed on the attached page headed
"Additional Matters". Regardless of whether such Additional Matters are being
observed, Midland may still at any time withdraw all or any of the Facilities
and/or demand immediate repayment of all sums owing.
<PAGE>
Page - 3 -
4Front
28 August 1997
Environmental Responsibility
The Companies, by accepting the Facilities, warrant and represent to Midland
that:
They are in full compliance with all applicable current laws, regulations and
practices relating to the protection of the environment from pollution (the
"environmental responsibility") and are not aware of any circumstances which may
prevent full compliance in the future.
Regardless of whether such warranties and representations are being observed,
Midland may still at any time withdraw all or any of the Facilities and/or
demand immediate repayment of all sums owing.
The Companies, by accepting these facilities jointly and severally hereby
indemnify Midland against all losses, claims, damages, costs, or any other
liability which might arise (by reason of Midland providing these and any other
facilities and/or having a security interest in the Companies' assets) in
respect of a breach of, or a failure to meet, an environmental responsibility.
This letter replaces Midland's letter dated 7 January 1997, and all existing
liabilities in respect of facilities of the type mentioned in this letter shall
be governed in future by the terms and conditions of this letter.
This offer is conditional upon the unqualified acceptance of all of the
Companies. However, any Company accepting the letter shall be bound by its terms
even though not all of the other Companies may have done so, or be so bound
through some defect, informality or insufficiency in their powers.
To accept this offer please arrange for the enclosed copy of this letter to be
signed and returned.
Yours faithfully,
/s/ Mike Lovejoy
Mike Lovejoy
Business Banking Manager
For and on behalf of Midland Bank plc.
<PAGE>
THE SCHEDULE
---------------
4Front Group plc
Xanadu Systems Limited
K2 Systems plc
4Front Services Limited
4Front Software International Inc
('the Companies')
<PAGE>
SECURITY SCHEDULE
First Fixed Charge over all book and other debts and First Floating Charge over
all assets, goodwill, undertaking and uncalled capital, both present and future
given by 4Front Group Plc.
Supplemental First Fixed Charge over goodwill, uncalled capital and intellectual
property rights given by 4Front Group Plc.
First Fixed Charge over all book debts and other debts, goodwill, uncalled
capital and intellectual property rights, and First Floating Charge over all
assets and undertaking, both present and future given by K2 Systems Plc.
First Fixed Charge over all book debts and other debts, goodwill, uncalled
capital and intellectual property rights, and First Floating Charge over all
assets and undertaking, both present and future given by Xanadu Systems Limited.
First Fixed Charge over all book debts and other debts, goodwill, uncalled
capital and intellectual property rights, and First Floating Charge over all
assets and undertaking, both present and future given by Mitre Technology
Limited.
First Fixed Charge over all book debts and other debts, goodwill, uncalled
capital and intellectual property rights, and First Floating Charge over all
assets and undertaking, both present and future given by CI Support Limited
(now called 4Front Services Limited).
Unlimited Multilateral Company Guarantee given by 4Front Group Plc, K2 Systems
Plc, Xanadu Systems Limited, Mitre Technology Limited and Concordia Developments
Limited to secure all liabilities of each other.
Unlimited Cross Guarantees given by 4Front Group Plc and CI Support Limited
(now called 4Front Services Limited), to secure all liabilities of each other.
Unlimited Cross Guarantees given by 4Front Group Plc and Xanadu Systems Limited,
to secure all liabilities of each other.
Unlimited Cross Guarantees given by 4Front Group PLC and 4Front Software
International Inc, to secure all liabilities of each other.
<PAGE>
GENERAL TERMS AND CONDITIONS
1. DRAWINGS
Utilisation of the Facilities shall not at any time exceed any of the
Limits.
Midland may at any time refuse payment or acceptance of any cheque, bill
or other order for payment which would result in any of the Limits being
exceeded.
In addition Midland may at any time refuse to allow any drawing or other
disposal against any credit balance on any of the Companies' current
accounts if, as a result, any of the Limits would be exceeded. This right
applies irrespective of whether such Company is indebted to Midland on any
other account.
2. UNCLEARED CREDITS
Midland may on occasions pay or accept any cheque, bill or other order for
payment against uncleared credits, without prejudice to its right not to
do so on future occasions.
3. NOTICES AND PAYMENTS
Unless otherwise advised by Midland each notice shall be in writing and
shall be sent to the address of the respective party specified above. All
payments shall be made at such branch or office as Midland may specify
from time to time. Such payments shall be made without any set-off or
deduction in the currency of denomination in which the payment is due and
in such funds as Midland may reasonably require. Payments shall be made on
a Business Day and on the due date for such payment or if that day is not
a Business Day on the next Business Day.
4. COSTS
On written demand by Midland the Companies shall be jointly and severally
liable to pay to Midland all costs, expenses, fees (including but not
limited to any legal, security and valuation fees), stamp and similar
taxes and charges, and registration costs incurred or charged by Midland
in connection with the enforcement, negotiation, preparation,
investigation, administration or supervision of the Facilities, this
letter or any Security.
5. LIMIT OBSERVANCE
The aggregate amount for the time being (or its Sterling Equivalent where
appropriate) of Midland's actual or potential liability or risk in respect
of a facility or facilities shall not at any time exceed the relevant
Limit. In the case of a potential liability or risk the relevant amount
shall be as estimated by Midland.
<PAGE>
Where one Limit is specified in respect of more than one type of facility
such actual or potential liability or risk in respect of such facilities
shall not exceed in the aggregate such Limit.
6. CHARGES FOR DRAWINGS IN EXCESS OF AGREED LIMITS
If any of the Limits are exceeded, Midland may charge interest at higher
rate(s) than set out in this letter. In addition to charging higher
rate(s) of interest, Midland may charge a daily excess fee for each
Business Day that drawings are in excess of the agreed Limits. Details of
the rate(s) and the daily excess fee to be charged, if any, are available
on request. In addition to charging the above, or as an alternative,
Midland may charge management fees if time is spent monitoring the
relevant account/s or the circumstances otherwise warrant. Midland will
advise the amount of these management fees before debiting them to the
appropriate Company's relevant account.
7. TERMS RELATING TO FACILITIES AVAILABLE IN A CURRENCY OTHER THAN STERLING
7.1 Interest
From one Business Day to the next interest will accrue on a 360 or 365 day
year basis (as appropriate) on the aggregate debit balance on the currency
account at the relevant percentage per annum over Midland's relevant
Currency Base Rate as varied from time to time. Such interest shall be
calculated up to and including the last Business Day of each May and
November or upon earlier termination of the Facilities or the relevant
Option and debited in arrears on such day as Midland shall determine to
the relevant currency account together with any applicable commission
charge in accordance with Midland's then current tariff.
Without prejudice to Paragraph 7.4 below, interest after demand will be
charged at the same rate and calculated on the same basis as before such
demand.
7.2 Unavailability
If in Midland's opinion deposits in a currency are unavailable to Midland
at any time to finance any drawing on the relevant currency account such
drawing may in Midland's discretion be re-denominated in such currency as
Midland shall determine by reference to Midland's then current spot
selling rate of exchange for the sale of the outstanding currency against
the currency of re-denomination and any re-denominated drawing shall be
similarly subject to re-denomination.
<PAGE>
7.3 Credits
All payments into a currency account shall be made in the relevant
currency and by credit to Midland's account with such banking office in
the relevant financial centre (the 'relevant office') as Midland may
require.
The following shall apply for the purpose of ascertaining the Business Day
on which currency accounts will be credited with good value in respect of
credits received:--
(a) In respect of a properly completed, authenticated, interbank payment
instruction/order ('the advice') received by Midland by 3.00 p.m.
(London time) on a Business Day and issued by a banking office
acceptable to Midland, advising that Midland's account with the
relevant office has been credited for value on or prior to the date
Midland received such advice, value shall be deemed to have been
received for payments denominated in:--
(i) US $ and Canadian $ on the date of receipt of the advice;
(ii) currencies other than US $ and Canadian $ on the Business Day
after receipt of the advice.
If such advice is received by Midland on a Business Day but after
3.00 p.m. (London time) payment shall be deemed to have been made
one Business Day later than would otherwise have been the case.
(b) In the case of any other method of payment, it shall be deemed to
have been made on such Business Day as Midland shall determine in
accordance with Midland's normal practice.
7.4 Variation upon re-denomination
Upon any re-denomination, for any reason, Midland may vary the terms of
the relevant Option relating to notice periods, interest rates, the basis
of interest calculations and the value dating of credits received, if
Midland shall consider that these terms are not appropriate for the
re-denominated currency.
7.5 Termination
If Midland shall demand repayment Midland may at any time re-denominate in
Sterling any amount due at Midland's spot selling rate for the relevant
outstanding currency. The provisions of Paragraph 7.4 above shall remain
in force following such redenomination.
<PAGE>
8. PAYMENT AND APPLICATION OF CREDIT MONIES
Each of the Companies by accepting the terms of this letter hereby
irrevocably authorises Midland at any time in its sole discretion, with or
without prior notice to that Company, to pay and apply any monies from
time to time standing to the credit of any of that Company's accounts
(other than accounts expressly designated as trust accounts) in and
towards satisfaction of any indebtedness or liability to Midland of it or
of any of the other Companies in respect of the Facilities.
Nothing in this paragraph shall prevent the exercise by Midland at any
time of any other right of set-off or of combination of all accounts of
the Companies.
A Company whose credit balances are paid or applied in satisfaction of any
indebtedness or liability of any other Company will become a creditor of
that other Company but on the basis that any resulting claims of the
creditor Company will rank behind those of Midland and any other creditor
whose claims are in priority to those of Midland.
9. STERLING EQUIVALENTS
The Sterling Equivalent of any amount denominated in another currency
shall be calculated by reference to Midland's then current spot rate of
exchange for the sale of the relevant currency of denomination against
Sterling. The aggregate Sterling Equivalents of all drawings outstanding
and/or proposed will be calculated at such time as Midland shall determine
before the drawdown of each drawing, for the purpose of determining
compliance or otherwise with the Limits.
10. REPAYMENTS AND DRAWINGS ON THE SAME DAY
Should a drawing be due for repayment by any of the Companies on a day
when any of the Companies is entitled to make a drawing, Midland may
require the amounts of such drawings to be netted and only the difference
in amount (if any) to be paid. Should the relevant drawings be denominated
in different currencies, any difference so required will be calculated by
the application of Midland's spot selling rate of exchange for the
currency of denomination due to Midland against the currency of
denomination to be drawn by the relevant Company prevailing at such time
before such netting as Midland shall determine.
11. INFORMATION
The Companies shall provide Midland promptly with such financial or other
information as Midland may from time to time reasonably request.
<PAGE>
12. FORCE MAJEURE
Midland shall not be liable to any of the Companies for any loss, damage
or delay attributable in whole or part to action by any government or
government agency or other force majeure and in particular but not limited
to strikes, industrial action, whether involving Midland's staff or not,
equipment failure or interruption of power supplies. Midland will always
endeavour to give notice generally to customers of any anticipated delays
by notices in branches.
13. CERTIFICATES
Midland's certificate of any sum due from any of the Companies under the
terms of this letter shall (apart from obvious mistake) be conclusive.
14. BUSINESS DAY
Business Day shall mean a day and time on which the relevant banking
offices, exchanges and markets are open for business, both in London and
in any relevant financial centre for the currency and transaction
involved.
15. TERMS OF THE OFFER
The terms of the offer set out above are (except where otherwise stated or
the context otherwise implies) independent of the terms applicable to any
other facility afforded by Midland to any or all of the Companies.
16. GOVERNING LAW
The terms and conditions relating to the Facilities are to be governed by
and construed in accordance with the laws of England.
<PAGE>
Appendix
COLLECTIVE NET STERLING OVERDRAFT OPTION
1 CALCULATION OF COLLECTIVE NET OVERDRAFT
The amount of the collective net overdraft for the time being will be
calculated by deducting the aggregate of the cleared credit balances (if
any) on all the Companies' sterling current accounts (other than trust
accounts) from the aggregate of the cleared debit balances on all the
Companies' sterling current accounts.
If the Limit relevant to this Option includes any other Option(s) any
utilisation of such other Option(s) shall be treated as a drawing against
the collective net overdraft for the purpose of determining compliance or
otherwise with the Limit.
2 INTEREST
Interest will be payable on the amount of the collective net overdraft for
the time being. Interest will be calculated on a daily basis and on the
basis that there are 365 days in each year (including leap years) and will
be debited in arrears in the usual way on Midland's normal charging dates
which at present are during the months of March, June, September and
December.
Interest after demand will be charged at the same rate and calculated on
the same basis as before such demand.
<PAGE>
Appendix
SINGLE-CURRENCY OVERDRAFT OPTION
1. UTILISATION
The Option may be utilised by drawing upon the currency account upon
receipt of the relevant Company's irrevocable written request before 10.30
a.m. (London time) on a Business Day.
2. INTEREST
Interest will be payable at a rate of 2.75% p.a. over the relevant Midland
Currency Base Rate as varied from time to time.
3. FURTHER TERMS AND CONDITIONS
This Option will be subject to the further provisions set out in the
General Terms and Conditions.
<PAGE>
Appendix
FORWARD EXCHANGE CONTRACTS OPTION
1. DRAWINGS
Utilisations may be made for the purpose of Spot and Forward Foreign
Exchange transactions.
2. AVAILABILITY
Midland reserves the right at its absolute discretion to decide whether or
not any utilisation may be made and to specify conditions only upon
compliance with which such utilisation may be made.
3. INTERNATIONAL FOREIGN EXCHANGE MASTER AGREEMENT "IFEMA" TERMS
(a) Each utilisation shall be deemed to be subject to and shall be
subject to the terms of IFEMA notwithstanding any non-execution of
product documentation (A copy of IFEMA terms is available from
Midland on request). In the event of any conflict between the terms
of this Facility Letter and those of IFEMA the terms of IFEMA shall
prevail save in respect of any provisions herein which are expressed
to be additional to or in replacement for any relevant IFEMA
provisions.
(b) While the above option is in force the terms of this Facility Letter
and particularly clause 3(a) above shall continue to apply
notwithstanding any pre-existing product documentation unless there
is agreement in writing to the contrary.
4. FINANCIAL SERVICES ACT 1986
No forward purchase or sale of any currency shall be made for investment
purposes (as mentioned in paragraph 8, Schedule 1 of the Financial
Services Act 1986) without the prior consent of Midland.
5. CONTRACT PERIODS
Without prejudice to any of Midland's rights under the terms of this
letter the duration of any Foreign Exchange Contract entered into under
the above option shall not exceed twelve months.
<PAGE>
Appendix
ENGAGEMENTS OPTION
1 DRAWINGS
(a) Drawings in respect of the above Option shall be subject to
Midland's current practice from time to time.
(b) Midland reserves the right in its absolute discretion to decide
whether or not a drawing may be made under the above Option, and to
specify conditions only upon compliance with which such drawing may
be made.
(c) Without prejudice to any of Midland's rights under the terms of this
letter, any drawings under the above Option will be treated as
drawings under the collective net Sterling Overdraft Option at such
time as they become an absolute liability.
<PAGE>
Appendix
IMPORT LINE OPTION
DRAWINGS
(a) Midland's actual or potential liability in respect of the option(s) within
the Import Line Option shall not at any time exceed in the aggregate the
Limit specified in the attached letter.
(b) Drawings under the above Option shall be subject to Midland's current
practice from time to time.
(c) Midland reserves the right in its absolute discretion to decide whether or
not a drawing may be made under, or advances made in connection with, the
above Option, and to specify conditions only on compliance with which such
drawing or advances may be made.
(d) Following demand for repayment, Midland may require the relevant Company
to pay Midland monies equivalent in amount to the aggregate of the face
value of all outstanding bills accepted, purchased, negotiated or
discounted by Midland to meet such bills on their maturities.
(e) Without prejudice to any of Midland's rights under the terms of this
letter, any drawings under this Option will be treated as drawings under
the Sterling Net Collective Overdraft Option at such time as they become
an absolute liability.
DOCUMENTARY CREDITS
This option will be available up to a maximum of (pound) 650,000 (Six Hundred
and Fifty Thousand Pounds) outstanding at any one time by Midland at the request
of the relevant Company opening documentary letters of credit payable at sight
or up to 90 days after sight. The opening by Midland of a documentary letter of
credit shall constitute a drawing under this documentary credit option for the
full amount of such documentary credit. Drawings may be made within the limit
relevant to this documentary credit option, to a maximum of (pound) 650,000 (Six
Hundred and Fifty Thousand Pounds) outstanding at any one time, to open sight or
usance documentary credits where Midland does not obtain control over the
relevant goods via documents of title, or provides for the release of documents
following acceptance of bills drawn under the documentary credit.
<PAGE>
DOCUMENTS
Where Midland, in connection with any of the above, wishes to exercise control
over the underlying goods, Midland will wish to hold the following specific
documents of title, namely:--
Marine Bills of Lading:
A full set of original clean shipped on board Marine Bills of Lading
issued to shipper's order and and endorsed in blank issued by a named carrier or
named agent on behalf of a named carrier. Or:
A full set of original clean shipped on board Marine Bills of Lading
issued/endorsed to the order of Midland issued by a named carrier or named agent
on behalf of a named carrier.
Freight Forwarders/Combined Transport Bills of Lading which meet either of the
above requirements are acceptable in lieu of Marine Bills of Lading.
Air Waybills:
A consignor's valid copy of an Air Waybill issued and signed by a named carrier
or a named agent on behalf of a named carrier evidencing actual despatch of
goods direct to Midland stating goods are not to be released without the
specific approval of the consignee.
INSURANCE
The Companies agree to ensure that insurance cover will have been effected over
all goods subject to finance in connection with this letter.
INTEREST
Where interest is charged by reference to Midland's Base Rate such interest will
be payable on the outstanding cleared debit balance, calculated on a daily basis
and on the basis that there are 365 days in each year (including leap years) at
the relevant percentage over Midland's Base Rate as published from time to time
upon amounts within the relevant Limit and debited in arrears to the relevant
Company's current account/charged on Midland's normal quarterly charging dates
which are at present during the months of March, June, September and December.
Where interest is being charged by reference to a Midland Currency Base Rate,
refer to the General Terms and Conditions for details of how interest is
calculated and other relevant terms.
Interest after demand will be charged at the same rate and calculated on the
same basis as before such demand.
<PAGE>
ADDITIONAL MATTERS
Notwithstanding anything contained in the following provisions, such provisions
shall be read at all times subject to the paragraph headed "Additional Matters"
in the attached letter.
Quarterly group consolidated management accounts in a form acceptable to Midland
are to be submitted within 60 days of the end of the quarter to which they
relate. Such management accounts are to contain:
- - detailed profit & loss account(s),
- - individual/consolidated balance sheet(s),
- - an aged analysis of debtors and creditors,
- - a cash flow summary,
- - a schedule of stock and work in progress,
- - details of order book/contracts awarded,
- - comments on material deviations to budget,
The management information will, where applicable, compare actual performance
with forecast performance.
<PAGE>
ACCEPTANCE BY THE COMPANIES
We, the undersigned Companies, each accept the offer and all terms and
conditions contained in the attached letter dated 28 February 1997.
We each hereby irrevocably authorise you to pay and apply our credit monies as
mentioned in the above letter.
We authorise you to debit the fees referred to in the above letter to .......
........ Limited/plc current account number ....................
Director/ Date of Date of
Company Secretary Acceptance Resolution
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
(Signed in each case for and on behalf of the Company, pursuant to a Resolution
of the Board of Directors passed on the date specified above).
<PAGE>
*AUTHORISATION FOR ANOTHER COMPANY OR PERSON
TO AGREE NEW BANKING ARRANGEMENTS IN FUTURE
We, the undersigned companies, each nominate and authorise
...............................................................
to agree with you from time to time on behalf of each of us new arrangements
relating to our banking facilities.
For the avoidance of doubt and without limitation to the above, this authority
includes the authority to alter the amount and nature of such facilities and to
introduce new companies to and exclude existing companies from the companies
from time to time party to such facilities.
Director/ Date of Date of
Company Secretary Authorisation Resolution
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
...................... ............. ............. .............
(Signed in each case for and on behalf of the Company, pursuant to a Resolution
of the Board of Directors passed on the date specified above).
* This form of authorisation is optional. Please complete if you would
prefer to nominate one Company or individual to agree facilities on behalf
of the Companies in future. If an individual is nominated please state
title rather than personal name, and include the name of the relevant
Company, eg 'The Managing Director for the time being of ..........
Limited.'
<PAGE>
Exhibit 10.26
29th day of December 1989
Tag Investment and Property
Company Limited
and
MBS PLC
-----------------------------
DEED OF VARIATION
-----------------------------
(SEAL)
H.M. LAND REGISTRY
TITLE No. Bk239395
NOTICE REGISTd. 23 February 1990
<PAGE>
THIS Deed of Variation is made the 29th day of December One thousand nine
hundred and eighty nine BETWEEN Tag Investment and Property Company Limited
whose Registered Office is at Georgian House, 63 Coleman Street, London EC2R
5[illegible]B (hereinafter called "the Lessor") of the one part and MBS PLC
whose Registered Office is at 1 Whittle Parkway, Slough, Berkshire, SL1 6BL
(hereinafter called "the Lessee") of the other part.
WHEREAS:-
1. By a Lease made on the 19th day of December 1985 between Higgs and Hill
Developments Limited (as lessor) and Micro Business Systems PLC (as
lessee) all that piece or parcel of land known as 176 Bath Road, Slough,
Berkshire was demised unto the lessee at the rent and upon the terms and
conditions more particularly set out therein for a term of 25 years
commencing on the 25th day of December 1985.
2. On the 23rd day of June 1987 Micro Business Systems PLC changed its name
to MBS PLC.
3. The reversion immediately expectant on the term granted by the said Lease
is now vested in the Lessor.
4. Clause 3(19) of the said Lease provided, inter alia, that the Lessee would
not use or permit the demised premises to be used otherwise than as a
light industrial building as defined by Class III of the Schedule to the
Town & Country Planning (Use Classes) Order 1972 for high technology uses
with ancillary office and associated car parking.
5. On the 22nd day of March 1989 Slough Borough Council as the Local Planning
Authority under the Town & Country Planning Acts granted permission for
the change of use of the premises demised by the said Lease to B1 Business
as defined in Part B of the Schedule to the Town and Country Planning (Use
Classes) Order 1987.
<PAGE>
6. The Lessee is desirous of using the demised premises [illegible] offices
and has requested and the Lessor has consented to variation of the said
Lease.
7. The Lessor and the Lessee have agreed to enter into this Deed for the
purpose of varying the said Lease upon the terms hereinafter set out.
NOW THIS DEED WITNESSETH as follows:-
1. On and with effect from the date hereof the words "otherwise than as an
office falling within Class B1 Business of Part [illegible] of the
Schedule to the Town and Country Planning (Use Classes) Order 1987 with
associated car parking" shall be substituted for the words "otherwise than
as a light industrial building as defined by Class III of the Schedule to
the Town and Country Planning (Use Classes) Order 1972 for high technology
uses or such other uses within the said Class III as the Lessor shall
approve (such approval not to be unreasonably withheld) with ancillary
office and associated car parking" in Clause 3(19) of the said Lease.
2. Subject to the variation provided for by Clause 1 hereof the said Lease is
in all other respects hereby expressly ratified and confirmed.
3. No representation or warranty is or has prior to the date hereof been
given or made by or on behalf of the Lessor that the use of the demised
premises for the purpose specified in Clause 3(19) (as amended by the
provisions of Clause hereof) of the said Lease is of will be or will
remain permitted use under the Town and Country Planning Acts or that the
demised premises are or will remain otherwise fit for any such use.
4. Nothing herein contained shall operate or be deemed to operate as a waiver
by the Lessor of any breach by the Lessee of any covenant condition
agreement or obligation of the Lessee under the said Lease.
<PAGE>
5. The Lessee shall forthwith give notice to Slough Borough Council as the
Local Planning Authority of the change of use of the premises demised by
the said Lease.
6. Without prejudice to the generality of the covenants conditions agreements
and obligations of the Lessee under the said Lease the Lessee hereby
expressly covenants with the Lessor to execute at the Lessee's own expense
all such works as are directed or required to be carried out by Slough
Borough Council as a condition of the grant of permission on the 22nd day
of March 1989 for the change of use of the premises demised by the said
Lease to B1. Business.
IN WITNESS whereof the Lessor and the Lessee have caused their respective Common
Seals to be hereunto affixed the day and year first above written
The Common Seal of Tag )
Investment and Property )
Company Limited was )
hereunto affixed in the )
presence of:- )
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
Director Secretary
The Common Seal of MBS PLC )
was hereunto affixed in )
the presence of:- )
Director Director/Secretary
<PAGE>
Exhibit 10.26
Dated 198
-------------------------------------------
HIGGS & HILL DEVELOPMENTS LIMITED
to
MICRO BUSINESS SYSTEMS PLC
-------------------------------------------
Counterparty
LEASE
of
476 Bath Road Slough
Berkshire
-------------------------------------------
Wilkinson Kimbers,
Hale Court,
Lincoln's Inn,
London.
WC2A 3UW
<PAGE>
THIS LEASE made the day of One thousand nine hundred
and eighty BETWEEN HIGGS AND HILL DEVELOPMENTS LIMITED whose registered office
is at Crown House Kingston Road New Malden Surrey (hereinafter called "the
Lessor") of the one part and MICRO BUSINESS SYSTEMS PLC whose registered office
is at St. Mary Abchurch House 123 Cannon Street London EC4N 5AX (hereinafter
called "the Lessee") of the other part
WITNESSETH as follows:-
1. (a) UNLESS the context otherwise requires the following expressions bear
the meanings ascribed to them as follows:-
"The Lessor" means the estate owner of the reversion immediately expectant
on the term hereby granted
"The Lessee" includes the Lessee's successors in title and assignees
"The demised premises" means the land described in the Schedule hereto
and each and every part thereof together with the buildings now or
hereafter erected or in the course of erection thereon or on any part
thereof and includes all additions alterations and improvements thereto
and
<PAGE>
the Lessor's fixtures and fittings therein or thereon
"A Wing" means either of the two sections of the building forming part of
the demised premises which are separated by the central internal staircase
within the said building and comprising in each case the whole of the
occupiable accommodation within the ground and first floors thereof
"A primary sub-lettable portion" means the whole of a wing
"A secondary sub-lettable portion" means the whole of one floor of the
occupiable accommodation within a wing at either ground floor level or
first floor level
"The term" means the term hereby granted (which shall be computed for all
purposes from the date of commencement specified in Clause 2 hereof)
together with any period of extension thereof or of any holding over
whether by statute or at common law
"The term commencement date" means 25th December 1985
2
<PAGE>
"the rent commencement date" means 1st September 1986
"The Town and Country Planning Acts" means the Town and Country Planning
Acts 1971 to 1977 and the Local Government Planning and Land Act 1980 and
any Act or Acts for the time being in force amending or replacing the same
and includes any order instrument regulation direction or plan made or
issued thereunder or deriving validity therefrom and any future
legislation or items such as aforesaid of a like nature or effect
"The prescribed rate" means the rate of interest which is from time to
time Three pounds per centum per annum above either:
(a) the base lending rate of National Westminster Bank PLC in force or
(b) if at any time no such base lending rate exists such rate as shall
be substituted for it
Provided that if there shall be no such substituted rate the said
expression shall mean such rate of interest as shall be agreed between the
Lessor and the Lessee as being reasonable in all the circumstances and
failing such agreement
3
<PAGE>
such rate as shall be determined by a Surveyor appointed on the
application of the Lessor by the President (or some other officer if the
President is unable to act) for the time being of the Royal Institution of
Chartered Surveyors for any successor to that Institution) who shall act
as an arbitrator pursuant to the Arbitration Act for the time being in
force
"These presents" means this Lease and includes any instrument
supplemental hereto
(b) Unless the context otherwise requires this Lease shall be construed so
that where there is more than one person for the time being included in the
expression "the Lessee" covenants and obligations at any time expressed to be
made or assumed by the party in question are made and are to be construed as
made by all such persons jointly and severally and covenants and obligations
made or assumed by any party shall be binding on and enforceable against his
personal representatives
2. IN consideration of the rent and covenants on the part of the Lessee and
conditions hereinafter reserved and contained the Lessor HEREBY DEMISES unto the
Lessee ALL THAT the demised premises together with
4
<PAGE>
the benefit of the rights referred to in the Property Register of Title number
BK162355 TO HOLD the same unto the Lessee (subject to the covenants rights
exceptions reservations and other matters referred to in Clause 3(36) hereof and
to all other easements rights quasi-easements and privileges to which the
demised premises are or may be subject) for the term of twenty-five YEARS
commencing on and including the term commencement date YIELDING AND PAYING
therefor during the term and so in proportion for any less time than a year
FIRST the clear yearly rent of One hundred and eighty five thousand pounds
((pound)185,000.00) for the first five years of the term and thereafter that
rent or any different substituted rents ascertained under the provisions of
Clause 5 hereof (but so that the rent payable for the period between the term
commencement date and the rent commencement date shall be a peppercorn) all such
rents to be paid in advance without any deductions by equal quarterly payments
on the usual quarter days (such payments if required by the Lessor to be made
direct to the Lessor's bankers by periodical order drawn by the Lessee on the
Lessee's bank or other account to reach the Lessor's bankers on the due date for
payment of rent hereunder) the first
5
<PAGE>
payment being a proportionate amount in respect of the period from and including
the rent commencement date to the quarter day next following the execution
hereof to be made on the execution hereof and SECONDLY by way of additional
yearly rent the amounts payable pursuant to the provisions of Clause 3(2) of
this Lease
3. THE Lessee HEREBY COVENANTS with the Lessor as follows:
(1) To pay the rents (including substituted rents ascertained under the
provisions of Clause 5 hereof) and additional rents hereby reserved and made
payable at the times and in manner aforesaid without any deductions and not to
exercise or seek to exercise any right or claim to withhold rent or any right or
claim to legal or equitable set-off
(2) To pay to the Lessor on demand in each year during the term with
effect from the date hereof:
(a) a sum equivalent to the amount from time to time assessed by the
Lessor's insurers as being payable by the Lessor by way of premium for
keeping the demised premises and the Lessor's fixtures and fittings lifts
boilers plant and machinery therein and architects' surveyors' engineers'
and other professional fees (and value
6
<PAGE>
added tax thereon) and demolition and clearance expenses insured for an
amount (estimated from time to time by the Lessor or its Surveyors)
necessary to cover the full costs of rebuilding or reinstating the demised
premises (including a due allowance for cost increases over the likely
rebuilding period) against loss or damage by fire lightning explosion
aircraft storm tempest flood and such other risks as the Lessor shall from
time to time in its reasonable discretion deem desirable or expedient and
(b) the amount from time to time assessed by the Lessor's insurers by way
of premium as being payable by the Lessor for insuring the loss of rent of
the demised premises for three years including the Lessor's Surveyor's
estimate of such rent where a part of the period in respect of which loss
of rent insurance has been effected by the Lessor is subsequent to a date
or dates when the yearly rent payable hereunder falls to be reviewed
pursuant to the provisions of Clause 5 hereof
(3) To pay and discharge all existing and future rates taxes duties
charges assessments impositions and
7
<PAGE>
outgoings whatsoever (whether parliamentary parochial local or of any other
description and whether or not of a capital or nonrecurring nature) which are
now or may at any time hereafter be assessed charged levied or imposed upon or
payable in respect of the demised premises or assessed charged levied or imposed
upon or payable by any estate owner landlord tenant or occupier in respect
thereof and also to pay and discharge and indemnify the Lessor against any empty
rate rating surcharge or similar imposition which may whether during or after
the expiration or sooner determination of the term be imposed in respect of the
demised premises or any part thereof if and in so far as the same arises by
reason of any failure to occupy the demised premises or any part thereof during
the term
(4) If at any time during the term the said rents or the additional rent
or rents or any part or parts thereof or any other sums due hereunder from the
Lessee to the Lessor shall remain unpaid for more than fourteen days after
becoming payable (whether formally demanded or not) to pay to the Lessor
interest upon the same at the prescribed rate calculated on a day to day basis
(as well after as before any judgment) from the date upon which the same first
became payable until the
8
<PAGE>
date of actual payment and such interest shall at the option of the Lessor be
recoverable by action as rent in arrear PROVIDED that nothing herein contained
shall entitle the Lessee to withhold or delay payment thereof after the date
upon which payment first falls due or in any way prejudice affect or derogate
from the rights and remedies of the Lessor hereon
(5) Not withstanding anything else herein contained not to do any act
matter or thing in respect of the demised premises or the interest of any party
herein which involves directly or indirectly the Lessor in any fiscal liability
(6) To deliver to the Lessor free of charge a copy of every notice order
requisition direction or proposal given made or issued by a competent authority
affecting the demised premises or the user of the demised premises as soon as
the Lessee becomes aware thereof and at the request and cost of the Lessor to
make or join in making such objections or representations against or in respect
of any such notice order requisition direction or proposal as the Lessor shall
deem expedient
(7) To pay a fair proportion (to be determined by the Lessor's Surveyor
whose decision shall be final) of
9
<PAGE>
the cost of making repairing and cleansing all party and other walls gutters
sewers drains pipes conduits wires and cables roadways and pavements belonging
to or used with the demised premises in common with adjoining or neighbouring
premises all amounts due from the Lessee under this sub-clause being payable to
the Lessor on demand and recoverable as rent arrears
(8) In every third year of the term and in the last six months thereof
(however determined) but not so that the Lessee shall have to redecorate in both
the twenty fourth and twenty fifth years of the term to paint or otherwise treat
as the case may require the whole of the outside woodwork ironwork metal work
cement or stucco work (if any) and other external parts of the demised premises
usually or requiring to be painted or otherwise treated with two good coats of
best quality paint or other suitable material of the best quality in a proper
and workmanlike manner and at the same times with every such painting to clean
restore point and make good the external brickwork stucco and stonework of the
demised premises all such works to be carried out to the reasonable satisfaction
of the Lessor and the colours and patterns of all such
10
<PAGE>
works of painting and decorating to be previously approved in writing by the
Lessor.
(9) In every fifth year of the term and in the last six months thereof
(however determined) to paint paper plaster or otherwise treat as the case may
require all interior parts of the demised premises usually or requiring to be
painted papered plastered or otherwise treated with not less than two coats of
best quality paint or other suitable material of the best quality in a proper
and workmanlike manner the colour and quality of the paint and other finishes in
the last six months of the term to be first approved by the Lessor and also at
the same times with every such painting to wash down all tiles glazed bricks and
similar washable surfaces and make good all ornamental works and generally to
redecorate throughout restoring and making good the demised premises
(10) (a) To keep in good and substantial repair order and condition the
whole of the demised premises (including the exterior the structure the
walls the roofs and foundations thereof and any alterations additions or
improvements to the demised premises) and the water ventilation sanitary
and heating apparatus and the sewers
11
<PAGE>
drains and appurtenances thereof and the boundary walls and fences of the
demised premises and to carry out from time to time whenever requisite all
necessary reparations and rebuilding works and amendments whatsoever
(regardless of the age or state or dilapidation of the buildings for the
time being comprised in the demised premises) including any which may be
rendered necessary by any latent or inherent defects in the demised
premises
(b) To keep the demised premises clean tidy and properly cleansed and in
particular to clean the windows therein and external cladding therein as
often as occasion shall require
(c) To keep the open areas of the demised premises clean and tidy and to
maintain the trees and shrubs thereon
(11) To pay all expenses (including without prejudice to the generality
thereof Solicitors' Counsel's Architects' Surveyors' and Bailiffs' fees and
other professional costs) which may be incurred by the Lessor:-
(a) In or in contemplation of any proceedings under Section 146 or 147 of
the Law of Property
12
<PAGE>
Act 1925 or any statutory modification or re-enactment thereof for the
time being in force or the preparation and service of any notice under
those Sections notwithstanding that forfeiture may be avoided otherwise
than by relief granted by the Court
(b) In respect of any application for any consent or the approval of any
deed or document required under the terms of this Lease (whether or not
such consent or approval shall be granted)
(c) In the recovery or attempted recovery of arrears of rent and
additional rent due from the Lessee hereunder
(d) In preparing and serving a schedule of dilapidations at any time
during the term or within a reasonable time after its expiration or
determination
(12) To yield up unto the Lessor at the expiration or sooner determination
of the term so painted treated repaired cleansed maintained amended and kept as
aforesaid the demised premises and the keys and all additions and improvements
made thereto in the meantime and all fixtures of every kind in or upon the
demised premises or which during the term may be affixed or
13
<PAGE>
fastened to or upon the same except tenant's or trade fixtures and in accordance
also with the covenants and conditions contained or imposed in or by virtue of
any licence granted by the Lessor hereunder and prior to the expiration or
sooner determination of the term in case any of the Lessor's fixtures and
fittings shall be missing broken damaged or destroyed forthwith to replace them
with others of a similar character and of equal value and in the event of any
alterations having been made during the term to the demised premises to
reinstate the demised premises (if and as so required by the Lessor) to the
condition in which they were prior to the making of such alterations and in any
event to remove any moulding sign writing or painting of the name or business of
the Lessee and other persons from the demised premises and make good any damage
caused to the demised premises by such removal or removal of the Lessee's
fixtures fittings furniture and effects
(13) To permit the Lessor and its agents with or without workmen and
others at any reasonable time or times by prior arrangement with the Lessee to
enter and examine the demised premises to ensure that nothing has been done
therein which constitutes a breach of any of
14
<PAGE>
the covenants contained in these presents and to examine the state and condition
of the demised premises
(14) Duly and immediately to remedy repair and make good all breaches of
covenant and defects of which notice in writing shall be given by the Lessor to
the Lessee and which the Lessee shall be liable to remedy repair or make good
under the covenants contained in these presents And in case the Lessee shall
make default in so doing within two months after the date of any such notice it
shall be lawful (but not obligatory) for the Lessor without prejudice to the
right of re-entry hereinafter contained to enter upon the demised premises and
to remedy repair and make good the same at the cost of the Lessee which cost
together with the expenses of the Lessor (including Surveyors' and other
professional fees) thereby incurred shall be a debt due from the Lessee to the
Lessor and be forthwith recoverable by action
(15) To permit the Lessor and its agents at any reasonable time or times
by prior arrangement with the Lessee to enter the demised premises and to take
schedules or inventories of the fixtures and things to be yielded up at the
expiration or sooner determination of the term
15
<PAGE>
(16) To permit the Lessor and all persons authorised by it and their
agents and workmen and the owners and occupiers of any adjoining or neighbouring
premises or their respective agents and workmen at any reasonable time or times
by prior arrangement with the Lessee save in the case of emergency and then
immediately to enter upon the demised premises for executing repairs additions
or alterations to or upon any adjoining or neighbouring premises or for building
on land adjoining the demised premises or for laying constructing repairing
maintaining renewing making connections with or cleansing or keeping in good
order and condition all pipes drains channels watercourses sewers wires cables
gutters ditches culverts fences or other conveniences which shall belong to or
serve the demised premises in common with other premises or be in or upon the
demised premises and also for the purpose of laying down maintaining repairing
renewing and testing drainage gas and water pipes and electric wires or cables
or for other similar purposes the persons entering making good all damage
thereby occasioned to the demised premises
(17) (a) At all convenient hours in the daytime by prior arrangement with
the Lessee to permit all
16
<PAGE>
prospective purchasers of or dealers in the Lessor's reversionary interest
by order in writing of the Lessor or its agents to view the demised
premises without interruption
(b) To permit the Lessor or its agents at any time within six calendar
months next before the expiration of the term to enter upon the demised
premises and to fix and retain without interference upon any suitable part
or parts thereof a notice board for re-letting the same and to permit all
persons by order in writing of the Lessor or its agents to view the
demised premises at all convenient hours by prior arrangement with the
Lessee in the daytime without interruption
(18) (a) Not to make or permit or suffer to be made any structural
alterations additions or improvements to the demised premises
(b) Not to make or permit or suffer to be made any non-structural
alterations or additions to the demised premises without the prior written
consent of the Lessor which (in the case of a proposed non-structural
alteration or addition which in the opinion of the Lessor constitutes an
improvement) shall not be unreasonably withheld save that the
17
<PAGE>
Lessors consent shall not be required to the erection removal and
alteration of demountable partitioning
(c) Not to make or permit or suffer to be made any alteration or addition
to any electrical installation in or on the demised premises except in
accordance with the terms and conditions laid down by the Institution of
Electrical Engineers and the regulations of the relevant electricity
supply authority
(19) Not to use or permit or suffer the demised premises to be used for
any noisy noisome offensive or dangerous trade art manufacture business or
occupation or for any illegal or immoral purpose nor to do or permit or suffer
to be done on the demised premises any act matter or thing whatsoever which may
be or in the opinion of the Lessor tend to become an annoyance nuisance damage
disturbance inconvenience or to the prejudice of the Lessor or the owners or
occupiers of any adjoining or neighbouring premises or the neighbourhood and
without prejudice to the generality of the foregoing not to use or permit the
demised premises to be used otherwise than as a light industrial building as
defined by Class III of the
18
<PAGE>
(22) (a) Not to carry on or suffer upon the demised premises any trade
business or occupation in any manner or do or suffer any other thing which
may make void or voidable any policy for the insurance of the demised
premises or any adjoining or neighbouring premises against fire or any
other risk for the time being covered by the policy hereinafter referred
to or render any increased or extra premium payable for such insurance And
to comply at its own expense with all directions and recommendations of
the insurers of the demised premises
(b) To make up out of its own moneys any deduction in any insurance moneys
paid by the Lessor's insurers made as a result of the faulty repair or
maintenance of the demised premises
(c) To insure and keep insured in the name of the of the Lessee all the
plate glass doors in the demised premises against breakage in an insurance
office to be nominated by the Lessor from time to time to the full value
thereof and to pay all premiums necessary for that purpose and whenever
required to produce to the Lessor or its agent the policy or policies of
21
<PAGE>
insurance and the receipt for the current year's premium and to cause all
moneys received by virtue of such insurance to be forthwith laid out in
reinstating the said plate glass windows and doors with plate glass of the
same quality and thickness and to make up any deficiency out of the
Lessee's own moneys
(23) Not without the consent in writing of the Lessor first obtained to
hold or permit or suffer to be held upon the demised premises any sale by
auction public exhibition political meeting show spectacle or gambling Provided
always that the Lessee shall be permitted to hold demonstrations meetings and
seminars for the hi-tec equipment distributed by them
(24) Not to keep or permit or suffer to be kept on the demised premises
any material of a dangerous combustible explosive radio-active or other similar
nature except in accordance with the provisions of any relevant Act or Acts of
Parliament for the time being in force and after due notice to the insurers of
the demised premises and payment of every increased or extra insurance premium
which ought to be paid
(25) Not to fix to or place upon or permit or suffer to be fixed to or
placed upon the demised
22
<PAGE>
premises any machinery article or substance which in the opinion of the Lessor
may be liable to damage or overload the structural parts or roofs or floors of
the buildings included in the demised premises
(26) Not without the consent in writing of the Lessor first obtained such
consent not to be unreasonably withheld to affix or display or permit or suffer
to be affixed or displayed to or on the demised premises any sign fascia
hoarding poster placard skysign flagpole mast lettering or advertisement
whatsoever which shall be visible from outside the demised premises and in
default of obtaining such consent the Lessor may enter and remove the same at
the cost of the Lessee
(27) To take all steps necessary to prevent any encroachment upon the
demised premises or the acquisition of any new right to light passage drainage
or other encroachment over upon or under the demised premises and to give notice
to the Lessor of any threatened encroachment or attempt to acquire any such
easement
(28) (a) Not to assign charge or part with or share possession or
occupation of or permit any
23
<PAGE>
person to occupy a part or parts (as opposed to the whole) of the demised
premises
(b) not (save in the manner hereinafter described) to underlet any part
(as opposed to the whole) of the demised premises
(c) Not to assign charge underlet or part with or share possession or
occupation of or permit any person to occupy the whole of the demised
premises
(1) except by an assignment or charge of the whole of the demised
premises or by an underlease of the whole of the demised premises
which complies with the following subparagraph (2)
(2) in the case of an underlease
(i) no fine or premium shall be charged or other valuable
consideration taken
(ii) the rent shall not be less than the open market rack rent of
the demised premises at the time it is created or the rent hereby
reserved (whichever shall be the greater)
(iii) the same shall comprise the whole of the demised premises
24
<PAGE>
(3) without the Lessor's previous written consent (which shall not
be unreasonably withheld)
PROVIDED THAT the Lessor may on any assignment of this Lease require that the
Lessee shall
(i) procure that the assignee covenants with the Lessor to pay the
rents reserved (including substituted rents) and perform and
observe the covenants on the part of the Lessee contained in
this Lease and
(ii) if reasonably required by the Lessor and the assignee is a
private limited company procure that not less than two persons
whose financial status is acceptable to the Lessor shall
covenant with the Lessor (by way of indemnity and not only by
way of guarantee) that the said company will pay the said
rents (including substituted rents) and perform and observe
the said covenants and to indemnify and save harmless the
Lessor against all losses damages costs and expenses arising
by reason of any
25
<PAGE>
default of the said company and such covenant shall further
provide in the usual form that any neglect or forbearance of
the Lessor shall not release or exonerate such persons and
shall further provide for such persons to accept a new lease
of the demised premises upon disclaimer of these presents by
the said company or on its behalf if so required by the Lessor
within six months of such disclaimer (such new lease to be for
the residue then unexpired of the term and at the rents
payable and subject to the same tenant's covenants and to the
same provisos and conditions as those in force immediately
before such disclaimer and to be granted at the cost of such
persons in exchange for a counterpart duly executed by them)
(d) Not to underlet part (as opposed to the whole) of the demised premises
except by an underlease of a primary sub-lettable portion or a secondary
sub-lettable portion subject to the
26
<PAGE>
Lessor's previous written consent (such consent not to be unreasonably
withheld) which underlease complies with the following conditions:
(i) no fine or premium shall be charged or other valuable
consideration taken
(ii) the rent shall not be less than the open market rack rent of
the relevant portion at the time it is created or a rateable
proportion of the rent hereby reserved [whichever shall be the
greater)
(iii) the same shall include a right for the underlessee to use
adequate lavatory accommodation in the said building and
include within an underlease of a primary sub-lettable portion
not less than twenty car parking spaces and within an
underlease of a secondary sub-lettable portion not less than
ten car parking spaces
(iv) In the case of an underlease of a secondary sub-lettable
portion:
(A) the provisions of Sections 24 to 28 (inclusive) of the
Landlord and Tenant Act 1954 will not have effect in
respect of such underlease and
27
<PAGE>
(B) the Lessee shall prior to the written consent being
granted as aforesaid produce to the Lessor (meaning the
Lessor for the time being of these presents) an
authenticated copy of an Order of the Court authorising
the agreement between the Lessee and any intended
underlessee or between an underlessee and any intended
sub-underlessee that the provisions of Sections 24 to 28
(inclusive) of the Landlord and Tenant Act 1954 shall be
excluded in relation to the intended under-letting
(e) If the Lessor consents to an underletting of the whole of the
demised premises or a primary sub-lettable portion or a secondary
sub-lettable portion the Lessee shall procure that any permitted
immediate or mediate underlease contains:--
(l) covenants by the underlessee with the underlessor
prohibiting the underlessee from doing or allowing any act or
thing on or in relation to the sub-demised premises
28
<PAGE>
inconsistent with or in breach of the Lessee's obligations in
this Lease
(2) provisions for review of rent at the same times as the
reviews under this Lease (which the Lessee shall operate and
enforce) corresponding as to terms and content with the rent
review provisions contained in Clause 5 hereof
(3) a condition for re-entry by the underlessor on breach of
any covenant by the underlessee and
(4) in the case of an underlease of a primary sub-lettable
portion or a secondary sub-lettable portion a covenant by the
underlessee with the underlessor that the underlessee shall
not underlet or part with (save by way of an assignment of the
whole) or share possession or occupation of the premises
comprised in the underlease or any part thereof
AND further the Lessee shall enforce performance and observance by
every such underlessee of the covenants and conditions in his
underlease and not release or waive any such covenants or conditions
29
<PAGE>
(f) notwithstanding the generality of the foregoing the Lessee (here
meaning Micro Business Systems PLC only) shall not be precluded from
sharing occupation or permitting any person to occupy a part or
parts (as opposed to the whole) of the demised premises with any of
its wholly owned subsidiary companies (within the meaning ascribed
by section 42 of the Landlord and Tenant Act 1954) for so long as
any such company remains a wholly owned subsidiary and such
arrangement does not create any relationship of landlord and tenant
between the parties
(29) Within one month of every assignment transfer underlease mortgage or
charge of this Lease or other instrument affecting the demised premises or
evidencing devolution of the title thereto to give notice thereof in writing
with particulars thereof and to produce such instrument to the Lessor's
Solicitors and to pay to the Lessor's Solicitors a registration fee of Ten
pounds (and value added tax thereon) in respect of each such instrument
(30) To take such measures as may be necessary to ensure that any effluent
discharged into the drains or sewers which belong to or serve the demised
premises will not be corrosive or in any way harmful to the said
30
<PAGE>
drains or sewers or cause any obstruction or deposit therein
(31) Not to discharge or allow to be discharged any solid matters from the
demised premises into the drains or sewers which belong to or serve the demised
premises nor to discharge or allow to be discharged therein any fluid of a
poisonous or noxious nature of a kind calculated to or that does in fact destroy
sicken or injure the fish or contaminate or pollute the water of any stream or
river or canal and not to do or permit or allow or suffer to be done or
permitted any act or thing whereby the waters of any stream or river or canal
may be polluted or the composition thereof so changed as to render the Lessor
liable to any action or proceedings by any person whomsoever and to keep the
Lessor indemnified in any proceedings that may arise through a breach of this
covenant
(32) To keep the Lessor fully and effectually indemnified at all times and
the Lessee hereby indemnifies the Lessor accordingly against all costs claims
liabilities actions and expenses (whether alleged or demanded by the owners or
occupiers of any adjoining or neighbouring properties or other parties) arising
from the use or occupation of the demised
31
<PAGE>
premises the existence of any articles in or about the demised premises or the
execution of any works upon the demised premises
(33) Not to install or keep or permit or suffer to be installed or kept on
the demised premises any machinery which causes undue noise fumes or vibrations
liable to result in nuisance injury or damage to persons or to the demised
premises or to adjoining or neighbouring premises
(34) To keep the demised premises supplied and equipped with all fire
fighting and extinguishing appliances as may from time to time be required by
law or by the insurers of the demised premises or by the Lessor and also to keep
in force regular maintenance contracts for such fire fighting and extinguishing
appliances
(35) To give notice forthwith to the Lessor of any "relevant defect"
within the meaning of Section 4 of the Defective Premises Act 1972 or any
statutory modification or reenactment thereof in the state of the demised
premises and at all times to display and maintain all notices (including the
wording thereof) and barriers or screens which the Lessor may from time
32
<PAGE>
to time display or erect or require to be displayed or erected at or in the
demised premises
(36) To observe and perform the covenants obligations rights exceptions
reservations and other matters contained mentioned or referred to on the
Register of H.M. Land Registry Title Number BK162355 and to keep the Lessor
fully and effectually indemnified at all times and the Lessee hereby indemnifies
the Lessor accordingly against all costs claims liabilities actions and expenses
arising from any breach non-observance or non-performance of or non-compliance
with any of the aforesaid covenants obligations rights exceptions reservations
and other matters and (without prejudice to the generality of the foregoing)
arising from any failure to contribute towards the cost of maintaining repairing
and renewing the private roadway and the pavements thereof which affords access
to the demised premises from Bath Road
4. THE Lessor HEREBY COVENANTS with the Lessee as follows:-
33
<PAGE>
(a) That the Lessee paying the rents hereby reserved and made
payable (including substituted rents) and performing and observing the
several covenants conditions and agreements herein contained and on the
Lessee's part to be performed and observed shall and may peaceably and
quietly hold and enjoy the demised premises during the term without any
lawful interruption or disturbance from or by the Lessor or any person
claiming under or in trust for the Lessor
(b) To insure and keep insured in their full reinstatement value
from time to time the demised premises and the Lessor's fixtures and
fittings lifts boilers plant and machinery therein against loss or damage
by fire lightning explosion aircraft storm tempest flood and such other
risks as the Lessor in its reasonable discretion shall deem desirable or
expedient and three years' rent and architects' surveyors' and engineers'
and other professional fees and demolition and clearance expenses in some
insurance office of repute or with Lloyds Underwriters (a summary of
insured risks and the name of the insurers to be supplied to the Lessee on
request) and in case of destruction of or damage to the demised premises
or any part thereof from any cause covered by such insurance for the time
being
34
<PAGE>
as to make the same unfit for occupation and use and provided that the
Lessor's insurance shall not have been vitiated or payment thereunder
refused in whole or part as a result of any act or default on the part of
the Lessee or the Lessee's servants or agents the Lessor will lay out all
moneys received in respect of such insurance (other than for loss of rent
architects' surveyors' engineers' and other professional fees and
demolition and clearance expenses) in rebuilding and reinstating the same
as soon as reasonably practicable PROVIDED THAT if any competent authority
shall lawfully refuse permission for or otherwise lawfully prevent any
rebuilding or reinstatement of the demised premises or any rebuilding or
reinstatement shall be otherwise frustrated all relevant insurance moneys
(so far as not laid out as aforesaid) shall be receivable by the Lessor
for its own use and benefit absolutely
(c) The Lessor shall during the duration of this Lease hold upon
trust for the Lessee all claims rights and remedies and the proceeds of
all benefits derived therefrom which the Lessor may have against the
Contractor and the Professional Consultants involved in the design and
construction of the said building and shall in connection with such trust
at the written
35
<PAGE>
request and cost of the Lessee institute such proceedings as the Lessee
may require for the enforcement of such claims rights and remedies the
Lessee providing such indemnity in respect of costs as Lessor may
reasonably require
5. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows:
(a) In this Clause:
"Review date" shall mean every fifth anniversary of the term commencement
date
"Review period" shall mean the period between one review date and the
ensuing review date or the end of the term (as the case may be)
"Current rental value" shall mean the best clear yearly rack rent
obtainable on the relevant review date for the demised premises in good
and substantial repair and condition and fit for and fitted out and
equipped for immediate occupation and use let as a whole without premium
upon the open market by a willing landlord to a willing tenant on the
assumptions of a letting with vacant possession for a term equal to the
original length of the term which letting would be renewed at the expiry
of the term thereof under the provisions of
36
<PAGE>
the Landlord and Tenant Act 1954 (as amended) on the basis that all
covenants and conditions of this Lease have been fully complied with and
that no work has been carried out thereon by the Lessee its sub-tenants or
their predecessors in title during the term which has diminished the
rental value of the demised premises and that if the demised premises have
been destroyed or damaged they have been fully restored and upon a lease
in the same terms in all respects as these presents (other than that as to
the amount of the original rent but including this present clause) as
varied from time to time and with the benefit of any licences granted by
the Lessor and any waiver or variation beneficial to the Lessee of any of
the covenants and conditions contained herein but disregarding:-
(i) Any effect on rent of the fact that the Lessee has been in occupation
of the demised premises or of any goodwill attaching to the demised
premises by reason of the Lessee having carried on business on the demised
premises and
(ii) Any effect on rent of any improvement to the demised premises carried
out by the Lessee
37
<PAGE>
otherwise than in pursuance of an obligation arising under this Lease
(b) The rent payable in respect of any review period shall be ascertained
in the following manner:-
(i) Either party by notice in writing served upon the other at any time
not earlier than six months before a review date may specify a substituted
rent in respect of the ensuing review period and in the event of absence
of agreement on a different sum under (ii) below or determination of a
different sum under (iii) below such sum so specified shall be the
substituted rent payable throughout the ensuing review period
(ii) The parties may agree in writing not later than three months after
service of the notice under (i) upon the substituted rent payable
throughout the relevant review period
(iii) The party in receipt of the notice referred to in subclause (i)
hereof not later than three months after the service of the notice under
(i) by counter-notice in writing served upon the party which served the
said notice may require the substituted rent to be determined under the
following subclauses (c) to (f) (inclusive) of
38
<PAGE>
this clause and the sum so determined shall be the substituted rent
payable throughout the relevant review period
(c) The determination of a substituted rent consequent upon the service of
a counter-notice under (iii) of the foregoing subclause shall be effected by a
referee agreed on by the parties or if not agreed on by them within one month
from the nomination in writing of a referee by one party to the other appointed
on the application of either party by the President (or some other officer if
the President is unable to act) for the time being of the Royal Institution of
Chartered Surveyors (or any successor to that Institution)
(d) The referee agreed upon or appointed under sub-clause (c) shall act as
an expert and not as an arbitrator and such referee shall afford each party the
opportunity to make such written and (at the option of either party) verbal
representations to him as they wish subject to such reasonable time and other
limits as he may prescribe and he shall have regard to any such representations
but not be bound thereby
(e) (i) The referee shall notify in writing to the parties such sum as he
shall determine to be the current rental value of the demised premises
39
<PAGE>
at the relevant review date and (subject to the provisions of sub-clause
(f) hereof) such sum shall be the substituted rent payable throughout the
relevant review period
(ii) The award of the referee shall also provide for the manner in which
the costs of the determination shall be borne and may also provide for the
payment of costs by one party to the other and in settling upon such
matters the referee may have regard to the contents of any notice served
any offers made by either party to the other (whether "without prejudice"
or not) and the nature and content of any representations made to him by
or on behalf of the parties
(f) Under no circumstances shall the substituted rent for any review
period be less than the rent payable for the period prior to the commencement of
such period
(g) During any period that any substituted rent payable under the
preceding sub-clauses of this Clause has not been ascertained the Lessee shall
continue to pay rent of the amount previously payable on account of the rent due
for such period but within fourteen days of such ascertainment the Lessee shall
pay to the
40
<PAGE>
Lessor any difference between the amounts actually paid and the amounts payable
as a result of such ascertainment together with interest at 1% less than the
prescribed rate upon such sum calculated on a day to day basis from the relevant
review date down to the date of actual payment of such sum
(h) During any period that any substituted rent ascertained under this
Clause shall not be recoverable in whole or part by virtue of any statute
regulation instrument or order the Lessee shall pay rent at the highest level
from time to time recoverable under the restrictions and shall pay the full
amount of the substituted rent as soon as the restrictions shall cease to be
effective
(j) If at or following any review date any statute regulation instrument
or order shall prevent the exercise of the process of ascertainment of a
substituted rent provided for in this Clause neither party shall be able to
serve any notice specified in (i) of sub-clause (b) until such prohibition be
repealed or so released or modified as to permit such step to be taken and in
such event the review date shall be such date not earlier than one month nor
later
41
<PAGE>
than three months from the date of service of the notice as shall be specified
therein
(k) After the ascertainment of any substituted rent under this Clause a
memorandum recording the amount of the same signed by or on behalf of the
parties shall forthwith be endorsed on this Lease and the Counterpart thereof
(each party being responsible for its own costs) and the Lessee covenants that
if and whenever any substituted rent shall be ascertained under this Clause the
Lessee with effect from the relevant review date will pay and the payment of the
yearly rent at the substituted rate
6. IT IS HEREBY AGREED AND DECLARED as follows:-
(1) ANY notice request consent or approval under this Lease shall be in
writing and for the purpose of service of all notices hereby or by statute
authorised to be served the regulations as to service of notices contained in
Section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery
Service Act 1962 shall be deemed to be incorporated herein
(2) Notwithstanding the acceptance of or demand for rent by the Lessor or
its agent with knowledge of a breach of any of the covenants on the Lessee's
part herein contained the Lessor's right to forfeit this
42
<PAGE>
Lease on the ground of such breach shall remain in force and the Lessee shall
not in any proceedings for forfeiture be entitled to rely upon any such
acceptance or demand as aforesaid as a defence
(3) If the rent hereby reserved or any part thereof shall be in arrear for
twenty one days after the same shall become due (whether legally demanded or
not) or if there shall be a breach of any of the covenants or agreements on the
part of the Lessee or conditions contained in these presents or if the Lessee or
any guarantor of any successor in title to the Lessee (meaning here the
original lessee hereunder) shall go into liquidation (other than in the case of
the Lessee a voluntary liquidation of a solvent company for the purpose of
amalgamation or reconstruction) or have a winding up order made against it or if
a Receiver shall be appointed of its undertaking or if it shall enter into a
composition with its creditors have a Receiving Order made against it or be
adjudicated a bankrupt or if the Lessee shall suffer any distress or execution
to be levied on the demised premises or the contents thereof or shall take the
benefit of any Act for the relief of debtors then and in any such case the
Lessor or its agents may forthwith (or at any time
43
<PAGE>
thereafter) re-enter upon the demised premises or any part thereof in the name
of the whole whereupon the term shall absolutely determine without prejudice to
any rights of the Lessor in respect of arrears of rent or other subsisting
breach of any condition or covenant or agreement on the part of the Lessee
(4) In case the demised premises or any part thereof shall at any time
during the term be so damaged or destroyed by fire or other risk against which
the Lessor shall have insured for the time being as to be unfit for occupation
and use then (unless the insurance money shall be wholly or partially
irrecoverable by reason solely or in part of any act or default on the part of
the Lessee or the Lessee's servants or agents) the rent first hereby reserved or
a fair proportion thereof according to the nature and extent of the damage
sustained shall from the date of such damage or destruction be suspended until
the demised premises shall again be rendered fit for occupation and use or until
the expiration of three years from the date of such destruction or damage
(whichever shall be the shorter period) and any dispute with reference to this
proviso shall be referred to arbitration in accordance with the Arbitration Act
1950 or any statutory
44
<PAGE>
modification or re-enactment thereof for the time being in force Provided that
in the event of the lessor receiving the insurance monies for its own use and
benefit in accordance with the Proviso to Clause 4(b) hereof this lease shall
automatically determine and the Lessees obligations under this lease shall
immediately determine without prejudice to either party's right of action or
remedy against the other in respect of any antecedent breach of any of the
covenants and conditions herein contained
(5) The Lessee shall not be or become entitled to any compensation under
the provisions of Section 37 of the Landlord and Tenant Act 1954 or any
statutory modification or re-enactment thereof unless the conditions set forth
in Section 38(2) thereof shall be satisfied in relation to the Lessee claiming
compensation
(6) All rents and other payments whatsoever due from the Lessee under this
Lease shall be exclusive of value added tax and the Lessee shall in addition pay
the full amount of any value added tax for which the Lessor or other person
entitled to such rents or other payments shall be accountable in respect thereof
45
<PAGE>
IN WITNESS whereof these presents have been executed by the parties hereto
the day and year first before written
THE SCHEDULE before referred to
-----------------------------------
(Description of the demised premises)
--------------------------------------
All that piece or parcel of land registered at H.M. Land Registry under Title
Number BK162355 shortly known as 476 Bath Road Slough Berkshire
THE COMMON SEAL of )
HIGGS AND HILL DEVELOPMENTS )
LIMITED was hereunto affixed )
in the presence of:- )
Director
Secretary
THE COMMON SEAL of )
MICRO BUSINESS SYSTEMS PLC was )
hereunto affixed )
in the presence of: )
/s/ [ILLEGIBLE]
Director
/s/ [ILLEGIBLE]
Secretary
46
<PAGE>
Exhibit 10.27
--------------------------------------
DATED 27th OCTOBER 1997
--------------------------------------
--------------------------------------
SMITHS INDUSTRIES PLC (1)
4 FRONT GROUP PLC (2)
--------------------------------------
--------------------------------------
L E A S E
of First Ground and Basement floors
Petersham House, 57 Hatton Garden,
London EC1
--------------------------------------
--------------------------------------
Commencing 15 July 1997
Term of years Five
Expires 14th July 2002
--------------------------------------
[Note: This lease is an internal repairing and insuring lease with full
service charge of part of a building "standing alone" and is a new
lease for the purposes of the Landlord and Tenant (Covenants) Act
1995]
--------------------------------------
DIBB LUPTON ALSOP
125 London Wall
London EC2Y 5AE
Ref: [PARFITTM]\WPDATA\DUMP\4FRONT.LE
--------------------------------------
<PAGE>
INDEX
(for reference purposes only)
================================================================================
Clause Heading Page Number
1 PARTICULARS 1
2 DEFINITIONS AND INTERPRETATION 2
3 DEMISE AND RENT 8
4 TENANT'S COVENANTS 8
4.1 Rent 8
4.2 Outgoings 9
4.3 Interest on arrears 9
4.4 Service charge 10
4.5 Repairs 10
4.6 Decoration 11
4.7 Alterations 11
4.8 Entry 13
4.9 Use 14
4.10 Alienation 16
4.11 Registration of documents 20
4.12 Ineligible use for VAT purposes 20
4.13 Compliance with statutes 22
4.14 Planning/environmental matters 22
4.15 Easements 24
4.16 Notifications 25
4.17 Defects 25
4.18 Fire fighting 25
4.19 Advertisements/aerials 26
4.20 Notice boards 26
4.21 Expenses 26
4.22 New guarantor 27
4.23 Indemnity 28
4.24 Yield up 28
4.25 VAT 29
4.26 Regulations 29
4.27 Observe covenants 29
5 LANDLORD'S COVENANTS 30
5.1 Quiet enjoyment 30
5.2 Services 30
5.3 Superior Lease 30
6 INSURANCE 31
6.1 Tenant's obligations 31
6.2 Abatement of rent 32
7 PROVISOS 33
7.1 Forfeiture 33
7.2 Exclusion of use warranty 34
<PAGE>
L E A S E dated and delivered 27th October 1997
BETWEEN the Landlord and the Tenant named in the Particulars hereunder
WITNESSES as follows:
1 PARTICULARS
1.1 Landlord: SMITHS INDUSTRIES PLC (company number
137013 England) whose registered office
is at 765 Finchley Road London NW11 8DS
1.2 Tenant: 4 FRONT GROUP PLC (company number
2278419 England) whose registered office
is at 57A Hatton Garden London EC1N 8JD
1.3 Premises: the premises shortly known as First
Ground and Basement Floors Petersham
House 57 Hatton Garden London EC1
1.4 Contractual Term: 5 years from and including 15th July
1997
1.5 Rent Commencement Date: 15th July 1997
1.6 Rent: (1) From the 15th day of July 1997 until
the 14th day of July 1998 THIRTY SIX
THOUSAND SIX HUNDRED POUNDS
((pound)36,600) per annum (exclusive of
VAT)
(2) From the 15th day of July 1998 and
thereafter during the remainder of the
Term SIXTY TWO THOUSAND THREE HUNDRED
POUNDS
-1-
<PAGE>
((pound)62,300) per annum (exclusive of
VAT)
1.7 Permitted Use: The preparation development and sale of
computer hardware software and
associated computer equipment and
ancillary office use and storage/loading
area
1.8 Superior Lease: means an underlease dated 11th July 1975
and made between (1) Fifty-Seven Hatton
Garden Limited (2) the Landlord (then
known as Smiths Industries Limited)
2 DEFINITIONS AND INTERPRETATION
2.1 In this Lease wherever the context so admits the following
expressions shall have the following meanings respectively:
2.1.1 "1995 Act" means the Landlord and Tenant
(Covenants) Act 1995
2.1.2 "Apparatus" means all passenger lifts passenger
lift shafts water treatment plant boilers heating
and ventilation systems generators and all other
plant machinery and equipment belonging to or in
the control of the Landlord in or about or serving
the Building including (without prejudice to the
generality of the foregoing) the Conduits
2.1.3 "Approval Date" means in relation to an
application to the Landlord for consent hereunder
the date on which such consent is granted
2.1.4 "Building" means the Landlord's building known as
Petersham House 57 Hatton Garden London EC1
including service areas within the curtilage
thereof together with all landlord's buildings
structures additions improvements fixtures and
fittings from time to time therein thereunder or
thereon
-2-
<PAGE>
and forming part of such building and the
appurtenances thereof
2.1.5 "Common Parts" means the forecourts entrance halls
corridors landings toilet accommodation passenger
lifts passenger lift shafts staircases and all
other areas or parts of the Building which from
time to time during the Term are provided by the
Landlord for common use and enjoyment by the
tenants and occupiers of the Building and all
persons expressly or by implication authorised by
them
2.1.6 "Conduits" means all wires pipes sewers drains
cables ducts shafts gullies flues gutters
watercourses soakaways and other like conducting
media of whatsoever nature (including all meters
used in connection with them) which now are or may
hereafter during the Perpetuity Period be laid
2.1.7 "Decorate" means to paint repaper or otherwise
treat as the case may be all surfaces usually or
requiring to be so treated having first prepared
such surfaces by stripping off and priming as may
be necessary and to wash down all washable
surfaces and to restore point and make good all
brickwork where necessary and to grain or varnish
any parts usually so protected all decoration
being carried out with good quality materials and
in a good and workmanlike manner and where
painting is involved not less than two coats being
applied to the outside and two coats to the inside
2.1.8 "Environmental Protection Act" means the
Environmental Protection Act 1990 and any Act or
Acts amending replacing or modifying such Act for
the time being in force or of a similar nature and
all orders and regulations thereunder for the time
being in force
2.1.9 "Floor Plans" means the annexed plans so entitled
2.1.10 "Group Company" means a company which is a member
of the same group of companies as the Tenant (as
defined in
-3-
<PAGE>
Section 42 of the Landlord and Tenant Act 1954 (as
amended))
2.1.11 "Guarantor" means the party (if any) stated as
such in the Particulars and includes the personal
representatives of the Guarantor and any other
person who may from time to time guarantee all or
any of the Tenant's obligations under this Lease
2.1.12 "ineligible use for VAT purposes" means a use by
the Tenant of the Premises which has the effect
that a supply of the Premises by the Landlord to
the Tenant is not a taxable supply notwithstanding
that the Landlord may have made an election to
waive the exemption from VAT pursuant to Schedule
10 to the Value Added Tax Act 1994
2.1.13 "Insured Risks" means the risks against which the
Superior Landlord insures under the terms of the
Superior Lease
2.1.14 "Landlord" means the person for the time being
entitled to the reversion immediately expectant on
the determination of the Term (being at the date
hereof the party stated as such in the
Particulars)
2.1.15 "Landlord's Surveyor" means any person appointed
by or acting for the Landlord including an
employee of the Landlord to perform the function
of a surveyor for any purposes of this Lease
2.1.16 "Lease" means this Lease (including any Schedule
hereto) and any document which is supplemental
hereto or which is collateral herewith or which is
entered into pursuant to or in accordance with the
terms hereof
2.1.17 "Letting Units" means the parts of the Premises
comprising either a single unit comprising both
the basement and ground floors or a single unit
comprising the whole of the first floor and
"Letting Unit" shall mean any of such parts as the
context requires
-4-
<PAGE>
2.1.18 "Particulars" means the particulars in Clause 1
2.1.19 "Permitted Use" means the use stated as such in
the Particulars
2.1.20 "Perpetuity Period" means the period of twenty one
years commencing on the date of this Lease being
the perpetuity period for the purposes of Section
1 of the Perpetuities and Accumulations Act 1964
applicable to this Lease
2.1.21 "Planning Acts" means the Town and Country
Planning Act 1990 the Planning (Listed Buildings
and Conservation Areas) Act 1990 the Planning
(Hazardous Substances) Act 1990 the Planning
(Consequential Provisions) Act 1990 and the
Planning and Compensation Act 1991 and any Act or
Acts amending replacing or modifying any of such
Acts for the time being in force or of a similar
nature and all orders and regulations thereunder
for the time being in force
2.1.22 "Premises" means the premises so stated in the
Particulars and as more particularly described in
Part 1 of Schedule 1 and each and every part
thereof together with all additions alterations
and improvements thereto which may be carried out
during the Term
2.1.23 "Rent Commencement Date" means the date stated as
such in the Particulars
2.1.24 "Rent Days" means 25th March 24th June 29th
September and 25th December in each year and "Rent
Day" shall mean any of such days as the context
requires
2.1.25 "Retained Parts" means those parts of the Building
which are from time to time retained by the
Landlord and made available for use for the
management maintenance or security of the Building
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2.1.26 "Service Charge" shall have the meaning ascribed
thereto in Schedule 2
2.1.27 "Stipulated Rate" means in relation to interest
the rate per annum of four per centum above the
Barclays Bank Plc base rate from time to time (or
where such base rate is not quoted over such other
rate as would in the reasonable opinion of the
Landlord be the nearest equivalent thereto if such
base rate were quoted)
2.1.28 "Structure" means the foundations external walls
(including exterior of the window frames therein)
load bearing walls supporting columns stanchions
beams supports timbers and girders floors roofs
and other structural parts of the Building
2.1.29 "Tenant" means the party stated as such in the
Particulars and shall include such party's
successors in title to this Lease
2.1.30 "Term" means the Contractual Term together with
any continuation or extension thereof (whether
statutory or by the Tenant holding over or for any
other reason)
2.1.31 "VAT" means value added tax or any tax of a
similar nature that may be substituted for it or
levied in addition to it
2.2 In this Lease unless there be something in the subject or
context inconsistent therewith:
2.2.1 Where the expressions "the Tenant" or "the
Guarantor" (if any) include two or more persons
they shall include the plural number and
obligations expressed or implied to be made by or
with any of such persons shall be deemed to be
made by or with such persons jointly and severally
2.2.2 Any covenant by the Tenant not to do or omit to do
an act or thing shall be deemed to include an
obligation not to
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permit or suffer such act or thing to be done or
omitted to be done as the case may be
2.2.3 Any reference to parting with possession shall be
deemed to include sharing possession and any
occupation whatsoever by a licensee
2.2.4 Any reference in this Lease to the Landlord's
consent shall include where necessary the consent
of both the Landlord and all superior landlords
(if any)
2.2.5 Any references to a right exercisable by the
Landlord shall include where necessary the
exercise of such right by all superior 1andlords
(if any) and al1 persons authorised by the
Landlord or any superior landlord
2.2.6 Any reference to a statute shall include any
statutory extension or modification or
re-enactment of such statute and any order
instrument plan regulation permission or direction
made or issued thereunder or deriving validity
therefrom
2.2.7 Words importing the singular meaning shall include
the plural meaning and vice versa and words
importing the masculine feminine and neuter
genders shall include the other or others of such
genders
2.2.8 The clause and paragraph headings and the index
are for convenience only and shall not affect the
construction of this Lease
2.2.9 For the avoidance of any doubt expressions used in
the Particulars shall have the same meanings when
used elsewhere in this Lease
2.2.10 Any reference to a clause subclause paragraph or
schedule shall be a reference to the clause
subclause or paragraph of or schedule to this
Lease so numbered
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3 DEMISE AND RENT
In consideration of the rents hereinafter reserved and of the
covenants and conditions hereinafter contained the Landlord HEREBY
DEMISES unto the Tenant ALL THAT the Premises TOGETHER WITH so far as
the Landlord can grant the same the rights (if any) contained or
referred to in Part 2 of Schedule 1 EXCEPT AND RESERVING as provided
in Part 3 thereof TO HOLD the same SUBJECT to and (insofar as the
Landlord has the power to grant the same) with the benefit of the
matters (if any) referred to in Part 4 of that Schedule unto the
Tenant for the Contractual Term YIELDING AND PAYING therefor unto the
Landlord yearly during the Term and so in proportion for any less
period than a year without any deduction FIRST the clear yearly Rent
(exclusive of VAT) as specified in Clause 1.6 of the Particulars such
rent (if the Landlord so requires) to be paid by banker's standing
order direct debit or other accepted means for the transmission of
money which the Landlord may from time to time reasonably nominate by
equal quarterly payments in advance on the four Rent Days in every
year the first payment (for the period beginning on the Rent
Commencement Date and ending on the day preceding the next succeeding
Rent Day and calculated by multiplying the said yearly rent by the
fraction of which the numerator is the number of days between those
dates (both included) and the denominator is 365) to be made on the
date hereof SECONDLY by way of additional rent all such monies as
shall become payable in accordance with Clause 4.3 THIRDLY by way of
additional rent all such monies as shall become payable in accordance
with Clause 4.4 and Schedule 2 FOURTHLY by way of additional rent on
demand all such monies as shall become payable in accordance with
Clause 6.1.1 and 6.1.2 and FIFTHLY by way of additional rent all other
amounts (including VAT) payable to the Landlord under this Lease
4 TENANT'S COVENANTS
The Tenant for itself and (subject to the provisions of the 1995 Act)
its successors in title and assigns HEREBY COVENANTS with the Landlord
as follows:
4.1 Rent
To pay the several rents reserved by this Lease at the times
and in manner aforesaid without any deductions and not to
exercise or seek
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to exercise any right or claim to withhold rent or any right
or claim to legal or equitable set-off
4.2 Outgoings
4.2.1 To bear pay and discharge and indemnify the
Landlord against all existing and future rates
taxes duties levies charges assessments
impositions and outgoings whatsoever whether
parliamentary parochial local or of any other
description and whether or not of a capital or
non-recurring nature which are now or may at any
time hereafter during the Term be charged levied
assessed or imposed upon or payable in respect of
the Premises or any part thereof or upon any owner
or occupier or other person interested in respect
thereof except only taxation (other than VAT)
assessed upon the Landlord in respect of its
revenue derived from its reversionary interest in
the Premises or any dealing by it therewith
4.2.2 If the Landlord shall suffer any loss of rating
relief which may be applicable to empty premises
after the end of the Term by reason of such relief
being allowed to the Tenant in respect of any
period before the end of the Term to make good
such loss to the Landlord
4.2.3 To be solely responsible for and promptly to pay
all costs and charges for water gas electricity
telephone and any other services used or consumed
in the Premises including all meter rents and
standing charges but so that the Landlord shall
not be responsible for any interruption or failure
in the supply of any such services
4.3 Interest on arrears
If and whenever the Tenant shall fail to pay the rents or
any other monies due under this Lease on the due date
(whether formally demanded or not) or the Landlord shall
with good reason refuse to accept the same then (without
prejudice to any other right or remedy of the Landlord
including the right of re-entry hereinafter
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contained) the Tenant shall pay to the Landlord (whether
formally demanded or not) interest at the Stipulated Rate on
such rents or other monies as the case may be from the date
when the same became due until payment thereof (as well
after as before judgment)
4.4 Service charge
To pay to the Landlord the Service Charge in accordance with
Schedule 2;
4.5 Repairs
4.5.1 At all times during the Term to keep and maintain
the Premises in good and substantial repair and
condition (damage by the Insured Risks excepted
save to the extent that payment of any insurance
monies be withheld by reason of or arising out of
any act omission neglect or default of the Tenant
or any sub-tenant or their respective servants
agents licensees or invitees)
4.5.2 To keep in good and safe repair all Conduits
exclusively serving the Premises and to indemnify
the Landlord against all liability howsoever
arising from any failure to repair or the misuse
or overloading of any Conduits serving the
Premises
4.5.3 To maintain in good and serviceable repair and
condition the Landlord's fixtures and fittings and
all plant machinery and equipment in or upon and
exclusively serving the Premises and to replace
such of them as may become worn out lost unfit for
use or destroyed by substituting others of a like
or more modern nature and of good quality and if
the Landlord shall at any time so require to enter
into agreements upon terms first approved in
writing by the Landlord with the manufacturers
thereof or with approved maintenance contractors
for the regular inspection and servicing of the
same
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4.5.4 To remedy any breach of covenant and to repair and
make good all defects decays and wants of repair
in respect of the Premises of which notice in
writing shall be given by the Landlord to the
Tenant and for which the Tenant may be liable
hereunder within one calendar month after the
giving of such notice provided that in the case of
default by the Tenant it shall be lawful for (but
not obligatory upon) the Landlord (but without
prejudice to the right of re-entry hereinafter
contained or other rights of the Landlord with
regard thereto) to enter upon the Premises and
remedy the breach and/or make good such defects
decays and wants of repair and the cost thereof
and all expenses (including Surveyors' and other
professional fees) together with interest thereon
at the Stipulated Rate from the date of
expenditure by the Landlord until payment by the
Tenant as well after as before judgment shall at
the option of the Landlord be a debt due from the
Tenant to the Landlord and be forthwith
recoverable by action
4.5.5 To keep the Premises clean and in a neat and tidy
condition and keep all rubbish and waste in
enclosed receptacles on the Premises or where the
Landlord directs and to empty the same at least
once a week
4.5.6 To clean as often as may be requisite the inside
of the window panes and frames of the Premises
4.6 Decoration
In the last three months of the Term howsoever determined in
a tint or colour to be approved by the Landlord's Surveyor
to Decorate the inside of the Premises
4.7 Alterations
4.7.1 Not to cut injure maim remove or alter the
Structure or any part thereof nor to merge the
Premises with any adjoining premises
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4.7.2 Not to make any alteration or addition (whether
structural or non-structural) to the exterior of
the Premises or to the external appearance of the
Premises
4.7.3 Not to make or carry out any internal
non-structural alteration or addition whatsoever
of in or to the Premises except
4.7.3.1 with the prior written consent of the
Landlord (which shall not be
unreasonably withheld or delayed)
4.7.3.2 subject to such terms and conditions
(including provision for reinstatement
at the Tenant's cost on the expiration
or sooner determination of the Term) as
the Landlord may require
4.7.3.3 in accordance with drawings and
specifications previously submitted in
triplicate to and approved in writing by
or on behalf of the Landlord (such
approval not to be unreasonably withheld
or delayed) and
4.7.3.4 after having obtained and supplied to
the Landlord copies of all requisite
consents licences and permissions for
the carrying out of such works from any
local public or other authority or body
and after the Landlord shall have
notified the Tenant in writing that the
same are satisfactory to it (such
notification not to be unreasonably
withheld or delayed)
4.7.4 Notwithstanding the provisions of sub-clause 4.7.3
the Tenant shall be entitled to erect and
dismantle internal demountable partitioning
without obtaining the consent of the Landlord
subject to giving notice of any partitioning
erected or dismantled within 10 working days and
subject to reinstating the Premises at the cost
of the Tenant if
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required by the Landlord at the expiration or
sooner determination of the Term
4.7.5 Subject as aforesaid not to make or carry out any
alteration addition or extension to any of the
Conduits within and exclusively serving the
Premises except with the prior written consent of
the Landlord (which shall not be unreasonably
withheld or delayed) and in accordance with the
relevant codes of practice of the statutory
undertaker concerned and to supply to the Landlord
upon request an adequate drawing or drawings
showing the actual position of all Conduits within
the Premises installed amended or extended by the
Tenant
4.7.6 In the event of the Tenant failing to observe this
covenant it shall be lawful for the Landlord and
its agents or surveyors with or without workmen
and others and all persons authorised by the
Landlord with any necessary materials and
appliances to enter upon the Premises and remove
any alterations or additions and execute such
works as may be necessary to restore the Premises
to their former state and the cost thereof and all
expenses (including surveyors' and other
professional fees) together with interest thereon
at the Stipulated Rate from the date of
expenditure by the Landlord until payment by the
Tenant as well after as before judgment shall be a
debt due from the Tenant to the Landlord and be
forthwith recoverable by action
4.8 Entry
To permit the Landlord and its agents and all persons
authorised by them with or without workmen and appliances at
all reasonable times upon giving at least twenty four hours
notice (except in the case of emergency) to enter the
Premises
4.8.1 to examine the state of repair and condition
thereof
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4.8.2 to check and take inventories of the Landlord's
fixtures and fittings and the plant machinery and
equipment therein
4.8.3 to repair and maintain the Premises
4.8.4 to repair and maintain or execute any work upon
the Building or any part thereof or any Landlord's
fixtures and fittings or the Apparatus therein
(including the installation of additional or the
extension of existing plant machinery equipment
services utilities and systems) or to cleanse
empty repair or renew any Conduits or for the
provision of any of the Services referred to in
Schedule 2 all physical damage occasioned thereby
to the Premises being made good as soon as
reasonably possible and causing as little
disturbance as reasonably possible
4.8.5 to gain access to the Retained Parts or the
Apparatus where access cannot reasonably be
obtained by an alternative route
4.8.6 for any other purpose (including measurement and
inspection in relation to any renewal of this
Lease) connected with the interest of the Landlord
in the Building or any dealing therewith or
4.8.7 to exercise the rights herein excepted and
reserved
4.9 Use
4.9.1 Subject always to the following provisions of this
Clause 4.9 and Clause 4.13 not to use the Premises
otherwise than for the Permitted Use or for such
other use to which the Landlord shall give its
consent in writing such consent not to be
unreasonably withheld or delayed and in accordance
with the requirements and conditions of any
planning permission authorising such use from time
to time
4.9.2 Not to do on the Premises anything which may be
illegal or immoral or a nuisance or annoyance or
cause danger or
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injury or damage to the Landlord or any tenant or
any neighbouring owner or occupier and to pay all
costs charges and expenses incurred by the
Landlord in abating a nuisance and in executing
such works as may be required to abate a nuisance
in obedience to any notice served upon the
Landlord in respect of or incidental to the
Premises or the use thereof
4.9.3 Not to use the Premises for any noxious noisy or
offensive trade or business and not to hold any
sale by auction or public show nor keep any live
animals or birds on the Premises and not to allow
on the Premises anything which is or may become
dangerous offensive combustible inflammable
radioactive or explosive
4.9.4 Not to trade or display goods outside the Premises
nor to cause any obstruction outside the Premises
4.9.5 Not to use on the Premises any machine (other than
machinery normally associated with the Permitted
Use and which where appropriate shall be mounted
so as to minimise noise and vibration) without the
written consent of the Landlord and not to use on
the Premises any machinery or sound reproduction
or amplifying equipment which shall be noisy or
cause vibration or be a nuisance disturbance or
annoyance to the Landlord or the owners and/or
occupiers of any adjoining or neighbouring
premises
4.9.6 Not to do anything which imposes any excessive
load or strain on the Structure or the Apparatus
or the workings thereof
4.9.7 Not to suffer or permit any person- to reside or
sleep on the Premises
4.9.8 Not to discharge anything into the Conduits
serving the Premises which will be corrosive or
harmful or which may cause any obstruction or
deposit therein
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4.9.9 Not to commit any waste upon or to the Premises
4.9.10 Not to use the Premises as an office for a
government agency or other public authority which
would involve the attendance thereat of members of
the public for the purpose of seeking employment
or enroling for or collecting any statutory social
security health insurance or other benefit payment
or applying for or collecting any licence passport
certificate or similar document or paying thereat
any imposition or financial liability
4.9.11 If the Premises are continually unoccupied for
more than one month to provide security and
caretaking arrangements to afford the Premises
reasonable protection against vandalism theft or
unlawful occupation
4.9.12 Not to use the passenger lifts in the Building for
the movement of materials or goods
4.9.13 Not to park vehicles in the service areas of the
Building except whilst loading or unloading goods
to or from the Premises and in accordance with the
directions of the Landlord
4.9.14 Not to obstruct others lawfully using the Common
Parts and to use the same in a reasonable manner
and in accordance with any reasonable regulations
made by the Landlord from time to time in regard
thereto
4.10 Alienation
4.10.1 Not to assign or charge part only of the Premises
4.10.2 Save for an underletting in accordance with the
succeeding provisions of this Clause not to
underlet the whole or any part of the Premises or
to part with possession of or share occupation of
the whole or any part of the Premises and not to
permit any person deriving title under the Tenant
by way of permitted underlease so to do in respect
of the Premises
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which shall satisfy the requirements set
out in Schedule 4
4.10.4.3 there are not outstanding at the
Approval Date are arrears of rent or
other monies due to the Landlord under
this Lease
4.10.4.4 the assignee is not a person who in the
reasonable opinion of the Landlord will
use the Premises for an ineligible use
for VAT purpose
4.10.5 Subject as aforesaid not to underlet the whole of
the Premises or any part thereof (being a part
which comprises only a Letting Unit or Letting
Units) without the prior written consent of the
Landlord (which shall not be unreasonably withheld
or delayed)
4.10.6 To procure in the case of any permitted
underletting of the Premises (whether mediate or
immediate) that on or before the grant of the
relevant underlease:
4.10.6.1 the underlessee shall covenant with the
Landlord by deed to observe and perform
the Tenant's covenants and conditions in
this Lease (except the covenant to pay
rent) (so far as the same relate to the
part of the Premises comprised in the
underlease) and those of the underlessee
in the relevant underlease
4.10.6.2 if the Landlord shall so require a
guarantor or guarantors acceptable to
the Landlord shall covenant (if more
than one jointly and severally) with the
Landlord to guarantee the observance and
performance by the underlessee of its
covenants to be contained in such
underlease such guarantee to be given
(mutatis mutandis) in the form of the
provisions contained in Schedule 3
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4.10.7 To procure that any permitted underlease immediate
or mediate contains:
4.10.7.1 covenants by the underlessee with the
underlessor prohibiting the underlessee
from doing or allowing any act or thing
on or in relation to the premises
demised by such underlease inconsistent
with or in breach of the Tenants
obligations in this Lease
4.10.7.2 a condition for re-entry by the
underlessor on breach of any covenant by
the underlessee
4.10.7.3 an absolute prohibition on any further
undersetting or parting with possession
or sharing of occupation of the premises
demised by the underlease (save by way
of assignment of the whole thereof)
4.10.7.4 a prohibition on any assignment of the
whole of the premises demised by the
underlease without the consent of the
Landlord and a right for the Landlord to
require a guarantor or guarantors (as
aforesaid) in respect of any assignee of
an underlessee
4.10.7.5 in the case of an underlease of part
only of the Premises an agreement duly
authorised by an Order of a Court of
competent jurisdiction excluding in
relation to that underlease the
provisions of sections 24 to 28 of the
Landlord and Tenant Act 1954 (as
amended) or any modification or
re-enactment thereof
4.10.8 To enforce performance by every such underlessee
of the covenants and conditions in his underlease
and not to release or waive any such covenants or
conditions
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4.10.9 Upon every application for consent required by
this clause to disclose to the Landlord such
information as to the terms proposed as the
Landlord may require
4.10.10 Not to enter into any variation of the terms of
any underlease nor to accept a surrender of the
same in respect of part only (as opposed to the
whole) of the premises underlet
4.11 Reqistration of documents
4.11.1 Within one month after any assignment or any
transmission or other Revolution relating to the
Premises or any part thereof to give notice
thereof to the Landlord's solicitor and to furnish
him with a certified copy of any document relating
thereto and to pay to the Landlord's solicitor a
reasonable fee (not being less than (pound)30)
plus VAT thereon
4.11.2 To supply to the Landlord on request the names and
addresses of any tenant deriving title from the
Tenant (whether mediately or immediately) together
with details of the rent payable by any such
tenant and the other terms of such tenancy
4.11.3 To supply to the Landlord any details required by
the Landlord pursuant to Section 40 of the
Landlord and Tenant Act 1954 and to supply the
Landlord with full details of any notices given
pursuant to Section 25 of the Landlord and Tenant
Act 1954 by the Tenant to any sub-tenant and full
details of any notices received by the Tenant from
any sub-tenant pursuant to Section 26 of the
Landlord and Tenant Act 1954
4.12 Ineligible use for VAT purposes
4.12.1 To notify the Landlord in writing within thirty
days of ceasing to use the Premises for an
ineligible use for VAT purposes if the Premises
were at the most recent time of supply so used or
of starting to use the Premises for an
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ineligible use for VAT purposes if the Premises
were at the most recent time of supply not so used
4.12.2 Within thirty days of receiving a request in
writing from the Landlord to provide the Landlord
with evidence that HM Customs and Excise has
agreed that the Tenant, is has been or will be
using the Premises for an ineligible use for VAT
purposes or such other information as the Landlord
may reasonably require to enable the Landlord to
assess whether the Tenant is, has been or will be
using the Premises for an ineligible use for VAT
purposes
4.12.3 Within seven days of receiving any notice in
writing from the Landlord which contains a
statement of the Landlord's understanding as to
whether or not the Tenant will on the date stated
in the notice be using the Premises for an
ineligible use for VAT purposes to notify the
Landlord whether or not that understanding is
correct
4.12.4 To maintain suitable records to ensure that the
Tenant is able to comply with its obligations in
this Clause 4.12
4.12.5 Notwithstanding the provisions of Clause 4.9 and
Clause 4.11 not to use the Premises for an
ineligible use for VAT purposes
4.12.6 To indemnify and keep the Landlord indemnified on
an after-tax basis from and against all actions,
claims, costs, demands, expenses, VAT liabilities,
other liabilities and losses arising from any
breach of the covenants on the Tenant's part
contained in this Clause 4.12 and for this purpose
the Landlord's losses shall be deemed to include
any Value Added Tax on supplies made to the
Landlord which the Landlord would be unable to
recover (by way of credit or repayment) or which
has been recovered but which the Landlord is
liable to repay
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4.13 Compliance with statutes
To comply in all respects with and in a proper and
workmanlike manner to execute all works required under the
provisions of all statutes for the time being in force and
the directions of any competent authority relating to the
Premises or any part thereof or the use thereof or anything
contained therein or the employment therein of any person or
persons and not to do or omit or suffer to be done or
omitted on or about the Premises any act or thing by reason
of which the Landlord may under any enactment incur or have
imposed upon it or become liable to pay any levy penalty
damages compensation costs charges or expenses and to
indemnify and keep indemnified the Landlord against all
claims demands costs expenses and liability in respect of
the foregoing
4.14 Planning/environmental matters
4.14.1 Not to apply for planning permission in respect of
the Premises without the Landlord's prior written
consent (which shall not be unreasonably withheld
in respect of any addition or alteration in
respect of which the Landlord's consent is not to
be unreasonably withheld under the terms of this
Lease) and if the Landlord attaches conditions to
any such consent not to apply for any planning
permission except in accordance with those
conditions
4.14.2 At all times during the Term to comply with the
provisions and requirements of the Planning Acts
and of any planning permissions (and the
conditions thereof) relating to or affecting the
Premises or the use thereof or any operations
works acts or things carried out executed done or
omitted thereon and to keep the Landlord
indemnified in respect thereof
4.14.3 Subject to Clause 4.14.1 as often as occasion
requires during the Term at the Tenant's expense
to obtain and if appropriate renew all planning
permissions and serve all notices required under
the Planning Acts for the carrying out by the
Tenant of any operations or the institution or
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continuance by the Tenant of any use of the
Premises or any part thereof
4.14.4 To pay and satisfy any charge imposed under the
Planning Acts in respect of the carrying out or
maintenance by the Tenant of any such operation or
the institution or continuance by the Tenant of
any such use as aforesaid
4.14.5 Notwithstanding any consent which may be granted
by the Landlord under this Lease not to carry out
or make any alteration or addition to the Premises
or any change of use of the Premises (being an
alteration or addition or change of use prohibited
by or for which the Landlord's consent is required
under this Lease and for which a planning
permission is needed) before a planning permission
for such alteration addition or change of use has
been produced to and acknowledged by the Landlord
as satisfactory provided that the Landlord may
refuse to express such satisfaction if the period
of such permission or anything contained in or
omitted from it will in the opinion of the
Landlord's Surveyor be likely to prejudice the
Landlord's interest in the Premises either during
the Term or on or after the expiration or earlier
determination of the Term
4.14.6 Unless the Landlord otherwise directs in writing
to carry out and complete before the expiration or
earlier determination of the Term any work
required to be carried out to the Premises as a
condition of any planning permission granted
during the Term whether or not the date by which
the planning permission requires such works to be
carried out is during the Term and any development
begun on the Premises in respect of which the
Landlord shall or may be or become liable for any
charge or levy under the Planning Acts
4.14.7 When called upon so to do to produce to the
Landlord and the Landlord's Surveyor all plans
documents and other evidence reasonably required
by the Landlord to satisfy
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itself that the Tenant's obligations in this
Clause have been complied with
4.14.8 Not without the prior written consent of the
Landlord to enter into a planning obligation for
the purposes of Section 106 of the Town and
Country Planning Act 1990
4.14.9 Where any planning permission is granted subject
to conditions involving the carrying out of works
upon or change of use of the Premises the
Landlord may as a condition of its consent to the
carrying out of such works or change of use
require the Tenant to provide security for the due
compliance with those conditions and no works
shall be commenced and no change of use shall be
implemented until such security has been provided
to the Landlord's satisfaction
4.14.10 As soon as practicable to notify the Landlord of
any order direction proposal or notice under the
Planning Acts served on or received by the Tenant
or coming to the Tenant's notice which relates to
or affects the Premises and to produce to the
Landlord if required any such order direction
proposal or notice in the Tenant's possession and
not to take any action in respect of such order
direction proposal or notice without the
Landlord's approval
4.14.11 In relation to any act the commission or omission
of which requires any consent licence or other
authority under the Environmental Protection Act
not to do or omit to do (as the case may be) such
act without obtaining such authority and not to
apply for such authority without the Landlord's
prior written consent
4.15 Easements
Not to obstruct any window light or way belonging to the
Premises or to any adjoining or neighbouring premises nor
acknowledge that any easement or other right for the benefit
of the Premises is enjoyed by consent of any other person
nor permit any new easement
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right or encroachment to be made into against or on the
Premises and to give immediate notice to the Landlord if any
easement right or encroachment against or affecting the
Premises shall be made or attempted and at the Landlord's
request and the Tenant's cost to adopt such means as may be
reasonably required to prevent the same
4.16 Notifications
Forthwith on receipt of any permission notice order or
proposal relating to the Premises or the use or condition
thereof given or issued by any governmental local or other
public or competent authority to give full particulars
thereof to the Landlord and if so required by the Landlord
to produce the same to the Landlord and to take all
necessary steps to comply therewith and also when requested
by the Landlord to make or join with the Landlord at the
Landlord's cost in making such objections and
representations against or in respect of the same as the
Landlord shall deem expedient
4.17 Defects
Forthwith upon becoming aware of the same to give notice in
writing to the Landlord of any defect in the state or
condition of the Premises which would or might give rise to
an obligation upon the Landlord to do or refrain from doing
any act or thing in order to comply with any duty of care
imposed upon the Landlord and to indemnify the Landlord
against or in respect of any losses claims actions costs
demands or liability arising out of any failure of the
Tenant to comply with its obligations under this Lease and
at all times to give such notice and display such signs as
the Landlord having regard to such duty of care requires to
have displayed at the Premises
4.18 Fire fighting
To keep the Premises supplied and equipped with all fire
fighting and extinguishing appliances from time to time
required by law or required by the insurers of the Premises
or reasonably required by the Landlord such appliances being
kept open to inspection and
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properly maintained and not to obstruct or permit or suffer
to be obstructed the access to or means of working such
appliances or the means of escape from the Premises in case
of fire
4.19 Advertisements/aerials
Not without the prior written consent of the Landlord to
affix or exhibit any advertisement placard notice or sign
either outside the Premises or inside the Premises so as to
be seen from the outside and if the Landlord so requires to
remove at the end or earlier determination of the Term any
item so exhibited or installed making good all damage caused
thereby
4.20 Notice boards
To permit the Landlord or its agents to affix upon any
suitable part of the Premises a notice board or bill
relating to any letting or reletting of the Building or any
part thereof or to any sale or other dealing with any
interest in reversion to this Lease and the Tenant will not
remove or obscure the same and will at all reasonable times
and on reasonable prior notice permit those authorised by
the Landlord in connection with any such reletting sale or
other dealing to enter and view the Premises without
interruption
4.21 Expenses
To pay to the Landlord on demand and on an indemnity basis
all proper costs charges expenses damages and losses
(including but without prejudice to the generality of the
foregoing legal costs bailiff's fees and surveyor's fees)
incurred by the Landlord in relation to or incidental to or
in contemplation of:
4.21.1 the preparation and service of a notice under
Section 146 of the Law of Property Act 1925 and/or
any proceedings relating to the Premises whether
under Sections 146 and/or 147 of the Law of
Property Act 1925 or otherwise (whether or not any
right of re-entry or forfeiture has been waived by
the Landlord or a notice served under the said
Section
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146 is complied with by the Tenant or the Tenant
has been relieved under the provisions of the said
Law of Property Act 1925 and notwithstanding
forfeiture is avoided otherwise than by relief
granted by the Court) and to keep the Landlord
fully indemnified against all costs charges
expenses claims and demands whatsoever in respect
of the said proceedings and the preparation and
service of the said notices
4.21.2 (without prejudice to the generality of the
foregoing) the preparation and service of any
notice or schedule relating to the repair of the
Premises whether served on the Tenant during or
after the expiration or earlier determination of
the Term
4.21.3 procuring the remedying of any breach of covenant
on the part of the Tenant or any sub-tenant or
their respective predecessors in title contained
in this Lease and
4.21.4 every application made by the Tenant for a consent
or licence required by the provisions of this
Lease whether such consent or licence is granted
or refused or proffered subject to any
qualification or condition or whether the
application is withdrawn
4.22 New guarantor
To notify the Landlord within twenty eight days of any of
the following events:
4.22.1 If any Guarantor being an individual (or if
individuals any one of them) shall become bankrupt
or shall make any assignment for the benefit of or
enter into any arrangement with his creditors
either by composition or otherwise or have any
distress or other execution levied on his goods or
have a receiver appointed under the Mental Health
Act 1983
4.22.2 If any Guarantor being an individual (or if
individuals any one of them) shall die
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4.22.3 If any Guarantor being a body corporate (or if
bodies corporate any one of them) has a winding up
order made in respect of it other than a members'
voluntary winding up of a solvent company for the
purposes of amalgamation or reconstruction or has
a receiver administrator or an administrative
receiver appointed of it or any of its assets or
has any distress or other execution levied on its
goods or is dissolved or struck off the Register
of Companies or (being a body corporate
incorporated outside the United Kingdom) is
dissolved or ceases to exist under the laws of its
country or state of incorporation
and if the Landlord so requires then at the Tenant's expense
within twenty eight days of such requirement to procure that
some other person or persons or body or bodies corporate
reasonably acceptable to the Landlord shall execute a
guarantee in the terms of Schedule 3 with such amendments as
the Landlord shall reasonably require in the circumstances
4.23 Indemnity
To keep the Landlord indemnified from and against all loss
damage actions proceedings claims demands costs and expenses
of whatsoever nature and whether in respect of any injury to
or the death of any person or damage to any property movable
or immovable or otherwise howsoever arising directly or
indirectly from the repair or the state of repair or
condition of the Premises or from any breach of covenant on
the part of the Tenant herein contained or from the use of
the Premises or out of any works carried out at any time
during the Term to the Premises or out of anything now or
during the Term attached to or projecting from the Premises
or as a result of any act neglect or default by the Tenant
or by any sub-tenant or by their respective servants agents
licensees or invitees
4.24 Yield up
At the expiration or sooner determination of the Term
quietly to yield up the Premises to the Landlord with vacant
possession in such state and condition as shall in all
respects be consistent
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with a full and due performance by the Tenant of the
covenants on its part herein contained (trade or tenant's
fixtures and fittings only excepted subject to the Tenant
making good all damage to the Premises occasioned by their
removal) and upon such yielding up the Tenant shall remove
all signs and nameplates indicating the connection or former
connection of the Tenant with the Premises and shall replace
all carpeting on the first floor of the Premises with new
carpets of a quality design and colour similar to the
quality design and colour of the carpeting supplied by the
Landlord at the commencement of the Term and first approved
in writing by the Landlord
4.25 VAT
4.25.1 To pay to the Landlord by way of additional rent
such VAT as may be or become payable in respect of
the rents reserved by and other monies payable
under and the consideration for all taxable
supplies received or deemed to be received by the
Tenant under or in connection with this Lease
4.25.2 In every case where the Tenant has agreed to
reimburse or indemnify the Landlord in respect of
any payment made by the Landlord under the terms
of or in connection with this Lease to reimburse
in addition any VAT paid by the Landlord on such
payment where the Landlord is not entitled to a
credit allowance
4.26 Regulations
To comply with all reasonable regulations and directions as
the Landlord may from time to time make or give for the
orderly convenient and proper management of the Building or
any part or parts thereof
4.27 Observe covenants
To observe and perform the covenants on the part of the
lessee thereunder contained in the Superior Lease
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5 LANDLORD'S COVENANTS
The Landlord HEREBY COVENANTS with the Tenant as follows:
5.1 Quiet enjoyment
The Tenant paying the rents and other monies hereby reserved
and performing and observing the covenants conditions and
agreements on the part of the Tenant hereinbefore contained
the Tenant may peaceably hold and enjoy the Premises during
the Term without any interruption by the Landlord or any
person lawfully claiming through under or in trust for the
Landlord
5.2 Services
Subject to the payment by the Tenant of the Service Charge
and provided that the Landlord is not prevented by any
Insured Risk accident strike combination or lockout of
workmen or any other cause beyond its control the Landlord
will use its reasonable endeavours to provide or secure the
provision of the Services referred to in Schedule 2 in an
efficient manner and in accordance with the principles of
good estate management provided that the Landlord shall not
be responsible for any temporary delay stoppage or omission
in connection therewith due to any cause or circumstances
beyond the Landlord's control
5.3 Superior Lease
5.3.1 To pay the rents reserved by the Superior Lease
and to perform so far as the Tenant is not liable
for such performance under the terms of this Lease
the covenants and conditions on the part of the
lessee contained in the Superior Lease
5.3.2 At the expense and on the request of the Tenant to
take all reasonable steps to enforce the covenants
on the part of the Superior Landlord in the
Superior Lease
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6 INSURANCE
6.1 Tenant's obligations
The Tenant for itself and (subject to the provisions of the
1995 Act) its successors in title and assigns HEREBY
COVENANTS with the Landlord as follows:
To pay to the Landlord on demand:
6.1.1 36.4% of all premiums from time to time paid by
the Landlord to the Superior Landlord for insuring
the Building (including the Premises) under the
terms of the Superior Lease
6.1.2 all premiums from time to time paid by the
Landlord for insuring Loss of Rent and
6.1.3 Not to carry on upon the Premises any trade
business or occupation in any manner or do any
other thing which in the reasonable opinion of the
Landlord may make void or voidable any policy for
the insurance of the Premises or any adjoining or
neighbouring property against any risk for the
time being required by the Landlord to be covered
or render any increased or extra premium payable
for such insurance (without in the latter event
first having paid every such increased or extra
premium) and to pay to the Landlord on demand any
increased premiums payable in respect of the
Premises or any adjoining or neighbouring premises
arising by reason of the Premises being unoccupied
6.1.4 To carry out in accordance with the directions of
the Landlord all such works as may be required by
it for the better protection of the Premises and
to comply with the requirements of the Superior
Landlord's insurers in respect of the Premises
6.1.5 In the event of the Premises or any part thereof
being destroyed or damaged by any peril whatsoever
to give notice
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thereof to the Landlord as soon as such
destruction or damage shall come to the notice of
the Tenant stating whether and to what extent such
destruction or damage was brought about directly
or indirectly by any of the Insured Risks
6.1.6 In the event of the Building or any part thereof
or any adjoining or neighbouring premises of the
Landlord or any part thereof being destroyed or
damaged by any of the Insured Risks and the
insurance money under any insurance against the
same effected thereon by the Superior Landlord
being wholly or partly irrecoverable by reason
solely or in part of any act or default of the
Tenant or any sub-tenant or their respective
servants agents licensees or invitees then and in
every such case the Tenant will forthwith pay to
the Landlord the whole or (as the case may be) the
irrecoverable portion of the cost (including
professional and other fees and VAT) of completely
rebuilding and reinstating the same
6.1.7 To make up out of its own money any deduction in
any insurance monies paid by the Superior
Landlord's insurers made as a result of the faulty
repair or maintenance of the Premises
6.2 Abatement of rent
If the Premises or any part thereof or the access thereto
shall be destroyed or damaged by any Insured Risk so as to
render the Premises unfit for occupation or use then save to
the extent that the insurance of the Building shall have
been vitiated by any act neglect default or omission of the
Tenant or any sub-tenant or their respective servants agents
licensees or invitees the rent first hereinbefore reserved
or a fair and just proportion thereof according to the
nature and extent of the damage sustained (the amount of
such proportion if it cannot be agreed to be determined by a
single arbitrator to be appointed on the application of
either party by the President for the time being (or other
next senior officer available) of the Royal Institution of
Chartered Surveyors
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whose decision shall be final and binding) shall be
suspended until the Premises shall have been made fit for
occupation and use or (if earlier) until the insurance
effected or caused to be effected by the Superior Landlord
in respect of the loss of rent shall be exhausted
7 PROVISOS
Provided always and it is hereby agreed and declared as follows:
7.1 Forfeiture
If and whenever:
7.1.1 the rents hereby reserved or any part thereof
shall be in arrear or unpaid for the space of
fourteen days after the same shall have become due
(whether formally demanded or not); or
7.1.2 there shall be any other breach non-performance or
non-observance of any of the covenants and
conditions herein contained and on the part of the
Tenant or the Guarantor to be observed or
performed; or
7.1.3 the Tenant or the Guarantor enters into an
arrangement or composition for the benefit of its
creditors; or
7.1.4 the Tenant or the Guarantor has any distress or
other execution levied on its goods; or
7.1.5 the Tenant or the Guarantor (being in either case
an individual) commits an act of bankruptcy or has
an administration order made in respect of it or
appears unable to pay its debts within the meaning
of Section 268 of the Insolvency Act 1986; or
7.1.6 the Tenant or the Guarantor (being in either case
a body corporate) has a winding up order made in
respect of it other than a members voluntary
winding up of a solvent
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company for the purposes of amalgamation or
reconstruction or has a receiver administrator or
an administrative receiver appointed of it or any
of its assets or is dissolved or struck off the
Register of Companies or (being a body corporate
incorporated outside the United Kingdom) is
dissolved or ceases to exist under the laws of its
country or state of incorporation or appears
unable to pay its debts within the meaning of
Section 123 of the Insolvency Act 1986
then and in any such case it shall be lawful for the
Landlord or any person authorised by the Landlord at any
time thereafter to re-enter upon the Premises or any part
thereof in the name of the whole and thereupon the Term
shall absolutely determine without prejudice to any right of
action of the Landlord in respect of any breach of the
Tenant's or the Guarantor's covenants contained in this
Lease
7.2 Exclusion of use warranty
Nothing in this Lease or in any consent granted by the
Landlord under this Lease shall imply or warrant that the
Premises may be used for any purpose whatsoever under the
Planning Acts now or from time to time in force (including
the Permitted Use) or that the Premises are or will remain
otherwise fit for any such use
7.3 VAT
Except where otherwise expressly stated in this Lease all
rent money or other consideration in respect of supplies for
VAT purposes received or deemed to be received by the Tenant
under or in connection with this Lease is exclusive of VAT
7.4 Service of notices
Any notice required to be served under this Lease shall be
in writing and shall be properly served if it complies with
the provisions of Section 196 of the Law of Property Act
1925 as amended by the Recorded Delivery Service Act 1962 or
Section 23 of
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the Landlord and Tenant Act 1927 and in addition any notice
shall be sufficiently served if sent by facsimile
transmission to the party to be served and service shall be
deemed to be made on the date of transmission if transmitted
before 4.00 p.m. on the date of transmission but otherwise
on the next day
7.5 Development of neighbouring premises
The Landlord shall be entitled to carry out or permit the
development of any adjoining or neighbouring premises
(whether included in the Building or not) and to build on or
into any boundary wall of the Premises or to re-route any
services in the Premises without payment of compensation to
the Tenant for any damage or otherwise
7.6 Compensation
Any statutory right of the Tenant or any sub-tenant to claim
compensation from the Landlord on vacating the Premises
shall be excluded as far as the law allows
7.7 Section 62 LPA
The operation of Section 62 of the Law of Property Act 1925
shall be excluded from this Lease and the only rights
granted to the Tenant are those expressly set out in this
Lease and the Tenant shall not by virtue of this Lease be
deemed to have acquired or be entitled to and the Tenant
shall not during the Term acquire or become entitled by any
means whatsoever to any easement from or over or affecting
any other land or premises now or at any time hereafter
belonging to the Landlord and not comprised in this Lease
7.8 Disputes with adjoining occupiers
Any dispute arising as between the Tenant and the lessees
tenants or occupiers of adjoining or neighbouring premises
belonging to the Landlord relating to any easement right or
privilege in connection with the Premises or relating to the
party or other walls of the Premises or as to the amount of
any contribution towards the
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expenses of works to services or matters used in common
shall be referred to the Landlord whose decision shall be
binding upon all parties to the dispute
7.9 Tenant's effects
The Tenant hereby irrevocably appoints the Landlord to be
its agent to store or dispose of any effects left by the
Tenant on the Premises for more than seven days after the
termination of this Lease (whether by effluxion of time or
otherwise) on any terms that the Landlord thinks fit and
without the Landlord being liable to the Tenant save to
account for the net proceeds of sale less the cost of
storage (if any) and any other expenses reasonably incurred
by the Landlord and hereby agrees to indemnify the Landlord
against any liability incurred by the Landlord to any third
party whose property shall have been sold by the Landlord in
the mistaken belief held in good faith (which shall be
presumed unless the contrary be proved) that such property
belonged to the Tenant
7.10 Landlord's liability
In any case where the facts are or should reasonably be
known to the Tenant the Landlord shall not be liable to the
Tenant in respect of any failure of the Landlord to perform
any of the Landlord's obligations to the Tenant under this
Lease whether express or implied unless and until the Tenant
has notified the Landlord of the facts giving rise to the
failure and the Landlord has failed within a reasonable time
to remedy the same
7.11 No waiver
No demand for or receipt or acceptance of any part of the
rents hereby reserved or any payment on account thereof
shall operate as a waiver by the Landlord of any right which
the Landlord may have to forfeit this Lease by reason of any
breach of covenant by the Tenant and the Tenant shall not in
any proceedings for forfeiture be entitled to rely on any
such demand receipt or acceptance as aforesaid as a defence
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7.12 Damage from services
7.12.1 The Landlord shall not be liable to the Tenant or
any other person claiming through the Tenant for
any accident loss or damage which may be caused by
reason of any breakdown stoppage leakage or defect
of or in any Apparatus or any of the Conduits
7.12.2 Any services rendered to or for the Tenant on the
Tenant's request by any servant or agent of the
Landlord shall be deemed to have been rendered by
that person as servant of the Tenant
7.13 Party walls
Save as otherwise directed in writing by the Landlord the
non-structural walls separating the Premises from any
adjoining premises within the Building shall be party walls
and structures and maintainable accordingly
7.14 Status of lease
For the purposes of the 1995 Act this Lease is a new tenancy
SCHEDULE 1
Part 1
(Premises)
ALL THOSE premises shortly described in the Particulars which are for the
purpose of identification shown edged red on the Floor Plans and which include
for the purpose of obligation as well as of grant:
1 the plaster or other rendering and decorative covering of the walls
thereof and (in the case of non structural walls only) the inner half
thereof severed medially
2 the floor screed (but not the slab beneath the same)
3 the ceiling thereof (but not the beams above the same)
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4 the internal surfaces of the external window frames and the glass in
the external windows
5 all doors fitted in the walls bounding such offices and their
respective frames and fixings and all the glass (if any) fitted in
such doors
6 all light fittings and electrical circuits sockets and switches within
and exclusively serving the Premises
7 all carpets and floor coverings within and all other Landlord's
fixtures and fittings in on or forming part of such offices and
exclusively serving the same
8 all plant and machinery which are laid in the Premises and which
exclusively serve the Premises including the goods lift and the goods
lift shaft and the motor serving the goods lift
but there are excluded the Structure and all tenant's fixtures and fittings
Part 2
(Easements and rights granted)
The following rights are granted to the Tenant in connection with the use of the
Premises in accordance with and subject to the provisions of this Lease such
rights being exercisable in common with the Landlord and those authorised by the
Landlord including other tenants of the Building
1 the use of the Common Parts for all proper purposes
2 the free passage of water soil gas electricity telephone and other
services for the Premises through the Conduits which are in other
parts of the Building and which serve the Premises
3 support shelter and protection from other parts of the Building
4 the right to enter the second and third floors of the Building for
purposes of repairing the goods lift and to gain access to motor room
serving the goods lift situated on the third floor of the Building
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5 the right to enter the meter area situated on the basement floor of
the Building for the purposes of reading the meter
Part 3
(Exceptions and reservations)
EXCEPTING AND RESERVING in favour of the Landlord and its tenants agents and
licensees and those authorised by the Landlord and all other persons who now
have or may hereafter be granted similar rights:
1 the full free and uninterrupted passage and running of water soil gas
telephone electricity telecommunication and all other services and
supplies of whatsoever nature from and to any other parts of the
Building through such of the Conduits which are now or may hereafter
during the Perpetuity Period be in on under or over the Premises and
the right of entry onto the Premises for the purpose of inspecting
repairing renewing relaying cleansing maintaining and connecting up to
any such existing or future Conduits
2 the right to erect or to consent hereafter to any person erecting a
new building or to alter any building for the time being on the
adjoining or neighbouring property of the Landlord in such manner as
the Landlord or the person or persons exercising such right may think
fit and notwithstanding that such alteration or erection may diminish
the access of light and air enjoyed by the Premises and the right to
deal with the Building and any other adjoining or neighbouring
property of the Landlord as it may think fit provided in the exercise
of such right the person or persons shall cause as little disturbance
as possible and make good any damage to the Premises as soon as
reasonably practicable
3 the right to erect scaffolding for the purpose of repairing cleaning
rebuilding renewing or altering the Building or any part thereof
notwithstanding that such scaffolding may restrict the access to or
enjoyment and use of the Premises
4 the right for the Landlord and those authorised by the Landlord to
enter the Premises for the purposes and in the manner mentioned in
this Lease
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5 all rights of light air support shelter and protection for the parts
of the Building not included in the Premises and all such rights (if
any) as shall now or hereafter belong to and be enjoyed by any land or
premises adjacent to the Building
Part 4
(Matters to which the Premises are subject)
The Superior-Lease
SCHEDULE 2
Part 1
("Service Charge")
1 In this schedule the following expressions shall have the following
meanings:
1.1 "Service Charge" means the due proportion of the Service
Costs which is attributable from time to time to the
Premises in accordance with this Schedule
1.2 "Service Charge Period" means a period of 12 months ending
on 31st December in any year or such other period as the
Landlord may at its discretion from time to time determine
and notify in writing to the Tenant
1.3 "Service Costs means the total costs in any Service Charge
Period beginning or ending during the Term of providing the
Services and defraying the costs and expenses relating and
incidental thereto in accordance with this Schedule
1.4 "Services" means the services referred to in part 2 of this
Schedule or such of them as shall from time to time be
provided or undertaken by the Landlord
1.5 "due proportion" means 36.4%
2 The Service Charge shall be paid in manner following:
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2.1 The Landlord shall be entitled to estimate the amount of the
Service Charge for any Service Charge Period and if the
Landlord so requires the Tenant shall pay in advance on
account of the Service Charge for that Service Charge Period
the amount provisionally so estimated by the Landlord by
equal advance payments on each of the Rent Days during the
Service Charge Period the first such payment to be made on
the date of this Lease being an apportioned sum in respect
of the period from the commencement date of the Term until
the day preceding the Rent Day next following the date of
this Lease
2.2 The Service Charge shall be deemed to accrue on a day to day
basis in order to ascertain the yearly rate thereof and for
the purpose of apportionment in respect of any periods of
other than one year
The Landlord shall as soon as practicable after the end of each
Service Charge Period prepare or cause to be prepared and
submitted to the Tenant a statement professionally prepared
certified as true and correct showing the Service Costs and
the Service Charge for the Service Charge Period then ended
and upon such statement being the same shall be final and
binding on the Tenant (save in the event of manifest error)
2.4 Within one month of receiving such certificate referred to
in 2.3 (but not later) the Tenant shall be entitled to
inspect receipts and vouchers relating to the Service Costs
2.5 If the amount of the Service Charge for the Service Charge
Period shall exceed the aggregate of the amounts paid on
account thereof for that period the amount of the excess
shall be due forthwith on demand from the Tenant but if it
shall be less the amount of the overpayment shall be
credited to the Tenant against the next quarterly payment of
rent and/or Service Charge or (if the Term shall have come
to an end) shall be repaid to the Tenant
2.6 If the Landlord shall make any change to a Service Charge
Period such adjustments and apportionments shall be made as
shall be fair and reasonable for the purpose of computing
the Service Charge
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2.7 The provisions of this paragraph shall continue to apply
notwithstanding the expiry or sooner determination of this
Lease in respect of any Service Charge Period then current
2.8 If the Landlord shall incur expenditure forming part of the
Service Costs which either is in respect of a matter which
has not been taken into account in arriving at the
provisional assessment of the Service Charge for that period
or is of an amount materially greater than has been allowed
in arriving at such provisional assessment the Landlord
shall be entitled to recover from the Tenant the due
proportion of the whole of such expenditure on the Rent Day
next following such expenditure being incurred by the
Landlord
3 In calculating the Service Costs:
3.1 the Landlord shall be entitled (but not obliged) to include
in the Service Costs for any Service Charge Period an amount
or amounts which the Landlord reasonably considers
appropriate to build up and maintain a sinking fund and/or a
reserve fund in accordance with the principles of good
estate management and so as to secure so far as may
reasonably be practicable that the Service Charge shall be
of a regular rather than an irregular amount and that the
tenants for the time being of the Building bear a proper
part of the accumulating and future liabilities in respect
of the matters for which the Service Charge is intended to
provide
3.2 there shall be included in the amounts of any cost to be
included in the Service Costs all VAT at the applicable rate
incurred or paid by the Landlord in respect of any
expenditure in connection with the Services or any of them
3.3 the Service Costs may include all costs incurred in taking
any steps deemed desirable or expedient by the Landlord for
complying with or making any representations against or
otherwise contesting the incidence of the provisions of any
legislation or orders or statutory requirements thereunder
concerning town planning compulsory purchase public health
highways streets drainage or other matters relating to or
allegedly relating to the Building for
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which no tenant of the Building is directly liable under any
lease of any part of the Building
4 The Landlord shall be entitled to include in the Service Costs a
reasonable fee for itself or the cost of employing managing agents for
the carrying out and provision of the Services in accordance with this
Schedule.
5 The Tenant shall not be entitled to object to the Service Charge or
any item comprised in the Service Costs or otherwise on any of the
following grounds
5.1 the inclusion in a subsequent Service Charge Period of any
item of expenditure or liability omitted from the Service
Costs for any preceding Service Charge Period
5.2 that any item of the Service Costs might have been provided
or performed at a lower cost
5.3 disagreement with any estimate of future expenditure for
which the Landlord requires to make provision so long as the
Landlord acts reasonably and in good faith and in the
absence of manifest error
5.4 the manner in which the Landlord exercises its discretion in
providing the Services so long as the Landlord acts in good
faith and in accordance with the principles of good estate
management
5.5 the employment of managing agents or contractors to carry
out and provide on the Landlord's behalf the Services in
accordance with this Schedule
Part 2
("Services")
1 Maintaining and repairing and when the Landlord in its discretion
thinks it appropriate so to do amending altering reinstating renewing
and rebuilding the Structure and the Conduits save insofar as the same
are the responsibility of tenants in the Building
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<PAGE>
2 Maintaining repairing cleansing lighting and decorating to such
standard as the Landlord may from time to time consider appropriate
the Retained Parts and the Common Parts and when the Landlord in its
discretion thinks it appropriate so to do amending altering
reinstating renewing and rebuilding the same
3 Inspecting servicing maintaining repairing amending overhauling and
replacing the Apparatus save insofar as the same is the responsibility
of tenants in the Building
4 Operating the Apparatus so as to provide during the hours of 08.00 to
18.30 Monday to Friday and 08.00 to 12.00 Saturday (excluding any time
on any Sunday or any public or bank holiday)
4.1 lift services in the Building via the passenger lifts now in
the Building or such substituted passenger lifts as the
Landlord (in its absolute discretion) may from time to time
decide to install
4.2 an adequate supply of hot and cold water to the outlets
therefor within the Building
4.3 central heating systems to the Building so as to maintain
the same to such temperatures as the Landlord shall in its
absolute discretion consider adequate
5 Maintaining upgrading and renewing any fire alarms fire prevention and
fire fighting equipment for the common benefit of persons resorting to
the Building (other than that which exclusively serves the Premises
and other parts of the Building let or intended to be let to tenants)
6 Cleaning as frequently as the Landlord shall in its absolute
discretion consider adequate the exterior of the windows in the
Premises and the exterior and interior of all windows and window
frames in the Retained Parts and the Common Parts
7 (Save insofar as insured under other provisions of this Lease)
insuring the Apparatus the Common Parts and the Retained Parts against
the Insured Risks and insuring the Landlord against property owners
liability third party liability and employers liability in respect of
the Building and
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<PAGE>
such other risks perils and contingencies as the Landlord in its
absolute discretion shall from time to time deem necessary or
expedient
8 Discharging all charges assessments and outgoings (including meter
charges) for water electricity fuel telephone and public and other
statutory utilities consumed on the Retained Parts or used in
connection with the provision of any of the services referred to in
this part of this Schedule
9 Paying any existing or future taxes rates charges duties assessments
impositions and outgoings whatsoever in respect of the Common Parts
and/or the Retained Parts
10 Collecting and disposing of normal refuse from the Building (including
those parts thereof as are let or are capable of being let) and the
provision repair maintenance and renewal of plant and equipment for
the collection treatment packaging or disposing of refuse
11 Providing operating maintaining repairing renewing and replacing such
security systems for the Building as the Landlord shall in its
absolute discretion from time to time determine
12 Providing maintaining replacing and renewing any notice boards or
direction signs and the like in the Common Parts
13 Employing such staff and personnel as the Landlord shall think fit for
the management of the Building (including without prejudice to the
generality of the foregoing the provision of cleaning and security
services) and so that the costs of such employment shall include not
only all such direct costs incurred but also the provision of uniforms
the payment of national insurance contributions and other government
levies by reference to employment of personnel the provision of
pensions and payment of training and industrial levies and redundancy
payments and any other expenses ancillary to the employment of
personnel in connection with the provision of these services
14 Providing repairing maintaining renewing and replacing such plant
machinery equipment and materials as the Landlord in its absolute
discretion may consider to be desirable for the proper provision or
supply
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<PAGE>
of the services from time to time provided or supplied in accordance
with this Schedule
15 Employing and paying the fees of any agents retained by the Landlord
to manage the Building and collect the rents thereof (including the
preparation of accounts in relation to the Service Charge) and the
fees and charges of any accountant surveyor or other professional
adviser employed to certify any matter or thing requiring to be
certified for the purpose of any of the provisions of this Schedule
16 Such other services as the Landlord in its absolute discretion shall
think proper or beneficial for the better and more efficient
management use and promotion of the Building and the comfort and
convenience of the generality of the tenants in the Building
SCHEDULE 3
Guarantee Provisions
1 That the Tenant will at all times during the period in respect of
which the Tenant is liable under the covenants herein contained pay
the rents reserved by this Lease on the days and in manner herein
provided for and will duly observe and perform all the covenants and
conditions contained in this Lease and on the part of the Tenant to be
observed and performed and that if the Tenant shall during such period
default in any respect to pay the said rents or any of them in the
manner aforesaid or to observe and perform the said covenants and
conditions or any of them the Guarantor will on demand fully observe
perform and discharge the same AND without prejudice to the generality
of the foregoing the Guarantor HEREBY FURTHER COVENANTS by way of
primary obligation and not merely liability as a guarantor or merely
collateral to that of the Tenant to pay and make good to the Landlord
forthwith on demand any losses costs damages and expenses occasioned
to the Landlord arising out of or by reason of any default of the
Tenant in respect of any of its obligations under the terms and
provisions of this Lease during the said period or in respect of any
judgment or order made against the Tenant during the said period AND
any neglect or forbearance on the part of the Landlord in enforcing or
giving time for or other indulgence in respect of the observance or
performance of any of the said agreements provisions and conditions
(other than a release given under seal) and (subject to the provisions
of the 1995 Act)
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<PAGE>
any variation of the terms of this Lease shall not release the
Guarantor from its liability under the agreements or guarantee on its
part contained in this Lease
2 That if during such period as aforesaid:
2.1 the Tenant shall go into liquidation and the liquidator
disclaims this Lease or
2.2 the Tenant is dissolved or struck off the register and the
Crown disclaims this Lease or
2.3 the Tenant ceases for any reason to be or to remain liable
under this Lease or to maintain its corporate existence
(otherwise than by merger consolidation or other similar
corporate transaction in which the surviving corporation
assumes or takes over all the liabilities of the Tenant
under this Lease) or
2.4 this Lease shall be forfeited or otherwise prematurely
determined
the Landlord may within six months following any such event by notice
in writing require the Guarantor to enter into a lease in the like
form as this Lease for the residue of the Term unexpired at the date
of such event (or which but for any such disclaimer forfeiture or
other event would have remained unexpired) but with the Guarantor as
tenant thereunder at the same rents and subject to the like covenants
provisions and conditions as are herein contained as a substitute in
all respects for the Tenant under this Lease (the said new lease and
the rights and liabilities thereunder to take effect as from the date
of such disclaimer forfeiture or other event) and the Guarantor shall
thereupon execute and deliver to the Landlord a counterpart of the new
lease in exchange for the relevant lease executed by the Landlord and
contemporaneously therewith the Guarantor as tenant shall pay the
first instalments of the rents due
SCHEDULE 4
Requirements of authorised Guarantee agreement
1 The agreement shall be prepared by the Landlord's solicitors at the
expense of the Tenant and shall be executed and take effect as a deed
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<PAGE>
2 The agreement shall contain a clause to the effect that insofar as any
provision of the agreement would prevent it being an authorised
guarantee agreement within the meaning of the 1995 Act the agreement
shall be read and construed and shall take effect as though that
provision had not been included
3 In the agreement the Tenant shall covenant with the Landlord for the
benefit of the Landlord and its successors in title and assigns the
owners for the time being of the reversion immediately expectant upon
the determination of the Term and those entitled to the benefit of the
agreement by virtue of the 1995 Act that:
3.1 at all times during the period ("Relevant Period") beginning
with the date on which the assignment of this Lease to the
proposed assignee ("Assignee") takes effect and ending when
the Assignee is released by virtue of Section 5 of the 1995
Act from observance and performance thereof the Assignee
will duly observe and perform all the terms conditions and
covenants which by reference to the tenancy created by this
Lease are tenant covenants within the meaning of the 1995
Act ("Relevant Covenants")
3.2 if the Assignee shall default in any respect duly to observe
and perform the Relevant Covenants or any of them the Tenant
will on demand fully observe perform and discharge the same
3.3 if the Assignee (being a corporation) shall go into
liquidation and the liquidator disclaims this Lease or is
dissolved or struck off the register and the Crown disclaims
this Lease or (being an individual) shall become bankrupt
and the trustee in bankruptcy disclaims this Lease the
Landlord may within [six] months following any such event by
notice in writing require the Tenant to enter into a lease
in the like form as this Lease for the residue of the
Contractual Term unexpired at the date of such event (or
which but for any such disclaimer would have remained
unexpired) but with the Tenant as tenant thereunder at the
same rents and subject to the like covenants provisions and
conditions as are applicable thereto at the date of such
event as a substitute in all respects for the Assignee (the
said new lease and the rights and liabilities thereunder to
take effect as from the date of such disclaimer) and
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<PAGE>
the Tenant shall thereupon execute and deliver to the
Landlord a counterpart of the new lease in exchange for the
relevant lease executed by the Landlord and
contemporaneously therewith the Tenant as tenant under the
new lease shall pay the first instalments of the rents due
thereunder and the Landlord's solicitors proper and
reasonable costs of and in connection with the preparation
and completion of such new lease
4 Without prejudice to the generality of the foregoing the Tenant shall
further covenant with the Landlord by way of primary obligation and
not merely as a guarantor of or collateral to the liability of the
Assignee to pay and make good to the Landlord forthwith on demand any
losses costs damages and expenses occasioned to the Landlord arising
out of or by reason of any default of the Assignee in respect of any
of its obligations under the Relevant Covenants during the Relevant
Period
5 The agreement shall contain an agreement and declaration to the effect
that any neglect or forbearance on the part of the Landlord in
enforcing or giving time for or other indulgence in respect of the
observance or performance of any of the Relevant Covenants (other than
a release given under seal) and (subject to the provisions of the 1995
Act) any variation of the terms of the Lease shall not release the
Tenant from its liability under the covenants or guarantee to be
entered into by it in the agreement
EXECUTED (but not delivered until )
the date (hereof) as a deed by )
SMITHS INDUSTRIES PLC by the )
affixing of its Common Seal in the )
presence of:
[SEAL]
/s/ [ILLEGIBLE]
Director
/s/ [ILLEGIBLE]
Secretary
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<PAGE>
Exhibit 10.28
DATED 21st February 1997
(1) LANDLORD: REAL ESTATE AND COMMERCIAL TRUST LIMITED
(2) TENANT: 4 FRONT GROUP PLC
------------------------------------------------------
L E A S E
o f
Falcon Unit 2
Stonefield Way
South Ruislip
Middlesex
Prop Ref: 21/111/0700.02
------------------------------------------------------
From: the 21st day of February 1997
Term: 5 Years
Tenant's Break at end of third year
Rent: (pound)87,410.00 per annum plus V.A.T. ex.
<PAGE>
T H I S L E A S E made the 21st February 1997
B E T W E E N
(1) REAL ESTATE AND COMMERCIAL TRUST LIMITED whose registered office is at
Bilton House Uxbridge Road Ealing London W5 2TL ("the Landlord")
(2) 4 FRONT GROUP PLC whose registered office is at 4-6 Colonial Way Colonial
Business Park Watford Hertfordshire WD2 4PR ("the Tenant")
W I T N E S S E T H as follows:-
1. IN these presents except as otherwise provided or the context otherwise
requires:-
(A) (a) where there are two or more persons included in the expression
the Tenant covenants contained in these presents which are
expressed to be made by the Tenant shall be deemed to be made
by such persons jointly and severally
(b) any reference to an Act of Parliament shall include any
modification extension or re-enactment thereof for the time
being in force and shall also include all instruments orders
plans regulations permissions and directions for the time
being made issued or given thereunder or deriving validity
therefrom
(B) the following expressions shall have the following meanings:-
(a) "the Landlord" shall include the person for the time being
entitled to the reversion immediately expectant on the
determination of the term hereby granted
(b) "the Tenant" shall include its successors in title and in the
case of an individual shall include his personal
representatives
(c) "a guarantor" shall in the case of individuals include their
respective personal representatives
(d) "the term" means the term of years hereby granted together
with any continuation thereof (whether under an Act of
Parliament or by the Tenant holding over or for any other
reason)
(e) "these presents" means this Lease and any document which is
supplemental hereto or which is expressed to be collateral
herewith or which is entered into pursuant to or in accordance
with the terms hereof
(f) "the demised premises" means the land described in the First
Schedule hereto and each and every part thereof together with
the appurtenances thereto belonging and together also with any
buildings and each and every part thereof (including glass in
the elevations) now or hereafter erected or in the course of
erection
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<PAGE>
thereon or on any part thereof together with all additions
alterations and improvements thereto which may be carried out
during the term and shall also include all Landlord's fixtures
and fittings from time to time in and about the same
(g) "the Estate" means the Landlord's Industrial Estate at
Stonefield Way South Ruislip Middlesex
(h) "the Estate roads" means the roads shown coloured brown on the
Plan
(i) "conducting media" means all drains channels sewers flues
conduits conducts pipes wires cables watercourses gutters
culverts soakaways and other similar transmission media and
installations and all fixings and other ancillary apparatus
(j) "the Common Areas and Services" means the parts of the
Landlord's Estate as do not consist either of premises demised
or intended to be demised for exclusive occupation and
including (but without prejudice to the generality) all roads
ways pavements yards car parking areas landscaped areas all
conducting media and other services of a communal nature and
whether in under or over any demised premises or not and
including (but without prejudice to the foregoing) the Estate
roads but excluding car parking areas and other areas within
the demised premises
(k) "the Plan" means the plan annexed to this Lease
(l) "the insured risks" means risks in respect of loss or damage
by fire lightning explosion aircraft (other than hostile
aircraft) and other aerial devices or articles dropped
therefrom earthquake riot and civil commotion and malicious
damage storm or tempest bursting or overflowing of water tanks
apparatus or pipes flood impact by road vehicles Architect's
Surveyor's and other professional fees and such other risks of
insurance as may from time to time be required by the Landlord
(m) "full cost of reinstatement" means the costs which would be
likely to be incurred (including fees) in reinstating the
demised premises at the time when such reinstatement is likely
to take place having regard to any expected increases in
building costs during any period of insurance and pending and
during the period of reinstatement
(n) "the Planning Acts" means the Town and Country Planning Act
1990 and any statutory extension modification amendment or
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<PAGE>
re-enactment of that statute and all regulations or orders
made under it and any future legislation of a similar nature
(o) "V.A.T." means Value Added Tax and any tax of a similar nature
substituted for it or in addition to it
2. THE Landlord HEREBY DEMISES unto the Tenant ALL THAT the demised premises
TOGETHER with the easements and other rights (if any) contained or
referred to in the Second Schedule hereto EXCEPT AND RESERVING as
mentioned in the Third Schedule hereto TO HOLD the same SUBJECT (a) to all
rights easements quasi-easements and privileges to which the demised
premises are or may be subject and (b) to and (in so far as the Landlord
has power to grant the same) with the benefit of the provisions contained
or referred to in the documents (if any) referred to in the Fourth
Schedule hereto unto the Tenant from the 21st day of February 1997 for a
TERM of FIVE YEARS YIELDING AND PAYING therefor during the term and in
proportion for any less time than a year FIRST the clear YEARLY RENT of
EIGHTY-SEVEN THOUSAND FOUR HUNDRED AND TEN POUNDS ((pound)87,410.00) plus
V.A.T, to be paid in advance by equal quarterly payments on the usual
Quarter Days (namely the Twenty-fifth day of March the Twenty-fourth day
of June the Twenty-ninth day of September and the Twenty-fifth day of
December) clear of all deductions whatsoever the first of such payments to
be in respect of the period from the 20th day of May 1997 to the 23rd day
of June 1997 and to be made on the date hereof SECONDLY on demand the
moneys referred to in Clause 3(2) hereof THIRDLY on demand an amount
equal to the yearly sum or sums expended by the Landlord in insuring the
demised premises against loss or damage by the insured risks in a sum
equal to the full cost of reinstatement together with three years (or such
longer period as from time to time the Landlord may reasonably require
having regard to the longest likely period required for reinstatement)
loss of rent FOURTHLY on demand all costs charges and expenses which the
Landlord may from time to time properly incur in connection with or in
procuring the remedying of any breach by the Tenant of any of the
covenants on the part of the Tenant contained in these presents and
FIFTHLY on demand a proportion (determined in manner hereinafter
appearing) of all moneys howsoever and from time to time:-
(a) Expended by the Landlord in accordance with the principles of good
estate management (whether of a recurring nature or not) in
connection with and arising from the security preservation
maintenance cleansing lighting repairing removing adding to or
rebuilding of the Common Areas and Services and without affecting
the generality of the foregoing including
-3-
<PAGE>
the obtaining or provision of services fuel heat and light and rates
and similar assessments and payment of wages and statutory payments
for persons properly employed in each case in respect of the Common
Areas and Services or any part thereof together with reasonable
professional fees including those of the Landlord's agents in
managing the Estate or in the event of the Landlord personally
managing the Estate such charge as the Landlord shall make for such
management as commensurate with what would be charged by an
independent firm of surveyors applying any appropriate fee of the
Royal Institution of Chartered Surveyors it being the intention of
the parties hereto that the tenants on the Estate shall together
bear all expenditure in respect of the Common Areas and Services
other than the initial cost of construction and laying out of the
Estate and any Revenue Taxes falling upon the Landlord in respect of
the rents
(b) Reasonably required by the Landlord whether from time to time or in
each year for the purpose of providing a fund to meet any of the
aforesaid expenditure
(c) Such contributions as the Landlord may be lawfully required to make
in connection with the use of all things which are common to or
capable of being used with the Estate in common with other premises
and including in particular but without affecting the generality of
the foregoing the Estate roads
IT IS HEREBY DECLARED THAT:-
(i) Such proportion as aforesaid shall be the ratio of the gross floor
area of all the buildings erected on the demised premises to the
total gross floor area of all buildings (other than land occupied by
statutory undertakers) erected on the Estate PROVIDED THAT the
Landlord's agents certificate as to such proportion and as to the
amount expended shall be final and conclusive (save in the case of
manifest error) and the amount due shall be subject to the
provisions of Clause 3(2) hereof
(ii) The Landlord's Agents Certificate as aforesaid shall be issued
annually on the 24th June or such other date as the Landlord shall
decide
(iii) The Landlord's agents for the purposes of this Clause shall mean
such surveyors or other persons as may from time to time be
appointed by the Landlord for the purpose of assessment of such
expenditure as aforesaid and the proportion payable by the Tenant or
if the Landlord shall personally manage the Estate then the Landlord
with power to the Tenant to require at the expense of the Tenant an
audit of the amount expended
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<PAGE>
by the Landlord but payment shall not be deferred pending any such
audit
3. THE Tenant to the intent that the obligations hereby created shall
continue throughout the term HEREBY COVENANTS with the Landlord as
follows:-
(1) To pay the rents hereinbefore reserved at the time and in the manner
aforesaid without any deductions or set off
(2) Without prejudice to any other right remedy or power herein
contained or otherwise available to the Landlord if any rent payable
under these presents shall have become due but remain unpaid for
fourteen days to pay on demand to the Landlord (if the Landlord
shall so require) interest thereon at the rate of Four Pounds per
centum per annum above the National Westminster Bank PLC Base Rate
for the time being in force from the date when the same became due
and until payment thereof (as well after as before any judgment)
(3) To bear pay and discharge all existing and future rates taxes duties
charges assessments impositions and outgoings whatsoever (whether
parliamentary parochial local or otherwise and whether or not of a
capital or non-recurring nature) which now are or may at any time
hereafter during the term be charged levied assessed or imposed upon
the demised premises or upon the owner or occupier in respect
thereof except any taxes payable by the Landlord in respect of its
ownership of or dealing with the reversion to this Lease
(4) If at any time during the term the Tenant shall become entitled to
the benefit of any insurance on the demised premises then the Tenant
shall apply (in so far as the same shall extend) all moneys received
by virtue of such insurance in making good the loss or damage in
respect of which the same shall have been received
(5) Not to enter into contracts for the regular maintenance inspection
care and servicing of the boilers (if any) central heating (if any)
electrical circuits and air conditioning apparatus (if any) from
time to time in and about the demised premises except with persons
of repute approved by the Landlord such approval not to be
unreasonably withheld or delayed
(6) To allow the Landlord to enter the demised premises as often as the
Landlord may reasonably require for the purpose of carrying out any
of the matters mentioned under the rent fifthly stated under Clause
2
(7) At all times during the term to repair and keep the demised premises
in good and substantial repair and condition Excepting only damage
by the insured risks in circumstances where the insurance is not
vitiated by the act or default of the Tenant PROVIDED that the
Tenant shall not be
-5-
<PAGE>
required to keep throughout the term such parts of the demised
premises as are mentioned in the Schedule of Condition annexed to
this Lease in a better state of repair than is specified in the said
Schedule of Condition subject to the Remedial Works carried out by
the Landlord as evidenced by the photographic schedule which shall
be prepared after completion of the said Remedial Works
(8) In the third year of the term and also during the last year thereof
(howsoever the same may be determined) (but not more than once in
any period of twelve months) to paint in a proper and workmanlike
manner with two coats of good quality paint of a colour which if
different from the present colour shall be previously approved in
writing by the Landlord's Surveyors (such approval not to be
unreasonably withheld or delayed) all outside parts of the demised
premises usually painted and with every such outside painting to
polish all outside parts of the woodwork usually polished and to
restore paint treat and make good the brickwork stucco stonework
plastic and glazing (as the case may be) where necessary and
generally to carry out all such work with good quality materials of
their several kinds and in accordance with good standards of
workmanship
(9) In the last year of the term (howsoever the same may be determined)
to paint with two coats at least of good quality paint of a colour
which if different from the present colour shall be previously
approved in writing by the Landlord's Surveyors (such approval not
to be unreasonably withheld or delayed) and well and sufficiently to
redecorate with such varnish paper emulsion paint or other suitable
decorative material all the interior parts of the demised premises
as are usually or ought to be redecorated as aforesaid and generally
to redecorate throughout restoring and making good the demised
premises and to carry out all the work required by this sub-clause
with good quality materials of their several kinds and in accordance
with good standards of workmanship
(10) As often as the Landlord may reasonably consider necessary to clean
and treat in an appropriate manner to the reasonable satisfaction of
the Landlord's Surveyors all materials surfaces and finishes of the
interior and the exterior of the demised premises which ought
normally to be so cleaned and treated and in particular (but without
prejudice to the generality of the foregoing) all wood plastic metal
stonework glazing cladding and concrete and to wash all surfaces
requiring to be washed
(11) To permit the Landlord and its agents at all reasonable times with
or without workmen on giving reasonable prior written notice (except
in emergency) to the Tenant to enter upon the demised premises to
view the state of repair and condition thereof and to take a
Schedule of the
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<PAGE>
Landlord's fixtures and of any dilapidations and to exercise the
rights hereinafter excepted and reserved
(12) Well and substantially to repair and make good all defects and wants
of reparation repair or renewal of which notice in writing shall be
given to or left on the demised premises for the Tenant by the
Landlord and for which the Tenant is liable hereunder within two
calendar months after the giving or leaving of such notice (or
sooner if requisite) and if the Tenant fails to comply with any such
notice it shall be lawful (but not obligatory) for the Landlord
(without prejudice to the right of re-entry hereinafter contained)
to enter upon the demised premises to make good the same at the cost
of the Tenant which cost shall be repaid by the Tenant to the
Landlord on demand together with all Solicitors' and Surveyors'
charges and other expenses which may be properly incurred by the
Landlord in connection therewith together with interest thereon in
each case from the date of payment by the Landlord at the rate of
Four Pounds per centum per annum above the National Westminster Bank
PLC Base Rate for the time being in force (as well after as before
any judgment)
(13) Not to bring or permit to be brought into the demised premises or to
place or store or permit to be placed or stored or to remain in or
about the demised premises any article or thing which is or may
become dangerous offensive combustible inflammable radioactive or
explosive and not to carry on or do or permit to be carried on or
done thereon any hazardous trade or act in consequence of which the
Landlord would or might be prevented from insuring the demised
premises and/or any other adjoining property for the time being
owned by the Landlord at the ordinary rate of premium or whereby any
insurance effected in respect of the demised premises and/or any
such other property would or might be vitiated or prejudiced and not
without the written consent of the Landlord to do or allow to be
done anything whereby any additional premium may become payable for
the insurance of the demised premises and/or of any such other
property and not to allow to pass into the conducting media serving
the Estate or any part thereof any noxious or deleterious effluent
or other substance which might cause any obstruction in or injury to
the conducting media and in the event of any such obstruction or
injury forthwith to make good all such damage to the satisfaction of
the Landlord's Surveyors
(14) Not without the previous consent in writing of the Landlord's
Surveyors to place or keep or permit to be placed or kept in the
demised premises
-7-
<PAGE>
any heavy articles in such position or in such quantity or weight or
otherwise in such manner howsoever as to overload or cause damage to
or to be in the opinion of the Landlord (acting reasonably) likely
to overload or cause damage to the demised premises
(15) Not to carry on use or permit the demised premises to be used for
any noisy noisome offensive or dangerous trade manufacture business
or occupation nor for any illegal or immoral purpose nor to do or
suffer to be done on the demised premises any act or thing
whatsoever which in the opinion of the Landlord (acting reasonably)
may be or tend to become an annoyance nuisance disturbance
inconvenience or cause damage to the prejudice of the Landlord or to
the owners or occupiers of any adjoining or neighbouring premises or
any of them and not to use or permit the buildings on the demised
premises to be used otherwise than for purposes within Use Classes
B1 (C)B2 and B8 of the Schedule to the Town and Country Planning
(Use Classes) Order 1987 and the remaining land within the demised
premises for purposes of car parking and landscaping Provided Always
and the Tenant hereby acknowledges and admits that notwithstanding
the foregoing provisions the Landlord does not thereby or in any
other way give or make nor has given or made at any other time any
representation or warranty that any such use is or will be or will
remain a permitted use within the provisions of the Planning Acts
nor shall any consent in writing which the Landlord may hereafter
give to any change of use be taken as including any such
representations or warranty and that notwithstanding that any such
use as aforesaid is not a permitted use within such provisions as
aforesaid the Tenant shall remain fully bound and liable to the
Landlord in respect of the obligations undertaken by the Tenant by
virtue of these presents without any compensation recompense or
relief of any kind whatsoever
(16) Not to permit any sale by auction or public exhibition or public
show or spectacle or political meetings to take place on the demised
premises
(17) Not to cut remove divide alter maim or injure the demised premises
nor merge the demised premises with any adjoining premises nor make
any alterations or additions to the demised premises except with the
previous consent in writing of the Landlord not to be unreasonably
withheld or delayed and in accordance with drawings and
specifications previously submitted to and approved in writing by
the Landlord's Surveyors (such consent not to be unreasonably
withheld or delayed in the case of any alteration which is neither a
substantial structural alteration nor requires
-8-
<PAGE>
planning consent and such consent if granted to be without prejudice
nevertheless to the provisions of sub-clause (24)) Provided Always
that the Landlord may as a condition of giving any such consent
require the Tenant to enter into such covenants with the Landlord as
the Landlord may reasonably require in regard to the execution of
any such works and the reinstatement of the demised premises at the
end or sooner determination of the term (howsoever the same may be
determined) or otherwise And Provided further that in the event that
the Tenant fails to observe this condition it shall be lawful for
the Landlord with or without agents and materials to enter upon the
demised premises and remove any alterations or additions and execute
such works as are necessary to restore the demised premises to their
former state and the expenses of the Landlord properly incurred in
connection with any submission approval inspection or restoration
(including Surveyors' and other professional fees) shall be paid by
the Tenant to the Landlord on demand
(18) Not at any time during the term to affix or exhibit or permit to be
affixed or exhibited in or upon any part of the demised premises any
bill placard advertisement flashlight or other sign except such as
shall previously have been approved in writing by the Landlord such
approval not to be unreasonably withheld or delayed
(19) Not to assign underlet agree to underlet share or part with the
possession of the demised premises or any part thereof (other than
(on giving prior written notice to the Landlord) by way of sharing
occupation with another company within the same group of companies
(within the meaning of the Landlord and Tenant Act 1954 S42) on
terms that no relationship of Landlord and Tenant thereby arises and
only for so long as both companies remain members of the same group
of companies (as defined above)) Provided Always that if the Tenant
shall at any time during the term desire:-
(A) to assign the demised premises as a whole
(B) to underlet the demised premises as a whole at the full rack
rental market value thereof or the rent reserved and payable
under this Lease at the time of the grant of the underlease
whichever is higher
And shall on each occasion procure:-
(i) that any intended assignee shall covenant direct with the
Landlord that during the residue of the term then subsisting
the said assignee will pay the rents reserved by and will
observe and
-9-
<PAGE>
perform the covenants and conditions contained in these
presents and if the intended assignee shall be a limited
liability company then the directors of the same shall if the
Landlord so requires act as guarantors for such company and
shall (inter alia) jointly and severally covenant with the
Landlord that the said company will during the residue of the
term then subsisting pay the rent for the time being
hereinbefore reserved and perform and observe the covenants on
the part of the Tenant contained in these presents and will
indemnify and keep the Landlord indemnified from and against
all actions proceedings costs claims and demands arising by
reason of any default of the said company and such covenant
shall also provide that any neglect or forbearance of the
Landlord shall not release or exonerate the guarantors and
shall further provide that should the said company go into
liquidation and the liquidator disclaim these presents or if
the said company should be wound up or cease to exist then the
guarantors will should the Landlord so require accept a new
lease of the demised premises such new lease to commence as
from the date of such disclaimer and to be for the residue
then unexpired of the term and to be at the rent then payable
(such rent to commence as from the date of such disclaimer and
to be subject to the same Tenant's covenants and to the same
provisos and conditions as those in force immediately before
such disclaimer) and to be granted at the cost in all respects
of the guarantors in exchange for a counterpart duly executed
by the guarantors and
(ii) that any intended assignee or underlessee shall covenant with
the Landlord in the same terms as are contained in this Clause
3(19) and to pay all reasonable Solicitors' and Surveyors'
fees and other costs properly incurred by the Landlord in
connection with such consent and
(iii) that in any permitted mediate or immediate underlease
(a) the underlessee shall covenant in such manner as to be
enforceable by the Landlord not to deal in any manner
with the premises therein comprised or any part thereof
or permit any dealing therewith which shall be
inconsistent with the provisions of this Clause 3(19)
and
(b) the covenants on the part of the Tenant herein contained
(save for payment of rent) shall be enforceable by the
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<PAGE>
Landlord in case of default as well against the
underlessee as against the Tenant and
(iv) that in any such assignment or underlease the assignee or
underlessee (as the case may be) shall covenant to produce for
registration at the office of the Landlord or as the Landlord
may from time to time direct every assignment or underlease as
hereinafter mentioned and to pay the registration fees in
respect thereof as hereinafter provided
the Tenant shall subject to the prior written consent of the
Landlord (which shall not be unreasonably withheld or delayed)
be permitted to assign the demised premises as a whole or
underlet the demised premises as a whole
PROVIDED THAT the Landlord may withhold consent to an
assignment
(1) Unless the Assignee shall produce in respect of the
business carried on by the Assignee unqualified audited
accounts for a period of at least three consecutive
financial years immediately preceding the date of the
assignment showing annual pre-tax profits for the
Assignee of not less than three times the annual rents
first reserved by and payable under the Lease at the
date of the assignment
(2) If the demised premises are not substantially in the
state and condition required by full compliance with the
terms of the covenants on the part of the Tenant in the
Lease
(3) Unless the Assignee shall if so reasonably required by
the Landlord deposit with the Landlord such sum that the
Landlord shall require as security for the compliance by
the Tenant with and performance of the covenants and
conditions in the Lease
The Landlord shall be entitled to give consent to assign
subject to the condition that before the Tenant assigns the
Lease the Tenant shall enter into an agreement with the
Landlord under which the Tenant
(a) Guarantees the performance by the Assignee of all the
covenants on the part of the Tenant contained in the
Lease
(b) Is liable to the Landlord as principal debtor and any
neglect or forbearance of the Landlord shall not release
or exonerate the Tenant
(c) Agrees that in the event that the Lease is disclaimed
the Tenant shall if so required by the Landlord accept
the grant of a new tenancy of the demised premises
within two months of the
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<PAGE>
Landlord's request on the same terms and conditions as
the Lease at the date of the disclaimer and for the
residue then unexpired of the term and at the rent then
payable
(20) Within twenty-one days after the date of any assignment of these
presents or the grant of any underlease of the whole or any part of
the demised premises or any assignment of such an underlease or the
execution of any mortgage or charge affecting these presents as
aforesaid or any transfer of any such mortgage or charge or any
devolution of the term granted by these presents or of any such
underlease as aforesaid by will intestacy assent or operation of law
to give written notice to the Landlord's Solicitors (or as the
Landlord may from time to time direct) of such assignment underlease
assignment of underlease mortgage charge transfer of mortgage or
charge or devolution as aforesaid and to pay or cause to be paid to
the Landlord's Solicitors or as the Landlord may from time to time
direct a fee of Twenty-five Pounds (or such increased fee as shall
be reasonable) for the registration thereof
(21) At all times during the term
(A) To keep the demised premises in a clean and tidy condition and
clear of all rubbish and to clean at least once every month
the inside and outside of the windows and window frames of the
demised premises and all the glass (if any) in the elevations
thereof and
(B) To observe and perform the regulations set forth in the Fifth
Schedule hereto and such reasonable amended regulations (not
derogating from the Landlord's grant hereunder) as the
Landlord may notify to the Tenant in writing from time to time
(22) To pay to the Landlord all costs charges and expenses (including but
without prejudice to the generality of the foregoing Solicitors'
costs Counsel's Architects' and Surveyors' and other professional
fees and disbursements and commission payable to a Bailiff) properly
incurred by the Landlord
(a) incidental to the preparation and service of a notice under
Section 146 of the Law of Property Act 1925 and/or in or in
contemplation of any proceedings under Sections 146 or 147 of
the said Act (whether or not any right of re-entry or
forfeiture has been waived by the Landlord or a notice served
under the said Section 146 is complied with by the Tenant or
the Tenant has been relieved under the provisions of the said
Act and notwithstanding forfeiture is
-12-
<PAGE>
avoided otherwise than by relief granted by the Court) and to
keep the Landlord fully indemnified against all costs charges
expenses claims and demands whatsoever in respect of the said
proceedings and the preparation and service of the said notice
(b) in the preparation and service of a Schedule of Dilapidations
and subsequent supervision of the remedying of such
dilapidations at any time during or after the expiration of
the term (but relating in all cases only to dilapidations
which accrued prior to the expiration or sooner determination
of the said term howsoever the same be determined)
(c) the recovery or attempted recovery of arrears of rents or
other sums due from the Tenant
(d) in connection with or procuring the remedying of any breach of
covenant on the part of the Tenant contained in these presents
(23) At all times and from time to time and at its own expense to execute
all works as are or may under or in pursuance of any Act of
Parliament (including but without prejudice to the generality of the
foregoing the Offices Shops and Railway Premises Act 1963 the
Factories Act 1961 the Fire Precautions Act 1971 and the Health and
Safety at Work etc Act 1974) already or hereafter to be passed be
directed or required to be done or executed upon or in respect of
the demised premises or the Tenant's user thereof whether by the
Owner and/or the Landlord and/or the Tenant thereof and to comply
with all notices which may be served by the Public Local or
Statutory Authority and not to do or permit to be done on the
demised premises any act or thing whereby the Landlord may become
liable to pay any penalty imposed or to bear the whole or any part
of any expenses incurred under any such Act instrument regulation
order or direction as aforesaid and to pay the due proportion
thereof applicable to the demised premises in respect of any such
works so required to be carried out on any building of which the
demised premises form part
(24) In relation to the Planning Acts:-
(a) At all times during the term to comply in all respects with
the Planning Acts and to keep the Landlord indemnified in
respect thereof
(b) During the term so often as occasion shall require at the
expense in all respects of the Tenant to obtain all
permissions as may be required for the carrying out by the
Tenant of any operations on the demised premises or for the
institution continuance or renewal
-13-
<PAGE>
by the Tenant thereon of any use thereof which may constitute
development or any step related thereto within the meaning of
the Planning Acts But the Tenant shall not make any
application for planning permission or give any notice to any
Authority of an intention to commence or to carry out any
development or any step related thereto (including the
commencement or carrying out of any development) without the
previous written consent of the Landlord (such consent not to
be unreasonably withheld or delayed) Provided that the
Landlord may withhold consent where it reasonably considers
that the making of any such application by the Tenant could
lead either to the acquisition by any statutory authority or
body of the Landlord's interest in the demised premises or to
materially adverse financial or taxation consequences upon the
Landlord so that the Tenant shall (if and in so far as it is
lawful for the parties hereto to make such an arrangement)
indemnify the Landlord against all charges payable in respect
of any such application and shall also pay to the Landlord a
reasonable sum in respect of all professional fees and
expenses properly incurred by the Landlord in connection
therewith and the Tenant shall forthwith after the grant or
refusal of such application give to the Landlord full
particulars in writing thereof and (free of cost to the
Landlord) supply a copy thereof for the retention of the
Landlord and (if the Tenant should wish to pursue such
application) in the case of a refusal of such an application
or in the case of a grant thereof subject to conditions which
the Landlord acting reasonably considers unreasonable
forthwith if the Landlord so requires but at the Tenant's
expense lodge the necessary notice of appeal and at the
Tenant's cost proceed diligently with such appeal and at all
times at the request of the Landlord keep the Landlord
informed of the progress thereof
(c) Not to implement any planning permission until the same has
been submitted to and approved in writing by the Landlord
(d) Unless the Landlord shall otherwise direct to carry out before
the determination of the term (howsoever the same may be
determined) any works stipulated to be carried out to the
demised premises by a date subsequent to such expiration or
sooner determination as a condition of any implemented
planning permission which may have been granted to the Tenant
-14-
<PAGE>
(e) Forthwith after receiving notice of the same to give full
particulars to the Landlord of any notice or proposal for a
notice or order or proposal for an order made given or issued
to the Tenant by any competent authority under or by virtue of
the Planning Acts affecting or capable of affecting the
demised premises and to produce such notice order or proposal
to the Landlord
(f) At the request of the Landlord and at the cost of the Tenant
to make or join with the Landlord in making such objection or
representation against or in respect of any proposal for such
a notice or order as the Landlord shall deem expedient
(g) If called upon so to do to produce to the Landlord all plans
documents and other evidence as the Landlord may reasonably
require in order to satisfy itself that the provisions of this
sub-clause have been complied with
(h) (i) Except in so far as the Tenant cannot lawfully contract
to do so to pay the whole amount of any levy charge or
imposition assessed or imposed in respect of any
development of the demised premises by the Tenant or any
permission consent or approval for such development and
payment to be so made as to ensure that no part thereof
shall become or remain longer than is avoidable
recoverable from any person other than the Tenant or
charged or chargeable upon any interest in the demised
premises other than that of the Tenant
(ii) Not without the consent in writing of the Landlord to
take any step which would involve any person or interest
in liability to any levy charge or imposition as
mentioned in sub-clause {i) hereof
(iii) If called upon in writing by the Landlord so to do to
complete as soon as practicable any development in
respect of which a liability to levy charge or
imposition as specified in sub-clause (i) hereof has
fallen or may fall to be borne by any person other than
the Tenant or has or may become charged or chargeable on
any interest other than that of the Tenant
(25) To use the best practicable means to avoid pollution or
contamination of the environment as a result of anything done or
omitted to be done in the demised premises during the term and to
indemnify the Landlord against
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<PAGE>
all costs and liabilities properly incurred by the Landlord in
connection with carrying out work to prevent minimise or deal with
the effects of pollution or contamination of the environment as a
result of anything done or omitted to be done in the demised
premises during the term
(26) To permit the Landlord to fix and retain in a conspicuous position
on the demised premises a notice board for the reletting (in the
event of termination for whatever reason of the term hereby created)
and/or the sale of the same (but not so as to restrict or interfere
unreasonably with the access of light and air to the demised
premises) and not to take down or obscure the said notice board and
to permit all persons authorised in writing by the Landlord or its
agents to view the demised premises at reasonable hours in the
daytime upon prior appointment having been made
(27) Upon making an application for any consent or approval which is
required under these presents the Tenant shall disclose to the
Landlord such information as the Landlord may reasonably require and
shall pay the Landlord's reasonable legal expenses and Surveyors'
fees (including disbursements and stamp duty) on all Licences and
Deeds and the Duplicate copies thereof resulting from all such
applications by the Tenant including charges fees and disbursements
actually incurred in cases where consent is lawfully refused or the
application is withdrawn
(28) To observe and perform the agreements covenants and stipulations
contained or referred to in the documents referred to in the Fourth
Schedule hereto (if any) insofar as they relate to the demised
premises and are still subsisting and to keep the Landlord
indemnified against all actions proceedings costs claims and demands
in any way relating thereto
(29) At the expiration or sooner determination of the term (howsoever the
same may be determined) quietly to yield up unto the Landlord the
demised premises in such good and substantial repair and condition
as shall be in accordance with the covenants on the part of the
Tenant herein contained together with all fixtures fittings
improvements and additions which now are or may at any time
hereafter be in or about the demised premises (but excepting
Tenant's fixtures and fittings) and in case any of the Landlord's
fixtures and fittings shall be missing broken damaged or destroyed
forthwith to replace them with others of a similar character and of
equal value and to remove every moulding sign writing or painting of
the name or business of the Tenant or other occupiers from the
demised premises and to make good all damage caused to the demised
premises by the removal of the Tenant's fixtures fittings furniture
-16-
<PAGE>
and effects
(30) (a) To pay to the Landlord such amount of V.A.T. at the rate for
the time being in force as shall be legally payable in respect
of all moneys covenanted to be paid by the Tenant under the
terms of these presents and in every case where in these
presents the Tenant covenants to pay an amount of money such
amount shall be regarded as being exclusive of all V.A.T.
which may from time to time be legally payable thereon
(b) To give written notice forthwith to the Landlord upon any
alteration in the V.A.T. status of the Tenant and to indemnify
and keep indemnified the Landlord from and against any
liability arising from the V.A.T. status of the Tenant or any
alteration thereto and from all proceedings costs claims and
demands of whatever nature in relation to any such liability
(31) (a) To indemnify and keep indemnified the Landlord from liability
in respect of any injury to or the death of any person damage
to any property moveable or immoveable the infringement
disturbance or destruction of any right easement or privilege
or otherwise by reason of or arising directly or indirectly
out of the repair state of repair condition or any alteration
to or to the user hereinbefore permitted of the demised
premises and from all proceedings costs claims and demands of
whatsoever nature in respect of any such liability or alleged
liability
(b) To be responsible for and to indemnify the Landlord against
all damage occasioned to the demised premises (or any other
part of the building of which the demised premises form part)
or any adjacent or neighbouring premises or to any person
caused by any act default or negligence of the Tenant or the
servants agents licensees or invitees of the Tenant
(32) At all times during the said term to observe and comply with all the
covenants and the exceptions and reservations affecting the freehold
title to the demised premises in so far as they are still subsisting
and capable of taking effect
4. THE Landlord HEREBY COVENANTS with the Tenant as follows:-
(a) That the Tenant paying the rents hereby reserved and performing and
observing the several covenants on its part herein contained shall
peaceably hold and enjoy the demised premises during the said term
without any interruption by the Landlord or any person rightfully
claiming
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<PAGE>
through under or in trust for the Landlord
(b) To keep the demised premises insured against loss or damage by the
insured risks in a sum equal to the full cost of reinstatement and
(unless the insurance of the demised premises shall have been
forfeited or vitiated by the act or default of the Tenant) to cause
all moneys received by virtue of any such insurance (except the
insurance relating to loss of rent) to be laid out in rebuilding and
reinstating the demised premises with all reasonable speed
(c) To maintain and repair the Common Areas and Services and to provide
the services referred to in paragraph (a) of Clause 2
5. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows:-
(1) That if the rent hereby reserved or any part thereof shall at any
time be in arrear for fourteen days after the same shall have become
due (whether legally demanded or not) or if there shall be any
breach of any of the covenants on the part of the Tenant contained
in these presents or if the Tenant shall commit any act of
bankruptcy or shall compound with creditors or shall suffer any
distress or execution to be levied on the demised premises or the
contents thereof or being a company shall go into liquidation
whether voluntary or compulsory (otherwise than a voluntary
liquidation of a solvent company for the purpose of amalgamation or
reconstruction) or suffer a Receiver to be appointed then and in any
such case it shall be lawful for the Landlord at any time thereafter
into and upon the demised premises in the name of the whole to
re-enter and the same to have again repossess and enjoy as in their
former estate and thereupon the term shall absolutely cease and
determine but without prejudice to any right of action of the
Landlord in respect of any antecedent breach of any of the covenants
by the Tenant contained in these presents
(2) That nothing herein contained shall by implication of Law or
otherwise operate or be deemed to confer upon the Tenant any
easement right or privilege whatsoever over or against any adjoining
or neighbouring property which now or hereafter shall belong to the
Landlord either for an estate in fee simple or for a term of years
or which would or might restrict or prejudicially affect the future
rebuilding alteration or development of such adjoining or
neighbouring property and that the Landlord shall have the right at
any time to make such alterations to or to pull down and rebuild or
redevelop any such adjoining or neighbouring property as it may deem
fit without obtaining any consent from or making any compensation
-18-
<PAGE>
to the Tenant
(3) That nothing herein contained or implied shall impose or be deemed
to impose any restriction on the use of any land or building not
comprised in these presents or give the Tenant the benefit of or the
right to enforce or to have enforced or to permit the release or
modification of any covenant agreement or condition entered into by
any purchaser from or by any lessee or occupier of the Landlord in
respect of property not comprised in these presents or to prevent or
restrict in any way the development of any land not comprised in
these presents but not so as substantially to interfere with or
affect the quiet enjoyment and use of the demised premises by the
Tenant
(4) Any walls separating the demised premises from any neighbouring land
are party structures within the meaning of Section 38 of the Law of
Property Act 1925 and are to be maintained at the equally shared
expense of the Tenant and the owner or occupier of the adjoining
premises
(5) Except where any Act of Parliament prohibits or modifies the right
to compensation being excluded or reduced by agreement neither the
Tenant nor any undertenant (whether immediate or derivative) shall
be entitled on quitting the demised premises or any part thereof to
claim any compensation from the Landlord under the Landlord and
Tenant Act 1954 or any other Act of Parliament whether enacted
before or after the date hereof
(6) In case the demised premises or any part thereof shall at any time
be destroyed or damaged by the insured risks so as to be unfit for
occupation or use then (unless the insurance of the demised premises
shall have been forfeited or vitiated by the act or default of the
Tenant) the occupation rents hereby reserved or a fair and just
proportion thereof according to the nature and extent of the damage
sustained shall for a period from the date of such destruction or
damage as aforesaid until the premises shall have been rebuilt and
reinstated and made fit for occupation or use or for a period of
three years (or such longer period as the Landlord shall have
insured loss of rent) from the date of such destruction or damage as
aforesaid whichever period shall be the shorter be suspended and
cease to be payable
(7) The provisions of Section 196 of the Law of Property Act 1925 (as
amended) shall be deemed to be incorporated herein
(8) No demand for or acceptance of rent by the Landlord or his agent
with knowledge of a breach of any of the covenants on the part of
the Tenant
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<PAGE>
contained in these presents or demand for or acceptance of rent by
the Landlord or his agent from any person or body other than the
Tenant shall be or be deemed to be a waiver wholly or partially of
any such breach but any such breach shall be deemed to be a
continuing breach of covenant and the Tenant and any person or body
taking any estate or interest under or through the Tenant shall not
be entitled to set up any such demand for or acceptance of rent by
the Landlord or his agent as a defence in any action for forfeiture
or otherwise Provided however that this provision shall have effect
in relation only to a demand for or acceptance of rent during such
period as may be reasonable for enabling the parties hereto to carry
on negotiations for remedying the said breach once the Landlord or
his agent has received knowledge thereof
(9) The Landlord shall at no time become liable to the Tenant for any
loss damage or expense sustained by the Tenant by or through any
defect decay inadequacy want of repair or decoration or otherwise in
the Estate or any part thereof or in the Common Areas or Services or
in or arising from the choking bursting stoppage or failure of any
water supply waste or other conducting media or otherwise or for any
loss damage or expense caused to the Tenant through any act or
omission of the proprietors tenants or occupiers of any adjoining or
neighbouring properties save in the case of the Landlord's
negligence
(10) Any property left in the demised premises by the Tenant after the
termination date of this Lease (except by arrangement with the
Landlord) may be sold by the Landlord at any time following the
expiration of a notice sent by the Landlord to the Tenant at the
last known address of the Tenant requiring the Tenant to remove such
property within seven days and such proceeds of sale shall belong to
the Landlord absolutely
(11) Any action or proceedings in any way arising out of or with
reference to these presents or the demised premises shall be
instituted in England and the Tenant and Guarantor (if any) agree to
submit to the jurisdiction of the High Court of Justice in England
6. IF the Tenant shall desire to determine this Lease on the expiration of a
period of three years from the date hereof and shall give to the Landlord
not less than six months prior notice in writing of such its desire and
shall up to the time of such determination pay the rent and substantially
observe and perform the covenants on its part in these presents
contained then immediately upon the expiry of such period of three years
the term hereby granted shall thereupon cease without prejudice to the
remedies of either party hereto against the other in respect of
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<PAGE>
any antecedent claim or breach of covenant PROVIDED THAT any obligation on
the part of the Tenant (which in the absence of this Clause would require
to be performed by the Tenant at the expiry of the term hereby granted)
shall be equally enforceable by the Landlord on the early determination of
the term pursuant to the provisions of this Clause
I N W I T N E S S whereof the parties hereto have caused this Lease to be duly
executed as a Deed the day and year first before written
THE FIRST SCHEDULE before referred to
Particulars of the demised premises
ALL THAT the land and car parking spaces shown and edged red on the Plan known
as Falcon Unit 2 Stonefield Way South Ruislip Middlesex
(Property Reference 21/111/0700.02)
THE SECOND SCHEDULE before referred to
Easements and other rights included in the demise
(1) Full right and liberty for the Tenant its servants and licensees in common
with the Landlord and all other persons having the like right with or
without vehicles at all times for all purposes connected with the
permitted use of the demised premises but not for any other purpose to
pass and repass over and along the Estate roads and other common parts as
appropriate
(2) Full and free right of passage and running of water and soil gas and
electricity or other services or supplies to and from the demised premises
through all conducting media serving the demised premises which are now or
may hereafter pass in under or along the adjoining or neighbouring land of
the Landlord
(3) The right at convenient times and upon reasonable prior notice (except in
emergency) to enter any adjoining premises belonging to the Landlord for
the purposes of inspecting and executing repairs to or upon the demised
premises that would not otherwise be practicable subject to the Tenant
causing as little damage and inconvenience as possible and making good all
damage caused forthwith
(4) Full right and liberty for the Tenant its servants and licensees in common
with the Landlord and all other persons having the like right on foot only
at all times for all purposes connected with the permitted use of the
demised premises but not or the purposes of storage or for any other
purpose to pass and repass over and along the atrium adjacent to the
demised premises provided that the Tenant shall in the exercise of this
right not interfere with or affect the use of the said atrium by the
Landlord or any other persons having the like right
(5) Full right and liberty for the Tenant its servants and licensees in common
with the Landlord and all other persons having the like right on foot only
at all times for
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<PAGE>
all purposes connected with the use of the demised premises but not for
any other purpose to pass and repass over and along the bin enclosure
shown on the Plan provided that the Tenant shall in the exercise of this
right not interfere with or affect the use of the said bin enclosure by
the Landlord or any other persons having the like right
THE THIRD SCHEDULE before referred to
Exceptions and Reservations out of the demise
(1) Unto the Landlord the right to erect hereafter or to consent to any person
erecting a new building or to alter any building for the time being on any
land adjoining neighbouring or opposite to the demised premises
notwithstanding that such alterations or erection may diminish the access
of light and air enjoyed by the demised premises and the right to deal
with any property adjoining opposite or near to the said building as it
may think fit
(2) Unto the Landlord its servants agents and licensees at all reasonable
times so far as may be necessary or desirable with or without workmen the
right on giving reasonable notice (except in emergency) to the Tenant to
enter and remain upon the demised premises with all necessary tools
appliances and materials (making good all damage occasioned thereby to the
demised premises) for the purposes of
(2.1) inspecting the condition and state of repair thereof
(2.2) carrying out any works (whether of repair or otherwise) for which
the Landlord or the Tenant is liable hereunder and
(2.3) repairing altering or rebuilding any adjoining or contiguous
premises belonging to the Landlord and to cleanse empty and repair
any of the conducting media belonging to the same
(3) Unto the Landlord statutory undertakers and other the owners and occupiers
of the adjoining or neighbouring property the right of passage and running
of water and soil gas and electricity or other services or supplies from
and to such adjoining or neighbouring property through such of the
conducting media serving such adjoining and neighbouring property which
now are or may hereafter be in or under the demised premises and the right
to enter upon the demised premises for the purpose of inspecting repairing
renewing laying relaying cleansing maintaining and connecting up to any
such existing or future conducting media
Provided that in the exercise of the rights excepted and reserved by this Lease:
1. The Landlord shall on each occasion give reasonable prior written notice
of such entry to the Tenant (except in emergency) and shall proceed as
expeditiously as possible causing as little interference as possible to
the Tenant and the demised premises and shall make good all damage caused
forthwith
-22-
<PAGE>
2. The Landlord shall not substantially interfere with or affect the quiet
enjoyment and use of the demised premises by the Tenant
THE FOURTH SCHEDULE before referred to
Documents which affect or relate to the demised premises
All matters contained or referred to in the Property and Charges Register of
Title Number MK 438649
THE FIFTH SCHEDULE before referred to
THE REGULATIONS
1. No permanent open storage shall be permitted on the demised premises
without the consent of the Landlord first being obtained in writing
2. No rubbish or waste materials paper wood or other combustible matter shall
be deposited outside the buildings on the demised premises or shall be
burnt on the demised premises except within boilers or incinerators
specifically designed for the purpose
3. No smoke or fumes or noxious smells shall be emitted from the demised
premises so as to cause (in the opinion of the Landlord or its Surveyor
acting reasonably) annoyance or interference with the proper enjoyment of
adjoining premises of the Landlord or its tenants or of the residences
adjoining or near the Estate
4. Tenants shall not use industrial machinery engines or equipment so as to
cause excessive noise or dust nuisance Any excess which (in the opinion of
the Landlord's Surveyor acting reasonably) is causing annoyance to
adjoining tenants of the Landlord or to the residential occupiers in the
vicinity shall be abated immediately upon notice
5. No vehicles cycles hand trucks or trailers shall be parked or left
unattended outside areas properly reserved for such parking or be allowed
to obstruct roadways into or on the demised premises or so as to prevent
ingress and egress of fire fighting equipment around the curtilage of a
building or buildings erected thereon
6. Tenants shall secure all buildings comprised in their demised premises by
locking all windows and doors therein outside normal working hours
7. Tenants shall provide facilities within the curtilage of their demised
premises for the keeping of refuse in proper receptacles readily
accessible for collection by the Public Cleansing Department of the local
authority or as regulated by that Department
8. Tenants shall not store inflammable materials explosive substances or
liquids except in proper containers or receptacles in accordance with
regulations enforceable by a competent authority and in any event not
abutting any boundary fences
-23-
<PAGE>
[LOGO] Edgerley Simpson
& Partners
SCHEDULE OF CONDITION
FOR THE PREMISES KNOWN AS
FALCON UNIT TWO, STONEFIELD WAY,
SOUTH RUISLIP, MIDDLESEX
-24-
<PAGE>
[LOGO] Edgerley Simpson
& Partners
SCHEDULE OF CONDITION ON FALCON UNIT TWO, STONEFIELD WAY, SOUTH RUISLIP,
MIDDLESEX
- --------------------------------------------------------------------------------
We hereby agree that the following Schedule of Condition is a true record of the
condition of the premises as at 28 January 1997.
In witness whereof we have set our hands this ________ day of _____ 1997
Signed
---------------------------------
For and on behalf of the Landlord
Witness:
Name: Address:
----------------------------- ------------------------
Occupation:
----------------------------- ------------------------
------------------------
Signed [illegible]
---------------------------------
For and on behalf of the Tenant
Witness: [illegible]
Name: T.M. Horner Address: 39 Dover Street
----------------------------- ------------------------
Occupation: Chartered Surveyor London
----------------------------- ------------------------
WIX 3R8
------------------------
2
<PAGE>
[LOGO] Edgerley Simpson
& Partners
SCHEDULE OF CONDITION ON FALCON UNIT TWO, STONEFIELD WAY, SOUTH RUISLIP,
MIDDLESEX
- --------------------------------------------------------------------------------
PREAMBLES
1.0 This Schedule of Condition has been prepared independently by Edgerley
Simpson & Partners to act as a record of the condition of the internal and
external parts of the premises known as Falcon Unit Two, Stonefield Way,
South Ruislip, Middlesex.
2.0 The schedule of photographs attached herein are deemed to form part of
this Schedule of Condition.
3.0 The Schedule was recorded on Wednesday 29th January 1997.
4.0 The partitioned rooms referred to in the text are indicated on the lease
plan.
5.0 Although the premises were vacant at the time of inspection, the presence
of floor coverings, suspended ceilings, storage, fittings, fixtures and
plant generally restricted the scope of the schedule.
6.0 It was not possible to record the condition of woodwork or other parts of
the premise which were covered unexposed or otherwise inaccessible. We are
therefore unable to record that such parts remain free from defect.
7.0 We were not able to record the condition of flues, ducts, voids or any
similarly enclosed areas. Access to which was not readily available at
the time of inspection. We are therefore unable to record that such areas
remain free from defect.
8.0 We were not able to carry out tests of electrical, mechanical, water,
drainage or other services and are unable to report that such parts remain
free from defect.
3
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
GENERAL DESCRIPTION
Unless otherwise stated in the text, the following descriptions are applicable
to all elements to which this Schedule refers.
CEILINGS
There is a suspended ceiling throughout the first floor and the main lobby area,
toilet accommodation and reception area on the ground floor. This ceiling
comprises a 1,200 mm x 300 mm mineral fibre tile supported on a metal concealed
grid support system. Integral lighting consists of recessed fluorescent light
fittings with reflectant diffusers arranged on a modular basis. Warm air heating
is also provided via ductwork to metal grills incorporated within the suspended
ceiling.
INTERNAL WALLS, COLUMN'S & PARTITIONS
External envelope walls to the ground floor consist of part glazed curtain
walling system comprising metal plastic coated sections and anti-sun glazing and
part painted blockwork panels.
External envelope walls to the first floor consist of part glazed curtain
walling system comprising metal plastic coated sections and anti-sun glazing and
part plastered and emulsion painted blockwork panels in between.
The columns throughout the demised premises are plastered and emulsion painted.
Internal room partitions are formed from a proprietary stud work system
comprising vinyl covered plasterboard panels and glazed vision panels.
DOORS
The main internal doors comprise solid timber laminated doors with Georgian
wired glass vision panels generally in timber painted frames. All doors are
generally provided with stainless steel ironmongery, kick plates and overhead
door closers.
Internal doors to the individual offices generally comprise hollow timber
varnished doors and frames with stainless steel ironmongery.
The toilet doors comprise solid timber laminated doors in timber painted frames
with stainless steel ironmongery, kick plates and overhead door closers.
4
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
The doors to the main external envelope comprise metal plastic coated doors with
fully glazed georgian wired panels.
FLOORS
The concrete floor to the ground floor of the demise is provided with a painted
finish to the north and south wing.
The reception area and main staircase lobby area is provided with quarry tiles
throughout.
The first floor of the demise is a solid concrete floor with under floor metal
bunking which has been covered throughout with a medium quality contract grade
carpet covering. A number of floor boxes have been provided to the open plan
office areas.
A new good quality broadloom carpet has been provided to the meeting room and
north west corner office on the first floor. A medium quality contract grade has
been provided to the staircase and landing area/corridor outside the toilets on
the first floor.
EXTERNAL WALLS
The external walls are a combination of cavity brickwork and blockwork panels
and sections of plastic coated metal frame curtain walling.
ELECTRICAL ENGINEERING SERVICES
Fluorescent light fittings are generally provided throughout the ground and
first floor areas.
A fire alarm installation is provided with control panel adjacent the main
entrance door and with fire alarm bells and break glass points adjacent fire
exit doors.
Half height perimeter three compartment bunking is generally provided to the
external walls at first floor level.
MECHANICAL ENGINEERING SERVICES
Warm air ducted heating is provided to the first floor and part second floor
through grills incorporated within the suspended ceiling.
Hot air fan heaters arc provided to the ground floor storage areas.
5
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
Radiators are provided to the perimeter of the building on the first floor and
in the main reception and lobby area at ground floor level.
6
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
INTERNALLY
GROUND FLOOR
SOUTH WING
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Emulsion painted concrete soffit is in a good
decorative condition.
Painted steel frame is in good decorative
condition.
2 no. strips of fluorescent light fittings in
working order.
- --------------------------------------------------------------------------------
Walls The curtain walling is generally in good condition
consistent with age.
The emulsion painted Clockwork walls are in good
decorative condition.
Emulsion painted columns are in good decorative
condition.
Painted timber skirtings are generally in good
decorative condition.
- --------------------------------------------------------------------------------
Doors The main door leading from the lobby area to the
south wing is in reasonable condition and working
order.
The fire exit door on the south elevation is in
reasonable condition consistent with age and is in
working order.
The loading bay door is in reasonable condition.
- --------------------------------------------------------------------------------
Floors Painted concrete floor is in reasonable decorative
condition. There are a number of minor shrinkages
to the concrete slab which generally follow the
lines of the individual bays.
There is an area of damp staining adjacent to the
loading bay doors and in the north west comer of
the area. The paint finish to the south west
corner is sightly rough in places.
- --------------------------------------------------------------------------------
7
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
NORTH WING
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Emulsion painted concrete soffit is in a good
decorative condition.
Painted steel frame is in good decorative
condition.
Fluorescent light fittings are in working order.
- --------------------------------------------------------------------------------
Walls The curtain walling is generally in good condition
consistent with age.
The emulsion painted blockwork walls are in good
decorative condition.
Emulsion painted columns are in good decorative
condition.
Painted timber skirtings are generally in good
decorative condition.
- --------------------------------------------------------------------------------
Doors The main door leading from the lobby area to the
north wing is in reasonable condition and working
order. There are 4 no. holes to the timber Same
where the overhead closer has been relocated.
There is a crack to the laminate from the vision
panel upwards on the lobby area side.
The fire exit door on the north elevation is in
reasonable condition consistent with age and is in
working order.
- --------------------------------------------------------------------------------
Floors Painted concrete floor is in reasonable decorative
condition. There are a number of minor shrinkage
cracks to the concrete slab which generally
follows the lines of the individual bays.
- --------------------------------------------------------------------------------
8
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
FEMALE WC
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Suspended ceiling generally in reasonable
condition consistent with age.
2 no. surface mounted light fittings in working
order.
- --------------------------------------------------------------------------------
Walls Emulsion painted walls in good condition.
Proprietary cubicle partitions in reasonable
condition, 1 no. hole in partition where metal ash
tray has been relocated.
- --------------------------------------------------------------------------------
Doors The toilet door is generally in good condition and
in working order.
Painted timber frame is in good condition.
- --------------------------------------------------------------------------------
Floors Tile flooring generally, in good condition and
consistent with age.
- --------------------------------------------------------------------------------
Fittings 1 no. vitreous china wash hand basin in reasonable
condition consistent with age.
Proprietary sanity unit in reasonable condition.
Mirrored panel above in good condition.
- --------------------------------------------------------------------------------
9
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
MALE WC
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Suspended ceiling generally in reasonable
condition consistent with age.
2 no. light fittings in working order.
- --------------------------------------------------------------------------------
Walls Emulsion painted walls in good condition.
Proprietary cubicle partitions in reasonable
condition.
- --------------------------------------------------------------------------------
Doors The toilet door is generally in good condition and
in working order.
Painted timber frame is in good condition.
- --------------------------------------------------------------------------------
Floors Tile flooring is generally in good condition and
consistent with age.
- --------------------------------------------------------------------------------
Fittings 1 no. vitreous china wash hand basin in reasonable
condition consistent with age.
Proprietary vanity unit in reasonable condition.
Mirrored panel above in good condition.
- --------------------------------------------------------------------------------
10
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
STAIRCASE LOBBY
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Suspended ceiling is in reasonable condition
consistent with age.
Domed light fittings are in reasonable condition
but lightly soiled.
- --------------------------------------------------------------------------------
Walls The curtain walling is generally in good condition
consistent with age.
Emulsion painted partitions are in good condition.
Plastic coated metal framed, georgian wired panel
partitions are in good condition.
Painted timber skirtings are in reasonable
decorative condition.
- --------------------------------------------------------------------------------
Doors The main entrance door to the building is
generally in good condition consistent with age
and is in working order.
The two doors exiting from the staircase lobby
area are in good condition and in working order.
- --------------------------------------------------------------------------------
Floors Quarry tiled flooring is in reasonable condition
consistent with age. There is an area of hollow
screed adjacent the female WC door which extends
to the male WC door.
Matting to the recessed matwell by the main
entrance door is heavily soiled and worn.
Carpet to the staircase treads and landing is new
and in good condition.
- --------------------------------------------------------------------------------
Staircase Metal painted staircase and railings are in good
decorative condition.
- --------------------------------------------------------------------------------
11
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
RECEPTION AREA
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Suspended ceiling in a reasonable condition
consistent with age.
Fluorescent light fitting in working order.
Plaster board panels to the bulk head over the
partitioned office are loose and requite refixing.
- --------------------------------------------------------------------------------
Walls The glazed curtain walling is generally in good
condition consistent with age.
Vinyl covering to the partitioned walls is
generally marked with minor stains and is poorly
hung.
Emulsion painted walls are in reasonable
decorative condition.
- --------------------------------------------------------------------------------
Doors Timber varnished door is in reasonable decorative
condition.
- --------------------------------------------------------------------------------
Floors Quarry floor tiling in a reasonable condition
consistent with age.
- --------------------------------------------------------------------------------
FIRST FLOOR
KITCHEN
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Suspended ceiling is in reasonable condition
consistent with age.
1 no. fluorescent light fitting is in working
order.
- --------------------------------------------------------------------------------
Walls Emulsion painted walls are in reasonable
decorative condition.
Glazed curtain walling is in a reasonable
condition consistent with age.
Painted timber skirtings are in reasonable
decorative condition.
- --------------------------------------------------------------------------------
Doors Main internal door to the kitchen is in reasonable
condition and in working order.
- --------------------------------------------------------------------------------
12
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Floors The floor tiling is in reasonable condition.
- --------------------------------------------------------------------------------
Fittings Sink/drainer unit top is heavily stained.
Base unit to sink is in poor condition with
defective hinges to the cupboard doors and timber
requires restaining.
Formica work top is in reasonable condition.
- --------------------------------------------------------------------------------
SOUTH WING
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Generally in a reasonable condition consistent
with age.
Fluorescent tube light fittings generally in
working order.
Metal extract grills are lightly soiled.
- --------------------------------------------------------------------------------
Walls Glazed curtain walling is generally in a good
condition consistent with age.
Emulsion painted walls are in a reasonable
decorative condition.
Vinyl wall coverings to the partitions are in a
reasonable condition.
2 no. holes to the partitioned walls between the
first two offices on the atrium elevation.
Painted timber skirtings are in reasonable
decorative condition.
- --------------------------------------------------------------------------------
Doors The main entrance door to the south wing is
generally in good condition consistent with age.
Fire exit door on the south elevation is in
reasonable condition and in working order,
although there is a gap between the bottom of the
door and the threshold.
Timber varnished office doors to the partitioned
offices are in fair condition and-working order,
although slightly scuffed and scratched in areas.
- --------------------------------------------------------------------------------
13
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Floors Generally the carpet is old and in a poor
condition throughout, with numerous areas of
staining.
A number of floor box lids are damaged with
defective hinges and a number of plastic caps are
missing.
- --------------------------------------------------------------------------------
NORTH WING
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Generally in a condition consistent with age.
Metal extract grills are lightly soiled.
- --------------------------------------------------------------------------------
Walls Glazed curtain walling is generally in a good
condition consistent with age.
Emulsion painted walls are in reasonable
decorative condition.
Vinyl wall coverings to the partitions are in a
fair condition but there are areas of
soiled/stained paper.
- --------------------------------------------------------------------------------
Doors The main entrance door to the north wing is
generally in good condition consistent with age.
Fire exit door on the north elevation is in
reasonable condition and in working order.
Timber varnished office doors are in fair
condition and working order, although slightly
scuffed and scratched in areas.
- --------------------------------------------------------------------------------
14
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Floors Generally the carpet is in a poor condition
throughout, with numerous areas of staining.
The broadloom carpet to the main meeting room and
office in the north west corner is new and in good
condition.
A number of floor box lids to the open plan office
area are damaged with defective hinges and a
number of plastic caps are missing.
- --------------------------------------------------------------------------------
15
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
FEMALE WC
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Suspended ceiling generally in reasonable
condition consistent with age.
Light fittings in working order.
Fluorescent light fitting above grill over wash
hand basin is in working order.
- --------------------------------------------------------------------------------
Walls Emulsion painted walls in good condition.
Proprietary cubicle partitions in reasonable
condition.
- --------------------------------------------------------------------------------
Doors The toilet door is generally in good condition and
in working order.
Painted timber frame is in good condition.
- --------------------------------------------------------------------------------
Floors Tile flooring generally in good condition and
consistent with age.
- --------------------------------------------------------------------------------
Fittings 2 no. vitreous china wash hand basin in reasonable
condition consistent with age.
Proprietary vanity unit in reasonable condition.
2no. holes in unit where original water heater was
fixed.
Mirrored panel above in good condition.
- --------------------------------------------------------------------------------
MALE WC
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Ceiling Suspended ceiling generally in reasonable
condition consistent with age.
Light fittings in working order.
Fluorescent light fitting above grill over wash
hand basin is in working order.
- --------------------------------------------------------------------------------
Walls Emulsion painted walls in good condition.
Proprietary cubicle partitions in reasonable
condition.
- --------------------------------------------------------------------------------
Doors The toilet door is generally in good condition and
in working order.
Painted timber frame is in good condition.
- --------------------------------------------------------------------------------
16
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Floors Tile flooring generally in good condition and
consistent with age.
- --------------------------------------------------------------------------------
Fittings 2 no. vitreous china wash hand basin in reasonable
condition consistent with age.
Proprietary vanity unit in reasonable condition.
2no. holes in unit where original water heater
fixed.
Mirrored panel above in good condition.
- --------------------------------------------------------------------------------
17
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
EXTERNALLY
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Roofs Proprietary roof cladding generally in reasonable
condition consistent with age.
Box gutters are lined and in fair condition.
- --------------------------------------------------------------------------------
Walls Facing brickwork is generally in good condition.
Areas of previous repairs to the brickwork; is
evident to the west and south elevations.
Small area of damaged brickwork adjacent to the
fire exit door to the north elevation.
2 no. paint marks to brickwork on west elevation.
Junction of glazed curtain walling on south west
corner is chipped/damaged.
- --------------------------------------------------------------------------------
Doors Loading bay door is in reasonabale condition.
- --------------------------------------------------------------------------------
Fire Escape Staircase Staircase is painted and is in reasonable
decorative condition although there are areas of
flaking paintwork and moss growth.
- --------------------------------------------------------------------------------
18
<PAGE>
[LETTERHEAD OF EDGERLEY SIMPSON & PARTNERS]
SCHEDULE OF CONDITION ON FALCON UNIT TWO,
STONEFIELD WAY, SOUTH RUISLIP, MIDDLESEX
- --------------------------------------------------------------------------------
ELECTRICAL ENGINEERING SERVICES
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Light Fittings Generally in working order.
- --------------------------------------------------------------------------------
Fire Alarm Appears to be in working order.
- --------------------------------------------------------------------------------
Electrical Installation Appears to be in working order.
- --------------------------------------------------------------------------------
MECHANICAL ENGINEERING SERVICES
- --------------------------------------------------------------------------------
LOCATION/ELEMENT CONDITION
- --------------------------------------------------------------------------------
Heating Appears to be in working order.
- --------------------------------------------------------------------------------
19
<PAGE>
9. No trade effluent shall be permitted to enter the surface water or foul
drains on the demised premises
10. Tenants shall provide and regularly maintain suitable fire fighting
equipment to the reasonable satisfaction of the Landlord or its Surveyor
and have at all times a valid Fire Certificate
11. The demised premises shall at no time be used for the manufacture storage
or sale of wine beer spirits or intoxicating liquors
THE COMMON SEAL of REAL )
ESTATE AND COMMERCIAL )
TRUST LIMITED was hereunto )
affixed in the presence of:-)
[LOGO]
/s/ [ILLEGIBLE}
Director
/s/ [ILLEGIBLE}
Secretary
<PAGE>
Exhibit 23.1
To 4Front Technologies, Inc.
We hereby consent to the inclusion of our Report on the audited financial
statements of 4Front Technologies, Inc. dated April 30, 1998, included in the
Company's Annual Report on Form 10K for the fiscal year ended January 31,
1998, into the Company's Registration Statements on Form S-8, Nos 333-27905
and 333-43813.
KPMG
Chartered Accountants
Registered Auditors
London, England
April 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 4,586,000
<SECURITIES> 0
<RECEIVABLES> 18,809,000
<ALLOWANCES> 452,000
<INVENTORY> 11,852,000
<CURRENT-ASSETS> 36,915,000
<PP&E> 7,262,000
<DEPRECIATION> 4,407,000
<TOTAL-ASSETS> 59,208,000
<CURRENT-LIABILITIES> 35,974,000
<BONDS> 0
0
0
<COMMON> 24,877,000
<OTHER-SE> (3,283,000)
<TOTAL-LIABILITY-AND-EQUITY> 59,208,000
<SALES> 84,145,000
<TOTAL-REVENUES> 84,145,000
<CGS> 54,662,000
<TOTAL-COSTS> 54,662,000
<OTHER-EXPENSES> 24,557,000
<LOSS-PROVISION> 452,000
<INTEREST-EXPENSE> 632,000
<INCOME-PRETAX> 4,118,000
<INCOME-TAX> 1,049,000
<INCOME-CONTINUING> 3,069,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,069,000
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.43
</TABLE>
