-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ETlf41gF+JRvPEHmSGMdybGAkOJI7cCUliOtSsYNBZV6aLDgLlId/3OaMQI5BI0r ahCyTvvlIW1Jn6fVe9YASw== 0001047469-98-035058.txt : 19980922 0001047469-98-035058.hdr.sgml : 19980922 ACCESSION NUMBER: 0001047469-98-035058 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19980921 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IT STAFFING LTD CENTRAL INDEX KEY: 0001070630 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-63909 FILM NUMBER: 98712542 BUSINESS ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: M5J 2H7 BUSINESS PHONE: 4163648800 MAIL ADDRESS: STREET 1: 55 UNIVERSITY AVE STE 505 STREET 2: TORONTO, ONTARIO, CANADA CITY: MCJ 2H7 SB-2 1 SB-2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1998 REGISTRATION STATEMENT NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ IT STAFFING LTD. (Name of small business issuer as specified in its charter) ------------------------------ ONTARIO 7370 52-209027 (State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.) incorporation or organization) Classification Code Number)
------------------------ 55 UNIVERSITY AVENUE TORONTO, ONTARIO, CANADA M5J 2H7 (416) 364-8800 (Address and telephone number of principal executive offices and principal place of business) ------------------------------ JAY M. KAPLOWITZ, ESQ. DECLAN A. FRENCH, PRESIDENT ARTHUR S. MARCUS, ESQ. IT STAFFING LTD. GERSTEN, SAVAGE, KAPLOWITZ & FREDERICKS, 55 UNIVERSITY AVENUE LLP TORONTO, ONTARIO, CANADA M5J 2H7 101 EAST 52ND STREET, 9TH FLOOR (416) 364-8800 NEW YORK, NEW YORK 10022 (212) 752-9700 (212) 752-9713 (FAX) (Name, address and telephone number of agents for service)
------------------------ COPIES TO: JAY M. KAPLOWITZ, ESQ. ROBERT STEVEN BROWN, ESQ. ARTHUR S. MARCUS, ESQ. DAVID A. COLLINS, ESQ. GERSTEN, SAVAGE, KAPLOWITZ BROCK SILVERSTEIN MCAULIFFE LLC & FREDERICKS, LLP ONE CITICORP CENTER, 56TH FLOOR 101 EAST 52ND STREET, 9TH FLOOR NEW YORK, NEW YORK 10022-4611 NEW YORK, NEW YORK 10022 (212) 371-2000 (212) 752-9700 (212) 371-5500 (FAX) (212) 752-9713 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: /X/ ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION SECURITIES BEING REGISTERED REGISTERED PER SECURITY PRICE FEE Common Shares, no par value...................... 1,150,000(1) $5.00 $5,750,000 $1,949.16 Representative's Warrants........................ 100,000 $.001 $100 -- (2) Common Shares, no par value, issuable on Exercise of Representative's Warrants(3)................ 100,000 $5.50 $550,000 186.45 Total Registration Fee........................... $6,300,000 $2,135.61
(1) Includes up to 150,000 Common Shares, no par value issuable upon exercise of the Underwriters' over- allotment option. (2) No fee due pursuant to Rule 457(g). (3) To be acquired by the Representative. SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 1998 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS IT STAFFING LTD. 1,000,000 COMMON SHARES IT Staffing Ltd., an Ontario corporation (the "Company"), hereby offers 1,000,000 common shares (the common shares offered hereby shall be referred to as the "Shares"), no par value. Prior to this offering, there has been no market for the Company's common shares ("Common Shares"), and there can be no assurance that a market will develop for the Company's securities in the future or that, if developed, it will be sustained. Application has been made for the quotation of the Common Shares on the Nasdaq SmallCap-Registered Trademark-Market under the symbol "ITSTF" and application has been made for the listing of the Common Shares on the Boston Stock Exchange under the symbol "ITS." The initial public offering price of the Shares will be determined by negotiation between the Company and the Representative and will not necessarily bear any direct relationship to the Company's assets, earnings, book value per share or other generally accepted indicia of value. See "Underwriting." It is currently contemplated that the initial public offering price per Share will be $5.00. SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS (1) COMPANY(2) Per Share....................................... $5.00 $.50 $4.50 Total(3)........................................ $5,000,000 $500,000 $4,500,000
(1) Does not include additional consideration to be paid to Strasbourger Pearson Tulcin Wolff Incorporated, as the representative (the "Representative") of the several underwriters (the "Underwriters"), consisting of: (i) a non-accountable expense allowance; (ii) warrants (the "Representative's Warrants") to purchase an aggregate of 100,000 Common Shares (the "Warrant Shares"); and (iii) a 24-month consulting agreement. In addition, the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See Underwriting." (2) Before deducting expenses of this offering payable by the Company, including the Representative's non-accountable expense allowance, and assuming no exercise of the Underwriters' over-allotment option. (3) The Company has granted the Underwriters a 45-day option to purchase up to an additional 150,000 Common Shares, on the same conditions as set forth above, solely to cover over-allotments, if any (the "Over-Allotment Option"). If the Underwriters exercise such option in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $5,750,000, $575,000 and $5,175,000, respectively. See "Underwriting." ------------------------ The Shares are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to, and accepted by, them and subject to their right to reject orders in whole or in part and to certain other conditions. It is expected that delivery of the certificates representing the Shares will be made against payment therefor at the offices of Strasbourger Pearson Tulcin Wolff Incorporated on or about , 1998. [STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED] THE DATE OF THIS PROSPECTUS IS , 1998 THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS AND TO MAKE AVAILABLE QUARTERLY REPORTS FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED INTERIM FINANCIAL STATEMENTS. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES, INCLUDING PURCHASES OF COMMON SHARES TO STABILIZE THEIR MARKET PRICE, PURCHASES OF COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN COMMON SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF THE SECURITIES LAWS OF ANY PROVINCE OR TERRITORY OF CANADA. ENFORCEABILITY OF CIVIL LIABILITIES The Company's headquarters are located in, and its officers, directors and auditors are residents of, Canada and a substantial portion of the Company's assets are, or may be, located outside the United States. Accordingly, it may be difficult for investors to effect service of process within the United States upon non-resident officers and directors, or to enforce against them judgments obtained in the United States courts predicated upon the civil liability provision of the Securities Act or state securities laws. The Company has been advised by its Canadian legal counsel, McMillan Binch, that there is doubt as to the enforceability in Canada against the Company or against any of its directors, controlling persons, officers or the experts named herein, who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities predicated solely upon U.S. federal securities laws. Service of process may be effected, however, upon the Company's duly appointed agent for service of process, Gersten, Savage, Kaplowitz & Fredericks, LLP, New York, New York. If investors have questions with regard to these issues, they should seek the advice of their individual counsel. The Company has also been informed by its Canadian legal counsel, McMillan Binch that, pursuant to the Currency Act (Canada), a judgment by a court in any Province of Canada may only be awarded in Canadian currency. Pursuant to the provision of the Courts of Justice Act (Ontario), however, a court in the Province of Ontario shall give effect to the manner of conversion to Canadian currency of an amount in a foreign currency, where such manner of conversion is provided for in an obligation enforceable in Ontario. 2 EXCHANGE RATE DATA The Company maintains its books of account in Canadian dollars, but has provided the financial data in this Prospectus in United States dollars and on the basis of generally accepted accounting principles as applied in the United States, and its audit has been conducted in accordance with generally accepted auditing standards in the United States. All references to dollar amounts in this Prospectus, unless otherwise indicated, are to United States dollars. The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars. Such rates are the number of United States dollars per one Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank of New York for Canadian dollars per US$1.00. The average exchange rate is based on the average of the exchange rates on the last day of each month during such periods. On September 16, 1998, the exchange rate was Cdn$1.00 per US$0.6651.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------- -------------------- 1995 1996 1997 1997 1998 --------- --------- --------- --------- --------- Rate at end of period.................. $ 0.7323 $ 0.7301 $ 0.6999 $ 0.7241 $ 0.6795 Average rate during period............. 0.7305 0.7332 0.7220 0.7268 0.6931 High................................... 0.7527 0.7513 0.7487 0.7487 0.7105 Low.................................... 0.7023 0.6945 0.6945 0.7145 0.6782
3 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED HEREIN, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO (I) THE REPRESENTATIVE'S WARRANTS OR THE EXERCISE THEREOF; (II) THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR THE EXERCISE THEREOF; (III) UP TO 435,000 COMMON SHARES RESERVED FOR ISSUANCE UPON THE EXERCISE OF OPTIONS WHICH MAY BE GRANTED PURSUANT TO THE COMPANY'S 1998 STOCK OPTION PLAN (THE "PLAN"), OPTIONS EXERCISABLE FOR 50,000 OF WHICH HAVE BEEN GRANTED TO DATE; AND (IV) UP TO 222,125 COMMON SHARES ISSUABLE UPON THE EXERCISE OF OPTIONS AND WARRANTS OUTSTANDING ON THE DATE OF THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, THE INFORMATION HEREIN REFLECTS A 1.31 FOR ONE STOCK SPLIT EFFECTED PRIOR TO THE DATE OF THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO IT STAFFING LTD., AND ITS WHOLLY OWNED SUBSIDIARIES SYSTEMSEARCH CONSULTING SERVICES INC. ("SCI"), SYSTEMS PS INC. ("SPSI," AND COLLECTIVELY WITH SCI , "SYSTEMS"), AND INTERNATIONAL CAREER SPECIALISTS LTD. ("ICS"). THE OPERATIONS OF THE COMPANY EXCLUSIVE OF ICS AND SYSTEMS SHALL BE REFERRED TO AS THE "IT STAFFING DIVISION." THE COMPANY The Company is a provider of information technology ("IT") staffing services, primarily in Canada, supplying qualified IT professionals to its customers as independent contractors for short and long term assignments and for permanent placement within such enterprises. The Company's customers include financial service companies, software and other technology companies, Canadian governmental entities and large multinational companies, including Merrill Lynch Canada, Inc., the Bank of Montreal, Bell Sygma Telecom, and American Express. The Company has recently expanded its operations into the United States and intends to develop a network of offices to provide IT staffing services throughout North America. The Company has focused on the recruitment of highly qualified IT professionals and utilizes established testing methods to ensure that its IT professionals satisfy the Company's internal criteria. The Company also reviews candidates' technical background and conducts preliminary interviews prior to referring candidates to its customers. By attracting the most qualified IT professionals, the Company believes that it will be able to attract high quality customers, who require the services of such professionals. Since inception, the Company has pursued a strategy of developing and utilizing technology that will provide it a competitive advantage. As a result, the Company believes that one of its primary competitive strengths is its utilization of technology. The Company maintains a database of 35,000 IT professionals and advertises on the Internet to attract both candidates and customers. The Company uses HR Workbench, software developed by the Company in conjunction with Great Lakes Research and Development ("Great Lakes"), to locate the IT professionals in the Company's database with the technical skills and job interests that best satisfy the requirements of the position that the Company is attempting to staff. The database allows all of the Company's recruiters immediate access to active candidates. Candidates can register themselves directly into the database through the Internet or be entered into the system by the Company's recruiters. The Company and Great Lakes have developed and are in the process of testing an additional software product called AppTracker, which the Company, through a joint venture with Great Lakes, intends to market to human resource departments during the year ending December 31, 1999. The software is designed to aid human resource departments in performing numerous recruitment tasks, such as scheduling interviews and evaluating candidates. Statistics about the recruitment process, including the costs and expenses, are tabulated in various databases. The Company believes that it will have an advantage in marketing its staffing services to companies using the AppTracker because of the Company's familiarity with the software and the ease of electronic data interchange ("EDI") with the Company. 4 According to the STAFFING INDUSTRY REPORT, a leading industry publication, revenue for the year ended December 31, 1997 for IT staffing services (which includes revenue for permanent placement services and for supplying contract services) in the United States is estimated to have been approximately $14.8 billion, an increase of 27% over the year ended December 31, 1996. The market for IT staffing services in Ontario, Canada, the Company's largest market, is estimated to have been approximately $700 million in the year ended December 31, 1997. Although there can be no assurance that growth will continue at such rates, or at all, the Company believes that such growth will continue as a result of the following factors: (i) the hiring of the proper IT professional for a particular project may require technical knowledge that many human resource departments do not possess; (ii) there exists a shortage of IT professionals in the United States and Canada and many companies lack the time and resources to conduct a proper search; (iii) increased specialization and sophistication of IT requirements; (iv) costs associated with termination of employees, as compared to independent contractors, following the completion of a project; and (v) the costs associated with the benefits received by employees, as compared to independent contractors. The Company's business objectives are to increase its share of the IT staffing services market in Canada and the United States, as well as to establish a network of offices throughout such countries which, when linked by means of the Internet, will allow the Company to provide its customers with an array of IT staffing services. The primary components of the Company's strategy to achieve such objectives are as follows: - Leverage client base to attract and retain highly qualified IT professionals. - Focus on niche markets - Expand into new regional markets by opening new offices or acquiring competitive or complementary companies. - Continue to utilize the internet and information technology to provide a competitive advantage. - Develop and promote a managed services practice. - Capitalize on the Year 2000 and other opportunities. The Company's headquarters are located at 55 University Avenue, Suite 505, Toronto, Ontario, Canada M5J 2H7. The Company also maintains offices in New York, New York; Tampa, Florida; Etobicoke, Ontario; and Scarborough, Ontario and is currently opening offices in Indian Wells, California and Ottawa, Ontario. The Company was incorporated under the laws of the Province of Ontario, Canada in February 1994. The Company maintains its Web-site at http:/ /itstaff.com and has registered the Internet domain name of itstaff.org and itstaff.net. Information contained on the Company's Web site is not a part of this Prospectus and must not be relied upon in evaluating an investment in the Common Shares offered hereby. This Prospectus contains trade names, service marks and trademarks of the Company and others, all of which are the property of their respective owners. 5 THE OFFERING Securities offered by the Company............ 1,000,000 Common Shares Common Shares outstanding prior to this offering................................... 1,677,876 Common Shares outstanding immediately following this offering.................... 2,677,876 Use of Proceeds.............................. To expand into new regional markets by opening new offices and acquiring complementary or competitive companies, to capitalize a joint venture to develop and market the AppTracker software, and for general corporate and working capital purposes. See "Use of Proceeds." Proposed Nasdaq SmallCap-Registered Trademark- Market Trading Symbol(1).......................... ITSTFq Proposed Boston Stock Exchange trading symbol(1).................................. ITS
- ------------------------ (1) The proposed symbols do not imply that a liquid and active market will develop or be sustained for the Shares upon completion of this offering. 6 SUMMARY COMBINED FINANCIAL INFORMATION
YEAR ENDED, DECEMBER SIX MONTHS ENDED 31, JUNE 30, -------------------- -------------------- 1996 1997 1997 1998 --------- --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Revenue..................................................................... $ 764 $ 4,704 $ 2,156 $ 5,318 Gross profit................................................................ 505 1,816 870 2,198 Operating Expenses.......................................................... 469 1,615 713 1,810 Income from operations...................................................... 36 201 157 388 Net income.................................................................. 30 154 139 253 Earnings per share.......................................................... .03 .12 .11 .13 Weighted Average Number of Shares Outstanding............................... 1,201 1,309 1,309 1,821
AS OF JUNE 30, 1998 -------------------------- ACTUAL AS ADJUSTED(1) --------- --------------- BALANCE SHEET DATA Working capital........................................................................... 576 4,066 Total assets.............................................................................. 3,124 6,964 Long-term debt............................................................................ 414 414 Total liabilities......................................................................... 1,554 1,554 Shareholders' equity...................................................................... 1,571 5,411
- ------------------------ (1) As adjusted to reflect the sale by the Company of the 1,000,000 Shares offered hereby at an assumed initial public offering price $5.00 per Share and the initial application of the net proceeds therefrom. See "Use of Proceeds." 7 RISK FACTORS AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK, AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER MATTERS REFERRED TO HEREIN, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO, THE FOLLOWING RISK FACTORS. PROSPECTIVE INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. ABILITY TO ATTRACT AND RETAIN QUALIFIED IT PROFESSIONALS. The Company's future success will depend on its ability to attract qualified IT professionals with the technical skills and experience necessary to meet its customers' requirements for technical personnel and to retain a sufficient number of professionals to fulfill its customers needs for contract workers. Competition for individuals with proven technical skills, particularly in the Windows, Unix, computer aided design, distributed computing and other technology environments for which the Company provides services, is intense, and the Company expects that competition for IT professionals will increase in the future. Furthermore, IT professionals typically provide services on an assignment-by-assignment basis and can terminate an assignment with the Company at any time. The Company competes for such individuals with other providers of IT staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services, and temporary personnel agencies. Many of the IT professionals who have been placed by the Company accept assignments from the Company's competitors and there can be no assurance such IT professionals will not choose to work for competitors on future assignments. There also can be no assurance that the Company will be able to attract and retain qualified IT professionals in sufficient numbers in the future. The Company's revenue in any period is a function of, among other things, the number of IT professionals it has on staff and engaged on assignments. In the event that the Company is unable to attract or retain such personnel when required and on terms acceptable to the Company, the Company's business, prospects, financial condition and results of operations would be materially adversely affected. See "Business-- Business Strategy" and "Business--Competition." HIGHLY COMPETITIVE MARKET. The IT staffing industry is highly competitive and fragmented and is characterized by low barriers to entry. The Company competes for potential customers with other providers of IT staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services, and temporary personnel agencies. Many of the Company's current and potential competitors have longer operating histories, significantly greater financial, marketing and human resources, greater name recognition and a larger base of IT professionals and customers than the Company, which may give such competitors a competitive advantage when compared to the Company. In addition, many of these competitors, including numerous smaller privately held companies, may be able to respond more quickly to customer requirements and to devote greater resources to the marketing of services than the Company. Because there are relatively low barriers to entry in the staffing industry, the Company expects that competition will increase in the future. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, prospects, financial condition and results of operations. Further, there can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not have a material adverse effect on its business, prospects, financial condition and results of operations. See "Business--Competition." RISKS INHERENT IN EXPANSION INTO NEW MARKETS AND OPERATIONS. The Company's expansion plans depend on its ability to enter new regional markets, successfully expand existing operations and add additional areas of expertise within its existing regional markets. This expansion is dependent on a number of factors, including the Company's ability to: attract, hire, integrate and retain qualified employees, such 8 as experienced recruiters; develop, recruit and maintain a base of qualified IT professionals within each regional market in which the Company conducts or commences to conduct operations; accurately assess the level of demand for the Company's services in such markets; and initiate, develop and sustain corporate client relationships in each new regional market. There can be no assurance that the addition of qualified employees and entrance into new regional markets will occur on a timely basis or achieve anticipated financial results. The addition of qualified employees and entrance into new regional markets typically results in increases in operating expenses, primarily as a result of increased salaries and related expense. Expenses are incurred in advance of forecasted revenue, and there is typically a delay before the Company's newly hired recruiters and sales employees reach full productivity. If the Company is unable to hire additional qualified employees or enter new regional markets in a cost-effective manner or if those employees and offices in regional markets do not achieve anticipated financial results, the Company's business, prospects, financial condition and results of operations could be materially adversely affected. Failure to expand into new markets could hinder the Company's ability to attract multinational and other large corporations which could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Business Strategy." RISK OF PAYROLL TAX LIABILITY; INCREASED COSTS FOR CONTRACT WORKERS. The Company has determined to classify its IT professionals providing contract services in the United States as independent contractors rather than employees. Accordingly, the Company has not withheld payroll taxes, social security taxes, unemployment taxes and workers compensation insurance, with respect to such IT professionals or recorded a reserve on its financial statements for such taxes and payments. Although such determination is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the rules and regulations thereunder, and the publicly available interpretations of the United States Internal Revenue Service (the "IRS"), such determination is not free from doubt. In the event that the Code, such rules and regulations or such interpretations should be amended or otherwise require the Company to classify such IT professionals as employees, the Company would be subject to a material liability for failure to withhold and pay such taxes and insurance, which could have a material adverse effect on the business, prospects, financial condition and results of operation of the Company. In addition, in such event, the Company's costs of revenues would increase materially, which would have a material adverse effect on the business, prospects, financial condition and results of operations of the Company. Similarly, the Company has determined to classify its IT professional providing contract services in Canada as independent contractors rather than employees. Accordingly, the Company has not withheld Pension Canada and unemployment insurance with respect to such IT professionals nor has it created a reserve on its financial statements for such taxes and payments. Although such determination is based upon the relevant Canadian law, such determination is not free from doubt. In the event that such law was amended or would otherwise require the Company to classify such IT professional as employees, the Company would be subject to a significant liability for failure to make such payments when due. Although such payments are significantly less than payroll taxes in the United States, classification of its independent contractors as employees would increase the Company's cost of revenues which would have a material adverse effect on the business, prospects, financial condition and results of operations of the Company. FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly operating results have in the past and may in the future fluctuate significantly depending on a number of factors, including, but not limited to, the rate of hiring and the productivity of revenue-generating personnel; the availability of qualified IT professionals; changes in the Company's relative mix of contract services and permanent placement services; changes in the pricing of the Company's services; the timing and rate of commencement of operations in new regional markets; departures or temporary absences of key sales people or recruiters; the structure and timing of acquisitions; changes in the demand for IT professionals; and general economic and industry conditions. In addition, because the Company often provides services on an assignment-by-assignment basis, which customers can terminate at any time, there can be no assurance that existing 9 customers will continue to use the Company's services at historical levels. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In the event the Company's operating results fall below the expectations of public market analysts and investors, the market price of the Common Shares would likely be materially adversely affected. Although the Company has experienced substantial revenue growth in recent years, there can be no assurance that, in the future, the Company will be able to sustain revenue growth or profitability on a quarterly or annual basis at historical levels. See "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISKS OF ACQUISITIONS. A component of the Company's expansion strategy is the acquisition of complementary or competitive companies. The successful implementation of this strategy is dependent upon the Company's ability to identify suitable acquisition candidates, obtain requisite financing, acquire such companies on suitable terms and integrate their operations successfully with those of the Company. This strategy will entail reviewing and potentially reorganizing acquired business operations, corporate infrastructure and systems and financial controls. Unforseen expenses, difficulties, complications and delays frequently encountered with acquisitions could inhibit the Company's growth and have a material adverse effect on the business, prospects, financial condition and results of operation of the Company. To date, the Company has completed two acquisitions. There can be no assurance that the Company will be able to identify additional suitable acquisition candidates or that the Company will be able to acquire such candidates on favorable terms. Moreover, other providers of IT professional services are also competing for acquisition candidates, which could result in an increase in the price of acquisition targets and a diminished pool of companies available for acquisition. Acquisitions also involve a number of other risks, including adverse effects on the Company's reported operating results from increases in amortized goodwill and interest expense, the diversion of management attention and the subsequent integration of acquired companies. To the extent the Company seeks to acquire complementary or competitive companies for cash, the Company may be required to obtain additional financing, and there can be no assurance such financing will be available when required, on favorable terms or at all. In addition, if the Company issues Common Shares to complete any future acquisitions, existing shareholders will experience further dilution in ownership. As a result of the foregoing, acquisitions may have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Business--Business Strategy." INTEGRATION OF ICS AND SYSTEMS. In May 1998, the Company acquired ICS and, in April 1998, the Company acquired Systems. These companies now operate as separate divisions within the Company. The integration of ICS and Systems, their respective customers, IT professionals and employees has required a substantial portion of management's time and attention, and has resulted in integration related expenses. The Company expects that it may incur additional integration related expenses in future periods, and there can be no assurance that the integration of ICS and Systems will not involve disruptions or difficulties, such as, departures of customers, IT professionals or employees, any of which may have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISK OF IT SYSTEM CAPACITY CONSTRAINTS; RISK OF SYSTEM FAILURE. A key element of the Company's expansion strategy is to utilize the Internet (i) to link its regional offices to its central database, (ii) to offer its staffing services to existing and potential customers, (iii) to attract and recruit qualified technical personnel, and (iv) to promote the Company. The Company anticipates that its expansion will require a high volume of traffic on, and use of, its Web site. Accordingly, the satisfactory performance, reliability and availability of the Company's Web site and network infrastructure are and will be critical to the Company's reputation and its ability to attract and retain customers and technical personnel and to maintain adequate customer service levels. Any system interruptions that result in the reduced availability of the Company's 10 Web site or reduced performance of such site would interfere substantially with the communications between the Company's offices and would materially adversely affect the ability of the Company to attract new customers and technical personnel. While the Company has not experienced any system interruptions, it believes that such interruptions may occur from time to time. Any substantial increase in the volume of traffic on the Company's Web site will require the Company to expand and upgrade further its network infrastructure, including the purchase or development of additional computer hardware and software. There can be no assurance that the Company will be able to accurately project the rate or timing of increases, if any, in the use of its Web site or timely expand and upgrade its systems and infrastructure to accommodate such increases. The Company's inability to add required additional software and hardware or to develop and upgrade its technology or network infrastructure to accommodate increased traffic on its Web site may cause unanticipated system disruptions, slower response times, impediments to attracting additional customers and delays in locating required technical personnel. In addition, although the Company takes safeguards, including data encryption and firewalls, to prevent unauthorized access to Company data, it is impossible to completely eliminate this risk. Any of the foregoing events could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. See "Business--Business Strategy." DEPENDENCE ON HR WORKBENCH. The Company is substantially dependent on HR Workbench, a software product recently developed in conjunction with Great Lakes, for the day to day operation of its business, including the operation and maintenance of its database. Although the Company has operated and tested such software extensively, there can be no assurance that such software will function as intended or that it will provide the Company with any competitive advantage. See "Business--Information Technology and the Internet." RISKS ASSOCIATED WITH THE APPTRACKER SOFTWARE. The Company, through a joint venture with Great Lakes, has developed AppTracker and intends to market such software to the human resources markets. AppTracker is still in the testing stage, and there can be no assurance that the Company and Great Lakes will be able to produce a fully functioning product or that such software will function as intended. Neither the Company nor Great Lakes have any experience in marketing software products and, even if the product is developed, there can be no assurance that there will be a market for such a product. The success of AppTracker is substantially dependent on the Company's relationship with Great Lakes and subject to the risk that the parties may disagree on strategy or other issues, causing delays in the project. There can be no assurance that AppTracker will ever be completed, will ever provide the Company with revenue, or that the joint venture regarding AppTracker will ever be profitable. Furthermore, there can be no assurance that AppTracker will create opportunities for the Company to promote the Company's IT staffing services, that the use of AppTracker by the Company's customers will not result in a reduction in the use of the Company's services, or that the Company's competitors will not be able to utilize EDI and other benefits of AppTracker to also provide enhanced services to customers. See "Business--Information Technology and the Internet." LIABILITY RISKS. Although the Company's customer agreements disclaim responsibility for the conduct of IT professionals provided by the Company, the Company may be exposed to liability with respect to actions taken by its IT professionals while on assignment, such as damages caused by errors of IT professionals, misuse of client proprietary information or theft of client property. Although the Company maintains insurance coverage, due to the nature of the Company's assignments, and in particular the access by IT professionals to client information systems and confidential information and the potential liability with respect thereto, there can be no assurance that such insurance coverage will continue to be available on reasonable terms, or at all, or that it will be adequate to cover any such liability. Although the IT professionals providing the Company's contract services are independent contractors, the Company employs recruiters, sales personnel and others and is therefore exposed to possible claims of wrongful discharge and violations of immigration laws. Employment related claims may result in negative publicity, litigation and liability for money damages and fines. 11 DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend to a significant extent on the efforts of its key management personnel, particularly Declan French, the Company's Chairman of the Board of Directors, President and Chief Executive Officer, John A. Irwin, President of ICS, and John R. Wilson, President of Systems. The loss or unavailability of any of these key employees could have a material adverse effect on the Company's business, prospects, financial condition and results of operations. In addition, the Company believes that its future success will depend in large part upon its continued ability to attract and retain highly qualified recruiters, who often serve as the contact person for the Company's customers. There can be no assurance that the Company will be able to attract and retain the qualified personnel necessary for its business. See "Management." SUBSTANTIAL INFLUENCE OF EXISTING MANAGEMENT. Upon the completion of this offering, the current directors and executive officers of the Company will, in the aggregate, beneficially own approximately 1,396,413 Common Shares, or 51.7% of the outstanding Common Shares, or approximately 49.0% of such outstanding Common Shares if the Underwriters' over-allotment option is exercised in full. As a result, the current executive officers and directors of the Company will have the ability to substantially influence the outcome of all matters on which shareholders are entitled to vote, including the elections of the Company's directors and the approval of significant corporate transactions. See "Principal Shareholders." POTENTIAL ANTI-TAKEOVER EFFECT OF PREFERRED SHARES. The Company's Certificate of Incorporation, as amended, authorizes the Board of Directors to issue up to 1,000,000 preferred shares, which may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by shareholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. No preferred shares are currently outstanding, and the Company has no present plans for the issuance of any preferred shares. However, the issuance of any such preferred shares could materially adversely affect the rights of holders of Common Shares and, therefore, could reduce the value of the Common Shares. In addition, specific rights granted to future holders of preferred shares could be used to restrict the Company's ability to merge with, or sell its assets to, a third party. The ability of the Board of Directors to issue preferred shares could discourage, delay or prevent a takeover of the Company, thereby preserving control of the Company by the current shareholders. See "Description of Securities--Preferred Shares." INDUSTRY AND GEOGRAPHIC CONCENTRATION. The Company's business is dependent on the trends prevalent in, and the continued growth and rate of change of, the high technology industry. Furthermore, for the year ended December 31, 1997 and six months ended June 30, 1998, 96% and 99% of the Company's revenue, respectively, was derived by providing services to customers in the metropolitan Toronto region. A substantial deterioration in general economic conditions in such region or in the high technology industry as a whole would have a material adverse affect on the Company's business, prospects, financial condition and results of operations. See "Business--Customers." INTELLECTUAL PROPERTY; ABSENCE OF PATENT PROTECTION. The Company's ability to compete effectively will depend on its ability to maintain the proprietary nature of its technology, including its proprietary software developed in conjunction with Great Lakes. The Company holds no patents and relies on a combination of trade secrets and copyright laws, non-disclosure and other contractual agreements and technical measures to protect its rights in its technological know-how and proprietary services. The Company currently has no registered trademarks or service marks, but intends to seek such protection for the HR Workbench and AppTracker names. The Company depends upon confidentiality agreements executed by officers, employees, consultants and customers of the Company to maintain the proprietary nature of its technology. These measures may not afford the Company sufficient or complete protection, and there can be no assurance that others will 12 not independently develop technologies similar to those of the Company, otherwise avoid the confidentiality agreements of the Company or produce patents and copyrights that would materially adversely affect the Company's business, prospects, financial condition and results of operations. The Company believes that its know-how and technologies do not infringe upon the patents or copyrights of any third parties; however, there can be no assurance that the Company's know-how and technology will not be found to infringe upon the rights of third parties. The Company is aware of another company in its industry that uses a name which may be deemed to be confusingly similar to the Company. Others may assert infringement claims against the Company, and if the Company should be found to infringe upon the patents or copyrights, or otherwise impermissibly utilize the intellectual property, of others, the Company's ability to utilize the technology referred to herein could be materially restricted or prohibited. If such an event occurs, the Company may be required to obtain licenses from such third parties, enter into royalty agreements or redesign its products so as not to utilize such intellectual property, each of which may prove to be uneconomical or otherwise impossible. There can be no assurance that any licenses or royalty agreements required with respect to any such proprietary rights could be obtained on terms acceptable to the Company or such third party, or at all. Such claims could result in litigation, which could materially adversely affect the Company's business, prospects, financial condition and result of operations. See "Business--Information Technology and the Internet." UNTESTED MARKETING STRATEGY. To date, the Company has engaged in limited marketing efforts in the United States. Achieving market penetration will require significant efforts by the Company to create awareness of, and demand for, the Company's staffing services. The Company intends to upgrade its marketing efforts to include advertising on the Internet, e-mail and an expanded sales and recruiting staff. Internet and e-mail marketing efforts have been largely untested in the marketplace, and there can be no assurance that such efforts will result in the increased provision by the Company of staffing services. The failure of the Company to develop its marketing capabilities or successfully market its staffing services would have a material adverse effect on the Company's business, prospects, financial condition, and results of operations. See "Use of Proceeds," "Business--Business Strategy," and "Business--Customers." FOREIGN EXCHANGE RISK. During the years ended December 31, 1996 and 1997, and the six months ended June 30, 1998, approximately 100%, 96% and 99%, respectively, of the Company's revenue was in Canadian dollars. Accordingly, the relationship of the Canadian dollar to the value of the United States dollar may materially affect the Company's operating results. In the event that the Canadian dollar were materially devalued against the United States dollar, the Company's operating results could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; VOLATILITY; NASDAQ MAINTENANCE REQUIREMENTS. Prior to this offering, there has been no public market for the Shares, and there can be no assurance that any active trading market will develop or, if any such market develops, that it will be sustained. Accordingly, unless and until a public market develops, purchasers of the Shares may experience difficulty selling or otherwise disposing of such securities. The initial public offering price of the Shares was arbitrarily determined by negotiations between the Company and the Representative, and does not necessarily bear any relationship to the Company's assets, book value, results of operations, or any other generally accepted indicia of value. See "Underwriting." From time to time after this offering, there may be significant volatility in the market price of the Common Shares. Quarterly operating results of the Company or other developments affecting the Company, such as announcements by the Company or its competitors regarding acquisitions or dispositions, new procedures or technology, changes in general conditions in the economy and general market conditions could cause the market price of the Common Shares to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have often been unrelated to the operating performance of these companies. 13 Under the currently effective criteria for listing of securities on the Nasdaq SmallCap-Registered Trademark- Market, for initial listing, a company must have at least $4,000,000 in net tangible assets, a minimum bid price of $4.00 per share, and a public float of at least $5,000,000. For continued listing, a company must maintain $2,000,000 in net tangible assets, a minimum bid price of $1.00, and a public float of at least $1,000,000. In the event that the Company should be unable to maintain the standards for continued listing, the Common Shares could be subject to delisting from the Nasdaq SmallCap-Registered Trademark- Market. Trading, if any, in the Common Shares would thereafter be conducted in the over-the-counter market on the OTC Bulletin Board established for securities that do not meet the Nasdaq SmallCap-Registered Trademark- Market listing requirements or in what are commonly referred to as the "pink sheets." As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Shares. RISK OF LOW PRICED STOCKS. If the Common Shares were delisted from the Nasdaq SmallCap-Registered Trademark- Market, and no other exclusion from the definition of a "penny stock" under the Exchange Act were available, such securities could be subject to the penny stock rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally defined as investors with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with a spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase, and must have received the purchaser's written consent to the transaction prior to sale. Consequently, such delisting, if it were to occur, could materially adversely affect the ability of broker-dealers to sell the Common Shares and the ability of purchasers in this offering to sell their Shares in the secondary market. IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Shares offered hereby will experience immediate and substantial dilution of $3.48 per share, assuming an initial public offering price of $5.00 per Share, or approximately 68%, in the net tangible book value of the Shares purchased thereby. Additional dilution to future net tangible book value per share may occur upon exercise of outstanding stock options and warrants (including the Representative's Warrants) and may occur, in addition, if the Company issues additional equity securities in the future. See "Dilution." BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED ACQUISITIONS. Approximately $290,000, or 7.6%, of the estimated net proceeds of this offering has been allocated to general corporate and working capital purposes. Additionally, $3,200,000, or 83.3%, of the net proceeds of this offering have been allocated to the Company's proposed expansion into new markets. Those proceeds may be utilized to open new offices or to acquire existing companies in such markets. Accordingly, management of the Company will have broad discretion over the application of such net proceeds. Although the Company may utilize a portion of the net proceeds for potential investments in, or acquisitions of, complementary or competitive companies, as of the date hereof, the Company has no agreements, plans or arrangements with respect to any such investment of acquisition. Shareholders of the Company may have no opportunity to approve specified acquisitions or to review the financial condition of any potential acquisition or investment candidate. See "Use of Proceeds." NEED FOR ADDITIONAL FINANCING. Based on the Company's operating plan, the Company believes that the net proceeds of this offering, together with available cash and anticipated revenues from operations, will be sufficient to finance the Company's working capital requirements for a period of at least 18 months following the completion of this offering. This belief is based on certain assumptions, which may prove to be incorrect. In addition, the Company's expansion strategy contemplates acquisitions of, and investments in, competing and complementary companies and use of such companies by the Company to expand into new markets, although the Company presently has no agreements, plans or arrangements with respect to any such investment or acquisition. Accordingly, there can be no assurance that the Company's financial resources will be sufficient to satisfy the Company's capital requirements for such period. If the Company's financial resources are insufficient and, in any case, after such 18 month period, the Company will require additional financing in order to meet its plans for expansion. Additional financing may take the form of the 14 issuance of common or preferred equity securities or debt securities, or may involve bank financings. There can be no assurance that the Company will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all. In any of such events, the Company may be unable to implement its current plans for expansion or to repay its debt obligations as they become due. In the event that any such financing should take the form of equity securities, the holders of the Common Shares may experience additional dilution. See "Use of Proceeds," "Dilution," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business--Business Strategy." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. The sale, or availability for sale, of a substantial number of Common Shares in the public market subsequent to this offering, pursuant to Rule 144 under the Securities Act ("Rule 144") or otherwise, could materially adversely affect the market price of the Common Shares and could impair the Company's ability to raise additional capital through the sale of its equity securities or debt financing. The availability of Rule 144 to the holders of restricted securities, as defined in Rule 144, of the Company would be conditioned on, among other factors, the availability of certain public information concerning the Company. All of the 1,677,876 Common Shares currently outstanding are "restricted securities" as that term is defined in Rule 144 and may, under certain circumstances, be sold without registration under the Securities Act. In addition, any shares issuable upon exercise of options granted under the Plan could be sold publicly commencing 90 days after the Company becomes a reporting company under the Exchange Act, pursuant to Rule 701 under the Securities Act. However, officers, directors, and shareholders of the Company and option holders under the Plan have executed agreements ("Lock-Up Agreements") pursuant to which they have agreed not to, directly or indirectly, issue, offer, agree to sell, sell, grant an option for the purchase or sale of, transfer, pledge, assign, hypothecate, distribute or otherwise dispose of or encumber any Common Shares or options, rights, warrants or other securities convertible into, or exercisable or exchangeable for, or evidencing any right to purchase or subscribe for, Common Shares, whether or not beneficially owned by such person, or any beneficial interest therein, for a period of 18 months from the date of this Prospectus. See "Underwriting." For a period of 18 months from the date of this Prospectus, the Company has agreed that it will not sell or otherwise dispose of any securities of the Company without the prior written consent of the Representative, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, during such period, the Company shall be entitled to issue (i) Common Shares in connection with mergers and acquisitions, (ii) up to 435,000 Common Shares issuable upon exercise of options which may be granted under the Plan, (iii) up to 22,125 Common Shares issuable upon the exercise of currently outstanding warrants which will, except in certain circumstances, be issued for an aggregate exercise price of $1.00, (iv) 200,000 Common Shares issuable upon the exercise of currently exercisable options, the holder of which has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of such Common Shares for a period of two years after he exercises such options without the consent of the Company and (v) up to 100,000 Common Shares issuable upon the exercise of the Representative's Warrants. The holders of the Representative's Warrants will have certain demand registration rights with respect to such Warrants and the Warrant Shares commencing one year after the date hereof. If the Representative should exercise its registration rights to effect a distribution of the Representative's Warrants or the Warrant Shares, the Representative, prior to and during such distribution, may be unable to make a market in the Company's securities. If the Representative ceases making a market in the Common Shares, the market and market prices of the Common Shares may be materially adversely affected, and holders thereof may be unable to sell or otherwise dispose thereof. See "Shares Eligible for Future Sale" and "Underwriting." NO DIVIDENDS. The Company does not intend to pay dividends on the Common Shares in the foreseeable future, but rather intends to retain future earnings, if any, for reinvestment in the development and expansion of its business. Pursuant to the Company's agreement with the BDC, the Company will not pay dividends so long as any portion of the Company's loan from BDC remains outstanding. At June 30, 1998, the outstanding balance on such loan was $476,905. Such loan is due in August 2003, and the 15 Company has no plans to pre-pay such loan. Dividend payments in the future may also be limited by other loan agreements or covenants contained in other securities which the Company may issue. Dividend payments from the Company are subject to Canadian withholding tax requirements. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital and legal requirements and such other factors as the Board of Directors deems relevant. See "Dividend Policy," "Description of Securities -- Common Shares" and "Certain United States and Canadian Federal Income Tax Considerations." RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. This Prospectus contains certain forward-looking statements regarding the plans and objectives of management for future operations. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based on a successful execution of the Company's expansion strategy and are based upon a number of assumptions, including assumptions relating to the growth in the use of the Internet and that there will be no unanticipated material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, political, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that its assumptions underlying such forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. 16 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Shares offered hereby are estimated to be $3,840,000 ($4,492,500 if the Underwriters' over-allotment option is exercised in full) assuming an initial public offering price of $5.00 per Share, after deducting underwriting commissions and offering expenses to be paid by the Company. The Company expects to apply the net proceeds of this offering as follows:
APPLICATION OF PROCEEDS APPROXIMATE AMOUNT PERCENTAGE OF NET PROCEEDS - ------------------------------------------------------------------ ------------------- --------------------------- Expansion into new regional markets (1)........................... $ 3,200,000 83.3% Funding of the joint venture regarding AppTracker (2)............. 350,000 9.1% Working capital and general corporate purposes.................... 290,000 7.6% ------------------- ----- Total............................................................. $ 3,840,000 100.0% ------------------- ----- ------------------- -----
- ------------------------ (1) Such funds will primarily be used for expenses incurred in the opening of new offices, including leasing office space, purchasing or leasing office equipment and computer hardware and related expenses prior to the commencement of operations in new locations. The Company estimates that opening a new office will cost approximately $200,000 to $500,000 per location, which costs will vary depending on the size of the office and the cost of doing business in the location in question. As part of its expansion plan, the Company may utilize a portion of these proceeds for the acquisition of, or investment in, complementary or competitive companies in these new locations. The Company has not currently identified any acquisition or investment candidates and has no agreements, plans, or arrangements with respect to any such acquisition or investments. (2) Such funds will represent the Company's capital contribution to a joint venture with Great Lakes for the continued development and commercialization of AppTracker. Such capital contribution will be utilized for continued development and testing costs and, if such testing is successful, to provide funds for the initial marketing of the product. See "Business--Information Technology and the Internet." The proceeds to the Company from the exercise of the Underwriters' over-allotment option, if any, will be utilized for general corporate and working capital purposes. Pending their use, the net proceeds of this offering will be invested in high-quality, short-term, interest bearing U.S. government obligations. The foregoing represents the Company's best estimate of its allocation of the net proceeds of the sale of the Shares based upon the Company's currently contemplated operations, the Company's business plan and current economic and industry conditions and is subject to reapportionment among the categories listed above in response to, among other things, changes in its plans, regulations, industry conditions and future revenues and expenditures. The amount and timing of expenditures will vary depending on a number of factors, including changes in the Company's contemplated operations or business plan and changes in economic and industry conditions. Based on the Company's operating and expansion plans, the Company believes that the net proceeds of this offering, together with available cash and anticipated revenues from operations, will be sufficient to satisfy its capital and legal requirements and finance its plans for expansion for at least the next 18 months. Such beliefs are based upon assumptions and there can be no assurance that the assumptions underlying the Company's plans will prove to be correct. After such 18-month period, or sooner if the Company's assumptions prove to be incorrect, the Company may require additional capital in order to meet its then current plans for expansion and capital requirements. Such financing may take the form of ordinary or preferred equity securities or debt securities, or may involve bank financing. There can be no assurance that the Company will be able to obtain additional capital on a timely basis, on favorable terms, or at all. In any of such events, the Company may be unable to implement its current plans for expansion. See 17 "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." DIVIDEND POLICY The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon the Company's earnings, capital and legal requirements and financial condition and such other factors that the Board of Directors deem relevant. For the foreseeable future, the Company intends to retain future earnings, if any, for reinvestment in the development and expansion of its business. Pursuant to the Company's agreement with the BDC, the Company will not pay dividends so long as any portion of the Company's loan from BDC in the amount remains outstanding. At June 30, 1998, the outstanding balance on such loan was $476,905. Such loan is due in August 2003, and the Company has no plans to pre-pay such loan. Dividend payments in the future may also be limited by other loan agreements or covenants contained in other securities which the Company may issue. Dividend payments from the Company are subject to Canadian withholding tax requirements. See "Certain United States and Canadian Federal Income Tax Considerations." 18 DILUTION At June 30, 1998, the net tangible book value of the Company was approximately $251,686, or $0.15 per Common Share, based on 1,677,876 Common Shares outstanding. The net tangible book value per Share represents the amount of the Company's total assets less the amount of its intangible assets and liabilities, divided by the number of Common Shares outstanding. After giving effect to the receipt of net proceeds (estimated to be approximately $3,840,000, from the sale of the Shares at an assumed initial public offering price of $5.00 per Share), the pro forma net tangible book value of the Company at June 30, 1998 would be approximately $4,091,686, or $1.52 per Share. This would result in dilution to the public investors (i.e., the difference between the assumed public offering price per Share and the net tangible book value thereof after giving effect to this offering) of approximately $3.48 per share (or 68%). The following table illustrates the per Share dilution:
PER COMMON SHARE ------------- Assumed initial public offering price................................. $ 5.00 Net tangible book value at June 30, 1998............................ $ 0.15 Increase in net tangible book value attributable to new investors... 1.37 Net tangible book value after this offering (1)....................... 1.52 --------- ----- Dilution of net tangible book value to new investors (1).............. $ 3.48 --------- ----- --------- -----
- ------------------------ (1) If the Underwriters' over-allotment option is exercised in full, the net tangible book value per share would be $1.66 and the dilution per Share to new investors in this offering would be $3.34. The following table sets forth, as of the date of this Prospectus, the number of Common Shares purchased, the percentage of the total number of Common Shares purchased, the total consideration paid, the percentage of total consideration paid, and the average price per Common Shares paid by the investors in this offering and the current shareholders of the Company:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- ------------------------- PRICE PER NUMBER(1) PERCENTAGE AMOUNT(1) PERCENTAGE SHARE ---------- ----------- ------------ ----------- ----------- Current Shareholders............................... 1,677,876 63% $ 1,234,803 20% $ 0.74 New Investors(2)................................... 1,000,000 37% $ 5,000,000 80% $ 5.00 ---------- ----- ------------ ----- Total.......................................... 2,677,876 100.0% $ 6,234,803 100.0% ---------- ----- ------------ ----- ---------- ----- ------------ -----
- ------------------------ (1) Assuming an initial public offering price of $5.00 per Share. 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1998 and as adjusted to reflect the sale of the Shares offered hereby at the assumed initial public offering price per share of $5.00, after deducting estimated underwriting discounts and commissions, estimated offering expenses and the initial applications of the net proceeds of this offering as set forth in "Use of Proceeds." The information provided below should be read in conjunction with the other financial information included elsewhere in this Prospectus.
JUNE 30, 1998 -------------------------- ACTUAL AS ADJUSTED ------------ ------------ Long-term debt, less current maturities............................................... $ 414,484 $ 414,484 Shareholders' equity Common Shares, no par value, 1,677,876 issued and outstanding; and 2,677,876 issued and outstanding as adjusted(1)...................................................... 1,248,368 5,088,368 Foreign currency transaction adjustment............................................... (72,818) (72,818) Retained earnings..................................................................... 395,059 395,059 Total Shareholders' equity............................................................ 1,570,609 5,410,609 Total capitalization.................................................................. 1,985,093 5,825,093
20 SELECTED FINANCIAL DATA The following selected statement of operations data for the years ended December 31, 1996 and 1997 are derived from the Financial Statements of the Company and Notes thereto included elsewhere herein audited by Schwartz, Levitsky, Feldman, Chartered Accountants, the independent accountants for the Company. The unaudited statement of operations data presented for the six month periods ended June, 1997 and 1998, and the unaudited balance sheet data at June 30, 1998, are derived from the unaudited Financial Statements of the Company, which have been prepared on a basis consistent with the audited Financial Statements of the Company, and in the opinion of management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of the financial condition and results of operations of the Company as of the dates and for the periods presented. The adjusted balance sheet data at June 30, 1998 gives effect to the sale of the balance of 1,000,000 Common Shares offered hereby by the Company at an offering price of $5.00 per Share. This information should be read in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Financial Statements and the notes thereto, each included elsewhere herein. The results of operations for any interim period are not necessarily indicative of results to be expected the entire year.
YEAR ENDED, DECEMBER SIX MONTHS ENDED 31, JUNE 30, -------------------- -------------------- 1996 1997 1997 1998 --------- --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Revenue.................................................................... $ 764 $ 4,704 $ 2,156 $ 5,318 Gross profit............................................................... 505 1,816 870 2,198 Operating Expenses......................................................... 469 1,615 713 1,810 Income from operations..................................................... 36 201 157 388 Net income................................................................. 30 154 139 253 Earnings per share(1) .03...... .12 .11 .13 Weighted Average Number of Shares Outstanding.............................. 1,201 1,309 1,309 1,821
AS OF JUNE 30, 1998 -------------------------- ACTUAL AS ADJUSTED(1) --------- --------------- BALANCE SHEET DATA Working capital........................................................................... 576 4,066 Total assets.............................................................................. 3,124 6,964 Long-term debt............................................................................ 414 414 Total liabilities......................................................................... 1,554 1,554 Shareholders' equity...................................................................... 1,571 5,411
- ------------------------ (1) As adjusted to reflect the sale by the Company of the 1,000,000 Shares offered hereby at an assumed initial public offering Price of $5.00 per Share and the initial application of the net proceeds therefrom. See "Use of Proceeds." 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS. THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT INVOLVE NUMEROUS RISKS AND UNCERTAINTIES. ALTHOUGH MANAGEMENT BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD PROVE TO BE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED. GENERAL The Company is a provider of IT staffing services, primarily in Canada, supplying qualified IT professionals to its customers as independent contractors for short and long term assignments and for permanent placement within such enterprises. The Company's customers include financial service companies, software and other technology companies, Canadian governmental entities and large multinational companies, including Merrill Lynch Canada, Inc., The Bank of Montreal, Bell Sygma Telecom, and American Express. The Company has recently expanded its operations into the United States and intends to develop a network of offices to provide IT staffing services throughout North America. For the year ended December 31, 1997 and the six months ended June 30, 1998, the Company derived 96% and 99%, respectively, of its revenue in Canada and the remainder in the United States. The Company's books and records are recorded in Canadian dollars. For purposes of financial statement presentation, the Company converts balance sheet data to U.S. dollars using the exchange rate in effect at the balance sheet date. Income and expense accounts are translated using an average exchange rate prevailing during the relevant reporting period. There can be no assurance that the Company would have been able to exchange currency on the rates used in these calculations. The Company does not engage in exchange rate hedging transactions. A material change in exchange rates between U.S. and Canadian dollars could have a material effect on the reported results of the Company. The Company's services are generally classified as either contract services or permanent placement services. In the case of contract services, the Company provides its customers with independent contractors or "contract workers" who usually work under the supervision of the customer's management. Generally, the Company enters into a time-and-materials contract with its customer whereby the customer pays the Company an agreed upon hourly rate for the contract worker. The Company pays the contract worker pursuant to a separate consulting agreement. The contact worker generally receives between 75% and 80% of the amount paid by the customer to the Company, however such payment is usually not based on any formula and may vary for different engagements. The Company has been seeking to gain "preferred supplier status" with its larger customers to secure a larger percentage of those customers' business. While such status is likely to result in increased revenue and gross profit, it is likely to reduce gross margin percentage because the Company is likely to accept a lower hourly rate from its customers and there can be no assurance that it will be able to reduce the hourly rate paid to its consultants. Revenue from contract services is recognized as services are provided. Similarly, expenses for contract services, which usually consist solely of consulting fees paid to contract workers, are recognized as services are provided. For the year ended December 31, 1997 and the six months ended June 30, 1998, the gross margin on contract services revenue was approximately 23% and 23%, respectively. Contract services accounted for 79% of revenue and 46% of gross profit for the year ended December 31, 1997 and approximately 76% of revenue and 42% of gross profit for the six months ended June 30, 1998. 22 In the future, the Company may perform contract services for customers on a project by project basis whereby the Company will be engaged to complete a particular, specified project. The Company may hire full time employees to supervise these projects. These projects may be billed on a time-and-materials basis or the Company may charge a fixed price for the project. If the Company charges a fixed price for a project, it will be required to estimate the total costs involved in the project and formulate a bid that contains an adequate profit margin. If the Company is unable to accurately predict the costs of such a project, or the costs of the project change due to unanticipated circumstances, which may be circumstances that are beyond the control of the Company, the Company may earn lower profit margins or suffer a loss on a given project. Currently, the Company is not providing any IT professionals pursuant to fixed price contracts. In the case of permanent placement services, the Company identifies and provides candidates to fill a permanent position for its customer. The Company recognizes revenue when the IT professional commences employment. The Company performs permanent placement services pursuant to three invoicing policies. Contingency services are engagements in which the Company is only paid if it is successful in placing a candidate in a position. Contingency exclusive services are similar to contingency engagements, however, the Company is the only firm engaged to fill the position. Retained search services are similar to contingency exclusive services, except that the Company receives a non-refundable portion of the fee prior to performing any services, with the remainder paid if the position is filled. Contingency, contingency exclusive and retained search services accounted for approximately 71%, 18% and 11%, respectively, of the Company's permanent placement services for the year ended December 31, 1997 and 83%, 15% and 2% for the six months ended June 30, 1998. The Company calculates gross profit by subtracting the fees paid to contractors from net revenue. The Company does not attribute any direct costs to permanent placement services, therefore the gross profit margin on such services is 100% of revenue. As a result, the mix in permanent placement revenue as compared to contract services revenue will have a significant affect on the gross profit margin of the Company as a whole. Permanent placement services accounted for 21% of revenue and 54 % of gross profit for the year ended December 31, 1997 and 24% of revenue and 58 % of gross profit for the six months ended June 30, 1998. The Company anticipates expanding into new regional markets by establishing new offices or by acquiring or investing in complementary or competitive companies. The Company has not yet identified any acquisition candidates and has no agreements, plans, or arrangements with respect to such acquisitions or investments. The Company expects the cost of opening and funding a new office to range from $200,000 to $500,000, depending on the size of the office and the costs of doing business in the city that the office is to be located. Such costs will consist of leasing office space, purchasing or, among other things, leasing office equipment and computer hardware and other related expenses incurred prior to the commencement of operations in new locations. Such costs also include operating expenses, such as payroll and advertising, prior to such time that the new office is able to generate significant cash flow from operations. The Company is likely to utilize acquisitions as an attempt to avoid or limit these costs, but the Company will incur other costs as a result of any acquisitions, including funding the purchase price and expenses related to the integration of operations and training of new employees. With regard to previous acquisitions, integration costs were expensed in the period that they were incurred and the Company expects to continue to do so with future acquisitions. The Company intends its acquisition targets to be small companies who can benefit from the Company's advanced IT and other operating systems. There can be no assurance that integrating the Company's operations with those of acquired companies will result in improvements in such companies operations or increased revenue from such operations. In April 1998, the Company acquired all the issued and outstanding shares of SCI and SPSI for $102,249 and 130,914 Common Shares. SPSI is inactive but holds certain assets utilized by Systems in its operations. The acquisition was effective as of January 2, 1997. Declan French participated in the 23 management of Systems during 1997 and the Company and Systems shared data and operating information during the year ended December 31, 1997. Accordingly, the Company's financial statements incorporate the operations of Systems since January 1, 1997. On May 19, 1998, the Company completed the acquisition of all the issued and outstanding shares of capital stock of ICS for $340,832 in cash and 100,000 Common Shares from John A. Irwin, who was not affiliated with the Company prior to this acquisition. In connection with the acquisition, ICS made a distribution to Mr. Irwin of certain ICS assets that were not necessary for the operation of the business. The transaction was effective as of January 2, 1998. Declan French and other officers of the Company participated in the management of ICS during the six months ended June 30, 1998. Accordingly, the Company's financial statements incorporate the operation of ICS since January 1, 1998. Each acquisition was accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the assets of the acquired entity based on fair market value. In connection with the Systems and ICS acquisitions, the Company recorded $469,000 and $889,000, respectively, in goodwill, which is being amortized over thirty years in accordance with generally accepted accounting principles as applied in the United States. RESULTS OF OPERATIONS The following table presents certain financial data of the Company as a percentage of the Company's revenue based in information derived from the Company's financial statements.
YEAR ENDED, DECEMBER 31, SIX MONTHS ENDED JUNE 30, ------------------------ ------------------------ 1996 1997 1997 1998 ----- ----- ----- ----- Sales....................................................... 100% 100% 100% 100% Contractor Costs............................................ 34% 61% 60% 59% Gross profit................................................ 66% 39% 40% 41% Operating Expenses.......................................... 61% 34% 33% 34% Income from operations...................................... 5% 4% 7% 7% Net income.................................................. 4% 3% 6% 5%
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 REVENUE. Revenue for the six months ended June 30, 1998 increased by $3.1 million, or 141%, to $5.3 million, as compared to $2.2 million for the six months ended June 30, 1997. The increase is primarily attributable to the acquisition effective January 1, 1998 of ICS, which had sales of $2.4 million for the six months ended June 30, 1998. Also contributing to the increase was an increase of $260,000 in the sales of Systems as a result of improvements in operations since its was acquired by the Company effective January 2, 1997, and growth in the contract sales in the Toronto office. Revenue from contract services and permanent placement services accounted for 76% and 24%, respectively, of revenue for the six months ended June 30, 1998 as compared to 78% and 22%, respectively, for the six months ended June 30, 1997. CONTRACTOR COSTS. Contractor costs for the six months ended June 30, 1998 increased by $1.8 million, or 138%, to $3.1 million, as compared to $1.3 million for the six months ended June 30, 1997. This increase was due to the increased volume of contract services. As a percentage of revenue from contract services, contractor costs remained constant at 77%. GROSS PROFIT. Gross profit for the six months ended June 30, 1998 increased by $1.3 million, or 149%, to $2.2 million, as compared to $870,000 for the six months ended June 30, 1997. This increase was attributable to the aforementioned increase in revenue during the six months ended June 30, 1998. As a percentage of revenue, gross profit increased to 41% for the six months ended June 30, 1998 as compared 24 to 40% for the six months ended June 30, 1997. This increase was due to the slight decrease in the percentage of revenue which was derived from contract services. OPERATING EXPENSES. Operating expenses for the six months ended June 30, 1998 increased by $1.1 million, or 154%, to $1.8 million, as compared to $713,000 for the six months ended June 30, 1997. This increase was primarily attributable to an increases of $578,000 in selling expenses and $156,000 in administrative expenses at ICS during the six months ended June 30, 1998. Administrative expenses at the IT Staffing Division also increased as the Company expanded infrastructure to support operations from multiple locations and operated additional offices. As a percentage of revenue, operating costs increased to 34% for the six months ended June 30, 1998 from 33% for the six months ended June 30, 1997 due to increased locations and volume of transactions. NET INCOME. Net income for the six months ended June 30, 1998 increased by $114,000, or 82 % to $253,000 as compared to $139,000 for the six months ended June 30, 1997 due, among other things, to the reasons enumerated above. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996. REVENUE. Revenue for the year ended December 31, 1997 increased by $3.9 million, or 510%, to $4.7 million, as compared to $764,000 for the six months ended December 31, 1996. The increase is primarily due to the acquisition of Systems, which had revenue for the year ended December 31, 1997 of $2.0 million, effective January 2, 1997, and an increase of $1.7 million of revenue during such period from contract services at the IT Staffing Division as a result of internal growth. Revenue from contract services and permanent placement services accounted for 79% and 21%, respectively, of revenue for the year ended December 31, 1997 as compared to 39% and 61%, respectively, for the year ended December 31, 1996. CONTRACTOR COSTS. Contractor costs for the year ended December 31, 1997 increased by $2.6 million, or 1000%, to $2.9 million, as compared to $260,000 for the year ended December 31, 1997. This increase was attributable to the increased volume of contract services. As a percentage of revenue from contract services, contractor costs decreased to 78% for the year ended December 31, 1997 from 88% for the year ended December 31, 1996 as a result of an increase in average hourly billing rates for the Company's contract services. GROSS PROFIT. Gross profit for the year ended December 31, 1997 increased by $1.3 million, or 256%, to $1.8 million, as compared to $505,000 for the year ended December 31, 1996. This increase was atttributable to the aforementioned increase in revenue. As a percentage of revenue, gross profit decreased to 38% for the year ended December 31, 1997 as compared to 66% for the year ended December 31, 1996. This decrease was due to the increase in the percentage of revenue which was derived from contract services. OPERATING EXPENSES. Operating expenses for the year ended December 31, 1997 increased $1.1, or 234%, to $1.6 million, as compared to $470,000 for the year ended December 31, 1997. This increase was primarily attributable to the acquisition of Systems, which incurred operating expenses of $515,000 during the year ended December 31, 1997, and an increase of $442,000 in selling expenses at the IT Staffing division due to increased volume of sales. Administrative expenses at the IT Staffing Division also increased as the Company expanded infrastructure to support operations from multiple locations. As a percentage of revenue, operating costs decreased to 41% for the year ended December 31, 1997 from 50% for the year ended December 31,1996 as a result of increased revenue since many administrative costs are relatively fixed and do not vary with revenue. 25 NET INCOME. Net income for the year ended December 31, 1997 increased by $124,000, or 413%, to $154,000 for the year ended December 31, 1997 as compared to $30,000 for the year ended December 31, 1996 as a result of, among other things, the reasons enumerated above. LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of cash are cash flow from operations and a credit line with the Toronto-Dominion Bank ("TDB"). At June 30, 1998, the Company had cash and cash equivalents of $114,000 and working capital of $575,000. During the six months ended June 30, 1998, the Company had a cash flow deficit from operations of $385,000, due primarily to an increase in accounts receivable of $768,000, which was partially offset by net income of $253,000. The increase in accounts receivable is primarily due to the increase in revenue in the months prior to June 30, 1998 as compared to the months prior to December 31, 1997. At December 31, 1997, the Company had no cash and cash equivalents, and a working capital deficiency of $57,000. For the year ended December 31, 1997, the Company had a cash flow deficit of $85,000, due primarily to an increase in accounts receivable of $577,000, which was partially offset by increase in accounts payable of $317,000 and net income of $154,000. For the six months ended June 30, 1998, the Company had cash flow from financing activities of $1.3 million, attributable primarily to proceeds from the issuances of Common Shares. For the year ended December 31, 1997, the Company had cash flow from financing activities of $371,000 attributable primarily to proceeds from the issuances of Common Shares. During the six months ended June 30, 1998, the Company received $909,752 for the issuance of 281,667 Common Shares. During the year ended December 31, 1997, the Company received gross proceeds of $325,051 for the issuance of 86,667 Common Shares. Such funds were utilized to fund the expansion of the Company, including the acquisitions of Systems and ICS. The Company's arrangement with TDB allows for an operating line, payable on demand, of up to $340,645. Outstanding balances shall bear interest at 1.75% over TDB's prime rate. The line is secured by substantially all of the Company's assets, an assignment of life insurance on the life of Declan French to the extent of $300,000, and is personally guaranteed by Declan French and his wife to the extent of $170,322. The loan is subject to certain financial covenants including a minimum net worth of $562,065. At June 30, 1998, there was no outstanding balance on this line. As of June 30, 1998, the Company had a total of $476,905 due to BDC pursuant to three separate loans. The loans bear interest at the Canadian prime rate plus 4% and are being repaid in monthly installments which currently aggregate $8,670. In addition to interest, the Company granted BDC an option to acquire 22,125 Common Shares for an aggregate of $1.00 and to pay BDC a royalty equal to .063% of gross sales until August 2003. The Company is restricted from paying dividends until these loans have been repaid to BDC. During the six months ended June 30, 1998, the Company had a cash flow deficit from investing activities of $910,000, primarily attributable to the aforementioned acquisition of Systems. During the year ended December 31, 1997, the Company had a cash flow deficit from investing activities of $541,000, primarily attributable to the aforementioned acquisition of ICS. The Company believes that cash flow from operations together with the proceeds of the offering will be sufficient to satisfy the Company's working capital needs for at lease the next 18 months. YEAR 2000 PREPARATION Many computer systems and software products worldwide and throughout all industries will not function properly, unless upgraded, as the year 2000 approaches, due to a once-common programming standard that represents years using two-digits. This is the "Year 2000 problem" that has received considerable media coverage. The Company believes that it is Year 2000 compliant with respect to its internal systems, including its HR Workbench software. Apptracker is also designed to be Year 2000 complaint. 26 BUSINESS The Company is a provider of IT staffing services, primarily in Canada, supplying qualified IT professionals to its customers as independent contractors for short and long term assignments and for permanent placement within such enterprises. The Company's customers include financial service companies, software and other technology companies, Canadian governmental entities and large multinational companies, including Merrill Lynch Canada, Inc., the Bank of Montreal, Bell Sygma Telecom, and American Express. The Company has recently expanded its operations into the United States and intends to develop a network of offices to provide IT staffing services throughout North America. The Company has focused on the recruiting of quality IT professionals. The Company utilizes established testing methods to ensure that its IT professionals are properly qualified. The Company also reviews a candidates' technical background and conducts preliminary interviews prior to referring candidates to its customers. By attracting the most qualified IT professionals, the Company believes that it will be able to attract high quality customers, who require the services of such professionals. Since inception, the Company has pursued a strategy of developing and utilizing technology that it believes will provide it a competitive advantage. As a result, the Company believes that one of its primary competitive strengths is its utilization of technology. The Company maintains a database of 35,000 IT professionals and advertises for the Company and their customers on the Internet. The Company uses HR Workbench, software that the Company developed in conjunction with Great Lakes to locate the IT professionals in the Company's database with the technical skills and job interests that best satisfy the requirements of the position the Company is attempting to staff. The Company and Great Lakes have developed another software package called AppTracker which the Company, via a joint venture with Great Lakes, intends to market to human resources departments in 1999. The software aids a human resource department in performing numerous recruitment tasks, such as scheduling interviews and evaluating candidates. Statistics about the recruitment process, including the costs and expenses, are tabulated in various databases. The Company believes that it will have an advantage in marketing its IT staffing services to companies using AppTracker because of the Company's familiarity with the software and the ease of EDI with the Company. INDUSTRY BACKGROUND The staffing industry has experienced significant growth in recent years in response to the increased popularity of outsourcing of many staffing requirements. This growth has been driven by employers who have sought to convert personnel costs from fixed to variable in nature by reducing their permanent staff and supplementing their workforce with contract employees for specific projects, peak work loads and other needs. The use of flexible staffing services has allowed employers to improve productivity, outsource specialized skills and avoid the negative effects of layoffs. This trend has accelerated with the pace of technological change and greater global competitive pressures. Regulations governing employee benefits, insurance and retirement plans as well as the high cost of hiring, laying off and terminating permanent employees have prompted many employers to take advantage of the flexibility offered through contract staffing arrangements. According to the STAFFING INDUSTRY REPORT, a leading industry publication, revenue for the year ended December 31, 1997 for IT staffing services in the United States is estimated to have been $14.8 billion, a 27% increase over such reviews for the year ended 1996. The market for IT staffing services in Ontario, Canada, the Company's largest market, is estimated to be $700 million. The high technology industry as a whole continues to experience substantial growth as constant innovations, such as open and distributed computing, client/server technology, the Internet, relational databases and object-oriented programming, shortens product lifecycles and accelerates the demand for computer-related products. These trends, combined with the intense competition faced by high technology companies, have put considerable pressure on such companies to shorten the time-to-market of their products. The development of these next generation products often requires highly specialized technical 27 talent which may not be available internally. This need for IT professionals is particularly critical during the period prior to the release of new software or hardware products. As a result, these high technology companies are frequently utilizing supplemental sources of IT professionals with expertise in current technologies. As new technologies are developed and introduced, businesses are attempting to integrate and implement these technologies into their already complex IT systems. As these systems are being deployed on an enterprise-wide basis and on multiple hardware and software platforms, the process of systems design and implementation has become more complex. As a result, these businesses are forced to find qualified IT professionals to design, develop, deploy and maintain their systems. Frequently, however, qualified IT professionals do not exist internally or it may be impractical to redeploy and retrain internal personnel. Consequently, these businesses are increasingly seeking to augment their staffs with IT professionals skilled in the management and operation of such systems. The Company believes the growth of the Internet is likely to contribute to the demand for IT professionals. North American companies are increasingly establishing or maintaining a presence on the Internet. Although many companies outsource to web site maintenance companies, others retain direct control of their web sites and may utilize contract workers to establish and maintain such sites. Despite increased demand for IT professionals, there is a shortage of IT professionals proficient in the most current computer languages and applications. Recent studies indicate that the United States has a shortage of approximately 190,000 IT professionals and Canada has a shortage of 15,000 IT professionals. The studies also suggests that the shortfall is growing. Due to the high demand for their services, many IT professionals have a variety of opportunities in the job market. An increasing number are attracted to the benefits of working on a contract basis. Such benefits include more flexible work schedules and the opportunity to work with emerging and challenging technologies in a variety of industries. To address their increasing demand for contract and permanent IT professionals, both research and development departments of technology companies and IT departments of large corporations are turning to IT staffing companies to augment their existing operations. Technology-dependent companies are increasingly utilizing outside consultants to: (i) meet critical production deadlines; (ii) focus on their core business and avoid devoting valuable time to the recruiting and hiring processes; (iii) access specialized technical skills; (iv) better match staffing levels to current needs; and (v) reduce the costs of recruiting, training and terminating employees. BUSINESS STRATEGY The Company's objective is to become a leading provider of IT staffing services to high technology companies and large corporations throughout North America. To achieve this objective, the Company focuses on the following key elements of its business and growth strategies: LEVERAGE CLIENT BASE TO ATTRACT AND RETAIN HIGHLY QUALIFIED IT PROFESSIONALS A key element of the Company's success has been its ability to attract and retain highly qualified IT professionals. The Company believes that the primary reason that it can attract such professionals is due to its high quality customer base which allows the Company the opportunity to identify and deliver high quality assignments involving leading-edge technologies. Additionally, the Company believes that it has developed a reputation among IT professionals for efficient and high quality placements by focusing on an IT professional's particular field of technical specialization and providing access for IT professionals to cash compensation levels comparable to, or higher than, that of similarly skilled, full-time employees. As the Company's high quality clients have allowed it to attract a large number of qualified IT professionals, the Company's database of IT professionals, in turn, has allowed the Company to increase its number of clients. The Company believes that this cyclical phenomenon in the recruiting business 28 creates the opportunity for significant growth as the Company expands and implements the other facets of its business plan. FOCUS ON NICHE MARKETS The Company believes that its expertise in the IT industry provides it a competitive advantage over recruiting firms that do not utilize IT specialists in their recruiting. The Staffing Report On-Line, an on-line magazine for the employment and temporary service industry, views the IT staffing business as distinctly different from traditional staffing businesses. The Company's recruiters follow IT industry trends, are usually knowledgeable in the IT area and have access to the Company's databases of IT professionals, all of which enables them to provide their customers with candidates who will satisfy a particular client's requirements. Although the Company recruits professionals in all aspects of the IT business, the Company places added emphasis on certain areas, such as ERP software products produced by Oracle Corporation, SAP AG, Peoplesoft, Inc. and the BAAN Company. The Company is often discussed in Web sites for Oracle product users and believes it can develop a reputation as one of the premier sources of IT professionals with skills and experience relating to Oracle Corporation and other ERP products. The Company has also developed an excellent reputation for recruiting IT professionals who specialize in network management. The Company believes that developing niche specialties will enhance the reputation of the Company as a whole and create opportunities for the Company to establish relationships with new customers who then may utilize the Company to locate IT professionals with other skills. EXPAND INTO NEW REGIONAL MARKETS As opportunities arise, the Company intends to expand into certain markets via acquisition, but believes that most expansion will come from the establishment of new offices. The Company intends to establish such offices by hiring experienced recruiters familiar with the local markets and providing them access to the Company's existing group of IT professionals and customers via the Internet. By hiring local recruiters the Company believes that it will be able to attract local clients and IT professionals who may not have been previously familiar with the Company. The Company believes that such recruiters will find the Company to be an attractive place to work because of the Company's existing relationships with multinational and other large corporate clients, the Company's good reputation among IT professionals, the Company's quality information technology system and the Company's incentive based compensation package which will generally combine base salary, bonuses, commissions and incentive stock options. Where the Company deems it more cost effective, or a particular acquisition candidate will provide the Company with a competitive advantage, the Company may enter a new regional market by acquiring an existing IT staffing company. The Company intends to focus on small acquisition targets who will be able to benefit from the Company's strong IT and operating systems. CONTINUE TO UTILIZE THE INTERNET AND INFORMATION TECHNOLOGY The Company believes that its use of technology provides it a competitive advantage over many of its competitors. The Company utilizes its HR Workbench software to operate its database and allow recruiters to use a query based system that matches the skill set and employment preferences of the IT professionals with the needs of the customer. This system also tracks other information, such as average salaries of a particular position, which enables the Company to provide valuable advice to its clients in selecting the proper IT professional. The Company's IT professional database and recruiting software is available to its employees in other cities through its fully secure intranet system. For example, a recruiter in a new office in Austin could have complete access to the Company's information technology in Toronto. The Company believes that this will enable it to open new offices that are quickly ready to provide services to customers without incurring significant IT start-up costs. In smaller markets, the Company intends to 29 utilize its IT system to create lightly staffed "virtual offices" that rely on the Toronto office for all administrative and many operating functions. The Company utilizes the Internet to promote its services and to provide IT professionals with a complete listing of available employment opportunities. IT professionals can e-mail their resumes to the Company's recruiters and, by completing an on-line form, enter themselves into the Company's database. Currently, the Company is upgrading its Web site so that it will more effectively promote the Company's services to potential customers. The Company, in conjunction with Great Lakes, is developing software that will enable human resources departments to perform numerous recruitment tasks, such as scheduling interviews and evaluating candidates. Statistics related to the recruitment process, including the costs and expenses, are tabulated in various databases. The Company believes that it will have an advantage in marketing its recruitment services to companies that are using AppTracker because of the Company's familiarity with the software and the ease of EDI with the Company. DEVELOP AND PROMOTE A MANAGED SERVICES PRACTICE The Company intends to form a team of consultants who will aid the Company's customers in determining their IT staffing needs. Management believes that this will provide the Company with a competitive advantage when compared with traditional recruiting firms. Furthermore, the Company believes that Managed Services could provide it with an additional source of revenue, which could be particulary important if companies utilize AppTracker and Internet sources to reduce their reliance on recruiting firms. CAPITALIZE ON YEAR 2000 AND OTHER OPPORTUNITIES Due to a once-common programming standard that represents years using two-digits, many computer systems and software products, unless upgraded, will not function properly as the year 2000 approaches. The problem will result in the inability of computer systems to properly recognize date-sensitive data and will result in the production of erroneous information or system failure. The Company believes that many companies will turn to contract workers to review their computer systems and make necessary changes to avoid Year 2000 problems. For example, the Company assembled a group of specialists to remedy the potential Year 2000 problems at the Canadian offices of a large financial services firm. Contract workers are ideal for this task because it is likely to be a time consuming and complicated, yet temporary, project. Although the increase in revenues from Year 2000 related projects will be temporary, the Company intends to use the Year 2000 as an opportunity to develop additional customer relationships and to expand the scope of its contract work on a project-by-project basis. The Company intends to assemble teams of Year 2000 specialists and aggressively market their services to the Company's customers. The Company believes that there will be opportunities for projects like Year 2000 projects as the Dow Jones Industrial Average, which is often recorded in data fields designed to read four digits, approaches 10,000, and when the European Union adopts a single currency. IT Systems will require modifications to be able to properly record these data changes and companies may rely on contract workers and consulting teams to implement these changes. CONTRACT SERVICES The Company's contract services revenue is derived from time and materials contracts in which the Company supplies a contract worker to perform under the supervision of the client. The Company's contract services generally consist of providing contract workers to customers for short and long term assignments. These assignments generally last from three to twelve months, but can sometimes last much 30 longer. The assignments may be for specified projects or general IT consulting work. Although the Company currently bills the clients only on a time and materials basis at an agreed upon hourly rate, in the future it may assemble teams that will perform projects for an agreed upon fixed price for the project. The Company pays the contract worker an agreed upon rate, pursuant to the Company's standard consulting services agreement. The contract worker generally receives between 75% and 80% of the amount paid by the customer to the Company, however such payment is usually not based on any formula and may vary for different engagements. This agreement, which is terminable by the Company at any time, obligates the contract worker to provide notice prior to leaving the position, contains a confidentiality clause, and prohibits the worker from going to work directly for the customer for a period of six months without the consent of the Company. At September 1, 1998, approximately 160 contract workers placed by the Company were performing services for the Company's customers. The Company intends to increase the amount of project services work it is doing by assembling teams specializing in particular projects such as Year 2000 problem resolution. See "Business--Business Strategy--Focus on Niche Markets." In the future, the Company may hire project leaders as salaried employees to lead teams of consultants on certain projects. The Company believes that this will enable the Company to earn higher margins on its project work. Furthermore, such teams would enable the Company to market itself as a full-service provider of IT staffing services with a wide array of services that can be tailored to meet a customer's particular needs. PERMANENT STAFFING PLACEMENT SERVICES The Company's permanent placement services generally consist of the placement of an IT professional in a position for the Company's customers. The Company identifies and provides candidates to its customers who its recruiters believe, based on the Company's data, have the technical skills and job interest to best satisfy the requirements of the position. The Company recognizes revenue when the IT professional commences employment. However, the Company is required to find a replacement free of charge if the employee does not remain in the position for at least 90 days. This placement fee is usually structured as a percentage of the IT professional's first-year annual compensation. This percentage ranges from 20% to 30%, although the Company expects to reduce the fee to 15% for customers utilizing the Company's Internet technology because those placements will require less time and input from the Company's recruiters. Salaries for the IT professionals that the Company places generally range from $45,000 to $125,000. The Company performs permanent placement services pursuant to three invoicing policies. Contingency services are engagements in which the Company is only paid if it is successful in placing a candidate in a position. Contingency exclusive services are similar to contingency engagements, however, the Company is the only firm engaged to fill the position. Retained search services are similar to contingency exclusive services, except that the Company receives a non-refundable portion of the fee prior to performing any services, with the remainder paid if the position is filled. SALES AND MARKETING The Company's primary target markets are software, telecommunications and other technology companies, financial service companies and multinational and other large corporations. The Company maintains a database of human resource administrators and IT department heads at these firms and utilizes its sales forces to build relationships with these individuals by stressing the quality of IT professionals that the Company recruits. As the Company expands into new regional markets it intends to hire local sales people who are familiar with local customers. Because many of the Company's customers maintain offices in more than one city, the Company believes that it will have an advantage in establishing relationships with these additional offices as the Company expands into new regional markets. 31 The Company markets its services via the Internet. The Company is in the process of upgrading its home page, which previously has been used primarily as a tool to advertise job opportunities to IT professionals and to promote its services to its customers. The Company also utilizes traditional advertising outlets and trade shows to promote its services to potential customers. CUSTOMERS The Company provides staffing services to customers in a wide array of industries. Software development, telecommunications, and other technology companies utilize the Company's services to locate programmers in the development of new products. The Company also provides services to financial services companies, such as The Bank of Montreal and Merrill Lynch Canada, Inc., which are extremely reliant on their IT systems. Large consulting firms, such as Deloitte & Touche, are also beginning to utilize the Company to meet their need for IT professionals. The Company's customers include the Canadian units of Fortune 1000 companies such as American Express, Revlon and IBM. The Company believes that it will be able to provide services to other multinational and large companies and expand services provided to these existing customers by expanding into new regional markets. These multinational and other large companies have indicated to the Company that they desire to use fewer suppliers to meet their needs and the Company believes that it will be able to utilize relationships in one market to establish relationships with such companies in other markets. Additionally, the Company believes that its high profile customer base provides it credibility when pursuing other customers. The following is a list of certain of the larger companies who utilize the Company's services.
FINANCIAL SERVICES SOFTWARE, TECHNOLOGY AND TELECOMMUNICATIONS - -------------------------------------------------------- -------------------------------------------------------- the Bank of Montreal Bell Sygma Technology Solutions Merrill Lynch Canada, Inc. Bell Canada CIBC Wood Gundy Securities, Inc. SHL Systemhouse, Inc. First American Title Insurance Star Data Citibank IBM Canada Harris Bank & Trust GOVERNMENT AND EDUCATIONAL OTHER - -------------------------------------------------------- -------------------------------------------------------- Revenue Canada American Express Environment Canada Imperial Oil University of Toronto Deloitte & Touche National Grocers Company SolCorp Revlon Canada
The Company generally enters into a standard form agreement with its customers that indicates which parties are responsible for taxes and other expenses, and provides that all intellectual property and other proprietary information will remain confidential and the property of the customer. Some customers, such as the Canadian government, Dow Jones and CIBC Wood Gundy Securities, Inc., require the Company to use another form of agreement which is similar in all material respects to the Company's standard form. With certain clients, most significantly, The Bank of Montreal, the Company enters into an agreement allocating other responsibilities, such as the supervision of the IT professionals it recruits. Other customers, such as Bell Sygma, Inc., enter into annual contracts with the Company pursuant to which the Company will supply contract workers during the year as required by the customer at fees to be negotiated. 32 STRATEGIC ALLIANCES The Company has entered into a strategic alliance with Great Lakes which has resulted in the development of HR Workbench and AppTracker. See "Business--Information Technology and the Internet." The Company has also established relationships with other job search resources on the Internet to promote the Company's services. For example, the job listing page of the Toronto Star newspaper's Web site displays the Company's name and has a hyperlink to the Company's Web site. The Company intends to utilize strategic alliances to promote its staffing services. The Company may enter into arrangements with consulting firms to staff major IT projects. Alternatively, the Company may enter into arrangements with software companies whereby the Company's contract workers will be trained to perform customer support services. Lastly, the Company may enter into agreements with other staffing companies in geographic regions in which the Company does not intend to expand. Such arrangements will allow the Company to provide its existing large corporate clients with services in areas where the Company is not familiar with the local market. Currently, the Company is not a party to any agreements to enter into arrangements such as these, and there can be no assurance that the Company will find entities with which to enter into strategic alliances on terms acceptable to the Company, or at all. RECRUITING The Company believes that its technology and experienced recruiting staff of 43 individuals enables it to recruit qualified IT professionals whose skills match the needs of its customers. Many of the Company's recruiters have strong IT backgrounds, and are required by the Company to take a two week training course when hired by the Company. The Company maintains a database of over 35,000 IT professionals. The Company's recruiters maintain ongoing relationships with certain IT professionals and are aware of their particular skills and employment status. Using the Company's database and its recruiters' knowledge of available IT professionals, the Company is often able to quickly locate a number of suitable candidates for a position, which is particularly important for positions in which the Company does not have an exclusive engagement. The data base also contains reference and employment history information which accelerates the screening process. The Company tests the computer skills of all of its IT professionals utilizing Tekcheck software. This software provides recruiters with a consistent rating system and a reliable method of evaluating candidates, which aids recruiters in matching candidates with positions requiring their skill set. This software also allows the Company to provide evidence to its customers that potential employees have sufficient technical skills. Additionally, the Company screens candidates by telephone and in-person interviews and by reference checks. If the Company is unable to locate suitable candidates for a position by means of its databases, the Company may utilize advertisements in newspapers and trade magazines. The Company often prepares and places advertisements on behalf of its clients. The Company has been approved by the Canadian Newspaper Association as an advertising agency, which allows the Company to earn a commission on any advertisements it places. Additionally, the Company posts job openings on its Internet Web site and invites IT professionals to submit their resumes to the Company by e-mail. The Company intends to recruit IT professionals from other countries, such as Singapore and India, where there are a number of IT professionals and the job opportunities are inferior to those in North America. U.S. and Canadian immigration laws contain preferences for immigrants who can fill skilled labor positions for which there is a shortage of native applicants. 33 INFORMATION TECHNOLOGY AND THE INTERNET The Company has established an extensive IT system which it believes provides it with a competitive advantage over less technologically advanced competitors. The primary components of the Company's IT system and its use of technology are described below. THE HR WORKBENCH SOFTWARE AND PROPRIETARY DATABASES. The HR Workbench software is an Internet-based software application that is used by the Company in the administration and tracking of internal processes relating to the recruitment and placement of IT professionals. This software was developed by the Company in conjunction with Great Lakes, and they will share in all intellectual property rights to the software equally. The HR Workbench software is a query based software program that allows the Company's recruiters to locate the IT professional in the Company's database with the technical skills and job interests that best satisfy the requirements of the position that the Company is attempting to staff. This system also tracks other information, such as average salaries of a particular position, which enables the Company to provide valuable advice to its clients in selecting the proper IT professional. The software also incorporates the Company's database of over 35,000 IT professionals. The Company continually updates its database and occasionally accesses other databases of IT professionals that are available for sale or over the Internet. HR Workbench allows information entered into the database by a Company employee, or directly by an IT professional by means of the Internet, to be shared by all of the Company's recruiters and salespeople. UTILIZATION OF THE INTERNET The Company utilizes the Internet to promote its services and to enable customers and IT professionals to utilize its services. The descriptions of the employment opportunities are segregated among permanent and contract positions, describe the necessary skills required by IT professional candidates, and provides a phone number and e-mail address for the Company's recruiter who works with the relevant client. Alternatively, IT professionals can e-mail their resumes to the Company or an enter themselves into the Company's database by means of the Internet. The Company also utilizes the Internet to connect its offices to its Toronto office. This results in substantial savings in software and hardware costs in the maintenance of the Company's IT system and allows for the creation of lightly staffed regional virtual offices. THE APPTRACKER SOFTWARE The Company and Great Lakes have developed a software package designated AppTracker. The software is designed to aid a human resource department in performing numerous recruitment tasks, such as scheduling interviews and evaluating candidates. The software has a feature that allows a human resources department to have a description of any job openings sent automatically to selected e-mail addresses, such as those of recruiting firms or previous applicants. Statistics about the recruitment process, including the costs and expenses, are tabulated in various databases. Additionally, the software allows the human resource department to compile their own database of prospective employees and contract workers. The joint venture between the Company and Great Lakes intends to market AppTracker to human resources departments commencing in 1999. Currently, the product is being test marketed by the human resources departments of two of the Company's customers. The Company believes that it will be able to provide assistance in the marketing of the software as a result of its existing relationships with management in the human resources and IT departments of its customers, although there can be no assurance thereof. The Company is currently negotiating with Great Lakes to enter into a definitive agreement that will allocate costs and responsibilities in marketing Apptracker. 34 Although there can be no assurance thereof, the Company believes that it will have an advantage in marketing its recruitment services to companies using AppTracker because of its familiarity with the software and the ease of EDI with the Company. There is a possibility, however, that utilization of the software will reduce reliance of certain customers on recruiting firms, including the Company. Notwithstanding the foregoing, the Company does not anticipate any material reduction in such reliance as a result of the utilization of this software due to the difficulty of hiring IT professionals. Furthermore, the Company intends to offer lower commission rates to customers using AppTracker software to make it less likely that they will reduce the level of utilization of the services of recruiting firms. The Company believes that the use of AppTracker and its familiarity with the software will enable it to aid customers in finding suitable, professionals in a more timely and cost efficient manner, allowing for the decrease in prices charged by the Company. EXPANSION AND ACQUISITIONS The Company believes that it can leverage its base of IT professionals, its reputation, and its IT system to achieve revenue growth by establishing new offices in other regional markets. Such offices may be established by opening new offices and staffing them with local recruiters and sales people or by acquiring complimentary or competitive companies. The Company primarily intends to focus its expansion in large U.S. cities, such as Atlanta, Chicago, San Francisco and Austin. The Company is selecting locations that have other offices of its existing customers, such as Chicago, the headquarters of Harris Bank & Trust, or areas with numerous technology companies, such as Austin. In addition to attracting local IT professionals, the Company intends to attempt to recruit Canadian and other foreign IT professionals for these positions in the U.S. Due to the strength of the U.S. dollar against the Canadian dollar and other currencies, the Company believes that foreign IT professionals will find the economic opportunities in the U.S. attractive. The Company is currently endeavoring to expand its operations in the northeastern United States by the July 1998 hiring of John J. Silver as Senior Vice President and placing him in charge of the New York office. Mr. Silver has existing relationships with numerous potential customers in the New York market. The Company believes that recruiters in other markets will find the Company to be an attractive place to work because of the Company's existing relationships with multinational and other large corporate clients, the Company's good reputation among IT professionals, the Company's quality information technology system and the Company's incentive based compensation package which will generally combine base salary, bonuses, commissions and incentive stock options. The Company has also expanded in Ontario, Canada in order to obtain additional business from large Canadian customers. For example, the Company is opening an office in Ottawa in order to expand its relationship with Bell Canada. The Company believes that other large customers with offices or affiliated offices in Ottawa will consider using the Company's services in that city, providing the Company's sales force an advantage in building relationships when compared with other companies opening new offices. The Company may seek to establish offices in smaller markets that contain desirable customers. The Company believes that it can do so in a cost effective manner because of the strength of its IT system. A single recruiter/sales person can operate a "virtual office" by utilizing the Toronto office's database and other operational systems via the Company's intranet. For example, the Company intends to open an office in Indian Wells, California to provide services to U.S. Filters and Armtech Incorporated. The Company may also expand by acquiring complementary or competitive Companies, including existing IT staffing companies, which will provide an immediate increase to the Company's customer base and in some circumstances, providing a more cost effective method of expansion than opening a new office. The Company intends to target companies who have a strong customer base or group of IT professionals, but do not utilize an advanced internal IT system. The Company believes that providing an acquired company access to the Company's IT system will allow the acquired company to provide better 35 service without substantially increasing costs, which may also lead to increased revenue. Although, due to consolidation in the industry, there is competition for the acquisition of companies in the IT staffing industry, the Company intends to avoid competing for acquisition candidates by focusing on smaller companies. The Company may also utilize acquisitions or hiring of new employees to achieve growth in its existing markets. The Company utilized the acquisitions of Systems and ICS in the metropolitan Toronto area to acquire access to experienced recruiters with an existing customer base. With regard to customer services, the Company plans to implement a decentralized management plan. The Company believes that allowing existing management of an acquired company to remain an important part of its operations will be beneficial in retaining customers, recruiters and IT professionals. Similarly, local recruiters and sales people hired to staff new offices will have the flexibility to continue relationships with customers and IT professionals. The Company's intranet will provide all offices full access to the Company's databases and operating software, promoting a uniformity in certain functions. The Company intends to hold monthly meetings of its Operations Committee, which will consist of the heads of each regional office and subsidiary, to exchange information on industry trends and promote "best practices" among the offices. With regard to financial controls, the Company plans to have a fully integrated system which will allow control of cash flows and accounting and payroll functions from the Toronto office. COMPETITION The IT staffing industry is highly competitive and fragmented and is characterized by low barriers to entry. The Company competes for potential clients with other providers of IT staffing services, systems integrators, providers of outsourcing services, computer consultants, employment listing services and temporary personnel agencies. Many of the Company's current and potential competitors have longer operating histories, significantly greater financial, marketing and human resources, greater name recognition and a larger base of IT professionals and clients than the Company which may provide such competitors with a competitive advantage when compared to the Company. In addition, many of these competitors, including numerous smaller privately held companies, may be able to respond more quickly to customer requirements and to devote greater resources to the marketing of services than the Company. Because there are relatively low barriers to entry, the Company expects that competition will increase in the future. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect the Company's business, prospects and financial condition and results of operations. Further, there can be no assurance that the Company will be able to compete successfully against current and future competitors or that competitive pressures faced by the Company will not have a material adverse effect on its business, prospects, financial condition and results of operations. The Company believes that the principal factors relevant to competition in the IT staffing services industry are the recruitment and retention of highly qualified IT professionals, rapid and accurate response to client requirements and, to a lesser extent, price. The Company believes that it competes favorably with respect to these factors. PROPERTY AND FACILITIES The Company maintains its headquarters in a 6,000 square foot office located at 55 University Avenue in Toronto Canada. The Company has leased such facility for a term of ten years terminating in 36 November 2007. The Company pays annual rent of $46,200, which will increase to $55,000 commencing in December 2002. The Company leases additional offices at the following locations:
LOCATION SQUARE FEET LEASE EXPIRATION CURRENT RENT PER ANNUM - ----------------------------------------------------- ------------- -------------------- ----------------------- Etobicoke, Ontario................................... 2,000 4/13/03 $ 22,300 New York, New York................................... 295 10/31/98 $ 74,400 (extended quarter) to quarter Tampa, Florida....................................... 188 2/28/99 $ 4,080 Scarborough, Ontario................................. 6,000 5/31/01 $ 39,000
EMPLOYEES AND CONSULTANTS EMPLOYEES: The Company's corporate staff at June 30, 1998 consisted of 65 full-time employees, including 43 recruiters, 10 account managers/salespeople and 12 administrative employees. The Company is not a party to any collective bargaining agreements covering any of its employees, has never experienced any material labor disruption and is unaware of any current efforts or plans to organize its employees. The Company considers its relationships with its employees to be good. CONSULTANTS: The Company enters into consulting agreements with the IT professionals at hourly rates negotiated with each IT professional based on such individuals technical and other skills. The agreements provide that the IT professional is responsible for taxes and all other expenses and that the IT professional is not an employee of the Company for tax or other legal purposes. At September 1, 1998, approximately 160 contract workers placed by the Company were performing services for the Company's customers. LEGAL PROCEEDINGS The Company is not party to any material legal proceedings. 37 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning the directors and executive officers of the Company:
NAME AGE POSITION - ----------------------------------------------------- --- ----------------------------------------------------- Declan French........................................ 54 Chairman of the Board of Directors, President, Chief Executive Officer and Director John R. Wilson....................................... 45 President--Systems John A. Irwin........................................ 45 President--ICS John J. Silver....................................... 41 Senior Vice President Lloyd Maclean........................................ 45 Chief Financial Officer and Director William J. Neill..................................... 45 Director Nominee John Dunne........................................... 55 Director Nominee Blair Taylor......................................... 45 Director Nominee James Reddy.......................................... 59 Director Nominee Robert M. Rubin...................................... 54 Director Nominee
Each director is elected for a period of one year at the Company's annual meeting of shareholders and serves until the next such meeting and until his or her successor is duly elected and qualified. Directors may be re-elected annually without limitation. Officers are appointed by, and serve at the discretion of, the Board of Directors. The Company's directors do not presently receive any compensation for their services as directors' but it is contemplated that directors will be granted options pursuant to the Plan. In addition, for a period of three years following the date of this Prospectus, the Representative shall have the right, at its option, to designate one director or observor to the Board of Directors, which director shall be reasonably acceptable to the Board of Directors. Set forth below is a biographical description of each director and executive officer of the Company based on information supplied by each of them. DECLAN FRENCH has served as the Company's Chairman of the Board of Directors, President and Chief Executive Officer since the inception of the Company in February 1994. Prior to founding the Company, Mr. French was President and Chief Executive Officer of TEC Partners Ltd., a IT recruiting firm in Toronto, Canada. Mr. French has a diploma in Psychology and Philosophy from the University of St. Thomas in Rome, Italy. JOHN R. WILSON has served as President of Systems since 1982 and was its sole shareholder prior to its sale to the Company in April 1998. Mr. Wilson is a member of the Company's Operations Committee. JOHN A. IRWIN has served as President of ICS since 1980 and was its sole shareholder prior to its sale to the Company in May 1998. Mr. Irwin has a degree in Computer Programming from Cambridge College of Arts and Technology. Mr. Irwin is a member of the Company's Operations Committee. JOHN J. SILVER has served as a Senior Vice-President of the Company since July 1998. From April 1995 until July 1998, Mr. Silver served as Director of Professional Services Volt Technical Services, a New York based IT staffing firm, where he was in charge of managed services for major accounts. From November 1994 until March 1995, he was a regional manager for ADIA Personell Services in Santa Monica, California. From July 1992 until November 1994, Mr. Silver was a regional Vice President for Spectrum Information Technolgies/Data One in Lancaster, California. Mr. Silver has a marketing degree from Suffolk College. Mr. Silver is a member of the Company's Operations Committee. LLOYD MACLEAN has served as the Company's Chief Financial Officer since September 1997. Mr. Maclean is the sole officer and director of Globe Capital Corporation. From 1996 to 1997, 38 Mr. Maclean was Vice-President and Chief Financial Officer of ING Direct Bank of Canada. From 1994 until 1996, he was Vice-President and Chief Financial Officer of North American Trust, Inc., where he also served as a Vice President from 1990 until 1994. Mr. Maclean has an MBA from Harvard University and is a member of the Canadian Institute of Chartered Accountants. WILLIAM J. NEILL has been nominated and has agreed to join the Board of Directors after the Closing of the Offering. Mr. Neill has served as Publisher and Chief Executive Officer of the Financial Post since October 1997. From 1996 until 1997, Mr. Neill was Publisher of the Ottawa Sun. From 1993 until 1996, he was a Vice-President of the Financial Post. Mr. Neill has an MBA from Queens University in Kingston, Ontario. BLAIR TAYLOR has been nominated and has agreed to join the Board of Directors after the Closing of the Offering. Since July 1997, Mr. Taylor has served as Director of Finance and Operations for Phoenix Research and Trading Corporation. From 1993 to 1997, he was a managing director of CIBC Wood Gundy Securities, Inc. Mr. Taylor has a degree in computer science from the University of Waterloo and is a member of the Canadian Institute of Chartered Accountants. JOHN DUNNE has been nominated and has agreed to join the Board of Directors after the Closing of the Offering. Mr. Dunne has been Chairman and Chief Executive Officer of the Great Atlantic & Pacific Company of Canada, Ltd ("Great Atlantic") since August 1997, where he also served as President and Chief Operating Officer from September 1996 until August 1997. From November 1995 until September 1996, Mr. Dunne was Chairman and Chief Executive Officer of Food Basics Ltd. Prior to that, he had served as Vice Chairman and Chief Merchandising Officer of Great Atlantic. JAMES REDDY has been nominated and has agreed to join the Board of Directors after the Closing of the Offering. Mr. Reddy has served as Chief Financial Officer of Gemstar Communications, Inc. since July 1998. From July 1997 to July 1998, Mr. Reddy was an independent management consultant. He is a member of the Canadian Institute of Chartered Accountants. From 1989 to 1997, he was employed by DFI Securities, Inc., most recently as Chief Financial Officer. ROBERT M. RUBIN has been nominated and has agreed to join the Board of Directors after the Closing of the Offering. Mr. Rubin has served as Chairman of the Board of Diplomat Direct Marketing Corporation since 1992. Between October, 1990 and January 1, 1994 Mr. Rubin served as the Chairman of the Board of Directors and Chief Executive Officer of American United Global Inc., a telecommunications and software company ("AUGI") and since January 1, 1994, solely as Chairman of the Board of Directors of AUGI. Mr. Rubin was formerly a Director and Vice Chairman of the Board of Directors, and is a minority stockholder of American Complex Care, Incorporated ("ACCI"). In April 1995, the principal operating subsidiaries of ACCI petitioned in the Circuit Court of Broward County, Florida for an assignment for the benefit of creditors. Mr. Rubin is also a Director, Chairman of the Board of Directors and minority stockholder of Universal Self Care, Inc., and Response USA, Inc. and a director of Kay Kotts Associates, Inc. and Med-Emerg International, Inc., each of which are public companies. Mr. Rubin was Chairman of the Board of Directors, Chief Executive Officer and remains a Director and a principal stockholder of ERD Waste Corp., which filed for bankruptcy protection in 1997. Mr. Rubin was the founder, President, Chief Executive Officer and a Director of Superior Care, Inc. ("SCI") from its inceptioni in 1976 until May 1986 and continued as a Director of SCI (now known as Olsten Corporation ("Olsten")) until the latter part of 1987. Olsten, a New York Stock Exchange listed company is engaged in providing home care and institutional staffing services and health care management services. COMMITTEES OF THE BOARD In July 1998, the Board of Directors formalized the creation of a Compensation Committee, which is comprised of Blair Taylor, William J. Neill and Declan French. The Compensation Committee has (i) full power and authority to interpret the provisions of, and supervise the administration of, the Plan and (ii) the authority to review all compensation matters relating to the Company. The Compensation 39 Committee has not yet met and has not yet formulated compensation policies for senior management and executive officers. However, it is anticipated that the Compensation Committee will develop a company-wide program covering all employees and that the goals of such program will be to attract, maintain, and motivate the Company's employees. It is further anticipated that one of the aspects of the program will be to link an employee's compensation to his or her performance, and that the grant of stock options or other awards related to the price of the Common Shares will be used in order to make an employee's compensation consistent with shareholders' gains. It is expected that salaries will be set competitively relative to the IT staffing industry and that individual experience and performance will be considered in setting salaries. In July, 1998, the Board of Directors also formalized the creation of an Audit Committee, which is comprised of two or more directors of the Company designated by a majority vote of the entire Board of Directors. A majority of the Audit Committee are Directors who are not officers of the Company and who are not and have not been employed by the Company or any affiliates thereof. The Audit Committee currently consists of Lloyd Maclean, James Reddy and John Dunne and is charged with reviewing the following matters and advising and consulting with the entire Board of Directors with respect thereto: (i) the preparation of the Company's annual financial statements in collaboration with the Company's chartered accountants; (ii) annual review of the financial statements and annual report of the Company; and (iii) all contracts between the Company and the officers, directors and other affiliates thereof. The Audit Committee, like most independent committees of public companies, does not have explicit authority to veto any actions of the entire Board of Directors relating to the foregoing or other matters; however, the Company's senior management, recognizing their own fiduciary duty to the Company and its stockholders, is committed not to take any action contrary to the recommendation of the Audit Committee in any matter within the scope of its review. OPERATIONS COMMITTEE The Company has established an Operations Committee in order for the Company's officers to exchange information on industry trends and promote "best practices" among the offices. The head of each regional office and subsidiary will serve on the Executive Committee. Currently, the Executive Operations consists of Declan French, Lloyd Maclean, John A. Irwin, John R. Wilson and John J. Silver. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES The Bylaws of the Company provide that the Company shall indemnify to the fullest extent permitted by Canadian law directors and officers (and former officers and directors) of the Company. Such indemnification includes all costs and expenses and charges reasonably incurred in connection with the defense of any civil, criminal or administrative action or proceeding to which such person is made a party by reason of being or having been an officer or director of the Company if such person was substantially successful on the merits in his or her defense of the action and he or she acted honestly and in good faith with a view to the best interests of the Company, and if a criminal or administrative action that is enforced by a monetary penalty, such person had reasonable grounds to believe his or her conduct was lawful. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company and the Underwriters pursuant to the foregoing provisions, or otherwise, the Company has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses, incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person or by the Underwriters in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of 40 appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation paid by the Company during each of the last three fiscal years to the Company's Chief Executive Officer and to each of the Company's executive officers who earned in excess of $100,000 during the year ended December 31, 1997. SUMMARY COMPENSATION TABLE
YEAR/ OTHER ENDED ANNUAL COM- NAME AND PRINCIPAL POSITION DECEMBER COMPENSATION BONUS PENSATION - ------------------------------------------------------------------- ----------- ------------- --------- ----------- Declan French...................................................... 1997 $ 104,275 -- $ 8,342 President, Chief Executive 1996 108,350 -- 8,668 Officer and Chairman of the 1995 5,001 -- 8,800 Board John A. Irwin...................................................... 1997 139,034 -- 8,342 President-Systems 1996 -- -- -- 1995 -- -- -- John R. Wilson..................................................... 1997 83,420 -- 20,855 President-ICS 1996 80,659 -- 10,113 1995 -- -- --
EMPLOYMENT AGREEMENTS The Company has entered into an employment agreement with Declan French whereby he will serve as the Company's Chairman of the Board, President and Chief Executive Officer for a period of five years commencing on the effective date of the Registration Statement of which this Prospects forms a part. Mr. French shall be paid a base salary of $97,900 ($150,000 Cdn) and a bonus based on a percentage of the Company's net income. On May 19, 1998, in connection with the acquisition of ICS, the Company entered into an employment agreement for John A. Irwin whereby he will serve as President of ICS. The employment agreement is for a term of three years commencing on January 1, 1998, the effective date of the acquisition of ICS. Mr. Irwin receives a salary of $130,580 ($200,000 Canadian) plus a quarterly bonus of 2% of all permanent placement service revenue and 2% of the gross profit all contract services revenue. In February 1998, in connection with the acquisition of Systems, the Company entered into a three year employment agreement with John R. Wilson whereby he will serve as President of Systems at a salary of $120,000 per year. The agreement was effective as of January 2, 1997. Mr. Wilson receives a commission of 10% of the permanent placement revenue of Systems. Additionally, he receives $0.65 for every hour of contract services provided by IT Professionals placed by Systems, provided that the gross margin on such hour exceeds $6.50. Pursuant to the agreement, Mr. Wilson will have control of the day-to-day management of Systems. In August 1998, the Company entered into a one year employment with John J. Silver whereby he will serve as a Senior Vice President. Mr. Silver is to be paid an annual salary of $175,000 plus a bonus of 4% of the net income of the Company's New York office. The agreement also requires the Company to grant Mr. Silver 50,000 stock options exercisable at the initial public offering price. The agreement is terminable by either party upon three months notice. 41 CONSULTING AGREEMENTS In May 1998, the Company entered into a consulting agreement with Robert M. Rubin, a director of the Company, pursuant to which Mr. Rubin will aid the Company in structuring and negotiating acquisitions, strategic partnerships and other expansion opportunities. In exchange for such services, Mr. Rubin has been granted an option to purchase 200,000 Common Shares at a purchase price of $2.10 per share and a consulting fee of $80,000 per year. The consulting agreement is for a term of five years. Mr. Rubin has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of the Common Shares issuable upon exercise of the options for a period of two years after exercise without the consent of the Company. STOCK OPTION PLAN The Plan will be administered by the Compensation Committee or the Board of Directors, which will determine among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of Common Shares issuable upon the exercise of the options and the option exercise price. The Plan is effective for a period for ten years, expiring in 2008. Options to acquire 435,000 Common Shares may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to the Company. The Plan is designed to enable management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the Plan may be exercisable for up to ten years, generally require a minimum two year vesting period, and shall be at an exercise price all as determined by the Board of directors provided that, pursuant to the terms of the Underwriting Agreement between the Company and the Underwriters, the exercise price of any options may not be less than the fair market value of the Common Shares on the date of the grant. Options are non-transferable, and are exercisable only by the participant (or by his or her guardian or legal representative) during his or her lifetime or by his or her legal representatives following death. If a participant ceases affiliation with the Company by reason of death, permanent disability or retirement at or after age 65, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant 90 days to exercise the option, except for termination for cause which results in immediate termination of the option. The Company has agreed with the Representative not to grant any options under the Plan at less than 100% of the fair market value of the Common Shares at the date of the grant of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the Company become available again for issuance under the Plan, subject to applicable securities regulation. The Plan may be terminated or amended at any time by the Board of Directors, except that the number of Common Shares reserved for issuance upon the exercise of options granted under the Plan may not be increased without the consent of the shareholders of the Company. 42 PRINCIPAL SHAREHOLDERS The following table sets forth certain information, as of the date hereof, and as adjusted to give effect to this offering and the transactions contemplated thereby, with respect to the beneficial ownership of the Common Shares by (i) each person known to the Company to beneficially own more than 5% of the outstanding shares of Common Shares, (ii) each executive officer and director of the Company and (iii) all executive officers and directors of the Company as a group:
NUMBER OF SHARES OF PERCENTAGE COMMON SHARES BENEFICIALLY OWNED NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER BENEFICIAL OWNER(1) OWNED OFFERING OFFERING - --------------------------------------------------------------- ------------------- --------------------- ----------- Declan A. French(2)............................................ 1,021,126 60.9% 38.1% John R. Wilson................................................. 130,914 7.8% 4.9% John A. Irwin.................................................. 130,914 7.8% 4.9% Lloyd Maclean (3).............................................. 113,459 6.8% 4.2% Robert M. Rubin (4)............................................ 200,000 10.7% 6.9% All Executive Officers and Directors as a Group (5 persons).... 1,596,413 85.0% 55.5%
- ------------------------ (1) Unless otherwise indicated, the address is c/o IT Staffing Ltd., 55 University Avenue, Suite 505, Toronto, Ontario M5J 2H7. (2) Includes 510,563 Common Shares owned by Christine French, the wife of Declan French. Does not include 15,000 Common Shares owned by Patrick French, the son of Mr. French, of which Mr. French disclaims beneficial ownership. (3) Such Common Shares are owned by Globe Capital Corporation, an Ontario corporation that is wholly owned by Lloyd Maclean. (4) Consists of currently exercisable options to acquire 200,000 Common Shares at an exercise price of $2.10 per share. 43 CERTAIN RELATIONS AND RELATED PARTY TRANSACTIONS In April 1998, the Company acquired all the issued and outstanding Capital Shock of SCI and SPSI from John R. Wilson for $170,417 and 130,914 Common Shares. The acquisition was effective as of January 2, 1997. SPSI is inactive but holds certain assets utilized by Systems in its operations. Mr. Wilson was not affiliated with the Company prior to the acquisition. On May 19, 1998, the Company completed the acquisition of all the issued and outstanding Capital Shock of International Career Specialists, Ltd. ("ICS") for $340,838 in cash and 130,914 shares of Common Shares from John A. Irwin. In connection with the acquisition, ICS made a distribution to Mr. Irwin of certain ICS assets that were not necessary for the operation of the business. The transaction was effective as of January 1, 1998. Mr. Irwin was not affiliated with the Company prior to the acquisition. The Company, through ICS, leases its Scarborough office facility from 1242541 Ontario Ltd., a corporation owned by John A. Irwin, President of ICS, and certain other ICS employees. The three year lease, which expires in May 2001, requires annual rental payments of $60,000, which the Company believes is as least as favorable as could be obtained from a non-affiliated third party. In May 1998, the Company entered into a consulting agreement with Robert M. Rubin, a director of the Company, pursuant to which Mr. Rubin will aid the Company in structuring and negotiating acquisitions, strategic partnerships and other expansion opportunities. In exchange for such services, Mr. Rubin received an option to purchase 200,000 Common Shares at a purchase price of $2.10 per share and a consulting fee of $80,000 per year. The consulting agreement is for a term of five years. Mr. Rubin has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of the Common Shares issuable upon exercise of the options for a period of two years after exercise without the consent of the Company. All future transactions between the Company and its officers, directors or 5% Shareholders, and their respective affiliates, will be on terms no less favorable than could be obtained from unaffiliated third parties. 44 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 2,677,875 Common Shares outstanding (2,827,875 Common Shares outstanding if the Underwriters' over-allotment option is exercised in full). Of these shares, the 1,000,000 Common Shares offered hereby (1,150,000 shares if the Underwriters' over- allotment option is exercised in full) and 1,265,499 of the 1,677,875 Common Shares outstanding immediately prior to the offering giving effect to the sale of the Selling Shareholder Shares) will be freely tradeable commencing 90 days after the effective date of the registration statement of which this prospectus is a part, without further registration thereunder, subject to compliance with the volume requirements, the holding period and other requirements of Rule 144. All executive officers and directors of the Company, the holders of Common Shares outstanding immediately prior to the offering, and all the option holders under the Plan have agreed (i) not to publicly sell, or otherwise dispose of, any Common Shares or Common Shares issuable upon exercise of options or warrants for a period of 18 months from the date of this offering without the Representative's prior written consent; and (ii) not to privately sell or otherwise dispose of any such shares during such period unless the proposed transferee agrees to be bound by such restrictions on transfer. The Representative may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to the above described restrictions on sale. For a period of 18 months from the date of this Prospectus, the Company has agreed that it will not sell or otherwise dispose of any securities of the Company without the prior written consent of the Representative, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, during such period, the Company shall be entitled to issue (i) Common Shares in connection with mergers and acquisitions, (ii) up to 435,000 Common Shares issuable upon exercise of options which may be granted under the Plan, (iii) up to 22,125 Common Shares issuable upon the exercise of currently outstanding warrants which will, except in certain circumstances, be issued for an aggregate exercise price of $1.00, (iv) 200,000 Common Shares issuable upon the exercise of currently exercisable options, the holder of which has agreed not to sell, transfer, assign, hypothecate or otherwise dispose of such Common Shares for a period of two years after he exercises such options without the consent of the Company and (v) up to 100,000 Common Shares issuable upon the exercise of the Representative's Warrants. All of the 1,677,875 Common Shares outstanding prior to this offering are "restricted securities" within the meaning of Rule 144 of the Securities Act and, if held for at least one year, would be eligible for sale in the public market in reliance upon, and in accordance with, the provisions of Rule 144 following the expiration of such one year period. As of December 31, 1997, 1,265,499 Common Shares had been held for at least one year. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person or persons whose shares are aggregated, including a person who may be deemed to be an "affiliate" of the Company, as the term is defined under the Securities (an "Affiliate"), would be entitled to sell within any three month period a number of shares beneficially owned for at least one year that does not exceed the greater of (i) 1% of the then outstanding Common Shares, or (ii) the average weekly trading volume in the Common Shares during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and the availability of current public information about the Company. However, a person who is not deemed to have been an affiliate of the Company during the 90 days preceding a sale by such person and who has beneficially owned Common Shares for at least two years may immediately sell such shares without regard to the volume, manner of sale or notice requirements of Rule 144. Rule 701 under the Securities Act provides that the Common Shares acquired on the exercise of options granted under a written compensatory plan of the Company or contract with the Company prior to the date of this Prospectus may be resold by persons, other than Affiliates, beginning 90 days after the date of this Prospectus, subject only to the manner of sale provisions of Rule 144 and by Affiliates under Rule 144 without compliance with its one-year minimum holding period, subject to certain limitations. There are 435,000 Common Shares issuable upon the exercise of options which may be granted under the Plan prior to the date of this Prospectus (the "Option Shares"). Except as otherwise provided above, beginning 90 45 days after the date of this Prospectus, the Option Shares, if any, would be eligible for sale in reliance on Rule 701, subject to certain vesting provisions. Prior to this offering, there has been no public market for the Company's securities. Following this offering, the Company cannot predict the effect, if any, that sales of Common Shares pursuant to Rule 144 or otherwise, or the availability of such shares of sale, will have on the market price prevailing from time to time. Nevertheless, sales by the current shareholders of a substantial number of Common Shares in the public market could materially adversely affect prevailing market prices for the Common Shares. In addition, the availability for sale of a substantial number of Common Shares acquired through the exercise of the Representative's Warrants or the outstanding options under the Plan could materially adversely affect prevailing market prices for the Common Shares. See "Risk Factors--Shares Eligible for Future Sale." 46 DESCRIPTION OF SECURITIES The total authorized capital stock of the Company consist of an unlimited number of Common Shares, with no par value, and 1,000,000 preferred shares, with no par value per share. The following descriptions contain all material terms and features of the Securities of the Company and are qualified in all respects by reference to the Articles of Incorporation and Bylaws of the Company, copies of which are filed as Exhibits to the Registration Statement of which this Prospectus is a part. COMMON SHARES The Company is authorized to issue an unlimited number of Common Shares, no par value per share, of which as of the date of this Prospectus, 1,677,876 Common Shares are outstanding, not including the Shares offered herein. All outstanding Common Shares are, and all Common Shares to be outstanding upon the closing of this offering will be, validly authorized and issued, fully paid, and non-assessable. The holders of Common Shares are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Holders of Common Shares are entitled to receive ratably dividneds as may be declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Shares are entitled to share ratably in all assets remaining, if any, after payment of liabilities. Holders of Common Shares have no preemptive rights and have no rights to convert their Common Shares into any other securities. Pursuant to the Business Corporation Act, Ontario ("BCA"), a shareholder of an Ontario Corporation has the right to have the corporation pay the shareholder the fair market value for his shares of the corporation in the event such shareholder dissents to certain actions taken by the corporation, such as amalgamation or the sale of all or substantially all of the assets of the corporation and such shareholder follows the procedures set forth in the BCA. PREFERRED SHARES The Company's Articles of Incorporation authorize the issuance of up to 1,000,000 preferred shares with designations, rights and preferences determined from time to time by its Board of Directors. Accordingly, the Company's Board of Directors is empowered, without shareholder approval, to issue preferred shares with dividend, liquidation, conversion, or other rights that could adversely affect the rights of the holders of the Common Shares. Although the Company has no present intention to issue any preferred shares, there can be no assurance that it will not do so in the future. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Shares is Continental Stock Transfer & Trust Company. 47 CERTAIN UNITED STATES AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS UNITED STATES The following describes the principal United States federal income tax consequences of the purchase, ownership and disposition of the Common Shares by a shareholder, that is a citizen or resident of the United States or a United States domestic corporation or that otherwise will be subject to United States federal income tax (a "U.S. Holder"). This summary is based on the United States Internal Revenue Code of 1986, as amended (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Prospectus may affect the tax consequences described herein. This summary discusses only the principal United States federal income tax consequences to those beneficial owners holding the securities as capital assets within the meaning of Section 1221 of the Code and does not address the tax treatment of a beneficial owner that owns 10% or more of the Common Shares. It is for general guidance only and does not address the consequences applicable to certain specialized classes of taxpayers such as certain financial institutions, insurance companies, dealers in securities or foreign currencies, or United States persons whose functional currency (as defined in Section 985 of the Code) is not the United States dollar. Persons considering the purchase of these securities should consult their tax advisors with regard to the application of the United States and other income tax laws to their particular situations. In particular, a U.S. Holder should consult his tax advisor with regard to the application of the United States federal income tax laws to his situation. A U.S. Holder generally will realize, to the extent of the Company's current and accumulated earnings and profits, foreign source ordinary income on the receipt of cash dividends, if any, on the Common Shares equal to the United States dollar value of such dividends determined by reference to the exchange rate in effect on the day they are received by the U.S. Holder (with the value of such dividends computed before any reduction for any Canadian withholding tax). U.S. Holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any dividends received which are converted into United States dollars on a date subsequent to receipt. Subject to the requirements and limitations imposed by the Code, a U.S. Holder may elect to claim Canadian tax withheld or paid with respect to dividends on the Common Shares as a foreign credit against the United States federal income tax liability of such holder. Dividends on the Common Shares generally will constitute "passive income" or, in the case of certain U.S. Holders, "financial services income," for United States foreign tax credit purposes. U.S. Holders who do not elect to claim any foreign tax credits may claim a deduction for Canadian income tax withheld. Dividends paid on the Common Shares will not be eligible for the dividends received deduction available in certain cases to United States corporations. Upon a sale or exchange of a Common Share, a U.S. Holder will recognize gain or loss equal to the difference between the amount realized on such sale or exchange and the tax basis of such Common Share. Generally, any gain or loss recognized as a result of the foregoing will be a capital gain or loss and will either be long-term or short-term depending upon the period of time the Common Shares sold or exchanged, as the case may be, were held. THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR IS MADE. CANADA The following is a summary of the principal Canadian federal income tax considerations generally applicable to the acquisition, holding and disposition of Common Shares purchased pursuant to this Prospectus by a holder (a "U.S. holder") who, for the purposes of the INCOME TAX ACT (Canada) (the "ITA") and the CANADA-UNITED STATES INCOME TAX CONVENTION (the "Convention"), as applicable and at all relevant times, (i) is resident in the United States and not resident in Canada, (ii) holds Common Shares as 48 capital property, (iii) does not have a "permanent establishment" or "fixed base" in Canada (as defined in the Convention), and (iv) deals at arm's length with the Company. Special rules, which are not discussed in this summary, may apply to "financial institutions" (as defined in the ITA) and to non-resident insurers carrying on an insurance business in Canada and elsewhere. This summary is based on the current provisions of the ITA and the regulations thereunder and the Convention, all specific proposals to amend the ITA or the regulations thereunder announced by the Canadian Minister of Finance prior to the date of this Prospectus and the current published administrative practices of Revenue Canada. This summary does not otherwise take into account or anticipate any changes in law or administrative practice nor does it take into account income tax laws or considerations of any province or territory of Canada or any jurisdiction other than Canada, which may differ from the federal income tax consequences described herein. This summary is of a general nature only and is not intended to be, and should not be interpreted as, legal or tax advice to any particular purchaser of Common Shares. DIVIDENDS Under the ITA and the Convention, dividends paid or credited, or deemed to be paid or credited, on the Common Shares to a U.S. holder who owns less than 10% of the Company's voting shares will be subject to Canadian withholding tax at the rate of 15% of the gross amount of such dividends or deemed dividends. Under the Convention, dividends paid or credited to certain religious, scientific, charitable and similar tax exempt organizations and certain pension organizations that are resident, and exempt from tax, in the United States and that have complied with certain administrative procedures are exempt from this Canadian withholding tax. DISPOSITION OF COMMON SHARES A capital gain realized by a U.S. holder on a disposition or deemed disposition of Common Shares will not be subject to tax under the ITA unless such Common Shares constitute taxable Canadian property within the meaning of the ITA at the time of the disposition or deemed disposition. In general, the Common Shares will not be "taxable Canadian property" to a U.S. holder unless they are not listed on a prescribed stock exchange (which includes the Nasdaq SmallCap Market) or at any time within the five year period immediately preceding the disposition the U.S. holder, persons with whom the U.S. holder did not deal at arm's length, or the U.S. holder together with such persons owned or had an interest in or a right to acquire more than 25% of any class or series of the Company's shares. A deemed disposition of Common Shares will arise on the death of a U.S. holder. If the Common Shares are taxable Canadian property to a U.S. holder, any capital gain realized on a disposition or deemed disposition of such Common Shares will generally be exempt from tax under the ITA by virtue of the Convention if the value of the Common Shares at the time of the disposition or deemed disposition is not derived principally from real property (as defined by the Convention) situated in Canada. The Company is of the view that the Common Shares do not now derive their value principally from real property situated in Canada; however, the determination as to whether Canadian tax would be applicable on a disposition or deemed disposition of Common Shares must be made at the time of the disposition or deemed disposition. THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR IS MADE. 49 INVESTMENT CANADA ACT The Investment Canada Act, a Federal Canadian statute, regulates the acquisition of control of existing Canadian businesses by any non-Canadian (as that term is defined in the Investment Canada Act). The Company is currently a Canadian (as that term is defined in the Investment Canada Act). If a non-Canadian seeks to acquire control of the Company, such acquisition will be subject to the Investment Canada Act. In general, any transaction which is subject to the Investment Canada Act is a reviewable transaction if the book value of the Company's assets, as set out in its most recent financial statements, exceeds the applicable threshold. If the potential acquiror is a WTO Investor, acquiring control of the Company would only be reviewable if the book value of te Company assets exceeded Cdn$179 million. (This number is the threshold amount for 1998 and this amount is increased each year by a factor equal to the increase in the rate of Canadian inflation for the previous year). A WTO Investor is defined in the Investment Canada Act as an investor ultimately controlled by nationals of World Trade Organization member states, such as the United States of America. If the book value of the Company's assets exceeds the applicable threshold for review, the potential acquiror must file an application for review and obtain the approval of the Minister of Industry before acquiring control of the Company. In deciding whether to approve the reviewable transaction, the Minister considers whether the investment "is likely to be of net benefit to Canada". This determination is made on the basis of economic and policy criteria set out in the Investment Canada Act. The approval process begins with an initial review period of 45 days from the date the completed application is received. However, the Minister of Industry has authority to extend the review period unilaterally for 30 more days. Any further extensions requires the potential acquiror's consent. 50 UNDERWRITING Subject to the terms and conditions contained in the underwriting agreement (the "Underwriting Agreement"), the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters, for which Strasbourger Pearson Tulcin Wolff Incorporated is acting as Representative, has severally, and not jointly, agreed, to purchase the number of Shares offered hereby set forth opposite their respective names below.
NUMBER NAME OF SHARES - ----------------------------------------------------------------------------------------------------- ---------- Strasbourger Pearson Tulcin Wolff Incorporated....................................................... Total................................................................................................ 1,000,000
A copy of the Underwriting Agreement has been filed as an exhibit to the Registration Statement, to which reference is hereby made. The Underwriting Agreement provides that the obligations of the Underwriters to purchase the Shares is subject to certain conditions. The Underwriters shall be obligated to purchase all of the Shares (other than those covered by the Underwriters' over-allotment option described below), if any are purchased. The Representative has advised the Company that the Underwriters propose to offer the Shares to the public at the initial public offering price set forth on the cover page of this Prospectus and that they may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD"), and to certain foreign dealers, concessions not in excess of $ per Share, of which amount a sum not in excess of $ per Share may in turn be reallowed by such dealers to other dealers who are members of the NASD and to certain foreign dealers. After the commencement of this offering, the offering price, the concession to selected dealers, and the reallowance to other dealers may be changed by the Representative. The Company has agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. The Company has agreed to pay to the Representative an expense allowance, on a non-accountable basis, equal to 3% of the gross proceeds derived from the sale of 1,000,000 Shares offered hereby (or 1,150,000 Shares if the Underwriters' over-allotment option is exercised in full). The Company paid an advance on such allowances in the amount of $75,000. The Company has also agreed to pay certain of the Representative's expenses in connection with this offering, including expenses in connection with qualifying the Shares offered hereby for sale under the laws of such states as the Representative may designate and the placement of tombstone advertisements. In connection with this offering, the Company has granted the Representative the right, for the three-year period commencing on the closing date of this offering, to appoint an observer to attend all meetings of the Company's Board of Directors. This designee has the right to notice of all meetings of the Board of Directors and to receive reimbursement for all out-of-pocket expenses incurred in attending such meetings. In addition, such designee will be entitled to indemnification to the same extent as the Company's directors. The Company has agreed to retain the Representative as financial consultants for a period of two years to commence on the closing of this offering at an aggregate fee of $150,000, $100,000 of which shall be payable at the closing of this offering and the remainder of which shall be due on the first anniversary of such closing. Pursuant to this agreement, the Representative shall provide advisory services related to mergers and acquisitions activity, corporate finance and other matters. The Representative has advised the Company that the Underwriters do not intend to confirm sales of the Shares offered hereby to any account over which they exercise discretionary authority. 51 The Company, its officers, directors, and shareholders, as well as the holders of options under the Plan, have agreed not to offer, assign, issue, sell, hypothecate, or otherwise dispose of any Common Shares, securities of the Company convertible into, or exercisable or exchangeable for, Common Shares, or Common Shares received upon conversion, exercise, or exchange of such securities, to the public without the prior written consent of the Representative for a period of 18 months from the date of this Prospectus. Prior to this offering, there has been no public trading market for the Common Shares. The initial public offering price for the Shares will be determined by arms-length negotiations between the Company and the Representative and does not necessarily bear any relationship to the Company's book value, assets, past operating results, financial condition, or other established criteria of value. Among the factors to be considered in such negotiations will be prevailing market conditions, the history and prospects for the Company and the industry in which the Company competes, an assessment of the Company's management, its capital structure, and such other factors deemed relevant. The Company has also granted to the Underwriters an option, exercisable during the 45-day period commencing on the date of this Prospectus, to purchase at the public offering price per share, less the underwriting discounts and commissions, up to an aggregate of 150,000 Common Shares. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase additional Common Shares proportionate to such Underwriter's initial commitment as indicated in the preceding table. The Underwriters may exercise such right of purchase only for the purpose of covering over-allotments, if any, made in connection with the sale of Shares. Purchases of Common Shares upon exercise of the over-allotment option will result in the realization of additional compensation by the Underwriters. In connection with this offering, the Company has agreed to sell to the Representative, individually and not as Representative of the several Underwriters, at the price of $.001 per warrant, the Representative's Warrants to purchase 100,000 Common Shares. The Representative's Warrants are exercisable for a period of four years commencing one year from the date of this Prospectus at an exercise price per share (the "Exercise Price") equal to 110% of the public offering price per share. The Representative's Warrants may not be sold, transferred, assigned, pledged, or hypothecated for a period of 12 months from the date of the Prospectus, except to members of the selling group and to officers and partners of the Representative and members of the selling group. The Representative's Warrants contain anti-dilution provisions providing for adjustments of the Exercise Price and number of shares issuable on exercise of the Representative's Warrants, upon the occurrence of certain events, including dividends, stock splits, and recapitalizations. The holders of the Representative's Warrants have no voting, dividend, or other rights as stockholders of the Company with respect to Common Shares underlying the Representative's Warrants, unless the Representative's Warrants shall have been exercised. A new registration statement or post-effective amendment to the Registration Statement will be required to be filed and declared effective before distribution to the public of the Representative's Warrants and the Warrant Shares. The Company has agreed, on one occasion during the period beginning one year after the date of this Prospectus and ending four years thereafter, if requested by the holders of a majority of the Representative's Warrants or Warrant Shares, to make all necessary filings to permit a public offering of the Representative's Warrants and Warrant Shares and to use its best efforts to cause such filing to become effective under the Securities Act and to remain effective for at least 12 months, at the Company's sole expense. Notwithstanding the foregoing, the Company shall have no obligation to prepare and file such new registration statement or post-effective amendment to the Registration Statement if, within 20 days after it receives the request therefor, the Company or insiders who own individually in excess of 2% of the Common Shares agree to purchase the Representative's Warrants and/or the underlying securities from such requesting holders at a price, in the case of the Representative's Warrants, equal to the difference between the exercise price of the Representative's Warrants and the current market price (as defined) of the underlying securities. In addition, the Company has agreed to give advance notice to holders of the Representative's Warrants and Warrant Shares of its intention to file a registration 52 statement, and in such case, holders of the Representative's Warrants and the Warrant Shares shall have the right to require the Company to include the Warrant Shares in such registration statement at the Company's expense (subject to certain limitations). During and after this offering, the Underwriters may purchase and sell Common Shares in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with this offering. The Underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the Common Shares sold in this offering for their account may be reclaimed by the syndicate if such shares are repurchased by the syndicate in stabilizing or covering transactions. These activities may stabilize, maintain or otherwise affect the market price of the Common Shares which may be higher than the price that might otherwise affect the market price of the Common Shares, which may be higher than the price that might otherwise prevail in the open market. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Shares. In addition, neither the Company nor any of the Underwriters makes any representation that the Underwriters will engage in such transactions of that such transactions, once commenced, will not be discontinued at any time. The Company has granted the Representative, individually and not as the Representative of the several Underwriters, a right of first refusal to act as the Company's investment banker with respect to future financings or any merger, acquisition, or disposition of assets of the Company for a period of two years from the date of this Prospectus. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement which are filed as exhibits to the Registration Statement. See "Additional Information." LEGAL MATTERS Certain legal matters relating to Canadian law, including the validity of the issuance of the Common Shares offered hereby, will be passed upon for the Company by McMillan Binch, Toronto, Ontario. Certain legal matters in connection with the offering will be passed upon for the Company by its United States counsel, Gersten, Savage, Kaplowitz & Fredericks, LLP, New York, New York. Certain legal matters will be passed upon for the Underwriters by Brock Silverstein McAuliffe LLC. EXPERTS The financial statements of the Company for each of the two fiscal years ended December 31, 1996 and 1997, appearing in this Prospectus and Registration Statement have been audited by Schwartz Levitsky Feldman, Chartered Accountants, as set forth in their report thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement under the Act with respect to the Common Shares offered hereby. This Prospectus omits certain information contained in the Registration Statement and the exhibits thereto, and references are made to the Registration Statement and the exhibits thereto for further information with respect to the Company and the Common Shares offered hereby. Statements contained herein concerning the provisions of any documents are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. The Registration Statement, including exhibits and schedules filed therewith, may be inspected without charge at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, 53 Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and its public reference facilities in New York, New York and Chicago, Illinois upon payment of the prescribed fees. Electronic registration statements filed through the Electronic Data Gathering, Analysis, and Retrieval System are publicly available through the Commission's Web site (http://www.sec.gov). Further information on public reference rooms available at the Commission is available by contacting the Commission at 1-(800) SEC-0330. 54 IT STAFFING LTD. CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT TABLE OF CONTENTS Report of Independent Auditors................................................................. F-2 Consolidated Balance Sheets.................................................................... F-3 Consolidated Statements of Income.............................................................. F-4 Consolidated Statements of Stockholders' Equity................................................ F-5 Consolidated Statements of Cash Flows.......................................................... F-6 Notes to Consolidated Financial Statements..................................................... F-7
SUPPLEMENTARY SCHEDULES Consolidated Schedules of Expenses............................................................. F-15
INTERNATIONAL CAREER SPECIALISTS LTD. FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (EXPRESSED IN U.S. DOLLARS) TABLE OF CONTENTS Independent Auditors' Report................................................................... F-17 Balance Sheets................................................................................. F-18 Statement of Income............................................................................ F-19 Statements of Cash Flows....................................................................... F-20 Statement of Stockholder's Equity.............................................................. F-21 Notes to Financial Statements.................................................................. F-22 Schedules of Expenses.......................................................................... F-26
SYSTEMSEARCH CONSULTING SERVICES INC. FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (EXPRESSED IN U.S. DOLLARS) TABLE OF CONTENTS Independent Auditors' Report................................................................... F-28 Balance Sheets................................................................................. F-29 Statements of Income........................................................................... F-30 Statements of Stockholders' Equity............................................................. F-31 Statements of Cash Flows....................................................................... F-32 Notes to Financial Statements.................................................................. F-33 SUPPLEMENTARY INFORMATION Schedules of Expenses.......................................................................... F-36
F-1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of IT Staffing Ltd. We have audited the accompanying consolidated balance sheets of IT Staffing Ltd. (incorporated in Canada) as of December 31, 1997 and 1996 and the related consolidated statements of income, cash flows and stockholders' equity for the years ended December 31, 1997 and 1996. These consolidated financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial position of IT Staffing Ltd. as of December 31, 1997 and 1996 and the consolidated results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles in the United States of America. Toronto, Ontario July 27, 1998 Chartered Accountants F-2 IT STAFFING LTD. CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31 AND JUNE 30 (AMOUNTS EXPRESSED IN US DOLLARS)
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) ASSETS CURRENT ASSETS Cash.................................................... 113,670 -- -- -- Accounts receivable (note 3)............................ 1,495,213 628,940 761,570 211,928 Prepaid expenses........................................ 106,208 33,256 7,981 4,352 ----------- ----------- ------------ ------------ 1,715,091 662,196 769,551 216,280 CAPITAL ASSETS (note 4)................................... 90,412 37,068 47,955 22,000 GOODWILL (note 5)......................................... 1,318,923 498,255 472,825 -- ----------- ----------- ------------ ------------ 3,124,426 1,197,519 1,290,331 238,280 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ LIABILITIES CURRENT LIABILITIES Bank indebtedness (note 6).............................. 78,366 52,824 210,137 117,653 Accounts payable........................................ 826,042 572,120 388,250 84,742 Income taxes payable.................................... 147,277 32,307 50,786 6,421 Note payable (note 7)................................... -- 217,313 104,858 -- Current portion of long-term debt (note 8).............. 87,648 8,693 13,049 7,296 Advances from stockholders.............................. -- 52,908 49,749 29,988 ----------- ----------- ------------ ------------ 1,139,333 718,852 816,829 246,099 LONG-TERM DEBT (note 8)................................... 414,484 26,802 21,671 4,864 ----------- ----------- ------------ ------------ 1,553,817 745,654 838,500 250,964 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIENCY) CAPITAL STOCK (note 9).................................... 1,248,368 328,327 328,327 4 CUMULATIVE TRANSLATION ADJUSTMENT......................... (72,818) (3,028) (18,133) 59 RETAINED EARNINGS (DEFICIENCY)............................ 395,059 126,566 141,637 (12,747) ----------- ----------- ------------ ------------ 1,570,609 451,865 451,831 (12,684) ----------- ----------- ------------ ------------ 3,124,426 1,197,519 1,290,331 238,280 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. APPROVED ON BEHALF OF THE BOARD ________________________Director F-3 IT STAFFING LTD. CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED DECEMBER 31 AND JUNE 30 (AMOUNTS EXPRESSED IN US DOLLARS)
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) REVENUE Contract services..................................... 4,048,620 1,679,385 3,729,703 295,980 Permanent placements.................................. 1,269,387 476,620 974,638 468,207 ----------- ----------- ------------ ------------ 5,318,007 2,156,005 4,704,341 764,187 COST OF CONTRACT SERVICES................................. 3,120,411 1,286,001 2,888,540 259,334 ----------- ----------- ------------ ------------ GROSS PROFIT.............................................. 2,197,596 870,004 1,815,801 504,853 ----------- ----------- ------------ ------------ EXPENSES Selling............................................... 1,272,301 523,554 1,123,051 273,689 Administrative........................................ 419,036 131,284 315,855 158,944 Financial............................................. 117,837 58,365 176,390 36,665 ----------- ----------- ------------ ------------ 1,809,174 713,203 1,615,296 469,298 ----------- ----------- ------------ ------------ INCOME BEFORE INCOME TAXES................................ 388,422 156,801 200,505 35,555 Income taxes.......................................... 135,000 17,488 46,121 5,353 ----------- ----------- ------------ ------------ NET INCOME................................................ 253,422 139,313 154,384 30,202 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ NET INCOME PER WEIGHTED AVERAGE SHARE..................... 13 11 12 3 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (note 9)...................................................... 1,821,095 1,309,135 1,309,135 1,021,125 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 IT STAFFING LTD. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (AMOUNTS EXPRESSED IN US DOLLARS)
COMMON STOCK RETAINED CUMULATIVE NUMBER OF EARNINGS TRANSLATION SHARES AMOUNTS (DEFICIT) ADJUSTMENTS ---------- ---------- --------- ----------- $ $ $ Balance as of December 31, 1995.................................. 780,000 4 (20,948) -- Foreign currency translation..................................... -- -- -- 59 Dividends paid................................................... -- -- (22,001) -- Net income for the year.......................................... -- -- 30,202 -- ---------- ---------- --------- ----------- Balance as of December 31, 1996.................................. 780,000 4 (12,747) 59 Common shares issued............................................. 220,000 328,323 -- -- Foreign currency translation..................................... -- -- -- (3,087) Net income for the period........................................ -- -- 139,313 -- ---------- ---------- --------- ----------- Balance as of June 30, 1997...................................... 1,000,000 328,327 126,566 (3,028) Foreign currency translation..................................... -- -- -- (15,105) Net income for the period........................................ -- -- 15,071 -- ---------- ---------- --------- ----------- Balance as of December 31, 1997.................................. 1,000,000 328,327 141,637 (18,133) Common shares issued............................................. 281,667 1,100,041 -- -- Foreign currency translation..................................... -- -- -- (54,685) Net income for the period........................................ -- -- 253,422 -- ---------- ---------- --------- ----------- Balance as of June 30, 1998...................................... 1,281,667 1,248,368 395,059 (72,818) ---------- ---------- --------- ----------- ---------- ---------- --------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-5 IT STAFFING LTD. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31 AND JUNE 30 (AMOUNTS EXPRESSED IN US DOLLARS)
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Cash flows from operating activities: Net income.............................................. 253,422 139,313 154,384 30,202 ----------- ----------- ------------ ------------ Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization.......................................... 9,832 4,567 16,968 5,037 Amortization of goodwill.............................. 31,060 -- 8,282 -- Decrease (increase) in accounts receivable............ (768,316) (421,017) (577,114) (211,535) Decrease(increase) in prepaid expenses................ (100,432) (29,847) (4,672) (3,629) Decrease (increase) in note payable................... (104,273) 218,603 108,350 -- Increase (decrease) in accounts payable............... 456,766 272,280 317,281 60,934 Decrease (increase) in income taxes payable........... (89,852) 26,087 46,121 6,454 ----------- ----------- ------------ ------------ Total adjustments....................................... (385,511) 70,673 (84,784) (142,739) ----------- ----------- ------------ ------------ Net cash generated by operating activities.............. (132,089) 209,986 69,600 (112,537) ----------- ----------- ------------ ------------ Cash flows from investing activities: Purchases of capital assets............................. (54,397) (19,883) (44,739) (25,830) Incorporation costs..................................... -- 740 733 (744) Acquisition of goodwill................................. (906,631) (501,214) (496,851) -- ----------- ----------- ------------ ------------ Net cash used in investing activities................... (961,028) (520,357) (540,857) (26,574) ----------- ----------- ------------ ------------ Cash flows from financing activity: Increase (decrease) in long-term debt................... 477,821 23,560 23,837 12,223 Proceeds from issuance of capital stock................. 909,752 327,905 325,051 -- Increase (decrease) in advances from shareholders....... (49,471) 23,272 21,716 30,142 Payment of dividends.................................... -- -- -- (22,001) ----------- ----------- ------------ ------------ 1,338,102 374,737 370,604 20,364 ----------- ----------- ------------ ------------ Effect of foreign currency exchange rate changes.......... (4,904) (4,186) 5,719 8,394 ----------- ----------- ------------ ------------ Net increase (decrease) in cash and cash equivalents...... 240,081 60,180 (94,934) (110,353) Cash and cash equivalents -- Beginning of year.................................... (204,796) (109,862) (109,862) 491 ----------- ----------- ------------ ------------ -- End of year.......................................... 35,285 (49,682) (204,796) (109,862) ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ Interest paid............................................. 50,434 17,257 42,153 8,762 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ Income taxes paid......................................... 34,721 -- 2,000 -- ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 1. BASIS OF PRESENTATION The consolidated financial statements for the six months ended June 30, 1998 and 1997 are unaudited. The interim results are not necessarily indicative of the results for any future period. In the opinion of management, the data in the consolidated financial statements reflects all adjustments necessary for a fair presentation of the results of the interim periods disclosed. All adjustments are of a normal and recurring nature. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The earnings of the subsidiaries are included from the date of acquisition. All significant inter-company accounts have been eliminated. b) Principal Business Activity IT Staffing is an information technology staffing company, which along with its subsidiaries System Search Consulting Services Inc. and International Career Specialists Ltd., specialize in placing information technology personnel on both a contract and permanent basis System Search Consultants Inc. was purchased by IT Staffing Ltd. in a transaction effective January 2, 1997. The acquisition was accounted for using the purchase method. International Career Specialists Ltd. was purchased by IT Staffing Ltd. in a transaction effective January 1, 1998. The acquisition was accounted for using the purchase method. c) Bank indebtedness and Cash Equivalents Bank indebtedness and cash equivalents include cash on hand, amounts due to banks, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amount approximates fair value because of the short maturity of those instruments. d) Other Financial Instruments The carrying amount of the company's other financial instruments approximate fair value because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. e) Long-term Financial Instruments The fair value of each of the company's long-term financial assets and debt instruments is based on the amount of future cash flows associated with each instrument discounted using an estimate of what the company's current borrowing rate for similar instruments of comparable maturity would be. f) Capital Assets Property and equipment are recorded at cost and are depreciated on the declining balance basis over their estimated useful lives. F-7 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g) Revenue Revenue from contract placements is recognized as services are performed. Revenue from permanent placements is recognized upon commencement of employment. h) Goodwill Goodwill representing the cost in excess of the fair value of net assets acquired related to the acquisitions of System Search Consulting Services Inc. and International Career Specialists Ltd. is being amortized on a straight-line basis over a thirty year period. The Company calculates the recoverability of goodwill on a quarterly basis by reference to estimated undiscounted future cash flows. i) Foreign Currency Translation The translation of the consolidated financial statements from Canadian dollars ("CDN $") into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates or at any other rates. Adjustments resulting from the translation are included in the cumulative translation adjustments in stockholders' equity. j) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. ACCOUNTS RECEIVABLE
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Accounts receivable....................................... 1,529,278 591,532 778,334 197,894 Less: Allowance for doubtful accounts..................... 34,065 -- 36,117 -- ----------- ----------- ------------ ------------ Accounts receivable, net.................................. 1,495,213 591,532 742,217 197,894 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
F-8 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 4. CAPITAL ASSETS
DECEMBER 31, 1997 DECEMBER 31, ----------------------------------- 1996 ACCUMULATED ------------- COST AMORTIZATION NET NET --------- ------------- --------- ------------- $ $ $ $ Furniture and equipment.......................................... 40,565 16,000 24,565 14,084 Computer equipment............................................... 25,477 9,078 16,399 7,175 Computer software................................................ 13,982 6,991 6,991 -- Incorporation costs.............................................. 710 710 -- 741 --------- ------ --------- ------ 80,734 32,779 47,955 22,000
SIX MONTHS ENDED YEARS ENDED ------------------------ ---------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------- ------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Furniture and equipment................................... 99,704 39,146 60,559 25,894 Computer equipment........................................ 38,511 21,160 17,351 10,806 Computer software......................................... 13,626 10,219 3,406 -- Incorporation costs....................................... 692 692 -- 368 Automobile................................................ 18,105 9,009 9,096 -- ----------- ----------- ------ ------ 170,638 80,226 90,412 37,068 ----------- ----------- ------ ------ ----------- ----------- ------ ------
Amortization for the period ended June 30, 1998 amounted to $9,832 ; ($4,567 for the six months ended in June 1997). 5. GOODWILL Goodwill is the excess of cost over the value of assets acquired over liabilities assumed.
SIX MONTHS ENDED YEARS ENDED ------------------------ ------------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ----------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Cost...................................................... 1,358,264 468,620 469,091 -- Accumulated amortization.................................. 39,341 -- 8,282 -- -- ----------- ----------- ------------ Net....................................................... 1,318,923 468,620 460,809 -- -- ----------- ----------- ------------ ----------- ----------- ------------ Amortization for the period............................... 31,059 -- 8,282 -- -- -- ----------- ----------- ------------ ----------- ----------- ------------
F-9 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 6. BANK INDEBTEDNESS AND LINE OF CREDIT The companies have available a line of credit to a maximum of $500,000, which bears interest at Canadian prime plus 2.1% per annum and is secured by a general assignment of book debts, a general security agreement and guarantees and postponements of claims by various affiliated companies. 7. NOTES PAYABLE Notes payable are represented by $104,858 ($108,657 in June 1997) of notes payable in conjunction with the acquisition of Systems Search Consulting Ltd. A second note for $108,656 was outstanding June 1997 representing a short-term bank advance made against the companies' line of credit. 8. LONG-TERM DEBT
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Included therein a) A BDC loan, secured by a general security agreement, with a carrying value of $272,517, payable in 1 payment of $4,529 on September 23, 1998 and 59 equal monthly payments of $4542 commencing thereafter, plus interest of prime plus 4% per annum. Currently the interest rate is 12.4%. In addition IT Staffing Ltd. shall pay interest monthly by way of a royalty of 0.0436% per annum of IT Staffing Ltd.'s projected annual gross sales.................................................. 272,517 -- -- -- ----------- ----------- ------------ ------------ Balance forward........................................... 272,517 -- -- -- ----------- ----------- ------------ ------------ a) Balance forward........................................ 272,517 -- -- -- A BDC loan, secured by a general security agreement, with a carrying value of $204,388 payable in 60 monthly payments of $3,406 plus interest of prime plus 4% per annum. Currently, the interest rate is 12.5%. In addition IT Staffing Ltd. shall pay interest monthly by way of royalty of 0.0198% per annum of its projected gross annual sales...................................... 204,388 -- -- -- Bank loan secured by a general security agreement, with a carrying value of $24,941 payable in 37 remaining monthly payments of $722 plus interest of prime plus 5%, per annum. Currently, the interest rate is 13.5%........ 24,941 35,495 28,974 --
F-10 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 8. LONG-TERM DEBT (CONTINUED)
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) A National Bank of Canada non-revolving, demand loan currently with no outstanding balance. Payments were made on a monthly basis in the amount of $608 for 24 months, at a rate of prime plus 2% per annum............ -- -- 5,746 11,355 ----------- ----------- ------------ ------------ 501,846 35,495 34,720 11,355 Less: Current portion................................... 87,648 8,693 13,049 6,813 ----------- ----------- ------------ ------------ 414,198 26,802 21,671 4,542 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
b) Future principal payments consist of the following as of June 30, 1998: June 30, 1999..................................................... $ 87,915 June 30, 2000..................................................... 103,471 June 30, 2001..................................................... 103,471 June 30, 2002..................................................... 95,975 June 30, 2003..................................................... 95,383 September 23, 2003................................................ 15,631 --------- $ 501,846
c) Interest expense with respect to the long-term debt amounted to $21,135 for the six months ended June 30, 1998 ($18,104 for the six months ended in June 1997) and $62,691 in December 1997 ($7,910 in 1996). F-11 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 9. CAPITAL STOCK Authorized An unlimited number of common shares Issued
SHARES $ --------- --------- June 30, 1998.......................................... 1,281,667 1,248,368 June 30, 1997.......................................... 1,000,000 328,327 December 31, 1997...................................... 1,000,000 328,327 December 31, 1996...................................... 780,000 4
On January 2, 1997 220,000 shares were issued in conjunction with the acquisition of System Search Consulting Services Inc. with a carrying value of $291,843 On January 1, 1998 100,000 shares were issued in conjunction with the acquisition of International Career Specialists Ltd. with a carrying value of $349,528. A private placement of 150,000 shares was completed in March 1998 yielding proceeds of $423,639. A second private placement of 65,000 shares was completed in April 1998 yielding proceeds of $216,814 The company redeemed 33,333 shares for $69,940 in April 1998. The company has outstanding stock options issued in conjunction with its long-term financing arrangements for 16,900 shares and additional options issued in conjunction with its purchase of the wholly owned subsidiaries for 200,000 shares. Subsequent to the period ending June 1998, the company split its stock. The result of the split converted the outstanding shares from 1,281,667 to 1,667,875 shares. Stock options were split from 216,900 shares to 222,124 shares. The fully diluted shares outstanding after the effect of the stock split is 1,900,000 shares . Weighted average number of shares outstanding is calculated on a fully diluted basis after giving effect to the stock split. 10. TRANSACTIONS WITH RELATED COMPANIES Prior to IT Staffing Ltd. Purchasing shares of International Career Specialists Ltd. on January 1, 1998, the company rented premises from International Career Specialists Ltd. The land and building were disposed of as part of the purchase price. F-12 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 11. LEASE COMMITMENTS a) Minimum payments under operating leases for premises occupied by the company and its subsidiaries in Toronto and New York, exclusive of most operating costs and realty taxes, for the fiscal year end of December 31 for the next five years are as follows: 1998.............................................................. $ 117,849 1999.............................................................. 95,734 2000.............................................................. 95,734 2001.............................................................. 71,888 2002.............................................................. 55,855 --------- $ 437,060 --------- ---------
b) Minimum payments under other operating leases for the fiscal year end December 31 until expiry are as follows: 1998.............................................................. $ 53,158 1999.............................................................. 32,916 2000.............................................................. 16,011 2001.............................................................. 4,242 2002.............................................................. 3,181 --------- $ 109,508 --------- ---------
12. SALES BY GEOGRAPHIC AREA a)
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Canada.................................................... 5,279,437 2,156 4,503,642 764,187 United States of America.................................. 38,570 -- 200,699 -- ----------- ----------- ------------ ------------ 5,318,007 2,156,005 4,704,341 764,187 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
F-13 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 12. SALES BY GEOGRAPHIC AREA (CONTINUED) b) Net Income by Geographic Area The company's accounting records do not readily provide information on net income by geographic area. Management is of the opinion that the proportion of net income based principally on sales, presented below, would fairly present the results of operations by geographic area.
SIX MONTHS ENDED YEARS ENDED ------------------------ --------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------- $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) Canada.................................................... 226,765 139,313 147,798 30,202 United States of America.................................. 1,657 -- 6,586 -- ----------- ----------- ------------ ------ 228,422 139,313 154,384 30,202 ----------- ----------- ------------ ------ ----------- ----------- ------------ ------
c) Identifiable Assets by Geographic Area All identifiable assets were located in Canada for 1998, 1997 and 1996. 13. SALES TO MAJOR CUSTOMERS The consolidated entity had the following sales to major customers: June 1998--none June 1997--none December 1997 Bank of Montreal........................................................... $ 674,426 14% SHL Systemhouse............................................................ $ 511,951 11% December 1996 Bank of Montreal........................................................... $ 176,972 23% Inco Limited............................................................... $ 77,119 10%
There were no significant purchases from major suppliers 14. SUBSEQUENT EVENTS The company has entered into a Letter of Intent with an underwriting firm and is proceeding to complete an Initial Public Offering of 1,000,000 shares of common stock for net proceeds to the company of $4,500,000. Upon successful completion of the offering the company will apply to have its stock listed on NASDAQ. F-14 IT STAFFING LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS EXPRESSED IN US DOLLARS) 15. COMPARATIVE FIGURES Certain figures in the 1997 financial statements have been reclassified to conform with the basis of presentation used in 1998.
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) SELLING Commissions............................................. 1,106,795 459,928 954,915 190,551 Advertising and promotion............................... 126,593 54,702 144,455 67,589 Automobile and travel................................... 38,913 8,924 23,681 15,549 ----------- ----------- ------------ ------------ 1,272,301 523,554 1,123,051 273,689 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ ADMINISTRATIVE Office and salaries and benefits........................ 135,428 43,707 96,132 56,288 Rent.................................................... 89,382 35,630 66,261 33,599 Management salaries and fees............................ 75,454 -- -- -- Telephone............................................... 39,227 14,660 40,011 16,034 Office and general...................................... 25,540 20,866 60,898 35,001 Taxes and licenses...................................... 6,915 6,458 15,066 5,326 Insurance............................................... 5,201 4,193 8,751 6,897 Repairs and maintenance................................. 998 463 3,486 762 Incorporation costs..................................... -- 740 -- -- Amortization of goodwill................................ 31,059 -- 8,282 -- Amortization............................................ 9,832 4,567 16,968 5,037 ----------- ----------- ------------ ------------ 419,036 131,284 315,855 158,944 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ FINANCIAL Equipment rental........................................ 46,268 22,059 50,796 22,932 Bad debts............................................... -- -- 36,117 -- Interest and bank charges............................... 50,434 17,257 42,153 8,762 Professional fees....................................... 21,135 19,049 47,324 4,971 ----------- ----------- ------------ ------------ 117,837 58,365 176,390 36,665 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
F-15 INTERNATIONAL CAREER SPECIALISTS LTD. FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (EXPRESSED IN U.S. DOLLARS) F-16 INTERNATIONAL CAREER SPECIALISTS LTD. FINANCIAL STATEMENTS (CONTINUED) SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (EXPRESSED IN U.S. DOLLARS) INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of International Career Specialists Ltd. We have audited the balance sheets of International Career Specialists Ltd. (incorporated in Canada) as at December 31, 1997 and 1996 and the related statements of income, cash flows and stockholders' equity for the years ended December 31, 1997 and 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the International Career Specialists Ltd. as at December 31, 1997 and 1996 and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles in the United States of America. Toronto, Ontario July 27, 1998 Chartered Accountants F-17 INTERNATIONAL CAREER SPECIALISTS LTD. BALANCE SHEET AS AT DECEMBER 31 AND JUNE 30 (EXPRESSED IN US DOLLARS)
JUNE JUNE DECEMBER DECEMBER 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) ASSETS CURRENT ASSETS Bank.......................................................... 57,078 33,322 161,839 76,220 Accounts receivable........................................... 506,092 297,335 426,121 174,243 Short-term investments (note 2)............................... -- 73,176 47,135 32,773 Loan receivable--parent company............................... 61,317 -- -- -- Due from shareholder.......................................... -- -- -- 43,702 ----------- ----------- ------------ ------------ 624,487 403,833 635,095 326,938 CAPITAL ASSETS (note 3)......................................... 32,126 33,722 151,844 34,132 INVESTMENT IN RELATED COMPANY................................... -- 55,491 61,167 -- ----------- ----------- ------------ ------------ 656,613 493,046 848,106 361,070 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------ LIABILITIES CURRENT LIABILITIES Accounts payable.............................................. 468,437 271,683 505,446 235,093 Accrued wages................................................. -- 144,150 209,018 65,665 Income taxes payable.......................................... 122,781 (4,491) 3,845 (1,016) Advances from shareholder..................................... -- -- 34,228 -- ----------- ----------- ------------ ------------ 591,218 411,342 752,537 299,742 ----------- ----------- ------------ ------------ STOCKHOLDERS' EQUITY CAPITAL STOCK (note 4).......................................... 1 1 1 1 CUMULATIVE TRANSLATION ADJUSTMENT............................... (5,955) (861) (4,093) (298) RETAINED EARNINGS............................................... 71,349 82,564 99,661 61,625 ----------- ----------- ------------ ------------ 65,395 81,704 95,569 61,328 ----------- ----------- ------------ ------------ 656,613 493,046 848,106 361,070 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
The accompanying notes are an integral part of these financial statements. APPROVED ON BEHALF OF THE BOARD ________________________Director F-18 INTERNATIONAL CAREER SPECIALISTS LTD STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 AND SIX MONTHS ENDED JUNE 30 (EXPRESSED IN US DOLLARS)
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) REVENUE Contract sales........................................ 1,746,436 914,302 2,275,859 999,680 Permanent sales....................................... 685,558 581,927 1,382,934 716,134 ----------- ----------- ------------ ------------ 2,431,994 1,496,229 3,658,793 1,715,814 Contractor fees....................................... 1,262,483 699,339 1,736,037 786,245 ----------- ----------- ------------ ------------ GROSS PROFIT.............................................. 1,169,511 796,890 1,922,756 929,569 Other income.......................................... 6,729 4,476 2,665 11,332 ----------- ----------- ------------ ------------ 1,176,240 801,366 1,925,421 940,901 ----------- ----------- ------------ ------------ EXPENSES Administrative........................................ 156,302 289,866 503,627 234,440 Selling............................................... 578,989 489,551 1,356,978 689,834 Financial............................................. (7,681) 1,010 15,946 2,204 ----------- ----------- ------------ ------------ 727,610 780,427 1,876,551 926,478 ----------- ----------- ------------ ------------ EARNINGS BEFORE INCOME TAXES.............................. 448,630 20,939 48,870 14,423 Income taxes.......................................... 160,000 -- 10,834 6,679 ----------- ----------- ------------ ------------ NET EARNINGS.............................................. 288,630 20,939 38,036 7,744 ----------- ----------- ------------ ------------ ----------- ----------- ------------ ------------
The accompanying notes are an integral part of these financial statements. F-19 INTERNATIONAL CAREER SPECIALISTS LTD. STATEMENT OF CASH FLOWS FOR THE PERIODS ENDED DECEMBER 31 AND SIX MONTHS JUNE 30 (EXPRESSED IN US DOLLARS)
SIX MONTHS ENDED YEARS ENDED ------------------------ -------------------------- JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, 1998 1997 1997 1996 ----------- ----------- ------------ ------------ $ $ $ $ (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income.............................................. 288,630 20,939 38,036 7,744 ----------- ----------- ------------ ------------ Adjustments to reconcile net income to net cash (used in) provided by operating activities: Amortization.......................................... 2,714 7,136 15,933 8,264 Decrease (increase) in accounts receivable............ (92,648) (125,081) (267,804) (106,202) Decrease (increase) in short-term investments......... 46,872 (40,879) (16,258) 2,553 Decrease (increase) due from shareholder.............. (34,037) -- 35,358 -- Increase (decrease) in advances from shareholders..... -- 43,646 43,266 (36,805) Increase (decrease) in accounts payable............... (24,656) 38,502 289,526 193,767 Increase (decrease) in accrued wages.................. (207,851) 79,426 150,968 66,002 Decrease (increase) in income taxes payable........... 121,456 (3,503) 4,979 (936) ----------- ----------- ------------ ------------ Total adjustments....................................... (188,150) (753) 253,978 126,643 ----------- ----------- ------------ ------------ Net cash generated by operating activities.............. 100,480 20,186 294,014 134,387 ----------- ----------- ------------ ------------ Cash flows from investing activities: Purchases of capital assets............................. -- (6,969) (139,041) (25,590) Disposal of capital assets.............................. 115,502 -- -- -- ----------- ----------- ------------ ------------ Net cash used in investing activities................... 115,502 (6,969) (139,041) (25,590) ----------- ----------- ------------ ------------ Cash flows from financing activities: Decrease (increase) in investment in related company.... 60,826 (55,820) (63,204) -- Decrease (increase) in loan to parent company........... (62,564) -- -- -- Payment of dividends.................................... (316,942) -- -- -- ----------- ----------- ------------ ------------ (318,679) (55,820) (63,204) -- ----------- ----------- ------------ ------------ Effect of foreign currency exchange rate changes.......... (2,064) (295) (6,150) (391) ----------- ----------- ------------ ------------ Net increase (decrease) in cash and cash equivalents...... (104,761) (42,898) 85,619 108,406 Cash and cash equivalents -- Beginning of year.................................... 161,839 76,220 76,220 (32,186) ----------- ----------- ------------ ------------ 57,078 33,322 161,839 76,220
F-20 INTERNATIONAL CAREER SPECIALISTS LTD. STATEMENT OF STOCKHOLDERS" EQUITY (AMOUNTS EXPRESSED IN US DOLLARS)
COMMON STOCK CUMULATIVE NUMBER OF RETAINED TRANSLATION SHARES AMOUNTS EARNINGS ADJUSTMENTS ---------- ---------- ---------- ------------- $ $ $ Balance as of December 31, 1995................................ 2 1 53,881 -- Foreign currency translation................................... -- -- -- (298) Net income for the year........................................ -- -- 7,744 -- ---------- ---------- ---------- ------ Balance as of December 31, 1996................................ 2 1 61,625 (298) Foreign currency translation................................... -- -- -- (563) Net income for the period...................................... -- -- 20,939 -- ---------- ---------- ---------- ------ Balance as of June 30, 1997.................................... 2 1 82,564 (861) Foreign currency translation................................... -- -- -- (3,232) Net income for the period...................................... -- -- 17,097 -- ---------- ---------- ---------- ------ Balance as of December 31, 1997................................ 2 1 99,661 (4,093) Foreign currency translation................................... -- -- -- (1,862) Dividends paid (note 6)........................................ -- -- (316,942) -- Net income for the period...................................... -- -- 288,630 -- ---------- ---------- ---------- ------ Balance as of June 30, 1998.................................... 2 1 71,349 (5,955) ---------- ---------- ---------- ------ ---------- ---------- ---------- ------
The accompanying notes are an integral part of these consolidated financial statements. F-21 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31 AND JUNE 30 (EXPRESSED IN U.S. DOLLARS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The financial statements for the six-month ended June 30, 1998 and 1997 are unaudited. The interim results are not necessarily indicative of the results for any future period. In the opinion of management, the data in the financial statements reflects all adjustments necessary for a fair presentation of the results of the interim periods disclosed. All adjustments are of normal and recurring nature. b) Business Operations International Career Specialists is an information technology staffing company specializing in placing high technology personnel on both a contract and permanent basis. c) Bank indebtedness and Cash Equivalents Bank indebtedness and cash equivalents include cash on hand, amounts due to banks, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amount approximates fair value because of the short maturity of those instruments. d) Other Financial Instruments The carrying amount of the company's other financial instruments approximate fair value because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. e) Short-term Investments The company's marketable securities are in equity investments. Short-term investments are carried at fair market value. f) Revenue Recognition Revenue from contract placements is recognized as services are performed. Revenue from permanent placements are recognized upon commencement of employment. g) Capital Assets Capital assets are recorded at cost and are amortized at the undernoted rates and methods: Declining Automobile 20% balance Declining Office equipment 20% balance Declining Computer 30% balance Leasehold improvements 5 years Straight-line Declining Building--U.S. office 5% balance Office equipment--U.S. Declining office 20% balance
Amortization of assets acquired during the year is recorded at one-half of the normal rates. F-22 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31 AND JUNE 30 (EXPRESSED IN U.S. DOLLARS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) h) Foreign Currency Translation The translation of the financial statements from Canadian dollars ("CDN$") into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates or at any other rates. Adjustments resulting from the translation are including in the cumulative translation adjustments in stockholders's equity. i) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures 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. 2. SHORT-TERM INVESTMENTS Short-term investments consist of:
JUNE JUNE DECEMBER DECEMBER 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) Marketable securities....................... -- 73,176 47,135 32,773 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3. CAPITAL ASSETS
DECEMBER 31, 1997 DECEMBER 31, ----------------------------------- 1996 ACCUMULATED ------------- COST AMORTIZATION NET NET --------- ------------- --------- ------------- $ $ $ $ Land--US................................... 24,467 -- 24,467 -- Building--US............................... 85,984 2,150 83,834 -- Office equipment--US....................... 5,276 514 4,762 -- Vehicles................................... 18,577 7,597 10,980 16,372 Office equipment........................... 39,482 16,229 23,253 8,905 Computer................................... 14,038 9,490 4,548 5,080 Leasehold improvements..................... 5,692 5,692 -- 3,776 --------- ------ --------- ------ 193,516 41,672 151,844 34,132 --------- ------ --------- ------ --------- ------ --------- ------
F-23 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31 AND JUNE 30 (EXPRESSED IN U.S. DOLLARS) 3. CAPITAL ASSETS (CONTINUED) Amortization for the year amounted to $15,933 ($8,264 in 1996).
JUNE 30, 1998 JUNE 30, ----------------------------------- 1997 ACCUMULATED ----------- COST AMORTIZATION NET NET --------- ------------- --------- ----------- $ $ $ $ Vehicles.......................................... 17,890 9,009 8,881 13,317 Office equipment.................................. 37,721 18,029 19,692 13,104 Computer.......................................... 13,467 9,914 3,553 4,732 Leasehold improvements............................ -- -- -- 2,569 --------- ------ --------- ----------- 69,078 36,952 32,126 33,722 --------- ------ --------- ----------- --------- ------ --------- -----------
Amortization for the six months ended June 30, 1998 amounted to $2,714 ($7,136 for the six months ended June 1997). 4. CAPITAL STOCK Authorized 10,000 Preferred shares, 10% non-cumulative, non-participating, non-voting, redeemable at par value of $7.30 each ($10 Canadian) 25,000 Common shares, no par value
1997 1998 ----- ----- $ $ Issued 2 Common shares............................................... 1 1 - - - -
5. DISTRIBUTION OF ASSETS--DIVIDENDS On January 1, 1998, the company paid a dividend in kind to its shareholder distributing assets as follows: Short-term investments (at market value).......................... $ 53,464 Investment in 1242541 Ontario Inc................................. 73,686 Land--Building U.S................................................ 109,834 Vehicle........................................................... 10,443 Cash.............................................................. 69,515 --------- $ 316,942 --------- ---------
F-24 INTERNATIONAL CAREER SPECIALISTS LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31 AND JUNE 30 (EXPRESSED IN U.S. DOLLARS) 6. LEASE COMMITMENTS Minimum payments under an operating lease for premises, inclusive of all operating costs, hydro, basic insurance, utilities and property taxes for which the company is responsible, for the fiscal year end, is as follows until expiry: 1998............................................................... $ 40,878 1999............................................................... 40,878 2000............................................................... 40,878 2001............................................................... 17,032
F-25 INTERNATIONAL CAREER SPECIALISTS LTD SCHEDULE OF EXPENSES FOR THE YEARS ENDED DECEMBER 31 AND SIX MONTHS ENDED JUNE 30 (EXPRESSED IN US DOLLARS)
JUNE JUNE DECEMBER DECEMBER 1998 1997 1997 1996 ----------- ----------- ---------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) ADMINISTRATIVE Management salaries and fees.............................. 75,454 225,123 366,225 139,338 Office salaries and benefits.............................. 36,107 22,962 47,055 33,574 Rent...................................................... 20,896 20,218 43,688 35,066 Telephone................................................. 11,029 6,731 14,486 11,118 Office and general........................................ 10,102 7,696 16,240 7,080 Amortization.............................................. 2,714 7,136 15,933 8,264 ----------- ----------- ---------- ----------- 156,302 289,866 503,627 234,440 ----------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- SELLING Commission................................................ 562,790 477,304 1,323,007 659,090 Advertising and promotion................................. 10,182 8,470 22,235 17,650 Automobile and travel..................................... 6,017 3,777 11,736 13,094 ----------- ----------- ---------- ----------- 578,989 489,551 1,356,978 689,834 ----------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- FINANCIAL Professional fees......................................... (8,140) 847 15,596 1,868 Interest and bank charges................................. 459 163 350 336 ----------- ----------- ---------- ----------- (7,681) 1,010 15,946 2,204 ----------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
F-26 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Systemsearch Consulting Services Inc. We have audited the balance sheets of Systemsearch Consulting Services Inc. (incorporated in Canada) as at December 31, 1997 and 1996 and the statements of income, stockholders' equity and cash flows for the years ended December 31, 1997 and 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Systemsearch Consulting Services Ltd. as at December 31, 1997 and 1996 and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles in the United States of America. Toronto, Ontario July 27, 1998 Chartered Accountants F-27 SYSTEMSEARCH CONSULTING SERVICES INC. FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 TOGETHER WITH INDEPENDENT AUDITORS' REPORT (EXPRESSED IN U.S. DOLLARS) F-28 SYSTEMSEARCH CONSULTING SERVICES INC. BALANCE SHEETS AS AT DECEMBER 31 AND JUNE 30 (EXPRESSED IN U.S. DOLLARS)
JUNE JUNE DECEMBER DECEMBER 1998 1997 1997 1996 ----------- ----------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) ASSETS CURRENT ASSETS Bank.......................................................... 56,592 -- -- -- Accounts receivable........................................... 256,097 207,796 271,985 144,615 ----------- ----------- ----------- ----------- 312,689 207,796 271,985 144,615 CAPITAL ASSETS (note 3)......................................... 13,674 12,875 11,176 9,339 ----------- ----------- ----------- ----------- 326,363 220,671 283,161 153,954 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- LIABILITIES CURRENT LIABILITIES Bank indebtedness............................................. -- 13,706 4,235 1,855 Accounts payable.............................................. 108,500 151,760 176,438 158,700 Intercompany transfer......................................... 20,439 -- -- -- Income taxes payable.......................................... 19,655 -- 20,168 -- ----------- ----------- ----------- ----------- 148,594 165,466 200,841 160,555 DUE TO SHAREHOLDER (note 4)..................................... -- 21,731 20,972 57,489 ----------- ----------- ----------- ----------- 148,594 187,197 221,813 218,044 ----------- ----------- ----------- ----------- SHAREHOLDER'S EQUITY CAPITAL STOCK (note 5).......................................... 36 36 36 36 CUMULATIVE TRANSLATION ADJUSTMENT............................... (5,033) 214 (1,074) 329 RETAINED EARNINGS............................................... 182,766 33,224 62,386 (64,455) ----------- ----------- ----------- ----------- 177,769 33,474 61,348 (64,090) ----------- ----------- ----------- ----------- 326,363 220,671 283,161 153,954 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. APPROVED ON BEHALF OF THE BOARD ________________________ Director F-29 SYSTEMSEARCH CONSULTING SERVICES INC. STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31 AND SIX MONTHS ENDED JUNE 30 (EXPRESSED IN U.S. DOLLARS)
JUNE JUNE DECEMBER DECEMBER 1998 1997 1997 1996 ----------- ----------- ---------- ---------- $ $ $ $ (UNAUDITED) (UNAUDITED) REVENUE Contract sales............................................. 869,570 696,817 1,703,097 1,009,238 Permanent sales............................................ 256,110 168,346 248,961 198,550 ----------- ----------- ---------- ---------- 1,125,680 865,163 1,952,058 1,207,788 Contractor fees............................................ 707,304 485,111 1,289,229 838,855 ----------- ----------- ---------- ---------- GROSS PROFIT................................................. 418,376 380,052 662,829 368,933 Other income............................................... 3,595 -- -- -- ----------- ----------- ---------- ---------- 421,971 380,052 662,829 368,933 ----------- ----------- ---------- ---------- EXPENSES Administrative............................................. 93,108 43,624 89,031 81,617 Selling.................................................... 203,329 223,552 406,718 341,495 Financial.................................................. 5,154 15,197 19,400 9,619 ----------- ----------- ---------- ---------- 301,591 282,373 515,149 432,731 ----------- ----------- ---------- ---------- EARNINGS BEFORE INCOME TAXES................................. 120,380 97,679 147,680 (63,798) Income taxes............................................... -- -- 20,839 -- ----------- ----------- ---------- ---------- NET INCOME................................................... 120,380 97,679 126,841 (63,798) ----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
The accompanying notes are an integral part of these financial statements. F-30 SYSTEMSEARCH CONSULTING SERVICES INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31 AND SIX-MONTHS ENDED JUNE 30 (EXPRESSED IN U.S. DOLLARS)
COMMON STOCK RETAINED CUMULATIVE NUMBER OF EARNINGS TRANSLATION SHARES AMOUNTS (DEFICIT) ADJUSTMENTS ------------- ----------- --------- ------------- $ $ $ $ Balance as of December 31, 1995................................... 65 36 (657) -- Foreign currency translation...................................... -- -- -- 329 Net loss for the year............................................. -- -- (63,798) -- ----- ----- --------- ------ Balance as of December 31, 1996................................... 65 36 (64,455) 329 Foreign currency translation...................................... -- -- -- (1,403) Net income for the year........................................... -- -- 97,679 -- ----- ----- --------- ------ Balance as of June 30, 1997....................................... 65 36 33,224 (1,074) Foreign currency translation...................................... -- -- -- 1,288 Net income for the year........................................... -- -- 29,162 -- ----- ----- --------- ------ Balance as of December 31, 1997................................... 65 36 62,386 214 Foreign currency translation...................................... -- -- -- (5,247) Net income for the year........................................... -- -- 120,380 -- ----- ----- --------- ------ Balance as of June 30, 1998....................................... 65 36 182,766 (5,033) ----- ----- --------- ------ ----- ----- --------- ------
The accompanying notes are an integral part of these financial statements. F-31 SYSTEMSEARCH CONSULTING SERVICES INC. STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 AND SIX MONTHS ENDED JUNE 30 (EXPRESSED IN U.S. DOLLARS)
JUNE JUNE DECEMBER DECEMBER 1998 1997 1997 1996 ----------- ----------- ---------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income.................................................... 120,380 97,679 126,841 (63,798) Adjustments to reconcile net income to net cash provided by operating activities: Amortization.................................................. 417 1,302 2,582 2,347 Decrease (increase) in accounts receivable.................... 9,159 (64,599) (137,868) 48,795 Increase (decrease) in accounts payable....................... (64,746) (5,836) 25,196 (50,617) Increase in intercompany transfer............................. 20,855 -- -- -- Increase in income taxes payable.............................. -- -- 20,839 -- ----------- ----------- ---------- ----------- Total adjustments............................................... (34,315) (69,133) (89,251) 525 ----------- ----------- ---------- ----------- Net cash generated by operating activities.................... 86,065 28,546 37,590 (63,273) ----------- ----------- ---------- ----------- Cash flows from investing activities Purchases of capital assets................................... (3,256) (4,927) (4,884) -- ----------- ----------- ---------- ----------- Cash flows from financing activities Advances from (repayments to) shareholder..................... (20,855) (35,555) (35,246) 22,000 ----------- ----------- ---------- ----------- Effect of foreign currency exchange rate on changes........... (1,127) 85 160 9 Net increase (decrease) in cash and cash equivalents.......... 60,827 (11,851) (2,380) (41,264) Cash (bank indebtedness), beginning of year................... (4,235) (1,855) (1,855) 39,409 ----------- ----------- ---------- ----------- Cash and cash equivalents, end of year.......................... 56,592 (13,706) (4,235) (1,855) ----------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- Interest paid................................................... 7,722 1,929 3,936 8,548 ----------- ----------- ---------- -----------
The accompanying notes are an integral part of these financial statements. F-32 SYSTEMSEARCH CONSULTING SERVICES INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (EXPRESSED IN U.S. DOLLARS) 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The financial statements for the six-month ended June 30, 1998 and 1997 are unaudited. The interim results are not necessarily indicative of the results for any future period. In the opinion of management, the data in the financial statements reflects all adjustments necessary for a fair presentation of the results of the interim periods disclosed. All adjustments are of normal and recurring nature. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Business Systemsearch Consulting Services Inc. is an information technology staffing company, specializes in placing information technology personnel on both a contract and permanent basis. b) Bank indebtedness and Cash Equivalents Bank indebtedness and cash equivalents include cash on hand, amounts due to banks, and any other highly liquid investments purchased with a maturity of three months or less. The carrying amount approximates fair value because of the short maturity of those instruments. c) Other Financial Instruments The carrying amount of the company's other financial instruments approximate fair value because of the short maturity of these instruments or the current nature of interest rates borne by these instruments. d) Long-term Financial Instruments The fair value of each of the company's long-term financial assets and debt instruments is based on the amount of future cash flows associated with each instrument discounted using an estimate of what the company's current borrowing rate for similar instruments of comparable maturity would be. e) Capital Assets Property and equipment are recorded at cost and are depreciated on the declining balance basis over their estimated useful lives. f) Revenue Recognition Revenue from contract placements is recognized as services are performed. Revenue from permanent placements are recognized upon commencement of employment. g) Foreign Currency Translation The translation of the financial statements from Canadian dollars ("CDN $") into United States dollars is performed for the convenience of the reader. Balance sheet accounts are translated using closing exchange rates in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during each reporting period. No F-33 SYSTEMSEARCH CONSULTING SERVICES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (EXPRESSED IN U.S. DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) representation is made that the Canadian dollar amounts could have been, or could be, converted into United States dollars at the rates on the respective dates or at any other rates. Adjustments resulting from the translation are included in the cumulative translation adjustments in stockholders' equity. h) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures 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. 3. CAPITAL ASSETS
DECEMBER DECEMBER 1997 1996 ----------------------------------- ----------- ACCUMULATED COST AMORTIZATION NET NET --------- ------------- --------- ----------- $ $ $ $ Furniture and fixtures............................................... 17,477 10,318 7,159 9,339 Computer equipment................................................... 4,726 709 4,017 -- --------- ------ --------- ----- 22,203 11,027 11,176 9,339 --------- ------ --------- ----- --------- ------ --------- ----- Amortization for 1997 amounted to $2,582 ($2,347 in 1996).
JUNE 1997 --------------------------------------- ACCUMULATED JUNE 1996 AMORTIZATION ----------- COST NET NET NET ----------- ------------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1) Furniture and fixtures..................................... 21,345 10,999 10,346 8,679 Computer equipment......................................... 4,606 1,278 3,328 4,196 ----------- ------ ----------- ----------- 25,951 12,277 13,674 12,875 ----------- ------ ----------- ----------- ----------- ------ ----------- -----------
Amortization for the period ended June 30, 1998 amounted to $417 ($1,302 for the period ended June 1997). 4. DUE TO (FROM) SHAREHOLDER The shareholder loan is unsecured, non-interest bearing and is not expected to be repaid prior to December 31, 1998. F-34 SYSTEMSEARCH CONSULTING SERVICES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998, JUNE 30, 1997, DECEMBER 31, 1997 AND DECEMBER 31, 1996 (EXPRESSED IN U.S. DOLLARS) 5. CAPITAL STOCK AUTHORIZED AN UNLIMITED NUMBER OF COMMON SHARES, NO PAR VALUE
JUNE JUNE DECEMBER DECEMBER ISSUED 1998 1997 1997 1996 - ---------------------------------------------------------------- ------------- ------------- ----------- ----------- $ $ $ $ (UNAUDITED) (UNAUDITED) 65 Common shares................................................ 36 36 36 36 ----- ----- ----- ----- ----- ----- ----- -----
6. LEASE COMMITMENTS Minimum lease payments under an operating lease for the premises, exclusive of all operating costs, hydro, basic insurance, utilities and property taxes for which the company is responsible, is as follows for the fiscal year end:
1998............................................................................... $ 21,695 1999............................................................................... 23,380 2000............................................................................... 23,380 2001............................................................................... 23,380 2002............................................................................... 23,380
F-35 SYSTEMSEARCH CONSULTING SERVICES INC. SCHEDULE OF EXPENSES FOR THE YEARS ENDED DECEMBER 31 AND SIX-MONTHS ENDED JUNE 30
JUNE JUNE DECEMBER DECEMBER 1998 1997 1997 1996 $ $ $ $ (UNAUDITED) (UNAUDITED) ----------- ----------- ----------- ----------- ADMINISTRATIVE Office salaries and benefits.................................. 42,349 -- -- -- Rent.......................................................... 18,945 16,793 28,848 26,732 Office and general............................................ 15,438 12,168 35,649 32,627 Telephone..................................................... 7,773 5,980 10,473 10,532 Taxes and licences............................................ 4,831 3,742 5,948 2,916 Insurance..................................................... 1,830 1,874 1,858 2,287 Equipment rental.............................................. 1,171 1,377 2,158 4,176 Repairs and maintenance....................................... 354 388 1,515 -- Management salaries and fees.................................. -- -- -- -- Amortization.................................................. 417 1,302 2,582 2,347 ----------- ----------- ----------- ----------- 93,108 43,624 89,031 81,617 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- SELLING Commission.................................................... 190,847 220,525 402,059 332,529 Automobile and travel......................................... 12,482 3,027 4,659 8,966 ----------- ----------- ----------- ----------- 203,329 223,552 406,718 341,495 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- FINANCIAL Interest and bank charges..................................... 7,722 1,929 3,936 8,548 Professional fees............................................. (2,568) 13,268 15,464 1,071 ----------- ----------- ----------- ----------- 5,154 15,197 19,400 9,619 ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
F-36 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY COMMON SHARES SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. -------------------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................. 4 The Offering................................... 5 Summary Combined Financial Information......... 7 Risk Factors................................... 8 Use of Proceeds................................ 17 Dividend Policy................................ 18 Dilution....................................... 19 Capitalization................................. 20 Selected Financial Data........................ 21 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 22 Business....................................... 27 Management..................................... 38 Principal Shareholders......................... 43 Relationships and Related Party................ Certain Transactions........................... 44 Shares Eligible for Future Sale................ 45 Description of Securities...................... 47 Certain United States and Canadian Federal Income Tax Considerations.................... 48 Investment Canada Act.......................... 50 Underwriting................................... 51 Legal Matters.................................. 53 Experts........................................ 53 Additional Information......................... 53 Financial Statements........................... F-1
------------------------ UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMPANY'S SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IT STAFFING LTD. 1,000,000 COMMON SHARES ------------------------ PROSPECTUS ------------------------ STRASBOURGER PEARSON TULCIN WOLFF INCORPORATED , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Bylaws of the Company provide that the Company shall indemnify directors and officers of the Company. The pertinent section of Canadian law is set forth below in full. In addition, upon effectiveness of this registration statement, management intends to obtain officers' and directors' liability insurance. See the second and third paragraphs of Item 28 below for information regarding the position of the Securities and Exchange Commission (the "Commission") with respect to the effect of any indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). Section 136 of the Business Corporations Act (Ontario) provides as follows: (1) INDEMNIFICATION OF DIRECTORS. A corporation may indemnify a director or officer of the corporation, a former director or officer of the corporation or a person who acts or acted at the corporation's request as a director or officer of a body corporate of which the corporation is or was a shareholder or creditor, and his or her heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or her in respect of any civil, criminal or administrative action or proceeding to which he or she is a party by reason of being or having been a director or officer of such corporation or body corporate, if, (a) he or she acted honestly and in good faith with a view to the best interests of the corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. (2) IDEM. A corporation may, with the approval of the court, indemnify a person referred to in subsection (1) in respect of an action by or behalf of the corporation or body corporate to procure a judgment in its favour, to which the person is made a party by reason of being or having been a director or an officer of the corporation or body corporate, against all costs, charges and expenses reasonably incurred by the person in connection with such action if he or she fulfils the conditions set out in clauses (1)(a) and (b). (3) IDEM. Despite anything in this section, a person referred to in subsection (1) is entitled to indemnity from the corporation in respect of all costs, charges and expenses reasonably incurred by him in connection with the defense of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the corporation or body corporate, if the person seeking indemnity; (a) was substantially successful on the merits in his or her defense of the action or proceeding; and (b) fulfills the conditions set out in clauses (1)(a) and (b). (4) LIABILITY INSURANCE. A corporation may purchase and maintain insurance for the benefit of any person referred to in subsection (1) against any liability incurred by the person, (a) in his or her capacity as a director or officer of the corporation, except where the liability relates to the person's failure to act honestly and in good faith with a view to the best interests of the corporation; or II-1 (b) in his or her capacity as a director or officer of another body corporate where the person acts or acted in that capacity at the corporation's request, except where the liability relates to the person's failure to act honestly and in good faith with a view to the best interests of the body corporate. (5) APPLICATION TO COURT. A corporation or a person referred to in subsection (1) may apply to the court for an order approving an indemnity under this section and the court may so order and make any further order it thinks fit. (6) INDEM. Upon application under subsection (5), the court may order notice to be given to any interested person and such person is entitled to appear and be heard in person or by counsel. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is a statement of the estimated expenses to be paid by the Company in connection with the issuance and distribution of the securities being registered: SEC Registration Fee........................................................... $ 1,504.50 NASD Filing Fee................................................................ 1,325.00 Nasdaq Listing Fees*........................................................... 15,000.00 Printing Engraving Expenses*................................................... 75,000.00 Legal Fees and Expenses*....................................................... 150,000.00 Accounting Fees and Expenses*.................................................. 70,000.00 Blue Sky Fees and Expenses*.................................................... 35,000.00 Transfer Agent and Registrar Fees and Expenses................................. 3,500.00 Miscellaneous*................................................................. 8,670.50 Total.......................................................................... $360.000.00
- ------------------------ * estimate ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES In October 1997, in consideration for business consulting services, including identifying, structuring and effecting the acquisitions of Systems and ECS, the Company issued 113,459 Common Shares to Globe Capital Corporation, which is controlled by Lloyd Maclean, the Company's Chief Financial Officer and a Director. In April 1998, in connection with the acquisition of Systems, the Company issued 130,914 Common Shares to John R. Wilson. In February through March of 1998, the Company sold 196,370 Common Shares to 12 individuals at a purchase price of approximately $2.67 per share for aggregate consideration of $523,653. The twelve individuals included employees and directors of the Company. In May 1998, in connection with the acquisition of ICS, the Company issued 130,914 Common Shares to John A. Irwin. In May and June of 1998, the Company sold 77,239 Common Shares to seven individuals at a purchase price of approximately $3.33 per share for aggregate consideration of $257,463. The seven individuals included employees and directors of the Company. All of such issuances were made in Canada to Canadian residents in conformity with the relevant local securities laws and the Company believes would have been exempt from registration in the United States pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. In May 1998, the Company granted an option to purchase 200,000 Common Shares at an exercise price of $2.10 per share to Robert M. Rubin. II-2 ITEM 27. EXHIBITS **1.1 Form of Underwriting Agreement **3.1 Bylaws of Registrant **3.2 Articles of Incorporation dated February 11, 1994 **3.3 Articles of Amendment dated February 20, 1996 **3.4 Articles of Amendment dated April 15, 1998 **3.5 Articles of Amendment dated August 6, 1998 **4.2 Form of Underwriters' Warrant **4.3 Specimen Common Share Certificate **5.1 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP 5.2 Opinion of McMillan Binch **10.1 Form of Financial Consulting Agreement *10.2 1998 Stock Option Plan. *10.3(a) Lease of the Company's headquarters in Toronto, Ontario. *10.3(b) License for the Company's office in New York, New York. *10.3(c) Lease of the Company's office in Etobicoke, Ontario. *10.3(d) Lease of the Company's office in Scarborough, Ontario. *10.3(e) Amendment to the lease of the Company's office in Scarborough, Ontario. *10.4 Employment Agreement between the Company and Declan French dated August 1998. *10.5 Employment Agreement between the Company and John A. Irwin dated May 19, 1998. *10.6 Employment Agreement between the Company and John R. Wilson dated February 8, 1998. *10.7 Employment Agreement between the Company and John J. Silver dated August 10, 1998. *10.8 Form of consulting agreement for the Company's independent contractors. *10.9 Form of services agreement for the Company's customers. *10.10 Agreement for the Acquisition of the Capital Stock of International Career Specialists Ltd. **10.11 Agreement for the acquisition of the Capital Stock of Systemsearch Consulting Services, Inc. and Systems, PS, Inc. **10.12 Consulting Agreement between the Company and Robert M. Rubin. *23.1 Consent of Schwartz Levitsky Feldman, independent auditors. **23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (incorporated into Exhibit 5.1) **23.3 Consent of McMillan Binch (incorporated into 5.1)
- ------------------------ * Filed herewith. ** To be filed by amendment. ITEM 28. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the small business issuer pursuant to any charter provision, by-law, contract arrangements, statute, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned small business issuer hereby undertakes: II-3 (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i)To include any Prospectus required by section 10(a)(3) of the Act; (ii)To reflect in the Prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the Offering. (4) For determining any liability under the Act, treat the information omitted from the form of Prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h), under the Act as part of this registration statement as of the time the Commission declared it effective. (5) For determining any liability under the Act, treat each post-effective amendment that contains a form of Prospectus as a new registration statement at that time as the initial bona fide offering of those securities. II-4 SIGNATURES Pursuant to the requirements of the Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirement for filing on Form SB-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Province of Ontario, Canada on September , 1998. IT STAFFING LTD. By: /s/ DECLAN FRENCH ----------------------------------------- Declan French PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY Pursuant to the requirements of the Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. We, the undersigned officers and directors of IT STAFFING LTD. hereby severally constitute and appoint Declan French, our true and lawful attorney-in-fact and agent with full power of substitution for us and in our stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and all documents relating thereto, and to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or advisable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. SIGNATURE TITLE DATE - ------------------------------ --------------------------- ------------------- Chairman, President, Chief /s/ DECLAN FRENCH Executive Officer and - ------------------------------ Director (Principal September 17, 1998 Declan French Executive Officer) /s/ LLOYD MACLEAN Chief Financial Officer and - ------------------------------ Director (Principal September 17, 1998 Lloyd Maclean Accounting Officer) II-5 EX-10.2 2 EXH 10.2 1998 STOCK OPTION PLAN Exhibit 10.2 IT STAFFING LTD. 1998 STOCK OPTION PLAN I. Purpose of the Plan The IT STAFFING LTD. 1998 STOCK OPTION PLAN (the "Plan") is intended to provide a means whereby certain employees of IT STAFFING LTD., an Ontario corporation (the "Company"), and its affiliates may develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. Accordingly, the Company may grant to certain service providers ("Optionees") the option ("Option") to purchase common shares of the Company ("Shares"), as hereinafter set forth. Options granted under the Plan may be either incentive stock options, within the meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock Options"), or options which do not constitute Incentive Stock Options. II. Administration (a) The Plan shall be administered by a committee (the "Committee") of, and appointed by, the Board of Directors of the Company (the "Board"), and the Committee shall be (a) comprised solely of two or more outside directors (within the meaning of section 162(m) of the Code and applicable interpretive authority thereunder), and (b) constituted so as to permit the Plan to comply with Rule 16b-3, as currently in effect or as hereinafter modified or amended ("Rule 16b-3"), promulgated under the United States Securities Exchange Act of 1934, as amended (the "1934 Act"). The Committee shall have sole authority to select the Optionees from among those individuals eligible hereunder and to establish the number of shares which may be issued under each Option. The limitation set forth in the preceding sentence shall be applied in a manner which will permit compensation generated under the Plan to constitute "performance-based" compensation for purposes of section 162(m) of the Code, including, without limitation, counting against such maximum number of shares, to the extent required under section 162(m) of the Code and applicable interpretive authority thereunder, any shares subject to Options that are cancelled or repriced. In selecting the Optionees from among individuals eligible hereunder and in establishing the number of shares that may be issued under each Option, the Committee may take into account the nature of the services rendered by such individuals, their present and potential contributions to the Company's success and such other factors as the Committee in its discretion shall deem relevant. (b) The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, consistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All decisions made by the Committee in selecting the Optionees, in establishing the number of shares which may be issued under each Option and in construing the provisions of the Plan shall be final. (c) The provisions of the Plan shall be interpreted and construed in accordance with the laws of the Province of Ontario. III. Option Agreements (a) Each Option shall be evidenced by a written agreement between the Company and the Optionee ("Option Agreement") which shall contain such terms and conditions as may be approved by the Committee. The terms and conditions of the respective Option Agreements need not be identical. Specifically, an Option Agreement may provide for the surrender of the right to purchase shares under the Option in return for a payment in cash or Shares or a combination of cash and Shares equal in value to the excess of the fair market value of the shares with respect to which the right to purchase is surrendered over the option price therefor ("Stock Appreciation Rights"), on such terms and conditions as the Committee in its sole discretion may prescribe; provided that, except as provided in subparagraph VIII(c) hereof, the Committee shall retain final authority (i) to determine whether an Optionee shall be permitted, or (ii) to approve an election by an Optionee, to receive cash in full or partial settlement of Stock Appreciation Rights. Moreover, an Option Agreement may provide for the payment of the option price, in whole or in part, by the delivery of a number of Shares (plus cash if necessary) having a fair market value equal to such option price. (b) For all purposes under the Plan, the fair market value of a Share on a particular date shall be equal to the mean of the high and low sales prices of the Shares (i) reported by the SmallCap Market of NASDAQ on that date or (ii) if the Shares are listed or quoted on a national stock exchange or quotation system, reported on the stock exchange composite tape on that date; or, in either case, if no prices are reported on that date, on the last preceding date on which such prices of the Shares are so reported. If the Shares are traded over the counter at the time a determination of its fair market value is required to be made hereunder, its fair market value shall be deemed to be equal to the average between the reported high and low or closing bid and asked prices of the Shares on the most recent date on which the Shares were publicly traded. In the event the Shares are not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate. (c) Each Option and all rights granted thereunder shall not be transferable and shall be exercisable during the Optionee's lifetime only by the Optionee or the Optionee's guardian or legal representative. (d) The Committee shall have the discretion to determine a vesting schedule for any Option granted under the Plan. Unless otherwise determined by the Committee, Options granted under the Plan shall not vest and be exercisable prior to the day following the second anniversary of the date on which the Options concerned are granted. (e) The expiry date of an Option (the "Expiry Date") shall be the earlier of the date fixed by the Committee, as set forth in the individual Option Agreement, and the date established, if 2 applicable, in clauses (i) to (iii) below, provided that such date shall not be later than the tenth anniversary of the date on which the Option is granted. (i) If an Optionee ceases affiliation with the Company or an affiliate by reason of death, permanent disability or retirement at or after age 65, the Expiry Date shall be the first anniversary of the occurrence. (ii) If an Optionee ceases affiliation with the Company or an affiliate for any other reason (other than termination of his or her employment or other service for cause), the Expiry Date shall be the date that is 90 days following the occurrence. (iii) If an Optionee ceases affiliation with the Company or an affiliate upon the termination of his or her employment or other service for cause, then the Expiry Date shall be the date on which the Company or its affiliate gives notice to the Optionee of his or her termination. IV. Eligibility of Optionee (a) Options may be granted only to individuals who are employees (including officers and directors who are also employees) of the Company or any parent or subsidiary corporation (as defined in section 424 of the Code) of the Company at the time the Option is granted; provided, however, that Options which do not constitute Incentive Stock Options may be granted to individuals who are directors (but not also employees) of the Company or any such parent or subsidiary corporation. Subject to required regulatory approvals, Options may also be granted to consultants, advisors and similar parties who provide their skills and expertise to the Company or its affiliates. Options may be granted to the same individual on more than one occasion. (b) No Incentive Stock Option shall be granted to an individual if, at the time the Option is granted, such individual owns shares possessing more than 10% of the total combined voting power of all classes of capital stock of the Company or of its parent or subsidiary corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is granted the option price is at least 110% of the fair market value of the Shares subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five years from the date of grant. To the extent that the aggregate fair market value (determined at the time the respective Incentive Stock Option is granted) of shares with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all incentive stock option plans of the Company and its parent and subsidiary corporations exceeds US$100,000, such excess Incentive Stock Options shall be treated as Options which do not constitute Incentive Stock Options. The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of an Optionee's Incentive Stock Options will not constitute Incentive Stock Options because of such limitation and shall notify the Optionee of such determination as soon as practicable after such determination. 3 (c) The aggregate number of Shares reserved for issuance pursuant to Options granted to any one Optionee shall not exceed 5% of the number of Shares outstanding (on a non-diluted basis) at the time of such grant. V. Shares Subject to the Plan (a) The aggregate number of shares which may be issued under Options granted under the Plan shall not exceed 435,000 Shares. Such shares may consist of authorized but unissued Shares or previously issued Shares reacquired by the Company. Any of such shares which remain unissued and which are not subject to outstanding Options at the termination of the Plan shall cease to be subject to the Plan but, until termination of the Plan, the Company shall at all times make available a sufficient number of shares to meet the requirements of the Plan. Should any Option hereunder expire or terminate prior to its exercise in full, the shares theretofore subject to such Option may again be subject to an Option granted under the Plan to the extent permitted under Rule 16b-3 and applicable Canadian securities legislation. (b) The aggregate number of shares which may be issued under the Plan shall be subject to adjustment in the same manner as provided in Paragraph VIII hereof with respect to Shares subject to Options then outstanding. Exercise of an Option in any manner, including an exercise involving a Stock Appreciation Right, shall result in a decrease in the number of Shares which may thereafter be available, both for purposes of the Plan and for sale to any one individual, by the number of shares as to which the Option is exercised. Separate share certificates shall be issued by the Company for those shares acquired pursuant to the exercise of an Incentive Stock Option and for those shares acquired pursuant to the exercise of any Option which does not constitute an Incentive Stock Option. VI. Option Price The purchase price of Shares issued under each Option shall be determined by the Committee, but in no case shall such purchase price be less than the fair market value of the Shares subject to the Option on the date the Option is granted. VII. Term of Plan The Plan, shall be effective upon the date of its adoption by the Board, provided the Plan is approved by the shareholders of the Company within twelve months thereafter. Notwithstanding any provision in this Plan or in any Option Agreement, no Option shall be exercisable prior to such shareholder approval. Except with respect to Options then outstanding, if not sooner terminated under the provisions of paragraph IX, the Plan shall terminate upon and no further Options shall be granted after the expiration of ten years from the date of its adoption by the Board. 4 VIII. Recapitalization or Reorganization (a) The existence of the Plan and the Options granted hereunder shall not affect in any way the right or power of the Board or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. (b) The shares with respect to which Options may be granted are Shares as presently constituted, but, if and whenever, prior to the expiration of an Option theretofore granted, the Company shall effect a subdivision or consolidation of Shares or the payment of a stock dividend on Shares without receipt of consideration by the Company, the number of Shares with respect to which such Option may thereafter be exercised (i) in the event of an increase in the number of outstanding shares shall be proportionately increased, and the purchase price per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares shall be proportionately reduced, and the purchase price per share shall be proportionately increased. (c) If the Company recapitalizes, reclassifies its capital stock, or otherwise changes its capital structure ( a "recapitalization"), the number and class of Shares covered by an Option theretofore granted shall be adjusted so that such Option shall thereafter cover the number and class of shares of stock and securities to which the Optionee would have been entitled pursuant to the terms of the recapitalization if, immediately prior to the recapitalization, the Optionee had been the holder of record of the number of Shares then covered by such Option. If: (i) the Company shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity); (ii) the Company sells, leases or exchanges all or substantially all of its assets to any other person or entity; (iii) the Company is to be dissolved and liquidated; (iv) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company's voting stock (based upon voting power); or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event is referred to herein as a "Corporate Change"); 5 no later than (a) ten days after the approval by the shareholders of the Company of such merger, consolidation, reorganization, sale, lease or exchange of assets or dissolution or such election of directors or (b) thirty days after a change of control of the type described in clause (iv), the Committee, acting in its sole discretion without the consent or approval of any Optionee, shall act to effect one or more of the following alternatives, which may vary among individual Optionees and which may vary among Options held by any individual Optionee: (1) accelerate the time at which Options then outstanding may be exercised so that such Options may be exercised in full for a limited period of time on or before a specified date (before or after such Corporate Change) fixed by the Committee, after which specified date all unexercised Options and all rights of Optionees thereunder shall terminate; (2) require the mandatory surrender to the Company by selected Optionees of some or all of the outstanding Options held by such Optionees (irrespective of whether such Options are then exercisable under the provisions of the Plan) as of a date before or after such Corporate Change, specified by the Committee, in which event the Committee shall thereupon cancel such Options and the Company shall pay to each Optionee an amount of cash per share equal to the excess, if any, of the amount calculated in subparagraph (d) below (the "Change of Control Value") of the shares subject to such Option over the exercise price(s) under such Options for such shares; (3) make such adjustments to Options then outstanding as the Committee deems appropriate to reflect such Corporate Change (provided, however, that the Committee may determine in its sole discretion that no adjustment is necessary to Options then outstanding); or (4) provide that the number and class of shares covered by an Option theretofore granted shall be adjusted so that such Option shall thereafter cover the number and class of shares or other securities or property (including, without limitation, cash) to which the Optionee would have been entitled pursuant to the terms of the agreement of merger, consolidation or sale of assets and dissolution if, immediately prior to such merger, consolidation or sale of assets, and dissolution, the Optionee had been the holder of record of the number of Shares then covered by such Option. (d) For the purposes of clause (2) in subparagraph (c) above, the "Change of Control Value" shall equal the amount determined in clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per share price offered to shareholders of the Company in any such merger, consolidation, reorganization, sale of assets or dissolution transaction; (ii) the price per share offered to shareholders of the Company in any tender offer or exchange offer whereby a Corporate Change takes place; or 6 (iii) if such Corporate Change occurs other than pursuant to a tender or exchange offer, the fair market value per share of the shares into which such Options being surrendered are exercisable, as determined by the Committee as of the date determined by the Committee to be the date of cancellation and surrender of such Options. In the event that the consideration offered to shareholders of the Company in any transaction described in this subparagraph (d) or in subparagraph (c) above consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash. (e) Any adjustment provided for in subparagraphs (b) or (c) above shall be subject to any required shareholder action. (f) Except as hereinbefore expressly provided, the issuance by the Company of shares of any class or securities convertible into shares of any class, for cash, property, labor or services, upon direct sale, 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, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to Options theretofore granted or the purchase price per share. IX. Amendment or Termination of the Plan The Board in its discretion may terminate the Plan at any time with respect to any shares for which Options have not theretofore been granted. The Board shall have the right to alter or amend the Plan or any part thereof from time to time, provided that no change in any Option theretofore granted may be made which would impair the rights of the Optionee without the consent of such Optionee, and provided further that the Board may not make any alteration or amendment which would increase the aggregate number of shares which may be issued pursuant to the provisions of the Plan or change the class of individuals eligible to receive Options under the Plan without the approval of the shareholders of the Company. X. Securities Laws (a) The issue of Shares by the Company pursuant to the exercise of an Option is subject to this Plan and compliance with the laws, rules and regulations of all regulatory bodies applicable to the issuance and distribution of the Company's securities and to the listing requirements of any stock exchange or market on which the Shares may then be listed or quoted. The Company shall not be obligated to issue any Shares pursuant to any Option granted under the Plan at any time when the offering of the Shares covered by such Option has not been registered under the United States Securities Act of 1933 or otherwise qualified for distribution under such other U.S. state and federal and Canadian provincial laws, rules or regulations as the Company or the Committee deems applicable and, in the opinion of legal counsel for the Company, there is no exemption from 7 applicable prospectus and registration requirements of such laws, rules or regulations available for the offering and sale of such shares. (b) It is intended that the Plan and any grant of an Option made to a person subject to Section 16 of the 1934 Act meet all of the requirements of Rule 16b-3 thereunder. If any provision of the Plan or any such Option would disqualify the Plan or such Option under, or would otherwise not comply with, Rule 16b-3, such provision or Option shall be construed or deemed amended to conform to Rule 16b-3. 8 Additional Plan Provisions, if required: In addition, until such time as the Plan has been approved by a majority of the votes cast at a meeting of shareholders (other than votes attaching to securities beneficially owned by (A) an insider (within the meaning of the Securities Act (Ontario)) of the Company, other than a person who falls within that definition solely by virtue of being a director or senior officer of a subsidiary of the Company, and (B) an associate (within the meaning of the Securities Act (Ontario)) of any person who is an insider by virtue of (A) above (such persons herein referred to as "Insiders"): (i) the number of Shares reserved for issuance pursuant to Options granted to Insiders shall not exceed 10% of the number of Shares outstanding at the time of the grant (on a non-diluted basis), less the aggregate number of Shares reserved for issuance under any other stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Shares to one or more service providers, including a share purchase from treasury that is financially assisted by the Company by way of loan, guarantee or otherwise (a "Share Compensation Arrangement") over the preceding one-year period; (ii) the issuance to any one Insider and such Insider's Associates, within a one-year period, of Shares on the exercise of Options may not exceed 5% of the number of Shares outstanding at the time of the grant (on a non-diluted basis), less the aggregate number of Shares reserved for issuance under any other Share Compensation Arrangement over the preceding one-year period; and (iii) the issuance to all Insiders, within a one-year period, of Shares on the exercise of Options, may not exceed 10% of the number of Shares outstanding at the time of the grant (on a non-diluted basis) less the aggregate number of Shares reserved for issuance under any other Share Compensation Arrangement over the preceding one-year period. 9 EX-10.3(A) 3 EXH 10.3(A) LEASE B/W PENYORK AND IT STAFFING IT Staffing/55 University Avenue LEASE (55 University Avenue) BETWEEN PENYORK PROPERTIES I INC. LANDLORD AND IT STAFFING INC. TENANT TABLE OF CONTENTS ARTICLE I FUNDAMENTAL PROVISIONS 1 1.1 Landlord 1 1.2 Tenant 1 1.3 Building 1 1.4 Leased Premises 1 1.5 Term 1 1.6 Basic Rent 1 1,7 Additional Rents 1 1.8 Deposit 1 1.9 Basic Rent Commencement Date 1 1.10 Additional Rent Commencement Date 1 1.11 Fundamental Provisions 1 ARTICLE II LEASED PREMISES 1 2.1 Lease 1 2.2 Use 2 2.3 Rules and Regulations 2 2.4 Observance of I aw 2 2.5 No Waste or Nuisance 2 2.6 Common Areas 2 2.7 Easements 2 ARTICLE Ill TERM - POSSESSION 2 3,1 Term 2 3.2 Tenant Fixturing 2 3.3 Delay in Posession 3 3.4 Surrender 3 3.5 Overholding 3 ARTICLE IV RENT 3 4.1 Payment 3 4.2 Basic Rent 3 4.3 Deposit 3 4.4 Realty Taxes 3 4.5 Proportionate-Share of Operating Costs 3 4.6 Utilities - Light Fixtures 4 4.7 Additional Services 4 4.8 General Provisions 4 ARTICLE V TAXES 4 6.1 Taxes Payable by the Landlord 5 5.2 Business and Other Taxes Payable by the Tenant 5 5.3 Contesting Taxes 5 5.4 Alternate Methods of Taxation 5 I TABLE OF CONTENTS CONTD. MAINTENANCE, REPAIRS AND ALTERATIONS 5 6.1 General Statement 5 6.2 Responsibility of Tenant 5 6.3 Tenant Not Responsible 5 6.4 Responsibility of Landlord 6 6.5 Inspection, Entry and Notice 6 6.6 Notify the Landlord 6 6.7 Alterations Improvements 6 6.8 Removal and Restoration 8 6.9 External Changes 8 6.10 Trade Fixtures 8 6.11 Lien on Trade-Fixtures 8 6.12 Tenant's Signs 8 6.13 Directory Board 8 6.14 Landlord's Signs 8 ARTICLE VII STANDARD SERVICES 9 7.1 Heating and Air-Conditioning 9 7.2 Cleaning 9 7.3 Elevators 9 7.4 Security and Information 9 7.5 Utilities 9 7.6 lnterruption or Delay of Services 10 7.7 Lanlord's Alterations 10 ARTICLE VIII ASSIGNMENT AND SUBLETTING 10 8.1 Assignment, Subletting 10 8.2 Landlord's Consent 10 8.3 Requests for Consent 10 8.4 Assignment by Landlord 11 ARTICLE IX INSURANCE AND INDEMNIFICATION 11 9.1 Tenant's Insurance 11 9.2 Policy Requirements 11 9.3 Proof of Insurance 11 9.4 Failure to Maintain 12 9.5 Damage to Leasehold Improvements 12 9.6 Increase in Insurance Premiums/Cancellation 12 9.7 Landlord's Insurance 12 9.8 Non-Liability for Loss, lnjury or Damage 12 9.9 Indemnification of the Landlord 12 9.10 Extension of Rights and Remedies 13 ARTICLE X DAMAGE 13 10.1 Damage to Leased Premises 13 10.2 Damaae to thll Rielitlinn 14 10.3 Architect's Certificate 14 TABLE OF CONTENTS CONTD. ARTICLE XI UNAVOIDABLE DELAY 15 11.1 Unavoidable Delay 15 ARTICLE XII LANDLORD'S REMEDIES 15 12.1 Landlord May Perform Tenant's Covenants 15 12.2 Re-Entry 15 12.3 Landlord May Beset 16 12.4 Right to Distrain 16 12.5 Landlord May Follow Chattels 16 12.6 Rights Cumulative 16 12.7 Acceptance of Rent Non-Waiver 16 ARTICLE XIII STATUS STATEMENT, ATTORNMENT AND SUBORDINATION 17 13.1 Certification 17 13.2 Attornment 17 13.3 Subordination 17 13.4 Timely Execution 17 13.5 Rights of Mortgagees, Trustees 17 ARTICLE XIV MISCELLANEOUS 17 14.1 Joint and Several Liability 17 14.2 Lanlord and Tenant Relationship 17 14.3 Planning Act 17 14.4 No Waiver 18 14.5 ExproDriation 18 14.6 Notice 18 14.7 Net Lease 18 14.8 Non Merger 18 14.9 Lease Entire Agreement 19 14.10 Registration 19 14.11 Name of Building 19 14,12 Exhibiting Premises 19 14.13 Governing Law 19 14.14 Survival of Tenant's Covenants 19 14.15 Quiet Enjoyment 19 14.16 [3inding on Successors 19 14.17 Limitation on Use 19 14.18 Corporate Ownership 19 14.19 Assignment and Subletting 19 14.20 Sever Liability 20 14.21 Time of the Essence 20 ARTICLE XV DEFINITIONS -- INTERPRETATION 20 15.1 Definitions 20 16.2 Interpretation 25 SCHEDULES AND APPENDICES SCHEDULE "A" LEGAL DESCRIPTION SCHEDULE "B" FLOOR PLAN SCHEDULE "C" LANDLORD'S AND TENANT'S IMPROVEMENTS SCHEDULE "D" RULES AND REGULATIONS SCHEDULE "E" SPECIAL CONDITIONS SCHEDULE "F" STATUS STATEMENT SCHEDULE "G" INDEMNITY AGREEMENT SCHEDULE "L" CLEANING SCHEDULE THIS LEASE is made as of the 1st day of December, 1997. IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT between the Landlord, Tenant and Indemnifier, if any, listed below. ARTICLE I FUNDAMENTAL PROVISIONS 1.1 Landlord: PENYORK PROPERTIES I INC., a company having a mailing address for the purposes of this Lease at 4 Eva Road, Suite 427, Etobicoke, Ontario, M9C 2A8. 1.2 Tenant: IT STAFFING INC. 1.3 Building: 55 University Avenue, Toronto, Ontario and situate upon the lands described in Schedule "A' of this Lease, and constructed with the base building standards set forth on Schedule "C" annexed hereto. 1.4 Leased Premises: (Section 2.1) The space outlined in red on Schedule "B" of this Lease, located on the 5th floor of the Building and having a Rentable Area of approximately four thousand, four hundred (4,400) square feet. Term: (Section 3.1) Ten (10) years having a Term Commencement Date of December 1, 1997 and ending November 30, 2007. 1.6 Basic Rent: (Section 4.2) Forty Six Thousand, Two Hundred dollars ($46,200.00) per annum, computed at the annual rate of $10.50 per square foot of Rentable Area, and payable monthly in advance in the amount of Three Thousand, Eight Hundred and Fifty dollars and Zero cents ($3,850.00) per month commencing on the Basic Rent Commencement Date and Fifty Five Thousand dollars ($55,000.00) per annum, computed at the annual rate of $12.50 per square foot of Rentable Area, and payable monthly in advance in the amount of Four Thousand, Five Hundred and Eighty Three dollars and Thirty Three cents ($4,583.33) per month commencing December 1 2002. 1.7 Additional Rents: The following additional payments are payable as of and from the Additional Rent Commencement Date: (a) Realty Taxes for Leased Premises (Section 4.4) (b) Proportionate Share of Operating Costs (Section 4.5) (c) Utilities for Leased Premises (Section 4.6) (d) Additional Services, if any (Section 4.7) 1.9 Basic Rent Commencement Date: December 1, 1997 (Section 4. 1) 1.10 Additional Rent Commencement Date: December 1, 1997 (Section 4.1) 1.11 Fundamental Provisions: Each reference in this Lease to any of the Fundamental Provisions listed above shall be read as having the same dates, quantities and other meanings as specified in this Article I. ARTICLE II LEASED PREMISES 2.1 Lease: In consideration of the Rent to be paid, the landlord hereby leases to the Tenant the premises outlined in red on Schedule "B" of this Lease, (the "Leased Premises") described in Section 1.4 hereof, together with the rights and privileges as contained in this Lease, and the Tenant hereby leases and 1 accepts the Leased Premises from the Landlord, to have and to hold during the Term, subject to the terms, covenants and conditions set out in this Lease. The area of the Leased Premises will be measured by the Landlord's Architect, and the Basic Rent will be adjusted in accordance with the certified area. The Landlord will advise the Tenant in writing of the Architects measurements, and the parties agree to be bound thereby, 2.2 Use: The Tenant covenants to use the Leased Premises for general office purposes only in accordance with the standards of a first class office building of similar age and in a similar location, and subject in any event to the limitations on use set forth in Section 14.17 hereof. The Tenant shall take possession of the Leased Premises no later than the Term Commencement Date, unless the Landlord otherwise consents in writing, which consent shall not be unreasonably withheld. 2.3 Rules and Regulations: The Tenant covenants to abide by the Rules and Regulations as set out in Schedule "D" annexed hereto, and to cause those for whom it is responsible to observe such Rules and Regulations. The Landlord, acting reasonably, may make changes to the Rules and Regulations, and shall endeavour to cause the tenants in the Building to observe such Rules and Regulations from time to time, provided that the Landlord shall not be liable in any way for either a failure to enforce such observance, or a failure on the part of other tenants to so observe. 2.4 Observance of Law: (a) The Tenant covenants to comply with all laws and directives issued by governing authorities and which affect the Tenanfs use and occupancy of the Leased Premises or any Leasehold Improvements of the Tenant or any use of other parts of the Lands or Building. (b) To the extent necessary for the Landlord to comply with its covenants in this Lease, the Landlord shall during the Term, with respect to the Lands and Building, comply with all provisions of law including, without limitation, federal and provincial legislative enactments, building by-iaws and any other governmental or municipal regulations which relate to the equipment, operation and use of the Lands and Building, and to the making of repairs, replacements, alterations, additions, changes, substitutions or improvements of or to the Lands and Building, and to comply with all police, fire and sanitary regulations imposed by any federal, provincial or municipal authorities or made by any fire insurance company by which the Landlord may be insured at any time during the Term from time to time in force and applicable to the Lands and the Building. The costs of items referred to in this subsection 2.4(b) shall be included as an Operating Cost of the Building except if the actions required to cause such compliance are required because of the use and occupancy by the Tenant of the Leased Premises, in which event such costs shall be the sole responsibility of the Tenant. 2.5 No Waste or Nuisance: The Tenant shall not commit or permit any waste or damage to the Leased Premises, or commit or permit anything which may disturb the quiet enjoyment of any occupancy of the Building. The Tenant further covenants to co-operate with the Landlord in any of its programmes to improve or make more efficient the operation of the Lands and Building. 2.6 Common Areas: The Landlord agrees that the Tenant, in common with all chhers entitled thereto including the general public in concourse areas, may use and have access through the Common Areas for their intended purposes; provided however, that in an emergency or in the case of the Landlord making repairs, the Landlord may temporarily close or restrict the use of any part of the Common Areas, although the Landlord shall, in such instances, endeavour not to restrict access to the Leased Premises. 2.7 Easements: The Tenant acknowledges that the Landlord and any persons authorized by the Landlord may install, maintain and repair pipes, wires and other conduits through the Common Areas and the Leased Premises. Any such installing, maintaining and repairing shall be done as quickly as possible and in a manner that will least inconvenience the Tenant. ARTICLE III TERM - POSSESSION 3.1 Term: This Lease shall be for the period of five (6) years (the "Term"), commencing on the lst day of December, 1997 (the "Term Commencement Date"), and ending on the 30th day of November, 2007 unless earlier terminated as provided in this Lease, and nothing hereafter contained in this Article III shall postpone the Term Commencement Date, or extend the Term. 3.2 Tenant Fixturing: Should the Tenant take possession of the Leased Premises for purposes of fixturing or installing its Leasehold Improvements prior to the Term Commencement Date, then all of the terms and conditions of this Lease, except for payment of Rent, shall be in full force and effect as of the date the Tenant took such possession, and the Tenant shall reimburse the Landlord for the cost of any special 2 services provided during the Fixtuhng Period, as set out in Schedule "C" including the cost of cleaning and rubbish removal, and any utilities consumed in the Leased Premises; and should the Tenant commence conducting its business prior to the Term Commencement date, Rent shall be payable as of and from such date of business commencement. 3.3 Delay In Possession: Should the Tenant be delayed by fault of the Landlord in taking possession of the Leased Premises on the Term Commencement Date, then and only then shall the payment of Rent be postponed for the same number of days that the Tenant is delayed in taking possession of the Leased Premises. The Tenant hereby acknowledges and agrees that such postponement of the payment of Rent shall be full settlement for any claims it might have against the Landlord for being delayed in its taking possession of the Leased Premises 3.4 Surrender: The Tenant shall surrender possession of the Leased Premises upon termination of this Lease by either effluxion of time or operation of the terms hereof. 3.5 Overholding: If the Tenant remains in possession of the Leased Premises following termination of this Lease by either effluxion of time or operation of the terms hereof, with or without the consent of the landlord, which consent may be arbitrarily withheld, the Tenant shall be deemed to be a monthly tenant upon the same terms and conditions as are contained in this Lease except as to the Term, and except as to Rent which shall be equal to the then prevailing rate charged by the Landlord in the Building, or as may be stipulated in such consent, as the case may be. ARTICLE IV RENT 4.1 Payment: From and after the lst day of December, 1997 (the "Basic Rent Commencement Date") the Tenant shall pay to the Landlord the Basic Rent as set out in Section 4.2 below and from and after the Ist day of December, 1997 (the "Additional Rent Commencement Date"), the Tenant shall pay to the Landlord the Additional Rents as set out in this Lease. 4.2 Basic Rent: The Tenant shall pay basic rent in the amount of Forty Six Thousand, Two Hundred dollars and Zero cents ($46,200.00) per annum (the "Basic Rent"), which shall be payable in advance in equal consecutive monthly instalments of Three Thousand, Eight Hundred and Fifty dollars and Zero cents ($3,850.00) per month commencing on the Basic Rent Commencement Date and Fifty Five Thousand dollars and Zero cents ($55,000.00) per annum (the "Basic Rent"), which shall be payable in advance in equal consecutive monthly instalments of Four Thousand, Five Hundred and Eighty Three dollars and Thirty Three cents ($4,583.33) per month commencing December 1, 2002. This is subject to adjustment upon certification of the Rentable Area of the Leased Premises. 4.4 Realty Taxes: (a) The Tenant shall pay to the Landlord, Realty Taxes assessed against (or allocated in respect to) the Leased Premises on the basis of the assessment for realty tax purposes of the Leased Premises as indicated on the realty tax assessment(s) for the Building, or as reasonably allocated by the Landlord, commencing on the Additional Rent Commencement Date. On or before the Term Commencement Date and the commencement of any Fiscal Year in which the Term fails, the Landlord shall estimate the Realty Taxes to be assessed (or allocated against the Leased Premises). The Tenant shall pay to the Landlord in equal monthly instalments in advance on the first day of each month a sum on account of its Realty Taxes based on the landlord's estimates. (b) The Landlord may from time to time re-estimate the amount of projected Realty Taxes for the then current year and for the remainder of the Fiscal Year and the Tenant shall change its monthly instalments to conform with the revised estimates. (c) After the end of each Fiscal Year the Landlord shall determine the actual Realty Taxes with respect to the Leased Premises and the difference between such actual determination and the amount already billed to the Tenant in instalments. If the aggregate of the Tenant's instalments for the Fiscal Year in question were less than the actual determination, then the Tenant shall pay the difference to the Landlord forthwith, or if the aggregate of such instalments were more than the actual determination, the Tenant shall deduct the difference from its next payment of Basic Rent. 4.5 Proportionate Share of Operating Costs: (a) The Tenant shall pay to the Landlord its Proportionate Share of Operating Costs commencing on the Additional Rent Commencement Date. On or before the Term Commencement Date and the commencement of any Fiscal Year in which the Term falls, the Landlord shall estimate the Operating Costs and the Tenant's Proportionate Share thereof The Tenant shall pay to the Landlord in equal monthly instalments in advance on the first day of each month a sum on account of its Proportionate Share of Operating Costs based on the Landlord's estimates. (b) The Landlord may from time to time re-estimate the amount of projected Operating Costs for the then current year and re-estimate the Tenant's Proportionate Share thereof for the remainder of the Fiscal Year and the Tenant shall change its monthly instalments to conform with the revised estimates. (c) After the end of each Fiscal Year the Landlord shall determine the actual Tenant's Proportionate Share of Operating Costs and the difference between such actual determination and the amount already paid by the Tenant. If the aggregate of the Tenant's instalments for the Fiscal Year in question were less than the actual determination, then the Tenant shall pay the difference to the Landlord with its next payment of Basic Rent, or if the aggregate of such instalments were more than the actual determination, the Tenant shall deduct the difference from its next payment of Basic Rent. 4.6 Utilities-Light Fixtures: The Tenant shall pay to the Landlord the cost of utilities supplied to the Leased Premises commencing on the Additional Rent Commencement Date, as reasonably determined by the Landlord, and billed monthly, in advance. The amount of such cost shall be based on the Landiord's reasonable estimates for the quantities of utilities supplied multiplied by the average unit costs to the Lahdford for such utilities. The Tenant may have installed (at its own expense) meters to measure the amount of any utility supplied and the Landlord shall employ the resulting metered quantities in lieu of estimated consumption. The Tenant shall also pay to the Landlord the reasonable cost of cleaning, maintaining and servicing all electric light fixtures in the Leased Premises, including the cost of replacing light bulbs, tubes, starters and ballasts. 4.7 Additional Services: The Tenant may from time to time request Additional Services from the Landlord, and where the Tenant requests any Additional Services and the Landlord provides same, the Tenant shall pay to the landlord a reasonable charge for such Additional Services, payable forthwith upon receipt of the Landford's invoice therefor. 4.8 General Provisions: (a) No Delay in Payment of Rent: Nothing contained in this Lease shall suspend or delay the payment of any money at the time it becomes due and payable. The Tenant agrees that the Landlord may, at its option, apply any sums received against any amounts due and payable under this Lease in such manner as the Landlord sees fit. (b) Interest on Arrears: If any amount of Rent is in arrears it shall bear interest at the Interest Rate. (c) Partial Periods: If either the Basic Rent Commencement Date or the Additional Rent Commencement Date is any day other than the first day of a calendar month, or if the Term ends on a day other than the last day of a calendar month, then Basic Rent and Additional Rents, as the case may be, will be adjusted pro rata based on a 366 day year. (d) Estimated Amounts: Where the Landlord estimates or re-estimates the costs of Rea@ Taxes, Operating Costs and the amount of utilities supplied, it shall do so acting reasonably and shall provide the Tenant with statements of such estimates in reasonable detail. (e) Audited Statement: Invoices for the actual determination of the Tenant's Proportionate Share of Operating Costs shall be accompanied by an audited statement of such Operating Costs. General: All amounts payable by the Tenant to the Landlord in accordance with this Lease shall be deemed to be Rent. All Rent shall be paid in advance on the first day of each month without deduction or abatement, except as expressly provided in this Lease, and without set-off, and where payments due have been invoiced, such invoiced amounts shall be paid within ten (10) days of receipt of such invoice. All Rent shall be paid in lawful money of Canada. ARTICLE V TAXES 4 5.1 Taxes Payable by the Landlord: The Landlord shall pay before delinquency all Realty Taxes. The Landlord covenants that at all appropriate times it shall declare itself a public school supporter for purposes of determining the amounts of any Realty Taxes payable. 5.2 Business and Other Taxes Payable: The Tenant shall pay before delinquency all business taxes, Rental Taxes, if applicable, and any other taxes, charges, rates, duties and assessments levied, rated, imposed, charged or assessed against and in respect of any use or occupancy of the Leased Premises or in respect of the personal property, trade fixtures, fixtures and facilities of the Tenant or the business or income of the Tenant on or from the Leased Premises, and the Tenant shall indemnify the Landlord from and against costs or charges resulting from the Tenant not paying these amounts and the Tenant shall, upon request of the Landlord supply receipts for such taxes paid. The Tenant shall pay to the Landlord any increase or incremental amount of Realty Taxes or other taxes which the Landlord, acting reasonably, has determined to be attributable to an act by the Tenant (for example declaring itself a separate school supporter) or attributable to the Leasehold Improvements. 5.3 Contesting Taxes: (a) The Tenant may, at its expense, appeal or contest the taxes, assessments and other amounts payable as described in Section 5.2 hereof, provided it first gives the Landlord written notice of its intention to do so, and consults with the Landlord, and obtains the Landiord's prior written approval, which approval shall not be unreasonably withheld, delivers to the Landlord such security for the payment of such taxes, assessments and other charges as the Landlord deems advisable, diligently prosecutes any such appeal or contestation to a speedy resolution and keeps the Landlord advised of its progress from time to time; and provided that the Landlord may withhold its approval of such appeal or contestation if the Landlord, acting reasonably, considers that the effect thereof will be detrimental to the Landlord or other tenants within the Building. (b) The Landlord reserves the right to appeal or contest any taxes payable by the Landlord so long as it does so in a diligent manner and does not interfere with the quiet enjoyment granted to the Tenant in this Lease. 5.4 Alternate Methods of Taxation: If, during the Term, the method of taxation shall be altered, so that the whole or any part of the Realty Taxes now levied, rated, assessed or imposed on real estate and improvements are levied, assessed, rated or imposed wholly or partially as a capital levy or on the rents received or reserved or otherwise, or if any tax, assessment, levy, imposition or charge in lieu thereof, shall be imposed upon the Landlord, then all such taxes assessments, levies, impositions and charges shall be included when determining the Realty Taxes. If, during the Term, the method of taxation shall be altered, so that the whole or any part of the business taxes ordinarily (and formerly) payable in respect of any use or occupancy of the Leased Premises is merged into a comprehensive realty tax, the Landlord shall have the right to allocate (and collect) such component of the comprehensive realty tax (as would have been formerly business taxes payable by the Tenant) in the manner (or on the same basis) as would have been employed or used in taxation practice by the taxing authority. ARTICLE VI MAINTENANCE, REPAIRS AND ALTERATIONS 6.1 General Statement: The landlord and Tenant agree to carry out their respective responsibilities for maintenance and repair as detailed in this lease in accordance with general standards for a first class office building in the City of Toronto, of similar age and in a similar location. 6.2 Responsibilitv of Tenant: Without notice or demand from the Landlord, the Tenant shall: (a) Maintain and keep in a good state of repair the Leased Premises and the Leasehold Improvements. (b) Decorate and redecorate the Leased Premises including the interior faces of any demising walls and permanent building walls, columns and covers for heating units along the exterior walls. (c) Keep the Leased Premises in a clean and tidy condition, and not permit wastepaper, garbage, ashes, waste or objectionable material to accumulate thereon or in or about the Building, other than in areas designated by the Landlord. (d) Repair all damage in the Leased Premises resulting from any misuse, excessive use or installation, alteration, or removal of Leasehold Improvements, fixtures, furnishings or equipment. 6.3 Tenant Not responsible: Notwithstanding Section 6.2 hereof, the Tenant shall not be responsible for: (a) Reasonable wear and tear which does not affect the proper use and enjoyment of the Leased Premises. (b) Damage by fire, lightning, tempest or other casualty for which the Landlord is indemnified under any policy of insurance (unless the damage was caused by the negligence of the Tenant or those for whom the Tenant is In law responsible). (c) The obligations of the Landlord as set out in Section 6.4 hereof 6.4 Responsibility of Landlord: The Landlord shall maintain and keep in a good state of repair (a) The Building structure, roof, and permanent building walls (except for interior faces facing into the Leased Premises). (b) Equipment installed by the Landlord to heat, ventilate, and air condition the Building. (c) Elevators. (d) Systems installed by the Landlord for the distribution of utilities. (a) The Common Areas. The Landlord's Improvements in both the Common Areas and the Leased Premises which have been installed by the Landlord. 6.5 Inspection, Entry and Notice: (a) The Landlord, or its agents, may, from time to time, acting reasonably and where practical in a manner that will not disrupt the Tenant's business, enter the Leased Premises and inspect the state of maintenance, repair and decoration, and upon reasonable prior notice to the Tenant, show the Leased Premises to prospective purchasers, tenants and existing or prospective mortgagees. (b) The Landlord may give notice to the Tenant requiring it to perform in accordance with Section 6.2 hereof, and the Tenant shall commence to remedy any such failure to perform within fifteen (15) days following receipt of such notice. Should the Tenant fail to commence such remedy within the allotted time, or having so commenced, fail to diligently continue such remedy to conclusion, the Landlord may carry out such remedy without further notice to the Tenant, and charge the Tenant for such remedy as if it were an Additional Service requested by the Tenant. (c) If the Tenant is not present to open and permit any entry into H the Leased Premises when for any reason an entry shall be necessary in the case of emergency, the Landlord or its agents may, using reasonable force, enter the same without rendering the Landlord or such agents liable therefor, and without affecting the obligations and covenants of this Lease. (d) Nothing in this Lease shall make the Landlord liable for any, actions, notices or inspections as described in this Section 6.5, nor is the Landlord required to inspect the Leased Premises, give notice to the Tenant or carry out remedies on the Tenant's behalf, nor is the Landlord under any obligation for the care, maintenance or repair of the Leased Premises, except as specifically provided in this Lease. 6.6 Notify the Landlord: The Tenant covenants to immediately notify the Landlord of any defect, damage or malfunction affecting the Leased Premises or other parts of the Building of which the Tenant is aware. 6.7 Alterations or Improvements: (a) The Tenant agrees to accept the Leased Premises in their present "as-is" condition. The Landlord shall however, install at the Landiord's cost, (1) a new double entry door to the suite; and (ii) replace ceiling tiles where required. (b) The Tenant following approval by the Landlord shall install its initial Leasehold Improvements in accordance with the provisions of Schedule "C" annexed hereto and the "Design Criteria Manual" (if applicable) prepared by the Landlord and provided to the Tenant. (c) Following installation of such initial Leasehold Improvements as aforesaid, the Tenant shall not make any alterations, repairs, changes, replacements, additions, fixturing, installations or improvements to any part of the Leased Premises or Leasehold Improvements without the Landiord's prior written approval, which approval shall not be unreasonably withheld, unless the request is in respect of a structural matter or will affect the basic mechanical, electrical, air control or other basic systems of the Building or the capacities thereof, in which instance the Landiord's approval may be arbitrarily withheld. The Tenant shall submit to the Landlord details of any proposed work, including complete working drawings and specifications prepared by qualified designers and conforming to good engineering practice, and the Tenant shall provide such indemnification against liens, costs, damages and expenses as the Landlord shall reasonably require, and evidence satisfactory to the Landlord that the Tenant has obtained all necessary consents, permits, licences and inspections from all governmental authorities having jurisdiction. (d) All Leasehold Improvements shall: be performed expeditiously and at the sole cost of the Tenant, be performed by competent workmen whose labour union affiliations, if any, are compatible with others employed by the Landlord and its contractors, and who will not interfere unreasonably with work being performed by the Landlord, be performed in a good and workmanlike manner and in accordance with the drawings and specifications which the Landlord has approved, be performed in compliance with the applicable requirements of all regulatory authorities, and be subject to the reasonable supervision and direction of the Landlord. (e) Any Leasehold Improvements made by the Tenant without the prior written consent of the Landlord or which are not in accordance with the drawings and specifications approved by the Landlord shall, if requested by the Landlord, be promptly removed by the Tenant at the Tenant's expense, and the Leased Premises shall be restored to their previous condition. The Tenant shall reimburse the Landlord for the cost of technical evaluation of the plans and specifications and shall revise such plans and specifications as the Landlord deems necessary. (g) In carrying out work in accordance with subsection (b) hereof, the Tenant, at its expense, shall pay to the Landlord with respect to such work the reasonable cost to the Landlord of all utilities supplied to the leased Premises with respect to such work and any special or additional services provided to the Tenant for the conduct of such work, including the cost of any Additional Services, the cost of any necessary cutting or patching of or repairing of any damage to the Building or the Leased Premises, any cost to the landlord of removing refuse or material and of cleaning as a result of such work, any cost to the Landlord for hoisting of materials used in the Tenant's work, any cost to the Landlord for changes required by the Tenant for the use of the Leased Premises, all other costs incurred for the accommodation of such work (including delays caused by the conduct of such work), and any other costs of the Landlord which can be reasonably allocated as a direct expense relating to the conduct of such work. (h) If a request is made by the Tenant with respect to structural matters or matters which affect the basic mechanical, electrical, air control or other basic systems of the Building or the capacities thereof, which is approved by the Landlord, the landlord may require that such work be designed by consultants designated by it and that it be performed by the Landlord or its contractors. If the Landlord or its contractors perform such work, it shall be at the Tenant's expense in an amount equal to the Landford's total cost of such work or the contract price therefor plus ten (10%) per cent, payable following completion upon demand. Notwithstanding the foregoing, if the Tenant requests the Landlord to alter or install any Leasehold Improvements such work will be considered as an Additional Service. (i) No Leasehold Improvements by or on behalf of the Tenant shall be permitted which may adversely affect the condition or operation of the Building or Leased Premises or diminish the value thereof or restrict or reduce the Landiord's coverage for municipal zoning purposes. During construction and installation of Leasehold Improvements the Tenant shall keep the Building clean from any debris related thereto, and in any event after construction is completed do an adequate "first clean" to the Leased Premises. (k) The Tenant shall promptly pay all its contractors and suppliers and shall do all things necessary to prevent a lien attaching to the Lands or Building for failure to pay its contractors and suppliers and should any such lien be made or filed, the Tenant shall discharge or vacate such lien immediately. If the Tenant fails to discharge or vacate any lien, then in addition to any other right or remedy of the Landlord, the Landlord may discharge or vacate the lien by paying into Court the amount required by statute to be paid to obtain a discharge, and the amount so paid by the Landlord together with all costs and expenses including solicitors fees (on a solicitor and his client basis) incurred in connection therewith shall be due and payable by the Tenant to the Landlord on demand. 6.8 Removal and Restoration: (a) The Leasehold Improvements shall immediately upon installation become the property of the Landlord without compensation to the tenant. (b) The Tenant shall repair and make good any damage to the Leased Premises or to the Building caused either in the installation of Leasehold Improvements. 6.9 External Changes: The Tenant agrees that it shall not erect, affix or otherwise attach to any roof, exterior walls or surfaces of the Building any antennae, sign, fixture or attachment of any kind, nor shall it make any opening in or alteration to the roof, walls, or structure of the Leased Premises, or install in the Lepsed Premises or Building free standing air-conditioning units, without the prior written consent of the Landlord which may be arbitrarily withheld. 6.10 Trade Fixtures: The Tenant may, during or at the end of the Term, if not in default, remove its trade fixtures, and the Tenant shall, in the case of every installation or removal of trade fixtures, make good any damage caused to the Leased Premises or the Building by such installation or removal. Any trade fixtures and equipment belonging to the Tenant, if not removed at the termination or expiration of this Lease, shall, if the Landlord so elects, be deemed abandoned and thereupon become the property of the Landlord without any compensation to the Tenant. If the Landlord shall not so elect, the Landlord may remove such fixtures or equipment from the Leased Premises and store them at the Tenant's risk and expense and the Tenant shall save the Landlord harmless from all damage to the Leased Premises caused by such removal, whether by the Tenant or by the Landlord. 6.11 Lien on Trade Fixtures: If at any time the Tenant shall be in default under any covenant herein contained, the landlord shall have the right to distrain on all stock in trade, inventory and fixtures, equipment and facilities of the Tenant as security against loss or damage resulting from any such default by the Tenant, and the stock in trade, inventory, fixtures, equipment or facilities shall not be removed by the Tenant until such default is cured, unless otherwise so directed by the Landlord. 6.12 Tenant's Signs: The Tenant shall not at any time cause or permit any sign, picture, advertisement, notice, lettering, flag, decoration or direction (hereinafter collectively called "Signs") to be painted, displayed, inscribed, placed, affixed or maintained in or on any windows or the exterior of the Leased Premises, nor anywhere else on or in the Building, without the prior and continuous consent of the Landlord which consent may be arbitrarily withheld. The Landlord may at any time prescribe a uniform pattern of identification signs for tenants to be placed on the outside of the interior doors leading into the Leased Premises and other premises. Any breach by the Tenant of this provision may be immediately rectified by the Landlord at the Tenant's expense. The Signs shall remain the property of the Tenant and shall be removed by the Tenant, at its sole cost, at the earlier of the expiration of the Term or termination of this Lease. Upon such removal, the Leased Premises shall be restored to their original condition. The Tenant shall indemnify the Landlord against any loss or damage caused to any person or property as a result of placing, use or removal of any Sign on or in the Building. 6.13 Directory Board: The Landlord may erect and maintain (as an Operating Cost) a directory board in the main lobby of the Building which shall indicate the name of the Tenant and the location of the Leased Premises within the Building. The Tenant shall pay the Landiord's cost of changes thereto, and any other signage with respect to the Leased Premises. Should sufficient space exist on the directory board, the Landlord may provide to the Tenant, at the Tenants expense, additional entries as requested. The directory board shall be for identification only and not for advertising. The Landlord's acceptance of any name for listing on the directory board will not be deemed, nor will it substitute for, Landford's consent, as required by this Lease, to any sublease, assignment or other occupancy of the Leased Premises. 6,14 Landlord's Signs: In addition to the Landiord's right to install general information and direction signs in and about the Building as would be customary for a first-class office building in the City of Toronto, the Landlord shall have the right at any time during the Term to place upon the Building a notice of reasonable dimensions, reasonably placed so as not to interfere with the Tenant's business, stating that the Building is for sale, or that areas of the Building are for lease, as the case may be, and at any time during the last six (6) months of the Term, that the Leased Premises are for rent and the Tenant shall not remove such notice, or permit the same to be removed. ARTICLE VII STANDARD SERVICES 7.1 Heating and Air-Conditioning: (a) The Landlord shall provide heat to the leased Premises and interior Common Areas (excluding any areas below concourse and in the penthouse) sufficient to maintain reasonable temperatures for the Tenant's comfort during Normal Business Hours. It is understood and accepted by the Tenant that the Landlord may reduce the degree of heating provided after Normal Business Hours in a manner comparable to other first class office buildings in the City of Toronto of a similar age and in a similar location. (b) The Landlord shall provide ventilation and air-conditioning to the Leased Premises and interior Common Areas (excluding any areas below concourse and in the penthouse) during Normal Business Hours. The systems furnished and operated by the Landlord for air-conditioning and ventilation to the Leased Premises are designed for a reasonable density of persons and for general office purposes based on window shading being fully closed where windows are exposed to direct sunlight. Arrangement of partitions, equipment or special purpose areas, or the installation of equipment with high levels of heat production by the Tenant may require alteration of the portion of the air-conditioning and ventilation systems located within the Leased Premises. Any alterations that can be accommodated by the Landiord's equipment shall be made at the Tenant's expense and in accordance with Section 6.7 hereof. The Tenant acknowledges that alterations made from time to time whether inside the leased Premises or in other areas of the Building, may temporarily cause imbalance of air-conditioning and ventilation, and the Tenant shall allow a reasonable amount of time for readjustment and rebalancing. (c) Should the Landlord fail to provide sufficient heat or air-conditioning at any time it shall not be made liable for direct, indirect, or consequential damages, for personal discomfort or illness. 7.2 Cleaning: The Landlord shall provide janitorial services to the Leased Premises at such times and in such manner as is consistent with the prevailing practices in similar first class office buildings in the City of Toronto of similar age and in a similar location. The Landlord shall periodically clean both sides of exterior windows so as to maintain the Building to the standard of a first class office building in the City of Toronto of similar age and in a similar location. The Tenant acknowledges that the Landlord may clean the windows during Normal Business Hours and the Tenant agrees to allow the Landlord, its employees and contractors entry into the Leased Premises for this purpose. The Landlord shall keep those portions of the Common Areas accessible to the public in a clean and orderly fashion, and keep the sidewalks and driveways located on the Lands clear of snow. 7.3 Elevators: The Landlord shall provide operatoriess elevator passenger service at all times. The Landlord may reduce the number of elevators in service after Normal Business Hours. The Landlord retains the right to regulate the use of elevators for the purpose of carrying freight. 7.4 Security and lnformation: The Landlord may provide a security guard or receptionist in the main lobby of the Building to provide general information to visitors and to control traffic in and out of the Building. The Landlord may from time to time elect to substitute such services with automated systems and other devices that may from time to time seem appropriate for a first class office building in the City of Toronto. It is acknowledged by the Tenant that such services are intended for the general benefit of the Building and are not intended to specifically protect or otherwise serve the Tenant or the Leased Premises. 7.5 Utilities: (a) Electrical Power The landlord will supply to the Leased Premises sufficient electrical power to operate the standard lighting fixtures supplied by the Landlord plus circuits sufficient to deliver power to the Leased Premises as set out in Schedule "C" of this Lease. If the Tenant requires electrical power at a different.voltage or at a greater capacity than the Landiord's system can deliver, then any additional systems required shall be installed and maintained at the Tenant's cost. (b) Water and Sewage Connections: The Landlord shall provide to the floor(s) on which the Leased Premises is located chilled water for drinking fountains, hot and cold water for washroom facilities and the necessary sewer connections. Any connections made to Leasehold Improvements or special facilities by the Tenant shall be made at the Tenant's cost and in accordance with Section 6.7 hereof (c) The obligation of the Landlord to furnish utilities as set out in this Section 7.5 shall be subject to the rules and regulations of the supplier of such utility andior municipal or other governmental authority regulating the business or providing any of these utilities. 7.6 Interruption or Delay of Services: The Landlord may slow down, interrupt, delay, or shut down any of the services outlined in this Article VII on account of repairs, maintenance or alterations to any equipment or other parts of the Building so long as where practical, it schedules such interruptions, delays, slow downs, or stoppage so as to minimize any inconvenience to the Tenant. The Landlord shall not be held responsible for any direct or indirect damages, losses, or injuries caused. 7.7 Landlord's Alterations: Notwithstanding anything contained in this Lease, the Landlord shall have the right, at any time, to add buildings and parking structures on the Lands and to make any changes in, additions to, subtractions from, rearrangements of or relocations to any part of the Common Areas, the Lands or the Building (including the Leased Premises, provided that the premises, as rearranged or relocated shall in all material respects be comparable to the Leased Premises as herein defined) and to enclose any open area, and to grant, modify or terminate easements and other agreements pertaining to the use and maintenance of all or any part of the Building or the Lands, and to close all or any part of the Lands or the Building to such extent as the Landlord or the Landiord's counsel considers reasonably necessary to prevent accrual of any rights therein to any persons at any time during the Term, and to make changes to the parking areas and to make any changes or additions to the pipes, conduits, utilities and other building services in the Leased Premises which serve any premises in the Building (which acts are herein collectively called the "Changes"); provided that in so doing (a) the costs of any such activities which are not properly Operating Costs, shall be at the sole expense of the Landlord, and (b) access to the Leased Premises will at all times be available from the elevator lobby of the Building; and provided that in so doing any of the foregoing, the Landlord shall have the right to enter upon the Leased Premises. The Landlord shall not be liable for any damage caused to the Tenant's property, except if due to negligence or wilful misconduct of the Landlord or those for whom the Landlord is in law responsible. No claim for compensation shall be made by the Tenant by reason of inconvenience, nuisance or discomfort arising from such Changes. The Landlord shall make such Changes as expeditiously as is reasonably possible. All Common Areas shall at all times be subject to the exclusive control and management of the Landlord or as the Landlord may direct from time to time. ARTICLE VIII ASSIGNMENT AND SUBLETTING 8.1 Assignment, Subletting: The Tenant shall not assign this Lease, nor sublet all, or any part of the Leased Premises without the prior consent in writing of the Landlord, which consent shall, subject to Section 8.2 hereof, not be unreasonably withheld; provided however, such leave to any assignment or subletting, shall not relieve the Tenant from its obligations for the payment of Rent and for the full and faithful observance and performance of the covenants, terms and conditions herein contained. If this Lease is assigned or any part of the Leased Premises is occupied by any person other than the Tenant, the Landlord may collect Rent or sums on account of Rent from the assignee, subtenant or transferee of possession, and apply the net amount collected to the Rent and other amounts payable hereunder but no such assignment, subletting, transfer of possession or collection or the acceptance of the assignee, subtenant or transferee as tenant shall be deemed a waiver of this covenant. 8.2 Landlord's Consent: If the Tenant desires to assign this Lease, or tg sublet the Leased Premises, then and so often as such event shall occur, the Tenant shall make its request to the Landlord in writing, and the Landlord shall, within ten (10) business days after receipt of all information requested, notify the Tenant in writing either that; (a) the Landlord consents or does not consent, as the case may be, or (b) the Landlord elects to cancel and terminate this Lease if the request is to assign the Lease or to sublet all of the Leased Premises, or if the request is to sublet a portion of the Leased Premises only, to cancel and terminate this Lease with respect to such portion. If the Landlord elects to cancel this Lease as aforesaid, and so advises the Tenant in writing, the Tenant shall then notify the Landlord in writing within fifteen (15) days thereafter of the Tenant's intention either to refrain from such assigning or subletting or to accept the cancellation of the Lease (in whole, or in part). Failure of the Tenant to deliver notice to the Landlord within such fifteen (15) day period advising of the Tenant's desire to refrain from such assigning or subletting, shall be deemed to be an acceptance by the Tenant of the Landlord's cancellation of this Lease (in whole, or in part, as the case may be). Any cancellation of this Lease pursuant to this Section 8.2 shall be effective on the later of the date originally proposed by the Tenant as being the effective date of transfer or the last day of the month sixty (60) days following the date of the Landlord's notice to cancel this Lease. 8.3 Requests for Consent: Requests by the Tenant to assign this Lease or sublet all, or part of the Leased Premises shall be in writing to the Landlord accompanied with such information as the Landlord may reasonably require and shall include an original copy of the proposed assignment or sublease, as the case may be, and the Landlord shall, within ten (1 0) business days thereafter, notify the Tenant in writing either that it consents or does not consent to such proposal as set out in Section 8.2 hereof. Prior to any consent being given by the Landlord to the Tenants request, the Landlord shall be satisfied as to the following, inter alia: (a) that the liability of the Tenant in fulfilling the terms, covenants and conditions of this Lease shall remain, (b) the nature of the business to be carried on, the financial ability and good credit rating and standing of the proposed assignee, subtenant or transferee, as the case may be, (c) that the Tenant has regularly and duly paid Rent and performed all the covenants and provisos contained in this Lease, (d) that 10 any mortgagee (including a trustee for bondholders) of the Landlord will consent to such request, and (e) that the proposed assignee or subtenant has, or will enter into an agreement with the Landlord agreeing to be bound by all of the terms, covenants and conditions of this Lease. All expenses incurred by the Landlord in connection with the review by the Landlord and/or its solicitors of the Tenant's request pursuant to this Article Vill, and in the preparation and review of any documentation in connection therewith, shall be the responsibility of the Tenant and shall be paid forthwith upon demand. If the Tenant receives consent pursuant to this Section 8.3 it shall be conditional on the Tenant paying to the Landlord as Additional Rent, any profit (net of all reasonable costs incurred by the Tenant in connection therewith) earned by the Tenant in assigning this Lease or subletting all or any part of the Leased Premises. 8.4 Assicinment by Landlord: In the event of the sale or lease by the Landlord of its interest in the Lands or Building or any part or parts thereof and in conjunction therewith the assignment by the Landlord of this Lease or any interest of the Landlord hereunder, the Landlord shall be freed and relieved of any liability under this Lease. ARTICLE IX INSURANCE AND INDEMNIFICATION 911 Tenant's Insurance: The Tenant shall, at its sole cost and expense, take out and maintain in full force and effect at all times throughout the Term the following insurance: (a) "All Risks" insurance upon property of every description and kind owned by the Tenant, or for which the Tenant is legally liable, or which is installed by or on behalf of the Tenant, within the Leased Premises, including, without limitation, stock in trade, ftjmiture, fittings, installations, alterations, partitions, fixtures and anything in the nature of a tenant's leasehold improvement in an amount of not less than the full replacement cost thereof from time to time. In the event that there shall be a dispute as to the amount of full replacement cost, the decision of the Landlord or the Mortgagee shall be conclusive; (b) General liability and property damage insurance, including personal liability, contractual liability, tenants' legal liability, non-owned automobile liability, lease agreement contractual coverage and owners'and contractors'protective insurance coverage with respect to the Leased Premises and the Common Areas, which coverage shall include the business operations conducted by the Tenant and any other person on the Leased Premises. Such policies shall be written on a comprehensive basis with coverage for any one occurrence or claim of not less than Five Million Dollars ($5,000,000.00) or such higher limits as the landlord or the Mortgagee may reasonably require from time to time; (c) Any form or forms of insurance as the Tenant, the Landlord or the Mortgagee may reasonably require from time to time in amounts and for insurance risks against which a prudent tenant would protect itself. 9.2 Policy Requirements: Each policy of insurance taken out by the Tenant in accordance with this Lease shall be taken out with insurers, and shall be in such form and on such terms as are satisfactory to the Landlord, and each such policy shall name the Landlord and any others designated by the Landlord as additional named insureds, as their respective interests may appear, and each of such policies shall contain, in form satisfactory to the Landlord: (a) the standard mortgage clause as required by the Mortgagee; (b) a waiver by the insurer of any rights of subrogation or indemnity or any other claim over, to which such insurer might otherwise be entitled against the Landlord, its agents, employees or those for whom it is in law responsible; (c) an undertaking by the insurer to notify the Landlord and the Mortgagee in writing not less than thirty (30) days prior to any proposed material change, cancellation or other termination thereof., (d) a provision that the Tenant's insurance is primary and shall not call into contribution any other insurance available to the Landlord; (e) a severability of interests clause and a cross-liability clause, where applicable. 9.3 Proof of Insurance: The Tenant shall provide to the Landlord and the Mortgagee on demand, and from time to time, satisfactory evidence that the policies of insurance required to be maintained by the Tenant in accordance with this Lease are in fact being maintained, which evidence shall be in the form of certificates of insurance, or if required by the Landlord or the Mortgagee, certified copies of each such insurance policy. 11 9.4 Failure to Maintain: If the Tenant fails to take out or keep in force any insurance referred to in this Article IX, or. should any such insurance not be approved by either the Landlord or the Mortgagee and should the Tenant not rectify the situation within forty-eight (48) hours following receipt by the Tenant of written notice from the Landlord to the Tenant (stating, if the Landlord or the Mortgagee do not approve of such insurance, the reasons therefor), the Landlord shall have the right, without assuming any obligation In connection therewith, to effect such insurance at the sole cost of the Tenant and all outlays by the Landlord shall be payable by the Tenant to the Landlord and shall be due on the first day of the next month following said payment by the Landlord without prejudice to any other rights and remedies of the landlord under this Lease. 9.5 Damage to Leasehold Improvements: In case of damage to the Leasehold Improvements, or any material part thereof, the proceeds of insurance in respect thereto shall be and are hereby assigned and made payable to the Landlord, and such proceeds shall be released to the Tenant (provided that the Tenant is not in default hereunder) upon the Tenant's written request for progress payments, at stages determined by a certificate of the Architect stating that repairs to each such stage have been satisfactorily completed free of liens by the Tenant or by the Tenant's contractors. In the event the Tenant defaults in making such repairs, the Landlord may, but shall not be obliged to, perform the repairs and the proceeds may be applied by the Landlord to the cost thereof. 9.6 Increase In Insurance Premiums/Cancellation: The Tenant shall not do or permit anything to be done upon the Leased Premises which shall cause the premium rate of insurance on the Building to be increased. Notwithstanding the foregoing, if the premium rate of insurance on the Building shall be increased by reason of any use made of the leased Premises or by reason of anything done or omitted or permitted to be done by the Tenant or by anyone permitted by the Tenant to be upon the leased Premises, the Tenant shall pay to the Landlord on demand the amount of such premium increase. In the event of an actual or threatened cancellation of any insurance on the Building or any adverse change thereto by the indurer by reason of the use or occupation of the Leased Premises or any part thereof by the Tenant or by anyone permitted by the Tenant to be upon the Leased Premises, and if the Tenant has failed to remedy the situation, use, condition, occupancy or other factor giving rise to such actual or threatened cancellation or adverse change within twenty-four (24) hours after notice thereof by the Landlord, then the Landlord may, at its option, in addition to any other remedy it may have, either terminate this Lease by notice in writing to the Tenant and thereupon Rent shall be apportioned and paid in full to the date of such termination, the Tenant shall immediately deliver up possession of the Leased Premises to the Landlord and the landlord may re-enter and take possession of the same, or the Landlord may remedy the situation, use, condition, occupancy or other factor giving rise to such actual or threatened cancellation or change, all at the cost of the Tenant to be paid forthwith on demand, and for such purposes the Landlord shall have the right to enter upon the Leased Premises without further notice. 9,7 Landlord's Insurance: The Landlord agrees to insure the Building and the machinery, boilers and equipment contained therein and owned by the Landlord (specifically excluding any property with respect to which the Tenant is obliged to insure under this Article IX) against damage by fire and extended perils coverage in such reasonable amounts as would be carried by a prudent owner of a first-class office building in the City of Toronto of similar age and in a similar location. The Landlord will also carry public liability and property damage insurance with respect to the operation of the Building in such reasonable amounts as would be carried by a prudent owner. The Landlord may take out and carry any other form or forms of insurance as it or the Mortgagee may reasonably determine advisable. Notwithstanding that the Tenant shall be contributing to the Landlord's costs and premiums respecting such insurance pursuant to the terms of this Lease, the Tenant shall not have any insurable or other interest in any of the Landiord's insurance other than the rights, if any, expressly set forth in this Lease or in any policy of insurance obtained by the Landlord, and in any event, the Tenant shall not have any interest in, nor any right to recover any proceeds under any of the Landlord's insurance policies. 9.8 Non-Liability for Loss, Injury or Damage: The Tenant acknowledges and agrees that the Landlord shall not be liable for (a) any death or injury arising from or out of any occurrence in, upon, at or relating to the Lands or Building, and (b) damage to property of the Tenant or others located on the Leased Premises, and (c) any loss or damage to any property of the Tenant or others from any cause whatsoever (whether or not such property has been entrusted to the Landlord, its agents, servants or employees) and, without limiting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, steam, water, rain, snow or gas which may leak into or issue or flow from any part of the Building or from the water, steam or drainage pipes or plumbing works of the Building or from any other place or quarter, and (d) any damage caused by or attributable to the condition or arrangement of any electric or other wiring, and (e) any damage caused by anything done or omitted to be done by the Landlord or by any other tenant of the Building, and (f) any claim or demand in connection with any injury, loss or damage to the Tenant, its agents, invitees or licensees, or to the property of the Tenant, its agents, invitees or licensees, where such injury, loss or damage arises out of the security services in force or the lack thereof in the Building from time to time, and (g) in any event, any indirect or consequential damages suffered by the Tenant. Without limiting the foregoing, the Tenant hereby releases the Landlord, and those for whom the landlord is in law responsible, from all losses, damages and claims of any kind in respect of which the Tenant is required to maintain insurance or is otherwise insured. 9.9 Indemnification of the Landlord: The Tenant shall indemnify the Landlord and also save it harmless from all losses, liabilities, damages, claims, demands and actions of any kind or nature which the Landlord shall or may become liable for or suffer by reason of any breach, violation or non-performance by 12 the Tenant of any covenant, term or provision of this Lease and against any and all losses, liabilities, damages, claims, demands, actions and expenses in connection with loss of life, personal injury or damage to property arising from any occurrence on the Leased Premises save where caused by the negligence or wilful misconduct of the Landlord, or arising from the occupancy or use by the Tenant of the Leased Premises, the Lands or Building by the Tenant, its agents, contractors, employees, servants, licensees, concessionaires or invitees or occasioned wholly or in part by any act or omission of the Tenant, its agents, contractors, employees, servants, licensees or concessionaires whether on the Leased Premises, lands or in the Building. In case the Landlord, without actual fault on its part, is made a party to any litigation commenced by or against the Tenant, the Tenant shall protect and hold the Landlord harmless and shall pay all costs, expenses and reasonable legal fees incurred or paid by the Landlord in respect of such litigation. 9.10 Extension of Ri-qhts and Remedies: Every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Landlord under this Lease shall also be available and shall extend to protect all other companies owned, operated or controlled by or affiliated with the Landlord and to protect its officers, directors and employees and for such purposes the Landlord is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of such companies and persons. ARTICLE X DAMAGE 10.1 Damage to Leased Premises: It is understood and agreed that, notwithstanding the other provisions of this Lease, should the Leased Premises at any time be partially or wholly destroyed or damaged by any cause whatsoever or should demolition of the Leased Premises be necessitated thereby or bhould the Leased Premises become unfit for occupancy by the Tenant: (a) Subject as hereinafter provided in this Section 10.1, the Landlord shall, to the extent of the insurance proceeds available for reconstruction and actually received by the Landlord from its insurers following an election by the Mortgagee to apply all or any portion of such insurance proceeds against the debt owing to the Mortgagee as the case may be, expeditiously reconstruct the Leased Premises in accordance with the Laindlord's obligations to repair under the provisions of Section 6.4 hereof. Upon substantial completion of the Landiord's work, the Landlord shall notify the Tenant, and the Tenant shall forthwith commence and expeditiously complete reconstruction and repair of the Leased Premises in accordance with the Tenant's obligations to repair under the provisions of Section 6.2 hereof., (b) Rent shall not abate unless the Leased Premises are rendered wholly or partially unfit for occupancy by such occurrence and in such event Rent, as of the date of such occurrence shall abate proportionately as to the portion of the Leased Premises rendered unfit for occupancy, until thirty (30) days following receipt by the Tenant of the Landiord's notice given to the Tenant as provided in subsection 10.1 (a) hereof, at which time Rent shall recommence; (c) If the Leased Premises, in the opinion of the Architect, such opinion to be given to the landlord and the Tenant within thirty (30) days of the date of such damage, cannot be repaired and made fit for occupancy within one hundred and eidhty (180) days next following any occurrence, the Landlord may, by written notice to the Tenant within thirty (30) days of receipt of such opinion of the Architect, terminate this Lease.and Rent shall cease and be adjusted as of the date of such occurrence, and the Tenant shall immediately vacate the Leased Premises and surrender same to the Landlord; (d) If, in the opinion of the Architect, such opinion to be given to the Landlord and the Tenant within thirty (30) days of the date of such damage, thirty per cent (30%) or more of the Leased Premises are at any time destroyed or damaged in whole or in part by any cause whatsoever or by demolition caused or necessitated thereby, then and so often as such event occurs, the Landlord may, at its option, to be exercised by notice in writing to the Tenant within sixty (60) days of receipt of such opinion of the Architect, elect to terminate this Lease and in the case of such election the Term and tenancy hereby created shall expire on the thirtieth (30th) day following the giving of such notice and in such event Rent shall cease and be adjusted as of the date of the occurrence, and all rights and obligations contained in this Lease shall thereupon also cease, save and except for rights and obligations that may have accrued prior to such termination and the Tenant shall within such thirty (30) day period vacate the Leased Premises and surrender the same to the Landlord with the Landlord having the right to re-enter and repossess the Leased Premises discharged of this Lease and to remove all persons therefrom; and (e) In no event, including termination of the Lease in accordance with the provisions of subsection 10.1 (c) or (d) hereof, shall the Landlord be liable to reimburse the Tenant for damage to, or replacement or repair of any Leasehold Improvements or any of the 13 Tenant's property. 10.2 Damage to the Building: It is understood and agreed that, notwithstanding the other provisions of this Lease, should the Building at any time be partially or wholly destroyed or damaged by any cause whatsoever, or should demolition of the Building, or any part thereof, be necessitated thereby: (a) Subject as hereinafter provided in this Section 10.2, the Landlord shall, to the extent of the insurance proceeds available for reconstruction and actually received by the Landlord from its insurers following any election by the Mortgagee to apply all or any portion of such insurance proceeds against the debt owing to the Mortgagee as the case may be, expeditiously reconstruct and repair the Building, and to the extent necessary, the Leased Premises, in accordance with the Landlard's obligations to repair under the provisions of Section 6.4 hereof. Upon substantial completion of the Landiord's work the Landlord shall notify the Tenant, and the Tenant shall forthwith commence and expeditiously complete reconstruction and repair of the Leased Premises to the extent they are so affected, in accordance with the Tenants obligations to repair under the provisions of Section 6.2 hereof, (b) Rent shall not abate unless the Leased Premises are rendered wholly or partially unfit for occupancy by such occurrence, and in such event, Rent, as of the date of such occurrence shall abate proportionately as to the portion of the Leased Premises rendered unfit for occupancy unfit thirty (30) days following receipt by the Tenant of the Landlord's notice given to the Tenant as provided in subsection 10.2(a) hereof, at which time Rent shall recommence; (c) If in the opinion of the Architect, such opinion to be given to the Landlord and the Tenant within thirty (30) days of the date of such damage, thirty per cent (30%) or more of the Total Rentable Area of the Building is at any time destroyed or damaged in whole or in part by any cause whatsoever, or by demolition caused or necessitated thereby, notwithstanding that the leased Premises may be unaffected by such occurrence, then and so often as such event occurs, the Landlord may, at its option, by written notice to the Tenant, within thirty (30) days of receipt of such opinion of the Architect, elect to terminate this Lease and in the case of such election the Term and the tenancy hereby created shall expire on the thirtieth (30th) day following the giving of such notice and in such event, Rent shall cease and be adjusted as of the date of such termination, and all rights and obligations contained in this Lease shall thereupon also cease, save and except for rights and obligations that may have accrued prior to such termination and the Tenant shall within such thirty (30) day period vacate the Leased Premises and surrender the same to the Landlord with the Landlord having the right to re-enter and repossess the Leased Premises discharged of this Lease and to remove all persons therefrom. If the Landlord has not elected to terminate this Lease within such period as aforesaid, and provided such damage or destruction was not caused or contributed to by the Tenant, its employees or those for whom the Tenant is in law responsible, the Landlord shall, to the extent of the insurance proceeds available for reconstruction and actually received by the Landlord from its insurers following any election by the Mortgagee to apply any,portion of such insurance proceeds against the debt owing to the Mortgagee, as the case may be, let a contract for the repair and reconstruction of the portion of the Building so damaged or destroyed (save that with respect to the Leased Premises, the Landiord's obligation to repair and reconstruct shall be in accordance with the provisions of Section 6.4 hereoo within the twelve (12) month period following such damage or destruction and shall continue thereafter to expeditiously reconstruct and repair the Building, provided that the Landlord shall not be responsible for the repair or replacement of the Leasehold Improvements or the Tenant's property, the repair and replacement of which shall be the obligation of the Tenant and in this regard shall be governed by the provisions of Section 10.1 hereof,. (d) In repairing, reconstructing or rebuilding the Building or any part thereof, the Landlord may use designs, plans and specifications, other than those used in the original construction of the Building, and the Landlord may alter or relocate, or both, any or all buildings, facilities and improvements, including the Leased Premises, provided that the Leased Premises as altered or relocated shall be substantially the same size and shall be in all material respects reasonably comparable to the Leased Premises, as defined herein; and (e) In no event, including termination of this Lease in accordance with the provisions of subsection 10.2(c) hereof, shall the Landlord be liable to reimburse the Tenant for damage to, or replacement or repair of any Leasehold Improvements or of any of the Tenants property. 10,3 Architect's Certit]cate: It is understood and agreed by the Tenant that wherever a certificate of the Architect is required or deemed appropriate by the Landlord, the certificate of the Architect shall bind the parties hereto as to completion of construction of the Leased Premises and the availability of services, 14 the percentage of the Leased Premises or Building destroyed or damaged and the number of days required to make repairs. or reconstruct and the state or tenant ability of the Leased Premises, the state of completion of any work or repair of either the Landlord or the Tenant, and the computation of the area of any premises including the Leased Premises provided, however, the Landlord may elect to furnish a certificate prepared by a qualified land surveyor for the purpose of area measurement and such certificate shall be equally binding. ARTICLE XI UNAVOIDABLE DELAY 11.1 Unavoidable Delay: Whenever and to the extent that the landlord or Tenant shall be unable to fulfil or shall be delayed or restricted in the fulfilment of any obligation hereunder in respect of the supply or provision of any service or utility or the doing of any work or the making of any repairs by reason of being unable to obtain the material, goods, equipment, service, utility or labour required to enable it to fulfil such obligation or by reason of any strike, work stoppage, statute, law or order in council or any regulation or order passed or made pursuant thereto or by reason of the order or direction of any administrator, controller or board, or any governmental department or officer or other authority, or by reason of not being able to obtain any permission or authority required thereby, or by reason of any other cause beyond its control whether of the foregoing character or not, the Landlord or Tenant shall be entitled to extend the time for fulfilment of such obligation by a time equal to the duration of such delay or restriction and the Landlord or Tenant shall not be entitled to any compensation for any inconvenience, nuisance or discomfort thereby occasioned. The provisions of this Section 1 1. 1 shall not operate to excuse the Tenant from prompt payment of all sums required to be paid pursuant to the terms of this Lease. ARTICLE XII LANDLORD'S REMEDIES 12.1 Landlord May Perform Tenant's Covenants: If the Tenant is in default of any of its covenants, obligations or agreements under this Lease (other than its covenant to pay rent) and such default shall have continued for a period of ten (10) consecutive days after notice by the Landlord to the Tenant specifying with reasonable particularity the nature of such default and requiring the same to be remedied (or, if by reason of the nature thereof, such failure cannot be cured by the payment of money and cannot with due diligence be wholly cured within such ten (10) day period, if the Tenant shall fail to proceed promptly to cure the same or shall thereafter fail to prosecute the curing of such failure with due diligence), the landlord, without prejudice to any other rights which it may have with respect to such default, may remedy such default and the cost thereof to the Landlord together with Interest therean from the date such cost was incurred by the Landlord until repaid by the Tenant shall be treated as Additional Rent and added to the Rent due on the next succeeding date on which Basic Rent is payable and such amount shall thereupon become due and payable as Rent in addition to the regular payment of Basic Rent then due. The Landlord shall be subrogated to the extent of such payment to all rights, remedies and priorities of the payee to the extent of the amount paid by the Landlord to remedy such default. 12.2 Re-Entry: When: (a) the Tenant shall be in default in the payment of any Rent, whethjr lawfully demanded or not, and such default shall continue for a period of ten (10) consecutive days after notice by the Landlord to the Tenant; (b) the Tenant shall be in default of any of its covenants, obligations or agreements under this Lease (other than its covenant to pay rent) and such default shall have continued for a period of ten (10) consecutive days after notice by the Landlord to the Tenant specifying with reasonable particularity the nature of such default and requiring the same to be remedied; (c) any property of the Tenant has been sold under a valid writ of execution, or the Tenant shall have made an assignment for the benefit of creditors, or shall make any assignment or have had a receiving order made against it under the Bankruptcy Act, or if the Tenant has become bankrupt or insolvent and shall have made application for relief under the provisions of any statute now or hereafter in force concerning bankrupt or insolvent debtors, or any action whatever, legislative or otherwise, shall have been taken with a view to the winding up, dissolution or liquidation of the Tenant, or if a receiver of any of the Tenant's goods or chattels has been appointed; (d) any insurance policy is cancelled or not renewed by any insurer by reason of any particular use or occupation of the Leased Premises; or (e) the leased Premises shall have been abandoned, or have become vacant or shall have remained unoccupied for a period of five (5) consecutive days without the consent of the Landlord (which consent shall not be unreasonably withheld), or the 15 Leased Premises shall have been used by any other person or persons other than the Tenant or any person permitted by Article Vill hereof., then, and in any of such cases, the then current month's Rent together with the Rent for the three (3) months next ensuing shall immediately become due and payable, and at the option of the Landlord the Term shall become forfeited and void, and the Landlord without notice or any form of legal process whatever may forthwith re-enter the Leased Premises or any part thereof in the name of the whole and repossess and enjoy the same as of its former estate, anything contained in any statute or law to the contrary notwithstanding. Such forfeiture shall be wholly without prejudice to the right of the Landlord to recover arrears of Rent and damages for any antecedent breach of the covenants, obligations or agreements of the Tenant under this Lease. Notwithstanding any such forfeiture, the Landlord may subsequently recover from the Tenant damages for loss of Rent suffered by reason of this Lease having been prematurely determined and it may recover from the Tenant all damages it may incur with respect thereto, including the cost of recovering the Leased Premises, and including the worth at the time of such termination of the excess, if any, of the amount of Rent for the remainder of the Term over the then reasonable rental value of the Leased Premises for the remainder of the Term, all of which Rent shall be immediately due and payable from the Tenant to the Landlord. In determining the Rent which would be payable under this Lease by the Tenant subsequent to default, the annual Rent for each year of the unexpired portion of the Term shall be equal to the average annual Rent payable by the Tenant (a) from the Basic Rent Commencement Date to the time of default, or (b) during the three (3) full calendar years preceding such default, whichever period is shorter. 12.3 Landlord May Relet: if the Landlord does not exercise its option under Section 12.2 hereof to terminate this Lease, it may nevertheless in the events set out in Section 12.2 hereof from time to time, re-enter the Leased Premises without terminating this Lease, make such alterations and repairs as may be neicessary in order to reset the Leased Premises, and relet the Leased Premises or any part thereof as agent for the Tenant for such period or periods (which may extend beyond the Term) and at such rental or rentals and upon such other terms and conditions as the Landlord in its sole discretion may deem advisable. Upon each such reletting all rentals received by the Landlord from such reletting shall be applied, first, to the payment of any indebtedness other than rent due from the Tenant to the Landlord; second, to the payment of any costs and expenses of such reletting, including brokerage fees, solicitors' fees and the costs of alterations and repairs performed in connection with such reletting; third, to the payment of rent due and unpaid; and the residue, if any, shall be held by the Landlord and applied in payment of future rent as the same may become due and payable. The Tenant shall pay to the Landlord the amount by which the rent received from such reletting during any month during the term is less than the rent payable during that month by the Tenant. Notwithstanding any such resetting without termination, the Landlord may at any time thereafter elect to terminate this Lease. No such re-entry or taking of possession by the landlord shall be construed as an election on its part to terminate this Lease unless, at the time of or subsequent to such re-entry or taking of possession, a written notice of such intention has been given to the Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. 12.4 Right to Distrain: The Tenant waives and renounces the benefit of any present or future statute purporting to limit or qualify the Landford's right to distrain and agrees with the Landlord that if any of the events set out in Section 12.2 hereof shall occur, the Landlord, in addition to the other rights reserved to it, shall have the right to enter the Leased Premises as agent of the Tenant either by force or otherwise without being liable for any prosecution therefor and to take possession of any goods and chattels whatever an the Leased Premises, save and except any such goods and chattels which are owned by any occupiers of the Leased Premises other than the Tenant, and to sell the same at public or private sag without notice and apply the proceeds of such sale on account of the Rent or in satisfaction of the breach of any covenant, obligation or agreement of the Tenant under this lease and the Tenant shall remain liable for the deficiency, if any. Notwithstanding anything contained in the Landlord and Tenant Act, R.S.O. 1980, or any successor legislation or other statute which may hereafter be passed to take the place of the said Act or to amend the same, none of the goods and chattels of the Tenant at any time during the continuance of the Term shall be exempt from levy by distress for Rent and the Tenant hereby waives all and every benefit that it could or might have under such Act. Upon any claim being made for such exemption by the Tenant, or on distress being made by the Landlord, this provision may be pleaded as an estoppel against the Tenant in any action brought to test the right to the levying of distress upon any such goods. 12.5 Landlord May Follow Chattels: In case of removal by the Tenant of the goods or chattels of the Tenant from the Leased Premises, the Landlord may follow the same for thirty (30) days in the same manner as is provided for in the Landlord and Tenant Act, R.S.O. 1980, or any successor legislation or other statute which may hereafter be passed to take the place of the said Act or to amend the same. 12.6 Rights Cumulative: The rights and remedies given to the Landlord in this Lease are distinct, separate and cumulative, and no one of them, whether or not exercised by the Landlord shall be deemed to be in exclusion of any other rights or remedies provided in this Lease or by law or in equity. 12.7 Acceptance of Rent Non-Waiver. No receipt of monies by the Landlord from the Tenant after the cancellation or termination of this Lease in any lawful manner shall reinstate, continue or extend the Term, or affect any notice previously given to enforce the payment of Rent then due or thereafter failing due or operate as a waiver of the right of the Landlord to recover possession of the Leased Premises by proper suit, action, proceedings or other remedy; it being agreed that, after the service of a notice to cancel this 16 Lease and the expiration of the time therein specified, and after the commencement of any suit, action, proceeding or other remedy, or after a final order or judgment for possession of the Leased Premises, the Landlord may demand, receive and collect any monies due, or thereafter failing due without in any manner affecting such notice, suit, action, proceeding, order or judgment; and any and all such monies so collected shall be deemed payments on account of the use and occupation of the Leased Premises or at the election of the Landlord on account of the Tenant's liability hereunder. ARTICLE XIII STATUS STATEMENT, A-RTORNMENT AND SUBORDINATION 13.1 Certification: The Landlord and Tenant respectively agree that within ten (10) days after a written request therefor, they shall execute and deliver to the other or to such person as may be identified in the written request (but in no event more than twice in any year) a written statement certifying that this Lease is unmodified and is in full force and effect (or if modified stating the modifications and that this Lease is in full force and effect as modified), the amount of the Basic Rent and the date to which it as well as all other charges under this lease have been paid, whether or not there is any existing default on the part of the Landlord or the Tenant of which the person signing the certificate has notice and giving as well such further information as the person requesting the certificate shall reasonably require. 13.2 Attornment: If proceedings are brought for foreclosure, or if there is exercise of the power of sale or if there is an entry into possession of the Building or any part thereof pursuant to any mortgage, charge, deed of trust or any lien resulting from any other method of financing or refinancing made by the Landlord covering the Leased Premises and the Building, the Tenant shall attom to the mortgagee, chargee, lessee, trustee, other encumbrancer or the purchaser upon any such foreclosure or sale and recognize such mortgagee, chargee, lessee, trustee, other encumbrancer or the purchaser as the Landlord under this Lease. 13.3 Subordination: The Tenant shall postpone and subordinate its rights under this Lease to the Mortgagee, and any mortgage or mortgages, or any lien resulting from any other method of financing or refinancing, now or hereafter in force against the Lands and Building or any part or parts thereof as it exists from time to time, and to all advances made or hereafter to be made upon the security thereof. 13.4 Timely Execution: The Tenant shall execute promptly such instruments or certificates to carry out the intent of Sections 13.2 and 13.3 hereof as shall be requested by the Landlord. 13.5 Rights of Mortgagees, Trustees: If at any time during the currency of any mortgage or other charge on the interest of the Landlord in the Leased Premises, notice of which has been given to the Tenant, any default shall occur in the performance of any of the covenants, obligations or agreements of the Landlord which would give rise to a right of the Tenant to terminate this Lease, then the Tenant, before becoming entitled as against the holder of such mortgage or charge to exercise any right to terminate this Lease, shall obtain from the Landlord the address of such mortgagee or chargee and give to the holder of such mortgage or charge notice in writing of such default. The holder of such mortgage or charge shall thereupon have such period as may be reasonable in the circumstances within which to remedy such default as agent of the Landlord (or by such other means as will avoid the holder if a mortgagee, becoming a mortgagee in possession of the Leased Premises by reason of effecting such remedy) and if such default is remedied within such time the Tenant shall not by reason thereof terminate this Lease. The rights and privileges granted to the holder of any such mortgage or charge by virtue of this Section 13.5 shall not in any way be deemed to alter, affect or prejudice any of the rights and remedies available to the Tenant against the Landlord. Any notice to be given to the holder of such security shall be deemed to have been properly given if mailed by registered mail to its most recent address of which the Tenant shall have received notice by such holder or the Landlord. ARTICLE XIV MISCELLANEOUS 14.1 Joint and Several Liability: If two or more individuals, corporations, partnerships or other business associations (or any combination of two or more thereo@ sign this Lease as the Tenant, the liability of each such individual, corporation, partnership or other business association to pay Rent and to perform all other obligations hereunder shall be deemed to be joint and several. In like manner, if the Tenant is a partnership or other business association, the members of which are, by virtue of statute or general law, subject to personal liability, the liability of each such member shall be joint and several. 14.2 Landlord and Tenant Relationship: No provision of this Lease is intended to nor creates a joint venture or partnership or any other similar relationship between the Landlord and Tenant, it being agreed that the only relationship created by this Lease is that of landlord and tenant. 14.3 Planning Act: It is an express condition of this Lease that the provisions of section 49 of the Planning Act, 1983 (Ontario) and amendments thereto be complied with. 17 14.4 No Waiver: No condoning or waiver by either the Landlord or Tenant or any default or breach by the other at. any time or times in respect of any of the agreements, terms, covenants and conditions contained in this Lease to be performed or observed by the other shall be deemed or construed to operate as a waiver of the Landiord's or Tenant's rights under this lease, as the case may be, in respect of any continuing or subsequent default or breach nor so as to defeat or affect in any way the rights or remedies of the Landlord or the Tenant under this Lease, as the case may be, in respect of any such continuing or subsequent default or breach. Unless expressly waived in writing, the failure of the Landlord or the Tenant to insist in any one or more cases upon the strict performance of any of the agreements, terms, covenants or conditions contained in this Lease to be performed or observed by the other shall not be deemed or construed to operate as a waiver of the future strict performance or observance of such agreements, terms, covenants and conditions. 14.5 Expropriation: The Landlord and the Tenant shall co-operate in respect of any expropriation of all or any part of the Leased Premises or the Lands and Building so that the Tenant may receive the maximum award to which it is entitled in law for relocation costs and business interruption and so that the Landlord may receive the maximum award to which it is entitled in law for all other compensation arising from or relating to such expropriation (including all compensation for the value of the Tenant's leasehold interest expropriated and for the reduction in value of the Tenant's remaining leasehold interest upon a partial expropriation) which shall be the property of the Landlord, and to which the Tenant waives all rights. If the whole or any part of the Leased Premises or of the Lands and Building are expropriated, as between the parties hereto, their respective rights and obligations under this Lease shall continue until the day on which the expropriating authority takes possession thereof. If, in the case of partial expropriation of the Leased Premises this Lease is not frustrated by operation of governing law and such expropriation does not render the remaining part of the Leased Premises untenantable for the purposes of this Lease, the Tenant and the Landlord shall restore the part not so taken in accordance with their respective repair obligations under the provisions of Article VI of this Lease. In this Section the word "expropriation" shall include a sale by the landlord to any authority with powers of expropriation, in lieu of or under threat of expropriation. 14.6 Notice: Any notice required or contemplated by any provision of this Lease shall be given in writing enclosed in a sealed envelope addressed, in the case of the Landlord to: PENYORK PROPERTIES INC, 4 Eva Road, Suite 427 Etobicoke, Ontario M9C 2A8 Attention: Leasing Manager in the case of notice to the Tenant: to it at the Leased Premises; and delivered or sent in both cases by registered mail, postage prepaid, return receipt requested. The time of giving of such notice if mailed shall be conclusively deemed to be the fifth (5th) business day after the day of such mailing. If regular mail service is interrupted on or before the fifth (5th) business day following the mailing thereof by strikes or other irregularities, which are made known to the public, then such notice shall be deemed to have been received when it would have been received in the normal course following the resumption of normal mail service. Such notice shall also be sufficiently given if and when the same shall be delivered, in the case of notice to the Landlord, to an officer or employee of the Landlord at the above address of the Landlord, and in the case of notice to the Tenant, to an officer or employee of the Tenant at the above address for the Tenant. Such notice, if delivered, shall be conclusively deemed to have been given and received at the time of such delivery. If in this Lease two or more persons are named as Tenant, such notice shall be delivered personally to any one of such persons. Provided that either party may, by notice to the other, from time to time designate another address in Canada to which notices mailed more than ten (10) days thereafter shall be addressed. 14.7 Net Lease: It is the purpose and intent of the Landlord and the Tenant that the Basic Rent shall be absolutely net and carefree to the Landlord, so that this Lease shall yield, net and carefree to the Landlord, the Basic Rent specified in each year during the Term without notice or demand, and free of any charges, assessments, impositions or deductions of any kind and without abatement, deduction or set-off and under no circumstances or conditions whether now existing or hereafter arising whether beyond the present contemplation of the parties is the Landlord to be expected or required to make any payment of any kind whatsoever or to be subject to any other obligation or liability hereunder. All expenses and obligations of every kind and nature whatsoever relating to the Leased Premises which may arise or become due during the Term of this Lease shall be paid by the Tenant and the Tenant shall indemnify and save harmless the Landlord from all costs of same. 14,8 Non Merger: There shall be no merger of this Lease nor of the leasehold estate created hereby with the fee estate in the Lands or any part thereof by reason of the fact that the same person, firm, corporation or entity may acquire or own or hold directly or indirectly: (a) This Lease or the leasehold estate created hereby or any interest in this Lease or any such leasehold estate, and 18 (b) the fee estate in the Lands or any part thereof or any interest in such fee estate, and no such merger shall occur unless and until the landlord, the Tenant and the Landiord's Mortgagees (including a trustee for bondholders) shall join in a written instrument effecting such merger and shall duly record the same. 14.9 Lease Entire Agreement: There are no covenants, representations, warranties, agreements, or conditions expressed or implied, collateral or otherwise forming part of or in any way affecting or relating to this Lease or the Leased Premises save as expressly set out in this Lease and this Lease constitutes the entire agreement between the Landlord and the Tenant and may not be amended or modified except by subsequent agreement in writing of equal formality executed by the Landlord and the Tenant. The submission of this Lease for examination does not constitute a reservation of or option for the Leased Premises, and this Lease becomes effective as a lease only upon execution and delivery thereof by both the landlord and the Tenant. 14.10 Registration: The Tenant shall not register this Lease on the title to the Lands; however, the Tenant may register a Notice of Lease on title to the Lands, at its sole cost, provided such Notice of Lease shall describe only the parties, the Leased Premises, the Term of this Lease, and any renewals. Such Notice of Lease shall be prepared by the Tenant's solicitors, and shall be subject to the prior written approval of Landlord and its solicitors, at the Tenant's expense, and shall be registered at the Tenant's expense. 14.11 Name of Building: The Tenant shall not refer to the Building by any name other than that, if any, designated from time to time by the Landlord, and the Tenant may use such designated name of the Building for the business address of the Tenant but for no other purpose. 14.12 Exhibiting Premises: The Tenant agrees to permit the Landlord or its agents to exhibit the Leased Premises to prospective tenants during the Normal Business Hours for the last six (6) months of the Term. 14.13 Governing Law: This Lease shall be governed by and construed in accordance with the laws of the Province of Ontario. 14.14 Survival of Tenant's Covenants: All agreements, covenants and indemnifications in this lease made by the Tenant shall survive the expiration or earlier termination of this Lease, anything to the contrary in this Lease notwithstanding. 14.15 Quiet Enjoyment: The landlord agrees that upon the Tenant duly paying the Rent hereby reserved and duly observing and performing the agreements, terms and conditions herein on its part to be observed and performed, the Tenant shall and may peaceably possess and enjoy the Leased Premises for the Term without any hindrance, interruption or disturbance from the Landlord. 14.16 Binding on Successors: This Lease and everything herein contained shall enure to the benefit of and be binding upon the respective heirs, executors, administrators, successors, assigns and other legal representatives, as the case may be, of each and every one of the parties hereto, subject to the granting of consent by the Landlord to any assignment or sublease and every reference herein to any party hereto shall include the heirs, executors, administrators, successors, assigns and other legal representatives or such party, and where there is more than one tenant or there is a mate or female party or where a corporation is a party, the provisions hereof shall be read with all grammatical chang6s thereby rendered necessary. 14.17 Limitation-on Use: The Leased Premises shall be used continuously during the Term for general office purposes and for no other use. The Tenant acknowledges and agrees that it will not, nor will it permit the Leased Premises (or any part thereof to be used for any purpose which is not generally permitted in first class office buildings in the City of Toronto, and that it will not, nor will it permit the Leased Premises (or any part thereo@ to be used by any other trade or business without the prior written consent of the Landlord, which consent may be unreasonably withheld. 14.18 Corporate Ownenship: In the event that the Tenant proposes to transfer, or issue by sale, assignment, bequest, inheritance, operation of law, or other disposition, or by subscription, any part or all of the corporate shares of the Tenant, so as to result in any change in the present effective voting control of the Tenant by the party or parties holding such voting control at the date of commencement of this Lease, such transaction shall be deemed to be an assignment of this Lease, and the provisions of Article Vill hereof shall apply mutatis mutandis. The Tenant shall make available to the Landlord or to its lawful representatives, such books and records of the Tenant for inspection at all reasonable times, in order to ascertain whether there has, in effect, been a change in control. 14.19 Assignment and Subletting: The use of the word "assignment", "subletting", "assign", or "assigned" or "subfef'in this Lease shall include the mortgaging or encumbering of this Lease, the Tenant's interest herein or the Leased Premises or any part thereof and the occupation or parting with or sharing the possession of all or any part of the Leased Premises by any person, firm, partnership, or corporation, or any groups of persons, firms, partnerships, or corporations, or any combination thereof other than in respect of bona tide third party financing provided to the Tenant by a party with whom the Tenant deals at arm's length. 19 An assignment or transfer shall be construed so as to include an assignment or transfer by operation of law. 14.20 Several Liability: If two or more corporations, partnerships or other business associations (or any combination of two or more thereof constitute the Landlord in this Lease, the liability of each such corporation, partnership or other business association hereunder is several. In the event of default by the Landlord under this Lease, the Tenant agrees that should it proceed against such corporations, partnerships or other business associations, it shall do so only in accordance with their several interests, as they may be from time to time. 14.21 Time of the Essence: Time shall be of the essence for this Lease and for every part hereof. ARTICLE XV DEFINITIONS - INTERPRETATION 15.1 Definitions: In this Lease, unless there is something in the subject matter or context inconsistent therewith: (a) "Additional Rents" means the Realty Taxes, the Proportionate Share of Operating Costs, payments for utilities and light fixtures, and all other payments for additional services, and such other sums, excluding Basic Rent, otherwise payable by the Tenant in accordance with the terms of this Lease. (b) "Additional Rent Commencement Date" is defined in Section 1.10 hereof. I (c) "Additional Services" means any service and/or supervision requested by the Tenant and supplied by the Landlord or by anyone authorized by the Landlord and not o.therwise provided for as a standard service under this Lease; by way of example steam cleaning of carpets, moving of ftjmiture, alterations to Leasehold Improvements, or providing air- conditioning or ventilation for periods in excess of Normal Business Hours. (d) "Architect" means the architect, surveyor or engineer from time to time appointed by the Landlord. (a) "Basic Rent" means the basic rent payable by the Tenant pursuant to this Lease. "Basic Rent Commencement Date" is defined in Section 1.9 hereof. "Building" means the buildings, structures, and improvements from time to time during the Term erected on the Lands together with all fixtures, sprinklers, elevators, escalators, heating, ventilating, air-conditioning and mechanical and electrical equipment and machinery and water, gas, sewage, telephone and other communication facilities and electrical power services and utilities comprised therein, belonging thereto, connected therewith or used in the operation thereof, and now or hereafter constructed, erected and installed.therein and thereon, and all alterations, additions, and replacements thereto, but excludes all Leasehold Improvements made, constructed, erected or installed therein by or on behalf of an@ tenant of premises therein. The municipal address of the Building is 55 University Avenue, Toronto, Ontario. (h) "Capital Tax" means any tax or taxes payable by the Landlord to any taxing authority based upon or computed by reference to the value of the Building, or the paid-up capital or place of business of the Landlord. If the system of capital taxation shall be altered such that any new capital tax shall be levied or imposed in substitution for or in addition to Capital Tax from time to time levied or imposed, then any such new tax or levy shall be deemed to be Capital Tax or included in Capital Tax. (i) "Capital Tax for the Building" for any fiscal period means the amount calculated by multiplying the aggregate book value to the Landlord of the Lands and Building (and all equipment used in connection therewith) by the applicable Capital Tax rate imposed, from time to time, by the taxing authority having Jurisdiction. Aggregate book value shall be net of depreciation and amortization, for financial statement purposes and determined as at the end of such fiscal period. The parties acknowledge that Capital Tax for the Building is an approximation based upon the concept of Capital Tax, and is not necessarily the actual Capital Tax paid or payable by the Landlord in respect of the Building. If the calculation of Capital Tax changes, then the Landlord may adjust its calculation of such amount to reasonably reflect such change. "Common Areas" means: (i) all common areas and facilities within the Building from time to time furnished 20 or designated (and which may be changed) by the Landlord for the use in common, in such manner as the Landlord may permit, by tenants of premises in the Building and all others entitled thereto including, without restricting the generality of the foregoing, lobbies, corridors, together with washrooms, fan rooms, janitors' closets, electrical closets and other closets not situate within the demising line of any premises in the Building, and excluding parking spaces;and (ii) all of the Lands described in Schedule "A" hereto, not for the time being demised by the Landlord and not covered by any building (other than service buildings) available for the general benefit of all tenants of the Building and including without restricting the generality of the foregoing, parking areas, access roads, driveways, sidewalks and landscaped areas. (k) "Dominant Portion" means that portion of the inside finished surface of the permanent outer building wall which is 50% or more of the vertical dimension. If there is no dominant portion or if the dominant portion is not vertical, the measurement for area shall be to the inside finished surface of the permanent outer building wall where it intersects the finished floor. (1) "Fiscal Year" means the twelve (12) month period designated from time to time by the Landlord. (m) "Interest" means interest at a rate equivalent to three (3%) per cent per annum in excess of the prime lending rate of The Canadian Imperial Bank of Commerce, Main Branch, Toronto Ontario (or its successors) where the prime lending rate of such bank means the rate of interest (now commonly known as that Bank's "prime rate"), expressed as a rate per annum, charged by such bank in Toronto on demand loans made by it in Canadian dollars at such time. (n) "Lands" means the lands described in Schedule "A'annexed hereto. (o) "Landlord's Improvements" means improvements to be constructed or installed in or to the Leased Premises by the Landlord in accordance with the Landlord's working drawings prepared for the construction of the Building; by way of example, and without limiting the generality of the foregoing, Landlord's Improvements include: ceilings, lighting, and window covering systems originally installed by the Landlord and standard to the Building. Any Landiord's Improvements from time to time modified by or on behalf of the Tenant so as to no longer be standard to the Building shall be considered Leasehold Improvements. Landlord's Improvements shall not include any Leasehold Improvements installed by the Landlord on behalf of the Tenant or a previous occupant of the Leased Premises. (p) "Lease" means this document as originally signed, sealed and delivered or as amended, from time to time, which amendments shall be in writing, signed, sealed and delivered by both the Landlord and the Tenant. (q) "Leased Premises" means the premises leased to the Tenant described in Section 1.4 hereof (r) "Leasehold Improvements" means all fixtures, improvements, installations, alterations and additions from time to time made, constructed, erected or installed in or to the Leased Premises by or on behalf of the Tenant, including without limitation, all interior partitions however affixed and all rugs, carpeting and floor coverings attached in any way to the Leased Premises, and all water, gas, sewage, telephone and other communication facilities located in the leased Premises or which are for the exclusive use of the Tenant, but excludes moveable trade fixtures, moveable partitions, and furniture and equipment not affixed to the Leased Premises. "Leasehold Improvements" shall include any Landiord's Improvements modified by or on behalf of the Tenant. (S) "Mortgagee" means the Landiord's mortgagee(s) from time to time with respect to the Lands, the Building and/or this Lease, and includes a trustee,for bondholders. (t) "Normal Business Hours" means the hours from 8:30 a.m. to 6:00 p.m. on Monday to Friday of each week only except any statutory holiday, any day declared a civic holiday in the City of Toronto, or Province of Ontario. (U) "Operating Costs" means the total amounts incurred, paid or payable, whether by the Landlord, or by others on behalf of the Landlord, for the maintenance, operation, repairs and replacements to the Lands and the Building, including without limiting the generality of the foregoing: 21 (i) the total annual costs of insuring the Building and the Lands with such forms of coverage and in such amounts as the Landlord, or its mortgagees (including a trustee for bondholders) may, from time to time determine, including, without limitation, costs and premiums paid for insurance against any risks of physical loss or damage to property of the Landlord on a replacement cost basis, boiler, pressure vessels, air-conditioning equipment and miscellaneous electrical apparatus insurance on a broad form blanket coverage repair and replacement basis, loss of insurable gross profits attributable to all perils reasonably insured against by the landlord or commonly insured against by prudent landlords, third party liability hazards including exposure to personal injury, bodily injury and property damage on an occurrence basis including insurance for all contractual obligations and covering also actions of all authorized employees, sub-contractors and agents while working on behalf of the landlord, and any other form or forms of insurance as the landlord or its mortgagees (including a trustee for bondholders) may reasonably require from time to time for insurable risks and in amounts against which a prudent owner of a first-class office building in the City of Toronto would protect himself, (ii) costs and premiums paid for warranties and guarantees; (ill) complete maintenance and janitorial service for the Building and Lands, including snow removal, window cleaning, garbage and waste collection and disposal, the cost of operating and maintaining any merchandise holding and receiving areas and truck docks, and the cost of interior and exterior landscaping; (iv) elevator maintenance, lighting, public and private utilities (net of the amounts chargeable under Section 4.5 hereo@, together with the cost of energy management programmes and the cost of maintaining any signs considered by the Landlord to be part of the Common Areas; (v) policing and supervision; (vi) salaries of all personnel employed to carry out supervision, maintenance and service operations, (including without limitation contributions towards usual fringe benefits, unemployment insurance, pension plan contributions and similar contributions), and to the extent such personnel are not engaged full time to perform such supervision, maintenance and service operations, then only such portion of their salaries as is attributable to such on-site performance; (vii) the cost to the Landlord of the rental of any equipment and signs, and the cost of building supplies, used by the Landlord in the maintenance and operation of the Lands and the Building; (viii) costs of heating, air-conditioning and ventilation of the Building; (ix) repair and replacement to and the maintenance and operation of the Lands and the Building and the mechanical, electrical, plumbing, heating and air-conditioning equipment appurtenant thereto: (X) costs of operating a parking garage; (xi) all business taxes, if any, from time to time payable by the Landlord, on account of its ownership or operation of the Lands and Building but excluding income tax of the Landlord, and taxes on Leasehold Improvements separately payable to the Landlord by the Tenant pursuant to this Lease; (Xii) legal fees as reasonably attributable to the daily operation of the Lands and Building but excluding legal fees otherwise recoverable and legal fees for lease enforcement and leasing of the Lands and Building; (xiii) all fees and expenses incurred by the Landlord in connection with actions taken by the Landlord to appeal property assessments for the Lands and Building; (xiv) accounting services and audit fees in connection with the calculations referred to in this Lease; (xv) security services, if any, undertaken by or on behalf of the Landlord; (xvi) depreciation and amortization of capital costs as determined in accordance 22 with generally accepted accounting principles for: A. the costs of all maintenance and cleaning equipment and master utility meters; B. the costs incurred for all other fixtures, furniture, replacement of finishes in the Common Areas, equipment, and facilities serving the Building; and C. the costs, together with Interest, of equipment modification of the Building, or improvements, properly charged to capital account which the Landlord determines may reduce Operating Costs, amortized over their useful life, as determined by the Landlord; and D. the costs incurred by the Landlord pursuant to Sections 2.4(b) and 6.4(b) - (f) hereof together with Interest; (xvii) Capital Tax for the Building; (xviii) a management fee which shall be an amount equal to three (3%) per cent of the aggregate of basic rent received, or receivable by the Landlord from all tenants in the Building, Reafty Taxes, and all other Operating Costs; and (xix) actual costs related to the operation of a regional or on-site administrative office serving the Building, including the fair rental value (having regard to rentals prevailing from time to time for similar space) of space occupied by the Landford's employees for day to day administrative and supervisory purposes relating to the Building. In the case of a regional office, the costs will be apportioned among the buildings served by it on a pro rata basis. Provided that if the Building is not fully occupied for any period within the Term, the Operating Costs shall be adjusted to reflect full occupancy. And provided further, and notwithstanding the foregoing provisions, Operating Costs shall not include the following: (1) commissions, advertising costs, or legal expenses, in connection with leasing the Lands and Building or any part thereof. (2) the cost of painting, repainting, decorating, or redecorating, or of providing special cleaning services for any occupant of any space in the Building, other than the Leased Premises; (3) the cost of any insurance premiums for plate glass insurance; (4) the cost of any insurance premiums to the extent t hat the Tenant is obliged to reimburse the Landlord for the cost of such premiums pursuant to any provision of this Lease and/or to the extent that any other tenant of the Building would be obligated to reimburse the Landlord @for the cost of such premiums pursuant to any provision of such tenant's lease: (5) the costs of any insurance premiums relating to risks or amounts which are not normally insured against by reasonably prudent owners of comparable first-class office buildings in the City of Toronto; (6) the cost of any payment which the Landlord is obligated to make solely pursuant to an agreement to indemnify and hold harmless any person, firm, or corporation, except to the extent that similar agreements are customarily made by reasonably prudent owners of comparable first-class office buildings in the City of Toronto; (7) expenses incurred by the Landlord in respect of charges directly chargeable to other tenants of the Building including for electricity used by other tenants of the Building for fighting or for the operation of business equipment and machinery within such tenants'leased premises, or with respect to the repair of damage to the Building and Lands, all to the extent that the Landlord received reimbursement therefor by other tenants of the Building or from the proceeds of insurance; (8) the expenses incurred by the Landlord in respect of installation of other tenants' improvements; (9) interest and principal on mortgages and capital cost allowance on the 23 Building; (10) any costs relating to aerials, antennae, cables, machinery, equipment, installations, or other forms of communications equipment not part of the operation of the Building as a first-class office building, or installed at the request of and for the limited or specific use of any person whether occupying space in the Building or not; (11) any payments relating to any agreement affecting title to the Lands with respect to which the Tenant is not a party or has not otherwise specifically agreed to have such payments included in Operating Costs; (12) any amounts directly chargeable to other tenants for services, costs and expenses solely attributable to the accounts of such tenants. (v) "Proportionate Share" as it relates to Realty Taxes and Operating Costs shall be determined by dividing the Operating Costs by the Total Rentable Area of the Building and multiplying the quotient by the Rentable Area of the Leased Premises. Where any component of Operating Costs is attributable to only part of the Building, then those costs shall be divided only by the Rentable Area to which those costs are attributable. Should any component of Operating Costs not be attributable to the Leased Premises, the Tenant shall remain responsible for payment of its Proportionate Share as that component of Realty Taxes or Operating Costs relates to non-leasable areas. (W) "Realty Taxes" means all real estate taxes (including local improvement rates), levies, rates, duties, and assessments whatsoever, and the cost of appealing such assessments, which may be levied or assessed against the Lands and Building, or the Landlord, or the owners of the Lands and Building, and any and all taxes which may, in the future, be levied in lieu thereof; (X) "Rent, rent, Rental or rental" means all payments and charges payable by the Tenant pursuant to this Lease, including without limitation the Basic Rent and the Additional Rents. (Y) "Rentable Area" means: (i) Rentable Area for Single Tenancy Office Floors The Rentable Area of a single tenancy ofrice floor shall be computed by measuring to the inside finished surface of the Dominant Portion of the permanent outer building walls, and shall exclude only major vertical penetrations of the floor together with the walls enclosing them. No deductions shall be made for columns and projections necessary to the Building or for any floor penetrations exclusively serving the Tenant, (ii) Rentable Area for Multiple Tenancy Office Floors The Rentable Area of Leased Premises on multiple tenancy office floors shall be determined by multiplying the Rentable Area of the whole floor (measured as a single tenancy office floor in accordance with subparagraph (y)(i) above) times a fraction, the numerator of which is the Useab14 Area of the Leased Premises and the denominator of which is the Useable Area for the whole floor. (ill) Rentable Area for a Main Floor or Concourse level Leased Premises The Rentable Area of a Leased Premises on the main floor or the concourse level shall be calculated by measuring from the Building standard storefront fine for such floor, and from the inner surface of corridor and other permanent walls and to the centre of partitions separating the Leased Premises from adjoining leasable area. No deductions shall be made for vestibules serving the Leased Premises or for columns or projections necessary to the Building. (z) "Rental Taxes" means any tax or duty imposed upon the Landlord or the Tenant which is measured by or based in whole or in part directly upon the Rent payable under this Lease, whether existing at the date hereof or hereinafter imposed by any governmental authority, including without limitation value added tax, business transfer tax, retail sales tax, federal sales tax, excise taxes or duties, or any tax similar to any of the foregoing. (aa) "Term" means the initial term of this Lease as set out in Section 1.5 hereof, any renewal term and any overholding period. (bb) "Term Commencement Date"is defined in Section 1.5 hereof. (cc) "Total Rentable Area of the Building" means the sum of Rentable Areas for all office 24 floors (measured in accordance with subparagraph (y)(i) hereoo and the Rentable Area of all leased premises on the main floor and concourse level. (dd) "Useable Area for Multiple Tenancy Office Floors" means the area of a Leased Premises on an office floor divided for multiple tenancy and shall be computed by measuring to the finished surface of the Leased Premises side of corridor and other permanent walls, to the centre of partitions that separate the Leased Premises from adjoining leasable areas, and to the inside finish of the Dominant Portion of the permanent outer building walls. No deductions shall be made for columns and projections necessary to the Building. 15.2 Interpretation: (a) In this Lease "herein", "hereof', "hereunde?', "hereinaftee'and similar expressions refer to this Lease and not to any particular paragraph, section or other portion thereof, unless -there is something in the subject matter or context inconsistent therewith,* (b) All of the provisions of this Lease are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof, (c) Should any provision or provisions of this Lease be illegal or unenforceable, it or they shall be considered separate and severable from this lease, and its remaining provisions shall remain in force and be binding upon the parties hereto as though the said provision or provisions had never been included; I (d) The captions appearing in this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease or of any provision hereof IN WITNESS WHEREOF the parties hereto have executed this Lease. SIGNED, SEALED AND ACCEPTED BY THE TENANT This 5th day of September 1997 IT STAFFING INC, ------------------------------------------- Per Declan French Title: President Per: --------------------------------------- Name: ---------------------------------- Title: --------------------------------- I/We have the authority to bind the Corporation. SIGNED, SEALED AND ACCEPTED BY THE LANDLORD This 8th day of September 1997 PENYORK PROPERTIES I INC, Per --------------------------------------- Name: Durham Stephens Title: Leasing Manager Per: -------------------------------------------------------- Name: Jean Louis Dube Name: David Hicks Title: Senior Vice President, Title: Vice President, Operations Operations I/WE have the authority to bind the Corporation. 25 SCHEDULE"A" LEGAL DESCRIPTION In the City of Toronto in the Municipality of Metropolitan Toronto being Lots 13, 14 and 15 according to Plan D-37 registered in the land Registry Office (No. 63) - Registry Division of Toronto, and those parts of lots 9 and 12 according to said Plan D-37; and the public lane lying in rear of said Lots 14 and 15 according to said Corporation of the City of Toronto registered in the said Land Registry Office as Instrument CT-99023 (Toronto). See A-487713, and Lot 5 according to Plan 724-E registered in the said Land Registry Office, and that part of Town Lot 10 according to Town of York Plan on the North Side of Wellington Street West, in the City of Toronto in the Municipality of Metropolitan Toronto, designated as PARTS 1, 2 and 3 on a Plan of Survey or record in the Land Registry Office (No. 66) - Land Titles Division of Toronto and York, - at Toronto, as 66R-7968 and entered in the Register for Section: A-D-37 as Parcel 9-1. The Certificate of First Registration of Owner was registered in the Land Registry Office (No. 63) for the Registry Division of Toronto on 14th of May 1975 as Number CT-1 19462. I SCHEDULE"B" 55 UNIVERSITY AVE TORONTO FIFTH FLOOR SCALE SCHEDULE "C" LANDLORD'S AND TENANT'S IMPROVEMENTS The Landlord and Tenant agree that the Premises are provided In an "as is" condition and that the Landlord's work outlined below has been completed subject to the provisions of Schedule "E", In the event that the Tenant requires additional leasehold improvements, the Tenant shall complete at its cost, the "Tenant's Work" as outlined below: LANDLORD'S WORK The Landlord shall. complete at its cost save where specifically provided otherwise, the following (the "Landlord's Work"): 1. Ceilings The Landlord's standard ceilings are suspended metal 'T'bar grid with 2'x 5'lay-in acoustic panels fissured pattern. The ceiling system is based on a 5' square module incorporating a 1' wide fluorescent fixture strip. Locating partitions off the module will necessitate modifications to the electrical and mechanical systems at the Tenant's cost. Floor slab to finished ceiling measures approximately 8'7Y2". 2. Underfloor Ducts 1201208 volt power distribution is available through an underfloor duct system complete with companion raceway for telephone distribution. The underfloor duct system runs north and south in approximately 7'6" centres. 3. Heating The perimeter zone of each floor from the mezzanine to the eighteenth floor is served by a wall-fin heating unit system with a continuous painted metal enclosure between the columns and one shutoff valve per bay. On the mezzanine floor the physical dimensions of the enclosures are approximately 6" wide by 1'2" high standing 9" proud of the window frame. On the remaining floors the enclosures are approximately 6" wide by 2'2" high against the inside face of the outside wall with a 9 1/2" sill to the windows. The temperature of the heating units is controlled by a central inside/outside thermostat. 4. Ventilatina nd Air-Condi The perimeter and interior zones, from the mezzanine to the 18th floor are served by distribution through air-handling light fixtures. Return air is drawn through other light fixtures to the return air plenum above the ceiling. Each perimeter bay of approximately 400 square feet is controlled by a thermostat located on the face of the perimeter columns. The interior zohe is sub-divided on each floor into two areas comprising the west and north zone and the east and south zone, each separately controlled by thermostats, one on the west, and one on the east care wall. 5. Sound Control The Landlord will install sound baffles around corridor and demising partitions. 6. Fire Hose Cabinets Should additional fire hose cabinets be required or existing cabinets relocated as a result of the Leased Premises' perimeter and/or interior layout, such work will be performed by the Landlord at the Tenant's expense. 7. Sprinklers An overhead sprinkler system is provided on all floors on an open floor basis. The Tenant must ensure that sprinkler coverage is maintained throughout the Leased Premises in accordance with the appropriate building codes, regulations, laws & by-laws. Should additional sprinkler heads be required or existing sprinkler heads relocated as a result of the configuration of the Leased Premises' perimeter and/or interior layout, such work will be performed by the Landlord at the Tenant's expense. 8. Floors All floors are structural concrete slab. SCHEDULE "C" (CONT'D) LANDLORD AND TENANTS IMPROVEMENTS 9. Demising Walls The Landlord's standard corridor and demising partition on multiple tenancy floors shall be a slab-to-slab height drywall partition constructed of 2 1/2" metal studs at 16" on centre, with one layer of 1/2" gypsum board each side and 2 1/2" sound attenuation blankets between; walls shall be taped, sanded and painted with one base and two finish coats. 10. Demising Doors The Landlord's standard Tenant entrance is a single 3' wide full-height, solid core door with a natural finish, flat sliced red oak veneer facing. The Landlord will provide the Tenant with a standard entrance door complete with frame and hardware, as required by the applicable governmental or municipal authorities on an open floor basis. Additional doors required by applicable governmental of municipal authorities due to the Tenant's interior partition layout, or required by the Tenant, will be at the Tenant's expenses. The Landlord will provide the Tenant with two (2) keys. Additional keys are available from the Landlord at the Tenant's expense. The standard locksets are tulip, heavy duty type, dull, stainless steel finish as manufactured by Dominion Lock Company Limited. 11. Plumbing Two wet stacks consisting of one capped drain line and one capped vent line are located at opposite corners of the Building on each floor; capped cold water lines are located outside Men's and Women's washrooms for future connection by the Tenant. TENANT'S WORK The Tenant shall complete at its cost, the following work (the "Tenant's Work"): 1 . Electrical All main disconnects, transformers, lighting panels, electric check meters, power panels, branch wiring, lighting and electrical fixtures including lamps, time clocks, exit signs, emergency lighting and other equipment required in excess of that provided by the Landlord, as well as any hook-up charge, fee or deposit required by any appropriate authority. Where the service capacity of three (3) watts per square foot of Useable Floor Area is not adequate, the Tenant shall inform the Landlord of the service required in amperes based on the service voltage supplied, and if the Landlord is able to provide such additional service capacity, the Tenant will pay for the increase in cost for the said additional capacity. All power poles and monuments in open areas, armoured cable and/or conduits in partitions are fed from the underfloor duct system. 2. Mechanical The Tenant shall install all sinks, toilets and any other plumbing fixtures and equipment, including but not limited to water meters, hot water tanks, instant hot taps, controls and appurtenances as required, for the maintenance of required conditions throughout the Leased Premises and as required by the Landlord. 3. Heating, Ventialating and Air-Conditioning Any additional heating, ventilating or air-conditioning system required by the Tenant beyond that provided by the landlord shall be subject to the prior written approval of the Landlord and shall be installed by the Landlord at the Tenant's expense. The Landlord reserves the right to refuse to allow the Tenant to exceed a design fighting load of three watts per square foot of Useable Floor Area. 4. Communications When required by the Landlord, by any governmental or regulatory authority having jurisdiction, or by the Tenant subject to the Landiord's approval, the Landlord reserves the right, in its sole discretion, to supply and install all parts and components of the following systems: intercom, burglar and fire alarm, antenna and cable at the Tenant's expense. 2 SCHEDULE SCHEDULE "C" (CONT'D) LANDLORD'S AND TENANT'S IMPROVEMENTS 5. Interior Finishes All other interior finishes and installations not provided for under Landiord's Work. 6. Floor Finish The flooring must be approved in writing by the Landlord and not be of a lesser quality than the Landiord's standard as approved from time to time. 7. Additiona!Reguirements Any additional requirements of the Tenant are subject to the Landiord's approval. 8. Procedures Work Drawings - The Landlord shall submit an outline of the plan of the Leased Premises to the Tenant and the Tenant shall within sufficient time so as not to delay the commencement of the Term of the Lease, prepare and submit to the landlord for approval (in triplicate) working drawings and specifications for the Tenant's Improvements, including sepias, as prepared by a qualified designer and engineer, both to be approved by the Landlord. The Tenant's submission shall include: 1 . Floor Plan - showing partition and interior decoration, including wall assemblies, elevations and millwork. Scale: 1/8" = l'0" 2. Electrical and Telephone Plan - showing electrical and telephone outlets and power pole locations, including all modifications and/or additions to the base building electrical system required to suite the Tenant's interior design. Scale: 1/8" = 1'0" 3. Reflected Ceiling Plan - showing any modifications to the Landiord's base building ceiling system, including relocation of existing or installation of new supply air diffusers, lights, and fight switches, exit lights, emergency lights and sprinklers. Scale: 1/8" = l'0" 4. Total Connected Electrical Loads in Leased Premises including: (a) lighting (KW) (b) receptacles (KW) (c) special equipment including copiers, computers, etc.(KW) (d) others (KW) 5. Mechanical Plan - showing any modification and/or addition to the Landlord's base building heating, ventilating, air-conditioning and plumbing systems required to suite the Tenants interior design. Scale: 1/8" = l'0" Approvals - No work for which drawings and specifications are required shall be commenced by the Tenant until the said drawings and specifications have been approved in advance in writing by the Landlord and until the Tenant has secured approval thereof from every governmental authority having jurisdiction and submitted proof of such approval to the Landlord. Under no circumstances shall the Tenant, its employees, its contractors or its contractors' employees make any opening in the floors or walls of the Building (other than the Tenant's interior partitions) without the prior written approval of the Landlord. Contractors - Prior to the commencement of the Tenant's Improvements, the Tenant shall submit to the Landlord a liability certificate from the Tenant's general contractor or from each of the Tenant's independent sub-contractors, as the case may be, in an amount not less than TWO MILLION DOLLARS ($2,000,000.00) per occurrence, which liability insurance shall be on a comprehensive form and shall cover all hazards related to any work performance by any such general contractor or independent contractor, as the case may be, in or on the Leased Premises. Such policy or policies shall include the Owner as an additional named insured and shall contain a cross-liability clause. 3 SCHEDULE "C" (CONT'D) LANDLORD'S AND TENANT'S IMPROVEMENTS Damage to leased Premises or Building - Any damage to the Leased Premises or the Building caused by the Tenant or any of its employees, contractors, or workers shall be repaired forthwith by the Landlord at the TenanCs expense or by the Tenant with the Landiord's approval. Tenanfs Contractors - All items or work undertaken by the Tenant shall be performed by competent workers whose labour affiliations are compatible with those of all other employed by the Landlord and its contractors. Unless the Landlord otherwise consents in writing, the Tenant shall employ the landiord's interior contractor in the completion of the Tenant's Improvements, except for all modifications required to the landiord's mechanical and electrical systems. Such mechanical and electrical modifications shall be carried out by the Landlord at the Tenant's expense. Should the Tenant choose to engage an interior contractor other than the Landiord's interior contractor, the Tenant shall pay to the Landlord with respect to the execution of the Tenant's work, a Tenant Coordination Fee, being the greater of $500.00 or $1.00 per square foot of the Net Rentable Area of the Leased Premises. This payment is in consideration of the Landiord's administration services, disbursements, project security, temporary services and utilities, washroom facilities, loading dock access, elevator service and building operations co-ordination all being provided during the Tenant's fixturing period. Additional Work - All work carried out by the Landlord at the Tenant's expense shall be invoiced to the Tenant as a "backcharge". The amount so invoiced to the Tenant shall be the total cost to the Landlord including architectural and engineering fees, where applicable, plus a further Fifteen Per Cent (15%) for the Landiord's administration and supervision, payable upon substantial completion and upon demand. State of Completion - The opinion in writing of the Landlord's Architect shall be binding on both the Landlord and the Tenant on all matters of dispute regarding state of completion and workmanship of the Landlord's and the Tenant's Improvements. Statutory Declaration - Upon completion of the Tenant's Improvements, the Tenant shall forthwith furnish to the Landlord a Statutory Declaration in a form satisfactory to the Landlord stating that no liens against the Leased Premises exist on account of the Tenants Improvements. 4 SCHEDULE "D" RULES AND REGULATIONS The Tenant shall observe the following Rules and Regulations (as amended, modified or supplemented from time to time by the Landlord as provided in this Lease): 1 The Tenant shall not permit in the Leased Premises any cooking or the use of any apparatus for the preparation of food or beverages (except where the landlord has approved of the installation of cooking facilities as part of the Tenant's Leasehold Improvements) nor the use of any electrical apparatus likely to cause an overloading of electrical circuits. 2. The sidewalls, entries, passages, corridors, lobbies, elevators and staircase shall not be obstructed or used by the Tenant, his agents, servants, contractors, invitees or employees for any purpose other than ingress to and egress from the offices. the landlord reserves entire control of the Common Area and all parts of the Building and the Land employed for the common benefit of the tenants. 3. The Tenant, his agents, servants, contractors, invitees or employees, shall not bring in or take out, position, construct, install or move any safe, business machine or other heavy office equipment without first obtaining the consent in writing of the Landlord. In giving such consent, the Landlord shall have the right in its sole discretion, to prescribe the weight permitted and the position thereof, and the use and design of planks, skids or platforms to distribute the weight thereof. All damage done to the Building by moving or using any such heavy equipment or other office equipment or furniture shall be repaid at the expense of the Tenant. The moving of all heavy equipment or other office equipment or furniture shall occur between 6:00 p.m. and 8:00 a.m. or any other time consented to by the Landlord and the Persons employed to move the same in and out of the Building must be acceptable to the Landlord. Safes and other heavy office equipment will be moved through the halls and corridors only upon steel bearing plates. No deliveries requiring the use of an elevator for freight purposes will be received into the Building or carried in the elevators, except during hours approved by and scheduled through the Landlord. Only elevators so designated by the Landlord shall be used for deliveries of workmen and materials, furniture and other freight. The Tenant shall pay, as Additional Rent, any costs incurred by the Landlord in connection with the moving of the Tenant's equipment, furniture, etc. 4. All persons entering and leaving the Building at any time other than during Normal Business Hours shall register in the books kept by the Landlord at or near the entrance or entrances and the Landlord will have the right to prevent any person from entering or leaving the Building unless provided with a key to the premises to which such person seeks entrance and a pass in a form to be approved by the Landlord and provided at the Tenant's expense. Any persons found in the Building at such times without such keys or passes will be subject to the surveillance of the employees and agents of the Landlord. The Landlord shall be under no responsibility for failure to enforce this rule. 5. The Tenant shall not place or cause to be placed any additional locks upon any doors of the Leased Premises without the approval of the Landlord, which approval shall @ot be unreasonably withheld, and subject to any conditions imposed by the Landlord. Additional keys may be obtained from the Landlord at the cost of the Tenant. 6. The water closets and other water apparatus shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, ashes or other substances shall be thrown therein. Any damage resulting from misuse shall be repaired at the cost of the Tenant by whom or by whose agents, servants or employees same is caused. Tenant shall not let the water run unless it is in actual use, and shall not deface or mark any part of the Building, or drive nails, spikes, hooks or screws into the walls or woodwork of the Building. 7. No one shall use the Leased Premises for sleeping apartments or residential purposes, or for any illegal purpose, or for the storage of personal effects or articles other than those required for business purposes. 8. Canvassing, soliciting and peddling In the Building or Common Areas are prohibited. 9. Any hand trucks, carry-ails, or similar appliances used in the Building shall be equipped with rubber tires, side guards and such other safeguards as the Landlord shall require. 10. No animals or birds shall be brought into the Building. SCHEDULE "D" CONTD. RULES AND REGULATIONS 11. The Tenant shall not install or permit the installation or use of any machine dispensing goods for sale in the Leased Premises or the Building or permit the delivery of any food or beverages to the Leased Premises without the approval of the Landlord or in contravention of any regulations fixed or to be fixed by the Landlord. Only persons authorized by the Landlord shall be permitted to deliver or to use the elevators in the Building for the purpose of delivering food or beverages to the Leased Premises. 12. The Tenant shall not perform any acts or carry on any practice which may damage the Building or the Common Areas or be a nuisance to any tenant in the Building. 13. The Tenant shall keep all mechanical apparatus free of vibration and noise which may be transmitted beyond the Leased Premises. 14. The Tenant shall not use or permit the use of any objectionable advertising medium such as without limitation, loud speakers, stereos, public address systems, sound amplifiers, radio broadcast or television apparatus within the Building which is in any manner audible or visible outside of the Leased Premises. 15. The Tenant shall not mark, drill into, bore or cut or in any way damage or deface the walls, ceilings, or floors of the Leased Premises. No wires, pipes, conduits, telephonic, telegraphic, electronic wire service or other connections shall be installed in the Leased Premises without the prior written approval of the Landlord. 16. the Tenant shall not, except with the prior written consent of the Landlord, install any blinds, drapes, curtains or other window coverings in the Building and shall not remove, add to or change the blinds, curtains, drapes or other window coverings installed by the Landlord from time to time. So that the Building may have a uniform appearance from the outside, the tenant shall co-operate with the Landlord win keeping window coverings open or closed at various times as the Landlord may reasonably, from time to time, direct. 17. The Tenant shall not use any janitor, telephone or electrical closets for anything other than their originally intended purposes. 18. The Tenant shall abide and be bound by the Security Services in force in the Building from time to time. For the purpose of this clause, the term "Security Services" shall mean all aspects of security for the Building and the Lands, including equipment, procedures, rules and regulations pertaining to such security. 19. No public or private auction or other similar type of sale of any goods, wares or merchandise shall be conducted in or from the Leased Premises. 20. Nothing shall be placed on the outside of window sills or projections of the Leased Premises, nor shall the Tenant place any air-conditioning unit or any other equipment or projection so that it will project out from the Leased Premises. The Tenant may not install air-conditioning equipment of any kind in any part of the Leased Premises without the prior written consent of the landlord. 21. All glass and trimmings in, upon or about the doors and windows of the Leased Premises shall be kept whole, and whenever any part thereof shall become broken, the same shall be immediately replaced or repaired under the directions and to the satisfaction of the Landlord and shall be paid for by the Tenant as Additional Rent. 22. No bicycles or other vehicles shall be brought within the Building except as specifically designated by the Landlord. 23. No inflammable oils or other inflammable, dangerous or explosive materials shall be brought into the Building or kept or permitted to be kept in the Leased Premises. 24. In the event the Leased Premises are used for restaurant or food handling purposes, the Tenant shall, at its expense: a) carry out at least monthly a roach spraying program, and provide evidence thereof to the Landlord, and b) clean all exhaust ducts at least twice yearly, and provide evidence thereof to the Landlord. 2 SCHEDULE "E" SPECIAL CONDITIONS EARLY OCCUPANCY: To the extent that the Lease has been executed and the leasehold improvements have been completed, the Tenant shall have the right to occupy the premises on a gross rent free basis until the Commencement Date. The Tenant shall, however, during such period, be bound by all the other terms of the lease. LEASEHOLD IMPROVEMENT ALLOWANCE: The Landlord shall provide a leasehold improvement allowance In the amount of $15.00 per square foot of rentable area. Said allowance to be paid upon receipt of paid invoices relating to the completion of such work and receipt of a statutory declaration from the Tenant's contractor that there are no lions on the building, TENANT'S WORK: All plans, drawings and specifications for the Tenant's leasehold Improvements and the Tenant's choice of contractors shall be subject to the prior approval of the Landlord, Alternatively, the Tenant may request the Landlord to make said Improvements to a maximum cost of $15.00 per square foot. To the extent that the cost of leasehold improvements exceeds the above allowance, the Landlord shall amortize the cost over the term to a maximum of $25.00 per square foot using an interest rate factor of 10%. PARKING: The Landlord agrees to provide up to four (4) unreserved parking spaces In the building's parking garage throughout the term at the prevailing monthly charge. Additional underground parking may be provided on a month to month basis. FREE RENT: The Landlord shall grant the Tenant rent free periods as follows: One (1) month (Dec.'97) gross free Two (2) months (Jan.'98 - Feb.'98) net free During said period, the Tenant shall be bound by all other terms and conditions of the lease including the payment of Additional Rent. EXPANSION: The Tenant shall have the right to lease the adjacent premises, being approximately 1,600 square feet as outlined in blue on the attached Schedule "B". Specifically, the Tenant shall have the option to lease the premises at the same rental rate and with the same allowance as outlined in this proposal, effective December 1, 1998. Said option must be exercised in writing no later than six (6) months after the commencement of the Tern]. SCHEDULE "F" STATUS STATEMENT PROPERTY 55 University Avenue LANDLORD PenYork Properties I lnc, TENANT IT Staffing Inc. LEASE DATED December 1, 1997 TO: The Landlord or any Person who is or may become or contemplates to become a Secured Lender as well as to any prospective purchaser of the Property or any part thereof. THE UNDERSIGNED, the Tenant under the above Lease, hereby certifies and represents that: (i) The Tenant has accepted and is in possession and in occupation of the Premises having I an Area of approximately four thousand, four hundred square feet (4,400 sq. ft.). (ii) The Lease has been validly executed and delivered by the Tenant (and the Guarantor, if any) pursuant to due corporate action properly taken by the Tenant (and the Guarantor, if any). (ill) The Lease is presently in full force and effect and unmodified. (iv) All rent is now accruing under the Lease, and all Minimum Rent, Percentage Rent and Additional Rent under the Lease have been paid to this date. (v) There is no existing default by either Tenant or Landlord pursuant to the Lease for which a notice of default has been given. (vi) The Tenant has no defenses, counter claims, or claims of offset, deduction or compensation under the Lease or otherwise against rents or other charges due or to become due under the Lease. Furthermore, the Tenant does not have the right or option to terminate the Lease prior to the expiry of the Term. (vii) No rent under the Lease has been paid more than thirty (30) days in advance of its due date. (viii) The Premises are free from any construction deficiencies. (ix) All Landiord's Work has been completed to the satisfaction of the Tenant. The Tenant hereby certifies and represents that the above statements including any exceptions which may have been added thereto are true and complete and may be relied and acted upon. DATED AT TORONTO THIS 5th DAY OF SEPTEMBER 1997. IT STAFFING INC, PER: Declan French SCHEDULE"G" INDEMNITY AGREEMENT PROPERTY 55 University Avenue LANDLORD PenYork Properties I lnc, TENANT IT Staffing lnc, GUARANTOR(S) Declan French LEASE DATED December 1, 1997 PREMISES 5th Floor THE UNDERSIGNED party(ies), (singularly or collectively, "Guarantor'), intervenes in the present Lease and having taken communication of the Lease, declares itself to be fully satisfied with the contents thereof and furthermore declares that in consideration of Landlord leasing the Premises to Tenant, the sufficiency offwhich consideration Guarantor hereby acknowledges, Guarantor binds itself to Landlord, jointly and severally with Tenant and with each other if applicable, for the due performance of every obligation, condition and agreement in the Lease Tenant has agreed to perform, observe or keep, (collectively, "Obligations"), including without limitation, the prompt payment of all Minimum Rent, Percentage Rent and Additional Rent which become due pursuant to the Lease, as well as for any consequences resulting from Tenant's default to fulfil any Obligations, including without limitation, any damages, interest or penalties, which may be claimed as a result thereof, the Guarantor making of the whole its own personal affair. Guarantor waives acceptance of this guarantee by Landlord and the benefits of division, discussion and subrogation. Guarantor hereby consents to Landlord making any agreement or arrangement whatever with Tenant, any other Guarantor, or any other Person with respect to any one or more Obligations, including without limitation, extensions of time to fulfil any Obligation, the release of Tenant, any other Guarantor, or any other Person to fulfil all or any part of any Obligation, or the change or surrender of any and ail security with respect to the Obligations. Guarantor agrees that none of the foregoing will in any way, affect or impair the liability of Guarantor hereunder. Nothing shall release or satisfy the liability of the Guarantor until all Obligations and all consequences of default to fulfil them are satisfied in full. Without limitation, Guarantors liability hereunder will not be affected or impaired by the bankruptcy, insolvency or winding-up of Tenant, any other Guarantor, nor by any disclaimer or any other action taken by any trustee, liquidator, referee or other officer appointed by any court or other body of competent jurisdiction under any bankruptcy, insolvency or winding-up legislation then in force, nor landiord's failure or delay to proceed to litigation or to seek a remedy fool any default against Tenant, any other Guarantor or any other Person, nor by any other act, omission or event whatsoever which might otherwise lessen, affect or discharge a surety. This guarantee is irrevocable by Guarantor and will continue in full force and effect as long as there exists or may exist any Obligations or any unsatisfied consequences thereof whether prior to, during or after the expiration of the Term. Moreover, Guarantor waives notice of the taking effect of and coming into force of any renewals or extensions of the Term. This guarantee will be binding upon the Guarantoes successors, legal representatives and assigns. Furthermore, this guarantee will remain in full force and effect, notwithstanding any change of name, amalgamation, merger or change of status of Landlord, Tenant, Guarantor, any other Guarantor, or any other Person, notwithstanding any juridical acts or facts as a result of which the entity which is the creditor of any of the Obligations, is or becomes someone other than landlord and/or Landlord is replaced by any other entity as a party to the lease and/or any party other than the Tenant or the Guarantor becomes the debtor of any of the Obligations. Furthermore, if Landlord is replaced by any other entity as a party to the Lease, then this guarantee will remain in full force and effect in favour of that entity even as regards obligations flowing from the Lease, and having their inception after such replacement. Guarantor acknowledges and confirms there are no representations, warranties, inducements or undertakings made or given to it or to Tenant or to any other Guarantor by Landlord in connection with this guarantee. Moreover, any alteration or amendment to this guarantee or any future undertaking by Landlord, in order to be binding upon Landlord, must be made in writing. 1 SCHEDULE "G" (CONT'D) GUARANTEE This guarantee shall be construed and governed by the laws of the Province of Ontario. Guarantor hereby elects domicile at the Premises for the purpose of service of any legal proceedings to be instituted as a consequence of this guarantee. TORONTO, THIS 5th DAY OF SEPTEMBER 1997. Declan French - ------------------------------------ ------------------------------------ Witness Guarantor Address: 2045 Lakeshore Blvd. Etobicoke, Ontario Tel: 416-255-1277 - ------------------------------------ Witness Telephone No.: 2 SCHEDULE "L" LANDLORD'S CLEANING SCHEDULE
FREQUENCY Daily Weekly Monthly Annually ENTRANCE, MAIN LOBBY & SERVICE CORRIDORS Granite floor will be swept with treated dust mop, damp mopped and burnished D Scrubbed and recoated as necessary to maintain optimal appearance M Stripped, seated and refinished with durathon finish 2X All furniture, fixtures, walls, wall hangings, plants and ledges within reach will be dusted and spot cleaned washed as necessary to maintain optimal appearance D Entrance door glass and door frames will be cleaned inside and out D Glass partitions will be spot cleaned D All waste containers will be emptied, refined and spot cleaned D BASEMENT LOBBY & CORRIDORS Vinyl tile floor will be swept and damp mopped D Spray buffed 3X Scrubbed and recoated M Stripped and refinished as'necessary to maintain optimal appearance Glass partitions and frames will be spot cleaned D Ashtrays and waste receptacles will be emptied and cleaned, bright metal polished D and sand sifted Walls will be spot cleaned D ELEVATOR LOBBIES AND CORRIDORS, TENANT FLOORS Waste containers will be emptied, spot cleaned and_refined if applicable D Elevator doors and frames will be cleaned and polished on all floors D Elevator tracks and thresholds will be vacuumed and wiped -D Baseboards and ledges will be dusted D All walls will be spot cleaned D Drinking Mountains will be cleaned and sanitized D All bright work will be polished D Fire hose cabinet doors will be cleaned and polished W Fire hose cabinet doors will be cleaned inside and out M Cigarette ums will be emptied and cleaned D All carpets will be vacuumed and spot cleaned D ELEVATORS Elevator cab floors will be swept, washed and buffed D All carpets or carpet mats will be vacuumed and spot cleaned D Brightwork will be cleaned and polished to remove all finger marks and smudges. Elevator tracks will be vacuumed and cleaned in cabs and spot-checked for fitter in elevator lobbies D Elevator doors and door frames on all floors will be cleaned and polished D Walls will be spot cleaned D Walls will be completely washed and polished W Ceiling will be dusted and spot cleaned W
FREQUENCY Daily Weekly Monthly Annually STAIRWAYS AND LANDINGS Stairwells will be policed for litter and any spills or stains will be removed D Frequently used portion of the stairways (parking to second floor) will be swept and spot mopped D Stairways will be swept and damp mopped from parking to the top floor W Stairway doors and handrails will be spot cleaned D Stairway doors and handrails will be wiped W GENERAL & PRIVATE OFFICE, RECEPTIONS, MEETING ROOMSR BOARDROOMS, MAIL & COPIER ROOMS, EQUIPMENT ROOMS, AND OTHER TENANT AREAS Waste containers will be emptied and spot cleaned and new liners installed whenever needed D Cleared office furniture will be dusted D Exposed cleared office furniture vertical surfaces will be dusted W Telephones will be Justed D Telephones will be damp-wiped W Desk tops will be kept free of finger marks and coffee spills D Desk tops will be damp wiped and polished where applicable W Wall hangings, door frames and baseboards will be dusted W Walls around light switches, doors and door frames will be kept free of finger marks D Glass partitioning will be kept free of finger marks. Washed from both sides 2 times peryear W Upholstered furniture will be whisked W Upholstered furniture will be vacuumed M leather, vinyl and leatherette upholstered furniture will be dusted W Leather, vinyl and leatherette upholstered furniture will be damp-wiped M Carpeted floor areas will be vacuumed D Tile floors will be swept and damp mopped D- Tile floors will be spray buffed W Tile floors will be scrubbed and recoated 6X Tile floors will be stripped and refinished y Computer hardware and special equipment will be dusted only D Venetian blinds will be dusted M COMPUTER ROOMS All cleaning in rooms or areas where sensitive equipment is used or where regular nightly cleaning is not allowed due to security reasons will be discussed individually with each particular tenant and cleaning schedules will be made accordingly. If no special attention is required while cleaning in those areas, cleaning specifications for office areas will apply.
2
FREQUENCY Daily Weekly Monthly Annually KITCHENS, SERVERY AND COFFEE STATIONS Waste baskets will be emptied, relined and spot cleaned D Vinyl tile flooring will be thoroughly dust-mopped with a dust- preventative method and washed D flooring will be spray buffed W Vinyl tile flooring will be scrubbed and recoated M Vinyl tile flooring will be stripped and refinished 2X Carpeted areas will be vacuumed and spot cleaned D Walls and ledges will be kept free of dust and splash marks D Sinks and counter tops will be cleaned with a germicidal agent and polished D Finger marks and smudges will be removed from doors, walls, cupboards, etc D The exterior of appliances will be wiped clean D Table tops will be wiped clean D Chairs will be thoroughly wiped or vacuumed depending on finish W WASHROOMS, PUBLIC AND PRIVATE Waste paper containers will be emptied, sanitized and new liners installed D Toilet seats, toilet bowls and wash basins will be cleaned and sanitized D Vanity counters will be cleaned D Mirrors, metal dispensers, receptacles, faucets will be polished D Toilet bowls and urinals will be descaled with non-acid bowl cleaner W Tile floors will be swept and washed using germicidal detergent D Tile floors will be machine scrubbed W Washroom supplies such as toilet tissue, hand soap, hand towels, sanitary napkins D and sanitary bags will be replenished . supplied by PenYork Properties Inc. Doors, kick plates, push plates and door handles will be cleaned D
3 EX-10.3(B) 4 EXH 10.3(B) LEASE AMENDING AGREEMENT LEASE AMENDING AGREEMENT THIS AGREEMENT dated the 4th day of September, 1996. BETWEEN:
YONGE HILLCREST CORPORATION (hereinafter called the "Landlord") OF THE FIRST PART - and - INTERNATIONAL CAREER SPECIALISTS LTD. (hereinafter called the "Tenant") OF THE SECOND PART - and - JOHN A. IRWIN (hereinafter called the "Indemnifiee') OF THE THIRD PART
WHEREAS by a lease made as of the 26th day of July, 1994 (the "Lease"), the Landlord leased to the Tenant for a term of three (3) years, commencing on the 12th day of September, 1994 and ending on the 1 lth day of September, 1997, certain premises comprising an area of approximately 2,037 square feet of Rentable Area on the second floor of the building municipally known as 5075 Yonge Street, North York, and more particularly described in Schedule "A" attached to the Lease (the "Leased Premises"); AND WHEREAS the Landlord and the Tenant have agreed that the Landlord will lease to the Tenant and the Tenant will lease from the Landlord additional space of approximately seven hundred and eight (708) square feet (the "Additional Premises") from and including September 15, 1996 for the balance of the Term of the Lease, at an annual rent of four dollars ($4.00) per square foot of Rentable Area of the Additional Premises upon the terms and conditions set out in this Agreement, and which Additional Premises are known as Suite 203. NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum of Two Dollars ($2.00) paid by each of the parties hereto to the other, the receipt and sufficiency whereof is hereby by each acknowledged, and for other good and valuable consideration, the Landlord and Tenant covenant and agree as follows: 1. The foregoing recitals are true in substance and in fact and form part of this Agreement. 2. The Landlord hereby leases to the Tenant and the Tenant hereby leases from the Landlord the Additional Premises from and including September 15, 1996 (the "Effective Date") to and including September 11, 1997 upon the terms and conditions set out in the Lease, as amended by this Agreement. 3. The Lease shall be and the same is hereby amended to include the Additional Premises in any reference to Leased Premises contained in the Lease. The Landlord and the Tenant acknowledge and agree that the Leased Premises (including the Additional Premises) contain a Rentable Area of two thousand, seven hundred and forty five (2,745) square feet in the Building. 4. The Tenant acknowledges and agrees that from and after the Effective Date, its Proportionate Share as defined in the Lease will be increased to reflect the inclusion of the Additional Premises in the meaning attributable to "Rentable Area of the Leased Premises" and the Tenant will pay annual rent on the Additional Premises as provided for in paragraph 5 of this Agreement, and will pay throughout the Term the Tenant's Proportionate Share of Taxes and Operating Costs, as set out in Article V of the Lease. 5. The Lease shall be and the same is hereby amended with respect to the annual rent payable under the Lease to the extent that the first paragraph of Section 2.3 of the Lease is deleted in its entirety and, the following is inserted in its place: 'Base Rent: YIELDING AND PAYING therefor yearly and every year during the period commencing on September 12, 1994 up to and including September 14, 1996, a rent of SIXTEEN THOUSAND, TWO HUNDRED AND NINETY SIX DOLLARS ($16,296.00) of lawful money of Canada, to be paid in equal consecutive monthly instalments of ONE THOUSAND, THREE HUNDRED AND FIFTY-EIGHT DOLLARS ($1,358.00) each on the first day of each month in each year (calculated at the rate of eight dollars ($8.00) per square foot of Rentable Area of the Leased Premises per annum). YIELDING AND PAYING therefor yearly and every year for the period commencing on September 15. 1996 up to and including September 11. 1997, a rent of NINETEEN THOUSAND, ONE HUNDRED AND TWENTY-EIGHT DOLLARS ($19.128.00) of lawful money of Canada to be paid in advance in equal consecutive monthly instalments of ONE THOUSAND FIVE HUNDRED AND NINETY-FOUR DOLLARS ($1,594. 00) each on the first day of each month in each year (calculated at the rate of three dollars and fifty cents ($3.50) per square foot for 2,037 square feet of Rentable Area of the Leased Premises per annum and at four dollars ($4. 00) per square foot for 708 square feet of Rentable Area of the Leased Premises per annum). 6. The parties hereto agree that the Tenant is accepting the Additional Premises "as is" but subject to the following work to be completed by the Landlord; (a) removal of demising wall between Suites 203 and 204; (b) repair of hole in wail near door; (c) removal of all existing walls; and (d) cleaning and repair of carpet. The existing counter-top, cupboards and shelf units will remain in the Additional Premises. 7. The lease to the Tenant of the Additional Premises is subject to termination by the Landlord on sixty (60) days prior written notice (the "Notice"). On the date specified in the Notice, the Tenant shall return vacant possession of the Additional Premises to the Landlord, 8. The Taxes, Operating Costs and Hydro for 1996 are estimated to be $13.83 per square foot of Rentable Area of the Leased Premises. This amount is subject to adjustment by the Landlord once the actual costs for 1996 are determined. 9. Each of the Landlord and the Tenant covenants with the other that it has in itself the absolute right, full power and authority to execute this Agreement and amend the Lease as provided herein and that neither party has taken any action whereby the Lease, the Leased Premises or the unexpired residue of the Term is or may be charged, encumbered, transferred or assigned. 10. The Lease as amended by this Agreement is hereby ratified and confirmed and shall remain in full force and effect. 11. Each of the Landlord and the Tenant covenants and agrees with the other that it will, and at all times hereafter, at the reasonable request of the other, make or, procure to be made, done or executed, all such further assurances as may be reasonably required from time to time to give effect to the terms of this Agreement. 12. This Agreement shall enure to the benefit of and be binding upon the Landlord and Tenant and their respective successors and assigns, IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of the date and year first written above. YONGE HILLCREST CORPORATION Per: c/s ------------------------------------------- Nbme: PETER MENKES Title: VICE PRESIDENT INTERNATIONAL CAREER SPECIALISTS LTD. Per: c/s ------------------------------------------- Name: John Irwin Title: President cl WITNESSF.. JOHN A. IRWIN EX-10.3(C) 5 EXH 10.3(C) LEASE B/W SHIPP CORP & DANNIKTEL Exhibit 10.3(c) LEASE AGREEMENT Between SHIPP CORPORATION LIMITED - and - DANNIKTEL INC Term: May 1, 1993 to April 30, 2000 Ten (1 0) Years THE MUTUAL GROUP CENTRE THIS LEASE MADE THE 24th day of March, 1993 PURSUANT TO THE SHORT FORMS OF LEASES ACT B E T W E E N: SHIPP CORPORATION LIMITED Acting as Manager for the Owner a corporation incorporated under the laws of the Province of Ontario (the "Landlord") OF THE FIRST PART; - and - DANNIKTEL INC. a corporation incorporated under the laws of the Province of Ontario (the "Tenant") OF THE SECOND PART WITNESSETH that in consideration of the rents, covenants and agreements contained in this Lease the Landlord and the Tenant @gree as follows: ARTICLE I DEFINITIONS 1. DEFINITIONS The parties hereto agree that, when used in this Lease or in any Schedule or Appendix attached to this Lease, the following words or expressions have the meaning hereinafter set forth. 1.01 "Additional Rent" means any and all SUMS of lnjury or charges required to be paid by Tenant under this Lease, without limitation such items as the Tenant's Proportionate Share of Taxes and Costs of Operatiqn (except Basic Rent) whether or not designated as Additional Rent" payable to Landlord or to any other Person and is deemed to be accruing due on a day-to-day basis 1.02 'Additional Services" means the services and supervision supplied by the Landlord and referred to in this Lease as an Additional Service, and any other services which from time to time the Landlord supplies to the Tenant or Property other tenant or tenants of the Building, and includes janitorial and cleaning services in addition to those, normally supplied, the provision of labour and supervision in connection with deliveries, supervision in connection with the moving of any furniture or equipment of any tenant and the making of any repairs or alterations by any tenant and maintenance or other services not normally furnished to tenants generally; 1.03 "Architect" means the architect from time to time named by Landlord. The decision of the Architect whenever required hereunder and any certificate related thereto shall be final and binding on the parties hereto. Where appropriate, the Landlord may substitute an independent design consultant chosen by the Landlord in the place of the Architect for the purpose of certifying Net Area or Gross Area. 1.04 'Basic Rent,' means the annual rent payable by Tenant pursuant to and in the manner set out in Section 4.02 hereof. 1.05 "Building" means the building situated on the Lands; 1.06 "Building Servicesu means the services defined in Article VI of this Lease; 1.07 "Business Taxes" means all taxes, rates, duties, charges, levies and assessments whatsoever, whether federal, provincial, municipal, school or otherwise, levied, imposed, or assessed in respect of any and every business carried on in the Premises by the Tenant, subtenants, licensees, or other occupants of the Premises. 1.08 "Capital Tax" means all taxes, charges, levies or assessments whatsoever, whether federal, provincial, municipal, school or otherwise, levied, charged, imposed or assessed against or upon the Landlord, the amount of which is calculated by reference to, or based upon, the amount of any or all of the share capital. assets, surpluses, reserves or indebtedness of the Landlord. 1.09 "Claims" means claims, losses, actions, suits, 46 proceedings, causes of action, demands, damages (direct, indirect, 47 consequential or otherwise), judgments, executions, liabilities, 48 responsibilities, costs, charges, payments and expenses including, 49 without limitation, any professional, consultant and legal fees (on so a solicitor and his own client basis). 1110 "Commencement Date" means the commencement date set out in Section 3.02 of this Lease. 1.11 'Cost of Additional Services" shall mean the Landlord'- total cost of providing Additional Services to tenants of the Building or any particular Additional Services to a tenant including salaries, wages and fringe benefits and material and other direct expenses incurred, the cost of supervision and other indirec, expenses reasonably allocated thereto and all other out-of-pockeo expenses made in connection therewith. A certificate of the Landlord's comptroller as to the amount of any Cost of Additional Services shall be conclusive; 1.12 "Costs of Operation" means the total of all expenses incurred by or on behalf of the Landlord in the complete maintenance nd operation of the Lands and the Building. Costs of Operation without limiting the generality of the foregoing) shall include the cost of providing cleaning, janitorial, supervisory, maintenance and other services (including Additional Services). the cost of operating elevators, cooling and ventilating 01 all space including both rentable and non-rentable areas, the cost of providing hot and cold water and other utilities including electricity and gas to both rentable and non-rentable areas, the cost of all repairs, including repairs to the Building or services including elevators, the cost of replacing lights and ballasts, the cost of window cleaning and providing security and supervision, the cost of insurance for liability or fire or other casualties and loss of rental income insurance, accounting costs incurred in connection with maintenance and operations including computations required for the imposition of charges to tenants and audit charges required to be incurred for the conclusive determination of any costs hereunder, accounting costs incurred in connection with the preparation of statements and opinions required by this Lease, and the reasonable costs of collecting and enforcing payment of such charges, the cost of providing and operating a management office in the Building, and management fees reasonable within the industry, the amount of all salaries, wages and fringe benefits paid to employees engaged in the maintenance or operation of the Lands and Building or the supervision thereof and amounts paid independent contractors for any services in connection with such maintenance or operation and all indirect expenses to the extent allocable to the maintenance and operation of the Lands and the Building and the capital cost (which )tray be amortized according to generally accepted accounting principles) of such equipment as may be installed by the Landlord to reduce Costs of Operation or improve the efficiency of the management of the Building and the Lands and the cost of consulting fees relating thereto. In computing Costs of Operation there shall be credited as a deduction the amounts of proceeds of insurance relating to Insured Damage and other damage actually recovered, or which should have been recovered by the Landlord where the cost was included in Costs of Operation, the cost of all repairs, and replacements required as a result of faulty construction or inherent defects in the Building, costs which are normally treated in accordance with generally accepted accounting principles as being of a capital nature, any sum paid by the Landlord to any tenant in the Building for any tenant allowance, amounts recovered as a result of direct charges to the Tenant and other tenants in respect of Additional Services, light bulb, tube and ballast replacement and insurance premiums, in each case to the extent that the cost thereof was included in Costs of Operation other than contributions of a Proportionate Share by the Tenant pursuant to the provisions of this Lease. Any expenses that the Landlord is not able to determine exactly may be estimated by the Landlord on a reasonable basis. A certificate of the Landlordts auditor or other licensed public accountant appointed by the Landlord for the purpose shall be conclusive as to the amount of Costs of Operation for any period to Thich such certificate relates. 2 1.13 "Gross Area' of any premises and of the Building means the rentable area as defined in-American National Standard z65.1-1980, computed by measuring to the inside finished surface of the dominant portion of the permanent outer Building walls, excluding any major vertical penetrations of the floor and without any deduction made for columns and projections necessary to the Building, and as determined by the Architect in a certificate which shall be conclusive and binding on the Tenant; 1.14 "Insured Damage" means that part of damage occurring to the Premises of which the entire cost of repair is actually or which should have been recovered by the Landlord under a policy or policies of insurance from time to time effected by the Landlord. 1.15 "Injury' means bodily injury, personal discomfort, mental anguish, shock, sickness, disease, death, false arrest, detention or imprisonment, malicious prosecution, libel, slander, defamation of character, invasion of privacy, wrongful entry or eviction and discrimination, or any of them as the case may be. 1.16 "Landlord" means.- Shipp Corporation Limited, acting as Manager for the Owner, and its authorized representatives, agents, successors and assigns. In any Section of this Lease that contains a release or other exculpatory language in favour of Landlord, the term "Landlord" also means the directors, officers, servants, employees and agents of Landlord. 1.17 "Lands" means the Lands described in Schedule B attached to this Lease as such Lands may be changed, rearranged, altered, IIOdified, expanded or reduced from time to time in accordance with tie terms of this Lease; 1.18 "Land Surveyor" means the accredited land surveyor from time to time named by Landlord. The decision of the Land Surveyor whenever required hereunder and any certificate related thereto shall be final and binding on the parties hereto. 1.19 "Leasehold Improvements" means and includes all fixtures (excluding Tenant's Trade Fixtures), equipment (excluding furniture and equipment not in the nature of fixtures), installations, additions and alterations from time to time made, constructed, erected, or installed by, for or on behalf of Tenant or any previous occupant of the Premises in, on, to, for or which serve, the Premises, whether or not easily disconnected or movable, including, without limitation, all: (a) partitions (including moveable partitions), doors, safes, vaults and hardware; (h) mechanical, plumbing, electrical, sprinkler, fire detection, safety, utility, heating, humidity, ventilating and air-conditioning systems, facilities, installations, fixtures, controls, fittings and equipment; (c) wall to wall carpeting, drapes and other floor, wall, ceiling and window coverings and drapery hardware (d) light fixtures; (e) security or locking devices securing all or any part of the Premises; (f) counters, cabinets, shelves and built-in furniture and furnishing; (g) internal stairways, escalators, elevators and any other transportation equipment or systems; (h) ceilings and ceilings panels; and (i) items that would not normally be considered to be Tenant's Trade Fixtures; 1.20 "Mortgagee" means any mortgagee, chargee, encumbrancer, hypothecary, creditor, secured creditor or debenture holder (including any trustee for bond holders or pursuant to a trust deed) of the Building or the Lands or any part thereof. 1.21 "Net Area" of any premises on any floor or level means the "usable area", defined in American National Standard 2.65.1-1980, computed by measuring to the finished surface of the office side of the corridor and other permanent walls, to the centre of partitions that separate the office from adjoining usable area, and to the inside finished surface of the dominant portion of the permanent outer building walls, and as determined by the Architect in a certificate which shall be conclusive and binding on the Tenant; 1.22 "Person" if the context allows, includes any individual, firm, association, Partnership or corporation, or any group of individuals, firms, associations, partnerships or corporations or any combination thereof. 1.23 "Premises" means the premises in the Building leased to the Tenant which are described in Section 3.01 of this Lease; 1.24 "Premises Work means the work described in Section 11.01 of this Lease. 3 1.25 "Proportionate Share, shall mean that share of Taxes and of Costs of Operation which the Landlord determines on a reasonable basis to be payable by the Tenant. The Landlord shall base its determination on that fraction the numerator of which is the Gross Area of the Premises and the denominator of which is the aggregate of the Gross Areas of all rentable premises in the Building. The Landlord may also take into account any unusual requirements of the Tenant or other tenants in the Building for electricity, air conditioning or other Building Services and adjust the Tenant's Proportionate Share accordingly and may allocate exclusively to space occupied by the Tenant or a group of tenants those Taxes and Costs of Operation that the Landlord determines relate predominantly to the Tenant or group of tenants. The Landlord may, on a reasonable basis, allocate exclusively to any rentable premises any Costs of Operation that do not, in the Landlord's reasonable opinion, relate to vacant rentable space. Where the Tenant has in the Landlord's opinion unusual requirements for Building Services, the Landlord may install at the Tenant's expense such meters or other equipment as may be reasonable in the circumstances to assist with the determination of the Tenant's Proportionate Share. 1.26 "Rent" means all Basic Rent and Additional Rent payable pursuant to this Lease. 1.27 "Rental Year' means a period of time, the first Rental Year commencing on the first day of the Term hereof, and ending on the last day of the month of December immediately following. Each Rental Year thereafter shall consist of consecutive periods of twelve (12) calendar months, but the last Rental Year of the Term shall terminate on the expiration or earlier termination of this Lease. If, however, Landlord considers it necessary or convenient for Landlord's purposes, Landlord may at any time and from time to time, by written notice to Tenant, specify a date from which each subsequent Rental Year is to commence, and in such event, the then current Rental Year shall terminate on the day immediately preceding the commencement of such new Rental Year, and the appropriate adjustments shall be made between the parties. 1.28 "Rules and Regulations" means the rules and regulations attached hereto as Schedule C, adopted and promulgated by Landlord from time to time. 1.29 "Security Deposit" means the security deposit paid by the Tenant pursuant to Section 4.03 of this Lease. 1.30 'Storage Areas" means those areas designated by Landlord from time to time as Storage Areas. 1.31 'Taxes" means all real property taxes, rates, duties, charges, levies and assessments (including without limitation, local improvements, water, snow and sewer rates) whether extraordinary general or special, foreseen or unforeseen that are levied, rated, imposed or assessed (collectively "imposed") against the Lands and the Building or upon the Landlord in respect thereof from time to time by any taxing authority whether federal, provincial municipal, school (including any taxes imposed by reason of t@e Tenant's religion) or otherwise including those imposed for education, schools and local governments, and including any portion of any Capital Tax reasonably allocable to the Lands and Building and including all costs and expenses (including legal and other professional fees and interest and penalties on deferred payments) incurred by the Landlord in good faith in contesting, resisting or appealing any taxes, rates, duties, charges, levies or assessments, but excluding taxes and license fees in respect of any business carried on by tenants and occupants of the Building and income or profit taxes upon the income of the Landlord to the extent such taxes are not levied in lieu of taxes, rates, duties, charges, levies and assessments against the Lands and Building or upon the Landlord in respect thereof. Taxes shall include without limiting the above the reasonable cost to the Landlord of making payments to any taxing authority in advance of receipt from the Tenant of reimbursement for such taxes; 1.32 'Tenant" means the party of the Second Part and includes its successors and assigns as permitted by this Lease and any Person mentioned as Tenant in this Lease, whether one or more. 1.33 "Term" means the term of this Lease as more particularly described in Section 3.02 of this Lease and any period of permitted overholding; 4 1. 34 "Trade Fixtures" means the personal chattels installed by or on behalf of the Tenant, in, on or which serve, the Premises, for the sole purpose of Tenant carrying on its trade in the Premises pursuant to Section 7.01 hereof and which Trade Fixtures Tenant is permitted to remove only to the extent permitted by the terms of this Lease, but Trade Fixtures do not include Leasehold Improvements or any inventory of Tenant, ARTICLE II INTENT AND INTERPRETATION 2.01 Net Lease (a) This Lease is a completely net lease to the Landlord. Except as stated in this Lease, the Landlord is not responsible for costs, charges, or expenses relating to the Premises, their use and occupancy, their contents, or the business carried on in them, and the Tenant will pay the charges, impositions, costs and expenses relating to the Premises except as stated in this Lease. This Section will not be interpreted to make the Tenant responsible for ground rentals that may be payable by the Landlord, payments to Mortgagees or, subject to Article IX, the Landlord's income taxes. Capital Tax as defined in Section 1.08 is not considered as income tax. (b)' Despite any other Section or clause of this Lease, the Tenant shall pay to the Landlord an amount equal to any and all goods and services taxes, sales taxes, value added taxes, business transfer taxes, or any other taxes imposed on the Landlord in respect of Rent payable by the Tenant to the Landlord under this Lease, or in respect of the rental of space under this Lease, or in respect of any services or Additional Services provided by the Landlord under this Lease whether characterized as a goods and services tax, sales tax, value added tax, business transfer tax, or otherwise (herein called "Sales Taxes"), it being the intention of the parties that the Landlord shall be fully reimbursed by the Tenant with respect to any and all Sales Taxes payable by the Landlord. The amount of the Sales Taxes so payable by the Tenant shall be calculated by the Landlord in accordance with the applicable legislation and shall be paid to the Landlord at the same time as the amounts to which such Sales Taxes !apply are payable to the Landlord under the terms of this Lease or upon demand at such other time or times as the Landlord from time to time determines. Despite any other Section or clause in this Lease, the amount payable by the Tenant under this paragraph shall be deemed not to be Rent , but the Landlord shall have all of the same remedies for and rights of recovery of such amount as it has for recovery of Rent under this Lease. 2.02 Landlord to Act in Good Faith The Landlord, in making a determination, designation, adulation, estimate, conversion, or allocation under this Lease, will act reasonably and in good faith. 2.03 Entire Agreement The Lease includes the Schedules and Appendices attached to it and the Rules and Regulations adopted under Section 7.06. There are no covenants, promises, agreements, conditions or understandings, whether oral or written, between the parties concerning this Lease, the Premises, the Building, the Lands or any matter related to all or any of them, except those that are set out in this Lease. No alteration, amendment, change or addition.to this Lease is binding upon the Landlord unless it is in writing and signed by the Tenant and two authorized representatives of the Landlord. 2.04 General Matters of Intent and Interpretation (a) Each obligation under this Lease is a covenant. 5 (b) The captions, section numbers, article numbers and Table of Contents do not define, limit, construe or describe the scope or intent of the sections or articles. (c) The use of the neuter singular pronoun to refer to the Landlord or the Tenant is a proper reference even though the Landlord or the Tenant is an individual, a partnership, a corporation or a group of two or more individuals, partnerships or corporations. The grammatical changes needed to make the provisions of this Lease apply in the plural sense when there is more than one Landlord or Tenant, to corporations, associations, partnerships or individuals, males or females, are implied. (d) If a part of this Lease or the application of it to a person or circumstance, is to any extent held or rendered invalid, unenforceable or illegal, the part: is independent of the remainder of the Lease and is severable from it, and its invalidity, unenforceability or illegality does not affect, impair or invalidate the remainder of this Lease; and (ii) continues to be applicable to and enforceable to the fullest extent permitted by law against any Person and circumstance except those as to which it has been held or rendered invalid, unenforceable or illegal. No part of this Lease will be enforced against a Person, 'r to the extent that by doing so, the Person is made to brppch a law, rule, regulation or enactment. (e) This Lease will be construed in accordance with the laws of Canada and the Province where the Lands are situate. (f) Time jQ of the essence of this Lease. (g) This Lease will not be registered by either.the Landlord or the Tenant, but nevertheless if the Tenant desires to register at its cost a notice of this Lease the Landlord agrees to execute a notice or acknowledgement sufficient for the purpose in such form as the Landlord shall have approved (h) In this Lpase, "hereinll,'Ihereofll,llhereby", 'hereunder", "hereto",'Ihereafter" and similar expressions refer to this Lease and not to any particular paragraph, clause or other portion thereof, unless there is something in the subject matter or context inconsistent therewith; "business day', means any of the days from Monday to Friday inclusive of each week unless such day is a holiday, and such additional days as may be designated by the Landlord; ARTICLE III GRANT AND TERM 3.01 Lease The Landlord hereby demises and leases to the Tenant the Premises containing an area of approximately 1,610.51 square feet of Net Area, being approximately 1,855 square feet of Gross Area. The approximate Net Area of the Premises is as indicated in yellow on the floor plan attached to this Lease as Schedule A, and the Premises are located on the Fifth (5th) Floor of The Mutual Group Centre, 3300 Bloor Street West, West Tower, Etobicoke, Ontario (the "Building'). 3.02 Term The Tenant shall have and hold the Premises for and during the Term which shall be (unless sooner terminated pursuant to the other provisions hereof), the period of ten (10) years, from and including the first day of May, 1993 to and including the thirtieth day of April, 2003. 6 3.03 Access The Landlord agrees to permit the Tenant and its employees and invitees to have the use in common with others entitled thereto of the common entrances, lobbies, stairways and corridors of the Building giving access to the Premises (subject to the Rules and Regulations attached to this Lease as Schedule C and such other reasonable limitations as the Landlord may from time to time impose). 3.04 Storage Areas Clause intentionally deleted. 3.05 Parking SDaces The Landlord will provide the Tenant with up to six (6) undercover parking spaces. The Tenant shall pay as Additional Rent for the parking spaces at a rate of $60.00 per space per month for years one (1) to three (3) and $75.00 for years four (4) and five (5). Parking for years six (6) through ten (10) will be at market rent and may be adjusted by the Landlord on an annual basis provided that the Tenant will not be charged more than the going rate for parking in the Building at the time for tenants in general. The Tenant acknowledges that all Tenant employee parkings provided solely during normal business hours and is not to be used for the purpose of overnight parking, extended parking or the storage of vehicles. ARTICLE IV RENT 4.01 Covenant to Pay The Tenant covenants and agrees to pay when due, all Rent in accordance with the terms of this Lease in lawful money of Canada to the Landlord at the address of the Landlord set out in Article XVIII of this Lease. 4.02 Basic Rent The Tenant shall pay without any prior demand therefor and without any set off whatsoever as Basic Rent the sum of $26.897.50. payable in equal consecutive monthly instalments in advance of $2,241.46 each on the first day of each and every month during years one (1) to five (5) of the Term and the sum of $34,317.50, payable in equal consecutive monthly instalments in advance of $2,859.79 each on the first day of each and every month during years six (6) to ten (10). Basic Rent is calculated on an annual rate of $14.50 er sq'uare foot of Gross Area for years one (1) to five (5) and 18.50 per square foot of Gross Area for years six (6) to ten (10). Gross Area is measured in accordance with Section 3.01 hereof. If the Gross Area is certified by the Architect the Basic Rent and Additional Rent shall, if necessary be adjusted accordingly as of the Commencement Date. If the Term commences on any day other than the first day of a month or ends on any day other than the last day of a month, rent for such fraction of a month shall be adjusted on a per diem basis, based upon a period of 365 days. The Landlord agrees to provide the Tenant with Basic Rent @ree as follows: Six (6) months from May 1, 1993 to October 31, 1993; Six (6) months from May 1, 1994 to October 31, 1994; Six (6) months from May 1, 1995 to October 31, 1995; Six (6) months from May 1, 1996 to October 31. 1996; Six (6) months from May 1, 1997 to October 31, 1997; Three (3) months from May 1, 1998 to July 31, 1998. During this Basic Rent Free Period the Tenant shall pay only Additional Rent. 4.03 Security Deposit Landlord acknowledges receipt from Tenant of $7.500.00 ('Security Deposit,,) to be held by Landlord without interest and will shall be applied on account of the rent first due as outlined in Section 4.02. 7 4.04 Delay In Occupancy If the Premises or any part thereof are not ready for occupancy by the Tenant on the date of commencement of the Term due solely to the fault of the Landlord and not as an act of force majeure, no portion of the Rent hereby reserved, or only the proportionate part thereof if the Tenant shall occupy a part of the premises, shall be payable for the period prior to the date when the whole of the Premises are ready for occupancy, and the full rental shall accrue only after such last mentioned date. The Tenant shall have no claim for any damages as a result of such delay. 4.05 Landlord's Estimates Prior to the commencement of each Rental Year, the Landlord shall estimate the amount of the Tenant's Proportionate Share of the total of all Costs of Operation and Taxes accrued, paid or payable or attributable whether by or on behalf of the Landlord, for the ensuing Rental Year or, if applicable, broken portion thereof and notify the Tenant in writing of such estimate. For the purpose of determining Proportionate Share of Taxes the Landlord shall take into account any separate assessments of the Premises which Taxes are payable by the Tenant pursuant to Section 9.02. The amount so estimated shall be paid by the Tenant with out set-off as Additional Rent in equal monthly instalments in lawful money of Canada in advance over the Rental Year (or broken portion thereof) in'question, each such instalment being payable on the same day as the monthly payments of Basic Rent. From time to time during a Rental Year the Landlord may re-estimate the amount of the Tenant's roportionate Share of Costs of Operation or Taxes for such Rental @ear or broken portion thereof, in which event the Landlord shall notify the Tenant in writing of such re-estimate and re-adjusted monthly instalments shall be paid by the Tenant. 4.06 Landlord's Final Determination As soon as practicable after the expiration of each Rental Year for which payments have been made in accordance with Section 4.05 the Landlord shall provide a statement showing the Tenant7s Proportionate Share of Costs of Operation and Taxes for such Rental Year or (if applicable) broken portion thereof and shall notify the Tenant and the parties shall make the appropriate re-adjustment in the following manner. If the amount the Tenant has paid is less than the amount due the Tenant shall pay to the Landlord the amount of such deficiency within fifteen (15) days of receipt of a notice setting out the amount of such deficiency. If the Tenant has paid in excess of the amount due, the Landlord shall have the option to apply the excess against Rent payable or becoming payable by the Tenant. The Tenant may not claim a re-adjustment in respect of the Tenant's Proportionate Share of Costs of Operation or Taxes based upon any error of estimation, determination or calculation thereof unless claimed in writing prior to the expiration nf one year after the Rental Year to which the Costs of Operation uLoeaxes @-wat-6-@ Notices by the Landlord stating the amount of any estimate, re - estimate or determination of Tenant's Proportionate Share of Costs of Operation and Taxes need not include particulars of Taxes, Costs of Operation or the calculation of Tenant's Proportionate Share. The Tenant shall be entitled however upon a specific request being made therefore to inspect a statement disclosing in reasonable detail particulars of Taxes, Costs of Operation and the calculation of Tenant's Proportionate Share. 4h.07 Leasehold Allowance The Landlord agrees to pay the Tenant an allowance of $25.00 per square foot of Gross Area as a contribution towards the improvel,ant of the Premises. All improvements must be approved by the Landlord prior to installation and comply with The Mutual Group Centre's Design Criteria Manual. All tiiuriIL-@ f=rp, the Lan-(]],or,@ T-T.ill be payable upon completion of construction pursuant to thf "Completion,' clause on page 5 of the Design Criteria Manual. ARTICLE V COVENANTS 5.01 Landlord's Covenants The Landlord covenants with the Tenant (a) for quiet enjoyment; and 8 (b) to observe and perform all covenants and obligations of the Landlord herein. 5.02 Tenant's Covenants The Tenant covenants with the Landlord to pay Rent and to observe and perform all covenants and obligations of the Tenant herein. ARTICLE VI BUILDING SERVICES The Landlord covenants with the Tenant: 6.01 Air Conditioning and Ventilation To provide to the Premises during hours to be determined by the Landlord (but to be at least the hours from 7:30 a.m. to 7:00 p.m. from Monday to Friday inclusive with the exception of public holidays) processed air in such quantities, at such temperatures and of such humidity as shall maintain in the Premises conditions of reasonable temperature and comfort in accordance with good standards of interior climate control generally pertaining at the date of this Lease applicable to normal occupancy of premises for office purposes and consistent with the general standards of first- class office buildings in the vicinity of the Building in the City of Mississauga, but the Landlord shall have no responsibility for ny inadequacy of performance of the said system if the Premises Gepart from the design criteria for such system, namely that the occupancy will 'not exceed one person for every 100 square feet of floor area, that the electrical power consumed in the Premises for any purposes shall not exceed 3.5 watts per square foot of floor area and that the Tenant shall not have installed partitions or other installations in locations which interfere with the proper operation of the said system. If the use of the Premises does not accord with the said design criteria and changes in the systems are feasible and desirable to accommodate such use the Landlord may, upon the written request of the Tenant, make such changes and the entire expense of such changes will be reimbursed by the Tenant to the Landlord plus a sum equal to fifteen percent (15Z) of the cost thereof representing Landlord's overhead, shall be paid to the Landlord as Additional Rent on demand. Upon reasonable notice the Landlord shall provide as an Additional Service air conditioning and ventilation to the Premises at the request of the Tenant during hours which it is not otherwise obliged to provide such services under this Section. 6.02 Elevator Services Subject to the supervision of the Landlord, to furnish for use by the Tenant and its employees and invitees in common with other persons entitled thereto passenger elevator service to the Premises, and to furnish for the use of the Tenant in common with @thers entitled thereto at reasonable intervals and at such hours aIs the Landlord may select, freight elevator service to the Premises for the carriage of furniture, equipment, deliveries and supplies, 6.03 Washrooms To provide for the use of the Tenant and its employees and invitees, in common with others entitled thereto, washrooms on each floor in the Building upon which any part of the Premises (other than below-grade Storage Areas and parking, if any) is located. 6.04 Janitor Service To provide janitor and cleaning services to the Premises and to the Building consisting of the services more particularly described in Schedule D attached to this Lease to be rendered substantially in accordance with the standards of modern office buildings of a similar type in the vicinity of the Building at the date of this Lease; it being agreed by the Tenant that any janitor or cleaning service which the Landlord shall arree to provide to the Tenant in excess of those above specified (including those extra services which the Landlord shall make available by demand or special arrangement) shall be an Additional Service. 9 6.05 Telephone and Water To furnish appropriate facilities for bringing telephone services to the Premises and hot and cold water to washrooms (if any) in the Premises and to washrooms available for the Tenant's use in common with others entitled thereto. 6.06 Electricity and Lighting To furnish electricity to the Premises twenty-four (24) hours a day for lighting and for office equipment capable of operating from the high or low voltage circuits available and standard for the Building. The Landlord shall Furnish lighting to the Premises during hours 4o be determined by the @@ndlord (but to be at least the hours from 7:-tit-l :i m. t(, 7--,00 P.m from Monday to Friday inclusive with the exception of holidays'. At the request of the Tenant and upon reasonable notice the Landlord shall provide as an Additional Service electricity to the Premises during the hours which it is not otherwise obliged to provide such service under this Section. 6.07 Additional Services The Landlord, if it shall from time to time so elect, shall have the exclusive right, by way of Additional Services, to provide or have its designated agents or contractors provide any janitor or cleaning services to the Premises required by the Tenant which are additional to those required to be provided by the Landlord under Section 6.04, and to supervise the moving of urniture or equipment of the Tenant and the making of repairs or Alterations conducted within the Premises, and to supervise or make deliveries to the Premises. The Cost of Additional Services provided to the Tenant shall be paid to the Landlord by the Tenant from time to time promptly upon receipt of invoices therefore from the Landlord. ARTICLE VII USE AND OCCUPANCY OF LEASED PREMISES The Tenant covenants with the Landlord: 7.01 Permitted Use To use the Premises only for the purpose of an office for the conduct of the Tenant's business, and Tenant will not use or permit or suffer the use of the Premises or any part thereof for any other business or purpose. 7.02 Waste and Nuisance Not to commit or permit, any waste or injury to the ?remises including the Leasehold Improvements and trade fixtures therein, any overloading of the floors thereof, any nuisance therein or any use or manner of use causing annoyance to other tenants and occupants of the Building. 7.03 Energy Conservation To comply with all reasonable requests of the Landlord in conserving energy of all types in the Building, including complying at the Tenant's own cost with all reasonable requests and demands @of thp Landlord with the view to energy conservation. The Tenant agrees that any reasonable capital expenditures made by the Landlord in ari effort to promote energy conservation shall be amortized according to accepted accounting principles and amortized amounts ,-6,ed to Costs of Operation in the relevant years. 7.04 Condition Not to permit the Premises to become untidy, unsightly or hazardous or permit unreasonable quantities of waste or refuse to accumulate therein, and at the end of each business day to leave the Premises in a condition such as reasonably required to facilitate the performance of the Landlord's janitor and cleaning services described in Schedule D to this Lease. 10 7.05 Compliance with Laws To comply (a) at its own expense with all municipal, federal, provincial, sanitary, fire and safety laws, regulations and requirements pertaining to the Premises, the Tenant's operation and use of the Premises, the conduct of business in the Premises, the condition of the Leasehold Improvements, trade fixtures, furniture and equipment installed by the Tenant therein and the making by the Tenant of any repairs, changes or improvements therein; and (b) with statutes, regulations, ordinances or other governmental requirements relating to its ability to enter into and comply with this Lease. 7.06 Rules and Regulations To observe, and to cause its employees, invitees and others'-over whom the Tenant can reasonably be expected to exercise control to observe, the Rules and Regulations attached as Schedule S to this Lease, and such further and other reasonable rules and regulations and amendments and changes therein as may hereafter he made by the Landlord and applied to tenants in general. 7.07 Parking The Tenant shall be permitted to park automobiles Belonging to the Tenant, its servants, agents and invitees on the Lands in the parking spaces designated in Section 3.05. 7.08 Signs and Directory Not to paint, display, inscribe, place or affix any sign, symbol, notice or lettering of any kind anywhere outside the Premises (whether on the outside or the inside of the Building) or within the Premises so as to be visible from the outside of the Premises, without the written permission of the Landlord. Building standard identification signs and a single line directory listing shall be provided by the Landlord as an Additional Service. The Landlord shall allow the Tenant, at its cost, to erect a building standard sign on the outside of the Leased Premises provided that the sign shall be in a design, size, location, and in all other respects satisfactory to the Landlord and all Municipal and Governmental Authorities. ARTICLE VIII REPAIR AND D^GE 8.01 Landlord's Repair and Maintenance The Landlord covenants with the Tenant: (a) to maintain and keep in a good and reasonable state of repair, the Building consistent with the general standards of first-class office buildings in the vicinity of the Building in the City of Mississauga, but subject to Section 8.04 of this Lease and with the exception of reasonable wear and tear and damage caused by the act or omission of the Tenant; (b) to repair so far as reasonably feasible and as expeditiously as reasonably feasible defects in construction performed or installations made by the Landlord in the Premises and Insured Damage therein : The Landlord shall in no event be required to make repairs to Leasehold Improvements, except where installed by the Landlord. 8.02 Tenants Repair and Maintenance The Tenant covenants with the Landlord: (a) at Tenant7s expense, at all times during the Term, to continuously, actively and diligently keep, operate and maintain the Premises, as would a careful and prudent owner, in a good and reasonable state of repair as determined by the Landlord, and consistent with the 11 general standards of first-class office buildings in the vicinity of the Building, and promptly make, using first quality new material, all needed repairs to the Premises including all Leasehold Improvements and all trade fixtures therein and all glass therein other than glass portions of exterior walls thereof, but with the exception of structural members or elements of the Premises and defects in construction performed by or installations made by the Landlord: (b) that the Landlord may enter and view the state of repair, and that the Tenant will repair according to notice in writing, but failure to give notice shall not relieve the Tenant from its obligation contained in this Section 8.02; (c) that notwithstanding any other terms, conditions and covenants contained in this Lease, if any part of the Building including without limitation the systems for interior climate control and for the provision of utilities or any equipment, machinery, facilities or improvements contained therein or made thereto require, repair, replacement or alteration or become damaged or destroyed through the negligence, misuse, fault, carelessness, neglect, omission, misconduct or default of the Tenant or its employees, or those for whom it is in law responsible, the expense of repairs or replacements thereto, necessitated thereby, shall be reimbursed to the Landlord promptly upon demand, (plus a sum equal to fi-fteen percent (15Z) of the cost thereof representing -cxie Landoeordx -o@head), shall be paid to the Landlord as Additional Rent on demand save in respect of Insured -Damage. 8.03 Surrender of the Premises At the expiration or sooner termination of the Term, the Tenant shall at its expense peaceably surrender and yield up vacant possession of the Premises to Landlord in as good condition and repair as Tenant is required to maintain the Premises throughout the Term, surrender all keys for the Premises to Landlord at the place then fixed for the payment of Basic Rent and inform Landlord of all combinations of all locks, safes and vaults of any kind in the Premises. If the Premises are not surrendered at the time and in the manner set out in this Section 8.03, Tenant shall promptly indemnify and hold harmless Landlord from and against any and all Claims resulting from the delay by Tenant in so surrendering the Premises, including, without limitation, any Claims made by any succeeding tenant or occupant founded on such delay. Tenant's obligation to observe and perform the provisions of this Section 8.03 shall survive the expiration or earlier termination of this Lease. 8.04 Abatement and Termination It is agreed between the Landlord and the Tenant that: (a) in the event of damage to the Premises or to the Building or to other portions of the Lands affecting access or services essential to the Premises, and if the damage is such that the Premises or any substantial part thereof is rendered not reasonably capable of use and occupancy by the Tenant for the purposes of its business for any one period of time in excess of ten (10) days, then (i) unless the damage was caused by the fault or negligence of the Tenant or its employees, agents, invitees or others under its control, from the occurrence of the damage and until the Premises are again reasonably capable of use and occupancy as aforesaid, Rent shall abate in proportion to the part or parts of the Premises not reasonably capable of such use and occupancy, and (ii) unless this Lease is terminated as hereinafter provided, the Landlord or the Tenant, as the case may be (according to the nature of the damage and their respective obligations to repair as provided in Article VIII of this Lease) shall repair such damage with all reasonable diligence, but to the extent that any part of the Premises is not reasonably capable of such use and occupancy 12 by reason of damage which the Tenant is obligated to repair hereunder, any abatement of Rent to which the Tenant is otherwise entitled hereunder shall not extend later than the time by which, in the reasonable opinion of the Landlord, repairs by the Tenant ought to have been completed with reasonable diligence; and (b) if (i) the Premises; or (ii) premises whether of the Tenant or other tenants of the Building comprising in the aggregate half or more of the Net Area of the Building; or (iii) portions of the Lands which effect access or services essential thereto; are substantially damaged or destroyed by any cause other than by reason of the act of omission of the Tenant. To the extent that in the reasonable opinion of the Landlord the damage cannot be repaired within one hundred and eighty (180) days after the occurrence of the damage or destruction, the Landlord may at its option, exercisable by written notice to the Tenant given within thirty (30) days of the occurrence of such damage or destruction, terminate this Lease, in which event neither-the Landlord nor the Tenant shall be bound to repair as provided in this Article VIII, and the Tenant shall instead deliver up possession of the Premises to the Landlord with reasonable expedition, but in any event within sixty (60) days after delivery of such notice of termination, and Rent shall be apportioned and paid +'o the date upon which possession is so delivered up but subject to any abatement to which the Tenant may 'Se entitled under Section 8.04 (a) of this Lease), but otherwise the Landlord and Tenant shall repair according to their respective obligations. ARTICLE IX TAXES 9.01 Taxes Payable by Landlord The Landlord covenants with the Tenant to pay all Taxes which are imposed against the Lands or Building or any part thereof promptly when due to the taxing authority or authorities having jurisdiction. However the Landlord may defer payment of any Taxes, or defer compliance with any statute, law, by-law, regulation or ordinance in connection with the levying of any Taxes in each case to the fullest extent permitted by law, so long as it diligently prosecutes any contest or appeal of any Taxes. 9.02 Taxes Payable by Tenant The Tenant covenants with the Landlord: (a) to pay promptly when due to the taxing authority or authorities having jurisdiction all Business Taxes, including licence fees; and (b) to pay promptly to the relevant taxing authority when due and when requested deliver to the Landlord receipts for payments of all taxes, rates, duties, charges, levies and assessments whatsoever charged in respect of the facilities, Leasehold Improvements, Trade Fixtures and all furniture and equipment made, owned or installed by or on behalf of the Tenant in the Premises or on account of its ownership of or interest in any of them; and (c) for each Rental Year the Tenant's Proportionate Share of all Taxes charged for the Lands and Building which do not relate to rentable areas. 13 9.03 Postponement of Payment of Taxes The Landlord may postpone payment of any Taxes payable by it pursuant to the Lease to the extent permitted by law and if prosecuting in good faith any appeal against the imposition thereof. 9.04 Landlord's Determination For all purposes of this Article IX, where the determination of any Taxes depends upon an assessment or an apportionment of an assessment which has not been made by the taxing authority or authorities having jurisdiction, the Landlord acting reasonably may determine the same, and any determination so made by the Landlord shall be binding upon the Tenant. 9.05 Tenant's Responsibility The Tenant will: (a) on the Landlord's request, promptly deliver to the Landlord, (i) receipts for payment of all Business Taxes payable by the Tenant; (ii) notices of any assessments for Taxes or Business Taxes or other assessments received by the Tenant that relate to the Premises or the Building; and (iii) whatever other information relating to Taxes and Business Taxes the Landlord reasonably requests from time to time. ARTICLE X ASSIGNMENT AND SUBLETTING 10.01 Consent Required (a) In this Article "Transfer" means, (i) an assignment, a sublease, a mortgage, charge or debenture (floating or otherwise) or other encumbrance of this Lease or the Premises or any part of them, (ii) a parting with or sharing of possession of all or part of the Premises, and (iii) a transfer or issue by sale, assignment, bequest, inheritance, operation of law or other disposition, or by subscription of all or part of the corporate shares of the Tenant or an "affiliate" (as the term is defined on the date of this Lease under the Canada Business Corporations Act) of the Tenant which results in a change in the effective voting control of the Tenant. In this Article "Transferor" and "Transferee' have meanings corresponding to the definition of "Transfer" set out above, (it being nderstood that for a Transfer described in clause (iii) Mthe Transferor is the Person that has effective voting control before the Transfer and the Transferee is the Person that has effective voting control after the Transfer.) -(b, The Tenant will not effect or permit a Transfer without the consent of the Landlord wfiich consent will not be unreasonably withheld. The Tenant will not assign, sublet or part with all or any portion of the demised premises to an existing tenant or subtenant in the lands and buildings known as Mississauga Executive Centre, Mississauga, Ontario. In deciding whether to give its consent to a Transfer, the Landlord may refuse to give its consent if: (i) covenants, restrictions or commitments given by the Landlord to other tenants in the Building or to the Mortgagees, or other parties regardless of when given, prevent or inhibit,the Landlord from giving its consent to the Transfer; (ii) the Transferee, (1) does not have a history of successful business operation in the business to be conducted in the Premises, (2) does not have a good credit rating and a substantial net worth, or (3)is not able to finance the Trartsferee's acquisition of its interest in the Premises and its operations in the Premises without a material risk of defaulting 14 under this Lease and in a manner that will enable the Transferee to carry on business successfully in the Premises throughout the Term; (iii) there is a history of defaults under commercial leases by the Transferee, or by companies or partnerships that the Transferee was a principal shareholder of or partner in at the time of the defaults; (iv) the Transfer is a mortgage, charge, debenture (floating or otherwise) of, or in respect of, this Lease or the Premises or any part of them. Without limitation, the Tenant shall for purposes of this Article X be considered to Transfer in any case where it permits the Premises or any portion thereof to be occupied by persons other that the Tenant, its employees and others engaged in carrying on the business of the Tenant, and shall also include any case where any of the foregoing occurs by operation of law. The Tenant shall also be considered to assign or sublet if the Tenant is a corporation of which this Lease is, in the reasonable opinion of the Landlord, a material asset or a material liability, and control of such corporation changes, and the Tenant (if a corporation) covenants to notify the Landlord of any proposed change of control. 10.02 Conditions of Consent The Tenant shall not Transfer this Lease or the whole or qla-fl part of the Premises unless it shall have received a bona fide yrDltten offer to take an assignment or sublease, and it shall have first requested and obtained the consent in writing of the Landlord thereto. Any request for such consent shall be in writing and accompanied by a copy of such offer, and the Tenant shall furnish to the Landlord all information available to the Tenant and requested by the Landlord as to the responsibility, reputation, financial standing and business of the proposed Transferee. Within fifteen (15) days after the receipt by the Landlord of such request for consent and of all information which the Landlord shall have requested hereunder the Landlord shall have the right upon written notice to the Tenant, if the request is to assign this Lease or sublet the whole of the Premises, to cancel and terminate this Lease, or if the request is to sublet a part of the Premises only, to cancel and terminate this Lease with respect to such part, in each case as of a termination date to be stipulated in the notice 3f termination which shall be not less than sixty (60) days or more than ninety (90) days following the receipt by the Landlord of such request for consent, and in such event the Tenant shall surrender the whole or part as the case may be of the Premises in accordance with such notice and Rent shall be apportioned and paid to the date of surrender and if a part only of the Premises is surrendered, Rent payable under Section 4.02 and 4.05 shall thereafter abate proportionately. The foregoing shall be subject to the exception that the Tenant may, by notice delivered to the Landlord within fourteen (14) days after receipt from the Landlord of a notice of termination pursuant to the provisions of this Section 10.02, elect to continue this Lease as to all of the Premises and not to assign or sublet, in which event the notice of termination shall be void. 10.03 Assignment Effective No assignment of the Lease shall be effective unless the Transferee shall execute an appropriate instrument directly with the Landlord assuming, as to the assigned premises, all the obligations of the Tenant hereunder. 10.04 No Release No assignment or subletting of this Lease shall release the Tenant from its obligations under this Lease. 10.05 No Advertising The Tenant shall not advertise the Premises, or any part of the Premises, as being available for assignment or subletting unless the written permission of the Landlord first having been obtained. In no event shall any such advertising contain details of the amount of the Rent or other sums payable by the Tenant in terms of this Lease. 10.06 Tenant's Obligation to Lease In the event that this Lease is disaffirmed, disclaimed or terminated by any trustee in bankruptcy of a Transferee, the 15 original Tenant named in this Lease will be deemed upon notice by the Landlord given within thirty (30) days of such disaffirmation, disclaimer, or termination to have entered into a lease with the Landlord containing the same terms and conditions as in this Lease with the exception of the Term which shall expire on the date on which this Lease would have expired had such disaffirmation, disclaimer or termination not occurred. 10.07 Publicly Traded Companies Section 10.01 does not apply to a Transfer which occurs when the Tenant is a corporation whose shares are traded and listed on a stock exchange in Canada or the United States or is a subsidiary of such a corporation. ARTICLE XI TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS 11.01 Alterations and Installations The Tenant will not make, erect, install or alter any Leasehold Improvements or Trade Fixtures in the Premises ("Premises Work") without the Landlord's prior written approval. The Landlord shall not unreasonably withhold its approval to any such request, but approval will not be unreasonably withheld, if the Tenant complies with the design criteria established by the Landlord from time to time for the Building. The Tenant's request for any approval hereunder shall be in writing and accompanied by an dequate description of the contemplated work and, where Xppropriate, working drawings and specifications thereof. Any out of pocket expense incurred by the Landlord in connection with any such request for approval shall be deemed incurred by way of an Additional Service. All work to be performed in the Premises shall be performed by competent contractors and subcontractors of whom the )Landlord shall have approved (such approval not to be unreasonably withheld, but provided that the Landlord may require that the Landlord's contractors and subcontractors be engaged for any mechanical or electrical work) and by workmen whose labour union affiliations are compatible with those of workmen employed in the Building by the Landlord and its contractors and subcontractors. All such work shall be subject to inspection by and the reasonable supervision of the Landlord as an Additional Service at a fee of ive (5Z) percent of the total construction cost thereof and shall be performed in accordance with any reasonable conditions or regulations imposed by the Landlord and shall be completed in a good and workmanlike manner in accordance with the description of the work approved by the Landlord. 11.02 Construction Liens In connection with the making, erection, installation or alteration of Leasehold Improvements and Trade Fixtures and all and other work or installations made by and for the Tenant on the Premises, the Tenant shall comply with all the provisions of the Construction Lien Act and other statutes from time to time applicable thereto and except as to any holdback permitted by law shall promptly pay all accounts relating thereto. The Tenant will not create any mortgage, conditional sale agreement or other encumbrance in respect of its Leasehold Improvements or Trade Fixtures or permit any such mortgage, conditional sale agreement or other encumbrance including any lien to attach to the Premises, or to the Lands or Building or any part thereof and the Tenant shall within twenty (20) days after receipt of notice of registration of any such encumbrance or lien procure the discharge of any such liens or encumbrances failing which the Landlord may make such payments as may be required to secure the discharge, which payments shall be reimbursed by the Tenant, and the Landlord's right to reimbursement shall not be affected or impaired if the Tenant shall then or subsequently establish or claim that any lien or encumbrance so discharged was without merit or excessive or subject to any abatement, set-off or defence. 11.03 Landlord's Property All Leasehold Improvements in or upon the Premises shall immediately upon their placement be and become the Landlord's property without compensation therefor to the Tenant and shall become part of the Premises. Except to the extent otherwise expressly agreed by the Landlord in writing, no Leasehold Improvements, Trade Fixtures, furniture or equipment shall be removed by the Tenant from the Premises either during or at the expiration or sooner termination of the Term except that (1) the 16 Tenant may at the end of the Term remove its Trade Fixtures; (2) the Tenant shall at the end of the Term remove such of its Leasehold Improvements and Trade Fixtures as the Landlord shall require to be removed, and (3) the Tenant may remove its furniture and equipment at the end of the Term, and also during the Term in the usual and normal course of its business. The Tenant shall, in the case of every removal either during or at the end of the Term, make good any damage caused to the Premises by the installation and removal. ARTICLE XII INSURANCE 12.01 Landlord's Insurance The Landlord shall insure the Building. The insurance to be maintained by the Landlord shall be in respect of perils and in amounts and on terms and conditions which from time to time are insurable at a reasonable premium and which are normally insured by reasonably prudent owners of properties similar to the Building, as from time to time determined at reasonable intervals (but which need not be determined more often than annually and shall not be determined less often than every three years) by insurance advisors selected by the Landlord, and whose written opinion shall be conclusive. Unless and until the insurance advisors shall state that any such perils are not customarily insured against by owners of properties similar to the Building, and located in the vicinity of the Building, the perils to be insured against by the Landlord shall include, without limitation, public liability, boilers and machinery, fire and extended perils and losses suffered by the Landlord in its capacity as Landlord through business interruptions but shall not include any Leasehold Improvements in the Building. The Tenant shall be entitled at reasonable times upon reasonable notice to the Landlord to inspect copies of the relevant portions of all policies of insurance in effect and a copy of any relevant opinions of the Landlord's insurance advisors. 12.02 Insurance Risks The Tenant covenants not to do, omit or do-or permit to be done or omitted to be done upon the Premises anything which would cause the Landlord's cost of insurance (whether fire or liability) covering the Lands and the Building to be increased or which shall cause any policy of insurance covering the Lands and the Building to be subject to cancellation. Should any such policy be subject to cancellation by reason of the Tenant's use or occupation of the Premises, the Landlord shall be entitled to terminate this Lease forthwith by leaving notice thereof on the Premises. If there is any increase in premiums for the insurance carried from time to time by the Landlord with respect to the Lands and/or the Building, the Tenant shall pay any such increases as Additional Rent forthwith after invoices for such additional premiums are rendered by the Landlord. In determining whether increased premiums are caused by or result from the use or occupancy of the Premises, a schedule issued by the organization computing the insurance rates for the Lands and/or Buildings showing the various components of such rate shall be conclusive evidence of the several items and charges which make up such rate. 12.03 Tenant's Insurance (a) The Tenant shall take out comprehensive insurance of the type commonly called general public liability which shall include coverage for personal injury, blanket contractual liability, tenants legal liability, non-owned automobile liability, bodily injury, broad form property damage, death and property damage all on an occurrence basis with respect to the business carried on, in or from the Premises and in, on or from any other part of the Building, with coverage for any one occurrence or claim of not less that $3,000,000 or such other amount as the Landlord may reasonably require upon not less than one (1) month's notice atlany time during the Term. which insurance shall include the Landlord as a named Insured and shall protect the Landlord in respect of c i aims Dy lane Tenant as if the Landlord were separately insured and shall contain cross liability clauses; (b) The Tenant shall purchase and maintain insurance on the Tenant's Trade Fixtures and the furniture and equipment of the Tenant and all Leasehold Improvements of the Tenant. Such insurance will also cover all property of others which the Tenant has assumed responsibility for. 17 This coverage shall be written on an All Risk blanket basis for not less than eighty (80Z) percent of the full replacement cost. The Landlord be named as a named insured with respect to Leasehold Improvements and provided that any proceeds recoverable in the event of loss to Leasehold Improvements shall be payable to the Landlord (but the Landlord agrees to make available such proceeds toward the repair or replacement of the insured property if this Lease is not terminated pursuant to any other provision hereto); (c) The Tenant shall take out insurance against such other perils and in such amount as the Landlord may from time to time reasonably require upon not less than ninety (90) days written notice such requirements to be made on the basis that the required insurance is customary at the time for prudent tenants of properties similar to the Building in the vicinity of the Building. 12.04 Terms of Insurance All insurance required to be maintained by the Tenant hereunder shall be on terms and with insurers to which the Landlord has no reasonable objection. Each policy shall contain a waiver by the insurer of any rights of subrogation or indemnity or any other claim to which the insurer might otherwise be entitled against the Landlord or the agents or employees of the Landlord and shall also contain an undertaking by the insurer that no material change adverse to the Landlord or the Tenant will be made, and the policy will not lapse or be cancelled except after not less than thirty 30) days written notice to the Landlord of the intended change, @apse or cancellation. The Tenant shall furnish to the Landlord, if and whenever requested by it, certificates or other evidences acceptable to the Landlord as to the insurance from time to time effected by the Tenant and its renewal or continuation in force together with evidence as to the method of determination of full replacement cost of the Tenant's Leasehold Improvements, Trade Fixtures, furniture and equipment and if the Landlord reasonably concludes that the full replacement cost has been underestimated, the Tenant shall forthwith arrange for any consequent increase in coverage required under this Lease, If the Tenant shall fail to take out, renew and keep in force such Insurance, or if the evidence submitted to the Landlord pursuant to the preceding sentence is unacceptable to the Landlord (or no such evidence is submitted within a reasonable period after request therefor by the Landlord), then the Landlord may give to the Tenant written notice requiring compliance with this Article XII and specifying the respects in which the Tenant is not then in compliance with this Article. If the Tenant does not within seventy-two (72) hours (or such lesser period as the Landlord may reasonably require having regard to the urgency of the situation) provide appropriate evidence of compliance with this Article XII, the Landlord may (but shall not be obliged to) obtain some or all of the additional coverage or other insurance which the Tenant shall have failed to obtain without prejudice to any other rights of the Landlord under this Lease or otherwise, and the Tenant shall pay all premiums and other expenses incurred by the Landlord in that connection as Additional Rent pursuant to Section 4.05 of this Lease. ARTICLE XIII LIABILITY 13.01 Landlord's-Liability The Tenant agrees that the Landlord shall not be liable for any bodily injury or death of, or loss or damage to any property belonging to, the Tenant or its employees, invitees or licensees or any other persons in, or about the Building and without limiting the foregoing the Landlord shall not be liable for any damage which is caused by steam, water, rain, or snow which may leak into, issue or flow from part of the Building or from the pipes or plumbing works thereof, or from any other place or quarter or for any damage caused by or attributable to the condition or arrangement of any electric or other wiring, unless resulting from the negligence of the Landlord, and in no event shall the Landlord be liable; (a) for any damage caused by anything done or omitted to be done by any other tenant; (b) for any act or omission (including theft, malfeasance or negligence) on the part of any agent, contractor or person from time to time employed by it to perform janitor 18 services, security services, supervision or any other work in or about the Premises or the Building; or (c) for loss or damage, however caused, to money securities, negotiable instruments, papers or other valuables of the Tenant; and 13.02 Failure to SuT)ply Building Services The Landlord shall have no responsibility or liability for the failure to supply any Building Services when prevented from doing so by strikes, the necessity of repair, any order or regulation of any body having jurisdiction, the failure of the supply of any utility required for the operation thereof or any other cause beyond the Landlord's reasonable control. 13.03 Release of Tenant The Landlord releases the Tenant from all claims or liabilities in respect of any damage which is Insured Damage, to the extent of the cost of repairing such damage, but not from injury, loss or damage which arises therefrom where the Tenant is negligent or otherwise at fault. 13.04 Tenant's Indemnification of Landlord Except as provided in Section 13.03, the Tenant agrees to indemnify and save harmless the Landlord in respect of all claims for bodily injury or death, property damage or other loss or damage arising from the conduct of any work by or any act or omission of he Tenant or any assignee, subtenant, agent, employee, contractor, tnvitee or licensee of the Tenant, and in respect of all costs, expenses and liabilities incurred by the Landlord in connection with or arising out of all such claims, including the expenses of any action or proceeding pertaining thereto, and in respect of any loss, cost, expense or damage suffered or incurred by the Landlord arising from any breach by the Tenant of any of its covenants and obligations under this Lease; and this indemnity shall survive the expiry or earlier termination of this Lease, in respect of any of the foregoing circumstances arising during the Term. 13.05 Notification of Landlord The Tenant shall notify the Landlord promptly and in writing of any accident or damage to or defect in the Premises, the Lands, the Building, or any part thereof. ARTICLE XIV SUBORDINATION, ATTORNMENT AND CERTIFICATES 14.01 Subordination The Tenant agrees that this Lease and all the rights of the Tenant hereunder are subject and subordinate to all mortgages now or hereafter existing (including deeds of trust and all instrument supplemental thereto) which may now or hereafter affect the Lands and the Building and to all renewals, modifications, consolidations, replacements and extensions thereof and the Tenant whenever requested by any mortgagee or by the Landlord shall attorn to such Mortgagee as a tenant upon all the terms of this Lease. The Tenant agrees to execute promptly whenever requested by the Landlord or by such Mortgagee an instrument of subordination or attorrunent, as the case may be, as may be required of it; and 14.02 Execution of Certificates The Tenant shall promptly whenever requested by the Landlord from time to time execute and deliver to the Landlord and if required by the Landlord, to any Mortgagee designated by the Landlord a certificate in writing as to the then status of this Lease, including as to whether it is in full force and effect, is modified or unmodified, confirming the rental payable hereunder and the state of the accounts between Landlord and Tenant, the existence or non-existence of defaults, and any other matters pertaining to this Lease as to which the Landlord shall request a certificate. 14.03 Non-Disturbance Agreements The Landlord agrees to use its reasonable, best efforts to provide to the Tenant an acknowledgement of non-disturbance from every Mortgagee to which this Lease has been subordinated upon a specific request therefore being made by the Tenant. 19 ARTICLE XV ACCESS, FIRE DRILLS AND FORGE MAJEURE 15.01 Access of Landlord to Premises The Landlord shall be permitted at any time and from time to time to enter and to have its authorized agents, employees and contractors enter the Premises for the purposes of inspection, window cleaning, maintenance, providing janitor service, making repairs, alterations or improvements to the Premises or the Building or to have access to utilities and services and the Tenant shall provide free and unhampered access for the purpose, and shall not be entitled to compensation for any inconvenience, nuisance or discomfort caused thereby, but the Landlord in exercising its rights hereunder shall proceed so as to minimize interference with the Tenant. The Landlord and its authorized agents and employees shall be permitted entry to the Premises during the last six (6) months of the Term during normal business hours for the purpose of exhibiting them to prospective tenants. 15.02 Fire and Safety Drills The Tenant acknowledges that it may be or become desirable or necessary for the Landlord to organize and co-ordinate arrangements within the Building for the safety of all tenants and occupants in the event of fire or similar event, and the Tenant, it employees, servants, agents, and invitees shall co-operate and anticipate in any fire drill, evacuation drill, and similar @xercise as may be arranged or organized by the Landlord from time to time, and agrees to hold the Landlord harmless from any personal or material loss, damage or injury arising therefrom. 15.03 Force Majeure Except as herein otherwise expressly provided, if and whenever and to the extent that either the Landlord or the Tenant shall be prevented, delayed or restricted in the fulfillment of any obligation hereunder in respect of the supply or provision of any service or utility, the making of any repair, the doing of any work or any other thing (other than the payment of Rent or other moneys due) by reason of strikes or work stoppages, or being unable to obtain any material, service, utility or labour required to fulfil such obligation or by reason of any statute, law or regulation or inability to obtain any permission from any governmental authority having lawful jurisdiction preventing, delaying or restricting such fulfillment, or by reason of other unavoidable occurrence, the time for fulfillment of such obligation shall be extended during the period in which such circumstance operates to prevent, delay or restrict the fulfillment thereof, and the other party to this Lease shall not be entitled to compensation for any inconvenience, nuisance or discomfort thereby occasioned and the Lease shall remain in full force and effect, but nevertheless the Landlord will use its best efforts to maintain services essential to the use and enjoyment of the Premises. ARTICLE XVI REMEDIES OF LANDLORD ON TENANTS DEFAULT 16.01 Landlord's Remedies The Landlord shall: (a) have the right at all times to remedy or attempt to remedy any default of the Tenant, and in so doing may make any payments due or alleged to be due by the Tenant to third parties and may enter upon the Premises upon reasonable notice to do any work or other things therein, and in such event all expenses of the Landlord in remedying or attempting to remedy such default shall be payable by the Tenant to the Landlord as Additional Rent forthwith upon demand; and (b) have the same rights and remedies in the event of any non- payment by the Tenant of any amounts payable by the Tenant under any provision of this Lease as the Landlord would have in the case of a non-payment of Basic Rent; and 20 (c) if the Tenant fails to pay any Basic Rent, Additional Rent or other amount from time to time payable by it to the Landlord hereunder promptly when due, the Landlord shall he entitled, if it shall demand it, to interest thereon at a rate three percent (3%) per annum in excess of the minimum lending rate to prime commercial borrowers from time to time current at The Toronto-Dominion Bank in Ontario from the date upon which the same was due until actual payment thereof. 16.02 Non-compliance by Tenant The Landlord may from time to time resort to any or all of the rights and remedies available to it under this Lease or arising from statute or general law in the event of any default hereunder by the Tenant or improper compliance or non-compliance with any obligation arising under any provision of this Lease, all of which rights and remedies are intended to be cumulative and not alternative, and the express provisions hereunder as to certain rights and remedies are not to be interpreted as excluding any other or additional rights and remedies available to the Landlord by statute or the general law. 16.03 Landlord's Re-entry It is expressly agreed by the Tenant that if and whenever the Basic Rent or Additional Rent hereby reserved or other moneys payable by the Tenant or any part thereof shall not be paid within five (5) days of the day appointed for payment thereof, whether @lawfully demanded or not, or if the Tenant shall breach or fail to observe and perform any of the covenants, agreements, provisoes, conditions, rules or regulation and other obligations on the part of the Tenant to be kept, observed or performed hereunder or if any policy on the Building or any part thereof is cancelled or about to be cancelled by the insurer by reason of the use or occupation of the Premises, then and in every such case it shall be lawful for the Landlord to enter into and upon the Premises or any part thereof in the name of the whole and to have again, repossess and enjoy the Premises as of its former state, without terminating this Lease, anything in this Lease contained to the contrary notwithstanding. 16.04 Termination If and whenever the Landlord becomes entitled to re-enter the Premises under any provision of this Lease the Landlord, in addition to all other rights and remedies shall have the right to terminate this Lease forthwith by leaving on the Premises notice in writing of such termination. Upon such termination, Rent and other payments due under this Lease shall be computed, apportioned and paid in full to the date of such termination and the Tenant shall immediately deliver up possession of tne Premises to the Landlord. 16.05 Reletting Premises Whenever the Landlord becomes entitled to re-enter the Premises under any provision of this Lease the Landlord, in addition to all other rights it may have, shall have the right as agent of the Tenant to enter the Premises azid re-let them and to receive the rent therefor and as the agent of the Tenant to take possession of any furniture or other property thereon and to sell the same at public or private sale without lotice and to apply the proceeds thereof and any rent derived from re-letting the Premises upon account of the Rent due and to become due under this Lease and the Tenant shall be liable to the Landlord for the deficiency if any. If the Landlord adopts this course of action, the Tenant shall be liable for and the Landlord may recover the expenses of re-letting the Premises, including but riot limited to the cost of recovering possession of the Premises, expenses of re-letting, including real estate commission, cost of renovations and legal fees. 16.06 Waiver of Distress The Tenant waii;.es and renounces the benefit of any present or future statute taking away or limiting the Landlord's right of distress, and covenants and agrees that notwithstanding any such statute none of the goods and chattels of the Tenant on the Premises at any time during the Term shall be exempt from levy by distress for rent in arrears 21 ARTICLE XVII ABANDONMENT OF PREMISES AND BANKRUPTCY OF TENANT 17.01 If the Premises shall be vacated or abandoned, or remain unoccupied for fifteen (15) days or more while capable of being occupied, or if any of the goods and chattels of the Tenant shall at anytime be seized in execution or attachment, or if the Tenant shall make any assignment for the benefit of creditors or any bulk sale, become bankrupt or insolvent or take the benefit of any statute now or hereafter in force for bankrupt or insolvent debtors or (if a corporation) shall take any steps or suffer any order to be made for its winding-up or other termination of its corporate existence, then in addition to the payment by the Tenant of Basic Rent and Additional Rent and other payments for which the Tenant is liable under this Lease, Bqsic Rent and Additional Rent for the current month and the rext ensuing three (3) months' shall immediately become due and oe paid by the Tenant. In addition, if any of the above-mentioned eventualities should occur the Landlord shall have the right to terminate this Lease by leaving notice of such termination on the Premises. ARTICLE XVIII NOTICES @8.01 Any notice required or contemplated by any provision of this Lease shall be given in writing, and if to the Landlord, either a.plivered to an executive officer of the Landlord or mailed by prepaid registered mail addressed to the Landlord at Four Robert Speck Parkway, Suite 1600, Mississauga, Ontario, L4Z 1S1 and if to thA Tenant delivered to the Tenant personally (or to a partner or officer of the Tenant if the Tenant is a firm or corporation) or mailed by prepaid registered mail addressed to the Tenant at the Premises, Every such notice shall be deemed to have been given when delivered or, if mailed as aforesaid, on the fourth business day next following the date of mailing. The Landlord may-from time to time, by notice in writing to the Tenant, designate another address in Canada as the address to which notices are to be mailed to it. ARTICLE XIX OVERHOLDING 19.01 The Tenant shall, not less than six months before the expiration of the Term of this Lease, give to the Landlord notice in writing of its intention to vacate the Premises at the end of the Term. If no such notice is given, the Landlord shall assume that the Tenant intends to vacate the Premises at the expiration of the term of this Lease. If the Tenant has not given notice of its intentions to vacate six months before the expiration of the Term, and shall continue to occupy all or part of the Premises after the expiration of this Lease without the consent of the Landlord, and without any further written agreement, then the Tenant shall be deemed to be overholding without any right to do so and the Landlord may take immediate action to recover possession of the Premises and it will be lawful for the Landlord to enter into and upon the Premises or any part thereof, in the name of the whole and to have again, repossess and enjoy the Premises as of its former state, anything in the Landlord and Tenant Act SRO 1990 or any other statute or in this Lease contain to the contrary notwithstanding. If the Tenant remains in possession of all or any part of the Premises after the expiry of the Term with the consent of the Landlord and without any further written agreement, or without the consent of the Landlord, there shall be no deemed renewal or extension of this Lease and, despite any statutory provision or legal presumption to the contrary, the Tenant shall be deemed conclusively to be occupying the Premises as a monthly Tenant at will if the Landlord consents to the Tenant remaining in possession or as a Tenant at will if the Landlord did not consent to the Tenant remaining in possession, in either case, on the same terms as set forth in this Lease including the payment of all additional rents and percentage rents if applicable, so far as such terms would be applicable to a monthly tenancy except that the monthly basic minimum rent shall be equal to one sixth (1/6th) of the annual rent payable during the last year of this Lease; one sixth (1/6th) of the amount of Additional Rents and charges payable for the last year of this Lease and one sixth (116th) of the annual Percentage Rent if any payable for the lease year immediately proceeding the last year of this Lease and all, except as to link the tenancy. The Tenant shall promptly indemnify and hold harmless the Landlord from and against any and all claims incurred by the Landlord as a result of the Tenant remaining in possession of all or any part of the Premises after the expiry of the Term. The Tenant shall not interpose or raise any counterclaim in any summary or other proceedings based on overholding by the Tenant, and the Landlord shall be entitled to damages from the Tenant if the Landlord suffers as a result of the Tenant's overholding, without setoff. ARTICLE XX RELOCATION 20.01 The Landlord may at any time during the Term of this Lease or any extensions thereof, relocate the Tenant to substantially equivalent space (the "New Premises") anywhere within the Building provided that (a) Neither the Net Area nor the Gross Area of the New Premises differ substantially from that of the Premises. and (b) The Landlord improves the New Premises at its expense to a standard of fixturing and finishing that is at least as good as the fixturing and finishing of the Premises, and (n) The Landlord minimizes any interruption of the Tenant's business during the relocation and pays reasonable compensation in respect thereof and pays the Tenant's reasonable business costs associated with the relocation, and (d) The Tenant shall be given at least 90 days notice of the relocation, and (e) For the purposes of this Article XX, the term "Building" shall be deemed to include any building located within the centre of which the Building forms a part. ARTICLE XXI WAIVER 21.01 If either the Landlord or the Tenant shall overlook excuse, condone or suffer any default, breach or non-observance by the other of any obligation hereunder, this shall not operate as a waiver of such obligation in respect of any continuing or subsequent default, breach or non-observance, and no such waiver shall be implied but shall only be effective if expressed in writing. ARTICLE XXII EXTENT OF LEASE OBLIGATION 22.01 This Lease and everything herein contained shall enure to the benefit of and be binding upon the respective heirs, executors, administrators, successors, assigns and other legal representatives, as the case may be, of the parties hereto,, subject to the granting of consent by the Landlord to any assignment or sublease, and every reference herein to any party hereto shall include the heirs, executors administrators, successors, assigns and other legal representatives of such party, and where there is more than one tenant or there is a male or female party the provisions hereof shall be read with all grammatical changes thereby rendered necessary and all covenants shall be deemed joint and several. 23 IN WITNESS WHEREOF the parties have executed this Lease under seal as of the day and year first above written. SHIPP CORPORATION LIMITED Acting as Manager for the Owner Richard N. Thorlacius President and Chief operating Officer DANNIKTEL INC. signature print name and title 24 SCHEDULE A FLOOR PLAN SCHEDULE B THE LANDS THE MUTUAL GROUP CENTRE - WEST AND CENTRE TOWERS 3300 BLOOR STREET WEST - ETOBICOKE ALL AND SINGULAR that certain parcel or tract of land and premises situate, lying and being in the City of Etobicoke in the Municipality of Metropolitan Toronto and Province of Ontario and being composed of the whole of Lots, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70 and 71 and parts of Lots 57, 58, 59, 60 as shown on Plan 1922 registered in the Land Registry Office for the Registry Division of Toronto Boroughs (No. 64). SCHEDULE C RULES AND REGULATIONS 1. The Tenant shall not permit any cooking in the Premises without the written consent of the Landlord. 2. The sidewalks, entries, passages, elevators and staircases shall not be obstructed or used by the Tenant, his agents, servants, contractors, invitees or employees for any purpose other than ingress to and egress from the Premises. The Landlord reserves entire control of all parts of the Building employed for the common benefit of the tenants and without restricting the generality of the foregoing, the sidewalks, entries, corridors and passages not within the Premises, washrooms, lavatories, air-conditioning closets, fan rooms, janitor's closets, electrical closets and other closets, stairs, elevator shafts, flues, stacks, pipe shafts and ducts and shall have the right to place such signs and appliances therein as it may deem advisable, provided that ingress to and egress from the Premises is not unduly impaired thereby. 3. The Tenant, his agents, servants, contractors, invitees or employees, shall not bring in or take out, position, construct, install or move any safe, business machine or other heavy office equipment without first obtaining the consent in writing of the Landlord. In giving such consent, the Landlord shall have the right in its sole discretion, to prescribe the weight permitted and the position thereof, and the use and design of planks, skids or platforms to distribute the weight thereof. All damage done to the Building by moving or using any such heavy equipment or other office equipment or furniture shall be repaired at the expense of the Tenant. The moving of all heavy equipment or other office equipment or furniture shall occur only between 6:00 p.m. and the following 8:00 a.m. or any. other time consented to by the Landlord, and the persons employed to move the same in and out of the Building must be acceptable to the Landlord. Safes and other heavy office equipment will be moved through the halls and corridors only upon steel bearing plates. No freight or bulky matter of any description will be received into the Building or carried in the elevators, except during hours approved by the Landlord. 4. All persons entering and leaving the Building at any time other than during normal business hours shall register in the books kept by the Landlord at or near the night entrance and the Landlord will have the right to prevent any person from entering or leaving the Building unless provided with a key and access card to the Premises to which such persons seek entrance or a pass in a form to be approved by the Landlord. Any persons found in the Building at such times without such keys or passes will be subject to the surveillance of the employees and agents of the Landlord. The Landlord shall be under no responsibility for failure to enforce this rule. 5. The Tenant shall not place or cause to be placed any additional locks upon any doors of the Premises without the approval of the Landlord and subject to any conditions imposed by the Landlord. Additional keys may be obtained from the Landlord at the cost of the Tenant. 6. The water closets and other water apparatus shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, ashes or other substances shall be thrown therein. Any damage resulting by misuse shall be borne by the Tenant by whom or by whose agents, servants, or employees the same is caused. Tenants shall not let the water run unless it is in actual use, and shall not deface or mark any part of the Building, or drive nails, spikes, hooks, or screws into the walls or woodwork of the Building. 7. No one shall use the Premises for sleeping apartments or residential purposes, or for the storage of personal effects or articles other than those required for business purposes. 8. The Tenant shall permit window cleaners to clean the windows of the Premises during normal business hours. 9. Canvassing, soliciting and peddling in the Building are prohibited. 10. Any hand trucks, carryalls or similar appliances used in the Building shall be equipped with rubber tires, sideguards and such other safeguards as the Landlord shall require. 11. No animals or birds shall be brought into the Building 77 without the express written consent of the Landlord. 12. Subject to the provisions of the Lease, the Tenant shall not install or permit the installation or use of any machine dispensing goods for sale in the Premises or the Building or permit the delivery of any food or beverage to the Premises without the approval of the Landlord or in contravention of any regulations fixed or to be fixed by the Landlord. Only persons authorized by the Landlord shall be permitted to deliver or to use the elevators in the Building for the purpose of delivering food or beverages to the Premises. 13. The Tenant acknowledges, and will so inform all of their employees, that all of the common areas, corridors, washrooms, stair-wells, elevator lobbies and all areas of the parking garage have been designated by the Landlord as no smoking areas and smoking is not permitted. 2 SCHEDULE D SHIPP CORPORATION LIMITED JANITORIAL AND CLEANING SERVICE SCHEDULE PART 1 - MAIN ENTRANCE
Description of Service Interval 1. Dust all horizontal services. Nightly 2. Spot clean all walls, light switches and doors. Nightly 3. Dust mop all hard surface floors with treated dust mop. Nightly 4. Using wet mop, mop entire area. Nightly 5. Using a high speed machine spray buff all tile areas. Nightly 6. Dust all high reach areas. Weekly 7. Dust all low reach areas. Weekly 8. Spot clean all walls, doors, partitions glass, kick and push plates, and all other vertical surfaces removing fingerprint and smudges, paying particular attention to areas around light switches, door knobs, and door frames. Weekly 9. Machine scrub hard surface floor and apply one coat of polish. Allow to dry then buff. Monthly 10. Strip and refinish with three coats of floor finish. Annually 11. Clean both sides of all glass doors. Nightly 12. Spat clean all partition glass. Nightly PART 2 - ELEVATOR LOBBIES & CORRIDORS Description of Service Interval 1. Empty and damp wipe ashtrays and waste receptacles. Nightly 2. Dust all horizontal surfaces. Nightly 3. Spot clean all horizontal and vertical surfaces removing finger- prints, smudges, and stains. Nightly 4. Dust mop all hard surface floors with treated dust mop. Nightly 5. Fully vacuum all carpets and walk off mats. Nightly 6. Using wet mop, mop entire area. Nightly 7. Using a high speed machine spray buff all tile areas. Nightly 8. Dust all high reach areas. Weekly 9. Dust all low reach areas. Weekly 1 Lower Two Flights - Radial Rubber Flooring Main Lobby to Lower Lobby. Description of Service Interval 1. Dust mop with treated mop. Nightly 2. Using west mop, mop entire area. Nightly 3. Scrub floor and apply one coat of polish, allow to dry and then buff. Monthly 4. Lay one coat of floor finish. 3/week 5. Strip and refinish with three coats of floor finish. Semi-annually PART 7 - RECEIVING AREA Description of Service Interv-al 1. Dust mop all hard surface floors with treated dust mop. Nightly 2. Using wet mop, mop entire area. Nightly 4 10. Spot clean all walls, doors, partitions, glass, kick and push plates, and all other vertical surfaces removing fingerprints and smudges, paying particular attention to areas around light switches, door knobs, and door frames. Weekly 11. Machine scrub hard surface floor and apply one coat of polish. Allow to dry then buff. Monthly 12. Strip and refinish with three coats of floor finish. Annually 13. Directory board glass to be cleaned, exterior only. Nightly 14. Drinking fountains to be cleaned. Nightly 15. Elevator threshold: - a) vacuum Nightly b) wash Weekly c) spillage Nightly (if required) PART 3 - ELEVATOR CABS Description of Service Interval 1. VAT floors will be dust mopped, washed and/or spray buffed. Nightly 2. Carpeted floors will be thoroughly vacuumed. Nightly 3. Clean and polish elevator bright work, walls, and doors. Nightly 4. Elevator door tracks vacuumed. Nightly 5. Ceilings of cabs to be vacuumed. Monthly PART 4 - LEASED PREMISES Description of Service Interval 1. Empty all waste receptacles, empty and damp wipe ashtrays, dust all horizontal surfaces with a chemically treated cloth. Spot clean all walls, light switches, glass doors and frames. Nightly 2. Damp wipe waste baskets. Monthly 3. Dust all furniture, fixtures, equipment and accessories. Nightly 4. Dust mop all hard surface floors with treated dust mop. Nightly 5. Mop all stains and spills especially coffee and drink spills from tile floors. Nightly 6. Using a high speed machine spray buff and tile areas. Twice/week 7. Dust all chair and table legs and rungs, baseboards, ledge moldings and other low reach areas. Weekly 8. Clean and sanitize all telephone. Weekly 9. Clean and polish all bright metal work. Weekly 10. Dust all surfaces above normal reach including sills, ledge molding, shelves, door frames, pictures, and vents. Monthly 11. Dust all vertical surfaces (sides of desks, tables, chairs, filing cabinets). Monthly 2 12. Machine scrub hard surface floors and apply one coat of polish. Allow to dry then buff. Monthly 13. Strip and refinish hard surface floors with three coats of floor finish. Annually 14. All carpeted traffic lanes will be vacuumed and the balance of the carpeted areas will be policed. Nightly 15. Collect and remove all trash. Nightly COMPUTER VAT Description of Service Interval 1. Empty and damp wipe ashtrays. Nightly 2. Empty all waste receptacles. Nightly 3. Dust all horizontal surfaces. Nightly 4. Dust all low reach areas. Weekly 5. Dust all high reach areas. Weekly 6. Clean and sanitize all telephones. Weekly 7. Dust mop all hard surface floors with treated dust mop. Nightly 8. Mop all stains and spills especially coffee and drink spills. Nightly 9. Using a damp mop, mop entire hard surface area. Weekly 10. Machine scrub hard surface floor and apply one coat of polish. Allow to dry then buff. Annually PART 5 - WASHROOMS Description of Services Interval 1. Clean and sanitize all restroom units including; toilets, urinals (including undersides), sinks, damp wipe and polish mirrors, polish chrome, wipe counters, sweep and damp mop floors using a germicidal cleaner. Refill all dispensers and empty trash Nightly 2. Cubicle partitions and doors will be spot cleaned Nightly 3. Wash all restroom partitions on both sides and walls. Monthly 4. Machine scrub all hard surface floors using mild detergent. Monthly 5. Dust and clean all return air vents. Monthly PART 6 STAIRS AND LANDINGS Description of Service Interval 1. Police stairs for litter. Nightly 2. Dust mop and clean stairs. Weekly 3. Wet mop and clean stairs. Weekly
3 SCHEDULE E TENANTTS RIGHT TO EXTEND THE TERM ONE ADDITIONAL FIVE YEAR PERIOD The Tenant shall have the right at its option to extend the Term for one further consecutive period of 5 years (herein called "Extended Term"), such Extended Term commencing upon the date following the date of expiration of the Term as provided in Section 3.02 of the Lease and ending upon the fifth anniversary of such date of expiration, subject to the following terms and conditions; (a) This option shall be exercised by notice in writing given to the Landlord not less than six (6) months nor more than twelve (12) months prior to the expiration of the Term, provided that such notice shall be validly given only if at the time it is given the Tenant shall not be in breach of any of its obligations under the Lease. (b) The extension of the Term upon the exercise of the Extended Term shall be upon the same terms and subject to all the provisions of this Lease except that: (i) There shall be no further right to extend the Term beyond the expiration of this Extended Term, and (il@) The Extended Term shall be as provided, and (iii) The Basic Rent to be paid by the Tenant during the Extended Term shall be the fair annual rental value of the Premises as then constituted, determined in accordance with sub- paragraph (d) provided that it shall not be less than the Basic Rent payable by the Tenant in the last year of the Term, and (iv) The Lease will be amended to include whatever changes may have been made to the terms of the Larldlord's standard form of lease subsequent to the execution of this Lease. (c) When this option has been exercised and the Basic Rent to be paid by the Tenant during the Extended Term has been determined, the Landlord and the Tenant, shall enter into a Supplementary Lease modifying this Lease and extending the Term as provided. (d) The expression of "fair annual rental value", for the purposes of this paragraph, shall mean the annual rental which could reasonably be obtained by the Landlord for the Premises from a willing tenant dealing at arms-length with the Landlord in the market prevailing at a date six (6) months prior to the date upon which the Extended Term is to commence, having regard to all relevant circumstances including the size and location of the Premises, the facilities afforded, the terms of the intended lease thereof (including its provisions for payments and other contributions by the Tenant additional to rent) the condition of the Premises and the value of improvements therein (except that if the Tenant has failed to repair in accordance with its obligations under the Lease or has made- improvements in excess of those which it was required to make at the commencement of the Term, the disrepair and the Improvements, and also the value of all the Tenant's fixtures, shall be disregarded), and having regard also to rentals currently being obtained for space similarly located in the locality, and in particular to any leases currently being made or recently made by the Landlord of comparable space in the Building. If the Landlord and Tenant have not agreed as to the fair annual rental value of the Premises by a date three (3) months prior to the date upon which the Extended Term is to commence the fair annual rental value shall be determined by arbitration and the following provisions shall apply thereto; promptly upon this provision for arbitration becoming applicable each of the Landlord and Tenant shall give written notice to the other appointing an arbitrator on behalf of the party giving the notice. In the event that either party shall fail to give such written notice within ten (10) days the arbitrator named in the notice given by the other party shall be the sole arbitrator. If the two arbitrators are duly appointed they shall jointly appoint a third, but if such appointment has not been made by them within the (10) days after the appointment of whichever of the two arbitrators was last appointed, either party may on notice to the other apply to a Judge of the District Court for the Judicial District where the Premises are located, who shall have jurisdiction to appoint a third arbitrator. The arbitrators or sole arbitrator (as the case may be) appointed hereunder shall govern their or its own proceedings and the decisions of any two arbitrators (if three have been appointed) or the sale arbitrator as the fair annual rental value shall be conclusive and binding on the parties. Each party shall pay the fees of the arbitrator appointed by it, and the parties shall share eq 'ually all other costs of the arbitration. In the event that the fair annual rental value of the Premises has not been determined by the date upon which rent therefor commences to be payable by the Tenant, pending such determination the Tenant shall pay rent therefor as determined according to Article XIX of this Lease and the parties shall readjust as of the date when rent commenced to be payable promptly upon such determination being made. 2 SHIPP CORPORATION LIMITED OFFICE LEASE TABLE OF CONTENTS
ARTICLE I Definitions 1 to 5 ARTICLE II Intent and Interpretation Section 2.01 Net Lease 5 Section 2.02 Landlord to Act in Good Faith 5 Section 2.03 Entire Agreement 5 Section 2.04 General Matters of Intent and Interpretation 5 ARTICLE III Grant and Term Section 3.01 Lease 6 Section 3.02 Term 6 Section 3.03 Access 7 Section 3.04 Storage Areas 7 Section 3.05 Parking Spaces I 7 ARTICL@ IV Rent Section 4.01 Covenant to Pay 7 Section 4.02 Basic Rent 7 Section 4.03 Security Deposit 7 Section 4.04 Delay in Occupancy 8 Section 4.05 Landlord's Estimates 8 Section 4.06 Landlord's Final Determination 8 Section 4.07 Leasehold Allowance 8 ARTICLE V Covenants Section 5.01 Landlord's Covenants 8 Section 5.02 Tenant's Covenants98 ARTICLE VI - Building Services Section 6.01 Air Conditioning and Ventilation 9 Section 6.02 Elevator Services 9 Section 6.03 Washrooms 9 Section 6.04 Janitor Service 9 Section 6.05 Telephone and Water 10 Section 6.06 Electricity and Lighting 10 Section 6.07 Additional Services 10 ARTICLE VII - Use and Occupancy of Leased Premises Section 7.01 Permitted Use 10 Section 7.02 Waste and Nuisance 10 Section 7.03 Energy Conservation 10 Section 7.04 Condition 10 Section 7.05 Compliance with Laws 11 Section 7.06 Rules and Regulations 11 Section 7.07 Parking 11 Section 7.08 Signs and Directory 11 ARTICLE VIII - Repair and Damage Section 8.01 Landlord's Repair and Maintenance 11 Section 8.02 Tenant's Repair and Maintenance 11 Section 8.03 Surrender of the Premises 12 Section 8.04 Abatement and Termination 12 ARTICLE IX Taxes Section 9.01 Taxes Payable by Landlord 13 Section 9.02 Taxes Payable by Tenant 13 Section 9.03 Postponement of Payment of Taxes 14 Section 9.04 Landlord's Determination 14 Section 9.05 Tenant's Responsibility 14 1 ARTICLE X Assignment and Subletting Section 10.01 Consent Required 14 Section 10.02 Conditions of Consent III 15 Section 10.03 Assignment Effective 15 Section 10.04 No Release 15 Section 10.05 No Advertising 15 Section 10.06 Tenant's Obligation to Lease 15 Section 10.07 Publicly Traded Companies 16 ARTICLE XI - Trade Fixtures and Leasehold Improvements Section 11.01 Alterations and Installations 16 Section 11.02 Constructions Liens 16 Section 11.03 Landlord's Property 16 ARTICLE XII - Insurance Section 12.01 Landlord's Insurance 17 Section 12.02 Insurance Risks 17 Section 12.03 Tenant's Insurance 17 Section 12.04 Terms of Insurance 18 ARTICLE XIII - Liability Section 13.01 Landlord's Liability 18 Section 13.02 Failure to Supply Building Services 19 Section 13.03 Release of Tenant 19 Section 13.04 Ter-ant's Indemnification of Landlord 19 Section 13.05 Notification of Landlord 19 ARTICLE XIV Subordination, Attornment and Certificates Section 14.01 Subordination 19 Section 14.02 Execution of Certificates 19 Section 14.03 Non-Disturbance Agreements 19 ARTICLE XV - Access, Fire Drills and Force Majeure Section 15.01 Access of Landlord to Premises 20 Section 15.02 Fire and Safety Drills 20 Section 15.03 Force Majeure I.I 20 ARTICLE XVI - Remedies of Landlord on Tenant's Default Section 16.01 Landlord's Remedies 20 Section 16.02 Non-compliance by Tenant 21 Section 16.03 Landlord's Re-entry I 21 Section 16.04 Termination 21 Section 16.05 Reletting Premises 21 Section 16.06 Waiver of Distress 21 ARTICLE XVII - Abandonment of Premises and Bankruptcy of Tenant 22 ARTICLE XVIII - Notices 22 ARTICLE XIX . Overholding 22 ARTICLE XX . Relocation 23 ARTICLE XXT . Waiver 23 ARTICLE XXII . Extent of Lease Obligation 23 SCHEDULE A . FLOOR PLAN SCHEDULE B - THE LANDS SCHEDULE C - RULES AND REGULATIONS SCHEDULE D - JANITORIAL AND CLEANING SERVICE SCHEDULE SCHEDULE E - ONE ADDITIONAL FIVE YEAR PERIOD
2 EX-10.3(D) 6 LEASE AGREEMENT - ICS AND LANDLORD Exhibit 10.3(d) LEASE AGREEMENT The following are the terms and conditions of the lease between ICS (the "Tenant") and 1242531 Ontario Ltd. (the "Landlord"). 1. Premises The area comprising approximately 6,000 square feet of rentable area at 1041 McNicholl Avenue, Scarborough, Ontario, M1W 3W6. 2. Term The term of the lease shall be for three (3) years commencing on June 1st, 1998 and expiring on May 31st, 2001. 3. Basic Rent Sixty Thousand dollars ($60,000) per annum, payable monthly in advance in the amount of Five Thousand ($5,000) commencing on the Term Commencement Date. 4. Additional Rent No additional rent is payable as the above amount of $5,000 includes property taxes, basic insurance, utilities and the tenant's proportionate share of operating costs. 5. Condition of The Tenant agrees to accept the premises in their Leased Premises present "as is" condition. 6. Leasehold The Tenant shall be responsible for all future Improvements leasehold improvements. 7. Parking Unlimited parking in the common parking lot at 1041 McNicholl Avenue is included in the rent. EX-10.4 7 EMPLOYMENT AGREEMENT - DECLAN FRENCH Exhibit 10.4 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of the Commencement Date (as defined below) by and between IT STAFFING LTD., a corporation incorporated under the laws of the Province of Ontario, (the "Company") and DECLAN A. FRENCH, an individual residing in the Town of Mississauga in the Province of Ontario (the "Executive"). FOR VALUE RECEIVED by each of the parties hereto, receipt and sufficiency of which is hereby acknowledged by each of them, it is hereby agreed as follows: 1. As from the date on which the Company's Registration Statement filed with the U.S. Securities and Exchange Commission is declared effective (the "Commencement Date"), the Executive shall be employed by the Company under the terms of this Agreement. (1) The Company shall employ the Executive and the Executive shall continue to hold office and serve the Company as President and Chief Executive Officer (the "Appointment"). The Executive shall during the course of his employment hereunder perform the duties and exercise the powers consistent with the Appointment, including the making (subject to the terms hereof) of all management decisions affecting generally the Company, and those specific matters which may from time to time be reasonably assigned to or vested in him by the Board of Directors of the Company (the "Board"), and shall from time to time give to the Board all such information regarding such matters as it shall require and implement and apply the policy of the Company as set forth by the Board from time to time, (2) make any material change in the undertaking of the business of the Company; or (3) enter into any Agreements or other obligations with any person otherwise than in the ordinary course of the business of the Company. 2. The Appointment shall continue for a period of 2 years from the Commencement Date (the "Contract Period"), during which the Company shall not be entitled to terminate the Executive's employment except in accordance with and upon the occurrence of any of the events or causes specified in Section 9. 3. (a) The Company shall pay to the Executive during the continuance of his employment hereunder a salary at the rate of Cdn.$150,000 per annum, less applicable statutory deductions, subject to adjustment as provided in Section 4(e) (the "Salary"), but not exceeding a maximum of Cdn.$500,000 per annum, to accrue from day to day and be payable (by direct deposit to the Executive's designated bank account) in equal bi-weekly installments in arrears on the last day of each bi-weekly period; (b) the Company shall provide to the Executive during the continuance of his employment hereunder: (1) an automobile allowance of Cdn.$1,000 per month; and 2 (2) a corporate credit card, to be used by the Executive for business expenses; (c) the Company shall pay to the Executive during the continuance of his employment hereunder a bonus (the "Bonus") of 2% of Production in respect of each of the Company's fiscal quarters (a "Quarter"). The payment date for each Quarter shall be within 15 days after the end of the Quarter. "Production" for purposes of the Bonus, and in respect of any Quarter, shall mean the aggregate of the following amounts: (3) total full time placement fees (exclusive of GST), before tax, billed by the Company in such Quarter; and (4) total spread, representing pre-tax profit to the Company, for such Quarter, in respect of all bilabial hours of contract placements and consulting fees; in each case as determined (such determination to be conclusive in the absence of manifest error) by the Company's accountants in accordance with generally accepted accounting principles, for each such Quarter, and within 7 days of the end of any such Quarter; (d) the Company shall pay to the Executive during the continuance of his employment hereunder a commission (the "Commission") of 1% of every dollar increase over the immediately preceding year in the combined total revenue of the IT Group per annum, calculated as of the end of each fiscal year during the term of this Agreement. "IT Group" for the purposes of the Commission shall mean the Company, International Career Specialists Ltd., Systemsearch Consulting Services Inc., Systems PS Inc., and any other corporation, partnership, joint venture, or business division which becomes controlled by any corporation or any such entity within the IT Group during the term of this Agreement. The Executive's right to receive Commission payments from the Company shall continue in full force and effect for a period of one full year after the date upon which his employment hereunder ceases, whether as the result of the expiry of the term hereof or his earlier resignation or termination, provided that such entitlement shall cease and determine upon his becoming employed by or otherwise directly or indirectly interested or concerned in any business, corporation, partnership, joint venture, firm, or any such entity carrying on a business in the Province of Ontario or any other jurisdiction in which the Company may be carrying on business which is competitive with the business carried on by the Company (otherwise than through the Executive's holding or being beneficially interested in any class of securities in any company if such class of securities is listed on any recognized stock exchange and the Executive neither holds nor is beneficially interested in more than a total of ten per cent of all securities of that class); and (e) the Company shall, during the continuance of the Executive's employment hereunder, increase the Salary payable to the Executive in each fiscal year of the term of this Agreement, retroactively to the first day of each such fiscal year, by 3 an amount equal to the amount of the Commission paid to the Executive in respect of each such fiscal year. 5. The Company shall also pay to the Executive (on production of such evidence as the Company may reasonably require) the amount of all hotel, traveling and other expenses reasonably and properly incurred by him in the discharge of his duties contemplated hereunder. 6. Subject to Section 9 and to the production of satisfactory evidence from a registered medical practitioner in respect of any period of absence in excess of 90 consecutive days, the Executive shall be paid all of the compensation to which he would otherwise be entitled to under this Agreement during any period of absence from work due to sickness or injury. 7. The Executive shall be entitled to 6 weeks holiday with pay in every calendar year in addition to recognized public holidays. The entitlement to holiday (and on termination of employment to holiday pay in lieu of holiday) accrues pro rata throughout each calendar year of employment. 8. (a) The Executive shall not, either during the continuance of his employment hereunder except so far as is necessary in the performance of his duties or thereafter, without the consent in writing of the Board being first obtained, divulge to any person, and shall use his best endeavors to prevent the publication or disclosure of any information, concerning the business, accounts, finances, dealings, transactions or affairs of the Company which has or may come to his knowledge during the course of his employment hereunder or during any previous service with the Company; (b) the Executive shall not, during the continuance of his employment directly or indirectly be interested or concerned in any business, corporation, partnership, joint venture, firm, or any such entity carrying on a business in the Province of Ontario or any other jurisdiction in which the Company may, from to time, conduct business which is competitive with the business carried on by the Company, provided that nothing herein contained shall prevent the Executive from being the holder of or from being beneficially interested in any class of securities in any company if such class of securities is listed on any recognized stock exchange and the Executive neither holds nor is beneficially interested in more than a total of ten per cent of all securities of that class; and (c) the Executive shall devote his full time and attention to the affairs and business of the Company during the continuance of his employment under the terms of this Agreement. 9. The Executive's employment is guaranteed for the entirety of the Contract Period, without restrictions, provided however that if the Executive shall: (2) die; (3) be adjudged or declared bankrupt or shall take advantage of any statute for the time being in force offering relief for insolvent debtors; or 4 (4) become a person whose person or estate is liable to be dealt with under the law relating to mental health; (5) otherwise become or be unable substantially to perform his duties hereunder for any reason whatsoever for a period or periods aggregating at least 180 days in any period of 12 consecutive months; or (6) commit either by commission or omission, any act giving rise to cause for termination ("cause" shall include, without limitation, any material breach of the terms of this Agreement or any other cause recognized at law); then the Company may in any such case by written notice to the Executive (or his representative, as applicable) forthwith terminate his employment hereunder, but no notice under subsection (d) of this Section shall be given by the Company to the Executive after the expiration of three calendar months from the end of any such periods or periods aggregating at least 180 days. Where the Agreement is terminated pursuant to this Section 9, the Executive will be entitled to his Salary and holiday vacation pay accrued up to the date of termination, and the Company shall have no further obligation to make any payments to the Executive, in particular, pursuant to Section 4 of this Agreement. 10. Any notice in writing required or permitted to be given to the Executive hereunder shall be sufficiently given if delivered to him personally or if mailed by registered mail to the Executive's last home address of which the Company has notice. Any notice in writing required or permitted to be given to the Company hereunder shall be sufficiently given if delivered or mailed by registered mail to the Company at its head office c/o the President & Chief Executive Officer, IT Staffing Ltd., 55 University Avenue, Suite 505, Toronto, ON M5H 3L9. Any such notices mailed as aforesaid shall be deemed to have been received on the fifth business day following the date of the mailing. Any address for the giving of notices hereunder may be changed by notice in writing in the manner provided in this Section for the giving of notices. 11. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario. 12. Any provision of this Agreement which is invalid or unenforceable shall not affect any other provision and shall be deemed to be severable. 13. This Agreement shall enure to the benefit of and be binding upon the heirs, executors, administrators and legal personal representative of the Executive and the successors and assigns of the Company. 14. This Agreement constitutes and contains the entire and only Agreement among the parties relating to the matters described herein and supersedes and cancels any and all previous Agreements and understandings between all or any of the parties relative hereto. Any and all prior and contemporaneous negotiations, memoranda of understanding or position, and preliminary drafts and prior versions of this Agreement, whether signed or unsigned, between the parties leading up to the execution hereof shall not be used by any party to construe the terms or affect the validity of this Agreement. There are no representations, inducements, 5 promises, understandings, conditions or warranties express, implied or statutory, between the parties other than as expressly set forth in this Agreement. 15. The Executive acknowledges that he has either obtained or waived independent legal advice in respect of the subject matter of this Agreement. 6 IN WITNESS WHEREOF this Agreement has been executed by the parties hereto on the ____ day of August, 1998, effective as at the Commencement Date. SIGNED, SEALED AND DELIVERED ) in the presence of: ) ) ) ) /s/ Declan A. French - ---------------------------------- ------------------------------------- Witness: DECLAN A. FRENCH IT STAFFING LTD. Per: /s/ Declan A. French c/s ------------------------------ Name: Declan A. French Title: President EX-10.5 8 EMPLOYMENT AGREEMENT - JOHN WILSON Exhibit 10.5 February 11th, 1998 John F. Wilson Enterprises Inc. 3300 Bloor St West Toronto, Ontario RE: Contract Agreement Dear John, This will serve to confirm our understanding that from January 2, 1997 to the completion of a listing on a Public Exchange you have and will continue in the capacity of President and Chief Executive Officer of Systemsearch Consulting Services Inc. (hereinafter referred to as Systems) and Systems PS Inc. (hereinafter referred to as PS). During the interim period from January 2, 1997 until the closing of the share purchase transaction contemplated in the share purchase agreement dated February 1lth. 1998 you shall conduct the business in the ordinary course, completely autonomously but you shall not make any material change in the customary terms and conditions upon which Systems and PS historically did Business unless otherwise agreed by IT. You shall use your best effort to preserve the Business organization and Goodwill of the suppliers, :staff, customers and Businesr, of Systems and PS and to continue to build the Business. It is understood that Systems and PS currently operate from two offices being located in Toronto and Tampa. Subsequent to the closing of the share purchase agreement as aforesaid there will be no change in your position and you will continue as President and Chief Executive Officer. Your contract will be $120,000.00 per annum paid on a bi-weekly basis by direct deposit into your bank. You will be entitled to a $2,500.00 per month auto and cell phone allowance and the use of a corporate American Express card for business expenses. You will also be entitled to the following bonus plan: A 10% Management Bonus on all permanent placements. This override/bonus comprises the full management override bonus and may be distributed to other managers at your sole discretion. $1.00 per billed hour for each contractor signed after February 1st, 1998, including renewals, providing the margin is a minimum of $10.00. This employment is guaranteed for a period of 3 years without restrictions. In the event that this employment contract is terminated by IT thereafter you shall still be entitled to the above bonus of $1.00 per contract hour for a further period of 1 year provided you do not get involved with a competing business. Scope of Authority It is understood and agreed that Syrtems and PS will continue ar. an independently run organization, and that all day to day management decisions and the overall management of the company will continue to be your sole responsibility. Any capital expenditures exceeding $25,000, new hire exceeding $75,000 per annum, new branch opening or any other out of the ordinary day to day decision making will require board of directors approval. I trust that you will find the terms and conditions set out above acceptable. On behalf of IT Staffing Ltd., I am pleased that you have agreed to join us and wish you a long and successful association. /s/ Declan French ----------------------------- Date 2/11/98 Declan French ----------------------- By my signature below, I hereby accept the offer of contract outlined above and acknowledge receiving a duplicate c s letter of agreement on the date indicated below. /s/ John Wilson ----------------------------- John R. Wilson Enterprise EX-10.6 9 EMPLOYMENT AGREEMENT - JOHN A. IRWIN Exhibit 10.6 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of January 1, 1998 by and between INTERNATIONAL CAREER SPECIALISTS LTD., a corporation incorporated under the laws of the Province of Ontario, (the "Company") and JOHN IRWIN, an individual residing in the Tovn of Markham in the Province of Ontario (the "Executive"). FOR VALUE RECEIVED by each of the parties hereto, receipt and sufficiency of which is hereby acknowledged by each of them, it is hereby agreed as follows: As from January 1, 1998 (the "Commencement Date") the Executive shall be employed by the Company under the terms of this agreement. This Agreement shall be conditional, and shall become effective, as of the Commencement Date, upon the completion of the purchase by IT STAFFING LTD. ("IT") of all the issued and outstanding shares in the capital of the Company under that certain Share Purchase Agreement dated as of January 1, 1998. 2. The Company shall employ the Executive and the Executive shall continue to hold office and serve the Company as President and Chief Executive Officer (the "Appointment"). The Executive shall during the course of his employment hereunder perform the duties and exercise the powers consistent with the Appointment, 'mcluding the making (subject to the terms hereof) of all management decisions affecting generally the Company, and those specific matters which may from time to time be reasonably assigned to or vested in him by the Board of Directors of the Company (the "Board") and shall from time to time give to the Board all such information regarding such matters as it shall require and implement and apply the policy of the Company as set forth by the Board firom time to time, provided that: (a) during the period from the Conunencement Date to and including the date on which the shares in the capital of IT are listed on a recognized stock exchange or quoted on a national quotation system (a "Public Offering"), the Executive shall not without the consent of IT make any material change in the customary terms or conditions upon which the Company has historically (i.e., prior to its acquisition by IT) done business, and shall otherwise apply his reasonable best efforts (consistent otherwise with the nature of the Appointment) to preserve the business organization and the goodwill of the suppliers, staff, customers and business of the Company and to continue upon such terms and conditions to build such business; and (b) the Executive cannot without obtaining the specific approval of the Board, do any of the following on behalf of the Company: (i) incur any single capital expenditure exceeding $25,000; (ii) hire any employee at a salary exceeding $75,000 per annum; (iii) open any new branch offices; (iv) make any material change in the undertaking of the business of the Company; or (v) enter into any agreements or other obligations with any person otherwise than in the ordinary course of the business of the Company. 3. The Appointment shall continue for a period of 3 years from the Commencement Date (the "Contract Period"), during which the Company shall not be entitled to terminate the Executive's employment except in accordance with and upon the occurrence of any of the events or causes specified 'M Section 9. 4. (a) The Company shall pay to the Executive during the continuance of his employment hereunder a salary at the rate of Cdn.$200,000 per annum (the "Salary"), to accrue from day to day and be payable (by direct deposit to the Executive's designated bank account) in equal bi-weekly mstahnents in arrears on the last day of each bi-weekly period; (b) the Company shall provide to the Executive: (i) an automobile and cellular phone allowance of Cdn.$ 1,000 per month; and I (i') a corporate American Express card, to be used by the Executive for business expenses; (c) the Company shall pay to the Executive a bonus (the "Bonus") of 2% of Production in each of the Company's fiscal quarters (a "Quarter"). The first payment date for purposes hereof shall be July 1, 1998, in respect of the Quarter ending on June 30, 1998. "Production" for purposes of the Bonus, and in respect of any Quarter, shall mean the aggregate of the following amounts: (i) total full time placement fees (exclusive of GST), before tax, billed by the Company in such Quarter; and (ii) total spread, representing pre-tax profit to the Company, for such Quarter, in respect of all billable hours of contract placements and consulting fees; m each case as determined (such determination to be conclusive in the absence of manifest error) by the Company's accountants in accordance with generally accepted accounting principles, for each such Quarter, and within 7 days of the end of any such Quarter. The Executive's right to receive Bonus payments from the Company shall continue in full force and effect for a period of one full year after the date upon which his employment hereunder ceases, whether as the result of the expiry of the tenn hereof or his earlier resignation or termination, provided that such entitlement shall cease and determine upon his becoming employed by or otherwise directly or indirectly interested or concerned 'M any business, company or finn carrying on a business in the Province.of Ontario or any other jurisdiction in which the Company may be carrying on business which is competitive with the business carried on by the Company (otherwise than through the Executive's holding or being beneficially interested in any class of securities in any company if such class of securities is listed on any recognized stock exchange and the Executive neither holds nor is beneficially interested in more than a total of ten per cent of all securities of that class); and (d) In order to induce him to enter into this Employment Agreement the Company shall procure the granting to the Executive by IT, contemporaneously herewith, by IT of an option to acquire additional shares in the capital of IT, in the form attached as Schedule "A" hereto. o . The Company shall also pay to the Executive (on production of such evidence as the Company may reasonably require) the amount of all hotel, travelling and other expenses reasonably and properly incurred by him in the discharge of his duties contemplated hereunder. 6. Subject to Section 9 and to the production of satisfactory evidence from a registered medical practitioner in respect of any period of absence in excess of 90 consecutive days, the Executive shall be paid in fun during any period of absence from work due to sickness or injury. 7. The Executive shall be entitled to 6 weeks holiday with pay in every calendar year in addition to recognized public holidays. The entitlement to holiday (and on termination of employment to holiday pay in lieu of holiday) accrues pro rata throughout each calendar year of employment. 8 (a) Subject to his rights under the Share Purchase Agreement of even date herewith between the Executive, as vendor and IT, as purchaser of shares in the Company (the "SPA"), the Executive shall not, either dur'mg the continuance of his employment hereunder, except so far as necessary in the perfomiance of his duties or thereafter, without the consent in wn't'mg of the Board being first obtained, diulge to any person and shall use his best endeavours to prevent the publication or disclosure of any information concerning the business, accounts, fmances, dealings, transactions or affairs of the Company which has or may come to his knowledge during the course of his employment hereunder or during any previous service with the Company; and (b) the Executive shall not, during the continuance of his employment directly or indirectly be mterested or concerned in any business, company or firm carrying on a business in the Province of Ontario or any other jurisdiction in which the Company may, from to time, conduct busiess which is competitive with the business carried on by the Company or IT, provided @t nothing he,,em contamed shall prevent the Executive fom being the holder of or from being beneficially interested 'M any class of securities in any company if such class of securities is listed on any recognized stock exchange and the Executive neither holds nor is beneficially interested in more than a total often per cent of all securities of that class. 9. The Executive's employment is guaranteed for the entirety of the Contract Period, without restrictions, provided however that is the Executive shall: (a) die; (b) be adjudged or declared bankrupt or shall take advantage of any statute for the time being in force offering relief for 'msolvent debtors; or (c) become a person whose person or estate is liable to be dealt with under the law relating to mental health; or (d) otherwise become or be unable substantially to perform his duties hereunder by reason of ill-health, accident or otherwise for a period or periods aggregating at least 180 days in any period of 12 consecutive months; than the Company may in any such case by written otice to the Executive (or his representative, as applicable) forthwith temiinate his employment hereunder, but no notice under subsection (c) of this Section shall be given by the Company to the Executive after the expiration of three calendar months from the end of any such periods or periods aggregating at least 180 days. 10. Any notice 'm writing required or permitted to be given to the Executive hereunder shall be suffic'ently given if delivered to him personally or if mailed by registered mail to the Executive's last home address Of which the Company has notice. Any notice in writing required or permitted to be given to the Company hereunder shall be sufficiently given if delivered or mailed by registered mail to the Company at its head office c/o Mr. Declan French, IT Staffing Ltd., 55 University Avenue, Suite 505, Toronto, ON M5H 3L9. Any such notices mailed as aforesaid shall be deemed to have been received on the fifth business day following the date of the mailing. Any address for the giving of notices hereunder may be changed by notice in writing in the manner provided in this Section for the giving of notices. 11. This agreement shall be governed by and constued in accordance with the laws of the Province of Ontario. 12. This agreement shall ensure to the benefit of and be binding upon the heirs, executors, administrators and legal personal representative of the Executive and the successors and assigns of the Company. 13. Other than the other agreements contemplated expressly herein, each of even date herewith (collectively, the "Transaction Agreements"), this agreement constitutes and contains the entire and only agreement among the parties relating to the matters described herein and supersedes and cancels any and all previous agreements and understandigs between all or ay of the parties relative hereto. Any and all prior and contemporaneous negotiations, memoranda of understandig or position, and prelimiay drafts and prior versions of this Agreement, whether signed or unsigned, between the parties leading up to the execution hereof shall not be used by any party to construe the terms or affect the validity of tli's Agreement. There are no representations, inducements, promises, understandings, conditions or waranties express, implied or statutory, between the parties other than as expressly set forth in this Agreement or any of the Transaction Agreements. IN WITNESS HEREOF this agreement has been executed by the paties hereto on the day ofmay, 1998, effective as at the day and year first here'm above set out. SIGNED, SEALED AND DELIVERED in the presence of.. /s/ John Irwin JOHN IRWIN INTERNATIONAL C- IR SPECIALISTS LTD. EX-10.7 10 EMPLOYMENT AGREEMENT - JOHN SILVER Exhibit 10.7 [Letterhead] EMPLOYMENT AGREEMENT between IT STAFFING LTD. and JOHN SILVER TERMS - ----- It is agreed that IT Staffing is offering you employment as a Senior Vice President under the following terms: (a) Your starting salary will be $175,000 US per annum; (b) You are entitled to a monthly car allowance of $750.00 US; (c) You are granted 50,000 company stock options; (d) You are entitled to a bonus equal to 4% of the net profit of the business in your jurisdiction; (e) You are entitled to four (4) weeks of paid vacation per year; (f) Your employment is guaranteed for a period of 12 months from your start date of August 10, 1998; (g) A salary review will be performed after six (6) months; (h) You will be a member of IT Staffing's executive committee effective August 10, 1998; (i) In 1999, Declan French will propose to the Board of Directors that you be considered for a seat on the Board. EXCLUSIVITY - ----------- During the term of your employment, you agree to serve IT Staffing Ltd. diligently and faithfully and agree that you shall not, during the term, be employed or engaged in any capacity, in promoting, undertaking or carrying on any other business. You shall be employed on a full time basis for IT Staffing Ltd. and it is understood that the hours of work involved may vary and be irregular and are those hours of work required to meet the objectives of the employment. You acknowledge that this paragraph constitutes agreement to work hours above and beyond where the agreement is required by legislation. You agree that your duties, responsibilities, reporting relationships and the location of your employment may be changed from time to time by IT Staffing Ltd. as the company may deem appropriate, and that these changes will not effect or change any other part of this agreement. CONFIDENTIALITY You acknowledge that as a Senior Vice President employed by IT Staffing Ltd. and in other positions and responsibilities as you may hold from time to time, you will acquire information about certain matters which are confidential to the company, which information is the exclusive property of the IT Staffing Ltd. You acknowledge that such information is the sole property of the IT Staffing Ltd. and could be used to the detriment of the IT Staffing Ltd. Accordingly, you undertake to keep all such information in the strictest confidence and agree not to disclose it to any other person or entity either during or following your term of employment, except as may be strictly necessary to perform your duties, except with the written permission of the Chief Executive Officer of the company or his designate. TERMINATION Subject to paragraph 2 above, your employment pursuant to this agreement may be terminated in the following manner in the specified circumstances: (a) By you, on the giving of three (3) months advance notice in writing to IT Staffing Ltd. The company may waive notice, in whole or in part, but will nonetheless continue to pay you for the three months in question. (b) By IT Staffing Ltd., on the giving of three (3) months advance notice in writing; (c) By IT Staffing Ltd., without notice or payment in lieu thereof, for cause. For the purposes of this agreement, "cause" shall mean: i) any material breach of the provisions of this agreement by you; ii) incompetence or failure to discharge any of the responsibilities set out above to the satisfaction of the IT Staffing Ltd.; iii) insubordination or dishonesty iv) your absence from work for any reason which results in your inability to perform your duties in accordance with this agreement for a period of 20 regular or scheduled work days in any 180 day period (excluding accident or injury); v) all omissions which would have been cause at law, in addition to the above. The failure of IT Staffing Ltd. to rely on provision (c) at any time or times shall not constitute a precedent or be deemed a waiver. The company may, in its sole discretion, give notice of termination or payment in lieu thereof without prejudice to its right to allege cause for termination. 2 COMPETITION It is agreed by you that; (a) you recognise and acknowledge the competitive advantage that would be provided by and the confidential nature of all material, including but without limitation, non-public financial and business information and documents, which have been made available to you during the course of your employment by IT Staffing Ltd. (b) you confirm and agree that, except as required by law, you will not disclose, release, remove or retain any of the information or documents made available to, or obtained by you, during the course of your employment by IT Staffing Ltd. without the prior written consent of IT Staffing Ltd. (c) you will not, without the prior written consent of IT Staffing Ltd. for a period of two years (2) from the date of your termination, directly or indirectly, solicit for employment by you or any other person, firm or corporation, any person who is at the date of termination employed by, whether full time or part time or by any arrangement, IT Staffing Ltd. and; (d) you will not, without the prior written consent of IT Staffing Ltd., for a period of six (6) months from the date of your termination, directly or indirectly solicit any clients or candidates of IT Staffing. I trust that you will find the terms and conditions set out above acceptable. On behalf of IT Staffing Ltd., I am pleased that you have agreed to join us and wish you a long and successful association. /s/ Declan French 7/24/98 - ----------------------------------- --------------------------------- Declan French Date President IT Staffing Ltd. I have read and fully understood the provision of the letter of agreement set out on the preceding pages above. I acknowledge having had an opportunity to seek such advice with respect to its contents as I consider appropriate. By my signature below, I hereby accept the offer of employment outlined outlined in the attached letter and acknowledge receiving a duplicate copy of this letter of agreement on the date indicated below. /s/ John Silver 3 EX-10.8 11 CONSULT. AGR. B/W IT STAFFING & CONTRACTOR Exhibit 10.8 [Letterhead] CONSULTING SERVICES AGREEMENT DATED THIS (DATE) DAY OF (MONTH), 1998 BETWEEN IT STAFFING LTD. (hereinafter referred to as the Company) and (CONTRACTOR NAME) (ADDRESS) (hereinafter referred to as the Independent Contractor) Whereas, the COMPANY carries on the business of providing data processing consulting services to Clients; and whereas, the INDEPENDENT CONTRACTOR is a business independent of the Company and has agreed to enter into an agreement as an Independent Contractor with the Company. Therefore, in consideration of the foregoing recitals and the covenants and the conditions set forth in this Agreement, the parties agree as follows: 1. The Independent Contractor hereby hires his/her services to the Company at the total hourly rate of: $(#). 2. The parties hereto mutually agree that the term of this contract shall be for the period beginning (start date) to (end date) or until hereinafter set out. 3. The Independent Contractor agrees to attend at (CLIENT) (hereinafter called the "Client"), commencing on the (#) day of (month), 1998 and to attend regularly thereafter to perform services as directed by the Client. 4. The Independent Contractor shall be paid bi-weekly fourteen (14) days in arrears. 5. The Independent Contractor agrees to invoice the Company bi-weekly for any hours worked and substantiate this with the Company's time sheet duly signed by an authorized Client to whom the Independent Contractor is assigned. The independent contractor further agrees to furnish invoices and times sheets within three (3) days following the pay period in order to be paid as set out in item 4. Invoices and time sheets not received by the date specified will be processed the next pay period. 6. The Independent Contractor agrees to be personally responsible for Income Tax declaration, payment of the employee and employer portions of CPP and UIC if applicable, GST Tax collection and payment, Employer's Health Tax payment, and to indemnify and save harmless the company from any claims made against it with respect to the foregoing. 7. It is mutually agreed that the company is not responsible for Annual Vacation Pay and Statutory Holiday Pay to the Independent Contractor. 8. This agreement may be terminated (i) by the Client giving notice to the Company that the Client no longer wishes to utilize the services of the Independent Contractor. (ii) by the Company giving notice either written or oral to the Independent Contractor and such agreement shall then be terminated on the date such notice is given or at such other time or date mentioned in the notice. 9. The Independent Contractor shall, not less than seven (7) days prior to the expiration of the period set out above, give the Company notice in writing of his/her intention not to continue this agreement with the Company, and if no such notice is given, this contract shall continue automatically for periods of thirty (30) days unless and until the Independent Contractor shall notify the Company in writing not less than seven (7) days prior to the expiration of a thirty (30) day period, of his/her intention to discontinue the agreement. 10. The Independent Contractor will faithfully serve the Company and its Client and use his/her best efforts to promote the interest thereof and shall carry out all lawful orders given by the Company or the Client. 11. The Independent Contractor hereby covenants and agrees that he/she will not (without the prior written consent of the Company) until a period of six (6) months has elapsed from the date of termination of the Agreement either directly or indirectly (a) Become an employee of the Client. (b) Enter into an agreement as an Independent Contractor with the Client. (c) Perform any remunerative work for or on behalf of the Client. (d) Enter into an arrangement with a competing "consulting" business and perform work for the Client. 12. It is mutually agreed that the service provided by the Company in introducing the Independent Contractor to the Client and entering into an agreement with the Independent Contractor is a unique and valuable service provided to the Independent Contractor by the Company and that the Company has expended money and effort on the Independent Contractor's behalf and the Company has a right to protect its interest in maintaining the goodwill and business arrangements with the Client, and the Company shall be entitled as a matter of right, in addition to all other rights it may otherwise have in law to obtain an injunction or other equitable relief to prevent the breach by the Independent Contractor of this agreement and in particular Clause 11 hereof. 13. Independent Contractor agrees that all information, records or materials in any form related to the Client, its affiliates or associated Companies, their products, insureds, clients and shareholders are confidential, and Independent Contractor shall not, before or after the termination of this Agreement, disclose any such confidential information to any person, firm or organization without the prior written consent of the Company or Client. In no event shall the Company be responsible for special, indirect or consequential losses or damages arising from such a breach. 14. The Independent Contractor acknowledges receipt of a copy of this agreement. IT STAFFING LTD. INDEPENDENT CONTRACTOR Per: Per: ---------------------------- ------------------------------- ACCOUNT MANAGER - -------------------------------- ----------------------------------- Date Date EX-10.9 12 AGR. FOR CONSULT. SVCS. B/W CLIENT & IT Exhibit 10.9 {Letterhead] AGREEMENT FOR CONSULTANT SERVICES Made in duplicate this **** day of *****, 1998 between **CLIENT** (hereinafter referred to as the "Client") and IT STAFFING LTD. (hereinafter referred to as the "Supplier") IN CONSIDERATION of the mutual covenants hereinafter contained, the Client and Supplier agree as follows subject to the acceptance of both parties as evidenced by signatures of their duly authorized Officers. 1. SERVICING Supplier agrees to provide the Client the services of **CONTRACTOR** (hereinafter referred to as the "Consultant") subject to the terms and conditions set forth in this Agreement. WORK SITE: START DATE: END DATE: FEE FOR SERVICES: 2. PAYMENT TERMS The Consultant will complete and submit to the Client's appropriate representative, time sheets weekly. Invoices for services will be prepared every two weeks by the Supplier and will be accompanied by copies of the approved weekly time sheets. Invoices are payable by the Client upon receipt thereof. 3. TAX LIABILITY Supplier and Consultant hereby agree that they will be jointly and severally liable to reimburse the Client for any income tax liabilities, penalties, fines or legal expenses incurred by the Client with respect to withholding tax in connection with the employment of the Consultant by the Supplier. 4. QUALIFICATIONS OF CONSULTANTS Supplier represents that the Consultants have the technical qualifications and capabilities required by the Client. 5. REPORTING The Consultant will work under the general management and guidance of **MANAGER**. Any information required for the carrying out of his/her duties should be obtained from ****** or his/her designate. Any time off under this Agreement must be pre-authorized by ***** or his/her designate. 6. TRAVEL AND LIVING EXPENSES The Client will reimburse Supplier pre-approved travel and related out-of-pocket expenses. This reimbursement will not, in any case, exceed travel expenses and allowances permitted to the Client's employees traveling in accordance with the Client's travel policies as amended. All travel and out-of-pocket expenses for which Supplier seeks reimbursement, shall be submitted to the Client on vouchers, copies of which shall accompany the invoices. 7. STANDARDS The Consultant will adhere to all of the Client's standards and procedures for systems development, progress reporting, safety and personnel matters. The Consultant will also adhere to such other standards and procedures as may be defined by the Client for specific projects. Noncompliance may give rise to the Client's right to terminate. 8. CONFIDENTIALITY Supplier agrees that all information, records or materials in any form related to the Client, its affiliates or associated Companies, their products, insureds, clients and shareholders acquired by Suppliers, its employees, Officers and Agents are confidential, and Supplier shall not, before or after the termination of this Agreement, disclose any such confidential information to any person, firm or organization without the prior written consent of the Client. Supplier shall indemnify and hold the Client harmless from any loss, claim or damage arising from a breach of Supplier's obligations in this paragraph. In no event shall Supplier be responsible for special, indirect or consequential losses or damages arising from such a breach. 9. TERMINATION OF SERVICES This Agreement may be terminated as follows: (a) by either party immediately upon issuance of written notice to the other party in the event of breach of any term of this Agreement; (b) by the Client for any reason by giving Supplier at least 14 days written notice. (c) by the Client without notice in any one of the following circumstances: (i) The Consultant's performance is unsatisfactory; (ii) The Consultant is not legally entitled to work; or (iii) The Consultant poses a threat to the Client's environment by reason of Consultant's history of sabotage, malicious damage or any other act which could harm the Client's materials, property and staff. (d) by Supplier without notice in the event of the death, resignation, unforeseen accident to or illness of the Consultant. In the event of termination and regardless of any dispute which may exist between the Client and Supplier, all the Client's materials, property and work in the possession of Supplier and its employees or agents shall be delivered to the Client. In the event of termination due to (c) or (d) above, or at the mutual agreement of Supplier and the Client, Supplier will provide a replacement satisfactory to the Client, if the Client so wishes. 10. OWNERSHIP The products of this Agreement, including all software developed by Supplier and documentation relating thereto, shall be the sole and exclusive property of the Client, free from any claim or retention of rights thereto by Supplier. For greater certainty it is agreed that the Client's property rights to the products of this Agreement shall include all copyrights, patents or trade secrets in any of the work performed as a result of this Agreement. Supplier further agrees to sign all assignments and other papers necessary to vest the entire rights, title and interest in such products, at the Client's request, and to do all lawful acts and sign all assignments and other papers the Client may reasonably request relating to applications for trade marks, patents and copyrights, both Canadian and foreign, and the providing of protection of the Client's property interest in any said products. 11. DAMAGE TO THE CLIENT'S PROPERTY Supplier shall be solely responsible for and shall hold the Client free and harmless from any and all losses, damages, claims, demands, expenses or costs, excepting those of a consequential or indirect nature, arising out of or connected with injuries or damages occasioned by the negligence of Supplier, its employees, servants, agents, contractors or other persons while on the premises for the purpose of carrying out the terms of this Agreement. 12. CHANGES TO AGREEMENT This Agreement may be changed by mutual agreement at any time prior to completion. Such changes may be requested by either party and must be confirmed in writing. 13. ENTIRE AGREEMENT This Agreement, contains the entire agreement between Supplier and the Client with respect to the subject matter thereof as of its date and supersedes all prior agreements, negotiations, representations and proposals, written and oral, relating to its subject matter. 14. ASSIGNMENT This Agreement cannot be assigned by either party in any way except with the written consent of the other party. 15. RELATIONSHIP OF PARTIES It is expressly understood and agreed that the personnel furnished by Supplier under this Agreement shall be and shall remain employees or agents of Supplier. Under no circumstances are such employees to be considered employees or agents of the Client. The Supplier and its employees or agents shall be in an Independent Contractor relationship to the Client at all times. 16. SOLICITATION FOR EMPLOYMENT The Client agrees that within the duration of this Agreement and for a period of six months thereafter, it will not employ directly or indirectly sub-contract any of the employees of the Supplier without obtaining the Supplier's prior written consent. The Supplier agrees that within the duration of this Agreement and for a period of six months thereafter, it will not employ or directly or indirectly sub-contract any of the employees of the Client without obtaining the Client's prior written consent. 17. PATENT & COPYRIGHT INFRINGEMENT Supplier will defend or settle, at its own expense, any suit or proceeding brought against the Client so far as based upon a claim that any product or any part thereof furnished or developed by Supplier, or use thereof, constitutes an infringement of any patent copyright, trade secret or trade mark. If notified promptly in writing and given authority, information and assistance for the defense or settlement of the same by the Client. 18. EXTENSION This Agreement may be extended by mutual agreement of the Client and the Supplier upon two (2) weeks written notice. The provisions of this Agreement shall apply to all extensions. 19. SURVIVAL The provisions of the paragraphs entitled "Patent & Copyright Infringement", "Confidentiality", "Tax Liability", "Ownership" and "Solicitation for Employment" shall survive termination of this Agreement. 20. SEVERABILITY In the event that any provision hereof is found invalid or unenforceable pursuant to judicial decree or decision, the remainder of this Agreement shall remain valid and enforceable. 21. NOTICES Any notice provided hereunder shall be in writing and delivered or sent by registered or certified mail, postage pre-paid, addressed to the party for which it is intended at the address set forth below or to such other address as either party shall from time to time indicate in writing . Said notice if mailed shall be deemed to be effective upon receipt or three days from date of mailing, whichever occurs first. IT Staffing Ltd. 55 University Avenue, Suite 505, Toronto, Ontario M5J 2H7 22. GOVERNING LAW This Agreement is made under and shall be governed by the law of the Province of Ontario. SUPPLIER: IT STAFFING LTD. CLIENT: PER: PER: TITLE: TITLE: - ----------------------- ---------------------------- SIGNATURE SIGNATURE - ----------------------- ---------------------------- DATE DATE EX-10.10 13 SHARE PURCHASE AGREEMENT Exhibit 10.10 SHARE PURCHASE AGREEMENT THIS AGREEMENT made effective as of the 1st day of January 1998. AMONG: IT STAFFING LTD., a corporation incorporated and subsisting under the laws of the Province of Ontario (hereinafter called "IT") AND: JOHN IRWIN, an individual residing in the Town of Markham, in the Province of Ontario (hereinafter called the "Vendor") AND: INTERNATIONAL CAREER SPECIALISTS LTD.,A corporation incorporated and subsisting under the laws of the Prov'mce of Ontario (hereinafter called "ics AREAS: The Vendor is the legal and beneficial owner of I 00% of the issued and outstanding shares in capital stock of ICS. IT desires to acquire, on the terms and conditions as set forth below, 100% of the issued and outstanding shares in the capital stock of ICS. The Vendor desires to sell, on the terms and in the manner set forth below, 100% of the issued and outstanding shares in the capital stock of ICS. The Vendor, as a consequence of the payment of the purchase price will become a significant shareholder of IT. NOW THEREFORE THIS AGREEMENT SSES THAT in consideration of the premises set forth above, the mutual covenants and agreements and such other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: DEFINITIONS Capitalized terms defined in the Employment Agreement or the Share Option Agreement, and not otherwise defused in this Agreement, shall have the same meanings where used in this Agreement. Where used in this Agreement the following terms shall have the following meanings: (a) "Affiliate" means any person, firm or corporation (excepting the IT) who, directly or indirectly through other corporations, fi= or trusts, has any interest, other than by way of pledge, in any of the outstanding shares of IT and any firm or corporation controlled, directly or indirectly through other corporations, firm or trusts, by any one or more of such persons and any person who is related by blood relationship, marriage or adoption to any such person; (b) "Closing Conditions" means, collectively, the IT Conditions and the Vendor Conditions; 2 - (c) "Employment Agreement" means the Employment Agreement of even date herewith between ICS, as employer, and the Vendor, as employee, in the fortn attached as Schedule "A" hereto; (d) "Issue D ate" means the date of completion of any Public Offering; (e) "Public Offering" has the meaning ascribed thereto in the Share Option Agreement; (f) "Securities" means, collectively, the ICS Shares and the IT Shares; (g) "Share Option Agreement" means the Share Option Agreement of even date herewith between the Vendor, as optionee, and IT, as optionor; (h) "Target Date" means the earliest of the following dates: July 29. 1999; and any date on which: (A) IT ceases to carry on its business; or (B) IT makes a general assignment for the benefit of its creditors or a proposal under the Bankruptcy and Insolvency Act or is declared banlaup@ or a receiver is appointed for IT and such appointment is not stayed with @ I 0 business clays thereof, or a proposal or plan of arrangement or restructuring under any applicable laws relating to bankruptcy and/or insolvency, or any similar laws is made by or for it; or (C) an order is made, or an elective resolution is passed by IT, for the winding-up, liquidation or dissolution of IT. 2. PURCRASE OF SHARES (a) Closing. Closing of the transactions contemplated under this Agreement shall occur at the offices of IT on May 15, 1998, or such later date as all the parties might agree in writing (the "Closing Date"), provided, however, that closing shall not in any event occur at any date later than May 26, 1998 1 after which date this Agreement shall (if closing has not occurred) be deemed tenti'mated and of no furdier force or effect and the Deposit deemed forfeited. (b) Purchase Price, in aggregate, is $ 1,000,000 paid as follows: (i) the aggregate purchase price for 50% of the issued and outstanding shares in the capital stock of ICS is $500,000 and is to be paid as follows: (A) a non-refundable deposit (the "Deposit") in the sum of $30,000, by cheque;and (B) on closing, a further $470,000 by certified cheque. 3 - the aggregate price for 50% of the issued and outstanding shares in the capital stock of ICS is 5500,000 and is to be paid and satisfied: (A) by IT's issuing to the Vendor on the Closing Date, from treasury, I 00,000 common shares in the capital stock of IT. (c) Delively of share certification. On the Clos-mg Date: the Vendor shall deliver to IT share certificates represent' 1 00% of the issued and outstanding shares in ICS (the M9 "ICS Shares"), duly endorsed in blank for transfer to IT; and IT shall deliver to the Vendor share certificates representing I 00,000 conunon shares in the capital of IT (the "IT Shares"), duly authorized, issued and registered in IT's corporate minute books/ledgers in the name of the Vendor. 3. SPECLAL RIGHTS OF VENDOR. At any time on or within 90 days follow'mg any Target Date, and if as at such date no Public Offering has been completed, the Vendor may at his option (exercised by written notice however to IT) exercise any one or more of the following rights, hereby granted to it: (a) to ,equire IT to purchase from the Vendor all its IT Shares, in consideration of a purchase price of either (at the option of IT): the return to the Vendor, free and clear of all encumbrances, charges or claims of any kind 50% of the ICS Shares originally purchased by IT from the Vendor pursuant to this Agreement; or 1 00,000, paid by certified cheque; (b) to terminate his employment under the Employment Agreemen@ and to require IT, and ICS to release and discharge the Vendor of any obligations on its part to be performed or observed under any of this Agreement, any Transaction Documents or any other agreements binding on it, existing otherwise by law based on any of the Vendor's employment, appointment as director or officer or otherwise, or its status at any relevant time as a fiduciary or as a holder or former holder of any shares in either IT or ICS, or otherwise applicable to the Vendor in any capacity whatsoever, to refrain from freely competing directly or indirectly, in any manner, with ICS or IT, or from soliciting third parties (including without limitation any customers or former customers of ICS), to the fullest extent as though the Vendor had never sold the ICS Shares to IT and the tmmactions contemplated under the Transaction Documents never occurred, and each of IT and ICS shall be deemed to have consented to such matters upon the date of delivery by the Vendor of any notice under this Section invoking this right; in such event, IT and ICS shall be deemed further to have consented to the Vendor's using thereafter in a competing business any business name or style at any time previously used by ICS, including without limitation the names "International Cweer Specialists Ltd." and "ICS", and if so requested by the Vendor, ICS and IT shall effect a change (non-continuing) to ICS's corporate name and any required business styles. 4. FILING ELECTIONS. The Vendor and IT shall elect in prescribed form and manner to have the provisions of subsection 85(1) of the Income Tax Act (Canada) apply to the transfer of the ICS Shares, and shall deliver the same to Revenue Canada, Taxation within the time period prescribed under such Act. 4 - CONDUCT OF BUSINESS. Interim Operation fom January I st, 1998 until the Target Date: (a) the Vendor and ICS shall conduct their respective businesses in the ordinary course, completely autonomously, and 'm a manner consistent with the Employment Agreement, and they shall not make any material change in the customary terms and conditions upon which they historically did business unless otherwise agreed in writing between IT and the Vendor, with the following exception: That John Armstrong of ICS shall be offered a VP title within ICS, a role of increased responsibility, an annual bonus of one half of one per cent of the total Production (as such term is defmed in the Employment Agreement) of ICS, and stock options in IT equal to 50% of this annualbonus;and (b) the Vendor and ICS shall use their best efforts to preserve the bus'mess orgamzation and goodwill of the suppliers, staff, customers and Business of ICS, provided that the Vendor's obligations in this regard shall be as set forth in the Employment Agreement. 6. VENDOR COVENANTS. The Vendor hereby covenants that (a) it shall not take any action or omission which will in any way delay or prevent the completion of this transaction on the Closing Date; (b) all bonuses (other dm any bonuses relating to Asset Proceeds, or Bonuses as defined in and payable to the Vendor under the Employment Agreement) are to be forgiven by ICS on clos'mg; (c) it shall cause the owner of ICS's business premises (in respect of which ICS is currently in occupation) forthwith after execution and delivery of this Agreement to enter into a formal commercial lease (a "Premises @ase") with IT or with ICS. Said lease will have a 3 year term at rents of $5,000/month, which rent terms shall apply in respect of an periods of occupation prior to execution and delivery of such lease. Other Premises Lease terms shall be as settled between the parties, consistent otherwise with ICS's past use and occupation of the premises, and IT shall prepare and submit to the owner a draft document for this purpose within I 0 days of the date of execution hereof; (d) ICS will be responsible for its' own share of professional fees relating to this acquisition; and (e) it shall keep all details of this Agreement strictly confidential. 7. IT REPRESENTATIONS AND WARRANTIES. IT hereby represents to and in favour of the Vendor that the following statements are and will be true and correct on and as at the Closing Date: (a) IT is a corporation duly incorporated and organized and is a valid and subsisting corporation under the laws of Ontario and has all necessary corporate power and authority to carried on by it; 5 - (b) IT has the power, full legal right and corporate authority to enter into, execute and deliver this Agreement, the Employment Agreement and the Share Option Agreement (collectively, the "Tra.s.c-tion Documents") and to do all acts and things and execute and deliver all documents and instruments as are required hereunder and thereunder to be done, observed or performed by it in accordance with the temis thereof., (c) IT has taken all necessary corporate action to authorize the creation, execution, delivery and performance of the Transaction Documents and none of the foregoing requires or will require the consent or approval of any person except such as has already been obtained and is in full force and effect nor is any such action in contravention of or in conflict with its charter or by-laws or resolutions of its directors or shareholders, the provisions of any statute or regulation or the terms and provisions of any mortgage, indenture, contrac@ agreement, instrument, judgment, decree or order to which IT is a party or by which it or any of its properties or assets are or may become bound; (d) each of the Transaction Documents, constitutes a valid and legally binding obligation of IT enforceable against it i. ccordance with its terms; (e) the IT Shares have been duly and validly issued as fully paid and non-assessable shares by IT to the Vendor; forms of share certificates representing the IT Shares have been validly adopted by IT and the share certificates delivered to the Vendor have been validly executed and delivered under the corporate seal of IT by proper off-lcers of IT duly authorized in that behalf; (g) the by-laws of IT as enacted by its board of directors are consistent in all material respects, and do not conflict 'm any material way with the provisions of the Transaction Documents; (h) attached as Schedule "C" hereto are true copies of IT's Articles of Incorporation (the "IT Articles"); and (i) IT is a Canadian-controlled private corporation, within the meaning of such term as referenced in Section 248 of the I,,,,,.e Tax Act (Canada). 8. IT COVENANTS: IT hereby covenants that: (a) it will be responsible for its' own share of professional fees relating to this acquisition, which for this purpose shall include all accounting fees charged from and after April 15, 1998, by Naffim Feiner; (b) it will be responsible for filing all financial statements and applicable tax returns subsequent to the Closig Date; (c) no changes will be made to the commission structure of ICS's consultants or bank signing authorities before the Issue Date without the express written consent of the Vendor; 6 - (d) no changes will be made to the time fi-ame for ICS consultant's commission payouts, between when the applicable cheque is received by ICS from the customer and vhen the ICS consultant's commission is paid, currently at a maximum of 72 hours; (e) it shall 'mdemnify the Vendor from any clause, damages and legal actions that could occur after the Closing Date; it shall keep all details of this Agreement strictly confidential; (g) it shall not, without the prior written consent of the Vendor cause or permit, at any time prior to the Issue Date: (i) any amendment to the IT Articles, other than any amendment made in anticipation of the Public Offering strictly to remove any private company restrictions and/or requirements for d'uector's consent to share transfers; 11) the taking by ICS of any proceedings with a view to the dissolution, winding-up or termination of the corporate existence of ICS; the creation or assumption after the date hereof of any mortgage, pledge, charge or other encumbrance on or the creation of any security interest in any of the Excluded ICS Assets; (iv) any material change in the undertaking of the business or operations of ICS; (v) the making by ICS of any agreements with any of the parties or any Affiliate of IT not in the ordinary course of business; or (V1) the assumption by ICS of liability for the obligations of any third party other than IT. 9. VENDOR REPRESENTATIONS AND WARRANTIES. The Vendor represents and warrants to and in favour of IT that the following statements are true and correct on and as of the Closing Date: (a) it has not been induced into entering into this Agreement by oral or written representation ,orpromisesexceptassetout' thisAgreementoranyotherdocumentreferencedinthis Agreement to which it is a party; (b) it is not now and will not be on Closing Date a non-resident as defmed in the Income T= Act (Canada); (c) there is no material information or knowledge which has been withheld from IT relating to ICS which, if known, would cause the purchaser to alter his decision to purchase the ICS Shares; (d) from November 1, 1997, other than the purchase and subsequent sale of the Pahn Harbor, Florida house, or other transactions, bonuses, dividends and/or divestitures by or on behalf of ICS referenced in this Agreement, there are no out of the ordinary transactions affecting ICS, including but not limited to, declaration or payment of dividends and payment of declared bonuses other dm a payment up to a maximum of $100,000 over 7 - and above the employment contract as a bonus payment; (e) IT is relying on the October 3 1 st 1997 fmancial statements, copies of which are attached as Schedule "B" hereto; the Vendor is the beneficial owner of the ICS Shares with good and marketable title thereto, free and clear of any mortgage, charge, pledge, security interest lien, demand or other encumbrance whatsoever; (g) the Vendor has the right to sell and @fer the ICS Shares free and clear of any mortgage, charge, pledge, security interest, lien, demand or other encumbrance whatsoever, all 'M accordance with the terms of this Agreement and no person, firm or corporation (other than the Purchaser) has any agreement or option for the purchase or acquisition of the ICS Shares from the Vendor; (h) the share certificates representing the ICS Shares were duly and validly issued by ICS, and have been validly executed and delivered under the corporate seal of ICS by proper off-icers of ICS duly authorized in that behalf; and the by-laws of ICS enacted by its board of directors are consistent in all material respects, and do not conflict 'M any material way with the provisions of the Transaction Documents. 10. EXCLUDED ICS ASSETS. IT acknowledges that with its consen@ ICS will, prior to the Closing Date dispose of (and pay out the net proceeds thereof ("Asset Proceeds") to the Vendor, by way of dividend or bonus) the following assets (collectively the "Excluded ICS Assets"): (i) Florida (Pahn Harbor) property (the "Excluded Real Property"); ('i) investment in 1242541 Ontario Ltd.; (iii) ICS Stocks/Mutual fund investments with Midland Walwyn of $71,000 (approximate); and (iv) 1993 Jeep Cherokee; and (v) pay out to the Vendor, by way of bonus or dividend up to $ 100,000 of cash in ICS's account. These assets will not, in any even@ form part of this transaction, whether or not they have been disposed of as of the Closing Date, and the parties shall make appropriate adjustments in the event that any of same is not disposed of prior to the Closing Date. IT shall cause ICS to pay out to the Vendor by way of bonus any Asset Proceeds not rendered paid out or distributed prior to the Closing Date. Any Asset Proceeds received by ICS shall be held in @t for the Vendor and shall be immediately thereupon paid over to the Vendor. IT CLOSING CONDITIONS. The obligations of the IT hereunder to Purchase the ICS Shares on the Closing Date is subject to compliance with the following conditions precedent (the "IT Conditions"), it being agreed that such conditions precedent are for the exclusive benefit of IT: (a) the representations and ..r,..ties of the Vendor conta'med 'm this Agreement or any othe, Transaction Documents shall be true and cotect on and as at the Closing Date; (b) all the Transaction Documents and other closing documents as are contemplated hereby or as are reasonable and appropriate in the circumstances shall have been executed and delivered by each of the parties thereto; and (c) the Vend., shall have copl'@ed with its covenants hereunder. 12. VENDOR CLOSING CONDITIONS. The obligations of the Vendor hereunder to sell the ICS Shares on the Closing Date is subject to compliance with the follow'mg conditions precedent (the "Vendor Conditions"), it being agreed that such conditions precedent are for the exclusive benefit of the Vendor: (a) the representations and warranties of IT contained in this Agreement or any other Transaction Documents shall be true and correct on and as at the Closing Date; (b) the IT Articles shall be in form and substance satisfactory to the Vendor, acting reasonably; (c) all the Transaction Documents and other closing documents as are contemplated hereby or as are reasonable and appropriate in the circumstances shall have been executed and delivered by each of the parties thereto; (d) in the event that the Excluded Real Property is not disposed of by ICS prior to the Closing Date, the Vendor and IT shall have entered into an arrangement satisfactory to both of them for the purchase of beneficial ownership of the Excluded Real Property from the Vendor; and (e) IT shall have complied with its covenants hereunder. 13. CONFIDENTL&LITY. IT, ICS and the Vendor agree that any information obtained during examination of the fmancial records and/or other legal documentation is confidential and warrant that any such information will not be transmitted to anyone other than their respective advisors. 14. SEVERABIILITY. If any term, representation or condition of this Agreement is determined invalid or to any extent unenforceable, that provision insofar as it related to that party or circumstances shall be deemed not to be included herein and the balance of this Agreement shall remain in full force and effect and continue to be binding upon the parties hereto. 15. SECTIONS AND HEADINGS. The division of this Agreement into Articles and Sections and the insertion of headings are for the convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplemental or ancillary hereto. Unless something 'M the subject matter or context is inconsistent therewith, references herein to Articles and 9 Sections are to Articles and Sections of this Agreement. 16. T@. Time shall be of the essence of this Agreement. When calculating the period of time within which or following which any ct is to be done or step take. pursuant to this Agreement, the date which is the reference date in calculating such period shall be excluded. 17. EXTENDED MIEANINGS. Words importing the singular number only shall include the plural and vice versa and words importing gender shall 'mclude masculine, feminine and neuter genders. 18. CANADIAN DOLLARS. Unless otherwise provided here'm, all monetary amounts set forth in this Agreement are in Canadian dollars. 19. NOTICES. Any notices required or permitted to be given hereunder shall be in writing and may be given by delivering same or sending same by facsimile addressed to: (a) the Vendor at: 38 Shady Lane Crescent Itomhill, ON L3T 3W7 Attention: Mr. John @ Facsimile No.: (905) 707-9941; (b) IT at: c/o Mr. Declan French IT Staffing Ltd. 55 University Avenue, Suite 505 Toronto, ON M5H 3L9 Facsimile No.: (416) 364-2424; with copy to ICS; and (c) ICS at: c/o Mr. John Irwin International Career Specialists Ltd. 1041 McNicoll Avenue Scarborough, ON M I W 3W6 Facsimile No.: (416) 942-0341 with copy to IT. Any such notice if sent by facs@le shall be deemed to have been received by the addressee on the day following the day o. which the notice was so sent. Any party to this Agreement may change its or his address for notice from time to time by notice given in accordance with the foregoing and any subsequent notice shall be sent to the party at its or his changed address. 10 - 20. FURTHER DOCUMENTS. Subject to the satisfaction of all Closing Conditions, this Agreement shall operate as a transfer, ass'g-,,.t and delivery by each transferor to each transferee of the Securities, as applicable, (effecti,,e on the Clos' g Date, but nevertheless each party hereto covenants vith the others of them to execute all such further documents and p,,rform such other acts as may be requisite or necessary to carry out the purpose and intent of this Agreement. 21. SURVIVAL. Any representation, warranty or covenant contained 'M this Agreement made by a party hereto, and the rights of the Vendor under Section 3, shall survive the Closing Date and shall continue in full force and effect thereafter for a period of three years from the Closing Date except for the Vendor's representation and ' Section 9(f) which shall survive indefmitely. warranty in 1 22. AMIENDMEENT. This Agreement may not be amended except by a written instrument signed by all the parties hereto. IN WITNESS WHEREOF the partied here to have duly executed this Agreement as of the day of May, 1998. International Career Specialists Ltd. /s/ John Irwin --------------------------- John Irwin IT Staffing Ltd. /s/ Declan French --------------------------- President 11 EX-10.12 14 LICENSE AGR. B/W INTL OFFICE & IT STAFFING Exhibit 10.12 LICENSE AGREEMENT Between INTERNATIONAL OFFICE CENTERS CORP. and IT STAFFING LTD, License Agreement This License (the 'License') is made on the Ist day of August, 1998 between International Office Centers Corp. ('IOC'), a Delaware Corporation having offices at One World Trade Center, Suite 7967, New York, New York 10048 and I.T. Staffing, Ltd. C'Clientw) of 55 University Ave. Suite 505, Toronto, Ontario M5J 2H7 (address other than One World Trade Center). The parties hereto agree as follows: 1. License of Premises. IOC hereby grants Client the revocable privilege to use Office number 35 (the 'Office') in IOC's premises at One World Trade Center, Suite 7967, New York, New York (the 'Building'), together with the revocable privilege to use certain other portions of IOC's premises along with others that IOC may designate, all in accordance with the terms and conditions of this License. Client shall have no right to the Office and shall have no right to receive services pursuant to this License until (a) IOC has received the first Monthly License Fee payment (as defmed in Paragraph 3 hereoo and (b) the Security Deposit (as defined in Paragraph 7 hercoo and (c) IOC has accepted this License at its New York office by executing it and has returned a executed License to Client and (d) IOC has received all forms required by it including, but not limited to, the Credit Application Form. Note that this is not a lease, only a revocable License to use certain space in IOC's pren-tises. Client has no real property right or interest in the Office or the building. In the event that Client has not paid the first Monthly License Fee Payment to IOC on, or prior to the Commencement Date (as defined in Paragraph 2 hereoo, IOC may, at its sole option, cancel this License and, upon such cancellation, Client shall forfeit any sum previously paid IOC, including any Security Deposit. 2. Term of License. (a) Generally: This License shall be for a period of three (3) months commencing on the Ist day of August, 1998 (the 'Commencement Date') and ending on the 31 st day of October, 1998 (the 'Expiration Date') unless extended as provided herein. (b) Holdover formonthly Clients: In the event that a monthly Client fails to vacate the Office on the Expiration Date, and IOC agrees to allow continued occupancy in lieu of any mcrease in payment for being a holdover, IOC and the Client agree that the term of this License will automatically be extended on a month-to-month basis at the same Basic Monthly License Fee, until the Client notifies ICC, in writing, on or before the tenth (10th) day of any month, that Client will vacate the Office at the end of that month. The automatic extensions on a month-to-month basis shall continue until the first anniversary of this License, at which time the provisions of paragraph 4(B) shall come into effect. For explanatory purpose only, if a monthly Client's expiration date is July 3 lat and the Office is not vacated by such date, the Client nuy give notice by August 10th that August will be the last month of utilization. If the written notice is not given by August 10th the Client will be liable for August and September. If notice of vacating is not recieved by September lOth the Client will be liable for September and October and so forth, this automatic renewal is in lieu of IOC claiming customary holdover License Fees. 3. License Fee. (a) Basic License Fee: Without the need for ICC to send any notice or invoice, during the term of this License, Client shall pay Seven Thousand Eight Hundred Dollars and 00/00 Cents U.S. ($7,800.00) (the 'Basic Annual License Fee") for the right to use the 01Tice. The Basic License Fee shall be payable in equal monthly instalments of Two Thousand Six Hundred Dollars and 00/00 Cents U.S. ($2,600.00) (the 'Monthly License Fee Payment") in advance, on the first day of each calendar month after the Commencement Date. Time is of the essence with respect to the payment of all Monthly License Payment Fees, Additional License Fees, (as that term is used in this Agreement), and any other sums Client is supposed to pay pursuant to this License. Checks must be drawn and collectable on Domestic Banks unless prior written permission is given by IOC. If IOC agrees to any alternative method of payment, Client shall be responsible for any and all bank processing charges, wire transfer charges etc. Client may be required to increase security deposit or prepay amounts affected by such arrangement. In the event the check for the first Monthly License Fee payment is not honored by the bank the first time it is presented for payment IOC may declare this License to be void ab initio (from its inception) and IOC may remorse anything Client has moved into the Ofrice and store them at the Clicnt's risk and expense and the Client agrees to be responsible for any and all damages incurred by IOC. If IOC does send any invoices for Monthly License Fee Payments as a courtesy or reminder, this shall not create any obligation on IOC to send any subsequent invoices, it being agreed that the Monthly License Fee Payment will be due without the need for IOC to send any invoices or notices. All charges for Monthly License Fee Payments, Additional License Fees, (as that term is used in this License), and any other sums Client is expected to pay pursuant to this License, shall be considered correct and completely collectable unless disputed in WRITING within thirty (30) days of the due date. No ORAL NOTICE SHALL BE RECOGNIZED OR EFFECTIVE. Payment for the Basic Monthly License Fees & Additional License Fees may not be withheld due to variable charge questions that await resolution. 4. Client's Right to Renew. (a) Extension of Term: Subject to the provisions of Section 4(b) hereof, at the Termination Date, the Term and the License shall be automatically extended for the same period of time as the Term defmed in 2(a), subject to the same terms and conditions as contained in this License, unless either party gives notice to the other in writing of its intention to temiinate at the lesser of (i) at least sixty (60) days prior to the Termination Date, (ninety (90) days if the Client occupies three or more offices), or (ii) at least half the nwnber of days in the Term. (b) Escalation: One year after the Conunencement Date and thereafter on each and every anniversary of the Commencement Date, the Basic Monthly License Fee will automatically increase by seven percent (70/o) of the Basic Monthly License Fee in effect for the month or other applicable period inunediately prior to such date; provided, however, that IOC may specify a different adjustment 2 to the Basic Monthly License Fee based on any desired factors including market conditions by providing notice thereof at least seventy five (75) days prior to the Termination Date. (c) Automatic Renewal: In the event the Client tenders to IOC a check for the montldy License Fee pursuant to the New License but fails to return a signed License for any reason whatsoever, such payment shall be considered to be acceptance in full of all the temis and conditions of the new License and both IOC and Client shall be bound by such provisions as though the new License had been fully executed. 5. Use. (a) General Office Use: The Licensed Premises in general and the specific Office(s) contracted for shall be used for the purpose of Staffing Agency and such other use as is normally incident thereto and for no other purpose, in accordance with the rules and regulations attached hereto and for no other purpose, and in accordance with the provisions of this License and the Licensee's right to use Licenso?s Premises or any part thereof. Any change in the " of. or scope of the business being performed in said Office(s) other than that specifically described above must be approved in writing by an ofricer of IOC before the inception of such change. Any use of the Office must be in accordance with the rules and regulations attached hereto and such other rules which may be promulgated from time to time by IOC for all of IOC's Clients. Client shall not pem-dt or suffer the OiTice to be used by anyone other than the employees of Client, and shall not permit or suffer more than 2 such persons to the Office. It shall be the Client's responsibility to advise IOC of any change in personnel if Client desires IOC to restrict access to any prior employee. (b) No Competitive Services: As a material inducement for IOC to grant this revocable License, Client agrees not to offer or provide to anyone any of the services which IOC offers to its Clients, including but not limited to, those s@ces described in Schedules 'A' and 'B' attached hereto. (c) No Sublet: Client acknowledges that a major inducement for IOC to enter into this License is Client's express agreement not to assi@ sublet or sublicense the Office, or any part thereof. Neither all, nor any part, of Client's interest in this Ofrice granted hereunder may be encumbered, assigned, or transferred in whole or in part, either by an act of Client or by operation of law. (d) No Violations: Client will not make, pemiit or suffer any use to be made of the Office, the Building or any part thereof (i) which would violate any of the covenants, agreements, terms, provision and conditions of this License, (ii) which is directly or indirectly forbidden by public law, ordinance or gover=ent regulation, (iii) which may be dangerous to life, limb, or property, (iv) which may invalidate or increase the premium of any policy of insurance carried on IOC's Premises, the Building or covering its operations, (v) @hich in ICC's sole judgment, shall in any way impair or tend to impair the character, reputation or appearance of the Building as a premier office building, or (vi) which would impair or interfere with, or tend to impair or interfere with, any of the services performed by ICC for the OtTice or for any IOC Client. Failure to cure any violation of d(i) through (vi) within four (4) working days shall be considered a material breach of this License and IOC shall be entitled to temiinate Client's License to use the Office and retain the security deposit as liquidated damages. (c) Request for Explanation: At any time during this License IOC may demand a- written explanation from Client regarding Client's use of the Office or any other part of IOC's premises. Failure to timely respond with a satisfactory reply within four (4) working days shall be considered a material breach of this Agreement and IOC shall be entitled to tenninate Client's License to use the Office and retain the security deposit as liquidated damages. (0 Liquidated Damages: In the event Client breaches subparagraphs (a) through (e) herein, both parties agree the actual damages incurred by IOC will be difficult to ascertain. Accordingly, both parties agree that as liquidated damages and not as a penalty, Client shall pay IOC the sum of $500.00 per week for each such breach, beginning at the first time such breach occurs, without regard to the date that such breach is first discovered by IOC, and payable until such breach is cured. It being agreed between the parties that the aforementioned liquidated damages constitute a fair and reasonable estimate of damages under the circumstances. The weekly liquidated damage amount will be due for any breach whether such breach continues for an entire week or not. This provision shall not be IOC's exclusive remedy and notwithstanding any payment of liquidated damages, if such breach is not corrected within two weeks, IOC shall be entitled to temlinate Client's License to use the office without prejudice to retaining such amounts of the security deposit as is required to cover the liquidated damages and other provisions of this Agreement. (g) Relocation: IOC will have the right to relocate Client to another space in the Premises, and to substitute such other space for the Ofrice, provided such other space is substantially similar in area and configuration to the OtTice and provided Client shall incur no increase in the Basic License Fee hereto or any relocation cost or expense. 6. Delivery of Possession and Services. (a) Possession: If IOC cannot deliver possession of the Office to Client on the Commencement Date for any reason, this License shall not be void or voidable nor shall IOC be liable to Client for any damage or loss resulting therefro@ but there shall be abatement of the Basic Monthly License Fee for the period between the Commencement Date and the date when IOC delivers possession. NOTWITHSTANDING THE FOREGOING, if IOC fails to deliver possession of the Office to Client within three (3) months of the- Commencement Date, either party may, upon written notice to the other, cancel this License. (b) Services: If, after Client receives possession of the OtTice, IOC cannot' rovide any of the services'which IOC a@eed p@ to make available or to provide pursuant to the terms of Paragraph 8 hereof due to any causebeyond IOC's reasonable control, IOC's@ll not be liable f6r any damage or loss resulting therefrom, nor shall Client be entitled to any credit for, or abatement of, the Basic Monthly License Fee or Additional License Fees Client is obligated to pay pursuant to the tenns of this Agreement. 3 7. Receipt of Security Deposit. (a) Amount: Client has deposited with IOC of Two Thousand Six Hundred Dollars and 00100 Cents (U.S.) ($2,600.00) (the 'Security Deposit'), receipt of which IOC hereby aclmowledges, as security for (i) the Client's full performance of the terms, conditions and covenants of this License and; (ii) for the cost of repair or replacement in excess of nomial wear and tear; and (iii) for the payment of telephone or other service ordered by IOC at Client's request or instructions even if this License is terminated ab initio due to Client's check being dishonored; and (iv) as payment for any liquidated damages pursuant to any provision herein. 7he Security Deposit, or any balance thereof, shall be returned to Client in full or in part within forty (40) days of the termination date only after Client has vacated the Licensed Premises in accordance with paragraph 9 (following a personal inspection by IOC) and has surrendered all keys, identification cards, and other means of identification. Parking access devices and all other means of access and identification are to be surrendered on or before the date of termination. No credit will be issued or adjustments made to billing for items returned after the fifth calendar day following the date of t tion. If IOC determines that any loss, damage, or injury chargeable to Client hereunder exceeds the Security Deposit, ICC will apply the entire Security Deposit against the loss, damage or injury and the balance thereof will be the responsibility of Client, who shall pay the same to IOC on demand. Client may not apply the Security Deposit to any Monthly License Fee Payment(s) or Additional License Fees due pursuant to this License. There shall be no interest paid or payable on the Security Deposit and IOC may use the Security Deposit as part of its working capital for the provision of services to all Clients. Client agrees to increase this security deposit upon request in the event it is not equal to one (1) month current License Fee. (b) Dishonored Check: In the event the Security Deposit is paid by check and such cheek is not honored by the bank the first time it is presented for payment, IOC may, at its sole discretion, declare this License to be void ab initio and the Client agrees to be responsible l.Por any and all damages incurred by IOC. (c) Replenishment of securities: If IOC uses, applies or retains any part or all, of the Security Deposit, which Client agrees to allow IOC to do, Client shall, upon demand, pay IOC the amount used, applied or retained in order to replenish the Security Deposit to its former amount. Failure to replenish the Security Deposit with good funds shall be cause for termination of this License. (d) Increase of Security : Security Deposit will be increased in increments equivalent to one half (1/2) months current License Fee to reinstate service for each occurrence that Client defaults in making payment as required by Paragraph 3 (a) hereof 8. Services. (a) Listing of Services: IOC shall make available to Client, without charge, the services described in Schedule 'A' annexed hereto. IOC shall also make available certain other services at ICC's then current rates as described in Schedule "B' annexed hereto. The prices on Schedule 'B" are in effect on the Conunencement Date and Client will be advised of any change at least seven (7) days prior to the due date for a Monthly License Fee Payment and such new prices will take effect during that month. Client shall pay for the services indicated on Schedule B' on receipt of a bill, which shall constitute Additional License Fees. If Client fails to pay such bill, then IOC may, at its option, temlinate all services provided in both Schedule 'A' and 'B" upon twenty-four (24) hours prior written notice to Client and/or make such payment on behalf of Client by withdrawing funds from the Security Deposit. Client's obligation to make payments under this paragraph shall survive the Expiration Date, or sooner termination of this License, or the date of expiration of any extended term hereof (b) Limitation of Services: IOC only agrees to make available, or to provide, those services specifically enumerated on Schedule 'A' and 'B' annexed hereto. Any other services which are now available, or which may in the future become available at IOC's Premises, may be canceled or otherwise discontinued at any time whatsoever. IOC shall have the option, in its sole and absolute discretion, to tenninate the provision of any and all services being provided to Client hereunder including, without limitation, telephone service and electricity service, to hold Client's work including original papers and to refuse Client access to the Premises or to eject Client from the Premises, all without being deemed to have committed any manner of trespass. 9. Surrender. Without the need for a demand, Client agrees to, and shall, promptly surrender and deliver the Office to ICC, broom clean and in good condition, ordinary wear and tear excepted, on the Expiration Date or on the date of sooner termination of this License. A fee will be assessed to cover the repair of furniture or equipment, removal of carpet stains and repainting of walls, and Client will pay IOC all of said cost and expenses thereof upon demand. IOC may, but is not required to, make repairs or replacements at Client's expense. 10. Right to Show The Office. IOC shall have the right to show the Office to any prospective Client at any time ninety (90) days prior to the Expiration Date and at any time after the delivery of a notice from IOC terminating this License pursuant to the relevant provisions herein. IOC will use reasonable efforts not to disrupt Client's Business. 11. Subordination. This License is subject and subordinate to the Main Lease for ICC's premises and to all the tenns, provisions, covenants and conditions thereof. Nothing herein, or in the Main Lease, shall be construed to require ICC to cure any default of the Overlandlord (the 'Landlord') under the Main Lease or to bring any action or proceeding or to take any steps to enforce ICC's rights against the Landlord. Without limiting the generality of the foregoing provisions of this paragraph, IOC shall not be responsible for furnishing any service, maintenance or repairs to the Office, and Client shall in no event whatsoever be entitled to any allowance, reduction or adjustment of the License fee payable under this License by reason of the failure of Landlord to comply with its obligations to supply or render the same. A copy of the Main Lease, with certain fmancial information redacted, is available on request at the Manager's Office. 4 12. Defaults and Remedies. (a) Default in Payment: Client shall not allow the Basic Monthly License Fee, payment for services which are Additional License Fees, or any other amounts payable under this License to be in arrears more than three (3) calendar days nor shall Client remain in default tmder any other condition of this License for more than five (5) calendar days @ written notice is left in Clienfs Office. Client shall not fail to pay any new Monthly License Fee Payment when due. On the fourth (4th) calendar day following the.date upon which any payment became due or the sixth (6th) calendar day following the date after a default notice for any other condition is given, IOC may at its option, without formal demand or notice of any kind re-enter, lock-out Client and/or take possession of the Office and remove all persons by an unlawful detainer action or by any other means, including force, and remove property therefrorr4 as well as disconnect any telephone,lines installed for the benefit of Client, and discontinue mail service and afi other services provided for in this License, without being deemed to have committed any manner of trespass. IOC will may remove anything Client has moved into the Office and store said items at the Client9s risk and expense and the Client agrees to be responsible for any and all damages and expenses incurred by IOC. In the event of such termination IOC may, but shall not be obligated to relicense the Office or any part thereof for all or any part of the remainder of the term hereof, at such License fee, and on such other terms and conditions as IOC, in its sole discretion, sees fit. Should IOC relicense the Office, ClienCs obligations heretmder shall in no way be diminished or reduced and Client shall remain obligated hereunder until all obligations are satisfied. (b) Returned Checks: If two (2) checks are returned unpaid by a Client's Bank within 35 day period or if more d= 3 checks are returned unpaid by a Client's bank within a twelve (12) month period, IOC may, in its sole discretion, re-enter, take possession of the office as set forth in paragraph 12(a) above. Replacement of any returned check shall only be made by Bank cheek, money order or cash in addition to a $35 handling charge and any bank charges. If IOC agrees to accept payment in any other manner, Client shall not be entitled to occupancy of the Office until such check clears. (c) Lien: In the event of a default by Client hereunder, Client grants IOC an express security interest, under the terms of the Uniform Conunercial Code (UCC) upon all goods, chattels or personal prop" of any description belonging to Client, Clienfs employees, or anyone else which are placed in, or become a part of the Office, as security for the Monthly License Fee Payment or Additional License Fees then due and/or to become due for the remainder of the License term. This lien shall not be in lieu of, or in any way affect, any statutory lien given by law, and shall be cwnulative to any statutory lien. By signing this License Client grants IOC this express security interest in all such personal property placed in the Office and agrees that IOC may file a copy of this License in order to constitute a fmancing statement. ICC shall be entitled to all rights and remedies of a secured party under the UCC in addition to any statutory liens and rights. No property removal passes will be issued while any breach condition exists. (d) Properte DeemedAbandoned: In the event IOC exercises its option (i) to terminate this License, or (ii) to re-enter the 0ffice, or'(iii) to relicense the Office, or (iv) in the event Client terminates this License pursuant to Paragraph 4, or (v) in the event that after the Expiration Date, the Client leaves or forgets property or papers in the Ofric-e, any property belonging to Client which remains in the 01Tice after the termination of this License shall be,deemed to have been abandoned and either may be retained by IOC as its property or may be disposed of in such manner as IGC may see fit without accounting to Client for its disposition. Files, papers, documents, etc. may, at IOC's sole option, be stored at Clienfs expense and in the event a bill for such storage is not paid within seven (7) days of presentation, IOC may destroy such papers, etc. and shall have no liability whatsoever to Client in regard to same. (c) Rights Cumulative and Assignable: All rights and remedies of IOC under this License shall be cumulative and none shall exclude any other right or remedy at law or in equity. IOC is expressly given the right to assign any or all its interest under the terms of this License. (0 Late Payment Charge: Client agrees to pay IOC a late payment charge of 5% of the amount due or five dollars, whichever is greater, if any payment due hereunder is not paid within four (4) days of its due date. (g) Failure to Vacate: Upon termination of this License, at the Termination Date or otherwise, or upon any revocation of the License, the Client shall cease all use of the Office, the Premises, and all services immediately. For each and every month or portion thereof that Client continues use of the Office after the termination of this License without the express written consent of IOC, Client shall pay IOC an amount equal to double the Monthly License Fee (as defined in Paragraph 3(a) hereto). IOC shall be entitled to exercise all remedies available to ICC on account of such continued use, and Client's obligation to pay, such increased charge shall be in addition and without prejudice to such remedies. (h) Total Amount Due: IOC may, if IOC so elects, without any additional notice of such election or demand to Client, forthwith terminate this Agreement and License, and may enter into the Office and take and hold possession of the contents thereof, without releasing Client, in whole or in part, from the Client's obligations hereunder. In the event of such t tion, IOC may, at is option, declare the entire amount of the Basic Annual License Fee which would become due and payable during the remainder of the Term, to be due and payable immediately, in which event, Client agrees to pay the same at once. IOC may, at its option, also use, apply or retain in whole or in part the Security Deposit for payment of any sums due hereunder or for the payment of any other sum that IOC may spend by reason of such default. (i) Collection Expenses : Client agrees to pay all costs and expenses, including reasonable attorneys' fee, expended or incurred by IOC in connection with the enforcement of this License, the collection of any sums due hereunder, any action for declaratory relief in any way related to this License, or the protection or preservation of any rights of ICC hereunder. 13. Furniture, Fixtures and Repairs. (a) Furniture and Fixtures. IOC agrees, at its own cost and expense, to furnish and install @ture, fixtures and equipment that IOC determines, in its sole opinion, are necessary to provide suitable office facilities for Client. Client shall not bring into, or 5 install in the Office any furniture, facsimile, photocopier, telephone, fixtures or other equipment without the prior written consent of an officer of IOC. Client shall not damage any funiiture, fixtures or equipment located in IOC's Premises, and in the event that any such damage occurs, Client shall pay IOC the cost of @ or replacement upon demand. Client shall not move any furniture, fixtures or equipment to or from the OtTice to other portions of IOC's Premises, and shall not move any furniture, fixtures or equipment from one portion of IOC's Premises to another nor remove any furniture, fixtures or equipment from the Building, without the prior written consent of IOC in each instance. (b) Repairs: Any and all work on, or in the Office, for which prior written permission from IOC is required, may only be performed through IOC and by IOC approved contractors. 14. Exclusive of IOC's Liability. IOC shall not be liable or responsible to Client, and Client Expressly Agrees to Waive, and Agrees NOT to make any claim for damages, Directly or Consequentially arising from (i) any injury or damage resulting from the errors, acts or omissions of IOC's employees (including without limitation, the loss of, or damage to, any package or other article delivered to Client at Licensor's Premises), persons licensing office space or services from IOC, or other persons occupying any part of the Building, (ii) any failure to provide services, for example, such as water, gas, electricity, or telephone, or (iii) any injury or damage to person or property caused by any person (except for such loss or damage arising from the willful or grossly negligent rdsconduct of IOC, its agents, servants, or employees) or caused by IOC's failure to make repairs which it is expressly obligated to make hereunder, or for any loss, damage, destruction, or theft of any Clienfs personal property or equipment, whether belonging to Client or any pem-iitted or invited guest of Client, while on IOC's premises. 15. Indemnity and Insurance BY Client. (a) Indemniiy. Client Expressly Agrees to Waive and Agrees to NOT make any claim for damages, and to defend, indemnify and save harmless IOC and IOC's agents and employees against, and from, liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including but not limited to reasonable attomey's fees and court costs, which may be incurred by IOC by reason of or arising directly or indirectly from, out of or in connection with, any negligent or otherwise wrongful error, act or omission of Client, its agents, employees, contractors or invitees in or about the OtTice, or any failure on the part of Client to perform or comply with any of the terms, conditions or provisions of this License. (b) Insurance: IOC only maintains insurance for its own benefit and in regard to liability in the common areas. Client must obtain his own liability insurance for a minimum of $1,000,000 with $750,000 per incident, and shall name IOC and the Port Authority of New York & New Jersey as additional insureds. Certificates of such named insureds must be provided to IOC within 30 days of Client's occupancy of Office. IOC does not maintain any fire insurance for the contents of Clienfs OtTice and Client is responsible to obtain his own fire and damage insurance on Client's property. If required Insurance Certificates are not received by ICC within the designated timeframe, IOC may, at Clients expense, arrange for appropriate liability insurance for Client with a preapproved insurance carrier. Said insurance coverage shall remain enforce during the Term of this License and renewals thereof. Client agrees to waive subrogation against the Landlord of the building and other tenants of the building. (c) Limitation: Client hereby waives any and all rights of recovery against IOC or IOC's agents and employees for loss of or damage to its property or the property of others under its control, to the extent such loss or damage is covered by any insurance policy. 16. No Waiver of Breach. IOC's failure to insist upon the strict performance of any term or condition of this License or to exercise any right or remedy available on a breach thereof, or IOC's acceptance of full or partial payment during the continuance of any such breach shall not constitute a waiver of any such breach or any such term or condition. No waiver, alteration or modification of any tenn or condition required to be performed or observed by Client, or any waiver of any breach by Client, shall be elective or binding on IOC except by a written instrument executed by IOC. No waiver of any breach shall affect or alter any term or condition in this License, and each such term and condition shall continue in full force and effect with respect to any other then existing or subsequent breach thereof 17. Advertising. Client shall not place any advertisement in any media (such as newspaper, radio, direct mail etc.) which uses the name, "One World Trade Center' or the address of IOC without first receiving IOC's written consent. Client shall not place a yellow pages display ad without IOC's prior written consent. is. Mail. Upon termination of this License for any reason whatsoever, Client's right to use IOC's address shall also terminate unless Client completes and delivers to IOC all required mail processing forms and makes the appropriate payment for mail handling services to IOC. Upon termination of Client's right to use IOC's address, IOC shall have the right (i) to return all mail to the sender or (ii) to destroy such mail. Client understands that if its use of IOC's address terminates for any reason whatsoever, it will be Client's sole responsibility to notify all parties of such termination and Client's new address. 19. Service of Process. (a) On Behalf of Client: It is understood and agreed that neither ICC nor its employees have the authority to accept service of legal process on behalf of Client. (b) Upon Client: The Client hereby agrees that service of process on it for purposes of any suit by IOC shall be good and sufficient if the summons and complaint is delivered to any Client/employee found using the Office. 6 20. Brokerage (a) Name: Client represents that in the negotiation of this License it dealt with no brokers other than N/A and that so far as Client is aware said broker is the sole broker. IOC agrees to pay, to Licensed Brokers only, said broker's commission pursuant to a separate agreement upon the execution of this License. Client promises to in@ry IOC against liability arising out of any inaccuracy or alleged inaccuracy of this representation. Broker's commission shall be paid on annual contracts only. Commission shall be for Office(s) initially contracted for and exclusive of any additional offices acquired during the term of contract. Commission will be paid on fust yW's contract only. Renewals shall not be subject to any further commission fees. If Client engages the services of any:broker, salesman, agency, company or any other person or entity to represent them in any negotiations after the first year, any charges or commission incurred will be the sole responsibility of the Client. (b) Adjustments: Should a commission be paid or payable to a broker, salesman, agent, company or any other person or entity upon execution of this License, Client agrees that should this License terminate prior to the Expiration Date (whether pursuant to paragraph 5 hereof or otherwise), then IOC shall be authorized and permitted to deduct the unamortized portion of any such commission from the Security Deposit of Client if any, held by IOC. If the Security Deposit is not sufficient to offset the remaining portion of the commission, then Client shall pay any additional amount due to IOC on demand. 21. Prohibition On Employment Of IOC Employees. (a) Solicitation by Client: Client agrees not to employ, to offer, or cause to have offered, employment to any IOC ear following the termination of this License. Because of the difficulty employee during the term of this License and for a period of one (1) y of ascertaining the exact damages that IOC n-dght suffer in the event of a breach of this clause, the parties' agree that as liquidated damages, and not as a penalty, for each such breach, Client shall pay IOC the sum of S 1 5,000 plus 25% of the annual salary of any employee for each such employee so solicited, it being agreed that such amount constitutes a fair and reasonable estimate of IOC's damages. (b) Solicitation by Employee: Client agrees to advise IOC of any inquiry or attempt by an IOC employee to seek employment by or through the services of the Client. (c) Survival: The covenants, representations and agreements of Client set forth in this paragraph shall survive the termination of this License, or the date of expiration of any extended term hereof. 22. Rules and Regulations. she attached rules and regulations are an integral part of this License. Client, its employees and agents, will perform and abide by such rules and regulations and any amendments or additions to them as IOC may make from time to time. 23.. Entire Agreement. This Agreement represents the entire understanding between the parties in regard to the License of the Office. All prior understandings, whether oral or written are specifically merged herein. This agreement may not be modified, changed'or altered in any respect except by a writing signed by an authorized otticer of both IOC and Client. 24. Notices. Any notice required or permitted under this License must be in writing and may be sent by personal delivery to IOC at One World Trade Center, Suite 7967. New York, New York 10048 and to the Client at the Office. If such notice is properly addressed and personally delivered, it shall be deemed notice for all purposes herein even if the party claims it never saw such notice. The parties ftffier agree that this address shall be the appropriate address for service of process in any lawsuit arising out of this License. For the sake of convenience only, and not in derogation of the above designation of addresses, IOC agrees it will use its best efforts to send a copy of all notices to the Client at any address it designates other than the Office. Client hereby designates the following additional address: Additional Address N/A N/A 25. Compliance With Law, At all times during the term of this License Client shall at Client's sole cost and expense, promptly comply with all present and future laws, orders and regulations of all state, federal, municipal and local governments, departments, comrmssions and boards and any direction of any public officer which shall impose any violation, order or duty upon IOC or Client with respect to the Office, whether or not arising out of Client's use or manner of use of the Office or the Building. 26. Construction of Terms. If any term or provision of this License shall be capable of two constructions, one of which would render the tenn or proiision valid and the other of which would render the term or provision invalid, then the construction which renders the term or provision valid shall be deemed to be binding upon the parties. Any partial or complete invalidity or unenforceability of any provision of this Agreement shall not be deemed to modify or affect any other term or provision of this License. 27. Captions. Captions of paragraphs are for convergence of reference only and shall not be deemed to amen@ modify or construe any terin or provision of this License. 28. Additional License Fees. Any payment due hereunder shall be deemed to be Additional License Fees and failure to pay same shall entitle IOC to rights and remedies available to IOC for failure to pay License fee as set forth in Paragraph 12. 7 29. No Offer. IOC's submission of this License to the Client is not an offer to grant Client a License nor shall it be deemed an option on the part of the Client to obtain a License from IOC. This License shall be binding upon the parties only after it is executed by the duly authorized officers or agents of the Client and accepted and executed by IOC at its New York office. 30. Governing Law. This contract which is accepted in New York shall be governed solely by the laws of the State of New York. 31. Authorization To Proceed. Note that by tendering to IOC the first Monthly License Payment (Paragraph 3) and/or the Security Deposit (Paragraph 7), Client Hereby Authorizes IOC to order the telephone services for the Ofrice and to begin installation of all items and devices necessary or desirable to maintain or use the Ofrice and agrees to guarantee payment for all charges so incurred, whether or not any of Client's cheeks are dishonored by its bank and IGC elects to tenninate this License ab initio pursuant to Paragraph 3 or 7. 32. --Joint andSeveral Liability, All parties signing this License as a partnership or co-signing individuals shall be jointly and severally liable for all obligations of Client. As an inducement for IOC to enter into this License with the aforementioned Client, the undersigned hereby guarantees, unconditionally and without any reservation, the full and prompt payment of all swns due to IOC pursuant to any provision of this License. This guarantee shall remain in full force and effect without regard to any extensions, modifications, or other changes in this License between IOC and the aforementioned Client. Declan A. French 2045 Lakeshore, Suite 3107 Etobicoke, Ontario MSV 2Z6 Guarantor's Signature In Witness Whereof, IOC and Client have caused these presents to be duly executed as of the date first written above. IT STAFFING LTD. INTERNATIONAL OFFICE CENTERS CORP. By: /s/ Declan A. French Declan A. French, President By: /s/ Burdette Russo Burdette Russo, President EX-23.1 15 CONSENT (SCHWARTZ, LEVITSKY) EXHIBIT 23.1 CONSENT OF SCHWARTZ LEVITSKY FELDMAN The undersigned, Schwartz Levitsky Feldman, hereby consents to the use of our name and the use of our opinion dated July 27, 1998 for IT Staffing Ltd. (the "Company") as filed with its Registration Statement on Form SB-2 being filed by the Company. /s/ Schwartz Levitsky Feldman Schwartz Levitsky Feldman Chartered Accountants September 18, 1998 -----END PRIVACY-ENHANCED MESSAGE-----