10-K405

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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

  For the fiscal year ended April 30, 2001
                                      OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

  For the transition period from         to

                       Commission File Number: 001-15010

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                                CERTICOM CORP.
            (Exact name of registrant as specified in its charter)

                                
     Yukon Territory, Canada                       Not Applicable
 (Province or other jurisdiction                  (I.R.S. Employer
of incorporation or organization)               Identification No.)



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                 25801 Industrial Boulevard, Hayward, CA 94545
                   (Address of principal executive offices)

      Registrant's telephone number, including area code: (510) 780-5400

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          Securities registered pursuant to Section 12(b) of the Act:

                                     None

          Securities registered pursuant to Section 12(g) of the Act:

                                 Common Shares

                               ----------------

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

   As of June 30, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $83,031,841. For purposes of this
information, the outstanding common shares owned by directors and executive
officers of the registrant were deemed to be common shares held by affiliates.
The number of common shares outstanding as of June 30, 2001 was 30,981,583
shares.
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                               TABLE OF CONTENTS



                                                                          Page
                                                                          ----
                                                                    
 Exchange Rate Information...............................................   1

 Special Note Regarding Forward-Looking Statements.......................   1

                                     PART I

 Item 1.  Business......................................................    2

          Factors That May Affect Operating Results.....................   12

 Item 2.  Properties....................................................   23

 Item 3.  Legal Proceedings.............................................   24

 Item 4.  Submission of Matters to a Vote of Security Holders...........   24

                                    PART II

                      Market for the Company's Common Shares and Related
 Item 5.  Shareholders Matters..........................................   25

 Item 6.  Selected Consolidated Financial Data..........................   27

 Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................   28

 Item 7A. Quantitative and Qualitative Disclosure About Market Risk.....   38

 Item 8.  Financial Statements and Supplementary Data...................   38

 Item 9.  Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure.....................................   38

                                    PART III

 Item 10. Directors and Executive Officers of the Company...............   39

 Item 11. Executive Compensation........................................   41

                     Security Ownership of Certain Beneficial Owners and
 Item 12. Management....................................................   48

 Item 13. Certain Relationships and Related Transactions................   49

                                    PART IV

          Exhibits, Financial Statements Schedules, and Reports on Form
 Item 14. 8-K...........................................................   50

 Signatures..............................................................  52



   Unless otherwise indicated, all information in this Form 10-K gives effect
to the 2-for-1 split of the Company's outstanding common shares which occurred
on July 12, 2000.

   Certicom(R) and Security Builder(R) are our registered trademarks, and
certicom encryption(TM), SSL Plus(TM), WTLS Plus(TM), Certilock(TM),
Certifax(TM), MobileTrust(TM), Trustpoint(TM), movian(TM), movianVPN(TM) and
movianCrypt(TM) are our trademarks.

   In this Form 10-K, the terms "Certicom", "the Company", "we", "us", and
"our" refer to Certicom Corp., a Yukon Territory, Canada corporation, and/or
its subsidiaries.

EXCHANGE RATE INFORMATION

   Unless otherwise indicated, all dollar amounts in this Form 10-K are
expressed in United States dollars. References to "$" or "U.S.$" are to United
States dollars, and references to "Cdn.$" are to Canadian dollars. The
following table sets forth, for each period indicated, information concerning
the exchange rates between U.S. dollars and Canadian dollars based on the noon
buying rate, or the Noon Buying Rate, in the City of New York on the last
business day of each month during the period for cable transfers as certified
for customs purposes by the Federal Reserve Bank of New York. The table
illustrates the portion of a U.S. dollar it would take to buy one Canadian
dollar.



                                                U.S.$ per Cdn.$ Noon Buying Rate
                                               -----------------------------------
   Fiscal Year Ended April 30,                 Average(1)  Low    High  Period End
   ---------------------------                 ---------- ------ ------ ----------
                                                            
      2001...................................    0.6616   0.6831 0.6333   0.6510
      2000...................................    0.6804   0.6969 0.6607   0.6756
      1999...................................    0.6629   0.6982 0.6341   0.6860
      1998...................................    0.7116   0.7317 0.6832   0.6992
      1997...................................    0.7329   0.7513 0.7145   0.7158

--------
Note:

(1) The average of the daily Noon Buying Rates on the last business day of
    each month during the period.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

   Certain statements contained in this Form 10-K constitute "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995. When used in this document, the words "may,"
"would," "could," "will," "intend," "plan," "anticipate," "believe,"
"estimate," "expect," and similar expressions, as they relate to us or our
management, are intended to identify forward-looking statements. Such
statements reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions. Many factors could
cause our actual results, performance or achievements to be materially
different from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements, including, among
others, those which are discussed under the heading "Factors That May Affect
Operating Results" in this Form 10-K. Should one or more of these risks or
uncertainties materialize, or should assumptions underlying the forward-
looking statements prove incorrect, actual results may vary materially from
those described herein as intended, planned, anticipated, believed, estimated
or expected. We do not intend, and do not assume any obligation, to update
these forward-looking statements.

                                       1


                                    PART I

Item 1. Business

Overview

   We are a leading provider of information security software and services,
specializing in solutions for mobile e-business. Our products and services are
specifically designed to address the challenges imposed by a wireless data
environment. We offer comprehensive solutions that incorporate our efficient
encryption technology and are based on industry standards for information
security that utilize public-key cryptography. We believe that the addition of
our products to wireless infrastructures will help to build the trust and
confidence necessary for the success of mobile e-business.

   Historically, we have focused on the development and marketing of
cryptographic and information security protocol toolkits. Today, our
comprehensive product offering includes an enabling technologies suite, which
allows original equipment manufacturers, or OEMs, to develop secure e-business
applications; our trust services, which provide OEMs and enterprises with the
necessary public-key infrastructure, or PKI, management tools and certificate
services to authenticate users and servers; and our enterprise application
software, which provides virtual private network, or VPN, security and strong
personal digital assistant, or PDA, data security for enterprises wanting to
enable a mobile workforce. In addition, we provide consulting and systems
integration services to assist our customers in designing and implementing
efficient security solutions. Our products and services solve difficult
security problems for the world's leading providers of computing and
communication products. OEM customers integrate our enabling technologies into
their hardware and software products, then sell the finished products to
consumers or enterprise customers. In addition, we sell our enterprise
application software directly to Fortune 1000 companies.

Industry Background

 The Importance of Security in e-Business

   The growth of the Internet and internal corporate networks has created new
opportunities for enterprises to interact with their customers, business
partners, and employees. These interactions fall into three categories:
(1) business-to-consumer e-commerce transactions, (2) business-to-business e-
commerce transactions, and (3) business-to-employee enterprise applications.
Collectively, these activities are called "e-business."

   For rapid growth of mobile e-business, or m-business, to occur, we believe
that public trust and confidence in the security of e-business must be
strengthened. Failure to address consumers' security concerns adequately could
prevent broad adoption of new e-business products and services. For example,
because of financial losses resulting from credit card fraud on-line retail
transactions, some merchants have limited their use of e-commerce. Further,
many consumers remain concerned about the privacy of their personal
information, including credit card numbers. Identity theft, where a thief
obtains a consumer's personal identification and credit information and uses
it to gain access to the victim's credit and bank accounts, is an increasing
concern. To increase public confidence, we believe that e-business companies
must deliver four basic information security services:

  .  confidentiality--keeping communications secret from all except the
     intended recipient;

  .  data integrity verification--proof that the message or transaction has
     not been modified en route between the sender and the recipient;

  .  authentication--verifying the identity of another party to ensure that
     communication is with a known or authorized person; and

  .  non-repudiation--creating binding communications and transactions.

                                       2


 Current Security Solutions for e-Business

   Information management systems based on cryptographic technology, or
cryptosystems, have emerged as a critical element in creating an environment
of trust and confidence for e-business transactions. There are two types of
cryptosystems: symmetric-key systems and public-key systems. In a symmetric-
key system, both communicating parties share the same key, which must be kept
secret. Secret keys require complex key management systems to distribute the
keys to the appropriate parties while keeping them secret from others.

   In contrast, in a public-key system, there are two distinct but related
keys, forming a key pair: a public key and a private key. The public key is
used for encrypting messages, which can then be decrypted using the
corresponding private key. It is extremely hard to determine or derive the
private key from the public key. Thus, the public key can be openly published
without compromising the confidentiality of the corresponding private key,
which the user must keep secret. Because the public key need not be kept
secret, key management systems for public-key cryptography can be much simpler
than for symmetric-key systems. While symmetric-key systems deliver better
performance than public-key systems, public-key systems permit easier key
management. As a result, hybrid solutions using both systems are generally
used to construct cryptographic protocols.

   Public-key systems offer the ability to create digital signatures. A user
applies his or her private key to the data to be signed, creating a digital
signature. Subsequently, anyone can verify the correctness of the signature
using the user's public key. If the signature verifies, then the signer must
possess the correct private key. In addition, it proves that the data signed
has not been modified, thus providing:

  .  data integrity verification, since the message can be shown to be
     unmodified;

  .  authentication, because the signer can be identified as the holder of
     the private key used in signing; and

  .  non-repudiation, because the message and signature can be presented to a
     third party who can independently validate the signature.

   Digital signatures have recently been given legal weight in the United
States with the passage of the Electronic Signatures in Global and National
Commerce Act, which allows users to enter into legally binding agreements
using digital signatures.

   Because a digital signature allows a user to prove only that he or she
holds the private key that matches a particular public key, additional data is
necessary to use signature validation to create an assurance of identity. This
is accomplished with digital certificates, which are signed messages that bind
a name or other attributes of the holder of a given private key to the
corresponding public key. Each certificate is signed by a trusted third party
known as the certificate authority, or CA; the CA vouches that a given user is
the sole holder of the private key matching the corresponding public key. The
signature from the CA allows the binding of the name to the public key to be
trusted. This allows a relying party to validate the identity of a user or
server by first checking the validity of the certificate and then verify the
signature against the certified public key. A CA may cooperate with a
registration authority. The registration authority is responsible for
validating a user's identity, on behalf of the CA, before a certificate is
issued. The collection of certificate authorities, registration authorities,
policies, and procedures associated with the management of public keys is
known as public-key infrastructure. Enterprises have adopted PKI because it
offers proven, tested information security standards leading to greater
confidence in the resulting applications and lower integration costs for
developers.

   All known public-key cryptosystems are based on advanced mathematics. These
systems use the idea of a one-way function, a mathematical problem that is
hard to solve without some secret information. With this secret information,
the problem is easy to solve; without it, it is extremely difficult. In a
public-key cryptographic system, the public key is the statement of the
mathematical problem; the private key is the secret information. For example,
one of the earliest and most commonly used public-key cryptosystems, RSA, is
based on taking two large prime numbers, each dozens of digits long, and
multiplying them together. It is very difficult to take the composite result
and determine the two unique prime factors that were used to create it. For
the RSA

                                       3


cryptosystem, the large composite number is the public key, and knowledge of
its prime factors is the secret information and can be used as the private
key.

   The strength of secure, accepted cryptosystems can generally be measured in
terms of key size, which is measured in bits. The use of advanced mathematics
in a public-key cryptosystem leads to its keys being relatively large and its
operations being relatively slow when compared to those of a symmetric-key
cryptographic system.

 Limitations of Applying Conventional Security Solutions to m-Business

   The vast majority of existing e-business applications were designed to
operate on desktop computers and enterprise servers communicating over wired
Internet networks. However, operating in a wireless data environment imposes
unique challenges not present in conventional wired Internet networks. For
example, wireless environments are characterized by handheld devices with
limited processing power and battery life operating on low-bandwidth networks.
Therefore, security technology designed for wired Internet networks does not
operate as efficiently and successfully in a wireless environment without
extensive modification. This longer processing time may be unacceptable to the
end user when encountered during a secured communications session or while
trying to complete an e-business transaction on a handheld device.

   Additionally, handheld platforms contain less memory and slower processors
when compared to desktop and server platforms. It can be difficult to develop
software that implements standard information security protocols on these
platforms. Other companies have attempted to deal with this challenge by using
non-standardized protocols for their wireless architecture. However, non-
standard solutions are more complex for information technology professionals
to integrate into their security infrastructure, potentially adding costs and
reducing the level of confidence in these systems.

   We believe that realizing the full potential of m-business requires a
comprehensive wireless security architecture that is both cost-effective and
efficient. This requires a security solution designed for handheld devices and
wireless networks that interfaces with existing wired e-business security
infrastructures.

The Certicom Solution

   We offer a comprehensive line of products and services that are designed
for wireless data environments and are vertically integrated around a common
cryptographic architecture. Our products are based on elliptic curve
cryptography, ECC, and are an efficient alternative to conventional
technologies. Our customers use our solutions to build increased security into
their products and to deliver reliable services for users of wireless devices.

   Our products secure a variety of m-business transactions and
communications, including on-line banking and stock trading, retail e-
commerce, electronic payments, e-mail and vertical applications for use in
industries such as public safety and health care.

 Comprehensive Wireless Security Architecture

   We offer a set of products satisfying distinct needs for security in
wireless architectures. These solutions are specifically designed for wireless
data communication and handheld platforms and make use of a common
cryptographic architecture. Our comprehensive solution includes an enabling
technologies suite, which allows OEMs to develop secure e-business
applications; trust services, which provides OEMs and enterprises with the
necessary PKI management tools and certificate services to authenticate users
and servers; and enterprise application software, which provides VPN security
and strong PDA data security for enterprises wanting to enable a mobile
workforce.

   We believe that, by offering our customers a complete solution, we enable
them to deploy a wide range of m-business data applications quickly, with
reduced costs and increased functionality. In addition, we provide consulting
services to help customers with difficult implementations of secure wireless
solutions.

                                       4


 Products and Services Designed for Handheld Devices and Wireless Data
 Networks

   We have assembled a team of engineers whose core competency is geared
specifically toward creating products for a wireless data environment.
Handheld devices and wireless data networks are different in many respects
from desktop platforms and wired networks. For example, wireless architectures
have less processing power, memory, battery life, and network bandwidth
available to them. We specifically design our products to address these
constraints, resulting in better performance and functionality in a wireless
environment. Further, our expertise in creating implementations for handheld
devices enables us to use standardized protocols, which we believe eases
integration with existing infrastructures.

 Our Standardized Elliptic Curve Cryptographic Technology

   We believe that our ECC-based technology offers significant advantages for
m-business applications when compared to conventional cryptographic
technologies such as RSA. These include:

  .  Seamless, transparent security: Digital signatures used in
     authenticating communications and the signing of documents and
     transactions can be created in significantly less time on handheld
     platforms when using ECC. This faster operating time allows a user to
     benefit from security built into e-business applications without
     substantial impairment of the user experience.

  .  Lower costs: Since ECC requires less processing power than is required
     for equivalent security when using conventional technologies, some
     mobile and wireless devices that use our technologies are less expensive
     for our OEM customers to produce.

  .  Stronger security: Our ECC-based technology enables higher levels of
     security than conventional encryption technologies when evaluated at
     equivalent levels of processing power, bandwidth, and battery capacity.

   The strength of cryptographic systems is usually described by the length of
the key, measured in bits. Due to the different mathematical foundations of
public-key systems, they require varying key lengths to deliver similar levels
of security. The math execution of the elliptic curve discrete logarithm
problem is more complex and therefore harder to attack than the mathematical
problems used in conventional public-key systems. This means that our ECC
systems can deliver equivalent security with shorter keys than conventional
public-key systems.

   The following table illustrates this advantage by showing the key sizes for
various cryptographic systems.

            Comparable Key Sizes for Cryptographic Systems, in Bits



                                    Public Key
                                 ----------------
                                     Conventional
                 Symmetric Key   ECC  Algorithms
                 -------------   --- ------------
                               
                    80           163     1,024
                   128           283     3,072
                   192           409     7,680
                   256           571    15,360


   Although the level of security offered by 80-bit symmetric keys is
currently sufficient for securing most business activities, we believe that
larger key sizes are needed to withstand future attacks made possible by the
rapid advance of computing power. The Advanced Encryption Standard, or AES,
endorsed by the U.S. Government, uses symmetric key sizes ranging from 128 to
256 bits. To deliver strength equivalent to the strongest AES symmetric key, a
571-bit ECC public key or a 15,360-bit RSA public key would be required. Given
that the computation required to create a digital signature grows with the key
size, and that the key size needed to deliver a particular level of security
grows more slowly for ECC than it does with conventional algorithms, the
performance and bandwidth advantages of ECC grow as the level of desired
security increases.

                                       5


   The security of a system is dependent on its design. Confidence in the
security of ECC's design stems from 15 years of scrutiny by cryptographic
experts. This confidence is reflected by the inclusion of ECC in many
prominent standards, including specifications from government bodies and more
commercially-oriented forums such as the American National Standards
Institute, or ANSI, the Institute for Electrical and Electronics Engineers, or
IEEE, and the International Organization for Standardization, or IOS. Most
recently, a digital signature standard based on ECC has become a U.S.
Government Federal Information Processing Standard. Given that the
standardization process in these organizations has typically taken several
years, and because we monitor these processes, we do not expect that any
emerging algorithms will achieve standardization by these organizations in the
near future.

Products and Services

   Our products and services include:

  .  Enabling Technologies

    .  Security Builder(R) cryptographic toolkit

    .  SSL Plus(TM) and WTLS Plus(TM) security protocol toolkits

    .  Trustpoint(TM) PKI products and toolkits

  .  Trust Services

    .  MobileTrust(TM) managed certificate services

  .  Enterprise Application Solutions

    .  movian(TM) wireless security products (movianVPN(TM) &
       movianCrypt(TM))

  .  Consulting and Design Services

  .  Hardware Components

 Enabling Technologies

   Our Security Builder software development toolkit family includes our
proprietary ECC-based technology, an implementation of the RSA algorithm and
other cryptographic algorithms. These products enable customers to integrate a
comprehensive selection of cryptographic components into their applications.
The Security Builder family of products is available for platforms including
Microsoft Windows 95/98/NT, Sun Solaris, several versions of UNIX, Java,
Microsoft Windows CE and the Palm OS(R) platform. We also offer integration
services to port Security Builder to other platforms.

   Our SSL Plus software development toolkit family provides a comprehensive
set of libraries that permit customers to add secure communications quickly
and easily using the secure socket layer, or SSL, and transport layer
security, or TLS, security protocols. The family includes SSL Plus 3.0, SSL
Plus for Embedded Systems and SSL Plus for Java. SSL Plus for Embedded Systems
is the first SSL toolkit that enables secure connections of handheld computers
with enterprise data systems over both wired and wireless networks. The SSL
Plus family of products is available for platforms including Microsoft Windows
NT, Sun Solaris, HP/UX, QNX RTOS, Java, Microsoft Windows CE, Linux and the
Palm OS platform. SSL Plus is built using the ANSI C language, and we provide
services to port to other platforms on request. Our SSL Plus toolkit is used
by leading companies such as Agilent, BEA Systems, Citrix, Juno, Nortel,
Oracle, and Sybase to build security into a wide range of applications and
products for the Internet, intranets, and corporate networks, from traditional
Web browsers and servers to home banking products, handheld devices and legacy
mainframes.

   Our WTLS Plus security protocol toolkit implements the wireless transport
layer security, or WTLS, protocol for secure transport layer communication
over wireless networks. WTLS Plus is the industry's first WTLS product to
support mutual authentication of Wireless Application Protocol, WAP,
transactions, providing

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the highest levels of security for e-commerce and stock trading, wireless
communications, Internet access and on-line banking from mobile devices. WTLS
Plus is available for platforms including Microsoft Window NT, Sun Solaris,
Microsoft Windows CE and the Palm OS platform. Our industry-leading WTLS
toolkit provides full-strength, high-performance WTLS security is used by 724
Solutions, Digital Mobility (formerly DSR), Exalink Ltd., Motorola, Neomar,
Research In Motion, RTS Wireless and Sony.

   Our Trustpoint PKI product line is a comprehensive suite of flexible PKI
products. The Trustpoint product line consists of certificate toolkits, a CA,
a registration authority and an administrative console built to open industry
standards for PKI interoperability, including X.509 and PKIX. These components
operate on the Java platform and have been tested on Linux, Microsoft Windows
NT and Sun Solaris. The Trustpoint PKI Portal is the industry's first solution
that bridges the wired and wireless PKI worlds by allowing companies to manage
the security needs of desktop PCs, handheld devices, RIM pagers, HTML PDAs,
cHTML phones and WAP-enabled phones from a centralized point of control. We
brought Trustpoint to the e-business community to complement our MobileTrust
CA service offering, resulting in an all-encompassing suite of PKI products to
suit diverse business needs.

 Trust Services

   Our MobileTrust managed certificate services provide Internet-based trust
services that ensure the identity of data servers and handheld clients in
mobile e-business solutions. MobileTrust issues X.509 certificates, which are
compatible with industry-standard cryptographic security protocols and are
supported by our entire line of products. Leading healthcare, enterprise, and
e-commerce application developers use MobileTrust certificates to enable
trusted, secure connections between wired and wireless users and to generate
digitally signed transactions. MobileTrust is the first CA in the industry to
provide both RSA and ECC digital certificates.

 Enterprise Application Solutions

   Our movian product line was introduced to meet the needs of today's
wireless enterprise computing environment. movian delivers cost-effective,
interoperable, high performance security solutions for handheld devices
including:

  .  movianVPN

    The movianVPN is an Instant Protocol Security, or IPSec, software
    client operating on devices running the Palm and WinCE operating
    systems. This product enables enterprises to provide their mobile
    professionals with secure remote access to the corporate intranet from
    wireless devices like PDAs using their existing VPN infrastructures.

  .  movianCrypt

    movianCrypt is a data encryptor that runs on Palm devices and extends
    the basic functionality provided by a handheld computing device to
    achieve stronger data security.

 Consulting and Design Services

   Our experts in cryptography and information security provide a
comprehensive range of systems solutions, consulting and design services to
help customers develop and deploy their own solutions faster and with higher
levels of confidence in their security. We offer the following services:

  .  Systems Security Engineering. From requirements analysis and business
     modeling to design, development and deployment of solutions, we offer
     comprehensive support to help our customers minimize time-to-market,
     reduce development risk, minimize threats from attack, and maximize
     performance and efficiency of security within their systems solutions
     and applications.

  .  Product Review and Evaluation. We provide confidential reviews of our
     clients' products and systems to assist them in creating secure systems
     for their own customers. Our reviews include detailed technical
     evaluations, architectural overviews and business plan viability
     analysis.

                                       7


  .  Enterprise and Information Security Reviews. We assist in identifying
     threats and evaluating networks and computer security risks, and we
     recommend solutions for potential security breaches. Typically, we
     perform risk analysis, physical site reviews, network security reviews,
     security architecture design, security policies and product review and
     recommendations as part of the services.

  .  Cryptographic Design and Review. We have expertise in efficient
     cryptographic security implementations. We help our customers design and
     review custom cryptographic solutions for security in demanding
     environments. Customers typically use our services in wireless handheld
     devices, server- and client-based applications and network security
     systems.

  .  Security and Cryptographic Training. We offer our customers training
     courses that cover a broad range of cryptographic and digital
     information security topics. These courses are tailored to help our
     customers make informed decisions concerning technical designs and new
     product and service opportunities.

  .  PKI Solutions. We help our customers evaluate PKI products and define
     PKI system architectures. Our consultants have created solutions for our
     customers that we believe meet the demands of new and challenging
     environments.

 Hardware Components

   We offer several hardware components that are manufactured by others to our
specifications. These products, which include our smart card product line and
Certilock(TM) security module, provide secure processing and storage for
cryptographic keys based on ECC-based technology. We believe our smart card
product line addresses the need for low-cost, high-strength user
identification and authentication services in a form factor similar to a
credit card. Our Certilock security module provides a secure, hardware-based
execution environment in a PCI card for use in secure application servers and
certificate authorities.

Sales and Marketing

 OEM Sales

   We sell our enabling technologies and trust services directly to OEM
customers through dedicated technical sales representatives. We focus our
efforts in the sectors in which the advantages of our technology are most
compelling.

   We have a sales presence in the United States, Canada, the United Kingdom,
Italy, Singapore and Finland. We assign our sales representatives account
responsibilities based on market sector, enabling the team and its members to
apply and further develop market sector expertise. A sales director leads each
sector team, which includes a business development manager, sales specialists
and field application engineers.

   We intend to continue to expand our sales and business development presence
into Europe, Latin America and the Asia-Pacific region. As the market for our
technology matures, we anticipate complementing our direct sales force with
indirect channels to increase our worldwide sales presence.

 Enterprise Sales

   We have developed direct relationships with enterprises to sell our
enterprise application software offerings, which include our VPN and data
encryptor products. Enterprise users can purchase the software through our
retail e-commerce Web site or via telesales. We have agreements with several
companies to bundle our software with their products thus providing a wider
distribution of our product to the enterprise. We continue to expand the
distribution channels. We plan to leverage our brand recognition in the
enterprises, and expand into key vertical markets including healthcare and
financial services, in order to increase sales of our enabling technologies
and trust services.

                                       8


 Corporate Marketing

   We maintain marketing efforts directed at broadening the demand for our
products and solutions by increasing awareness of the benefits of using our
products and the need for security solutions in general. Marketing efforts are
also aimed at supporting our worldwide sales channels and promoting joint
partner activities. Marketing personnel engage in a number of activities
including conducting public relations and product seminars, developing sales
and marketing collateral such as white papers, case studies and data sheets,
issuing newsletters, coordinating our participation in industry trade shows,
programs and forums, and establishing and maintaining relationships with
recognized industry analysts and press. Our executives are frequent speakers
at key industry forums in many of the vertical markets that we serve.

 Brand Awareness

   We provide the Certicom ingredient technology brand logo to our licensees
to incorporate in their product packaging to indicate the inclusion of our
enabling security technology in their products. We also provide variations of
the mark for use in the smaller screen sizes of handheld devices and
applications. The Certicom corporate logo is regularly featured in our
advertisements, trade show graphics, and other promotional efforts.

 Standards Marketing and Education

   We maintain an active commitment to open standards in the cryptography
industry and participate in setting standards that pertain to various aspects
of our technology. We have also expanded our coverage in application
standards. Our success in marketing our security products and services is
partially dependent on the acceptance of our technology by standards
organizations. In many cases, the memberships of standards committees include
representatives from our most important customers.

   We are active in many important industry standards bodies, including the
Institute of Electrical and Electronics Engineers, Inc., or IEEE; the American
National Standards Institute, or ANSI; the International Organization for
Standardization, or ISO; the Internet Engineering Task Force, or IETF; the
Wireless Application Protocol Forum, or WAP Forum; Bluetooth Special Interest
Group; and Radicchio, a consortium established to promote adoption of wireless
PKI. We have formed our own standards group, the Standards for Efficient
Cryptography Group, or SECG, to promote ECC interoperability among the major
companies planning to ship ECC-based products.

   Confidence in the strength of cryptographic algorithms is essential to the
expansion of their use. We have engaged in extensive educational activities to
explain the mathematical basis underlying elliptic curve cryptosystems. These
educational initiatives have been directed towards not only customers but also
the ultimate end users of our products, including banks, credit card
associations and governments.

Research and Development

   We are engaged in advanced cryptographic research involving computational
algorithms and integrated circuit architectures for cryptographic processing.
Dr. Scott A. Vanstone, our Chief Cryptographer, leads our efforts in this
area. Dr. Vanstone is also a professor of Mathematics at St. Jerome's
University and the University of Waterloo, Canada's leading center for
cryptographic research, and has published numerous books and articles on
cryptography. He is an Executive Director for the Centre for Applied
Cryptographic Research, the holder of the NSERC/Pitney Bowes Industrial
Research Chair in Cryptography at the University of Waterloo and a Fellow,
Royal Society of Canada, Academy of Science. We maintain a long-standing
relationship with the University of Waterloo, where we co-sponsor the
NSERC/Certicom Industrial Research Chair in Cryptography.

   On June 30, 2001, we employed eleven cryptographers who are involved in
pure research and applied cryptographic development. We also retain several
leading cryptographic researchers at academic institutions as paid
consultants. We present at a number of cryptography conferences and hold
workshops worldwide on ECC.

                                       9


   In addition to our core expertise in applied cryptographic research, we
emphasize the development of software toolkits that package core technology
innovations and standard security protocols into easy-to-use products targeted
at the development community. We have expertise in the development of
integrated circuit designs that integrate our ECC implementations directly
into hardware solutions.

Intellectual Property

   We rely on combinations of proprietary technologies, trade secrets, patent
protection and copyright protection in the conduct of our business. Our
cryptographic research has resulted in seventeen patents granted in the United
States, with corresponding applications either pending or granted in other
jurisdictions. Our research has also led to our filing numerous patent
applications over the past five years. As of June 30, 2001, in addition to our
granted patents, we have approximately thirty-six inventions for which
applications are pending, each of which is filed in one or more jurisdictions.
All our patent applications are filed in the United States and Canada, and a
substantial portion are filed in Europe and Japan as well. We have filed
patent applications in countries that we believe to be significant markets. We
also rely on certain trade secret aspects of our products and services to
provide a commercially prudent level of protection to our proprietary
technology, both in markets in which we have filed patent applications and
those in which we have not filed.

   A majority of our patents and pending patent applications is pertinent to
implementations of ECC, while some of them also relate to techniques used with
other public-key cryptosystems. We believe that our existing patents, together
with our pending patent applications, cover particularly advantageous methods
of implementing ECC. We have licensed and may in the future license our
patents to OEM customers.

   We also engage in joint development work that has resulted in the filing of
additional patent applications. As a result of joint development efforts, we
jointly own five additional patents with Motorola, and have filed several
additional applications for patents which, if granted, would be jointly owned
with Pitney Bowes.

Customer Applications

   We expect our licensees to incorporate our technologies into their products
for the following mobile applications:

  .  on-line banking and brokerage;

  .  vehicle fleet management services;

  .  general-purpose wireless data gateway services;

  .  access to law enforcement databases by police officers;

  .  wireless data application development environments;

  .  enterprise file and data synchronization;

  .  wireless e-mail and messaging;

  .  retail e-commerce initiated from wireless handheld devices;

  .  electronic prescription filing and patient records management for
     physicians;

  .  smart card enabled electronic payments systems;

  .  WAP browsers and gateway systems;

  .  secure wireless Web browsing of HTML sites;

  .  digital content recording and distribution media for handheld devices;

  .  SIM chips for transaction-level security in GSM phones; and

  .  delivery of protected program content in satellite radio broadcasts.

                                      10


Competition

 Enabling Technologies

  .  Cryptographic Security Toolkits

    Our primary competitor in this market is RSA Security Inc. RSA Security
    offers a comprehensive product line that competes directly with us.
    There are a number of other companies worldwide that offer commercial
    protocol products. In addition, competition may come from solutions
    developed in-house, or by companies that attempt to create their own
    encryption implementations without licensing commercial toolkits.
    Furthermore, OpenSSL, a royalty-free source-code implementation, and
    other free cryptographic toolkits are used by some companies.

  .  PKI Products

    Competition in this segment is increasing as traditional PKI companies
    such as Entrust Technologies Inc. and Baltimore Technologies plc move
    into the mobile and wireless market. RSA Security and Diversinet Corp.
    also participate in this segment. In Europe and Asia, some specialty
    vendors are emerging, such as Sonera SmartTrust Ltd., which develop and
    sell PKI products for mobile phones.

 Trust Services

    Competition in this segment comes from companies such as VeriSign,
    Inc., Entrust, Inc. and Baltimore Technologies plc. These companies
    offer CA products and services for issuing and managing digital
    certificates for use on public and private networks. Although
    traditionally desktop focused, they have begun to modify their products
    and services to make their products more attractive to the mobile and
    wireless market.

 Enterprise Application Products

  .  VPN Client for Handheld Devices

    No direct competition exists for our handheld client at this time.
    However, there is interest by companies to participate in the area of
    PDA security products for remote access. One alternative solution is
    the V-One Air SmartGate. This product does require investment in
    additional network equipment and does not use a standard security
    protocol.

    There have been announcements recently from software toolkit providers,
    which a third party or a toolkit provider could use to create a
    handheld client, planned for 2001. To date no announcements of an
    actual client using these toolkits have been made. In addition, we
    believe that any competitive offering would need to develop broad
    interoperability with gateways, handheld devices and wireless
    connectivity methods in order to match our handheld VPN client feature
    set.

    Most gateway companies have a desktop VPN client available and, in
    theory, could develop a handheld client for their wireless extensions.
    The gateway companies, however, do not consider development for
    handheld devices as a core competence and our handheld client is
    already interoperable with their gateways. Certicom has announced a
    bundling agreement with one VPN gateway provider, Cisco Systems, Inc.

  .  Database Encryptor for Handheld Devices

    There are very few products that offer authentication and data
    encryption for the Palm device. Competition in this market comes from
    JAWZ Inc., PDASecure and Asynchrony.com. We believe that competing
    encryption products will be developed during the third quarter of
    calendar 2001.

Regulatory Matters

   Our products are subject to export, import and/or use restrictions imposed
by the governments of the United States, Canada and other countries.
Therefore, our ability to export and re-export our products from the United

                                      11


States and Canada to other countries is subject to a variety of government
approvals or licensing requirements. Such restrictions potentially could have
a material adverse effect on our business, financial condition and operating
results.

   In general, our products can be exported from, imported into and used in
the United States and Canada without licenses or other approvals. In other
countries, the trends regarding export, import and use restrictions are mixed.
Given that the laws, regulations and requirements governing the export, import
and use of encryption products change frequently and without advance notice,
we cannot predict their ultimate impact on our activities.

Employees

   On June 4, 2001, we announced a work force reduction that decreased our
work force by approximately 30%. As of June 30, 2001, we had approximately 319
full-time and part-time employees: 111 in cryptographic research and
engineering, 107 in sales and marketing, 35 in consulting and systems
integration services, and 66 in finance and administration. None of our
employees is represented by a labor union or subject to a collective
bargaining agreement. We consider our relationship with our employees to be
good. All our employees enter into intellectual property rights assignments
and non-disclosure agreements with us.

Factors That May Affect Operating Results

   We operate in a dynamic, rapidly changing environment that involves risks
and uncertainties. You should carefully consider the risks described below and
the other information in this Form 10-K. These risks and uncertainties are not
the only ones facing us. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially harmed.

Risks Related to Our Company

 We have a limited operating history and have incurred losses since inception
 and anticipate incurring losses for the foreseeable future

   Although we have been engaged in the cryptographic security industry since
1985, we did not ship our first commercial toolkit or enter the U.S. market
until 1997. Accordingly, our business operations are subject to all of the
risks inherent in a new business enterprise, such as competition and viable
operations management. These risks and uncertainties are often worse for a
company engaged in new and evolving product markets.

   Since our inception, we have incurred substantial net losses. As of April
30, 2001, we had an accumulated deficit of approximately $95.0 million (as
determined in accordance with U.S. generally accepted accounting principles).
We expect to incur additional losses for the foreseeable future and we may
never achieve profitability. If we do achieve profitability, we may not be
able to sustain it. You should not consider our historical growth indicative
of our future revenue levels or operating results. Our success will depend in
large part upon our ability to generate sufficient revenue to achieve
profitability and to maintain existing customer relationships and develop new
customer relationships.

 Because our quarterly operating results are subject to fluctuations, period-
 to-period comparisons of our operating results are not necessarily meaningful
 and you should not rely on them as an indication of future performance

   Our quarterly operating results have historically fluctuated and may
fluctuate significantly in the future. Accordingly, our operating results in a
particular period are difficult to predict and may not meet the expectations
of securities analysts or investors. If this were to occur, our share price
would likely decline significantly. Factors that may cause our operating
results to fluctuate include:

  .  our transition to a subscription license business model;

  .  the level of demand for our products and services as well as the timing
     of new releases of our products;

                                      12


  .  our dependence in any quarter on the timing of a few large sales;

  .  our ability to maintain and grow a significant customer base;

  .  the fixed nature of a significant portion of our operating expenses,
     particularly personnel, research and development, and leases;

  .  costs related to the opening or expansion of our facilities;

  .  unanticipated product discontinuation or deferrals by our OEM customers;

  .  changes in our pricing policies or those of our competitors;

  .  currency exchange rate fluctuations; and

  .  timing of acquisitions, our effectiveness at integrating acquisitions
     with existing operations and related costs.

Accordingly, we believe that quarter-to-quarter comparisons of our results of
operations are not necessarily meaningful. You should not rely on the results
of one quarter as an indication of our future performance.

 Our revenues are difficult to predict

   We derive our revenue primarily from sales of our products and services to
our OEM customers. Our sales vary in frequency, and OEM customers may or may
not purchase our products and services in the future. The sale to, and
implementation by, OEMs of our products and services typically involve a
lengthy education process, along with significant technical evaluation and
commitment of capital and other resources by them. This process is also
subject to the risk of delays associated with (a) their internal budgeting and
other procedures for approving capital expenditures, (b) deploying new
technologies and (c) testing and accepting new technologies that affect key
operations. As a result, the sales and implementation cycles associated with
many of our products and services are generally lengthy, and we may not
succeed in closing transactions on a timely basis, if at all. If orders
expected from a specific customer for a particular period are not realized,
our revenues could fail to materialize.

   In addition, our customers may defer the purchase of, or stop using, our
products and services at any time, and certain license agreements may be
terminated by the customer at any time. We negotiate most of our customer
contracts on a case-by-case basis, which makes our revenues difficult to
predict. Our existing customer contracts typically provide for base license
fees, technology access fees and/or royalties based on a per-unit or per-usage
charge or a percentage of revenue from licensees' products containing our
technology. In June 2001, we converted our enabling technologies products to
primarily subscription-based licenses. Additionally, a number of our large
contracts provide that we will not earn additional royalty revenues from those
contracts until these customers' shipments exceed certain thresholds. As a
result, our revenues are not recurring from period to period, which makes them
more difficult to predict. In addition, estimating future revenue is difficult
because we generally ship our products soon after an order is received and, as
such, we do not have a significant backlog. Our expense levels are based, in
part, on our expectations of future revenues and are largely fixed in the
short term. We may not be able to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenues.

 The introduction of a subscription business model will impact our reported
 revenue

   In June 2001, we converted our enabling technologies products to primarily
subscription-based licenses. In addition, our trust services and enterprise
application solutions product lines are accounted for under the subscription
model. Subscription licenses provide our customers with rights to use our
software for a specified period of time. Customers are entitled to use the
license and receive certain customer support services over the license term.
In addition, depending on the type of license, our customers have access to
unspecified upgrades on an "if and when available" basis. We expect the
average duration of the subscription licenses to be between one and two years.
In addition, we expect a significant percent of customers to renew their
licenses upon license expiration.

                                      13


   The change from perpetual licenses to subscription licenses will impact our
reported quarterly and annual revenues on a going-forward basis, as
subscription license revenue will be amortized over the term of the
subscription license. In the past, the majority of our perpetual license
revenues have been recognized in the quarter of product delivery. Therefore, a
subscription license order will result in substantially less current-quarter
revenue than an equal-sized order for a perpetual license. We expect to
invoice our customers upfront for the full amount of a twelve-month
subscription license period and collect the invoice within our standard
payment terms. Although we expect that over the long term, our cash flow from
operations under the subscription license model will be equal to or greater
than under the perpetual license model, in the near term we expect our cash
flow from operations to decrease and deferred revenue to increase.

 We are contractually obligated to complete certain leasehold improvements

   We lease premises totaling approximately 111,000 square feet in Hayward,
California. This lease expires on July 31, 2007. Through April 30, 2001 we
have capitalized leasehold improvements and related construction costs
totaling approximately $7.7 million for our Hayward facilities. In addition,
we anticipate incurring approximately an additional $3.6 million subsequent to
April 30, 2001 to complete the build-out of our Hayward facilities. In
addition, we have signed a ten-year lease for approximately 130,000 square
feet located at 1980 Matheson Boulevard East, Mississauga, Ontario. At this
time, the facility is being constructed at our expense. We are obligated to
pay approximately $7.8 million of which approximately $7.4 million will be
paid subsequent to April 30, 2001 to complete the build-out of the facility.

 The current economic downturn has impacted demand for our products and
 services and may adversely affect future revenue

   The majority of our revenue has been, and is expected to continue to be,
derived from customers in the United States. Recent economic indicators,
including growth in gross domestic product, reflect a decline in economic
activity in the United States. Some reports have indicated an even more
significant decline in spending by corporations in the area of information
technology, which includes the encryption technology market. While we cannot
specifically correlate the impact of macro-economic conditions on our sales
activities, we believe that the economic conditions in the United States have
resulted in decreased demand in our target markets and, in particular, have
increased the average length of our sales cycles. To the extent that the
current downturn continues or increases in severity, or results in a similar
downturn worldwide, we believe demand for our products and services, and
therefore future revenue, will be reduced.

 Our restructuring of operations may not achieve the results we intend and may
 harm our business

   In June 2001, we announced a restructuring of our business, which included
a reduction in work force of approximately 30% as well as other steps to
reduce expenses. The planning and implementation of our restructuring has
placed, and may continue to place, a significant strain on our managerial,
operational, financial and other resources. Additionally, the restructuring
may negatively affect our employee turnover, recruiting and retention of
important employees. If we are unable to implement our restructuring
effectively or if we experience difficulties in effecting the restructuring,
our expenses could increase more quickly than we expect. If we find that our
restructuring announced in June did not sufficiently decrease the growth of
our expenses, we may find it necessary to implement further streamlining of
our expenses, to perform another reduction in our work force or to undertake
another restructuring of our business. If our restructuring activities are not
successful in efficiently reducing our expenses or result in the loss of key
personnel or employee morale, our business, financial condition and results of
operations would be materially adversely affected.

 A limited number of customers account for a high percentage of our revenue
 and the failure to maintain or expand these relationships could harm our
 business

   Five customers comprised approximately 42% of our revenue for the fiscal
year ended April 30, 2001, and approximately 31% of our revenue for the fiscal
year ended April 30, 2000. One of our customers accounted for approximately
23% of our revenue in fiscal 2001 while no customer accounted for 10% or more
of our revenue

                                      14


in fiscal 2000. The loss of one or more of our major customers, the failure to
attract new customers on a timely basis, or a reduction in usage and revenue
associated with the existing or proposed customers would harm our business and
prospects.

 We may be unable to find sub-tenants to sublease currently leased and vacant
 space

   In March 2000, we entered into a lease covering 68,000 square feet of
office space adjacent to our existing 43,000 square foot Hayward facility. The
term of this new lease is seven years at an initial monthly rent of
approximately $61,000, with 3% annual increases. The lease on our existing
Hayward facility expires in July 2007 and provides for current monthly base
rent payments of approximately $54,000, increasing to approximately $57,000 in
March 2002 and approximately $60,000 in March 2004. Due to the restructuring
we announced in June 2001, we intend to sublease our current Hayward office
space, although there can be no assurance that we will be able to do so or at
rates equal to our current obligations under the lease, and to relocate our
Hayward operations to the new facility in the August of 2001.

   We recently signed a ten-year lease for approximately 130,000 square feet
located at 1980 Matheson Boulevard East, Mississauga, Ontario. If the landlord
intends to sell the leased premises, we have a right of first refusal with
respect of any sale of this property on terms to be negotiated. In the fall of
2001, we intend to relocate our Canadian operations from their current
location to this new facility and to sublease our current Canadian office
space and approximately 40,000 square feet space located at 1980 Matheson
Boulevard East, Mississauga, Ontario, although there can be no assurance that
we will be able to do so or at rates equal to our current obligations under
the lease. The annual rental fee for the new site varies between approximately
Cdn.$10.85 to Cdn.$13.05 per square foot (U.S.$7.06 to U.S.$8.50 per square
foot based on the exchange rate on April 30, 2001) over the life of the lease.
We began paying rent on this lease in May 2001.

   We are currently searching for tenants to sublease our current Hayward and
Mississauga spaces and portion of our new Mississauga space. We may not be
able to find suitable sub-tenants to occupy this space in a timely manner in
the future, if at all, or otherwise sublease these properties profitably. The
total annual rent for all facilities is approximately $3.1 million. If we are
unable to find suitable sub-tenants, we may experience greater than
anticipated operating expenses in the future, which could materially adversely
affect our financial condition and operating results.

 Our success depends on an increase in the demand for digital signatures in m-
 business transactions and ECC-based technology becoming accepted as an
 industry standard

   For handheld devices, many of the advantages our ECC-based technology has
over conventional security technology are not applicable to a transaction that
does not involve the creation of a digital signature on a handheld device.
Currently, the vast majority of e-business and m-business transactions do not
involve such digital signatures. Participants in mobile e-business have only
recently begun to require client digital signatures in some applications, such
as enterprise data access and certain high-value transactions. Unless the
number of mobile e-business transactions involving client digital signatures
increases, the demand for our products and services, and consequently, our
business, financial condition and operating results could be materially
adversely affected.

   In order for our business to be successful, ECC technology must become
accepted as an industry standard. This has not happened to date, and may never
happen. The technology of our principal competitor, RSA Security Inc., is and
has been for the past several years, the de facto standard for security over
open networks like the Internet. The patent related to this competing
technology expired in September 2000, making this technology freely available.
The free availability of such security technology could significantly delay or
prevent the acceptance of ECC as a security standard.

                                      15


 Some of our products are new, unproven and currently generate little or no
 revenue

   In late 2000 and early 2001 we launched our PKI products, CA service and
VPN client software product. We cannot predict the future level of acceptance,
if any, of these new products, and we may be unable to generate significant
revenue from these products.

 We have only recently begun to sell directly to enterprise customers

   We have recently started to expand our sales efforts to encompass sales of
certain products directly to enterprises other than OEMs. The expansion of our
direct sales efforts will require that we attract, hire, train, manage and
adequately compensate a larger group of professionals. We may not be
successful in expanding and managing our sales effort or that the revenues
produced by our direct sales will offset our increased expenses.

   These non-OEM, or enterprise, customers will require different products,
support services and integration services than our existing OEM customer base.
We may not be successful in developing the products and services necessary to
serve this new customer base.

 Our business depends on continued development of the Internet and the
 continued growth of m-business

   Our future success is substantially dependent upon continued growth in
Internet usage and the acceptance of mobile and wireless devices and their use
for m-business. The adoption of the Internet for commerce and communications,
particularly by individuals and companies that have historically relied upon
alternative means of commerce and communication, generally requires the
understanding and acceptance of a new way of conducting business and
exchanging information. In particular, companies that have already invested
substantial resources in other means of conducting commerce and exchanging
information may be reluctant or slow to adopt a new, Internet-based strategy
that may make their existing infrastructure obsolete. To the extent that
individuals and businesses do not consider the Internet to be a viable
commercial and communications medium, our business may not grow.

   Furthermore, building a wireless-based strategy requires significant
investment. Many companies may not have resources and capital to build the
infrastructure required to support a wireless-based strategy. If this
infrastructure build out does not occur, our revenue may not grow. In
addition, our business may be harmed if the number of users of mobile and
wireless devices does not increase, or if e-business and m-business do not
become more accepted and widespread. The use and acceptance of the Internet
and of mobile and wireless devices may not increase for any number of reasons,
including:

  .  actual or perceived lack of security for sensitive information, such as
     credit card numbers;

  .  traffic or other usage delays on the Internet;

  .  competing technologies;

  .  governmental regulation; and

  .  uncertainty regarding intellectual property ownership.

   Capacity constraints caused by growth in the use of the Internet may impede
further development of the Internet to the extent that users experience
delays, transmission errors and other difficulties. If the necessary
infrastructure, products, services and facilities are not developed, if the
Internet does not become a viable and widespread commercial and communications
medium, or if individuals and businesses do not increase their use of mobile
and wireless devices for mobile e-business, our business, financial condition
and operating results could be materially adversely affected.

                                      16


 We must manage our growth

   We have experienced a period of significant growth in our sales and
personnel that has placed strain upon our management systems and resources.
Our sales increased from $12.0 million for the fiscal year ended in April 30,
2000 to $26.6 million for the fiscal year ended in April 30, 2001. The number
of our full-time and part-time employees increased from 189 at the end of June
2000 to 319 at the end of June 2001. Subject to prevailing economic
conditions, we intend to continue to pursue existing and potential market
opportunities, including acquisitions. Our growth has placed, and will
continue to place, demands on our management and operational resources,
particularly with respect to:

  .  training, supervising, and retaining skilled technical, marketing and
     management personnel in an environment where there is intense
     competition for skilled personnel;

  .  managing and preparing our facilities for occupancy;

  .  expanding our treasury and accounting functions and information systems
     to meet the demands of a growing company;

  .  strengthening our financial and management controls in a manner
     appropriate for a larger enterprise;

  .  maintaining a cutting edge research and development staff;

  .  expanding our sales and marketing efforts;

  .  developing and managing a larger, more complex international
     organization; and

  .  preserving our culture, values and entrepreneurial environment.

   Our revenue may not continue to grow at a pace that will support our
planned costs and expenditures. To the extent that our revenue does not
increase at a rate commensurate with these additional costs and expenditures,
our results of operations and liquidity would be materially adversely
affected.

   Our management has limited experience managing a business of our size and,
in order to manage our growth effectively, we must concurrently develop more
sophisticated operational systems, procedures and controls. If we fail to
develop these systems, procedures and controls on a timely basis, it could
impede our ability to deliver products in a timely fashion and fulfill
existing customer commitments and, as a result, our business, financial
condition and operating results could be materially adversely affected.

 Acquisitions could harm our business

   We acquired Consensus Development Corporation and Uptronics Incorporated in
fiscal year 1999, Trustpoint in fiscal year 2000, and DRG Resources Group,
Inc. in fiscal year 2001. We may acquire additional businesses, technologies,
product lines or services in the future either in the United States or abroad.
Acquisitions involve a number of risks, potentially including:

  .  disruption to our business;

  .  inability to integrate, train, retain and motivate key personnel of the
     acquired business;

  .  diversion of our management from our day-to-day operations;

  .  inability to incorporate acquired technologies successfully into our
     products and services;

  .  additional expense associated with completing an acquisition and
     amortization of any acquired intangible assets;

  .  impairment of relationships with our employees, customers and strategic
     partners; and

  .  inability to maintain uniform standards, controls, procedures and
     policies.

   In addition, we may not be able to maintain the levels of operating
efficiency that any acquired company achieved or might have achieved
separately. Successful integration of the companies we acquire will depend

                                      17


upon our ability to eliminate redundancies and excess costs. As a result of
difficulties associated with combining operations, we may not be able to
achieve cost savings and other benefits that we might hope to achieve with
these acquisitions.

   We may satisfy the purchase price of any future acquisitions through the
issuance of our common shares, which may result in dilution to our existing
shareholders. We may also incur debt or assume liabilities. We cannot assure
you that we will be able to obtain any additional financing on satisfactory
terms, or at all. Incurring debt or assuming additional liabilities would make
us more vulnerable to economic downturns and may limit our ability to
withstand competitive pressures. The terms of any additional indebtedness may
include restrictive financial and operating covenants, which could limit our
ability to compete and expand our business.

   Our business strategy also includes entering into strategic investments and
joint ventures with other companies. These transactions are subject to many of
the same risks identified above for acquisitions.

 Our success depends on attracting and retaining skilled personnel

   Our success is largely dependent on the performance of our management team
and other key employees. Our success also depends on our ability to attract,
retain and motivate qualified personnel. Most of our key technical and senior
management personnel are not bound by employment agreements. Loss of the
services of any of these key employees would harm our business, financial
condition and operating results. We do not maintain key person life insurance
policies on any of our employees.

   Competition for qualified personnel in the digital information security
industry is intense, and finding and retaining qualified personnel in the San
Francisco Bay Area and the Greater Toronto Area are difficult. We believe
there are only a limited number of individuals with the requisite skills to
serve in many of our key positions, and it is becoming increasingly difficult
to hire and retain such persons. Competitors and others have in the past and
may attempt in the future to recruit our employees. A major part of our
compensation to our key employees is in the form of stock option grants. A
prolonged depression in our share price could make it difficult for us to
retain employees and recruit additional qualified personnel. In addition, the
volatility and current market price of our common shares may make it difficult
to attract and retain personnel.

 We face risks related to our international operations

   We are currently in the process of expanding our international presence and
operations. This expansion is expected to involve opening foreign sales
offices, which may cause us to incur substantial costs. International sales
and operations may be limited or disrupted by increased regulatory
requirements, the imposition of government and currency controls, export
license requirements, political instability, labor unrest, transportation
delays and interruptions, trade restrictions, changes in tariffs and
difficulties in staffing and coordinating communications among international
operations. These foreign markets may require us to develop new products or
modify our existing products. There can be no assurance that we will be able
to manage effectively the risks associated with our international operations
or that those operations will contribute positively to our business, financial
condition or operating results.

 We face risks related to intellectual property rights

   We rely on one or more of the following to protect our proprietary rights:
patents, trademarks, copyrights, trade secrets, confidentiality procedures and
contractual provisions. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy and may succeed in copying aspects of
our product designs, products or trademarks, or obtain and use information we
regard as proprietary. Preventing the unauthorized use of our proprietary
technology may be difficult in part because it may be difficult to discover
such use. Stopping unauthorized use of our proprietary technology may be
difficult, time-consuming and costly. In addition, the laws of some countries
in which our products are licensed do not protect our products and services
and related intellectual property to the same extent as the laws of Canada,
the United States and countries of the European

                                      18


Union. While we believe that at least some of our products are covered by one
or more of our patents and these patents are valid, a court may not agree if
the matter is litigated. There can be no assurance that we will be successful
in protecting our proprietary rights and, if we are not, our business,
financial condition and operating results could be materially adversely
affected.

   The industry in which we compete has many participants who own, or claim to
own, intellectual property. We indemnify our licensees against third-party
intellectual property claims based on our technology. Claims relating to
intellectual property by any third-party business, individual or university,
whether or not with merit, could be time-consuming to evaluate, result in
costly litigation, cause shipment delays for products or the cessation of the
use and sale of products or services, or require us to obtain licenses by
paying license fees and/or royalties to the owners of the intellectual
property. Such licensing agreements, if required, may not be available on
royalty or other terms acceptable to us. Any of these situations could
materially adversely affect our business, financial condition and operating
results. We also currently license third party technology for use in some of
our products and services. These third party technology licenses may not
continue to be available on commercially reasonable terms or may not be
available at all. Our business, financial condition and operating results
could be materially adversely affected if we lose the right to use certain
technology.

   We are engaged in joint development projects with certain companies. One of
these projects has resulted in the issuance of jointly owned patents. There is
a risk that the companies with which we are working could decide not to
commercialize the joint technology and that we may be unable to commercialize
joint technology without their consent and/or involvement.

   We belong to certain organizations that set standards. As part of the
standards process, the participants are requested to file statements
identifying any patents they consider to be essential to implementation of the
standard. As such, we may be required to disclose and license patents that we
own which are necessary for practice of the standard. Further, to provide
products that are compliant with standards that have been adopted or will be
adopted in the future, we may have to license patents owned by others. As a
part of some standards processes, other companies have disclosed patents that
they believe are required to implement those standards. We cannot assure you
that we will be able to gain licenses to these patents, if needed, on terms
acceptable to us. Such licensing requirements may materially adversely affect
the value of our products, and, consequently, our business, financial
condition and operating results.

 Our products could have defects which could delay their shipment, harm our
 reputation and increase costs

   Our products are highly complex and, from time to time, may contain design
defects that are difficult to detect and correct. Errors, failures or bugs may
be found in our products after commencement of commercial shipments. Even if
these errors are discovered, we may not be able to correct such errors in a
timely manner or at all. The occurrence of errors and failures in our products
could result in damage to our reputation, lost revenue and the loss of, or
delay in achieving, market acceptance of our products, and correcting such
errors and failures in our products could require significant expenditure of
capital by us. The sale and support of these products may entail the risk of
product liability or warranty claims based on damage to such equipment. In
addition, the failure of our products to perform to customer expectations
could give rise to warranty claims. Our insurance may not cover or its
coverage may be insufficient to cover any such claims successfully asserted
against us, and therefore the consequences of such errors, failures and claims
could have a material adverse effect on our business, financial condition and
operating results.

 System interruptions and security breaches could harm our business

   We are in the process of constructing a secure data center for issuing
certificates. We will depend on the uninterrupted operation of that data
center. We will need to protect this center and our other systems from loss,
damage, or interruption caused by fire, power loss, telecommunications failure
or other events beyond our control. In addition, most of our systems and the
data center are located, and most of our customer information is stored, in
the San Francisco Bay Area, which is susceptible to earthquakes. Any damage or
failure that causes

                                      19


interruptions in our data center and our other computer and communications
systems could materially adversely affect our business, financial condition
and operating results.

   Our success also depends upon the scalability of our systems. Our systems
have not been tested at the usage volumes that we expect will be required in
the future. As a result, a substantial increase in demand for our products and
services could cause interruptions in our systems. Any such interruptions
could materially and adversely affect our ability to deliver our products and
services and our business, financial condition and operating results.

   Although we intend to periodically perform, and retain accredited third
parties to perform, evaluations of our operational controls, practices and
procedures, we may not be able to meet or remain in compliance with our
internal standards or those set by these third parties. If we fail to maintain
these standards, we may have to expend significant time and money to return to
compliance, and our business, financial condition and operating results could
be materially adversely affected.

   We will retain certain confidential customer information in our planned
data center. It is important to our business that our facilities and
infrastructure remain secure and be perceived by the marketplace to be secure.
Despite our security measures, our infrastructure may be vulnerable to
physical break-ins, computer viruses, attacks by hackers or other disruptive
problems. It is possible that we may have to expend additional financial and
other resources to address these problems. Any physical or electronic break-
ins or other security breaches or compromises of the information stored at our
planned data center may jeopardize the security of information stored on our
premises or in the computer systems and networks of our customers. In such an
event, we could face significant liability and damage to our reputation, and
customers could be reluctant to use our products and services. Such an
occurrence could also result in adverse publicity and adversely affect the
market's perception of our products and services, which could materially
adversely affect our business, financial condition and operating results.

 We must continue to develop and maintain strategic and other relationships

   One of our business strategies has been to enter into strategic or other
collaborative relationships with many of our OEM customers to develop new
technologies and leverage their sales and marketing organizations. We may need
to enter into additional relationships to execute our business plan. We may
not be able to enter into additional, or maintain our existing, strategic
relationships on commercially reasonable terms. As a result, we may have to
devote substantially more resources to the development of new technology and
the distribution, sales and marketing of our security products and services
than we would otherwise. The failure of one or more of our strategic
relationships could materially adversely affect our business, financial
condition and operating results.

 We compete with some of our customers

   We regularly license some of our products to customers who compete with us
in other product categories. For example, we license our Security Builder(R)
cryptographic toolkit to Baltimore Technologies for incorporation into their
UniCERT(TM) product, which competes with our Trustpoint(TM) product line. This
potential conflict may deter existing and potential future customers from
licensing some of our component products, most notably our Security Builder(R)
cryptographic toolkit. We expect to compete with a greater number of our
customers as we further expand our product line.

                                      20


 Our share price has been, and will likely continue to be, volatile

   The market price of our common shares has declined significantly in recent
months, and we expect that the market price of our common shares may fluctuate
substantially as a result of variations in our quarterly operating results.
These fluctuations may be exaggerated if the trading volume of our common
shares is low. In addition, due to the technology-intensive and emerging
nature of our business, the market price of our common shares may fall
dramatically in response to a variety of factors, including:

  .  announcements of technological or competitive developments;

  .  acquisitions or entry into strategic alliances by us or our competitors;

  .  the gain or loss of a significant customer or strategic relationship;

  .  changes in estimates of our financial performance;

  .  changes in recommendations from securities analysts regarding us, our
     industry or our customers' industries; and

  .  general market or economic conditions.

   This risk may be heightened because our industry is new and evolving, is
characterized by rapid technological change and is susceptible to the
introduction of new competing technologies or competitors.

   In addition, equity securities of many technology companies have
experienced significant price and volume fluctuations. These price and volume
fluctuations are sometimes unrelated to the operating performance of the
affected companies. Volatility in the market price of our common shares could
result in securities class action litigation. This type of litigation,
regardless of the outcome, could result in substantial costs to us as well as
a diversion of our management's attention and resources.

 We have limited financial resources and may require additional financing that
 may not be available

   We may require additional equity or debt financing in the future. There can
be no assurance that we will be able to obtain on satisfactory terms, or at
all, the additional financing required to compete successfully. Failure to
obtain such financing could result in the delay or abandonment of some or all
of our business plans, which could have a material adverse effect on our
business, financial condition and operating results.

Risks Related to Our Industry

 Public key cryptographic technology is subject to risks

   Our products and services are largely based on public-key cryptographic
technology. With public-key cryptographic technology, a user has both a
public-key and a private-key. The security afforded by this technology depends
on the integrity of a user's private-key and on it not being stolen or
otherwise compromised. The integrity of private keys also depends in part on
the application of certain mathematical principles such as factoring and
elliptic curve discrete logarithms. This integrity is predicated on the
assumption that solving problems based on these principles is difficult.
Should a relatively easy solution to these problems be developed, then the
security of encryption products using public-key cryptographic technology
could be reduced or eliminated. Furthermore, any significant advance in
techniques for attacking cryptographic systems could also render some or all
of our products and services obsolete or unmarketable. Even if no
breakthroughs in methods of attacking cryptographic systems are made,
factoring problems or elliptic curve discrete logarithm problems can
theoretically be solved by computer systems that are significantly faster and
more powerful than those currently available. In the past, there have been
public announcements of the successful decoding of certain cryptographic
messages and of the potential misappropriation of private keys. Such publicity
could also adversely affect the public perception as to the safety of public-
key cryptographic technology. Furthermore, an actual or perceived breach of
security at one of our customers, whether or not due to our products, could
result in adverse publicity for us and damage to our reputation. Such adverse
public perception or any of these other risks, if they actually occur, could
materially adversely affect our business, financial condition and operating
results.

                                      21


 Our future success will depend upon our ability to anticipate and keep pace
 with technological changes

   The information security industry is characterized by rapid technological
change. Technological innovation in the marketplace, such as in the areas of
mobile processing power or wireless bandwidth, or the development of new
cryptographic algorithms, may reduce the comparative benefits of our products
and could materially adversely affect our business, financial condition and
operating results. Our inability, for technological or other reasons, to
enhance, develop and introduce products in a timely manner in response to
changing market conditions, industrial standards, customer requirements or
competitive offerings could result in our products becoming obsolete, or could
otherwise have a material adverse effect on our business, financial condition
and operating results. Our ability to compete successfully will depend in
large measure on our ability to maintain a technically competent research and
development staff and to adapt to technological changes and advances in the
industry, including providing for the continued compatibility of our products
with evolving industry standards and protocols.

 We face significant competition, which could harm our ability to maintain or
 increase sales of our products or reduce the prices we can charge for our
 products

   We operate in a highly competitive industry. Many of our competitors have
greater name recognition, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and
other resources than we do. We anticipate that the quality, functionality and
breadth of our competitors' product offerings will improve, and there can be
no assurance that we will be able to compete effectively with such product
offerings. In addition, we could be materially adversely affected if there
were a significant movement towards the acceptance of open source solutions or
other alternative technologies that compete with our products. We expect that
additional competition will develop, both from existing businesses in the
information security industry and from new entrants, as demand for information
products and services expands and as the market for these products and
services becomes more established. Moreover, as competition increases, the
prices that we charge for our products may decline. If we are not able to
compete successfully, our business, financial condition and operating results
could be materially adversely affected. Our most significant direct
competitors include RSA Security, Inc., VeriSign, Inc., Baltimore Technologies
plc, and Entrust Inc.

 Our business could be adversely affected by United States and foreign
 government regulation

   The information security industry is governed by regulations that could
have a material adverse effect on our business. Both the U.S. and Canadian
governments regulate the export of cryptographic equipment and software,
including many of our products. It is also possible that laws could be enacted
covering issues such as user privacy, pricing, content, and quality of
products and services in these markets. Such regulations and laws could cause
us to compromise our source code protection, minimize our intellectual
property protection, negatively impact our plans for global expansion, and
consequently materially adversely affect our business.

Risks Related to Our Corporate Charter; Limitations on Dividends

 The anti-takeover effect of certain of our charter provisions could delay or
 prevent our being acquired

   Our authorized capital consists of an unlimited number of common shares and
an unlimited number of preferred shares issuable in one or more series.
Although we currently do not have outstanding any preferred shares, our board
of directors has the authority to issue preference shares and determine the
price, designation, rights, preferences, privileges, restrictions and
conditions, including voting and dividend rights, of these shares without any
further vote or action by shareholders. The rights of the holders of common
shares will be subject to, and may be adversely affected by, the rights of
holders of any preferred shares that may be issued in the future. The issuance
of preferred shares, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, or the issuance of
additional common shares could make it more difficult for a third party to
acquire a majority of our outstanding voting shares. This could deprive our
shareholders of a control premium that might otherwise be realized in
connection with an acquisition of our company.

                                      22


 Our shareholder rights plan could delay or prevent our being acquired

   We have adopted a shareholder rights plan. The provisions of this plan
could make it more difficult for a third party to acquire a majority of our
outstanding voting shares, the effect of which may be to deprive our
shareholders of a control premium that might otherwise be realized in
connection with an acquisition of our company.

 We do not currently intend to pay any cash dividends on our common shares in
 the foreseeable future

   We have never paid or declared any cash dividends on our common shares and
we currently intend to retain any future earnings to finance the development
and expansion of our business. We do not anticipate paying any cash dividends
on our common shares in the foreseeable future. In addition, any dividends
paid to residents of the United States would be subject to Canadian
withholding tax, generally at the rate of 15%.

Item 2. Properties

   We occupy the following properties as operating facilities:



                                Square      Lease
        Major Locations         Footage   Expiration              Use
        ---------------         -------   ----------              ---
                                              
                                                       Principal
                                                       Administration,
                                                       Worldwide Sales and
                                                       Marketing, Finance,
                                                       Engineering, Custom
 25801-25821 Industrial Blvd                           Design and Systems
 Hayward, California, U.S.A.... 111,000   July, 2007   Integration

                                                       Canadian Corporate
                                                       Administration, Customer
                                                       Support, Research and
 5520 Explorer Drive                                   Development, Engineering
 Mississauga, Ontario, Canada..  30,300 December, 2009 and Systems Integration

                                                       Canadian Corporate
                                                       Administration, Customer
                                                       Support, Research and
 1980 Matheson Blvd East                               Development, Engineering
 Mississauga, Ontario, Canada.. 130,000 October, 2010  and Systems Integration

 1175 Herdon Parkway
 Herndon, Virginia, U.S.A......   6,000 October, 2007  Sales


   We recently signed a ten-year lease for approximately 130,000 square feet
located at 1980 Matheson Boulevard East, Mississauga, Ontario. At this time,
the facility is being constructed at our expense. If the landlord intends to
sell the leased premises, we have a right of first refusal with respect of any
sale of this property on terms to be negotiated. In the Fall of 2001, we
intend to relocate our Canadian operations from their current location to this
new facility and to sublease our current Canadian office space and
approximately 40,000 square feet of this new facility, although there is no
assurance that we will be able to do so or at rates equal to our obligations
under the lease. The annual rental fee for the new site varies between
approximately Cdn.$10.85 to Cdn.$13.05 per square foot (U.S.$7.06 to U.S.$8.50
per square foot based on the exchange rate on April 30, 2001) over the life of
the lease. We began paying rent on this lease in May 2001. In addition, we
intend to sublease approximately 43,000 square feet of our Hayward facility in
the second quarter of fiscal 2002, although there can be no assurance that we
will be able to do so or at rates equal to our obligations under the lease.

   We occasionally execute month-to-month leases for short-term office space.
We currently lease approximately 980 square feet of office space in Laguna
Hills, California on a month-to-month basis and we also have a lease for
approximately 540 square feet in London, England.

   We currently anticipate leasehold improvements and related construction
costs will be approximately $11.0 million subsequent to April 30, 2001 to
complete the build-out of our Hayward and Mississauga facilities. The total
annual rent for all facilities is approximately $3.1 million.

                                      23


Item 3. Legal Proceedings

   The nature of our business subjects us to numerous regulatory
investigations, claims, lawsuits and other proceedings in the ordinary course
of our business. The results of these legal proceedings cannot be predicted
with certainty. There can be no assurance that these matters will not have a
material adverse effect on our results of operations in any future period,
depending partly on the results for that period, and a substantial judgment
could have a material adverse impact on our financial condition.

   In April 2000 we received a letter on behalf of Carnegie Mellon University
asserting that it owns the trademark "CERT", and that it believes our use of
the stock symbol "CERT" will cause confusion with and/or dilute its purported
trademark. Although we intend to defend our use of the stock symbol "CERT"
vigorously, there can be no assurance that we will be successful in doing so,
or that this dispute with the University will not have a material adverse
impact on us.

   We have also received a letter on behalf of Geoworks Corporation asserting
that it holds a patent on certain aspects of technology that are part of the
WAP standard. Our WTLS Plus(TM) toolkit may be used to implement WAP-compliant
technology. After an internal investigation based upon the description of
Geoworks' purportedly patented technology provided by GeoWorks, it is our
belief that our toolkits do not include implementation of the Geoworks
technology. We have also become aware of a letter circulated on behalf of a
Mr. Bruce Dickens asserting that he holds a patent on certain aspects of
technology that are implemented within certain aspects of the SSL standard.
After an internal investigation, it is our belief that we do not implement any
validly patented technology. We have received a letter on behalf of eSignX
Corporation drawing our attention to a patent which it purports to hold on
certain aspects of technology related to the use of WAP-enabled portable
electronic authorization devices for approving transactions. The letter states
that, based upon a review of a press release announcing our Trustpoint(TM) PKI
product, that product may be covered by eSignX's patent. We have conducted an
initial investigation and due to the vague description of the suggested
infringement by our products, we were unable to determine the validity of such
suggestions. We have requested further elaboration from eSignX. Although we
intend to vigorously defend any litigation that may arise in connection with
these matters, there can be no assurance that we will be successful in doing
so, or that such disputes will not have a material adverse impact on us.

   In addition, we have become aware of a lawsuit commenced by Mr. Leon
Stambler against one of our customers and certain other parties asserting that
Mr. Stambler holds patents on certain aspects of technology related to online
transactions. Although we have not been named in this legal action, under the
terms of the license agreement we have entered into with this customer, we
have agreed to defend our customer against any claim that our licensed
product, when used within the scope of the license agreement, infringes any
U.S. or Canadian patent and to indemnify the customer in certain circumstances
for related costs and expenses it incurs as a result of such a claim. We had
previously reviewed the Stambler patent and prepared documentation indicating
a possible prior use of the subject matter purportedly claimed in the
referenced patent. We are currently investigating the scope of protection
afforded by the claims detailed in the complaint and effect, if any, of these
claims on the products supplied by Certicom. There can be no assurance that
such asserted patent will not have a material adverse impact on us.

   One of our suppliers, East West Imports, Inc. dba California Computers, has
filed suit against us in the Superior Court of the State of California, County
of Alameda, for payment of approximately $230,000 plus costs, attorney fees,
and interest. Among other defenses, the focus of our dispute is whether or not
a number of personal computers and peripheral items were actually received by
us. At present, both parties are attempting to ascertain the proper amount
owed, and we anticipate a settlement on fair and reasonable terms may be
possible in the near future. In the event that no such settlement is reached
within a reasonable time, we intend to vigorously defend any litigation over
disputed amounts. In such case there can be no assurance that we will be
successful in doing so, or that such disputes will not have a material adverse
impact on us.

Item 4. Submission of Matters to a Vote of Security Holders

   None.

                                      24


                                    PART II

Item 5. Market for the Company's Common Shares and Related Shareholder Matters

Price Range of Common Shares

   Our common shares are listed and traded on the Nasdaq National Market under
the symbol "CERT" and on the Toronto Stock Exchange, or the TSE, under the
symbol "CIC". Our high and low sales prices of our common shares on the Nasdaq
National Market for each quarter within the last fiscal year are shown below.



                                                                     U.S. $
                                                                  -------------
                                                                   High   Low
                                                                  ------ ------
                                                                   
   Fiscal 2001 (ended April 30, 2001)
     First Quarter(1)............................................ $37.44 $12.31
     Second Quarter.............................................. $47.23 $24.75
     Third Quarter............................................... $37.00 $11.94
     Fourth Quarter.............................................. $20.78 $ 5.01

--------
Note:

(1) Our common shares commenced trading on the Nasdaq National Market on May
    2, 2000.

   The high and low sales prices of our common shares on the TSE for each
quarter within our last two fiscal years are shown below, both in Canadian
dollars and U.S. dollars. All currency conversions are based on the prevailing
Cdn.$ to U.S.$ exchange rate on the last day of each respective quarter.



                                                       Cdn. $        U.S. $
                                                   -------------- -------------
                                                    High    Low    High   Low
                                                   ------- ------ ------ ------
                                                             
   Fiscal 2001 (ended April 30, 2001)
     First Quarter................................ $ 56.25 $18.50 $37.80 $12.43
     Second Quarter............................... $ 69.45 $37.00 $45.48 $24.23
     Third Quarter................................ $ 57.00 $17.90 $38.01 $11.94
     Fourth Quarter............................... $ 31.00 $ 7.75 $20.18 $ 5.05

   Fiscal 2000 (ended April 30, 2000)
     First Quarter................................ $  7.63 $ 5.18 $ 5.06 $ 3.44
     Second Quarter............................... $ 10.45 $ 5.65 $ 7.10 $ 3.84
     Third Quarter................................ $ 74.00 $ 9.45 $51.19 $ 6.54
     Fourth Quarter............................... $125.00 $27.65 $84.45 $18.68


   As of June 30, 2001, there were 30,981,583 of our common shares issued and
outstanding. Except as otherwise indicated, all of the prices in the preceding
table, and elsewhere in this Form 10-K and all of the common share numbers in
this document, reflect the 2-for-1 stock split of our outstanding common
shares on July 12, 2000. On July 20, 2001, the last reported sale price of our
common shares on the Nasdaq National Market was $1.71 (Cdn. $2.64 based on the
exchange rate on July 20, 2001) and on the Toronto Stock Exchange was
Cdn.$2.63 ($1.70 based on the exchange rate on July 20, 2001).

Holders of Common Shares

   As of June 30, 2001, there were approximately 113 registered holders of our
common shares. This number of shareholders does not include shareholders whose
shares are held in trust by other entities. The actual number of beneficial
owners of our common shares is greater than the number of holders of record.

                                      25


Dividend Policy

   We have never declared or paid any cash dividends on any of our common
shares. We currently intend to retain earnings to finance the growth and
development of our business and, therefore, we do not anticipate paying any
cash dividends in the foreseeable future. Our dividend policy will be reviewed
from time to time by our board of directors in the context of our earnings,
financial condition and other relevant factors.

Sales of Unregistered Securities

   On September 12, 2000, we acquired all of the outstanding common shares of
DRG Resources Group, Inc., a corporation based in Redwood City, California.
The acquisition was completed with the issuance of 397,595 of our common
shares. In connection with the acquisition, we also assumed stock options
exercisable to acquire 103,100 of our common shares. The transaction did not
involve any underwriters, underwriting discounts or commissions, or any public
offerings, and we believe that it was exempt from the registration requirement
of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof.
The recipients of the securities represented their intention to acquire the
securities for investment only, had access to all relevant material
information necessary to evaluate the investment and represented that they
were "accredited investors" for purpose of Regulation D under the Securities
Act of 1933, as amended.

   For the fiscal year ended April 30, 2001, approximately 135,364 of our
common shares were issued at strike prices ranging from $0.39 to $14.92 per
share, pursuant to the exercise of stock options assumed in connection with
acquisitions of Consensus Development Corporation and Trustpoint.

   On March 26, 2001, we completed a public offering of 3,500,000 common
shares primarily in Canada at a per share price of Cdn.$ 12.50 (approximately
U.S.$8.14 based on the exchange rate on April 30, 2001), for an aggregate
offering price of approximately Cdn.$43.8 million (approximately U.S.$28.5
million based on the exchange rate on April 30, 2001). Of the total number of
common shares sold in connection with this offering, 405,000 were sold in the
United States on a private placement basis pursuant to Regulation D of the
Securities Act of 1933, as amended. The common shares have not been registered
under the Securities Act of 1933, as amended. The offering was underwritten by
a syndicate of underwriters consisting of Yorkton Securities Inc., BMO Nesbitt
Burns Inc., CIBC World Markets Inc., HSBC Securities (Canada) Inc. and TD
Securities Inc. On April 10, 2001, the syndicate of underwriters exercised its
over-allotment option in connection with the completed common share offering.
As a result, we issued an additional 500,000 common shares in Canada for gross
proceeds of approximately Cdn.$6.2 million (approximately U.S.$4.0 million
based on the exchange rate on April 30, 2001). The total gross proceeds from
this common share offering were Cdn.$50.0 million (approximately
U.S.$32.5 million based on the exchange rate on April 30, 2001). After
deducting underwriting discounts and commissions and offering expenses, our
net proceeds from the offering were approximately Cdn.$47.2 million
(approximately U.S.$30.8 million based on the exchange rate on April 30,
2001).

Use of Proceeds from Public Offering

   We intend to use the net proceeds from the offering of common share
completed on March 26, 2001 (including the net proceeds realized upon exercise
of the over-allotment option) for capital expenditures including tenant
improvements for which we are currently obligated, the development and
enhancement of our products and services, the expansion and opening of sales
offices in Europe and the Asia-Pacific region, possible acquisitions of
additional businesses and technologies that are complementary to our current
or anticipated future business lines, working capital and general corporate
purposes.

   Pending such uses, we expect to invest the net proceeds in short-term,
interest-bearing, investment grade securities.

                                      26


Item 6. Selected Consolidated Financial Data

   The selected consolidated financial data set forth below are presented in
U.S. dollars and have been derived from financial statements prepared under
accounting principles generally accepted in the United States of America, or
U.S. GAAP. The results of operations for the year ended April 30, 2001 are not
necessarily indicative of the results to be expected for future periods. The
selected consolidated financial data set forth are qualified in their entirety
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and notes thereto included elsewhere in this
Form 10-K. Effective May 1, 1999, we adopted the U.S. dollar as our functional
currency. See Note 2 to our Consolidated Financial Statements.



                                       Fiscal Year Ended April 30,
                               -----------------------------------------------
                                 2001      2000      1999      1998     1997
                               --------  --------  --------  --------  -------
                                (in thousands of U.S. dollars except per
                                      share data and share amounts)
                                                        
Consolidated Statement of
 Operations Data:
Revenues...................... $ 26,647  $ 12,040  $  4,042  $  1,233  $ 1,085
Costs and expenses:
  Cost of hardware ...........      824       579       125       349      234
  Consulting and systems
   integration (including
   deferred compensation
   amortization of $3,444 for
   fiscal 2001)...............    9,624     2,080       587       --       --
  Selling and marketing.......   19,731     6,616     6,087     4,918    2,038
  Research and development....   12,838     4,446     3,240     3,820    2,433
  Depreciation and
   amortization...............   12,731     7,861     5,063       561      130
  General and administrative
   (including stock
   compensation amortization
   of $312, $318, and $311 for
   fiscal 2001, 2000, and
   1999, respectively)........   12,183     7,099     4,277     2,762    2,549
  One-time secondary offering
   costs......................    1,693       --        --        --       --
  Purchased in-process
   research and development...      --        535     1,151       --       --
Operating loss................  (42,977)  (17,176)  (16,488)  (11,177)  (6,299)
Interest and other income
 (expense) (net of value of
 warrants issued of $423 for
 fiscal 2001).................    2,440      (359)    1,015       965      256
Loss before income taxes......  (40,537)  (17,535)  (15,473)  (10,212)  (6,043)
Income taxes..................      135       334       (92)      167     (112)
Net loss......................  (40,672)  (17,869)  (15,381)  (10,379)  (5,931)
Net loss per share (basic and
 diluted)..................... $  (1.54) $  (0.80) $  (0.73) $  (0.57) $ (0.41)
Weighted average number of
 outstanding common shares
 (000's)......................   26,377    22,255    21,033    18,317   14,386


                                             As of April 30,
                               -----------------------------------------------
                                 2001      2000      1999      1998     1997
                               --------  --------  --------  --------  -------
                                     (in thousands of U.S. dollars)
                                                        
Consolidated Balance Sheet
 Data:
Cash and cash equivalents..... $  1,942  $ 10,508  $  1,400  $    628  $   278
Marketable securities,
 available for sale ..........   52,319     2,550    12,678    29,847   11,440
Total assets..................  109,474    51,516    41,615    34,467   13,784
Total shareholders' equity....   93,357    35,991    39,171    33,035   12,444


                                      27


Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

   We are a leading provider of information security software and services,
specializing in solutions for mobile e-business. Our products and services are
specifically designed to address the challenges imposed by a wireless data
environment. We offer solutions that incorporate our proprietary encryption
technology and are based on industry standards for information security that
utilize public key cryptography. We believe that the addition of our products
to wireless infrastructures will help to build the trust and confidence
necessary for the success of mobile e-business.

   Historically, we have focused on the development and marketing of
cryptographic and information security protocol toolkits. We have also
launched a line of authentication solutions including PKI software, CA
services and VPN client software for handheld devices. In addition, we provide
consulting and systems integration services to assist our customers in
designing and implementing efficient security solutions. Our customers
integrate our technologies into their hardware and software products, then
sell the finished products to consumers or enterprise customers. We also
market and sell our VPN software product directly to enterprise customers.

   We were founded in 1985 and are governed by the laws of the Yukon
Territory, Canada. We determined that commencing May 1, 1999 our functional
currency was the U.S. dollar and, accordingly, we began measuring and
reporting our results of operations in U.S. dollars from that date. We changed
our functional currency as we derive a majority of our revenues and incur a
significant portion of our expenses in U.S. dollars.

   On January 26, 2000, we acquired all the outstanding shares of common stock
of Trustpoint, a corporation based in Mountain View, California. Trustpoint is
a private developer of PKI products. OEMs use the PKI products to develop
authentication and certification applications and services. In connection with
this acquisition, we issued 201,120 of our common shares in exchange for all
of the outstanding shares of Trustpoint and we also assumed Trustpoint's
outstanding employee stock options. The transaction was accounted for as a
purchase and, accordingly, the total consideration of approximately $10.5
million has been allocated to the tangible and intangible assets acquired
based on their respective fair values on the acquisition date. Trustpoint's
results of operations have been included in the consolidated financial
statements from the date of acquisition. As a result of our acquisition of
Trustpoint, we recorded goodwill and other intangible assets of approximately
$10 million. These amounts will be amortized over a three to five year period.

   On September 12, 2000, we completed our acquisition of DRG Resources Group,
Inc., a corporation based in Redwood City, California. DRG Resources Group,
Inc. is an e-commerce security consulting company. In connection with this
acquisition, we issued 397,595 of our common shares in exchange for all of the
outstanding shares of DRG Resources Group, Inc. and we also assumed DRG
Resources Group, Inc.'s outstanding stock options. The transaction was
accounted for as a purchase and, accordingly, the total consideration of
approximately $18.0 million has been allocated to the tangible and intangible
assets acquired based on their respective fair values on the acquisition date.
The results of operations of DRG Resources Group, Inc. have been included in
the consolidated financial statements from the date of acquisition. As a
result of our acquisition of DRG Resources Group, Inc., we recorded goodwill,
deferred compensation expense, and other intangible assets of approximately
$17.9 million. These amounts will be amortized over a period of eighteen
months to five years.

   Our consolidated financial statements contained in this Form 10-K are
reported in U.S. dollars and are presented in accordance with U.S. generally
accepted accounting principles, or U.S. GAAP. The following discussion and
analysis relates to our financial statements that have been prepared in
accordance with U.S. GAAP.

                                      28


Results of Operations

   Although we have experienced substantial growth in revenues in recent
periods, we have incurred substantial operating losses since our inception and
we expect to incur substantial operating losses for the foreseeable future. As
of April 30, 2001, we had an accumulated deficit of approximately $95.0
million. We expect to incur additional losses for the foreseeable future, and
we may never achieve profitability. We intend to invest in sales and marketing
and the development and enhancement of our product and service offerings.

   The following table sets out, for the periods indicated, selected financial
information from our consolidated financial statements as a percentage of
revenue.



                                                            Year Ended
                                                            April 30,
                                                          -------------------
                                                          2001    2000   1999
                                                          ----    ----   ----
                                                                
   Consolidated Statement of Operations Data:
     Revenues............................................  100 %   100 %  100 %
   Costs and expenses:
     Cost of hardware....................................    3       5      3
     Consulting and systems integration..................   36(1)   17     15
     Selling and marketing...............................   74      55    151
     Research and development............................   48      37     80
     Depreciation and amortization.......................   48      65    125
     General and administrative..........................   46(2)   59    106
     One time secondary offering costs...................    6      --     --
     Purchased in-process research and development.......   --       4     28
   Interest income (expense).............................   11      (3)    25
   Non-cash interest expense.............................    2      --     --

   Loss before income taxes.............................. (152)   (145)  (383)
   Income taxes..........................................    1       3     (2)
                                                          ----    ----   ----
   Net loss.............................................. (153)%  (148)% (381)%
                                                          ====    ====   ====

--------
Notes:

(1) Includes the amortization of deferred compensation expense in connection
    with the acquisition of DRG Resources Group, Inc. for fiscal 2001.

(2) Includes the percentage of non-cash expense related to the repricing of
    stock options under FASB Interpretation No. 44 for fiscal 2001.

Revenues

   We recognize software licensing revenue in accordance with all applicable
accounting regulations including the American Institute of Certified Public
Accountants Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
as amended by SOP 98-4 and SOP 98-9.

   Following the requirements of SOP 97-2, we recognize license revenues when
all of the following have occurred:

  .  we have signed a non-cancelable license agreement with the customer;

  .  delivery of the software product to the customer has occurred;

  .  the amount of the fees to be paid by the customer are fixed or
     determinable; and

  .  collection of these fees is probable.

                                      29


   If an acceptance period is contractually provided, license revenues are
recognized upon the earlier of customer acceptance or the expiration of that
period. In instances where delivery is electronic and all other criteria for
revenue recognition has been achieved, the product is considered to have been
delivered when the customer either takes possession of the software via a
download or the access code to download the software from the Internet has
been provided to the customer. Our software does not require significant
production, customization or modification.

   SOP 97-2, as modified, generally requires revenue earned on software
arrangements involving multiple elements such as software products, upgrades,
enhancements, post contract customer support, or PCS, installation and
training to be allocated to each element based on the relative fair values of
the elements. The fair value of an element must be based on evidence that is
specific to the vendor. If evidence of fair value does not exist for all
elements of a license agreement and PCS is the only undelivered element, then
all revenue for the license arrangement is recognized ratably over the term of
the agreement. If evidence of fair value of all undelivered elements exists
but evidence does not exist for one or more delivered elements, then revenue
is recognized using the residual method. Under the residual method, the fair
value of the undelivered elements is deferred, and the remaining portion of
the arrangement fee is recognized as revenue. When arrangements require us to
deliver specified additional upgrades the entire fee related to the
arrangement is deferred until delivery of the specified upgrade has occurred,
unless we have vendor-specific objective evidence of fair value for the
upgrade. Fees related to contracts that require us to deliver unspecified
additional products are deferred and recognized ratably over the contract
term.

   Revenue from consulting and training services are recognized using the
percentage-of-completion method for fixed fee development arrangements or as
the services are provided for time-and-materials arrangements.

   The fair value of professional services, maintenance and support services
have been determined using specific objective evidence of fair value based on
the price charged when the elements are sold separately. Revenues for
maintenance and support service are deferred and recognized ratably over the
term of the support period. Revenues from professional services are recognized
when the services are performed.

   Deferred revenues generally result from the following: deferred maintenance
and support service, cash received for professional services not yet rendered
and license revenues deferred relating to arrangements where we have received
cash and are required to deliver either unspecified additional products or
specified upgrades for which we do not have vendor-specific objective evidence
of fair value.

   We operate in one reportable segment. We derive our revenues from a variety
of sources that we generally classify as software licensing, consulting and
systems integration, and hardware. We earn software licensing revenues from
one-time base license fees or technology access fees, royalties, and annual
maintenance and support fees. In addition, we earn revenues on a transaction
basis through the sale of our authentication service offerings, which are
primarily digital certificates. Some of our license agreements permit the
licensee to sublicense without us receiving any revenue from the sub-
licensees. Consulting and systems integration revenues are derived from the
performance of contracted services for customers. Hardware revenues are
derived from sales of products manufactured by third parties to our
specifications and components procured from third parties and resold by us to
our customers.

   We negotiate most of our customer contracts on a case-by-case basis.
However, most of our contracts (other than our contracts for consulting and
systems integration or hardware sales) include provisions for us to receive an
up-front license fee and royalties. Our royalties for software licenses for
mobile and wireless devices vary based on a number of factors, including the
size of the contract and the nature of the contract, the customer, the device
and the application.

   In June 2001, we converted our enabling technologies products primarily to
subscription-based licenses. In addition, our trust services and enterprise
application solutions product lines are accounted for under the

                                      30


subscription model. Subscription licenses provide our customers with rights to
use our software for a specified period of time. Customers are entitled to use
the license and receive certain customer support services over the license
term. In addition, depending on the type of license, our customers have access
to unspecified upgrades on an "if and when available" basis. We expect the
average duration of the subscription licenses to be between one and two years.
In addition, we expect a significant percent of customers to renew their
licenses upon license expiration.

   The change from perpetual licenses to subscription licenses will impact our
reported quarterly and annual revenues on a going-forward basis as
subscription license revenue will be amortized over the term of the
subscription license. In the past, the majority of our perpetual license
revenues have been recognized in the quarter of product delivery. Therefore, a
subscription license order will result in substantially less current-quarter
revenue than an equal-sized order for a perpetual license. We expect to
invoice our customers upfront for the full amount of a twelve-month
subscription license period and collect the invoice within our standard
payment terms. Although we expect that over the long term our cash flow from
operations under the subscription license model will be equal to or greater
than under the perpetual license model, in the near term we expect our cash
flow from operations to decrease and deferred revenue to increase.

   The following table sets forth our revenues by category and by geography
for the periods indicated:



                                                                Fiscal Year
                                                                   Ended
                                                                 April 30,
                                                               ----------------
                                                               2001  2000  1999
                                                               ----  ----  ----
                                                                  
   Software licensing......................................... 77.2% 76.9% 65.9%
   Consulting and systems integration......................... 18.7  16.5  24.0
   Hardware...................................................  4.1   6.6  10.1
                                                               ----  ----  ----
   Total revenue..............................................  100%  100%  100%
                                                               ====  ====  ====

   U.S. revenue............................................... 76.7% 91.1% 76.0%
   Canadian revenue........................................... 13.7   4.1  14.5
   International (non-Canadian/US) revenue....................  9.6   4.8   9.5
                                                               ----  ----  ----
   Total revenue..............................................  100%  100%  100%
                                                               ====  ====  ====


   Revenue for fiscal 2001 was $26.6 million, a 121% increase from $12.0
million in fiscal 2000. The increase was primarily attributable to increased
software licensing, which grew to approximately $20.6 million in fiscal 2001,
a 122% increase over $9.3 million in fiscal 2000. The increase in software
licensing revenue was primarily a result of growing market awareness of our
products and the increased use of wireless applications that require security.
In addition, consulting and systems integration revenue was approximately $5.0
million for fiscal 2001, a 151% increase over $2.0 million for fiscal 2000.
The increase in consulting and systems integration revenue is due to the
increase in personnel providing these services and the increase in consulting
services related to our development licenses and protocols. In fiscal 2001,
our increase in consulting personnel occurred primarily as the result of our
acquisition of DRG Resources Group, Inc., an eleven person professional
consulting organization specializing in security for public-key
infrastructure, in the second quarter of fiscal 2001. Hardware sales for
fiscal 2001 grew 37% to $1.1 million compared to $0.8 million for fiscal 2000.
Due to our change to the subscription licensing model, we expect revenue to
decrease in fiscal 2002 compare to fiscal 2001.

   Revenue for fiscal 2000 was $12.0 million, a 200% increase from $4.0
million in fiscal 1999. The increase was primarily attributable to increased
software licensing, which grew to approximately $9.3 million, a 247% increase
over $2.7 million in fiscal 1999. The increase in software licensing revenue
was primarily a result of growing market awareness of our products and, to a
lesser extent, an expanded sales force. In addition, consulting and systems
integration revenue grew 105% from fiscal 1999 to 2000, to $2.0 million from
$1.0 million. We added resources in this area and focused our activities on
larger scale projects, thereby contributing to the increase in revenue in
fiscal 2000. Hardware sales grew 95% to $0.8 million for fiscal 2000, but
decreased as a percentage of revenue to 7% compared to 10% in fiscal 1999.

                                      31


   One of our customers accounted for approximately 23% of our revenue in
fiscal 2001 while no customer accounted for 10% or more of our revenue in
fiscal 2000 or 1999.

   For the fiscal year ended April 30, 2001, approximately 99% of our revenues
were generated in U.S. dollars. In the same period, approximately 29% of our
total operating expenses were incurred in currencies other than the U.S.
dollar.

   We expect that a majority of our revenue will continue to be generated in
U.S. dollars for the foreseeable future and that a significant percentage of
our expenses, including labor costs as well as capital and operating
expenditures, will continue to be denominated in Canadian dollars. If the
Canadian dollar appreciates against the U.S. dollar, our results of operations
could be materially adversely affected.

Costs and Expenses

   Our costs and expenses consist of cost of hardware, consulting and systems
integration, selling and marketing, research and development, depreciation and
amortization, general and administrative expenses, and non-recurring costs in
connection with special events such as one-time secondary offering costs and
purchased in-process research and development.

 Cost of Hardware

   Our cost of hardware consists primarily of the component cost of our
hardware products manufactured by third parties to our specifications as well
as the procured costs of third-party hardware technology.

   Cost of hardware increased 42% in fiscal 2001 to $0.8 million from $0.6
million the previous year. Cost of hardware sold increased 363% in fiscal 2000
compared to approximately $0.1 million in fiscal 1999. These increases in
fiscal 2001 and 2000 were primarily due to higher hardware sales, and a shift
in product mix with a greater proportion of hardware sales being generated by
sales of higher cost third-party procured hardware.

 Consulting and Systems Integration

   Consulting and systems integration expenses consist primarily of costs
related to consulting and systems integration activities. These expenses
include salaries, travel and related expenses, and amortization of deferred
compensation expense recorded in connection with the acquisition of DRG
Resources Group, Inc.

   Consulting and systems integration expenses were $9.6 million for fiscal
2001, a 363% increase over $2.1 million for fiscal 2000. This increase was
primarily a result of increasing the number of professional services providers
in this group to keep up with growing customer and internal demands and the
deferred compensation expense and other costs recorded in connection with the
acquisition of DRG Resources Group, Inc.

   Consulting and systems integration expenses were $2.1 million for fiscal
2000, a 254% increase over $0.6 million for fiscal 1999. This was primarily a
result of incurring the full year of expenses associated with our consulting
and systems integration group acquired from Uptronics Incorporated, only five
months of which were recorded in the previous year. In addition, we increased
the number of engineers in this group in order to keep up with the growing
demand from our customers in fiscal 2000.

 Selling and Marketing

   Selling and marketing expenses consist primarily of employee salaries and
commissions, related travel, public relations and corporate communications
costs, trade shows, marketing programs and market research.

   Selling and marketing expenses were $19.7 million for fiscal 2001 compared
to $6.6 million for fiscal 2000, an increase of 198%. Selling and marketing
expenses increased 8% in fiscal 2000 from $6.1 million in fiscal 1999. These
increased expenses in fiscal 2001 were primarily due to an increase in
personnel costs, marketing

                                      32


programs including branding, trade shows and Web-site upgrades,
MobileTrust(TM) launch costs and VPN beta testing and launch costs.

 Research and Development

   Research and development expenses consist primarily of employee salaries,
sponsorship of cryptographic research activities at various universities,
participation in various cryptographic, wireless and e-business standards
associations and related travel and other costs. We have capitalized certain
costs associated with the filing of patent applications in various
jurisdictions. These patent filings are in the areas of ECC, various
mathematical computational methodologies, security protocols and other
cryptographic inventions. Once granted, we amortize the individual patent cost
over three years. We capitalize patents not yet granted at their cost less a
provision for the possibility of the patent not being granted or abandoned.

   Our research and development expenses were $12.8 million for fiscal 2001
compared to $4.4 million for fiscal 2000, an increase of 189%. Research and
development expenses for fiscal 2000 increased 37% relative to $3.2 million in
fiscal 1999. These increases are the result of the addition of personnel and
related costs necessary to support new product development in the PKI area in
both fiscal 2001 and 2000 and the VPN area in fiscal 2001.

 Depreciation and Amortization

   Depreciation and amortization represent the allocation to income of the
cost of fixed assets and intangibles including patents cost over their
estimated useful lives.

   Depreciation and amortization increased 62% to $12.7 million for fiscal
2001 compared to $7.9 million for fiscal 2000. The primary reason for the
increase was that our results for fiscal 2001 included full-year amortization
expense related to our acquisition of Trustpoint, which occurred at the end of
the third quarter of fiscal 2000, and partial year amortization expense
related to our acquisition of DRG Resources Group, Inc., which occurred during
the second quarter of fiscal 2001, while our results for fiscal 2000 included
only partial year amortization expense related to our acquisition of
TrustPoint.

   Depreciation and amortization increased to $7.9 million in fiscal 2000
compared to $5.1 million in fiscal 1999. The primary reason for the increase
was that our results for fiscal 2000 included full-year amortization expenses
related to our acquisitions of Consensus Development Corporation and Uptronics
Incorporated in fiscal 1999 and partial year amortization expense related to
our acquisition of TrustPoint in fiscal 2000, while our results for fiscal
1999 included only partial year amortization expenses related to our
acquisitions of Consensus Development Corporation and Uptronics Incorporated.

 General and Administrative

   General and administrative expenses consist primarily of salaries and other
personnel-related expenses for executive, financial, legal, information
services and administrative functions, and amortization of stock compensation
expense.

   In fiscal 2001, general and administrative expenses increased 72% to $12.2
million compared to $7.1 million in fiscal 2000. This increase is primarily
due to the growth in personnel and office space in California, Nasdaq
reporting requirements, information system enhancements, and amortization of
stock compensation expense related to the repricing of stock options.

   General and administrative expenses increased 66% in fiscal 2000 to $7.1
million from $4.3 million for fiscal 1999. The primary reason for this
increase was the increase in our infrastructure in California.

                                      33


 One Time Secondary Offering Costs

   We have recognized certain non-recurring costs in connection with special
events. In the third quarter of fiscal 2001, we incurred $1.7 million in one-
time costs in connection with our unsuccessful efforts toward a secondary
offering.

 Purchased In-process Research and Development

   In fiscal 2000, $0.5 million of purchased in-process research and
development costs were recorded in connection with the acquisition of
Trustpoint. We used third-party appraisers' estimates to determine the value
of in-process projects under development for which technological feasibility
had not been established. The total value of these projects at the time of the
acquisition was determined to be approximately $0.5 million. The value of the
projects was determined by estimating the costs to develop the in-process
technology into commercially feasible products, estimating the net cash flows
which we believed would result from the products and discounting these net
cash flows back to their present value. Management estimated that the
purchased in-process technology that represented $0.5 million of purchase
consideration had not yet reached technological feasibility and had no future
alternative use. Accordingly, $0.5 million was immediately expensed upon
consummation of the acquisition.

   In fiscal 1999, $1.2 million of purchased in-process research and
development costs were recorded in connection with the acquisition of
Consensus Development Corporation. We used third-party appraisers' estimates
to determine the value of in-process projects under development for which
technological feasibility had not been established. The total value of these
projects at the time of the acquisition was determined to be approximately
$1.2 million and was expensed in the year ended April 30, 1999. The value of
the projects was determined by estimating the costs to develop the in-process
technology into commercially feasible products, estimating the net cash flows
we believed would result from the products and discounting these net cash
flows back to their present value. The products were substantially completed
during fiscal 2000. However, if they are not successfully completed, there
could be a negative impact on our operating results.

Interest and Other Income (Expense)

   In fiscal 2001, interest income was $2.4 million compared to interest
expense $0.4 million in fiscal 2000. This increase resulted from an increase
in the amount of cash and marketable securities invested in fiscal 2001, as
well as currency adjustments, primarily Canadian dollars to U.S. dollars. This
increase is net of the one-time, non-cash interest expense of $0.4 million
related to the warrant issued to Sand Hill Capital II, LP, Sand Hill, which is
included in our results for fiscal 2001. As of the end of fiscal year 2000, we
had borrowed $10,000,000 from Sand Hill. In connection with this financing, we
issued a warrant which entitles Sand Hill to purchase 30,000 of our common
shares at an exercise price of Cdn$38.13 per share (U.S.$24.82 based on the
exchange rate on April 30, 2001) until April 27, 2005. The warrant was valued
at $423,000 at the time of issuance based on the Black-Scholes option
valuation model. The value of the warrant was charged to interest expense in
the first quarter of fiscal 2001 as the note payable was paid off with
proceeds from our public offering in May 2000.

   In fiscal 2000, interest expense was $0.4 million compared to interest
income of $1.0 million for fiscal 1999. This decrease resulted from a
reduction in the amount of marketable securities invested during the year as
funds were applied to meet our cash requirements. This decrease also consists
of currency adjustments, primarily Canadian to U.S. dollars.

Income Taxes

   We pay taxes in accordance with U.S. federal, state and local tax laws and
Canadian federal, provincial and municipal tax laws. Income tax was $0.14
million in fiscal 2001 compared to $0.33 million in fiscal 2000. In fiscal
1999, we have a tax recovery of $0.09 million, which arose due to the receipt
of Scientific Research and Experimental Development Tax Credits in Canada. We
do not expect to pay significant corporate income taxes

                                      34


in both Canada and the United States in the foreseeable future because we have
significant tax credits and net operating loss carryforwards for Canadian,
U.S. federal and U.S. state income tax purposes.

Net Loss

   We have incurred significant annual and quarterly net losses and losses
from our operations since our inception, and we expect to incur significant
net losses and losses from operations for the next fiscal year. Furthermore,
given the rapidly evolving nature of our business and fluctuations in the
timing of our sales, our operating results are difficult to forecast and,
accordingly, our historical financial results may not be meaningful
assessments of our future business operations or prospects.

   Our net loss increased 128% in fiscal 2001 to $40.7 million ($1.54 per
share basic and diluted) compared to $17.9 million ($0.80 per share basic and
diluted) in the previous fiscal year. The loss before interest income,
depreciation and amortization, deferred compensation amortization, and taxes
amounted to $26.5 million in fiscal 2001, a 184% increase over $9.3 million
for fiscal 2000.

   Our net loss increased 16% in fiscal 2000 to $17.9 million ($0.80 per share
basic and diluted) compared to $15.4 million ($0.73 per share basic and
diluted) in the previous fiscal year. This increase was predominately
attributable to the amortization of acquisition-related intangibles. The loss
before interest income, depreciation and amortization, and taxes amounted to
$9.3 million in fiscal 2000, an 18% decrease over $11.4 million for fiscal
1999.

Financial Condition, Liquidity and Capital Resources

   In May 2000, we completed a public offering of 2,500,000 common shares at a
per share price of U.S.$23.15 in the United States and Canada for an aggregate
offering price of approximately U.S.$57.9 million. Our net proceeds from the
offering were approximately $51.5 million after deducting underwriting
discounts and commissions and offering expenses. On April 27, 2000, we
borrowed $10 million from Sand Hill, at the prime rate of interest plus 3%. As
partial consideration for making advances to us under this credit facility, we
granted Sand Hill a warrant to purchase up to 30,000 of our common shares at
an exercise price of Cdn. $38.13 per share (U.S. $24.82 based on the exchange
rate on April 30, 2001) until April 27, 2005. We repaid the loan and interest
on May 5, 2000, using a portion of the proceeds received from our public
offering, and terminated this facility.

   In March 2001, we issued 4,000,000 of our common shares in Canada and the
United States at a per share price of Cdn.$12.50 (approximately U.S.$8.14
based on the exchange rate on April 30, 2001). The common shares have not been
registered under the United States Securities Act of 1933, as amended. The
gross proceeds of this offering were Cdn.$50.0 million (approximately
U.S.$32.5 million based on the exchange rate on April 30, 2001). After
deducting underwriting discounts and commissions and offering expenses, the
net proceeds of this offering were Cdn.$47.2 million (approximately U.S.$30.8
million based on the exchange rate on April 30, 2001). Total cash and
available-for-sale marketable securities increased $41.2 million in fiscal
2001. Our cash and cash equivalents and marketable securities at April 30,
2001 were $54.3 million, including $2.5 million of restricted cash.

   In fiscal 2001, net cash used in operating activities was $16.0 million.
Net cash used in operating activities was primarily due to our net loss of
$40.7 million, which included total non-cash charges of $16.9 million. The
non-cash charges included $9.4 million of amortization of acquired
intangibles, $3.8 million of stock compensation expense, $3.3 million of
depreciation and amortization, and $0.4 million of non-cash interest expense.
The cash operating loss of $23.8 million was offset by changes in non-cash
working capital items of $7.7 million. These consisted primarily of the
following items that provided cash: $8.3 million accounts payable, $1.0
million accrued liabilities and $1.3 million deferred revenue and was offset
by the following items that used cash: $1.9 million accounts receivable and
unbilled receivables and $0.7 million prepaid and other current assets.

                                      35


   In fiscal year 2001, net cash used by investing activities was $66.4
million. Net cash used in investing activities was primarily due to our
capital expenditures for property, equipment and patents and net purchase
$49.8 million of marketable securities, available for sale. The net cash used
for purchase of property, equipment and patents in fiscal 2001 was
approximately $16.7 million.

   In fiscal year 2001, net cash provided by financing activities was $73.7
million. Net cash provided by financing activities was primarily due to our
issuances of common shares. In May 2000, we received net cash proceeds of
approximately $51.5 million from our public offering in the United States and
Canada. In March 2001, we received net cash proceeds of approximately
Cdn.$47.2 million (approximately U.S.$30.8 million based on the exchange rate
on April 30, 2001) from our public offering in Canada and related private
placement in the United States.

   We lease premises totaling approximately 111,000 square feet in Hayward,
California. These leases expire on July 31, 2007. Through April 30, 2001 we
have capitalized leasehold improvements and related construction costs
totaling approximately $7.7 million for our Hayward facilities. In addition,
we anticipate incurring approximately an additional $3.6 million subsequent to
April 30, 2001 to complete the build-out of our Hayward facilities. We intend
to sublease approximately 43,000 square feet of our Hayward facility in second
quarter of fiscal 2002, although there can be no assurance that we will be
able to do so or at rates equal to our obligations under the lease. We also
have a lease for approximately 30,300 square feet of office space in
Mississauga, Ontario, which expires on December 25, 2009. Currently, our
Canadian offices occupy this space. We recently signed a ten-year lease for
approximately 130,000 square feet located at 1980 Matheson Boulevard East,
Mississauga, Ontario. At this time, the facility is being constructed at our
expense and we are obligated to pay approximately $7.8 million of which
approximately $7.4 million will be paid subsequent to April 30, 2001 to
complete the build-out of the facility. If the landlord intends to sell the
leased premises, we have a right of first refusal with respect of any sale of
this property on terms to be negotiated. In the fall of 2001, we intend to
relocate our Canadian operations from their current location to this new
facility and to sublease our current Canadian office space and approximately
40,000 square feet space of new site, although there is no assurance that we
will be able to do so or at rates equal to our current obligations under the
lease. The annual rental fee for the new site varies between approximately
Cdn.$10.85 to Cdn.$13.05 per square foot (U.S.$7.06 to U.S.$8.50 per square
foot based on the exchange rate on April 30, 2001) over the life of the lease.
We began paying rent on this lease in May 2001. We also have a lease for
approximately 6,000 square feet in Herndon, Virginia that expires on
October 5, 2007, and we occasionally execute month-to-month leases for short-
term office space. The total annual base rent for all facilities is
approximately $3.1 million.

   In June 2001, we converted our enabling technologies products primarily to
subscription-based licenses. In addition, our trust services and enterprise
application software product lines are accounted for under the subscription
model. Subscription licenses provide our customers with rights to use our
software for a specified period of time. Customers are entitled to use the
license and receive certain customer support services over the license term.
In addition, depending on the type of license, our customers have access to
unspecified upgrades on an "if and when available" basis. We expect the
average duration of the subscription licenses to be between one and two years.
In addition, we expect a significant percent of customers to renew their
licenses upon license expiration.

   The change from perpetual licenses to subscription licenses will impact our
reported quarterly and annual revenues on a go-forward basis, as subscription
license revenue will be amortized over the term of the subscription license.
In the past, the majority of our perpetual license revenues have been
recognized in the quarter of product delivery. Therefore, a subscription
license order will result in substantially less current-quarter revenue than
an equal-sized order for a perpetual license. We expect to invoice our
customers upfront for the full amount of a twelve-month subscription license
period and collect the invoice within our standard payment terms. Although we
expect cash flow that over the long term our from operations under the
subscription license model will be equal to or greater than under the
perpetual license model, in the near term we expect our cash flow from
operations to decrease and deferred revenue to increase.

                                      36


   In June 2001, we announced a restructuring of our business, which included a
reduction in work force of approximately 30% as well as other steps to reduce
expenses. In connection with the restructuring, we recognized charge of
approximately $2.2 million for workforce reduction, non-cash charge of
approximately $7.9 million for excess facilities relating primarily to lease
terminations and non-cancelable lease costs under the assumption that we will
not be able to sublease our excess facilities, non-cash charge of approximately
$3.7 million for disposed property and equipment, and non-cash charge of $9.3
million related to the impairment of goodwill and purchased intangible assets.
If we find that our restructuring announced in June did not sufficiently
decreases the growth of our expenses, we may find it necessary to implement
further streamlining of our expenses, to perform another reduction in our
headcount or to undertake another restructuring of our business.

   In fiscal 2001 we began a company-wide Oracle Enterprise Resource Planning,
or ERP, system implementation. Through April 30, 2001, we have incurred costs
related to the implementation of this system totaling approximately $2.7
million. We anticipate incurring approximately $300,000 in additional costs
subsequent to April 30, 2001 to complete the implementation.

   Our future capital requirements will be substantial and will depend on, and
could increase as a result of, many factors, including: costs associated with
facility expansion and construction; new products, such as our MobileTrust(TM)
CA service and our movianVPN client software business; our research and
development programs; acquisitions of companies; purchases of technology from
third parties; the time and costs involved in obtaining regulatory approvals;
costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; our success in entering into
collaborative relationships; and administrative and legal expenses.

   We believe our current cash and cash equivalents and marketable securities
position will be sufficient to meet our liquidity needs for the near term. In
the future, we may need to raise additional funds through public or private
financing, strategic partnership, as well as collaborative relationships,
borrowings and other available sources. There can be no assurance that
additional or sufficient financing will be available, or, if available, that it
will be available on acceptable terms. If we raise funds by issuing additional
equity securities, the percentage of our stock owned by our then current
shareholders will be reduced. If adequate funds are not available, we may be
required to significantly curtail one or more of our research and development
programs or commercialization efforts or to obtain funds through arrangements
with collaborative partners or others on less favorable terms.

Recent Accounting Pronouncements

   In July 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS
No. 141 requires that all business combinations be accounted for under the
purchase method for business combinations initiated after June 30, 2001 for
which the date of acquisition is July 1, 2001 or later. Use of the pooling-of-
interest method is no longer permitted. In July 2001 the FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that
goodwill no longer be amortized to earnings, but instead be periodically
reviewed for impairment. SFAS No. 142 must be adopted starting with fiscal
years beginning after December 15, 2001. The impact of adopting SFAS 141 and
SFAS 142 has not been determined.

   In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. In June 2000, the SEC
issued Staff Accounting Bulletin No. 101B (SAB 101B), "Second Amendment:
Revenue Recognition in Financial Statements", which extends the effective date
of SAB 101 to the fourth fiscal quarter of fiscal years commencing after
December 15, 1999. During the fourth quarter of fiscal 2001, the company
adopted SAB 101. The adoption of SAB101 did not have a material effect on the
company's consolidated financial position or results of operations.

                                       37


   In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and for
hedging activities. SFAS No. 133 requires us to measure all derivatives at fair
value and to recognize them on the balance sheet as an asset or liability,
depending on our rights or obligations under the applicable derivative
contract. In June 1999, the FASB issued SFAS No. 137, which deferred the
effective date of adoption of SFAS No. 133 for one year. We will adopt SFAS No.
133 no later than the first quarter of fiscal 2002. In June 2000, the FASB
issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," an amendment of FASB Statement No. 133. SFAS No. 138
amends SFAS No. 133 to permit use of central treasury offsetting of net
exposures of intercompany derivatives for foreign currency cash flow hedges.
SFAS 138 must be adopted concurrently with SFAS 133.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Foreign Exchange Risk

   Currency fluctuations may materially adversely affect us. In fiscal 2000,
approximately 33% of our total operating expenses were paid in currencies other
than the U.S. dollars. In fiscal 2001, approximately 29% of our total operating
expenses were paid in currencies other than the U.S. dollar. Fluctuations in
the exchange rate between the U.S. dollar and such other currencies may have a
material adverse effect on our business, financial condition and operating
results. In particular, we may be materially adversely affected by a
significant strengthening of the Canadian dollar against the U.S. dollar.

   We currently do not use financial instruments to hedge operating expense in
foreign currencies. We intend to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.

Interest Rate Risk

   We hold a significant portion of our cash in interest-bearing instruments
and are exposed to the risk of changing interest rates. The primary objective
of our investment activities is to preserve principal while at the same time
maximizing the income we receive from our investments without significantly
increasing risk. We place our investment with high credit quality issuers and,
by policy, limit the amount of the credit exposure to any one issuer.

   All highly liquid investments with a maturity of less than three months at
the date of purchase are considered to be cash equivalent. All investments with
maturities of three months or greater are classified as available-for-sale and
considered to be short-term investments. Some of the securities that we have
invested in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. We believe that the immediate 100 basis point move in interest rates
would not materially affect the fair market value of our portfolio. To minimize
this risk, we maintain our portfolio of cash equivalent and short-term
investments in a variety of securities, including commercial paper, medium-term
notes, and corporate bonds. As of April 30, 2001, our interest rate risk was
further limited by the fact that approximately 99% of our investments mature in
less than one year. We do not use any derivative instruments to reduce our
exposure to interest rate fluctuations.

Item 8. Financial Statements and Supplementary Data

   The response to this item is submitted as a separate section of this Form
10-K. See Part IV, Item 14 of this Form 10-K.

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

   Not applicable.

                                       38


                                   PART III

Item 10. Directors and Executive Officers of the Company

   The following table sets forth, as of April 30, 2001 (except as noted
below), the names, ages and positions of our directors and executive officers:



   Name                       Age Position with Certicom
   ----                       --- ----------------------
                            
   Richard P. Dalmazzi.......  46 President, Chief Executive Officer and
                                   Director

   Scott A. Vanstone.........  53 Founder, Chief Cryptographer and Director

   Richard M. Depew..........  40 Executive Vice President, Field Operations

   Richard D. Brounstein(3)..  51 Senior Vice President, Finance, Chief
                                   Financial Officer and Secretary

   Gregory M. Capitolo(4)....  37 Vice President, Finance, Chief Financial
                                   Officer and Secretary

   Dennis J. Charlebois......  47 Senior Vice President, Corporate Development

   Robert L. Williams........  44 Senior Vice President, Product Development

   Timothy M. Dierks.........  32 Chief Technology Officer

   Bernard W. Crotty(1)(2)...  39 Director

   William T. Dodds(1)(2)....  53 Director

   Louis E. Ryan(1)..........  46 Director

   William J. Stewart(2).....  40 Director

   Robert P. Wierderhold.....  41 Director

--------
Notes:

(1) Member of the Audit Committee

(2) Member of the Compensation Committee as of May 2001

(3) Richard D. Brounstein retired as our Senior Vice President Finance and
    Administration, Chief Financial Officer and Secretary in June 2001.

(4) Gregory M. Capitolo was appointed as Vice President Finance, Chief
    Financial Officer and Secretary in June 2001.

   We do not have an executive committee. We are required to have an audit
committee. The term of office for each of the above directors will expire at
the time of our next annual meeting. Each of our directors and executive
officers has been engaged in his present principal occupation for the previous
five years, except as indicated in the following summaries of the background
of each individual:

   Richard P. Dalmazzi was appointed as our President, Chief Executive Officer
and Director in November, 1999. From September 1998 to November 1999, Mr.
Dalmazzi served as our President. From July 1997 to September 1998, he was our
Executive Vice President of Sales and Marketing. From October 1995 to December
1996, he was Senior Vice President of Digital Arts and Sciences Corporation, a
developer of an image database engine for the Internet. From February 1995 to
September 1995, he was President and COO of Strategic Communications Corp., a
developer of a wireless data communications service for the financial services
industry. From August 1992 to January 1995, he was Vice President and General
Manager, OEM Division of Geoworks Corporation, a developer of embedded
operating systems for the Internet appliance market. From September 1978 to
August 1992, Mr. Dalmazzi held various positions with IBM.

   Scott A. Vanstone, Ph.D., co-founded us in March 1985 and was appointed our
Chief Cryptographer in January 1995. Dr. Vanstone is also a professor of
Mathematics at St. Jerome's University and the University of Waterloo, an
Executive Director of the Centre for Applied Cryptographic Research, the
holder of the

                                      39


NSERC/Pitney Bowes Industrial Research Chair in Cryptography at the University
of Waterloo, and a Fellow, Royal Society of Canada, Academy of Sciences.

   Richard M. Depew was appointed our Executive Vice President, Field
Operations in February 2000. From August 1999 to February 2000, Mr. Depew
served as our Vice President, Worldwide Sales. From July 1998 to August 1999,
Mr. Depew served as our Vice President, International Business Development.
Prior to joining Certicom, Mr. Depew was Vice President of Sales and Marketing
at Litronic, Inc. from December 1995 to July 1998. Prior to this, Mr. Depew
was Chief Executive Officer of LION Software, Inc.

   Richard D. Brounstein, who announced his retirement in June 2001, was
appointed our Senior Vice President, Finance, Chief Financial Officer and
Secretary in February 2000. Mr. Brounstein will remain an employee of Certicom
until August 2001. Prior to joining Certicom, Mr. Brounstein served as Vice
President Finance and Chief Financial Officer of VidaMed, Inc. from May 1997
to January 2000. From August 1989 to February 1997, Mr. Brounstein served as
Vice President Finance & Administration and Chief Financial Officer of
MedaSonics Inc.

   Gregory M. Capitolo was appointed our Vice President, Finance and Chief
Financial Officer and Secretary in June 2001. He joined Certicom as Vice
President, Finance in May 2001. Before joining Certicom, Mr. Capitolo served
as Vice President of Finance for Clustra Systems, Inc. from October 2000 to
May 2001. From March 1998 to September 2000, Mr. Capitolo was the Director of
Finance with Wind River Systems, Inc. From November 1994 through March 1998,
Mr. Capitolo served in various senior financial positions at Identx Inc. most
recently as Vice President of Finance.

   Dr. Dennis J. Charlebois was appointed our Senior Vice President, Corporate
Development in October 2000. Prior to joining Certicom, Dr. Charlebois served
as President of DRS Technologies Data Systems Group from November 1998 to
October 2000. From June 1998 to November 1998, Dr. Charlebois served as Senior
Vice President of Corporate Development of Pittway Corporation. From March
1995 to June 1998, Dr. Charlebois served as President of Xetron, Inc.

   Robert L. Williams joined the Company in November 1999 and was appointed
our Senior Vice President, Product Development in February 2000. From January
1999 to November 1999, he served as interim President of Nexsys-Commtech Inc.
Mr. Williams served as Vice President of Operations for Mobile Computing
Corporation from September 1990 to December 1998.

   Timothy M. Dierks was appointed our Chief Technology Officer in November,
1999. From October 1998 through November 1999, he served as our Vice President
of Engineering. From July, 1998 to October 1998, Mr. Dierks served as our Vice
President of Product Architecture. Prior to joining us, Mr. Dierks served as
Vice President of Consensus Development Corporation from January 1996 to July
1998. Mr. Dierks filled several technical and management roles from November
1991 to January 1996 with Apple Computer Inc.

   Bernard W. Crotty has been a member of our Board of Directors since October
1996. Mr. Crotty has been a Principal at Crotty & Company since April 2000.
Mr. Crotty was Counsel with Gibson, Dunn & Crutcher LLP, in Los Angeles from
April 1998 to March 2000. From February 1994 to April 1998, he was a partner
with McCarthy Tetrault, Barristers & Solicitors in Toronto, Ontario.

   William T. Dodds has been a member of our Board of Directors since
February, 1997. Mr. Dodds is Vice President of The Woodbridge Co. Limited.
From September 1996 to the present, Mr. Dodds has been a member of the board
of directors of Axxent Inc., a company listed on the Toronto Stock Exchange
since November 1999.

   Louis E. Ryan has been a member of our Board of Directors since October
1996. Mr. Ryan is the President of Clicknet Software Inc. From July 1996 to
January 1997, Mr. Ryan was the President of CKS New Media Inc. Previously, Mr.
Ryan was the Executive Vice President of Worldwide Sales and a co-founder of
Delrina Corporation, now a division of Symantec Corporation.

                                      40


   William J. Stewart has been a member of our Board of Directors since
October 1996. Mr. Stewart served as President of Asia Pacific Ventures
Technology Partners since 1989. He has been a General Partner of Asia Pacific
Ventures since 1994.

   Robert P. Wierderhold has been a member of our Board of Directors since
February 2001. Mr. Wierderhold has been the President and Chief Executive
Officer and a director of Tality Corporation, a provider of product
development outsourcing, since 1998. From 1996 to 1998, Mr. Wierderhold was
Vice President of Cadence Corporation. Previously, Mr. Wierderhold was Chief
Operation Officer and a director of HLD Systems.

Item 11. Executive Compensation

   The following table sets forth, for the fiscal year ended April 30, 2001,
all compensation of the Chief Executive Officer and each of our four other
most highly compensated executive officers who earned more than $100,000 in
fiscal 2001 and were serving as executive officers as of April 30, 2001.
Collectively, all such current executive officers and former executive officer
are referred to in this Form 10-K as the Named Executive Officers.

                          Summary Compensation Table



                                                                    Long-Term
                                    Annual Compensation(1)         Compensation
                            -------------------------------------- ------------
                                             Bonus/   Other Annual  Securities
    Name and Principal      Fiscal Salary  Commission Compensation  Underlying
         Position            Year    ($)      ($)         ($)      Options (#)
    ------------------      ------ ------- ---------- ------------ ------------
                                                    
Richard P. Dalmazzi(2)....   2001  303,001      --       6,000       200,000
 President and Chief
  Executive Officer          2000  217,920   68,532      6,000       260,000
                             1999  180,000   70,000      8,880       120,000

Richard M. Depew..........   2001  195,000  147,374      6,000       100,000
 Executive Vice President,
  Field Operations           2000  135,000  121,111      6,000       160,000
                             1999   99,141   31,157      4,500        40,000

Timothy M. Dierks.........   2001  175,000   49,875        --         25,000
 Chief Technology Officer    2000  142,500   46,948        --         40,000
                             1999   95,192    2,500        --         60,000

Richard D. Brounstein(3)..   2001  220,000    4,080        --         80,000
 Retired Senior Vice
  President Finance, Chief   2000   41,170      --         --        220,000
  Financial Officer and
  Secretary                  1999      --       --         --            --

Scott A. Vanstone.........   2001  187,233      --       6,351       100,000
 Chief Cryptographer         2000  124,519      --       6,532       100,000
                             1999  109,589      --       5,403       120,000

--------
Notes:

(1) The aggregate compensation paid by us to all of our directors and
    executive officers (15 persons) for the fiscal year ended April 30, 2001
    was $1,828,588.

(2) Richard P. Dalmazzi was appointed our President, Chief Executive Officer
    and Director on November 30, 1999.

(3) Richard D. Brounstein retired as our Senior Vice President Finance and
    Administration, Chief Financial Officer and Secretary in June 2001.

                                      41


Option Grants During the Fiscal Year Ended April 30, 2001

   The following table sets forth information concerning options that were
granted to each of the Named Executive Officers during the fiscal year ended
April 30, 2001.



                                                                              Potential
                                                                         Realizable Value of
                                      % of Total                         Assumed Annual Rate
                                       Options    Exercise                 of Stock Price
                         Securities   Granted to   or Base                Appreciation for
                           Under     Employees in   Price                 Option Term(2)(3)
                          Options       Fiscal    ($/Common  Expiration  -------------------
          Name           Granted (#)   Year(1)    Share)(2)     Date      5%($)     10%($)
          ----           ----------  ------------ --------- ------------ -------- ----------
                                                                
Richard P. Dalmazzi.....  200,000        8.21%      14.25   May 31, 2005 $787,402 $1,739,954
Richard M. Depew........  100,000        4.11%      14.25   May 31, 2005 $393,701 $  869,977
Timothy M. Dierks.......   25,000        1.03%      14.25   May 31, 2005 $ 98,425 $  217,494
Richard D. Brounstein...   80,000        3.28%      14.25   May 31, 2005 $314,961 $  695,981
Scott A. Vanstone.......  100,000        4.11%      14.21   May 31, 2005 $392,628 $  867,606

--------
Notes:

(1) Based on options to acquire a total of 2,435,501 common shares granted to
    our employees, directors and consultants during fiscal 2001.

(2) The stock price and the option exercise price for shares with original
    prices determined in Cdn.$ are based on our 2001 fiscal year average
    exchange rate, U.S.$0.6616 per Cdn.$1.00.

(3) The potential realizable value is calculated based on the term of the
    option at the time of grant. Stock price appreciation of 5% and 10% is
    assumed pursuant to rules promulgated by the Securities and Exchange
    Commission and does not represent our prediction of our stock price
    performance. There is no assurance provided to any executive officer or
    any other holder of our securities that the actual stock price
    appreciation over the option term will be at the assumed 5% or 10% annual
    rates of compounded stock price appreciation or at any other defined
    level. Unless the market price of the common shares appreciates over the
    option term, no value will be realized from the option grants made to the
    executive officers. The potential realizable value at 5% and 10%
    appreciation is calculated by assuming that the exercise price on the date
    of grant appreciates at the indicated rate for the entire term of the
    option and that the option is exercised at the exercise price and sold on
    the last day of its term at the appreciated price.

Aggregated Option Exercises During the Fiscal Year Ended April 30, 2001 and
Fiscal Year-End Option Values

   The following table sets forth information concerning the exercise of
options during the fiscal year ended April 30, 2001 by each of the Named
Executive Officers and the fiscal year-end value of unexercised options and
SARs, on an aggregated basis.



                          Number                  Number of Shares        Value of Unexercised
                         of Shares             Underlying Unexercised     In-The-Money Options
                         Acquired    Value    Options at April 30, 2001  at April 30, 2001($)(2)
                            on      Realized  ------------------------- -------------------------
          Name           Exercise   ($) (1)   Exercisable Unexercisable Exercisable Unexercisable
          ----           --------- ---------- ----------- ------------- ----------- -------------
                                                                  
Richard P. Dalmazzi.....  50,000   $1,162,828   314,583      445,417    $1,355,058    $665,905
Richard M. Depew........  30,000   $  886,346    60,000      210,000    $  195,512    $337,756
Timothy M. Dierks(3)....     --    $      --    301,867       70,833    $2,826,131    $308,972
Richard D. Brounstein...     --    $      --     64,167      235,833    $      --     $    --
Scott A. Vanstone.......  30,000   $1,031,765   256,085      206,509    $1,513,990    $664,523

--------
Notes:

(1) Based upon the market price of the purchased shares on the exercise date
    less the option exercise price payable for such shares. The exchange rate
    is based on our 2001 fiscal year average exchange rate of U.S.$0.6616 per
    Cdn.$1.00.


                                      42


(2) Based upon the market price of Cdn.$15.60 per share, which was the
    U.S.$10.16 equivalent of the closing price of our common shares on The
    Toronto Stock Exchange on the last trading day of our 2001 fiscal year,
    less the option exercise price payable per share. The exchange rate is
    based on the exchange rate at April 30, 2001 of U.S.$0.6510 per Cdn.
    $1.00.

(3) Includes options that are exercisable with respect to 247,700 shares on
    April 30, 2001 that were assumed in connection with the acquisition of
    Consensus Development Corporation in July 1998.

Employment Contracts

   Richard P. Dalmazzi performs his duties as our President and Chief
Executive Officer in our Hayward, California office pursuant to an Employment
Contract made as of November 30, 1999. This agreement terminates on April 30,
2001, but is automatically renewable for successive periods of one year
following April 30 in each year starting in 2001 unless either party has given
at least 180 days' written notice to the other that such agreement is to
terminate at the end of the term in question. On April 30, 2001 the agreement
was automatically renewed until April 30, 2002. In the event that Mr.
Dalmazzi's employment is terminated by us, other than for cause, Mr. Dalmazzi
is entitled to be paid the amount of his salary for the unexpired term of the
agreement. In the event there is a change of control and Mr. Dalmazzi's
employment is terminated without cause, or Mr. Dalmazzi voluntarily terminates
his employment with good reason, then all of Mr. Dalmazzi's options and other
rights to acquire securities shall vest immediately.

   Scott A. Vanstone performs his duties as our Chief Cryptographer in our
Mississauga, Ontario office pursuant to a Services Agreement as of May 1,
1999. This agreement terminates on April 30, 2004, but may be renewed for
successive periods of one year by mutual consent of the parties. Either party
may terminate the agreement on April 30 of any year by giving at least 90
days' written notice to the other that the agreement is to terminate at the
end of the term in question. In addition, in the event of a take-over bid, an
amalgamation, a plan of arrangement or other form of business transition
pursuant to which holders of our common shares cease to own at least 33% of
the voting securities of our Company or the surviving entity resulting from
such transaction, we have agreed to issue to Mr. Vanstone 100,000 common
shares. These shares, if issued to Mr. Vanstone, will vest over a three-year
period commencing twelve months after completion of the transaction giving
rise to their issuance.

   Until June 2001, when Mr. Brounstein announced his retirement, Richard D.
Brounstein performed his duties as our Senior Vice President Finance, Chief
Financial Officer and Secretary in our Hayward, California office pursuant to
an employment contract as of February 7, 2000. This agreement is for no fixed
term, but is terminable at the option of either party at any time. In the
event that Mr. Brounstein's contract is terminated by us, other than for
cause, or Mr. Brounstein voluntarily terminates his employment with good
reason after a change of control of our Company, Mr. Brounstein is entitled
(i) to be paid nine months' salary; (ii) to receive nine months acceleration
of vesting of all unvested stock options; (iii) to receive nine months'
continued health insurance benefits; and (iv) to receive up to $10,000 in
outplacement services. In the event there is a change of control of our
Company and Mr. Brounstein's employment is terminated without cause, or Mr.
Brounstein voluntarily terminates his employment with good reason, then 50% of
Mr. Brounstein's options and other rights to acquire securities shall vest
immediately. In June 2001, Mr. Brounstein announced his retirement.

Compensation of Directors

   Effective October 1, 2000, each of our directors who is not one of our
full-time employees or one of our affiliates or a nominee of a shareholder who
has requested and received a right to representation on our board of directors
and who has not previously received remuneration, is remunerated (exclusive
of, and in addition to payments on account of traveling and other out-of-
pocket expenses) at the rate of $1,500 for each meeting of the board of
directors attended in person. In addition, each director so entitled to
receive remuneration is granted options vesting so as to permit the purchase
of 25,000 common shares each year having a per share exercise price based on
the closing market price on the last trading day prior to the date the option
was granted. Directors

                                      43


so entitled to receive remuneration serve on committees of the board of
directors, as required, with no additional compensation. Prior to October 1,
2000, the amount of remuneration paid on an annual basis to each director
eligible for remuneration pursuant to the same criteria was $10,000 per annum
plus $1,000 for each meeting of the board of directors attended; 20,000
options per year; and an additional 10,000 options or $2,500 for each
committee of which the director was a member.

Employee Benefit Plans

   We have four stock option plans and one stock purchase plan pursuant to
which our common shares may be issued. As of April 30, 2001, options including
assumed options in connection with acquisitions to acquire 7,382,041 common
shares at an average exercise price of $14.20 per share were outstanding.

 Original Plan

   Pursuant to our original stock option plan, or the original plan, we
granted options to purchase our common shares to our directors and employees
and other approved persons. These options have a term of five years and vest
for the purpose of exercise at a rate of 33% during each twelve-month period
following the first anniversary from the date of the grant of the option.
These options become immediately exercisable in the event that any person
acquires 90% of the common shares and may also be exercised for specified
periods following the termination of employment or death of an option holder.
The exercise price for these options was determined by a committee of our
board of directors. The following table sets forth, as of April 30, 2001,
certain information with respect to options outstanding under the original
plan and the exercise prices related thereto:



                                                                   Average
                                                   Number of   Exercise Price
                                                 Common Shares       Per
                       Group                     Under Option  Common Share(1)
                       -----                     ------------- ---------------
                                                         
   Executive Officers (1 person)................     58,552         $4.19
   Directors (excluding those who are also
    Executive Officers) (5 person)..............     63,052         $5.42
   Employees and Others (16 persons)............     27,998         $5.59
                                                    -------
     Total......................................    149,602
                                                    =======

--------
Note:

(1) The option exercise price is based on our 2001 fiscal year average
    exchange rate, U.S.$ 0.6616 per Cdn.$1.00.

 The 1997 Plan

   On June 17, 1997, we adopted our 1997 stock option plan, or the 1997 plan,
pursuant to which we may grant options to purchase our common shares to our
directors and employees or other approved persons. On October 19, 2000, our
shareholders approved an amendment increasing the number of shares available
under the 1997 plan. As a result, the total number of common shares reserved
for issuance under the 1997 plan may not exceed 8,000,000. Pursuant to the
1997 plan, the following additional restrictions apply to the 1997 plan and
all other plans or stock option agreements to which we are a party:

  .  no person shall be issued, within any one-year period, a number of
     common shares which exceeds 5% of our outstanding common shares; and

  .  the number of common shares reserved for issuance pursuant to options to
     any one person shall not exceed 5% of our outstanding common shares.

   The 1997 plan is administered by a committee appointed by our board of
directors. Subject to the discretion of the board or an option committee,
options granted under the 1997 plan have a term of 5 years from the date

                                      44


of grant and vest at a rate of 25% one year after the date of the grant of the
option, and at a rate of 2.0833% each month after such initial one-year
period. Options may become immediately exercisable in the discretion of the
board in the event of a take-over bid, merger, amalgamation or other
reorganization and may also be exercised for specified periods following the
termination or death of the option holder. No options may be exercisable for
more than 10 years after the date of grant. The exercise price for the options
is determined on the basis of the closing price of the common shares on the
Toronto Stock Exchange on the trading date immediately preceding the date of
the grant of the option. The following table sets forth, as of April 30, 2001,
the options outstanding under the 1997 plan and the exercise prices related
thereto:



                                                                   Average
                                                   Number of   Exercise Price
                                                 Common Shares       Per
                       Group                     Under Option  Common Share(1)
                       -----                     ------------- ---------------
                                                         
   Executive Officers (7 person)................   1,707,542       $11.97
   Directors (excluding those who are also
    Executive Officers) (5 person)..............     858,512       $ 6.35
   Employees and Others (291 persons)...........   2,638,817       $17.51
                                                   ---------
     Total......................................   5,204,871
                                                   =========

--------
Note:

(1) The option exercise price is based on our 2001 fiscal year average
    exchange rate, U.S.$0.6616 per Cdn.$1.00.

 The 2000 United States Stock Plan

   On April 27, 2000, we adopted our 2000 U.S. stock plan, or the 2000 stock
plan, pursuant to which we may grant options to purchase our common shares, or
rights to purchase common shares, to our directors, officers and employees, or
any of our subsidiaries, and other persons resident in the United States. The
total number of common shares available for issuance under the 2000 stock plan
is 3,000,000.

   Except as otherwise determined by our board of directors, or an option
committee of our board of directors, options granted under the 2000 stock plan
will have a term of five years from the date of grant and vest at a rate of
25% one year after the date of the grant of option, and at a rate of 2.0833%
each month after such initial one-year period. Options may become immediately
exercisable in the discretion of our board of directors in the event of a
take-over bid, merger, amalgamation or other reorganization and may also be
exercised for specified periods following the termination or death of the
option holder. No option may be exercisable more than 10 years after the date
of its grant. The exercise price for the options under the 2000 stock plan is
determined on the basis of the closing price of our common shares on The
Nasdaq National Market on the trading date immediately preceding the date of
the grant of the option.

   The following restrictions apply to options granted under the 2000 stock
plan:

  .  no person shall be issued, within any one-year period, a number of
     common shares under all of our plans which exceeds 5% of our outstanding
     common shares; and

  .  the number of common shares reserved for issuance pursuant to options
     granted under all of our plans to any one person, shall not exceed 5% of
     our outstanding common shares.

                                      45


   The stock purchase rights which may be granted under the 2000 stock plan
permit the person receiving the right to acquire our common shares on terms
imposed by our board of directors or a committee of our board of directors.



                                                  Number of   Average Exercise
                                                Common Shares    Price Per
                      Group                     Under Option    Common Share
                      -----                     ------------- ----------------
                                                        
   Executive Officers (5 person)...............     430,000        $14.25
   Directors (excluding those who are also
    Executive Officers) (3 person).............      85,000        $14.25
   Employees and Others (208 persons)..........     990,810        $19.69
                                                  ---------
     Total.....................................   1,505,810
                                                  =========


 2000 Directors' Incentive Plan

   On October 19, 2000, our shareholders adopted our 2000 directors' incentive
plan. The directors' incentive plan permits us to issue our common shares and
options to acquire our common shares to members of our board of directors who
are not also employed by us on a full-time basis. Up to 500,000 common shares
may be issued under the directors' incentive plan.

   The directors' incentive plan is administered by our board of directors.
Subject to the discretion of the board, options granted under the plan:

  .  will have a term of 10 years;

  .  will have an exercise price based on the fair market value per common
     share. The fair market value generally will be the closing price of our
     common shares on The Nasdaq National Market on the trading day
     immediately preceding the date on which the option is granted;

  .  can only be exercised while a person remains a director or within one
     year after he or she ceases to be a director: and

  .  will vest at a rate of 25% one year after the date of grant and at a
     rate of 2.083333% each month after the first anniversary of the date of
     grant. However, the option will become fully vested if:

    .  there is a sale of all or substantially all of our assets;

    .  we merge or consolidate with another corporation other than a merger
       or consolidation in which our shareholders immediately prior to the
       merger or consolidation continue to hold more than 50% of the voting
       power of the surviving corporation; or

    .  a single party and its affiliates acquire more than 50% of our
       voting securities.

   The directors' incentive plan also permits the board to directly issue
common shares to our outside directors. Common shares may be issued for
reasons determined by the board, including as payment for services provided to
us by a director. The board will determine the price and terms of any common
shares issued to a director.

   A director may be eligible to participate in the directors' incentive plan
even if he or she:

  .  receives fees or other consideration for services on the board of
     directors or its committees;

  .  is employed by us for 20 hours or less per week or five months or less
     in a calendar year; or

  .  provides consulting services to us, but is not eligible to participate
     in our Employee Stock Purchase Plan.

   As of April 30, 2001, we have granted options under this plan to acquire
100,000 common shares at a price of $11.88 per common share.

                                      46


 Options Assumed in Connection with Acquisitions

   On July 29, 1998, January 26, 2000 and September 12, 2000, we acquired
Consensus Development Corporation, Trustpoint and DRG Resources Group, Inc.,
respectively. The outstanding stock options of these three companies were
converted at the time of each acquisition into options to acquire our common
shares. The Consensus Development Corporation options were converted into
options to acquire 799,818 of our common shares, the Trustpoint options were
converted into options to acquire 98,884 of our common shares, and the DRG
Resources Group, Inc. options were converted into options to acquire 103,100
of our common shares. As of April 30, 2001, the remaining outstanding former
Consensus Development Corporation options were exercisable for 282,312 of our
common shares at a weighted average exercise price of $0.39 per share, while
the remaining outstanding former Trustpoint options were exercisable for
49,096 of our common shares at a weighted average exercise price of $6.38 per
share and the remaining outstanding former DRG Resources Group, Inc. options
were exercisable for 90,350 of our common shares at a weighted average
exercise price of $38.94 per share. We will not grant any additional options
under the Consensus Development Corporation, the Trustpoint or the DRG
Resources Group, Inc. option plans.

 Employee Stock Purchase Plan

   On April 27, 2000, we adopted our employee stock purchase plan, or the
ESPP. The ESPP is administered by our board of directors, or a committee of
our board of directors, and will permit a total of 1,000,000 of our common
shares to be purchased by our employees.

   Our employees will be eligible to participate in the ESPP if they are
customarily employed by us for more than 20 hours per week and more than five
months in a calendar year and do not own 5% or more of our outstanding common
shares. Eligible employees may select a rate of payroll deduction between 2%
and 15% of their compensation and are subject to certain maximum purchase
limitations. Participation in the ESPP will end automatically upon termination
of employment for any reason.

   Each offering under the ESPP will be for a period of 12 months and will
consist of two six-month purchase periods. Offering periods will begin on July
1, and January 1, of each calendar year. Each participant will be granted an
option to purchase our common shares on the first day of the offering period
and such option will be automatically exercised on the last day of each
purchase period during the offering period. The purchase price for common
shares purchased under the ESPP is 85% of the lesser of the fair market value
of common shares on the first business day of the applicable offering period
and the last business day of the applicable purchase period.

   The ESPP provides that in the event of the proposed dissolution or
liquidation of our company, the offering period will terminate immediately
prior to the consummation of such proposed action. The ESPP provides that, in
the event of a take-over bid, merger, amalgamation or other reorganization,
the board may terminate the ESPP or the ESPP will continue for all offering
periods that began prior to the transaction and common shares will be
purchased based on the fair market value of the surviving corporation's shares
on each purchase date. The ESPP will terminate on April 26, 2010, unless
earlier terminated pursuant to the terms of the Plan.

   As of April 30, 2001, no rights to purchase shares under the ESPP have been
granted.

Shareholder Rights Plan

   Our directors and shareholders have approved a shareholder rights plan. The
terms of the shareholder rights plan are such that a take-over bid must be
made for all of our common shares and must be open for 60 days after the bid
is made. If at least 50% of the common shares held by persons independent of
the bidder are deposited or tendered pursuant to the bid, and not withdrawn,
the bidder may take up and pay for such shares. The bid must then remain open
for a further period of 10 clear business days on the same terms.

   In the event a take-over bid is made that does not adhere with the above
terms, the rights attaching to each common share will separate from the common
shares and become exercisable eight trading days after the earlier

                                      47


of: (a) a person having acquired 20% or more of the common shares, or (b) the
commencement or announcement in respect of a take-over bid to acquire 20% or
more of the common shares. After separation, rights will be evidenced by
rights certificates which are transferable and will be traded separately from
the common shares.

   The rights, when exercisable, permit the holder to purchase, for the
exercise price of the rights, common shares having a value (based on the then
prevailing market price) equal to twice such exercise price (i.e., at a 50%
discount). The exercise price of the rights will be equal to five times the
prevailing market price at the time the rights separated from the common
shares. Rights that are beneficially owned by the person making the take-over
bid which does not adhere to the above terms shall become null and void.

   The term of the shareholder rights plan is ten years from August 1997,
subject to reconfirmation by shareholders at every third annual meeting of our
shareholders. At our annual and special meeting of shareholder held on October
19, 2000, our shareholders reconfirmed the shareholders rights plan.

Item 12. Security Ownership of Certain Beneficial Owners and Management

   To our knowledge, no person beneficially owned 5% or more of our common
shares as of April 30, 2001. However, on July 16, 2001, John S. Scurci of
Bernardsville, New Jersey, U.S. filed a Schedule 13D with the SEC stating that
he and his immediate family own 2,264,3000 of our common shares which would
account for approximately 7.31% of our common shares outstanding at June 30,
2001. The following table sets forth certain information regarding the
beneficial ownership of our common shares as of April 30, 2001. The
information is provided with respect to:

  .  each of our directors;

  .  each of our Named Executive Officers; and

  .  all of our directors, Named Executive Officers and other executive
     officer as a group (15 persons).

   Except as otherwise indicated by footnote, and subject to community
property laws where applicable, the named person has sole voting and
investment power with respect to all of the shares of common stock shown as
beneficially owned. An asterisk indicates beneficial ownership of less than 1%
of the common stock outstanding. Percentage ownership is based on 30,541,876
shares of common stock outstanding as of April 30, 2001. Shares of common
stock subject to options exercisable on or before June 29, 2001 (within 60
days of April 30, 2001) are deemed to be outstanding and to be beneficially
owned by the person holding such options for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.



                                                                    Percentage
                                                                     of Shares
                                                         Number of Beneficially
   Name and Address of Beneficial Owner(1)                Shares      Owned
   ---------------------------------------               --------- ------------
                                                             
   Richard P. Dalmazzi(2)...............................   396,250     1.28%
   Timothy M. Dierks(3).................................   335,304     1.09%
   Scott A. Vanstone(4).................................   293,906       *
   Louis E. Ryan(5).....................................   160,465       *
   William J. Stewart(6)................................   104,989       *
   Richard M. Depew(7)..................................    95,417       *
   Richard D. Brounstein(8).............................    95,000       *
   Bernard W. Crotty(9).................................    84,989       *
   William T. Dodds(10).................................    67,179       *
   Robert P. Wierderhold................................       --        *
   All directors, Named Executive Officers and other
    executive officer as a group (15 persons)(11)(12)... 2,380,294     7.23%

--------
Notes:

   * Less than one percent.

                                      48


 (1) The address of each of Messrs. Vanstone and Dodds is c/o Certicom Corp.,
     5520 Explorer Drive, Mississauga, Ontario L4W 5L1 Canada. The address of
     each of Messrs. Dalmazzi, Dierks, Ryan, Stewart, Depew, Brounstein,
     Crotty, and Wierderhold is c/o Certicom Corp., 25801 Industrial
     Boulevard, Hayward, CA 94545.

 (2) Includes options that are exercisable with respect to 396,250 shares on
     or before June 29, 2001.

 (3) Includes options that are exercisable with respect to 312,804 shares on
     or before June 29, 2001.

 (4) Includes options that are exercisable with respect to 293,906 shares on
     or before June 29, 2001.

 (5) Includes options that are exercisable with respect to 160,465 shares on
     or before June 29, 2001.

 (6) Includes options that are exercisable with respect to 104,989 shares on
     or before June 29, 2001.

 (7) Includes options that are exercisable with respect to 95,417 shares on or
     before June 29, 2001.

 (8) Includes options that are exercisable with respect to 95,000 shares on or
     before June 29, 2001.

 (9) Includes options that are exercisable with respect to 84,989 shares on or
     before June 29, 2001.

(10) Includes options that are exercisable with respect to 67,179 shares on or
     before June 29, 2001.

(11) Includes options that are exercisable with respect to 2,035,572 shares on
     or before June 29, 2001.

(12) The percentage of beneficially owned for Philip C. Deck, our former
     Chairman of the Board, was 2.16% with 352,906 options that are
     exercisable on or before June 29, 2001.

Item 13. Certain Relationships and Related Transactions

   None.

                                      49


                                    PART IV

Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K

   (a) The following documents are filed as part of this report

   1. Consolidated Financial Statements



                                                                           Page
                                                                           ----
                                                                        
Independent Auditors' Report, KPMG, LLP..................................   55
Independent Auditors' Report, DELOITTE & TOUCHE LLP......................   56
Consolidated Balance Sheets as of April 30, 2001 and 2000................   57
Consolidated Statements of Operations for the Years Ended April 30, 2001,
 2000 and 1999...........................................................   58
Consolidated Statements of Comprehensive Loss for the Years Ended April
 30, 2001, 2000 and 1999.................................................   59
Consolidated Statements of Shareholders' Equity for the Years Ended April
 30, 2001, 2000 and 1999.................................................   60
Consolidated Statements of Cash Flows for the Years Ended April 30, 2001,
 2000 and 1999...........................................................   61
Notes to Consolidated Financial Statements for the Years Ended April 30,
 2001, 2000 and 1999.....................................................   62
Quarterly Results of Operations (Unaudited)..............................   79


   2. Consolidated Financial Statement Schedules

   Schedule II--Valuation and Qualifying Accounts and Reserves

   All other schedules are omitted because they were not required or the
required information is included in the Consolidated Financial Statements or
Notes thereto.

   3. Exhibits

   The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission:



                                                    Incorporated by
                                                       Reference
                                                 ---------------------
 Exhibit                                                       Exhibit  Filed
 Number               Description                Form   Date   Number  Herewith
 -------              -----------                ---- -------- ------- --------
                                                        
   2.1   Agreement and Plan of Merger by and     10-Q 12/14/00   2.1
          among Certicom Corp., DRG
          Acquisition Corp., DRG Resources
          Group, Inc., Jim Cowing, Michael
          Harris and Daniel Moy ("Agreement
          and Plan of Merger")

   2.2   Exhibit B to the Agreement and Plan     10-Q 12/14/00   2.2
          of Merger: Form of Escrow Agreement

   2.3   Exhibit F to the Agreement and Plan     10-Q 12/14/00   2.3
          of Merger: Form of Repurchase
          Agreement

   3.1   Restated Articles of Continuance of     10-K 07/31/00   3.1
          the Company

   3.2   By-laws of the Company                  10-K 07/31/00   3.2

   4.1   Specimen Certificate for Common         8-A  03/14/00
          Shares of the Company

  10.1   Lease Agreement, dated October 11,                                X
          2000, by and between W9/LWS Real
          Estate Limited Partnership and
          Certicom Corp.

  10.2   Lease Agreement, dated October 6,                                 X
          2000 by and between Pauls Properties
          Corporation and Certicom Corp.

  10.3   Lease Agreement, dated March 29,        10-K 07/31/00  10.2
          1999, by and between The Airport
          Corporate Centre Office Park, Inc.
          and Certicom Corp., as amended by
          First Amendment to Lease Agreement,
          dated April 25, 2000


                                       50




                                                    Incorporated by
                                                       Reference
                                                 ---------------------
 Exhibit                                                       Exhibit  Filed
 Number               Description                Form   Date   Number  Herewith
 -------              -----------                ---- -------- ------- --------
                                                        
  10.4   Lease Agreement, dated December 7,      10-K 07/31/00   10.3
          1998, by and between Alliance
          Reston, L.P., d/b/a Alliance
          Business Centers, and Certicom
          Corp., as amended by First
          Amendment, dated June 2, 1999, as
          further amended by Second Amendment,
          dated May 18, 2000

  10.5   Lease Agreement, dated October 30,      10-K 07/31/00   10.1
          1998, by and between The Multi-
          Employer Property Trust and Certicom
          Corp., as amended by First Amendment
          to Lease Agreement, dated November
          17, 1998, as further amended by
          Second Amendment to Lease Agreement,
          dated April 1, 2000

  10.6   Certicom Corp. 2000 Directors'          10-Q 12/14/00   10.1
          Incentive Plan *

  10.7   Certicom Corp. 2000 United States       10-Q 03/16/01   10.2
          Stock Plan (as amended as of October
          19, 2000) *

  10.8   Certicom Corp 1997 Stock Option Plan    10-Q 03/16/01   10.1
          (as amended as of October 19, 2000)
          *

  10.9   Shareholder Rights Plan Agreement (as   10-Q 12/14/00   10.2
          amended as of October 19, 2000)

  10.10  Certicom Corp. Stock Option Plan *      S-8  05/02/00    4.3

  10.11  Certicom Corp. Employee Stock           S-8  05/17/00    4.1
          Purchase Plan *

  10.12  Employment Agreement, dated November    10-K 07/31/00   10.8
          20, 1999, between Certicom Corp. and
          Richard P. Dalmazzi *

  10.13  Employment Agreement, dated May 1,      10-K 07/31/00   10.9
          1999, between Certicom Corp. and Dr.
          Scott A. Vanstone *

  10.14  Employment Agreement, dated February    10-K 07/31/00  10.10
          7, 2000, between Certicom Corp. and
          Richard D. Brounstein *

  21.1   List of Subsidiaries                    10-K 07/31/00   21.1

  23.1   Consent of KPMG LLP                                               X

  23.2   Consent of DELOITTE & TOUCHE LLP                                  X

  24.1   Power of Attorney (included on page                               X
          52 of this Form 10-K)

--------
 * Denotes a management contract or compensatory plan or arrangement.

   (b) Report on Form 8-K

   No reports on Form 8-K were filed in the fourth quarter of fiscal 2001.

                                       51


                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 27th day of
July, 2001.

                                          Certicom Corp.

                                               /s/ Richard P. Dalmazzi
                                          By: _________________________________
                                                   Richard P. Dalmazzi
                                           President, Chief Executive Officer

                       POWER OF ATTORNEY AND SIGNATURES

   KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Richard P. Dalmazzi and Gregory M. Capitolo as
his true and lawful attorneys-in-fact and agents, with full power of
substitution for him in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as he might or could do in person.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.



                Name                             Title                 Date
                ----                             -----                 ----

                                                             
    /s/ Richard P. Dalmazzi          President, Chief Executive    July 27, 2001
____________________________________  Officer and Director
        Richard P. Dalmazzi           (Principal Executive
                                      Officer)

    /s/ Gregory M. Capitolo          Chief Financial Officer,      July 27, 2001
____________________________________  Vice President, Finance and
        Gregory M. Capitolo           Secretary (Principal
                                      Financial and Accounting
                                      Officer)

     /s/ Scott A. Vanstone           Director                      July 27, 2001
____________________________________
         Scott A. Vanstone

     /s/ Bernard W. Crotty           Director                      July 27, 2001
____________________________________
         Bernard W. Crotty

      /s/ William T. Dodds           Director                      July 27, 2001
____________________________________
          William T. Dodds

       /s/ Louis E. Ryan             Director                      July 27, 2001
____________________________________
           Louis E. Ryan


                                      52




                Name                             Title                 Date
                ----                             -----                 ----

                                                             
     /s/ William J. Stewart          Director                      July 27, 2001
____________________________________
         William J. Stewart

   /s/ Robert P. Wierderhold         Director                      July 27, 2001
____________________________________
       Robert P. Wierderhold


                                       53


                        CERTICOM CORP. AND SUBSIDIARIES

        Consolidated Financial Statements as of April 30, 2001 and 2000
and for the Years Ended April 30, 2001, 2000 and 1999 and Independent Auditors'
                                     Report

                   Index to Consolidated Financial Statements



                                                                           Page
                                                                           ----
                                                                        
Consolidated Financial Statements:

  Independent Auditors' Report, KPMG LLP..................................  55

  Independent Auditors' Report, DELOITTE & TOUCHE LLP.....................  56

  Consolidated Balance Sheets as of April 30, 2001 and 2000...............  57

  Consolidated Statements of Operations for the Years Ended April 30,
   2001, 2000 and 1999....................................................  58

  Consolidated Statements of Comprehensive Loss for the Years Ended April
   30, 2001, 2000 and 1999................................................  59

  Consolidated Statements of Shareholders' Equity for the Years Ended
   April 30, 2001, 2000 and 1999..........................................  60

  Consolidated Statements of Cash Flows for the Years Ended April 30,
   2001, 2000 and 1999....................................................  61

  Notes to Consolidated Financial Statements for the Years Ended April 30,
   2001, 2000 and 1999....................................................  62

Quarterly Results of Operations (Unaudited)...............................  79

Financial Statement Schedule:

  Schedule II--Valuation and Qualifying Accounts and Reserves.............  80


   All other schedules are omitted because they were not required or the
required information is included in the Consolidated Financial Statements or
Notes thereto.

                                       54


                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Certicom Corp.:

   We have audited the accompanying consolidated balance sheet of Certicom
Corp. and subsidiaries as of April 30, 2001, and the related consolidated
statements of operations, comprehensive loss, shareholders' equity, and cash
flows for the year then ended. In connection with our audit of the
consolidated financial statements, we have also audited the accompanying
financial statement schedule related to the fiscal year ended April 30, 2001.
These consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audit.

   We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Certicom
Corp. and subsidiaries as of April 30, 2001, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the financial statement schedule related to the fiscal year
ended April 30, 2001, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

                                          /s/ KPMG LLP

San Francisco, California
June 1, 2001

                                      55


                         INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Certicom Corp.

   We have audited the accompanying consolidated balance sheet of Certicom
Corp. and its subsidiaries as at April 30, 2000 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended April 30, 2000. Our audits also included the
financial statement schedules listed in the index at item 14. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Certicom Corp. and its
subsidiaries as at April 30, 2000, and the results of their operations and
their cash flows for each of the two years in the period ended April 30, 2000
in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.

   Accounting principles generally accepted in Canada vary in certain
significant respects from accounting principles generally accepted in the
United States of America. We reported separately to the shareholders of the
Company on financial statements for the same period prepared in accordance
with accounting principles generally accepted in Canada.

                                          /s/ Deloitte & Touche LLP

                                          Chartered Accountants

Toronto, Ontario
June 13, 2000

                                      56


                        CERTICOM CORP. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
            (In thousands of U.S. dollars, except number of shares)



                                                                April 30,
                                                            ------------------
                                                              2001      2000
                                                            --------  --------
                                                                
                          ASSETS
                          ------

Current assets:
  Cash and cash equivalents................................ $  1,942  $ 10,508
  Marketable securities, available for sale................   52,319     2,550
  Accounts receivable (net of allowance for doubtful
   accounts of $1,075 and $161, respectively)..............    7,149     3,862
  Unbilled receivables.....................................      731     2,115
  Inventories..............................................      444       218
  Prepaid expenses, deposits and other current assets......    2,253     1,740
                                                            --------  --------
    Total current assets...................................   64,838    20,993
Property and equipment, net................................   18,288     5,213
Patents....................................................    1,156       873
Acquired intangibles (net of accumulated amortization of
 $19,994 and $10,586, respectively)........................   25,192    24,437
                                                            --------  --------
    Total assets........................................... $109,474  $ 51,516
                                                            ========  ========

           LIABILITIES AND SHAREHOLDERS' EQUITY
           ------------------------------------

Current liabilities:
  Accounts payable......................................... $  9,240  $    974
  Accrued liabilities......................................    3,106     2,107
  Other current payables...................................      510       430
  Deferred revenue.........................................    2,168       909
  Note payable.............................................      --     10,000
                                                            --------  --------
    Total current liabilities..............................   15,024    14,420
Lease inducements..........................................    1,093     1,105
                                                            --------  --------
    Total liabilities......................................   16,117    15,525
Shareholders' equity:
  Common shares, no par value; shares authorized:
   unlimited; shares issued and outstanding: 30,541,876 and
   23,087,866 respectively.................................  175,151    80,859
  Additional paid-in capital...............................   19,945    11,922
  Deferred compensation expense on expense.................   (4,314)      --
  Accumulated other comprehensive loss.....................   (2,460)   (2,497)
  Deficit..................................................  (94,965)  (54,293)
                                                            --------  --------
    Total shareholders' equity.............................   93,357    35,991
                                                            --------  --------
    Total liabilities and shareholders' equity............. $109,474  $ 51,516
                                                            ========  ========


          See accompanying notes to consolidated financial statements.

                                       57


                        CERTICOM CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
   (In thousands of U.S. dollars, except number of shares and per share data)



                                                 Years ended April 30,
                                            ----------------------------------
                                               2001        2000        1999
                                            ----------  ----------  ----------
                                                           
Revenues................................... $   26,647  $   12,040  $    4,042
                                            ----------  ----------  ----------
Costs and expenses:
  Cost of hardware.........................        824         579         125
  Consulting and systems integration
   (including deferred compensation
   amortization of $3,444, $0, and $0 for
   fiscal 2001, 2000, and 1999,
   respectively)...........................      9,624       2,080         587
  Selling and marketing....................     19,731       6,616       6,087
  Research and development.................     12,838       4,446       3,240
  Depreciation and amortization............     12,731       7,861       5,063
  General and administrative (including
   stock compensation amortization of $312,
   $318, and $311 for fiscal 2001, 2000,
   and 1999, respectively).................     12,183       7,099       4,277
  One time secondary offering costs........      1,693         --          --
  Purchased in-process research and
   development.............................        --          535       1,151
                                            ----------  ----------  ----------
    Total costs and expenses...............     69,624      29,216      20,530
Operating loss.............................    (42,977)    (17,176)    (16,488)
Non-cash interest income (expense).........       (423)        --          --
Interest and other income (expense), net...      2,863        (359)      1,015
                                            ----------  ----------  ----------
Loss before income taxes...................    (40,537)    (17,535)    (15,473)
Income taxes...............................        135         334         (92)
                                            ----------  ----------  ----------
Net loss................................... $  (40,672) $  (17,869) $  (15,381)
                                            ==========  ==========  ==========
Basic and diluted net loss per share....... $    (1.54) $    (0.80) $    (0.73)
                                            ==========  ==========  ==========
Weighted average shares used in computing
 basic and diluted net loss per share...... 26,376,728  22,255,044  21,032,848
                                            ==========  ==========  ==========



          See accompanying notes to consolidated financial statements.

                                       58


                        CERTICOM CORP. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                         (In thousands of U.S. dollars)



                                                     Years ended April 30,
                                                   ----------------------------
                                                     2001      2000      1999
                                                   --------  --------  --------
                                                              
Net loss.......................................... $(40,672) $(17,869) $(15,381)
Other comprehensive income:
  Unrealized gain (loss) on marketable securities,
   available for sale.............................     (118)       14       (18)
  Foreign currency translation adjustment.........      155       --     (1,052)
                                                   --------  --------  --------
Comprehensive loss................................ $(40,635) $(17,855) $(16,451)
                                                   ========  ========  ========




          See accompanying notes to consolidated financial statements.

                                       59


                        CERTICOM CORP. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                   Years Ended April 30, 2001, 2000 and 1999
            (In thousands of U.S. dollars, except number of shares)



                                                                       Accumulated
                             Common Stock     Additional   Deferred       Other                   Total
                          -------------------  Paid in   Compensation Comprehensive           Shareholders'
                            Shares    Amount   Capital     Expense        Loss      Deficit      Equity
                          ---------- -------- ---------- ------------ ------------- --------  -------------
                                                                         
Balances, April 30,
 1998...................  19,363,472 $ 51,215  $ 4,304     $   --        $(1,441)   $(21,043)   $ 33,035
Net loss................         --       --       --          --            --      (15,381)    (15,381)
Shares issued in
 acquisitions...........   2,325,966   16,091    5,919         --            --          --       22,010
Exercise of employee
 options................     134,316      534     (268)        --            --          --          266
Stock compensation......         --       --       311         --            --          --          311
Net unrealized loss on
 marketable securities,
 available for sale.....         --       --       --          --            (18)        --          (18)
Foreign currency
 translation
 adjustment.............         --       --       --          --         (1,052)        --       (1,052)
                          ---------- --------  -------     -------       -------    --------    --------
Balances, April 30,
 1999...................  21,823,754   67,840   10,266         --         (2,511)    (36,424)     39,171
Net loss................         --       --       --          --            --      (17,869)    (17,869)
Shares issued in
 acquisitions...........     201,120    7,306    3,080         --            --          --       10,386
Exercise of employee
 options................   1,062,992    5,713   (1,742)        --            --          --        3,971
Stock compensation......         --       --       318         --            --          --          318
Net unrealized gain on
 marketable securities,
 available for sale.....         --       --       --          --             14         --           14
                          ---------- --------  -------     -------       -------    --------    --------
Balances, April 30,
 2000...................  23,087,866   80,859   11,922         --         (2,497)    (54,293)     35,991
Net loss................         --       --       --          --            --      (40,672)    (40,672)
Exercise of employee
 options................     556,415    3,785   (1,503)        --            --          --        2,282
Shares issued in
 acquisition............     397,595    9,030    6,452      (7,741)                                7,741
Issuance of common
 shares.................   6,500,000   81,477      --                        --          --       81,477
Fair market value of
 options issued for
 acquisition............         --       --     2,322                       --          --        2,322
Deferred stock
 compensation expense...         --       --       329        (329)          --          --          --
Amortization of deferred
 stock compensation.....         --       --       --        3,756           --          --        3,756
Net unrealized gain
 (loss) on marketable
 securities, available
 for sale...............         --       --       --          --           (118)        --         (118)
Fair market value of
 warrants issued in
 connection with loan...         --       --       423         --            --          --          423
Foreign currency
 translation
 adjustment.............         --       --       --          --            155         --          155
                          ---------- --------  -------     -------       -------    --------    --------
Balances, April 30,
 2001...................  30,541,876 $175,151  $19,945     $(4,314)      $(2,460)   $(94,965)   $ 93,357
                          ========== ========  =======     =======       =======    ========    ========


                                       60


                        CERTICOM CORP. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (In thousands of U.S. dollars)



                                                     Years ended April 30,
                                                   ----------------------------
                                                     2001      2000      1999
                                                   --------  --------  --------
                                                              
Cash flows from operating activities:
  Net loss.......................................  $(40,672) $(17,869) $(15,381)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Depreciation and amortization................     3,323     1,555       959
    Amortization of acquired intangibles.........     9,408     6,306     4,104
    Write-off of purchased in-process research
     and development.............................       --        535     1,151
    Stock compensation expense...................     3,756       318       311
    Non-cash interest expense....................       423       --        --
    Changes in non-cash working capital items:
      Accounts receivable and unbilled
       receivables...............................    (1,903)   (3,901)   (1,461)
      Inventories................................      (226)      178      (174)
      Investment tax credits receivable..........       --        --        266
      Prepaid and other current assets...........      (734)   (1,102)       41
      Accounts payable...........................     8,266       453        32
      Accrued liabilities........................       999     1,084       513
      Income taxes payable.......................        80       210        77
      Deferred revenue...........................     1,259       507       277
                                                   --------  --------  --------
        Net cash used in operating activities....   (16,021)  (11,726)   (9,285)
                                                   --------  --------  --------
Cash flows from investing activities:

  Business acquisitions (net of cash acquired)...       --        182    (4,443)
  Purchase of property and equipment.............   (16,328)   (3,902)   (1,722)
  Purchase of patents............................      (353)     (355)     (217)
  Purchase of marketable securities, available
   for sale......................................   (69,228)   (4,855)  (91,445)
  Sales and maturities of marketable securities,
   available for sale............................    19,462    14,983   107,554
                                                   --------  --------  --------
        Net cash (used in) provided by investing
         activities..............................   (66,447)    6,053     9,727
                                                   --------  --------  --------

Cash flows from financing activities:
  Proceeds from employee stock option exercise...     2,282     3,971       266
  Issuance of common shares......................    81,477       --        --
  Notes payable..................................       --     10,000       --
  Repurchase of debenture payable................       --        --        (22)
  Redemption of mandatorily redeemable preferred
   shares........................................       --        --       (209)
  Leasehold inducements..........................       (12)      931       315
  Repayment of note payable......................   (10,000)      --        --
                                                   --------  --------  --------
        Net cash provided by financing
         activities..............................  $ 73,747  $ 14,902  $    350
                                                   --------  --------  --------
Effect of exchange rate on cash..................       155      (121)      (20)
(Decrease) increase in cash and cash
 equivalents.....................................    (8,566)    9,108       772
Cash and cash equivalents, beginning of year.....    10,508     1,400       628
                                                   --------  --------  --------
Cash and cash equivalents, end of year...........  $  1,942  $ 10,508  $  1,400
                                                   ========  ========  ========
Supplemental disclosure of cash flow information:
  Income taxes paid..............................  $    --   $    --   $    117
  Interest paid..................................  $    --   $    --   $    --

Non-cash investing and financing activities:
  Fair market value of common shares and options
   issued for business acquisitions..............  $ 10,063  $ 10,386  $ 22,010
  Warrant issued in connection with line of
   credit........................................  $    423  $    --   $    --
  Deferred stock compensation....................  $  8,070  $    --   $    --


          See accompanying notes to consolidated financial statements.

                                       61


                        CERTICOM CORP. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   Years Ended April 30, 2001, 2000 and 1999

Note 1: Description of Business

   Certicom Corp. and its wholly-owned subsidiaries (the "Company") are
suppliers of digital information security products and services to original
equipment manufacturers (OEMs) of information technology products. The
Company's products and services include enabling technologies, trust services,
enterprise application solutions, consulting and design services, and hardware
components.

Note 2: Summary of Significant Accounting Policies

   Generally Accepted Accounting Principles. These consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America ("generally accepted
accounting principles" or "U.S. GAAP").

   Principles of Consolidation. These consolidated financial statements
include the accounts of Certicom Corp. and its wholly-owned subsidiaries. All
significant inter-company transactions and balances have been eliminated.

   Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and could affect future operating results.

   Cash and Cash Equivalents. Cash equivalents consist of highly liquid
investments with remaining maturity at the date of purchase of three months or
less. These investments consist of fixed income securities, which are readily
convertible to cash and are stated at cost, which approximates fair value.
Fair value is determined based upon the quoted market prices of the securities
as of the balance sheet date.

   Marketable Securities. The Company follows the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires the Company
to record securities which management has classified as available for sale at
fair market value and to record unrealized gains and losses on securities
available for sale as a separate component of other comprehensive income.

   As the Company's management expects to sell a portion of the marketable
securities in the next fiscal year in order to meet its working capital
requirements, it has classified them as current assets.

   Inventories. Inventories are recorded at the lower of cost, on a first-in,
first-out basis, or net realizable value.

   Property and Equipment. Property and Equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets at the following annual rates:

                    
   Furniture and fixtures -- straight-line over five years
   Computer equipment     -- straight-line over three years
   Software               -- straight-line over two years
   Leasehold improvements -- straight-line over the term of the lease

   

                                      62


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Lease Inducements. Lease Inducements represent primarily tenant improvement
allowances provided by our lessors in connection with certain leased
properties. These amounts are being amortized over the term of their
respective leases and are recorded as a reduction in rent expense. The costs
associated with these tenant improvements have been capitalized as leasehold
improvements and are being amortized over the term of the respective lease.

   Patents. Patents are recorded at cost and are amortized over three years on
a straight-line basis.

   Acquired Intangibles. Acquired Intangible assets resulting from the
acquisitions of entities accounted for using the purchase method of
accounting, are estimated by management based on the fair value of assets
received. These include acquired customer lists, trademarks, workforce, in
process research and development, purchased technology and goodwill arising
from business acquisitions. Acquired intangible assets are amortized on a
straight-line basis over periods ranging from three to five years, except
purchased in-process research and development without alternative future use
which is expensed when acquired.

   Impairment of Long-Lived Assets. The Company evaluates the recoverability
of its property and equipment and intangible assets in accordance with SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS No. 121 prescribes the accounting treatment
for long-lived assets, identifiable intangibles and goodwill related to those
assets when there are indications that the carrying value of those assets may
not be recoverable. SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. Accordingly, the company
evaluates asset recoverability at each balance sheet date or when an event
occurs that may impair recoverability of the asset.

   Revenue Recognition and Deferred Revenues. The Company recognizes software
licensing revenue in accordance with all applicable accounting regulations
including the American Institute of Certified Public Accountants Statement of
Position (SOP) 97-2, "Software Revenue Recognition," as amended by SOP 98-4
and SOP 98-9.

   Following the requirements of SOP 97-2, the company recognizes license
revenues when all of the following have occurred:

  .  we have signed a non-cancelable license agreement with the customer;

  .  delivery of the software product to the customer has occurred;

  .  the amount of the fees to be paid by the customer are fixed or
     determinable; and

  .  collection of these fees is probable.

   If an acceptance period is contractually provided, license revenues are
recognized upon the earlier of customer acceptance or the expiration of that
period. In instances where delivery is electronic and all other criteria for
revenue recognition has been achieved, the product is considered to have been
delivered when the customer either takes possession of the software via a
download or the access code to download the software from the Internet has
been provided to the customer. Our software does not require significant
production, customization or modification.

   SOP 97-2, as modified, generally requires revenue earned on software
arrangements involving multiple elements such as software products, upgrades,
enhancements, post contract customer support, or PCS, installation, training,
etc. to be allocated to each element based on the relative fair values of the
elements. The fair value of an element must be based on evidence that is
specific to the vendor. If evidence of fair value does not exist for all
elements of a license agreement and PCS is the only undelivered element, then
all revenue for

                                      63


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the license arrangement is recognized ratably over the term of the agreement.
If evidence of fair value of all undelivered elements exists but evidence does
not exist for one or more delivered elements, then revenue is recognized using
the residual method. Under the residual method, the fair value of the
undelivered elements is deferred, and the remaining portion of the arrangement
fee is recognized as revenue. When arrangements require us to deliver
specified additional upgrades the entire fee related to the arrangement is
deferred until delivery of the specified upgrade has occurred, unless we have
vendor-specific objective evidence of fair value for the upgrade. Fees related
to contracts that require us to deliver unspecified additional products are
deferred and recognized ratably over the contract term.

   Revenue from consulting and training services are recognized using the
percentage-of-completion method for fixed fee development arrangements or as
the services are provided for time-and-materials arrangements.

   The fair value of professional services, maintenance and support services
have been determined using specific objective evidence of fair value based on
the price charged when the elements are sold separately. Revenues for
maintenance and support service are deferred and recognized ratably over the
term of the support period. Revenues from professional services are recognized
when the services are performed.

   Deferred revenues generally result from the following: deferred maintenance
and support service, cash received for professional services not yet rendered
and license revenues deferred relating to arrangements where we have received
cash and are required to deliver either unspecified additional products or
specified upgrades for which we do not have vendor-specific objective evidence
of fair value.

   Research and Product Development. The Company expenses all research and
development costs as they are incurred. The company has capitalized certain
legal costs associated with the filing of approximately fifty patent
applications in various jurisdictions. These patent filings relate to Elliptic
Curve Cryptography (ECC), various mathematical computational methodologies,
security protocols and other cryptographic inventions. Once granted, the
company amortizes the individual patent cost over three years.

   Stock-Based Compensation. The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of According
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and complies with the disclosure provisions of SFAS 123,
"Accounting for Stock Based Compensation". APB 25 requires compensation cost
for stock-based employee compensation plans to be recognized over the vesting
period based on the difference, if any, on the grant date between the quoted
market price of the company's stock and the amount an employee must pay to
acquire the stock.

   Foreign Currency Translation. For the period up to April 30, 1999, the
functional currency of the Company was the Canadian dollar. As such, assets
and liabilities of the Company were translated to U.S. dollars at the year-end
exchange rates. Income and expense items were translated at the average rate
of exchange prevailing during the year. Translation adjustment are included in
"accumulated other comprehensive loss", a separate component of stockholders'
equity.

   For the period from May 1, 1999, the Company has determined that its
functional currency is the U.S. dollar as it derives a majority of its
revenues and incurs a significant portion of its expenditures in U.S. dollars.
As such, monetary assets and liabilities denominated in currencies other than
the U.S. dollar are translated into U.S. dollars at the rate of exchange
prevailing at year end while other balance sheet items are translated at
historic rates. Revenue and expense items are translated at the rate of
exchange in effect on the transaction dates except for depreciation and
amortization which are translated at historic rates. Realized foreign exchange
gains and losses are included in income or loss in the year in which they
occur. Unrealized foreign currency transaction gains and losses are included
in other comprehensive income or loss in the year in which they occur.

                                      64


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Income Taxes. The Company follows the asset and liability approach to
financial accounting for income taxes. Under SFAS No. 109 "Accounting for
Income Taxes", deferred tax assets and liabilities are determined based on the
difference between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected in reverse. SFAS 109 provides for the
recognition of deferred tax assets if realization of such assets is more
likely than not. Deferred tax assets are reduced, if necessary, by the amount
of any tax benefits that, based on available evidence, are not expected to be
realized.

   Basic and Diluted Net Loss per Share. The Company follows the provisions of
SFAS No. 128, Earnings Per Share. Basic net loss per common share is based on
the weighted average number of shares outstanding during each period. Stock
options are not included in the computation of the weighted average number of
shares outstanding for dilutive net loss per common share during the period as
the effect would be anti-dilutive.

   Comprehensive Income. Comprehensive income is defined as the change in
equity of a company during a period from transactions and other events and
circumstances excluding transactions resulting from investments by owners and
distributions to owners. The primary difference between net income and
comprehensive income, for the company, results from foreign currency
translation adjustments and unrealized gains and losses on available-for-sale
securities.

   The functional currency of foreign subsidiaries are translated using the
exchange rates in effect at the end of the period, while income and expense
items are translated at average rates of exchange during the period. Gains or
losses from translation of foreign operations where the local currency is the
functional currency are included as other comprehensive income or loss. The
net gains and losses resulting from foreign currency transactions are recorded
in net income in the period incurred and were not significant for any of the
periods presented.

   Fair Value of Financial Instruments. For financial assets and liabilities,
including cash and cash equivalents, short-term investments, accounts
receivable and account payable, the carrying values approximate their fair
value due to their short maturities, based on management's estimates.

   Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash,
marketable securities and accounts receivable. Risk associated with cash are
mitigated by banking and creditworthy institutions. Marketable securities
consist primarily of bonds and commercial paper. Credit risk with respect to
the trade receivables is spread over diverse customers who make up the
Company's customer base. At April 30, 2001, no customer accounted for a
significant portion of total accounts receivable.

   Certain Significant Risks and Uncertainties. The Company participates in a
dynamic high-technology industry and believes that changes in any of the
following areas could have a material adverse effect on the Company's future
financial position, results of operations or cash flows: advances and trends
in new technologies and industry standards; competitive pressures in the form
of new products and services or price reductions on current products and
services; changes in the overall demand for products and services offered by
the Company; market acceptance of the Company's products and services;
development of sales channels; changes in certain strategic relationships or
customers relationships; litigation or claims against the Company based on
intellectual property, patent, product, regulatory or other factors; and the
Company's ability to attract and retain necessary employees to support its
growth.

   Recent Accounting Pronouncements. In July 2001, the FASB issued SFAS No.
141. "Business Combinations". SFAS No. 141 requires that all business
combinations be accounted for under the purchase method for business
combinations initiated after June 30, 2001 for which the date of acquisition
is July 1, 2001

                                      65


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

or later. Use of the pooling-of-interest method is no longer permitted. In
July 2001 the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill no longer be amortized to
earnings, but instead be periodically reviewed for impairment. SFAS No. 142
must be adopted starting with fiscal years beginning after December 15, 2001.
The impact of adopting SFAS 141 and SFAS 142 has not been determined.

   In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. In June 2000, the SEC
issued Staff Accounting Bulletin No. 101B (SAB 101B), "Second Amendment:
Revenue Recognition in Financial Statements", which extends the effective date
of SAB 101 to the fourth fiscal quarter of fiscal years commencing after
December 15, 1999. During the fourth quarter of fiscal 2001, we adopted
SAB101. The adoption of SAB101 did not have a material effect on the company's
consolidated financial position or results of operations.

   In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and
for hedging activities. SFAS No. 133 requires us to measure all derivatives at
fair value and to recognize them on the balance sheet as an asset or
liability, depending on our rights or obligations under the applicable
derivative contract. In June 1999, the FASB issued SFAS No. 137, which
deferred the effective date of adoption of SFAS No. 133 for one year. We will
adopt SFAS No. 133 no later than the first quarter of fiscal 2002. In June
2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," an amendment of FASB Statement
No. 133. SFAS No. 138 amends SFAS No. 133 to permit use of central treasury
offsetting of net exposures of intercompany derivatives for foreign currency
cash flow hedges. SFAS 138 must be adopted concurrently with SFAS 133.

   Liquidity. Historically, we have incurred significant losses and negative
cash flows from operations. As of April 30, 2001, we have an accumulated
deficit of $95.0 million and positive working capital of $49.8 million. We
have primarily funded operations through public offerings and private
placements. To the extent that sources of financing are not available to us,
we will reduce capital expenditures which are not under binding contractual
obligations and reduce other variable costs as necessary to maintain
sufficient working capital to operate our business.

   Reclassifications. Certain reclassifications have been made in the 1999 and
2000 financial statement presentation to conform to the 2001 presentation.

Note 3: Net Loss Per Common Share

   Basic net loss per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted net loss per
common share is computed using the weighted average number of common shares
outstanding during the period and, when dilutive, potential common shares from
options and warrants to purchase common shares and common shares subject to
repurchase, using the treasury stock method.

                                      66


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following potential common shares have been excluded from the
calculation of diluted net loss per share for all periods presented because
the effect would have been anti-dilutive:



                                                             Year Ended April
                                                                    30,
                                                            -------------------
                                                              2001      2000
                                                            --------- ---------
                                                                
     Shares issuable under stock options................... 6,008,688 4,354,864
     Shares of restricted stock subject to repurchase......   165,665       --
     Shares issuable pursuant to warrants..................    30,000    30,000


   The weighted average exercise price of stock options, calculated by using
the yearly average exchange rates, was $8.34 and $5.76 at April 30, 2001 and
2000, respectively. The purchase price of restricted stock was $38.94. The
exercise price of outstanding warrants was Cdn.$38.13 per share ($24.82 based
on the exchange rate on April 30, 2001).

Note 4: Acquisitions

   During the years ended April 30, 2001 and 2000 the Company made the
acquisitions described in the paragraphs that follow, each of which has been
accounted for as a purchase. The consolidated financial statements include the
operating results of each business from the date of acquisition.

   The amounts allocated to purchased research and development were determined
through generally accepted valuation techniques and were expensed upon
acquisition because technological feasibility had not been established and no
future alternative use existed. The fair value of purchased research and
development was estimated by discounting, to present value, the cash flows
attributable to the technology once it has reached technological feasibility.

 Acquisition of Trustpoint

   On January 26, 2000, the Corporation acquired all of the outstanding common
shares of Trustpoint, a corporation based in Mountain View, California.
Trustpoint is a provider of comprehensive, flexible, cross-platform public key
infrastructure (PKI) products that allow OEM's to develop applications with
built in digital certificate services. Details of the consideration and the
fair values of the net assets acquired are as follows (in thousands of U.S.
dollars):

                                                                 
   Net assets acquired:
     Non-cash working capital (net of cash of $302)................... $   (34)
     Capital assets...................................................      29
     Other acquired intangibles.......................................     878
     Goodwill.........................................................   9,633
                                                                       -------
                                                                       $10,506
                                                                       =======
   Consideration:
     Common shares (201,120 shares issued)............................ $ 7,306
     Options to acquire 98,884 common shares..........................   3,080
     Acquisition costs................................................     120
                                                                       -------
                                                                       $10,506
                                                                       =======

   

   The value of common shares issued in connection with the acquisition was
determined based on the average market price of our common shares near the
date the acquisition was announced. The stock options assumed in connection
with the acquisition were valued at the time of issuance based on the Black-
Scholes option valuation model. Other acquired intangibles include the fair
value of workforce, customer base and trademarks and are amortized over 3
years. The goodwill is amortized over 5 years.

                                      67


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The valuations of purchased in-process research and development, other
acquired intangibles and purchased technology were based upon appraisals
received from third parties. Based upon the valuation, management estimated
that $535,000 of the purchase consideration represents purchased in-process
technology that had not yet reached technological feasibility and had no
future alternative use. Accordingly, this amount was immediately expensed upon
consummation of the acquisition. The purchased in-process research and
development was determined by identifying the ongoing research projects for
which technological feasibility had not been achieved and assessing the
anticipated date of completion of the research and development effort. The
state of completion was determined by estimating the costs and time incurred
to date relative to those costs and time to be incurred to develop the
purchased in-process research and development into commercially viable
products. The value of the in-process research and development was the amount
attributable to the research and development efforts up to the time of
acquisition. The amount was estimated through application of the "stage of
completion" calculation by multiplying the estimated present value of future
cash flow expected to result from the product, excluding estimated cost of
completion, by the percentage of completion of the purchased research and
development efforts at the time of acquisition. The discount rate included a
factor that took into account the uncertainty surrounding the successful
development of the purchased in-process research and development projects.

 Acquisition of DRG Resources Group, Inc.

   On September 12, 2000, we acquired all of the outstanding common shares of
DRG Resources Group, Inc., a corporation based in Redwood City, California.
DRG Resources Group is an e-commerce security consulting company. Prior to our
acquisition of DRG Resources Group, Digital Resources Group, LLC merged into
DRG Resources Group. At the time these two companies merged, Digital Resources
Group LLC transferred $100,000 in assets into DRG Resources Group. Prior to
the merger of Digital Resources Group, LLC and DRG Resources Group, all other
assets and liabilities of Digital Resource Group LLC were distributed to its
members. The acquisition was completed with the issuance of 397,595 of our
common shares. In connection with the acquisition, we also assumed stock
options exercisable to acquire a total of 103,100 of our common shares.
Details of the consideration and the fair values of the net assets acquired
are as follows (in thousands of U.S. dollars):

                                                                  
   Net assets acquired:
     Current assets.................................................... $   100
     Other acquired intangibles........................................     634
     Goodwill..........................................................   9,529
     Deferred compensation expense.....................................   7,741
                                                                        -------
                                                                        $18,004
                                                                        =======
   Consideration:
     Common shares (397,595 shares issued)............................. $15,482
     Options to acquire 103,100 common shares..........................   2,322
     Acquisition costs.................................................     200
                                                                        -------
                                                                        $18,004
                                                                        =======

   

   The value of common shares issued in connection with the acquisition was
determined based on the average market price of our common shares near the
date the acquisition was announced. The stock options assumed in connection
with the acquisition were valued at the time of issuance based on the Black-
Scholes option valuation model. Deferred compensation of approximately $7.7
million was recorded in connection with the acquisition as we issued
restricted stock to the partners of DRG Resources Group, Inc. Such stock is
considered compensation for services to be provided by the partners, and the
related expense will be recognized over the term of the

                                      68


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

services provided, which is 18 months. Other acquired intangibles include the
fair value of workforce and customer base and are amortized over 3 years. The
goodwill is amortized over 5 years.

 Unaudited Pro Forma Financial Information

   The following table represents unaudited consolidated pro forma information
as if the acquisitions of Trustpoint and DRG Resources Group, Inc. had
occurred at the beginning of the years immediately preceding the years in
which they were acquired. The pro forma data is presented for illustrative
purposes only and is not necessarily indicative of the combined results of
operations of future periods or the results that actually would have occurred
had the acquisitions been in effect for the entire specified periods. The pro
forma combined results include the impact of certain adjustments, primarily
amortization of goodwill, deferred compensation, and other intangible assets
and exclude intercompany revenues and expenses (in thousands of U.S. dollars,
except per share data).



                                                            Years Ended April
                                                                   30,
                                                            ------------------
                                                              2001      2000
                                                            --------  --------
                                                                
   Pro forma revenue......................................  $ 27,726  $ 14,398
   Pro forma net loss.....................................  $(42,989) $(26,879)
   Pro forma net loss per share--basic and diluted........  $  (1.62) $  (1.19)
   Number of shares used in calculation--basic and diluted
    (000's)...............................................    26,477    22,634


Note 5: Marketable Securities, Available for Sale

   The following table summarizes the Company's investment in marketable
securities (in thousands of U.S. dollars):



                                                      April 30, 2001
                                          --------------------------------------
                                                     Gross      Gross
                                          Carrying Unrealized Unrealized  Fair
                                           Value     Gains      Losses    Value
                                          -------- ---------- ---------- -------
                                                             
   Bonds................................. $25,523     $11       $ --     $25,534
   Commercial paper......................  26,813      26         122     26,717
   Other.................................      87      10          29         68
                                          -------     ---       -----    -------
   Total................................. $52,423     $47       $ 151    $52,319
                                          =======     ===       =====    =======




                                                      April 30, 2000
                                           -------------------------------------
                                                      Gross      Gross
                                           Carrying Unrealized Unrealized  Fair
                                            Value     Gains      Losses   Value
                                           -------- ---------- ---------- ------
                                                              
   Bonds..................................  $1,392     $ 6       $ --     $1,398
   Commercial paper.......................   1,131       8         --      1,139
   Other..................................      13      --         --         13
                                            ------     ---       -----    ------
   Total..................................  $2,536     $14       $ --     $2,550
                                            ======     ===       =====    ======


                                      69


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 6: Property and Equipment

   Property and equipment consist of the following (in thousands of U.S.
dollars):



                                                                  April 30,
                                                               ----------------
                                                                2001     2000
                                                               -------  -------
                                                                  
   Furniture and fixtures..................................... $ 1,812  $   724
   Computer equipment.........................................   6,775    2,741
   Software...................................................   6,445    1,649
   Leasehold improvements.....................................   4,523    3,532
   Construction in-progress...................................   4,816      --
                                                               -------  -------
   Total cost.................................................  24,371    8,646
   Accumulated depreciation and amortization..................  (6,083)  (3,433)
                                                               -------  -------
                                                               $18,288  $ 5,213
                                                               =======  =======


Note 7: Note Payable

   On April 27, 2000, we entered into an agreement with Sand Hill Capital II,
LP for a line of credit of $15 million bearing interest at the prime rate of
interest plus 3%. As of the end of fiscal year 2000, we had borrowed $10
million against this line. In connection with this financing, we issued a
warrant which entitles Sand Hill to purchase up to 30,000 of our common shares
for Cdn. $38.13 per share ($24.82 based on the exchange rate on April 30,
2001) until April 27, 2005. The amount borrowed was repaid in May 2000, and
the line of credit was terminated. The warrant was valued at $423,000 at the
time of issuance based on the Black-Scholes option valuation model. The value
of the warrant was charged to interest expense in the first quarter of fiscal
2001 as the note payable was paid off with proceeds from a public offering
completed in May 2000. The warrant has not been exercised as of April 30,
2001.

Note 8: Common Shares

 Authorized capital

   As of April 30, 2001, the Company's authorized share capital consists of an
unlimited number of common shares, no par value, and an unlimited number of
preference shares.

   In August 1999, the Articles of Continuance of the Company were amended and
restated to (i) remove and cancel the authorized and unissued preferred
shares, (ii) create an unlimited number of preference shares, issuable in
series, and (iii) authorize the directors of the Company from time to time
before the issue thereof to fix the number of shares and determine the
designation, rights, privileges, restrictions and conditions attaching to the
shares of each series of preference shares.

 Stock Split

   On July 12, 2000, the Company effected a two-for-one stock split of the
outstanding shares of common stock. All share and per share amounts in these
consolidated financial statements have been adjusted to give effect to the
stock split.

                                      70


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 9: Stock Incentive Plans

 Employee Stock Option Plans

   The Company's original plan (its "original plan") is administered by a
committee (the "Committee") of the Board of Directors. Subject to the
discretion of the Committee, options have a term of five years and vest for
the purpose of exercise at a rate of 33% during each twelve-month period
following the first anniversary from the date of the grant of the option.
Options become immediately exercisable in the event that any person acquires
ninety percent of the common shares and may be also exercised for specified
periods following the termination of employment or death of an option holder.
No option may be exercisable more than ten years after its grant. The exercise
price for options was determined at the discretion of the Committee.

   The Company's 1997 Stock Option Plan (the "1997 Plan") is administered by a
committee of the Board and was adopted on June 17, 1997. The total number of
common shares reserved for issuance under the 1997 Plan may not exceed
8,000,000. Subject to the discretion of the Board or an option committee,
options granted under the 1997 Plan have a term of 5 years from the date of
grant and vest at a rate of 25% one year after the date of the grant of the
option, and at a rate of 2.0833% each month after such initial one-year
period. Options may become immediately exercisable in the discretion of the
Board in the event of a takeover bid, merger, amalgamation or other
reorganization and may also be exercised for specified periods following the
termination or death of the option holder. Options also become immediately
exercisable in the event that any person acquires ninety percent of the common
shares. No option may be exercisable for more than ten years after its grant.
The exercise price for options is determined on the basis of the closing price
of the common shares on The Toronto Stock Exchange on the trading date
immediately preceding the date of the grant of the option.

   On April 27, 2000, the Company's shareholders approved a new stock option
plan (the "2000 Plan") for employees who are residents of the United States.
The total number of common shares reserved for issuance under the 2000 Plan
may not exceed 3,000,000. Subject to the discretion of the Board or an option
committee, options granted under the 2000 Plan have a term of five years from
the date of grant and vest at a rate of 25% one year after the date of the
grant of the option, and at a rate of 2.0833% each month after such initial
one-year period. Options may become immediately exercisable at the discretion
of the Board in the event of a take-over bid, merger, amalgamation or other
reorganization and may also be exercised for specified periods following the
termination or death of the option holder. No option may be exercisable for
more than 10 years after its grant. The exercise price for options is
determined on the basis of the closing price of the common shares on The
Nasdaq National Market on the trading date immediately preceding the date of
the grant of the option.

   On October 19, 2000, our shareholders adopted our 2000 directors' incentive
plan. The directors' incentive plan permits us to issue our common shares and
options to acquire our common shares to members of our board of directors who
are not also employed by us on a full-time basis. Up to 500,000 common shares
may be issued under the directors' incentive plan. The directors' incentive
plan is administered by our board of directors. Subject to the discretion of
the board, options granted under the plan have a term of ten years from the
date of grant and vest at a rate of 25% one year after the date of the grant
of the option, and at a rate of 2.0833% each month after such initial one-year
period. Options may become fully vested in the event of a sale of all or
substantially all of our assets, merger or consolidation in which our
shareholders immediately prior to the merger or consolidation would not hold
more than 50% of the voting power of the surviving corporation, or acquisition
of more than 50% of our voting securities by a single party and its
affiliates. Option can only be exercised while a person remains a director or
within one year after he or she ceases to be a director. The exercise price
for options is determined on the basis of the closing price of the common
shares on The Nasdaq National Market on the trading date immediately preceding
the date of the grant of the option.

                                      71


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The directors' incentive plan also permits the board to directly issue
common shares to our outside directors. Common shares may be issued for
reasons determined by the board, including as payment for services provided to
us by a director. The board will determine the price and terms of any common
shares issued to a director. A director may be eligible to participate in the
directors' incentive plan even if he or she receives fees or other
consideration for services on the board of directors or its committees; is
employed by us for 20 hours or less per week or five months or less in a
calendar year; or provides consulting services to us, but is not eligible to
participate in our Employee Stock Purchase Plan.

   The following table summarizes information about stock options outstanding
at April 30, 2001:



                                  Options Outstanding          Options Exercisable
                         ------------------------------------- --------------------
                                     Weighted Average Weighted             Weighted
                                        Remaining     Average              Average
                           Number    Contractual Life Exercise   Number    Exercise
Range of Exercise Price  Outstanding     (Years)       Price   Exercisable  Price
-----------------------  ----------- ---------------- -------- ----------- --------
                                                            
 $0.04-$4.29............    927,311        2.66        $ 3.01     390,269   $ 2.65
 $4.30-$4.99............  1,569,954        2.73          4.72     727,196     4.74
 $5.00-$9.00............  1,148,226        2.87          7.04     579,296     7.24
 $9.01-$14.99...........  1,208,193        4.59         15.37     172,253    13.88
 $15.00-$29.99..........  1,046,268        3.97         20.58     219,554    19.53
 $30.00-$72.28..........  1,060,331        3.95         40.06     241,050    42.83
                          ---------        ----        ------   ---------   ------
                         6,960,283         3.44        $14.49   2,329,618   $11.03
                          =========        ====        ======   =========   ======


   At April 30, 2000 and 1999, options to acquire 1,219,976 and 376,618 shares
of our common stock were exercisable at a weighted average exercise price of
$4.50 and $4.26, respectively.

   Changes for the employee stock option plans during the years ended April
30, 2001, 2000 and 1999 were as follows:



                                            Year Ended April 30,
                          -------------------------------------------------------------
                                 2001                 2000                1999
                          -------------------  ------------------- --------------------
                                     Weighted             Weighted             Weighted
                                     Average              Average              Average
                          Number of  Exercise  Number of  Exercise Number of   Exercise
                           Shares     Price     Shares     Price     Shares     Price
                          ---------  --------  ---------  -------- ----------  --------
                                                             
Outstanding at beginning
 of year................  5,155,300  $ 12.36   3,603,198   $ 4.46   3,512,562   $ 7.11
Granted.................  2,435,501    17.61   2,783,866    19.37   1,681,300     3.89
Exercised...............   (489,041)   (4.30)   (850,000)   (4.48)    (96,678)   (2.56)
Canceled................   (141,477)  (15.10)   (381,764)   (5.31)   (770,660)   (7.48)
Canceled for
 reissuance.............        --      0.00         --       --   (2,843,584)   (9.74)
Reissued................        --      0.00         --       --    2,120,258     5.06
                          ---------  -------   ---------   ------  ----------   ------
Outstanding at end of
 year...................  6,960,283  $ 14.49   5,155,300   $12.36   3,603,198   $ 4.46
                          =========  =======   =========   ======  ==========   ======
Exercisable at end of
 year...................  2,329,618  $ 11.03   1,219,976   $ 4.50     376,618   $ 4.26
                          =========  =======   =========   ======  ==========   ======
Weighted average fair
 value of options
 granted during the
 year...................  $   14.07            $   19.71           $     1.91


                                      72


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Options Assumed in Connection with Acquisitions

   On July 29, 1998, January 26, 2000 and September 12, 2000, we acquired
Consensus Development Corporation, Trustpoint and DRG Resources Group, Inc.,
respectively. The outstanding stock options of these three companies were
converted at the time of each acquisition into options to acquire our common
shares. The Consensus Development Corporation options were converted into
options to acquire 799,818 of our common shares, the Trustpoint options were
converted into options to acquire 98,884 of our common shares, and the
DRG Resources Group, Inc. options were converted into options to acquire
103,100 of our common shares. As of April 30, 2001, remaining assumed options
to acquire 282,312 of our common shares in connection with acquisition of
Consensus Development Corporation were outstanding and exercisable at a
weighted average exercise price of $0.39 per share, remaining assumed options
to acquire 49,096 of our common shares in connection with acquisition of
Trustpoint were outstanding and exercisable at a weighted average exercise
price of $6.38 per share and remaining options to acquire 90,350 and 0 of our
common shares in connection with acquisition of DRG Resources Group, Inc. were
outstanding and exercisable respectively at a weighted average exercise price
of $38.94 per share. We will not grant any additional options under the
Consensus Development Corporation, the Trustpoint or the DRG Resources Group,
Inc. option plans.

 Accounting for Stock-Based Compensation

   As a result of the Company applying APB No. 25, SFAS No. 123, "Accounting
for Stock-Based Compensation," we are required to disclose pro forma
compensation expense arising from the Company's stock compensation plans based
on the fair value of the options granted. The pro forma expense is measured as
the fair value of the award at the date it is granted using an option-pricing
model that takes into account the exercise price and expected term of the
option, the current price of the underlying stock, its expected volatility,
expected dividends on the stock and the expected risk-free rate of return
during the expected term of the option. The compensation cost is recognized
over the service period, usually the period from the grant date to the vesting
date.

   Had the compensation cost for the Company's plan been determined based on
the fair value at the dates of award under the plan consistent with the method
of SFAS No. 123, the Company's net loss and basic and diluted net loss per
common share would have been increased to the pro forma amounts indicated
below (in thousands of U.S. dollars, except per share data):



                                                    Years Ended April 30,
                                                  ----------------------------
                                                    2001      2000      1999
                                                  --------  --------  --------
                                                             
   Net loss:
     As reported................................. $(40,672) $(17,869) $(15,381)
     Pro forma................................... $(65,672) $(27,913) $(22,395)
   Basic and diluted net loss per common share:
     As reported................................. $  (1.54) $  (0.80) $  (0.73)
     Pro forma................................... $  (2.49) $  (1.25) $  (1.07)


   The fair value of the options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:



                                                               Years Ended
                                                                April 30,
                                                             ------------------
                                                             2001  2000   1999
                                                             ----  -----  -----
                                                                 
   Expected life (years)....................................    4      4      4
   Risk free interest rate.................................. 6.14%  6.02%  5.08%
   Expected volatility......................................  120% 91.00% 60.00%
   Dividend yield...........................................  --     --     --
                                                             ----  -----  -----


                                      73


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   During the year ended April 30, 1997 certain option grants were made at
prices below the market price. The excess of market price over the exercise
price is being amortized over the vesting period of the related options that
ended in fiscal 2000.

 Conversion of Stock Options

   We assumed certain options in connection with the acquisition of Consensus
Development Corporation and converted these to options to acquire 799,818 of
our common shares at a weighted average exercise price of $0.39 per share.
During the years ended April 30, 2001, 2000 and 1999, 91,844, 204,072 and
49,788 of such options were exercised. We assumed certain options in
connection with the acquisition of Trustpoint in fiscal 2000 and converted
these to options to acquire 98,884 of our common shares at a weighted average
exercise price of $5.55 per share. During the year ended April 30, 2001 and
2000, 43,520 and 6,134 of such options were exercised at weighted average
exercise price $12.30 and $4.01 per share respectively. The amounts relating
to options exercised during the year were transferred from additional paid-in
capital to common shares.

 Stock Option Repricing

   In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation," an interpretation of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," which, among other
things, requires variable-award accounting for repriced options from the date
the options are repriced until the date of exercise. This interpretation
became effective on July 1, 2000 to cover specific events that occur after
December 15, 1998. On March 17, 1999, our Board of Directors approved the
exchange of options to acquire an aggregate of 1,106,240 of our common shares
for options having a right to acquire 382,914 common shares. Because these
options were repriced after December 15, 1998, they are covered by the
interpretation. Accordingly, these options will be accounted for as variable
until the date they are exercised, forfeited or expire unexercised. Additional
compensation cost will be measured for the full amount of any increases in
share price after July 1, 2001 and will be recognized over the remaining
vesting period. Any adjustment to the compensation cost for further changes in
share price after the options vest will be recognized immediately.
Compensation amortization expense of approximately $312 thousand was recorded
for the fiscal year ended April 30, 2001. Deferred compensation expense, a
contra-equity account, of approximately $329 thousand was recorded on the
balance sheet as of April 30, 2001.

Note 10: Income Taxes

   The Company recorded current income tax expense (benefit) of approximately
$135,000, $334,000 and ($92,000) for the years ended April 30, 2001, 2000, and
1999, respectively.

                                      74


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The tax effect of significant temporary differences representing deferred
tax assets is as follows (in thousands of U.S. dollars):



                                                     Years Ended April 30,
                                                   ----------------------------
                                                     2001      2000      1999
                                                   --------  --------  --------
                                                              
   Deferred tax assets:
     Operating loss carryforwards................. $ 30,636  $ 14,442  $ 11,729
     Tax credit carryforwards.....................    1,895       638       647
     Capitalized research expenditures............      --        579       423
     Reserve, accruals and allowances.............      888       266       270
     Fixed assets.................................    1,761       653       182
     Lease inducement.............................      --        164       --
     Other........................................      --        279       166
                                                   --------  --------  --------
     Net deferred tax assets......................   35,180    17,021    13,417
     Valuation allowance..........................  (33,700)  (17,021)  (13,417)
                                                   --------  --------  --------
       Total deferred tax liabilities............. $  1,480  $    --   $    --
                                                   ========  ========  ========
   Deferred tax liabilities:
     Intangible assets acquired...................     (568)      --        --
     Capitalized software.........................     (912)      --        --
                                                   --------  --------  --------
       Total deferred tax liabilities.............   (1,480)      --        --
                                                   --------  --------  --------
       Net deferred tax assets (liabilities)...... $    --   $    --   $    --
                                                   ========  ========  ========


   The Company has determined that realization is not more likely than not and
therefore a valuation allowance has been recorded against this deferred income
tax asset. A reconciliation between the Company's statutory and effective tax
rates is as follows:



                             Years Ended April
                                    30,
                             ---------------------
                             2001    2000    1999
                             -----   -----   -----
                                    
   Statutory rate..........   42.1 %  44.6 %  44.6 %
   Permanent differences...   (0.1)   (0.5)   (0.2)
   Net opening loss
    currently not
    benefited..............  (42.0)  (44.1)  (44.4)
   Foreign taxes...........    --     (1.9)   (0.7)
   Scientific research
    investment tax credit..    --      --      1.3
   Other...................   (0.3)    --      --
                             -----   -----   -----
   Effective tax rate......   (0.3)%  (1.9)%   0.6 %
                             =====   =====   =====


   Due to the Company's recent history of operating losses, a valuation
allowance had been established against the deferred tax assets because it is
presently unable to conclude that it is more likely than not that deferred tax
assets will be realized.

   For the year ended April 30, 2001, approximately $2 million of the
valuation allowance for deferred tax assets is attributable to employee stock
option deductions, the benefit from which will be allocated to paid-in capital
rather than current earnings when utilized.

   As of April 30, 2001, the Company had net operating loss carryforwards for
Canadian, U.S. federal and U.S. state income tax purposes of approximately
$32.6 million, $38.7 million and $18.5 million, respectively. The Canadian net
operating loss carryforwards, if not utilized, will begin to expire in 2002.
The federal net operating loss carryforwards, if not utilized, will begin to
expire in 2020. The California net operating loss carryforwards, if not
utilized, will begin to expire in 2005.

                                      75


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   As of April 30, 2001, the Company had tax credit carryforwards for
Canadian, U.S. federal and U.S. state income tax purposes of approximately
$1.5 million, $0.3 million, $0.3 million, respectively. The Canadian credit
carryforwards, if not utilized, will begin to expire in 2002. The U.S. federal
credit carryforwards, if not utilized, will begin to expire in 2020. The U.S.
state credits will carryforward indefinitely.

   In addition, at April 30, 2001, the Company had an unclaimed scientific and
research and experimental development expenditure pool balance of
approximately $4.5 million which can be applied against future taxable income.

   The U.S. Tax Reform Act of 1986 imposes substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" as defined. Some of the U.S. federal and state net
operating loss carryforwards are subject to limitation as a result of these
restrictions. The ownership change restrictions are not expected to impair the
Company's ability to utilize the affected carryforward items. If there should
be a subsequent ownership change, as defined, of the Company, its ability to
utilize its carryforwards could be reduced.

Note 11: Segment Information

   The Company operates in one reportable segment and is a developer,
manufacturer and vendor of digital information security products, technologies
and services within the industry segment of electronic commerce. Information
about the Companies' revenues is as follows (in thousands of U.S. dollars):



                                                          Years Ended April 30,
                                                          ----------------------
                                                           2001    2000    1999
                                                          ------- ------- ------
                                                                 
   Software license...................................... $20,571 $ 9,259 $2,665
   Consulting............................................   4,987   1,988    971
   Hardware..............................................   1,089     793    406
                                                          ------- ------- ------
     Total revenue....................................... $26,647 $12,040 $4,042
                                                          ======= ======= ======


   Information about the Company's geographic operations is given below (in
thousands of U.S. dollars):



                                                         Years Ended April 30,
                                                         ----------------------
                                                          2001    2000    1999
                                                         ------- ------- ------
                                                                
   U.S.................................................. $20,425 $10,971 $3,072
   Canadian.............................................   3,651     494    588
   International (non-Canadian/US)......................   2,571     575    382
                                                         ------- ------- ------
     Total revenue...................................... $26,647 $12,040 $4,042
                                                         ======= ======= ======




                                                           Years Ended April 30,
                                                           ---------------------
                                                              2001       2000
                                                           ---------- ----------
                                                                
   Total long-lived assets:
   United States.......................................... $   39,865 $   27,222
   Canada.................................................      4,771      3,301
                                                           ---------- ----------
     Total................................................ $   44,636 $   30,523
                                                           ========== ==========


                                      76


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 12: Significant Customers

   One of our customers accounted for approximately 23% of our revenue in
fiscal 2001 while no customer accounted for 10% or more of our revenue in
fiscal 2000 or 1999.

Note 13: Commitments and Contingencies

 Operating leases

   At April 30, 2001 the Company has operating leases for office and furniture
and equipment with the following minimum annual rental payments (in thousands
of U.S. dollars):



     Years ended April 30,
     ---------------------
                                                                     
     2002.............................................................. $ 4,117
     2003..............................................................   3,845
     2004..............................................................   3,855
     2005..............................................................   3,948
     2006..............................................................   3,927
     Thereafter........................................................  10,921
                                                                        -------
       Total minimum rental payments................................... $30,613
                                                                        =======


   Rental expense under operating leases amounted to approximately $2,196,000
in 2001, $1,520,000 in 2000 and $438,000 in 1999.

   The Company has an outstanding letter of guarantee of approximately
$2,000,000 in respect of a lease for its office premises.

   Through April 30, 2001 we have capitalized leasehold improvements and
related construction costs totaling approximately $7.7 million and $1.7
million for our U.S. and Canadian facilities, respectively. In addition, we
anticipate incurring approximately an additional $3.6 million and $7.4 million
subsequent to April 30, 2001 to complete the build-out of our Hayward and
Canadian facilities, respectively.

 Litigation

   We are subject to legal proceedings and claims that arise in the ordinary
course of our business. While management currently believes the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of our
company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to us.

   One of our suppliers, East West Imports, Inc. dba California Computers, has
filed suit in the Superior Court of the State of California, County of
Alameda, for payment of approximately $230,000 plus costs, attorney fees, and
interest. Among other defenses, the focus of Certicom's dispute is whether or
not a number of personal computers and peripheral items were actually received
by Certicom. At present both parties are attempting to ascertain the proper
amount owed, and we anticipate a settlement on fair and reasonable terms may
be possible in the near future. In the event that no such settlement is
reached within a reasonable time, we intend to vigorously defend any
litigation over disputed amounts. In such case there can be no assurance that
we will be successful in doing so, or that such disputes will not have a
material adverse impact on us.

                                      77


                        CERTICOM CORP. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 14: Subsequent Event

1. Restructuring Costs and Other Special Charges (Unaudited)

   On June 4, 2001, we announced a restructuring program to prioritize our
initiatives around high-growth areas of our business, reduce discretionary
spending, and improve efficiency. This restructuring program includes a
reduction of our full-time employee headcount, consolidation of excess
facilities, and restructuring of certain business functions.

   As a result of the restructuring program, we will, assuming we cannot
sublease our excess facilities, record estimated restructuring costs and other
special charges of approximately $23.1 million described below.

 Workforce reduction

   The restructuring program will result in the reduction by approximately 30%
of our regular employees across all business functions, and geographic
regions. The workforce reductions started and will be substantially completed
in the first quarter of fiscal 2002. We will record an estimated workforce
reduction charge of approximately $2.2 million relating primarily to severance
and fringe benefits.

 Consolidation of excess facilities and other special charges

   We will record a restructuring charge of approximately $7.9 million for
excess facilities relating primarily to lease terminations and non-cancelable
lease costs under the assumption that we will not be able to sublease our
excess facilities. Property and equipment that will be disposed or removed
from operations will result in an estimated charge of $3.7 million and
consisted primarily of leasehold improvements, and office equipment,
furniture, and fixtures.

 Impairment of goodwill and purchased intangible assets

   Due to the decline in current business conditions, we have restructured
certain functions and realign resources to focus on high-growth markets and
core opportunities. As a result, we will record a charge of $9.3 million
related to the impairment of goodwill and purchased intangible assets,
measured as the amount by which the carrying amount exceeded the present value
of the estimated future cash flows for goodwill and purchased intangible
assets.

   Remaining cash expenditures relating to workforce reductions and
termination of agreements will be substantially paid in the second and third
quarter of fiscal 2002. Amounts related to the net lease expense due to the
consolidation of facilities will be paid over the respective lease terms
through fiscal 2007. We expect to substantially complete implementation of our
restructuring program during the next six months.

2. Introduction of Subscription Business Model

   In June 2001, we converted our enabling technologies products primarily to
subscription-based licenses. In addition, our trust services and enterprise
application solutions product lines are accounted for under the subscription
model. Subscription licenses provide our customers with rights to use our
software for a specified period of time. Customers are entitled to use the
license and receive certain customer support services over the license term.
In addition, depending on the type of license, our customers will have access
to unspecified upgrades on an "if and when available" basis.

                                      78


                      SUPPLEMENTARY FINANCIAL INFORMATION

                  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
             (in thousands of U.S. dollars, except per share data)

   The following table contains unaudited Statement of Operations information
for each quarter of fiscal 2001 and 2000 (in thousands of U.S. dollars, except
per share data). The operating results for any quarter are not necessarily
indicative of results for any future period.



                                             Year ended April 30, 2001
                                         ------------------------------------
                                          First   Second    Third     Fourth
                                         Quarter  Quarter  Quarter   Quarter
                                         -------  -------  --------  --------
                                                         
Revenues................................ $ 5,053  $ 6,301  $  7,627  $  7,666
Total costs and expenses................  12,149   16,168    20,150    21,157
Net loss................................  (6,647)  (9,089)  (12,042)  (12,894)
Basic and diluted net loss per
 share(1)............................... $ (0.26) $ (0.35) $  (0.46) $  (0.46)
Shares used in computing basic and
 diluted net loss per share (000's).....  25,572   25,974    26,239    27,773
                                         =======  =======  ========  ========


                                             Year ended April 30, 2000
                                         ------------------------------------
                                          First   Second    Third     Fourth
                                         Quarter  Quarter  Quarter   Quarter
                                         -------  -------  --------  --------
                                                         
Revenues................................ $ 2,148  $ 2,612  $  3,309  $  3,971
Total costs and expenses................   5,676    6,040     7,248    10,252
Net loss................................  (3,676)  (3,435)   (3,930)   (6,828)
Basic and diluted net loss per
 share(1)............................... $ (0.17) $ (0.16) $  (0.18) $  (0.30)
Shares used in computing basic and
 diluted net loss per share (000's).....  21,843   21,894    22,348    22,951
                                         =======  =======  ========  ========

--------
Note:
(1) the sum of quarterly per share amounts may not equal to per share amounts
    reported for year-to-date periods. This is due to changes in the number of
    weighted-average shares outstanding and the effects of rounding for each
    period.

                                      79


          SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



                                            Additions
                                 Balance at  Charged                 Balance at
                                 Beginning     to       Deductions     End of
                                 of Period  Expenses  Write-offs (1)   Period
                                 ---------- --------- -------------- ----------
                                           U.S. dollars in thousands
                                                         
Year ended April 30, 2001.......    161        924          10          1075
Year ended April 30, 2000.......     13        148          --           161
Year ended April 30, 1999.......     14         41          42            13
                                    ===        ===         ===          ====

--------
Note:
(1) Uncollectible accounts written off, net of recoveries

                                       80

EX-10.1

                                                                    EXHIBIT 10.1

                                 DEED OF LEASE


                                By and Between


                    W9/LWS REAL ESTATE LIMITED PARTNERSHIP
                                  ("Landlord")

                                      and


                             CERTICOM CORPORATION
                                  ("Tenant")



                                                         ,
                             *   *   *   *   *   *



                             1175 Herndon Parkway
                               Herndon, Virginia



                                        HOLLAND & KNIGHT LLP
                                        2100 Pennsylvania Avenue, N.W.
                                        Suite 400
                                        Washington, D.C. 20037
                                        (202) 955-3000
                                        (202) 955-5564 (Fax)


                               TABLE OF CONTENTS
                               -----------------



                                                                                     Page
                                                                                     ----
                                                                                  
1.   BASIC LEASE TERMS...........................................................      1

2.   PREMISES....................................................................      1

3.   TERM........................................................................      2

4.   RENT........................................................................      2

5.   SECURITY DEPOSIT............................................................      6

6.   USE.........................................................................      7

7.   ASSIGNMENT AND SUBLETTING...................................................      8

8.   ALTERATIONS AND FIXTURES....................................................     10

9.   UTILITIES AND SERVICES......................................................     11

10.  RIGHTS OF LANDLORD..........................................................     12

11.  LIABILITY...................................................................     13

12.  INSURANCE...................................................................     13

13.  FIRE OR CASUALTY............................................................     14

14.  EMINENT DOMAIN..............................................................     15

15.  SUBORDINATION AND ESTOPPEL CERTIFICATES.....................................     15

16.  DEFAULT AND REMEDIES........................................................     15

17.  PAYMENT OF TENANT'S OBLIGATIONS BY LANDLORD AND UNPAID RENT.................     17

18.  VOLUNTARY SURRENDER.........................................................     17

19.  ABANDONMENT OF PERSONAL PROPERTY............................................     17

20.  HOLD-OVER...................................................................     17

21.  PARKING.....................................................................     18

22.  NOTICES.....................................................................     18

23.  BROKERS.....................................................................     18

24.  LANDLORD'S LIEN.............................................................     18

25.  RULES AND REGULATIONS.......................................................     18

26.  QUIET ENJOYMENT.............................................................     18

27.  ENVIRONMENTAL CONCERNS......................................................     18

28.  OPTION TO EXTEND TERM.......................................................     19

29.  MISCELLANEOUS PROVISIONS....................................................     20



                                 DEED OF LEASE

     THIS DEED OF LEASE (the "Lease") is made as of the 11/th/ day of October,
2000 (the "Effective Date"), by and between W9/LWS REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord") and CERTICOM
CORPORATION, a Canadian corporation ("Tenant"), who agree as follows:

1.   BASIC LEASE TERMS. The following terms shall have the following meanings
in this Lease:

          a.   Premises               Approximately 5,982 rentable square feet
                                      of office space comprising a portion of
                                      the ground floor of the Building
                                      (described in Section 1.b, below), all as
                                      outlined on the floor plan attached
                                      hereto as Exhibit A.
                                                ---------

          b.   Building:              1175 Herndon Parkway Herndon, Virginia
                                      (the "Building"), containing
                                      approximately 33,653 rentable square
                                      feet of space.

          c.   Commencement Date:     October 6, 2000

               Term:                  Seven (7) years

          d.   Initial Annual Base    $29.00 per rentable square foot
               Rent*                  $173,478.00 per annum
                                      $14,456.50 per month

                  [*subject to escalation as provided for in this Lease]

          e.   Base Year              2001

          f.   Tenant's Pro Rata      4.71%*
               Share of Operating
               Expenses

               Tenant's Pro Rata      4.71%*
               Share of Real Estate
               Taxes:

                [*subject to adjustments as provided for in this Lease]

          g.   Address for Notices:

               To Landlord:           W9/LWS Real Estate Limited Partnership
                                      c/o Lincoln Property Company
                                      4602 N. Fairfax Drive, Suite 1115
                                      Arlington, Virginia 22203
                                      Attention: Property Manager

               With a copy to:        Holland & Knight LLP
                                      2100 Pennsylvania Avenue, N.W.
                                      Suite 400
                                      Washington, D.C. 20037
                                      Attention: David S. Kahn, Esquire

               To Tenant:             At the Premises

          h.   Security Deposit:      $128,000.00

2.   PREMISES.

     a.   Premises. In consideration of the Tenant's agreement to pay the
          --------
Annual Base Rent (hereinafter defined) and Additional Rent (hereinafter defined)
and subject to the covenants and conditions hereinafter set forth, Landlord
hereby) leases to Tenant and Tenant hereby hires and leases from Landlord, upon
the terms and conditions set forth herein, those certain premises described in
Section 1.a hereof (the "Premises"). The Premises are located in the Building
described in Section 1.b hereof. The lease of the Premises to Tenant includes
the right, together with other tenants of the Buildings (hereinafter defined)
and members of the public, to use the common public areas of the Project
(hereafter defined), but includes no other rights not specifically set forth
herein. The parties hereto acknowledge that the Building constitutes one of four
(4) office buildings owned by Landlord in the office project known as "Herndon
Corporate Center," the other three (3) buildings having street addresses of 1145
Herndon Parkway, Herndon, Virginia; 1155 Herndon Parkway, Herndon, Virginia;
and 1165 Herndon Parkway, Herndon, Virginia (collectively, along with the
Building, the "Buildings"). For all


purposes hereunder, the Buildings, the land on which the Buildings are located
(the "Project Land") and all common areas, roadways and public areas therein or
thereon are collectively referred to herein as the "Project." As used herein,
the term "Land" shall mean the land on which the Building is located.

     b.   Leasehold Improvements. Landlord shall deliver the Premises to Tenant
          ----------------------
in its "as is" condition existing on the Commencement Date and Landlord shall
not be required to perform, or pay for, any alterations, decorations or
improvements in connection therewith.

     c.   Acceptance. The taking of possession of the Premises by Tenant shall
          ----------
constitute an acknowledgment by Tenant that the Premises are in good and
habitable condition or that Landlord has completed all of the improvements in
and to the Premises to be performed by Landlord.

3.   TERM.

     a.   Term. The term of this Lease (the "Term") shall commence on October 6,
          ----
2000 (the "Commencement Date") and shall expire on the last day of the seventh
(7th) Lease Year (as hereinafter defined) (the "Lease Expiration Date"), unless
such term is otherwise extended or terminated in accordance with the terms
hereof. As used herein, the term "Lease Year" means (a) each twelve (12)-month
period commencing on the Commencement Date, except that if the Commencement Date
does not occur on the first day of a calendar month, the first Lease Year shall
commence on the Commencement Date and terminate on the last day of the twelfth
(12th) full calendar month after the Commencement Date, and (b) each successive
period of twelve (12) calendar months thereafter during the Term. Reference is
made to the form of Declaration of Commencement Date (the "Declaration")
attached hereto as Exhibit C. After the Commencement Date Landlord shall
complete the Declaration and deliver the completed Declaration to Tenant. Within
five (5) days after Tenant receives the completed Declaration from Landlord,
Tenant shall execute and return the Declaration to Landlord to confirm the
Commencement Date, the Term and the actual number of rentable square feet in the
Premises. Failure to execute the Declaration shall not affect the commencement
or expiration of the Term.

     b.   Delay. In the event Landlord is delayed in delivering the Premises to
          -----
Tenant for any reason, Landlord shall not be liable to Tenant for any damages,
and Tenant shall not be released from its obligation to accept possession of the
Premises from Landlord. Tenant hereby acknowledges and agrees that Landlords
obligation to deliver the Premises to Tenant is contingent upon the execution
and delivery by SE Technologies (hereinafter defined) of that certain
Termination of Lease Agreement between Landlord and Current Tenant relating to
the Premises (the "Termination Agreement") and the surrender of the Premises by
Current Tenant to Landlord. As used herein the term "Current Tenant" shall mean
SE Technologies, Inc. ("SE Technologies"), and any tenant, subtenant, assignee
or other occupant claiming through or under SE Technologies. In the event that
SE Technologies fails to execute the Termination Agreement and/or the Current
Tenant fails to vacate the Premises (the "Lease Contingencies") by October 1,
2000, the Commencement Date shall be delayed until the date Landlord satisfies
the Lease Contingencies and delivers the Premises to Tenant. Landlord shall use
reasonable efforts to obtain possession of the Premises from the Current tenant
and deliver same to Tenant. Notwithstanding the foregoing, in the event that
Landlord fails to satisfy the Lease Contingencies and deliver possession of the
Premises to Tenant by December 31, 2000, Tenant shall have the right to
terminate this Lease upon thirty (30) days' written notice to Landlord;
provided, however, if Landlord delivers possession of the Premises to Tenant
within this thirty (30) day period, the Lease shall not terminate and shall
continue in full force and effect for the balance of the Term.

4. RENT. Beginning on the Commencement Date, Tenant covenants and agrees to pay
as Rent for the Premises the following amounts set forth in this Section 4 and
as otherwise provided in this Lease. "Additional Rent" shall mean such costs,
expenses, charges and other payments to be made by (or on behalf of) Tenant to
Landlord (or to a third party if required under this Lease), whether or not the
same be designated as such. "Rent" or "rent" shall mean all Annual Base Rent and
Additional Rent due hereunder.

     a.   Annual Base Rent.

          (i)   During each Lease Year, Tenant shall pay the annual base rent in
the amount set forth in Section 1.d hereof, subject, however, to annual
adjustments thereto as set forth in Section 4.a(ii), below (the "Annual Base
Rent"). Annual Base Rent shall be payable in equal monthly installments (the
"Monthly Base Rent") in advance.

          (ii)  Commencing on the first day of the second (2nd) Lease Year and
on the first day of each Lease Year thereafter during the Term, Annual Base Rent
shall be increased by an amount equal to three percent (3%) of the Annual Base
Rent in effect during the immediately-preceding Lease Year.

          (iii) In addition to the payment of Annual Base Rent, Tenant shall be
responsible for the payment of Tenant's Pro Rata Share (hereinafter defined) of
increases in Operating Expenses (hereinafter defined) and Tenant's Pro Rata
Share of increases in Real Estate Taxes (hereinafter defined) pursuant to
Section 4.b hereof.

          (iv)  All installments of Monthly Base Rent shall be payable in
advance, with the first installment thereof ("Monthly Base Rent") due and
payable upon execution of this Lease. If the Commencement Date shall be a day
other than the first day of a calendar month, (A) the Annual Base

                                       2


Rent for the first Lease Year shall be an amount equal to the sum of (x) the
amount of Monthly Base Rent for the partial month in which the Commencement Date
occurs, plus (y) the amount of the Annual Base Rent set forth in Section l.d,
above, and (B) Monthly Base Rent for such partial month shall be the prorated
amount of the Monthly Base Rent payable hereunder during the first Lease Year,
which proration shall be based upon the actual number of days of such partial
month. The prorated Monthly Base Rent for such partial month shall be payable on
the first day of the calendar month after the month in which the Commencement
Date occurs.

     b.   Additional Rent for Increases in Operating Expenses and Real Estate
          -------------------------------------------------------------------
Taxes.
-----

          (i)   If, in any calendar year during the Term, the amount of
Operating Expenses (hereinafter defined) exceeds the amount of Operating
Expenses in the Base Year (hereinafter defined), then Tenant shall pay to
Landlord, as Additional Rent, an amount which is the product of (A) the amount
of such increase in Operating Expenses, multiplied by (B) Tenant's Pro Rata
Share of Operating Expenses set forth in Section 1.f hereof. If, on any calendar
year during the Term, the amount of Real Estate Taxes (hereinafter defined)
exceeds the amount of Real Estate Taxes in the Base Year, then Tenant shall pay
to Landlord, as Additional Rent, an amount which is the product of (1) the
amount of such increase in Real Estate Taxes, multiplied by (2) Tenant's Pro
Rata Share of Real Estate Taxes set forth in Section 1.f hereof. As used herein,
"Tenant's Pro Rata Share" represents the ratio that the number of rentable
square feet in the Premises bears to the total number of rentable square feet of
office space in the Buildings. If the size of the Premises shall be increased or
decreased, or represents a greater or lesser pro rata share of the total number
of rentable square feet of the office space in the Buildings, Tenant's Pro Rata
Share of Operating Expenses and Tenant's Pro Rata Share of Real Estate Taxes
shall be adjusted accordingly. Tenant's Pro Rata Share of Operating Expenses and
Tenant's Pro Rata Share of Real Estate Taxes for any partial calendar year
during the Term shall be determined by multiplying the amount of Tenant's Pro
Rata Share of Operating Expenses and Tenant's Pro Rata Share of Real Estate
Taxes for the full calendar year by a fraction, the numerator of which is the
number of days during such calendar year falling within the Term and the
denominator of which is three hundred sixty (360). As used herein, the term
"Base Year" means calendar year 2001.

          (ii)  "Operating Expenses" shall mean any and all expenses, costs and
disbursements (but not specific costs billed to and paid by specific tenants) of
every kind and nature incurred by Landlord in connection with the onwership,
management, operation, maintenance, servicing and repair of the Buildings and
appurtenances thereto, including, without limitation, the garage and the common
areas thereof, and the Land, including, but not limited to, employees' wages,
salaries, welfare and pension benefits and other fringe benefits; payroll taxes;
the costs, including reasonable attorneys' fees, of appealing assessments of
Real Estates Taxes; telephone service; painting of common areas of the
Buildings; exterminating service; detection and security services; concierge
services; sewer rents and charges; premiums for fire and casualty, liability,
rent, workmen's compensation, sprinkler, water damage and other insurance;
repairs and maintenance; building supplies; uniforms and dry cleaning; snow
removal; the cost of obtaining and providing electricity, water and other public
utilities to all areas of the Buildings; trash removal; janitorial and cleaning
supplies; and janitorial and cleaning services; window cleaning; service
contracts for the maintenance of elevators, boilers, HVAC and other mechanical,
plumbing and electrical equipment; fees for all licenses and permits required
for the ownership and operation of the Project Land and the Buildings; business
license fees and taxes, including those based on Landlord's rental income from
the Buildings; sales and use taxes payable in connection with tangible personal
property and services purchased for the management, operation, maintenance,
repair, cleaning, safety and administration of the Project Land and the
Buildings; legal fees; accounting fees relating to the determination of
Operating Expenses and the tenants' share thereof and the preparation of
statements required by tenant's leases; management fees, whether or not paid to
any person having an interest in or under common ownership with Landlord;
purchase and installation of indoor plants in the Common Areas; and landscaping
maintenance and the purchase and replacement of landscaping services, plants and
shrubbery. If Landlord makes an expenditure for a capital improvement to the
Project Land (or any portion thereof) or the Buildings by installing energy
conservation or labor-saving devices to reduce Operating Expenses, or to comply
with any law, ordinance or regulation pertaining to the Land or the Buildings
(each, a "Permitted Capital Expenditure"), and if, under generally accepted
accounting principles, such expenditure is not a current expense, then the cost
thereof shall be amortized over a period equal to the useful life of such
improvement, determined in accordance with generally accepted accounting
principles, and the amortized costs allocated to each calendar year during the
Term, together with an imputed interest amount calculated on the unamortized
portion thereof using an interest rate of eight percent (8%) per annum, shall be
treated as an Operating Expense. Notwithstanding the foregoing, "Operating
Expenses" shall not include (i) payments of principal or interest made by
Landlord under any deed of trust or mortgage secured by any of the Buildings or
all or any portion of the Project Land; (ii) leasing commissions incurred in
connection with leases to other tenants of the Buildings; (iii) tenant
improvement costs associated with the build out of any space in the Buildings
for other tenants; (iv) expenses for capital improvements made to the Building,
except for Permitted Capital Expenditures; (v) costs of repairs, restoration,
replacements or other work occasioned by fire, windstorm or other casualty to
the extent Landlord receives insurance proceeds; (vi) costs of repairs,
restoration, replacements or other work occasioned by the exercise of
governmental authorities of the right of eminent domain, whether such taking be
total or partial; (vii) depreciation of the Building; (viii) costs, fines,
interest penalties, legal fees or costs of litigation incured due to the late
payment of taxes or utility bills by Landlord; (ix) income taxes, franchise
taxes or other similar taxes imposed on or measured by the net income of
Landlord from the operation of the Premises; (x) legal fees and other costs
(including

                                       3


prepayment of any indebtedness) incurred in connection with any
mortgaging, financing, refinancing, sale, change of ownership or entering into
or extending or modifying any financing, ground lease or any other lease or
sublease to, or assumed by, directly or indirectly, Landlord, Landlord's agents
or Landlord's affiliates; (xi) the costs of goods and services provided by
Landlord's affiliates to the Building to the extent that such costs exceed
reasonable and customary charges for such goods or services in the Washington,
D.C. metropolitan area; (xii) acquisition or leasing costs of sculpture,
paintings or other objects of art; (xiii) costs and expenses (including court
costs, attorneys' fees and disbursements) related to or in connection with
disputes with any holder of a mortgage or by or among any persons having an
interest in the Landlord or the Building; (xiv) any cost incurred in connection
with the investigation or remediation of any Hazardous Materials (hereinafter
defined) (A) located in, on, under or about the Building or the Land as of the
Commencement Date, or (B) stored, used or released by Landlord, its employees or
agents in the Building or the Land after the Commencement Date; (xv) all costs
and expenses (including services and utilities) paid directly by Tenant; (xvi)
Real Estate Taxes or any taxes expressly excluded from the definition of Real
Estate Taxes; (xvii) costs and expenses incurred by Landlord in connection with
the maintenance of the legal entity or entities which constitute Landlord (as
opposed to operation of the Building); (xviii) charitable or political
contributions; (xix) costs of compliance with any laws (including without
limitation laws governing fire, life safety and disabilities) applicable to the
Building (excluding the Premises and other tenant space therein) to the extent a
violation of such law existed on the Commencement Date; and (xx) costs of any
items for which Landlord is reimbursed.

          (iii) "Real Estate Taxes" shall mean all taxes, assessments and
governmental charges (including without limitation all real estate taxes, gross
revenue and receipts taxes' and any other licensing charges in the nature of a
tax on the operation of the Buildings, including without limitation the Fairfax
County Business License Tax), whether federal, state, county or municipal, and
whether they be by taxing districts or authorities presently taxing the
Buildings or by others, subsequently created or otherwise, and any other taxes
and assessments attributable to the Project Land (or any portion thereof) and
the Buildings or their operation whether or not directly paid by Landlord,
excluding, however, federal and state taxes on income from the Buildings. It is
agreed that Tenant will be responsible for all taxes on its personal property
and on the value of the Tenant Improvements. Landlord shall have the right to
pay any special assessment by installments, and in such event Real Estate Taxes
shall include such installments and interest paid on the unpaid balance of the
assessment.

          (iv)  If at any time during the Base Year, or during any subsequent
calendar year ("Subsequent Year"), less than ninety-five percent (95%) of the
total rentable square feet of office space in the Buildings is occupied by
tenants, the amount of Operating Expenses for the Base Year, or for any such
Subsequent Year, as the case may be, shall be deemed to be the amount of
Operating Expenses as reasonably estimated by Landlord's certified public
accountant that would have been incurred if the percentage of occupancy of the
Buildings during the Base Year or any such Subsequent Year was ninety-five
percent (95%). If at any time during any calendar year, any part of the
Buildings is leased to a tenant (hereinafter referred to as a "Special Tenant")
who, in accordance with the terms of its lease, provides its own cleaning and
janitorial services or other services or is not otherwise required to pay a
share of Operating Expenses in accordance with the methodology set forth in this
Section 4.b, Operating Expenses for such calendar year shall be increased by the
additional costs for cleaning and janitorial services and such other applicable
expenses as reasonably estimated by Landlord that would have been incurred by
Landlord if Landlord had furnished and paid for cleaning and janitorial services
and such other services for the space occupied by the Special Tenant, or if
Landlord had included such costs in "operating expenses" as defined in the
Special Tenant's lease.

          (v)   During the month of December, 2001 and thereafter during the
month of December of each Lease Year, Landlord shall use reasonable efforts to
furnish to Tenant a statement of Landlord's estimate of the Operating Cost Pass-
Throughs (hereinafter defined) and Real Estate Tax Pass-Throughs (hereinafter
defined) for the next calendar year. "Operating Cost Pass-Throughs" shall be an
amount equal to the difference between Operating Expenses incurred during any
Subsequent Year during the Term, and Operating Expenses incurred in the Base
Year. "Real Estate Tax Pass-Throughs" shall be an amount equal to the difference
between Real Estate Taxes incurred during any Subsequent Year during the Term,
and Real Estate Taxes incurred in the Base Year. Such statement shall show the
amount of Operating Cost Pass-Throughs, if any, and the amount of Real Estate
Tax Pass-Throughs, if any, payable by Tenant for such Subsequent Year pursuant
to this Section 4.b on the basis of Landlord's estimate. Commencing on January
1, 2002, and continuing on each monthly rent payment date thereafter until
further adjustment pursuant to this Section 4.b(v), Tenant shall pay to Landlord
one-twelfth (l/12) of the amount of said estimated Operating Cost Pass-Throughs
and estimated Real Estate Tax Pass-Throughs. Within one hundred twenty (120)
days after the expiration of each calendar year during the Term, Landlord shall
furnish to Tenant a statement (the "Expense Statement") showing the actual
Operating Expenses and Real Estate Taxes for such calendar year. The Expense
Statement shall be conclusive and binding on Tenant, unless objected to in
writing by Tenant within one hundred twenty (120) days following Tenant's
receipt thereof. In case of an underpayment, Tenant shall, within thirty (30)
days after the receipt of such statement, pay to Landlord an amount equal to
such underpayment. In case of an overpayment, Landlord shall credit the next
monthly rental payment by Tenant with an amount equal to such overpayment.
Additionally, if this Lease shall have expired, Landlord shall apply such excess
against any sums due from Tenant to Landlord and shall refund any remainder to
Tenant within one hundred and twenty (120) days after the expiration of the
Term, or as soon thereafter as possible.

          (vi)  If Tenant objects to any Expense Statement delivered by
Landlord, Tenant shall deliver to Landlord, within one hundred twenty (120) days
of Tenant's receipt of an Expense Statement, a

                                       4


written notice contesting such Expense Statement. If, within ninety (90) days
after Landlord's receipt of Tenants written notice, Landlord and Tenant are
unable to resolve Tenant's objections to the Expense Statement set forth in
Tenant's notice, then not later than thirty (30) days after the expiration of
such ninety (90)-day period, Tenant shall deliver to Landlord a written notice
(the "Audit Notice") that Tenant wishes to employ (on an hourly rate, and not a
contingency fee, basis) an independent certified public accounting firm
reasonably acceptable to Landlord, to inspect and audit Landlord's books and
records in order to confirm the accuracy of the Expense Statement. In the event
that Tenant retains an accounting firm approved by Landlord to examine Landlords
books and records in order to confirm the accuracy of the Expense Statement. In
the event that Tenant retains an accounting firm approved by Landlord to examine
Landlord's books and records as set forth herein, Tenant shall deliver to
Landlord a confidentiality and nondisclosure agreement reasonably satisfactory
to Landlord executed by Tenant and such accounting firm and provide Landlord not
less than fifteen (15) days' notice of the date(s) on which the accounting firm
desires to examine Landlord's books and records at the Building during regular
business hours; provided, however, that such date shall be between thirty (30)
and one hundred twenty (120) days after Tenant delivers to Landlord the Audit
Notice. Landlord agrees to cooperate with Tenant in any such inspection. If the
results of such audit demonstrate that Landlord overcharged Tenant for Operating
Cost Pass-Throughs or Real Estate Tax Pass-Throughs, Landlord shall refund the
overpayment to Tenant within thirty (30) days after the results of such audit
are disclosed to Landlord and Tenant. If the results of the audit demonstrate
that Tenant underpaid Operating Cost Pass-Throughs or Real Estate Tax Pass-
Throughs, Tenant shall pay Landlord such underpayment within thirty (30) days
after demand. If, on account of any demonstrated errors in the Expense Statement
under audit, Tenant is entitled to a refund of Operating Expense Pass-Throughs
and Real Estate Tax Pass-Throughs for the calendar year under audit because such
Expense Statement overstated by more than five percent (5%) the aggregate amount
of Operating Expenses and Real Estate Taxes for the applicable calendar year,
then Landlord shall promptly reimburse Tenant its reasonable out-of-pocket costs
and expenses incurred in such audit, not to exceed $3,500.00, however. Tenant's
delivery of an Audit Notice to Landlord shall not entitle Tenant to pay to
Landlord less than the full amount of Operating Cost Pass-Throughs and Real
Estate Tax Pass-Throughs claimed by Landlord to be owing by Tenant. The audit
rights pursuant to this Section 4b(vii) shall (A) not transfer or apply to, or
be exercised by, any subtenant or any other person or entity other than the
then-current "Tenant" hereunder; and (B) be exercisable by Tenant only with
respect to the calendar year for which Landlord has delivered the Expense
Statement.

          (vii)  Tenant's obligation to pay Operating Cost Pass-Throughs and
Real Estate Tax Pass-Throughs pursuant to the provisions of this Section 4.b
shall survive the expiration or other termination of this Lease with respect to
any period during the Term hereof and with respect to any holdover period of
occupancy following the expiration of the Term.

          (viii) Notwithstanding anything contained in this Section 4.b to the
contrary, in the event that Landlord sells one or more of the Buildings at any
time in the future, Landlord reserves the right to calculate Operating Cost
Pass-Throughs and Real Estate Tax Pass-Throughs on the basis of the Operating
Expenses and Real Estate Taxes incurred in connection with the remaining
Buildings owned by Landlord, in which event (A) Tenant's Pro Rata Share of
Operating Expenses and Tenant's Pro Rata Share of Real Estate Taxes will be
increased accordingly; and (B) Operating Expenses and Real Estate Taxes for the
Base Year hereunder shall be decreased accordingly; provided, however that, if,
after any such sale, Landlord calculates Operating Cost Pass-Throughs and Real
Estate Tax Pass-Throughs on the basis of the remaining Buildings, Tenant's Pro
Rata Share of increases in Operating Costs and Real Estate Taxes for succeeding
calendar years shall not increase significantly solely because of the change
in methodology in calculating such costs.

     c.   Payment of Rent. All rent shall be paid in lawful money of the United
          ---------------
States of America without deduction, diminution, set-off, counterclaim or prior
notice or demand, at the office of Landlord as provided in Section 1.g hereof or
at such other place as Landlord may hereafter designate in writing, on the first
day of every calendar month during the Term. All such payments shall be made by
good checks payable to Landlord or such other person, firm or corporation as
Landlord may hereafter designate in writing. No payment by Tenant or receipt and
acceptance by Landlord of a lesser amount than the Monthly Base Rent or
Additional Rent shall be deemed to be other than part payment of the full amount
then due and payable; nor shall any endorsement or statement on any check or any
letter accompanying any check, payment of Rent or other payment, be deemed an
accord and satisfaction; and Landlord may accept, but is not obligated to
accept, such part payment without prejudice to Landlord's right to recover the
balance due and payable or to pursue any other remedy provided in this Lease or
by law. If Landlord shall at any time or times accept Rent after it becomes due
and payable, such acceptance shall not excuse a subsequent delay or constitute a
waiver of Landlord's rights hereunder. If any amount of Rent required to be paid
by Tenant to Landlord under the terms of this Lease is not paid within five (5)
business days after written notice of such payment, then in addition to paying
the amount of Rent then due, Tenant shall pay to Landlord a late charge (the
"Late Charge") equal to five percent (5%) of the amount of Rent then required to
be paid. Payment of such Late Charge will not excuse the untimely payment of
Rent. In the event Tenant makes any payment of Rent by check and said check is
returned by the bank unpaid, Tenant shall pay to Landlord the sum of One Hundred
Dollars ($100.00) to cover the costs and expenses of processing the returned
check, in addition to the Rent payment and any other charges provided for
herein. Any Late Charge and other amounts charged hereunder shall constitute
Additional Rent.

     d.   Separate Metering and Rent Reduction. Landlord may elect to
          ------------------------------------
discontinue the distribution or furnishing of electricity and/or water to the
Premises if such services may feasibly be furnished directly to Tenant by the
utility company supplying same. In the event of any such election by Landlord:
(i) Landlord agrees to give reasonable advance notice of such discontinuance to
Tenant; (ii)

                                       5


Landlord agrees to permit Tenant to receive electricity and/or water directly
from the utilities supplying such service to the Building and to permit the
existing feeders, risers, wiring, pipes and other facilities serving the
Premises to be used by Tenant or such purpose to the extent they are suitable
and safely capable of carrying Tenant's requirements; (ii ) Landlord agrees to
pay such charges and costs, if any, as such public utility may impose in
connection with the installation of Tenant's meters; and (iv) the amount of
Additional Rent payable in respect to the Operating Expenses shall be decreased
appropriately to reflect such discontinuance. This Lease sha11 remain in full
force and effect and such discontinuance shall not constitute an actual or
constructive eviction, in whole or in part, or relieve Tenant from any of its
obligations under this Lease.

5.   SECURITY DEPOSIT.

     a.   Landlord acknowledges receipt from Tenant of a security deposit in
the amount set forth in Section 1.h hereof (the "Security Deposit") to be held
by Landlord during the Term as collateral security (and not prepaid rent), for
the payment of Monthly Base Rent and Additional Rent and for the faithful
performance by Tenant of all other covenants, conditions and agreements of
this Lease. Landlord shall not be obligated to hold the Security Deposit in a
separate account. The Security Deposit shall not earn interest. If any sum
payable by Tenant to Landlord shall be overdue and unpaid, or if Landlord makes
any payments on behalf of Tenant, or if Tenant fails to perform any of the
terms of this Lease, then Landlord, at its option and without prejudice to any
other remedy which Landlord may have, may apply all or part of the Security
Deposit to compensate Landlord for the payment of Monthly Base Rent or
Additional Rent, or any loss or damage sustained by Landlord. Tenant shall
restore the Security Deposit to the original sum deposited upon demand. Provided
that Tenant shall have made all payments and performed all covenants and
agreements of this Lease, the Security Deposit shall be repaid to Tenant within
sixty (60) days after the expiration of this Lease or the vacation of the
Premises by Tenant, whichever is later or as soon thereafter as possible.

     b.   In lieu of the cash Security Deposit under Section 5.a above, Tenant
may deliver to Landlord, on or before the Commencement Date, an unconditional
and irrevocable letter of credit reasonably acceptable to Landlord issued by the
Bank (hereinafter defined) in the face amount of One Hundred Twenty Eight
Thousand Dollars ($128,000.00) (the "Letter of Credit"), as a security deposit
to be held by Landlord until applied or disposed of in accordance with the
provisions of this Section 5. Tenant may replace a cash Security Deposit with a
Letter of Credit at any time during the Term upon prior written notice to
Landlord. In the event of such replacement, Landlord shall return the cash
Security Deposit promptly after the issuance of the Letter of Credit. As used
herein, the term "Security Deposit" shall mean, collectively, the cash Security
Deposit and the Letter of Credit. As used herein, the term "Bank" shall mean
either: (i) Wells Fargo Bank; or (ii) a federally-insured banking institution
reasonably acceptable to Landlord, having offices in the Washington, D.C.
metropolitan area, and having total assets of at least Three Billion Dollars
($3,000,000,000) and a Standard & Poor's commercial paper rating of at least A-
1. If the Letter of Credit (or any replacement thereof) is issued for an
effective period of time less than the remaining Term of this Lease (or any
renewal thereof), Tenant shall from time to time, and not later than thirty (30)
days prior to the expiration of the Letter of Credit, replace each such expiring
Letter of Credit with a new Letter of Credit in the same amount and upon the
same terms. The Letter of Credit (and any replacement thereof) may be drawn upon
by Landlord under the terms and conditions as provided in this Section 5.
Failure of Tenant to renew the Letter of Credit at least thirty (30) days prior
to its expiration shall constitute an Event of Default under this Lease and
shall entitle Landlord, in addition to the other remedies contained in this
Lease, to draw upon the Letter of Credit.

     c.   Landlord (or the beneficiary under the Letter of Credit, if such
beneficiary is not Landlord) shall have the right to draw upon the Letter of
Credit in any of the following circumstances (in addition to any other right to
draw on the Letter of Credit that is set forth in this Section 5): (i) if the
total assets of the Bank are at anytime less than Three Billion Dollars
($3,000,000,000), or the Bank has a Standard & Poor's commercial paper rating of
less than A. 1 (provided if at anytime the current Standard & Poor's commercial
paper rating system is no longer in existence, a comparable rating of a
comparable commercial paper rating system from a comparable company shall be
selected by Landlord, in its reasonable discretion, for purposes of this Section
5) and Tenant fails to deliver to Landlord a replacement Letter of Credit
complying with the terms of this Lease within thirty (30) days of request
therefor from Landlord, (ii) if the credit rating of the Bank is downgraded from
the credit rating of such issuer at the time of the issuance of the Letter of
Credit, the Bank shall enter into any supervisory agreement with any
governmental authority, or the Bank shall fail to meet any capital requirements
imposed by applicable law, and Tenant fails to deliver to Landlord (or the
beneficiary under the Letter of Credit, if such beneficiary is not Landlord) a
replacement Letter of Credit complying with the terms of this Lease within
thirty (30) days of request from Landlord, (iii) if Tenant fails to provide
Landlord with any renewal or replacement Letter of Credit complying with the
terms of this Lease at least sixty (60) days prior to expiration of the then-
current Letter of Credit where the Bank has advised Landlord of its intention
not to renew the Letter of Credit, (iv) if Tenant fails to provide Landlord with
any renewal or replacement Letter of Credit complying with the terms of this
Lease at least sixty (60) days prior to the final expiration date (i.e., the
date that, by the terms of the Letter of Credit, the Letter of Credit expires
and is either not subject to any automatic renewal or extension of the
conditions to such automatic renewal or extension have not then been satisfied)
of the then-current Letter of Credit if such Letter of Credit expires prior to
the date that is thirty (30) days after the end of the Term, or (v) any
voluntary in involuntary proceedings are filed by or against Tenant or any
Guarantor of this Lease under any bankruptcy, insolvency or similar laws. In the
event the Letter of Credit is drawn upon due solely to the circumstances
described in the foregoing clauses (i), (ii), (iii), (iv) or (v), the amount
drawn shall be held by Landlord as an additional

                                       6


Cash Security Deposit in accordance with the terms of this Section 5, and shall
be otherwise retained, expended or disbursed by Landlord for any amounts or sums
due under this Lease to which the proceeds of the Letter of Credit could have
been applied pursuant to this Lease, and Tenant shall be liable to Landlord for
restoration, in cash or Letter of Credit complying with the terms of this Lease,
of any amount so expended to the same extent as set forth ii this Section 5.

     d.   In the event of the sale or transfer of Landlord's interest in the
Building, Landlord shall have the right to transfer the Security Deposit to the
purchaser or assignee, in which event Tenant shall look only to the new landlord
for the return of the Security Deposit, and Landlord shall thereupon be released
from all liability to Tenant for the return of the Security Deposit. Tenant
hereby agrees not to look to the mortgagee, as mortgagee, mortgagee in
possession, or successor in title to the property, for accountability for any
security deposit required by Landlord hereunder, unless said sums have actually
been received by said mortgagee as security for the Tenant's performance of this
Lease. In the event of any permitted assignment of Tenant's interest in this
Lease, the Security Deposit may, at Landlord's sole option, be held by Landlord
as a deposit made by the assignee, and Landlord shall have no further liability
to any prior Tenant with respect to the return of the Security Deposit.

     e.   Notwithstanding anything to the contrary set forth herein, in the
event that an Event of Default (hereinafter defined) is not then occurring, on
the first day of each of the third (3/rd/), fourth (4/th/), fifth (5/th/), and
sixth (6/th/) Lease Years during the Term, the Letter of Credit shall be reduced
by Twenty-Five Thousand Six Hundred Dollars ($25,600.00); provided, however, in
no event shall the Letter of Credit ever be reduced below Twenty-Five Thousand
Six Hundred Dollars ($25,600.00) at any time during the Term.

6.   USE.

     a.   Tenant shall use and occupy the Premises only for general office use,
and for no other purposes. Tenant shall not use the Premises or allow the
Premises to be used for any other purpose without the prior written consent of
Landlord. Tenant, at Tenant's expense, shall comply with all laws, rules,
orders, ordinances, directions, regulation, and requirements of federal, state,
county, and municipal authorities, now in force or which may hereafter be in
force, which shall impose any duty upon Landlord or Tenant with respect to the
use, occupation or alteration of the Premises, or the conduct of Tenant's
business therein, including, without limitation, the Americans with Disabilities
Act and all applicable zoning, recycling and Environmental Laws (hereinafter
defined). Tenant hereby agrees to indemnify and hold harmless Landlord and its
agents, officers, directors and employees from and against any cost, damage,
claim, liability and expense (including attorneys' fees) arising out of claims
or suits brought by third parties against Landlord, its agents, officers,
directors and employees alleging or relating to the failure of the Premises to
comply with the terms of the Americans with Disabilities Act or any other law
or regulation applicable to the Premises and/or its occupancy by Tenant. Tenant
shall not use or permit the Premises or any part thereof to be used in any
manner that constitutes waste, nuisance or unreasonable disturbances to other
tenants of the Building or for any disorderly, unlawful or hazardous purpose and
will not store or maintain therein any hazardous, toxic or highly combustible
items other than usual and customary office supplies intended for Tenant's use
and in such event, only in such amounts as permitted by applicable law. Tenant
covenants not to change Tenant's use of the Premises without the prior written
approval of Landlord.

     b.   Tenant shall not put the Premises to any use, the effect of which use
is reasonably likely to cause cancellation of any insurance covering the
Premises or the Building, or an increase in the premium rates for such
insurance. In the event that Tenant performs or commits any act, the effect of
which is to raise the premium rates for such insurance, Tenant shall pay
Landlord the amount of the additional premium, as Additional Rent payable by
Tenant upon demand therefor by Landlord. The Premises shall not be used for any
illegal purpose or in violation of any regulation of any governmental body or
the regulations or directives of Landlord's insurance carriers, or in any manner
to interfere with the quiet enjoyment of any other tenant of the Building.
Tenant will not install or operate in the Premises any electrical or other
equipment, other than such equipment as is commonly used in modern offices
(specifically excluding mainframe computers), without first obtaining the prior
written consent of Landlord, who may condition such consent upon the payment by
Tenant of Additional Rent in compensation for excess consumption of water and/or
electricity excess wiring and other similar requirements, and any changes,
replacements or additions to any base building system, as may be occasioned by
the operation of said equipment or machinery. In the event that Tenant wishes to
install a coffee maker or other similar device in the Premises which shall be
connected to the Building's main water line, then in such event Tenant shall
install copper (rather than plastic) lines between all such appliances and the
Building's main water line.

     c.   Subject to Landlords obligations under Section 9.e, below, Tenant
agrees to maintain the Premises, and the Tenant Improvements therein, in good
order, repair and condition during the Term at Tenant's sole cost and expense,
and it will, at the expiration or other termination of the Term, surrender and
deliver the same and all keys, locks and other fixtures connected therewith
(except only Tenant's personal property) in good order, repair and condition,
as the same shall be at the Commencement Date, except as repaired, rebuilt,
restored, altered or added to pursuant to this Lease, and except for ordinary
wear and tear. Landlord shall have no obligation to Tenant to make any repairs
in or to the Premises or the Tenant Improvements, except as expressly provided
in Section 11.a, below. Any and all damage or injury to the Premises
(including, but not limited to, the Tenant Improvements), the Building or the
Land caused by Tenant, or by any employee, agent, contractor, assignee,
subtenant, invitee or customer of

                                       7


Tenant shall be promptly reported to Landlord and, subject to the provisions of
Section 12.d, below, repaired by Tenant at Tenant's sole cost; provided,
however, that Landlord shall have the option of repairing any such damage, in
which case Tenant shall reimburse Landlord for all costs incurred by Landlord in
respect thereof as Additional Rent within fifteen (15) days after Tenant
receives Landlords notice of such costs.

     d.   Tenant shall not place a load upon the floor of the Premises
exceeding the designated floor load capacity of the Building without Landlord's
prior written consent. Business machines, mechanical equipment and materials
belonging to Tenant which cause vibration, noise, cold, heat or fumes that may
be transmitted to the Building or to any other leased space therein to such a
degree as to be objectionable to Landlord or to any other Tenant in the Building
shall be placed, maintained, isolated, stored and/or vented by Tenant at its
sole expense so as to absorb and prevent such vibration, noise, cold, heat or
fumes.

7.   ASSIGNMENT AND SUBLETTING.

     a.   Tenant shall not, without the prior written consent of Landlord (which
consent may be withheld by Landlord in its sole discretion except as expressly
set forth below) in each instance: (i) assign or otherwise transfer this Lease
or any of its rights hereunder, (ii) sublet the Premises or any part thereof,
or permit the use of the Premises or any part thereof by any persons other than
Tenant or its employees, agent and invitees, or (iii) permit the assignment or
other transfer of this Lease or any of Tenant's rights hereunder by operation of
law. Landlord's consent to a proposed sublease shall not be unreasonably
withheld, conditioned or delayed, provided Landlord reasonably determines that
the proposed subtenant (A) is of a type and quality consistent with the first-
class nature of the Building, (B) has the financial capacity and credit
worthiness to undertake and perform the obligations of this Lease or the
sublease, (C) is not a party by whom any suit or action could be defended on the
ground of sovereign immunity and (D) will not impose any additional material
burden upon Landlord in the operation of the Building (to an extent greater than
the burden to which Landlord would have been had Tenant continued to use such
part of the Premises). In addition, the following conditions must be satisfied
at the time Tenant requests Landlord's consent to an assignment or sublease:

          (i)    No Event of Default exists and no event has occurred which,
with notice and/or the passage of time, would constitute an Event of Default if
not cured within the time, including any applicable grace period, specified
herein;

          (ii)   Landlord receives at least thirty (30) days' prior written
notice of Tenant's intention to assign this Lease or sublet any portion of the
Premises;

          (iii)  The proposed use of the Premises is identical to that permitted
under the terms of this Lease and will not violate any other agreement affecting
the Premises or the Building;

          (iv)   Tenant submits to Landlord whatever information Landlord
reasonably requests in order to permit Landlord to make a judgment on the
proposed subletting or assignment, including, without limitation, the name,
business experience, financial history, net worth and business references of the
proposed assignee or subtenant (and each of its principals), an in-depth
description of the transaction, and the consideration delivered to Tenant for
the assignment or sublease;

          (v)    The proposed assignee or subtenant is not a tenant of the
Building (unless Landlord does not then possess, or will not shortly thereafter
possess, for Lease to such prospective subtenant or assignee, comparably sized
space in the Building);

          (vi)   Tenant has not subleased any portion of the Premises within the
prior six (6) months; and

          (vii)  Tenant has not previously sublet more than thirty-five percent
(35%) of the rentable square feet of the Premises.

All proposed subleases and assignments shall be on Landlord's approved form of
sublease or assignment, whichever is applicable; or shall be in form and
substance satisfactory to Landlord in its sole discretion and shall contain,
inter alia, the following provisions: (x) any such assignment or sublease shall
include an assumption by the assignee or subtenant, from and after the effective
date of such assignment or sublease, of the performance and observance of the
covenants and conditions to be performed and observed on the part of Tenant as
contained in this Lease, and (y) any such sublease or assignment shall specify
that this Lease or sublease shall not be further assigned nor the Premises
further sublet and shall specify that the term of such sublease shall not extend
beyond one (1) day prior to the expiration of this Lease. The consent by
Landlord to any assignment, transfer or subletting to any person or entity shall
not be construed as a waiver or release of Tenant from any provision of this
Lease, unless expressly agreed to in writing by Landlord (it being understood
that Tenant shall remain primarily liable as a principal and not as a guarantor
or surety), nor shall the collection or acceptance of rent from any such
assignee, transferee, subtenant or occupant constitute a waiver or release of
Tenant from any such provision, No consent by Landlord to any such assignment,
transfer or subletting in any one instance shall constitute a waiver of the
necessity for such consent in a subsequent instance.

                                       8


     b.   In the event that Tenant assigns or sublets all or any portion of the
Premises, Tenant shall pay to Landlord as Additional Rent fifty percent (50%) of
the difference between (i) all sums paid to Tenant or its agent by or on behalf
of such assignee or subtenant under the assignment or sublease, less the
reasonable costs incurred by Tenant (including brokerage costs, tenant
improvement costs and reasonable attorneys' fees) in effecting such sublease or
assignment (which costs, in the case of a sublease, shall be amortized on a
straightline basis over the term of such sublease), and (ii) the Annual Base
Rent and Additional Rent paid by Tenant under this Lease and attributable to
the portion of the Premises assigned or sublet.

     c.   For purposes of this Section 7, a transfer, conveyance, grant or
pledge, directly or indirectly, in one or more transactions, of an interest in
Tenant (whether stock, partnership interest or other form of ownership or
control, or the issuance of new interests) by which an aggregate of more than
forty-nine percent (49%) of the beneficial interest in Tenant shall be vested in
a party or parties who are not holders of such interest(s) as of the date
hereof) shall be deemed an assignment of this Lease; provided, however, that
this limitation shall not apply to any corporation, all of the outstanding
voting stock of which is listed on a national securities exchange as defined in
the Securities Exchange Act of 1934. The merger or consolidation of Tenant into
or with any other entity, the sale of all or substantially all of Tenant's
assets, or the dissolution of Tenant shall each be deemed to be an assignment
within the meaning of this Section 7.

     d.   Any assignment or subletting not in conformance with the terms of this
Lease shall be void ab initio and Landlord shall have the right to terminate
this Lease or to require that the Premises be surrendered to Landlord for the
balance of the Term (in the case of an assignment) or for the term of the
proposed sublease (in the case of a sublease)

     e.   Notwithstanding the foregoing, provided that no default is then
occurring hereunder, the assignment of the Lease to, or the subletting of the
Premises by, an Approved Tenant Affiliated (hereinafter defined) shall not
constitute an assignment or subletting requiring Landlord's prior approval;
provided however that Tenant shall give Landlord at least twenty (20) days'
prior written notice of such proposed assignment or subletting, along with
whatever information and/or documentation Landlord reasonably requests regarding
the Approved Tenant Affiliate, including without limitation proof that the
proposed Approved Tenant Affiliate is affiliated with, and controls, is
controlled by or is under common control with Tenant. As used herein, "Approved
Tenant Affiliate" means an entity related to or affiliated with Tenant that
controls (hereinafter defined), is controlled by or is under common control
with, Tenant. As used herein, the term "control" means ownership of more than
fifty percent (50%) of the voting stock, partnership interests or other
ownership interests in the entity in question, along with the right to make all
management decisions of the "controlled" entity).

     f.   Except for proposed assignments to, or subleases with, Approved
Tenant Affiliates, upon receipt of the notice referred to in Section 7.a(ii),
above, Landlord may, at its option, in lieu of approving or rejecting the
proposed assignment or subletting, exercise all or any of the following rights
by written notice to Tenant of its intent to do so within fifteen (15) business
days of receipt of Tenant's notice:

          (i)    with respect to a proposed assignment of this Lease, the right
to terminate this Lease on the effective date of proposed assignment as if it
were the Lease Expiration Date;

          (ii)   with respect to a proposed sublease of the entire Premises,
the right to terminate this Lease on the effective date of the sublease as if
it were the Lease Expiration Date;

          (iii)  with respect to a proposed sublease of less than the entire
Premises, the right to terminate this Lease as to the portion of the Premises
affected by such sublease on the effective date of the sublease, as if it were
the Lease Expiration Date, in which case Tenant shall execute and deliver to
Landlord an appropriate modification of this Lease, in form satisfactory to
Landlord in all respects within ten (10) days of Landlord's notice of partial
termination, which modification of this Lease shall provide that the number of
rentable square feet of the Premises shall be decreased by, and the Monthly Base
Rent and Additional Rent payable by Tenant hereunder shall be adjusted in
proportion to, the number of rentable square feet of the Premises affected by
such termination, as determined by Landlord; or

          (iv)   with respect to a proposed sublease for less than the balance
of the Term, the right to sublet the portion of the Premises from the Tenant
upon the same terms and conditions (including Annual Base Rent and Additional
Rent) set forth in this Lease for the term of the proposed sublease.

     g.   If Landlord exercises any of its options under Section 7.f, above,
Landlord may then lease (or sublease) the Premises or any portion thereof to
Tenant's proposed assignee or subtenant, as the case may be, without any
liability whatsoever to Tenant.

     h.   Upon any assignment of this Lease or sublease of all or a portion of
the Premises, any and all option rights, rights of first refusal, rights of
first negotiation, and expansion rights shall terminate, it being understood
that any and all such rights are personal to Tenant (and not to any assignee or
subtenant) and are not appurtenant to the Premises or this Lease. Further,
Tenant shall not have the right to exercise any such rights unless Tenant (and
not any assignee or subtenant of Tenant) shall be in occupancy of all of the
Premises at the time of the exercise of any such right. Tenant shall pay to
Landlord an administrative fee in the amount of Three Hundred Dollars ($300.00)
and shall reimburse Landlord for its reasonable attorneys' fees and other third
party expenses incurred in reviewing any

                                       9


requested consent whether or not such consent is granted. Tenant shall not
collaterally assign, mortgage, pledge, hypothecate or otherwise encumber this
Lease or any of Tenant's rights hereunder without the prior written consent of
Landlord, which consent Landlord may withhold in its sole discretion.

     i.   Notwithstanding any such consent, the Tenant named herein will remain
jointly and severally liable for the performance of all covenants and
obligations contained in this Lease with each approved assignee or subtenant or
occupant, who shall automatically become liable for the obligations of Tenant
hereunder. Landlord shall be permitted to enforce the provisions of this Lease
directly against the Tenant named herein and/or against any assignee or
sublessee without proceeding in any way against any other person. Collection or
acceptance of Rent or Additional Rent from any such assignee, subtenant or
occupant shall not constitute a waiver or release of the Tenant named herein
from the terms of any covenant or obligation contained in this Lease, nor shall
such collection or acceptance in any way be construed to relieve the Tenant
named herein from obtaining the prior written consent of Landlord to such
assignment or subletting or any subsequent assignment or subletting.

8.   ALTERATIONS AND FIXTURES.

     a.   Tenant shall neither make nor allow any alterations, decorations,
replacements, changes additions or improvements (collectively referred to as
"Alterations") to the Premises or any part thereof that will or may affect the
structure of the Building, without the prior written consent of Landlord, which
may be withheld by Landlord in its sole discretion. Tenant shall not make or
allow any other kind of Alterations to the Premises or any part thereof without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, conditioned or delayed. All of such Alterations, structural or
otherwise, must conform to all rules and regulations established from time to
time by the Underwriters' Association of the jurisdiction in which the Building
is located, must be performed in a good and workmanlike manner, must comply
with all applicable building codes, laws and regulations (including, without
limitation, the Americans with Disabilities Act), shall not require any changes
to or modifications of any of the Building's mechanical, electrical, plumbing or
other systems and shall otherwise be constructed in strict accordance with the
terms and conditions of this Section 8. Notwithstanding the foregoing, Tenant
shall not have to obtain Landlord's prior approval of any Cosmetic Alterations
(hereinafter defined), provided, however, that Tenant shall provide Landlord
with at least fifteen (15) days prior notice of the undertaking of such Cosmetic
Alterations. As used herein, the term "Cosmetic Alterations" means painting,
wallpaper and other similar Cosmetic Alterations which do not require a building
permit to undertake and which cost in the aggregate less than Fifteen Thousand
Dollars ($15,000.00). Notwithstanding the foregoing, Landlord must approve in
its reasonable discretion all paint and carpet colors.

     b.   It is understood and agreed by Landlord and Tenant that any
Alterations undertaken in the Premises shall be constructed at Tenants sole
expense. The costs of Alterations shall include, without limitation, the cost of
engineering studies (if the Alterations will effect the base Building systems),
supplies, plans and permits. If requested by Landlord, Tenant shall provide to
Landlord satisfactory evidence of Tenant's ability to pay for such Alterations
(including, but not limited to, a payment or performance bond). No consent by
Landlord to any Alterations shall be deemed to be an agreement or consent by
Landlord to subject Landlord's interest in the Premises, the Building or the
Land to any mechanic's or materialman's liens which may bs filed in respect to
such Alterations made by or on behalf of Tenant. If Landlord gives its consent
as specified in Section 8.a, above, Landlord may impose as a condition to such
consent such requirements as Landlord may deem necessary or desirable
including, without limitation, the right to approve the plans and
specifications for any work, supervision of the work by Landlord or its agents
or by Landlords architect or contractor and the payment to Landlord or its
agents, architect or contractor of a construction supervision fee (equal to
three percent (3%) of the cost of the work) in connection therewith, the right
to require security for the full payment of any work and the right to impose
requirements as to the manner in which or the time or times at which work may
be performed. Landlord shall also have the right to approve in its reasonable
discretion the contractor or contractors who shall perform any Alterations,
repairs in, to or about the Premises and to post notices of non-responsibility
and similar notices, as appropriate.

     c.   Tenant shall keep the Premises free from any liens arising out of any
work performed on, or materials furnished to, the Premises, or arising from any
other obligation incurred by Tenant. If any mechanic's or materialmen's lien is
filed against the Premises, the Building and/or the Land for work claimed to
have been done for or materials claimed to have been furnished to Tenant, such
lien shall be discharged by Tenant within thirty (30) days thereafter, at
Tenant's sole cost and expense, by the payment thereof or by filing any bond
required by law. If Tenant shall fail to discharge any such mechanic's or
materialman's lien, Landlord may, at its option, discharge the same and treat
the cost thereof as Additional Rent payable with the installment of rent next
becoming due; it being expressly covenanted and agreed that such discharge by
Landlord shall not be deemed to waive or release the default of Tenant in not
discharging the same. Tenant shall indemnify and hold harmless Landlord, the
Premises and the Building from and against any and all expenses, liens, claims,
actions or damages to person or property in connection with any such lien or the
performance of such work or the furnishing of such materials. Tenant shall be
obligated to, and Landlord reserves the right to, post and maintain on the
Premises at any time such notices as shall in the reasonable judgment of
Landlord be necessary to protect Landlord against liability for all such liens
or actions.

     d.   Any Alterations of any kind to the Premises or any part thereof,
except Tenant's furniture and moveable trade fixtures, shall at once become part
of the realty and belong to Landlord and shall be

                                       10


surrendered with the Premises, as a part thereof, at the end of the Term hereof;
provided, however, that Landlord may, by written notice to Tenant at least
thirty (30) days prior to the end of the Term, require Tenant to remove any
Removal Alterations (hereinafter defined) and to repair any damage to the
Premises caused by such removal, all at Tenant's sole expense. As used herein,
the term "Removal Alterations" shall mean any Alteration(s) (excluding Cosmetic
Alterations): (i) which Landlord, in a written notice delivered to Tenant
contemporaneously with Landlord's consideration of Tenant's request for
approval of such Alteration; indicates to Tenant must be removed by Tenant at
the end of the Term; or (ii) with respect to which Tenant did not inquire of
Landlord, contemporaneously with Tenant's request for approval of such
Alteration, whether or not such Alteration would have to be removed at the end
of the Term. Any article of personal property, including business and trade
fixtures, not attached to or built into the Premises, which were installed or
placed in the Premises by Tenant at its sole expense, shall be and remain the
property of the Tenant and may be removed by Tenant at any time during the Term
as long as Tenant is not in default hereunder and provided that Tenant repairs
any damage to the Premises or the Building caused by such removal.

9.   UTILITIES AND SERVICES.

     a.   Landlord shall furnish the following utilities and services to or for
the benefit of the Premises: electric current (for lighting and operation of
normal desk-type office machines); water; lavatory supplies; heat and air-
conditioning during the appropriate seasons of the year as reasonably required;
elevator service; and cleaning and char service (after 6:00 p.m. Monday through
Friday, excluding federal public holidays ("Holidays")). Central air
conditioning and heating shall be supplied to the Premises during Normal
Business Hours (hereinafter defined). At times other than the Normal Business
Hours, central air conditioning and heating shall be provided to Tenant upon at
least twenty-four (24) hours' prior notice from Tenant, and upon payment by
Tenant of the hourly charge established by Landlord for each hour (or a portion
thereof) of after-hours usage The current charge for such after-hours HVAC
service is $35.00 per hour. As used herein, the term "Normal Business Hours"
means Monday through Friday 8:00 a.m. to 6:00 p.m., Saturdays 8:00 a.m. to 1:30
p.m., excluding Holidays. In addition, Landlord may impose a reasonable
additional charge for any additional or unusual services required to be provided
by Landlord to Tenant because of the carelessness of Tenant, the nature of
Tenant's business or the removal of any refuse and rubbish from the Premises
except for discarded material placed in wastepaper baskets and left for emptying
as an incident to Tenant's normal cleaning of the Premises. In the event that
Landlord must temporarily suspend or curtail services because of accident and
repair, Landlord shall have no liability to Tenant for such suspension or
curtailment or due to any restrictions on use arising therefrom or relating
thereto, and Landlord shall proceed diligently to restore such service. No
interruption or malfunction of any such services shall constitute an actual or
constructive eviction or disturbance of Tenant's use and possession of the
Premises or of the Building or a breach by Landlord of any of its obligations
hereunder or render Landlord liable for damages or grant Tenant any right of
setoff or claim against Landlord or constitute a constructive or other eviction
of Tenant or, except as expressly set forth immediately below, entitle Tenant to
be relieved from any of Tenant's obligations hereunder (including the obligation
to pay rent). In the event of any such interruption, Landlord shall use
reasonable diligence to restore such services. Notwithstanding the foregoing, in
the event that (i) any utilities or essential services being provided to Tenant
hereunder are interrupted and such interruption renders the Premises
untenantable for use and occupancy by Tenant, or (ii) owing to fire or casualty
or other reasons not caused by, or within the control of, Tenant, Tenant is
denied total access to the Premises, and such interruption or denial of access
to the Premises continues for ten (10) consecutive business days, and Tenant in
fact ceases to use or occupy the Premises during the entirety of such period of
interruption or denial of access, then in such event Tenant shall be entitled to
an abatement of Annual Base Rent and Additional Rent beginning on the date on
which Tenant vacates the Premises and ending on the date on which such utility
or service or access to the Premises has been restored.

     b.   Tenant will not connect to electric current any apparatus or device
for the purpose of using electric current or water, except through existing
electrical outlets in the Premises or water pipes. If Tenant shall require water
or electricity materially in excess of that which would otherwise be furnished
or supplied for the intended use of the Premises, Tenant shall first secure the
written consent of Landlord for the use thereof, which consent Landlord may
refuse in its absolute discretion. Landlord may condition its consent upon the
requirement that a water meter or electric current meter be installed in the
Premises, so as to measure the amount of water and electric current consumed for
any such excess use. The cost of such meters and installation, maintenance and
repair thereof, the cost of any such excess utility use as shown by said meter,
the cost of any new or additional utility installations, including, without
limitation, wiring and plumbing, resulting from such excess utility use, and
the cost of any additional expenses incurred in keeping count of such excess
utility use shall be paid by Tenant promptly upon demand by Landlord or, if
Tenant is billed separately therefor, promptly upon receipt of a bill for same.
Whenever heat generating machines or equipment are used in the Premises which
affect the temperature otherwise maintained by the air conditioning system,
Landlord reserves the right to install supplementary air conditioning units in
the Premises and the cost thereof, including the cost of installation, operation
and maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.

     c.   Tenant shall not install equipment of any kind or nature whatsoever
nor engage in any practice or use which will or may necessitate any changes,
replacements or additions to, or in the use of, the water system, heating
system, plumbing system, air conditioning system, electrical system, floor load
capacities, or other mechanical or structural system of the Premises or the
Building without first obtaining the prior written consent of Landlord, which
consent may be conditioned upon, but not limited to, Tenant first securing at
its expense additional Building capacity for said service. Tenant shall have the
right to

                                       11


install and operate in the Premises personal computers and other electrically-
operated office equipment normally used in modern offices; provided, however,
Tenant shall be responsible for paying for any excess utility consumption
arising from any such change, replacement, use or addition, such payments to be
based on Landlord's reasonable estimate or, at Landlord's option, a submeter or
similar device to measure such usage (said device to be installed at Tenant's
expense). Additionally, in the event that Landlord reasonably determines that
Tenant's electrical consumption exceeds standard office use, Tenant shall pay
the amount of such excess electrical consumption, as reasonably determined by
Landlord, within thirty (30) days after demand therefor. Machines, equipment
and materials belonging to Tenant which cause vibration, noise, cold, heat,
fumes or odors that may be transmitted outside of the Premises to such a degree
as to be objectionable to Landlord in Landlord's sole opinion or to any other
tenant in the Building shall be treated by Tenant at its sole expense so as to
eliminate such objectionable condition, and shall not be allowed to operate
until such time as the objectionable condition is remedied to Landlord's
satisfaction.

     d.   Tenant shall comply, at its sole cost and expense, with all orders,
requirements and conditions now or hereafter imposed by any ordinances, laws,
orders and/or regulations (hereinafter collectively called "regulations") of any
governmental body having jurisdiction over the Premises or the Building, whether
required of Landlord or otherwise, regarding the collection, sorting, separation
and recycling of waste products, garbage, refuse and trash (hereinafter
collectively called "waste products") including, but not limited to, the
separation of such waste products into receptacles reasonably approved by
Landlord and the removal of such receptacles in accordance with any collection
schedules prescribed by such regulations. Landlord reserves the right (i) to
refuse to accept from Tenant any waste products that are not prepared for
collection in accordance with any such regulations, (ii) to require Tenant to
arrange for waste product collection at Tenant's sole cost and expense,
utilizing a contractor reasonably satisfactory to Landlord, and (iii) to require
Tenant to pay all costs, expenses, fines, penalties, or damages that may be
imposed on Landlord or Tenant by reason of Tenant's failure to comply with any
such regulations. Notwithstanding the foregoing, if Tenant is unable to comply
with Landlord's standard procedures regarding the internal collection, sorting,
separation and recycling of waste products, Landlord shall use reasonable
efforts to arrange for alternative procedures for Tenant, and Tenant shall pay
Landlord all additional costs incurred by Landlord with respect thereto.

     e.   Throughout the Term, Landlord shall be responsible for maintaining,
repairing and replacing, as necessary, and in a manner consistent with
comparable office buildings of similar age and location in the Herndon, Virginia
area: (i) the roof, exterior walls, floor slabs, foundations, exterior windows
and other structural elements of the Building; (ii) the HVAC, plumbing,
elevators, electrical, mechanical, fire and life safety and other base Building
systems serving the Premises; and (iii) the common areas of the Building and the
Land. Landlord shall also wash the exterior windows of the Building at least
twice during each full calendar year of the Term. All costs incurred by
Landlord in undertaking such work shall be included in Operating Expenses.

10.  RIGHTS OF LANDLORD.

     a.   Landlord reserves the right to: (i) change the name of the Buildings
without notice or liability to the Tenant; (ii) approve the design, location,
number, size and color of all signs or lettering on the Premises or visible from
the exterior of the Premises; (iii) have pass keys to the Premises; (iv) grant
to anyone the exclusive right to conduct any particular business or undertaking
in the Buildings; and (v) enter the Premises at any reasonable time upon
reasonable prior notice (or at any time without notice in the event of any
emergency) for inspections; to supply any service to be provided by Landlord
hereunder; to show the Premises to prospective purchasers or tenants; to post
notices of non-responsibility; to affix and display "For Rent" signs; and to
make repairs, alterations, additions or improvements to the Premises or the
Building.

     b.   Without limiting the generality of the provisions of Section lO.a,
above, Landlord shall have the right to remove, alter, improve, renovate or
rebuild the common areas of the Buildings (including, but not limited to, the
lobby, hallways and corridors thereof), and to install, repair, replace, alter,
improve or rebuild in the Premises, other tenants' premises and/or the common
areas of the Buildings (including the lobby, hallways and corridors thereof),
any mechanical, electrical, water, sprinkler, heating, air conditioning and
ventilating systems, at any time during the Term of this Lease. In connection
with making any such installations, repairs, replacements, alterations,
additions and improvements under the terms of this Section 10, Landlord shall
have the right to access through the Premises as well as the right to take into
and upon and through the Premises or any other part of the Building, all
materials that may be required to make any such repairs, replacements,
alterations, additions or improvements, as well as the right in the course of
such work to close entrances, doors, corridors, elevators or other Building
facilities or temporarily to cease the operations of any such facilities or to
take portions of the Premises reasonably necessary in connection with such work,
without being deemed or held guilty of an eviction of Tenant; provided however
that Landlord agrees to use all reasonable efforts not to interfere with or
interrupt Tenant's business operation in the Premises and all trade fixtures
and other equipment owned by Tenant and located in the Premises. Landlord shall
have the right to install, use and maintain pipes and conduits in and through
the Premises including, without limitation, telephone installations, provided
that they do not materially adversely affect Tenants access to or use of the
Premises.

     c.   INTENTIONALLY OMITTED.

                                       12


     d.   Subject to the provisions of Section 12.d, below, except for injury,
loss or damage to Tenant resulting from Landlord's gross negligence or willful
misconduct, Landlord shall not be liable to Tenant for any expense, injury, loss
or damage resulting from its exercise of any rights under this Section 10, all
claims against Landlord for any and all such liability being hereby expressly
released by Tenant. Landlord shall not be liable for damages to Tenant's
property, business or person to Tenant by reason of interference with the
business of Tenant or inconvenience or annoyance to Tenant or the customers of
Tenant. The rent reserved herein shall not abate while Landlord's rights under
this Section 10 are exercised, and Tenant shall not be entitled to any set-off
or counterclaims for damages of any kind against Landlord by reason thereof, all
such claims being hereby expressly released by Tenant.

     e.   Landlord shall have the right to use any and all means which Landlord
may deem proper to open all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes, in any emergency in order to obtain entry
to the Premises. Any entry to the Premises obtained by Landlord by any of said
means shall not be construed or deemed to be a forcible or unlawful entry into,
or a detainer of, the Premises, or an eviction of Tenant from the Premises or
any portion thereof.

11.  LIABILITY.

     a.   Landlord and its agents, officers, directors and employees assume no
liability or responsibility whatsoever with respect to the conduct or operation
of the business to be conducted in the Premises and shall have no liability for
any claim of loss of business or interruption of operations (or any claim
related thereto). Landlord and its agents, officers, directors and employees
shall not be liable for any accident to or injury to any person or persons or
property in or about the Premises which are caused by the conduct and operation
of said business or by virtue of equipment or property of the Tenant in said
Premises. Tenant agrees to hold Landlord and its agents, officers, directors
and employees harmless against all such claims. Landlord and its agents,
officers, directors and employees shall not be liable to Tenant, its employees,
agents, business invitees, licensees, customers, clients, family members or
guests for any damage, compensation or claim arising from the necessity of
managing the Premises or the Building, repairing any portion of the Premises or
the Building, the interruption in the use of the Premises, accident or damage
resulting from the use of operation (by Landlord and its agents, officers,
directors and employees, Tenant, or any other person or persons whatsoever) or
failure of elevators, or heating, cooling, electrical or plumbing equipment or
apparatus, or the termination of this Lease by reason of the destruction of the
Premises, or from any fire, robbery, theft, mysterious disappearance and/or any
other casualty, or from any leakage in any part of portion of the Premises or
the Building, or from water, rain or snow that may leak into or flow from any
part of the Premises or the Building, or from any other cause whatsoever, unless
occasioned by the willful misconduct or acts of gross negligence of Landlord.
Any goods, property or personal effects, stored or placed by the Tenant in or
about the Premises or the Building, shall be at the risk of the Tenant, and
Landlord and its agents, officers, directors and employees shall not in any
manner be held responsible therefor. The agents and employees of Landlord are
prohibited from receiving any packages or other articles delivered to the
Building for Tenant, and if any such agent or employee receives any such package
or articles, such agent or employee shall be the agent of the Tenant for such
purposes and not of Landlord.

     b.   Subject to the provisions of Section 12.d, below, Tenant hereby agrees
to indemnify and hold Landlord and its agents, officers, directors and employees
harmless from and against any cost, damage, claim, liability or expense
(including attorneys' fees) incurred by or claimed against Landlord and its
agents, officers, directors and employees, directly or indirectly, as a result
of or in any way arising from (i) Tenant's use and occupancy of the Premises or
in any other manner which relates to the business of the Tenant, including, but
not limited to, any cost, damage, claim, liability or expense arising from any
violation of any zoning, health, Environmental Laws or other laws, ordinance,
order, rule or regulation of any governmental body or agency; (ii) the
negligence of Tenant, its officers, directors, employees and agents; (iii) any
default, breach or violation of this Lease by Tenant; or (iv) injury or death to
individuals or damage to property sustained in or about the Premises.

12.  INSURANCE.

     a.   Tenant shall maintain at all times during the Term hereof and at its
sole cost and expense, broad-form commercial general liability insurance for
bodily injury and property damage naming Landlord as an additional insured, in
such amounts as are adequate to protect Landlord and Landlord's managing agents
against liability for injury to or death of any person in connection with the
use, operation or condition of the Premises. Such insurance at all times shall
be in an amount of not less than Three Million Dollars ($3,000,000) combined
single limit aggregate for bodily injury or death or damage to property. If, in
the opinion of the insurance broker retained by Landlord, the amount of public
liability and property damage insurance coverage at any time during the Term is
not adequate, Tenant shall increase the insurance coverage as required by
Landlord's insurance broker. In no event shall the limits of such policy be
considered as limiting the liability of Tenant under this Lease.

     b.   Tenant shall at all times during the Term hereof maintain in effect
policies of insurance covering any Alterations, additions or improvements as may
be made by Tenant after the Commencement Date, interior plate glass, trade
fixtures, merchandise and all other personal property from time to time in or on
the Premises, in an amount not less than one hundred percent (100%) of their
actual replacement cost, providing protection against all risks covered by
standard form of "Fire and Extended Coverage Insurance," together with insurance
against vandalism and malicious mischief.

                                       13


Tenant shall also maintain at its sole cost and expense workman's compensation
insurance in the maximum amount required by law.

     c.   All insurance required to be carried by Tenant shall be issued by
responsible insurance companies, qualified to do business in the Commonwealth of
Virginia and reasonably acceptable to Landlord. Each policy shall name Landlord
and the property management company retained by Landlord at the Building, as
additional insureds, and shall contain a provision that the same may not be
cancelled or reduced without providing Landlord not less than thirty (30) days'
prior written notice. Copies of all policies or, at Landlord's option,
certificates of insurance (ACORD 27 only) evidencing the existence and amounts
of said insurance shall be delivered to Landlord no later than five (5) days
prior to the Commencement Date, and renewals thereof shall be delivered to
Landlord at least ten (10) days prior to the expiration of any such policy. If
Tenant fails to adhere to the requirements of this Section 12, Landlord may
order such insurance and charge the cost thereof to Tenant, which amount shall
be deemed Additional Rent hereunder and shall be payable by Tenant upon demand.
Tenant's failure to provide and keep in force the aforementioned insurance shall
be regarded as a material default hereunder, entitling Landlord to exercise any
or all of the remedies provided in this Lease. Any policy may be carried under
so-called "blanket coverage" form of insurance policies. Tenant shall obtain and
furnish evidence to Landlord of the waiver by Tenant's insurance carriers of any
right of subrogation against Landlord.

     d.   Each party hereby waives any and every right or cause of action for
any and all loss of, or damage to, any of its property (whether or not such loss
or damage is caused by the fault or negligence of the other party or anyone for
whom said other party may be responsible), which loss or damage is covered by
valid and collectible fire, extended coverage, "All Risk" or similar policies,
maintained by such party or required to be maintained by such party under this
Lease, but only to the extent that such loss or damage is recovered under said
insurance policies (if such policy or policies have been obtained) or would have
been recovered if such party had obtained the required insurance coverage
hereunder. Written notice of the terms of said mutual waivers shall be given to
each insurance carrier and said insurance policies shall be properly endorsed,
if necessary, to prevent the invalidation of said insurance coverages by reason
of said waivers.

     e.   Throughout the Term, Landlord shall maintain fire and casualty
insurance covering the Building in a then-commercially reasonable amount
relative to comparable buildings in the Herndon, Virginia area.

13.  FIRE OR CASUALTY.

     a.   If the Premises or any part thereof shall be damaged by fire or any
other cause, Tenant shall give prompt notice thereof to Landlord. If, in the
judgment of Landlord's architect, restoration of the Premises is possible within
a period of six (6) months from the date of the damage, Landlord shall restore
the Premises to the extent of the improvements therein on the Commencement Date,
provided adequate insurance proceeds are available and Tenant shall make all of
its insurance proceeds available to Landlord in accordance with Tenant's
insurance obligations set forth in Section 12, above (subject to any prior
rights of any mortgagee in and to such proceeds). In addition, Tenant shall
repair and restore, at Tenant's sole expense, all Alterations made by Tenant in
the Premises and all trade fixtures and other equipment and property owned by
Tenant and located in the Premises. If the Premises are unusable, in whole or in
part, during such restoration, the Monthly Base Rent and Additional Rent
hereunder shall be abated to the extent and for the period that the Premises are
unusable; provided, however, that if such damage or destruction shall result
from the fault of Tenant, its agents, servants or invitees, Tenant shall not be
entitled to any abatement of Monthly Base Rent or Additional Rent.

     b.   If restoration is not possible on the sole judgment of Landlord's
architect within the aforesaid six (6) month period, Landlord shall so notify
Tenant, and Landlord and Tenant shall each have the right to terminate this
Lease by giving written notice thereof to the other party within sixty (60) days
after the occurrence of such damage, in which event this Lease and the tenancy
hereunder shall terminate as of the date of such damage or destruction and the
Monthly Base Rent and Additional Rent will be apportioned as of the date of such
damage or destruction. If neither party exercises its right of termination, the
Premises shall be restored as provided above.

     c.   In case the Building generally is so severely damaged by fire or other
casualty (although the Premises may not be affected) that Landlord shall decide
in its sole discretion not to rebuild or reconstruct the Building, then this
Lease and the tenancy hereunder shall terminate on the date specified by
Landlord in a notice given no later than sixty (60) days after the date of such
casualty.

                                       14


14.  EMINENT DOMAIN. If the Premises or any part thereof shall be taken by any
governmental or quasi-governmental authority pursuant to the power of eminent
domain, Tenant shall make no claim for compensation in such proceedings. All
sums awarded or agreed upon between Landlord and the condemning authority for
the taking of the interest of Landlord or Tenant, whether as damages or as
compensation, will be the property of Landlord. In the event of such taking rent
shall be paid to the date of vesting of title in the condemning authority
Notwithstanding the foregoing, Tenant shall have the right to make a separate
claim with the condemning authority for Tenant's expenses associated with moving
from the Premises; provided said claim in no way affects or reduces Landlord's
claims hereunder.

15.  SUBORDINATION AND ESTOPPEL CERTIFICATES.

     a.   This Lease shall be subject and subordinate at all times to all ground
or underlying leases which now exist or may hereafter be executed affecting the
Building or any part thereof or the Land, and to the lien of any mortgages or
deeds of trust in any amount or amounts whatsoever now or hereafter placed on or
against the Building or any part thereof or the Land, or on or against
Landlord's interest or estate therein or on or against any ground or underlying
lease without the necessity of having further instruments on the part of Tenant
to effectuate such subordination. Upon request of Landlord, Tenant will execute
any further written instrument necessary to subordinate its rights hereunder to
any such underlying leases or liens. If, at any time, or from time to time
during the Term, any mortgagee shall request that this Lease have priority over
the lien of such mortgage, and if Landlord consents thereto, this Lease shall
have priority over the lien of such mortgage and all renewals, modifications,
replacements, consolidations and extensions thereof and all advances made
thereunder and interest thereon, and Tenant shall, within ten (10) days after
receipt of a request therefor from Landlord, execute, acknowledge and deliver
any and all documents and instruments confirming the priority of this Lease. In
any event, however, if this Lease shall have priority over the lien of a first
mortgage, this Lease shall not become subject or subordinate to the lien of any
subordinate mortgage, and Tenant shall not execute any subordination documents
or instruments for any subordinate mortgagee, without the written consent of the
first mortgage.

     b.   In the event of (i) a transfer of Landlord's interest in the Building,
(ii) the termination of any ground or underlying lease of the Building or the
Land, or both, or (iii) the purchase or other acquisition of the Building or
Landlord's interest therein in a foreclosure sale or by deed in lieu of
foreclosure under any mortgage or deed of trust, or pursuant to a power of sale
contained in any mortgage or deed of trust, then in any of such events Tenant
shall, at the request of Landlord or Landlord's successor in interest, attorn to
and recognize the transferee or purchaser of Landlord's interest or the lessor
under the terminated ground or underlying lease, as the case may be, as Landlord
under this Lease for the balance then remaining of the Term, and thereafter this
Lease shall continue as a direct lease between such person or entity, as
"Landlord," and Tenant, as "Tenant," except that such lessor, transferee or
purchaser shall not be liable for any act or omission of Landlord before such
lease termination or before such person's succession to title, nor be subject to
any offset, defense or counterclaim accruing before such lease terminiation or
before such person's succession to title, nor be bound by any payment of Monthly
Base Rent or Additional Rent before such lease termination or before such
person's succession to title for more than one month in advance.

     c.   Tenant shall, at any time, and from time to time, upon ten (10) days'
prior written notice from Landlord, furnish Landlord an estoppel agreement
addressed to Landlord, Landlord's mortgagee and any prospective purchaser of the
Building and the Land, substantially in the form attached hereto as Exhibit D
and incorporated herein by this reference.

16.  DEFAULT AND REMEDIES.

     a.   If Tenant shall (i) fail to pay any installment of Monthly Base Rent,
although no legal or formal demand has been made therefor, within five (5)
calendar days after the due date therefor, or (ii) fail to make any payment of
Additional Rent or any other payment required by the terms and provisions
hereof, within five (5) days after notice or demand therefor; or (iii) convey,
assign, mortgage or sublet this Lease or the Premises or any part thereof, or
attempt any of the foregoing, without the prior written consent of Landlord; or
(iv) commit or suffer to exist an Event of Bankruptcy (as hereinafter defined),
or (v) violate or fail to perform any of the other terms, conditions, covenants,
or agreements herein made by Tenant and fails to cure such default within
fifteen (15) calendar days after written notice, provided, however, that if the
nature of Tenant's failure is such that more than fifteen (15) days are
reasonably required for its cure, then Tenant shall not be in default if it
begins such cure within the fifteen (15) day period described above and
thereafter diligently prosecutes such cure to completion within an additional
thirty (30) days; then there shall be deemed to have been committed an "Event of
Default."

     b.   In the event of any Event of Default, Landlord may at any time
thereafter, without notice and demand and without limiting Landlord in the
exercise of any other right or remedy which Landlord may have by reason of such
default or breach do any of the following:

          (i)  Landlord may terminate this Lease, by giving written notice of
such termination to Tenant, whereupon this Lease shall automatically cease and
terminate and Tenant shall be immediately obligated to quit the Premises. Any
other notice to quit or notice of Landlord's intention to re-enter the Premises
is hereby expressly waived. If Landlord elects to terminate this Lease,
everything contained in this Lease on the part of Landlord to be done and
performed shall cease without prejudice, subject,

                                       15


however, to the right of Landlord to recover from Tenant all rent and any other
sums accrued up to the time of termination or recovery of possession by
Landlord, whichever is later.

          (ii)   With or without the termination of this Lease, Landlord may
proceed to recover possession of the Premises under and by virtue of the
provisions of the laws of the Commonwealth of Virginia, or by such other
proceedings, including re-entry and possession, as may be applicable. If this
Lease is terminated or Landlord recovers possession of the Premises before the
expiration of the Term by reason of Tenant's default as hereinabove provided, or
if Tenant shall abandon or vacate the Premises before the Lease Expiration Date
without having paid the full rental for the remainder of such Term, Landlord
shall have the option to take reasonable steps to relet the Premises for such
rent and upon such terms as are not unreasonable under the circumstances and, if
the full rental reserved under this Lease (and any of the costs, expenses or
damages indicated below) shall not be realized by Landlord, Tenant shall be
liable for all damages sustained by Landlord, including, without limitation,
deficiency in rent during any period of vacancy or otherwise; the costs of
removing and storing the property of Tenant or of any other occupant; all
reasonable expenses incurred by Landlord in enforcing Landlord's remedies,
including reasonable attorneys' fees and Late Charges as provided herein; and
reasonable attorneys' fees, advertising, brokerage fees and expenses of placing
the Premises in first class rentable condition. Landlord, in putting the
Premises in good order or preparing the same for rerental may, at Landlord's
option, make such alterations, repairs, or replacements in the Premises as
Landlord, in its sole judgment, considers advisable and necessary for the
purpose of reletting the Premises, and the making of such alterations, repairs,
or replacements shall not operate or be construed to release Tenant from
liability hereunder as aforesaid.

          (iii)  Any damage or loss of rent sustained by Landlord may be
recovered by Landlord, at Landlord's option, at the time of termination of this
Lease, the time of the reletting, or in separate actions, from time to time, as
said damage shall have been made more easily ascertainable by successive
relettings, or at Landlord's option in a single proceeding deferred until the
expiration of the Term (in which event Tenant hereby agrees that the cause of
action shall not be deemed to have accrued until the date of expiration of said
Term) or in a single proceeding prior to either the time of reletting or the
expiration of the Term. If Landlord elects to repossess the Premises without
terminating this Lease, then Tenant shall be liable for and shall pay to
Landlord all rent and other indebtedness accrued to the date of such
repossession, plus rent required to be paid by Tenant to Landlord during the
remainder of this Lease until the date of expiration of the Term, diminished by
any net sums thereafter received by Landlord through reletting the Premises
during such period (after deducting expenses incurred by Landlord as provided in
Section 16.b(ii), above). In no event shall Tenant be entitled to any excess of
any rent obtained by reletting over and above the rent herein reserved. Actions
to collect amounts due from Tenant as provided in this Section 16.b(iii) may be
brought from time to time, on one or more occasions, without the necessity of
Landlord's waiting until expiration of the Term. Upon termination of this Lease
or repossession of the Premises following a default hereunder, Landlord may
relet the whole or any portion of the Premises for any period, to any tenant,
and for any use and purpose on such terms and at such rentals as Landlord in its
exclusive judgment may determine.

     C.   Notwithstanding the foregoing, if Landlord terminates this Lease
pursuant to Section 16.b(i), above, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated and
agreed final damages for Tenant's default, an amount equal to the difference
between (i) all Monthly Base Rent, Additional Rent and other sums which would be
payable under this Lease from the date of such demand (or, if it is earlier, the
date to which Tenant shall have satisfied in full its obligations under Section
16.b(ii), above) for what would be the then unexpired Term in the absence of
such termination, and (ii) the air market rental value of the Premises over the
same period (net of all expenses and all vacancy periods reasonably projected by
Landlord to be incurred in connection with the reletting of the Premises), with
such differential discounted at the rate of six percent (6%) per annum. Nothing
herein shall be construed to affect or prejudice Landlord's right to prove, and
claim in full, unpaid Rent or any other amounts accrued prior to termination of
this Lease.

     d.   Notwithstanding anything herein to the contrary, upon the occurrence
of an Event of Default hereunder, Landlord, with or without terminating the
Lease, may immediately reenter and take possession of the Premises and evict
Tenant therefrom, without legal process of any kind, using such force as may be
necessary, without being liable for or guilty of trespass, forcible entry or any
other tort. Landlord's right to exercise such "self-help" remedy shall be in
addition to, and not in limitation of, Landlords other rights and remedies
hereunder for a breach by Tenant of its obligations under the Lease.

     e.   Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event Tenant is evicted or
dispossessed for any cause, or in the event Landlord obtains possession of the
Premises, by reason of the violation by Tenant of any of the covenants and
conditions of this Lease or otherwise. In addition, Tenant hereby expressly
waives any and all rights to bring any action whatsoever against any tenant
taking possession after Tenant has been dispossessed or evicted hereunder, or to
make any such tenant or party to any action brought by Tenant against Landlord.

     f.   Landlord and Tenant shall and each does hereby waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease or its termination, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises or any claim of injury or
damage and any emergency statutory or any other statutory remedy. In the event
Landlord commences any summary

                                       16


proceeding for nonpayment of Rent or Additional Rent, or commences any other
action or proceeding against Tenant in connection with this Lease, Tenant will
interpose no counterclaim of whatever nature or description in any such
proceeding.

     g.   Nothing contained herein shall prevent the enforcement of any claim
Landlord may have against Tenant for anticipatory breach of the unexpired Term.
In the event of a breach or anticipatory breach by Tenant of any of the
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if reentry,
summary proceedings and other remedies were not provided for herein.

     h.   If Tenant is a sovereign nation or claims the protection of any
diplomatic or sovereign immunity then, for purposes of any action by Landlord
against Tenant to enforce the terms and conditions of this Lease, Tenant hereby
waives and relinquishes any and all rights to immunity under the Foreign
Sovereign Immunities Act of 1976, 28 U.S.C. (S)(S)1602-1611 or otherwise,
including, but not limited to, immunity from jurisdiction, from execution upon a
judgment entered by any Court of the United States or of the Commonwealth of
Virginia, and/or from attachment in aid of execution of any such judgment. In
addition, in the event Tenant shall fail to pay all rents due under the terms of
this Lease or shall be in substantial default of any other provision of this
Lease and Landlord seeks repossession of the Premises, Tenant hereby waives and
relinquishes all immunity under the Vienna Convention on Consular Relations,
21. U.S.T. 77, T.I.A.S. No. 6820, or otherwise, including, but not limited to,
immunity from execution of a writ of restitution.

     i.   In the event of any default by Landlord, Tenant's exclusive remedy
shall be an action for damages (Tenant hereby waiving the benefit of any laws
granting Tenant a lien upon the property of Landlord or upon rent due Landlord),
but prior to any such action Tenant will give Landlord notice specifying such
default with particularity, and Landlord shall have thirty (30) days after
receipt of such notice in which to cure any such default; provided, however,
that if such default cannot, by its nature, be cured within such period,
Landlord shall not be deemed in default if Landlord shall within such period
commence to cure such default and shall diligently prosecute the same to
completion. Unless and until Landlord fails so to cure any default after notice,
Tenant shall have no remedy or cause of action by reason thereof. All
obligations of Landlord hereunder will be construed as covenants, not
conditions; all such obligations will be binding upon Landlord only during the
period of its ownership of the Building and not thereafter; and no default or
alleged default by Landlord shall relieve or delay performance by Tenant of its
obligations to continue to pay Monthly Base Rent and Additional Rent hereunder
as and when the same shall be due.

17.  PAYMENT OF TENANT'S OBLIGATIONS BY LANDLORD AND UNPAID RENT. All covenants
and agreements to be performed by Tenant under any of the terms of this Lease
shall be performed by Tenant at Tenant's sole cost and expense. If Tenant shall
fail to pay any sum of money, other than rent, required to be paid by it
hereunder or shall fail to perform any other act on its part to be performed
hereunder, and such failure shall continue beyond any applicable grace period
set forth in this Lease, Landlord may, without waiving or releasing Tenant from
any obligations of Tenant, make any such payment or perform any such other act
on Tenant's part. All sums so paid by Landlord and all necessary incidental
costs, together with interest per annum thereon at two percentage points (2%)
over the prime interest rate ("Prime Rate") then in effect at The Riggs National
Bank of Washington, D.C. (or such other bank designated by Landlord), from the
date of such payment by Landlord shall be payable to Landlord as Additional Rent
hereunder, on demand, and Tenant covenants and agrees to pay any such sums.
Landlord shall have (in addition to any other right or remedy of Landlord) the
same rights and remedies in the event of the nonpayment thereof by Tenant as in
the case of default by Tenant in the payment of the rent. In addition, any rent,
including, without limitation, Annual Base Rent, Operating Cost Pass-Throughs,
Real Estate Tax Pass-Throughs and Late Charges, which are not paid timely will
accrue interest per annum at two percentage points (2%) over the Prime Rate
from the date such payments are due.

18.  VOLUNTARY SURRENDER. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord, terminate all or any existing subleases or subtenancies,
or may, at the option of Landlord, operate as an assignment to it of any or all
such subleases or subtenancies.

19.  ABANDONMENT OF PERSONAL PROPERTY. Upon the expiration of the Term or
earlier termination of this Lease Tenant shall forthwith remove Tenant's goods
and effects and those of any other persons claiming under Tenant, or
subtenancies assigned to it, and quit and deliver the Premises to Landlord
peaceably and quietly. Goods and effects not removed by Tenant after termination
of this Lease (or within forty-eight (48) hours after a termination by reason of
Tenant's default) shall be considered abandoned. Landlord shall give Tenant
notice of right to reclaim abandoned property pursuant to applicable local law
and may thereafter dispose of the same as it deems expedient, including storage
in a public warehouse or elsewhere at the cost and for the account of Tenant,
but Tenant shall promptly upon demand reimburse Landlord for any expenses
incurred by Landlord in connection therewith, including reasonable attorney's
fees.

20.  HOLD-OVER. If Tenant shall not immediately surrender the Premises at the
expiration of the Term then Tenant shall, by virtue of the provisions of this
Section 20, become a tenant by the month. In such event Tenant shall be required
to pay one hundred fifty percent (150%) of the amount of the Monthly Base Rent
then in effect and as subsequently escalated in accordance with the provisions
hereof,

                                       17


together with all Additional Rent in effect during the last month of the Term
commencing said monthly tenancy with the first day next after the end of the
Term; and said Tenant, as a month-to-month tenant, shall be subject to all of
the conditions and covenants of this Lease as though the same had originally
been a monthly tenancy, except as otherwise provided above with respect to the
payment of Rent. Each party hereto shall give to the other at least thirty (30)
days' written notice to quit the Premises, except in the event of non-payment of
Rent provided for herein when due, or of the breach of any other covenant by the
said Tenant, in which event, Tenant shall not be entitled to any notice to quit,
the usual thirty (30) days' notice to quit being expressly waived; provided,
however, that in the event that Tenant shall hold over after expiration of the
Term, and if Landlord shall desire to regain possession of said Premises
promptly at the expiration of the Term, then at any time prior to the acceptance
of the Rent by Landlord from Tenant, as a monthly tenant hereunder, Landlord, at
its election or option, may reenter and take possession of the Premises
forthwith, without process, or by any legal action or process in the
Commonwealth of Virginia.

21.  PARKING.

     a.  Tenant may use up to twenty-two (22) unreserved parking spaces in the
surface lot located adjacent to the Building (the "Lot"), which parking spaces
shall be available on a first come, first served basis with all other tenants of
the Buildings and their respective employees, licensees and invitees.

     b.  Tenant agrees that it and its employees shall observe reasonable safety
precautions in the use of the Building's parking areas, and shall at all times
abide by all rules and regulations promulgated by Landlord governing the use of
the Building's parking areas. It is understood and agreed that Landlord does not
assume any responsibility for any damage or loss to any automobiles parked on
the Lot or to any personal property located therein, or for any injury
sustained by any person in or about the Building's parking areas.

22.  NOTICES.  Any and all notices or demands required or permitted herein
shall be in writing and served (i) personally, (ii) by certified mail, return
receipt requested, or (iii) by guaranteed overnight courier, at the addresses
provided in Section 1.g, above. If served personally, service shall be
conclusively deemed made at the time of such delivery. If served by certified
mail, service shall be conclusively deemed made forty-eight (48) hours after the
deposit thereof in the United States mail, postage prepaid, pursuant to this
Section 22. If served by overnight courier, service shall be conclusively
deemed made one (1) business day after deposit with such courier. Either party
may specify a different address according to the terms of this Section 22.

23.  BROKERS. Landlord and Tenant recognize LPC Commercial Services, Inc., as
Landlord's broker and CB Richard Ellis, as Tenant's broker, as the sole brokers
(the "Brokers") with respect to this Lease and Landlord agrees to be responsible
for the payment of any leasing commissions owed to the aforesaid Brokers in
accordance with the terms of separate commission agreements entered into between
Landlord and each of said Brokers. Landlord and Tenant each represents and
warrants to the other that no other broker has been employed in carrying on any
negotiations relating to this Lease and shall each indemnify and hold harmless
the ether from any claim for brokerage or other commission arising from or out
of any breach of the foregoing representation and warranty.

24.  LANDLORD'S LIEN. To secure the payment of all Annual Base Rent and
Additional Rent due and to become due hereunder and to assure the faithful
performance of all of the other covenants of this Lease required to be performed
by Tenant, Tenant hereby grants to Landlord an express contractual lien on and
security interest in all property, chattels or merchandise which may be placed
in the Premises and also upon all proceeds of any insurance which may accrue to
Tenant by reason of damage to or destruction of any such property, chattels or
merchandise. All exemption laws are hereby waived by Tenant. Such contractual
lien and security interest are: granted in addition to Landlord's statutory and
common law liens and shall be cumulative hereto; and may be foreclosed with or
without court proceedings, by public or private sale, upon not less than three
(3) days' prior notice. Landlord shall have the right to become purchaser upon
being the highest bidder at such sale. Upon request of Landlord, Tenant shall
execute Uniform Commercial Code financing statements relating to the aforesaid
security interest.

25.  RULES AND REGULATIONS. Tenant shall at all times comply with the rules and
regulations set forth in Exhibit E attached hereto and with any reasonable
additions thereto and modifications thereof adopted from time to time by
Landlord; Tenant shall be given five (5) business days' written notice of any
such additions and modifications. Each such rule or regulation shall be deemed
to be a covenant of this Lease to be performed and observed by Tenant.

26.  QUIET ENJOYMENT. Landlord covenants that, if Tenant is not in default
hereunder, Tenant shall at all times during the Term peaceably and quietly have,
hold and enjoy the Premises without disturbance from Landlord, subject to the
terms of this Lease and to the rights of the parties presently or hereinafter
secured by any deed of trust or mortgage against the Building.

27.  ENVIRONMENTAL CONCERNS.

     a.  Tenant, its agents, employees, contractors or invites shall not (i)
cause or permit any Hazardous Materials (hereinafter defined) to be brought
upon, stored, used or disposed on, in or about

                                       18


the Premises and/or the Building, or (ii) knowingly permit the release,
discharge, spill or emission of any Hazardous Material in or from the Premises.

     b.  Tenant hereby agrees that it is and shall be fully responsible for all
costs, expenses, damages or liabilities (including, but not limited to those
incurred by Landlord and/or its mortgagee) which may occur from the use,
storage, disposal, release, spill, discharge or emissions of Hazardous Materials
by Tenant whether or not the same may be permitted by this Lease. Tenant shall
defend, indemnify and hold harmless Landlord, its mortgagee and its agents from
and against any claims, demands, administrative orders, judicial orders,
penalties, fines, liabilities, settlements, damages, costs or expenses
(including, without limitation, reasonable attorney and consultant fees, court
costs and litigation expenses) of whatever kind or nature, known or unknown,
contingent or otherwise, arising out of or in any way related to the use,
storage, disposal, release, discharge, spill or emission of any Hazardous
Material, or the violation of any Environmental Laws, by Tenant, its agents,
employees, contractors or invites. The provisions of this Section 27 shall be in
addition to any other obligations and liabilities Tenant may have to Landlord at
law or in equity and shall survive the transactions contemplated herein or any
termination of this Lease.

     c.  As used in this Lease, the term "Hazardous Materials" shall include,
without limitation:

         (i)    Those substances included within the definitions of "hazardous
substances", "hazardous materials," toxic substances," or "solid waste" in the
Comprehensive Environmental Response Compensation and Liability Act of 1980 (42
U.S.C.(S)9601 et seq.) ("CERCLA") as amended by Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Resource Conservation and Recovery Act
of 1976 ("RCRA"), and the Hazardous Materials Transportation Act, and in the
regulations promulgated pursuant to said laws, all as amended;

         (ii)   Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (of any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto); and

         (iii)  Any material, waste or substance which is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyl, (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. (S)1251 et
seq. (33 U.S.C. (S)1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. (S)1317); (E) flammable explosives; or (F) radioactive materials.

     d.  All federal, state or local laws, statutes, regulations, rules,
ordinances, codes, standards, orders, licenses and permits of any governmental
authority identified in Section 27.c, above, or issued or promulgated thereunder
shall be referred to as the "Environmental Laws."

28.  OPTION TO EXTEND TERM.

     a.  Tenant shall have and is hereby granted the option to extend the Term
hereof for one (1) additional period of five (5) years (the "Extension Period"),
provided (i) Tenant gives written notice to Landlord of Tenant's election to
exercise such extension option no earlier than twelve (12), and no later than
nine (9) months prior to the expiration of the last Lease Year of the Term; (ii)
no Event of Default has occurred during the Term, and no event exists at the
time of the exercise of such option or arises subsequent thereto, which event by
notice and/or the passage of time would constitute an Event of Default if not
cured within the applicable cure period; and (iii) Tenant has not assigned its
interest in this Lease or sublet more than twenty-five percent (25%) of the
Premises.

     b.  All terms and conditions of this lease, including without limitation
all provisions governing the payment of Additional Rent and annual increases in
Annual Base Rent, shall remain in full force and effect during the Extension
Period, except that Annual Base Rent payable during the first Lease Year of the
Extension Period shall be the then-current Fair Market Rental Rate (hereinafter
defined) with respect to comparable office space at the time of the commencement
of the Extension Period (using as a Base Year the calendar year in which occurs
the first day of the Extension Term for purposes of determining Tenant's
obligation to pay Operating Cost Pass-Throughs and Real Estate Tax Pass-
Throughs). Landlord shall not be obligated to make any improvements or
alteration in or to the Premises. There shall be no rental abatement during the
Extension Period. As used in this Lease, the term "Fair Market Rental Rate"
shall mean the fair market rental rate per square foot of rentable area that
would be agreed upon between a landlord and a tenant entering into a new lease
for comparable space as to location, configuration, view and elevator exposure,
size and use, in a comparable building as to location, quality, reputation and
age, with a comparable build-out, a comparable term and a comparable base year
for operating expense and real estate tax pass-throughs assuming the following:
(1) the landlord and tenant are informed and well-advised and each is acting in
what it considers its own best interests; (2) a tenant improvement allowance,
free rent periods or any other special concessions (for example, design fees,
moving allowances, refurbishing allowances, etc.) will not be provided to Tenant
except to the extent that such allowances or concessions are reflected in the
fair market rental rates being obtained (in which event the Fair Market Rental
Rate shall be reduced by the economic equivalent of the allowances or
concessions not offered to Tenant); and (3) the tenant will continue to pay its
share of increases in Operating Expenses and Real Estate Taxes over a new base
year (which, for Tenant, is the calendar year in which occurs the first day of
the Extension Period).

                                       19


     c.  Landlord and Tenant shall negotiate in good faith to determine the
Annual Base Rent for the first Lease Year of the Extension Period, for a period
of thirty (30) days after the date on which Landlord receives Tenant's written
notice of Tenant's election to exercise the extension option provided for under
this Section 28. In the event Landlord and Tenant are unable to agree upon the
Annual Base Rent for the first Lease Year of the Extension Period within said
thirty (30)-day period, the Fair Market Rental Rate, and current market annual
escalations, if any, for the Premises shall be determined by a board of three
(3) licensed real estate brokers, one of whom shall be named by the Landlord,
one of whom shall be named by Tenant, and the two so appointed shall select a
third. Each real estate broker so selected shall be licensed in the Commonwealth
of Virginia specializing in the field of commercial office leasing, having no
less than ten (10) years' experience in such field, and recognized as ethical
and reputable within the field. Landlord and Tenant agree to make their
appointments promptly within ten (10) days after the expiration of the thirty
(30)-day period, or sooner if mutually agreed upon. The two (2) brokers selected
by Landlord and Tenant shall promptly select a third broker within ten (10) days
after they both have been appointed, and each broker, within fifteen (15) days
after the third broker is selected, shall submit his or her determination of the
Fair Market Rental Rate. The Fair Market Rental Rate shall be the mean of the
two (2) closest rental rate determinations; provided, however, in no event shall
the Annual Base Rent for the first Lease Year of the Extension Period be less
(on a per square foot basis) than the fully-escalated Annual Base Rent in effect
for the last Lease Year of the initial Term. Landlord and Tenant shall each pay
the fee of the broker selected by it, and they shall equally share the payment
of the fee of the third broker.

     d.  Should the Term of the Lease be extended hereunder, Tenant shall
execute an amendment modifying this Lease within ten (10) business days after
Landlord presents same to Tenant, which agreement shall set forth, among other
things, the Annual Base Rent and the Monthly Base Rent for the Extension Period.
Should Tenant fail to execute the amendment (which accurately sets forth such
information and which contains no material provisions inconsistent with the
terms hereof) within ten (10) business days after presentation of same by
Landlord, time being of the essence, Tenant's right extend the Term of the Lease
shall, at Landlord's sole option, terminate, and Landlord shall be permitted to
lease such space to any other person or entity upon whatever terms and
conditions are acceptable to Landlord in its sole discretion.

29.  MISCELLANEOUS PROVISIONS.

     a.  Time is of the essence with respect to all of Tenant's obligations
under this Lease.

     b.  The waiver by Landlord or Tenant of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition of any prior or subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any prior breach by
Tenant of any term, covenant or condition, of this Lease, other than the failure
of Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such prior breach at the time of acceptance of such rent.

     c.  In the event of any action or proceeding brought by either party
against the other under this Lease, the prevailing party shall be entitled to
recover from the other party the fees of its attorneys in such action or
proceeding in such amount as the court may judge to be reasonable for such
attorney's fees.

     d.  Except as expressly otherwise provided in this Lease, all of the
provisions of this Lease shall bind and inure to the benefit of the parties
hereto and to their heirs, successors, representatives, executors,
administrators, transferees and assigns. The term "Landlord," as used herein,
shall mean only the owner of the Building and the Land or of a lease of the
Building and the Land, at the time in question, so that in the event of any
transfer or transfers of title to the Building and the Land, or of Landlord's
interest in a lease of the Building and the Land, the transferor shall be and
hereby is relieved and freed of all obligations of Landlord under this Lease
accruing before such transfer, and it shall be deemed, without further
agreement, that such transferee has assumed and agreed to perform and observe
all obligations of Landlord herein during the period it is the holder of
Landlord's interest under this Lease.

     e. At Landlord's request, Tenant will execute a memorandum of this Lease in
recordable form setting forth such provisions hereof as Landlord deems
desirable. Further, at Landlord's request, Tenant shall acknowledge before a
notary public its execution of this Lease, so that this Lease shall be in form
for recording.

     f.  Notwithstanding any provision to the contrary herein, Tenant shall
look solely to the estate and property of Landlord in and to the Building in
the event of any claim against Landlord arising out of or in connection with
this Lease, the relationship of Landlord and Tenant, or Tenant's use of the
Premises, and Tenant agrees that the liability of Landlord arising out of or in
connection with this Lease, the relationship of Landlord and Tenant, or Tenant's
use of the Premises, shall be limited to such estate and property of Landlord in
and to the Building. No properties or assets of Landlord other than the estate
and property of Landlord in and to the Building and no property owned by any
partner of Landlord shall be subject to levy, execution or other enforcement
procedures for the satisfaction of any judgment (or other judicial process) or
for the satisfaction of any other remedy of Tenant arising out of or in
connection with this Lease, the relationship of Landlord and Tenant or Tenant's
use of the Premises.

                                       20


     g.   Landlord and Landlord's agents have made no representations or
promises with respect to the Building, the Land or the Premises except as herein
expressly set forth.

     h.   Landlord and Tenant shall be excused from performing an obligation or
undertaking provided for in this Lease so long as such performance is prevented
or delayed, retarded or hindered by Act of God, force majeure, fire, earthquake,
flood, explosion, action of the elements, war, invasion, insurrection, riot, mob
violence, sabotage, inability to procure or a general shortage of labor,
equipment, facilities, materials or supplies in the open market, failure of
transportation, strike, lockout, action of labor unions, a taking by eminent
domain, requisition, laws orders of government, or of civil, military or naval
authorities, or any other cause whether similar or dissimilar to the foregoing,
not within the reasonable control of Landlord, including reasonable delays for
adjustments of insurance; provided, however, that no such event or cause shall
relieve Tenant of its obligations hereunder to make full and timely payments of
Rent as provided herein.

     i.   Tenant hereby elects domicile at the Premises for the purpose of
service of all notices, writs of summons or other legal documents or process in
any suit, action or proceeding which Landlord or any mortgagee may undertake
under this Lease.

     j.   Landlord shall not be liable to Tenant for any damage caused by other
tenants or persons in the Building or caused by operations of others in the
construction of any private, public or quasi-public work.

     k.   If in this Lease it is provided that Landlord's consent or approval as
to any matter will not be unreasonably withheld, and it is established by a
court or body having final jurisdiction thereover that Landlord has been
unreasonable, the sole effect of such finding shall be that Landlord shall be
deemed to have given its consent or approval, but Landlord shall not be liable
to Tenant in any respect for money damages or expenses incurred by Tenant by
reason of Landlord having withheld its consent. Nothing contained in this
paragraph shall be deemed to limit Landlord's right to give or withhold consent
unless such limitation is expressly contained in the paragraph to which such
consent pertains.

     l.   If any governmental entity or authority hereafter imposes a tax or
assessment upon or against any of the rent or other charges payable by Tenant
to Landlord hereunder (whether such tax takes the form of a lease tax, sales tax
or other tax), Tenant shall be responsible for the timely payment thereof.
Unless Landlord and Tenant otherwise agree in writing with respect to the
payment thereof, Tenant shall pay the applicable tax to Landlord in monthly
installments on the date upon which Tenant pays to Landlord the installments of
Monthly Base Rent due under this Lease.

     m.   In the event that any bank, insurance company, university, pension or
welfare fund, savings and loan association, real estate investment trust,
business trust, financial institution or other entity providing the first
mortgage financing for the Land and the Building requires, as a condition of
such financing, that modifications to this Lease be obtained, and provided that
such modifications (i) are reasonable, (ii) do not adversely affect Tenant's use
of the Premises or legal rights hereunder, and (iii) do not increase the rentals
and other sums required to be paid by Tenant hereunder, Landlord shall submit
such required modifications to Tenant, and if Tenant does not enter into and
execute a written amendment hereto incorporating such required modifications
within thirty (30) days after the same have been submitted to Tenant by
Landlord, then Landlord shall thereafter have the right, at its sole option, to
cancel this Lease. Such option shall be exercisable by Landlord giving Tenant
written notice of such termination, whereupon this Lease shall be canceled and
terminated, and both Landlord and Tenant shall thereupon be relieved from any
and all further liability or obligation hereunder.

     n.   The submission of an unsigned copy of this Lease does not constitute a
reservation of or option for the Premises, and this Lease becomes effective
only upon execution and delivery thereof by Landlord and Tenant and approval
thereof by any current mortgagee of the Project Land and the Building and any
other party having the right to approve this Lease.

     o.   This Lease and the Exhibits hereto constitute the entire agreement
between the parties, and supersedes any prior agreements or understandings
between them. This Lease is not effective until executed and delivered by
Landlord and Tenant and approved by any current mortgagee of the Building and/or
the Land. The provisions of this Lease may not be modified in any way except by
written agreement signed by both parties.

     p.   This Lease shall be subject to and construed in accordance with the
laws of the Commonwealth of Virginia.



                           [Signatures on next page]

                                      21


         IN WITNESS WHEREOF, duly authorized representatives of Landlord and
Tenant have executed this Deed of Lease under seal on the day and year first
above written.

                                     LANDLORD:

WITNESS:                             W9/LWS REAL ESTATE LIMITED PARTNERSHIP, a
                                     Delaware limited partnership

                                     By: W9/LWS GEN-PAR, INC., a Delaware
----------------------------             corporation, its General Partner

                                         By: /s/ Bari S. Nichols
                                             -------------------------------
                                             Name:  BARI S. NICHOLS
                                             Title: VICE PRESIDENT


                                     TENANT:

WITNESS:                             CERTICOM CORPORATION

                                     By: /s/ Richard Brounstein
----------------------------             ------------------------------------
                                         Name: Richard Brounstein
                                         Title: SVP + CFO


                               LIST OF EXHIBITS
                               ----------------

                  EXHIBIT A:   Floor Plan of Premises

                  EXHIBIT B:   Intentionally Omitted

                  EXHIBIT C:   Declaration of Commencement Date

                  EXHIBIT D:   Form of Estoppel Certificate

                  EXHIBIT E:   Rules and Regulations

                                      22


                                   EXHIBIT A

                            FLOOR PLAN OF PREMISES


                                   EXHIBIT B

                             INTENTIONALLY OMITTED


                                   EXHIBIT C

                       DECLARATION OF COMMENCEMENT DATE

           This Declaration of Commencement Date is made as of October 11, 2000,
by W9/LWS REAL ESTATE LIMITED PARTNERSHIP ("Landlord"), and CERTICOM CORPORATION
("Tenant"), who agree as follows:

           1.  Landlord and Tenant entered into an Office Lease Agreement dated
October 11, 2000, in which Landlord leased to Tenant and Tenant leased from
Landlord certain premises described therein in the building, located at 1175
Herndon Parkway, Herndon, Virginia. All capitalized terms herein are as defined
in the Lease.

           2.  Pursuant to the Lease, Landlord and Tenant agreed to and do
hereby confirm the following matters as of the Commencement of the Term:

               a.   the Commencement Date of the Lease is October 6, 2OOO;

               b.   the Expiration Date of the Lease is October 31, 2007;

               c.   the number of rentable square feet of the Premises is 5,982;

               d.   the number of rentable square feet of the Buildings is
                    127,120;

               e.   Tenant's Pro Rata Share of Operating Expenses is 4.71%; and

               f.   Tenant's Pro Rata Share of Real Estate Taxes is 4.71%.

           3.  Tenant confirms that:

               a.   it has accepted possession of the Premises as provided in
the Lease and is in actual occupancy of the Premises;

               b.   Landlord has fulfilled al its obligations to be provided to
Tenant as of the date hereof and all work in and to the Premises to be performed
or paid for by Landlord has been completed;

               c.   the Lease is in full force and effect and has not been
modified, altered, or amended, except as follows: ________________________; and

               d.   the obligation of Tenant to pay Rent under the Lease has
commenced and there are no set-offs or credits against Rent, and no Security
Deposit or prepaid rent has been paid except as provided by the Lease.

                                       LANDLORD:

WITNESS:                               W9/LWS REAL ESTATE LIMITED PARTNERSHIP, a
                                       Delaware limited partnership

                                       By:  W9/LWS GEN-PAR, INC., a Delaware
                                            corporation, its General Partner


                                            By: /s/ Bari S. Nichols
______________________________                  -------------------------------
                                                Name:  BARI S. NICHOLS
                                                Title: VICE PRESIDENT



                                            TENANT:

ATTEST:                                     CERTICOM CORPORATION


                                            By: /s/ Richard D Brownstein
______________________________                  -----------------------------
                                                Name:  RICHARD BROWNSTEIN
                                                Title: SYP-CFO


                                   EXHIBIT D

                         FORM OF ESTOPPEL CERTIFICATE



                          TENANT ESTOPPEL CERTIFICATE
                          ---------------------------


To:               (a) ____________________________________, its successors and
                  assigns, and (b) W9/LWS Real Estate Limited Partnership, its
                  successors and assigns

Re:               Property Name: Herndon Corporate Center

                  Property Address: 1175 Herndon Parkway, Herndon, Virginia

                  Lease Date: October _________, 2000

                  Between: W9/LWS Real Estate Limited Partnership, as
                  Landlord, and Certicom Corporation, as Tenant

                  Square Footage Leased: 5,982 rentable square feet

                  Suite Number: 750


Ladies/Gentlemen:

        The undersigned ("Tenant") understands that: (a) W9/LWS Real Estate
Limited Partnership, a Delaware limited partnership ("Landlord") has contracted
with __________________, a _______________ ("Purchaser") to sell the above-
referenced property (the "Property") to Purchaser; (b) ____________, a
_________________ ("Lender") is about to make a loan (the "Loan") to Purchaser
in connection with Purchaser's acquisition of the Property, which Loan is to be
secured by a mortgage encumbering the Property and an assignment to Lender of
the leases, rents and profits from the Property; and (c) Purchaser will be
relying upon the contents of this Tenant Estoppel Certificate in connection with
the purchase of the Property; and (d) Lender will be relying upon the contents
of this Tenant Estoppel Certificate in connection with the making of the Loan.
Landlord has requested the undersigned to deliver this Tenant Estoppel
Certificate to Purchaser and Lender. The undersigned, as tenant under the above-
referenced lease (such lease, together with all amendments, supplements and
modifications being referred to collectively as the "Lease"), hereby certifies
to Purchaser, Lender and their respective successors and assigns, as of the date
hereof, as follows:

        1.   The Lease is in full force and effect. The Lease has not been
amended, modified or supplemented, except as follows (if none, state none):
______________________. The Lease, as amended (if amended), represents the
entire agreement between Landlord and Tenant as to the above-referenced demised
premises (the "Premises"). A true, correct and complete copy of the Lease is
attached hereto as Exhibit A.

        2.   The Premises consist of 5,982 square feet of rentable area and the
present use of the Leased Premises as a general office use does not violate any
clause in the Lease which specifies the purposes for which the Premises will be
used or operated.

        3.   The monthly rentals currently being paid for the Premises are as
follows:

             fixed or base rent         $______________________

             common area charges        $______________________

             percentage rent            $______________________
             (if applicable)

             merchant's association     $______________________
             (if applicable)

             real estate taxes          $______________________

             insurance                  $______________________

             utilities                  $______________________

             other [_______]            $______________________

Tenant has paid all rent and other amounts required under the Lease up to and
including ____________, 200_.

        4.   The annual base rent due under the Lease escalates upon the
commencement of each new lease year in an amount equal to __________
_________________.

        5.   Tenant pays a full pro rata share of operating charges and real
estate taxes in excess of a fixed expense base as described in the Lease.
Tenant's pro rata share of operating charges is 47%.


 Tenant's pro rata share of real estate taxes is 4.71%. Tenant has paid its
 share of all such operating charges and real estate taxes in full for the
 period ending

           6.  Tenant's security deposit under the Lease, currently on deposit
 with Landlord, is $___________ (the "Security Deposit"). Tenant has paid no
 utility,maintenance or other deposit or amount to Landlord which are required
 to be returned to Tenant, and Tenant has no claim against Landlord for any such
 deposits or security. The Security Deposit has not been drawn against for rent
 due or for any other purpose by Landlord. Landlord is not liable for, or
 required to provide to Tenant, any interest on the principal amount of the
 Security Deposit.

            7.  Tenant has paid as advance rent under the Lease the amount of
 (if none, state none) $______________ (the "Advance Rent"). Except for the
 Advance Rent, Tenant has not paid to Landlord any other advances of any rent
 due under the Lease.

           8.  The commencement date of the Lease was October 6, 2000. The Lease
 terminates on October 31, 2007, subject to the following renewal or extension
 options (the "Extension Options") (if none, state none): One (1) five (5)-year
 renewal option (Fair Market Rental Rate).

 Tenant has no right or option to terminate the Lease prior to the expiration
 of its stated term.

          9.   All work and improvements required to be completed by Landlord
 at the Property have been satisfactorily completed, approved and accepted by
 Tenant, and there are no sums due to Tenant. Landlord has not agreed to grant
 Tenant any free rent or rent rebate or to make any contribution to tenant
 improvements, which agreement has not heretofore been satisfied by Landlord in
 full. Landlord has not agreed to reimburse Tenant for or to pay Tenant's rent
 obligation under any other lease. Upon the exercise of any of the Extension
 Options (as applicable) Landlord as the following obligations under the Lease
 to provide the following tenant improvements, free rent, rent rebates or make
 contributions towards tenant improvements or other refurbishments to the
 Premises or other tenant concessions, if any (if none, state none):
 ____________________________.

          10.  No default on the part of Landlord or Tenant exists under the
 Lease, except as follows: No event that with the giving of notice or the
 passage of time, or both, would constitute a default by Landlord or Tenant
 under the Lease has occurred Tenant has no offset, defense, deduction or claim
 against Landlord.

          11.  Tenant has not assigned, sublet or transferred its interest in
 the Lease and/or the Premises, or any part thereof.

          12.  Tenant has accepted possession of the Premises and occupies the
 entire Premises under the Lease.

          13.  Tenant has no right or option to expand the Premises, to lease
 additional space at the Property or to relocate to different space, except
 that Tenant has a right of first refusal or other right(s) to lease the
 following space at the Property (if none, state none): NONE.

          14.  Tenant has no option or right pursuant to the Lease or otherwise
 to purchase the Property, or any part thereof.

          15.  Tenant has the non-exclusive tight to use or occupy a total of 22
 parking spaces at no additional cost to Tenant.

          16.  Neither the Lease nor any obligations of Tenant thereunder have
 been guaranteed by any person or entity, except as follows (if none, state
 none): NONE (the "Guarantor(s)").

          17.  No bankruptcy or insolvency proceedings are pending by or against
 Tenant or any Guarantor and no bankruptcy or insolvency proceedings are
 contemplated by Tenant or, to the best of Tenant's knowledge, any Guarantors.

          18.  There is no outstanding material: I dispute of any nature between
 Tenant and Landlord in respect of the Lease.

          19.  Landlord has completed all maintenance items which are the
 responsibility of Landlord pursuant to the terms of the Lease.

          20.  Tenant has not stored, generated, used or otherwise dealt with,
 and will not store, generate, use or otherwise deal with, in the Premises or on
 the Property, any "hazardous or toxic substances," or contaminants, oil,
 pesticides, radioactive or other materials the removal or maintenance of which
 is prohibited, regulated or penalized by any local, state or federal agency,
 authority or governmental unit, except those clearing supplies and other
 similar products which are otherwise used in the normal course of Tenant's
 current permitted use of the Premises, all of which are used and stored by
 Tenant in accordance with applicable law.

          21.  No commission or other payment is due to any real estate broker,
 consultant or agent by Tenant in connection with the leasing of the Premises to
 Tenant. There are no agreements, oral or


 written, under which any real estate broker, consultant or agent is entitled to
 any future payment or commission by Tenant in connection with the leasing of
 the Premises to Tenant, including, without limitation, any current or future
 renewal or expansion of the Lease, or expansion of the Premises.

          22.  Tenant has not caused any new construction or major repair work
 to be performed in the Premises or on the Property for at least one hundred
 twenty (120) days, or, if performed, the costs of such work have been paid in
 full. Tenant has not contracted for any labor to be supplied to the Property,
 or for any materials to be delivered thereto, that might become the subject
 of a lien upon the Property and that have not been paid for in full.

          23.  Tenant is in full compliance with its obligations under the
 Lease to maintain the insurance policies and coverage required therein. Tenant
 agrees to amend said insurance coverage to name Purchaser thereunder as
 ________________ __ (additional insured/payee).

          24.  In the event that Lender succeeds to the interest of Landlord or
 any successor to Landlord, then Tenant hereby agrees to attorn to and accept
 Lender and to recognize Lender as its landlord under the Lease for the then
 remaining balance of the term thereof, and upon request of Lender, Tenant
 shall execute and deliver to Lender an agreement of attornment reasonably
 satisfactory to Lender.

          25.  The address for all notices required to be delivered to Tenant
 (and any other party required to receive copies of any notices) under the Lease
 is as follows:

                           _____ ______________
                           _____ ______________
                           _____ ______________
                           _____ ______________

          The statements contained herein may be relied upon by Purchaser,
 Lender and their respective successors and assigns. The undersigned person
 hereby certifies that he or she is duly authorized to execute and deliver this
 Tenant Estoppel Certificate on behalf of Tenant.



                                     TENANT:

                                     CERTICOM CORPORATION



Date:______________,200_             By /s/ Richard Brownstein
                                        -------------------------
                                        Name:  RICHARD BROWNSTEIN
                                        Title: SVP + CFO


                                 EXHIBIT E

                            RULES & REGULATIONS



           1.  The water and wash closets and other plumbing fixtures shall not
 be used for any purposes other than those for which they were constructed, and
 no sweepings, rubbish, rags or other substances (including, without limitation,
 coffee grounds) shall be thrown therein. All damages resulting from misuse of
 the fixtures shall be borne by Tenant if Tenant or its servants, employees,
 agents, visitors or licensees shall have caused the same.

           2.  No cooking (except for hot-plate and microwave cooking by
 Tenants' employees for their own consumption, the location and equipment of
 which is first approved by Landlord), sleeping or lodging shall be permitted by
 any tenant on the Premises. No tenant shall cause or permit any unusual or
 objectionable odors to be produced upon or permeate from the Premises.

           3.  No inflammable, combustible, or explosive fluid, material,
 chemical or substance shall be brought or kept upon, in or about the Premises.
 Fire protection devices, in and about the Building, shall not be obstructed or
 encumbered in any way.

           4.  Canvassing, soliciting and peddling in the Building is prohibited
 and each tenant shall cooperate to prevent the same.

           5.  There shall not be used in any space, or in the public halls of
 the Building, either by any tenant or by its agents, contractors, jobbers or
 others, in the delivery or receipt of merchandise, freight, or other matters,
 any hand trucks or other means of conveyance except those equipped with
 rubber tires, rubber side guards, and such other safeguards as Landlord may
 require, and Tenant shall be responsible to Landlord for any loss or damage
 resulting from any deliveries to Tenant in the Building. Deliveries of mail,
 freight or bulky packages shall be made through the freight entrance or through
 doors specified by Landlord for such purpose.

           6.  Mats, trash or other objects shall not be placed in the public
 corridors. The sidewalks, entries, passages, elevators, public corridors and
 staircases and other parts of the Building which are not occupied by Tenant
 shall not be obstructed or used for any other purpose than ingress or egress.

           7.  Tenant shall not install or permit the installation of any
 awnings, shades, draperies and/or other similar window coverings, treatments or
 like items visible from the exterior of the Premises other than those approved
 by Landlord in writing.

          8.   Tenant shall not construct, maintain, use or operate within said
 Premises or elsewhere in the Building or on the outside of the Building, any
 equipment or machinery which produces music, sound or noise which is audible
 beyond the Premises.

          9.   Bicycles, motor scooters or any other type of vehicle shall not
 be brought into the lobby or elevators of the Building or into the Premises
 except for those vehicles which are used by a physically disabled person in the
 Premises.

          10.  All blinds for exterior windows shall be building standard and
shall be maintained by Tenant.

          11.  No additional locks shall be placed upon doors to or within the
 Premises except as shall be necessary adequately to safeguard confidential
 documents stored within the Premises. Landlord shall be given keys to any
 internal door on which an additional lock is placed by Tenant. The doors
 leading to the corridors or main hall shall be kept closed during business
 hours, except as the same may be used for ingress or egress.

          12.  Tenant shall maintain and clean all areas or rooms within the
Premises in which security classified work is being conducted or in which such
work is stored; Landlord shall not provide standard janitorial service to such
areas, the provisions of Section 9 of the Lease notwithstanding.

          13.  Landlord reserves the right to shut down the air conditioning,
 electrical systems, heating, plumbing and/or elevators when necessary by
 reason of accident or emergency, or for repair, alterations, replacements or
 improvement.

          14.  No carpet, rug or other article shall be hung or shaken out of
 any window of the Building; and Tenant shall not sweep or throw or permit to be
 swept or thrown from the Premises any dirt or other substances into any of the
 corridors or halls, elevator, or out of the doors or windows or stairways of
 the Building. Tenant shall not use, keep or permit to be used or kept any foul
 or noxious gas or substance in the Premises, or permit or suffer the Premises
 to be occupied or used in a manner offensive or objectionable to Landlord or
 other occupants of the Building by reason of noise, odors and/or vibrations, or
 interfere in any way with other Tenants or those having business therein, nor
 shall any animals or birds be kept in or about the Building. Smoking or
 carrying lighted cigars or cigarettes in the elevators of the Building is
 prohibited.


          15.  Landlord reserves the right to exclude from the Building on
 weekdays between the hours of 6:00 p.m. and 8:00 a.m. and at all hours on
 weekends and legal holidays, all persons who do not present a pass to the
 Building signed by Landlord; provided, however, that reasonable access for
 Tenant's employees and customers shall be accorded. Landlord will furnish
 passes to persons for whom Tenant requires same in writing. Tenant shall be
 responsible for all persons for whom it requests such passes and shall be
 liable to Landlord for all acts of such persons.

          16.  Tenant agrees to keep all windows closed at all times and to
 abide by all rules and regulations issued by Landlord with respect to the
 Building's air conditioning and ventilation systems.

          17.  Tenant will replace all broken or cracked interior plate glass
 windows and doors at its own expense, with glass of like kind and quality,
 provided that such windows and doors are not broken or cracked by Landlord, its
 employees, agents or contractors.

          18.  In the event it becomes necessary for Landlord to gain access to
the underfloor electric and telephone distribution system for purposes of adding
or removing wiring, then upon request by Landlord, Tenant agrees to temporarily
remove the carpet over the access covers to the underfloor ducts for such period
of time until work to be performed has been completed. The cost of such work
shall be borne by Landlord except to the extent such work was requested by or is
intended to benefit Tenant or the Premises, in which case the cost shall be
borne by Tenant.

          19.  Violation of these rules, or any amendments thereof or additions
thereto, may be considered a default of Tenant's lease and shall be sufficient
cause for termination of the Lease at the option of Landlord.

EX-10.2

                                                                    EXHIBIT 10.2

                          INDUSTRIAL/COMMERCIAL LEASE







                         PAULS PROPERTIES CORPORATION
                                  (Landlord)




                                      AND





                                CERTICOM CORP.
                                   (Tenant)











Building:                1980 Matheson Blvd. East, Mississauga
Rentable Area:           126,962 Square Feet
Term:                    Ten (10) years





                              MILLER THOMSON LLP
                           Barristers and Solicitors
                       Suite 2500, 20 Queen Street West
                               Toronto, Ontario
                                    M5H 3S1


                                                                               i


TABLE OF CONTENTS
-----------------

                                                            
ARTICLE I - BASIC LEASE TERMS

   Section 1.01          Variable Defined Terms
   Section 1.02          Standard Definitions


ARTICLE II - LEASED PREMISES - TERM - RENT

   Section 2.01          Leased Premises and Term
   Section 2.02          Use of Additional Areas - Intentionally Deleted
   Section 2.03          Construction of the Leased Premises
   Section 2.04          Adjustment of Areas
   Section 2.05          Agreement to Pay
   Section 2.06          Basic Rent
   Section 2.07          Late Payment Charge
   Section 2.08          Net Lease
   Section 2.09          Acknowledgement of Commencement Date


ARTICLE III - TAXES AND OPERATING COSTS

   Section 3.01          Taxes Payable by Landlord
   Section 3.02          Tenant's Share of Taxes
   Section 3.03          Tenant's Share of Operating Cost
   Section 3.04          Management Fee
   Section 3.05          Tenant's Taxes
   Section 3.06          Tenant's Responsibility
   Section 3.07          Payment of Estimated Taxes, Operating Costs and
                         Management Fee


ARTICLE IV - LEASED PREMISES - CONTROL AND SERVICES

   Section 4.01          Control of the Leased Premises by the Landlord
   Section 4.02          Substitution of Management by Tenant
   Section 4.03          Tenant's Unrestricted Access


ARTICLE V - UTILITIES AND ADDITIONAL SERVICES

   Section 5.01          Charges for Utilities
   Section 5.02          Additional Services of the Landlord
   Section 5.03          Third Party Services


ARTICLE VI - USE OF LEASED PREMISES

   Section 6.01          Use of the Leased Premises
   Section 6.02          Observance of Law
   Section 6.03          Energy Conservation
   Section 6.04          Odours, Dust or Noise
   Section 6.05          Obstructions
   Section 6.06          Outside Areas
   Section 6.07          Environmental Law


ARTICLE VII - INSURANCE AND INDEMNITY

   Section 7.01          Tenant's Insurance
   Section 7.02          Increase in Insurance Premiums
   Section 7.03          Cancellation of Insurance
   Section 7.04          Loss or Damage
   Section 7.05          Landlord's Insurance




                                                                              ii
                                                                   
   Section 7.06          Indemnification of the Landlord
   Section 7.07          Limitations of Liability


ARTICLE VIII - MAINTENANCE, REPAIRS AND ALTERATIONS

   Section 8.01          Maintenance and Repairs by the Tenant
   Section 8.02          Landlord's Approval of the Tenant's Repairs and
                         Alterations
   Section 8.03          Maintenance and Repairs by the Landlord
   Section 8.04          Surrender of the Leased Premises
   Section 8.05          Repair Where the Tenant is at Fault
   Section 8.06          Tenant No to Overload Facilities
   Section 8.07          Tenant No to Overload Floors
   Section 8.08          Removal and Restoration by Tenant
   Section 8.09          Notice by the Tenant
   Section 8.10          Tenant to Discharge All Liens
   Section 8.11          Signs and Advertising


ARTICLE IX - DAMAGE AND DESTRUCTION

   Section 9.01          Destruction of the Leased Premises
   Section 9.02          Abrogation - Intentionally Deleted


ARTICLE X - TRANSFER AND SALE

   Section 10.01         Assigning and Subletting
   Section 10.02         Landlord's Right to Terminate
   Section 10.03         Conditions of Transfer
   Section 10.04         No Advertising of the Leased Premises
   Section 10.05         Assignment by the Landlord


ARTICLE XI - ACCESS AND ALTERATIONS

   Section 11.01         Right of Entry
   Section 11.02         Right to Show Leased Premises
   Section 11.03         Entry Not Forfeiture
   Section 11.04         Landlord's Covenant For Quiet Enjoyment
   Section 11.05         Inspection


ARTICLE XII - STATUS STATEMENT, ATTORNMENT AND SUBORDINATION

   Section 12.01         Status Statement
   Section 12.02         Subordination and Attornment
   Section 12.03         Attorney
   Section 12.04         Financial information
   Section 12.05         Acknowledgment of Title


ARTICLE XIII - DEFAULT

   Section 13.01         Right to Re-Enter
   Section 13.02         Right to Re-Let
   Section 13.03         Termination
   Section 13.04         Accelerated Rent
   Section 13.05         Expenses
   Section 13.06         Waiver of Exemption from Distress
   Section 13.07         Landlord May Cure Tenant's Default or Perform Tenant's
                         Covenants
   Section 13.08         Additional Rent
   Section 13.09         Remedies Generally
   Section 13.10         Holding Over
   Section 13.11         No Waiver

ARTICLE XIV - MISCELLANEOUS




                                                                             iii

                                                                                  
   Section 14.01         Rules and Regulations
   Section 14.02         Security Deposit
   Section 14.03         Pest Control
   Section 14.04         Obligations as Covenants
   Section 14.05         Amendments and Supplementary Lease Provisions (if any)
   Section 14.06         Certificates
   Section 14.07         Time
   Section 14.08         Successors and Assigns
   Section 14.09         Governing Law
   Section 14.10         Headings
   Section 14.11         Entire Agreement
   Section 14.12         Severability
   Section 14.13         No Option
   Section 14.14         Occupancy Permit
   Section 14.15         Place for Payments
   Section 14.16         Extended Meanings
   Section 14.17         No Partnership or Agency
   Section 14.18         Unavoidable Delay
   Section 14.19         Consent and Approvals
   Section 14.20         Registration
   Section 14.21         Joint and Several Liability
   Section 14.22         Name of Building
   Section 14.23         Changes in the Leased Premises
   Section 14.24         Compliance with the Planning Act


ARTICLE XV - INDEMNITY AGREEMENT

   Section 15.01         Indemnity - Intentionally Deleted
   Section 15.02         Further Assurances


SCHEDULES

           Schedule "A"  - Draft Site Plan of Building and Lands
           Schedule "Al" - Building Elevation
           Schedule "B1" - Legal Description of Lands
           Schedule "B2" - Lega1 Description of Expansion Lands
           Schedule "B3" - Plan Showing the Lands and the Expansion Land
           Schedule "C"  - Plan/Sketch of Expansion Land
           Schedule "D"  - Acknowledgment of Commencement Date
           Schedule "E"  - Rules and Regulations
           Schedule "F"  - Supplementary or Additional Lease Terms
           Schedule "G"  - Incorporated Excerpts from Agreement to Lease




                                                                              iv

ARTICLE 1
---------

BASIC LEASE TERMS
-----------------


SECTION 1.01 - VARIABLE DEFINED TERMS

          In this Lease the following terms will have the following meanings:

          (1) "Agreement to Lease" means the written agreement to lease between
               ------------------
          the Landlord and the Tenant with respect to the Leased Premises dated
          the 6/th/ day of October, 2000.

          (2) "Basic Rent" - means:
               ----------

                    (i)  In years 1 and 2 of the Term $10.85
              (ii)  In years 3-5 of the Term $11.75
              (iii) In years 6-10 of the Term $13.05

          in each case per square foot of the Rentable Area of the Building,
per annum, payable pursuant to Section 2.06 hereof.

(3)  "Building" means the entire one story building and all other improvements
      --------
located on the Lands, and known municipally as 1980 Matheson Boulevard East,
Mississauga, and includes all additions, modifications and alterations thereto
and replacements thereof, as may be from time to time constructed in
accordance with the provisions of the Lease.

(4)  "Commencement Date" means that day which is one hundred and twenty (120)
      -----------------
days next following the date of completion of the Landlord's Work, as defined
in Section 8.1 of the Agreement to Lease, as such date made be adjusted in
accordance with the provisions of Section 2.03 of this Lease and confirmed or
acknowledged by the Landlord and the Tenant in accordance with the provisions
of Section 2.09 hereof.

(5)  "Expansion Lands" means those adjacent, vacant lands located to the south
      ---------------
of the Lands and comprising approximately 6.3 acres, all as described in
Schedule "B2" attached hereto and shown outlined on Schedule "C" attached
hereto.

(6)  "Fiscal Period" means a calendar year or any other twelve (12) month period
      -------------
designated by the Landlord from time to time as the Landlord's fiscal period
for accounting purposes and as the period in respect of which Operating Costs
for the Leased Premises are to be estimated, allocated and adjusted in
accordance with Section 3.07 hereof.

(7)  "Indemnifier" - Intentionally Deleted.
      -----------

(8)  "Indemnifier's Address" - Intentionally Deleted.
      ---------------------

(9)  "Landlord" PAULS PROPERTIES CORPORATION. and its successors and assigns.
      --------

(10) "Landlord's Address" - 2355 Skymark Avenue, Suite 300, Mississauga,
      ------------------
Ontario L4W 4Y6 or such other address as is designated by the Landlord.

(11) "Lease" means this lease dated the 12th day of October, 2000, and includes
      -----
the Schedules, as from time to time amended in writing.

(12) "Leased Premises"- means those premises leased to the Tenant pursuant to
      ---------------
Section 2.01 hereof, comprising the Lands and the Building.

(13) "Rentable Area of the Building" - means the Rentable Area of the Building,
      -----------------------------
being approximately 126,962 square feet of area determined in accordance with
Section 1.02(18) hereof, and subject to adjustment in accordance with Section
2.04 hereof.

(14) "Schedules" means the Schedules attached to and forming part of this Lease,
      ---------
being the following:

     Schedule "A" -  Draft Site Plan of Building and Lands
     Schedule "A1" - Building Elevation
     Schedule "B1" - Legal Description of Lands
     Schedule "B2" - Legal Description of Expansion Lands
     Schedule "B3" - Plan Showing the Lands and the Expansion Land


                                                                               2

         Schedule "C" -  Plan/Sketch of Expansion Land
         Schedule "D" -  Acknowledgment of Commencement Date
         Schedule "E" -  Rules and Regulations
         Schedule "F" -  Supplementary or Additional Lease Terms
         Schedule "G" -  Incorporated Excerpts from Agreement to Lease

               (15)   "Security Deposit" means the sum of THREE HUNDRED THOUSAND
                       ----------------
               CANADIAN DOLLARS (CDN$300,000.00) or such portion or balance
               thereof as may from time to time remain in the Landlord's hands
               applied in accordance with Section 14.02.

               (16)   "Tenant" - Certicom Corp. and its successors and permitted
                       ------
               assigns.

         (17)  "Tenant's Address" - Prior to the Commencement Date, Certicom
                ----------------
               Corp., 5520 Explorer Drive, 4/th/ Floor, Mississauga, Ontario,
               L4W 5L1, Attention: Robert L. Williams, Senior Vice-President
               (with a copy to: Certicom Corp., 25801 Industrial Blvd., Hayward
               CA 94545, USA, Attention: Richard Brounstein, Senior-Vice
               President, Finance) or such other address as is designated by the
               Tenant and from and after the Commencement Date, the Leased
               Premises.

         (18)  "Term" - means the term of ten (10) years, commencing on the
                ----
               Commencement Date, together with any renewal or extension thereof
               permitted hereunder.

               (19)   "Type of Business of the Tenant" means that the Leased
                       ------------------------------
               Premises shall only be used for any use which complies with all
               applicable laws, by-laws, regulations or other governmental
               ordinances from time to time in existence, including, without
               limitation, warehouse, ancillary storage, light assembly and
               office uses.


SECTION 1.02 - STANDARD DEFINITIONS

         (1)   "Additional Rent" means all sums of money, other than Basic Rent,
                ---------------
               which are required to be paid by the Tenant pursuant to any
               provision of this Lease.

         (2)   "Additional Service" means any service which is requested or
                ------------------
               required by or for the Tenant in addition to those supplied by
               the Landlord as part of the normal services provided to or in the
               Leased Premises, and which the Landlord is prepared or elects to
               supply at an additional cost to the Tenant and includes, without
               limitation, janitor and cleaning services, the provision of
               labour and supervision in connection with deliveries, supervision
               in connection with the moving of any furniture or equipment of
               the Tenant, the making of any repairs or alterations by the
               Tenant and the cost of replacing building standard electric light
               fixtures, ballasts, tubes, starters, lamps and light bulbs.

         (3)   "Additional Service Cost" means the additional cost payable by
                -----------------------
               the Tenant to the Landlord for any Additional Service in
               accordance with Section 5.02 hereof.

         (4)   "Architect" means the architect, professional engineer or
                ---------
               surveyor named by the Landlord from time to time.

         (5)   "Bank Rate" means the interest rate per annum as announced by the
                ---------
               chartered bank of the Landlord at the principal office of such
               bank in Toronto and reported by it to the Bank of Canada as its
               prime rate.

               (6)    "Capital Tax" means the aggregate of:
                       -----------

         (a)   an amount of the tax or excise imposed by the Province of Ontario
                              upon the Landlord or the owners of the Leased
                              Premises which is measured by or based in whole or
                              in part upon the capital, surplus, reserves or
                              indebtedness of such Landlord or owners, and which
                              is at present based upon the application of the
                              prescribed rate of 0.3% to the amount of such
                              Landlord's or owner's "taxable paid-up capital" as
                              defined in the Corporations Tax Act (Ontario); the
                              amount of the tax or excise for the purposes
                              hereof shall be calculated in any year as if the
                              Building was the only establishment in the
                              Province of Ontario owned by such Landlord or
                              owners in the year and such Landlord or owners had
                              no establishment other than in the Province of
                              Ontario; and

         (b)   an amount of the tax or excise imposed by the Government of
                              Canada upon the Landlord or the owners of the
                              Leased Premises which is measured by or based in
                              whole or in part upon the capital, surplus,
                              reserves or indebtedness of the Landlord or the
                              owners, and which tax is at present based upon the


                                                                               3

                              application of the prescribed rate of 0.2% to the
                              amount by which the "taxable capital employed in
                              Canada" by such Landlord or owners as defined in
                              the Income Tax Act (Canada) exceeds its capital
                              deduction for the year; the amount of the tax or
                              excise for the purposes hereof shall be calculated
                              in any year as if the Leased Premises was the only
                              asset owned by such Landlord or owners in the year
                              and the capital deduction of such Landlord or
                              owners for the year was nil;

Provided that for the purpose of computing Capital Tax as otherwise defined in
this Subsection 1.02(6), the Landlord agrees to allocate such Capital Tax
equitably among any corporations within Canada which are related to or
affiliated with the Landlord, if any (and for the propose of this Subsection
"affiliate" shall have the meaning set out in the Ontario Business Corporations
Act) and provided that if the Landlord owns other permanent establishments in
Canada, the Landlord agrees that Capital Taxes shall be calculated without
duplication and shall be reduced by an amount equal to the taxable paid up
capital employed by the Landlord in such other permanent establishments that are
located in Canada but outside of the Province of Ontario.

         (7)   "Insurance Cost" means, for any fiscal period, the total cost to
                --------------
               the Landlord calculated in accordance with generally, accepted
               accounting principles, for insuring the Leased Premises.

         (8)   "Insured Damage" means that part of any damage occurring to the
                --------------
               Leased Premises, of which the entire cost of repair (except as to
               any deductible amount provided for in the applicable policy or
               policies of insurance) is actually recovered by the Landlord
               under a policy or policies of insurance from time to time
               effected by the Landlord or which ought to have been effected by
               the: Landlord pursuant hereto.

         (9)   "Lands" means the lands described in Schedule "B1" attached
                -----
               hereto comprising approximately 7.3 acres in area.

         (10)  "Law" means:
                ---

               (i)   all federal, provincial, regional, municipal or local laws,
                                   statutes regulations, orders or ordinances;
                                   and

               (ii)  all policies, guidelines, decisions, notices or directives
                                   issued by any federal, provincial, regional,
                                   municipal or local government or authority or
                                   other political subdivision thereof and any
                                   entity or person exercising executive,
                                   legislative, judicial, regulatory or
                                   administrative functions of, or pertaining
                                   to, government which may be relevant to this
                                   Lease and in particular to the construction,
                                   operation, maintenance and replacement of the
                                   Building and/or to the conduct by the Tenant
                                   of its business therefrom.

         (11)  "Leasehold Improvements" means all items generally considered as
                ----------------------
               leasehold improvements, including, without limitation, all
               fixtures, equipment, improvements, installations, alterations and
               additions from time to time made, erected or installed by or on
               behalf of the Tenant, or any previous occupant of the Leased
               Premises in the Leased Premises, including all partitions,
               however affixed and whether or not movable, and all wall-to-wall
               carpeting other than carpeting laid over finished floors and
               affixed so as to be readily removable without damage; but
               excluding trade fixtures, unattached furniture or free-standing
               partitions and equipment not of the nature of fixtures.

         (12)  "Management Fee" means a reasonable fee for the administration
                --------------
               and management of the Leased Premises which fee shall be
               comparable to fees charged by management companies for managing
               and administering developments similar to the Leased Premises,
               which fees shall in no event exceed the amount of sixty cents (60
               cents) per square foot of Rentable Area of the Building per
               annum, in respect of the first five (5) years of the Term
               commencing on the Commencement Date, and seventy-five cents (75
               cents) per square foot of Rentable Area of the Building per annum
               in respect of the next five (5) years of the Term, commencing on
               the fifth anniversary of the Commencement Date.

         (13)  "Mortgage" means any mortgage, instrument of hypothec, deed of
                --------
               trust, document or security interest (resulting from any method
               of financing or refinancing) or blanket


                                                                               4

           mortgage, pledge or charge (affecting the Lands as well as other
           property) now or hereafter secured upon the Lands or any part
           thereof, and includes all renewals, modifications, consolidations,
           replacements and extensions thereof.

     (14)  "Mortgagee" means the mortgagee, hypothecary or other creditor or
            ---------
           trustee for bondholders or others named in any Mortgage.

     (15)  "Notice" means any notice, statement, consent, approval, demand or
            ------
           request herein required or permitted to be given by any party to
           another pursuant to this Lease and shall be in writing and, if to the
           Landlord, addressed to the Landlord at the Landlord's Address, if to
           the Tenant, addressed to the Tenant at the Tenant's Address, and if
           to any Indemnifier, addressed to the Indemnifier at the Indemnifier's
           Address. All Notices shall be hand-delivered and the effective date
           of such Notices shall be the date of delivery.

     (16)  "Operating Costs" means the total of all expenses, costs, fees,
            ---------------
           rentals, disbursements and outlays of every kind paid, payable or
           incurred by or on behalf of the Landlord in the complete maintenance,
           repair, operation, supervision, replacement and administration of the
           Leased Premises. Without limiting the generality of the foregoing,
           Operating Costs shall include, without duplication the following
           costs in respect of the Leased Premises:

     (A)   (i)    the Insurance Cost;

           (ii)   the cost of providing security, supervision, life safety
                              systems, traffic control, landscaping, exterior
                              cleaning and snow removal services;

           (iii)  the cost of water, electric light and power, telephone, steam,
                              gas, sewage disposal and other utilities and
                              services;

                       (iv)   the cost of maintaining and replacing any general
                              sign or directory board;

           (v)    accounting costs incurred in connection with the maintenance,
                              repair, replacement, operation, administration or
                              management of the Leased Premises, including
                              computations required for the imposition of
                              charges to Tenant, the cost of preparing
                              statements and opinions for tenants and banking
                              fees and expenses and audit fees;

     (vi)  subject to Subsection 1.02(16)A(xii) hereof, the cost of performing
                              the Landlord's repair obligations under Section
                              8.03;

           (vii)  all other indirect expenses to the extent reasonably
                              allocable to the maintenance, repair,
                              replacement, operation, administration or
                              management of the Leased Premises;

           (viii) all costs and expenses (including legal and other
                              professional fees and interest and penalties on
                              deferred payments) incurred by the Landlord in
                              contesting, resisting or appealing any Taxes in
                              good faith;

           (ix)   subject to the provisions of Subsection 1.01(16)A(xii)
                              hereof, amounts paid to independent contractors
                              for any services in connection with the
                              maintenance, repair, replacement, operation,
                              administration or management of the Leased
                              Premises or any part of it;

           (x)    fees and expenses of architects, engineers, quantity surveyors
                              and other consultants retained by the Landlord;

     (xi)  subject to the provisions of Subsection 1.02(16)A(xii) hereof, the
                              costs of supplies, tools, equipment and materials
                              used in connection with the maintenance, repair,
                              replacement, operation, administration, management
                              or caretaking of the Leased Premises;


     (xii) amortization (over the useful life of any item in accordance with
                              generally accepted accounting principles) of costs
                              properly regarded as capital in nature, including,
                              without limitation, the costs incurred to make
                              alterations, replacements or additions to the
                              Leased Premises intended to reduce the cost of
                              other items included in Operating Costs, improve
                              the operation of the Leased Premises or maintain
                              its operation as a quality industrial complex,
                              costs being amortized will include, without
                              limitation, costs incurred in respect of
                              alterations, replacements or additions to the roof
                              and


                                                                               5

                              other structural elements of the Building or
                              Building systems, and property installed in or
                              used in connection with the Leased Premises
                              (except to the extent that the costs are charged
                              fully to income account in the accounting period
                              in which they are incurred) and interest on the
                              unamortized portion of the original cost of such
                              items being amortized, payable monthly, from or
                              after the date on which the relevant cost was
                              incurred at an annual rate of interest that is one
                              percentage (1%) point above the Bank Rate in
                              effect from time to time; the amortization costs
                              and interest charged under this clause shall be
                              calculated by the Landlord, acting reasonably, in
                              accordance with sound and generally accepted
                              accounting principles, but no amortization or
                              interest will be charged in respect of any such
                              items installed in conjunction with the original
                              construction of the Leased Premises;

     (xiii)  goods and services taxes, business transfer taxes, value-added
                              taxes, multi-stage sales taxes, sales, use or
                              consumption taxes and any like taxes on property
                              and services provided by or on behalf of the
                              Landlord except to the extent recoverable by the
                              Landlord;

             (xiv) Capital Tax in respect of the Leased Premises, any Ontario
                              commercial concentration tax and any business or
                              similar taxes or licence fees in respect of the
                              business of the Landlord which pertains to the
                              management, operation and maintenance of the
                              Complex;

     (xv)    subject to the provisions of Subsection 1.02(16)A(xii) hereof,
                              all other direct and indirect costs and expenses
                              of every kind, to the extent incurred in or
                              allocable to the maintenance, repair, replacement,
                              operation, supervision or administration of all or
                              any part of the Leased Premises, or any of its
                              appurtenances including expenses incurred or
                              contributions made by the Landlord in respect of
                              off-site facilities which are utilized by or
                              benefit the Leased Premises;

     (B)     notwithstanding the provisions of Part (A) of this definition,
             Operating Costs shall exclude or shall have deducted therefrom:

             (i)    Taxes and Management Fee;

             (ii)   debt service in respect of financing secured by or related
                              to the Leased Premises and interest on debt save
                              for interest payable if and when costs and
                              expenses in respect of Operating Costs and Taxes
                              and goods and services taxes temporarily exceed
                              recoveries from time to time in respect thereof;

                    (iii) depreciation of the initial cost of the Leased
                              Premises;

             (iv)   an amount equal to the net proceeds of insurance actually
                              recovered by the Landlord for damage to the
                              Building to the extent that the cost to repair
                              such damage is included in Operating Costs;

             (v)    an amount equal to recoveries by the Landlord in respect of
                              warranties or guarantees relating to repairs or
                              alterations to the Leased Premises or any part of
                              it, including, without limitation, construction
                              warranties to the extent that the repair or
                              alteration costs in respect of the work covered by
                              warranty or guarantee is included in Operating
                              Costs;

     (vi)    an amount equal to the contribution made by any owners or occupants
                              of adjacent buildings who are, by agreement,
                              entitled to use any facilities of and for the
                              Leased Premises;

     (vii)   all income tax or similar taxes, corporation taxes, profits taxes,
                              excess profits taxes, place of business taxes,
                              gift taxes, estate taxes, succession taxes,
                              inheritance taxes, franchise taxes, land transfer
                              taxes and non-


                                                                               6


               resident sales taxes, business taxes (other than those business
               taxes specifically payable by the Tenant pursuant to the lease)
               and other taxes personal to the Landlord;

(viii)    ground rent (if any), amortization and interest on and capita1
               retirement of debt, affecting all or any of the Lands and
               Building;

(ix)      any loss or damage to all or any part of the Building or any persona1
               injury for which the Landlord is insured under the terms of the
               Lease including any deductible, but only to the extent of
               recoveries under such insurance;

(x)      any cost or expense which is normally treated in accordance with
               generally accepted accounting principles as being of a capita1
               nature, which cost or expense will instead be amortized over
               useful life of the item and charged to the Tenant in accordance
               with generally accepted accounting principles, all in accordance
               with Subsection 1.02(16)A(xii) hereof;

(xi)     commissions, advertising costs, the costs of any market research,
               traffic consumer attitude study or legal expenses in connection
               with leasing the Building or legal remedies against tenants
               (other than the Tenant) or any part thereof;

(xii)    all penalties or carrying charges relating to late payment of taxes
               or other expenses and any capital, interest or other carrying
               charges on any mortgages or equipment head or land lease or
               equipment lease payments or other financing with respect to the
               Lands and/or Building or any part thereof;

(xiii)   all fines, suits, claims, demands, actions, costs, charges and
               expenses of any kind or nature for which the Landlord is or may
               become liable by reason of any negligent or willful acts or
               omissions to act on the part of the Landlord or those for whom it
               is in law responsible or by reason of any breach or violation or
               non-performance by the Landlord of any covenant, term or
               provision contained in the leases and other agreements entered
               into by the Landlord in respect of the Building or the Lands;

(xiv)    except as expressly provided herein to the contrary, the expenses
               incurred by the Landlord in respect of installation or removal of
               any of the Tenant's improvements or the Allowance (as defined in
               Section 84 of the Agreement to Lease);

(xv)     all work to the Leased Premises or the Building or any part thereof
               made necessary by the Landlord's non-compliance with Laws;

(xvi)    the cost of initial construction of the Building and construction
               resulting from insured perils;

(xvii)   all salaries, whether direct or indirect, relating to the
               administration and management of the Building;

(xviii)  subject to the provisions of Section 6.07 hereof, remedial
               environmental costs for existing conditions in the soil, ground
               water or buildings; and

(xix)    fines and penalties assessed by a court or governmental agencies not
               caused by actions or omissions of the Tenant.

(C)      any costs that are not directly incurred by the Landlord but are
         chargeable as Operating Costs may be estimated by the Landlord on a
         reasonable basis to the extent that the Landlord cannot ascertain the
         exact amount; and

(D)      the taxes enumerated in Section 1.02(16)(A)(xiii) above are included
         amongst Operating Costs upon the understanding that the Landlord will
         look first for reimbursement of such taxes to its input tax credits in
         the case of the goods and services tax in force at the date hereof, and
         to corresponding credits, if any, in the case of subsequent taxes from
         time to time in force, the intent being that so long as such credits
         are available to the Landlord the taxes referred to in Section
         1.02(16)(A)(xiii) will not be included in Operating Costs.

(17)     "Rent" means Basic Rent and Additional Rent.
          ----


                                                                               7

(18)     "Rentable Area" means the floor area expressed in square feet of all
          -------------
         floor space (including the floor space of mezzanines, if any) measured
         from the exterior face of all exterior walls (and across the extension
         of the planes thereof over the openings for doors and windows)
         comprising the boundaries of such premises and, in the case of walls
         separating any rentable premises from adjoining rentable premises,
         measured from the centre line of such walls but ignoring the finished
         treatment thereof; any such area shall be adjusted from time to time to
         reflect any addition, reduction, rearrangement or relocation of space.

(19)     "Taxes" means all taxes, rates, duties, levies, fees, charges, sewer
          -----
         levies, local improvement rates, and assessments whatsoever imposed,
         assessed, levied or charged, now or in the future, by any school,
         municipal, regional, provincial, federal, parliamentary or other
         governmental body, corporate authority, agency or commission
         (including, without limitation, school boards and utility commissions),
         against the Leased Premises or any part thereof, and/or the Landlord
         and/or the owners of the Leased Premises in connection therewith,
         calculated on the basis of the Leased Premises being assessed as a
         fully leased and operational building, but excluding (unless
         specifically referred to above):

(a)      income or profit taxes upon the income of the Landlord to the extent
                   such taxes are not levied in substitution or in lieu of any
                   of the foregoing;

(b)      business or similar taxes or licence fees in respect of the business
                   of the Landlord which pertains to the management, operation
                   and maintenance of the Leased Premises (and which are
                   included in Operating Costs);

(c)      goods and services taxes or similar taxes (and which are payable
                   pursuant to other provisions of this Lease);

(d)      business or similar taxes or licence fees in respect of any business
                   carried on by, and imposed upon, tenants and occupants
                   (including the Tenant) of the Leased Premises; and

(e)      Capital Tax in respect of the Leased Premises and any Ontario
                   commercial concentration tax (and which are included in
                   Operating Costs).

Provided that in the event that the Leased Premises is not the subject of a
         separate assessment, but is assessed together with other Lands owned by
         the Landlord, including, without limitation, the Expansion Lands,
         Taxes, otherwise defined above, shall mean that portion of all such
         taxes, rates, duties, levies, fees, charges, sewer levies, local
         improvement rates and assessments imposed, assessed, levied or charged
         against or in respect of such larger parcel of lands as are allocated
         to the Leased Premises from time to time by the Landlord acting
         reasonably and on an equitable basis having regard, amongst other
         things, to general principles of assessment and the value of the Leased
         Premises relative to all other lands and buildings, if any, comprising
         the larger parcel of lands to which the assessment relates.

(20)     "Tenant's Taxes" means al1 taxes, rates, duties, levies or license
          --------------
         fees imposed upon the Tenant which are attributable to the business,
         income or occupancy of the Tenant or any other occupant of the Leased
         Premises, including any taxes, rates, duties, levies or license fees
         which are imposed in lieu of or in addition to any such Tenant's Taxes;
         and if any such Tenant's Taxes are levied against the Landlord or any
         owner on account of its ownership in the Leased Premises or its
         interest therein, they shall be included in Taxes.

(21)     "Transfer" means an assignment of this Lease, a sublease of all or
          --------
         any part of the Leased Premises, any transaction whereby the rights of
         the Tenant under this Lease to the Leased Premises are transferred to
         another, any transaction by which any right of use or occupancy of all
         or any part of the Leased Premises is conferred upon anyone, any
         mortgage, charge or encumbrance of this Lease or the Leased Premises or
         any part thereof, or other arrangement under which either this Lease or
         the Leased Premises becomes security for any indebtedness or other
         obligations, and includes any transaction or occurrence whatsoever
         which has changed or might change the identity of the person or persons
         having lawful use or occupancy of any part of the Leased Premises but,
         for greater certainty, where the Tenant is a corporation, does not
         include any amalgamation,


                                                                               8

               reorganization, or change in the effective voting control of the
               shares of the Tenant.

     (22)      "Unavoidable Delay" means any delay by a party in the performance
                -----------------
               of its obligation under this Lease caused in whole or in part by
               any acts of God, strikes, lockouts or other industrial
               disturbances, acts of public enemies, sabotage, war, blockades,
               insurrections, riots, epidemics, washouts, nuclear and radiation
               activity or fallout, arrests, civil disturbances, explosions,
               breakage of or accident to machinery, any legislative,
               administrative or judicial action which has been resisted in good
               faith by all reasonable legal means, any act, omission or event,
               whether of the kind herein enumerated or otherwise, not within
               the control of such party, and which, by the exercise of control
               of such party, could not have been prevented, but lack of funds
               on the part of such party shall not constitute an Unavoidable
               Delay.


ARTICLE II
----------

LEASED PREMISES - TERM - RENT
-----------------------------

SECTION 2.01- LEASED PREMISES AND TERM

     In consideration of the rents, covenants and agreements herein contained on
 the part of the Tenant to be paid, observed and performed, the Landlord leases
 to the Tenant, and the Tenant leases from the Landlord, the Leased Premises for
 the Term.


SECTION 2.02 - USE OF ADDITIONAL AREAS

     [Intentionally Deleted]

SECTION 2.03 - CONSTRUCTION OF THE LEASED PREMISES

     The provisions of Sections 8 (Landlord's and Tenant's Work), 16 (Landlord's
Covenants, Representations and Warranties), 21 (Expansion Land) and of Schedule
"F" (Tenant's Work) of the Agreement to Lease relating to the initial
construction of the Leased Premises and delay in availability of the Leased
Premises for occupancy by the Tenant (all of which are hereby incorporated
herein and with the exception of Section 21 are set out in Schedule "G" hereto)
shall remain in effect and shall not merge upon the execution of this Lease.
Subject to the above-noted provisions of the Agreement to Lease, the Landlord
shall deliver vacant and exclusive possession of the Leased Premises to the
Tenant on or before January 15, 2001, (the "Possession Date"). The Tenant
acknowledges and agrees, however, that certain work external to the Building,
including, without limitation, the landscaping and asphalting (as well as any
skylights in the Building in the event the Tenant has failed to provide drawings
in that regard to the Landlord on or before November 15, 2000) may not be
completed by the Possession Date. If the Landlord has not delivered vacant and
exclusive possession of the Leased Premises to the Tenant with Landlord's Work
complete on or before the Possession Date as a result of force majeure, then the
Possession Date, the Commencement Date and all other applicable dates will be
extended on the basis of one day for each day of delay. The Commencement Date
will not, however, be extended as a result of any delays caused by the Tenant
in selecting materials or requesting changes to the base building beyond the
dates set out herein (it being acknowledged that any material changes to
Landlord's Work must be both requested in writing by the Tenant and approved by
the Landlord). If the Possession Date is delayed beyond January 15, 2001, due to
circumstances within the Landlord's control, the Possession Date, the
Commencement Date, and all other applicable dates will be extended on the basis
of two days for each day of delay. Notwithstanding the foregoing or any other
provision of the Agreement to Lease or this Lease, if the Landlord has not
delivered vacant and exclusive possession of the Leased Premises, with the
Landlord's Work complete, to the Tenant by April 15 2001, for any reason
whatsoever, including force majeure, but excluding delays caused by the Tenant
in selecting materials or requesting changes to the base building beyond the
dates set forth herein, then upon ten (10) days' written notice, the Tenant
shall have the option to terminate this Lease and the Security Deposit shall be
returned to the Tenant, with interest as provided for herein and without
deduction. The Landlord shall permit the Tenant to occupy and possess the
Leased Premises from and after the Possession Date to the Commencement Date
completely free of all Basic Rent and Additional Rent obligations and the
Tenant shall be permitted to construct its Leasehold Improvements in the Leased
Premises during such period and to conduct its business thereafter. During any
such period of occupancy or possession prior to the Commencement Date, the
Tenant shall be nevertheless responsible to pay for all utilities supplied to
the Leased Premises and for snow plowing those parking areas selected by the
Tenant in its discretion for use by its contractors, suppliers, employees and
invitees. The Tenant shall abide by the provisions of Section 8.02 in respect
of the construction of Leasehold Improvements and fixtures in the Leased
Premises following the commencement of the Term.

SECTION 2.04 - ADJUSTMENT OF AREAS


                                                                               9

          The Landlord shall, upon completion of the Landlord's Work as defined
in Section 8.1 of the Agreement to Lease and prior to the Commencement Date, re-
measure or re-calculate the Rentable Area of the Building in accordance with
current B.O.M.A. standards and shall deliver to the Tenant a certificate of the
Architect confirming such area and the Basic Rent and the amount of Additional
Rent shall be adjusted accordingly.


SECTION 2.05 - AGREEMENT TO PAY

          (a)  The Tenant shall pay Basic Rent and Additional Rent as herein
               provided in lawful money of Canada, without any prior demand
               therefor and without any deduction, abatement, set-off or
               compensation whatsoever save as provided in Section 9.01. The
               Tenant agrees to pay to the Landlord in addition to Basic Rent
               and Additional Rent, any goods and services tax, business
               transfer tax, value-added tax, multi-stage sales tax, sales, use
               or consumption tax, or any like tax imposed by any governmental
               authority in respect of this Lease, or in respect of any property
               or services provided hereunder, including, without limitation,
               such taxes calculated on or in respect of any Rent (whether
               Basic Rent or Additional Rent) payable under this Lease; any such
               tax shall be deemed not to be Rent, but the Landlord shall have
               the same remedies for and rights of recovery of such amount as it
               has for recovery of Rent under this Lease. The obligation to pay
               Additional Rent (and adjustments thereto) shall survive the
               expiration or sooner termination of this Lease. All amounts
               payable under this Lease, unless otherwise provided, become due
               with the next installment of Basic Rent. The Landlord may, at its
               option, upon Notice to the Tenant direct that the Tenant pay any
               or all Rent by way of pre-authorized bank debit and/or to any
               other party specified by the Landlord.

          (b)  Notwithstanding the provisions of Subsection 2.05(a) above, and
               notwithstanding that the Tenant may have been granted occupancy
               and possession of the entire Leased Premises from and after the
               Possession Date, as defined in Section 2.03 hereof, or the
               Commencement Date, the Tenant shall be required to pay Basic Rent
               and Additional Rent as and from the Commencement Date in respect
               only of the northern portion of the Building, containing not less
               than eighty thousand (80,000) square feet, (Phase 1). The
               Tenant's obligation to pay Basic Rent and Additional Rent in
               respect of the balance of the Leased Premises, containing
               approximately forty-six thousand nine hundred and sixty-two
               (46,962) square feet (Phase 2) shall commence on the earlier of
               December 1/st/, 2001, and the date on which the Tenant commences
               business operations within a substantial portion of Phase 2
               (which "business operations" shall, for greater certainty,
               exclude the construction by or on behalf of the Tenant of
               Leasehold Improvements therein) provided that in respect of each
               Phase, the Tenant shall nevertheless, as and from the Possession
               Date pay, as Additional Rent, the cost of all utilities supplied
               to the Leased Premises and for snow plowing, as provided for in
               Section 2.03 hereof.

SECTION 2.06 - BASIC RENT

     Subject to the provisions of Subsection 2.05(b) hereof, the Tenant shall
pay from and after the Commencement Date to the Landlord the Basic Rent, such
Basic Rent to be computed in accordance with Section 1.01(2) hereof and payable
in equal monthly installments in advance on the first day of each and every
month. As soon as reasonably possible after completion of construction of the
Leased Premises, as provided for in Section 2.04 hereof, the Landlord shall
measure the Rentable Area of the Leased Premises and only at such time shall any
necessary adjustments in the Basic Rent and Additional Rent be made.

     If the Commencement Date is not the first day of a calendar month, then the
Basic Rent for the first and last months of the Term shall be appropriately
adjusted, on a per diem basis, based upon a period of three hundred and sixty-
five (365) days and the Tenant shall pay upon the Commencement Date, the portion
of the Basic Rent so adjusted from the Commencement Date to the end of the month
in which the Commencement Date occurs.

SECTION 2.07 - LATE PAYMENT CHARGE


                                                                              10

     The Tenant hereby acknowledges that late payment by the Tenant to the
Landlord of Basic Rent or Additional Rent due hereunder will cause the Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
difficult or impracticable to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on the Landlord by the terms of any Mortgage. Accordingly, if any Basic
Rent or Additional Rent shall not be received by the Landlord or the Landlord's
designee within five (5) days after such amount shall be due, the Tenant shall
pay to the Landlord interest on such overdue amounts, calculated from the due
date to the date of payment at the rate of one percent (1%) per annum in excess
of the Bank Rate. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs the Landlord will incur by reason of
late payment by the Tenant. Acceptance of such late charge by the Landlord shall
in no event constitute a waiver of the Tenant's default with respect to such
overdue amount, nor prevent the Landlord from exercising any of the other rights
and remedies granted hereunder. The foregoing shall be without prejudice to any
other right or remedy available to the Landlord under or pursuant to this Lease
by reason of a monetary default by the Tenant. The Tenant agrees that if any of
the Tenant's cheques are returned for lack of sufficient funds the Tenant shall
pay to the Landlord upon demand a minimum administrative fee of not less than
twenty-five dollars ($25.00).


SECTION 2.08 - NET LEASE

     The Basic Rent payable under this Lease is intended to be an absolutely net
return to the Landlord, except as expressly herein set out to the contrary. The
Landlord is not responsible for any expenses or outlays of any nature arising
from or relating to the Leased Premises, or the use or occupancy thereof, or the
contents thereof or the business carried on therein, except as expressly herein
set out to the contrary. The Tenant shall pay all charges, impositions and
outlays of every nature and kind relating to the Leased Premises except as
expressly herein set out to the contrary.

SECTION 2.09 - ACKNOWLEDGMENT OF COMMENCEMENT DATE

     The Tenant agrees to execute and return to the Landlord, within fifteen
(15) days of written demand from the Landlord, an acknowledgment of the
Commencement Date in the form set forth in Schedule "D" annexed hereto, subject
to such variations as the facts require.


ARTICLE III
-----------

TAXES, OPERATING COSTS AND MANAGEMENT FEE
-----------------------------------------

SECTION 3.01 - TAXES PAYABLE BY LANDLORD

     The Landlord shall pay directly to the appropriate and lawful taxing
authorities all Taxes subject to Sections 3.02 and 3.05 hereof. The Landlord
may, in good faith, contest any Taxes and appeal any assessments with respect
thereto; withdraw any such contest or appeal; and agree with the taxing
authorities on any settlement or compromise with respect to Taxes.

SECTION 3.02 - TENANT'S SHARE OF TAXES

     The Tenant shall pay to the Landlord as Additional Rent all Taxes assessed
against the Leased Premises.

     If the Tenant elects to be assessed as a separate school supporter, the
Tenant will pay to the Landlord, in addition to any other amounts owing pursuant
to this Section 3.02, the excess, if any, of the separate school taxes over
public school taxes resulting from such election.

SECTION 3.03 - TENANT'S SHARE OF OPERATING COSTS

     The Tenant shall pay to the Landlord as Additional Rent in accordance with
Section 3.07 all Operating Costs.

SECTION 3.04 - MANAGEMENT FEE

     The Tenant shall pay to the Landlord as Additional Rent in accordance with
Section 3.07 the Management Fee.


SECTION 3.05 - TENANT'S TAXES


                                                                              11




         The Tenant shall pay to the appropriate and lawful taxing authorities,
or to the Landlord, as appropriate, and shall discharge when the same become due
and payable, all Tenant's Taxes.


SECTION 3.06 - TENANT'S RESPONSIBILITY

         The Tenant shall promptly deliver to the Landlord copies of assessment
notices, tax bills and other documents received by the Tenant relating to Taxes
and Tenant's Taxes and receipts for payment of Taxes and Tenant's Taxes. The
Tenant shall not contest any Taxes or Tenant's Taxes or appeal any assessments
relating thereto without the Landlord's prior written approval. If the Tenant
obtains such approval, the Tenant shall deliver to the Landlord such security
for the payment of such Taxes or Tenant's Taxes as the Landlord deems advisable
and the Tenant shall diligently prosecute any such appeal or contestation to a
speedy resolution and shall keep the Landlord informed of its progress in that
regard from time to time.


SECTION 3.07 - PAYMENT OF ESTIMATED TAXES, OPERATING COSTS AND MANAGEMENT FEE

         (a)  The amounts payable by the Tenant pursuant to Sections 3.02,
                    3.03, 3.04 and 3.05 hereof may be estimated by the Landlord
                    for each Fiscal Period and the Tenant agrees to pay to the
                    Landlord the amounts so estimated in monthly installments in
                    advance during such period as Additional Rent.
                    Notwithstanding the foregoing, as soon as bills for all or
                    any portion of the said amounts so estimated are received,
                    the Landlord may bill the Tenant therefore and the Tenant
                    shall pay the Landlord such amounts so billed (less all
                    amounts previously paid on account by the Tenant on the
                    basis of the Landlord's estimate as aforesaid) as Additional
                    Rent within thirty (30) days of demand therefore or, at the
                    Landlord's option, such amounts shall be paid in regular
                    monthly instalments as an adjustment to Additional Rent,
                    amortized or pro rated over the balance of the current
                    Fiscal Period.

         (b)  Within a reasonable period of time after the end of the period
                    for which such estimated payments have been made (and in any
                    event within one hundred and twenty (120) days after the end
                    of each Fiscal Period), the Landlord shall deliver to the
                    Tenant a statement from the Landlord of the Operating Costs,
                    Taxes and Management Fee together with a calculation of the
                    Tenant's share of the costs and expenses payable to the
                    Landlord pursuant to Sections 3.02, 3.03, 3.04 and 3.05 and,
                    if necessary, an adjustment shall be made between the
                    parties in the following manner. If the Tenant has paid in
                    excess of the amounts due, the excess shall be refunded by
                    the Landlord within a reasonable period of time after the
                    delivery of the said statement, or, at the option of the
                    Landlord, the excess shall be credited to amounts payable to
                    the Landlord pursuant to Sections 3.02, 3.03, 3.04 and 3.05.
                    If the amount the Tenant has paid is less than the amounts
                    due, the Tenant agrees to pay such additional amounts due
                    forthwith upon demand. If the Term commences or ends on a
                    date which does not coincide with the beginning or end of a
                    Fiscal Period, the Tenant's share of the Additional Rent
                    payable to the Landlord in respect of such Fiscal Period
                    pursuant to Sections 3.02, 3.03, 3.04 and 3.05 hereof, shall
                    be subject to a per diem, pro rata adjustment based on a
                    period of three hundred and sixty-five (365) days. The
                    obligations set out herein shall survive the expiration of
                    the Term or earlier termination of this Lease. Failure of
                    the Landlord to render any statement of Taxes, Operating
                    Costs and Management Fee shall not prejudice the Landlord's
                    right to render such statement thereafter or with respect to
                    any other period. The rendering of any such statement shall
                    also not affect the Landlord's right to subsequently render
                    an amended or corrected statement. The Landlord shall
                    maintain at the Landlord's Address, available for inspection
                    by the Tenant on no less than five (5) days' Notice to the
                    Landlord, such of the Landlord's expense and other records
                    relating to each Fiscal Period as are relevant to, or relied
                    upon by the Landlord in preparing any Landlord's statement
                    delivered to the Tenant pursuant to this subsection in
                    respect of that Fiscal Period.

         (c)  The Landlord warrants and represents that Operating Costs for
                    the Fiscal Period commencing January 1, 2001, shall not
                    exceed ninety cents (90 cents) per square foot of Rentable


                                                                              12

                         Area of the Building, excluding Taxes and the
                         Management Fee.


ARTICLE IV
----------

LEASED PREMISES - CONTROL AND SERVICES
--------------------------------------

SECTION 4.01 - CONTROL OF THE LEASED PREMISES BY THE LANDLORD

          The Landlord shall operate and maintain the Leased Premises in a first
class condition as would a careful and prudent owner of a similar commercial
building. To the extent that the Landlord retains independent contractors for
any services in connection with the maintenance, repair, replacement, operation,
administration or management of the Leased Premises, it shall do so at prices
or rates reasonably competitive in the industry, provided that the Tenant shall
have the right from time to time, in its sole discretion and on reasonable prior
Notice to the Landlord to specify a contractor or contractors of the Tenant's
choice.

          The Leased Premises is at all times subject to the exclusive control,
management and operation of the Landlord. Without limiting the generality of the
preceding sentence, the Landlord has the right, in its control, management and
operation of the Leased Premises and by the establishment of Rules and
Regulations and general policies with respect to the operation of the Leased
Premises or any part thereof at all times during the period when the Tenant is
given possession of the Leased Premises and throughout the Term, and with the
Tenant's prior written consent, which consent shall not be unreasonably
withheld or delayed, to:

          (a)  construct improvements in or to the Building and make
                         alterations and additions thereto, subtractions
                         therefrom, rearrangements thereof (including parking
                         areas and all entrances and exits thereto), build
                         additional storeys on the Building and construct
                         additional facilities adjoining or proximate to the
                         Building;

          (b)  relocate or re-arrange the various facilities and improvements
                         comprising the Building or erected on the Lands from
                         those existing at the Commencement Date;

          (c)  do and perform such other acts in and to the Leased Premises as
                         in the use of good business judgment the Landlord
                         determines to be advisable for the more efficient and
                         proper operations of the Leased Premises.

          Notwithstanding anything contained in this Lease, it is understood and
agreed that if as a result of the exercise by the Landlord of its rights set out
in this Section 4.01, the facilities in or improvements to the Leased Premises
are diminished or altered in any manner whatsoever, the Landlord is not subject
to any liability, nor is the Tenant entitled to any compensation, nor shall any
such diminution or alteration of the facilities or improvements in or to the
Leased Premises be deemed constructive or actual eviction, or a breach of any
covenant for quiet enjoyment contained in this Lease or implied by law provided
that the Landlord shall not reduce the Rentable Area of the Building or
materially impede access to the Leased Premises except when necessary during
the completion of any such work and provided further that the Landlord shall
complete all such work diligently and with due speed. Notwithstanding the
foregoing, if as a result of the exercise by the Landlord of its rights set out
in this Section 4.01, the Tenant is restricted from using, or is unable to use,
all or any portion of the Building for any period, Rent shall abate in the same
proportion as the unuscable portion of the Building bears to the Rentable Area
of the Building, for the duration of such period.


SECTION 4.02 - SUBSTITUTION OF MANAGEMENT BY TENANT

          Notwithstanding the other provisions of this Lease, and in particular
the provisions of Section 4.01 hereof, the Landlord and Tenant agree that in
the event that the Landlord has, on at least two (2) or more occasions in any
twenty-four (24) month period of the Term, been in default of any of its
material obligations under this Lease, in each case beyond such period as is
reasonably required in the circumstances for the remedy or curing of such
default (such period in no event to be less than thirty (30) days following
delivery by the Tenant to the Landlord of Notice of such default), then in such
circumstances, the Tenant, at its option exercisable on no less than ten (10)
days' Notice to the Landlord may assume responsibility for management, operation
and maintenance of the entire Leased Premises in the same manner and to the same
standards as are otherwise imposed upon the Landlord pursuant to the provisions
of this Lease. In such event, in respect of the period following the effective
date set out in such second Notice, the Tenant shall be responsible to operate
and maintain the Leased Premises at its cost and the Landlord shall, as and from
such date, no longer operate and maintain the Leased Premises or be entitled to
payment of any Management Fee and the Tenant shall be responsible for payment
to the Landlord only of those items otherwise included in Operating Costs as are
actually incurred by the Landlord from time to time thereafter in accordance
with the provisions of this Lease; provided that


                                                                              13

nothing contained in this Section shall otherwise affect the rights and
obligations of the Landlord and Tenant under this Lease, and in particular,
without limitation, under Articles VII, VIII and XIII hereof.


SECTION 4.03 - TENANT'S UNRESTRICTED ACCESS

          The Landlord covenants and agrees that provided the Tenant is not in
material default beyond any period permitted under Article XIII hereof for the
remedying or curing of such default and subject to any period during which
access to the Leased Premises may be unavailable owing to the occurrence of
damage or destruction as contemplated in Article IX hereof, the Tenant shall
have unrestricted access to the Leased Premises, twenty-four (24) hours per
day, seven (7) days per week, throughout the Term at no additional charge to the
Tenant.

ARTICLE V

UTILITIES AND ADDITIONAL SERVICES


SECTION 5.01 - CHARGES FOR UTILITIES

          The Tenant shall be solely responsible for and shall promptly pay for
the cost of electricity, water, steam, fuel, power, telephone, sewer and other
utilities supplied applicable to the Leased Premises on the basis of separate
meters installed by the Landlord at its cost. The Tenant further covenants to
heat the Leased Premises to a sufficient temperature to prevent at all times,
any damage to the Leased Premises and/or building containing the Leased Premises
and without limiting the generality of the foregoing, to heat the Leased
Premises so as to comply with any law, order, requirement and/or regulations
which from time to time govern the heating thereof.


SECTION 5.02 - ADDITIONAL SERVICES OF THE LANDLORD

          Subject to Article 4 hereof, and excluding services supplied by the
Landlord and charged to the Tenant as Operating Costs, one hundred and ten per
cent (110%) of the actual cost to the Landlord of all Additional Services
provided by the Landlord or its agent to the Tenant shall be payable forthwith
by the Tenant, upon demand by the Landlord, as an Additional Service Cost. Such
services shall include any services performed at the Tenant's request including,
without limitation, maintenance, repair, janitorial or cleaning services,
construction of additional Leasehold Improvements and replacement of bulbs
(including non-standard bulbs), tubes and ballasts. Additional Services
provided by the Landlord or its agent on behalf of the Tenant in respect of any
of the Tenant's obligations set out in the Lease which the Tenant fails to
perform shall be paid by the Tenant to the Landlord as Additional Rent
forthwith following written demand therefor at the rate of one hundred and
fifteen per cent (115%) of the cost to the Landlord.


SECTION 5.03 - THIRD PARTY SERVICES

          Excluding services supplied by the Landlord and charged to the Tenant
as Operating Costs or as an Additional Service Cost, the Tenant shall be solely
responsible for, and promptly pay to the appropriate third party, all charges
for services used or consumed in or provided to the Leased Premises, including,
without limitation, rug shampooing, telecommunications services, janitorial
services, pest control and other services not available through the Landlord. In
no event will the Landlord be liable to the Tenant in damages or otherwise for
any failure to supply any third-party services to the Leased Premises.


ARTICLE VI
----------

USE OF LEASED PREMISES
----------------------

SECTION 6.01 - USE OF THE LEASED PREMISES

          The Leased Premises shall be used for general purposes for the Type
of Business of the Tenant specified in Section 1.01(19), provided such purposes
comply with the terms, covenants and conditions of


                                                                              14

this Lease and all applicable Laws from time to time in existence. The Leased
Premises may not be used for any other purposes.


SECTION 6.02 - OBSERVANCE OF LAW

          The Tenant shall at its sole cost and expense, and in particular, and
without limitation, where applicable in compliance with Sections 8.01 and 8.02
hereof, promptly observe and comply with all Laws or requirements of all
governmental authorities, including fire insurance underwriters, now or
hereafter in force which pertain to or affect the Leased Premises, the Tenant's
use of the Leased Premises or the conduct of any business in the Leased
Premises, or the making by the Tenant of any repairs, replacements, alterations,
additions, changes, substitutions or improvements of or to the Leased Premises.
The Tenant shall carry out all modifications, alterations or changes of or to
the Leased Premises and the Tenant's conduct of business in or use of the Leased
Premises which are required by any such authorities, provided that the Tenant
shall not be responsible for the making of any repairs or alterations to the
Leased Premises made necessary by the failure of the Landlord to comply with any
Laws.


SECTION 6.03 - ENERGY CONSERVATION

          Consistent with its obligations to keep the Leased Premises in good
repair, order and condition hereunder, the Tenant will at its cost comply with
all Laws relating to the conservation of energy affecting the Leased Premises
and the conduct of business therein, including compliance with all reasonable
requests and demands of the Landlord intended to achieve the conservation of
energy.


SECTION 6.04 - ODOURS, DUST OR NOISE

          The Tenant warrants that no noxious odours, dust or unreasonable noise
will emanate from the Leased Premises as a result of the operations conducted by
the Tenant therein and the Tenant further covenants that it will not cause or
maintain any nuisance in, at or on the Leased Premises and/or the Lands.
Accordingly, the Tenant agrees that should such noxious odour, dust or noise
conditions exist, the Tenant will, at its own expense, take such steps as may be
necessary to rectify the same, provided further that if the Tenant shall fail to
commence to do so within forty-eight (48) hours and complete the same within a
reasonable time after Notice is received by the Tenant from the Landlord, then
the Landlord may, at its option and without prejudice to its other rights or
recourses:

          (a)  notify Tenant by Notice that it must shut down all its operations
                    in the Leased Premises; and

          (b)  the Landlord may proceed forthwith to take reasonable measures to
                    correct the situation and the Landlord shall be entitled to
                    cover the cost thereof from the Tenant forthwith upon demand
                    as an Additional Service Cost.


SECTION 6.05 - OBSTRUCTIONS

          The sidewalks, driveways and entries shall not be obstructed by the
Tenant, its officers, agents, servants, employees or customers or used for any
other purposes than for ingress and egress to or from the Leased Premises, and
the Tenant shall save the Landlord harmless from damages to persons or property
because of any nuisance or other act of the Tenant which shall obstruct the free
movements of persons to, in and from the Building and Lands.

SECTION 6.06 - OUTSIDE AREAS

          The Tenant shall not use any part of the exterior parking and loading
areas or any other areas outside the Building for any purpose other than
parking, shipping or receiving in the areas designated by the Landlord from time
to time for same. The Tenant shall not allow any type of storage and/or
transportation trailer belonging to or being used by or on behalf of the Tenant
to remain in such parking, shipping or receiving areas for any period of time
longer than shall be necessary for the Tenant's purposes and if any such vehicle
has remained in any parking, shipping or receiving areas for a period in excess
of that required for the Tenant's purposes, as determined by the Landlord acting
reasonably, the Landlord shall be entitled to have such trailer removed at the
Tenant's sole cost as an Additional Service. In addition, any damage caused to
such parking, shipping or receiving areas as a result of the presence of such
trailer shall be forthwith repaired by the Tenant, at the Tenant's sole cost
or, at the Landlord's option, shall be repaired by the Landlord and the costs
thereof shall be payable forthwith by the Tenant, upon demand by the Landlord,
as an Additional Service Cost.


                                                                              15

     For the purposes of this Lease:

     (a)  "Environmental Law" means any law, by-law, order, ordinance, ruling,
                    regulation, certificate, approval, consent or directive of
                    any applicable federal, provincial or municipal government,
                    governmental department, agency or regulatory authority or
                    any court of competent jurisdiction, relating to
                    environmental matters and/or regulating the import, storage,
                    distribution, labeling, sale, use, handling, transport or
                    disposal of Hazardous Substances, including but not limited
                    to, the Environmental Protection Act (Ontario), as amended
                    from time to time;

     (b)  "Hazardous Substance" means any contaminant, pollutant, dangerous
                    substance, noxious substance, toxic substance, hazardous
                    waste, flammable or explosive material, radioactive
                    material, urea formaldehyde foam insulation, asbestos,
                    polychlorinated biphenyl's, polychlorinated biphenyl waste,
                    polychlorinated biphenyl related waste, and any other
                    substance or material now or hereafter declared, defined or
                    deemed to be regulated or controlled in or pursuant to the
                    Environmental Law; and

     (c)  "Release" means any release, spill, emission, leakage, pumping,
                    injection, deposit, disposal, discharge, dispersal, leaching
                    or migration.

     During the Term of this Lease, the Tenant shall:

          (i)    comply with all requirements of the Environmental Law (provided
                           that the Tenant shall have no responsibility to
                           remedy any breach of Environmental Law which existed
                           as at the Commencement Date and which did not arise
                           from any act or omission of the Tenant prior to such
                           date, whether in the construction of its Leasehold
                           Improvements or otherwise);

          (ii)   conduct its business operation in the Leased Premises in such a
                           manner as to prevent the Release of any Hazardous
                           Substance in, on, under, over or at the Leased
                           Premises.

     If the Tenant creates or brings to the Leased Premises any Hazardous
Substances or if the conduct of the Tenant's business shall cause there to be
any Hazardous Substance at the Leased Premises then, notwithstanding any rule of
law to the contrary, such Hazardous Substance shall be and remain the sole and
exclusive property of the Tenant and shall not become the property of the
Landlord notwithstanding the degree of affixation to the Leased Premises of the
Hazardous Substance, and notwithstanding the expiry or earlier termination of
this Lease.

     During the Term, and at the expiration of the Term of this Lease, the
Tenant shall, at the Tenant's sole cost and expense in accordance with all
requirements of Environmental Law, remove any Hazardous Substance brought or
permitted to be brought onto the Leased Premises by the Tenant or those for
whom the Tenant is at law responsible.


ARTICLE VII
-----------
INSURANCE AND INDEMNITY
-----------------------

SECTION 7.01 - TENANT'S INSURANCE

     (a)  The Tenant shall throughout the period that the Tenant is given
                    possession of the Leased Premises and during the entire
                    Term, at its sole cost and expense, take out and keep in
                    full force and effect, the following insurance:

     (i)  all-risk property insurance (including but not limited to sprinkler
                        leakage, flood, earthquake and collapse coverage) in an
                        amount equal to the full replacement cost thereof upon
                        property of every description and kind owned by the
                        Tenant or for which the Tenant is liable, or installed
                        by or on behalf of the Tenant and which is located
                        within the Leased Premises including, without
                        limitation, Leasehold Improvements, tenant's fixtures,


                    the Tenant's stock-in-trade, furniture and personal property
                    provided that if there is a dispute as to the amount which
                    comprises full replacement cost, the decision of the
                    Landlord shall be conclusive;

      (ii)  business interruption insurance in such amount as will reimburse the
                    Tenant for direct or indirect loss of earnings attributable
                    to all perils insured against in Section 7.01(a)(i) and
                    other perils commonly insured against by prudent tenants or
                    attributable to prevention of access to the Leased Premises
                    as a result of such perils;

      (iii) comprehensive general and legal liability insurance, including
                    bodily injury, property damage and personal injury
                    liability, tenant's legal liability, contractual liability
                    and owners' and contractors' protective insurance coverage
                    with respect to the Leased Premises and the Tenant's use of
                    the Leased Premises, coverage to include the activities and
                    operations conducted by the Tenant and any other person for
                    whom the Tenant is in law responsible. Such policies shall
                    be written on a comprehensive basis with inclusive limits
                    of not less than five million dollars ($5,000,000) for
                    bodily injury to any one or more persons or property damage,
                    and such higher limits as the Landlord, acting reasonably,
                    or the Mortgagee requires from time to time, and shall
                    contain a severability of interests clause and a cross-
                    liability clause;

      (iv)  if appropriate, broad form comprehensive boiler and machinery
                    insurance on a blanket repair and replacement basis with
                    limits for each accident in an amount not less than the full
                    replacement cost of all Leasehold Improvements and of all
                    boilers, pressure vessels, air-conditioning equipment and
                    miscellaneous electrical apparatus owned or operated by the
                    Tenant or by others (other than the Landlord) on behalf of
                    the Tenant in or serving the Leased Premises;

      (v)   insurance required by reason of the introduction by or on behalf of
                    the Tenant or any occupant of the Leased Premises, or any
                    part thereof, of any radioactive material or substance, into
                    or on or about the Leased Premises or on the Lands, or for
                    any other reason requiring special coverage; and

      (vi)  any other form of insurance which the Landlord, acting reasonably,
                    requires from time to time in form, in amounts and for risks
                    against which a prudent tenant would insure.

      (b)   All policies shall:

      (i)   be taken out with insurers acceptable to the Landlord;

      (ii)  be in a form satisfactory from time to time to the Landlord which
                    form may include a reasonable deductible, the amount of
                    which will be subject to the Landlord's approval, which
                    approval may not be unreasonably withheld;

      (iii) be non-contributing with and shall apply only as primary and not as
                    excess to any other insurance available to the Landlord or
                    the Mortgagee;

(iv)  not be invalidated as respects the interests of the Landlord and of the
                    Mortgagee by reason of any breach of violation of any
                    warranties, representations or conditions contained in the
                    policies;

      (v)   contain an undertaking by the insurers to notify the Landlord and
                    the Mortgagee in writing not less than thirty (30) days
                    prior to any material change, cancellation or termination
                    thereof;

      (vi)  name the Landlord and the Mortgagee as insured parties and, in
                    respect of property damage insurance, incorporate the
                    Mortgagee's standard mortgage clause; and

(vii) contain a waiver of subrogation by the insurer in respect of any claims to
                    which it might otherwise be entitled against the Landlord or
                    those for whom it is at law responsible.

      (c)   Certificates of insurance or, if required by the Landlord or the
                    Mortgagee, certified copies of each such insurance policy
                    will be delivered to the Landlord as soon as practicable
                    after the placing of the required insurance and in any event
                    such certificates of insurance shall be delivered at least
                    ten (10) days-prior to the effective date of coverage.
                    Provided that no review or approval of any such


                                                                              17

                    insurance certificate by the Landlord shall derogate from or
                    diminish the Landlord's rights or the Tenant's obligations
                    contained in this Article.

      (d)   If the Tenant fails to take out or keep in force any insurance
                    referred to in this Section 7.01, or should any such
                    insurance not be approved by either the Landlord or the
                    Mortgagee and should the Tenant not commence to diligently
                    rectify (and thereafter proceed to diligently rectify) the
                    situation within twenty-four (24) hours after written notice
                    by the Landlord to the Tenant (stating, if the Landlord or
                    the Mortgage does not approve of such insurance, the
                    reasons therefor), the Landlord has 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 paid by the Tenant to the
                    Landlord on demand as Additional Rent without prejudice to
                    any other rights and remedies of the Landlord under this
                    Lease.

      (e)   The Tenant agrees that in the event of damage or destruction to the
                    Leasehold Improvements in the Leased Premises covered by
                    insurance pursuant to Section 7.0l(a)(i), the Tenant shall
                    use the proceeds of such insurance for the purpose of
                    repairing or restoring such Leasehold Improvements, it being
                    acknowledged and agreed that the Tenant shall endeavour, in
                    good faith, to replicate the Leasehold Improvements as at
                    the Commencement Date but shall not be obligated in such
                    repairing or restoring to adhere strictly to the same plans
                    and specifications which were employed in the original
                    construction of such Leasehold Improvements. If the event of
                    damage to or destruction of the Building entitling the
                    Landlord or the Tenant to terminate the Lease pursuant to
                    Section 9.01(b) and the Lease is terminated, the Tenant
                    shall forthwith pay to the Landlord all of its insurance
                    proceeds relating to the Leasehold Improvements in or on
                    the Leased Premises and the Tenant shall upon demand deliver
                    to the Landlord in accordance with the provisions of this
                    Lease the Leasehold Improvements and the Leased Premises.


SECTION 7.02 - INCREASE IN INSURANCE PREMIUMS

         The Tenant shall not keep, use, sell or offer to sell in or upon the
Leased Premises any article which may be prohibited by any fire insurance policy
in force from time to time covering the Leased Premises. In addition, if:

         (a)   the occupation of the Leased Premises by the Tenant;

         (b)   the conduct of business in the Leased Premises by the Tenant;
               or

         (c)   any act or omission of the Tenant in the Leased Premises or any
               part thereof;

causes or results in any increase in premiums for the insurance carried from
time to time by the Landlord with respect to the Leased Premises, the Tenant
shall pay any such increase in premiums as Additional Rent forthwith upon demand
by the Landlord. In determining whether increased premiums are caused by or
result from the use or occupancy of the Leased Premises by the Tenant or those
for whom the Tenant is at law responsible, a schedule issued by the organization
computing the insurance rate on the Leased Premises showing the various
components of such rate shall be conclusive evidence of the several items and
charges which make up such rate. The Tenant shall comply promptly with all
requirements of any insurer now or hereafter in effect pertaining to or
affecting the Leased Premises.


SECTION 7.03 - CANCELLATION OF INSURANCE

         If any insurance policy upon the Leased Premises or any part thereof
shall be cancelled or shall be threatened by the insurer to be cancelled or the
coverage thereunder reduced in any way by the insurer by reason of the use or
occupation of the Leased Premises or any part thereof by the Tenant or by any
assigns or sub-tenant of the Tenant, or by anyone permitted by the Tenant to be
upon the Leased Premises, the Tenant shall remedy the condition giving rise to
cancellation, threatened cancellation or reduction of coverage within twenty-
four (24) hours after Notice thereof by the Landlord.


SECTION 7.04 - LOSS OR DAMAGE


                                                                              18

     The Landlord shall not be liable for any death or injury arising from or
out of any occurrence in, upon, at or relating to the Leased Premises, or damage
to property of the Tenant or of others located on or in the Leased Premises, nor
shall it be responsible for any loss of or damage to any property of the Tenant
or others from any cause whatsoever, except for any such death, injury, loss or
damage which results from the negligence of the Landlord, its agents, servants
or employees or other persons for whom it may in law be responsible and provided
that in no event shall the Landlord be responsible for any loss, injury or
damage contemplated by Section 7.07(b), or for any indirect or consequential
damages sustained by the Tenant or others. Without limiting the generality of
the foregoing but subject to the exceptions to the limitation of the liability
of the Landlord set out herein, the Landlord shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, dampness,
falling plaster, falling ceiling tile, falling ceiling fixtures (including part
or all of the ceiling T grid system) and diffuser coverings, or from steam, gas,
electricity, water, rain, flood, snow or leaks from any rentable premises or
from the pipes, sprinklers, appliances, plumbing works, roof, windows or
subsurface of any floor or ceiling of the Leased Premises or from the street or
any other place or by any other cause whatsoever. The Landlord shall not be
liable for any such damage caused by other persons on the Leased Premises or by
occupants of adjacent property thereto (save to the extent such other persons or
occupants are persons for whom the Landlord is otherwise at law responsible) or
the public, or caused by construction by persons other than the Landlord or
those for whom it is at law responsible or by any public or quasi-public work.
Subject to the foregoing, all property of the Tenant kept or stored on the
Leased Premises shall be so kept or stored at the risk of the Tenant only and
the Tenant shall indemnify the Landlord and save it harmless from any claims
arising out of any damage to the same including, without limitation, any
subrogation claims by the Tenant's insurers.


SECTION 7.05 - LANDLORD'S INSURANCE

     The Landlord shall at all times throughout the Term carry:

     (a)   insurance on the Building (excluding the foundations and
                   excavations) and the machinery, boilers and equipment
                   contained therein or servicing the Building and owned by the
                   Landlord (specifically excluding any property with respect to
                   which the Tenant is obliged to insure pursuant to Section
                   7.01) against damage by fire and extended perils or all-
                   risks coverage;

     (b)   public liability and property damage insurance with respect to the
                   Landlord's operations, if any, on the Leased Premises;

     (c)   loss of rental income insurance, or loss of insurable gross profits
                   commonly insured against by prudent landlords, including loss
                   of all rentals receivable from the Tenant in accordance with
                   the provisions of this Lease, including Basic Rent and
                   Additional Rent; and

     (d)   such other form or forms of insurance as the Landlord or the
                   Mortgagee reasonably considers advisable and which a prudent
                   owner of a similar building would maintain.

     Such insurance shall be in such reasonable amounts and with such reasonable
deductibles as would be carried by a prudent owner of reasonably similar
industrial building, having regard to size, age and location. Notwithstanding
the Landlord's covenant contained in this Section 7.05, and notwithstanding any
contribution by the Tenant to the cost of insurance premiums provided herein,
the Tenant acknowledges and agrees that no insurable interest is conferred upon
the Tenant under any policies of insurance carried by the Land1ord, and the
Tenant has no right to receive any proceeds of any such insurance policies
carried by the Landlord. The Landlord shall obtain in each of its policies of
insurance a waiver of any rights of subrogation to which the Landlord's insurer
might otherwise be entitled against the Tenant or those for whom the Tenant is
at law responsible.


SECTION 7.06 - INDEMNIFICATION OF THE LANDLORD

     Except as provided in Section 7.07(a) but notwithstanding any other
provision of this Lease, the Tenant agrees to protect, indemnify and save each
of the Landlord and its officers, employees and agents completely harmless from
and against:

     (i)  any loss (including loss of Basic Rent and Additional Rent),
                   claims, actions, damages, liability and expenses in
                   connection with loss of life, personal injury, damage to
                   property or any other loss or injury whatsoever arising out
                   of any occurrence in, upon or at the Leased Premises, and
                   related to the occupancy or use thereof by the Tenant of the
                   Leased Premises or any part thereof, or occasioned wholly or
                   in part by any act or omission of the Tenant and/or any other
                   person for whom the Tenant is at law responsible; and


          (ii) any Environmental Claim as hereinafter defined, directly or
                       indirectly incurred, sustained or suffered by or asserted
                       against the Landlord and/or its officers, employees and
                       agents caused by or attributable to, either directly or
                       indirectly, any act or omission of the Tenant and/or any
                       other person for which the Tenant is in law responsible
                       prior to or during the Term of this Lease.

          For the purposes of this Lease, "Environmental Claim" means any
claims, losses, costs, expenses, fines, penalties, payments and/or damages
(including without limitation, all reasonable solicitors' fees on a solicitor
and his own client basis) relating to, arising out of, resulting from or in any
way connected with the Release (as such term is defined in Section 6.07 of this
Lease) in, on, over, upon or from the Leased Premises of any Hazardous Substance
(as such term is defined in Section 6.07 of this Lease) including, without
limitation, all costs and expenses of any remediation or restoration of the
Leased Premises and/or the Lands required or mandated by the Environmental Law
(as such term is defined in Section 6.07 of this Lease).

          If the Landlord shall, without fault on its part, be made a party of
any litigation commenced by or against the Tenant, then the Tenant shall
protect, indemnify and hold the Landlord harmless and shall pay all costs,
expenses and reasonable legal fees incurred or paid by the Landlord in
connection with such litigation. The Tenant shall also pay all reasonable costs,
expenses and legal fees that may be incurred or paid by the Landlord in
reasonably enforcing the terms, covenants and conditions in this Lease unless a
court of law having jurisdiction shall decide otherwise.


SECTION 7.07 - LIMITATIONS OF LIABILITY

          (a) The Tenant shall not be liable to the Landlord in respect of
                       any loss, injury or damage insured or required to be
                       insured by the Landlord under Sections 7.05(a) and (c) to
                       the extent of any recovery by the Landlord under such
                       insurance or to the extent the Landlord would have
                       recovered had it placed such coverage as is required of
                       it pursuant to Section 7.05 hereof and diligently
                       pursued any available claim thereunder; and

          (b) The Landlord shall not be liable to the Tenant in respect of any
                       loss, injury or damage to property insured or required to
                       be insured by the Tenant under Sections 7.01(a)(i), (ii)
                       and (iv) to the extent of any recovery by the Tenant
                       under such insurance or to the extent the Tenant would
                       have recovered had it placed such coverage as is
                       required of it pursuant to Subsection 7.01(a) hereof and
                       diligently pursued any available claim thereunder.




ARTICLE VIII
------------
MAINTENANCE, REPAIRS AND ALTERATIONS
------------------------------------

SECTION 8.01 - MAINTENANCE AND REPAIRS BY THE TENANT

         (a)  Subject to Sections 8.03 and 9.01 hereof, the Tenant shall
                       at all times at its sole cost, keep and maintain the
                       Leased Premises and every part thereof, including all
                       facilities, equipment and services, both inside and
                       outside, in a clean and tidy condition and will not
                       permit waste paper, garbage, ashes, waste, debris or
                       other objectionable material to accumulate thereon or
                       therein and the Tenant will not use any outside garbage
                       or other containers (other than those approved or
                       designated by the Landlord) and the Tenant shall arrange
                       for removal and disposal of waste and garbage at its sole
                       expense. Subject to sections 8.03 and 9.01 hereof, the
                       Tenant, at its sole cost and expense, shall renew,
                       rebuild, replace, operate, maintain, paint and keep the
                       Leased Premises and every part thereof, both exterior
                       and interior, all equipment, fixtures, appurtenances used
                       in or about the Leased Premises,


                                                                              20

                       including plumbing, electrical, heating, cooling, and
                       other facilities and systems during the Term of this
                       Lease, in good repair and condition, as a careful and
                       prudent tenant would do (such reasonable wear and tear as
                       would not be repaired by a careful and prudent tenant,
                       damage by insured perils, and repairs to the structural
                       elements of the Building and base building, mechanical,
                       electrical and plumbing systems only excepted, unless and
                       to the extent caused by the negligent act or omission of
                       the Tenant or those for whom the Tenant is in law
                       responsible).

         (b)  The Tenant shall examine the Leased Premises before taking
                       possession thereof and unless the Tenant furnishes the
                       Landlord with a notice in writing specifying any defect
                       in the construction of the Leased Premises within
                       fifteen (15) days after such taking of possession, the
                       Tenant shall conclusively be deemed to have examined the
                       Leased Premises, to have agreed that they are in order,
                       and such taking of possession without the giving of such
                       notice as aforesaid within such fifteen (15) day period
                       is conclusive evidence against the Tenant that at the
                       time thereof the Leased Premises were in good order and
                       satisfactory condition, subject to latent defects, if
                       any. The Tenant agrees that there is no promise,
                       representation or undertaking by or binding upon the
                       Landlord with respect to the use of the Leased Premises
                       or any alteration, remodeling or redecorating of or
                       installation of equipment or fixtures in the Leased
                       Premises, except such, if any, as are expressly set forth
                       in this Lease or the Agreement to Lease.

         (c)  The Tenant acknowledges that it will not enter, nor permit or
                       suffer any person to enter upon the roof of the building
                       containing the Leased Premises or make any opening in the
                       roof or roof membrane without the prior written consent
                       of the Landlord.

         (d)  In addition to the specific obligations elsewhere in this Lease
                       reserved and contained on the part of the Tenant to be
                       observed and performed and without in any way limiting
                       the generality thereof (but subject always to the
                       Landlord's obligations in this Lease contained), the
                       condition, maintenance, operation and management of the
                       Leased Premises, and other improvements thereon or
                       therein from time to time, including without limitation
                       all machinery, equipment and other facilities therein or
                       thereon, shall be the sole responsibility of the Tenant,
                       throughout the Term hereof and the Tenant shall make all
                       payments, foreseen, unforeseen, ordinary and/or
                       extraordinary, required to be made not only with respect
                       to the observance and performance of such specific
                       obligations but also with respect to the general
                       obligation in this clause contained.


SECTION 8.02 - LANDLORD'S  APPROVAL OF THE TENANT'S REPAIRS OR ALTERATIONS

         (a)      During the Term of this Lease or any renewal or extension
                       hereof, the Tenant shall not make any repairs,
                       replacements or, Leasehold Improvements in any part of
                       the Leased Premises without first obtaining the
                       Landlord's written approval, such approval not to be
                       unreasonably withheld, and in connection therewith the
                       Tenant shall, prior to commencing any such work, submit
                       to the Landlord:

         (i)      for its prior approval details of the proposed work, including
                       drawings and specifications prepared by qualified
                       architects or engineers and conforming to good
                       engineering practice;

         (ii)     such reasonable indemnification against liens, costs, damages
                       and expenses (including its costs and expenses incurred,
                       or which may be incurred, in reviewing the proposed work
                       and supervising its completion) and such insurance
                       coverage as the Landlord reasonably requires; and

         (iii)    evidence satisfactory to the Landlord that the Tenant has
                       obtained at its expense all necessary consents, permits,
                       licences and inspections from all governmental and
                       regulatory authorities having jurisdiction.

         (b)      All such repairs, replacements or, Leasehold Improvements made
                       or installed by the Tenant in the Leased Premises and
                       approved by the Landlord shall be performed:

         (i)      with quality materials owned by the Tenant at the sole cost of
                       the Tenant;

         (ii)     by competent workmen whose labour union affiliations are
                       compatible with others employed by the Landlord and its
                       contractors;

         (iii)    in a good and workmanlike manner;


                                                                              21



(iv)  in accordance with the drawings and specifications approved by the
Landlord; and

(v)   subject to the reasonable regulations, supervision, controls and
inspection of the Landlord.

(c)   If any such repairs, replacements, Leasehold Improvements would affect the
structure of the Building, or any of the electrical, mechanical or other base
building systems or their warranties, such work shall, at the option of the
Landlord, be performed by the Landlord as an Additional Service at competitive
prices. If such work would affect such warranties, the Landlord may reasonably
refuse to allow such work to be done. Upon completion thereof, and thereafter,
to the extent requiring ongoing maintenance, repair or replacement, the Tenant
shall pay to the Landlord the Additional Service Cost in respect thereof.

(d)   In respect of repairs, alterations or replacements of or to the Leased
Premises during the Term, the Tenant shall pay to the Landlord, as Additional
Rent, the Landlord's reasonable costs and fees incurred in respect of the
supervising, coordinating, monitoring, reviewing, inspecting and approving of
the construction of the Leasehold Improvements, including professional fees
incurred by the Landlord, such costs not to exceed in the aggregate for
construction of the Tenant's initial Leasehold Improvements twenty-five cents
($0.25) per square foot and not to exceed, in the aggregate, for other
construction of Leasehold Improvements during the Term, ten cents ($0.10) per
square foot and, if the Landlord's architects and engineers responsible for the
Leased Premises are not retained by the Tenant to complete any improvements in
the Leased Premises affecting the structure thereof or any of the electrical,
mechanical or other base building systems or their warranties, any cost or
expense of the Landlord's architects and engineers in respect of approval of
plans, and supervision and/or inspection of such work, will each be payable by
the Tenant as Additional Rent upon being invoiced by the Landlord.

(e)   The Landlord and Tenant acknowledge that the provisions of this Section
8.02 are intended to apply during the Term, that is as and from the Commencement
Date only, and are not intended to apply to the initial construction of the
Leasehold Improvements, which shall be governed by Section 2.03 hereof.

SECTION 8.03 - MAINTENANCE AND REPAIRS BY THE LANDLORD

(a)   The Landlord agrees with the Tenant to keep in good and first class
condition and repair as a careful and prudent owner would do:

(i)   the exterior portions of the Building and other structures from time to
time forming part of the Leased Premises and affecting its general appearance
including, without limitation, the exterior weather walls and the asphalt
parking lot and lighting and landscaped areas of the Leased Premises, including
all landscaping, snow plowing, trash removal and general building and grounds
maintenance functions; and

(iii) the structural members or elements of the Leased Premises, including its
foundations, floor structures, roof and water proof membrane and structural
portions of exterior walls, bearing walls, structural columns and beams and base
building mechanical, electrical and HVAC components and plumbing systems and
drains, gas, electrical and other utility services to the Building located in,
on or under the Lands, except for repairs caused by the negligent act or
omission of the Tenant or those for whom the Tenant is in law responsible.

(b)   Subject to Section 9.01 the Landlord agrees with the Tenant to repair
Insured Damage.

(c)   The Tenant acknowledges and agrees that the Landlord is not liable for any
damages, direct, indirect or consequential, or for damages for personal
discomfort, illness



                                                                              22

                         or inconvenience of the Tenant or the Tenant's
                         servants, clerks, employees, invitees or other persons
                         by reason of failure of any equipment, facilities or
                         systems servicing the Leased Premises or of reasonable
                         delays in the performance of any repairs, replacements
                         and maintenance for which the Landlord is responsible
                         pursuant to this Lease and no such delay shall entitle
                         the Tenant to any compensation or abatement whatsoever.

           (d)   If the Tenant refuses or neglects to carry out any repairs
                         properly required to be carried out by it under this
                         Lease and to the reasonable satisfaction of the
                         Landlord, the Landlord may, but shall not be obliged
                         to, make such repairs without being liable for any loss
                         or damage that may result to the Tenant's merchandise,
                         fixtures or other property or to the Tenant's business
                         by reason thereof and upon completion thereof, the
                         Tenant shall pay to the Landlord the Additional
                         Service Cost in respect thereof.


SECTION 8.04 - SURRENDER OF THE LEASED PREMISES

           At the expiration of the Term or earlier termination of this Lease,
the Tenant shall peaceably surrender and yield up the Leased Premises to the
Landlord in as good condition and repair as the Tenant is required to maintain
the Leased Premises throughout the Term and the Tenant shall surrender all keys
for the Leased Premises to the Landlord at the place then fixed for the payment
of Rent and shall inform the Landlord of all combinations of locks, safes and
vaults, if any, in the Leased Premises. Notwithstanding any other provision of
this Lease to the contrary, the Tenant shall not be required to remove its
Leasehold Improvements at the expiration or earlier termination of the Term. The
Tenant may, however, and shall, if requested by the Landlord as provided in
Section 8.08 hereof, remove all of its trade fixtures before surrendering the
Leased Premises as aforesaid. The Tenant's obligation under this covenant shall
survive the expiration of the Term or earlier termination of this Lease.


SECTION 8.05 - REPAIR WHERE THE TENANT IS AT FAULT

           Save for the limitation of liability contained in Section 7.07(a) but
notwithstanding any other provision of this Lease, if the Leased Premises or
any part thereof, or any equipment, machinery, facilities or improvements
contained therein or made thereto, or the roof or outside walls of the
Building or any other structural portions thereof require repair or replacement
or become damaged or destroyed by reason of any act, omission to act, neglect or
default of the Tenant or those for whom the Tenant is in law responsible or
through any of them in any way stopping up or damaging the climate control,
heating apparatus, water pipes, drainage pipes or other equipment or facilities
or parts of the Leased Premises, the cost of the resulting repairs, replacements
or alterations shall be an Additional Service Cost to the Tenant.


SECTION 8.06 - TENANT NOT TO OVERLOAD FACILITIES

           The Tenant shall not install any equipment which will alter, exceed
or overload the capacity of any utility, electrical or mechanical facilities in
the Leased Premises, and the Tenant will not bring into the Leased Premises or
install any utility, electrical or mechanical facility or service which the
Landlord does not approve, such approval not to be unreasonably withheld. The
Tenant agrees that if any changes proposed or used by the Tenant requires
additional utility, electrical or mechanical facilities, the Landlord may, in
its sole discretion, if they are available, elect to install them in accordance
with plans and specifications to be approved in advance in writing by the
Landlord and the reasonable and competitive cost thereof shall be an Additional
Service Cost to the Tenant.


SECTION 8.07 - TENANT NOT TO OVERLOAD FLOORS

           The Tenant shall not bring into the Building or any part thereof any
machinery, equipment, article or thing that by reason of its weight, size or
use might in the opinion of the Landlord damage the Building or the Leased
Premises and shall not at any time overload the floors of the Building.


SECTION 8.08 - REMOVAL AND RESTORATION BY TENANT

           (a)   All Leasehold Improvements shall immediately become the
                         property of the Landlord upon affixation or
                         installation without compensation therefor to the
                         Tenant, but the Landlord is under no obligation to
                         repair, maintain or insure any Leasehold Improvements.
                         Leasehold Improvements and trade fixtures shall not be
                         removed from the Leased Premises either during or at
                         the expiration or earlier termination of the Term
                         except that:

           (i)   the Tenant may during the Term in the usual or normal course of
                              its business and without the prior written consent
                              of the Landlord remove its trade fixtures,


                                                                              23

                         provided that such trade fixtures have become excess
                         for the Tenant's purposes or the Tenant is substituting
                         new and similar trade fixtures therefor, and provided
                         that the Tenant is not in default under this Lease;

         (ii)  the Tenant shall, immediately prior to the expiration of the Term
                         and at its own cost, remove all trade fixtures
                         requested by the Landlord to be removed and repair any
                         damage to the Leased Premises caused by their
                         installation and removal, failing which such may be
                         completed by the Landlord as an Additional Service to
                         the Tenant; and

(iii)    the Tenant may, with the prior written consent of the Landlord, but
                         shall not be obligated, to remove at its own cost from
                         the Leased Premises immediately prior to the expiration
                         of the Term, any of the Tenant's Leasehold Improvements
                         and shall repair any damage to the Leased Premises
                         caused by their installation and removal, failing which
                         such repair may be completed by the Landlord as an
                         Additional Service to the Tenant.

         (b)   If the Tenant does not remove its trade fixtures requested by
                   the Landlord to be removed at the expiration or earlier
                   termination of the Term, the trade fixtures shall, at the
                   option of the Landlord, become the property of the Landlord
                   and, as an Additional Service to the Tenant, may be removed
                   from the Leased Premises and sold or disposed of by the
                   Landlord in such manner as it deems advisable.

         All property of the Tenant remaining on the Leased Premises after the
termination of the tenancy shall be deemed to have been abandoned by the Tenant
in favour of the Landlord and may be disposed of by the Landlord at its
discretion without prejudice to the rights of the Landlord to claim damages
from the Tenant for failure to remove the same.


SECTION 8.09 - NOTICE BY THE TENANT

         The Tenant shall when it becomes aware of same notify the Landlord by
Notice of any damage to or deficiency or defect in any part of the Leased
Premises, any equipment or utility systems or any installations located therein
notwithstanding the fact that the Landlord may have no obligations with
respect to same.


SECTION 8.10 - TENANT TO DISCHARGE ALL LIENS

         The Tenant shall at all times during the period that the Tenant is
engaged in the construction or installation of its improvements or has been
given possession of the Leased Premises and throughout the Term promptly pay all
its architects, engineers, contractors, materialmen, suppliers and workmen and
all charges incurred by or on behalf of the Tenant for any work, materials or
services which may be done, supplied or performed at any time in respect of the
Leased Premises and the Tenant shall do any and all things necessary so as to
ensure that no lien is registered against the Leased Premises or any part
thereof or against the Landlord's interest in the Leased Premises in connection
with work performed in respect of, or materials supplied to, the Leased Premises
at the request of the Tenant (including, without limitation, obtaining a
waiver of lien from its contractors and subcontractors) and if any lien is made,
filed or registered as a result thereof, the Tenant shall discharge it or cause
it to be discharged forthwith at the Tenant's expense.

          If the Tenant fails to discharge or cause any such lien to be
discharged as aforesaid within seven (7) days of receipt of notice of same, then
in addition to any other right or remedy of the Landlord, the Landlord may but
it shall not be obligated to discharge the same by paying the amount claimed to
be due into Court or directly to any such lien claimant and the amount so paid
by the Landlord and all costs and expenses, including reasonable legal fees (on
a solicitor and his client basis) incurred as a result of the registration of
any such lien shall be immediately due and payable by the Tenant to the
Landlord as Additional Rent on demand.


SECTION 8.11 - SIGNS AND ADVERTISING

         The Tenant shall be permitted, at its sole cost, to install signage on
the Building fascia overlooking Matheson Boulevard, and on the Building standard
podium sign (which podium sign will be provided by the Landlord at its cost) to
be located at the driveway entrance to the Leased Premises. In


                                                                              24

addition, the Tenant shall be permitted to install signage on the north side of
the lands facing Highway 401, provided that such sign exceeds the height of the
Building. The Tenant shall throughout the Term be responsible for the cost of
repair and replacement of all such signs. The installation, repair and removal
of any signs permitted under this Section 8.11 shall be subject to compliance by
the Tenant with all Laws and to the Tenant obtaining the approval of the
Landlord, acting reasonably, with respect to size, location, design and method
of affixation of any such signs. The Tenant acknowledges that any sign affixed
to the Building may require structural re-enforcement, and that the costs
associated with such re-enforcement shall be paid by the Tenant to the Landlord
on demand as Additional Rent. At the expiration of the Term or earlier
termination of this Lease, the Tenant shall remove any such sign, picture,
advertisement, notice, lettering or decoration from the Leased Premises at the
Tenant's expense and shall promptly repair all damage caused by any such
installation and removal failing which such may be performed by the Landlord as
an Additional Service to the Tenant. The Tenant's obligation to observe and
perform this covenant shall survive the expiration of the Term or earlier
termination of this Lease.


ARTICLE IX
----------

DAMAGE AND DESTRUCTION
----------------------

SECTION 9.01 - DESTRUCTION OF THE LEASED PREMISES

     (a)  If the Leased Premises are at any time destroyed or damaged
                 (including, without limitation, smoke and water damage) as a
                 result of fire, the elements, accident or other casualty
                 required to be insured against by the Landlord pursuant to
                 Section 7.05 hereof or otherwise insured against by the
                 Landlord, and if as a result of such occurrence:

     (i)  the Leased Premises are rendered untenantable in whole or in part,
                       this Lease shall continue in full force and effect and
                       the Landlord shall, subject to Section 9.01(b) hereof,
                       commence diligently to reconstruct, rebuild or repair the
                       Leased Premises to the extent only of its obligations in
                       respect of the Landlord's Work, as defined in Section 8
                       of the Agreement to Lease, and if the damage is such
                       that the portion of the Leased Premises rendered
                       untenantable is not reasonably capable of use and
                       occupancy by the Tenant for the purposes of its business
                       for any period of time in excess of three (3) days, Rent
                       shall abate proportionately to the portion of the Leased
                       Premises rendered untenantable from and after the date of
                       such damage or destruction until that date which is one
                       hundred and twenty (120) days after the Landlord's
                       repairs have been completed and the Architect has
                       certified the Building, or the damaged portion thereof,
                       to be reasonably capable of use and occupancy by the
                       Tenant for the purposes of its business. The Landlord
                       shall in any event endeavour to replicate the Landlord's
                       Work as at the Commencement Date, but shall not be
                       obligated in the course of such reconstruction,
                       rebuilding or repairs to adhere strictly to the original
                       plans and specifications for the Landlord's Work, and
                       provided that in no event shall the Rentable Area of the
                       Building be less than that existing as at the
                       Commencement Date;

     (ii) the Leased Premises are not rendered untenantable in whole or in part,
                       this Lease shall continue in full force and effect, the
                       Rent and other amounts payable by the Tenant shall not
                       terminate, be reduced or abate and the Landlord shall,
                       subject to Section 9.01(b) hereof, commence diligently
                       to reconstruct, rebuild or repair the Leased Premises to
                       the extent only of its obligations in respect of the
                       Landlord's Work as defined in Section 8 of the Agreement
                       to Lease. The Landlord shall in any event endeavour to
                       replicate the Landlord's Work as at the Commencement
                       Date, but shall not be obligated in the course of such
                       reconstruction, rebuilding or repairs to adhere strictly
                       to the original plans and specifications for the
                       Landlord's Work, and provided that in no event shall the
                       Rentable Area of the Building be less than that existing
                       as at the Commencement Date;

     (b)  Notwithstanding anything contained in Section 9.01(a), if more
                 than fifty percent (50%) of the Rentable Area of the Building
                 is damaged or destroyed by any cause whatsoever and such damage
                 or destruction occurs in the last two (2) years of the Term or
                 any renewal term, then the Tenant, instead of reconstructing,
                 rebuilding or repairing the Leasehold Improvements in
                 accordance with Sections 7.01(e) and 9.01(c), may at its option
                 elect to terminate this Lease by giving to the Landlord Notice
                 of termination within forty-five (45) days after such damage or
                 destruction, and thereupon Rent and other payments for which
                 the Tenant is liable under this Lease shall be apportioned and
                 paid to the date of such damage


                                                                              25

                   or destruction, and the Tenant shall immediately deliver up
                   vacant possession of the Leased Premises to the Landlord in
                   accordance with the terms of this Lease and in such event all
                   proceeds of insurance receivable by the Tenant in respect of
                   Leasehold Improvements shall be directed or as signed to the
                   Landlord.

         (c)  Subject to the provisions of Subsection 9.01(b), upon the Tenant
                   being given Notice by the Landlord that the Landlord's
                   reconstruction, rebuilding or repairs have been substantially
                   completed, the Tenant shall forthwith complete all repairs to
                   the Leased Premises which are the Tenant's responsibility
                   under Section 7.01(e) and all other work required to fully
                   restore the Leased Premises for business in every case at the
                   Tenant's cost and without any contribution to such cost by
                   the Landlord, whether or not the Landlord has at any time
                   made any contribution to the cost of supply, installation or
                   construction of Leasehold Improvements in the Leased
                   Premises. The Tenant shall diligently complete the Tenant's
                   repairs and if the Leased Premises have been closed for
                   business, commence carrying on business within one hundred
                   and twenty (120) days after notice that the Landlord's
                   reconstructing, rebuilding or repairs have been substantially
                   completed.

         (d)  The written opinion or certificate of the Architect as to the
                   date of completion of any Landlord's repairs required to be
                   undertaken under the provisions of this Section 9.01, or as
                   to the portion of the Leased Premises which are untenable, or
                   as to when the Leased Premises or any portion thereof are
                   reasonably capable of use and occupancy by the Tenant
                   following any damage or destruction and repairs, or as to
                   whether fifty percent (50%) or more of the Rentable Area of
                   the Building has been damaged or destroyed, shall be
                   determinative of the issue.


SECTION 9.03 - ABROGATION

         (Intentionally Deleted]


                                                                              26

ARTICLE X
---------

TRANSFER AND SALE
-----------------

SECTION 10.01 - ASSIGNING AND SUBLETTING

     The Tenant will not enter into, consent to or permit a Transfer without the
prior written consent of the Landlord in each instance, which consent shall not
be unreasonably withheld, but shall be subject to the Landlord's rights under
Section 10.02. Notwithstanding any statutory provision to the contrary, it shall
not be considered unreasonable for the Landlord to take into account the
following factors in deciding whether to grant or withhold its consent:

     (a)  whether any such Transfer is in violation or breach of any covenants
               or restrictions granted by the Landlord to its Mortgagee;

     (b)  whether in the Landlord's opinion the financial background, business
               history and capability of the proposed transferee is
               satisfactory; or

     (c)  whether the proposed person or entity to whom the Transfer is being
               made is an existing tenant of the Landlord.

     The consent by the Landlord to any Transfer, if granted, shall not
constitute a waiver of the necessity for such consent to any subsequent
Transfer, whether by the Tenant or any sublessee of the Tenant. This prohibition
against a Transfer is construed so as to include a prohibition against any
Transfer by operation of law and no Transfer shall take place or be deemed to
have been consented to or approved by reason of a failure by the Landlord to
give notice to the Tenant within thirty (30) days as required by Section 10.02.

     Notwithstanding the foregoing, the Landlord hereby acknowledges that the
Tenant shall be entitled from time to time throughout the Term, and any
renewals thereof without the Landlord's consent, but upon not less than ten (10)
days' written Notice to the Landlord, to assign this Lease or to sublease a
portion of the Leased Premises to:

               (i)   any of the Tenant's parent, subsidiary or affiliated
                     corporations (within the meaning of the Ontario Business
                     Corporations Act as amended or replaced from time to
                     time);

               (ii)  an affiliate or subsidiary of the Tenant's parent; or

               (iii) any corporation in respect of which the Tenant, or a parent
                     of the Tenant holds no less than five percent (5%) of the
                     issued common shares, provided that the aggregate area
                     sublet to all such corporations does not exceed in the
                     aggregate ten thousand (10,000) square feet of Rentable
                     Area and that no such sublease shall be for a term,
                     inclusive of renewals, exceeding three (3) years, and
                     further provided that any disposition by the Tenant or its
                     parent of any of the common shares of any such corporation,
                     or the issuance of any additional shares of such
                     corporation, which would result in the holding of the
                     Tenant or the Tenant's parent being reduced or diluted to
                     less than five percent (5%) of the total issued common
                     shares at any time during which such corporation continues
                     to occupy a portion of the Leased Premises, shall
                     constitute a Transfer to which the provisions of this
                     Article X shall apply.

     In addition to, and notwithstanding the foregoing, the Tenant shall be
entitled from time to time throughout the Term, without the Landlord's consent
but upon not less than ten (10) days' written Notice to the Landlord, to
sublease any portion of the Leased Premises from time to time so long as the
aggregate Rentable Area which is the subject to all such subleases (excluding
subleases permitted under the preceding paragraph) does not exceed fifteen
percent (15%) of the Rentable Area of the Building and provided that the term of
any such sublease inclusive of all renewals, shall not exceed four (4) years.

SECTION 10.02 - LANDLORD'S RIGHT TO GIVE OR WITHHOLD CONSENT

     Save as provided for in Section 10.01, above, the Tenant shall not effect a
Transfer unless:

     (a) it shall have received or procured a bona fide written offer to effect
               a Transfer which is not inconsistent with, and the acceptance of
               which would not breach any provision of this Lease if this
               Section 10.02 is complied with and which the Tenant has accepted
               subject only to compliance with this Section 10.02, and

     (b) it shall have first requested and obtained the consent in writing of
               the Landlord thereto.


                                                                              27

     Any request for such consent shall be in writing and accompanied by a true
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 person or entity to
whom the Transfer is being made. The Landlord shall within thirty (30) days
after having received such notice and all such necessary information, notify
the Tenant in writing either that it consents or does not consent to the
Transfer in accordance with the provisions and qualifications in this Article X.

SECTION 10.03 - CONDITIONS OF TRANSFER

     (a) If there is a permitted Transfer, the Landlord may collect rent from
               the transferee and apply the amount collected to the Rent
               required to be paid pursuant to this Lease, but no acceptance by
               the Landlord of any payments by the transferee shall be deemed a
               waiver of the provisions of Article X hereof or the acceptance of
               the transferee as tenant or a release of the Tenant from the
               further performance by the Tenant of the covenants or obligations
               on the part of the Tenant herein contained. Where the Landlord's
               consent to a Transfer is required under Section 10.01, any such
               consent by the Landlord shall be subject to the Tenant executing
               and causing any such transferee to promptly execute an agreement
               directly with the Landlord agreeing to be bound by all of the
               terms, covenants and conditions contained in this Lease (in
               respect of the Leased Premises, or such portion thereof as was
               the subject of the Transfer) as if such transferee had originally
               executed this Lease as tenant.

     (b) Notwithstanding any such Transfer permitted or consented to by the
               Landlord, the Tenant and transferee shall be jointly and
               severally liable for the performance of all of the Tenant's
               obligations under this Lease in respect of the Leased Premises,
               or such portion thereof as was the subject of such Transfer, and
               the Tenant shall not be released from performing any of the
               terms, covenants and conditions of this Lease.

     (c) The Tenant agrees that if this Lease is ever disclaimed or terminated
               in a bankruptcy proceeding relating to a transferee, or if the
               Landlord terminates this Lease as a result of any act or default
               of any transferee, the Tenant shall, at the Landlord's option
               exercised by Notice to the Tenant, enter into a new lease of the
               Leased Premises on terms identical to this Lease for a term
               commencing on the date which the Landlord exercises its right to
               require the Tenant to enter into such new lease and expiring upon
               the date of expiry of this Lease; in such event, the Tenant
               will accept the Leased Premises in an "as is" condition.

     (d) There shall be no prohibition on the rent that may be charged by the
               Tenant to any transferee, but the Tenant agrees that in respect
               of any Transfer permitted hereunder, any rent or other
               consideration received by the Tenant which is in excess of the
               Rent payable by the Tenant hereunder (after deduction of the
               Tenant's reasonable costs of the Transfer, including, without
               limitation, direct leasing costs, tenant allowances or free rent,
               real estate commissions, legal fees and undepreciated capital
               costs, based upon a ten (10) year amortization period, for
               original construction costs incurred by the Tenant) shall be
               shared equally between the Tenant and the Landlord and the
               Landlord's equal share of such excess shall be payable to the
               Landlord as Additional Rent on demand.

     (e) Any document or consent evidencing any Transfer permitted by the
               Landlord or setting out any terms applicable to such Transfer or
               the rights and obligations of the Tenant or the transferee
               thereunder, shall be prepared by the Landlord or its solicitors,
               and all reasonable legal and other costs with respect thereto
               shall be paid by the Tenant to the Landlord or its solicitors
               forthwith upon demand as Additional Rent, together with an
               administrative fee payable to the Landlord in the amount of three
               hundred dollars ($300).

SECTION 10.04 - NO ADVERTISING OF THE LEASED PREMISES



                                                                              28

     The Tenant shall not print, publish, post, display or broadcast any notice
or advertisement or otherwise advertise the whole or any part of the Leased
Premises for the purpose of any Transfer and it shall not permit any broker or
other person to do any of the foregoing, unless the complete text and format of
any such notice or advertisement is first approved in writing by the Landlord,
which approval shall not be unreasonably withheld. Without in any way
restricting or limiting the Landlord's right to refuse any text or format on
other grounds, any text or format proposed by the Tenant shall not contain any
reference to the Rent of and for the Leased Premises

SECTION 10.05 - ASSIGNMENT BY THE LANDLORD

     The Landlord, at any time and from time to time, may sell, transfer, lease
assign or otherwise dispose of the whole or any part of its interest in the
Leased Premises, and at any time and from time to time may enter into any
Mortgage of the whole or any part of its interest in the Leased Premises. If the
party acquiring such interest shall have agreed, so long as it holds such
interest, to assume and to perform each of the covenants, obligations and
agreements of the Landlord under this Lease in the same manner and to the same
extent as if originally named as the Landlord in this Lease, the Landlord shall
thereupon be released from all of its covenants and obligations under this
Lease.

ARTICLE XI
----------

ACCESS AND ALTERATIONS
----------------------

SECTION 11.01 - RIGHT OF ENTRY

     The Landlord and its agents have the right on prior reasonable Notice to
enter the Leased Premises at all times to examine the same and to make such
repairs, alterations, changes, checks, adjustments, calibrations, improvements
or additions to the Leased Premises or the Building or any part thereof or
systems therein. The Tenant shall not obstruct any pipes, conduits, ducts,
mechanical shafts or electrical equipment so as to prevent reasonable access
thereto.

SECTION 11.02 - RIGHT TO SHOW LEASED PREMISES

     The Landlord and its agents have the right to enter the Leased Premises at
all times during business hours and on prior reasonable Notice to show them to
prospective purchasers, lessees or Mortgagees and during the nine (9) months
prior to the expiration of the Term, or any renewal term, the Landlord may place
upon the Leased Premises the usual "For Rent" notices which the Tenant shall
permit to remain thereon without molestation or complaint.

SECTION 11.03 - ENTRY NOT FORFEITURE

     No entry into the Leased Premises or anything done therein by the Landlord
pursuant to a right granted by this Lease shall constitute a breach of any
covenant for quiet enjoyment, or (except where expressed by the Landlord in
writing) shall constitute a re-entry or forfeiture, or any actual or
constructive eviction. The Tenant shall have no claim for injury, damages or
loss suffered as a result of any such entry or thing done by the Landlord. The
Rent required to be paid pursuant to this Lease shall not abate or be reduced
due to loss or interruption of business of the Tenant or otherwise while any
repairs, alterations, changes, adjustments, improvements or additions permitted
by this Lease are being made by the Landlord.

SECTION 11.04 - LANDLORD'S COVENANT FOR QUIET ENJOYMENT

     The Landlord hereby agrees to perform or cause to be performed all of the
obligations of the Landlord under this Lease, and further agrees that if the
Tenant pays the Basic Rent and Additional Rent and continuously performs all its
obligations under this Lease, the Tenant shall, subject to the terms and
conditions of this Lease, peaceably possess and enjoy the Leased Premises
throughout the Term and any renewal thereof without any interruption or
disturbance from the Landlord or any other person or persons lawfully claiming
by, through or under the Landlord.

SECTION 11.05 - INSPECTION

     The Landlord and its agents have the right on prior reasonable Notice to
the Tenant to enter the Leased Premises at all times to inspect the condition
thereof and where an inspection reveals repairs are necessary that are the
obligation of the Tenant under this Lease, the Landlord may give the Tenant
Notice


                                                                              29

and thereupon the Tenant will, at the Tenant's sole expense and within twenty
(20) days of the giving of such Notice, complete the necessary repairs and
replacements, in a good and workmanlike manner to the satisfaction of the
Landlord, acting reasonably. Provided always that if the Tenant shall not within
the five (5) days after the giving of such Notice, be proceeding diligently with
the execution of the repairs and replacements mentioned in such Notice, it shall
be lawful for the Landlord to enter upon the Leased Premises and execute such
repairs and replacements and the cost thereof shall immediately be due and be
paid by the Tenant to the Landlord as an Additional Service Cost.
Notwithstanding what is hereinbefore set out, should such inspection reveal
repairs which are the obligation of the Tenant and which in the reasonable
exercise of the Landlord's judgment result in an emergency then the Landlord, at
its option, shall immediately and without Notice have the right to enter on and
into the Leased Premises and the Tenant shall pay the reasonable costs involved
immediately upon demand as an Additional Service Cost.

ARTICLE XII
-----------

STATUS STATEMENT, ATTORNMENT AND SUBORDINATION
----------------------------------------------

SECTION 12.01 - STATUS STATEMENT

     Within ten (10) days after request by Notice therefor by the Landlord, the
Tenant shall deliver, in a form supplied by the Landlord, a status statement or
a certificate to the Landlord, or to the Mortgagee, or to any proposed Mortgagee
or purchaser, or as the Landlord may otherwise direct stating (if such is the
case):

     (a) that this Lease is unmodified and in full force and effect (or if there
               have been modifications, that this Lease is in full force and
               effect as modified and identifying the modification agreements);

     (b) the Commencement Date;

     (c) the date to which Basic Rent and Additional Rent have been paid under
               this Lease;

     (d) whether there is any other existing or alleged default by either party
               under this Lease with respect to which a notice of default has
               been served and if there is any such default, specifying the
               nature and extent thereof; and

     (e) whether there are any defences or counterclaims against enforcement of
               the obligations to be performed by the Tenant under this Lease.

SECTION 12.02 - SUBORDINATION AND ATTORNMENT

     It is a condition of this Lease and the Tenant's rights granted hereunder
that this Lease and all of the rights hereunder are and shall at all times be
subject and subordinate to any and all Mortgages from time to time in existence
against the Lands. Upon request, the Tenant shall subordinate the Lease and all
of its rights hereunder in such form as the Landlord reasonably requires to any
and all Mortgages, and to all advances made or hereafter to be made upon the
security thereof and, if requested, the Tenant shall attorn to the holder
thereof. Any subordination will provide that the rights of the Tenant under this
Lease shall not be interfered with so long as the Tenant is not in default
hereunder and shall be conditional upon the delivery to the Tenant of the non-
disturbance covenant. The form of such subordination shall be as required by the
Landlord or any Mortgagee. Notwithstanding the foregoing, the Landlord shall
obtain, at no cost to the Tenant, from each Mortgagee affecting the Lands
and/or the Expansion Lands from time to time, a covenant of non-disturbance in
which the Mortgagee agrees not to disturb the Tenant's possession of the Leased
Premises and to be bound by the terms of this Lease, as landlord, in the event
that such Mortgagee becomes a mortgagee in possession, exercises its power of
sale remedies or forecloses, provided that the Tenant maintains this Lease in
good standing.

SECTION 12.03 - ATTORNEY



                                                                              30

     The Tenant irrevocably constitutes the Landlord, its agent and attorney for
the purpose of executing any agreement, certificate, attornment or subordination
required by this Lease if the Tenant fails to execute and deliver such documents
within ten (10) days after request by the Landlord.

SECTION 12.04 - FINANCIAL INFORMATION

     The Tenant shall, upon request, provide the Landlord with such information
as to the Tenant's or any Indemnifier's financial standing and corporate
organization as the Landlord or the Mortgagee requires. Failure by the Tenant to
comply with the Landlord's request herein shall constitute a default under the
terms of this Lease and the Landlord shall be entitled to exercise all of its
rights and remedies provided for in this Lease.

SECTION 12.05 - ACKNOWLEDGMENT OF TITLE

     The Tenant acknowledges that its interest under this Lease is subject to:

     (a) such covenants, restrictions, easements, agreements and reservations
               of record, and any easements, licences, rights-of-way and cost
               sharing arrangements and agreements respecting the same which are
               disclosed on the Parcel Register for the Lands or which are
               hereafter made in connection with the provision of access or
               services to the Leased Premises and which may affect the
               Landlord's title;

     (b) all Laws of the City of Mississauga, Province of Ontario and
               Government of Canada, and of all statutory commissions, boards
               and bodies having jurisdiction over the Leased Premises;

     (c) the condition of the Landlord's title existing at the date hereof; and

     (d) municipal realty taxes, local improvement rates, duties, assessments,
               water and sewer rates and other impositions accrued but not yet
               due.

ARTICLE XIII
------------

DEFAULT
-------

SECTION 13.01- RIGHT TO RE-ENTER

     If and whenever:

     (a) the Tenant fails to pay any Basic Rent or Additional Rent or other sums
               due hereunder on the day or dates appointed for the payment
               thereof (providing the Landlord first gives five (5) days' Notice
               to the Tenant of any such failure); or

     (b) the Tenant fails to observe or perform any other of the terms,
               covenants or conditions of this Lease to be observed or performed
               by the Tenant (other than the terms, covenants or conditions
               set out below in subparagraphs (c) to (h), (k) and (1) inclusive,
               for which no Notice shall be required), provided the Landlord
               first gives the Tenant ten (10) days' (or such longer period of
               time as is reasonably required in the circumstances) Notice of
               any such failure to perform and the Tenant within such period of
               ten (10) days (or such longer period) fails to cure any such
               failure to perform, or (where such failure to perform is not
               curable within such period) fails to commence diligently within
               such period and to thereafter proceed diligently to cure any such
               failure; or

     (c) the Tenant or any agent of the Tenant falsifies any report or statement
               required to be furnished to the Landlord pursuant to this Lease;
               or

     (d) the Tenant becomes bankrupt or insolvent or takes the benefit of any
               act now or hereafter in force for bankrupt or insolvent debtors
               or files any proposal or makes any assignment for the benefit of
               creditors or any arrangement or compromise; or

     (e) a receiver or a receiver and manager is appointed for all or a
               portion of the property of the Tenant; or

     (f) any steps are taken or any action or proceedings are instituted by the
               Tenant or by any other party including, without limitation, any
               court or governmental body of competent jurisdiction for the
               dissolution, winding-up or liquidation of the Tenant or its
               assets; or



                                                                              31

         (g)   the Tenant makes a sale in bulk of any of its assets wherever
                    situate (other than a bulk sale made pursuant to a permitted
                    Transfer hereunder and pursuant to the Bulk Sales Act of
                    Ontario); or

         (h)   the Tenant abandons or attempts to abandon the Leased Premises or
                    sells or disposes of a substantial part of the trade
                    fixtures, or goods and chattels of the Tenant or removes
                    them from the Leased Premises except in accordance with this
                    Lease; or

         (i)   the Leased Premises, without prior Notice from the Tenant to the
                    Landlord, become and remain vacant for a period of fifteen
                    (15) consecutive days or are used by any persons other than
                    such as are entitled to use them hereunder; or

         (j)   the Tenant purports to make a Transfer, except in a manner
                    permitted by this Lease; or

         (k)   this Lease or any of the Tenant's assets located at the Leased
                    Premises are taken under any writ of execution; or

         (l)   re-entry is permitted under any other terms of this Lease

then and in every such case, the Landlord, in addition to any other rights or
remedies it has pursuant to this Lease or by Laws, has the immediate right of
re-entry upon the Leased Premises and it may repossess the Leased Premises and
enjoy them as of its former estate and may expel all persons and remove all
property from the Leased Premises and such property may be removed and sold or
disposed of by the Landlord as it deems advisable or may be stored in a public
warehouse or elsewhere at the cost and for the account of the Tenant, all
without service of notice or resort to legal process and without the Landlord
being considered guilty of trespass or becoming liable for any loss or damage
which may be occasioned thereby.


SECTION 13.02 - RIGHT TO RE-LET

         If the Landlord elects to re-enter the Leased Premises as herein
provided or it takes possession pursuant to legal proceedings or pursuant to any
notice provided for by law, it may either terminate this Lease or it may from
time to time without terminating this Lease, make such alterations and repairs
as are necessary to re-let the Leased Premises or any part thereof for such term
or terms (which may be for a term extending beyond the Term) and at such rent
and upon such other terms, covenants and conditions as the Landlord in its sole
discretion, acting reasonably, considers advisable. Upon each such reletting,
all rent received by the Landlord from such re-letting shall be applied, first,
to the payment of any indebtedness other than Basic Rent or Additional Rent due
hereunder from the Tenant to the Landlord; second, to the payment of any
brokerage fees and legal fees and of costs of such alterations, repairs and re-
letting (including tenant inducements); third, to the payment of Basic Rent and
Additional Rent due and unpaid hereunder; and the residue, if any, to the extent
applicable to any period of time within the Term, shall be held by the Landlord
and applied in payment of future rent as the same becomes due and payable
hereunder. If such rent to be received from such re-letting during any month is
less than that to be paid during that month by the Tenant hereunder, the Tenant
shall pay any such deficiency which shall be calculated and paid monthly in
advance on or before the first day of each and every month. No such re-entry or
taking possession of the Leased Premises by the Landlord shall be construed as
an election on its part to terminate this Lease unless a Notice of such
intention is given to the Tenant. Notwithstanding any such re-letting without
termination, the Landlord may at any time thereafter elect to terminate this
Lease for such previous breach.


SECTION 13.03 - TERMINATION

         If the Landlord at any time terminates this Lease for any breach, in
addition to any other remedies it may have, it may recover from the Tenant all
damages it incurs by reason of such breach, including the cost of recovering the
Leased Premises, legal fees (on a solicitor and his client basis) and including
the worth at the time of such termination of the excess, if any, of the amount
of Basic Rent, Additional Rent and charges equivalent to the Basic Rent,
Additional Rent and other charges required to be paid pursuant to this Lease for
the remainder of the stated Term over the then reasonable rental value of the
Leased Premises for the remainder of the stated Term, all of which amounts shall
be immediately due and payable by the Tenant to the Landlord.

31


                                                                              32

SECTION 13.04 - ACCELERATED RENT

          In any of the events referred to in Section 13.01, in addition to any
and all other rights available to the Landlord, the full amount of the current
month's installment of Basic Rent and of all Additional Rent for the current
month, together with the next three (3) months' installments of Basic Rent and
of all Additional Rent for the next three (3) months, all of which shall be
deemed to be accruing due on a day-to-day basis, shall immediately become due
and payable as accelerated rent, and the Landlord may immediately distrain for
the same, together with any arrears then unpaid.


SECTION 13.05 - EXPENSES

          If legal action is brought for recovery of possession of the Leased
Premises, for the recovery of Basic Rent or Additional Rent or any other amount
due under this Lease, or because of the breach of any other terms, covenants or
conditions herein contained on the part of the Tenant to be kept or performed,
and such breach is established, the Tenant shall pay to the Landlord all
expenses incurred therefor, including legal fees (on a solicitor and client
basis).


SECTION 13.06 - WAIVER OF EXEMPTION FROM DISTRESS

          The Tenant hereby agrees with the Landlord that notwithstanding
anything contained in Section 30 of R.S.O. 1990, c.L.7 or any Statute
subsequently passed to take the place of or amend the said Act, none of the
goods and chattels of the Tenant at any time during the continuance of the Term
on the Leased Premises shall be exempt from levy by distress for Basic Rent or
Additional Rent in arrears and the Tenant waives any such exemption. If any
claim is made for such exemption by the Tenant or if a distress is made by the
Landlord, this provision may be pleaded as an estoppel against the Tenant in any
action brought to test the right of the Landlord to levy such distress.


SECTION 13.07 - LANDLORD MAY CURE TENANT'S DEFAULT OR
                PERFORM TENANTS COVENANTS

          If the Tenant fails to pay when due any amounts or charges required to
be paid pursuant to this Lease (other than the late payment of Basic Rent which
shall be governed by Section 2.07 hereof), the Landlord after giving five (5)
days' Notice to the Tenant may, but shall not be obligated to, pay all or any
part of the same. If the Tenant is in default in the performance of any of its
covenants or obligations hereunder (other than the payment of Basic Rent,
Additional Rent or other sums required to be paid pursuant to this Lease), the
Landlord may, after giving ten (10) days' Notice to the Tenant, but shall not be
obligated to, from time to time (or without notice in the case of an emergency),
perform or cause to be performed any of such covenants or obligations, or any
part thereof, and for such purpose may do such things as may be required,
including, without limitation, entering upon the Leased Premises and doing such
things upon or in respect of the Leased Premises or any part thereof as the
Landlord reasonably considers requisite or necessary. All expenses incurred and
expenditures made pursuant to this Section 13.07 including the Landlord's
overhead in connection therewith plus a sum equal to twenty-five per cent (25%)
thereof shall be paid by the Tenant as Additional Rent forthwith upon demand.


SECTION 13.08 - ADDITIONAL RENT

          If the Tenant is in default in the payment of any amounts or charges
required to be paid pursuant to this Lease, they shall, if not paid when due, be
collectible as Additional Rent forthwith on demand, but nothing herein contained
is deemed to suspend or delay the payment of any amount of money at the time it
becomes due and payable hereunder, or limit any other remedy of the Landlord.
The Tenant agrees that the Landlord may, at its option, apply or allocate any
sums received from or due to the Tenant against any amounts due and payable
hereunder in such manner as the Landlord sees fit. All such monies payable to
the Landlord hereunder shall bear interest at a rate per annum which is five (5)
percentage points in excess of the Bank Rate calculated on a daily basis from
the time such sums become due until paid by the Tenant.


SECTION 13.09 - REMEDIES GENERALLY

          Mention in this Lease of any particular remedy of the Landlord in
respect of the default by the Tenant does not preclude the Landlord from any
other remedy in respect thereof, whether available at law or in equity or by
statute or expressly provided in this Lease. No remedy shall be exclusive or
dependant upon any other remedy, but the Landlord may from time to time exercise
any one or more of such remedies generally or in combination, such remedies
being cumulative and not alternative. In the event of a breach or threatened
breach by the Tenant of any of the covenants, provisions or terms hereof, the
Landlord shall have the right to invoke any remedy allowed at law or in equity
(including injunction) as if


                                                                              33

re-entry and other remedies were not provided for herein.


SECTION 13.10 - HOLDING OVER

         If the Tenant shall hold over after the original Term or any extended
term hereof with the consent of the Landlord, such holding over shall be
construed to be a tenancy from month to month only and shall have no greater
effect, any custom, statute, law or ordinance to the contrary notwithstanding.
Such month-to-month tenancy shall be governed by the terms and conditions
hereof, notwithstanding any statutory provision or rule of law to the contrary.
During any such period of holding over, whether with the consent of the Landlord
or not, the Tenant shall be required to pay the monthly Basic Rent payable
during the month immediately preceding the expiration or termination of this
Lease times two (2), plus all Additional Rent payable hereunder. The rights of
the Landlord under this section shall be in addition to all other remedies
available to the Landlord under this Lease or otherwise at law or in equity
arising as a result of such holding over.


SECTION 13.11- NO WAIVER

         The failure of the Landlord or the Tenant to insist upon a strict
performance of any of the covenants and provisions herein contained on the part
of the other party shall not be deemed a waiver of any rights or remedies that
the Landlord (or the Tenant, as the case may be) may have and shall not be
deemed a waiver of any subsequent breach or default in the covenants and
provisos herein contained.


ARTICLE XIV
-----------

MISCELLANEOUS
-------------


SECTION 14.01- RULES AND REGULATIONS

         The Landlord shall have the right at its discretion to make reasonable
rules and regulations (the "Rules and Regulations"), including without
limitation, those set out in Schedule "F" attached not contrary to the spirit
and intent of this Least which may from time to time be needful for the safety,
care, cleanliness and proper administration of the Leased Premises, and for the
preservation of good order therein. The Rules and Regulations are hereby made a
part of this Lease as if they were embodied herein, and the Tenant, its agents,
invitees, servant, employees and licensees shall comply with and observe the
same. Failure by the Tenant to keep and observe any of the Rules and Regulations
now or from time to time in force constitutes a default under this Lease in such
manner as if the same were contained herein as covenants. The Landlord reserves
the right, from time to time to amend or supplement the Rules and Regulations
and Notice of the Rules and Regulations and amendments and supplements, if any,
shall he given to the Tenant and the Tenant shall thereupon comply with and
observe all such Rules and Regulations, provided that no Rule or Regulation
shall contradict any terms, covenants and conditions of this Lease.


SECTION 14.02 - SECURITY DEPOSIT

         The Landlord acknowledges receipt from the Tenant of the Security
Deposit which shall be applied by the Landlord, in part, to the first month's
Basic Rent due hereunder in respect of Phase 1 of the Building, as defined in
Section 2.05 hereof, and the balance of which shall be held by the Landlord for
the performance of the Tenant's obligations under this Lease. If at any time
during the Term, the Basic Rent or Additional Rent or any other sums payable by
the Tenant to the Landlord under this Lease are overdue and unpaid beyond any
notice period provided for herein, or if the Tenant fails to keep and perform
any of the terms, covenants and conditions of this Lease to be kept, observed
and performed by the Tenant and does not remedy such failure within any notice
period as is provided for herein, then the Landlord at its option may, in
addition to any and all other rights and remedies provided for in this Lease or
by law, appropriate and apply the Security Deposit, or so much thereof as is
necessary to reimburse and make good the actual damage of the Landlord. If the
Security Deposit, or any portion thereof is appropriated and applied by the
Landlord for the payment of overdue Basic Rent, Additional Rent or other sums
due and payable to the Landlord by the Tenant hereunder, then the Tenant shall
upon Notice from the Landlord, forthwith remit to the Landlord a sufficient
amount in cash to restore the Security Deposit to the amount held by the
Landlord immediately prior to such appropriation and the Tenant's

33


                                                                              34

failure to do so within ten (10) business days after receipt of such demand
constitutes a breach of this Lease. If the Tenant complies with all of the
terms, covenants and conditions and promptly pays all the Basic Rent, Additional
Rent and other sums herein provided and payable by the Tenant to the Landlord,
the Security Deposit shall be returned in full (and with interest as provided
for herein) to the Tenant following a favourable move-out inspection by the
Landlord and the Tenant (less any costs for repair of damage) and within ninety
(90) days after the end of the Term. Without limiting the generality of the
foregoing, the Landlord and Tenant agree that the Security Deposit shall earn
interest from and after the Commencement Date at the rate established by the
Royal Bank of Canada for thirty day certificates of deposit (or such other rate
for longer term deposits as is requested by the Tenant, so long as the funds can
be obtained by the Landlord on demand) from time to time, which interest shall
be paid to the Tenant annually upon delivery by the Landlord of the annual
statement reconciling Additional Rent as provided for in Subsection 3.07(b)
hereof. At any time throughout the Term or any renewal, the Tenant shall be
permitted to replace the Security Deposit with an irrevocable, stand-by letter
of credit from a chartered Canadian bank and in a form acceptable to the
Landlord, acting reasonably.


SECTION 14.03 - PEST CONTROL

          In accordance with Section 5.03, the Tenant shall enter into a service
contract for the control and extermination of pests and vermin providing for
regular inspections and spraying of the Leased Premises in order to control
pests and vermin in accordance with all applicable laws, by-laws, ordinances and
regulations of any governmental or other authority having jurisdiction. All
amounts incurred under such service contract shall be for the Tenant's some
cost.


SECTION 14.04 - OBLIGATIONS AS COVENANTS

          Each obligation or agreement of the Landlord or the Tenant expressed
in this Lease, even though not expressed as a covenant, is considered to be a
covenant for all purposes.


SECTION 14.05 - AMENDMENTS AND SUPPLEMENTARY LEASE PROVISIONS

          This Lease shall not be modified or amended except by an instrument in
writing of equal formality herewith and signed by the parties hereto or by their
permitted successors or assigns. Each of the Landlord and Tenant agrees that, if
a Schedule "F" and/or a Schedule "G" is annexed to this Lease, the terms and
provisions thereof shall be binding upon the parties hereto as part of the
Lease.


SECTION 14.06 - CERTIFICATES

          The following certificates shall be conclusive and binding upon the
parties to this Lease in respect of any question of fact or opinion in dispute
with respect to the matters stipulated:


          (a)  a certificate procured by the Landlord from an architect,
                    professional engineer, quantity surveyor or other qualified
                    individual but who may not be an employee of the Landlord as
                    to the Rentable Area of the Building, any question of fact
                    concerning the completion of any construction or other work
                    either by the Landlord or the Tenant, the extent to which
                    the completion of any such work has been delayed by
                    Unavoidable Delay, the time necessary to complete repairs,
                    the allocation of insurance proceeds, the allocation of
                    Taxes to the Leased Premises, the aggregate of the cost of
                    the Building and the costs of additional improvements of a
                    capital nature, the cause of any destruction or damage, the
                    extent to which the Building is incapable of being used for
                    its intended purposes by reason of any destruction or
                    damage; and

          (b)  a certificate procured by the Landlord from a licensed public
                    accountant, who may be the Landlord's auditor but who may
                    not be an employee of the Landlord as to any question of
                    fact or opinion concerning the computation of Taxes and
                    Operating Costs and the proper amount of any payment to the
                    Landlord or the Tenant under this Lease, provided that
                    certificate shall not be deemed to restrict the Tenant or
                    the Tenant's auditor from challenging any error or
                    miscalculation in any statement delivered by the Landlord
                    pursuant to Section 3.07 hereof or in any related expense or
                    other records reviewed by the Tenant.

          Any certificate procured by the Landlord shall be prepared using
generally accepted practices and procedures appropriate to such certificate.

SECTION 14.07 - TIME


                                                                              35

         Time shall in all respects be of the essence of this Lease.


SECTION 14.08 - SUCCESSORS AND ASSIGNS

         This Lease and everything contained shall extend to and bind and enure
to the benefit of the Landlord and its successors and assigns and the Tenant and
the Indemnifier, if any, and their respective heirs, executors, administrators
and permitted successors and assigns. No rights shall enure to the benefit of
any transferee unless the provisions of Article X hereof are complied with.


SECTION 14.09 - GOVERNING LAW

         This Lease shall be construed and governed by the laws of the
Province of Ontario.


SECTION 14.10 - HEADINGS

         The Section numbers, article numbers, headings and table of contents
appearing in this Lease are inserted only as a matter of convenience and in no
way define, limit, construe or describe the scope or intent of such paragraphs
or articles of this Lease nor in any way affect this Lease.


SECTION 14.11- ENTIRE AGREEMENT

         This Lease and the schedules attached hereto and forming a part hereof,
the Agreement to Lease together with a letter dated October 13, 2000, from Mr.
J. Marotta of the Landlord to the Tenant confirming certain construction details
(the "Confirmation Letter") set forth all the covenants, promises, agreements,
conditions and understandings between the Landlord and the Tenant concerning the
Leased Premises and there are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them, other than as are herein
and therein set forth; for greater certainty, the Tenant acknowledges that it
has not entered into the Agreement to Lease or this Lease on the basis of any
information contained in the promotional material published by the Landlord. In
the event of a conflict between the provisions of this Lease and the provisions
of the Agreement to Lease, the provisions of this Lease shall prevail (save in
respect of any matters touched upon by those provisions of the Agreement to
Lease expressly incorporated into this Lease by reference in Section 2.03
hereof, and as set out in Schedule "G" hereto, in which case the provisions of
the Agreement to Lease shall prevail to the extent of such conflict, and save in
respect of any matters touched upon in the Confirmation Letter in which case the
provisions of the Construction Letter shall prevail over those of both the Lease
and the Agreement to Lease to the extent of any conflict).


          SECTION 14.12 - SEVERABILITY

                   If any term, covenant or condition of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease or the application of such
term, covenant or condition to persons or circumstances other than those as to
which it is held invalid or unenforceable shall not be affected thereby and each
term, covenant or condition of this Lease shall be valid and enforced to the
fullest extent permitted by law.


          SECTION 14.13 - NO OPTION

                   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
Landlord and Tenant.

          SECTION 14.14 - OCCUPANCY PERMIT

                   Provided further that notwithstanding the Possession Date
or the Commencement Date of the Lease as hereinbefore set out, the Tenant shall
not be permitted to enter into possession of the Leased Premises until the
Tenant has obtained, at its sole expense, any required occupancy permit from the
proper governmental authority. The Landlord in its sole discretion may waive
this provision, provided further the Tenant agrees to use its best efforts to
obtain same prior to occupancy.

35




                                                                              36


          SECTION 14.15 - PLACE FOR PAYMENTS

                  All payments required to be made by the Tenant herein shall be
made to the Landlord at the Landlord's Address or to such agent or agents of the
Landlord or at such other place as the Landlord shall hereafter from time to
time direct by Notice.

          SECTION 14.16 - EXTENDED MEANINGS

                  The words "hereof", "herein", "hereunder" and similar
expressions used in any section or subsection of this Lease relate to the whole
of this Lease and not to that section or subsection only, unless otherwise
expressly provided. The use of the neuter singular pronoun to refer to the
Landlord or the Tenant is deemed 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 necessary grammatical
changes required to make the provisions of this Lease apply in the plural sense
where there is more than one Landlord or Tenant and to either corporations,
associations, partnerships or individuals, males or females, shall in all
instances be assumed as though in each case fully expressed.

          SECTION 14.17 - NO PARTNERSHIP OR AGENCY

                  The Landlord does not in any way or for any purpose become a
partner of the Tenant in the conduct of its business or otherwise or a joint
venture or a member of a joint enterprise with the Tenant, nor is the
relationship of principal and agent created.

          SECTION 14.18 - UNAVOIDABLE DELAY

                  Notwithstanding anything to the contrary contained in this
Lease, but subject to the provisions of Section 2.03 hereof, if either party
hereto is bona fide delayed, or hindered in or prevented from the performance
of, any term, covenant or act required hereunder by reason of Unavoidable Delay,
then performance of such term, covenant or act is excused for the period of the
delay and the party so delayed, hindered or prevented shall be entitled to
perform such term, covenant or act within the appropriate time period after the
expiration of the period of such delay. However, the provisions of this Section
do not operate to excuse the Tenant from the prompt payment of Basic Rent,
Additional Rent or any other payments required by this Lease.

          SECTION 14.19 - CONSENTS AND APPROVALS

                  Except as may be expressly set out to the contrary in this
Lease, wherever any provision of this Lease provides for any consent, approval,
permission or other decision of the Landlord or of the Tenant, or their
respective architects, engineers, auditors or similar agents, such provision
shall be deemed to provide that such consent, approval, permission or other
decision shall not be unreasonably withheld or unduly delayed.

          SECTION 14.20 - REGISTRATION

          (a)   The Tenant hereby covenants and agrees that neither the
                     Tenant nor anyone on the Tenant's behalf or claiming under
                     the Tenant shall register this Lease or any assignment or
                     sublease of this Lease or any document evidencing any
                     interest of the Tenant in the Lease or the Leased Premises.
                     If the covenant contained in this Section 14.19(a) is
                     breached, this Lease and the Term shall, at the option of
                     the Landlord upon ten (10) days' Notice to the Tenant,
                     forthwith become forfeited and terminated and the Landlord
                     may thereupon re-enter and repossess the Leased Premises if
                     the Tenant fails to remove or release any such prohibited
                     registration. The Tenant acknowledges that any breach of
                     such covenant may occasion substantial costs to the
                     Landlord. The Tenant shall indemnify the Landlord and save
                     it harmless from and against any loss, claim, action,
                     damages, liability and expenses arising in connection with
                     any breach by the Tenant of such covenant.

          (b)   Notwithstanding Section 14.19(a), if either party intends to
                     register a document for the purpose only of giving notice
                     of this Lease or of any permitted Transfer, then upon
                     request of such party the Landlord shall cause to be
                     executed a short form


                                                                              37

                     of this Lease ("Short Form"), and the Tenant shall join
                     therein, solely for the purpose of supporting an
                     application for registration of notice of this Lease or of
                     any permitted Transfers. The form of the Short Form and of
                     the application to register notice of this Lease or of any
                     permitted Transfer shall:

          (i)   be prepared by the Landlord or its solicitors at the Tenant's
                              expense; and

          (ii)  only describe the registered owner of the Lands, the Tenant, the
                              Leased Premises, the Commencement Date and the
                              expiration of the Term.

          (c)   The Short Form shall contain a provision whereby the Tenant
                     constitutes and appoints the Landlord or its nominee as
                     the agent and attorney of the Tenant for the purpose of
                     executing any documents in writing required from the
                     Tenant to give effect to the provisions of Section 12.01 of
                     the Lease, including the right to make application at any
                     time and from time to time to register postponements of
                     this Lease or the Short Form in favour of any Mortgage
                     pursuant to Section 12.02. All costs, expenses and taxes
                     necessary to register or file the application to register
                     notice of this Lease or of any permitted Transfer shall be
                     the sole responsibility of the Tenant, and the Tenant will
                     complete any necessary affidavits required for registration
                     purposes, including affidavits necessary to register the
                     power of attorney from time to time as may be required to
                     give effect to this Section

          (d)   Notwithstanding that the Short Form may be executed and
                     delivered after the execution and delivery of this Lease,
                     none of the terms of this Lease shall be considered to have
                     been superseded thereby or no longer in effect, but rather
                     this Lease shall continue in full force and effect and
                     continue to enure to the benefit of and be binding upon the
                     parties to this Lease. To the extent that the terms of the
                     Short Form are inconsistent with the terms of this Lease,
                     the terms of this Lease shall govern

SECTION 14.21 - JOINT AND SEVERAL LIABILITY

          The liability to pay Rent and perform all other obligations under this
Lease of each individual, corporation, group, partnership or business
association signing this Lease or otherwise agreeing to be bound by the terms
hereof and of each partner or member of any such group, partnership or business
association, the partners or members of which are by law subject to personal
liability, shall be deemed to be joint and several (including, in any event, any
person who ceases to be a partner or member or any person who becomes a partner
or member, in each case following the execution of this Lease).

SECTION 14.22 - NAME OF BUILDING

          The Landlord may designate, change, alter or remove the name of the
Building or of any development of which the Leased Premises from a part at any
time without requiring the Tenant's consent thereto or incurring any liability
to the Tenant thereby.

          Any trade name or mark adopted by the Landlord for the Building or any
such development shall be used by the Tenant only in association with its
business conducted in or from the Leased Premises and subject to such
limitations, regulations and restrictions as the Landlord may from time to time
impose on its use. The Tenant will not acquire any rights to or interest in any
such trade name or mark and shall cease all use thereof upon ceasing to be a
permitted occupant of the Leased Premises.

SECTION 14.23 - CHANGES IN THE LEASED PREMISES

          [Intentionally Deleted]


SECTION 14.24 - COMPLIANCE WITH THE PLANNING ACT


                                                                              38

          It is an expressed condition of this Lease and the Landlord and the
Tenant so agree and declare that the provisions of Section 50(3), R.S.O. 1990,
c.P.13 and amendments thereto, be complied with if applicable in law. Until any
necessary consent to the Lease is obtained, the term of this Lease and the
Tenant's rights and entitlement granted by this Lease are deemed to extend for a
period not exceeding twenty-one (21) years less one (1) day. The Tenant shall
apply diligently to prosecute such application for such consent forthwith upon
the execution of the Lease by both the Landlord and the Tenant and the Tenant
shall be responsible for all costs, expenses, taxes and levies imposed, charged
or levied as a result of such application and in order to obtain such consent.
The Tenant shall keep the Landlord informed, from time to time, of its progress
in obtaining such consent and the Landlord shall co-operate with the Tenant in
regard to such application. Notwithstanding the foregoing provisions of this
Section 14.23, the Landlord reserves the right at any time, to apply for such
consent in lieu of the Tenant (on behalf and at the expense of the Tenant) and
the Tenant's application is hereby expressly made subject to any application
which the Landlord intends to make.

ARTICLE XV
----------

INDEMNITY AGREEMENT
-------------------

SECTION 15.01 - INDEMNITY

          [Intentionally Deleted]

SECTION 15.02 - FURTHER ASSURANCES

          [Intentionally Deleted]


         IN WITNESS WHEREOF the Landlord and the Tenant have executed this
Lease as of the day of October, 2000.

 LANDLORD:                           PAULS PROPERTIES CORPORATION

                                     _________________________c/s
                                     Name:
                                     Authorized signatory

                                     ____________________________
                                     Name:
                                     Authorized signatory
                                     I/We have authority to bind the corporation


TENANT:                              CERTICOM CORP.

                                     /s/ Robert Williams
                                     -------------------------c/s
                                     Name: ROBERT WILLIAMS
                                     Authorized signatory

                                     ____________________________
                                     Name:
                                     Authorized signatory
                                     I/We have authority to bind the corporation


                                                                              39

                                 SCHEDULE "A"

                       PROPOSED NEW MULTITENANT FACILITY
                                      FOR
                             THE PAULS CORPORATION
                             MISSISSAUGA, ONTARIO


                                  [AREA PLAN]



                                                                              40

                [BUILDING ELEVATION WITH SECOND STOREY GLAZING]


                                                                              41



                                SCHEDULE "B 1"

                         (Legal description of Lands)

That portion of Parts 3,4,7,15,16 and 17 of Registered Plan 43R-23593 as
outlined approximately in red on Schedule "B3". Part of Lot 2 concession 4 east
of Hurontario Street, City of Mississauga.


(Explanation: Being approximately 7.3 acres comprising 1980 Matheson Blvd. East,
Mississauga and approximately 5.3 acres comprised of approximately 2-3 acres of
woodlot and a land parcel of approximately 2-3 acres which is zoned M2 on the
northeast corner of Matheson Blvd. East and Creekbank Road. The entire parcel
being 1980 Matheson, the woodlot and the corner lot are all registered as one
site at this time.)


                                                                              42

                                 SCHEDULE "B 2"

                     (Legal description of Expansion Land)


That portion of Parts 3,4,7,15,16 and 17 of Registered Plan 43R-23593 as
outlined approximately in yellow on Schedule "B3" . Part of Lot 2 concession 4
east of Hurontario Street, City of Mississauga.

(Explanation: Being approximately 7.3 acres comprising 1980 Matheson Blvd. East,
Mississauga and approximately 5.3 acres comprised of approximately 2-3 acres of
woodlot and a land parcel of approximately 2-3 acres which is zoned M2 on the
northeast corner of Matheson Blvd. East and Creekbank Road. The entire parcel
being 1980 Matheson, the woodlot and the corner lot are all registered as one
site at this time.)


                                                                              43

                                 SCHEDULE "B3"

                            [GRAPHIC APPEARS HERE]


                                                                              44

                                 SCHEDULE "C"

                            [GRAPHIC APPEARS HERE]


                                                                              45

                                 SCHEDULE "D"

                     ACKNOWLEDGEMENT OF COMMENCEMENT DATE
                     ------------------------------------

TO:               PAULS PROPERTIES CORPORATION
                          (the "Landlord")




                  The undersigned Tenant under a certain lease between the
 undersigned and the Landlord dated XX, 2000 (the "Lease"), hereby acknowledges
 and certifies to you that:


 1.      The Commencement Date of the Lease was the XX day of XX, 2000.

 2.      We have accepted possession of the Leased Premises pursuant to the
         terms of the Lease and are now in possession thereof.

 3.      The Leased Premises have been erected and delivered in accordance with
         the terms of the Lease.

 4.      The Leased Premises have been fixtured and our normal business
         operations are being conducted therein.

 5.      There has been no violation of any of the terms of the Lease, there
         is no set-off of Rent or any other payment under the Lease, and none
         of the Rent reserved under the Lease has been prepaid.

 6.      There is no violation of any of the terms of the Lease either on the
         part of the Landlord or the Tenant.

 7.      The Lease is now in full force and effect in accordance with the terms,
         and there are no oral or written modifications, violations or
         alterations thereof.

 8.      We have no knowledge of any assignment of the Lease.


         DATED at XXXX this XX day of XX, 2000.


                                                     TENANT


 ____________________________________
 Authorized signatory
 c/s


 ____________________________________
 Authorized signatory


                                                                              46

                                 SCHEDULE "E"

RULES AND REGULATIONS
---------------------

1.  The sidewalks, driveways, parking areas, entry passages, fire escapes and
    stairways, if any, shall not be obstructed by any of the tenants, or used by
    them for any purpose other than ingress and egress to and from their
    respective premises. The Tenant shall not place or allow to be placed in the
    Leased Premises any waste paper, dust, garbage, refuse or anything whatever
    that would tend to make them unclean or untidy.

2.  The water closets or other water apparatus shall not be used for any purpose
    other than those for which they were constructed, and no sweepings, rubbish,
    rags, ashes or other substances shall be thrown therein. Any damage
    resulting from misuse shall be borne by the Tenant by whom or by whose
    agents, servants or employees the same is caused. The Tenant shall not let
    the water run unless it is in actual use, nor shall they deface any part of
    the Leased Premises.

3.  The Tenant shall do or permit anything to be done in their respective
    premises or bring or keep anything therein which will in any way increase
    the risk of fire or obstruct or interfere with the rights of other tenants
    or violate or act at variance with the laws relating to fires or with the
    regulations of any fire department or any board of health.

4.  The Tenant, its clerks or servants shall not interfere with other tenants or
    those having business with them.

5.  Nothing shall be thrown by the Tenant, its clerks or servants out of the
    windows or doors.

6.  No birds or animals shall be kept in or about the Leased Premises nor shall
    the Tenant operate or permit to be operated any musical or sound producing
    instrument or device inside or outside their respective premises which may
    be heard outside their premises, or which may be deemed to be a nuisance to
    other tenants of the Leased Premises.

7.  No one shall use the Building or any part thereof 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 must observe strict care not to allow its windows or doors to
    remain open so as to admit rain or snow or so as to interfere with the
    heating of the Building. Any injury or damage caused to the Building or its
    appointments, furnishings, heating and other appliances or to any other
    tenant by reason of windows or doors being left open so as to admit rain or
    snow or by interference with or neglect of the heating appliances or by
    reason of the Tenant or other person or servant subject to it shall be made
    good by the Tenant.

9.  It shall be the duty of the Tenant to assist and co-operate with the
    Landlord in preventing injury to the Leased Premises.

10. No inflammable oils or other inflammable, dangerous or explosive materials
    shall be kept or permitted to be kept in the Leased Premises. Nothing shall
    be placed on the outside of window sills or projections.

11. No bicycles or other vehicles shall be brought within the Building except in
    the parking garage, if any.

12. The parking of cars, shall be subject to the reasonable regulations of the
    Landlord, but no fee may be charged therefor.

13. The Tenant shall not mark, paint, drill into or in any way deface the walls,
    ceilings, partitions, floors or other parts of the Building except with the
    prior written consent of the Landlord as it may direct.

14. The Tenant agrees to surrender to the Landlord on the termination of the
    Lease all keys to the said Building.

15. If the Tenant desires telegraph or telephone, it shall be the Tenant's
    responsibility to call Bell or other private signal connectors and the
    Landlord reserves the right to direct the electricians or other workmen as
    to where and how the wires are to be introduced, and without such
    directions no boring or cutting for wires shall take place. No other wires
    of any kind shall be introduced without the written consent of the Landlord.

16. Nothing shall be placed on the outside of windows or projections of the
    Leased Premises. No air-conditioning equipment shall be placed at the
    windows of the Leased Premises without the prior written consent of the
    Landlord.

17. All glass, locks and trimmings in or upon the doors or windows of the Leased
    Premises shall be


                                                                              47



    kept whole and whenever any part thereof shall become broken, the same shall
    be immediately replaced or repaired under the direction and to the
    satisfaction of the Landlord, and such replacements and repairs shall be
    paid for by the Tenant.

18. No heavy equipment of any kind shall be moved within the Building without
    skids being placed under the same, and without the consent of the Landlord
    in writing.

19. Any person entering upon the roof of the Building does so at his own risk.

20. The Tenant shall not be permitted to do cooking or to operate cooking
    apparatus except in a portion of the Building leased or designed for that
    purpose.

21. The Tenant shall leave the Leased Premises in a condition suitable for the
    performance by the Landlord or its janitorial services, if any.

22. The Landlord shall have the right to make such other and further reasonable
    rules and regulations as in its judgement may from time to time be needful
    for the safety, care, cleanliness and appearance of the Leased Premises, and
    for the preservation of good order therein and the same shall be kept and
    observed by the Tenant, its clerks and servants.


                                                                              48


                                 SCHEDULE "F"


SUPPLEMENTARY LEASE PROVISIONS
------------------------------

         With reference to the Lease dated October 12th, 2000, made between
PAULS PROPERTIES CORPORATION, as Landlord, and CERTICOM CORP., as Tenant, in
respect of the Leased Premises known municipally as 1980 Matheson Boulevard
East, Mississauga, the following supplementary provisions shall, for all intents
and purposes, form part of the Lease.

         1.      PARKING

         The Landlord agrees that the Tenant will have exclusive access to and
use of all available parking on the Lands. The Landlord covenants and agrees
that based upon the configuration for the parking lot component of the Leased
Premises as shown on Schedule "A" to the Lease, the Tenant shall have the use of
approximately four hundred and thirteen (413) unreserved parking spaces.

         In addition, the Tenant shall be entitled, strictly subject to the
provisions of Section 8.02 of this Lease, and to the provisions of Schedule "F"
of the Agreement to Lease, to construct upon the Lands and thereafter maintain,
repair and replace at its sole expense, a parking garage.


         2.       OPTION TO RENEW

         Provided that the Tenant is Certicom Corp. or a permitted assignee
hereunder and is not in material default under the Lease, the Tenant shall be
entitled to two (2) options to extend the Term of this Lease in respect of the
whole of the Leased Premises, on an "as is" basis, each such option being for an
additional or extended term of five (5) years commencing on the first day
following the expiration of the Term, or the expiration of the first renewal
term, as the case may be. The Tenant's option in each case shall be deemed to
have been exercised automatically unless the Tenant has provided the Landlord
with Notice no later than nine (9) months prior to the expiry of the Term or the
first renewal term, as the case may be, to the effect that the Tenant elects not
to extend the Term hereof. Each extension of the Term shall be on the same terms
and conditions as herein contained, including any personal rights, save that:

          (a)      there shall be no further options to extend the Term beyond
                   the second renewal term;

          (b)      there shall be no Landlord's Work and no Tenant's Work, as
                   defined in Section 8.1 of the Agreement to Lease;

          (c)      there shall be no "phases" for purposes of Rent commencement;

          (d)      there shall be no Allowance as provided for in Section 8.4 of
                   the Agreement to Lease;

          (e)      there shall be no Tenant's conditions;

          (f)      there shall be no purchase option in respect of the Expansion
                   Lands as contemplated in Section 21 of the Agreement to
                   Lease;

          (g)      the Basic Rent for each of the first renewal term and the
                   second renewal term, shall be agreed upon by the Landlord and
                   the Tenant prior to the expiration of the Term, or the first
                   renewal term, as the case may be, and it shall be equal to
                   the then current Fair Market Minimum Rent as at the
                   commencement of such renewal term. For the purposes of this
                   paragraph the phrase "Fair Market Minium Rent" means the net
                   rental rate payable for comparable space, for a comparable
                   term, in comparable office buildings in the Airport Corporate
                   Centre area, without allowance for any value of Leasehold
                   Improvements or leasehold allowances. The "Airport Corporate
                   Centre" shall be defined as the area bounded on the north by
                   Highway 401, on the south by Eglinton Avenue, on the east by
                   Renforth Avenue and on the west by Creekbank Road. Failing
                   agreement on the Fair Market Minium Rent in respect of the
                   first renewal term or the second renewal term, prior to the
                   expiration of the prior term, the Fair Market Minimum Rent
                   shall be determined by arbitration pursuant to the provisions
                   of the Arbitration Act, 1991 (Ontario). Without limiting the
                   foregoing the annual Fair Market Minimum Rent payable in
                   respect of the first year of any renewal term shall in no
                   event be less than the Basic Rent payable under the Lease in
                   respect of the immediately preceding year of the Term or of
                   the first renewal term, as the case may be.

          3.       RIGHT OF FIRST OFFER TO LEASE EXPANSION SPACE

          Provided that the Tenant is Certicom Corp. or a permitted assignee
hereunder and is not in material default under the Lease, then if the Landlord
intends to offer for lease space in a building which the Landlord has
constructed, is constructing or plans to construct on the Expansion Land (the
"Expansion Space"), the Tenant shall have a one-time right of first offer (the
"Right of First Offer") to lease all or a



                                                                              49

portion of the Expansion Space for a term of ten (10) years or such shorter term
as agreed by the Landlord and Tenant. The Landlord shall notify the Tenant in
writing of the Expansion Space and the terms and conditions upon which the
Landlord is prepared to lease such Expansion Space to the Tenant (the
"Expansion Notice"). The Tenant shall have fifteen (15) business days from
receipt of the Expansion Notice to provide an offer to the Landlord for all or a
portion of the Expansion Space and the Tenant and the Landlord shall negotiate
in good faith the terms and conditions of the Tenant's offer for a period of ten
(10) business days. It is agreed and understood that if the Tenant chooses to
lease a portion of the Expansion Space, the unleased portion must be of a size
and in a location that is leaseable to a third party, in the Landlord's
reasonable opinion. In the event the Tenant and Landlord agree on the terms and
conditions for the leasing of the Expansion Space, such terms and conditions
shall be incorporated into a separate lease on the Landlord's standard form
incorporating such revisions as may be reasonably requested by the Tenant or its
solicitors and such lease, shall be executed by the Tenant and the Landlord.

          In the event that the Tenant and the Landlord fail to agree on the
terms and conditions for the leasing of the Expansion Space or the Tenant fails
to or chooses not to exercise its Right of First Offer, the Tenant's Right of
First Offer shall be null and void and the Landlord shall be free to lease the
Expansion Space to other tenants with no further obligation to the Tenant.

          It is agreed and understood that the lease for the Expansion Space
shall be on the same terms and conditions as the Lease for the Leased Premises
save and except the Basic Rent for the Expansion Space shall be Fair Market
Minimum Rent, as defined in paragraph 2 above; the scope of the Landlord's Work
will be redefined for a typical base building package offer to any third party;
there shall be no further rights of first refusal, no phasing of occupancy, no
allowance, no right of first offer to purchase, no Tenant's conditions and no
concept of Expansion Land; parking provided will be redefined in accordance with
the City of Mississauga by-laws and regulations in effect at that time; and
Landlord's covenants, representations and warranties will be redefined to be
typical for any third party tenant.


          4.      FIRST RIGHT OF OFFER TO LEASED PREMISES

          Provided that the Tenant is Certicom Corp. or a permitted assignee
hereunder and is not in material default under the Lease, the Tenant shall have
a one time right of first offer to purchase the Leased Premises on the following
terms and conditions. Within fifteen (15) business days of the Landlord
determining to sell the Leased Premises, the Landlord shall by Notice to the
Tenant (the "Landlord Notice") indicate such intention and set out the proposed
business terms upon which the Landlord is prepared to sell the Leased Premises.
The Tenant shall have fifteen (15) business days to submit to the Landlord an
offer to purchase the Leased Premises upon such proposed business terms, or upon
such other terms as the Tenant deems advisable and the Tenant and the Landlord
shall negotiate in good faith the terms and conditions for the purchase of the
Leased Premises. If the Landlord and Tenant fail to agree on the terms and
conditions for such purchase within ten (10) business days of delivery of the
Tenant's offer to the Landlord, then the Tenant's first right to purchase the
Leased Premises shall be deemed to have been waived and the Landlord shall be
free to sell the Lease Premises to a third party on such terms and conditions as
may be acceptable to the Landlord. Without limiting the generality of the
foregoing, the Tenant acknowledges that the provisions of this paragraph shall
not apply to the sale by the Landlord of less than an undivided fifty percent
(50%) interest in the Leased Premises. For the purposes of this paragraph 4, the
term "business day", shall mean Monday to Friday, excluding statutory
holidays.


                                                                              50

                                 SCHEDULE "G"


INCORPORATED EXCERPTS FROM AGREEMENT TO LEASE
---------------------------------------------

With reference to the Lease dated October 12, 2000, made between PAULS
PROPERTIES CORPORATION, as Landlord, and CERT COM CORP., as Tenant, in respect
of the Leased Premises known municipally as 1980 Matheson Boulevard East,
Mississauga, and with respect to the AGREEMENT TO LEASE between the same
parties dated the 6/th/ day of October, 2000, and referred to in the Lease or
such Lease, the following provisions of the Agreement to Lease shall be and are
hereby deemed incorporated into the Lease, as contemplated in Section 2.03
thereof:


 8.       LANDLORD'S AND TENANT'S WORK

 8.1      The Landlord shall, at its own expense, perform and complete the work
          and improvements to the Leased Premises shown on the plans and
          specifications prepared by Giffels dated January 18, 2000, revised
          March 22, 2000, on or before the Possession Date, save and except the
          landscaping and top coat of asphalt which will be complete by June 1,
          2001 (collectively, the "Landlord's Work"). The Landlord's Work will
          be modified as requested by the Tenant at its expense and approved by
          the Landlord to accommodate a single user, both parties to act
          reasonably. The Tenant intends to perform its own leasehold
          improvements to the Leased Premises at the Tenant's sole expense (the
          "Tenant's Work") following approval by the Landlord of the Tenant's
          plans and specifications, such approval not to be unreasonably
          withheld or unduly delayed. Any and all Tenant's Work done prior to
          the Commencement Date or during the Term or any renewals shall be done
          in accordance with Schedule "F" attached. All work and improvements
          by Landlord and Tenant shall be performed in a good and workmanlike
          manner in accordance with all applicable building codes and laws using
          quality materials which are proper for the purpose. The actual space
          plan conforming to the dimensions of the Leased Premises shall be
          prepared by the Tenant, however, the Landlord agrees to contribute
          Seven Cents ($0.07) per square foot of the Leased Premises for the
          preparation of such preliminary plan, such sum payable upon execution
          of this Offer by the Landlord and the Tenant and waiver of all
          conditions. The Landlord hereby consents to and agrees to co-operate
          with the Tenant's contractor with respect to the construction of the
          Tenant's Work.

8.2       Without limiting the extent of the Landlord's Work identified by
          Giffels, such work will include the following items to be completed by
          the Landlord at its sole expense. In the event of a conflict between
          the Landlord's Work identified by Giffels and this provision, this
          provision shall govern:
          (i)      24 foot clear glass and precast single story structure with
                   bay sizes of approximately 36 ft.X40 ft.. Roof is built-up 4-
                   ply on metal deck with insulation factor of R20;
          (ii)     Concrete floors of approximately 4" inches thick (20 MPa at
                   28 days);
          (iii)    Ordinary hazard sprinkler system distributed on an open plan
                   basis;
          (iv)     Sufficient power including without limitation, 1170 KW
                   capacity, 1200 amp/600 volt service to a panel, not
                   distributed;
          (v)      Domestic water and sanitary line to two (2) locations as
                   shown on the Tenant's plans;
          (vi)     Exterior parking and landscaping as per base building
                   design;
          (vii)    Intentionally deleted;
          (viii)   Supply and install base building standard glass along the
                   second-storey face of the Building fronting on the adjacent
                   creek, all as shown on Schedule "A1" attached;
          (ix)     Install at the Tenant's cost additional skylights not part
                   of the base building, supplied by the Tenant at its cost,
                   according to the Tenant's plan in compliance with Schedule
                   "F"; provided that the Tenant delivers plans to the Landlord
                   showing the exact size, location and design of the skylights
                   no later than November 15, 2000 and failing this delivery,
                   the Landlord shall be permitted a delay on completion of
                   this portion of the Landlord's Work only on the basis of one
                   day after the Possession Date for each day of delay by the
                   Tenant, it being understood that if the Tenant does not
                   provide drawings as required herein, this item will not be
                   considered to be a delay to the Possession Date;
          (x)      Reduce the number of truck level doors specified in the
                   Landlord's Work to the requirement of the Tenant, such
                   requirement to be defined by the Tenant and approved by the
                   Landlord no later than November 15, 2000. Space left open by
                   removal of truck doors to be replaced with building standard
                   glass and redundant ramps to be levelled and paved for car
                   parking;
          (xi)     Relocate (and possibly reduce) the parking lot according to
                   the Tenant's plan to allow for more "green space" between the
                   Building and the adjacent creek, all as more particularly
                   shown on Schedule "A" attached;
          (xii)    Supply and install a one (1) meter high berm on the norm-
                   west corner of the property to obscure passing traffic;
          (xiii)   Supply and install a privacy fence on the south side of
                   Matheson Boulevard adjacent from the Building, subject to the
                   prior approval of the City of Mississauga.

8.3       The Landlord warrants the Landlord's Work for a period of one (1) year
          from the Commencement Date or such longer period as set forth in the
          Summary of Warranties attached


                                                                              51

     hereto as Schedule "E". The Landlord shall promptly repair and correct all
     defects upon written notice from the Tenant.

8.4  (a)  The Landlord agrees to provide the Tenant with a leasehold allowance
          (the "Allowance") equal to One Million Dollars ($l,000,000), to assist
          the Tenant with expenses related to completion of the Tenant's Work.

     (b)  If:

          i)   all or any part of the Allowance is not paid by the Landlord
               within twenty (20) business days of request from the Tenant; and
          ii)  the Tenant delivers written notice of default to the Landlord and
               such default is not cured by the Landlord within fifteen (15)
               ordinary days of such notice of default; and
          iii) a further notice is sent by the Tenant to the Landlord providing
               notice of its intention to set-off the unpaid amount against
               Minimum Rent and Additional Rent,

          interest shall accrue on such unpaid amounts at the rate of 2% per
          month (24% per annum) calculated and payable monthly from the date of
          default in subparagraph (b)(i) hereof until such unpaid amounts are
          paid in full. Upon issuance of the notice of set-off described in iii)
          above, the Tenant shall have the right to set off any and all of the
          amounts owing by the Landlord on account of the Allowance, including
          interest as set out in this provision, against the Minimum Rent and
          Additional Rent owing by the Tenant to the Landlord.

     (c)  The amount of the Allowance shall be paid in increments of no less
          than two hundred fifty thousand dollars ($250,000) to the Tenant by
          the Landlord as Tenant's Work progresses as certified by Tenant's
          architect and the value of such work is verified by the Landlord,
          provided that the final ten percent (10%) of the Allowance shall not
          be paid until satisfaction of the following conditions: 1) forty-five
          (45) days after substantial completion of the Tenant's Work and
          receipt by the Landlord of: (a) an architect's certificate confirming
          substantial completion and (b) a statutory declaration from the
          Tenant's general contractor confirming that all work is substantially
          complete and that no liens have been registered against the Leased
          Premises following publication as required by law, 2) the Tenant is in
          occupancy of at least Phase 1 of the Leased Premises and 3) the Tenant
          is not in material default under the Lease.

8.5  As part of the Tenant's Work and in accordance with Schedule "F" herein,
     the Tenant, is permitted to install a mezzanine in the Building, at the
     Tenant's expense, subject to the Landlord's reasonable approval of design,
     location, configuration and interior fit-up and subject to compliance with
     all governmental requirements in respect thereof including, but not
     limited to, access and parking requirements. There is no additional
     Minimum Rent payable for the mezzanine, however, the Tenant will pay for
     applicable development charges (if any) and any increase in operating costs
     or realty taxes charged by the municipality as a result of the
     construction of the mezzanine. Notwithstanding the provisions of section
     14.1 of this Offer, if the Landlord bona fide requires that the mezzanine
     be removed at the expiry of the Term or any renewal thereof for purposes
     of leasing all or a part of the Building to a new tenant, then the Tenant
     and Landlord agree to share equally the actual cost of removal of the
     mezzanine, based on the lowest cost estimate obtained by each party. If not
     removed, the Tenant agrees to pay the actual cost of work necessary to
     upgrade the mezzanine to comply with all applicable governmental
     requirements in effect as at the relevant expiry date of the Lease but in
     any event, the Tenant's cost of such compliance cannot exceed the amount
     that the Tenant would have paid as its fifty percent (50%) share of the
     cost of removal of the mezzanine.


16.  LANDLORD COVENANTS, REPRESENTATIONS AND WARRANTIES

     (a)  The Landlord covenants, represents and warrants to the Tenant that
          the Building and the Lands (including the Expansion Land (as
          hereinafter defined)) are entirely free of any contaminants which are
          or may be deemed to be dangerous to the environment or to the health
          of persons at levels exceeding those permitted by applicable
          legislation. The Tenant warrants that it shall not contaminate the
          Building or the Lands in violation of environmental law at any time
          throughout the Term and any renewal thereof;

     (b)  The Landlord is the registered and beneficial owner of the Lands and
          the Building;

     (c)  The Landlord will not proceed with any energy conservation
          modifications to the


                                                                              52

             Building which will increase operating costs without first
             obtaining the approval of the Tenant, which approval may be
             unreasonably or arbitrarily withheld.

     Further, the Landlord covenants as at the Commencement Date the following
statements are true:

     (I)     the Leased Premises are zoned Ml and permit the use of the Leased
             Premises as a warehouse, ancillary storage, light assembly and
             office;
     (II)    the Building allows the Tenant to have access and control of
             HVAC and lighting seven days per week, 24 hours per day;
     (III)   the Tenant receives 24 hour access to the electrical panels for the
             Leased Premises by means of a key;
     (IV)    Telephone lines are available within the Leased Premises;
     (V)     the Building complies with the requirements of all governmental
             laws and regulations for the uses stated in (I) above;
     (VI)    the Leased Premises permit handicapped access;
     (VII)   the Tenant shall be permitted to install at its expense, at any
             time during the Term and any renewal thereof, an emergency
             generator so as to permit the computers located in the Leased
             Premises to operate indefinitely throughout any power interruption;
             and
     (VIII)  the Landlord will provide lighting in the parking lot to provide
             adequate security on the Lands, all in accordance with the
             Landlord's Work (as defined in section 8.1 herein).



     SCHEDULE "F"


TENANT'S WORK
-------------

Following the Landlord's completion of its work as outlined herein, the Landlord
     shall not be obliged to complete any further work in or for the Leased
     Premises except as set out in the Offer to Lease and the Lease. The Tenant
     may construct and complete leasehold improvements and fixtures (the
     "Improvements") in the Leased Premises prior to the Commencement Date
     and/or during the Term provided that:

          (a)  the Tenant shall furnish the Landlord with professionally
          prepared plans and specifications therefore for its approval;
          whenever any change in or addition to base building work is required
          to accord with the Improvements, or is agreed to be made by the
          Landlord at the request of the Tenant, the cost or expense of such
          change shall be for the account of the Tenant and shall include all
          reasonable cost and expense incurred by the Landlord in connection
          with the change or addition including labour, materials, fees of
          architects, engineers or designers in connection with the change or
          addition, direct costs of supervision and inspection and all other
          direct costs of the Landlord, subject to the Cap described in
          paragraph (h) below;

          (b)  if any proposed Improvements affect the structure, the
          structural walls, the base building systems or the exterior appearance
          of the Building, such plans and specifications shall also require
          approval, at the election of the Landlord, by its architect and
          engineers;

          (c)  the Tenant shall advise the Landlord of the identity of its
          contractors and tradesmen and their respective labour affiliation; in
          no event may the Tenant proceed with construction of any Improvements
          until it has obtained all necessary governmental permits and other
          approvals and has produced evidence of insurance coverage satisfactory
          to the Landlord;

          (d)  the Landlord shall either approve any contractors proposed by the
          Tenant to perform any work which may affect the structure, the
          structural walls or the base building systems of the Building or
          require that any such work be performed by either the Landlord or its
          contractors at competitive prices in which case the Tenant shall pay
          the Landlord's reasonable costs on account thereof; the Landlord may
          refuse to allow the contractors and tradesmen of the Tenant access to
          the Building if their labour affiliations may conflict with those of
          the Landlord or those employed by it or if they are not competent;

          (e)  construction of the Improvements shall be performed in accordance
          with the plans and specifications submitted .o and approved by the
          Landlord and in a good and workmanlike and expeditious manner using
          good quality materials;

          (f)  the Landlord may inspect construction as it proceeds at its
          expense;

          (g)  if the Tenant fails to observe any of the material requirements
          of this section the Landlord may require that construction stop until
          Tenant complies with such requirements; and


                                                                              53

          (h)  the Tenant shall pay the Landlord's reasonable costs and fees
          incurred in respect of the supervising, coordinating monitoring,
          reviewing and approving of the construction of the Improvements
          including all professional fees incurred by the Landlord, such costs
          not to exceed in aggregate for initial construction twenty-five cents
          ($0.25) per square foot and during the Term, ten cents ($0.10) per
          square foot (the "Cap").

EX-23.1

                                                                   EXHIBIT 23.1
                              CONSENT OF KPMG LLP

The Board of Directors
Certicom Corp.:

   We consent to incorporation by reference in the registration statements on
Form S-8 (File Numbers 333-52526 and 333-37204) of Certicom Corp. of our
report dated June 1, 2001, relating to the consolidated balance sheet of
Certicom Corp. and its subsidiaries as of April 30, 2001, and the related
consolidated statements of operations, and comprehensive loss, shareholders'
equity, cash flows, and financial statement schedule for the year then ended,
which report appears in the April 30, 2001 annual report on Form 10-K of
Certicom Corp.

                                          /s/ KPMG LLP

San Francisco, California
July 27, 2001

EX-23.2

                                                                   EXHIBIT 23.2

                         Independent Auditors' Consent

   We consent to the incorporation by reference in Registration Statement No.
333-52526 and No. 333-37204 of Certicom Corp. on Form S-8 of our report dated
June 13, 2000, appearing in this Annual Report on Form 10-K of Certicom Corp.
for the year ended April 30, 2001.

                                          /s/ Deloitte & Touche LLP

                                          Chartered Accountants

Toronto, Ontario
July 27, 2001